1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 2001
REGISTRATION NO. 333-65970
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CENTURY ALUMINUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
DELAWARE 3353 13-3070826
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</Table>
2511 GARDEN ROAD, SUITE 200
MONTEREY, CALIFORNIA 93940
(831) 642-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GERALD J. KITCHEN
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL,
CHIEF ADMINISTRATIVE OFFICER AND SECRETARY
CENTURY ALUMINUM COMPANY
2511 GARDEN ROAD, SUITE 200
MONTEREY, CALIFORNIA 93940
(831) 642-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
JEFFREY N. OSTRAGER, ESQ.
CURTIS, MALLET-PREVOST, COLT & MOSLE LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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WE HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WE FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<Table>
<Caption>
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ADDRESS, INCLUDING ZIP CODE,
STATE OR OTHER PRIMARY STANDARD AND TELEPHONE NUMBER,
EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INDUSTRIAL INCLUDING AREA CODE, OF
REGISTRANT GUARANTOR AS INCORPORATION OR IDENTIFICATION CLASSIFICATION REGISTRANT'S PRINCIPAL
SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER EXECUTIVE OFFICES
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Century Aluminum of West Route 2 South
Virginia, Inc. Delaware 55-0686448 3353 Ravenswood, WV 26164
(304) 273-6890
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Berkeley Aluminum, Inc. Delaware 58-1764206 3353 c/o Century Aluminum of West
Virginia, Inc.
Route 2 South
Ravenswood, WV 26164
(304) 273-6890
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Virgin Islands Alumina c/o Century Aluminum of West
Corporation LLC Delaware 66-0451934 3353 Virginia, Inc.
Route 2 South
Ravenswood, WV 26164
(304) 273-6890
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Century Kentucky, Inc. Delaware 61-1385742 3353 c/o Century Aluminum Company
2511 Garden Road, Suite 200
Monterey, CA 93940
(831) 642-9300
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Metalsco, Ltd. Georgia 58-2020519 3353 c/o Century Aluminum Company
2511 Garden Road, Suite 200
Monterey, CA 93940
(831) 642-9300
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Skyliner, Inc. Delaware 58-1943987 3353 c/o Century Aluminum Company
2511 Garden Road, Suite 200
Monterey, CA 93940
(831) 642-9300
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NSA, Ltd. Kentucky 31-1651182 3353 c/o Century Aluminum Company
2511 Garden Road, Suite 200
Monterey, CA 93940
(831) 642-9300
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</Table>
3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED SEPTEMBER 24, 2001
PROSPECTUS
[CENTURY ALUMINUM GRAPHIC]
OFFER TO EXCHANGE
UP TO $325,000,000 PRINCIPAL AMOUNT
OF OUTSTANDING
11 3/4% SENIOR SECURED FIRST MORTGAGE NOTES DUE 2008
FOR A LIKE PRINCIPAL AMOUNT OF
11 3/4% SENIOR SECURED FIRST MORTGAGE NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FULLY AND UNCONDITIONALLY GUARANTEED BY
CERTAIN OF OUR DOMESTIC SUBSIDIARIES
TERMS OF EXCHANGE OFFER
- Expires at 5:00 p.m., New York City time, on , 2001, unless
extended
- Not subject to any condition other than that the exchange offer does not
violate applicable law or any applicable interpretation of the Staff of the
Securities and Exchange Commission
- All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged
- Tenders of outstanding notes may be withdrawn by you any time prior to 5:00
p.m., New York City time, on the date of the expiration of the exchange offer
- The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes
- We will not receive any proceeds from the exchange offer
- The terms of the exchange notes to be issued are substantially similar to the
outstanding notes, except for transfer restrictions and registration rights
relating to the outstanding notes
- The exchange notes will not be listed on any securities exchange or included
in any automated quotation system
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SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS FOR A DISCUSSION
OF RISKS THAT YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE
EXCHANGE NOTES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THIS PROSPECTUS IS DATED , 2001.
4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT OR TO MAKE ANY REPRESENTATIONS ABOUT US OR THE
TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS. IF YOU RECEIVE INFORMATION ABOUT
THESE MATTERS THAT IS NOT INCLUDED IN THIS PROSPECTUS, YOU MUST NOT RELY ON THAT
INFORMATION. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF
THIS DOCUMENT.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. YOU MAY
OBTAIN DOCUMENTS THAT WE FILE WITH THE SECURITIES AND EXCHANGE COMMISSION AND
THAT ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS AT NO COST BY WRITING OR
TELEPHONING US AT: CENTURY ALUMINUM COMPANY, 2511 GARDEN ROAD, MONTEREY, CA
93940, TEL.: (831) 642-9300, ATTENTION: CORPORATE SECRETARY. SEE "WHERE YOU CAN
FIND MORE INFORMATION."
We obtained the market and competitive position data used throughout this
prospectus from our own research and from surveys or studies conducted by third
parties and industry or general publications. The publications, surveys and
studies we refer to generally state that they have obtained information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of such information. While we believe that each of these surveys,
studies and publications is reliable, we have not independently verified such
data. Similarly, we believe our internal research is reliable although it has
not been verified by any independent sources.
TABLE OF CONTENTS
<Table>
CERTAIN DEFINITIONS......................................... ii
FORWARD-LOOKING STATEMENTS.................................. iii
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 17
USE OF PROCEEDS............................................. 28
THE EXCHANGE OFFER.......................................... 29
CAPITALIZATION.............................................. 37
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA............. 38
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND
OTHER DATA OF CENTURY ALUMINUM............................ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 48
THE ALUMINUM INDUSTRY....................................... 57
BUSINESS.................................................... 60
MANAGEMENT.................................................. 71
DESCRIPTION OF REVOLVING CREDIT FACILITY AND CONVERTIBLE
PREFERRED STOCK........................................... 73
DESCRIPTION OF THE EXCHANGE NOTES........................... 75
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.... 115
PLAN OF DISTRIBUTION........................................ 118
WHERE YOU CAN FIND MORE INFORMATION......................... 120
INDEX TO FINANCIAL STATEMENTS............................... F-1
INFORMATION NOT REQUIRED IN THE PROSPECTUS.................. II-1
</Table>
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CERTAIN DEFINITIONS
In this prospectus, unless the context otherwise requires, the words
"Century Aluminum," "we," "us," "our" and "ours" refer to Century Aluminum
Company together with its consolidated subsidiaries, and the word "Glencore"
refers to Glencore International AG and its subsidiaries.
Except as otherwise indicated, references in this prospectus to the notes
include the outstanding notes and the exchange notes.
References in this prospectus to the "NSA acquisition" mean all of the
transactions related to our acquisition on April 2, 2001, of NSA, Ltd., or NSA,
which owns an aluminum reduction facility in Hawesville, Kentucky. Concurrently
with the closing of the NSA acquisition, we sold to Glencore a 20% interest in
the Hawesville facility, hereinafter Glencore's "20% interest," consisting of
(1) title to the recently added fifth potline at the Hawesville facility, (2) a
20% undivided interest in all other assets of and rights relating to the
Hawesville facility, other than the original four potlines and (3) a 20%
ownership in a limited liability company which holds certain intangible assets
of the Hawesville facility (such as the alumina and power supply contracts). We
retained ownership of an 80% interest in the Hawesville facility, hereinafter
our "80% interest," consisting of (a) title to the original four potlines at the
Hawesville facility, (b) an 80% undivided interest in all other assets of and
rights relating to the Hawesville facility, other than the fifth potline and (c)
an 80% ownership in the above-referenced limited liability company. The use of
"pro rata" in this prospectus means, with respect to our interest, an 80% share,
and with respect to Glencore's interest, a 20% share. See "Prospectus
Summary -- Century Aluminum Company -- The NSA Acquisition."
References in this prospectus to "pro forma" at any date or for any period
mean, except as otherwise indicated, giving pro forma effect to the transactions
referred to in "Unaudited Pro Forma Consolidated Financial Data," including the
NSA acquisition and the related financings, as of that date or at the beginning
of the specified period.
The term "tonne" as used in this prospectus means a metric ton, which is
equal to 2,204.62 pounds.
As used herein, "Securities Act" means the United States Securities Act of
1933, as amended and "Exchange Act" means the United States Securities Exchange
Act of 1934, as amended.
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FORWARD-LOOKING STATEMENTS
We make statements in this prospectus and the documents incorporated by
reference in this prospectus that are forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. Many of these statements may be identified by the use of
forward-looking words such as "believe," "expect," "anticipate," "should,"
"will," "planned," "estimated" and "potential," among others. These
forward-looking statements are subject to risks, uncertainties and assumptions
including, among other things, those discussed under "Risk Factors," as well as
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and:
- our significant indebtedness and our ability to service our indebtedness;
- general economic and business conditions;
- changes in demand for our products or the products of our customers;
- utilization of our production facilities and equipment;
- the cost and availability of raw materials, power and skilled labor;
- the impact of competition from domestic and foreign primary aluminum
producers;
- our relationships with our principal shareholder and with certain
customers;
- the cyclical nature of the aluminum industry and our customers' end-use
markets;
- losses from environmental liabilities; and
- our ability to successfully implement our business strategy.
Although we believe the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee our future performance or results
of operations. All forward-looking statements in this prospectus are based on
information available to us on the date of this prospectus, however we are not
obligated to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. You should consider the
risks described above and under "Risk Factors" when reading any forward-looking
statements. Given these uncertainties and risks, you should not place undue
reliance on these forward-looking statements.
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PROSPECTUS SUMMARY
The following is a summary of certain material information contained
elsewhere or incorporated by reference in this prospectus. Because it is a
summary, it is not complete and does not contain all of the information that you
should consider before making an investment in the exchange notes. You should
read this entire prospectus carefully, including the information under "Risk
Factors" and the more detailed information and financial statements appearing
elsewhere or incorporated by reference in this prospectus.
CENTURY ALUMINUM COMPANY
OVERVIEW
We are a leading North American producer of primary aluminum. Our aluminum
reduction facilities produce premium and commodity grade primary aluminum
products ranging from molten aluminum to premium cast products such as
high-purity foundry ingot and billet. We are the second largest primary aluminum
producer in the United States, behind Alcoa, having produced over 570 million
pounds of primary aluminum in 2000 with net sales of $428.6 million.
We currently own all or part of three domestic primary aluminum production
facilities, which are located in Hawesville, Kentucky, Ravenswood, West Virginia
and Mt. Holly, South Carolina. See "Business -- Facilities and Production." With
the consummation of the NSA acquisition, as described below, we have an annual
production capacity of over 1.0 billion pounds of primary aluminum, and, for the
year ended December 31, 2000 and the six months ended June 30, 2001, we had pro
forma net sales of $774.0 million and $385.5 million, respectively.
Our strategic objective is to grow our primary aluminum business and
further capitalize on recent and anticipated improvements in industry
fundamentals. As part of our growth strategy, on April 2, 2001, we acquired an
aluminum reduction facility in Hawesville, Kentucky from Southwire Company, a
privately-held wire and cable manufacturing company. Concurrently with our
acquisition of the Hawesville facility, we sold a 20% interest in the facility
and related rights to Glencore, our largest shareholder. Our 80% interest in the
Hawesville facility has increased our overall production capacity by 418 million
pounds, or 68%, and lowered our average per-unit cash production cost due to the
Hawesville facility's lower cash production costs compared to our other
facilities. See "The NSA Acquisition."
The market price for primary aluminum, a global commodity, generally
depends more on worldwide supply and demand conditions than on demand from
specific customers or industries. An important factor influencing the price of
primary aluminum is the recent imbalance between global production, or supply,
and global consumption, or demand. While we believe global consumption could
continue to exceed global production for some time, creating upward pressure on
prices, the tragic events of September 11, 2001 have created uncertainty
regarding economic growth and the demand prospects for aluminum. See "The
Aluminum Industry."
COMPETITIVE STRENGTHS
Our key competitive strengths are:
- Focus on a Single Business Segment. The production of primary aluminum
is our only business. By operating in this single business segment, we
are better able to focus our resources to strengthen and expand our
presence as a leading producer of primary aluminum and lower our average
per-unit cash production cost.
- Proximity to Customers. The Ravenswood and Hawesville facilities enjoy a
competitive advantage because each facility is located adjacent to its
principal customer. The close proximity of these major customers allows
us to deliver molten aluminum, thereby eliminating our casting, shipping
and marketing costs and our customers' remelting costs. Our ability to
share these cost savings strengthens our relationships with these two
major customers.
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- Long-Term Contracts. We have favorable long-term contracts which improve
our competitive position and provide increased stability to our business.
These contracts include:
- Sales Contracts. We have competitive long-term contracts in place
to sell between 61% and 65% of our annual primary aluminum
production, which reduce our production, marketing and distribution
costs.
- Power Contracts. Electricity consumption is the most significant
operating cost in the production of primary aluminum. Substantially
all of the electricity used at our facilities is supplied under
fixed-price contracts at relatively favorable rates. These
facilities are located in regions which have not been significantly
affected by the recent power shortages and price fluctuations in the
western United States.
- Alumina Contracts. Alumina is the principal raw material used to
produce primary aluminum. Beginning on January 1, 2002, we will
purchase all of our alumina requirements under long-term contracts
at prices linked to the LME price of primary aluminum. This provides
us with a natural hedge against market price fluctuations.
- Risk Management. We have fixed-price contracts for the physical delivery
of aluminum as well as financial hedging instruments that, together with
our alumina supply contracts linked to the LME price, reduce the
variability of our margins caused by fluctuations in the price of primary
aluminum. On a pro forma basis as of June 30, 2001, we had hedges and
contracts in place for approximately 86% of our estimated production in
2001 (which includes variable price contracts which had settled through
June 30, 2001), 42% of our estimated production in 2002 and 53% of our
estimated production in 2003. We do not engage in speculative hedging
activities.
- Relationship with Glencore. We benefit from our business relationship
with Glencore, a leading privately-held, diversified natural resources
group. Glencore owns 38.6% of our common stock and, concurrently with the
closing of the NSA acquisition, purchased $25.0 million of Century
Aluminum Company's convertible preferred stock. Glencore also owns a 20%
interest in the Hawesville facility. In addition, we have entered into
various contracts with Glencore to purchase alumina and sell primary
aluminum, including forward sales and hedging contracts which help us
manage our exposure to fluctuating aluminum prices. Through our
relationship with Glencore, we reduce our marketing and distribution
costs and gain further insight into supply and pricing trends in the
aluminum industry. In addition, our relationship with Glencore enables us
to pursue acquisition opportunities that otherwise may not be available
to us.
- Experienced Management Team. Our senior management has extensive
experience in the aluminum industry and has created a management
structure that is able to quickly respond and capitalize upon strategic
opportunities.
BUSINESS STRATEGY
Our objective is to continue to grow by remaining focused on the production
of primary aluminum and capitalizing on recent and anticipated future
improvements in industry fundamentals. Our strategy for achieving this objective
is to:
- Become a Larger Producer of Primary Aluminum with Lower Operating
Costs. We believe that by becoming a larger producer of primary aluminum
with lower operating costs, we can strengthen our position in the
competitive global aluminum industry. Consequently, we actively pursue
opportunities to acquire primary aluminum reduction facilities that have
favorable cost structures. We expect to make these investments without
significant increases in fixed overhead.
- Grow Through Operating Alliances. Through our shared ownership of the
Mt. Holly facility with Alcoa, we have experience with the co-ownership
and operation of a primary aluminum reduction facility. We own and
operate the Hawesville facility with Glencore under an arrangement
substantially
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similar to the arrangement at the Mt. Holly facility. We believe that these
operating arrangements provide us with distinct advantages, including:
- participation in larger, more efficient facilities that lower our
average per-unit cash production cost and which otherwise might not
be available to us;
- participation in a greater number of production facilities, thereby
spreading operating risks through diversification; and
- development of strategic relationships with other industry leaders
to benefit from our combined technical and management expertise.
- Enhance Profitability of Production Assets. We seek to further reduce
costs at all of our production facilities by investing in capital
improvements, optimizing labor productivity and implementing projects
that improve the operating and energy efficiencies of the primary
aluminum production process. We believe that through our operation of the
Ravenswood and Hawesville facilities we can continue to improve our
overall productivity. In addition, we seek to maximize the profitability
of each facility by optimizing our product mix with premium-priced
products such as extrusion billet, foundry alloys and high-purity primary
aluminum.
THE NSA ACQUISITION
On August 31, 2000, we entered into a stock purchase agreement with
Southwire, a privately-held wire and cable manufacturing company based in
Carrollton, Georgia. Pursuant to this agreement, on April 2, 2001, Century
Kentucky, Inc., a wholly owned subsidiary of Century Aluminum, acquired all of
the outstanding equity securities of Metalsco, Ltd., formerly a wholly owned
subsidiary of Southwire, which owns a direct 1% partnership interest in NSA and
an indirect 99% partnership interest in NSA through its wholly owned subsidiary,
Skyliner, Inc. NSA is a Kentucky limited partnership which owns and operates our
aluminum reduction facility in Hawesville, Kentucky. Metalsco owned certain
unrelated assets, including the stock of Gaston Copper Recycling Corporation,
which we did not acquire and which were distributed to Southwire prior to
closing. See "Business -- Environmental Matters." We also acquired from
Southwire certain land and all intangible rights related to NSA's aluminum
reduction operations, including the Hawesville facility's existing alumina and
power supply contracts. The alumina and power supply contracts for the
Hawesville facility are held through a newly formed limited liability company
owned by us and Glencore on a pro rata basis.
The cash purchase price for NSA was $460.0 million, subject to certain
post-closing adjustments that were based on the amount by which NSA's working
capital as of the closing date, as finally determined, was less than $33.5
million. Concurrently with the closing of the NSA acquisition, Glencore
purchased a 20% interest in the Hawesville facility and related rights from us
for a cash purchase price of $99.0 million and shared pro rata in the working
capital adjustments.
As part of the consideration for the purchase of NSA, we assumed industrial
revenue bonds related to the facility in the principal amount outstanding as of
the closing date of $7.8 million. In addition, we may be required to make
post-closing payments to Southwire up to an aggregate maximum of $7.0 million if
the price of primary aluminum on the LME exceeds specified levels during the
seven years following closing. Pursuant to our agreement with Glencore, Glencore
assumed responsibility for a pro rata portion of the industrial revenue bonds
and a pro rata portion of any post-closing payments made by us to Southwire. In
addition, Glencore is responsible for a pro rata portion of any liabilities and
obligations with respect to the Hawesville facility and shares pro rata in the
benefit of the indemnity furnished by Southwire under the stock purchase
agreement.
Notwithstanding our separate ownership of specific assets of the Hawesville
facility, we and Glencore are each entitled to a pro rata portion of the
aggregate production and are obligated to pay a pro rata portion of the expenses
of the facility. Glencore holds title to the fifth potline, which produces
standard grade aluminum and was added to the Hawesville facility in September
1999. We hold title to the facility's four original potlines, which produce
high-purity aluminum. We and Glencore have separate undivided interests in all
of the
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remaining assets related to the Hawesville facility's operations. We may in the
future exchange a 20% undivided interest in our four potlines for an 80%
undivided interest in Glencore's fifth potline, which would result in our
ownership of an 80% undivided interest in all of the assets of or relating to
the Hawesville facility. The indenture requires that, if such an exchange
occurs, our newly acquired interest in the fifth potline must be subject to the
lien of the indenture and related security documents.
In connection with the NSA acquisition, we entered into a 10-year contract
with Southwire to supply 240 million pounds of high-purity molten aluminum
annually to Southwire's wire and cable manufacturing facility located adjacent
to the Hawesville facility. Under this contract, Southwire will also purchase 60
million pounds of standard grade molten aluminum each year for the first five
years of the contract, with an option to purchase an equal amount in each of the
remaining five years. We and Glencore will each be responsible for providing a
pro rata portion of the aluminum supplied to Southwire under this contract,
which will represent approximately 57% of the production capacity of the
Hawesville facility through April 2006. We and Glencore will each market and
sell our respective pro rata shares of the remaining portion of the aluminum
produced at the Hawesville facility. The price for the molten aluminum to be
delivered to Southwire from the Hawesville facility is variable and will be
determined by reference to the U.S. Midwest Market Index (an index that has an
approximate $0.03 to $0.05 premium to the LME price). This contract expires on
April 1, 2011, and will be automatically renewed for additional five-year terms,
unless either party provides 12 months notice that it has elected not to renew.
GLENCORE PARTICIPATION IN THE HAWESVILLE FACILITY
Concurrently with the closing of the NSA acquisition, we entered into an
owners agreement with Glencore governing the ownership and operation of the
Hawesville facility. The owners agreement is similar to our owners agreement
with Alcoa, which for more than 20 years has governed the ownership of the Mt.
Holly facility. Under the Hawesville owners agreement, we and Glencore share pro
rata in all rights, liabilities and obligations related to the Hawesville
facility, including those under the existing power and alumina supply contracts.
Each owner is permitted to sell its property or interest in the Hawesville
facility subject to notice and a right of first refusal by the other owner.
Similarly, in the event of a foreclosure (or other involuntary transfer) of any
of an owner's property or interest in the Hawesville facility, or in the event
of a breach by an owner of certain of its obligations under the owners
agreement, the other owner would be entitled, in the case of a foreclosure, to
advance notice and the opportunity to acquire all or part of the other owner's
interest prior to the foreclosure and, in the event of a breach, to acquire all
or part of the other owner's interest, in each case at a price equal to the fair
market value of that interest. See "Risk Factors -- Risks Relating to the
Exchange Notes -- The ability of the trustee to liquidate the collateral and the
value received could be impaired or impeded by the terms of our agreements with
our operating partners."
Pursuant to the Hawesville owners agreement, the Hawesville facility is
operated and managed by a newly formed limited liability company. We hold an 80%
ownership interest in the operating company, and Glencore holds a 20% ownership
interest. The operating company is supervised and controlled by an owners
committee composed of an equal number of members appointed by us and Glencore.
In general, significant transactions, including approval of annual operating
budgets, certain capital expenditures and sales outside the ordinary course of
business require the unanimous consent of the owners committee. We receive a fee
of 0.75% of the value of Glencore's share of primary aluminum produced at the
facility as compensation for the services we perform as operator of the
facility.
The operating company holds the Hawesville facility's power supply contract
and is responsible for performance of the owners' obligations under that
contract. In addition, the owners are required to pay a pro rata portion of the
expenses incurred by the operating company in its management of the facility.
Our interest in the operating company is accounted for on a consolidated basis,
and our financial statements have been adjusted to reflect the allocation of the
value of Glencore's minority interest in the operating company. In the future,
the operating company may, under certain circumstances, transfer to each owner
its pro rata interest in the power contract.
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ORGANIZATION OF CENTURY ALUMINUM
The chart below reflects the organization of Century Aluminum Company,
reflecting its material subsidiaries and aluminum reduction facilities.
[The omitted organizational chart depicts the ownership structure of
Century Aluminum Company(1), its material subsidiaries(2) (Century
Aluminum of West Virginia, Inc., Century Kentucky, Inc., Berkeley
Aluminum, Inc., Metalsco, Ltd., Skyliner, Inc. and NSA, Ltd.), and its
ownership interest in its aluminum reduction facilities (a 100%
interest in the Ravenswood reduction facility, a 49.67% interest in
the Mt. Holly reduction facility(3), and an 80% interest in the
Hawesville reduction facility(4).]
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(1) The exchange notes are obligations of Century Aluminum Company.
(2) Guarantors.
(3) The remaining 50.33% of the Mt. Holly facility is owned by Alcoa.
(4) The remaining 20% interest in the Hawesville facility was purchased by
Glencore concurrently with closing of the NSA acquisition. See "-- The NSA
Acquisition."
HOW TO REACH US
Our principal executive offices are located at 2511 Garden Road, Building
A, Suite 200, Monterey, California 93940. Our telephone number is (831)
642-9300. The principal executive offices of Century Kentucky, Inc., Metalsco,
Ltd., Skyliner, Inc., and NSA, Ltd. are located at: c/o Century Aluminum
Company, 2511 Garden Road, Building A, Suite 200, Monterey, CA 93940, and their
telephone number is (831)642-9300. The principal executive offices of Century
Aluminum of West Virginia, Inc. are located at: Route 2 South, Ravenswood, WV
26164, and its telephone number is (304) 273-6890 the principal executive
offices of Berkeley Aluminum, Inc. and Virgin Islands Alumina Corporation LLC
are located at: c/o Century Aluminum of West Virginia, Inc., Route 2 South,
Ravenswood, WV 26164, and their telephone number is (304) 273-6890.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The following summarizes certain material terms of the exchange offer but
is not intended to be complete and is qualified in its entirety by reference to
the more specific details contained elsewhere or incorporated by reference in
this prospectus. For a more detailed description of the exchange offer, see "The
Exchange Offer."
The exchange offer relates to the exchange of up to $325,000,000 aggregate
principal amount of our outstanding 11 3/4% Senior Secured First Mortgage Notes
due 2008 for an equal aggregate principal amount of exchange notes. The exchange
notes will be the obligations of Century Aluminum Company and are entitled to
the benefits of the indenture relating to the outstanding notes. The form and
terms of the exchange notes are identical in all material respects to the form
and terms of the outstanding notes, except that the exchange notes have been
registered under the Securities Act, and therefore contain no restrictive
legends. The exchange notes are not entitled to the benefits of the registration
rights granted under the registration rights agreement, dated as of April 2,
2001, entered into as a part of the offering of the outstanding notes by Century
Aluminum Company, the subsidiary guarantors and the initial purchasers of the
outstanding notes.
Registration Rights........... In April 2001, Century Aluminum Company, the
subsidiary guarantors and the initial
purchasers agreed that you, as a holder of the
outstanding notes, would be entitled to
exchange your outstanding notes for registered
exchange notes with substantially identical
terms. This exchange offer is intended to
satisfy these rights. After the exchange offer
is complete, you will no longer be entitled to
any exchange or registration rights with
respect to your outstanding notes.
The Exchange Offer............ Century Aluminum is offering to exchange $1,000
principal amount of 11 3/4% Senior Secured
First Mortgage Notes due 2008 which have been
registered under the Securities Act for each
$1,000 principal amount of its outstanding
11 3/4% Senior Secured First Mortgage Notes due
2008, which were issued on April 2, 2001 in a
private offering.
In order to be exchanged, an outstanding note
must be properly tendered and accepted. All
outstanding notes that are validly tendered and
not validly withdrawn will be exchanged.
As of this date, there are $325,000,000 in
aggregate principal amount of outstanding
11 3/4% Senior Secured First Mortgage Notes due
2008.
We will issue exchange notes to you as soon as
practicable following the expiration of the
exchange offer.
Resale of the Exchange Notes
Issued in the Exchange
Offer....................... Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, including "Exxon Capital
Holdings Corporation" (available May 13, 1998),
"Morgan Stanley & Co. Incorporated" (available
June 5, 1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991) and "Warnaco, Inc."
(available October 11, 1997), we believe that
the exchange notes issued in the exchange offer
may be offered for resale, resold and otherwise
transferred by you under the U.S. federal
securities laws without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that:
- you are acquiring the exchange notes issued
in the exchange offer in the ordinary course
of business;
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13
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the exchange notes
issued to you in the exchange offer;
- you are not a broker-dealer who purchased the
outstanding notes directly from us for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer
any exchange note issued to you in the exchange
offer without delivering a prospectus meeting
the requirements of the Securities Act or
without an exemption from registration of your
exchange notes from such requirements, you may
incur liability under the Securities Act. We do
not assume or indemnify you against such
liability, but we do not believe that any such
liability should exist.
Each broker-dealer that is issued exchange
notes in the exchange offer for its own account
in exchange for outstanding notes which were
acquired by such broker-dealer, as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
in connection with any resale of the exchange
notes issued in the exchange offer. The letter
of transmittal accompanying this prospectus
states that by so acknowledging and by
delivering a prospectus, such broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. A broker-dealer may use this
prospectus for an offer to resell or otherwise
retransfer the exchange notes issued to it in
the exchange offer. We have agreed that, for a
period of 180 days after the expiration date of
the exchange offer, we will make this
prospectus and any amendment or supplement to
this prospectus available to any such
broker-dealer for use in connection with any
such resales.
The exchange offer is not being made to, nor
will we accept surrenders for exchange from,
holders of outstanding notes in any
jurisdiction in which this exchange offer or
the acceptance thereof would not be in
compliance with the securities or blue sky laws
of such jurisdiction.
Expiration Date of Exchange
Offer......................... The exchange offer for the outstanding notes
will expire at 5:00 pm. New York City time, on
, 2001, unless we decide to
extend the expiration date.
Accrued Interest on the
Exchange Notes Issued in the
Exchange Offer and the
Outstanding Notes........... The exchange notes issued in the exchange offer
will bear interest from April 2, 2001. Holders
of outstanding notes whose outstanding notes
are accepted for exchange will be deemed to
have waived the right to receive any payment in
respect of interest on such outstanding notes
accrued from April 2, 2001 to the date of
issuance of the exchange notes. Consequently,
holders who exchange their outstanding notes
for exchange notes will receive the
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same interest payment on October 15, 2001 (the
first interest payment date with respect to the
outstanding notes and the exchange notes issued
in the exchange offer) they would have received
had they not accepted the exchange offer.
Pursuant to the terms of the indenture, we are
required to pay additional interest on the
outstanding notes at a rate of 0.5% over the
stated rate from September 30, 2001 until the
exchange offer is consummated on ,
2001.
Shelf Registration............ Notwithstanding any other term of this exchange
offer, we will not be required to accept for
exchange, or exchange notes for, certain or all
of the outstanding notes pursuant to this
registered exchange offer not yet accepted for
exchange, in the event that:
- applicable law or applicable interpretations
of the staff of the SEC do not permit us to
effect such a registered exchange offer;
- for any other reason we do not consummate the
registered exchange offer by September 29,
2001;
- following the consummation of the registered
exchange offer, in the opinion of counsel for
the initial purchasers, a registration
statement must be filed, and the initial
purchasers must deliver a prospectus in
connection with any offer or sale of their
outstanding notes.
If any of the above events occurs, then,
subject to certain exceptions, we will:
- use our best efforts to file, as soon as
practicable, a shelf registration statement
(under Rule 415 of the Securities Act) with
the SEC covering resales of the outstanding
notes or the exchange notes, as the case may
be;
- use our best efforts to cause the shelf
registration statement to be declared
effective by the SEC under the Securities
Act; and
- keep the shelf registration statement
effective until the earliest of:
- the time when the notes covered by the
shelf registration statement can be sold
pursuant to Rule 144 of the Securities
Act without any limitations under clauses
(c), (e), (f) and (h) of such Rule 144;
- two years from the effective date on the
shelf registration statement; or
- the date on which all notes registered
thereunder are disposed of in accordance
therewith or cease to be outstanding.
Procedures for Tendering
Outstanding Notes............. If you are a holder of an outstanding note and
you wish to tender your note for exchange
pursuant to the exchange offer you must, prior
to the expiration date:
- complete, sign and date the letter of
transmittal which accompanies this
prospectus, or a facsimile of the letter of
transmittal;
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- have the signatures guaranteed if required by
the letter of transmittal; and
- mail or otherwise deliver the letter of
transmittal or such facsimile, together with
the notes and any other required documents,
to the exchange agent prior to 5:00 p.m., New
York City time, on the expiration date.
By tendering outstanding notes, the holder
agrees to the terms of the exchange offer
included in this prospectus and to those
contained in the letter of transmittal which
accompanies this prospectus and represents to
us that, among other things, (i) the exchange
notes to be issued in the exchange offer are
being obtained in the ordinary course of
business of the person receiving such exchange
notes whether or not such person is the holder,
(ii) neither the holder nor any such other
person has an arrangement or understanding with
any person to participate in the distribution
of such exchange notes and (iii) neither the
holder nor any such other person is an
"affiliate" of ours, as defined in Rule 405
under the Securities Act.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of outstanding
notes that are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee and you wish to tender such
notes in the exchange offer, you should
promptly contact such person in whose name your
notes are registered and instruct such person
to tender on your behalf. If you, as such
beneficial holder, wish to tender on your own
behalf you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either make
appropriate arrangements to register ownership
of the outstanding notes in your name or obtain
a properly completed bond power from the
registered holder. The transfer of record
ownership may take a considerable amount of
time.
Withdrawal Rights............. You may withdraw the tender of your outstanding
notes at any time prior to the close of
business 5:00 p.m. New York City time, on the
expiration date.
Acceptance of Outstanding
Notes and Delivery of Exchange
Notes to be Issued in the
Exchange Offer.............. Subject to the conditions summarized above in
"Shelf Registration" and described more fully
under the "The Exchange Offer -- Shelf
Registration," we will accept for exchange any
and all outstanding notes which are properly
tendered in the exchange offer and not validly
withdrawn prior to 5:00 p.m. New York City
time, on the expiration date. The exchange
notes issued pursuant to the exchange offer
will be delivered as soon as practicable
following the expiration date.
Certain U.S. Federal Income
Tax Consequences.............. The exchange of the outstanding notes for
exchange notes will generally not be a taxable
exchange for U.S. federal income tax purposes.
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Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes pursuant to the
exchange offer. We will pay all expenses
incident to the exchange offer.
Exchange Agent for Outstanding
Notes......................... Wilmington Trust Company is serving as exchange
agent in connection with the outstanding notes.
The exchange agent can be reached at 1105
Rodney Square North, Wilmington, DE 19890. For
more information regarding the exchange of
outstanding notes, you may contact the exchange
agent by telephone at (302) 651-8869 or by
facsimile at (302) 651-1079.
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SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The following summarizes certain material terms of the exchange notes but
is not intended to be complete and is qualified in its entirety by reference to
the more specific details contained elsewhere or incorporated by reference in
this prospectus. For a more detailed description of the exchange notes, see
"Description of the Exchange Notes."
The terms of the exchange notes will be identical in all material respects
to the terms of the outstanding notes, except that the registration rights and
related liquidated damages provisions and the transfer restrictions applicable
to the outstanding notes are not applicable to the exchange notes. The exchange
notes will evidence the same debt as the outstanding notes. The exchange notes
and the outstanding notes will be governed by the same indenture.
Issuer........................ Century Aluminum Company.
Securities Offered............ Up to $325.0 million aggregate principal amount
of 11 3/4% Senior Secured First Mortgage Notes
due 2008.
Maturity Date................. April 15, 2008.
Interest Payment Dates........ Interest will be payable in cash on April 15
and October 15 of each year, beginning on
October 15, 2001.
Guarantors.................... All of our domestic restricted subsidiaries
will guarantee the notes. The note guarantees
will rank equally in right of payment to the
other senior indebtedness of the guarantors and
senior in right of payment to all subordinated
indebtedness of the guarantors.
Ranking....................... The notes will rank equally in right of payment
with all of the existing and future senior
indebtedness of Century Aluminum Company and
will rank senior in right of payment to all of
its existing and future subordinated
indebtedness.
As of June 30, 2001, our subsidiaries that do
not guarantee the notes had no material assets
or liabilities, except for Century Aluminum of
Kentucky, LLC, whose primary asset is the power
contract for the Hawesville facility. If we
form or acquire additional non-guarantor
subsidiaries, or if our existing non-guarantor
subsidiaries acquire additional assets or
liabilities, all of the creditors of the
non-guarantor subsidiaries would have priority
over Century Aluminum Company and the holders
of the notes with respect to claims to the
assets of those subsidiaries. The limited
liability company that owns the Hawesville
power contract and operates the Hawesville
facility is not a "subsidiary" as defined in
the indenture and therefore will not guarantee
the notes or be subject to the restrictive
covenants contained in the indenture other than
limitations on its ability to incur debt, grant
liens or sell assets. Any liabilities that it
incurs will effectively be senior to the notes
to the extent of the value of the assets of
that company.
Collateral.................... To secure payment of the principal of, and
premium and interest on, the notes, two of our
subsidiaries have mortgaged and granted a
security interest in all of their respective
interests in the real property, plant and
equipment comprising the Hawesville and
Ravenswood facilities, in each case to the
collateral agent for the benefit of the trustee
and the holders. Our interest in the Mt. Holly
facility's property, plant and equipment has
not been pledged as collateral.
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Optional Redemption........... We may redeem any of the notes beginning on
April 15, 2005. The initial redemption price is
105.875% of their principal amount, plus
accrued interest. The redemption price will
decline each year after 2005 and will be 100%
of their principal amount, plus accrued
interest, beginning on April 15, 2007.
In addition, before April 15, 2004, we may
redeem up to 35% of the aggregate principal
amount of the notes with the proceeds of public
offerings of certain of our capital stock at
111.75% of their principal amount plus accrued
interest.
Change of Control Offer....... Upon a change of control (as defined under
"Description of the Exchange Notes"), we will
be required to make an offer to purchase the
notes. The purchase price will equal 101% of
the outstanding principal amount of the notes
on the date of purchase, plus accrued interest.
Certain Covenants............. The terms of the notes restrict our ability and
the ability of certain of our subsidiaries to:
- incur additional indebtedness;
- create liens;
- engage in sale-leaseback transactions;
- pay dividends or make distributions in
respect of capital stock;
- purchase or redeem capital stock;
- make investments or certain other restricted
payments;
- sell assets;
- issue or sell stock of certain subsidiaries;
- enter into transactions with shareholders or
affiliates; or
- effect a consolidation or merger.
However, these limitations will be subject to a
number of important qualifications and
exceptions.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to us, our
business and your investment in the exchange notes.
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SUMMARY HISTORICAL AND
PRO FORMA CONSOLIDATED FINANCIAL AND
OTHER DATA OF CENTURY ALUMINUM
The following table presents summary historical and pro forma financial and
other data of Century Aluminum for the periods indicated. Our historical results
of operations include the results from our additional interest in the Mt. Holly
facility since its acquisition in April 2000, and the results from our 80%
interest in the Hawesville facility since its acquisition on April 2, 2001,
which occurred concurrently with the closing of the offering of the outstanding
notes. Accordingly, historical results are not indicative of our current
business. The summary pro forma consolidated financial and other data is derived
from the "Unaudited Pro Forma Consolidated Financial Data" of Century Aluminum
included elsewhere in this prospectus. The pro forma consolidated financial data
has been prepared for illustrative purposes only and does not purport to
represent what our results of operations or financial condition would actually
have been had the transactions described in "Unaudited Pro Forma Consolidated
Financial Data" in fact occurred as of the dates specified. The information
provided below should be read in conjunction with our audited consolidated
financial statements and our unaudited consolidated financial statements, and
accompanying notes, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the separate financial statements of NSA, all of
which are included elsewhere in this prospectus.
<Table>
<Caption>
YEAR ENDED
DECEMBER 31, 2000
-------------------------
ACTUAL(1) PRO FORMA(2)
--------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT OPERATING DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net sales............................................. $428,597 $ 773,981
Cost of goods sold(3)....................................... 396,139 695,022
-------- ---------
Gross profit................................................ 32,458 78,959
Selling, general and administrative expenses................ 13,931 25,591
-------- ---------
Operating income............................................ 18,527 53,368
Gain on sale of rolling and fabrication businesses.......... 5,156 5,156
Interest (expense) income -- net............................ 2,267 (41,991)
Other income(4)............................................. 6,461 7,405
Net gain on forward contracts(7)............................ 4,195 4,195
Income tax (expense)........................................ (11,301) (9,121)
-------- ---------
Net income from continuing operations before minority
interest.................................................. 25,305 19,012
-------- ---------
Net income (before preferred dividends)..................... $ 25,305 $ 22,056(5)
======== =========
OTHER DATA:
Capital expenditures........................................ $ 17,631 $ 20,659
Depreciation and amortization............................... 14,395 56,757
Ratio of earnings to fixed charges(6)....................... 98.88 1.67
OPERATING DATA:
Shipments (millions of pounds).............................. 581.6 1,040.8
Average Century Aluminum realized price ($/lb).............. $ 0.737 $ 0.744
Average LME price ($/lb).................................... 0.703 0.703
</Table>
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<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, 2001
------------------------
ACTUAL PRO FORMA(2)
-------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT OPERATING DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net sales............................................. $299,609 $385,533
Cost of goods sold.......................................... 274,860 349,377
-------- --------
Gross profit................................................ 24,749 36,156
Selling, general and administrative expenses................ 8,926 11,972
-------- --------
Operating income............................................ 15,823 24,184
Interest (expense) income -- net............................ (9,991) (20,816)
Other (expense) income...................................... (61) 215
Net (loss) on forward contracts(7).......................... (176) (176)
Income tax (expense)........................................ (1,911) (1,254)
-------- --------
Net income from continuing operations before minority
interest.................................................. 3,684 2,153
-------- --------
Net income (before preferred dividends)..................... $ 4,494 $ 3,769(5)
-------- --------
CONSOLIDATED BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... $ 15,353 $ --
Property, plant and equipment, net.......................... 433,458 --
Intangible asset -- power contract(8)....................... 158,378 --
Total assets................................................ 811,282 --
Total debt.................................................. 329,065 --
Total shareholders' equity(7)............................... 233,806 --
OTHER DATA:
Capital expenditures........................................ $ 5,641 $ 6,293
Depreciation and amortization............................... 16,694 27,414
Ratio of earnings to fixed charges(6)....................... 1.53 1.16
OPERATING DATA:
Shipments (millions of pounds).............................. 404.4 511.2
Average Century Aluminum realized price ($/lb).............. $ 0.741 $ 0.754
Average LME price ($/lb).................................... 0.700 0.700
</Table>
---------------
(1) On April 1, 2000, we purchased an additional 23% interest in the Mt. Holly
facility from a subsidiary of Xstrata AG, an affiliate of Glencore,
increasing our ownership interest to 49.7%. Accordingly, the results of
operations following that date reflect the increased production which
resulted from that purchase.
(2) The pro forma consolidated statement of operations for the year ended
December 31, 2000 gives pro forma effect to our acquisition in April 2000 of
an additional 23% ownership interest in the Mt. Holly facility and to the
NSA acquisition on April 2, 2001, as if these events were consummated on
January 1, 2000. The pro forma consolidated statement of operations for the
six months ended June 30, 2001 gives pro forma effect to the NSA acquisition
as if the transaction occurred on January 1, 2000. See "Unaudited Pro Forma
Consolidated Financial Data" for further details.
(3) Cost of goods sold in 2000 has been reduced by $1.8 million for income
realized through alumina sales.
(4) Included in other income for the year ended December 31, 2000 is
approximately $6.1 million received in partial settlement of a claim of
approximately $10.0 million with our insurance carrier for property damage
and business interruption losses resulting from an illegal work stoppage at
the Ravenswood facility in August 1999.
(5) Reflects an adjustment of $3.0 million for the year ended December 31, 2000
and $1.6 million for the six months ended June 30, 2001 primarily to record
the minority interest allocation, net of tax, of the
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amortization associated with the intangible asset held by the limited liability
company that operates the Hawesville facility.
(6) For the purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) before income taxes plus fixed charges.
Fixed charges means the sum of the following: (a) interest expensed and
capitalized, (b) amortized premiums, discounts and capitalized expenses
related to indebtedness and (c) an estimate of the interest component of
rental expense.
(7) On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." As a result, to the extent that our
derivatives are designated as effective cash flow hedges, unrealized gains
(losses) will be reported as accumulated other comprehensive income, rather
than reported in our statement of operations as done in 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- New Accounting Standards."
(8)The intangible asset consists of the value of the power contract for the
Hawesville facility which was acquired in connection with the NSA
acquisition. Glencore's 20% interest in the power contract is recorded within
minority interest.
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SUMMARY HISTORICAL FINANCIAL AND OTHER DATA OF NSA, LTD.
The following table presents summary historical financial and other data of
NSA for the periods indicated. The summary historical financial data for and as
of the end of each of the years in the three-year period ended December 31, 2000
is derived from the financial statements for NSA included elsewhere in this
prospectus which have been audited by Ernst & Young LLP. The summary historical
financial data for and as of the end of the three months ended March 31, 2001 is
derived from the unaudited financial statements of NSA included elsewhere in
this prospectus. The information provided below should be read in conjunction
with the separate financial statements of NSA included elsewhere in this
prospectus. Although we have an 80% interest in the Hawesville facility, the
following information represents 100% of the Hawesville facility's results for
the periods presented.
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1998 1999(1) 2000(1) 2000(1) 2001(1)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net sales........................... $310,696 $326,975 $409,861 $109,343 $107,237
Cost of sales....................... 258,160 271,400 318,705 83,050 84,387
-------- -------- -------- -------- --------
Gross profit........................ 52,536 55,575 91,156 26,293 22,850
Selling and distribution expenses... 3,205 2,880 2,911 759 509
General and administrative
expenses.......................... 11,653 11,624 12,338 3,163 3,472
-------- -------- -------- -------- --------
Operating income.................... $ 37,678 $ 41,071 $ 75,907 $ 22,371 $ 18,869
======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Cash................................ $ 47 $ 31 $ 26 $ 336 $ 26
Property, plant and equipment,
net............................... 100,933 176,796 161,292 173,557 157,466
Total assets........................ 161,603 256,069 228,445 257,007 220,783
Total debt.......................... 7,815 7,815 7,815 7,815 7,815
Total net equity.................... 121,084 201,645 174,944 204,137 165,478
OTHER DATA:
Capital expenditures(1)............. $ 54,548 $ 87,667 $ 3,194 $ 1,192 $ 815
Depreciation and amortization....... 8,569 11,804 18,153 4,431 4,641
Shipments (millions of pounds)...... 430.0 468.9 541.4 135.0 133.5
</Table>
---------------
(1) In September 1999, a fifth potline was added to the Hawesville facility,
increasing annual primary aluminum production capacity by 110 million
pounds, or approximately 26%.
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RISK FACTORS
In addition to the other information included in this prospectus, you
should carefully consider the risks described below before making an investment
in the exchange notes. If any one of the following risks actually occurs, our
business, financial condition or results of operations could be materially
adversely affected. We believe that the risks and uncertainties summarized below
represent the material risks and uncertainties you should consider before making
an investment in the exchange notes.
RISKS RELATING TO OUR INDEBTEDNESS
OUR HIGH LEVEL OF INDEBTEDNESS REQUIRES SIGNIFICANT CASH FLOW TO MEET OUR DEBT
SERVICE REQUIREMENTS WHICH REDUCES CASH AVAILABLE FOR OTHER PURPOSES, LIMITS OUR
ABILITY TO BORROW AND MAKES US MORE VULNERABLE TO ECONOMIC DOWNTURNS.
We incurred a significant amount of debt in connection with the NSA
acquisition which requires significant debt service. As of June 30, 2001, we had
consolidated indebtedness of $329.1 million and shareholders' equity of $233.8
million, resulting in a ratio of debt to total capitalization, including
minority interest, of 55.8%. On a pro forma basis, our debt service obligations
for the six months ended June 30, 2001 were $19.5 million. All of our pro forma
indebtedness relates to the NSA acquisition. In addition, subject to the
restrictions contained in the indenture governing the exchange notes, we may
incur significant additional debt from time to time. As of June 30, 2001, we
would have been able to incur up to $100.0 million of additional indebtedness
under the revolving credit facility and up to $10.0 million of other
indebtedness, all of which would rank equally in right of payment with the
exchange notes. None of our existing or future indebtedness would rank senior to
the exchange notes.
The level of our indebtedness could have important consequences to you. For
example, it could:
- limit cash flow available for capital expenditures, acquisitions, working
capital and other general corporate purposes because a substantial
portion of our cash flow from operations must be dedicated to servicing
our debt;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our flexibility in planning for, or reacting to, competitive and
other changes in our business and the industry in which we operate;
- place us at a disadvantage compared to our competitors who may have less
debt and greater operating and financing flexibility than we do; and
- limit, through restrictive covenants, our ability to borrow additional
funds.
GENERAL ECONOMIC AND OTHER FACTORS BEYOND OUR CONTROL MAY REDUCE OUR ABILITY TO
GENERATE SUFFICIENT CASH TO SATISFY OUR OBLIGATIONS UNDER OUR INDEBTEDNESS; ANY
FAILURE TO MAKE OUR DEBT SERVICE PAYMENTS WOULD CONSTITUTE AN EVENT OF DEFAULT
UNDER THE FINANCING AGREEMENTS GOVERNING OUR INDEBTEDNESS, WHICH COULD LIMIT
YOUR ABILITY TO RECOVER YOUR INVESTMENT.
Our ability to pay interest and to repay or refinance our indebtedness,
including the notes and amounts outstanding under the revolving credit facility,
will depend upon our future operating performance, which is subject to general
economic, financial, competitive, legislative, regulatory, business and other
factors that are beyond our control. Accordingly, we may be unable to generate
sufficient cash flow from operations to enable us to pay our indebtedness,
including the exchange notes. If we are unable to meet our debt service
obligations, we could attempt to restructure or refinance our indebtedness or
seek additional equity capital. We may be unable to accomplish those actions on
satisfactory terms, if at all. You should note that debt incurred under our
revolving credit facility may mature prior to the maturity of the exchange
notes, and as a result, cash used to repay that facility would be unavailable to
satisfy our obligations under the exchange notes.
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OUR EXISTING FINANCING AGREEMENTS CONTAIN COVENANTS THAT RESTRICT THE WAY WE
CONDUCT OUR BUSINESS, WHICH MAY LIMIT OUR ABILITY TO PURSUE OUR GROWTH STRATEGY
OR COULD CAUSE A DEFAULT IF WE ARE UNABLE TO COMPLY WITH THEIR TERMS.
The indenture governing the exchange notes contains various restrictive
covenants that limit our ability to engage in transactions such as acquisitions
and investments. These covenants may, therefore, impair our ability to pursue
our growth strategy. See "Prospectus Summary -- Century Aluminum
Company -- Business Strategy." Our revolving credit facility contains additional
restrictive covenants. See "Description of Revolving Credit Facility and
Convertible Preferred Stock."
A breach of any of these covenants could result in a default under our
revolving credit facility and/or the exchange notes. Upon the occurrence of an
event of default under our revolving credit facility, the lenders could elect to
declare all amounts outstanding under our revolving credit facility to be
immediately due and payable and terminate all commitments to extend further
credit. In that event, we may not have sufficient assets to repay our revolving
credit facility and our other debt, including the exchange notes. The lenders
for the revolving credit facility have a first priority security interest in all
of our and our subsidiaries' right, title and interest in accounts receivable
and inventory, which are among our most liquid assets, and, if we were unable to
repay amounts due under our revolving credit facility, those lenders could
proceed against the collateral granted to them to secure that debt. Because
their rights to our accounts receivable and inventory rank ahead of the rights
of holders of the exchange notes, those assets would not be available to you as
collateral until we had repaid all amounts due under the revolving credit
facility.
RISKS RELATING TO THE EXCHANGE NOTES
WE MAY NOT HAVE SUFFICIENT FUNDS AVAILABLE TO REPAY OUR INDEBTEDNESS UPON A
CHANGE OF CONTROL, WHICH WOULD CONSTITUTE AN EVENT OF DEFAULT UNDER THE
INDENTURE.
Upon the occurrence of "change of control" events specified in "Description
of the Exchange Notes," you may require us to purchase your exchange notes at
101% of their principal amount, plus accrued interest. In some circumstances, a
change of control could result from events beyond our control. We may not have
the financial resources to purchase your exchange notes, particularly if that
change of control event triggers a similar repurchase requirement for, or
results in the acceleration of, other indebtedness. Our revolving credit
facility provides that certain change of control events (as defined in the
revolving credit facility) will constitute a default and could result in the
acceleration of our indebtedness under the revolving credit facility. Any of our
future debt agreements may contain similar provisions. We would be in default
under the terms of our indenture if we are unable to purchase the exchange notes
that are tendered upon a change of control or if a change of control triggers a
default under the terms of our other indebtedness.
WE DEPEND UPON DIVIDENDS FROM OUR SUBSIDIARIES TO MEET OUR DEBT SERVICE
OBLIGATIONS; OUR SUBSIDIARIES' ABILITY TO PAY DIVIDENDS COULD BE RESTRICTED OR
PROHIBITED.
We are a holding company and conduct all of our operations through our
subsidiaries. Our ability to meet our debt service obligations depends upon our
receipt of dividends from our subsidiaries. Subject to the restrictions
contained in the indenture and the revolving credit facility, future borrowings
by our subsidiaries could contain restrictions or prohibitions on the payment of
dividends by our subsidiaries to us. See "Description of the Exchange
Notes -- Certain Covenants." In addition, under applicable law, our subsidiaries
could be limited in the amounts that they are permitted to pay us as dividends
on their capital stock.
THE VALUE OF THE COLLATERAL SECURING THE EXCHANGE NOTES IS LIMITED AND MAY NOT
BE SUFFICIENT TO REPAY THE EXCHANGE NOTES IN THE EVENT OF OUR DEFAULT.
Our grant of a security interest in our interest in property, plant and
equipment of the aluminum reduction facilities at Hawesville and Ravenswood as
collateral for our obligations under the exchange notes will provide you with
only limited security, in part because most of these assets may not be liquid
and their value to other parties may be less than their value to us. In
addition, the value of the collateral may decline
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over time. We will also have the right to substitute other collateral in place
of the collateral which may have additional liquidity or related risks. In
addition, we will not be obligated to pledge any additional assets as collateral
except to the extent the assets were acquired with proceeds of existing
collateral or "restricted assets" (as defined in the indenture) or in
satisfaction of the covenant in the indenture described under "Description of
the Exchange Notes -- Certain Covenants -- Limitation on Liens." Accordingly, if
we default on the exchange notes, the trustee may not receive enough money from
the sale of the collateral to repay you. If the proceeds of any sale of the
collateral are not sufficient to repay all amounts due on the exchange notes,
then your claims against our remaining assets to repay any amounts still
outstanding under the notes would be unsecured. In addition, you may not be able
to enforce our subsidiaries' guarantees of the exchange notes. See "-- Federal
and state laws permit a court to void the guarantees of our subsidiary
guarantors under certain circumstances, which might mean your claims against
those subsidiaries would be lost or limited."
Not all of the collateral has been appraised in connection with the
offering of the notes and this exchange offer. As of June 30, 2001, the book
value of the property, plant and equipment pledged as collateral was
approximately $330.0 million. Depending on market and economic conditions and
the availability of buyers, the sale value of the collateral may be
substantially different from its book value.
The value of the collateral could also be affected because contracts,
agreements, licenses and other instruments related to the collateral, including
various supply contracts which are necessary to operate our business, will not
secure the exchange notes. For example, the power and alumina supply contracts
for the Ravenswood, Mt. Holly and Hawesville facilities are not included in the
collateral. Moreover, the collateral at the Hawesville facility is subject to
certain impairments under our agreement with Glencore. See "-- The ability of
the trustee to liquidate the collateral and the value received could be impaired
or impeded by the terms of our agreements with our operating partners." In
addition, all of our collateral may have liens or rights and easements granted
to other parties attached to it, and these parties could exercise rights and
remedies against those assets. These actions could adversely affect the value of
the collateral and the ability of the trustee to foreclose on it.
The security documents securing your interest in the collateral obligate us
to at all times cause the collateral to be properly insured against loss or
damage by fire or other hazards to the extent that such properties are usually
insured by corporations operating properties of a similar nature in the same or
similar localities. There are, however, certain types of losses which may be
uninsurable or not economically insurable. Further, the proceeds received by us
in respect thereof may not be sufficient to satisfy our secured obligations to
you.
THE ABILITY OF THE TRUSTEE TO LIQUIDATE THE COLLATERAL AND THE VALUE RECEIVED
COULD BE IMPAIRED OR IMPEDED BY THE TERMS OF OUR AGREEMENTS WITH OUR OPERATING
PARTNERS.
Our obligations under the exchange notes and guarantees are secured by a
lien or mortgage for your benefit on our interest in the Hawesville facility. In
the event of a default under the indenture and acceleration of our obligations
under the exchange notes, the trustee's ability to foreclose on this collateral
in a timely fashion may be impaired by restrictions on the disposition of the
collateral under our agreement with Glencore relating to the ownership and
operation of the Hawesville facility. These impairments include (1) Glencore's
right to purchase our interest in the Hawesville facility if we default on our
obligations under the owners agreement and do not cure the default within a
30-day cure period and its ability to pay for such interest over a potentially
prolonged period of time and (2) the obligation to first offer to sell all or a
portion of the collateral to Glencore which would then have 60 days to accept
such offer. Furthermore, if the collateral is sold to an independent third party
purchaser, the purchaser must comply with various requirements and meet, or
provide a guarantee from a guarantor that meets, certain tangible net worth
thresholds, or else provide some other form of credit security.
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THE ABILITY OF THE TRUSTEE TO LIQUIDATE THE COLLATERAL COULD BE IMPAIRED BY
BANKRUPTCY CONSIDERATIONS.
If a bankruptcy case is commenced by or against us or our subsidiaries
before the trustee repossesses and disposes of the collateral, the trustee's
right to do so will likely be significantly impaired. Under federal bankruptcy
laws, a secured creditor cannot repossess its security from a debtor in a
bankruptcy or dispose of security repossessed from the debtor without the
bankruptcy court's approval. Moreover, as long as the secured creditor is given
adequate protection, federal bankruptcy laws permit the debtor to continue to
retain and use collateral even though the debtor is in default under the
applicable debt instruments. The meaning of the term "adequate protection"
varies according to circumstances, but it is intended to protect the value of
the secured creditor's interest in the collateral. If the value of the
collateral is diminished by the creditor's inability to repossess it or dispose
of it or by its use by the debtor, adequate protection may include cash payments
or the granting of additional security, as the court may determine in its
discretion. Generally, however, adequate protection payments are not required to
be paid by a debtor to a secured creditor unless the bankruptcy court determines
that the value of the secured creditor's interest in the collateral is declining
during the period of time the bankruptcy case is pending. Following the
commencement of a bankruptcy case, payments under the exchange notes or the
guarantees could be delayed and the bankruptcy court may not permit the trustee
to repossess or dispose of the collateral. Given the lack of a precise
definition of the term "adequate protection" and the broad discretionary powers
of a bankruptcy court, the holders of the exchange notes may not be adequately
compensated for any delay in payment or loss of value of the collateral due to
the requirement of adequate protection.
In a federal bankruptcy case, the court has the power to confirm a plan for
the reorganization of the debtor over the objection of creditors. Among other
things, such a plan may change the interest rate and payment terms on
obligations of the debtor. Thus, if we were involved in a bankruptcy case, a
bankruptcy court could approve a reorganization plan that modifies the interest
rate or payment terms of the exchange notes.
NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE THE EXCHANGE NOTES, WHICH WOULD LIMIT
YOUR CLAIMS AGAINST THAT SUBSIDIARY IN THE EVENT OF OUR DEFAULT.
As of June 30, 2001, our subsidiaries that do not guarantee the exchange
notes had no material assets or liabilities. However, the indenture will,
subject to certain limitations, permit us to form or acquire additional
subsidiaries that are not guarantors and to permit non-guarantor subsidiaries to
acquire assets and incur indebtedness. In addition, the indenture will not limit
the amount of other liabilities, such as trade payables, that may be incurred by
these non-guarantor subsidiaries in the future. You would not have any claim as
a creditor against any of our non-guarantor subsidiaries or to the assets and
earnings of those subsidiaries. The claims of the creditors of those
subsidiaries, including their trade creditors, banks and other lenders, would
have priority over any of our claims or those of our other subsidiaries as
equity holders of the non-guarantor subsidiaries. Consequently, in any
insolvency, liquidation, reorganization, dissolution or other winding-up of any
of the non-guarantor subsidiaries, creditors of those subsidiaries would be paid
before any amounts would be distributed to us or to a guarantor as equity, and
thus be available to satisfy our obligations under the exchange notes and other
claims against us or the guarantors.
The limited liability company that will own the Hawesville alumina and
power supply contracts and operate the Hawesville facility is not a "subsidiary"
as defined in the indenture and therefore will not guarantee the exchange notes
or be subject to the restrictive covenants contained in the indenture, other
than limitations on its ability to incur debt, grant liens or sell assets. Any
debt or other liabilities that it incurs will effectively be senior to the
exchange notes to the extent of the value of its assets.
FEDERAL AND STATE LAWS PERMIT A COURT TO VOID THE GUARANTEES OF OUR SUBSIDIARY
GUARANTORS UNDER CERTAIN CIRCUMSTANCES, WHICH MIGHT MEAN YOUR CLAIMS AGAINST
THOSE SUBSIDIARIES WOULD BE LOST OR LIMITED.
Our domestic restricted subsidiaries will guarantee the exchange notes. The
issuance of these guarantees could be subject to review under applicable
fraudulent transfer or conveyance laws in a bankruptcy or other
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similar proceeding. Under these laws, the issuance of a guarantee will generally
be a fraudulent conveyance if either (1) the guarantor issued the guarantee with
the intent of hindering, delaying or defrauding its creditors, or (2) the
guarantor received less than reasonably equivalent value or fair consideration
in return for the guarantee, and any of the following is also true:
- the guarantor was insolvent or became insolvent when it issued the
guarantee;
- the guarantor was left with an unreasonably small amount of capital after
issuing the guarantee; or
- the guarantor intended to incur, or believed that it would incur, debts
beyond its ability to pay as they matured.
Since our subsidiary guarantors will issue the guarantees for the benefit
of Century Aluminum Company, and only indirectly for their own benefit, the
guarantees could be subject to a claim that they were given for less than
reasonably equivalent value or fair consideration.
Although the definition of "insolvency" differs among jurisdictions, in
general, the guarantor would be considered insolvent when it issued the
guarantee if:
- its liabilities exceeded the fair value of its assets; or
- the present market value of its assets is less than the amount it would
need to pay its total existing debts and liabilities as they mature
(including those contingent liabilities which are likely to become
certain).
Even if a court determined that the guarantor was not insolvent when the
exchange notes were issued, you should be aware that payments under the
guarantees may constitute fraudulent transfers on other grounds. In addition,
the liability of each guarantor under its guarantee is limited to the amount
that will not constitute a fraudulent conveyance or improper corporate
distribution under applicable laws. To the extent that the note guarantee of any
guarantor is voided as a fraudulent conveyance or otherwise held to be
unenforceable or enforceable only to a limited extent, your claim against that
guarantor could be lost or limited.
THE COLLATERAL SECURING OUR INDEBTEDNESS UNDER THE REVOLVING CREDIT FACILITY
WILL NOT BE AVAILABLE TO YOU UNTIL THAT INDEBTEDNESS HAS BEEN REPAID.
Any amounts we borrow under the revolving credit facility are secured by a
first priority security interest in all of our accounts receivable and
inventory. Accordingly, these accounts receivable and inventory, which are among
our most liquid assets, will not be available to you in the event of a
bankruptcy, liquidation or similar circumstance until we have fully repaid all
amounts due under our revolving credit facility or any refinancing of that
facility. As of June 30, 2001, our accounts receivable were $68.7 million and
our inventory was valued at $78.1 million.
In addition, any other lender's right to any collateral securing its loan
will rank ahead of our obligation to repay the exchange notes with respect to
that collateral. Our subsidiaries' guarantees of the exchange notes will also be
effectively subordinated to a lender's right to collateral of the guarantor
securing its loan to that subsidiary. The indenture permits us and our
subsidiaries to place liens on some of our assets. These liens may, for example,
secure purchase money indebtedness. The exchange notes and the guarantees will
be effectively subordinated to this purchase money indebtedness and other
obligations secured by these liens with respect to the assets subject to those
liens. See "Description of the Exchange Notes -- Certain Covenants -- Limitation
on Liens."
FEDERAL AND STATE ENVIRONMENTAL LAWS MAY DECREASE THE VALUE OF THE COLLATERAL
SECURING THE EXCHANGE NOTES AND MAY RESULT IN YOU BEING LIABLE FOR ENVIRONMENTAL
CLEANUP COSTS AT OUR FACILITIES.
Our facilities are subject to various environmental laws and regulations
and we are obligated to undertake various preventative and remedial actions with
respect to environmental conditions at these facilities. The exchange notes and
guarantees are secured by liens on real property that may be subject to both
known and unforeseen environmental risks, and these risks may reduce or
eliminate the value of the real property as
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collateral for the exchange notes. The costs of environmental remedial measures
can be substantial. See "Business -- Environmental Matters."
Moreover, under federal and certain state environmental laws, a secured
lender (such as a holder of the exchange notes) may be liable for its debtor's
environmental matters if the lender or its agents or employees have actually
participated in the management of the operations of the debtor, even though the
environmental damage or threat was caused by a third party, a prior owner, a
current owner or an operator other than the lender. Under federal environmental
laws, "participation in management" requires actual participation in, and not
merely the capacity to influence, the operations of the subject facility. A
secured lender could be found to have participated in the management of a
facility if it exercised control with respect to environmental compliance or
over all or substantially all of the non-environmental operational functions.
Similarly, when a secured lender forecloses and takes title to a contaminated
facility or property, the lender becomes liable in various circumstances,
including when it
- holds the facility or property as an investment, including leasing the
facility or property to a third party;
- fails to sell, re-lease or otherwise divest itself of the property at the
earliest practicable, commercially reasonable time, on commercially
reasonable terms; or
- fails to properly address environmental conditions at the facility or
property.
Before taking some actions, the trustee may request that you provide for
its reimbursement for any of its costs, expenses and liabilities. Cleanup costs
could become a liability of the trustee, and, if you agreed to provide for the
trustee's costs, expenses and liabilities, you could be required to help repay
those costs. You may agree to indemnify the trustee for its costs, expenses and
liabilities before you or the trustee knows what those amounts ultimately will
be. If you agreed to this indemnification without appropriate limitations, you
could be required to pay the trustee an amount that is greater than the amount
you paid for the exchange notes.
In addition, rather than acting through the trustee, you may in some
circumstances act directly to pursue a remedy under the indenture. If you
exercise that right, you could be considered to be a lender and be subject to
the risks discussed above.
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES WHICH COULD
ADVERSELY AFFECT YOUR ABILITY TO SELL THE EXCHANGE NOTES AND THE PRICE YOU
RECEIVE.
The exchange notes are a new issue of securities for which there is no
active trading market. Any markets that may develop for the exchange notes may
not be liquid, which would adversely affect the ability of holders of the
exchange notes to sell their exchange notes or the price at which the holders
would be able to sell their exchange notes. The initial purchasers have advised
us that they currently intend to make a market in the outstanding notes and,
when issued, the exchange notes, although they are under no obligation to do so
and they may stop any market-making activities without notice. As a result, no
future market may develop for the exchange notes, which could significantly
impair the ability of the holders of the exchange notes to sell their exchange
notes and the price for which those holders would be able to sell their exchange
notes. In addition, the liquidity of, and the trading market and market price
quoted for, these exchange notes may be disproportionately affected by:
- changes in the overall market for debt securities;
- changes in our financial performance or prospects; and
- changes in the prospects for companies in our industry in general.
We do not intend to apply for listing or quotation of the exchange notes on
any national securities exchange or through the National Association of
Securities Dealers Automated Quotation System. As a result, an active market for
the exchange notes may not develop.
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IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE NOTES, YOUR
OUTSTANDING NOTES MAY TRADE AT A DISCOUNT AND YOU MAY NOT BE ABLE TO SELL YOUR
OUTSTANDING NOTES.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the completion of the exchange offer, continue to be subject to
existing restrictions on transfer, and upon completion of the exchange offer,
registration rights with respect to the outstanding notes will terminate. In
this event, the exchange notes would rank equally with the outstanding notes.
However, holders of outstanding notes seeking liquidity in their investment
would have to rely on exemptions from registration requirements under the
securities laws, including the Securities Act. A reduction of the aggregate
principal amount of the currently outstanding notes as a result of the exchange
offer may have an adverse effect on the ability of holders of outstanding notes
to sell the notes or on the price at which a holder could sell the notes.
RISKS RELATING TO OUR BUSINESS
OUR PROFITABILITY COULD BE IMPACTED BY THE CYCLICAL NATURE OF THE ALUMINUM
INDUSTRY.
Our revenues depend on the market for primary aluminum, which is cyclical.
Historically, prices for primary aluminum have fluctuated in part due to
economic and market conditions in the United States and other countries which
affect global supply and demand levels. Over the past ten years, the average
annual cash price for transactions on the LME has ranged from a low of $0.52 per
pound in 1993 to a high of $0.82 per pound in 1995. The average LME price was
$0.70 for the year ended December 31, 2000 and $0.70 for the six months ended
June 30, 2001. Future changes in global supply and demand levels could cause a
decrease in primary aluminum prices and, in turn, reduce our revenues. In
addition, our fixed price sales contracts and certain hedging transactions we
enter into can limit our ability to take advantage of increases in the price of
primary aluminum. See "Business -- Pricing and Risk Management." Aluminum
end-use markets, including the automotive and building and construction sectors,
are cyclical. When a downturn in these sectors adversely affects our customers,
we could be similarly impacted as a result of lower prices for our products. See
"The Aluminum Industry -- Current Price Dynamics."
BECAUSE OUR PRODUCTS COMPETE WITH THOSE OF NUMEROUS DOMESTIC AND FOREIGN
PRODUCERS, AS WELL AS OTHER MATERIALS WHICH CAN SERVE AS A SUBSTITUTE FOR
PRIMARY ALUMINUM, WE MAY NOT BE ABLE TO RAISE PRICES IF OUR PROFITS DECLINE.
The market for primary aluminum is highly competitive. Our products are
generally commodities and are sold on the basis of price. We compete in the
production and sale of primary aluminum with numerous other domestic and foreign
producers, some of which are larger and have greater manufacturing and financial
resources and more favorable cost structures for producing aluminum. As a
result, those competitors may be able to offer their products at prices that are
below the prices that we can offer for comparable products. If we are unable to
compete effectively based on the price of our products, our revenues and growth
may be adversely affected. Aluminum also competes with other materials such as
steel, plastic and glass, which may be used as alternatives for some
applications depending on relative pricing. See "Business -- Competition."
WE SELL A SIGNIFICANT PORTION OF OUR PRODUCTS TO A FEW MAJOR CUSTOMERS; OUR
PRODUCTION, MARKETING AND DISTRIBUTION COSTS WOULD INCREASE IF WE LOST ANY OF
THESE MAJOR CUSTOMERS.
We derive much of our business from a small number of customers. On a pro
forma basis, we would have derived a combined total of approximately 76% of our
consolidated net sales for 2000 and 67% of our consolidated net sales for the
six months ended June 30, 2001, from Glencore, Pechiney and Southwire, our three
largest customers. We expect that we will continue to derive a significant
portion of our business from these customers. We have long-term contracts with
each of Glencore, Pechiney and Southwire under which they are collectively
obligated to purchase from us between 626 and 674 million pounds of primary
aluminum annually, or 61% to 65% of our anticipated annual production capacity.
Because these contracts reduce our
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production, marketing and distribution costs, the loss of any of these customers
or a significant reduction in the amount of business that they do with us could
reduce our net income.
GLENCORE IS AN IMPORTANT CUSTOMER, SUPPLIER, HEDGE COUNTER-PARTY AND ACQUISITION
PARTNER; A MATERIAL CHANGE IN OUR RELATIONSHIP WITH GLENCORE COULD IMPAIR OUR
GROWTH STRATEGY BY LIMITING OUR ABILITY TO ACQUIRE CERTAIN ASSETS AND INCREASE
OUR COSTS BY REDUCING OUR ALTERNATIVES FOR HEDGING ALUMINUM PRICE VOLATILITY,
SELLING OUR PRODUCTS AND PURCHASING OUR ALUMINA REQUIREMENTS.
We benefit from our relationship with Glencore, our principal shareholder,
which currently owns 38.6% of our common stock. Glencore assisted with our
financing of the NSA acquisition by purchasing $25.0 million of Century Aluminum
Company convertible preferred stock and a 20% interest in the Hawesville
facility. We may in the future make similar acquisitions with Glencore as our
partner. In addition, we have various contracts with Glencore relating to the
sale of our products and the purchase of alumina, including forward sales and
hedging contracts which help us manage our exposure to fluctuating aluminum
prices.
However, the nature and degree of our business relationship with Glencore
could change for a number of reasons, including in the event that Glencore
decreases its current level of investment in our company, and if such a change
occurs, our growth strategy and operating margins could be affected. For
example, without Glencore as a potential acquisition partner, we may be unable
to acquire larger, more efficient facilities unless another acquisition partner
can be found. In addition, our marketing and distribution costs could increase
if we lost Glencore as a customer for our products. Moreover, if Glencore
reduced or eliminated the number of hedging agreements it entered into with us,
we may be unable to fully implement our metals risk management program and our
earnings could be exposed to fluctuations in the market price for primary
aluminum or alumina.
SHARED CONTROL OF PRODUCTION FACILITIES COULD IMPEDE DECISION MAKING AND LEAD TO
PRODUCTION INEFFICIENCIES; WE MAY NEED TO PAY OUR PARTNERS' UNPAID FINANCIAL
OBLIGATIONS UNDER OUR OPERATING AGREEMENTS TO PROTECT OUR INVESTMENT IN THE
FACILITY.
We currently operate production facilities with partners, and may enter
into similar arrangements in the future. We will not be able to make unilateral
decisions regarding material aspects of the operations of these facilities. In
addition, although we assume that our partners will perform their obligations
under their agreements with us, if they fail to do so, we may be required to pay
their unpaid financial obligations relating to the facilities in order to
protect our investment, which would increase our operating expenses. Differences
in views among partners may result in delayed decisions or in failures to agree
upon major matters which could impair the efficient operation of those
facilities and, in turn, reduce our operating income.
ELECTRICITY AND ALUMINA REPRESENT NEARLY TWO-THIRDS OF OUR OPERATING COSTS;
INCREASED RAW MATERIAL AND ENERGY COSTS WILL REDUCE OUR PROFITABILITY IF WE ARE
UNABLE TO RECOVER THOSE INCREASES THROUGH HIGHER SELLING PRICES.
Electricity. Electricity represents our single largest operational cost
because we use significant amounts in the primary aluminum production process.
Consequently, the availability of electricity at a favorable price is crucial to
our operations. Our power requirements at the Ravenswood facility are purchased
under a fixed-price power supply contract with Ohio Power, a subsidiary of
American Electric Power. That contract expires on July 31, 2003.
The Mt. Holly facility purchases its power requirements from the South
Carolina Public Service Authority under a power supply contract that expires at
the end of 2005. The price for the power purchased under this contract is fixed,
subject to a fuel cost adjustment. An increase in the price of fuel or a
disruption in the generation capacity of the South Carolina Public Service
Authority could adversely affect the price of the electricity we use at the Mt.
Holly facility. In December 2000, a nuclear generation facility owned by the
South Carolina Public Service Authority, representing approximately 15% of this
utility's generation capacity, was taken out of service for a non-scheduled
repair. The facility has since resumed full operation. During this outage, the
utility was forced to purchase power to meet Mt. Holly's requirements from
sources that were purchasing natural gas for their generation capacity at
unusually high prices. South Carolina Public Service
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Authority passed through this cost increase under the fuel cost adjustment
provision of the Mt. Holly facility's power contract, which resulted in an
after-tax charge to our earnings of $1.4 million during the first quarter of
2001.
The Hawesville facility currently purchases its power at fixed rates from
Kenergy Corp., a local retail electric cooperative, under a series of power
supply contracts. Beginning in 2003, an increasing proportion of the power
purchased from Kenergy will be priced at market rates. To the extent we pay
market rates for the electricity purchased from Kenergy, an increase in the
market price for electricity would increase our operating costs, which could
materially reduce our profitability.
We may not be able to obtain electricity on favorable terms upon the
expiration of our current contracts. Furthermore, our current suppliers may not
be able to supply us with sufficient quantities of electricity at all times. The
availability of power under our power supply contracts may be limited during
periods of high power demand by federal and state governmental restrictions or
priority given to other power customers. In addition, numerous short-term and
long-term developments can affect our suppliers' ability to supply us with
sufficient quantities of electricity, including regulatory issues relating to
the electrical power industries and weather, temperature and precipitation.
Beginning in late 2000 and through the first six months of 2001, various
weather-related and economic factors, including the deregulation of the
California power industry, contributed to power shortages in the western United
States, forcing several primary aluminum producers in the northwest without firm
power contracts to idle significant amounts of production capacity. If other
regions of the country are experiencing similar power shortages when our firm
power contracts expire, we could be forced to curtail or idle a portion of our
production capacity, which would reduce our revenues and profitability.
Alumina. We depend on three (and, after 2001, we will depend on two)
suppliers for alumina, the principal raw material used by our reduction
facilities to produce primary aluminum. Disruptions to our supply of alumina
could occur for a variety of reasons, including disruptions of production at a
particular supplier's alumina refinery or delays in the transportation of
alumina to our facilities. Such disruptions may require us to purchase alumina
on less favorable terms than under our current arrangements, which could have a
material adverse effect on our operating results. For example, increased primary
aluminum production levels in recent years have created higher demand for
alumina, and supply levels were impacted in July 1999 when an explosion severely
damaged Kaiser's Gramercy, Louisiana alumina refinery. Following the explosion
at the Gramercy plant, prices for alumina purchased on an as-needed or "spot"
basis increased significantly. The alumina used by the Hawesville facility is
purchased under a long-term supply contract with Kaiser, which prior to July
1999, supplied alumina to the Hawesville facility from its Gramercy refinery.
Following the explosion, Kaiser supplied the Hawesville facility from another of
its refineries and with alumina it purchased on the spot market, although, for a
period of time, Kaiser increased prices for that alumina to offset the added
transportation cost. Our suppliers may experience other disruptions that could
affect their ability to meet our alumina requirements and which may, as a
result, increase our raw material costs.
CHANGES IN THE RELATIVE COST OF RAW MATERIALS AND ENERGY COMPARED TO THE PRICE
OF PRIMARY ALUMINUM COULD REDUCE OUR PROFITABILITY.
We have entered into various fixed-price contracts for the supply of power,
labor and raw materials to our facilities. Because these contracts increase the
fixed-cost component of our overall cost structure, our margins could be
adversely affected if primary aluminum prices decrease. See
"Business -- Facilities and Production" for a discussion of these contracts in
more detail.
In addition, not all of our contracts for the supply of raw materials are
fixed-price contracts. For example, as of January 1, 2002, all of our alumina
contracts will be priced on a variable-rate basis linked to the market price of
primary aluminum. Because we sell a portion of our primary aluminum products
under fixed price contracts, we will not be able to recover the increased cost
of alumina through increases in prices under those contracts. While the selling
prices of our products tend to increase or decrease over time based on raw
material costs, these changes generally do not occur at the same time or to the
same degree as changes in raw material
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costs. To the extent we have not limited the effects of raw material and
aluminum price volatility through our metals risk management activities, price
changes could reduce our operating margins.
LABOR DISPUTES OR ADVERSE EMPLOYEE RELATIONS COULD CAUSE US TO SHUT DOWN OR CURB
PRODUCTION; INCREASED LABOR COSTS COULD ADVERSELY AFFECT OUR OPERATING MARGINS.
The hourly employees at the Ravenswood and Hawesville facilities are
represented by the United Steel Workers of America, or USWA. The employees at
the Mt. Holly facility are employed by Alcoa and are not unionized. See
"Business -- Employees and Labor Relations."
In August 1999, employees at our Ravenswood facility who were represented
by the USWA engaged in an illegal one-day work stoppage which led to a partial
plant shutdown and caused over $10 million in lost production and equipment
damage. See "-- Interruptions in production could subject us to losses."
Although we currently have labor contracts in place at our Ravenswood and
Hawesville facilities, they may not prevent a strike or work stoppage in the
future, and, if we experience similar production losses or equipment damage as a
result, our revenues and profitability could decrease.
In May 1997, the hourly employees at the Hawesville facility voted to
unionize; however, negotiations with Southwire's management over a collective
bargaining agreement broke down and the USWA local went on strike in June 1998.
Replacement workers were hired by Southwire to operate the Hawesville facility
during the work stoppage; however, the union eventually returned to work.
Effective April 2001, the USWA workers began working under the terms of a
collective bargaining agreement we negotiated in connection with the NSA
acquisition. Upon the expiration of our labor contracts at the Ravenswood and
Hawesville facilities in 2003 and 2005, respectively, our labor costs could
increase if we are unable to renegotiate those contracts on satisfactory terms.
INTERRUPTIONS IN PRODUCTION COULD SUBJECT US TO LOSSES.
We are subject to losses associated with equipment shutdowns, which can be
caused by the loss or interruption of electrical power, as well as by labor
shortages and catastrophic events. Power interruptions may have a material
adverse effect on our business because we use large amounts of electricity in
the primary aluminum production process. Any loss of power which causes an
equipment shutdown can result in the hardening or "freezing" of molten aluminum
in the pots where it is produced. If this occurs, significant losses can occur
if the pots are damaged and require repair or replacement, a process that could
limit or shut down our production operations for a significant period of time.
Certain shutdowns not covered by insurance could be a default under the
revolving credit facility. In August 1999, as a result of manpower shortages
caused by an illegal one-day work stoppage, we were forced to cut power at the
Ravenswood facility, effectively shutting down one of the facility's four
potlines. When the power was cut, the molten metal in the affected pots froze,
resulting in significant equipment damage and other losses. We estimate that the
cost of this shutdown was $10.0 million, including equipment damage and losses
due to business interruption.
Although we maintain property damage insurance to provide for the repair or
replacement of damaged equipment or property, as well as business interruption
insurance to mitigate losses resulting from any equipment failure or production
shutdown caused by a catastrophic event, we may still be required to pay
significant amounts under the deductible provisions of those insurance policies.
In addition, our coverage may not be sufficient to cover all losses which result
from a catastrophic event. Furthermore, our insurance does not cover losses
resulting from a power loss solely due to lack of sufficient electrical power
resulting from unusually high usage in the region.
IF OUR ENVIRONMENTAL LIABILITIES AND COSTS ARE GREATER THAN ANTICIPATED, OUR
CASH FLOW AND INCOME COULD BE ADVERSELY AFFECTED, WHICH WOULD IMPAIR OUR ABILITY
TO REPAY OUR INDEBTEDNESS.
We incur operating costs and capital expenditures on an ongoing basis to
ensure our compliance with applicable environmental laws and regulations. In
addition, we are responsible for the cleanup of contamination at some of our
current and former manufacturing facilities. If more stringent compliance or
cleanup standards under environmental laws or regulations are imposed, or
previously unknown environmental
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conditions are discovered, we may be subject to additional liability. Further,
additional environmental matters may arise in the future at our present sites
where no problem is currently known, at sites previously owned or operated by
us, by related corporate entities or by predecessors or at sites that we may
acquire in the future. Moreover, although we have received indemnifications from
various parties for environmental liabilities at certain of our current and
former facilities, if those parties fail to indemnify us as agreed, we could be
subject to additional costs and liabilities. If our capital expenditures and
costs for environmental compliance or cleanup increase significantly, our cash
flow and net income would be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Environmental
Expenditures and Other Contingencies" and "Business -- Environmental Matters."
IF OUR RECENT OR FUTURE ACQUISITIONS ARE DIFFICULT TO INTEGRATE OR FAIL TO LOWER
OUR PER UNIT PRODUCTION COSTS AS ANTICIPATED, OUR FUTURE GROWTH AND OPERATING
RESULTS MAY SUFFER.
We acquired an 80% ownership interest in the Hawesville facility upon the
closing of the NSA acquisition and intend to make other strategic acquisitions
in the future. We are subject to numerous risks as a result of our acquisitions,
including the following:
- it may be difficult to manage our existing business as we integrate
acquired operations;
- it may not be possible to retain all the key employees of the operations
we acquire;
- we may not achieve the reductions in average per-unit cash production
cost we expect to achieve as a result of our acquisitions; and
- management of these acquisitions will require continued development of
financial controls and information systems, which may prove expensive,
time-consuming, and difficult.
We incurred significant indebtedness in connection with our acquisition of
NSA and may incur additional indebtedness in connection with future
acquisitions. If our acquisitions are more costly than anticipated or fail to
lower our per unit production costs, our profitability and future growth
prospects may be adversely affected.
FUTURE OPERATING RESULTS COULD DIFFER MATERIALLY FROM OUR HISTORICAL AND PRO
FORMA FINANCIAL RESULTS; IF LESS FAVORABLE, WE MAY HAVE LESS CASH AVAILABLE FOR
DEBT SERVICE THAN THAT SET FORTH IN THE HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION IN THIS PROSPECTUS.
The historical and pro forma financial information included in this
prospectus does not necessarily reflect our future results of operations,
financial position and cash flows, and the pro forma financial information does
not necessarily reflect our results of operations, financial position and cash
flows for the periods and dates presented. See "Forward Looking Statements." The
pro forma financial information does not reflect the effects, if any, of the
fact that certain significant employee-related and other administrative costs of
NSA were previously allocated from Southwire, or any differences resulting from
our hedging activities compared to those hedging activities employed by
Southwire and, as a result, the actual costs to be incurred following the NSA
acquisition may be materially different. Moreover, our historical results of
operations and balance sheet data prior to September 21, 1999 include our former
aluminum rolling and fabrication businesses which we sold to Pechiney on that
date. Therefore, historical financial data prior to September 21, 1999 is not
necessarily comparable to financial data after that date. Similarly, our
historical financial data prior to April 2000 does not reflect the effects of
our additional ownership interest in the Mt. Holly facility.
We are continuing to evaluate the effects of recently issued accounting
standards, including SFAS 141 and SFAS 142, and the implementation guidance
proposed and issued by the FASB Derivative Implementation Group related to SFAS
133 and SFAS 138 and, accordingly, we have not determined if they would have a
material impact on our financial statements.
The foregoing factors, among others, may cause our future operating results
to differ materially from the historical and pro forma financial information in
this prospectus. If these differences result in lower net income or cash flow,
our ability to repay our indebtedness, including the exchange notes, could be
adversely affected.
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USE OF PROCEEDS
We received net proceeds from the sale of the outstanding notes in a
private offering of approximately $307.7 million, which we used to finance a
portion of the NSA acquisition. The exchange offer is intended to satisfy our
obligations under the registration rights agreement that we entered into in
connection with the private offering of the outstanding notes. The outstanding
notes that are surrendered in exchange for the exchange notes will be retired
and canceled and cannot be reissued. As a result, we will not receive any cash
proceeds from the issuance of the exchange notes and the issuance will not
result in any increase or decrease in our indebtedness. We have agreed to bear
the expenses of the exchange offer to the extent indicated in the registration
rights agreement. No underwriter is being used in connection with the exchange
offer.
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THE EXCHANGE OFFER
GENERAL
In connection with our private offering of the outstanding notes on April
2, 2001, Century Aluminum Company and the guarantors of the notes entered into a
registration rights agreement with Credit Suisse First Boston Corporation and
Fleet Securities, Inc., which were the initial purchasers of the outstanding
notes. Under this registration rights agreement we agreed to use our best
efforts to cause to be filed with the SEC a registration statement with respect
to a registered offer to exchange the outstanding notes for exchange notes with
terms substantially identical in all material respects to the outstanding notes
(except that the exchange notes will not contain terms with respect to transfer
restrictions and registration rights). We further agreed to:
- use our best efforts to consummate the exchange offer by September 29,
2001;
- keep the exchange offer open for not less than 20 business days after the
date that notice of the registered exchange offer is mailed to the
holders of the outstanding notes;
- commence the exchange offer promptly after the effective date of the
registration statement and use our best efforts to have the exchange
offer consummated not later than 60 days after the effective date; and
- issue the exchange notes for all outstanding notes properly tendered and
not validly withdrawn pursuant to the exchange offer as soon as
practicable following the expiration of the exchange offer.
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept all outstanding
notes properly tendered and not validly withdrawn prior to 5:00 p.m. New York
City time, on the expiration date. We will issue $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding notes
accepted in the exchange offer. Holders may tender some or all of their
outstanding notes pursuant to this exchange offer in denominations of $1,000 or
integral multiples thereof. As of the date of this prospectus, $325,000,000
aggregate principal amount of the notes are outstanding.
Based on an interpretation by the Staff of the SEC set forth in no-action
letters issued to third parties, including "Exxon Capital Holdings Corporation"
(available May 13, 1988), "Morgan Stanley & Co. Incorporated" (available June 5,
1991), "Mary Kay Cosmetics, Inc." (available June 5, 1991) and "Warnaco, Inc."
(available October 11, 1991), we believe that the exchange notes offered hereby
may be offered for resale, resold and otherwise transferred by you under U.S.
federal securities laws without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that:
- you are acquiring the exchange notes issued in the exchange offer in the
ordinary course of business;
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes issued to you in the exchange offer;
- you are not a broker-dealer who purchased the outstanding notes directly
from us for resale pursuant to Rule 144A or any other available exemption
under the Securities Act; and
- you are not an "affiliate" of ours within the meaning of Rule 405 under
the Securities Act.
If you wish to participate in this exchange offer, you must represent to us
that such conditions have been met and make such other representations as may be
reasonably necessary. If our belief is inaccurate and you transfer any exchange
note issued to you in the exchange offer without delivering a prospectus meeting
the requirements of the Securities Act or without an exemption from registration
of your notes from such requirements, you may incur liability under the
Securities Act. We do not assume or indemnify you against such liability, but we
do not believe that any such liability should exist if the above conditions are
met.
Each broker-dealer that receives exchange notes in exchange for outstanding
notes acquired for its own account, as a result of market-making or other
trading activities, must make a written certification to that effect and
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in
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connection with any resale of the exchange notes issued in the exchange offer.
The letter of transmittal states that by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this prospectus in connection with offers to resell or otherwise retransfer the
exchange notes received in this exchange offer for a period of 180 days after
the expiration date. We have agreed that, for a period of 180 days after the
expiration date, we will make this prospectus and any amendment or supplement to
this prospectus available to any such broker-dealer for use in connection with
any such resales. See "Plan of Distribution."
This prospectus, together with the accompanying letter of transmittal, is
being sent to all registered holders of outstanding notes as of the record date,
which is , 2001.
We will be deemed to have accepted validly tendered outstanding notes when
and if we give oral or written notice thereof to the exchange agent. See
"-- Exchange Agent." The exchange agent will act as agent for the tendering
holders of outstanding notes for the purpose of receiving exchange notes from us
and delivering them to such holders.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender or the occurrence of certain other events described below, the
certificates evidencing these unaccepted outstanding notes will be returned,
without charge, to the tendering holder as promptly as practicable after the
expiration date.
We will pay all charges and expenses, other than certain applicable taxes,
in connection with the exchange offer incident to our performance of or
compliance with the registration rights agreement. Therefore, if you tender your
outstanding notes, you will not be required to pay any brokerage commissions,
fees or, subject to the instructions in the letter of transmittal, transfer
taxes with respect to the exchange of the outstanding notes pursuant to the
exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean , 2001, unless we, in our
sole discretion, extend the exchange offer, in which case the term "expiration
date" shall mean the latest date to which the exchange offer is extended. We
will notify the exchange agent of any such extension by oral or written notice
and will mail to each holder of the outstanding notes as of the record date an
announcement thereof, each prior to 5:00 p.m. New York City time on the next
business day after the previously scheduled expiration date. Such announcement
may state that we are extending the offer for a specified period of time.
We reserve the right:
- to delay acceptance of any outstanding notes, to extend the exchange
offer or to terminate the exchange offer and to refuse to accept
outstanding notes not previously accepted, if any of the conditions set
forth under "-- Shelf Registration" shall have occurred and shall not
have been waived by us (if permitted to be waived by us), by giving oral
and written notice of such delay, extension or termination to the
exchange agent; and
- to amend the terms of the exchange offer in any manner deemed by us not
to be disadvantageous to the holders of the outstanding notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the
exchange offer is amended in a manner we determine to constitute a material
change, we will promptly disclose such amendment in a manner reasonably
calculated to inform you of such amendment.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from April 2, 2001, payable
semi-annually in arrears on April 15 and October 15, commencing on October 15,
2001, at the rate of 11.75% per annum. Holders of outstanding notes whose
outstanding notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the outstanding notes
accrued from April 2, 2001 to the date the
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exchange notes are issued. Consequently, holders who exchange their outstanding
notes for exchange notes will receive the same interest payment on October 15,
2001 (the first interest payment date with respect to the outstanding notes and
the exchange notes issued in the exchange offer) as they would have received had
they not accepted the exchange offer.
We will pay additional cash interest on the outstanding notes and exchange
notes, subject to certain exceptions, if
- the exchange offer is not consummated on or before September 29, 2001; or
- we are obligated to file a shelf registration statement and such shelf
registration statement is not declared effective on or prior to September
29, 2001 (See "-- Shelf Registration");
from such date until the exchange offer is consummated or the shelf registration
is declared effective.
The rate of the additional interest will be 0.5% per annum. We will pay
such additional interest on regular interest payment dates. Such additional
interest will be in addition to any other interest payable from time to time
with respect to the outstanding notes and the exchange notes.
Because the exchange offer will not be consummated on or before September
29, 2001, we are required to pay additional interest on the outstanding notes at
a rate of 0.5% over the stated rate from September 30, 2001 until the exchange
offer is consummated on , 2001.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
- have the signatures guaranteed if required by the letter of transmittal;
and
- mail or otherwise deliver the letter of transmittal or such facsimile,
together with the outstanding notes and any other required documents, to
the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date.
To tender outstanding notes effectively, the holder must complete the
letter of transmittal and other required documents and the exchange agent must
receive all the documents prior to 5:00 p.m., New York City time, on the
expiration date. Delivery of the outstanding notes may be made by book-entry
transfer in accordance with the book-entry transfer facility's procedures for
transfer, provided that the holder must transmit and the exchange agent must
receive confirmation of book-entry transfer prior to the expiration date.
The tender by a holder and the acceptance of the tender by us will
constitute agreement between the holder and us under the terms and subject to
the conditions in this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is at the election and
sole risk of the holder. As an alternative to delivery by mail, holders may wish
to consider overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure delivery to the exchange agent before the expiration
date. No letter of transmittal or outstanding notes should be sent to us.
Holders may request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should promptly instruct the registered holder to tender on the
beneficial owner's behalf. See "Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Owner" included with the letter of
transmittal.
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An institution that is a member firm of the Medallion system must guarantee
signatures on a letter of transmittal or a notice of withdrawal unless the
outstanding notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed in that letter of transmittal,
the outstanding notes must be endorsed or accompanied by a properly completed
bond power, signed by the registered holder as the registered holder's name
appears on the outstanding notes. An institution that is a member firm of the
Medallion System must guarantee the signature.
Trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity
should indicate their capacities when signing the letter of transmittal or any
outstanding notes or bond powers. Evidence satisfactory to us of their authority
to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the
outstanding notes at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the exchange offer. Subject to the
establishment of the accounts, any financial institution that is a participant
in The Depository Trust Company's system may make use of the book-entry transfer
facility to transfer the outstanding notes into the exchange agent's account
with respect to the outstanding notes following the book-entry transfer
facility's procedures for transfer. Delivery of the outstanding notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility. However, the holder must transmit and the exchange
agent must receive or confirm an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents on or prior to the expiration date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the book-entry transfer
facility does not constitute delivery to the exchange agent.
The exchange agent and The Depository Trust Company have confirmed that the
exchange offer is eligible for The Depository Trust Company Automated Tender
Offer Program. Accordingly, The Depository Trust Company participants may
electronically transmit their acceptance of the exchange offer by causing The
Depository Trust Company to transfer outstanding notes to the depositary in
accordance with Automated Tender Offer Program procedures for transfer. The
Depository Trust Company will then send an "agent's message" to the depositary.
The term "agent's message" means a message transmitted by The Depository
Trust Company, received by the Depositary and forming part of the confirmation
of a book-entry transfer, which states that:
- The Depository Trust Company has received an express acknowledgment from
the participant in The Depository Trust Company tendering outstanding
notes subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal; and
- we may enforce such agreement against such participant.
In the case of an agent's message relating to guaranteed delivery, the term
means a message transmitted by The Depository Trust Company and received by the
Depositary, which states that The Depository Trust Company has received an
express acknowledgment from the participant in The Depository Trust Company
tendering outstanding notes that such participant has received and agrees to be
bound by the notice of guaranteed delivery.
Notwithstanding the foregoing, in order to validly tender in the exchange
offer with respect to securities transferred through the Automated Tender Offer
Program, The Depository Trust Company participant using Automated Tender Offer
Program must also properly complete and duly execute the applicable letter of
transmittal and deliver it to the Depositary.
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By the authority granted by The Depository Trust Company, any Depository
Trust Company participant which has outstanding notes credited to The Depository
Trust Company account at any time (and held of record by The Depository Trust
Company's nominee) may directly make a tender as though it were the registered
holder by completing, executing and delivering the applicable letter of
transmittal to the depositary. Delivery of documents to The Depository Trust
Company does not constitute delivery to the Depositary.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered notes and withdrawal of tendered notes will be
determined by us in our sole discretion. Our determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered. We reserve the absolute right to reject any outstanding
notes which, in the opinion of our counsel, would be unlawful if accepted. We
also reserve the right in our sole discretion to waive any defects,
irregularities or conditions of tender as to particular notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of notes must be cured within such time as we shall determine. We intend to
notify holders of defects or irregularities with respect to tenders of
outstanding notes. However, neither we, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
outstanding notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and:
- whose outstanding notes are not immediately available;
- who cannot deliver their outstanding notes, the letter of transmittal or
any other required documents to the exchange agent; or
- who cannot complete the procedures for book-entry transfer prior to the
expiration date;
may effect a tender if:
- they tender through an institution that is a member firm of the Medallion
system;
- prior to the expiration date, the exchange agent receives from an
institution that is a member firm of the Medallion system a properly
completed and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the holder, the certificate number(s) of such outstanding notes and
the principal amount of outstanding notes tendered, stating that the
tender is being made and guaranteeing that, within three business days
after the expiration date, the letter of transmittal (or facsimile
thereof) together with the certificate(s) representing the outstanding
notes (or a confirmation of book-entry transfer facility), and any other
documents required by the letter of transmittal will be deposited by the
firm with the exchange agent; and
- the agent receives
- such properly completed and executed letter of transmittal (or
facsimile thereof),
- the certificate(s) representing all tendered outstanding notes in
proper form for transfer (or a confirmation of book-entry transfer of
such outstanding notes into the exchange agent's account at the
book-entry transfer facility), and
- all other documents required by the letter of transmittal upon three
business days after the expiration date.
Upon request to the exchange agent, we will send a notice of guaranteed
delivery to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures described above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders may withdraw
tenders of outstanding notes at any time prior to 5:00 p.m., New York City time,
on the expiration date. To withdraw a tender of outstanding notes in the
exchange offer, the exchange agent must receive a telegram, telex, letter or
facsimile transmission notice of withdrawal at its address set forth in this
prospectus prior to 5:00 p.m., New York City time, on the expiration date.
Any such notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn (including the certificate
number(s) and principal amount of such notes, or, in the case of
outstanding notes transferred by book-entry transfer, the name and number
of the account of the book-entry transfer facility to be credited);
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such outstanding notes were tendered
(including any required signature guarantee) or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
notes register the transfer of outstanding notes into the name of the
person withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the person who deposited the notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. We will not deem notes so withdrawn to have been validly
tendered for purposes of the exchange offer. We will not issue exchange
outstanding notes for withdrawn outstanding notes unless you validly retender
the withdrawn outstanding notes. We will return any outstanding notes which have
been tendered but which are not accepted for exchange to the holder of the
outstanding notes at our cost as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. You may re-tender properly
withdrawn outstanding notes by following one of the procedures described above
under the heading "Procedures for Tendering" at any time prior to the expiration
date.
SHELF REGISTRATION
Notwithstanding any other term of this exchange offer, we will not be
required to accept for exchange, or exchange notes for, certain or all of the
outstanding notes pursuant to this registered exchange offer not yet accepted
for exchange, in the event that
- we determine that applicable law or the applicable interpretations of the
staff of the SEC do not permit us to effect such a registered exchange
offer;
- for any other reason we do not consummate the registered exchange offer
by September 29, 2001; or
- following consummation of the registered exchange offer, in the opinion
of counsel for the initial purchasers, a registration statement must be
filed, and the initial purchasers must deliver a prospectus in connection
with any offer or sale of their notes.
If any of the above events occurs, then we will, subject to certain
exceptions:
- use our best efforts to file, as soon as practicable, a shelf
registration statement (under Rule 415 of the Securities Act) with the
SEC covering resales of the outstanding notes or the exchange notes, as
the case may be;
- use our best efforts to cause the shelf registration statement to be
declared effective by the SEC under the Securities Act; and
- keep the shelf registration statement continuously effective until the
earlier of
34
41
- the time when the notes covered by the shelf registration statement
can be sold pursuant to Rule 144 of the Securities Act without any
limitations under clauses (c), (e), (f) and (h) of such Rule 144;
- two years from the effective date of the shelf registration statement;
or
- the date on which all notes registered thereunder are disposed of in
accordance therewith or cease to be outstanding.
We will, in the event a shelf registration statement is filed, among other
things, provide to each holder for whom such shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement, notify each such holder when the shelf registration statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the outstanding notes or the exchange notes, as the case
may be. A holder selling such outstanding notes or exchange notes pursuant to
the shelf registration statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, would be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and would be bound by the
provisions of the registration rights agreement that are applicable to such
holder (including certain indemnification obligations).
EXCHANGE AGENT
Wilmington Trust Company has been appointed as exchange agent for the
exchange of the outstanding notes. Questions and requests for assistance
relating to the exchange of the outstanding notes should be directed to the
exchange agent in Wilmington, Delaware addressed as follows:
<Table>
<Caption>
By Mail or Overnight Delivery: Wilmington Trust Company
1100 Rodney Square North
Wilmington, DE 19890
Attn: Corporate Trust
By Hand Delivery: Wilmington Trust Company
1105 Rodney Square North
Wilmington, DE
Attn: Corporate Trust, 1st floor
By Facsimile Transmission: (302) 651-1079
By Telephone: (302) 651-8869
</Table>
FEES AND EXPENSES
We will bear the expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation for tenders pursuant to the exchange offer is
being made by mail. Additional solicitations may be made by officers and regular
employees of ours and our affiliates in person, by facsimile or telephone.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses.
We will pay the expenses to be incurred in connection with this exchange
offer, including fees and expenses of the exchange agent and trustee and
accounting and legal fees.
35
42
We will pay all transfer taxes, if any, that are applicable to the exchange
of outstanding notes pursuant to the exchange offer. However, if certificates
representing exchange notes or outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the outstanding notes tendered, or if tendered outstanding notes are
registered in the name of any person other than the person signing the letter of
transmittal, or if a transfer tax is imposed for any reason other than the
exchange of outstanding notes pursuant to the exchange offer, then the amount of
any such transfer taxes, whether imposed on the registered holder or any other
person, will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of such taxes will be billed directly to such tendering
holder.
36
43
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of June 30, 2001 The information set forth below should be
read in conjunction with the following information included elsewhere in this
prospectus: "Use of Proceeds," the "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the historical consolidated
financial statements of Century Aluminum and the separate historical financial
statements of NSA.
<Table>
<Caption>
AS OF
JUNE 30, 2001
----------------------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................... $ 15,353
Short-term debt:
Industrial revenue bonds(1)............................... 7,815
--------
Total short-term debt:................................. 7,815
Long-term debt:
11.75% Senior Secured First Mortgage Notes due 2008(2).... 321,250
--------
Total long-term debt................................... 321,250
--------
Total debt............................................. 329,065
Minority interest in limited liability company(3)........... 26,393
Shareholders' equity:
Convertible preferred stock............................... 25,000
Common stock.............................................. 205
Additional paid-in capital................................ 168,414
Accumulated other comprehensive income.................... 2,125
Retained earnings......................................... 38,062
--------
Total shareholders' equity............................. 233,806
--------
Total capitalization................................. $589,264
========
</Table>
---------------
(1) In connection with the NSA acquisition, we assumed industrial revenue bonds
in the aggregate principal amount of $7.8 million. Glencore assumed a pro
rata portion of the principal amount through its investment in the limited
liability company. The industrial revenue bonds mature on April 1, 2028, are
secured by a letter of credit and bear interest at a variable rate not to
exceed 12% per annum determined weekly based on prevailing rates for similar
bonds in the bond market. The bonds are classified as current liabilities
because they are remarketed weekly and could be required to be repaid upon
demand if there is a failed remarketing, as provided in the indenture
governing the bonds.
(2) Net of unamortized issuance discount.
(3) Represents Glencore's 20% interest in the limited liability company that
operates the Hawesville facility.
37
44
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present Century Aluminum's unaudited pro forma income
statements for the year ended December 31, 2000, and the six months ended June
30, 2001. The unaudited pro forma consolidated financial data presented below
has been derived from the historical financial statements of Century Aluminum,
Xstrata Aluminum Corporation (from which we purchased our additional interest in
the Mt. Holly facility) and NSA. The unaudited pro forma consolidated financial
data has been prepared for illustrative purposes only and does not purport to
represent what our results of operations would actually have been had the
transactions described below in fact occurred as of the dates specified. In
addition, the unaudited pro forma consolidated financial data does not purport
to project our results of operations for any future period. Among other things,
the unaudited pro forma financial data does not reflect the effects of the
following items which may have a material effect on our results of operations:
- certain administrative costs of NSA reflected in its historical financial
statements were allocated from Southwire, including significant expense
allocations for employee-related costs;
- the differences, if any, between the effects our hedging activities will
have on our results of operations following the NSA acquisition compared
to the hedging activities of Southwire during its ownership of the
Hawesville facility.
See "Risk Factors -- Future operating results could differ materially from
our historical and pro forma financial results; if less favorable, we may have
less cash available for debt service than that set forth in the historical and
pro forma financial information in this prospectus."
The unaudited pro forma consolidated income statements for the year ended
December 31, 2000 and the six months ended June 30, 2001 give pro forma effect
to the following events, as if they were consummated on January 1, 2000:
- with respect to the income statement for the year ended December 31, 2000
only, our acquisition in April 2000 of an additional 23% ownership
interest in the Mt. Holly facility;
- the NSA acquisition, completed on April 2, 2001, together with the
related aluminum supply contract entered into by us and Southwire and the
sale of a 20% interest in the Hawesville facility to Glencore;
- the financing transactions related to the NSA acquisition, including (1)
the issuance of the notes, (2) the borrowings under our revolving credit
facility and (3) the sale of convertible preferred stock of Century
Aluminum Company to Glencore; and
- other adjustments that management believes are directly related to the
NSA acquisition and are factually supportable.
The NSA acquisition was accounted for under the purchase method of
accounting. Under the purchase method of accounting, the purchase price is
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values.
The unaudited pro forma consolidated financial data should be read in
conjunction with the separate historical financial statements of NSA, the
historical consolidated financial statements of Century Aluminum and Century
Aluminum's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
38
45
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
PRO FORMA
ACQUISITION OF CENTURY
ADDITIONAL ALUMINUM AND HISTORICAL
INTEREST ADDITIONAL NSA
CENTURY IN MT. HOLLY PRO FORMA MT. HOLLY AS PRO FORMA PRO FORMA
ALUMINUM FACILITY(1) ADJUSTMENTS INTEREST ADJUSTED(2) ADJUSTMENTS CONSOLIDATED
-------- -------------- ----------- ------------ ----------- ----------- ------------
Net sales, third parties... $299,277 $ -- $ -- $299,277 $142,078 $ (586)(3) $619,499
178,730(4)
Net sales, related
parties.................. 129,320 18,081 -- 147,401 185,811 (178,730)(4) 154,482
-------- ------- ----- -------- -------- --------- --------
Total net sales............ 428,597 18,081 -- 446,678 327,889 (586) 773,981
Cost of good sold.......... 396,139 16,940 185(5) 413,634 254,964 1,473(6) 695,022
-- -- 370(7) -- -- 24,951(8)
-------- ------- ----- -------- -------- --------- --------
Gross profit (loss)........ 32,458 1,141 (555) 33,044 72,925 (27,010) 78,959
Selling, general and
administrative
expenses................. 13,931 -- -- 13,931 12,199 (539)(9) 25,591
-------- ------- ----- -------- -------- --------- --------
Operating income (loss).... 18,527 1,141 (555) 19,113 60,726 (26,471) 53,368
Gain on sale of rolling and
fabrication businesses... 5,156 -- -- 5,156 -- -- 5,156
Interest income (expense),
net...................... 2,267 (1,475) 121(10) 913 3,711 (46,615)(11) (41,991)
Other income (expense),
net...................... 6,461 (108) -- 6,353 1,052 -- 7,405
Net gain on forward
contracts................ 4,195 -- -- 4,195 -- -- 4,195
-------- ------- ----- -------- -------- --------- --------
Income before income
taxes.................... 36,606 (442) (434) 35,730 65,489 (73,086) 28,133
Income tax (expense)
benefit.................. (11,301) (15) 165(12) (11,151) -- 27,571(13) (9,121)
(25,541)(14)
-------- ------- ----- -------- -------- --------- --------
Net income (loss) before
minority interest........ 25,305 (457) (269) 24,579 65,489 (71,056) 19,012
Minority interest, net of
tax...................... -- -- -- -- -- 3,044(15) 3,044
-------- ------- ----- -------- -------- --------- --------
Net income (loss).......... $25,305 $ (457) $(269) $ 24,579 $ 65,489 $ (68,012) $ 22,056
======== ======= ===== ======== ======== ========= ========
Preferred dividends........ -- -- -- -- -- (2,000)(16) (2,000)
-------- ------- ----- -------- -------- --------- --------
Earnings available to
common shareholders...... $25,305 $ (457) $(269) $ 24,579 $ 65,489 $ (70,012) $ 20,056
======== ======= ===== ======== ======== ========= ========
Earnings per common share:
Basic.................... $ 1.25 $ 1.21 $ 0.99
Diluted.................. $ 1.24 $ 1.20 $ 0.98
Weighted average common
shares outstanding:
Basic.................... 20,308 20,308 20,308
Diluted.................. 20,478 20,478 20,478
</Table>
See accompanying notes to the unaudited pro forma consolidated income statement.
39
46
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
1. Reflects the addition of the historical operating results of Xstrata
Aluminum Corporation's 23% interest in the Mt. Holly facility, which was
acquired by Century Aluminum effective April 1, 2000, for the three months ended
March 31, 2000.
2. As a result of the NSA acquisition, the concurrent sale of a 20%
interest in the Hawesville facility to Glencore, and the operating and other
agreements entered into with Glencore related to these transactions, Century
Aluminum will be required to pay 80% of the operating expenses for the facility
and will be entitled to 80% of the aggregate production of the facility. As a
result, this column reflects 80% of the historical amounts reported in the NSA
income statement for the year ended December 31, 2000.
3. Reflects the adjustment to record the estimated effects of Century
Aluminum's interest in the new metal supply agreement between Century Aluminum
and Southwire as if the agreement had been in place as of January 1, 2000.
4. Reflects the adjustment to reclassify net NSA sales to Southwire from
related party to third party and sales to Glencore from third party to related
party.
5. Reflects the adjustment to record the estimated incremental depreciation
expense associated with the purchase accounting write-up of the additional 23%
undivided interest in the property, plant and equipment at the Mt. Holly
facility.
6. Reflects the adjustment to record the estimated effect of the higher
incremental depreciation expense associated with the purchase accounting
write-up to the appraised fair value, based on allocation of the purchase price,
of Century Aluminum's direct and undivided interest in NSA's property, plant and
equipment.
7. Reflects the adjustment to cost of sales associated with the incremental
effects of the new last-in, first-out (LIFO) base year values established in
accordance with the purchase method of accounting.
8. Reflects the adjustment to record the estimated amortization expense
associated with the purchase accounting write-up of NSA's intangible assets,
consisting of the value of the power contract for the Hawesville facility
acquired in connection with the NSA acquisition, which will be held by the
limited liability company. The Company amortizes the value of the power contract
over its contractual life using a method that results in annual amortization
equal to the percentage of a given year's expected annual benefit to the total
as applied to the total recorded value of the contract. Pro forma amortization
expense is estimated to be $25.0 million in the first year of the contract,
$26.1 million in the second year, $19.6 million in the third year, $12.4 million
in the fourth year, $14.5 million in the fifth year, and $12.8 million in the
sixth year.
9. Reflects the adjustment to record management fees paid to Century
Aluminum under the new owners agreement with Glencore.
10. Reflects the pro forma interest expense adjustments to:
a) eliminate the historical interest expense associated with the
additional 23% interest in the Mt. Holly facility acquired as the
indebtedness was not assumed in the purchase, and
b) eliminate the interest income for the year ended December 31, 2000
giving effect to the use of available cash for the acquisition of
the additional 23% interest in the Mt. Holly facility.
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2000
------------
Elimination of historical interest income at Century
Aluminum.................................................. $ 1,213
Elimination of historical interest expense at the Mt. Holly
facility.................................................. (1,475)
Additional interest costs related to revolving credit
facility.................................................. 141
-------
Decrease in interest expense................................ $ (121)
=======
</Table>
40
47
11. Interest expense adjustments to arrive at pro forma NSA include the
following:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2000
------------
Additional interest costs related to:
Elimination of historical interest income at Century
Aluminum.............................................. $ 1,054
Elimination of historical interest income at NSA........ 3,989
Revolving credit facility, including commitment fees.... 837
Senior secured first mortgage notes..................... 38,188
Amortization of discount on notes....................... 547
Amortization of deferred financing costs................ 2,000
-------
Increase in interest expense............................ $46,615
=======
</Table>
The interest expense on borrowings under the revolving credit facility was
determined based on the amount borrowed of $4.7 million as if it were
outstanding during the fiscal year ended December 31, 2000. Interest costs
associated with estimated borrowings under the revolving credit facility were
calculated based on an average interest rate of 7.61% for the fiscal year ended
December 31, 2000 (computed based on LIBOR + 2.75%). A hypothetical 12.5 basis
point change in the relevant interest rate for the revolving credit facility
would have changed our annual interest expense by $0.01 million, assuming no
debt reduction.
12. Reflects an adjustment to record income tax benefit for the effects of
the pro forma adjustments for the purchase of the additional interest in the Mt.
Holly facility using a 38% effective tax rate.
13. Reflects an adjustment to record income tax benefit for the effects of
the pro forma adjustments using an effective tax rate of 38%.
14. Reflects an adjustment to record income tax expense for Century
Aluminum's interest in the historical operating results of NSA, using an
effective tax rate of 39%, as it will be a taxable entity as opposed to a
partnership with no tax provision.
15. Reflects an adjustment to record the minority interest allocation of
the amortization associated with the intangible asset held by the limited
liability company.
16. Reflects an adjustment to record preferred dividends on the convertible
preferred stock, which will be issued upon closing of the transaction. Preferred
dividends are calculated using the stated rate of 8.0%.
41
48
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 2001
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<Table>
<Caption>
CENTURY HISTORICAL NSA PRO FORMA PRO FORMA
ALUMINUM AS ADJUSTED(1) ADJUSTMENTS CONSOLIDATED
-------- -------------- ----------- ------------
STATEMENT OF OPERATIONS:
Net sales-third parties................... $243,218 $42,277 $ 134(2) $329,142
43,513(3)
Net sales-related parties................. 56,391 43,513 (43,513)(3) 56,391
-------- ------- -------- --------
Total net sales........................... 299,609 85,790 134 385,533
Cost of good sold......................... 274,860 67,510 476(4) 349,377
-- -- 6,531(5) --
-------- ------- -------- --------
Gross profit (loss)....................... 24,749 18,280 (6,873) 36,156
Selling, general and administrative
expenses................................ 8,926 3,185 (139)(6) 11,972
-------- ------- -------- --------
Operating income (loss)................... 15,823 15,095 (6,734) 24,184
Interest income (expense) -- net.......... (9,991) 2,007 (12,832)(7) (20,816)
Other income (expense) -- net............. (61) 276 -- 215
Net (loss) on forward contracts........... (176) -- -- (176)
-------- ------- -------- --------
Income (loss) before income taxes......... 5,595 17,378 (19,566) 3,407
Income tax (expense) benefit.............. (1,911) -- 7,435(8) (1,254)
-- -- (6,778)(9) --
-------- ------- -------- --------
Net income before minority interest....... 3,684 17,378 (18,909) 2,153
Minority interest, net of tax............. 810 -- 806(10) 1,616
-------- ------- -------- --------
Net income................................ $ 4,494 $17,378 $(18,103) $ 3,769
======== ======= ======== ========
Preferred dividends....................... (500) -- (500)(11) (1,000)
Earnings available to common
shareholders............................ $ 3,994 $17,378 $(18,603) $ 2,769
======== ======= ======== ========
Earnings per common share:
Basic................................... $ 0.20 $ 0.14
Diluted................................. $ 0.19 $ 0.13
Weighted average common shares
outstanding:
Basic................................... 20,431 20,431
Diluted................................. 20,528 20,528
</Table>
See accompanying notes to the unaudited pro forma consolidated income statement.
42
49
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(DOLLARS IN THOUSANDS)
1. As a result of the NSA acquisition, the concurrent sale of a 20%
interest in the Hawesville facility to Glencore, and the operating and other
agreements entered into with Glencore related to these transactions, we will be
required to pay 80% of the operating expenses for the facility and will be
entitled to 80% of the aggregate production of the facility. Consequently, this
column reflects 80% of the historical amounts reported in the NSA income
statement for the three months ended March 31, 2001.
2. Reflects the adjustment to record the estimated effects of our interest
in the new metal supply agreement between us and Southwire as if the agreement
had been in place as of January 1, 2000.
3. Reflects the adjustment to reclassify net NSA sales to Southwire from
related party to third party.
4. Reflects the adjustment to record the estimated effect of the higher
incremental depreciation expense associated with the purchase accounting
write-up to the appraised fair value, based on allocation of the purchase price,
of Century Aluminum's direct and undivided interest in NSA's property, plant and
equipment.
5. Reflects the adjustment to record the estimated amortization expense
associated with the purchase accounting write-up of NSA's intangible assets,
consisting of the value of the power contract for the Hawesville facility
acquired in connection with the NSA acquisition, which will be held by the
limited liability company. The contract value will be amortized over its term
(ten years) using a method that results in annual amortization equal to the
percentage of a given year's expected annual benefit to the total as applied to
the total recorded value of the power contract. Pro forma amortization expense
is estimated to be $25.0 million in the first year of the contract, $26.1
million in the second year, $19.6 million in the third year, $12.4 million in
the fourth year, $14.5 million in the fifth year, and $12.8 million in the sixth
year.
6. Reflects the adjustment to record management fees paid to Century
Aluminum under the new owners agreement with Glencore.
7. Interest expense adjustments to arrive at pro forma NSA include the
following:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2001
------------------
Additional interest costs related to:
Elimination of historical interest income at
Century Aluminum................................. $ 350
Elimination of historical interest income at NSA... 2,094
Revolving credit facility, including commitment
fees............................................. 125
Senior secured first mortgage notes................ 9,547
Amortization of discount on notes.................. 137
Amortization of deferred financing costs........... 579
-------
Increase in interest expense....................... $12,832
=======
</Table>
8. Reflects an adjustment to record income tax benefit for the effects of
the pro forma adjustments using an effective tax rate of 38%.
9. Reflects an adjustment to record income tax expense for our interest in
the historical operating results of NSA, using an effective tax rate of 39%, as
it will be a taxable entity as opposed to a partnership with no tax provision.
10. Reflects an adjustment to record the minority interest allocation of
the amortization associated with the intangible asset held by the limited
liability company that operates the Hawesville facility.
11. Reflects an adjustment to record preferred dividends on the
convertible preferred stock, which were issued upon closing of the transaction.
Preferred dividends are calculated using the stated rate of 8.0%.
43
50
SELECTED HISTORICAL AND
PRO FORMA CONSOLIDATED FINANCIAL AND
OTHER DATA OF CENTURY ALUMINUM
The following table presents selected historical and pro forma financial
and other data of Century Aluminum for the periods indicated. The selected
historical balance sheet and income statement data for and as of the end of the
six months ended June 30, 2000 and June 30, 2001 is derived from our unaudited
consolidated balance sheet and income statement information included elsewhere
in this prospectus. The selected historical balance sheet and income statement
data for and as of the end of each of the years in the three-year period ended
December 31, 2000 is derived from our consolidated financial statements included
elsewhere in this prospectus which have been audited by Deloitte & Touche LLP.
The selected historical balance sheet and income statement data for and as of
the end of each of the years in the two-year period ended December 31, 1997 is
derived from our audited consolidated financial statements which are not
included in this prospectus. Our historical results of operations include the
results from our rolling and fabrication businesses until their sale in
September 1999, the results from our additional 23% interest in the Mt. Holly
facility since its acquisition in April 2000, and the results for our 80%
interest in the Hawesville facility since its acquisition on April 2, 2001.
Accordingly, these results are not indicative of our current business. The
selected pro forma consolidated financial and other data is derived from the
"Unaudited Pro Forma Consolidated Financial Data" of Century Aluminum included
elsewhere in this prospectus. The pro forma consolidated financial data has been
prepared for illustrative purposes only and does not purport to represent what
our results of operations would actually have been had the transactions
described in "Unaudited Pro Forma Consolidated Financial Data" in fact occurred
as of the dates specified. The information provided below should be read in
conjunction with our audited consolidated financial statements, unaudited
consolidated financial statements and accompanying notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the separate financial statements of NSA included elsewhere in this prospectus.
<Table>
<Caption>
HISTORICAL PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------------------ DECEMBER 31,
1996 1997 1998 1999(1) 2000(1)(2) 2000(1)(3)
-------- -------- -------- -------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net sales........................... $688,879 $720,988 $650,258 $566,276 $428,597 $773,981
Cost of goods sold(4)..................... 636,486 691,887 611,796 572,921 396,139 695,022
-------- -------- -------- -------- -------- --------
Gross profit (loss)....................... 52,393 29,101 38,462 (6,645) 32,458 78,959
Selling, general and administrative
expenses................................ 18,614 17,948 19,246 18,884 13,931 25,591
-------- -------- -------- -------- -------- --------
Operating income (loss)................... 33,779 11,153 19,216 (25,529) 18,527 53,368
Gain on sale of rolling and fabrication
businesses.............................. -- -- -- 41,130 5,156 5,156
Interest (expense) income, net............ (2,058) (3,066) (2,204) (3,535) 2,267 (41,991)
Other income (expense)(5)................. 91 419 553 (789) 6,461 7,405
Net gain (loss) on forward contracts(6)... (6,670) (6,837) 10,574 (5,368) 4,195 4,195
Income tax expense........................ (8,902) (601) (10,202) (628) (11,301) (9,121)
-------- -------- -------- -------- -------- --------
Income from continuing operations......... 16,240 1,068 17,937 5,281 25,305 19,012
Net income before minority interest....... 16,504(7) 1,068 17,937 3,919(8) 25,305 19,012
Minority interest, net of tax............. -- -- -- -- -- 3,044
-------- -------- -------- -------- -------- --------
Net income................................ $ 16,504 $ 1,068 $ 17,937 $ 3,919 $ 25,305 $ 22,056
======== ======== ======== ======== ======== ========
Preferred dividends....................... -- -- -- -- -- (2,000)
-------- -------- -------- -------- -------- --------
Earnings available to common
shareholders............................ $ 16,504 $ 1,068 $ 17,937 $ 3,919 $ 25,305 $ 20,056
======== ======== ======== ======== ======== ========
Earnings per common share:
Basic................................... $ 0.79 $ 0.05 $ 0.90 $ 0.19 $ 1.25 $ 0.99
Diluted................................. $ 0.79 $ 0.05 $ 0.89 $ 0.19 $ 1.24 $ 0.98
Dividends per common share................ $ 0.15 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Weighted average common shares
outstanding:
Basic................................... 20,780 20,000 20,000 20,202 20,308 20,308
Diluted................................. 20,876 20,241 20,266 20,357 20,478 20,478
</Table>
44
51
<Table>
<Caption>
HISTORICAL
SIX MONTHS ENDED PRO FORMA
JUNE 30, SIX MONTHS ENDED
---------------------- JUNE 30,
2000(1)(2) 2001(1) 2001(1)(3)
---------- -------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net sales...................................... $205,514 $299,609 $385,533
Cost of goods sold(4)................................ 189,474 274,860 349,377
-------- -------- --------
Gross profit (loss).................................. 16,040 24,749 36,156
Selling, general and administrative expenses......... 6,455 8,926 11,972
-------- -------- --------
Operating income (loss).............................. 9,585 15,823 24,184
Gain on sale of rolling and fabrication businesses... 5,156
Interest (expense) income, net....................... 1,488 (9,991) (20,816)
Other income (expense)(5)............................ 2,865 (61) 215
Net gain (loss) on forward contracts(6).............. 475 (176) (176)
Income tax expense................................... (7,045) (1,911) (1,254)
-------- -------- --------
Income from continuing operations.................... 12,524 3,684 2,153
Net income before minority interest.................. 12,524 3,684 2,153
Minority interest, net of tax........................ -- 810 1,616
-------- -------- --------
Net income........................................... $ 12,524 $ 4,494 $ 3,769
======== ======== ========
Preferred dividends.................................. -- (500) (1,000)
-------- -------- --------
Earnings available to common shareholders............ $ 12,524 $ 3,994 $ 2,769
======== ======== ========
Earnings per common share:
Basic.............................................. $ 0.62 $ 0.20 $ 0.14
Diluted............................................ $ 0.61 $ 0.19 $ 0.13
Dividends per common share........................... $ 0.10 $ 0.10 $ 0.10
Weighted average common shares outstanding:
Basic.............................................. 20,339 20,431 20,431
Diluted............................................ 20,399 20,528 20,528
</Table>
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<Table>
<Caption>
HISTORICAL PRO FORMA
PRO FORMA SIX MONTHS ENDED SIX MONTHS
HISTORICAL YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30, ENDED
------------------------------------------------------ DECEMBER 31, ----------------------- JUNE 30,
1996 1997 1998 1999(1) 2000(1)(2) 2000(1)(3) 2000(1)(2) 2001(1)(2) 2001(1)(3)
-------- -------- -------- -------- ---------- ------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIO)
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........ $ 5,913 $ 5,847 $ 5,826 $ 90,829 $ 32,962 -- $ 15,444 $ 15,353 $ --
Property, plant and
equipment, net..... 176,135 198,341 227,320 105,158 184,526 -- 179,104 433,458 --
Intangible asset --
power
contract(9)........ -- -- -- -- -- -- -- 158,378 --
Total assets......... 473,731 507,148 545,630 310,802 333,770 -- 305,018 811,282 --
Total debt........... 24,356 58,950 89,389 -- -- -- -- 329,065
Total shareholders'
equity(6).......... 166,478 163,546 177,483 179,728 202,639 -- 191,892 233,806
OTHER DATA:
Capital
expenditures(10)... $ 20,561 $ 39,967 $ 44,259 $ 22,983 $ 17,631 $ 20,659 $ 4,549 $ 5,641 $ 6,293
Depreciation and
amortization....... 18,009 18,427 19,685 18,749 14,395 56,757 6,723 16,694 27,414
Ratio of earnings to
fixed
charges(11)........ 8.53 1.07 4.86 1.57 98.88 1.67 124.85 1.53 1.16
PRIMARY ALUMINUM
SEGMENT DATA:
Shipments (pounds in
millions).......... 486.0 481.3 496.5 485.8 581.6 1,040.8 277.6 404.4 511.2
Average Century
realized price
($/lb)............. $ 0.745 $ 0.770 $ 0.705 $ 0.653 $ 0.737 $ 0.744 $ 0.740 $ 0.741 $ 0.754
Average LME price
($/lb)............. 0.683 0.725 0.616 0.617 0.703 0.703 0.707 0.700 0.700
Sales................ 361,858 370,477 350,277 317,370 428,597 773,981 205,514 299,609 385,533
Gross profit
(loss)............. 45,731 51,609 28,791 (17,232) 32,645 78,959 16,040 24,749 36,156
Segment assets....... 157,671 166,603 181,383 303,992 327,131 789,229 301,821 789,585 --
Expenditures for
segment assets..... 9,715 10,703 19,132 14,737 17,631 20,659 4,549 5,641 6,293
</Table>
---------------
(1) On September 21, 1999, we sold our aluminum rolling and fabrication
businesses to Pechiney for $234.3 million and recorded pre-tax gains of
$41.1 million in 1999 and $5.2 million in 2000. Accordingly, the operating
data for 1999, 2000 and the six months ended June 30, 2001 does not include
results from the rolling and fabrication businesses after such date.
Similarly, balance sheet data as of and following December 31, 1999 does
not include the assets and liabilities related to the rolling and
fabrication businesses.
(2) On April 1, 2000, we purchased an additional 23% interest in the Mt. Holly
facility from Xstrata, an affiliate of Glencore, increasing our ownership
interest to 49.7%. Accordingly, the results of operations following that
date reflect the increased production which resulted from that purchase.
Similarly, balance sheet data as of and following December 31, 2000
includes the assets and liabilities related to the additional 23% interest
in the Mt. Holly facility.
(3) The pro forma consolidated statement of operations data for the year ended
December 31, 2000 and six months ended June 30, 2001 give pro forma effect
to the following events, as if they were consummated on January 1, 2000:
- our acquisition in April 2000 of an additional 23% ownership interest in
the Mt. Holly facility; and
- the NSA acquisition together with the related aluminum supply contract
between us and Southwire, the financing transactions related to the
acquisition, including (1) the issuance of the notes, (2) the borrowings
under our revolving credit facility and (3) the sale of convertible
preferred stock of Century Aluminum Company to Glencore, and other
adjustments that management believes are directly related to the NSA
acquisition and are factually supportable.
See "Unaudited Pro Forma Consolidated Financial Data."
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(4) Cost of goods sold in 2000 has been reduced by $1.8 million for income
realized from alumina sales.
(5) Included in other income for the year ended December 31, 2000 is
approximately $6.1 million received in partial settlement of a claim of
approximately $10.0 million with our insurance carrier for property damage
and business interruption losses resulting from an illegal work stoppage at
the Ravenswood facility in August 1999.
(6) On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." As a result, to the extent that our
derivatives are designated as effective cash flow hedges, unrealized gains
(losses) will be reported as accumulated other comprehensive income, rather
than reported in our statement of operations as done in 2000, and realized
gains (losses) are now reported as adjustments to net sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- New Accounting Standards."
(7) Includes $0.3 million in income from discontinued operations, net of income
taxes.
(8) Includes extraordinary item related to write-off of deferred bank fees of
$1.4 million, net of income tax benefit of $0.8 million.
(9) The intangible asset consists of the value of the power contract for the
Hawesville facility which was acquired in connection with the NSA
acquisition.
(10) Capital expenditures prior to September 1999 include significant spending
related to the rolling and fabrication businesses.
(11) For the purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) before income taxes plus fixed charges.
Fixed charges means the sum of the following: (a) interest expensed and
capitalized, (b) amortized premiums, discounts and capitalized expenses
related to indebtedness and (c) an estimate of the interest component of
rental expense.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion reflects our historical results of operations,
which (1) include our rolling and fabricating businesses until we sold them in
September 1999, (2) do not include results from our additional interest in the
Mt. Holly facility until we acquired it in April 2000 and (3) do not include
results for our 80% interest in the Hawesville facility until we acquired it in
April 2001. See "Unaudited Pro Forma Consolidated Financial and Other Data."
Accordingly, the following discussion of our results of operations is not
indicative of our current business. You should read the following discussion in
conjunction with our consolidated financial statements included elsewhere in
this memorandum.
OVERVIEW
We are a producer of primary aluminum, and our net sales are derived from
the sale of primary aluminum. On September 21, 1999, we sold our rolling and
fabrication businesses to Pechiney. Effective April 1, 2000, we increased our
ownership of the Mt. Holly facility to 49.67% by acquiring an additional 23%
interest for a cash purchase price of $94.7 million. The Mt. Holly facility has
an annual production capacity of 480 million pounds of primary aluminum, and our
interest represents 238 million pounds of that capacity.
On April 2, 2001, we acquired from Southwire all of the outstanding stock
of Metalsco, formerly a wholly owned subsidiary of Southwire. Metalsco owns NSA,
which owns and operates the Hawesville facility. The Hawesville facility has the
capacity to produce 523 million pounds of primary aluminum per year. We also
acquired from Southwire certain land, facilities and rights related to NSA's
aluminum reduction operations which were not held by NSA. The cash purchase
price for the NSA acquisition was $460.0 million, subject to post-closing
working capital adjustments. We also assumed industrial revenue bonds related to
the Hawesville facility in the principal amount of $7.8 million and we may be
required to make additional post-closing payments to Southwire of up to $7.0
million. In connection with the acquisition, Glencore purchased from us a 20%
interest in the Hawesville facility for $99.0 million and assumed responsibility
for payment of 20% of the principal amount of the industrial revenue bonds and
payment of a pro rata portion of post-closing payments made to Southwire.
Glencore also purchased $25.0 million of convertible preferred stock of Century
Aluminum Company with an 8% cumulative dividend preference.
The aluminum industry is cyclical and the market price of primary aluminum
(which trades as a commodity) is determined by worldwide supply and demand. Our
results of operations depend to a large degree on the market price of primary
aluminum. Any adverse changes in the conditions that affect the market price of
primary aluminum could have a material adverse effect on our results of
operations. See "The Aluminum Industry -- Current Price Dynamics."
The principal elements comprising our cost of goods sold are raw materials,
power and labor. The principal raw materials used in our production process are
alumina, coal tar pitch, petroleum coke and aluminum fluoride. Pursuant to a
supply contract with Alcoa which will expire as of December 31, 2001, we pay a
fixed price for the alumina used at the Ravenswood facility and for 54% of our
requirements at the Mt. Holly facility. All of our remaining alumina
requirements are purchased under variable-price contracts with the price of the
alumina purchased linked to the LME price for primary aluminum. In connection
with our acquisition of Xstrata's 23% interest in the Mt. Holly facility, we
assumed its long-term variable-price supply contract with Glencore which
provides us with the additional alumina we require as a result of our increased
interest. We purchase the alumina we use at the Hawesville facility from Kaiser
under a variable-price supply contract which runs through 2005. Beginning
January 1, 2002, we will replace our fixed-price supply contract with Alcoa with
a five-year variable-price supply contract with Glencore which will supply the
alumina used at the Ravenswood facility and for 54% of our requirements at the
Mt. Holly facility. As a result, all of our alumina requirements will be
purchased under variable-price contracts linked to market prices for primary
aluminum. See "Business -- Facilities and Production."
We use significant amounts of electricity in the aluminum production
process. Under the terms of our supply contracts with Ohio Power and the South
Carolina Public Service Authority, we pay fixed prices for the power used at the
Ravenswood facility and fixed prices subject to a fuel cost adjustment for the
power used at
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the Mt. Holly facility. The Hawesville facility currently purchases its power
requirements from Kenergy, mostly at fixed prices. Our results of operations in
the first quarter of 2001 were adversely impacted by recent increases in natural
gas costs which triggered the fuel cost adjustment in the Mt. Holly power supply
contract.
Our labor costs are subject to the terms of labor contracts which generally
have provisions for annual fixed increases in hourly wages and benefits
adjustments. On June 1, 1999, we entered into a new four-year labor contract
with our hourly workers at the Ravenswood facility which calls for fixed
increases in hourly wages in 2000, 2001 and 2002 and provides for certain
benefits adjustments. In connection with the NSA acquisition, we negotiated a
collective bargaining agreement with the USWA which covers all of the
represented hourly employees at the Hawesville facility. Under this agreement,
we established the terms of employment for USWA employees and settled all claims
relating to the work stoppage. The agreement was ratified by the USWA local on
September 28, 2000, became effective upon the closing of the NSA acquisition and
has a five-year term. The agreement provides for fixed increases in hourly wages
and certain benefits adjustments in its first, third, fourth and fifth years.
The work rules under the new collective bargaining agreement are substantially
similar to those previously in place at the Hawesville facility.
We value most of our inventory at the lower of LIFO cost or market. At the
end of each period, we are required to write down the LIFO cost of inventory to
the extent that the market price for aluminum is lower. This could adversely
affect our reported results in periods when the market price of aluminum has
declined substantially. To the extent the inventory is sold in a subsequent
period, the reserve established is reversed to income.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Our results of operations for the second quarter of 2001 include our 80%
ownership interest in the Hawesville facility, which was acquired on April 1,
2001.
Net sales. Net sales for the six months ended June 30, 2001 increased
45.8% to $299.6 million from $205.5 million for the six months ended June 30,
2000. The increase was primarily the result of increased volumes from the
Hawesville facility and our additional 23% interest in the Mt. Holly facility
beginning April 1, 2000.
Gross profit. For the six months ended June 30, 2001, gross profit
increased $8.7 million to $24.7 million from $16.0 million for the same period
in 2000. The increase was primarily the result of gross margins on sales volume
from our additional interest in the Mt. Holly facility beginning in April 2000
and our 80% interest in the Hawesville facility beginning in April 2001 and the
lower of cost or market reserves charge of $1.6 million during the first half of
2000 and was partially offset by an electrical power surcharge of $3.0 million
at the Mt. Holly facility during first half of 2001.
Selling, general and administrative expenses. For the six months ended
June 30, 2001, selling, general and administrative expenses increased to $8.9
million from $6.5 million for the six months ended June 30, 2000. This increase
was primarily a result of the inclusion of our pro rata share of selling,
general and administrative expenses from the Hawesville facility following the
NSA acquisition in April 2001.
Operating income. Operating income for the six months ended June 30, 2001
was $15.8 million. This compares with operating income of $9.6 million for the
six months ended June 30, 2000. Operating income increased for the reasons
discussed above.
Gain On Sale of Fabricating Businesses. For the six months ended June 30,
2000, we recorded a gain on the sale of our fabricating businesses of $5.2
million. This resulted from the settlement of post-closing adjustments to the
transaction as originally recorded.
Net Interest Income or Expense. Net interest expense during the six months
ended June 30, 2001 was $10.0 million. This compares with net interest income of
$1.5 million for the same period in 2000. The change in interest was a result of
using available cash to fund the acquisition of an additional interest in the
Mt. Holly facility in April 2000 and the borrowings required to fund the NSA
acquisition in April 2001.
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56
Net Gains/Losses on Forward Contracts. For the six months ended June 30,
2001, we recorded a loss on forward contracts of $0.2 million. For the six
months ended June 30, 2000, we recorded a gain of $0.5 million. We adopted
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
effective January 1, 2001. See "New Accounting Standards." Under SFAS No. 133,
our forward delivery contracts qualify for the normal purchase and sale
exemption, while our forward financial sales contracts, which were previously
recorded at fair value through the statement of operations, have been designated
as cash flow hedges as of January 1, 2001. To the extent our cash flow hedges
are effective, unrealized gains and losses on forward sales contracts will no
longer be reported in the statement of operations, but rather will be reported
in accumulated other comprehensive income on a net of tax basis and reclassified
into earnings when realized.
Other Income/Expense. Other expense for the six months ended June 30, 2001
was $0.1 million. This compares with other income of $2.9 million for the same
period in 2000. The change in other income resulted from the receipt of $3.0
million during the second quarter of 2000 in partial settlement of our business
interruption and property damage claim with our insurance carrier. The claim was
a result of an illegal work stoppage at the Ravenswood facility in August 1999.
Tax Provision/Benefit. Income tax expense for the six months ended June
30, 2001 was $1.9 million. This compares with an income tax expense of $7.1
million for the same period in 2000. The change in income taxes was a result of
lower pre-tax income in 2001.
Net Income before Minority Interest. We had net income before minority
interest of $3.7 million for the six months ended June 30, 2001 compared to net
income of $12.5 million for the same period in 2000. Net income before minority
interest decreased for the reasons discussed above.
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 our aluminum rolling and fabrication businesses which generated $248.9
million in net sales (after adjusting for $136.8 million in intercompany
transfers of primary aluminum) prior to its disposition in September 1999. The
$248.9 million in net sales relating to the rolling business includes $2.0
million in tolling fees. No tolling fees were earned in 2000 due to the sale of
the rolling and fabrication businesses in 1999. Excluding the effects of the
sale of the rolling and fabrication businesses, net sales increased by $111.2
million, resulting from a 95.8 million pound increase in primary aluminum
shipments from 485.8 million pounds in 1999 to 581.6 million pounds in 2000 and
an increase in the average unit selling prices for primary aluminum to $0.74 per
pound in 2000 from $0.65 per pound in 1999. Shipments in 2000 included 84
million pounds from the acquisition of an additional interest in Mt. Holly,
which were sold at an average price of $0.73 per pound. Shipments in 1999 were
impacted by the loss of approximately 15 million pounds resulting from an
illegal work stoppage at the Ravenswood facility in August 1999. The increase in
average realized prices was primarily the result of an increase in the average
LME price for the period in which our sales were priced.
Gross Profit or 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. Gross profit of the primary aluminum segment was $32.6 million in 2000
compared to a loss of $17.2 million in 1999. Gross profit of the primary
aluminum segment in 2000 increased by $40.7 million as a result of higher
realized prices in 2000 and $8.0 million as a result of increased primary
aluminum shipments. Gross profit of the primary aluminum segment was impacted by
a $1.6 million charge to write inventory down to its estimated realizable value
in 2000, a $1.8 million credit as a result of a one time alumina sale in 2000
and a $4.6 million charge to value primary aluminum inventories on a stand alone
LIFO basis after the sale of the rolling and fabrication businesses in 1999.
Gross profit of the sheet and plate segment, which consisted of the rolling and
fabrication businesses that were sold in September 1999, was $10.7 million in
1999.
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 our rolling and
fabrication businesses in September 1999.
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57
Gain on Sale of Rolling and Fabrication Businesses. For the year ended
December 31, 2000, we recorded a gain on the sale of our rolling and fabrication
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, we recorded a gain on the sale of the businesses of $41.1
million.
Interest Expense, 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 income was due to the lack of
borrowings 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 our claim with our insurance providers relative to property damage and
business interruption losses resulting from the illegal work stoppage at the
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 with respect to the value of our forward sales
contracts on that date.
Tax Provision. Income Tax Expense for 2000 was $11.3 million compared to
$0.6 million for 1999. The increase was primarily due to an increase in pre-tax
income before extraordinary items of $30.7 million from $5.9 million in 1999 to
$36.6 million in 2000. Income tax expense for the years ended December 31, 2000
and 1999, respectively, included a $2.4 million and $1.5 million reduction in
estimated income taxes payable relating to the reversal of prior period
accruals. These credits increased the effective tax rate from 11% in 1999 to 31%
in 2000.
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 for primary
aluminum, increased primary aluminum shipments, the acquisition of our
additional interest in the Mt. Holly facility and proceeds received on our
insurance claim related to the illegal work stoppage at the Ravenswood facility.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Consolidated net sales in 1999 were $566.3 million, a decrease
of $84.0 million or 12.9% from net sales of $650.3 million in 1998. Net sales of
the primary aluminum segment decreased from $350.3 million in 1998 to $317.4
million in 1999. This decrease was primarily the result of a decrease in the
volume of shipments from 496.5 million pounds in 1998 to 485.8 million pounds in
1999, attributable primarily to an illegal work stoppage at the Ravenswood
facility in August 1999, and a decrease in average realized prices from $0.71
per pound in 1998 to $0.65 per pound in 1999. The reduction in realized prices
relates primarily to lower average LME prices for the period in which our sales
were priced. Net sales of the sheet and plate segment decreased from $300.0
million in 1998 to $248.9 million in 1999 (after adjusting for $234.5 million
and $136.8 million in intercompany transfers of primary aluminum in 1998 and
1999, respectively), primarily as a result of the sale of the rolling and
fabrication businesses, which comprise the sheet and plate segment, in September
1999.
Gross Profit or Loss. We reported a gross loss of $6.6 million in 1999, a
decrease of $45.1 million from a gross profit of $38.5 million in 1998. Gross
profit (loss) of the primary aluminum segment was gross profit of $28.8 million
in 1998 compared to a gross loss of $17.2 million in 1999. The decrease resulted
from a reduction in average realized prices of $0.06 per pound from 1998 to
1999, the effects of property damage and lost production of approximately $10
million resulting from an illegal work stoppage at the Ravenswood facility in
August 1999, and a $4.6 million charge to value primary aluminum inventories on
a stand alone basis after the sale of the rolling and fabrication businesses in
September 1999. Gross profit of the sheet and plate segment, which consisted of
the rolling and fabrication businesses that were sold in September 1999, was
$9.9 million in 1998 and $10.8 million in 1999. The acquisition of Century Cast
Plate in January 1999 contributed $1.7 million in gross profit in 1999, offset
by the sale of the rolling and fabrication businesses in September 1999, which
had contributed $2.8 million in gross profit in the fourth quarter of 1998.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $18.9 million in 1999, a slight decrease from
expenses of $19.2 million in 1998. The decrease was due to the sale of our
rolling and fabrication businesses and was partially offset by increased
professional fee expenses.
Gain on Sale of Rolling and Fabrication Businesses. We had a gain of $41.1
million on the sale of our rolling and fabrication businesses in 1999, which
represented the excess of proceeds received over the net assets sold to Pechiney
on September 21, 1999.
Interest Expense, Net. Net interest expense was $3.5 million in 1999, an
increase of $1.3 million from net interest expense of $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.
Net Gains or Losses on Forward Contracts. We incurred a net loss on
forward contracts of $5.4 million in 1999 compared to a net gain on forward
contracts of $10.6 million in 1998. The decrease resulted from increasing market
prices for primary aluminum in 1999 which reduced the value of our forward sales
contracts.
Tax Provision. Income tax expense for 1999 was $0.6 million compared to
income tax expense of $10.2 million in 1998. The decrease was primarily due to a
reduction in pre-tax income from $28.1 million in 1998 to $5.9 million in 1999.
Income tax expense for the year ended December 1999 includes a $1.5 million
reduction in estimated income taxes payable due to the reversal of prior period
accruals which reduced the effective tax rate from 36% in 1998 to 11% in 1999.
Net Income. We had net income of $3.9 million in 1999 compared to net
income of $17.9 million in 1998. The decrease was a result of reduced 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 work
stoppage at the Ravenswood facility in August 1999. The decrease was
substantially offset by the gain on the sale of our rolling and fabrication
businesses.
LIQUIDITY AND CAPITAL RESOURCES
After the NSA Acquisition
With the consummation of the NSA acquisition and the sale of the
outstanding notes, our principal sources of liquidity are cash flow from
operations and borrowings under the revolving credit facility. Our principal
uses of cash are payment of principal and interest on our outstanding debt and
dividends on our convertible preferred stock, the funding of capital
expenditures and investments in related businesses, working capital and other
general corporate requirements.
Debt Service
As of June 30, 2001, we had approximately $329.1 million of indebtedness
outstanding, including $321.3 million of principal amount of the outstanding
notes, net of unamortized issuance discount, and $7.8 million in industrial
revenue bonds which were assumed in connection with the NSA acquisition. Our
significant debt service obligations, under certain circumstances, could have
material adverse consequences to holders of the outstanding notes. See "Risk
Factors -- Risks Relating to Our Indebtedness."
Notes. Interest payments on our 11 3/4% Senior Secured First Mortgage
Notes are payable semiannually in arrears beginning on October 15, 2001. The
notes will mature in 2008. The indenture governing the notes contains customary
covenants limiting our ability to pay dividends, incur debt and make
investments. Pursuant to the terms of the indenture, because we will not
consummate a registered exchange offer for the outstanding notes on or before
September 29, 2001, we are required to pay additional interest on the
outstanding notes at a rate of 0.5% over the stated rate from September 30, 2001
until the exchange offer is consummated on , 2001. See
"Description of the Exchange Notes -- Certain Covenants."
Revolving Credit Facility. In connection with the NSA acquisition, we
replaced our former $67.1 million revolving credit facility with a new $100.0
million revolving credit facility. Amounts outstanding under
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the revolving credit facility are unconditionally guaranteed by some of our
domestic subsidiaries and secured by a first priority, perfected security
interest in all accounts receivable and inventory belonging to us and our
guarantor subsidiaries. The availability of funds under the revolving credit
facility is subject to a $30 million reserve and limited by a specified
borrowing base consisting of certain eligible accounts receivable and inventory.
Borrowings under the revolving credit facility are, at our option, at the LIBOR
rate or the Fleet National Bank base rate plus, in each case, the applicable
interest margin. The applicable interest margin ranges from 2.25% to 3.0% over
the LIBOR rate and 0.75% to 1.5% over the base rate. The maturity date of the
facility is April 2, 2006. Interest periods for LIBOR rate borrowings are one,
two, three or six months, at our option. We expect the borrowing base, less the
reserve, will permit us to borrow in the aggregate approximately $60.0 million
under the revolving credit facility. The revolving credit facility contains
customary covenants limiting our ability to repay or redeem other debt, pay
dividends, incur debt and make investments. See "Description of Revolving Credit
Facility and Convertible Preferred Stock."
Industrial Revenue Bonds. As part of the purchase price for the NSA
acquisition, we assumed industrial revenue bonds in the aggregate principal
amount of $7.8 million which were issued in connection with the financing of
certain solid waste disposal facilities constructed at the Hawesville facility.
Pursuant to our agreement with Glencore, Glencore will pay a pro rata portion of
the debt service costs for the industrial revenue bonds. The industrial revenue
bonds mature on April 1, 2028, are secured by a letter of credit and bear
interest at a variable rate not to exceed 12% per annum determined weekly based
on prevailing rates for similar bonds in the industrial revenue bond market. At
June 30, 2001, the interest rate on the bonds was 3.1%. The bonds are classified
as current liabilities because they are remarketed weekly and, under the
indenture governing the bonds, repayment upon demand could be required if there
is a failed remarketing.
Convertible Preferred Stock
In connection with the NSA acquisition, we issued $25.0 million of Century
Aluminum Company convertible preferred stock to Glencore. We are required to pay
dividends on the preferred stock at a rate of 8% per year, which is cumulative.
The notes and the revolving credit facility impose restrictions on Century
Aluminum Company's ability to pay dividends on the convertible preferred stock
in cash. See "Description of Revolving Credit Facility and Convertible Preferred
Stock."
Working Capital
Working capital was $83.1 million at June 30, 2001. We believe that our
working capital needs will be consistent with the past experience of our company
and NSA and that borrowing availability under the revolving credit facility
should be sufficient to meet expected near-term liquidity needs.
Capital Expenditures
Capital expenditures for 2001 are expected to be approximately $20.0
million to $25.0 million and will principally be related to upgrading production
equipment, maintaining facilities and complying with environmental requirements.
As of June 30, 2001, we had made or entered into commitments to make capital
expenditures of approximately $16.0 million. The revolving credit facility will
impose restrictions on our ability to make capital expenditures; however, we
believe that the amount of capital expenditures permitted will be adequate to
maintain our properties and business and comply with environmental requirements.
Acquisitions
We actively pursue opportunities to acquire primary aluminum reduction
facilities which offer favorable cost structures. In connection with possible
future acquisitions, we may need additional financing, which may be provided in
the form of debt or equity. We cannot assure you that any such financing will be
available to us. We anticipate that our operating cash flow, together with
borrowings under the revolving credit facility, will be sufficient to meet our
future debt service obligations as they become due, working capital and capital
expenditures requirements. However, our ability to make scheduled payments of
principal and interest on, or to refinance, our debt obligations, will depend
upon our future operating performance, which will be affected
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by general economic, financial, competitive, regulatory, business and other
factors, many of which are beyond our control. See "Risk Factors." We will
continue from time to time to explore additional financing methods and other
means to lower our cost of capital, including stock issuances or debt financing
and the application of the proceeds to the repayment of bank debt or other
indebtedness.
Historical
Our statements of cash flows for the periods indicated are summarized
below:
<Table>
<Caption>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- -------------------------
1998 1999 2000 2000 2001
-------- -------- --------- ---------- -----------
(DOLLARS IN THOUSANDS)
Net cash provided by (used in)
operating activities............ $ 25,369 $(44,190) $ 58,103 $ 26,034 $ 25,089
Net cash (used in) provided by
investing activities............ (51,838) 222,886 (106,158) (93,462) (370,824)
Net cash (used in) provided by
financing activities............ 26,439 (93,521) (4,170) (2,136) 328,126
-------- -------- --------- -------- ---------
(Decrease) increase in cash....... $ (30) $ 85,175 $ (52,225) $(69,564) $ (17,609)
======== ======== ========= ======== =========
</Table>
Net cash from operating activities of $58.1 million in 2000 was $102.3
million more than the $44.2 million use of cash experienced in 1999. Net cash
provided by operations of $25.4 million in 1998 was $69.6 million more than the
1999 result. The increase in 2000 compared to 1999 was due to an increase in net
income, adjusted to exclude the effect of depreciation and amortization and any
gains from dispositions, of $53.0 million related primarily to improved pricing
for aluminum, a reduction in required pension contributions of roughly $17.5
million and a $43.0 million change in cash flow relating to working capital.
These increases in cash flow were partially offset by a decrease in deferred tax
expense of $9.6 million related primarily to the sale of the rolling and
fabrication businesses during 1999. In 1999, working capital was increased by
$32.4 million primarily due to an increase in receivables after the disposition
of the rolling and fabrication businesses. In 2000, the Company reduced working
capital by $10.6 million primarily through an increased focus on the collection
of receivables. The decrease in 1999 versus 1998 was primarily due to a decline
in net income, adjusted to exclude the effect of depreciation and amortization
and any gains from dispositions, of $56.1 million related primarily to declining
aluminum prices, an increase in required pension contributions of roughly $4.6
million and a change in cash flow related to working capital of $37.2 million.
These decreases in cash flow were partially offset by an increase in deferred
tax expense of $25.8 million related primarily to the sale of the rolling and
fabrication businesses during 1999.
Cash provided from operating activities declined to $25.1 million in the
first six months of 2001 from $26.0 million for the same period in 2000. The
decrease related primarily to an increase in net income, adjusted to exclude the
effect of depreciation and amortization and any gains from dispositions, of $7.1
million that was more than offset by a $4.3 million decrease in deferred tax
expense and a $3.6 million change in cash flow related to working capital.
Our 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 in 1998. The decrease in
cash flow from investing activities in 2000 was a result of the use of cash to
purchase an additional interest in the Mt. Holly facility in April 2000 compared
to the receipt of cash from the sale of the fabricating businesses in September
1999. Capital expenditures were $44.3 million for 1998, $23.0 million for 1999
and $17.6 million for 2000. We used these expenditures to purchase, modernize or
upgrade production equipment, maintain facilities and comply with environmental
regulations.
The net cash used for investing activities was $370.8 million during the
first six months of 2001. The cash was used primarily for the NSA acquisition
and was partially offset by the proceeds from the sale to Glencore of the
minority interest in the Hawesville facility. The net cash used in investing
activities was $93.5 million
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during the first six months of 2000. The cash was used primarily for the
acquisition of an additional interest in the Mt. Holly facility in April 2000.
Net cash used in financing activities was $93.5 million for 1999 and $4.2
million for 2000. 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 absence of borrowing activity in 2000. In 1999, we utilized a portion of the
proceeds from the sale of our rolling and fabrication businesses to retire all
of our outstanding bank debt.
Net cash provided by financing activities was $328.1 million during the
first six months of 2001. The cash from financing activities was primarily from
borrowings and the issuance of preferred stock related to the NSA acquisition.
The net cash used by financing activities during the first six months of 2000
was $2.1 million, which was used to fund the dividend payment for the first half
of 2000.
On March 31, 1999, we entered into an agreement with Fleet National Bank,
formerly BankBoston N.A., and the CIT Group/Business Credit, Inc. to provide a
credit facility in the amount of up to $180.0 million to refinance indebtedness,
finance certain capital expenditures and for other general corporate purposes.
The borrowing base for purposes of determining availability was based upon
certain eligible inventory and receivables. The credit facility consisted of a
revolving credit facility of up to $160.0 million and a term loan of $20.0
million. The term loan was never drawn by us. The revolving credit facility was
secured by the inventory and receivables of Century Aluminum of West Virginia,
Inc. and Berkeley Aluminum, Inc. In connection with the sale of our rolling and
fabrication businesses, we repaid all of our indebtedness under this credit
facility and agreed with our lenders to reduce the revolving credit facility
from $160.0 million to $75.0 million, which was further reduced to $67.1 million
in connection with our purchase of Xstrata's interest in the Mt. Holly facility
in April 2000. In April 2001, this credit facility was replaced with a new
$100.0 million revolving credit facility. See "Description of Revolving Credit
Facility and Convertible Preferred Stock."
Environmental Expenditures and Other Contingencies
We have incurred and, in the future, will continue to incur capital
expenditures and operating expenses for matters relating to environmental
control, remediation, monitoring and compliance. Our aggregate environmental
related accrued liabilities were $0.9 million at each of December 31, 2000 and
June 30, 2001. We believe that our compliance with current environmental laws
and regulations is not likely to have a material adverse effect on our financial
condition, results of operations or liquidity; however, environmental laws and
regulations have changed rapidly in recent years and we may become subject to
more stringent environmental laws and regulations in the future. In addition, we
may be required to conduct remediation activities in the future pursuant to
various orders issued by the EPA and West Virginia Department of Environmental
Protection. We cannot assure you that compliance with more stringent
environmental laws and regulations that may be enacted in the future, or future
remediation costs, would not have a material adverse effect on our financial
condition, results of operations or liquidity.
We have planned environmental capital expenditures of approximately $3.4
million for 2001, $6.7 million for 2002 and $3.9 million for 2003. In addition,
we expect to incur operating expenses relating to environmental matters of
approximately $5.2 million in each of 2001, 2002 and 2003. These estimates
include our 80% pro rata portion of planned environmental expenditures at the
Hawesville facility. As part of our general capital expenditure plan, we also
expect to incur capital expenditures for other capital projects that may, in
addition to improving operations, reduce certain environmental impacts. See
"Business -- Environmental Matters."
We are a defendant in several actions relating to various aspects of our
business. While it is impossible to predict the ultimate disposition of any
litigation, we do not believe that any of these lawsuits, either individually or
in the aggregate, will have a material adverse effect on our financial
condition, results of operations or liquidity. See "Business -- Legal
Proceedings."
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Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk. Our primary debt obligations are the outstanding
notes, borrowings under our revolving credit facility and the industrial revenue
bonds we assumed in connection with the NSA acquisition. Because the notes bear
a fixed rate of interest, changes in interest rates do not subject us to changes
in future interest expense with respect to the outstanding notes. Borrowings
under our revolving credit facility, if any, are at variable rates at a margin
over LIBOR or the Fleet National Bank base rate, as defined in the revolving
credit facility. The industrial revenue bonds bear interest at variable rates
determined by reference to the interest rate of similar instruments on the
industrial revenue bond market. At June 30, 2001, we had $7.8 million of
variable rate borrowings. A hypothetical 100 basis point change in the relevant
interest rates would have changed our annual interest expense by $0.1 million,
assuming no debt reduction.
Our primary financial instruments are cash and short-term investments,
including cash in bank accounts and other highly rated liquid money market
investments and government securities. We believe that these instruments are not
subject to material potential near-term losses in future earnings from
reasonably possible changes in market rates or prices.
Commodity Price Risk. Our operating results are sensitive to changes in
the price of primary aluminum and the raw materials used in its production, as
more fully described in "Business -- Pricing and Risk Management -- Risk
Management."
New Accounting Standards
In June 1998, the 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. Effective
January 1, 2001, we adopted SFAS 133, as amended by SFAS No. 138.
Our fixed-price commitments for physical delivery of primary aluminum
qualified for the normal purchase and sale exemption provided in SFAS No. 138.
Our primary aluminum financial instruments, which were previously recorded at
fair value through our statement of operations, have been designated as cash
flow hedges as of January 1, 2001 and accordingly unrealized gains and losses
are reflected as accumulated other comprehensive income, net of tax, while
realized gains and losses are recorded as revenue. Our natural gas financial
instruments, which were designated as cash flow hedges, were recorded at fair
value on our balance sheet as of December 31, 2000 and June 30, 2001. No
transition adjustment was required upon the adoption of SFAS No. 133. As of June
30, 2001, we reported a balance in accumulated other comprehensive income of
$2.1 million.
The Financial Accounting Standards Board's (the "FASB") Derivatives
Implementation Group (the "DIG") continues to identify and provide guidance on
various implementation issues related to SFAS Nos. 133 and 138 that are in
varying stages of review and clearance by the DIG and FASB. The Company has
adopted all DIG guidance that was required to be implemented by June 30, 2001.
The Company is currently evaluating the impact of pending DIG guidance and has
not determined if the ultimate resolution of those issues would have a material
impact on its financial statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company is currently assessing, but has not yet determined the impact of
SFAS No. 141 on its financial position and results of operations.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which becomes effective January 1, 2002. SFAS No. 142 requires, among
other things, the discontinuance of goodwill amortization. In addition, the
standard includes provisions for: (i) the reclassification of certain existing
recognized intangibles as goodwill, (ii) reassessment of the useful lives of
existing recognized intangibles, (iii) reclassification of certain intangibles
out of previously reported goodwill and (iv) the identification of reporting
units for purposes of assessing potential future impairments of goodwill. SFAS
No. 142 also requires the Company to complete a transitional goodwill impairment
test six months from the date of adoption. The Company is currently assessing,
but has not yet determined, the impact of SFAS No. 142 on its financial position
and results of operations.
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THE ALUMINUM INDUSTRY
PRODUCT OVERVIEW
Aluminum and aluminum products are used by a wide variety of industries
that value its unique physical properties, including light weight and relative
strength, high resistance to corrosion, heat and electrical conductivity,
reflective and nonmagnetic properties, non-toxicity and non-permeability, and
recyclability.
The production of primary aluminum begins with the mining and refining of
bauxite, an aluminum-bearing ore, to produce alumina, an intermediate material.
Alumina is "reduced" into primary aluminum through an electrolytic reduction
process. Approximately two pounds of bauxite are required to produce one pound
of alumina, and approximately two pounds of alumina are required to produce one
pound of primary aluminum. The primary aluminum produced in the reduction
process can be mixed with various alloys or left in its pure form and then cast
into shapes, such as billet and ingot. Depending on their end-use, these cast
products are then remelted, rolled, extruded, forged, drawn or machined into
forms which vary from heavy aluminum plate to fine aluminum wire.
The electrolytic process that separates alumina into its base elements,
aluminum and oxygen, takes place in large, carbon-lined steel pots which are
aligned in a series referred to as a potline. During the reduction process,
significant amounts of electricity flow through each pot in the potline. The
bottom of each pot acts as a cathode, or negative electrode, and carbon blocks
suspended in the pot serve as an anode, or positive electrode. Inside the pots,
alumina is dissolved in a molten electrolytic bath composed mainly of the
mineral cryolite. The electrical current passing from the anode to the cathode
causes the oxygen in alumina to split off and bond with the carbon in the anode,
while pure molten aluminum settles to the bottom of the pot where it is siphoned
off daily and cast into shapes based on the customer's specifications.
GLOBAL MARKET
The principal sources of demand for aluminum are companies in the
transportation, containers and packaging, and building and construction
industries.
Transportation. The transportation industry accounted for an estimated 34%
of worldwide aluminum consumption in 2000 and is the largest end-use market for
aluminum both worldwide and in the United States. Aluminum is used in structural
components in a variety of applications, including airplanes and other aerospace
equipment, automobiles, vans and truck trailers, as well as in engine blocks.
The transportation sector continues to increase its use of aluminum in order to
reduce vehicle weight and thereby improve fuel efficiency.
Containers and Packaging. The containers and packaging industry accounted
for approximately 21% of estimated worldwide aluminum consumption in 2000. This
market segment consists mainly of beverage cans, household and institutional
foil and semi-rigid aluminum packaging. Beverage cans are the largest component
of this segment, as aluminum's recyclability, non-permeability and light weight
give it advantages over steel and glass for use in beverage containers.
Building and Construction. The building and construction sector accounted
for approximately 17% of estimated worldwide aluminum consumption in 2000. In
this sector, aluminum is used primarily for residential, industrial, commercial,
farm and highway construction projects. Typical end-products include ladders,
window frames, gutters and downspouts, and stair treads. Aluminum is also used
for infrastructure applications, including the construction of bridges,
electrical towers and transmission lines.
HISTORICAL FACTORS
The most commonly used benchmark for pricing primary aluminum is the price
for aluminum transactions quoted on the London Metals Exchange, or LME. The LME
price, however, does not represent the actual price paid for all primary
aluminum products. For example, products delivered to U.S. customers are often
sold at a premium to the LME price, typically referred to as the U.S. Midwest
Market Index. Historically, this premium has averaged approximately $0.03 to
$0.05 per pound. In addition, premiums are
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charged for adding certain alloys to aluminum for use in specific applications
and for casting aluminum into specific shapes, such as extrusion billet or
rolling slab.
The average price of primary aluminum on the LME for the year ended
December 31, 2000 was $0.70 per pound. The average LME price for the six months
ended June 30, 2001 was $0.70 per pound. The table below illustrates historical
LME primary aluminum prices over the last 20 years:
WEEKLY AVERAGE LME CLOSING PRICE OF ALUMINUM
[LINE GRAPH]
---------------
* Reflects average price through June 30, 2001
During the 1990s, worldwide supply and demand levels for primary aluminum
fluctuated significantly driven largely by episodes of declining consumption in
the former Soviet Union and Asia. In the early 1990s, consumption of primary
aluminum in the former Soviet Union fell off sharply due largely to a
substantial decrease in demand from Russia's defense industry. Prices in western
markets were adversely impacted as imports from Eastern Bloc countries
substantially increased during this period. As a result, worldwide inventory
levels rose dramatically through 1993, creating downward pressure on prices and
leading to the idling of production capacity.
From late 1993 to 1997, global demand for primary aluminum generally
increased and inventory levels began to decline, leading to improved pricing and
the reopening of some idled capacity. Global demand declined again in 1998 when
Asia experienced economic difficulties, but rebounded in late 1999 as worldwide
economic conditions improved. This growth in demand led to a further decline in
inventory levels and the return to production of a substantial portion of the
remaining idled capacity. In 2000, demand generally remained strong, exceeding
supply and leading to a further reduction in global inventory levels. Beginning
in the fourth quarter of 2000, the idling of certain production facilities,
primarily in the northwestern United States and Brazil, has reduced global
capacity by nearly 8%. These supply curtailments have largely offset the
reduction in demand in the first half of 2001.
CURRENT PRICE DYNAMICS
The market price for primary aluminum, a global commodity, is determined by
worldwide supply and demand conditions. Total global aluminum consumption in
2000 was estimated to be 24.8 million tonnes,
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representing an aggregate increase of nearly 13 million tonnes and a compound
annual growth rate of approximately 3% over the past 20 years. According to
estimates published by CRU(1), by 2005 total global aluminum consumption will
increase by over 5 million tonnes, or 20%, over 2000 levels, representing a
compound annual growth rate of 3.9% over the five-year period. The following
table is based on CRU data and shows actual and projected global primary
aluminum consumption for the years 1999 through 2005:
GLOBAL PRIMARY ALUMINUM CONSUMPTION
<Table>
<Caption>
ACTUAL PROJECTED
--------------- ----------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 CAGR(2)
------ ------ ------ ------ ------ ------ ------ -------
Asia.......................... 7,928 8,843 8,986 9,630 10,332 11,049 11,820 6.9
North America................. 7,267 7,253 6,749 6,989 7,281 7,511 7,789 1.2
Europe........................ 6,300 6,622 6,686 6,924 7,097 7,295 7,519 3.0
South and Central America..... 721 810 818 852 902 943 986 5.4
CIS........................... 524 612 708 800 885 972 1,064 12.6
Australasia................... 387 401 388 399 409 421 435 2.0
Africa........................ 278 286 302 318 332 345 361 4.5
------ ------ ------ ------ ------ ------ ------ ----
Total World................... 23,405 24,827 24,637 25,912 27,238 28,536 29,974 4.2%
</Table>
---------------
(1)The CRU report was published prior to the tragic events of September 11,
2001. Those events and the consequences thereof have created uncertainty
regarding economic growth and demand for aluminum, and we are unable to
predict the impact on worldwide supply and demand for aluminum.
(2) Compound annual growth rate from 1999 to 2005.
In 2000, total worldwide production was 24.5 million tonnes, which fell
short of estimated consumption by 0.33 million tonnes. This supply shortfall
depleted global inventories, which reached an 11-year low in December 2000.
Based on CRU's demand projections, by 2005, consumption will exceed current
production capacity by 3.9 million tonnes, or 15%.
CRU estimates that global production and consumption will not be in balance
before 2004, however, this estimate assumes additions to production capacity
that may be delayed. It typically takes several years and significant amounts of
capital to bring new primary aluminum production capacity on-line. In addition,
global primary aluminum production capacity has been affected recently by the
idling of production capacity primarily in the northwestern United States and
Brazil. Sharply higher power prices stemming from a combination of high demand,
industry deregulation, weather-related factors and a shortage of electrical
generation capacity have caused producers in that region to shut down
approximately 1.9 million tonnes of production capacity, representing
approximately 8% of global capacity. Based on the current situation, we do not
expect this idled production capacity to be restarted in the near future.
Consequently, if expected capacity additions are delayed and consumption of
primary aluminum meets expectations, global production could continue to fall
short of global consumption for some time, creating upward pressure on prices.
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BUSINESS
OVERVIEW
We are a leading North American producer of primary aluminum. Our aluminum
reduction facilities produce premium and commodity grade primary aluminum
products ranging from molten aluminum to premium cast products such as
high-purity foundry ingot and billet. We are the second largest primary aluminum
producer in the United States, behind Alcoa, having produced over 570 million
pounds of primary aluminum in 2000 with net sales of $428.6 million. With the
consummation of the NSA acquisition, as described below, we have an annual
production capacity of over 1.0 billion pounds of primary aluminum, and, for the
year ended December 31, 2000 and the six months ended June 30, 2001, we have pro
forma net sales of $774.0 million and $385.5 million, respectively.
Our Mt. Holly and Ravenswood production facilities are located in Mt.
Holly, South Carolina and Ravenswood, West Virginia. The Mt. Holly facility,
built in 1980, is the most recently constructed aluminum reduction facility in
the United States. We own a 49.7% interest in the Mt. Holly facility, which is
operated by our partner, Alcoa. The Mt. Holly facility has an annual production
capacity of 480 million pounds of primary aluminum, and our interest represents
238 million pounds of that capacity. The Ravenswood reduction facility, which we
own entirely, began operations in 1957 and is located on the Ohio River close to
major U.S. industrial customers. The Ravenswood facility has an annual
production capacity of 375 million pounds of primary aluminum.
Our strategic objective is to grow our primary aluminum business and to
further capitalize on recent and anticipated improvements in industry
fundamentals. To better focus on the production of primary aluminum, we sold our
rolling and fabrication operations to Pechiney in September 1999. In April 2000,
we increased our ownership interest in the Mt. Holly facility by 23% to 49.7%,
increasing our overall production capacity by over 20%.
As part of our growth strategy and in connection with the offering of the
notes, on April 2, 2001, we acquired an aluminum reduction facility in
Hawesville, Kentucky from the Southwire Company, a privately-held wire and cable
manufacturing company. The Hawesville facility began operations in 1970 with
four potlines. A fifth potline was added in 1999, increasing the annual
production capacity at the facility to 523 million pounds of primary aluminum.
In connection with this acquisition, we sold a 20% interest in the Hawesville
facility to Glencore. Our 80% interest in the Hawesville facility increased our
overall production capacity by 418 million pounds, or 68%, and lowered our
average per-unit cash production cost due to the Hawesville facility's lower
cash production costs compared to our other facilities.
FACILITIES AND PRODUCTION
Ravenswood Facility
The Ravenswood facility is owned and operated by our subsidiary, Century
Aluminum of West Virginia, Inc. Built in 1955, the Ravenswood facility operates
four potlines with a total annual production capacity of 375 million pounds. The
site is strategically located on the Ohio River in Ravenswood, West Virginia,
165 miles southwest of Pittsburgh and 45 miles north of Charleston, West
Virginia, close to major U.S. industrial customers. The alumina used in the
reduction process is transported by barge from the Gulf of Mexico through the
Mississippi and Ohio river systems to its unloading point at the Ravenswood
facility's dock.
The Ravenswood facility produces molten aluminum for delivery to Pechiney's
adjacent fabricating facility and commodity ingot which is cast and sold in the
marketplace.
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The following table shows primary aluminum shipments from the Ravenswood
facility during each of the periods indicated:
RAVENSWOOD FACILITY PRIMARY ALUMINUM SHIPMENTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ----- -----
(IN MILLIONS OF POUNDS)
Molten aluminum............................................. 333.3 297.7(1) 335.8
Rolling ingot and sow....................................... 40.9 63.0 41.6
----- ----- -----
Total............................................. 374.2 360.7 377.4
===== ===== =====
</Table>
---------------
(1) Decrease from 1998 reflects a loss of approximately 15 million pounds of
primary aluminum shipments as a result of an illegal work stoppage at the
Ravenswood facility in August 1999.
We purchase the alumina we use at the Ravenswood facility under a
fixed-price supply contract with Alcoa which will expire on December 31, 2001.
As of January 1, 2002, the alumina we use at the Ravenswood facility will be
supplied to us by Glencore under a new five-year contract at a variable price
determined by reference to the quoted LME market price for primary aluminum. We
purchase electricity under a fixed-price power supply contract with Ohio Power,
a subsidiary of American Electric Power, which extends through July 31, 2003.
Mt. Holly Facility
The Mt. Holly facility, built in 1980, is the most recently constructed
aluminum reduction facility in the United States. The plant consists of two
potlines with a total annual production capacity of 480 million pounds and
casting equipment used to cast molten aluminum into standard-grade ingot,
extrusion billet and other premium primary aluminum products. Our 49.7% interest
represents 238 million pounds of this production capacity. Premium primary
aluminum products are sold at higher prices than commodity-priced primary
aluminum. Alumina used in the production process is unloaded at the port of
Charleston, approximately 15 miles from the Mt. Holly facility, and then
transported to the facility by train.
We hold our interest in the Mt. Holly facility through our wholly owned
indirect subsidiary, Berkeley Aluminum, Inc. Effective April 1, 2000, we
increased our 26.7% interest in the Mt. Holly facility to 49.7% when Berkeley
purchased an additional 23% interest from Xstrata Aluminum Corporation, a wholly
owned subsidiary of Xstrata AG, for $94.7 million. Glencore is a major
shareholder of Xstrata AG and is also a major shareholder of Century Aluminum.
Under the current ownership structure, we now hold an undivided 49.7% interest
in the property, plant and equipment comprising the aluminum reduction
operations at the Mt. Holly facility and an equivalent share in the general
partnership responsible for the operation and maintenance of the facility. Alcoa
owns the remaining 50.3% interest in the Mt. Holly facility and a proportionate
share of the operating partnership. Under the terms of the operating
partnership, Alcoa is responsible for operating and maintaining the facility,
while each partner supplies its own alumina for conversion to primary aluminum
and is responsible for its share of operational and maintenance costs.
The Mt. Holly facility manufactures two basic product types:
- primary aluminum cast into ingots, which we sell at commodity prices;
and
- primary aluminum alloyed and cast into value-added primary aluminum
products, such as rolling ingot, foundry alloys and extrusion billet,
which we sell at premium prices.
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The following table shows our primary aluminum shipments from the Mt. Holly
facility during each of the periods indicated:
MT. HOLLY FACILITY PRIMARY ALUMINUM SHIPMENTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1999 2000(1)
----- ----- -------
(IN MILLIONS OF POUNDS)
Commodity-priced primary aluminum........................... 83.7 72.4 107.4
Premium-priced primary aluminum............................. 38.6 52.7 96.8
----- ----- -----
Total............................................. 122.3 125.1 204.2
===== ===== =====
</Table>
---------------
(1) We acquired an additional 23.0% interest in the Mt. Holly facility in April
2000.
We currently purchase from Alcoa approximately 54% of our alumina
requirements for the Mt. Holly facility under a fixed-priced supply contract
that expires at the end of 2001. Beginning on January 1, 2002, Glencore will
supply all of our alumina requirements for the Mt. Holly facility, of which
approximately half will be supplied under a new five-year supply contract and
the remainder will be supplied under an existing contract which runs through
January 31, 2008. The price under both of our alumina supply contracts with
Glencore is determined by reference to the quoted LME market price for primary
aluminum.
Alcoa, which operates the Mt. Holly facility, purchases all of the
facility's power requirements from the South Carolina Public Service Authority
under a power supply contract that expires at the end of 2005. The prices for
the power purchased under this contract are fixed, subject to a fuel cost
adjustment.
Hawesville Facility
The Hawesville facility, which began operations in 1970, is strategically
located adjacent to the Ohio River near Hawesville, Kentucky. The Hawesville
facility originally had four potlines with a total of 448 reduction cells used
for the production of primary aluminum. In September 1999, a fifth potline with
a total of 112 reduction cells became operational. Alumina used in the
production process is unloaded from river barges at the facility's dock on the
Ohio River.
The Hawesville facility has a production capacity of 523 million pounds of
primary aluminum per year, which includes approximately 110 million pounds of
production from the recently added fifth potline. Under our owners agreement
with Glencore, our pro rata portion of the annual production capacity of the
Hawesville facility is 418 million pounds. The original four potlines at the
Hawesville facility are specially configured and operated so as to produce
primary aluminum with a high purity level. The average purity level of primary
aluminum produced by these potlines is 99.9%, compared to the purity of standard
grade aluminum which is approximately 99.7%. The high purity primary aluminum
produced by the four original potlines at the Hawesville facility provides the
high conductivity required for Southwire's electrical wire and cable products as
well as for certain aerospace applications. Standard grade aluminum would
require the added expense of a chemical treatment to achieve the same level of
conductivity. The newly installed fifth potline at the Hawesville facility
produces standard grade aluminum.
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The Hawesville facility produces primary aluminum in molten, ingot and sow
form. The following table shows primary aluminum shipments from the Hawesville
facility during each of the periods indicated:
HAWESVILLE FACILITY PRIMARY ALUMINUM SHIPMENTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1999 2000(1)
----- ----- -------
(IN MILLIONS OF POUNDS)
Molten aluminum............................................ 239.3 271.9 280.7
Ingot, pig and sow......................................... 121.9 129.7 206.6
Foundry alloys............................................. 68.8 67.3 54.1
----- ----- -----
Total............................................ 430.0 468.9 541.4
===== ===== =====
</Table>
---------------
(1) The fifth potline, which can produce approximately 110 million pounds of
standard grade aluminum per year, began production in September 1999.
The alumina used by the Hawesville facility is purchased under a supply
contract with Kaiser which runs through December 31, 2005. The price for alumina
purchased under this contract is variable and determined by reference to the
quoted LME market price for primary aluminum. The Hawesville facility purchases
all of its power from Kenergy Corp., a local retail electric cooperative, under
a power supply contract that expires at the end of 2010. Kenergy acquires the
power it provides to the Hawesville facility under fixed price contracts with a
subsidiary of LG&E Energy Corp., with delivery guaranteed by LG&E. The
Hawesville facility currently purchases all of its power from Kenergy at fixed
prices. Beginning in 2003, approximately 15% of the Hawesville facility's
requirements will be purchased at market rates. The market-rate component of the
contract will increase to approximately 26% in 2006.
SALES AND DISTRIBUTION
The majority of the products produced at our facilities are sold to a
limited number of customers. Giving pro forma effect to the NSA acquisition and
our additional ownership interest in the Mt. Holly facility, we would have
derived a combined total of approximately 76% of our 2000 consolidated sales
from Glencore, Pechiney and Southwire, our three largest customers. Out of total
pro forma revenues of $774.0 million for 2000, sales to Pechiney represented
$244.6 million, or 32% of our total revenues, sales to Glencore represented
$154.5 million, or 20% of total revenues and sales to Southwire represented
$185.8 million, or 24% of total revenues. The remaining $189.1 million, or 24%
of our total pro forma revenues, represented sales to approximately 50 other
customers.
Ravenswood Facility
Sales of primary aluminum to Pechiney represented $239.1 million, or 87% of
our revenues from the Ravenswood facility in 2000. Sales to third parties other
than Pechiney represented $34.8 million, or 13% of our revenues in 2000. We
currently have a contract with Pechiney under which it will purchase 23 to 27
million pounds per month of molten aluminum produced at the Ravenswood facility
through July 31, 2003, at a price determined by reference to the U.S. Midwest
Market Index. This contract will be automatically extended through July 31, 2007
provided that our current power contract for the Ravenswood facility is extended
or replaced through that date. After July 31, 2003, Pechiney will have the
right, upon 12 months notice, to reduce its purchase obligations under the
contract by 50%. Through July 2003, sales to Pechiney will represent between 73%
and 87% of our production capacity at the Ravenswood facility.
Mt. Holly Facility
Sales of primary aluminum to Glencore from the Mt. Holly facility
represented $103.1 million, or 67% of our revenues from the Mt. Holly facility
in 2000. Sales to third parties other than Glencore represented the remaining
$51.6 million, or 33% of revenues from the Mt. Holly facility in 2000. On April
7, 2000, we entered
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into a contract to sell to Glencore approximately 110 million pounds of the
primary aluminum produced at the Mt. Holly facility each year through December
31, 2009. From April 2000 through December 31, 2001, the price is variable and
determined by reference to the quoted LME market price for primary aluminum,
while the remaining eight years of the contract are at a fixed price. Sales to
Glencore under this contract represent 47% of our production capacity at the Mt.
Holly facility.
Hawesville Facility
On a pro forma basis, sales of primary aluminum to Southwire would have
accounted for $185.8 million, or 57% of our revenues from the Hawesville
facility in 2000. Sales to third parties would have accounted for the remaining
$142.1 million, or 43% of our revenues from the Hawesville facility in 2000. In
connection with the NSA acquisition, we entered into a ten-year contract with
Southwire to supply 240 million pounds of high-purity molten aluminum annually
to its wire and cable manufacturing facility located adjacent to the Hawesville
facility. Under this contract, Southwire will also purchase 60 million pounds of
standard grade molten aluminum each year for the first five years of the
contract, with an option to purchase an equal amount each of the remaining five
years. The price under this agreement is variable and is determined by reference
to the U.S. Midwest Market Index. This contract will be automatically renewed
for additional five-year terms, unless either party provides 12 months prior
notice that it has elected not to renew. Sales of primary aluminum to Southwire
will represent up to 57% of the Hawesville facility's current production
capacity for the first five years of the contract. Under our owners agreement
with Glencore, we are each responsible for providing a pro rata portion of the
aluminum supplied to Southwire and each entitled to our pro rata portion of the
remaining production.
PRICING AND RISK MANAGEMENT
Our operating results are sensitive to changes in the price of primary
aluminum and the raw materials used in its production. As a result, we attempt
to mitigate the effects of fluctuations in primary aluminum and raw material
prices through the use of various fixed-price commitments and financial
instruments. Although these efforts may limit our ability to take advantage of
favorable changes in the market prices for primary aluminum or raw materials,
they insulate us from the cyclical prices for those goods and are intended to
ensure we will earn acceptable margins on our products.
Pricing
We offer a number of pricing alternatives to our customers which, combined
with our metals risk management activities, are designed to lock in a certain
level of price stability on our primary aluminum sales. Pricing on our products
is generally offered either at a fixed price, where the customer pays an
agreed-upon price over an extended period of time, or an indexed price, where
the customer pays an agreed-upon premium over the LME price or over other market
indices.
In connection with the sale of our rolling and fabrication businesses in
September 1999, we entered into a long-term contract with Pechiney under which
it will purchase 23 to 27 million pounds per month of molten aluminum produced
at the Ravenswood facility through July 31, 2003, at a price determined by
reference to the U.S. Midwest Market Index. After increasing our ownership
interest in the Mt. Holly facility, we entered into a contract to sell to
Glencore approximately 110 million pounds of the primary aluminum produced at
Mt. Holly each year through December 31, 2009. Through December 31, 2001, the
price is variable and determined by reference to the quoted LME market price for
primary aluminum, while the remaining eight years of the contract are at a fixed
price. In connection with the NSA acquisition, we entered into a 10-year
contract with Southwire to supply 240 million pounds of high-purity molten
aluminum per year to Southwire's wire and cable manufacturing facility located
adjacent to the Hawesville facility at a price determined by reference to the
U.S. Midwest Market Index. Under this contract, Southwire will also purchase 60
million pounds of standard-grade molten aluminum each year for the first five
years of the contract, with an option to purchase an equal amount in each of the
remaining five years. We and Glencore are each responsible for providing a pro
rata portion of the aluminum supplied to Southwire under this agreement.
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In addition to our contracts with Pechiney, Glencore and Southwire, we had
fixed-price commitments to sell 124.4 million pounds of primary aluminum at
December 31, 1999, 50.3 million pounds at December 31, 2000, and 350.5 million
pounds at June 30, 2001. Of these fixed-price commitments, 68.3 million pounds
at December 31, 1999, 14.7 million pounds at December 31, 2000 and 8.9 million
pounds at June 30, 2001 were with Glencore. We had no fixed-price commitments to
purchase aluminum at December 31, 1999 or 2000 or at June 30, 2001.
Risk Management
We manage our exposure to fluctuations in the price of primary aluminum by
selling aluminum at fixed prices for future delivery and through financial
instruments as well as alumina supply contracts with prices tied to the same
indices as our aluminum sales contracts. Our risk management activities do not
include trading or speculative transactions. Although we have not materially
participated in the purchase of call or put options, in cases where we sell
forward primary aluminum, from time to time we may purchase call options so that
we can benefit from price increases which are significantly above our forward
sales prices. In addition, we may purchase put options to protect ourselves from
price decreases.
To mitigate the risk of the commodity price fluctuations inherent in our
business, as of December 31, 1999, December 31, 2000 and June 30, 2001, we had
entered into forward primary aluminum sales contracts for 60 million pounds,
453.5 million pounds and 383.3 million pounds of primary aluminum, respectively.
The contracts outstanding on June 30, 2001 will be settled in cash at various
dates from 2001 through 2003. The Company had forward commitments to purchase
aluminum at June 30, 2001 of 1.8 million pounds. These financial instruments are
scheduled for settlement during 2001. Based on market prices at June 30, 2001,
we could have received $8.3 million for early settlement of the financial hedge
contracts outstanding on that date.
At June 30, 2001, we had entered into forward natural gas purchase
contracts to mitigate the risk of fluctuations in the price of the natural gas
we use in the primary aluminum production process. These contracts will be
settled in cash on various dates in 2001 through 2003. Based on the market
prices for natural gas at June 30, 2001, we could have settled these forward
natural gas purchase contracts and paid $4.2 million.
Prior to January 1, 2001, all gains and losses from forward contract
activity were reported separately in our 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 were reported as either gains or
losses on forward contracts. As of January 1, 2001, our financial instruments
have been designated as cash flow hedges under the new accounting standards
which became effective on that date and, to the extent our cash flow hedges are
effective, unrealized gains or losses will no longer be reported in our
statement of operations. Instead, we will report them as accumulated other
comprehensive income until settled. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- New Accounting Standards." Our
forward natural gas purchase contracts have been designated as cash flow hedges,
and unrealized gains or losses on these contracts are deferred in our balance
sheet as accumulated other comprehensive income.
On a hypothetical basis, a $0.01 per pound increase in the market price of
primary aluminum would have an estimated unfavorable impact of $2.4 million on
our accumulated other comprehensive income for the six months ended June 30,
2001 based on the forward primary aluminum financial sale contracts we had
entered into as of June 30, 2001.
On a hypothetical basis, a $0.50 per DTH decrease in the market price of
natural gas is estimated to have an unfavorable impact of $0.8 million on
accumulated other comprehensive income for the six months ended June 30, 2001 as
a result of the forward natural gas financial purchase contracts entered into by
the Company at June 30, 2001.
We monitor our overall position, and our metals risk management activities
are subject to the management, control and direction of senior management. These
activities are regularly reported to our board of directors.
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COMPETITION
The market for primary aluminum is diverse and highly competitive. We
compete in the production and sale of primary aluminum with numerous other
producers in North America and with other producers worldwide. Our principal
competitors in the U.S. market are Alcoa, Alcan and various other smaller
primary aluminum producers. Aluminum also competes with other materials such as
steel, plastic and glass, which may be used as alternatives for some
applications based upon relative pricing. See "Risk Factors -- Risks Relating to
our Business."
We believe that we compete on the basis of quality, price, timeliness of
delivery and customer service. Some of our 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
ours.
We anticipate that continuing industry consolidation will intensify
competition and further emphasize the importance of cost efficient operations.
With the acquisition of our 80% interest in the Hawesville facility and the
integration of its operations with those of our existing facilities, we expect
to improve the competitiveness of our position on the industry cost curve and
capture a significant share of the high-purity segment of the market.
ENVIRONMENTAL MATTERS
Our operations are subject to various environmental laws and regulations.
We have spent, and expect to spend in the future, significant amounts for
compliance with those laws and regulations. In addition, some of our past
manufacturing activities have resulted in environmental consequences which
require remedial measures. Pursuant to certain environmental laws which may
impose liability regardless of fault, we may be liable for the costs of
remediation of contaminated property or for the amelioration of damage to
natural resources. Although we believe, based upon information currently
available to our management, that we will not be subject to environmental
liabilities which are likely to have a material adverse effect on us, we cannot
be certain that future remedial requirements at our current and formerly owned
or operated properties or adjacent areas will not result in a material adverse
effect on our financial condition, results of operations or liquidity.
The 1990 amendments to the Clean Air Act impose stringent standards on the
aluminum industry's air emissions. These amendments affect our operations as
technology-based standards relating to reduction facilities and carbon plants
have been instituted. Although we cannot predict with certainty how much we will
be required to spend to comply with these standards, our general capital
expenditure plan includes certain projects designed to improve our compliance
with both known and anticipated requirements.
We have planned capital expenditures related to environmental matters at
all of our facilities of $3.4 million in 2001, $6.7 million in 2002 and $3.9
million in 2003. In addition, we expect to incur operating expenses relating to
environmental matters of approximately $5.2 million in each of 2001, 2002 and
2003. These estimates include our pro rata portion of planned capital
expenditures for the Hawesville facility. As part of our general capital
expenditure plan, we also expect to incur capital expenditures for other capital
projects that may, in addition to improving our operations, reduce certain
environmental impacts. It is our policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable we are
liable and when the costs of our liability can be reasonably estimated. Our
aggregate environmental related accrued liabilities were $0.9 million at
December 31, 2000 and June 30, 2001. All accrued amounts have been recorded
without giving effect to any possible future recoveries, as explained more fully
below. With respect to ongoing environmental compliance costs, including
maintenance and monitoring, we expense the costs when incurred.
Ravenswood Facility
We are aware of some environmental contamination at our Ravenswood facility
which is likely to require remedial measures. We believe 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.
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Pursuant to an order issued in 1994 by the Environmental Protection Agency,
or EPA, under Section 3008(h) of the Resource Conservation and Recovery Act, or
"RCRA," we are performing remedial measures at a former oil pond area at
Ravenswood in connection with cyanide contamination in the groundwater. We also
have conducted and submitted to the EPA an RCRA facility investigation
evaluating other areas that may have contamination. Once the investigation is
complete, we will have 60 days to submit a study proposing the remediation
measures we plan to institute for those areas that will require cleanup. If
remedial measures are required, the EPA will issue an order which will detail
our responsibilities.
Before we acquired the Ravenswood facility in 1989, Kaiser owned and
operated the facility for approximately 30 years. Many of the conditions which
we investigated under the 1994 EPA order exist because of activities which
occurred during Kaiser's ownership and operation of the facility. With respect
to those conditions, Kaiser will be responsible for the costs of required
cleanup under the terms of our agreement to purchase the Ravenswood facility. In
addition, Kaiser retained title to certain land at the Ravenswood facility and
retains full responsibility for those areas. Under current environmental laws,
we may be required to undertake remedial measures with respect to any
contamination which was discharged from areas which Kaiser owns or previously
owned or operated. However, if such remediation is required, we believe that
Kaiser will be liable for some or all of the costs we incur.
In connection with the sale of our rolling and fabrication businesses at
Ravenswood to Pechiney, we transferred to Pechiney certain of our
indemnification rights under the agreements relating to our previous purchase of
such businesses. In addition, the agreement with Pechiney provides further
indemnification obligations by us to Pechiney which are limited, in general, to
pre-closing conditions which were not disclosed to Pechiney or to off-site
migration of hazardous substances from our pre-closing acts or omissions. In
general, our indemnification obligations expire on September 20, 2005 and are
payable only to the extent they exceed $2.0 million in the aggregate.
Mt. Holly Facility
We are not aware of any material cost of environmental compliance or any
material environmental liability for which we would be responsible at the Mt.
Holly facility.
NSA/Hawesville Facility
The Hawesville facility has been listed on the National Priorities List
under the federal Comprehensive Environmental Response, Compensation and
Liability Act. On July 6, 2000, the EPA issued a final Record of Decision, or
"ROD," which details response actions to be implemented at several locations at
the Hawesville site to address actual or threatened releases of hazardous
substances. Those actions include:
- removal and off-site disposal at approved landfills of certain soils
contaminated by polychlorinated biphenyls, or "PCBs";
- management and containment of soils and sediments with low PCB
contamination in certain areas on-site; and
- the continued extraction and treatment of cyanide contaminated ground
water using the existing ground water treatment system.
The total capital costs for the remedial actions which have been or will be
undertaken and paid for by Southwire relative to this site is estimated under
the ROD to be $12.6 million and the forecast of annual operating and maintenance
costs is $1.2 million (Southwire management's estimate of the remaining costs to
be incurred for these remedial actions is $6.9 million with operating and
aggregate maintenance costs of $1.8 million). Under our agreement with Southwire
to purchase NSA, Southwire indemnified us from all on-site environmental
liabilities known to exist prior to the closing of the acquisition, including
all remediation, operation and maintenance obligations under the ROD. Although
Southwire is responsible for operating and maintaining the ground water
treatment system required under the ROD, we agreed to reimburse Southwire up to
$0.4 million annually for the cost of extracting and treating contaminated
ground water on the site. Under the terms of our agreements with Glencore
relating to our ownership and operation of the Hawesville
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facility, Glencore will share pro rata in any environmental costs (net of any
amounts available under the indemnity provisions in our stock purchase agreement
with Southwire) associated with the Hawesville facility.
If on-site environmental liabilities relating to NSA's pre-closing
activities that were not known to exist as of the date of the closing of the
acquisition become known within six years after the closing, we and Glencore,
based on our respective percentage interests in the Hawesville facility, will
share the costs of remedial action with Southwire on a sliding scale depending
on the year the claim is brought. Any on-site environmental liabilities arising
from pre-closing activities which do not become known until on or after the
sixth anniversary of the closing of the NSA acquisition will be the
responsibility of Glencore and us. In addition, we and Glencore will be
responsible for a pro rata portion of any post-closing environmental costs which
result from a change in environmental laws after the closing or from our own
activities, including a change in the use of the facility.
As described more fully in "Summary -- The Company -- The NSA Acquisition,"
we acquired NSA by purchasing all of the outstanding equity securities of its
parent company, Metalsco, which was a wholly owned subsidiary of Southwire.
Metalsco previously owned certain assets which are unrelated to NSA, including
the stock of Gaston Copper Recycling Corporation, a secondary metals reduction
facility in South Carolina. Gaston has numerous liabilities related to
environmental conditions at its reduction facility. Gaston and all other non-NSA
assets owned at any time by Metalsco were identified in our agreement with
Southwire as unwanted property and were distributed to Southwire prior to the
closing of the NSA acquisition. Southwire indemnified us for all liabilities
related to the unwanted property. Southwire also retained ownership of certain
land adjacent to the Hawesville facility containing NSA's former potliner
disposal areas, which are the sources of cyanide contamination in the facility's
groundwater. Southwire retained full responsibility for this land, which was
never owned by Metalsco and is located on the north boundary of the Hawesville
site. In addition, Southwire indemnified us against all risks associated with
off-site hazardous material disposals by NSA which pre-date the closing of the
acquisition.
Under the terms of our agreement to purchase NSA, Southwire secured its
indemnity obligations for environmental liabilities for seven years after the
closing by posting a $15 million letter of credit issued in our favor, with an
additional $15 million to be posted if Southwire's net worth drops below a
pre-determined level during that period. Our indemnity rights under the
agreement are shared pro rata with Glencore. The amount of security Southwire
provides may increase (but not above $15 million or $30 million, as applicable)
or decrease (but not below $3 million) if certain specified conditions are met.
We cannot be certain that Southwire will be able to meet its indemnity
obligations. In that event, under certain environmental laws which impose
liability regardless of fault, we may be liable for any outstanding remedial
measures required under the ROD and for certain liabilities related to the
unwanted properties. If Southwire fails to meet its indemnity obligations or if
our shared or assumed liability is significantly greater than anticipated, our
financial condition, results of operations and liquidity could be materially
adversely affected.
Vialco
We are aware of contamination at an alumina facility at St. Croix, Virgin
Islands which we previously owned through our Virgin Islands Alumina Corporation
subsidiary, or "Vialco." We are a party to an Administrative Order of Consent
with the EPA pursuant to which all past and present owners of the alumina
facility have agreed to carry out a Hydocarbon Recovery Plan which provides for
the removal and management of oil which is floating on top of groundwater
underlying the facility. Pursuant to the Hydocarbon Recovery Plan, recovered
hydrocarbons and groundwater will be delivered to an adjacent petroleum refinery
where they will be received and managed. The owner of the petroleum refinery
will pay the parties participating in the recovery efforts the fair market value
of the petroleum hydrocarbon recovered.
Pursuant to the agreement under which we sold the premises to St. Croix
Alumina, LLC, or "St. Croix," a subsidiary of Alcoa, we retained liability for
environmental conditions existing at the time of the sale, but only to the
extent those conditions arose as a result of our operation of the facility. We
are only obligated to indemnify St. Croix for amounts it spends on remediation
which exceed $0.3 million but are not greater than $18.0 million. In addition,
Lockheed Martin Corporation, which sold the facility to Vialco in 1989, has
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indemnified and defended us with respect to certain limited environmental
liabilities at the site pursuant to the terms of our agreement to purchase the
facility from Lockheed Martin, including those arising under the Administrative
Order of Consent. Under our agreement with Lockheed Martin, we agreed to assume
responsibilities for other environmental liabilities. Our management does not
believe that our liability for environmental conditions at this facility will
have a material adverse effect on our financial condition, results of operations
or liquidity.
RESEARCH AND DEVELOPMENT
We perform ongoing process development work primarily using our in-house
engineering resources. Recently, we have been focusing our efforts on refining
the computer control of pots and reducing electricity usage by using different
configurations for the anodes in each pot.
At the Ravenswood facility, we are participating in two cooperative
research agreements with the U.S. Department of Energy and other partners. These
projects are designed to improve the operating and energy efficiencies of the
primary aluminum production process. One project, which we implemented in 1999,
uses experimental system software to identify pots that are not operating at
optimal levels. The system operates on data from multiple sources including any
existing control system. Two newly developed software programs that allow data
mining for both targeted and previously unrecognized data patterns are currently
under evaluation. Our potline operators will be able use the information
provided by the computer's databases to correct operational inefficiencies in
the potline.
In 1998, we began work on another project which focuses on the use of
additives to cathode blocks to prolong their life and improve operating
efficiency. The first phase of small scale testing has been successfully
completed and the next phase will involve placing carbon blocks with the
additives in active pots for evaluation. Construction of bench scale facilities
has just been completed and testing of half width cathode blocks is scheduled to
start in the fourth quarter of 2001.
Two other capital projects are under way at the Ravenswood facility which
are designed to improve our ability to handle nearly 1,800 new and spent anodes
per day. These projects, which are expected to be completed in 2003, will
involve the installation of new automated cranes that will allow the crane
operator to perform most of the work associated with spent anode replacement and
eliminate much of the manual labor formerly required. The completion of these
projects will require an investment of approximately $18.0 million, of which
$12.2 million has already been invested.
Our expenditures for third-party research and development totaled $1.7
million in 1998 and $0.8 million in 1999. No third-party research and
development expenditures were made in 2000, nor are any anticipated for 2001.
INTELLECTUAL PROPERTY
We own or have the right to use a number of patents and patent applications
relating to various aspects of our operations. We do not consider our business
to be materially dependent on any of these patents or patent applications.
We own the rights to the aluminum reduction technology used at the
Hawesville facility to the extent of our pro rata interest in the facility.
Southwire purchased the original technology from Kaiser, and under the terms of
the purchase agreement, ownership rights to the basic technology and certain
improvements vested in Southwire. These improvements included the redesign of
production systems, equipment and apparatus used in the reduction of alumina
into primary aluminum and the casting of primary aluminum products. Southwire
has licensed portions of this technology to certain third parties.
EMPLOYEES AND LABOR RELATIONS
We employ a work force of approximately 1,500 persons, consisting of
approximately 1,200 hourly employees and approximately 300 salaried employees.
We have approximately 560 hourly employees and 120 salaried employees at the
Ravenswood facility, and approximately 650 hourly employees and 170 salaried
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employees at the Hawesville facility. The hourly employees at the Ravenswood and
Hawesville facilities are represented by the USWA. The employees at the Mt.
Holly facility are employed by Alcoa and are not unionized. Our corporate
office, located in Monterey, California, has 14 salaried employees.
The hourly employees at the Ravenswood facility are covered by a four-year
labor agreement with the USWA which expires May 31, 2003. The agreement calls
for fixed increases in hourly wages in 2000, 2001 and 2002 and provides for
certain benefits adjustments in each of those years. In August 1999, our union
employees at the Ravenswood facility staged a one-day illegal work stoppage,
which resulted in a partial plant shutdown that damaged production equipment and
led to estimated losses before insurance of $10.0 million, including equipment
damage and business interruption losses. We received approximately $8.5 million
in settlement of this claim from our insurance carrier.
The employees at the Hawesville facility voted to unionize in May 1997.
After negotiations with Southwire's management over a collective bargaining
agreement broke down, the USWA local went on strike in June 1998, and Southwire
hired replacement workers to operate the Hawesville facility. The employees
subsequently offered to return to their jobs, but Southwire refused the offer.
The USWA then sued the company and subsequently obtained a court order
instructing Southwire to rehire the workers who had gone on strike. In
connection with the NSA acquisition, we negotiated a five-year collective
bargaining agreement which covers all of the represented hourly employees at the
Hawesville facility. Under this agreement, we established the terms of
employment for USWA employees and settled all claims relating to the strike.
This agreement, which was ratified by the USWA local on September 28, 2000,
became effective upon the closing of the NSA acquisition. The agreement provides
for fixed increases in hourly wages in the first, third, fourth and fifth years
and certain benefit adjustments over the life of the agreement. The work rules
under the new collective bargaining agreement are substantially similar to those
previously in place at the Hawesville facility.
LEGAL PROCEEDINGS
We were 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 the actions relating
to the Ravenswood facility have been settled with respect to us and as to
Kaiser. Approximately 10 of those civil actions alleged exposure during the
period we owned Ravenswood, and we have agreed to settlements for non-material
amounts. We are awaiting receipt of final documentation of those settlements and
the entry of dismissal orders. We believe that there are no unsettled asbestos
cases pending against us.
We have pending against us 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, we believe that their
ultimate disposition will not have a material adverse effect on our financial
condition, results of operations, or liquidity.
In August 1999, an illegal, one-day work stoppage temporarily shut down one
of our four production lines at the Century of West Virginia facility. 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. During 2000, we
filed a claim with our insurance carrier for business interruption and equipment
damage relative to the work stoppage and subsequently received a payment of
approximately $8.5 million in settlement of that claim. The receipts from the
claim have been included in the statement of operations under the caption "Other
Income (Expense) -- Net".
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MANAGEMENT
The following table contains certain information concerning our executive
officers and directors:
<Table>
<Caption>
NAME AGE POSITION
---- --- --------
Craig A. Davis............................ 61 Chairman and Chief Executive Officer
Gerald A. Meyers.......................... 51 President, Chief Operating Officer and
Director
Gerald J. Kitchen......................... 60 Executive Vice President, General Counsel
and Chief Administrative Officer
David W. Beckley.......................... 57 Executive Vice President and Chief
Financial Officer
E. Jack Gates............................. 59 Vice President, Reduction Operations
Daniel J. Krofcheck....................... 48 Vice President and Treasurer
Roman A. Bninski.......................... 55 Director
John C. Fontaine.......................... 69 Director
William R. Hampshire...................... 73 Director
John P. O'Brien........................... 59 Director
Stuart M. Schreiber....................... 47 Director
Willy R. Strothotte....................... 57 Director
</Table>
Craig A. Davis. Mr. Davis has been our Chairman and Chief Executive
Officer since August 1995. He has served as Chairman and Chief Executive Officer
of Century Aluminum of West Virginia since August 1995. He has been a director
of Glencore International AG since December 1993, and was an Executive of
Glencore International AG from September 1990 to June 1996. Mr. Davis is a
former Executive Vice President of Alumax Inc.
Gerald A. Meyers. Mr. Meyers has been our President, Chief Operating
Officer and a Director of Century Aluminum since August 1995. He has served as
President and Chief Operating Officer of Century Aluminum of West Virginia since
January 1993 and as a director since April 1994. Mr. Meyers was Operations
Manager of Logan Aluminum (a joint venture between Alcan Aluminum Limited and
Atlantic Richfield Company) from November 1987 to December 1992.
Gerald J. Kitchen. Mr. Kitchen has been our Executive Vice President,
General Counsel and Chief Administrative Officer since September 1995. He has
also served as Vice President, General Counsel and Chief Administrative Officer
of Century Aluminum of West Virginia since August 1995. Mr. Kitchen is a former
Vice President and General Counsel of Alumax.
David W. Beckley. Mr. Beckley has been our Executive Vice President and
Chief Financial Officer since September 1995, and Vice President and Chief
Financial Officer of Century Aluminum of West Virginia since September 1995. He
served as Vice President and Corporate Controller of Alliant Techsystems, Inc.
(a defense contractor) from May 1990 through May 1995.
E. Jack Gates. Mr. Gates has been Vice President of Reduction Operations
at Century Aluminum and Century Aluminum of West Virginia since December 2000.
From 1964 until 1997, Mr. Gates held various management positions at Reynolds
Metals Company. From 1997 until December 2000, Mr. Gates was President and Chief
Executive Officer of F.G. Pruitt, Inc., a privately-held real estate development
construction and management company.
Daniel J. Krofcheck. Mr. Krofcheck has been our Vice President since
September 1998 and Treasurer since September 1997. Mr. Krofcheck served in
various positions with H.J. Heinz Company from 1988 through September 1997.
Roman A. Bninski. Mr. Bninski has been a Director of Century Aluminum
since 1996 and is a partner in the law firm of Curtis, Mallet-Prevost, Colt &
Mosle LLP.
John C. Fontaine. Mr. Fontaine, a Director of Century Aluminum since 1996,
is a former managing partner of the law firm of Hughes Hubbard & Reed LLP and is
currently of counsel to the firm. Mr. Fontaine
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is the former President of Knight Ridder, Inc., where he served as an executive
officer in varying capacities from 1987 to 1997.
William R. Hampshire. Mr. Hampshire has been a Director and the Vice
Chairman of the Board of Directors of Century Aluminum since August 1995. He has
been a Director of Century Aluminum of West Virginia since June 1993, after
serving as President and Chief Operating Officer from April 1992 through January
1993. Mr. Hampshire is the former President and Chief Executive Officer of
Howmet Aluminum Corporation.
John P. O'Brien. Mr. O'Brien has been a Director since July 2000. He has
been Managing Director of Inglewood Associates since 1990 after serving as
Southeast Regional Managing Partner for Price Waterhouse from 1985 through 1990.
He is Chairman of Allied Construction Products and a Director of American
Italian Pasta Co. and International Total Services, Inc.
Stuart M. Schreiber. Mr. Schreiber has been a Director of Century Aluminum
since 1999 and is a founder and Managing Director of Integis, Inc. since 1997.
Mr. Schreiber was a partner in Heidrick & Struggles from 1988 to 1997.
Willy R. Strothotte. Mr. Strothotte has been a Director of Century
Aluminum since 1996. He has served as Chief Executive Officer of Glencore
International AG since 1993 and Chairman of the Board since 1994. Mr. Strothotte
has served as Chairman of the Board of Xstrata AG since 1990.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
AND CONVERTIBLE PREFERRED STOCK
The following summary of the material terms and conditions of the revolving
credit facility and convertible preferred stock does not purport to be complete,
and is subject to the detailed provisions of the credit agreement and various
related documents and the certificate of designation for the convertible
preferred stock.
REVOLVING CREDIT FACILITY
In connection with the NSA acquisition, we entered into a $100.0 million
senior secured revolving credit facility with a syndicate of banks and other
lenders for whom Fleet Capital Corporation, or Fleet, acts as administrative
agent, and Fleet Securities Inc. acts as lead arranger, advisor and syndication
manager. Credit Suisse First Boston also acted as Syndication Agent. Funds
borrowed under our revolving credit facility will be used for working capital,
capital expenditures and other general corporate purposes.
General. Century Aluminum Company and certain of our subsidiaries are
borrowers under the new revolving credit facility. Of the $100.0 million
available under the revolving credit facility, no borrowings were used to
finance the NSA acquisition, leaving $100.0 million available for general
corporate purposes, subject to the borrowing base. The availability of funds
will be limited by a specified borrowing base consisting of (1) 85% of eligible
accounts receivable not owed by Glencore plus the lesser of (x) $10.0 million
and (y) 85% of receivables owed by Glencore and (2) 65% of eligible inventory,
net of an availability reserve of $30.0 million and any additional reserve added
by the agent from time to time in its reasonable discretion. Inventory is valued
on a FIFO basis for purposes of determining the borrowing base. As part of the
$100.0 million available under the revolving credit facility, we can obtain
letters of credit in an aggregate amount not exceeding $10.0 million. Borrowings
are available subject to compliance with customary borrowing conditions,
including the accuracy of all representations and warranties and the absence of
any default.
Our obligations under the revolving credit facility are unconditionally
guaranteed by our domestic subsidiaries (other than Century Aluminum of Kentucky
LLC) and secured by a first priority, perfected security interest in all
accounts receivable and inventory belonging to us and our subsidiary borrowers.
Interest Rates and Fees. Amounts outstanding under our revolving credit
facility bear interest, at our option, at either a floating LIBOR rate or Fleet
National Bank's base rate plus the applicable interest margin. The applicable
interest margin is determined based on our ratio of consolidated indebtedness to
consolidated EBITDA, as defined in the revolving credit facility. For amounts
outstanding under the revolving credit facility, the applicable interest margin
ranges from 2.25% to 3.0% over the LIBOR rate and 0.75% to 1.5% over the base
rate. Minimum borrowing spreads of 2.75% over LIBOR and 1.25% over the base rate
have been established for the period from April 2, 2001 through December 31,
2001. In addition, we pay a commitment fee of 0.5% per year on undrawn amounts.
We are also required to pay a letter of credit fee equal to the applicable
margin for LIBOR loans on the face amount of all standby letters of credit and a
fee equal to that margin less 0.5% for documentary letters of credit. We are
also required to pay certain fronting and other fees.
Maturity. The revolving credit facility will mature five years from the
date of closing of the NSA acquisition, or April 1, 2006.
Prepayments. We can make voluntary prepayments of amounts outstanding
under the revolving credit facility, in whole or in part without premium or
penalty, subject to standard LIBOR breakage costs. We are required to apply the
proceeds of sales of accounts receivable or inventory, other than sales of
inventory in the ordinary course of business, to repay amounts outstanding under
the revolving credit facility and correspondingly reduce the commitments
thereunder.
Covenants. Under the terms of the revolving credit facility, we are
subject to customary affirmative, negative and financial covenants, including
restrictions on: capital expenditures, additional indebtedness, liens,
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guarantees, mergers and acquisitions, dividends and distributions, redemptions
of junior capital, and payments on junior capital and investments.
Events of Default. The revolving credit facility contains customary events
of default including, without limitation, nonpayment, misrepresentation, breach
of covenant, insolvency, bankruptcy, ERISA violations, certain judgements,
change of control (as defined in the revolving credit facility) and cross
defaults.
CONVERTIBLE PREFERRED STOCK
Concurrently with the closing of the NSA acquisition, Century Aluminum
Company issued to Glencore 500,000 shares of its 8.0% cumulative convertible
preferred stock for a cash purchase price of $25.0 million. The convertible
preferred stock has a par value per share of $0.01 and a liquidation preference
of $50 per share. The convertible preferred stock ranks junior to the notes,
borrowings under our credit facility and all of our other existing and future
debt obligations. The purchase agreement for the preferred stock contains
customary indemnification provisions. Following is a summary of the principal
terms of the convertible preferred stock.
- Dividends. The holders of the convertible preferred stock are entitled
to receive fully cumulative cash dividends at the rate of 8% per annum
per share accruing daily and payable when declared quarterly in arrears.
- Optional Conversion. Each share of convertible preferred stock may be
converted at any time, at the option of the holder, into shares of our
common stock, at a price of $17.92, subject to adjustment for stock
dividends, stock splits and other specified corporate actions.
- Voting Rights. The holders of convertible preferred stock have limited
voting rights to approve: (1) any action by us which would adversely
affect or alter the preferences and special rights of the convertible
preferred stock, (2) the authorization of any class of stock ranking
senior to, prior to or ranking equally with the convertible preferred
stock, and (3) any reorganization or reclassification of Century Aluminum
Company's capital stock or merger or consolidation of Century Aluminum
Company.
- Optional Redemption. After the third anniversary of the issue date,
Century Aluminum Company may redeem the convertible preferred stock at
its option for cash at a price of $52 per share, plus accrued and unpaid
dividends to the date of redemption, declining ratably to par at the end
of the eighth year.
- Transferability. Our convertible preferred stock is freely transferable
in a private offering or any other transaction which is exempt from, or
not subject to, the registration requirements of the Securities Act and
any applicable state securities laws.
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DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this Description of
the Exchange Notes under "-- Certain Definitions."
The outstanding notes were, and the exchange notes will be, issued under an
indenture, dated April 2, 2001, among Century Aluminum Company, the Guarantors
and Wilmington Trust Company, as trustee. The terms of the notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939. The following is a summary of the material
provisions of the indenture and the related Security Documents. Because this is
a summary, it may not contain all the information that is important to you. You
should read the indenture and the Security Documents in their entirety. Copies
of the indenture and the Security Documents are available from us as described
under "Where You Can Find More Information."
The form and terms of the exchange notes are the same in all material
respects as the form and terms of the outstanding notes, except that the
exchange notes will have been registered under the Securities Act and therefore
will not bear legends restricting their transfer. The outstanding notes have not
been registered under the Securities Act and are subject to transfer
restrictions.
BASIC TERMS OF THE NOTES
The notes:
- are senior secured obligations of Century Aluminum Company, ranking
equally in right of payment with all existing and future senior
indebtedness of Century Aluminum Company;
- are guaranteed by each Guarantor, which guaranty shall in each case be a
senior obligation of such Guarantor, ranking equally in right of payment
with all existing and future senior indebtedness of such Guarantor (see
"Risk Factors -- Risks Relating to the Exchange Notes -- Federal and
state laws permit a court to void the guarantees of our subsidiary
guarantors under certain circumstances, which might mean your claims
against those subsidiaries would be lost or limited.");
- are secured by the Collateral referred to below;
- rank senior in right of payment to all the existing and future
subordinated indebtedness of Century Aluminum Company;
- are issued in an original aggregate principal amount of up to $325.0
million;
- mature on April 15, 2008;
- bear interest beginning the Issue Date at 11.75% per year, payable
semiannually on each April 15 and October 15, beginning October 15, 2001,
to holders of record on the April 1 or October 1 immediately preceding
the interest payment date; and
- bear interest on overdue principal and interest at the rate stated above
plus 2% per year.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
OPTIONAL REDEMPTION
Except as set forth in the next two paragraphs, the notes are not
redeemable at the option of Century Aluminum Company.
At any time and from time to time on or after April 15, 2005, Century
Aluminum Company may redeem the notes, in whole or in part, at a redemption
price equal to the percentage of principal amount set forth below
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plus accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on April 15 of the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
---- ----------
2005...................................................... 105.875%
2006...................................................... 102.938%
2007...................................................... 100.000%
</Table>
At any time and from time to time prior to April 15, 2004, Century Aluminum
Company may redeem notes with the net cash proceeds received by it from any
Public Equity Offering at a redemption price equal to 111.75% of the principal
amount plus accrued and unpaid interest to the redemption date, in an aggregate
principal amount for all such redemptions not to exceed 35% of the aggregate
principal amount of the exchange notes originally issued under the indenture,
provided that
(1) in each case the redemption takes place not later than 60 days
after the closing of the related Public Equity Offering, and
(2) not less than 65% of the aggregate principal amount of the
exchange notes originally issued under the indenture remains outstanding
immediately thereafter.
If fewer than all of the notes are being redeemed, the trustee will select
the notes to be redeemed pro rata, by lot or by any other method the trustee in
its sole discretion deems fair and appropriate, in denominations of $1,000
principal amount and multiples thereof. Upon surrender of any note redeemed in
part, the holder will receive a new note equal in principal amount to the
unredeemed portion of the surrendered note. Once notice of redemption is sent to
the holders, notes called for redemption become due and payable at the
redemption price on the redemption date, and, commencing on the redemption date,
notes redeemed will cease to accrue interest.
NO MANDATORY REDEMPTION OR SINKING FUND
There will be no mandatory redemption or sinking fund payments for the
notes.
GUARANTIES
The obligations of Century Aluminum Company pursuant to the notes,
including any repurchase obligation resulting from a Change of Control, will be
unconditionally guaranteed, jointly and severally, on a senior basis, by all of
Century Aluminum Company's existing Domestic Restricted Subsidiaries. If Century
Aluminum Company or any of its Restricted Subsidiaries acquires or creates a
Domestic Restricted Subsidiary after the Issue Date, the new Domestic Restricted
Subsidiary must provide a guaranty of the notes (a "note guaranty").
Each note guaranty will be limited to the maximum amount that would not
render the Guarantor's obligations subject to avoidance under applicable
fraudulent conveyance provisions of the United States Bankruptcy Code or any
comparable provision of state law. By virtue of this limitation, a Guarantor's
obligation under its note guaranty could be significantly less than amounts
payable with respect to the notes, or a Guarantor may have effectively no
obligation under its note guaranty. See "Risk Factors -- Risks Relating to the
Exchange Notes -- Federal and state laws permit a court to void the guarantees
of our subsidiary guarantors under certain circumstances, which might mean your
claims against those subsidiaries would be lost or limited."
The note guaranty of a Guarantor will terminate upon
(1) a sale or other disposition (including by way of consolidation or
merger) of the Guarantor or the sale or disposition of all or substantially
all the assets of the Guarantor (other than to Century Aluminum Company or
a Restricted Subsidiary) otherwise permitted by the indenture,
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(2) the designation of the Guarantor, in accordance with the
indenture, as an Unrestricted Subsidiary, or
(3) defeasance or discharge of the notes, as provided in "Defeasance
and Discharge."
COLLATERAL
Generally
Century Aluminum Company and certain Guarantors have entered into Security
Documents to secure their obligations under the notes and the note guaranties.
Pursuant to the Security Documents, Century Aluminum Company and certain
Guarantors have granted a security interest to the Collateral Agent for the
benefit of the trustee and the noteholders, in the Collateral, which includes
(as set forth in more detail in the definition of Collateral), (1) certain
plant, property and equipment of Century Aluminum Company and the Guarantors,
but excluding the Mt. Holly facility's property, plant and equipment and (2)
cash collateral held in a cash collateral account under the Pledge and Security
Agreement. The Collateral will not in any event include mobile equipment,
accounts receivable, inventory, intellectual property, financial assets,
investments and other general intangibles, except to the extent of proceeds of
other Collateral and to the extent that such cash collateral are considered
financial assets, investments or general intangibles. The Collateral will not
include any accounts receivable or inventory pledged for the benefit of the
lenders under the Credit Agreement without the consent of the agent or
representative of such lenders until the Credit Agreement is terminated.
Upon the occurrence of an Event of Default under the indenture, the trustee
may direct the Collateral Agent to take action to enforce the mortgages and
security interests contained in the Security Documents. Any proceeds of any
Collateral foreclosed upon or otherwise realized upon pursuant to the Security
Documents will be applied by the Collateral Agent and the trustee in the
following order:
- first, to pay costs of realization and other expenses in connection with
the realization of the Collateral;
- second, to the trustee to pay any costs and expenses due to the trustee;
- third, to the trustee for the benefit of the noteholders to pay all
amounts due in respect of the exchange notes; and
- fourth, in the case of any surplus, to Century Aluminum Company or the
Guarantor that pledged such Collateral, or its assigns.
There can be no assurance that the proceeds of any sale of the Collateral
following an Event of Default would be sufficient to satisfy payments due on the
notes. See "Risk Factors Risks -- Relating to the Exchange Notes -- The value of
the collateral securing the notes is limited and may not be sufficient to repay
the exchange notes in the event of our default" and "Risk Factors -- Risks
Relating to the Exchange Notes -- The ability of the trustee to liquidate the
collateral could be impaired by bankruptcy considerations."
Upon payment in full of principal, interest and all other Obligations on
the notes or defeasance or discharge of the notes, as provided in "Defeasance
and Discharge," the Collateral then remaining (other than any Collateral pledged
as part of the trust required to defease or discharge the notes) will be
released to Century Aluminum Company or the applicable Restricted Subsidiary.
The Collateral may also be released from time to time as described in more
detail below. Century Aluminum Company will be required to deliver to the
trustee such certificates and opinions as may be required by Section 314(d) of
the Trust Indenture Act in connection with any release of, or addition or
substitution to, the Collateral.
Neither Century Aluminum Company nor any of its Restricted Subsidiaries
will be permitted to take any action, or knowingly or negligently omit to take
any action, which action or omission might or would have the result of
materially impairing the security interest with respect to the Collateral for
the benefit of the trustee and the noteholders. The indenture will provide that
any release of Collateral in accordance with the provisions of the indenture and
the Security Documents will not be deemed to impair the security under the
indenture, and that any engineer or appraiser may rely on such provision in
delivering a certificate requesting release so long as all other provisions of
the indenture with respect to such release have been complied with.
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DISPOSITION OF COLLATERAL; COLLATERAL PROCEEDS ACCOUNT
Century Aluminum Company and its Restricted Subsidiaries may sell, transfer
or otherwise dispose of any Collateral to any Person, and the trustee shall
release the same from the Lien of the indenture and the Security Documents upon
consummation of the disposition and upon receipt by the trustee of:
(a) an Officers' Certificate requesting such release and stating that:
(1) the proposed disposition is in compliance with clauses (1) and
(2) under "Certain Covenants -- Limitation on Asset Sales" or is exempt
therefrom, and setting forth the exemption in reasonable detail; and
(2) the proposed disposition is, in the Board of Directors' good
faith judgment, desirable in the proper conduct of the business of
Century Aluminum Company and its Restricted Subsidiaries, taken as a
whole;
(b) an engineer's or appraiser's certificate stating in substance:
(1) a description in reasonable detail of the property to be
released;
(2) a description in reasonable detail of the consideration for the
property to be released;
(3) the then fair value, in the opinion of the signer, of the
property to be released, which fair value shall not be more than the
amount of the consideration received or to be received by Century
Aluminum Company or the applicable Restricted Subsidiary from the
disposition of the property to be released; and
(4) that such release, in the opinion of the signer, will not
impair the security under the indenture in contravention of the
provisions of the indenture; and
(c) if the fair value of such property and all other Collateral being
disposed of in any related transactions exceeds $2.5 million, the cash
proceeds of such disposition, which shall be deposited in the cash
collateral account described below.
If the fair value of such property and of all other Collateral released from the
lien of the indenture and the Security Documents since the commencement of the
then current calendar year is 10% or more of the aggregate principal amount of
the notes at the time outstanding, the engineering or appraisal certificate
shall be made by an independent engineer, appraiser or other expert; provided
that the certificate may be made by an engineer, appraiser or other expert that
is not independent if the fair value of the property to be released, as stated
in the required certificate, is less than the greater of (a) $25,000 or (b) 1%
of the aggregate principal amount of notes at the time outstanding.
In addition, if any Collateral is being released in connection with an
exchange for property that will be subjected to the lien of the indenture and
the Security Documents, the engineer's or appraiser's certificate shall also
state in substance:
(1) a description in reasonable detail of the property to be subjected
to the lien; and
(2) the then fair value, in the opinion of the signer, of the property
to be subjected to the lien, which fair value shall not be less than the
then fair value of the property to be released.
If within six months prior to the date of acquisition by Century Aluminum
Company or any Restricted Subsidiary, the property being subjected to a lien has
been used or operated by another person or persons in a business similar to that
of Century Aluminum Company and its Restricted Subsidiaries, the engineering or
appraisal certificate shall be made by an independent engineer, appraiser or
other expert; provided that the certificate may be made by an engineer,
appraiser or other expert that is not independent if the fair value of the
property to be subjected to a lien, as stated in the required certificate, is
less than the greater of (a) $25,000 or (b) 1% of the aggregate principal amount
of notes at the time outstanding. Notwithstanding the foregoing, the lien of the
indenture and the Security Documents will not be released if any sale, transfer
or other disposition of Collateral is made as part of a transaction that is
governed by the covenant described under "-- Consolida-
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tion, Merger or Sale of Assets -- Consolidation, Merger or Sale of Assets by
Century Aluminum Company." As described in more detail below, with respect to
certain dispositions of Collateral or Restricted Assets, (1) Century Aluminum
Company or the relevant Guarantor must invest the net cash proceeds of such sale
in assets of a Permitted Business or Voting Stock of another Person that becomes
a Guarantor engaged in a Permitted Business that would, in any such case,
thereupon become part of the Collateral securing the notes or the note
guaranties of the Guarantors, as the case may be, or (2) subject to the limits
described under "-- Certain Covenants -- Limitation on Asset Sales," Century
Aluminum Company must make an offer to purchase the outstanding notes at a
purchase price of 100% of the principal amount thereof plus accrued interest
thereon. See "-- Certain Covenants -- Limitation on Asset Sales."
Pursuant to the indenture and the Pledge and Security Agreement, Century
Aluminum Company and the Guarantors will deposit in a cash collateral account:
(1) cash proceeds from any sale, lease, transfer or other disposition (or series
of related sales, leases, transfers or dispositions) of Collateral having an
aggregate fair market value of more than $2.5 million, (2) any cash proceeds in
excess of $2.5 million of any Collateral taken by eminent domain, expropriation
or other similar governmental taking and (3) cash proceeds in excess of $2.5
million of insurance upon any part of the Collateral. The Collateral Agent will
have a perfected security interest in the account for the benefit of the trustee
and the noteholders. Proceeds of the account may only be released to Century
Aluminum Company or the applicable Guarantor for use as permitted by clause (4)
or (5) described under "-- Certain Covenants -- Limitation on Assets Sales."
Century Aluminum Company will not be required to deposit any proceeds from
eminent domain or other similar taking or insurance to the extent that it
furnishes the Collateral Agent and the Trustee with an Officers' Certificate
certifying that it has invested an amount in compliance with such clauses equal
to, or in excess of, the amount of such proceeds in anticipation of receipt of
such funds. Century Aluminum Company and the Guarantors will be required to
comply with the requirements described above with respect to dispositions of
Collateral before they may use the moneys in the cash collateral account.
MAINTENANCE OF PROPERTY; INSURANCE
The indenture will require Century Aluminum Company to cause all properties
used or useful in the conduct of its business or the business of any of its
Restricted Subsidiaries to be maintained and kept in good condition, repair and
working order as in the judgment of Century Aluminum Company may be necessary so
that the business of Century Aluminum Company and its Restricted Subsidiaries
may be properly and advantageously conducted at all times; provided that nothing
in this covenant shall prevent Century Aluminum Company or any Restricted
Subsidiary from discontinuing the use, operation or maintenance of any of such
properties or disposing of any of them, if such discontinuance or disposal is,
in the judgment of Century Aluminum Company, desirable in the conduct of the
business of Century Aluminum Company and its Restricted Subsidiaries taken as a
whole.
Century Aluminum Company will provide or cause to be provided, for itself
and its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to liability insurance, with reputable insurers, in such amounts,
with such deductibles and by such methods as are customary for corporations
similarly situated in the industry in which Century Aluminum Company and its
Restricted Subsidiaries are then conducting business.
RANKING
SENIOR DEBT VERSUS THE NOTES
The indebtedness evidenced by the notes and the note guaranties will rank
equally in right of payment with all other senior obligations of Century
Aluminum Company and the Guarantors, as the case may be, except that the notes
and the note guaranties will have priority with respect to the Collateral
provided by the relevant obligor, and will be effectively junior with respect to
collateral that may be provided by Century Aluminum Company or such Guarantor
with respect to the Credit Agreement or other obligations.
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As of June 30, 2001, Century Aluminum Company and its subsidiaries had no
secured indebtedness other than the notes.
LIABILITIES OF SUBSIDIARIES VERSUS THE NOTES
Certain of Century Aluminum Company's subsidiaries, including any of its
foreign subsidiaries, will not be required to guarantee the notes. Claims of
creditors of non-guarantor subsidiaries, including trade creditors, secured
creditors and creditors holding debt and guarantees issued by those
subsidiaries, and claims of preferred stockholders (if any) of those
subsidiaries generally will have priority with respect to the assets and
earnings of those subsidiaries over the claims of creditors of Century Aluminum
Company, including holders of the notes. The notes and each note guaranty
therefore will be effectively subordinated to the claims of creditors (including
trade creditors) and preferred and minority stockholders (if any) of any
subsidiary of Century Aluminum Company that is not a Guarantor to the extent of
the assets of such subsidiary. As of June 30, 2001, our subsidiaries that do not
guarantee the notes had no material assets or liabilities, except for Century
Aluminum of Kentucky, LLC, whose primary asset is the power contract for the
Hawesville facility. Although the indenture limits the incurrence of Debt and
Disqualified or Preferred Stock of Restricted Subsidiaries that are not
Guarantors, the limitation is subject to a number of exceptions. Moreover, the
indenture does not impose any limitation on the incurrence by Restricted
Subsidiaries that are not Guarantors of liabilities that are not considered Debt
or Disqualified or Preferred Stock under the indenture. See "--Certain
Covenants -- Limitation on Debt and Disqualified or Preferred Stock."
Century Aluminum of Kentucky LLC, the limited liability operating company
that will own the Hawesville power contract and operate the Hawesville facility,
is not a "Subsidiary" as defined in the indenture and therefore will not
guarantee the notes or be subject to the restrictive covenants contained in the
indenture, other than a limitation on its ability to incur debt, grant liens and
sell assets. Any debt or other liabilities that it incurs will effectively be
senior to the notes to the extent of the value of its assets.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
LIMITATION ON DEBT AND DISQUALIFIED OR PREFERRED STOCK
(a) Century Aluminum Company
(1) will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Debt; and
(2) will not, and will not permit any Restricted Subsidiary to, Incur
any Disqualified Stock, or permit any of its Restricted Subsidiaries to
Incur any Preferred Stock (other than Disqualified or Preferred Stock of
Restricted Subsidiaries held by Century Aluminum Company or a Wholly Owned
Restricted Subsidiary, so long as it is so held);
provided that Century Aluminum Company or any Guarantor may Incur Debt and
Century Aluminum Company or any Guarantor may Incur Disqualified Stock if, on
the date of the Incurrence, after giving effect to the Incurrence and the
receipt and application of the proceeds therefrom, the Fixed Charge Coverage
Ratio is not less than 2.50 to 1.
(b) Notwithstanding the foregoing, Century Aluminum Company and, to the
extent provided below, any Restricted Subsidiary may Incur the following
("Permitted Debt"):
(1) Debt of Century Aluminum Company and any Guarantor pursuant to the
Credit Agreement, and Guarantees of such Debt by Century Aluminum Company
or any Guarantor; provided that the aggregate principal amount at any time
outstanding under the Credit Agreement does not exceed the greater of (i)
$100.0 million, less the aggregate amount of all such Debt under the Credit
Agreement permanently repaid pursuant to payments thereof described under
"Limitation on Asset Sales" and (ii) the sum of the amounts equal to (x)
85% of the book value of the accounts receivable of Century Aluminum
Company and its consolidated Restricted Subsidiaries and (y) 65% of the
book value of the
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inventory of Century Aluminum Company and its consolidated Restricted
Subsidiaries (but excluding any accounts receivable and inventory that are
ineligible at such time for inclusion in the calculation of a borrowing
base or similar borrowing limit (if any) under the Credit Agreement), in
each case as of the most recently ended fiscal quarter of Century Aluminum
Company for which financial statements have been provided (or, if not
timely provided, required to be provided) pursuant to the indenture;
(2) Debt of Century Aluminum Company or any Restricted Subsidiary to
Century Aluminum Company or to any Wholly Owned Restricted Subsidiary so
long as such Debt continues to be owed to Century Aluminum Company or a
Wholly Owned Restricted Subsidiary and which, if the obligor is Century
Aluminum Company or a Guarantor and the obligee is not Century Aluminum
Company or a Guarantor, is subordinated in right of payment to the notes;
(3) Debt of Century Aluminum Company pursuant to the notes and Debt of
any Guarantor pursuant to a note guaranty of the notes;
(4) Debt of Century Aluminum Company or any Restricted Subsidiary
("Permitted Refinancing Debt") constituting an extension or renewal of,
replacement of, or substitution for, or issued in exchange for, or the net
proceeds of which are used to repay, redeem, repurchase, refinance or
refund, including by way of defeasance (all of the above, for purposes of
this clause, "refinance") then outstanding Debt in an amount not to exceed
the principal amount of the Debt so refinanced, plus premiums, fees and
expenses; provided that
(A) in case the Debt to be refinanced is subordinated in right of
payment to the notes, the new Debt, by its terms or by the terms of any
agreement or instrument pursuant to which it is outstanding, is
expressly made subordinate in right of payment to the notes at least to
the extent that the Debt to be refinanced is subordinated to the notes,
(B) the new Debt does not have a Stated Maturity prior to the
Stated Maturity of the Debt to be refinanced, and the Average Life of
the new Debt is at least equal to the remaining Average Life of the Debt
to be refinanced,
(C) in no event may Debt of Century Aluminum Company be refinanced
pursuant to this clause by means of any Debt of any Restricted
Subsidiary that is not a Guarantor and in no event may Debt of a
Guarantor be refinanced pursuant to this clause by means of any Debt of
any Restricted Subsidiary that is not a Guarantor, and
(D) Debt Incurred pursuant to clauses (1), (2), (5), (6), (10) and
(11) may not be refinanced pursuant to this clause;
(5) Hedging Agreements of Century Aluminum Company or any Restricted
Subsidiary entered into in the ordinary course of business for the purpose
of limiting risks associated with the business of Century Aluminum Company
and its Restricted Subsidiaries and not for speculation;
(6) Debt of Century Aluminum Company or any Restricted Subsidiary with
respect to letters of credit and bankers' acceptances issued in the
ordinary course of business and not supporting Debt, including letters of
credit supporting performance, surety or appeal bonds or indemnification,
adjustment of purchase price or similar obligations incurred in connection
with the disposition of any business or assets; provided that the maximum
liability in connection with any disposition shall not exceed the gross
proceeds actually received by Century Aluminum Company or that Restricted
Subsidiary in connection with the disposition;
(7) Acquired Debt; provided that after giving effect to the Incurrence
thereof, Century Aluminum Company could Incur at least $1.00 of Debt under
paragraph (a);
(8) Debt of Century Aluminum Company or any Restricted Subsidiary
outstanding on the Issue Date (and, for purposes of clause (4)(D), not
otherwise constituting Permitted Debt);
(9) Debt of Century Aluminum Company or any Restricted Subsidiary,
which may include Capital Leases, Incurred no later than 180 days after the
date of purchase or completion of construction or
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improvement of property for the purpose of financing all or any part of the
purchase price or cost of construction or improvement, provided that the
aggregate principal amount of any Debt Incurred pursuant to this clause may
not exceed (a) $30.0 million less (b) the aggregate outstanding principal
amount of Permitted Refinancing Debt Incurred to refinance Debt Incurred
under this clause (9);
(10) Guarantees by Century Aluminum Company or any Guarantor of any
Debt of Century Aluminum Company or any Guarantor permitted to be incurred
under any other clause of this covenant; and
(11) other Debt of Century Aluminum Company or any Guarantor or of any
Foreign Restricted Subsidiary in an aggregate principal amount for all Debt
under this clause at any time outstanding not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Debt or any portion thereof meets the criteria of more than one
of the categories of Permitted Debt described in clauses (1) through (11) above,
or is entitled to be incurred pursuant to clause (a), Century Aluminum Company
shall, in its sole discretion, classify such item of Debt or any portion thereof
in any manner that complies with this covenant and such item of Debt or portion
thereof will be treated as having been incurred pursuant to only the clause or
clauses designated by Century Aluminum Company.
LIMITATION ON RESTRICTED PAYMENTS
(a) Century Aluminum Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly (the payments and other actions described
in the following clauses being collectively "Restricted Payments"):
- declare or pay any dividend or make any distribution on its Equity
Interests (other than dividends or distributions paid in Century's
Qualified Stock) held by Persons other than Century Aluminum Company or
any of its Wholly Owned Restricted Subsidiaries;
- purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Century Aluminum Company or any Restricted Subsidiary held
by Persons other than Century Aluminum Company or any of its Wholly Owned
Restricted Subsidiaries;
- repay, redeem, repurchase, defease or otherwise acquire or retire for
value, or make any payment on or with respect to, any Subordinated Debt
except a payment of interest or principal at Stated Maturity; or
- make any Investment other than a Permitted Investment;
unless, at the time of, and after giving effect to, the proposed Restricted
Payment:
(1) no Default has occurred and is continuing,
(2) Century Aluminum Company could Incur at least $1.00 of Debt under
paragraph (a) of "Limitation on Debt and Disqualified or Preferred Stock",
and
(3) the aggregate amount expended for all Restricted Payments made on
or after the Issue Date would not, subject to paragraph (c), exceed the sum
of
(A) 50% of the aggregate amount of the Consolidated Net Income (or,
if the Consolidated Net Income is a loss, minus 100% of the amount of
the loss) accrued on a cumulative basis during the period, taken as one
accounting period, beginning on April 1, 2001 and ending on the last day
of Century Aluminum Company's most recently completed fiscal quarter for
which financial statements have been provided (or if not timely
provided, required to be provided) pursuant to the indenture, plus
(B) subject to paragraph (c), the aggregate net cash proceeds
received by Century Aluminum Company (other than from a Subsidiary)
after the Issue Date from the issuance and sale of its Qualified Equity
Interests, including by way of issuance of its Disqualified Equity
Interests or Debt to the extent since converted into Qualified Equity
Interests of Century Aluminum Company, plus
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(C) an amount equal to the sum, for all Unrestricted Subsidiaries,
of the following:
(x) the cash return, after the Issue Date, on Investments in an
Unrestricted Subsidiary made after the Issue Date pursuant to this
paragraph (a) as a result of any sale for cash, repayment,
redemption, liquidating distribution or other cash realization (not
included in Consolidated Net Income), and
(y) the portion (proportionate to Century Aluminum Company's
equity interest in such Subsidiary) of the fair market value of the
assets less liabilities of an Unrestricted Subsidiary at the time
such Unrestricted Subsidiary is designated a Restricted Subsidiary,
not to exceed, in the case of any Unrestricted Subsidiary, the amount
of Investments made after the Issue Date by Century Aluminum Company
and its Restricted Subsidiaries in such Unrestricted Subsidiary
pursuant to this paragraph (a), plus
(D) the cash return, after the Issue Date, on any other Investment
made after the Issue Date pursuant to this paragraph (a), as a result of
any sale for cash, repayment, redemption, liquidating distribution or
other cash realization (not included in Consolidated Net Income), not to
exceed the amount of such Investment so made.
The amount expended in any Restricted Payment, if other than in cash, will be
deemed to be the fair market value of the relevant non-cash assets, as
determined in good faith by the Board of Directors, whose determination will be
conclusive and evidenced by a Board Resolution.
(b) The foregoing will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at the date of declaration, such payment would
comply with paragraph (a);
(2) dividends or distributions by a Restricted Subsidiary payable, on
a pro rata basis or on a basis more favorable to Century Aluminum Company
(or the relevant Restricted Subsidiary holding the Capital Stock of such
Restricted Subsidiary, as applicable), to all holders of any class of
Capital Stock of such Restricted Subsidiary a majority of which is held,
directly or indirectly through Restricted Subsidiaries, by Century Aluminum
Company;
(3) the repayment, redemption, repurchase, defeasance or other
acquisition or retirement for value of Subordinated Debt with the proceeds
of, or in exchange for, Permitted Refinancing Debt;
(4) the purchase, redemption or other acquisition or retirement for
value of Equity Interests of Century Aluminum Company in exchange for, or
out of the proceeds of a substantially concurrent offering of, Qualified
Equity Interests of Century Aluminum Company;
(5) the repayment, redemption, repurchase, defeasance or other
acquisition or retirement of Subordinated Debt of Century Aluminum Company
in exchange for, or out of the proceeds of a substantially concurrent
offering of, Qualified Equity Interests of Century Aluminum Company;
(6) the purchase, redemption or other acquisition or retirement for
value of Equity Interests of Century Aluminum Company held by officers,
directors or employees or former officers, directors or employees (or their
estates or beneficiaries), upon death, disability, retirement, severance or
termination of employment, or in order to satisfy tax withholding
obligations of such persons upon the exercise of options or the vesting of
performance shares, or pursuant to any agreement under which the Equity
Interests were issued; provided that the aggregate cash consideration paid
therefor after the Issue Date does not exceed an aggregate amount of $8.0
million;
(7) (A) Investments in any Joint Venture or Unrestricted Subsidiary
organized to construct, acquire, own and/or operate a facility in a
Permitted Business in the European Union, in an aggregate amount that,
together with all other Investments made pursuant to this clause (7)(A),
does not exceed $15.0 million and (B) any Limited Recourse Guarantee by any
Joint Venture Holding Company holding such Investment to secure
Non-Recourse Debt of such Joint Venture or Unrestricted Subsidiary;
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(8) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (8) on or after the Issue
Date, does not exceed $10.0 million; and
(9) the payment by Century Aluminum Company or any Restricted
Subsidiary of any purchase price adjustment in connection with the
acquisition of the Hawesville facility pursuant to the provisions of the
Stock Purchase Agreement between Century Aluminum Company and Southwire
Company as in effect on the Issue Date;
provided that, in the case of clauses (6), (7) and (8), no Default has occurred
and is continuing or would occur as a result thereof and, provided further that,
in the case of clause (7), after giving effect to the proposed Investment,
Century Aluminum Company could Incur at least $1.00 of Debt under paragraph (a)
of "Limitation on Debt and Disqualified or Preferred Stock."
(c) Proceeds of the issuance of Qualified Equity Interests will be included
under clause (3) of paragraph (a) only to the extent they are not applied as
described in clause (4) or (5) of paragraph (b). Restricted Payments permitted
pursuant to clauses (2) (to the extent paid to Century Aluminum Company or any
Restricted Subsidiary of Century), (3), (4), (5), (6), (7) or (9) of paragraph
(b) will not be included in making the calculations under clause (3) of
paragraph (a).
(d) In the case of any Restricted Payment proposed to be made on or prior
to April 2, 2003, if this covenant requires, as a condition to such Restricted
Payment, that Century Aluminum Company has the ability to Incur at least $1.00
of Debt under paragraph (a) of "Limitation on Debt and Disqualified or Preferred
Stock" at the time of, and after giving effect to, the proposed Restricted
Payment, then, for purposes of this covenant only, the reference in such
paragraph (a) to a Fixed Charge Coverage Ratio of "not less than 2.50 to 1"
shall instead be read as a Fixed Charge Coverage Ratio of "not less than 2.25 to
1."
LIMITATION ON LIENS
Century Aluminum Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, incur or permit to exist any Lien of any
nature whatsoever on any of its properties or assets, whether owned at the Issue
Date or thereafter acquired, other than Permitted Liens, provided, however, that
the foregoing will not apply, with respect to any such properties or assets,
other than Restricted Assets, to the extent Century Aluminum Company or any
Restricted Subsidiary effectively provides that the notes shall be secured
equally and ratably with (or, if the obligation to be secured by the Lien is
subordinated in right of payment to the notes or any note guaranty, prior to)
the obligations so secured for so long as such obligations are so secured.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
(a) Except as provided in paragraph (b), Century Aluminum Company will not,
and will not permit any Restricted Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to
(1) pay dividends or make any other distributions on any Equity
Interests of the Restricted Subsidiary owned by Century Aluminum Company or
any other Restricted Subsidiary,
(2) pay any Debt or other obligation owed to Century Aluminum Company
or any other Restricted Subsidiary,
(3) make loans or advances to Century Aluminum Company or any other
Restricted Subsidiary, or
(4) transfer any of its property or assets to Century Aluminum Company
or any other Restricted Subsidiary.
(b) The provisions of paragraph (a) do not apply to any encumbrances or
restrictions
(1) existing on the Issue Date in the Credit Agreement, the indenture
or any other agreements in effect on the Issue Date, and any extensions,
renewals, replacements or refinancings of any of the foregoing; provided
that the encumbrances and restrictions in the extension, renewal,
replacement or
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refinancing are, taken as a whole, no less favorable in any material
respect to the noteholders than the encumbrances or restrictions being
extended, renewed, replaced or refinanced;
(2) existing under or by reason of applicable law;
(3) existing
(A) with respect to any Person, or with respect to the property or
assets of any Person, at the time the Person is acquired by Century
Aluminum Company or any Restricted Subsidiary, or
(B) with respect to any Unrestricted Subsidiary at the time it is
designated or is deemed to become a Restricted Subsidiary,
which encumbrances or restrictions (i) are not applicable to any other Person or
the property or assets of any other Person and (ii) were not put in place in
anticipation of such event, and any extensions, renewals, replacements or
refinancings of any of the foregoing, provided the encumbrances and restrictions
in the extension, renewal, replacement or refinancing are, taken as a whole, no
less favorable in any material respect to the noteholders than the encumbrances
or restrictions being extended, renewed, replaced or refinanced;
(4) of the type described in clause (a)(4) arising or agreed to
(i) in the ordinary course of business that restrict in a customary
manner the subletting, assignment or transfer of any property or asset
that is subject to a lease or license,
(ii) with respect to any assets comprising a Permitted Business in
which Century Aluminum Company or any Restricted Subsidiary has
ownership of an undivided interest, pursuant to the agreements under
which such interest is owned or maintained, including, without
limitation, options, put and call arrangements, rights of first refusal
and similar rights, provided that such restrictions are consistent with
Century Aluminum Company's past practice, or
(iii) in the ordinary course of business by virtue of any Lien on,
or agreement to transfer, option or similar right with respect to any
property or assets of, Century Aluminum Company or any Restricted
Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of or property and assets of the
Restricted Subsidiary that is permitted by the indenture;
(6) on the ability of Restricted Subsidiaries to consummate
transactions of the type described in clause (a)(1), (2), (3) or (4)
provided for by any Indebtedness permitted to be incurred under the
indenture; provided that such restrictions are not more restrictive than
the restrictions contained in the indenture; or
(7) required pursuant to clause (b)(2) under "Limitation on Debt and
Disqualified or Preferred Stock."
LIMITATION ON SALE OR ISSUANCE OF EQUITY INTERESTS OF RESTRICTED SUBSIDIARIES
Century Aluminum Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, sell or issue any Equity Interests of a
Restricted Subsidiary unless
(1) the sale or issuance is to Century Aluminum Company or a Wholly
Owned Restricted Subsidiary,
(2) the sale or issuance is of Capital Stock representing directors'
qualifying shares or Capital Stock required by applicable law to be held by
a Person other than Century Aluminum Company or a Restricted Subsidiary,
(3) (i) if, after giving pro forma effect to the sale or issuance, the
Restricted Subsidiary upon such sale or issuance would no longer be a
Restricted Subsidiary and all remaining Investments of Century Aluminum
Company and the Restricted Subsidiaries in such Person are permitted under
"Limitation on
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Restricted Payments" and (ii) Century Aluminum Company complies with
"Limitation on Asset Sales" with respect to the sale or issuance, or
(4) (i) such sale or issuance is a sale or issuance of Common Stock of
a Restricted Subsidiary that is a Guarantor and remains a Restricted
Subsidiary that is a Guarantor after giving effect to the sale, and (ii)
Century Aluminum Company complies with "Limitation on Asset Sales" with
respect to the sale or issuance.
GUARANTIES BY RESTRICTED SUBSIDIARIES
If Century Aluminum Company or any of its Restricted Subsidiaries acquires
or creates a Domestic Restricted Subsidiary after the Issue Date, the new
Domestic Restricted Subsidiary must provide a note guaranty.
REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL
Not later than 30 days following a Change of Control, Century Aluminum
Company will make an Offer to Purchase all outstanding notes at a purchase price
equal to 101% of the principal amount plus accrued interest to the date of
purchase.
An "Offer to Purchase" must be made by written offer, which will specify
the principal amount of notes subject to the offer and the purchase price. The
offer must specify an expiration date (the "expiration date") not less than 30
days or more than 60 days after the date of the offer and a settlement date for
purchase (the "purchase date") not more than five Business Days after the
expiration date. The offer must include information concerning the business of
Century Aluminum Company and its Subsidiaries which Century Aluminum Company in
good faith believes will enable the holders to make an informed decision with
respect to the Offer to Purchase. The offer will also contain instructions and
materials necessary to enable holders to tender their notes pursuant to the
offer.
A holder may tender all or any portion of its notes pursuant to an Offer to
Purchase, subject to the requirement that any portion of a note tendered must be
in a multiple of $1,000 principal amount. Holders are entitled to withdraw notes
tendered up to the close of business on the expiration date. On the purchase
date the purchase price will become due and payable on each note accepted for
purchase pursuant to the Offer to Purchase, and interest on notes purchased will
cease to accrue on and after the purchase date.
Century Aluminum Company will comply with Rule 14e-1 under the Exchange Act
and all other applicable laws in making any Offer to Purchase, and the above
procedures will be deemed modified as necessary to permit such compliance.
Century Aluminum Company has agreed in the indenture that, following a
Change of Control, either prior to or concurrently with an Offer to Purchase, it
will timely repay Debt or obtain consents as necessary under, or terminate,
agreements or instruments that would otherwise prohibit the Offer to Purchase
required to be made pursuant to the indenture.
Notwithstanding this agreement of Century Aluminum Company, it is important
to note the following:
- Century Aluminum Company's new credit facility will provide that the
occurrence of certain change of control events with respect to Century
Aluminum Company will constitute a default thereunder. Moreover, the
exercise by the noteholders of their right to require Century Aluminum
Company to purchase the notes could cause a default under other debt,
even if the Change of Control itself does not, due to the financial
effect of the purchase on Century Aluminum Company.
- Century Aluminum Company's ability to pay cash to the noteholders
following the occurrence of a Change of Control may be limited by Century
Aluminum Company's then existing financial resources. We cannot assure
you that sufficient funds will be available when necessary to make the
required purchase of the notes.
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- The phrase "all or substantially all," as used with respect to the assets
of Century Aluminum Company in the definition of "Change of Control," is
subject to interpretation under applicable state law, and its
applicability in a given instance would depend upon the facts and
circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" the
assets of Century Aluminum Company has occurred in a particular instance,
in which case a holder's ability to obtain the benefit of these
provisions could be unclear.
See "Risk Factors -- Risks Relating to the Exchange Notes -- We may not have
sufficient funds available to repay our indebtedness upon a change of control,
which would constitute an event of default under the indenture." You should also
note that the provisions under the indenture relating to Century's obligation to
make an offer to repurchase the notes as a result of a Change of Control may be
waived or amended as described in "Amendments and Waivers."
LIMITATION ON ASSET SALES
Century Aluminum Company will not, and will not permit any Restricted
Subsidiary to, make any Asset Sale unless the following conditions are met:
(1) The Asset Sale is for fair market value, as determined in good
faith by the Board of Directors.
(2) At least 75% of the consideration consists of cash received at
closing; provided that to the extent that any disposition in such Asset
Sale was of Restricted Assets, the non-cash consideration received is
pledged as Collateral under the Security Documents substantially
simultaneously with such sale, in accordance with the requirements set
forth in the indenture.
For purposes of this clause (2):
(A) Debt (other than Subordinated Debt) or other obligations of
Century Aluminum Company or a Restricted Subsidiary assumed by the
purchaser pursuant to a customary novation agreement (unless and to the
extent that the assets disposed of in such Asset Sale are Restricted
Assets), and
(B) instruments or securities received from the purchaser that are
promptly, but in any event within 30 days of the closing, converted by
Century Aluminum Company to cash, to the extent of the cash actually so
received shall be considered cash received at closing.
(3) If the assets subject to the Asset Sale constitute Collateral, the
Asset Sale satisfies the requirements described under "Collateral --
Disposition of Collateral; Collateral Proceeds Account."
(4) An amount equal to the Net Cash Proceeds from the Asset Sale may
be used
(A) unless the disposition was of Restricted Assets, to permanently
repay Debt under the Credit Agreement (and in the case of a revolving
credit, permanently reduce the commitment thereunder by such amount), or
(B) to acquire all or substantially all of the assets of a
Permitted Business, or a majority of the Voting Stock of another Person
that thereupon becomes a Guarantor engaged in a Permitted Business, or
to make capital expenditures or otherwise acquire long-term assets
(including an undivided interest therein) that are to be used in a
Permitted Business; provided that to the extent that any disposition in
such Asset Sale was of Restricted Assets, the assets (including Voting
Stock) acquired with the Net Cash Proceeds thereof are pledged as
Collateral under the Security Documents substantially simultaneously
with such acquisition, in accordance with the requirements set forth in
the indenture.
(5) The Net Cash Proceeds of an Asset Sale not applied pursuant to
clause (4) within 360 days of the Asset Sale constitute "Excess Proceeds."
Excess Proceeds of less than $10.0 million will be carried forward and
accumulated. When accumulated Excess Proceeds equal or exceed $10.0
million, Century Aluminum Company must, within 30 days, make an Offer to
Purchase notes having an aggregate principal amount equal to (A) the
accumulated Excess Proceeds, multiplied by (B) (i) if the assets
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constitute Restricted Assets, one or (ii) otherwise, a fraction (x) the
numerator of which is equal to the outstanding principal amount of the
notes and (y) the denominator of which is equal to the outstanding
principal amount of the notes and all pari passu Debt similarly required to
be repaid, redeemed or tendered for in connection with the Asset Sale,
rounded down to the nearest $1,000. The purchase price for the notes will
be 100% of the principal amount plus accrued interest to the date of
purchase. If the Offer to Purchase is for less than all of the outstanding
notes and notes in an aggregate principal amount in excess of the purchase
amount are tendered and not withdrawn pursuant to the offer, Century
Aluminum Company will purchase notes having an aggregate principal amount
equal to the purchase amount on a pro rata basis, with adjustments so that
only notes in multiples of $1,000 principal amount will be purchased. Upon
completion of the Offer to Purchase, Excess Proceeds will be reset at zero,
and any Excess Proceeds remaining after consummation of the Offer to
Purchase may be used for any purpose not otherwise prohibited by the
indenture.
(6) To the extent that any Net Cash Proceeds are from a disposition of
Restricted Assets the fair market value of which exceeds $2.5 million in
the aggregate, such Net Cash Proceeds will be deposited with the Collateral
Agent or the trustee, as the case may be, and held as Collateral pending
application pursuant to clause (4) or (5) above, and, in the case of clause
(5), released to Century Aluminum Company or the relevant Guarantor if
remaining after consummation of the Offer to Purchase. See "-- Disposition
of Collateral; Collateral Proceeds Account."
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Century Aluminum Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction or arrangement including the purchase, sale, lease or exchange of
property or assets, or the rendering of any service with (x) any holder, or any
Affiliate of any holder, of 5% or more of any class of Capital Stock of Century
Aluminum Company or (y) any Affiliate of Century Aluminum Company or any
Restricted Subsidiary (a "Related Party Transaction"), except upon fair and
reasonable terms no less favorable to Century Aluminum Company or the Restricted
Subsidiary than could be obtained in a comparable arm's-length transaction with
a Person that is not an Affiliate of Century.
Any Related Party Transaction or series of Related Party Transactions with
an aggregate value in excess of $5.0 million must first be approved by a
majority of the members of the Board of Directors who are disinterested in the
subject matter of the transaction (the "Disinterested Directors") pursuant to a
Board Resolution delivered to the trustee. Prior to entering into any Related
Party Transaction or series of Related Party Transactions with an aggregate
value in excess of $25.0 million, Century Aluminum Company must in addition
obtain and deliver to the trustee a favorable written opinion from a nationally
recognized investment banking firm as to the fairness of the transaction to
Century Aluminum Company and its Restricted Subsidiaries from a financial point
of view. In the event of any Related Party Transaction that consists of any
asset acquisition or disposition and a related purchase or supply agreement, the
transaction shall be considered as a whole in determining its compliance with
this covenant.
The foregoing paragraphs do not apply to
(1) any transaction between Century Aluminum Company and any of its
Restricted Subsidiaries or between Restricted Subsidiaries of Century;
(2) the payment of reasonable and customary regular fees to directors
of Century Aluminum Company who are not employees of Century;
(3) any Restricted Payments of a type described in one of the first
two bullet points in paragraph (a) under "Limitation on Restricted
Payments" if permitted by that covenant;
(4) transactions or payments pursuant to any employee, officer or
director compensation or benefit plans or arrangements entered into in the
ordinary course of business;
(5) the entering into of Hedging Agreements or similar arrangements
with Glencore International AG or any of its Affiliates on a basis
consistent with past practice and upon fair and reasonable
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terms no less favorable to Century Aluminum Company or the Restricted
Subsidiary than could reasonably be expected to be obtained in a comparable
arm's-length transaction with a Person that is not an Affiliate of Century;
(6) agreements or arrangements with Glencore International AG or any
of its Affiliates relating to (a) the procurement of raw materials,
including alumina, or (b) the sale of aluminum products; provided that such
transactions are upon fair and reasonable terms no less favorable to
Century Aluminum Company or the Restricted Subsidiary than could reasonably
be expected to be obtained in a comparable arm's-length transaction with a
Person that is not an Affiliate of Century;
(7) the issuance of convertible preferred stock to Glencore on or
about the Issue Date, substantially on the terms described under
"Description of Revolving Credit Facility and Convertible Preferred Stock";
(8) the sale by Century Aluminum Company or a Restricted Subsidiary to
Glencore or one of its Affiliates on or about the Issue Date of a 20%
undivided interest in a portion of the Hawesville facility and 100%
ownership of a single potline; and any conveyance by Century Aluminum
Company or a Restricted Subsidiary to Glencore or one of its Affiliates of
an undivided interest in a part of the Hawesville facility owned wholly by
Century Aluminum Company or such Restricted Subsidiary in exchange for an
undivided interest in another part of the Hawesville facility owned wholly
by Glencore or such Affiliate or any similar transaction, such that, after
giving effect thereto, Century Aluminum Company or such Restricted
Subsidiary owns an undivided 80% interest in the entire Hawesville
facility, all substantially on the terms described under "The NSA
Acquisition"; or
(9) transactions pursuant to any contract or agreement in effect on
the Issue Date (including, without limitation, transactions with Century
Aluminum of Kentucky LLC pursuant to the Hawesville owners agreement), in
each case as amended, modified or replaced from time to time so long as the
amended, modified or new agreement, taken as a whole, is no less favorable
to Century Aluminum Company and its Restricted Subsidiaries than that in
effect on the Issue Date.
LINE OF BUSINESS
Century Aluminum Company will not, and will not permit any of its
Restricted Subsidiaries, to engage in any business other than a Permitted
Business (including indirectly, through its interest in a Joint Venture that is
not a Restricted Subsidiary), except to an extent that would not be material to
Century Aluminum Company and its Restricted Subsidiaries, taken as a whole.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
(a) The Board of Directors may designate any Subsidiary, including a newly
acquired or created Subsidiary, to be an Unrestricted Subsidiary if it meets the
following qualifications and the designation would not cause a Default:
(1) The Subsidiary does not own any Capital Stock of Century Aluminum
Company or any Restricted Subsidiary or any Restricted Assets or hold any
Debt of, or any Lien on any property of, Century Aluminum Company or any
Restricted Subsidiary;
(2) At the time of the designation, the designation would be permitted
under "Limitation on Restricted Payments";
(3) To the extent the Debt of the Subsidiary is not Non-Recourse Debt,
any Guarantee or other credit support thereof by Century Aluminum Company
or any Restricted Subsidiary is permitted under "Limitation on Debt and
Disqualified or Preferred Stock" and "Limitation on Restricted Payments";
(4) The Subsidiary is not party to any transaction or arrangement with
Century Aluminum Company or any Restricted Subsidiary that would not be
permitted under "Limitation on Transactions with Shareholders and
Affiliates"; and
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(5) Neither Century Aluminum Company nor any Restricted Subsidiary has
any obligation to subscribe for additional Equity Interests of the
Subsidiary or to maintain or preserve its financial condition or cause it
to achieve specified levels of operating results, except to the extent
permitted by "Limitation on Debt and Disqualified or Preferred Stock" and
"Limitation on Restricted Payments."
Once so designated, the Subsidiary will remain an Unrestricted Subsidiary,
subject to paragraph (b).
(b) (1) A Subsidiary previously designated an Unrestricted Subsidiary which
fails to meet the qualifications set forth in paragraph (a) will be deemed to
become at that time a Restricted Subsidiary, subject to the consequences set
forth in paragraph (d).
(2) The Board of Directors may designate an Unrestricted Subsidiary to
be a Restricted Subsidiary if the designation would not cause a Default.
(c) Upon a Restricted Subsidiary becoming an Unrestricted Subsidiary,
(1) all existing Investments of Century Aluminum Company and the
Restricted Subsidiaries therein will be deemed made at that time;
(2) all existing transactions between it and Century Aluminum Company
or any Restricted Subsidiary will be deemed entered into at that time;
(3) it will be released at that time from its note guaranty, if any;
and
(4) it will cease to be subject to the provisions of the indenture as
a Restricted Subsidiary.
(d) Upon an Unrestricted Subsidiary becoming, or being deemed to become, a
Restricted Subsidiary,
(1) all of its Debt and Disqualified or Preferred Stock will be deemed
Incurred at that time for purposes of "Limitation on Debt and Disqualified
or Preferred Stock," but will not be considered the sale or issuance of
Equity Interests for purposes of "Limitation on Sale or Issuance of Equity
Interests of Restricted Subsidiaries" or "Limitation on Asset Sales";
(2) Investments therein previously charged under "Limitation on
Restricted Payments" will be credited thereunder;
(3) it may be required to issue a note guaranty pursuant to
"Guaranties by Restricted Subsidiaries"; and
(4) it will thenceforward be subject to the provisions of the
indenture as a Restricted Subsidiary.
(e) Any designation by the Board of Directors of a Subsidiary as a
Restricted Subsidiary or Unrestricted Subsidiary will be evidenced to the
trustee by promptly filing with the trustee a copy of the Board Resolution
giving effect to the designation and an Officer's Certificate certifying that
the designation complied with the foregoing provisions.
FINANCIAL REPORTS
Whether or not Century Aluminum Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, Century Aluminum
Company must provide the trustee and holders, within the time periods specified
in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Century Aluminum Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and, with respect to annual information only, a report on the
financial statements contained therein by Century's certified independent
accountants, and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if Century Aluminum Company were required to file such
reports.
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In addition, whether or not required by the SEC, Century Aluminum Company will,
if the SEC will accept the filing, file the information and reports described
above with the SEC and make them available to securities analysts and
prospective investors upon request.
For so long as any of the notes remain outstanding and constitute
"restricted securities" under Rule 144, Century and the Guarantors will furnish
to the holders of the notes and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
REPORTS TO TRUSTEE
Century Aluminum Company will deliver to the trustee
(3) within 120 days after the end of each fiscal year a certificate,
executed by officers of Century Aluminum Company and each Guarantor,
stating that Century Aluminum Company and each Guarantor has fulfilled its
obligations under the indenture or, if there has been a Default, specifying
the Default and its nature and status;
(4) as soon as possible and in any event within 30 days after Century
Aluminum Company becomes aware or should reasonably become aware of the
occurrence of a Default, an Officers' Certificate setting forth the details
of the Default, and the action which Century Aluminum Company proposes to
take with respect thereto;
(5) within 120 days after the end of each fiscal year a written
statement by Century's independent public accountants stating whether, in
connection with their audit examination, any Default has come to their
attention and, if such a Default has come to their attention, specifying
the nature and period of the existence thereof; and
(6) within 120 days after the end of each fiscal year a written
Opinion of Counsel as to the continued perfection of the liens of the
Security Documents on the Collateral, to the extent required by Section
314(b)(2) of the Trust Indenture Act of 1939, as amended.
IMPAIRMENT OF SECURITY INTEREST
Century Aluminum Company will not, and will not permit any Subsidiary to,
take or knowingly or negligently omit to take, any action which action or
omission might or would have the result of materially impairing the security
interest with respect to the Collateral for the benefit of the trustee and the
holders of the notes, and Century Aluminum Company will not, and will not permit
any of its Subsidiaries to, grant to any Person other than the Collateral Agent
or the trustee, as the case may be, for the benefit of the trustee and the
holders of the notes and the other beneficiaries described in the Security
Documents, any interest in any of the Collateral other than certain permitted
encumbrances described in the Security Documents. Subject to "Limitations on
Asset Sales" above, Century Aluminum Company will also continue to own all of
the Equity Interests of each of its Subsidiaries that, directly or indirectly,
own the plant, property and equipment constituting Collateral directly, or cause
it to be owned by a Guarantor.
LIMITATIONS ON CERTAIN ACTIVITIES BY CENTURY ALUMINUM OF KENTUCKY LLC
Limitation on Debt. Century Aluminum Company will use all reasonable
efforts to ensure that Century Aluminum of Kentucky LLC will not incur any:
- Debt, other than Debt of the type described in clause (b)(5) under
"Limitation on Debt and Disqualified or Preferred Stock" above on
behalf of the owners of the Hawesville facility, or
- Disqualified or Preferred Stock, other than shares of such stock
held pro rata by each of the owners of Common Stock thereof in
accordance with their respective percentage ownership interests in
the Hawesville facility.
Limitation on Sale of Equity Interests. Century Aluminum of Kentucky LLC
will not issue or sell any of its Equity Interests unless, after giving effect
thereto, Century Aluminum Company and one or more of the
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Guarantors own a percentage of Equity Interests of Century Aluminum of Kentucky
LLC that is not less than Century's percentage ownership interest (including any
ownership owned by any of its Restricted Subsidiaries) in the Hawesville
facility.
Limitation on Liens. Century Aluminum of Kentucky LLC will not, directly
or indirectly, incur or permit to exist any Lien of any nature whatsoever on any
of its properties or assets, whether owned at the Issue Date or thereafter
acquired, other than:
(1) Permitted Liens of the type described under clauses (2), (4), (5),
(6), (8), (9), (13), (15) and (19) (with respect to Liens described under
clauses (2) and (15)) of the definition thereof, assuming that references
in clauses (8) and (15) to Century Aluminum Company or any Restricted
Subsidiary were to Century Aluminum of Kentucky LLC, and
(2) Liens in favor of the owners of the Hawesville facility incurred
in the ordinary course of business and not securing Debt pursuant to
agreements in effect on the Issue Date.
Limitation on Asset Sales. Century Aluminum of Kentucky LLC will not sell,
lease, transfer or dispose (each, a "disposition") of the Hawesville power
contract, or any rights to power thereunder, to any Person other than to Century
Aluminum Company or one of its Restricted Subsidiaries that is a Guarantor,
unless:
(1) The consideration to be distributed to Century Aluminum Company or
any Guarantor with respect to its pro rata portion of the disposition is at
least equal to the fair market value of its pro rata portion of the
contracts or rights disposed of, as determined in good faith by the Board
of Directors.
(2) At least 75% of the consideration with respect to Century's pro
rata portion consists of cash received at closing; provided that Century's
pro rata portion of the non-cash consideration received is pledged as
Collateral under the Security Documents substantially simultaneously with
such disposition, in accordance with the requirements set forth in the
indenture.
For purposes of this clause (2), instruments received from the purchaser
that are promptly, but in any event within 30 days of the closing, converted by
Century Aluminum Company or the applicable Guarantor to cash, to the extent of
the cash actually so received, shall be considered cash received at closing.
(3) Century's pro rata portion of the consideration is distributed to
Century Aluminum Company or one of its Restricted Subsidiaries that is a
Guarantor substantially simultaneously with such disposition.
(4) Century's pro rata portion of the cash consideration, net of fees
and expenses related to the disposition, is immediately deposited into the
Cash Collateral Account and held as Collateral pending application pursuant
to clause (4)(B) (provided that the assets acquired with such cash are
pledged as Collateral under the Security Documents substantially
simultaneously with such acquisition, in accordance with the requirements
set forth in the indenture) or clause (5) under "Limitation on Asset Sales"
and, in the case of clause (5), released to Century Aluminum Company or the
relevant Guarantor if remaining after consummation of the Offer to
Purchase.
This covenant shall not apply to:
(1) sales of power in the ordinary course of business,
(2) any sale of another owner's pro rata portion of the power under
the contract (provided that (i) such owner is required to reimburse Century
Aluminum Company and its Restricted Subsidiaries, under the owners
agreement or otherwise, for any increase in costs of Century's or such
Restricted Subsidiaries' production at the Hawesville facility resulting
therefrom and (ii) the production capacity of Century Aluminum Company and
its Restricted Subsidiaries at the Hawesville facility is not reduced as a
result of such sale), and
(3) the assignment of portions of the Hawesville power contract to
each of the owners of the Hawesville facility, pro rata in accordance with
their respective ownership interests in the facility (provided that each
owner agrees, in the owners agreement or otherwise, that (i) power for the
facility will thereafter no longer be a shared cost, but will instead be
provided by each owner and (ii) each owner
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will reimburse the other owners for any increase in costs or reduction in
production capacity of the other owners as a result of any failure to
provide power).
As used herein, "pro rata portion" shall mean Century's portion, based upon
its ownership percentage (including any ownership owned by any of its Restricted
Subsidiary) of Equity Interests of Century Aluminum of Kentucky LLC.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The indenture further provides as follows regarding consolidation, merger
or sale of all or substantially all of the assets of Century Aluminum Company or
a Guarantor:
CONSOLIDATION, MERGER OR SALE OF ASSETS BY CENTURY
Century Aluminum Company will not
- consolidate with or merge with or into any Person, or
- sell, convey, transfer, or otherwise dispose of all or substantially all
of the assets of Century Aluminum Company and its consolidated
Subsidiaries, as an entirety or substantially as an entirety, in one
transaction or a series of related transactions, to any Person or
- permit any Person to merge with or into Century unless
(1) either (x) Century Aluminum Company is the continuing Person or
(y) the resulting, surviving or transferee Person is a corporation
organized and validly existing under the laws of the United States of
America or any jurisdiction thereof and expressly assumes by supplemental
indenture all of the obligations of Century Aluminum Company under the
indenture and the notes and expressly assumes all of the obligations of
Century Aluminum Company under the Security Documents;
(2) immediately after giving effect to the transaction, no Default has
occurred and is continuing;
(3) immediately after giving effect to the transaction on a pro forma
basis, Century Aluminum Company or the resulting, surviving or transferee
Person has a Consolidated Net Worth (without taking into account any
purchase accounting adjustments) equal to or greater than the Consolidated
Net Worth of Century Aluminum Company immediately prior to such
transaction;
(4) immediately after giving effect to the transaction on a pro forma
basis, Century Aluminum Company or the resulting surviving or transferee
Person could Incur at least $1.00 of Debt under paragraph (a) of
"Limitation on Debt and Disqualified or Preferred Stock"; and
(5) Century Aluminum Company delivers to the trustee an Officers'
Certificate and an Opinion of Counsel, each stating that the consolidation,
merger or transfer and the supplemental indenture (if any) comply with the
indenture;
provided, that clauses (2) through (4) do not apply
(i) to the consolidation or merger of Century Aluminum Company with
or into a Wholly Owned Restricted Subsidiary or the consolidation or
merger of a Wholly Owned Restricted Subsidiary with or into Century
Aluminum Company or
(ii) if, in the good faith determination of the Board of Directors
of Century, whose determination is evidenced by a Board Resolution, the
sole purpose of the transaction is to change the jurisdiction of
incorporation of Century.
Century Aluminum Company shall not lease all or substantially all of the
assets of Century Aluminum Company and its consolidated Subsidiaries, whether in
one transaction or a series of transactions, to one or more other Persons.
Upon the consummation of any transaction effected in accordance with these
provisions, if Century Aluminum Company is not the continuing Person, the
resulting, surviving or transferee Person will succeed to,
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and be substituted for, and may exercise every right and power of, Century
Aluminum Company under the indenture and the Security Documents with the same
effect as if such successor Person had been named as Century Aluminum Company in
the indenture and the Security Documents. Upon such substitution, unless the
successor is one or more of Century's Subsidiaries, Century Aluminum Company
will be released from its obligations under the indenture, the notes and the
Security Documents.
CONSOLIDATION, MERGER OR SALE OF ASSETS BY A GUARANTOR
No Guarantor may
- consolidate with or merge with or into any Person, or
- sell, convey, transfer or dispose of, all or substantially all its assets
as an entirety or substantially as an entirety, in one transaction or a
series of related transactions, to any Person, or
- permit any Person to merge with or into the Guarantor
unless
(A) the other Person is Century Aluminum Company or any Wholly
Owned Restricted Subsidiary that is a Guarantor or becomes a Guarantor
concurrently with the transaction; or
(B) (1) either (x) the Guarantor is the continuing Person or (y)
the resulting, surviving or transferee Person expressly assumes by
supplemental indenture all of the obligations of the Guarantor under its
note guaranty and expressly assumes all of the obligations of the
Guarantor under the Security Documents to which it is a party; and
(2) immediately after giving effect to the transaction, no
Default has occurred and is continuing; or
(C) the transaction constitutes a sale or other disposition
(including by way of consolidation or merger) of the Guarantor or the
sale or disposition of all or substantially all the assets of the
Guarantor (in each case other than to Century Aluminum Company or a
Restricted Subsidiary) otherwise permitted by the indenture.
Century Aluminum Company will also be required to deliver to the trustee an
Officers' Certificate and an Opinion of Counsel, each stating that the
consolidation, merger or transfer and the supplemental indenture (if any) comply
with the indenture.
DEFAULT AND REMEDIES
EVENTS OF DEFAULT
An "Event of Default" occurs if
(1) Century Aluminum Company defaults in the payment of the principal
of any note when the same becomes due and payable at maturity, upon
acceleration or redemption, or otherwise;
(2) Century Aluminum Company defaults in the payment of interest
(including any Additional Interest) on any note when the same becomes due
and payable, and the default continues for a period of 30 days;
(3) Century Aluminum Company fails to make an Offer to Purchase and
thereafter accept and pay for notes tendered when and as required pursuant
to "Certain Covenants -- Repurchase of the Notes Upon a Change of Control,"
or "-- Limitation on Asset Sales," or Century Aluminum Company or any
Guarantor fails to comply with "-- Limitation on Debt and Disqualified or
Preferred Stock," "-- Limitation on Restricted Payments" or "Consolidation,
Merger or Sale of Assets" or Century Aluminum of Kentucky LLC defaults in
the performance of or breaches any of its covenants in the indenture;
(4) Century Aluminum Company defaults in the performance of or
breaches any other covenant or agreement of Century Aluminum Company in the
indenture or under the notes or in the Security
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Documents and the default or breach continues for a period of 60
consecutive days after written notice to Century Aluminum Company by the
trustee or to Century Aluminum Company and the trustee by the holders of
25% or more in aggregate principal amount of the notes;
(5) there occurs with respect to any Debt of Century Aluminum Company
or any of its Restricted Subsidiaries having an outstanding principal
amount of $10.0 million or more in the aggregate for all such Debt of all
such Persons (i) an event of default that has caused the holder thereof to
declare such Debt to be due and payable prior to its scheduled maturity or
(ii) failure to make a principal payment when due and such defaulted
payment is not made, waived or extended within the applicable grace period;
(6) one or more final judgments or orders for the payment of money are
rendered against Century Aluminum Company or any of its Restricted
Subsidiaries and are not paid or discharged, and there is a period of 60
consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $10.0 million (in
excess of amounts which Century's insurance carriers have agreed to pay
under applicable policies) during which a stay of enforcement, by reason of
a pending appeal or otherwise, is not in effect (a "judgment default");
(7) an involuntary case or other proceeding is commenced against
Century Aluminum Company or any Significant Restricted Subsidiary with
respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of 60 days; or an
order for relief is entered against Century Aluminum Company or any
Significant Restricted Subsidiary under the federal bankruptcy laws as now
or hereafter in effect;
(8) Century Aluminum Company or any of its Significant Restricted
Subsidiaries (i) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, (ii) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of Century Aluminum Company or any of its Significant Restricted
Subsidiaries or for all or substantially all of the property and assets of
Century Aluminum Company or any of its Significant Restricted Subsidiaries
or (iii) effects any general assignment for the benefit of creditors (an
event of default specified in clause (7) or (8) a "bankruptcy default");
(9) any note guaranty ceases to be in full force and effect, other
than in accordance the terms of the indenture, or a Guarantor denies or
disaffirms its obligations under its note guaranty; or
(10) with respect to any Collateral with an aggregate fair market
value of $10.0 million or more, (A) the security interest under the
Security Documents, at any time, ceases to be in full force and effect for
any reason other than in accordance with their terms and the terms of the
indenture and other than the satisfaction in full of all obligations under
the indenture and discharge of the indenture or (B) any security interest
created under the Security Documents or under the indenture is declared
invalid or unenforceable or (C) Century Aluminum Company or any Guarantor
asserts, in any pleading in any court of competent jurisdiction, that any
such security interest is invalid or unenforceable.
CONSEQUENCES OF AN EVENT OF DEFAULT
If an Event of Default, other than a bankruptcy default with respect to
Century, occurs and is continuing under the indenture, the trustee or the
holders of at least 25% in aggregate principal amount of the notes then
outstanding, by written notice to Century Aluminum Company (and to the trustee
if the notice is given by the holders), may, and the trustee at the request of
such holders shall, declare the principal of and accrued interest on the notes
to be immediately due and payable. Upon a declaration of acceleration, such
principal and interest will become immediately due and payable. If a bankruptcy
default occurs with respect to Century, the principal of and accrued interest on
the notes then outstanding will become immediately due and payable without any
declaration or other act on the part of the trustee or any holder.
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The holders of a majority in principal amount of the notes then outstanding
by written notice to Century Aluminum Company and to the trustee may waive all
past defaults and rescind and annul a declaration of acceleration and its
consequences if
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the notes that have become
due solely by the declaration of acceleration, have been cured or waived,
and
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
Except as otherwise provided in "Consequences of an Event of Default" or
"Amendments and Waivers -- Amendments with Consent of Holders," the holders of a
majority in principal amount of the outstanding notes may, by notice to the
trustee, waive an existing Default and its consequences. Upon such waiver, the
Default will cease to exist, and any Event of Default arising therefrom will be
deemed to have been cured, but no such waiver will extend to any subsequent or
other Default or impair any right consequent thereon.
The holders of a majority in principal amount of the notes then outstanding
may direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee. However, the trustee may refuse to follow any direction that
conflicts with law or the indenture, that may involve the trustee in personal
liability, or that the trustee determines in good faith may be unduly
prejudicial to the rights of holders of notes not joining in the giving of such
direction, and may take any other action it deems proper that is not
inconsistent with any such direction received from holders of the notes.
A holder may not institute any proceeding, judicial or otherwise, with
respect to the indenture or the notes, or for the appointment of a receiver or
trustee, or for any other remedy under the indenture or the notes, unless:
(1) the holder has previously given to the trustee written notice of a
continuing Event of Default;
(2) holders of at least 25% in aggregate principal amount of the notes
then outstanding have made written request to the trustee to institute
proceedings in respect of the Event of Default in its own name as trustee
under the Indenture;
(3) holders have offered to the trustee indemnity reasonably
satisfactory to the trustee against any costs, liabilities or expenses to
be incurred in compliance with such request;
(4) the trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the notes then outstanding have not given the trustee a
direction that is inconsistent with such written request.
Notwithstanding anything to the contrary, the right of a holder of a note
to receive payment of principal of or interest on its note on or after the
Stated Maturities thereof, or to bring suit for the enforcement of any such
payment on or after such dates, may not be impaired or affected without the
consent of that holder.
If any Default occurs and is continuing and is known to the trustee, the
trustee will send notice of the Default to each holder within 90 days after it
occurs, unless the Default has been cured; provided that, except in the case of
a default in the payment of the principal of or interest on any note, the
trustee may withhold the notice if and so long as the board of directors, the
executive committee or a trust committee of directors of the trustee in good
faith determine that withholding the notice is in the interest of the holders.
NO LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator, member or stockholder of
Century Aluminum Company or any Guarantor, as such, will have any liability for
any obligations of Century Aluminum Company or such
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Guarantor under the exchange notes, any note guaranty, any Security Document or
the indenture or for any claim based on, in respect of, or by reason of, such
obligations. Each holder of notes by accepting a note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the notes. This waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a
waiver is against public policy.
AMENDMENTS AND WAIVERS
AMENDMENTS WITHOUT CONSENT OF HOLDERS
Century Aluminum Company and the trustee (and, in the case of the Security
Documents, the Collateral Agent) may amend or supplement the indenture, the
notes and/or the Security Documents without notice to or the consent of any
noteholder
(1) to cure any ambiguity, defect or inconsistency in the indenture,
any Security Document or the exchange notes;
(2) to comply with "-- Consolidation, Merger or Sale of Assets";
(3) to comply with any requirements of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee;
(5) to provide for uncertificated notes in addition to or in place of
certificated notes, provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated notes are described in Section 163(f)(2)(B) of
the Code; or
(6) to provide for any Guarantee of the notes, to provide additional
security for the notes or to confirm and evidence the release, termination
or discharge of any Guarantee of or Lien securing the notes when such
release, termination or discharge is permitted by the indenture.
AMENDMENTS WITH CONSENT OF HOLDERS
Except as otherwise provided in "Default and Remedies -- Consequences of an
Event of Default" or the next succeeding paragraph, Century Aluminum Company and
the trustee (and, in the case of any Security Document, the Collateral Agent)
may amend the indenture, the notes and/or the Security Documents with the
written consent of the holders of a majority in principal amount of the notes
then outstanding and the holders of a majority in principal amount of the notes
then outstanding may waive future compliance by Century Aluminum Company with
any provision of the indenture or the notes.
Notwithstanding the provisions of the preceding paragraph, without the
consent of each holder affected, an amendment or waiver may not
(1) reduce the principal amount of or change the Stated Maturity of
any installment of principal of any note,
(2) reduce the rate of or change the Stated Maturity of any interest
payment on any note,
(3) reduce the amount payable upon the redemption of any note or
change the time of any mandatory redemption or, in respect of an optional
redemption, the times at which any note may be redeemed or, once notice of
redemption has been given, the time at which it must thereupon be redeemed,
(4) after the time an Offer to Purchase is required to have been made,
reduce the purchase amount or purchase price, or extend the latest
expiration date or purchase date thereunder,
(5) make any note payable in money other than that stated in the note,
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(6) impair the right of any holder of the notes to receive any
principal payment or interest payment on such holder's notes, on or after
the Stated Maturity thereof, or to institute suit for the enforcement of
any such payment,
(7) make any change in the percentage of the principal amount of the
notes required for amendments or waivers,
(8) modify or change any provision of the indenture affecting the
ranking of the notes or any note guaranty in a manner adverse to the
holders of the notes, or
(9) make any change in any note guaranty that would adversely affect
the noteholders, or effect a release of all or substantially all the
Collateral.
provided that the provisions of "Certain Covenants -- Repurchase of Exchange
Notes Upon a Change of Control" and "-- Limitation on Asset Sales" may, except
as provided above, be amended or waived with the consent of holders holding not
less than 66 2/3% in aggregate principal amount of the notes then outstanding.
It is not necessary for noteholders to approve the particular form of any
proposed amendment, supplement or waiver, but is sufficient if their consent
approves the substance thereof.
Neither Century Aluminum Company nor any of its Subsidiaries or Affiliates
may, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of the
indenture, any Security Document or the notes unless such consideration is
offered to be paid or agreed to be paid to all holders of the notes that
consent, waive or agree to amend such term or provision within the time period
set forth in the solicitation documents relating to the consent, waiver or
amendment.
DEFEASANCE AND DISCHARGE
Century Aluminum Company may discharge its obligations under the notes and
the indenture by irrevocably depositing in trust with the trustee money or U.S.
Government Obligations sufficient to pay principal of and interest on the notes
to maturity or redemption within one year, subject to meeting certain other
conditions.
Century Aluminum Company may also elect at any time prior to the scheduled
maturity of the notes to
(1) discharge most of its obligations in respect of the notes and the
indenture, not including obligations related to the defeasance trust or to
the replacement of the notes or its obligations to the trustee ("legal
defeasance") or
(2) discharge its obligations under the Security Documents, most of
the covenants and under clauses (3) and (4) of "Consolidation, Merger or
Sale of Assets -- Consolidation, Merger or Sale of Assets by Century" (and
the events listed in clauses (3), (4), (5), (6) and (9) under "Default and
Remedies -- Events of Default" will no longer constitute Events of Default)
("covenant defeasance")
by irrevocably depositing in trust with the trustee money or U.S. Government
Obligations sufficient to pay principal of and interest on the notes to maturity
or redemption and by meeting certain other conditions, including delivery to the
trustee of either a ruling received from the Internal Revenue Service or an
Opinion of Counsel to the effect that the holders will not recognize income,
gain or loss for federal income tax purposes as a result of the defeasance and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would otherwise have been the case. In the case of
legal defeasance, such an opinion may not be given absent a change of law after
the Issue Date. The defeasance would in each case be effective when 123 days
have passed since the date of the deposit in trust.
In the case of either discharge or defeasance, the note guaranties, if any,
will terminate, and the Security Documents will terminate and the Collateral
shall be released from the Lien thereunder.
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CONCERNING THE TRUSTEE
Wilmington Trust Company is the trustee under the indenture and will act as
the Collateral Agent under the Security Documents. From time to time, the
trustee may appoint another financial institution as Collateral Agent to hold a
security interest in the Collateral for the benefit of the trustee and the
noteholders.
Except during the continuance of an Event of Default, the trustee need
perform only those duties that are specifically set forth in the indenture and
no others, and no implied covenants or obligations will be read into the
indenture against the trustee. In case an Event of Default has occurred and is
continuing, the trustee shall exercise those rights and powers vested in it by
the indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. No provision of the indenture will require the trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of its duties hereunder, or in the exercise of its rights or powers, unless it
receives indemnity satisfactory to it against any loss, liability or expense.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of Century Aluminum Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee is permitted to engage in other
transactions with Century Aluminum Company and its Affiliates; provided that if
it acquires any conflicting interest it must either eliminate the conflict
within 90 days, apply to the SEC for permission to continue or resign.
BOOK-ENTRY; DELIVERY AND FORM
The outstanding notes have been, and the exchange notes will be, issued in
registered form, without interest coupons, in denominations of $1,000 and
integral multiples thereof. Except as described below under "-- Certificated
notes," the outstanding notes are, and in the case of the exchange notes will be
issued in the form of global notes, as further provided below.
The trustee is not required
- to issue, register the transfer of or exchange any note for a period of
15 days before a selection of notes to be redeemed or purchased pursuant
to an Offer to Purchase,
- to register the transfer of or exchange any note so selected for
redemption or purchase in whole or in part, except, in the case of a
partial redemption or purchase, that portion of any note not being
redeemed or purchased, or
- if a redemption or a purchase pursuant to an Offer to Purchase is to
occur after a regular record date but on or before the corresponding
interest payment date, to register the transfer or exchange of any note
on or after the regular record date and before the date of redemption or
purchase.
No service charge will be imposed in connection with any transfer or
exchange of any note, but Century Aluminum Company may in general require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith.
GLOBAL NOTES
Global notes will be deposited with a custodian for DTC, and registered in
the name of a nominee of DTC. Beneficial interests in the global notes will be
shown on records maintained by DTC and its direct and indirect participants,
including Euroclear and Clearstream. So long as DTC or its nominee is the
registered owner or holder of a global note, DTC or such nominee will be
considered the sole owner or holder of the notes represented by such global note
for all purposes under the indenture and the notes. No owner of a beneficial
interest in a global note will be able to transfer such interest except in
accordance with DTC's applicable procedures and the applicable procedures of its
direct and indirect participants.
Payments of principal and interest under each global note will be made to
DTC's nominee as the registered owner of such global note. Century Aluminum
Company expects that the nominee, upon receipt of
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any such payment, will immediately credit DTC participants' accounts with
payments proportional to their respective beneficial interests in the principal
amount of the relevant global note as shown on the records of DTC. Century
Aluminum Company also expects that payments by DTC participants to owners of
beneficial interests will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants, and none of Century Aluminum Company,
the trustee, the custodian or any paying agent or registrar will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in any global note or for
maintaining or reviewing any records relating to such beneficial interests.
DTC has advised Century Aluminum Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations and
to facilitate the clearance and settlement of transactions in those securities
between participants through electronic book-entry changes in accounts of
participants. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The ownership
interest and transfer of ownership interest of each actual purchaser of each
security held by or on behalf of DTC are recorded on the records of the
participants and indirect participants.
CERTIFICATED NOTES
If DTC notifies Century Aluminum Company that it is unwilling or unable to
continue as depositary for a global note and a successor depositary is not
appointed by Century Aluminum Company within 90 days of such notice, or an Event
of Default has occurred and the trustee has received a request from DTC, the
trustee will exchange each beneficial interest in that global note for one or
more certificated notes registered in the name of the owner of such beneficial
interest, as identified by DTC.
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the notes
represented by the global exchange notes be made by wire transfer of immediately
available funds to the accounts specified by holders of the global notes. With
respect to notes in certificated form, Century Aluminum Company will make all
payments by mailing a check to each holder's registered address or, at Century
Aluminum Company's option, by wire transfer of immediately available funds to
the accounts specified by the holders thereof.
The notes represented by the global notes are expected to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such notes will, therefore, be required by DTC to be settled in
immediately available funds. Century Aluminum Company expects that secondary
trading in any certificated notes will also be settled in immediately available
funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
Century Aluminum Company that cash received in Euroclear or Clearstream as a
result of sales of interests in a global note by or through a Euroclear or
Clearstream participant to a participant in DTC will be received with value on
the settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
The information described in this section concerning DTC, Euroclear and
Clearstream and their book-entry systems has been obtained from sources that we
believe to be reliable, but we take no responsibility for the accuracy thereof.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Clearstream, they are under no
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obligation to perform or to continue to perform those procedures, and those
procedures may be discontinued at any time. Neither Century Aluminum Company nor
the trustee will have any responsibility for the performance by DTC, Euroclear
or Clearstream or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
GOVERNING LAW
The indenture, including any note guaranties, and the notes shall be
governed by, and construed in accordance with, the laws of the State of New
York. The Security Documents will be governed by and construed in accordance
with the laws of the State of New York, other than the Mortgages, which will be
governed by the law of the jurisdiction in which the applicable real property is
located.
CERTAIN DEFINITIONS
"Acquired Debt" means Debt of a Person existing at the time the Person
merges with or into or becomes a Restricted Subsidiary and not Incurred in
connection with, or in contemplation of, the Person merging with or into or
becoming a Restricted Subsidiary.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with") with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Sale" means any sale, lease (other than operating leases entered
into in the ordinary course of business), transfer or other disposition of any
assets by Century Aluminum Company or any Restricted Subsidiary, including by
means of a merger, consolidation or similar transaction or Sale and Leaseback
Transaction and including any sale or issuance of Equity Interests of any
Restricted Subsidiary (each of the above referred to as a "disposition"),
provided that the following are not included in the definition of "Asset Sale":
(1) a disposition to Century Aluminum Company or a Wholly Owned
Restricted Subsidiary, including the sale or issuance by Century Aluminum
Company or any Restricted Subsidiary of any Equity Interests of any
Restricted Subsidiary to Century Aluminum Company or any Wholly Owned
Restricted Subsidiary (or, in the case of any Collateral, only to Century
Aluminum Company or a Guarantor, and provided that such Collateral shall
continue to comprise Collateral subject to the Security Documents on terms
substantially no less favorable to the holders of the notes than those in
existence immediately prior to such transfer);
(2) the disposition by Century Aluminum Company or any Restricted
Subsidiary in the ordinary course of business of (i) cash and cash
management investments, (ii) inventory acquired or produced and held for
sale or resale in the ordinary course of business, or (iii) rights granted
to others pursuant to leases, subleases or licenses;
(3) the sale or discount of accounts receivable arising in the
ordinary course of business in connection with the compromise or collection
thereof;
(4) a transaction that is governed by the covenant described under
"Consolidation, Merger or Sale of Assets -- Consolidation, Merger or Sale
of Assets by Century Aluminum Company";
(5) a Restricted Payment permitted under "Limitation on Restricted
Payments" or a Permitted Investment;
(6) any disposition in a transaction or series of related transactions
of assets with a fair market value of less than $5.0 million (or, in the
case of Restricted Assets only, $1.0 million or less);
(7) any disposition of Equity Interests of an Unrestricted Subsidiary;
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(8) the granting of a Lien, other than in connection with a Sale and
Leaseback Transaction, if the Lien is granted in compliance with the
covenant described under "Limitation on Liens"; or
(9) any conveyance by Century Aluminum Company or a Restricted
Subsidiary to Glencore or one of its Affiliates of an undivided interest in
a part of the Hawesville facility owned wholly by Century Aluminum Company
or such Restricted Subsidiary in exchange for an undivided interest in
another part of the Hawesville facility owned wholly by Glencore or such
Affiliate or any similar transaction, such that, after giving effect
thereto, Century Aluminum Company or such Restricted Subsidiary owns an
undivided 80% interest in the entire Hawesville facility, all substantially
on the terms described under "The NSA Acquisition"; provided that Century
Aluminum Company or such Restricted Subsidiary's interest in the facility
shall continue to comprise Collateral subject to the Security Documents on
terms substantially no less favorable to the holders of the notes than
those in existence with respect to Century Aluminum Company or such
Restricted Subsidiary's interest in the Hawesville facility immediately
prior to such transfer.
"Attributable Debt" means, in respect of a Sale and Leaseback Transaction
the present value, discounted at the interest rate implicit in the Sale and
Leaseback Transaction, of the total obligations of the lessee for rental
payments during the remaining term of the lease in the Sale and Leaseback
Transaction.
"Average Life" means, with respect to any Debt, the quotient obtained by
dividing
(i) the sum of the products, determined for each scheduled principal
payment of such Debt occurring after the date of determination, of
(x) the number of years from the date of determination to the date
of such principal payment, and
(y) the amount of such principal payment by
(ii) the sum of all such principal payments.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City or in the city where the Corporate Trust
Office of the Trustee is located are authorized by law to close.
"Capital Lease" means, with respect to any Person, any lease of any
property which, in conformity with GAAP, is required to be capitalized on the
balance sheet of such Person.
"Capital Stock" means, with respect to any Person, any and all shares of
stock of a corporation, partnership interests or other equivalent interests
(however designated, whether voting or non-voting) in such Person's equity,
entitling the holder to receive a share of the profits and losses, and a
distribution of assets, after liabilities, of such Person.
"Cash Equivalents" means
(1) United States dollars, or money in other currencies received in
the ordinary course of business,
(2) U.S. Government Obligations with maturities not exceeding one year
from the date of acquisition,
(3) (i) demand deposits, (ii) time deposits and certificates of
deposit with maturities of one year or less from the date of acquisition,
(iii) bankers' acceptances with maturities not exceeding one year from the
date of acquisition, and (iv) overnight bank deposits, in each case with
any bank or trust company organized or licensed under the laws of the
United States or any state thereof having capital, surplus and undivided
profits in excess of $500.0 million whose short-term debt is rated at least
P-2 by Moody's or A-2 by S&P,
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the type described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above,
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(5) commercial paper rated at least P-1 by Moody's or A-1 by S&P at
the time of acquisition and maturing within six months after the date of
acquisition,
(6) money market funds at least 95% of the assets of which consist of
investments of the type described in clauses (1) through (5) above, and
(7) in the case of any Foreign Restricted Subsidiary, substantially
similar investments made in the ordinary course of business and denominated
in the currency of any location where the Foreign Restricted Subsidiary
conducts business.
"CAW" means Century Aluminum Company Aluminum of West Virginia, Inc., a
Delaware corporation, and its successors.
"Change of Control" means:
(1) the merger or consolidation of Century Aluminum Company with or
into another Person or the merger of another Person with or into Century
Aluminum Company, or the sale of all or substantially all the assets of
Century Aluminum Company to another Person, (in each case, unless such
other Person is a Permitted Holder) unless holders of a majority of the
aggregate voting power of the Voting Stock of Century Aluminum Company,
immediately prior to such transaction, hold securities of the surviving or
transferee Person that represent, immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving or transferee Person;
(2) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is or becomes the "beneficial owner" (as such term is used in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 40% of
the total voting power of the Voting Stock of Century Aluminum Company;
provided that indirect beneficial ownership of more than 40% of the total
voting power of the Voting Stock of Century Aluminum Company through direct
or indirect ownership of Voting Stock or Capital Stock of Glencore by (a)
the then-current or former officers or employees of Glencore or any of its
subsidiaries (the "Glencore Employees") and/or (b) any Person controlled by
the Glencore Employees shall not be deemed to constitute a Change of
Control if the composition of the Glencore Employees continues to be
comprised in a manner consistent with the manner in which it is comprised
on the Issue Date.
(3) during any period of two consecutive years after the Issue Date,
individuals who at the beginning of any such period constituted the Board
of Directors of Century Aluminum Company, together with any new directors
whose election by such Board or whose nomination for election by the
stockholders of Century Aluminum Company was approved by a majority of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority of the Board of
Directors of Century Aluminum Company then in office; or
(4) the adoption of a plan relating to the liquidation or dissolution
of Century Aluminum Company.
"Collateral" means, collectively, all of Century Aluminum Company's or any
of the Guarantors' right, title and interest in the following:
(1) the "Trust Property" (in the case of any deed of trust) or
"Mortgaged Property" (in the case of any mortgage), as defined in each
Mortgage;
(2) the Cash Collateral Account and all investments and amounts held
therein;
(3) any other assets pledged as collateral from time to time; and
(4) proceeds of any and all of the foregoing;
provided that, notwithstanding anything in the foregoing to the contrary,
Collateral will not include any accounts receivable and inventory pledged as
collateral for the benefit of the lenders under the Credit Agreement, unless the
agent or representative of the lenders under the Credit Agreement consents to
its inclusion as Collateral.
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"Collateral Agent" means the trustee in its capacity as the Collateral
Agent or any collateral agent appointed by the trustee pursuant to the indenture
and the Security Documents.
"Common Stock" means Capital Stock not entitled to any preference on
dividends or distributions, upon liquidation or otherwise.
"Consolidated Net Income" means, for any period, the aggregate net income
(or loss) of Century Aluminum Company and its Restricted Subsidiaries for such
period determined on a consolidated basis in conformity with GAAP, provided that
the following (without duplication) will be excluded in computing Consolidated
Net Income:
(1) the net income (but not loss, unless such Person is a Foreign
Person, in which case any loss shall be excluded without regard to clauses
(x) and (y)) of any Person that is not a Wholly Owned Restricted Subsidiary
or is accounted for by the equity method of accounting, except to the
extent of the lesser of
(x) the dividends or other distributions actually paid in cash to
Century Aluminum Company or any of its Wholly Owned Restricted
Subsidiaries (subject to clause (3) below) by such Person during such
period, and
(y) Century Aluminum Company's pro rata share of such Person's net
income earned during such period;
(2) any net income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition;
(3) the net income (but not loss) of any Wholly Owned Restricted
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Wholly Owned Restricted Subsidiary of such
net income would not have been permitted for the relevant period by charter
or by any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Wholly Owned Restricted
Subsidiary;
(4) any net after-tax gains and losses attributable to Asset Sales;
(5) any net after-tax extraordinary gains and losses;
(6) the cumulative effect of a change in accounting principles;
(7) any after-tax amortization expense attributable to the Agreement
for Electric Service dated July 15, 1998 with Green River Company related
to the Hawesville facility to the extent that such expense represents
amortization of the value attributed thereto in connection with the
purchase of the Hawesville facility by Century Aluminum Company or its
Restricted Subsidiaries on or about the Issue Date in excess of the value
previously attributed thereto in NSA Ltd.'s historical financial statements
prepared in accordance with GAAP;
(8) any after-tax non-cash losses or gains, determined in accordance
with GAAP, relating to Hedging Agreements until such time as such
agreements are settled (at which time such losses or gains shall be
included); and
(9) any after-tax non-cash losses or gains related to the write-up or
write-down of inventory to reflect a change in market value of such
inventory until such time as such inventory is sold (at which time such
losses or gains shall be included).
"Consolidated Net Worth" means, at any date of determination, the
consolidated stockholders' equity of Century Aluminum Company and its Restricted
Subsidiaries, calculated excluding
(1) any amounts attributable to Disqualified Stock,
(2) treasury stock,
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(3) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made in accordance with GAAP as a result of the acquisition of
such business) subsequent to the Issue Date in the book value of any asset,
and
(4) the cumulative effect of a change in accounting principles.
"Credit Agreement" means the credit agreement dated on or about the Issue
Date among Century Aluminum Company, the lenders and agents party thereto and
Fleet Capital Corporation, as administrative and documentation agent, together
with any related documents (including any security documents and guarantee
agreements), as such agreement may be amended, modified, supplemented, extended,
renewed, refinanced or replaced or substituted from time to time.
"Debt" means, with respect to any Person, without duplication,
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all obligations of such Person in respect of letters of credit,
bankers' acceptances or other similar instruments, excluding obligations in
respect of trade letters of credit or bankers' acceptances issued in
respect of trade payables to the extent not drawn upon or presented, or, if
drawn upon or presented, the resulting obligation of the Person is paid
within three Business Days;
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services to the extent recorded as
liabilities under GAAP, excluding trade payables arising in the ordinary
course of business;
(5) all obligations of such Person as lessee under Capital Leases and
all Attributable Debt;
(6) all Debt of other Persons Guaranteed by such Person (including by
securing such Debt by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person) to the extent so Guaranteed, other
than a Limited Recourse Guaranty; and
(7) all obligations of such Person under Hedging Agreements.
The amount of Debt on any date of determination of any Person under clauses
(1) through (7) will be deemed to be:
(A) with respect to contingent obligations, the maximum liability
upon the occurrence of the contingency giving rise to the obligation;
(B) with respect to Debt secured by a Lien on an asset of such
Person but not otherwise the obligation, contingent or otherwise, of
such Person, the lesser of (x) the fair market value of such asset on
the date the Lien attached and (y) the amount of such Debt;
(C) with respect to any Debt issued with original issue discount,
the face amount of such Debt less the remaining unamortized portion of
the original issue discount of such Debt;
(D) with respect to any Hedging Agreements, the net amount payable
by such Person if such Hedging Agreement terminated at that time due to
default by such Person; and
(E) otherwise, the outstanding principal amount thereof.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Equity Interests" means Equity Interests that by their terms
or upon the happening of any event are
(1) required to be redeemed or redeemable at the option of the holder
prior to the Stated Maturity of the notes for consideration other than
Qualified Equity Interests, or
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(2) convertible at the option of the holder into Disqualified Equity
Interests or exchangeable for Debt;
provided that Equity Interests will not constitute Disqualified Equity Interests
solely because of provisions giving holders thereof the right to require
repurchase or redemption upon an "asset sale" or "change of control" occurring
prior to the Stated Maturity of the notes if those provisions
(A) are no more favorable to the holders than "Certain
Covenants -- Limitation on Asset Sales" and "-- Repurchase of Notes Upon
a Change of Control," and
(B) specifically state that repurchase or redemption pursuant
thereto will not be required prior to Century Aluminum Company's
repurchase of the notes as required by the indenture.
"Disqualified Stock" means Capital Stock constituting Disqualified Equity
Interests.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary formed
under the laws of, or 50% or more of the assets of which are located in, the
United States of America or any jurisdiction thereof.
"EBITDA" means, for any period, the sum of:
(1) Consolidated Net Income, plus, in each case, without duplication:
(2) to the extent deducted in calculating Consolidated Net Income,
Fixed Charges, plus
(3) to the extent deducted in calculating Consolidated Net Income and
as determined on a consolidated basis for Century Aluminum Company and its
Restricted Subsidiaries in conformity with GAAP:
(A) income taxes, other than income taxes or income tax adjustments
(whether positive or negative) attributable to Asset Sales or
extraordinary gains or losses; and
(B) depreciation, amortization and all other non-cash items
reducing Consolidated Net Income (not including non-cash charges in a
period which reflect cash expenses paid or to be paid in another
period), less all non-cash items increasing Consolidated Net Income;
provided that, with respect to any Restricted Subsidiary, such items (A) and
(B) will be added only to the extent and in the same proportion that the
relevant Restricted Subsidiary's net income was included in calculating
Consolidated Net Income.
"Equity Interests" means all Capital Stock and all warrants or options with
respect to, or other rights to purchase, Capital Stock, but excluding Debt
convertible into equity.
"Fixed Charge Coverage Ratio" means, on any date (the "transaction date"),
the ratio of
(x) the aggregate amount of EBITDA for the four fiscal quarters
immediately prior to the transaction date for which financial statements
have been provided (or, if not timely provided, required to be provided)
pursuant to the indenture or, in the case of periods prior to the Issue
Date, filed with the SEC (the "reference period") to
(y) the aggregate Fixed Charges during such reference period.
In making the foregoing calculation,
(1) pro forma effect will be given to any Debt or Disqualified or
Preferred Stock Incurred during or after the reference period to the extent
the Debt or Disqualified or Preferred Stock is outstanding or is to be
Incurred on the transaction date as if the Debt or Disqualified or
Preferred Stock had been Incurred on the first day of the reference period;
(2) pro forma calculations of interest on Debt bearing a floating
interest rate will be made as if the rate in effect on the transaction date
(taking into account any Hedging Agreement protecting against fluctuations
in interest rates applicable to the Debt, if the Hedging Agreement
protecting against
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fluctuations in interest rates has a remaining term of at least 12 months
or, if less, a remaining term equal to the remaining term of such Debt) had
been the applicable rate for the entire reference period;
(3) Fixed Charges related to any Debt or Disqualified or Preferred
Stock no longer outstanding or to be repaid or redeemed on the transaction
date, except for Interest Expense accrued during the reference period under
a revolving credit to the extent of the commitment thereunder (or under any
successor revolving credit) in effect on the transaction date, will be
excluded;
(4) pro forma effect will be given to
(A) the creation, designation or redesignation of Restricted and
Unrestricted Subsidiaries,
(B) the acquisition or disposition of companies, divisions or lines
of businesses by Century Aluminum Company and its Restricted
Subsidiaries, including any acquisition or disposition of a company,
division or line of business since the beginning of the reference period
by a Person that became a Restricted Subsidiary after the beginning of
the reference period, and
(C) the discontinuation of any discontinued operations that have
occurred since the beginning of the reference period as if such events
had occurred, and, in the case of any disposition, the proceeds thereof
applied, on the first day of the reference period. To the extent that
pro forma effect is to be given to an acquisition or disposition of a
company, division or line of business, the pro forma calculation will be
based upon the most recent four full fiscal quarters for which the
relevant financial information is available.
"Fixed Charges" means, for any period, the sum of
(1) Interest Expense for such period; and
(2) the product of
(x) cash and non-cash dividends paid, declared, accrued or
accumulated on any Disqualified or Preferred Stock of Century Aluminum
Company or a Restricted Subsidiary, except for
(i) dividends payable solely, or solely at Century Aluminum
Company's option, in Century Aluminum Company's Qualified Stock or
paid to Century Aluminum Company or to a Wholly Owned Restricted
Subsidiary, and
(ii) dividends paid, declared, accrued or accumulated on $25.0
million aggregate liquidation preference of convertible preferred
stock issued to Glencore or one of its Affiliates on or about the
Issue Date pursuant to the certificate of designation for such stock
as in effect on or about the Issue Date and substantially on the
terms described under "Description of Revolving Credit Facility and
Convertible Preferred Stock"; and
(y) a fraction, the numerator of which is one and the denominator
of which is one minus the sum of the currently effective combined
Federal, state, local and foreign tax rate applicable to Century
Aluminum Company and its Restricted Subsidiaries.
"Foreign Person" means any Person that is formed under the laws of, and 50%
or more of its assets are located in, any jurisdictions outside the United
States of America.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is not
a Domestic Restricted Subsidiary.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date.
"Glencore" means Glencore International AG, a corporation organized under
the laws of Switzerland.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person
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(i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services (unless such
purchase arrangements are on an arm's-length basis and are entered into in
the ordinary course of business), to take-or-pay, or to maintain financial
statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof, in whole or in part;
provided that the term "Guarantee" does not include endorsements for collection
or deposit in the ordinary course of business or indemnities given in connection
with any disposition of assets. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantor" means (i) each Domestic Restricted Subsidiary of Century
Aluminum Company in existence on the Issue Date and (ii) each Restricted
Subsidiary that executes a supplemental indenture in the form included in the
indenture providing for the guaranty of the payment of the notes, or any
successor obligor under its note guaranty pursuant to "Consolidation, Merger or
Sale of Assets," in each case unless and until such Guarantor is released from
its note guaranty pursuant to the indenture.
"Hedging Agreement" means (i) any interest rate swap agreement, interest
rate cap agreement or other agreement designed to protect against fluctuations
in interest rates or (ii) any foreign exchange forward contract, currency swap
agreement or other agreement designed to protect against fluctuations in foreign
exchange rates or (iii) any commodity or raw material futures contract or any
other agreement designed to protect against fluctuations in commodity or raw
material prices.
"Incur" means, with respect to any Debt or Capital Stock, to incur, create,
issue, assume or Guarantee such Debt or Capital Stock. If any Person becomes a
Restricted Subsidiary on any date after the Issue Date (including by
redesignation of an Unrestricted Subsidiary or failure of an Unrestricted
Subsidiary to meet the qualifications necessary to remain an Unrestricted
Subsidiary), the Debt and Capital Stock of such Person outstanding on such date
will be deemed to have been Incurred by such Person on such date for purposes of
"Certain Covenants -- Limitation on Debt and Disqualified or Preferred Stock,"
but will not be considered the sale or issuance of Equity Interests for purposes
of "-- Limitation on Sale or Issuance of Equity Interests of Restricted
Subsidiaries" or "-- Limitation on Asset Sales." The accretion of original issue
discount will not be considered an Incurrence of Debt.
"Interest Expense" means, for any period, the consolidated interest expense
of Century Aluminum Company and its Restricted Subsidiaries, plus, to the extent
not included in such consolidated interest expense, and to the extent incurred,
accrued or payable by Century Aluminum Company or its Restricted Subsidiaries,
without duplication,
(i) interest expense attributable to Sale and Leaseback Transactions,
(ii) amortization of debt discount and debt issuance costs (other than
debt issuance costs incurred in connection with the offering of the notes
and the execution and delivery of the Credit Agreement on or about the
Issue Date (whether or not incurred on or prior to the Issue Date) which
costs shall be excluded from Interest Expense),
(iii) capitalized interest,
(iv) non-cash interest expense,
(v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(vi) net payments made, or less any net payments received, pursuant to
Hedging Agreements (including the amortization of fees) relating to Debt of
Century Aluminum Company or any Restricted Subsidiary, other than Debt of
the type referred to in clause (7) of the definition thereof, and
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(vii) any of the above expenses with respect to Debt of another Person
Guaranteed by Century Aluminum Company or any of its Restricted
Subsidiaries (other than Non-Recourse Debt of a Joint Venture Guaranteed
solely pursuant to a Limited Recourse Guarantee).
"Investment" means, for any Person,
(1) any direct or indirect advance, loan or other extension of credit
to another Person,
(2) any capital contribution to another Person, by means of any
transfer of cash or other property or in any other form,
(3) any purchase or acquisition of Equity Interests, bonds, notes or
other Debt, or other instruments or securities issued by another Person,
including the receipt of any of the above as consideration for the
disposition of assets or rendering of services, or
(4) any Guarantee of any obligation of another Person.
If Century Aluminum Company or any Restricted Subsidiary (x) sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary so that, after giving effect to that sale or disposition, such Person
is no longer a Subsidiary of Century Aluminum Company, or (y) designates any
Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the
provisions of the indenture, all remaining Investments of Century Aluminum
Company and the Restricted Subsidiaries in such Person shall be deemed to have
been made at such time.
The acquisition of a direct undivided interest in assets in a manner
substantially similar (including such interests being subject to similar
ownership and operating agreements) to Century Aluminum Company's and its
Restricted Subsidiaries' direct ownership interest in assets comprising the Mt.
Holly facility and the Hawesville facility (in the manner contemplated under
"The NSA Acquisition"), would not, by itself, constitute an "Investment" because
it does not meet the definition set forth above; however, the acquisition by
Century Aluminum Company or any Restricted Subsidiary of the Equity Interests of
a Person that owns or operates such undivided interests would constitute an
Investment.
"Issue Date" means the date on which the notes were originally issued under
the indenture.
"Joint Venture" means any joint venture between the Company or any
Restricted Subsidiary and any other Person, whether or not such joint venture is
a Subsidiary of the Company or any Restricted Subsidiary.
"Joint Venture Holding Company" means any Subsidiary of Century Aluminum
Company the activities of which are limited to making and owning Equity
Interests and other Investments in a Joint Venture and activities incidental
thereto, including participation in financing arrangements of such Joint Venture
(but in each case only for so long as its activities are so limited).
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or Sale and Leaseback Transaction).
"Limited Recourse Guaranty" means, with respect to any Non-Recourse Debt of
a Joint Venture, any Guarantee of such Debt by the related Joint Venture Holding
Company, including a pledge by such Joint Venture Holding Company of the Capital
Stock and other Investments held in such Joint Venture, provided that in any
event such Guarantee and pledge are non-recourse in all respects to the Company
and its Restricted Subsidiaries other than such Joint Venture Holding Company.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Mortgages" means, collectively, (i) the Mortgage, Assignment of Leases and
Rents, Security Agreement and Financing Statement dated as of the Issue Date
from NSA, Ltd. to the Collateral Agent with respect to the Hawesville facility
and (ii) the Deed of Trust, Assignment of Leases and Rents, Security Agreement
and Financing Statement from CAW to the Collateral Agent with respect to the
Ravenswood facility, and any additional mortgage, deed of trust or similar
instrument entered into by Century Aluminum Company or any Guarantor from time
to time after the Issue Date to provide a security interest for the benefit of
the trustee and the holders of the notes.
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"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash (including (i) payments in respect of
deferred payment obligations to the extent corresponding to principal, but not
interest, when received in the form of cash, and (ii) proceeds from the
conversion of other consideration received when converted to cash), net of
(1) brokerage commissions and other fees and expenses related to such
Asset Sale, including fees and expenses of counsel, accountants and
investment bankers;
(2) except to the extent that any such asset disposed of in such Asset
Sale was Collateral, provisions for taxes as a result of such Asset Sale
taking into account the consolidated results of operations of Century
Aluminum Company and its Restricted Subsidiaries;
(3) payments required to be made to holders of minority interests in
Restricted Subsidiaries as a result of such Asset Sale or to repay Debt
outstanding at the time of such Asset Sale that is secured by a Lien on the
property or assets sold; and
(4) except to the extent that any such asset disposed of in such Asset
Sale was Collateral, appropriate amounts to be provided in conformity with
GAAP as a reserve against liabilities associated with such Asset Sale,
including pension and other post-employment benefit liabilities,
liabilities related to environmental matters and indemnification
obligations associated with such Asset Sale, with any subsequent reduction
of the reserve other than by payments made and charged against the reserved
amount to be deemed a receipt of cash.
"Non-Recourse Debt" means Debt as to which (i) neither Century Aluminum
Company nor any Restricted Subsidiary provides any Guarantee and as to which the
lenders have agreed or have been notified in writing that they will not have any
recourse to the stock or assets of Century Aluminum Company or any Restricted
Subsidiary (other than a Limited Recourse Guaranty by a Joint Venture Holding
Company) and (ii) no default thereunder would, as such, constitute a default
under any Debt of Century Aluminum Company or any Restricted Subsidiary.
"Note guaranty" means the guaranty of the notes by a Guarantor pursuant to
the indenture.
"Obligations" means, with respect to any Debt, all obligations (whether in
existence on the Issue Date or arising afterwards, absolute or contingent,
direct or indirect) for or in respect of principal (when due, upon acceleration,
upon redemption, upon mandatory repayment or repurchase pursuant to a mandatory
offer to purchase, or otherwise), premium, interest, penalties, fees,
indemnification, reimbursement and other amounts payable and liabilities with
respect to such Debt, including all interest accrued or accruing after the
commencement of any bankruptcy, insolvency or reorganization or similar case or
proceeding at the contract rate (including, without limitation, any contract
rate applicable upon default) specified in the relevant documentation, whether
or not the claim for such interest is allowed as a claim in such case or
proceeding.
"Permitted Business" means the business of reducing, refining, processing
and selling alumina, primary aluminum and aluminum products, and any business
reasonably related, incidental or ancillary thereto.
"Permitted Holders" means any or all of the following:
(1) Glencore; and
(2) any Person both the Capital Stock and the Voting Stock of which
(or in the case of a trust, the beneficial interests in which) is owned 80%
by the Person specified in clause (1).
"Permitted Investments" means:
(1) any Investment in Century Aluminum Company or in a Guarantor
engaged in a Permitted Business;
(2) Investments in Foreign Restricted Subsidiaries engaged in
Permitted Businesses in an aggregate amount, taken together with all other
Investments made in reliance on this clause, not to exceed $10.0 million
(net of, with respect to the Investment in any particular Person made under
this clause, the cash return thereon received after the Issue Date as a
result of any sale for cash, repayment, redemption,
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liquidating distribution or other cash realization (not included in
Consolidated Net Income) not to exceed the amount of such Investments in
such Person made after the Issue Date in reliance on this clause);
(3) any Investment in Cash Equivalents;
(4) any Investment by Century Aluminum Company or any Subsidiary of
Century Aluminum Company in a Person, if as a result of such Investment,
(A) such Person becomes a Guarantor engaged in a Permitted
Business, or
(B) such Person is merged or consolidated with or into, or
transfers or conveys substantially all its assets to, or is liquidated
into, Century Aluminum Company or a Guarantor engaged in a Permitted
Business;
(5) Investments received as non-cash consideration in an Asset Sale
made pursuant to and in compliance with "Certain Covenants -- Limitation on
Asset Sales"; provided that such Investments shall be pledged as Collateral
to the extent the assets subject to such Asset Sale constituted Restricted
Assets;
(6) any Investment acquired solely in exchange for Qualified Stock of
Century Aluminum Company;
(7) Hedging Agreements otherwise permitted under the indenture;
(8) (i) receivables owing to Century Aluminum Company or any
Restricted Subsidiary if created or acquired in the ordinary course of
business, (ii) endorsements for collection or deposit in the ordinary
course of business, and (iii) securities, instruments or other obligations
received in compromise or settlement of debts created in the ordinary
course of business, or by reason of a composition or readjustment of debts
or reorganization of another Person, or in satisfaction of claims or
judgments;
(9) payroll, travel and other loans or advances to, or Guarantees
issued to support the obligations of, officers, directors and employees
(including loans or Guarantees to satisfy tax withholding obligations of
such persons upon the exercise of options or the vesting of performance
shares), in each case in the ordinary course of business, not in excess of
$2.0 million outstanding at any time; and
(10) extensions of credit to customers and suppliers in the ordinary
course of business.
"Permitted Liens" means:
(1) Liens existing on the Issue Date;
(2) Liens securing the notes, any note guaranties and other
Obligations under the indenture and the Security Documents;
(3) Liens securing Obligations under or with respect to the Credit
Agreement; provided that such Liens do not extend to any Restricted Assets;
(4) pledges or deposits under worker's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts or leases, or to secure public or statutory
obligations (including, without limitation, obligations pursuant to
Environmental Laws), surety bonds, customs duties and the like, or for the
payment of rent, in each case incurred in the ordinary course of business
and not securing Debt;
(5) Liens imposed by law, such as carriers', vendors', warehousemen's
and mechanics' liens, in each case for sums not yet due or being contested
in good faith and by appropriate proceedings;
(6) Liens in respect of taxes and other governmental assessments and
charges which are not yet due or which are being contested in good faith
and by appropriate proceedings;
(7) Liens securing reimbursement obligations with respect to letters
of credit that solely encumber documents and other property relating to
such letters of credit and the proceeds thereof;
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(8) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning or other restrictions as to the use of real property, not
interfering in any material respect with the conduct of the business of
Century Aluminum Company and its Restricted Subsidiaries;
(9) licenses or leases or subleases as licensor, lessor or sublessor
of any of its property, including intellectual property, in the ordinary
course of business;
(10) customary Liens in favor of trustees and escrow agents, and
netting and setoff rights, banker's liens and the like in favor of
financial institutions and counterparties to financial obligations and
instruments, including netting and setoff rights with respect to (but not
collateral pledged to secure) obligations under Hedging Agreements;
(11) Liens on assets pursuant to merger agreements, stock or asset
purchase agreements and similar agreements in respect of the disposition of
such assets;
(12) options, put and call arrangements, rights of first refusal and
similar rights and customary reciprocal easements and other rights of use
relating to Investments in joint ventures, partnerships and the like, or
relating to ownership of undivided interests in assets subject to a joint
ownership or similar agreement;
(13) judgment liens, and Liens securing appeal bonds or letters of
credit issued in support of or in lieu of appeal bonds, so long as (x) no
judgment default has occurred and is continuing and (y) the aggregate
amount of all obligations secured by such judgment liens and other Liens
described in this clause does not at any time exceed $10.0 million;
(14) Liens on property of a Person at the time such Person becomes a
Restricted Subsidiary, provided such Liens were not created in
contemplation thereof and do not extend to any other property of Century
Aluminum Company or any Restricted Subsidiary;
(15) Liens on property at the time Century Aluminum Company or any of
the Restricted Subsidiaries acquires such property, including by means of a
merger or consolidation with or into Century Aluminum Company or a
Restricted Subsidiary, provided such Liens were not created in
contemplation thereof and do not extend to any other property of Century
Aluminum Company or any Restricted Subsidiary;
(16) Liens incurred or assumed in connection with the issuance of
revenue bonds the interest on which is tax-exempt under the Internal
Revenue Code;
(17) Liens upon real or personal property acquired after the Issue
Date, including any acquisition by means of any acquisition of Equity
Interests or by means of a merger or consolidation of the owner thereof
with or into Century Aluminum Company or a Restricted Subsidiary; provided
that (a) the Lien is created solely to secure the purchase price or cost of
construction thereof or Debt incurred to finance such purchase price or
cost of construction, (b) the amount secured by the Lien does not exceed
100% of the purchase price or cost of construction thereof and (c) the Lien
does not extend to or cover any other property or assets other than the
property acquired or constructed and improvements of that property;
(18) Liens securing or comprising a Limited Recourse Guaranty; and
(19) extensions, renewals or replacements of any Liens referred to in
clauses (1), (2), (14), (15), (16) or (17) in connection with the
refinancing of the obligations secured thereby, provided that such Lien
does not extend to any other property and, except as contemplated by the
definition of "Permitted Refinancing Debt," the amount secured by such Lien
is not increased.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity, including a
government or political subdivision or an agency or instrumentality thereof.
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"Pledge and Security Agreement" means the pledge and security agreement
dated the Issue Date between Century Aluminum Company and the Collateral Agent,
as pledgee, covering the Cash Collateral Account.
"Preferred Stock" means, with respect to any Person, any and all Capital
Stock which is preferred as to the payment of dividends or distributions, upon
liquidation or otherwise, over another class of Capital Stock of such Person.
"Public Equity Offering" means an underwritten primary public offering,
after the Issue Date, of Qualified Stock of Century Aluminum Company pursuant to
an effective registration statement under the Securities Act other than an
issuance registered on Form S-4 or S-8 or any successor thereto or any issuance
pursuant to employee benefit plans or otherwise in compensation to officers,
directors or employees.
"Qualified Equity Interests" means all Equity Interests of a Person other
than Disqualified Equity Interests.
"Qualified Stock" means all Capital Stock of a Person other than
Disqualified Stock.
"Restricted Assets" means at any time (1) assets that are, or are required
under the indenture and the Security Documents to be, Collateral at such time
and (2) Equity Interests of (a) any Guarantor that owns any Collateral, (b)
Berkeley Aluminum, Inc., and its successors ("BAC") and Century Aluminum of
Kentucky LLC and its successors ("Century Aluminum of Kentucky LLC") and (c) any
Subsidiary that at such time directly or indirectly holds any Equity Interests
of BAC, Century Aluminum of Kentucky LLC or any Subsidiary that owns any
Collateral.
"Restricted Subsidiary" means any Subsidiary of Century Aluminum Company
other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement whereby such Person enters into a lease of property previously
transferred by such Person to the lessor.
"Security Documents" means the Mortgages, the Pledge and Security Agreement
and any other security agreements, mortgages, pledges, agency agreements and
other instruments and documents executed and delivered pursuant to the indenture
or any of the foregoing.
"Significant Restricted Subsidiary" means any Restricted Subsidiary, or
group of Restricted Subsidiaries, that would, taken together, be a "significant
subsidiary" as defined in Article 1, Rule 1-02 (w)(1) or (2) of Regulation S-X
promulgated under the Securities Act, as that regulation is in effect on the
Issue Date.
"Stated Maturity" means
(i) with respect to any Debt, the date specified as the fixed date on
which the final installment of principal of such Debt is due and payable or
(ii) with respect to any scheduled installment of principal of or
interest on any Debt, the date specified as the fixed date on which such
installment is due and payable as set forth in the documentation governing
such Debt,
not including any contingent obligation to repay, redeem or repurchase prior to
the regularly scheduled date for payment.
"Subordinated Debt" means any Debt of Century Aluminum Company or any
Guarantor which is subordinated in right of payment to the notes or any note
guaranty, as applicable, pursuant to a written agreement to that effect.
"Subsidiary" means with respect to any Person, any corporation, association
or other business entity of which more than 50% of the outstanding Voting Stock
is owned, directly or indirectly, by, or, in the case of a partnership, the sole
general partner or the managing partner or the only general partners of which
are, such
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Person and one or more Subsidiaries of such Person (or a combination thereof).
Unless otherwise specified, "Subsidiary" means a Subsidiary of Century Aluminum
Company.
"U.S. Government Obligations" means obligations issued or directly and
fully guaranteed or insured by the United States of America or by any agent or
instrumentality thereof, provided that the full faith and credit of the United
States of America is pledged in support thereof.
"Unrestricted Subsidiary" means any Subsidiary of Century Aluminum Company
that at the time of determination has previously been designated, and continues
to be, an Unrestricted Subsidiary in accordance with "Certain Covenants --
Designation of Restricted and Unrestricted Subsidiaries."
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Restricted Subsidiary, a
Restricted Subsidiary all of the outstanding Capital Stock of which (other than
any director's qualifying shares) is owned by Century Aluminum Company and one
or more Wholly Owned Restricted Subsidiaries (or a combination thereof).
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of the exchange notes. This discussion is based on the Internal Revenue Code of
1986, as amended exchange (the "Code"), and regulations, rulings and judicial
decisions as of the date hereof, all of which may be repealed, revoked or
modified so as to result in United States federal tax consequences different
from those described below. These changes could be applied retroactively in a
manner that could adversely affect holders of the exchange notes. It is
therefore possible that the consequences of the acquisition, ownership and
disposition of the exchange notes may differ from the treatment described below.
In addition, the authorities on which this discussion is based are subject to
various interpretations and there is no guarantee that the Internal Revenue
Service ("IRS") or the courts will not take a contrary position. Moreover, no
rulings have been or will be sought from the IRS with regard to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the conclusions of this discussion or that a court would not sustain
such a challenge.
This discussion applies only to holders of exchange notes who purchased
notes in the original offering at the first price at which a substantial amount
of the notes were sold to persons other than persons acting in the capacity of
underwriters and does not address other purchasers. In addition, the tax
treatment of a holder of the exchange notes may vary depending upon the
particular situation of the holder. This discussion is limited to investors who
will hold the exchange notes as capital assets and does not deal with holders
that may be subject to special tax rules (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions, dealers
or traders in securities or currencies, U.S. holders whose functional currency
is not the U.S. dollar, certain U.S. expatriates or holders who will hold the
notes as a hedge against currency risks or as part of a straddle, synthetic
security, conversion transaction or other integrated investment comprised of the
notes and one or more other investments).
This discussion is for general information only and does not address any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdiction. Holders should consult their own tax advisors as to the particular
tax consequences to them of acquiring, holding or disposing of the notes and the
exchange notes.
U.S. HOLDERS
For purposes of this discussion, a "U.S. holder" of an exchange note is a
holder who for United States federal income tax purposes is
- an individual that is a citizen or resident of the United States
(including certain former citizens and former longtime residents);
- a corporation or other entity created or organized in or under the laws
of the United States or any political subdivision thereof;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in United
States Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue to
be treated as United States persons also will be U.S. holders. A "non-U.S.
holder" is a holder that is not a U.S. holder. If a partnership holds notes, the
tax treatment of the partner will generally depend upon the status of the
partner and upon the activities of the partnership. Partners of partnerships
holding notes should consult their tax advisors.
Interest. Stated interest on an exchange note will generally be taxable to
a U.S. holder as ordinary income from domestic sources at the time it is paid or
accrued in accordance with the U.S. holder's method of accounting for income tax
purposes.
115
122
Disposition of exchange notes. Upon the sale, exchange, retirement at
maturity or other taxable disposition of an exchange note (collectively, a
"disposition"), a U.S. holder generally will recognize capital gain or loss
equal to the difference between the amount realized by the holder (except to the
extent such amount is attributable to accrued but unpaid interest, which will be
treated as such) and the holder's adjusted tax basis in the exchange note. This
capital gain or loss will be long-term capital gain or loss if the U.S. holder's
holding period for the exchange note exceeds one year at the time of the
disposition.
Exchange of notes. The exchange of a note by a U.S. holder for an exchange
note will not constitute a taxable exchange. A U.S. holder will have the same
tax basis and holding period in the exchange note as it did in the note at the
time of such exchange.
NON-U.S. HOLDERS
Interest. Interest that we pay to a non-U.S. holder will not be subject to
United States federal income or withholding tax if the interest is not
effectively connected with the conduct of a trade or business within the United
States by the non-U.S. holder and, among other things, the non-U.S. holder
- does not actually or constructively own 10% or more of the total combined
voting power of all classes of our stock;
- is not a controlled foreign corporation for United States federal income
tax purposes and to which we are a related person; and
- certifies to us, our paying agent or the person who would otherwise be
required to withhold United States tax, on Form W-8 or substantially
similar form signed under penalties of perjury, that the holder is not a
United States person and provides the holder's name and address (the
"Certification Requirement").
In the case of interest on an exchange note that is not effectively
connected with the conduct of a trade or business within the United States and
does not satisfy the three requirements of the preceding sentence, the non-U.S.
holder's interest on an exchange note would generally be subject to United
States withholding tax at a flat rate of 30% (or a lower applicable treaty
rate). If a non-U.S. holder's interest on an exchange note is effectively
connected with the conduct of a trade or business within the United States, then
the non-U.S. holder will be subject to United States federal income tax on such
interest income in essentially the same manner as a U.S. holder and, in the case
of a non-U.S. holder that is a foreign corporation, may also be subject to the
branch profits tax.
Gain on Disposition. A non-U.S. holder generally will not be subject to
United States federal income tax with respect to gain recognized on a sale,
redemption or other disposition of an exchange note unless
- the gain is effectively connected with the conduct of a trade or business
within the United States by the non-U.S. holder; or
- in the case of a non-U.S. holder who is a nonresident alien individual
and holds the exchange notes as a capital asset, such holder is present
in the United States for 183 or more days in the year and certain other
requirements are met.
United States Federal Estate Taxes. An exchange note beneficially owned by
an individual who at the time of death is a non-U.S. holder will not be subject
to United States federal estate tax as a result of such individual's death,
provided that such individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock and provided
that the interest payments with respect to the note would not have been, if
received at the time of the individual's death, effectively connected with the
conduct of a trade or business in the United States by such individual.
116
123
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, when required, report to the holders of the exchange notes and the
IRS the amount of any interest paid on the exchange notes in each calendar
exchange year and the amount of tax withheld, if any, with respect to these
payments.
Certain non-corporate U.S. holders may be subject to backup withholding at
a rate of 31% on payments of principal, premium and interest on, and the
proceeds of the disposition of, the exchange notes. In general, backup
withholding will be imposed only if the U.S. holder
- fails to furnish its taxpayer identification number ("TIN"), which, for
an individual, would be his or her Social Security number;
- furnishes an incorrect TIN;
- is notified by the IRS that it has failed to report payments of interest
or dividends; or
- under certain circumstances, fails to certify, under penalty of perjury,
that it has furnished a correct TIN and has been notified by the IRS that
it is subject to backup withholding tax for failure to report interest or
dividend payments.
In addition, payments of principal and interest to U.S. holders will
generally be subject to information reporting. U.S. holders should consult their
own tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption, if applicable.
In the case of payments of interest to non-U.S. holders, the general 31%
backup withholding tax and certain information reporting will not apply to those
payments with respect to which either the Certification Requirement has been
satisfied or an exemption has otherwise been established, provided that neither
we nor our payment agent has actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
Information reporting and backup withholding requirements will apply to the
gross proceeds paid to a non-U.S. holder on the disposition of the exchange
notes by or through a United States office of a United States or foreign broker,
unless the holder certifies to the broker under penalties of perjury as to its
name, address and status as a foreign person or the holder otherwise establishes
an exemption. Information reporting requirements, but not backup withholding,
will also apply to a payment of the proceeds of a disposition of the exchange
notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the holder of the exchange
notes is not a United States person and such broker has no actual knowledge to
the contrary, or the holder establishes an exception. Neither information
reporting nor backup withholding generally will apply to a payment of the
proceeds of a disposition of the exchange notes by or through a foreign office
of a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be credited toward a holder's United States
federal income tax liability, if any. To the extent that the amounts withheld
exceed a holder's tax liability, the excess may be refunded to the holder
provided the required information is furnished to the IRS, and the Holder timely
files a United States tax return claiming a refund of excess withholding.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. PROSPECTIVE U.S. HOLDERS AND NON-U.S. HOLDERS OF THE NOTES ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE EXCHANGE
NOTES, INCLUDING THE TAX CONSEQUENCES UNDER UNITED STATES FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE EFFECTS OF CHANGES IN SUCH LAWS.
117
124
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
exchange offer in connection with a distribution of the exchange notes. Each
broker-dealer that receives exchange notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those exchange notes. Based on SEC staff interpretations
issued to third parties, a broker-dealer may use this prospectus, as it may be
amended or supplemented from time to time, in connection with resales of
exchange notes received in exchange for notes where those notes were acquired as
a result of market-making or other trading activities. We have agreed that, for
a period of 180 days after the consummation of the exchange offer, we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with those resales. In addition, until , 2001, all
dealers effecting transactions in the exchange notes may be required to deliver
a prospectus.
The information described above concerning SEC staff interpretations is not
intended to constitute legal advice, and broker-dealers should consult their own
legal advisors with respect to these matters.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Broker-dealers may sell from time to time exchange notes they
receive for their own account pursuant to the exchange offer through:
- one or more transactions in the over-the-counter market;
- in negotiated transactions;
- through the writing of options on the exchange notes; or
- a combination of those methods of resale.
Those broker-dealers may sell at:
- market prices prevailing at the time of resale;
- prices related to those prevailing market prices; or
- negotiated prices.
Any broker-dealer may resell directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from the broker-dealer or the purchasers of the exchange notes. Any
broker-dealer that resells exchange notes that it received for its own account
pursuant to the exchange offer and any broker-dealer that participates in a
distribution of the exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act. Any profit on any underwriter's resale of
exchange notes and any commission or concessions received by any underwriters
may be deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act by
acknowledging that it will deliver and by delivering a prospectus.
We have agreed, for a period of 180 days after the expiration date of the
exchange offer, to promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
those documents in the letter of transmittal. We have also agreed to pay
expenses incident to the exchange offer other than commissions or concessions of
any broker or dealer and transfer taxes, if any, and will indemnify the holders
of the notes (including any broker-dealers) against various liabilities,
including liabilities under the Securities Act. This indemnification obligation
does not extend to statements or omissions in the registration statement or
prospectus made in reliance upon and in conformity with written information
pertaining to the holder that is furnished to us by or on behalf of the holder
and does not apply under certain other circumstances.
118
125
LEGAL MATTERS
The validity of the issuance of the exchange notes will be passed upon for
us by Curtis, Mallet-Prevost, Colt & Mosle LLP, New York, New York. Roman A.
Bninski, a partner of Curtis, Mallet-Prevost, Colt & Mosle LLP, is a director of
Century Aluminum Company.
EXPERTS
The consolidated financial statements of Century Aluminum Company and its
subsidiaries as of December 31, 2000 and 1999 and for each of the three years in
the period ended December 31, 2000 included in this prospectus, and the
consolidated financial statements of Century Aluminum Company and its
subsidiaries and the related financial statement schedules as of December 31,
2000 and 1999, and for each of the three years in the period ended December 31,
2000, incorporated by reference in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are included or incorporated by reference herein, and have been so included or
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of NSA, Ltd. at December 31, 2000 and 1999, and for each of the three
years in the period ended December 31, 2000, as set forth in their report, which
is included and incorporated by reference in this prospectus and elsewhere in
the registration statement. We have included and incorporated by reference the
NSA, Ltd. financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
119
126
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and
file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or "SEC." Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the Public Reference
Room.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the exchange notes being offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement, certain
items of which are omitted in accordance with the rules and regulations of the
SEC. For further information about us and the exchange notes, you should consult
the registration statement, including the exhibits and schedules thereto. You
should be aware that statements contained in this prospectus concerning the
provisions of any documents filed as an exhibit to the registration statement or
otherwise filed with the SEC are not necessarily complete, and in each instance
reference is hereby made to the copy of the document so filed for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file with the SEC
will automatically update and supersede this information as well as the
information in this prospectus.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act after the date of this prospectus and prior to the termination of
the exchange offer:
<Table>
<Caption>
SEC FORM DATE FILED
-------- ---------------
Our Quarterly Report on Form 10-Q for the quarter ended June August 14, 2001
30, 2001..................................................
Our definitive proxy statement on Schedule 14A, dated May May 24, 2001
24, 2001..................................................
Our Quarterly Report on Form 10-Q for the quarter ended May 15, 2001
March 31, 2001............................................
Our Current Report on Form 8-K/A............................ May 11, 2001
Our Annual Report on Form 10-K/A for the year ended December April 30, 2001
31, 2000..................................................
Our Current Report on Form 8-K.............................. April 17, 2001
Our Current Report on Form 8-K/A............................ March 13, 2001
Our Current Report on Form 8-K.............................. March 12, 2001
Our Annual Report on Form 10-K for the year ended December March 9, 2001
31, 2000..................................................
</Table>
We will provide to each person, including any beneficial owner, to whom a
prospectus is delivered, a copy of any or all of the information that we have
incorporated by reference in this prospectus but have not delivered with this
prospectus. You may request a copy of these filings, at no cost, by writing or
telephoning us at: Century Aluminum Company, 2511 Garden Road, Monterey, CA
93940, Tel.: (831) 642-9300, Attention: Corporate Secretary.
TO OBTAIN TIMELY DELIVERY OF ANY OF THIS INFORMATION, YOU MUST MAKE YOUR
REQUEST AT LEAST FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION OF THE EXCHANGE
OFFER. THE DATE BY WHICH YOU MUST MAKE YOUR REQUEST IS , 2001.
120
127
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
CENTURY ALUMINUM COMPANY
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Deloitte & Touche LLP............................. F-2
Consolidated Balance Sheets at December 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 2001 and December
31, 2000.................................................. F-29
Consolidated Statements of Operations for the Six Months
Ended June 30, 2001 and 2000.............................. F-30
Consolidated Statements of Shareholders' Equity for the Six
Months Ended June 30, 2001................................ F-31
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2001 and 2000.............................. F-32
Notes to Unaudited Consolidated Financial Statements........ F-33
NSA, LTD.
AUDITED FINANCIAL STATEMENTS:
Report of Ernst & Young LLP................................. F-46
Balance Sheets as of December 31, 2000 and 1999............. F-47
Statements of Income for the Years Ended December 31, 2000,
1999 and 1998............................................. F-48
Statements of Net Equity for the Years Ended December 31,
2000, 1999 and 1998....................................... F-49
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998....................................... F-50
Notes to Financial Statements............................... F-51
UNAUDITED FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 2001 and December 31,
2000...................................................... F-56
Statements of Income for the Three Months Ended March 31,
2001 and 2000............................................. F-57
Statements of Net Equity for the Three Months Ended March
31, 2001.................................................. F-58
Statements of Cash Flows for the Three Months Ended March
31, 2001 and 2000......................................... F-59
Notes to Financial Statements............................... F-60
</Table>
F-1
128
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
F-2
129
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
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.
F-3
130
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
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.
F-4
131
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(DOLLARS IN THOUSANDS)
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.
F-5
132
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
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 (15,994) 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.
F-6
133
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
F-7
134
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
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>
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
F-8
135
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the 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. The Company accounts for its 49.67%
interest in the Mt. Holly partnership using the equity method of accounting.
Additionally the Company has recorded, within its property, plant and equipment,
its 49.67% undivided ownership interest in certain property, plant and equipment
of the Mt. Holly facility.
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.
F-9
136
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Financial Instruments -- The Company's financial instruments (principally
receivables, payables and forward contracts) are carried at amounts that
approximate fair value.
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
F-10
137
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
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)
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
F-11
138
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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 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
------- -------
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.
F-12
139
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at December 31, consists of the following:
<Table>
<Caption>
2000 1999
-------- --------
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.
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.
F-13
140
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
6. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS AT DECEMBER 31
<Table>
<Caption>
2000 1999
------- -------
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>
The liability for transaction related costs and accruals represented the
Company's estimate of professional fees and contractual post-closing adjustment
related to the sale of the rolling and fabricating businesses.
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
------- -------
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.
F-14
141
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
------- ------- --------- ---------
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.
F-15
142
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
------- ------ -------- ------- -------- -------
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
---- ---- ----
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
F-16
143
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
------- ------ -------
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.
F-17
144
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
------- ------- -------- -------- -------- ------- --------
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>
OPTION OUTSTANDING
------------------------------ OPTIONS EXERCISABLE
NUMBER -------------------------------
OUTSTANDING WEIGHTED-AVG. NUMBER
RANGE OF AT REMAINING WEIGHTED-AVG. EXERCISABLE AT WEIGHTED-AVG.
EXERCISE PRICES 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE 12/31/00 EXERCISE PRICE
--------------- ----------- ---------------- -------------- -------------- --------------
$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
----- -----
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>
F-18
145
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
------- ------ -------
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
-------- -------- --------
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.
F-19
146
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
---- ---- ----
Federal statutory rate...................................... 35% 35% 35%
Effect of:
Permanent differences..................................... 1 (2) (2)
State taxes, net of Federal benefit....................... 3 3 3
Reduction in estimated income taxes payable............... (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
-------- --------
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>
The federal net operating loss carryforward of $7,000 as of December 31,
1999 was fully utilized in 2000. The state net operating loss carried forward of
$78,100 as of December 31, 1999 was partially utilized in 2000. The remaining
state net operating loss carried forward of $40,700 is scheduled to expire in
2019.
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.
F-20
147
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
F-21
148
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
F-22
149
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
F-23
150
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
settled in cash at December 31, 2000 and 1999, respectively. Of these contracts,
396.4 million and 60.0 million 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 through 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.
F-24
151
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
-------- ------- -------
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
------- ------ ------
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-
F-25
152
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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
SHEET AND UNALLOCATED &
PRIMARY PLATE ELIMINATIONS TOTAL
-------- --------- ------------- --------
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.
F-26
153
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Included in the consolidated financial statements are the following amounts
related to geographic locations:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
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>
INCOME (LOSS)
INCOME (LOSS) PER SHARE
BEFORE BEFORE NET
GROSS PROFIT EXTRAORDINARY EXTRAORDINARY INCOME
NET SALES (LOSS) ITEM NET INCOME ITEM PER SHARE
--------- ------------ ------------- ---------- ------------- ---------
(IN THOUSANDS)
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.
F-27
154
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(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.
(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.
F-28
155
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 15,353 $ 32,962
Accounts receivable, trade -- net......................... 68,681 31,119
Due from affiliates....................................... 17,494 15,672
Inventories............................................... 78,147 44,081
Prepaid and other assets.................................. 7,686 9,487
-------- --------
Total current assets...................................... 187,361 133,321
Property, Plant and Equipment -- net...................... 433,458 184,526
Intangible Asset.......................................... 158,378 --
Other Assets.............................................. 32,085 15,923
-------- --------
Total............................................. $811,282 $333,770
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade................................... $ 46,443 $ 30,072
Due to affiliates......................................... 9,866 3,985
Industrial revenue bonds.................................. 7,815 --
Accrued and other current liabilities..................... 34,731 17,739
Accrued employee benefits costs -- current portion........ 5,379 4,824
-------- --------
Total current liabilities......................... 104,234 56,620
======== ========
Long Term Debt.............................................. 321,250 --
Accrued Pension Benefits Costs -- Less current portion...... 3,510 3,656
Accrued Postretirement Benefits Costs -- Less current
portion................................................... 63,811 42,170
Other Liabilities........................................... 6,913 6,560
Deferred Taxes.............................................. 51,365 22,125
-------- --------
Total noncurrent liabilities...................... 446,849 74,511
======== ========
Minority Interest........................................... 26,393 --
Shareholders' Equity:
Convertible preferred stock............................... 25,000 --
Common stock (one cent par value, 50,000,000 shares
authorized; 20,513,287 shares outstanding at June 30,
2001 and 20,339,203 at December 31, 2000).............. 205 203
Additional paid-in capital.................................. 168,414 166,184
Accumulated other comprehensive income...................... 2,125 --
Retained earnings........................................... 38,062 36,252
-------- --------
Total shareholders' equity........................ 233,806 202,639
-------- --------
Total............................................. $811,282 $333,770
======== ========
</Table>
See notes to consolidated financial statements
F-29
156
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
NET SALES:
Third-party customers......................... $159,128 $ 72,943 $243,218 $144,726
Related parties............................... 29,791 36,122 56,391 60,788
-------- -------- -------- --------
188,919 109,065 299,609 205,514
COST OF GOODS SOLD.............................. 172,632 101,192 274,860 189,474
-------- -------- -------- --------
GROSS PROFIT.................................... 16,287 7,873 24,749 16,040
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 5,335 3,070 8,926 6,455
-------- -------- -------- --------
OPERATING INCOME................................ 10,952 4,803 15,823 9,585
GAIN ON SALE OF FABRICATING BUSINESSES.......... -- 5,156 -- 5,156
INTEREST INCOME (EXPENSE) -- Net................ (10,341) 274 (9,991) 1,488
NET GAIN (LOSS) ON FORWARD CONTRACTS............ -- (2,250) (176) 475
OTHER INCOME (EXPENSE).......................... 60 2,794 (61) 2,865
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES...................... 671 10,777 5,595 19,569
INCOME TAX EXPENSE.............................. (138) (3,880) (1,911) (7,045)
-------- -------- -------- --------
NET INCOME BEFORE MINORITY INTEREST............. 533 6,897 3,684 12,524
MINORITY INTEREST, NET OF TAX................... 810 -- 810 --
-------- -------- -------- --------
NET INCOME...................................... 1,343 6,897 4,494 12,524
PREFERRED DIVIDENDS............................. (500) -- (500) --
-------- -------- -------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS..... $ 843 $ 6,897 $ 3,994 $ 12,524
======== ======== ======== ========
EARNINGS PER COMMON SHARE
Basic......................................... $ 0.04 $ 0.34 $ 0.20 $ 0.62
Diluted....................................... $ 0.04 $ 0.34 $ 0.19 $ 0.61
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic......................................... 20,502 20,339 20,431 20,339
======== ======== ======== ========
Diluted....................................... 20,651 20,399 20,528 20,399
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE...................... $ 0.05 $ 0.05 $ 0.10 $ 0.10
======== ======== ======== ========
</Table>
See notes to consolidated financial statements
F-30
157
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
ADDITIONAL TOTAL
COMPREHENSIVE PREFERRED COMMON PAID-IN RETAINED SHAREHOLDERS'
INCOME STOCK STOCK CAPITAL EARNINGS EQUITY
------------- --------- ------ ---------- -------- -------------
Balance, December 31, 2000........ $203 $166,184 $36,252 $202,639
Comprehensive Income -- 2001...... $4,494 4,494 4,494
Net Income -- 2001..............
Other Comprehensive Income:
Unrealized gain on financial
instrument, net of tax of
$1,108..................... 2,125 2,125
------
Total comprehensive income...... $6,619
Cash dividends --
Common, $0.10 per share......... (2,184) (2,184)
Accrued dividends --
Preferred Stock, $1 per share... (500) (500)
Issuance of Preferred Stock....... $25,000 25,000
Issuance of Common Stock
Compensation plans.............. -- 2 2,230 -- 2,232
------- ---- -------- ------- --------
Balance, June 30, 2001............ $25,000 $205 $168,414 $38,062 $233,806
======= ==== ======== ======= ========
</Table>
See notes to consolidated financial statements
F-31
158
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
---------------------
2001 2000
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 4,494 $ 12,524
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 16,694 6,723
Deferred income taxes..................................... 2,685 7,021
Pension and other postretirement benefits................. 3,450 567
Inventory market adjustment............................... -- 1,631
Gain on sale of fabricating businesses.................... -- (5,156)
Minority Interest......................................... (1,307) --
Change in operating assets and liabilities:
Accounts receivable, trade -- net...................... (6,380) 6,283
Due from affiliates.................................... 2,683 526
Inventories............................................ 4,228 8,729
Prepaids and other assets.............................. 2,835 (1,777)
Accounts payable, trade................................ (9,438) (6,990)
Due to affiliates...................................... (1,495) (2,084)
Accrued and other current liabilities.................. 6,131 (930)
Other -- net........................................... 509 (1,033)
--------- --------
Net cash provided by operating activities................... 25,089 26,034
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (5,641) (4,549)
Proceeds from sale of property, plant and equipment....... 22 --
Proceeds from sale of minority interest in Hawesville
Operation.............................................. 98,971 --
Acquisitions.............................................. (464,176) (94,734)
Restricted cash deposits.................................. -- 5,821
--------- --------
Net cash used in investing activities.................. (370,824) (93,462)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................ 321,250 --
Financing fees............................................ (15,440) --
Dividends................................................. (2,684) (2,136)
Issuance of preferred stock............................... 25,000 --
--------- --------
Net cash provided by (used in) financing activities.... 328,126 (2,136)
--------- --------
NET INCREASE (DECREASE) IN CASH............................. (17,609) (69,564)
CASH, BEGINNING OF PERIOD................................... 32,962 85,008
--------- --------
CASH, END OF PERIOD......................................... $ 15,353 $ 15,444
========= ========
</Table>
See notes to consolidated financial statements
F-32
159
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. GENERAL
Effective April 1, 2001, Century Aluminum Company ("Century" or the
"Company") completed the acquisition of NSA Ltd. ("NSA") from Southwire Company,
a privately-held wire and cable manufacturing company. NSA owns and operates an
aluminum reduction operation in Hawesville, Kentucky (the "Hawesville
Facility"). The purchase price was $460,000, plus the assumption of $7,815 in
industrial revenue bonds, and is subject to certain post closing adjustments.
Simultaneous with the closing, a subsidiary of Glencore International AG
(together with its subsidiaries, the "Glencore Group" or "Glencore") effectively
purchased a 20% interest in the Hawesville Facility for $99,000. The Glencore
20% interest consists of (1) title to the recently added fifth potline at the
Hawesville Facility, (2) a 20% undivided interest in all other assets of and
rights relating to the Hawesville Facility, other than the original four
potlines and (3) a 20% ownership in a limited liability company which holds
certain intangible assets of the Hawesville Facility (such as the alumina and
power supply contracts). In connection with the Company's financing of the NSA
acquisition, Glencore purchased $25,000 of the Company's convertible preferred
stock. Each share of convertible preferred stock entitles the holder to fully
cumulative cash dividends of 8% per annum and may be converted, at the holder's
option, into the Company's common stock at $17.92 per share. See Note 5 to the
Consolidated Financial Statements.
Century is a holding company, whose principal subsidiaries are Century
Aluminum of West Virginia, Inc. ("Century of West Virginia") and Century
Kentucky, Inc. ("Century Kentucky"). Century of West Virginia operates a primary
aluminum reduction facility in Ravenswood, West Virginia (the "Ravenswood
Facility"), and, 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. Century Kentucky owns an 80% interest in the
reduction operations at the Hawesville Facility.
In addition to the $25,000 of convertible preferred shares, Glencore owns
7,925,000 common shares, or 38.6% of the common shares outstanding of the
Company. Century and the Glencore Group enter into various transactions such as
the purchase and sale of primary aluminum, alumina and metals risk management.
The accompanying unaudited interim consolidated financial statements of the
Company should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2000. In management's opinion, the
unaudited interim consolidated financial statements reflect all adjustments,
which are of a normal and recurring nature, which are necessary for a fair
presentation, in all material respects, of financial results for the interim
periods presented. Operating results for the first six months of 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
2. INVENTORIES
Inventories consist of the following:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
Raw materials......................................... $44,799 $27,784
Work-in-process....................................... 7,757 3,286
Finished goods........................................ 9,824 3,859
Operating and other supplies.......................... 15,767 9,152
------- -------
$78,147 $44,081
======= =======
</Table>
F-33
160
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
At June 30, 2001 and December 31, 2000, approximately 80% and 79%,
respectively, of inventories were valued at the lower of last-in, first-out
("LIFO") cost or market. The excess of LIFO cost (or market, if lower) over
first-in, first-out ("FIFO") cost of inventory was approximately $1,201 at June
30, 2001. The excess of FIFO cost over LIFO cost of inventory was approximately
$490 at December 31, 2000.
3. INTANGIBLE ASSET
Intangible asset consists of the power contract acquired in connection with
the NSA acquisition. The contract value will be amortized over its term (ten
years) using a systematic method that is reflective of the underlying value of
the contract.
4. DEBT
Effective April 1, 2001, the Company entered into a $100,000 senior secured
revolving credit facility (the "Revolving Credit Facility") with a syndicate of
banks. The Revolving Credit Facility may be used for working capital needs,
capital expenditures and other general corporate purposes. The borrowing base
for purposes of determining availability is based upon certain eligible
inventory and receivables. The Company is subject to customary covenants,
including restrictions on capital expenditures, additional indebtedness, liens,
guarantees, mergers and acquisitions, dividends and maintenance of certain
financial ratios. The Company's obligations under the Revolving Credit Facility
are unconditionally guaranteed by its domestic subsidiaries (other than Century
Aluminum of Kentucky LLC) and secured by a first priority, perfected security
interest in all accounts receivable and inventory belonging to the Company and
its subsidiary borrowers. Amounts outstanding under the Revolving Credit
Facility bear interest, at the Company's option, at either a floating LIBOR rate
or Fleet National Bank's base rate, in each case plus the applicable interest
margin. The Revolving Credit Facility will mature on April 1, 2006. There were
no outstanding borrowings under the Revolving Credit Facility as of June 30,
2001.
Effective April 1, 2001, in connection with its acquisition of NSA, the
Company issued and sold $325,000 of its 11 3/4% senior secured first mortgage
notes due 2008 (the "Notes") to certain institutional investors in a private
placement under Rule 144A of the Securities Act of 1933. The payment of the
principal of, and premium and semi-annual interest on, the Notes is guaranteed
by the Company's domestic restricted subsidiaries and secured by mortgages and
security interests granted by two of the Company's subsidiaries in all of their
respective interests in the real property, plant and equipment comprising the
Hawesville and Ravenswood facilities, in each case to the collateral agent for
the benefit of the trustee and the note holders. The Company's interest in the
Mt. Holly property, plant and equipment has not been pledged as collateral. The
Company is subject to customary covenants, including restrictions on capital
expenditures, additional indebtedness, liens, guarantees, mergers and
acquisitions, dividends and maintenance of certain financial ratios. The note
guarantees will rank equally in right of payment to the other senior
indebtedness of the guarantors and senior in right of payment to all
subordinated indebtedness of the guarantors.
Effective April 1, 2001, in connection with its acquisition of NSA, the
Company assumed industrial revenue bonds ("IRBs") in the aggregate principal
amount of $7,815. Glencore will pay a pro rata portion of the debt service costs
of the IRBs through its investment in the Hawesville Facility. The IRBs mature
on April 1, 2028, are secured by a letter of credit and bear interest at a
variable rate not to exceed 12% per annum determined weekly based on prevailing
rates for similar bonds in the bond market. The interest rate on the IRBs at
June 30, 2001 was 3.1%. The IRBs are classified as current liabilities because
they are remarketed weekly and could be required to be repaid upon demand if
there is a failed remarketing, as provided in the indenture governing the IRBs.
F-34
161
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
5. CONVERTIBLE PREFERRED STOCK
The Company issued to Glencore 500,000 shares of its 8.0% cumulative
convertible preferred stock (the "Preferred Stock") for a cash purchase price of
$25,000. The Preferred Stock has a par value per share of $0.01, a liquidation
preference of $50 per share and ranks junior to the Notes, the IRBs, borrowings
under the Revolving Credit Facility and all of the Company's other existing and
future debt obligations. Following is a summary of the principal terms of the
Preferred Stock:
- Dividends. The holders of the Preferred Stock are entitled to receive
fully cumulative cash dividends at the rate of 8% per annum per share
accruing daily and payable when declared quarterly in arrears.
- Optional Conversion. Each share of Preferred Stock may be converted at
any time, at the option of the holder, into shares of the Company's common
stock, at a price of $17.92, subject to adjustment for stock dividends,
stock splits and other specified corporate actions.
- Voting Rights. The holders of Preferred Stock have limited voting rights
to approve: (1) any action by the Company which would adversely affect or
alter the preferences and special rights of the Preferred Stock, (2) the
authorization of any class of stock ranking senior to, prior to or ranking
equally with the Preferred Stock, and (3) any reorganization or
reclassification of the Company's capital stock or merger or consolidation
of the Company.
- Optional Redemption. After the third anniversary of the issue date, the
Company may redeem the Preferred Stock, at its option, for cash at a price
of $52 per share, plus accrued and unpaid dividends to the date of
redemption, declining ratably to $50 per share at the end of the eighth
year.
- Transferability. The Preferred Stock is freely transferable in a private
offering or any other transaction which is exempt from, or not subject to,
the registration requirements of the Securities Act of 1933 and any
applicable state securities laws.
6. 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, Century of West Virginia will have 60 days
F-35
162
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
within which to submit a corrective measures study ("CMS") to the EPA proposing
means of remediating areas that may require cleanup. If any cleanup were
required, EPA would issue a subsequent order. The Company believes this process
will not be completed before the end of 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. The Company 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 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 Company's agreement with Kaiser to purchase the Ravenswood
Facility (the "Kaiser Purchase Agreement"). In addition, Kaiser retained title
to certain land within the Ravenswood premises and is fully responsible 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.
Under the terms of the Company's agreement to sell its fabricating
businesses to Pechiney (the "Pechiney Agreement"), the Company and Century of
West Virginia provided Pechiney with certain indemnifications. Those include the
assignment of certain of Century of West Virginia's indemnification rights under
the Kaiser Purchase Agreement (with respect to the real property transferred to
Pechiney) and the Company's indemnification rights under its stock purchase
agreement with Alcoa relating to the Company's purchase of Century Cast Plate,
Inc. The Pechiney Agreement provides further indemnifications, which are
limited, in general, to pre-closing conditions that were not disclosed to
Pechiney or to off site migration of hazardous substances from pre-closing acts
or omissions of Century of West Virginia. Environmental indemnifications under
the Pechiney Agreement expire September 20, 2005 and are payable only to the
extent they exceed $2,000.
The Hawesville Facility has been listed on the National Priorities List
under the federal Comprehensive Environmental Response, Compensation and
Liability Act. On July 6, 2000, the EPA issued a final Record of Decision
("ROD") which details response actions to be implemented at several locations at
the Hawesville site to address actual or threatened releases of hazardous
substances. Those actions include:
- removal and off-site disposal at approved landfills of certain soils
contaminated by polychlorinated biphenyls ("PCBs");
- management and containment of soils and sediments with low PCB
contamination in certain areas on-site; and
- the continued extraction and treatment of cyanide contaminated ground
water using the existing ground water treatment system.
The total capital costs for the remedial actions to be undertaken and paid
for by Southwire relative to this site are estimated under the ROD to be $12,600
and the forecast of annual operating and maintenance costs is $1,200. Under the
Company's agreement with Southwire to purchase NSA, Southwire indemnified the
Company against all on-site environmental liabilities known to exist prior to
the closing of the acquisition, including all remediation, operation and
maintenance obligations under the ROD. Although Southwire is responsible for
operating and maintaining the ground water treatment system required under the
ROD, the Company agreed to reimburse Southwire up to $400 annually for the cost
of extracting and treating contaminated ground water on the site. Under the
terms of the Company's agreements with Glencore relating to the Company's
ownership and operation of the Hawesville Facility, Glencore will share pro rata
in any
F-36
163
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
environmental costs (net of any amounts available under the indemnity provisions
in the Company's stock purchase agreement with Southwire) associated with the
Hawesville Facility.
If on-site environmental liabilities relating to NSA's pre-closing
activities that were not known to exist as of the date of the closing of the
acquisition become known within six years after the closing, the Company and
Glencore, based on each company's respective percentage interests in the
Hawesville Facility, will share the costs of remedial action with Southwire on a
sliding scale depending on the year the claim is brought. Any on-site
environmental liabilities arising from pre-closing activities which do not
become known until on or after the sixth anniversary of the closing of the NSA
acquisition will be the responsibility of Glencore and the Company. In addition,
the Company and Glencore will be responsible for a pro rata portion of any
post-closing environmental costs which result from a change in environmental
laws after the closing or from their own activities, including a change in the
use of the facility.
The Company acquired NSA by purchasing all of the outstanding equity
securities of its parent company, Metalsco, which was a wholly owned subsidiary
of Southwire. Metalsco previously owned certain assets which are unrelated to
NSA, including the stock of Gaston Copper Recycling Corporation ("Gaston"), a
secondary metals reduction facility in South Carolina. Gaston has numerous
liabilities related to environmental conditions at its reduction facility.
Gaston and all other non-NSA assets owned at any time by Metalsco were
identified in the Company's agreement with Southwire as unwanted property and
were distributed to Southwire prior to the closing of the NSA acquisition.
Southwire indemnified the Company for all liabilities related to the unwanted
property. Southwire also retained ownership of certain land adjacent to the
Hawesville Facility containing NSA's former potliner disposal areas, which are
the sources of cyanide contamination in the facility's groundwater. Southwire
retained full responsibility for this land, which was never owned by Metalsco
and is located on the north boundary of the Hawesville site. In addition,
Southwire indemnified the Company against all risks associated with off-site
hazardous material disposals by NSA which pre-date the closing of the
acquisition.
Under the terms of the Company's agreement to purchase NSA, Southwire
secured its indemnity obligations for environmental liabilities for seven years
after the closing by posting a $15,000 letter of credit issued in our favor,
with an additional $15,000 to be posted if Southwire's net worth drops below a
pre-determined level during that period. The Company's indemnity rights under
the agreement are shared pro rata with Glencore. The amount of security
Southwire provides may increase (but not above $15,000 or $30,000, as
applicable) or decrease (but not below $3,000) if certain specified conditions
are met. The Company cannot be certain that Southwire will be able to meet its
indemnity obligations. In that event, under certain environmental laws which
impose liability regardless of fault, the Company may be liable for any
outstanding remedial measures required under the ROD and for certain liabilities
related to the unwanted properties. If Southwire fails to meet its indemnity
obligations or if the Company's shared or assumed liability is significantly
greater than anticipated, the Company's financial condition, results of
operations and liquidity could be materially adversely affected.
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 (the "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
F-37
164
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
("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 June 30, 2001
and December 31, 2000. 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
a material adverse effect on the Company's financial condition, results of
operations, or liquidity.
LEGAL CONTINGENCIES
Century of West Virginia was 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 the Ravenswood Facility, and the Company has agreed to
settlements aggregating less than $10. The Company is awaiting receipt of final
documentation of those settlements and entry of dismissal orders. Management
believes there are no pending asbestos cases against the Company which have not
been settled.
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 Ravenswood 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. During 2001, the Company expects to receive an additional
$2,400 as final settlement of the claim.
COMMITMENTS
The Company purchases all of the electricity requirements for the
Ravenswood Facility 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 expires
on December 31, 2005. That contract provides fixed pricing subject to system
fuel cost adjustments. The Hawesville Facility currently purchases all of its
power from Kenergy Corp., a local retail electric cooperative, under a series of
power supply contracts. Kenergy acquires the power it provides to the Hawesville
Facility under fixed-price
F-38
165
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
contracts with a subsidiary of LG&E Energy Corp., with delivery guaranteed by
LG&E. Approximately 72% of the power is purchased from Kenergy at fixed prices
under a contract which runs through 2010. The remaining 28% is purchased under
other fixed price contracts with Kenergy which expire at various times from 2003
to 2005.
The Company may be required to make post-closing payments to Southwire up
to an aggregate maximum of $7,000 if the price of primary aluminum on the LME
("London Metals Exchange") exceeds specified levels during the seven years
following closing of the NSA acquisition.
OTHER
Century of West Virginia's hourly employees, which comprise 37% 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.
Century of Kentucky's hourly employees, which comprise 41% of the Company's
workforce are represented by the United Steelworkers of America and are
currently working under a five-year labor agreement effective April 1, 2001.
7. FORWARD DELIVERY CONTRACTS AND FINANCIAL INSTRUMENTS
As a producer of primary aluminum products, the Company is exposed to
fluctuating raw material and primary aluminum prices. The Company routinely
enters into fixed and market priced contracts for the sale of primary aluminum
and the purchase of raw materials in future periods.
In connection with the sale of its aluminum fabricating businesses to
Pechiney in September 1999, the Company entered into a Molten Aluminum Purchase
Agreement (the "Pechiney Metal Agreement") with Pechiney that expires July 31,
2003 with provisions for extension. Pursuant to the Pechiney Metal Agreement,
Pechiney purchases, on a monthly basis, at least 23.0 million pounds and no more
than 27.0 million pounds of molten aluminum at a price determined by a
market-based formula.
Subsequent to the Company's purchase of an additional 23% interest in the
Mt. Holly Facility from Xstrata, effective April 1, 2000, 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 of the Glencore Metal Agreement are
determined by a market-based formula while the remaining eight years are at a
fixed price as defined in the agreement.
In connection with the NSA acquisition in April 2001, the Company entered
into a 10-year contract with Southwire (the "Southwire Metal Agreement") to
supply 240 million pounds of high-purity molten aluminum annually to Southwire's
wire and cable manufacturing facility located adjacent to the Hawesville
Facility. Under this contract, Southwire will also purchase 60 million pounds of
standard grade molten aluminum each year for the first five years of the
contract, with an option to purchase an equal amount in each of the remaining
five years. The Company and Glencore will each be responsible for providing a
pro rata portion of the aluminum supplied to Southwire under this contract,
which will represent approximately 57% of the production capacity of the
Hawesville Facility through April 2006. The price for the molten aluminum to be
delivered to Southwire from the Hawesville Facility is variable and will be
determined by reference to the U.S. Midwest Market Index. This agreement expires
on April 1, 2011, and will automatically renew for additional five-year terms,
unless either party provides 12 months notice that it has elected not to renew.
Apart from the Pechiney Metal Agreement, Glencore Metal Agreement and
Southwire Metal Agreement, the Company had forward delivery contracts to sell
350.5 million pounds and 50.3 million pounds of primary aluminum at June 30,
2001 and December 31, 2000, respectively. Of these forward delivery contracts,
F-39
166
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
8.9 million pounds and 14.7 million pounds at June 30, 2001 and December 31,
2000, respectively, were with the Glencore Group.
The Company is party to a long-term supply agreement to purchase 936.0
million pounds of alumina annually through the end of 2001. Beginning on January
1, 2002, that agreement will be replaced by new long-term alumina supply
agreements with Glencore. These new agreements provide that Glencore will supply
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 the Mt.
Holly Facility, the Company assumed an alumina supply agreement with Glencore
for its alumina requirements relative to the additional interest. This agreement
terminates in 2008 and is priced with a market-based formula. As part of its
acquisition of NSA, the Company assumed an alumina supply agreement with Kaiser.
That agreement expires in 2005 and is a variable-priced market based contract.
To mitigate the volatility in its market priced forward delivery contracts,
the Company enters into fixed price financial sales contracts, which settle in
cash in the period corresponding to the intended delivery dates of the forward
delivery contracts. At June 30, 2001 and December 31, 2000, the Company had
financial instruments, primarily with the Glencore Group, for 383.3 million
pounds and 453.5 million pounds, respectively. These financial instruments are
scheduled for settlement at various dates in 2001 through 2003. The Company also
had fixed price financial purchase contracts to purchase aluminum at June 30,
2001 of 1.8 million pounds. These financial instruments are scheduled for
settlement during 2001. The Company had no fixed price financial purchase
contracts to purchase aluminum at December 31, 2000. Additionally, to mitigate
the volatility of the natural gas markets, the Company enters into fixed price
financial purchase contracts, which settle in cash in the period corresponding
to the intended usage of natural gas. At June 30, 2001, the Company had
financial instruments for 3.8 million DTH's (one decatherm is equivalent to one
million British Thermal Units). These financial instruments are scheduled for
settlement at various dates in 2001 through 2005.
8. SUPPLEMENTAL CASH FLOW INFORMATION
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
-----------------
2001 2000
----- --------
Cash paid for:
Interest................................................. $ 1 $ 158
Income taxes............................................. 382 406
Cash received for:
Interest................................................. 549 1,668
Income tax refunds....................................... $ 30 $12,957
</Table>
9. ACQUISITIONS
Effective April 1, 2001, the Company completed the acquisition of NSA, an
entity that operates a 237,000 metric ton per year aluminum reduction operation
in Hawesville, Kentucky. The purchase price was $460,000 plus the assumption of
$7,815 in IRBs and is subject to certain post closing adjustments. See Note 1 to
the Consolidated Financial Statements for additional details relating to the NSA
acquisition. The Company financed the NSA acquisition with: (i) proceeds from
the sale of its Notes, (ii) proceeds from the sale of its Preferred Stock to
Glencore, (ii) proceeds from the sale to Glencore of a 20% interest in the
Hawesville Facility, and (iv) available cash. The Glencore 20% interest consists
of (1) title to the recently added fifth potline at the Hawesville Facility, (2)
a 20% undivided interest in all other assets of and rights relating to the
Hawesville Facility, other than the original four potlines and (3) a 20%
ownership in a limited liability
F-40
167
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
company which holds certain intangible assets of the Hawesville Facility (such
as the alumina and power supply contracts). The Company accounted for the NSA
acquisition using the purchase method of accounting. This purchase price
allocation is preliminary. See Notes 4 and 5 to the Consolidated Financial
Statements for additional information about the financing of the NSA
acquisition.
Effective April 1, 2000, Century, through its wholly-owned indirect
subsidiary Berkeley, increased its 26.67% undivided interest in the Mt. Holly
Facility to 49.67% by purchasing a 23% undivided interest from a subsidiary of
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 Assets. 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 Xstrata's interest in Mt. Holly
Assets was $94,734. Under the terms of the Mt. Holly Purchase Agreement,
Berkeley also 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 and the acquisition was
accounted for using the purchase method.
The following schedule represents the unaudited pro forma results of
operations for the six months ended June 30, 2001 and 2000 assuming the
acquisitions occurred on January 1, 2000. The unaudited pro forma amounts may
not be indicative of the results that actually would have occurred if the
transactions described above had been completed and in effect for the periods
indicated or the results that may be obtained in the future.
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
--------------------
2001 2000
-------- --------
(UNAUDITED)
Net Sales............................................ $385,533 $392,119
Net Income........................................... 3,769 12,034
Net income available to common shareholders.......... 2,769 11,034
Earnings per share................................... $ 0.14 $ 0.54
</Table>
10. NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, as amended by SFAS No. 138, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. All derivatives, whether designated in hedging relationships
or not, are required to be recorded on the balance sheet at fair value. If the
derivative is designated as a cash flow hedge, the effective portions of the
changes in the fair value of the derivative are recorded in accumulated other
comprehensive income and are recognized in the income statement when the hedged
item affects earnings. Ineffective portions of the changes in the fair value of
the cash flow hedges are recognized in earnings. Effectiveness of hedges is
measured by a historical and probable future high correlation of changes in the
fair value of the hedging instrument with the changes in the fair value of the
hedged item. If the correlation ceases to exist, hedge accounting will be
terminated and gains and losses on forward sales contracts will be recorded as
net gains (losses) on forward contracts in the Statement of Operations.
As of January 1, 2001, the Company's financial instruments were designated
as cash flow hedges. As these financial instruments had not been recorded as
hedges prior to the adoption of SFAS No. 133, there was
F-41
168
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
no transition adjustment upon adoption. As of June 30, 2001, accounts receivable
and other long-term assets included $9,142, and accrued and other liabilities
included $5,909, representing the fair value of the Company's financial
instruments. Based on the fair value of the Company's financial instruments as
of June 30, 2001, accumulated other comprehensive income of $2,307 is expected
to be reclassified to earnings over the next twelve month period.
The Financial Accounting Standards Board's (the "FASB") Derivatives
Implementation Group (the "DIG") continues to identify and provide guidance on
various implementation issues related to SFAS Nos. 133 and 138 that are in
varying stages of review and clearance by the DIG and FASB. The Company has
adopted all DIG guidance that was required to be implemented by June 30, 2001.
The Company is currently evaluating the impact of pending DIG guidance and has
not determined if the ultimate resolution of those issues would have a material
impact on its financial statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company is currently assessing, but has not yet determined, the impact of
SFAS No. 141 on its financial position and results of operations.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which becomes effective January 1, 2002. SFAS No. 142 requires, among
other things, the discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. The Company is currently assessing, but
has not yet determined, the impact of SFAS No. 142 on its financial position and
results of operations.
11. CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's 11 3/4% Senior Secured First Mortgage Notes due 2008 are
jointly and severally and fully and unconditionally guaranteed by all of the
Company's material wholly-owned direct and indirect subsidiaries (the "Guarantor
Subsidiaries"). Condensed consolidating financial information has not been
provided as of December 31, 2000 and for the periods prior because: (i) Century
Aluminum Company has no independent assets or operations, (ii) the guarantees
are full and unconditional and joint and several, and (iii) for those periods,
any subsidiaries of the Company other than the subsidiary guarantors were minor.
As of June 30, 2001, as a result of the acquisition of the Hawesville facility,
Century holds an 80% equity interest in Century Aluminum of Kentucky, LLC ("CAK
LLC"). CAK LLC and other subsidiaries of the Company which are immaterial will
not guarantee the notes (collectively, the "Non-Guarantor Subsidiaries").
Because CAK LLC is not a minor subsidiary, the Company is providing condensed
consolidating financial information for the periods following the Company's
acquisition of the Hawesville Facility.
The following summarized condensed consolidating financial information as
of and for the six months ended June 30, 2001 presents separate results for
Century Aluminum Company, the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries. The Guarantor Subsidiaries are segregated into two groups, one
consisting of subsidiaries that have previously been included in Century's
audited financial results and the other consisting of newly-acquired and
newly-formed subsidiaries. Guarantor Subsidiaries previously included in
Century's audited financials are: Century Aluminum of West Virginia, Inc.,
Berkeley Aluminum Company and Virgin Islands Alumina Corporation LLC. The newly
acquired and newly formed subsidiaries are: Century of Kentucky, Inc. ("CKI"),
Metalsco, Ltd. ("Metalsco"), Skyliner, Inc. ("Skyliner") and NSA, Ltd. ("NSA").
These companies have been aggregated because the only assets held by CKI,
Metalsco and
F-42
169
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Skyliner, other than CKI's investment in CAK LLC, are their respective ownership
interests, direct or indirect, in NSA.
This summarized condensed consolidating financial information may not
necessarily be indicative of the results of operations or financial positions
had the Company, the Guarantor Subsidiaries or the Non-Guarantor Subsidiaries
operated as independent entities.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2001
<Table>
<Caption>
COMBINED
RECENTLY
ACQUIRED AND COMBINED
NEWLY FORMED OTHER COMBINED NON- RECLASSIFICATIONS
GUARANTOR GUARANTOR GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------- ----------------- ------------
Assets:
Cash and cash equivalents... $ 584 $ -- $ -- $14,769 $ -- $ 15,353
Accounts receivable, net.... 34,341 34,340 -- -- -- 68,681
Due from affiliates......... -- 81,587 -- 388,826 (452,919) 17,494
Inventories................. 4,170 42,336 31,641 -- -- 78,147
Other current assets........ -- 3,163 431 4,092 -- 7,686
-------- -------- -------- -------- --------- --------
Total current assets.... 39,095 161,426 32,072 407,687 (452,919) 187,361
Investment in
subsidiaries.............. 105,075 -- -- 224,540 (329,615) --
Property, plant and
equipment, net............ 249,268 183,472 150 568 -- 433,458
Intangible asset............ -- -- 158,378 -- -- 158,378
Other noncurrent assets..... -- 17,233 -- 14,852 -- 32,085
-------- -------- -------- -------- --------- --------
Total assets............ $393,438 $362,131 $190,600 $647,647 $(782,534) $811,282
======== ======== ======== ======== ========= ========
Liabilities and
shareholders' equity:
Accounts payable............ $ 3,798 $ 18,998 $ 23,647 $ -- $ -- $ 46,443
Due to affiliates........... 360,394 23,802 5,163 73,426 (452,919) 9,866
Industrial revenue bonds.... -- -- 7,815 -- -- 7,815
Other current liabilities... 6,046 13,199 3,473 17,392 -- 40,110
-------- -------- -------- -------- --------- --------
Total current
liabilities........... 370,238 55,999 40,098 90,818 (452,919) 104,234
Long term debt.............. -- -- -- 321,250 -- 321,250
Deferred taxes.............. 27,390 23,975 -- -- -- 51,365
Other noncurrent
liabilities............... -- 53,427 19,034 1,773 -- 74,234
-------- -------- -------- -------- --------- --------
Total noncurrent
liabilities........... 27,390 77,402 19,034 323,023 -- 446,849
Minority interest........... -- -- 26,393 -- -- 26,393
Shareholders' equity:
Preferred stock............. -- -- -- 25,000 -- 25,000
Common stock................ -- 59 -- 205 (59) 205
Additional paid-in
capital................... -- 226,998 110,798 168,414 (337,796) 168,414
Accumulated other
comprehensive income...... (1,730) 3,855 -- 2,125 (2,125) 2,125
Retained earnings........... (2,460) (2,182) (5,723) 38,062 10,365 38,062
-------- -------- -------- -------- --------- --------
Total shareholders'
equity................ (4,190) 228,730 105,075 233,806 (329,615) 233,806
-------- -------- -------- -------- --------- --------
Total liabilities and
equity................ $393,438 $362,131 $190,600 $647,647 $(782,534) $811,282
======== ======== ======== ======== ========= ========
</Table>
F-43
170
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 2001
<Table>
<Caption>
COMBINED
RECENTLY
ACQUIRED AND COMBINED
NEWLY FORMED OTHER COMBINED NON- RECLASSIFICATIONS
GUARANTOR GUARANTOR GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------- ----------------- ------------
Net sales:
Third-party customers... $ 78,731 $164,487 $ -- $ -- $ -- $243,218
Related parties......... 29 56,362 75,053 -- (75,053) 56,391
-------- -------- -------- -------- --------- --------
78,760 220,849 75,053 -- (75,053) 299,609
Cost of goods sold.......... 66,154 204,712 78,412 -- (74,418) 274,860
-------- -------- -------- -------- --------- --------
Gross profit (loss)......... 12,606 16,137 (3,359) -- (635) 24,749
Selling, general and
administrative expenses... -- 1,264 3,111 5,173 (622) 8,926
-------- -------- -------- -------- --------- --------
Operating income............ 12,606 14,873 (6,470) (5,173) (13) 15,823
Interest income (expense),
net....................... (11,448) -- (71) 1,515 13 (9,991)
Other income (expense),
net....................... 101 (353) 8 7 -- (237)
-------- -------- -------- -------- --------- --------
Income (loss) before taxes
and minority interest..... 1,259 14,520 (6,533) (3,651) -- 5,595
Income tax (expense)
benefit................... 2,004 (5,227) -- 1,312 -- (1,911)
-------- -------- -------- -------- --------- --------
Net income (loss) before
minority interest......... 3,263 9,293 (6,533) (2,339) -- 3,684
Minority interest, net of
tax....................... -- -- 810 -- -- 810
Equity earnings (loss) of
subsidiaries.............. (5,723) -- -- 6,833 (1,110) --
-------- -------- -------- -------- --------- --------
Net income (loss)........... ($ 2,460) $ 9,293 ($ 5,723) $ 4,494 ($ 1,110) $ 4,494
======== ======== ======== ======== ========= ========
</Table>
F-44
171
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDING JUNE 30, 2001
<Table>
<Caption>
COMBINED
RECENTLY
ACQUIRED AND COMBINED
NEWLY FORMED OTHER COMBINED NON- RECLASSIFICATIONS
GUARANTOR GUARANTOR GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------- ----------------- ------------
Net cash provided by (used in)
operating activities............ $ 14,216 $ 1,333 ($ 5,056) $14,596 -- $ 25,089
-------- -------- -------- -------- --------- --------
Investing activities:
Purchases of property, plant
and equipment, net.......... -- (5,469) (150) -- -- (5,619)
Proceeds from sale of minority
interest.................... 98,971 -- -- -- -- 98,971
Acquisitions.................. (464,176) -- -- -- -- (464,176)
-------- -------- -------- -------- --------- --------
Net cash (used in) investing
activities.................. (365,205) (5,469) (150) -- -- (370,824)
-------- -------- -------- -------- --------- --------
Financing activities:
Borrowings.................... -- -- -- 321,250 -- 321,250
Financing fees................ -- -- -- (15,440) -- (15,440)
Dividends..................... -- -- -- (2,684) -- (2,684)
Intercompany transactions..... 351,573 (28,826) 5,206 (327,953) -- --
Issuance of preferred stock... -- -- -- 25,000 -- 25,000
-------- -------- -------- -------- --------- --------
Net cash provided by (used in)
financing activities........ 351,573 (28,826) 5,206 173 -- 328,126
-------- -------- -------- -------- --------- --------
Net increase (decrease) in
cash........................ 584 (32,962) -- 14,769 -- (17,609)
Cash, beginning of period..... -- 32,962 -- -- -- 32,962
-------- -------- -------- -------- --------- --------
Cash, end of period........... $ 584 $ -- $ -- $14,769 $ -- $ 15,353
======== ======== ======== ======== ========= ========
</Table>
F-45
172
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Southwire Company
We have audited the accompanying balance sheets of NSA, Ltd. (A Kentucky
Limited Partnership) (the "Company") as of December 31, 2000 and 1999 and the
related statements of income, net equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of NSA, Ltd. at December 31,
2000 and 1999, and the results of its operations and its 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.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 23, 2001
F-46
173
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31
---------------------
2000 1999
--------- --------
(IN THOUSANDS)
ASSETS
Current assets:
Cash...................................................... $ 26 $ 31
Accounts receivable, net of allowances for doubtful
accounts and claims of $280 in 2000 and $240 in 1999... 21,858 23,776
Accounts receivable from Parent........................... 8,076 14,605
Inventories............................................... 36,946 37,675
Other current assets...................................... 145 186
--------- --------
Total current assets.............................. 67,051 76,273
Property, plant and equipment, at cost:
Land and land improvements................................ 6,287 6,350
Buildings................................................. 69,979 67,784
Machinery and equipment................................... 260,597 251,860
Construction in progress.................................. 975 9,570
--------- --------
337,838 335,564
Less accumulated depreciation............................. 176,546 158,768
--------- --------
161,292 176,796
Other assets................................................ 102 3,000
--------- --------
Total assets................................................ $ 228,445 $256,069
========= ========
LIABILITIES AND NET EQUITY
Current liabilities:
Accounts payable.......................................... $ 25,456 $ 29,007
Accrued expenses.......................................... 4,108 2,808
Environmental remediation liabilities..................... 8,770 9,204
Industrial development bonds.............................. 7,815 7,815
--------- --------
Total current liabilities................................... 46,149 48,834
Payable to Parent for employee benefits..................... 7,352 5,590
--------- --------
Total liabilities........................................... 53,501 54,424
Commitments and contingencies............................... -- --
Net equity:
Partners' capital......................................... 310,983 229,122
Advances to Parent........................................ (136,039) (27,477)
--------- --------
Total net equity............................................ 174,944 201,645
--------- --------
Total liabilities and net equity............................ $ 228,445 $256,069
========= ========
</Table>
See accompanying notes.
F-47
174
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Sales to third parties..................................... $177,597 $137,935 $148,854
Sales to Parent............................................ 232,264 189,040 161,842
-------- -------- --------
Net sales.................................................. 409,861 326,975 310,696
Cost of sales.............................................. 318,705 271,400 258,160
-------- -------- --------
Gross profit............................................... 91,156 55,575 52,536
Selling and distribution expenses.......................... 2,911 2,880 3,205
General and administrative expenses........................ 12,338 11,624 11,653
-------- -------- --------
Operating income........................................... 75,907 41,071 37,678
Interest income, net (principally amounts from Parent, see
Note 5).................................................. 4,639 1,818 5,688
Other income, net.......................................... 1,315 1,555 15
-------- -------- --------
Income before income taxes................................. 81,861 44,444 43,381
Benefit from income taxes.................................. -- -- (10,131)
-------- -------- --------
Net income................................................. $ 81,861 $ 44,444 $ 53,512
======== ======== ========
</Table>
See accompanying notes.
F-48
175
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
STATEMENTS OF NET EQUITY
<Table>
<Caption>
DIVISIONAL PARTNERS' ADVANCES (TO)
EQUITY CAPITAL FROM PARENT TOTAL
---------- --------- ------------- ---------
BALANCE AT JANUARY 1, 1998................. $ 129,954 $ -- $ (35,146) $ 94,808
Transfer of divisional assets into a
limited partnership...................... (129,954) 129,954 -- --
Net income................................. -- 53,512 -- 53,512
Capital contributions...................... -- 1,212 -- 1,212
Advances to Parent......................... -- -- (28,448) (28,448)
--------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1998............... -- 184,678 (63,594) 121,084
Net income................................. -- 44,444 -- 44,444
Advances from Parent....................... -- -- 36,117 36,117
--------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1999............... -- 229,122 (27,477) 201,645
Net income................................. -- 81,861 -- 81,861
Advances to Parent......................... -- -- (108,562) (108,562)
--------- -------- --------- ---------
BALANCE AT DECEMBER 31, 2000............... $ -- $310,983 $(136,039) $ 174,944
========= ======== ========= =========
</Table>
See accompanying notes.
F-49
176
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- -------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income................................................ $ 81,861 $ 44,444 $ 53,512
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.............................................. 18,153 11,804 8,569
Deferred income taxes..................................... -- -- (10,131)
Change in operating assets and liabilities:
Accounts receivable....................................... 8,447 (8,522) 21,663
Inventories and other assets.............................. 729 (9,910) 62
Accounts payable, accrued expenses and environmental
remediation liabilities................................. (923) 13,905 (237)
Other..................................................... 3,484 (187) 550
--------- -------- --------
Net cash provided by operating activities................. 111,751 51,534 73,988
INVESTING ACTIVITIES
Purchases of property, plant, and equipment............... (3,194) (87,667) (54,548)
--------- -------- --------
Net cash used in investing activities..................... (3,194) (87,667) (54,548)
FINANCING ACTIVITIES
Advances (to) from Parent................................. (108,562) 36,117 (28,448)
Proceeds from the issuance of debt........................ -- -- 7,815
Equity contribution from Parent........................... -- -- 1,212
--------- -------- --------
Net cash (used in) provided by financing activities....... (108,562) 36,117 (19,421)
(Decrease) increase in cash............................... (5) (16) 19
Cash at beginning of year................................. 31 47 28
--------- -------- --------
Cash at end of year....................................... $ 26 $ 31 $ 47
--------- -------- --------
Cash paid for interest.................................... $ 389 $ 271 $ 76
========= ======== ========
</Table>
See accompanying notes.
F-50
177
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NSA, Ltd. (the "Company"), is engaged in the smelting and sale of primary
aluminum. The Company operates an aluminum smelter in Hancock County, Kentucky.
The Company's metal sales are made to Southwire Company (the "Parent") and other
fabricators, brokers, and producers located primarily in the United States. The
Company is a Kentucky limited partnership in which a 99% limited partnership
interest is held by Forte Power Systems, Inc., a wholly owned subsidiary of the
Parent. The remaining 1% general partnership interest is held by Metalsco, Ltd.,
a wholly owned subsidiary of the Parent. See Note 4 for further description of
ownership structure as of and prior to January 1, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure 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 may differ from those
estimates and the differences could be material.
REVENUE RECOGNITION
Revenue from the sale of primary metals is recognized upon delivery when
ownership and price risk of the products are legally transferred to the customer
and includes any applicable shipping and handling costs invoiced to the
customer. The Company performs routine credit verification of its customers and
generally does not require collateral. Credit losses have not been significant.
INVENTORIES
Inventories of substantially all materials are stated at the lower of
last-in, first-out (LIFO) cost or market. The current FIFO cost of the Company's
inventory exceeded LIFO cost by $4,686 and $4,590 at December 31, 2000 and 1999,
respectively. The cost of approximately 81% and 85% of total inventories was
determined using LIFO methods at December 31, 2000 and 1999, respectively.
Inventories consist of the following:
<Table>
<Caption>
DECEMBER 31,
------------------
2000 1999
------- -------
Raw materials, supplies and other........................ $27,823 $28,164
Finished goods........................................... 9,123 9,511
------- -------
$36,946 $37,675
======= =======
</Table>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated on the basis of cost less
accumulated depreciation and includes any repair and maintenance items that
extend the estimated useful lives of the assets. All other repair and
maintenance items are expensed as incurred.
F-51
178
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Depreciation is computed using the straight-line method such that the cost
is amortized over the estimated economic lives of the respective assets. The
principal economic lives employed are:
<Table>
Buildings................................................... 15-39 years
Machinery and equipment..................................... 12 years
Transportation equipment.................................... 4 years
Furniture................................................... 10-15 years
</Table>
The Company capitalized approximately $0, $182, and $0 of interest costs
incurred in 2000, 1999, and 1998, respectively, from debt outstanding during the
year relative to construction of property, plant, and equipment.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. The Company will
adopt the new Statement effective January 1, 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through income or
held in equity until the hedged item is recognized in income. The ineffective
portion of a hedge's change in fair value will be immediately recognized in
income. Based on the Company's derivative positions at December 31, 2000, the
Company estimates that the impact of adopting the Statement on the Company's
financial statement will be immaterial.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 outlines the basic criteria for revenue recognition and related
disclosures. SAB 101 was adopted by the Company beginning in the fourth quarter
of fiscal 2000. Management believes its revenue recognition policies were
consistent with SAB 101 and as a result, the adoption of SAB 101 did not have a
material impact on the Company's financial position or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable, industrial development bonds and accounts payable approximate their
fair values due to the short maturities of these instruments.
2. EMPLOYEE BENEFITS
All employees of the Company are leased from the Parent. The Parent has
qualified defined-contribution retirement plans for participating eligible
employees. The costs of full time employees are generally charged directly to
the Company. The Parent charged the Company an allocation of approximately
$2,638, $1,351, and $2,002 for the leased employees participation in the plans
for 2000, 1999 and 1998, respectively. A portion of these contributions is based
upon a profit-sharing formula of the Parent. Accordingly, these allocations
fluctuate with the Company's net income. The Parent offers a medical and a life
insurance plan to a substantial portion of its retirees. The Parent charged an
allocation to the Company of approximately $1,762, $1,332 and $1,332 for the
leased employees participation in the plans for 2000, 1999 and 1998,
respectively. Such allocated amounts for retiree benefits are classified in the
accompanying balance sheet as Payable to Parent for employee benefits, as the
Parent retains the obligation to the employees under the plans.
F-52
179
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. DEBT
The Company has $7,815 of industrial development bonds, due through 2028.
These bonds have certain terms that could cause the Company to repay the bonds
in less than one year. Interest is payable monthly at rates that vary in
relation to current market conditions. The interest rate as of December 31, 2000
and 1999 is 5.3%. In the event the bonds were presented for redemption, the
Company would be required to repay the bonds; accordingly, the bonds have been
classified as short-term in the accompanying balance sheets.
4. INCOME TAXES
Prior to January 1, 1998, the Company operated as a division of a
corporation taxable under subchapter C of the Internal Revenue Code. As a
division, the Company provided for income taxes for periods prior to January 1,
1998 on a separate return basis. On January 1, 1998, the Company reorganized as
a partnership. Subsequent to January 1, 1998, income taxes are the
responsibility of the partners. Accordingly, on January 1, 1998, net deferred
income tax liabilities aggregating $10,131 were eliminated and recognized in the
statement of income and no provisions for income taxes are required.
5. TRANSACTIONS WITH RELATED PARTIES
The Company had accounts receivable of approximately $8,076 and $14,605
from the Parent for sales of products at December 31, 2000 and 1999,
respectively. The Company has advanced amounts to the Parent aggregating
approximately $136,039 and $27,477 at December 31, 2000 and 1999, respectively.
These advances, which bear interest, are included in net equity. Interest income
of approximately $4,905, $2,098 and $5,835 was earned on advances to the Parent
in 2000, 1999 and 1998, respectively.
The Company was allocated approximately $5,515, $3,798 and $3,714 by its
Parent as reimbursement for certain administrative functions in 2000, 1999 and
1998, respectively, including amounts for certain employee benefits (see Note 2)
and insurance requirements that are provided by affiliates of the Company.
Management determined the amounts allocated based on methods deemed reasonable
by management. While the basis used for determining these charges are
subjective, management believes the charges approximate an amount consistent
with the services provided by the Parent. However, actual charges incurred by
the Company on a stand-alone basis could be materially different from such
estimated amounts allocated from the Parent. Certain contracts and other assets
that relate to the operation of the Company's business are owned by affiliates
of the Company. For purposes of these financial statements these items have been
assigned to the Company.
6. DERIVATIVE CONTRACTS
The Company sells futures contracts and periodically enters into other
agreements to hedge anticipated aluminum sales against the risk of falling
prices. In addition, the Company purchases futures contracts to hedge fixed
price sales commitments of aluminum products. Gains and losses related to
transactions that qualify for hedge accounting are deferred and reflected in the
statement of income when the underlying physical transaction takes place. Gains
and losses related to transactions that do not qualify for hedge accounting are
recognized in earnings immediately as a part of cost of sales. Accounting
convention requires that certain instruments covering fixed price sales must be
recorded at market value. The Company recorded unrealized income of $102 and
$3,000 at December 31, 2000 and 1999, respectively, related to such positions.
If necessary, realized deferred gains or losses are reflected on the balance
sheet in other liabilities or assets. The physical transactions hedged by these
contracts will occur over the next year.
F-53
180
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
The effectiveness of hedges is monitored to ensure that correlation between
changes in the fair values of financial instruments and changes in the fair
values associated with the underlying hedged items exist to such a degree that
they substantially offset. In the event a high degree of correlation is not
maintained, or anticipated transactions do not occur, deferred gains or losses
on the affected financial instruments are recognized in earnings immediately.
The following sets forth the open aluminum positions and values of such
positions:
<Table>
<Caption>
DECEMBER 31
-------------------------------------------------------------------------
2000 1999
---------------------------------- -----------------------------------
>FAIR CARRYING FAIR CARRYING
POUNDS VALUE VALUE POUNDS VALUE VALUE
------------- ----- -------- ------------- ------ --------
(IN MILLIONS) (IN MILLIONS)
Short futures................ 45 $(709) 14 $ (342)
Long futures................. 36 153 47 4,456
----- ------
Net unrealized (losses)
gains...................... $(556) $4,114
===== ======
Carrying value............... $(102) $3,000
===== ======
</Table>
The fair values are based upon quoted market prices.
7. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company, through its affiliates, is obligated under a contract expiring
in 2010 for the purchase of electricity used in the production of aluminum. The
contract has minimum demand charge provisions of $15,564 in each of years 2001
and 2002 and $4,447 in each year thereafter through the end of the contract
period. The Company purchased electricity totaling $96,300, $86,300 and $76,500
during 2000, 1999 and 1998, respectively.
The Company's Parent has been negotiating with The United Steelworkers of
America and its local Union (collectively the "Union") on a labor contract for
the employees leased by the Company. Approximately 75% of such employees are
represented by the Union. On June 26, 1998, the Union commenced a strike against
the Company. The Union has filed a series of charges against the Company
alleging that the strike was an unfair labor practice strike. The Union further
contends that the Company had an obligation to return the strikers to work
within five working days of March 5, 1999, the date upon which the Union made an
unconditional offer to return on behalf of all of the strikers. The Company
disagrees with the Union's characterization of the strike as an unfair labor
practice strike. Rather, it believes that the strike was an economic strike.
The Union has sued claiming back wages and other damages. A trial was held
before a National Labor Relations Board ("NLRB") Administrative Law Judge and,
on September 26, 2000, the judge rendered his Decision and Recommended Order
concluding that the strike was an unfair labor practice strike and ruling that
the Company owed the Union back wages and other damages.
In August 2000, the Parent entered into an agreement to sell the Company to
a third party (the "Purchaser"). The agreement was to expire on November 30,
2000 but has been extended through February 15, 2001. The Purchaser has the
option of an additional 45-day extension. As a condition of the sale, the
Purchaser and the union entered into a collective bargaining agreement that
includes the withdrawal of all outstanding litigation by the Union, against the
Company and the Parent. In connection with this agreement, the Purchaser agreed
to make hardship and other payments of approximately $4 million to the Union
F-54
181
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Employees. This agreement is contingent upon the ultimate sale of the Company.
The Parent and Company are not a party to and are not bound by the terms of the
agreement.
Currently, the Company's case is on hold at the NLRB's Memphis Regional
Office pending the culmination of the aforementioned sale of the Company. Should
the transaction not be completed, the Company intends to vigorously appeal the
Administrative Law Judge's decision to the NLRB and, if necessary, the United
States Court of Appeals. The Company and its Parent would also begin good faith
bargaining with the Union and the Company believes it could reach an agreement
resolving these matters that would not include a monetary settlement or payment
of back pay. It is reasonably possible, but not probable, that the resolution of
this matter could have a material adverse impact on the Company's financial
position and results of operations. Management believes it has an adequate
defense in this matter. No amounts have been accrued for this matter.
The Company is subject to numerous federal, state and local environmental
laws and regulations. The Company is currently involved in the assessment and
remediation of various sites, some owned by the Company and some by third
parties. Environmental expenditures that relate to an existing condition caused
by past operations and which have no significant future economic benefit to the
Company are expensed. Future environmental-related expenditures cannot be
reliably estimated in many circumstances due to the early stages of
investigations, the uncertainty of specific remediation methods, changing
environmental laws and interpretations and other matters. Such costs are accrued
at the time the expenditure becomes probable and the costs can be reasonably
estimated. Costs are accrued based upon amounts estimated by management. In
situations, where a range of costs to be incurred is determined, and no amount
in the range is more likely than another, the lower amount of the range is
recorded.
A portion of the Company's property has been designated as a superfund site
and will require remediation. The Company proposed a plan of remediation to the
U.S. Environmental Protection Agency ("EPA") for the Company's entire site,
which includes areas not designated as a superfund site. In July 2000, the EPA
issued a final record of decision ("ROD"), approving the Company's proposed
plan. The ROD is subject to approval through a consent order issued by the
Department of Justice. The Company believes that the Department of Justice will
approve the final ROD in its current form.
The Company had approximately $8,770 and $9,204 accrued for all such
matters at December 31, 2000 and 1999, respectively. The Company recorded
environmental remediation expense of $641, $6,390, and $1,036 for 2000, 1999,
and 1998, respectively. It is possible that costs in excess of amounts accrued
will be incurred, and such additional amounts may have a material effect on the
Company's financial position and results of operations, although a reasonable
estimate of such amounts cannot currently be made.
Further, certain claims and lawsuits relating to a variety of other issues
involving the Company are pending. The amounts asserted in some of these cases
are material to the Company's financial statements, and certain claimants have
not yet asserted an amount. Because of the early stages of discovery in these
matters, management considers them to be reasonably possible, but not probable,
loss contingencies. While any litigation contains an element of uncertainty,
management presently believes it has adequate defenses against such actions. No
amounts have been accrued for such matters.
F-55
182
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash...................................................... $ 26 $ 26
Accounts receivable, net of allowances for doubtful
accounts and claims of $280 in 2000 and $240 in
2001................................................... 21,858 22,248
Accounts receivable from Parent........................... 8,076 9,176
Inventories............................................... 36,946 30,668
Other current assets...................................... 145 1,199
--------- ---------
Total current assets........................................ 67,051 63,317
Property, plant and equipment, at cost:
Land and land improvements................................ 6,287 6,287
Buildings................................................. 69,979 70,462
Machinery and equipment................................... 260,597 260,989
Construction in progress.................................. 975 915
--------- ---------
337,838 338,653
Less accumulated depreciation............................. (176,546) (181,187)
--------- ---------
161,292 157,466
Other assets................................................ 102 --
--------- ---------
Total assets................................................ $ 228,445 $ 220,783
========= =========
LIABILITIES AND NET EQUITY
Current liabilities:
Accounts payable.......................................... $ 25,456 $ 25,428
Accrued expenses.......................................... 4,108 5,464
Environmental remediation liabilities..................... 8,770 8,770
Industrial development bonds.............................. 7,815 7,815
--------- ---------
Total current liabilities................................... 46,149 47,477
Payable to Parent for employee benefits..................... 7,352 7,828
--------- ---------
Total liabilities........................................... 53,501 55,305
Commitments and contingencies............................... -- --
Net equity:
Partners' capital......................................... 310,983 332,706
Advances to Parent........................................ (136,039) (167,228)
--------- ---------
Total net equity............................................ 174,944 165,478
--------- ---------
Total liabilities and net equity............................ $ 228,445 $ 220,783
========= =========
</Table>
See accompanying notes.
F-56
183
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 2001
-------- --------
(IN THOUSANDS)
Sales to third parties...................................... $ 48,152 $ 52,846
Sales to Parent............................................. 61,191 54,391
-------- --------
Net sales................................................... 109,343 107,237
Cost of sales............................................... 83,050 84,387
-------- --------
Gross profit................................................ 26,293 22,850
Selling and distribution expenses........................... 759 509
General and administrative expenses......................... 3,163 3,472
-------- --------
Operating income............................................ 22,371 18,869
Interest income, net (principally amounts from Parent, see
Note 4)................................................... 372 2,509
Other income, net........................................... 251 345
-------- --------
Net income.................................................. $ 22,994 $ 21,723
======== ========
</Table>
See accompanying notes.
F-57
184
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
STATEMENTS OF NET EQUITY
(UNAUDITED)
<Table>
<Caption>
OTHER
PARTNERS' ADVANCES TO COMPREHENSIVE
CAPITAL PARENT INCOME TOTAL
--------- -------------- ------------- --------
(IN THOUSANDS)
Balance at December 31, 2000............. $310,983 $(136,039) $ -- $174,944
Comprehensive income:
Net income.......................... 21,723 21,723
Cumulative effect of change in
accounting for cash flow hedges... -- -- (709) (709)
Loss realized on cash flow hedges
reclassified to earnings.......... -- -- 709 709
-------- --------- ----- --------
Comprehensive income................... 21,723
Advances to Parent..................... -- (31,189) -- (31,189)
-------- --------- ----- --------
Balance at March 31, 2001................ $332,706 $(167,228) $ -- $165,478
======== ========= ===== ========
</Table>
See accompanying notes.
F-58
185
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 2001
-------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................. $ 22,994 $ 21,723
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 4,431 4,641
Change in operating assets and liabilities:
Accounts receivable.................................... (6,065) (1,490)
Inventories and other assets.............................. (419) 6,278
Accounts payable, accrued expenses and environmental
remediation liabilities................................ (1,554) 1,804
Other..................................................... (2,612) (952)
-------- --------
Net cash provided by operating activities................... 21,999 32,004
INVESTING ACTIVITIES
Purchases of property, plant, and equipment................. (1,192) (815)
-------- --------
Net cash used in investing activities....................... (1,192) (815)
FINANCING ACTIVITIES
Advances to Parent.......................................... (20,502) (31,189)
-------- --------
Net cash used in financing activities....................... (20,502) (31,189)
-------- --------
Increase in cash............................................ 305 --
Cash at beginning of period................................. 31 26
-------- --------
Cash at end of period....................................... $ 336 $ 26
-------- --------
Cash paid for interest...................................... $ 76 $ 115
======== ========
</Table>
See accompanying notes.
F-59
186
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NSA, Ltd. (the "Company"), is engaged in the smelting and sale of primary
aluminum. The Company operates an aluminum smelter in Hancock County, Kentucky.
The Company's metal sales are made to Southwire Company (the "Parent") and other
fabricators, brokers, and producers located primarily in the United States. The
Company is a Kentucky limited partnership in which a 99% limited partnership
interest is held by Forte Power Systems, Inc., a wholly owned subsidiary of the
Parent. The remaining 1% general partnership interest is held by Metalsco, Ltd.,
a wholly owned subsidiary of the Parent.
INTERIM STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with accounting principals generally accepted in the United States
for interim financial information and reflect all adjustments, which are of a
normal and recurring nature, that are, in the opinion of the Company's
management, necessary for a fair presentation of the financial results for the
interim periods presented. Operating results for the three months ended March
31, 2001 may not be indicative of the results that may be expected for the year
ending December 31, 2001. These financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 2000.
INVENTORIES
Inventories of substantially all materials are stated at the lower of
last-in, first-out (LIFO) cost or market. The current FIFO cost of the Company's
inventory exceeded LIFO cost by $4,686 and $4,842 (unaudited) at December 31,
2000 and March 31, 2001 respectively. The cost of approximately 81% and 79%
(unaudited) of total inventories was determined using LIFO methods at December
31, 2000 and March 31, 2001, respectively.
Inventories consist of the following:
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
(UNAUDITED)
Raw materials, supplies and other.................... $27,823 $27,467
Finished goods....................................... 9,123 3,201
------- -------
$36,946 $30,668
======= =======
</Table>
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which is required to be adopted in years beginning after June 15, 2000. The
Company adopted the new Statement effective January 1, 2001. The Statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of hedges either offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through income or
are held in equity until the hedged item is
F-60
187
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
recognized in income. The ineffective portion of a hedge's change in fair value
is immediately recognized in income.
The Company's unaudited financial statements for the three months ended
March 31, 2001 include the provisions required by SFAS 133, while the Company's
unaudited financial statements for the three months ended March 31, 2000 were
prepared in accordance with the applicable professional literature for
derivatives and hedging instruments in effect at that time.
The adoption of SFAS 133 resulted in the Company recording transition
adjustments to recognize its derivative instruments at fair value. The
cumulative effect of these transition adjustments was a net decrease to other
comprehensive income of approximately $709 (unaudited) and a net decrease to net
income of approximately $102 (unaudited) in the three months ended March 31,
2001.
The Company sells futures contracts to hedge anticipated aluminum sales
against the risk of falling prices. In addition, the Company purchases futures
contracts to hedge fixed price sales commitments of aluminum products. When
entered into, the Company designates and documents the derivative as a hedge of
a specific underlying exposure and the objectives and strategies for undertaking
the hedge transaction. Because of the high degree of effectiveness between the
hedging instrument and the underlying exposure being hedged, fluctuations in the
value of the derivative instruments are generally offset by changes in the value
or cash flows of the underlying exposures being hedged. The effectiveness of
hedges is monitored to ensure that correlation between changes in the fair
values of financial instruments and changes in the fair values associated with
the underlying hedged items exist to such a degree that they substantially
offset. In the event a high degree of correlation is not maintained, deferred
gains or losses on the affected derivatives are recognized in earnings
immediately. Derivatives are recorded in the balance sheet at fair value in
either other current assets or accrued expenses, depending on whether the amount
is an asset or a liability.
As of January 1, 2001 the Company had short futures contracts, which were
designated as cash flow hedges, with unrealized losses of $709 (unaudited),
whereas, at March 31, 2001, the Company had no (unaudited) short futures
contracts.
As of January 31, 2001 and March 31, 2001, the Company had long futures
contracts, which were designated as fair value hedges, with fair market values
of $153 (unaudited) and $(871) (unaudited), as hedges of fixed price sales
commitments that had fair market values of $(153) (unaudited) and $871
(unaudited), respectively.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 outlines the basic criteria for revenue recognition and related
disclosures. SAB 101 was adopted by the Company beginning in the fourth quarter
of fiscal 2000. Management believes its revenue recognition policies were
consistent with SAB 101 and as a result, the adoption of SAB 101 did not have a
material impact on the Company's financial position or results of operations.
2. EMPLOYEE BENEFITS
All employees of the Company are leased from the Parent. The Parent has
qualified defined-contribution retirement plans for participating eligible
employees. The cost of full time employees is generally charged directly to the
Company. The Parent charged the Company an allocation of approximately $659
(unaudited) and $358 (unaudited) for the leased employees participation in the
plans for the three months ended March 31, 2000 and 2001, respectively. A
portion of these contributions is based upon a profit-sharing formula of the
Parent. Accordingly, these allocations fluctuate with the Company's net income.
The Parent offers a medical and a life insurance plan to a substantial portion
of its retirees. The Parent charged an
F-61
188
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
allocation to the Company of approximately $440 (unaudited) and $254 (unaudited)
for the leased employees participation in the plans for the three months ended
March 31, 2000 and 2001, respectively. Such allocated amounts for retiree
benefits are classified in the accompanying balance sheet as Payable to Parent
for employee benefits, as the Parent retains the obligation to the employees
under the plans.
3. DEBT
The Company has $7,815 of industrial development bonds, due through 2028.
These bonds have certain terms that could cause the Company to repay the bonds
in less than one year. Interest is payable monthly at rates that vary in
relation to current market conditions. The interest rate as of December 31, 2000
and March 31, 2001 was 5.3% and 3.75% (unaudited), respectively. In the event
the bonds were presented for redemption, the Company would be required to repay
the bonds; accordingly, the bonds have been classified as short-term in the
accompanying balance sheets.
4. TRANSACTIONS WITH RELATED PARTIES
The Company had accounts receivable of approximately $8,076 and $7,535
(unaudited) from the Parent for sales of products at December 31, 2000 and March
31, 2001, respectively. The Company has advanced amounts to the Parent
aggregating approximately $136,039 and $167,563 (unaudited) at December 31, 2000
and March 31, 2001, respectively. These advances, which bear interest, are
included in net equity. Interest income of approximately $425 (unaudited) and
$2,573 (unaudited) was earned on advances to the Parent for the three months
ended March 31, 2000 and March 31, 2001, respectively.
The Company was allocated approximately $1,379 (unaudited) and $765
(unaudited) by its Parent as reimbursement for certain administrative functions
for the three months ended March 31, 2000 and 2001, respectively, including
amounts for certain employee benefits and insurance requirements that are
provided by affiliates of the Company. Management determined the amounts
allocated based on methods deemed reasonable by management. While the basis used
for determining these charges is subjective, management believes the charges
approximate an amount consistent with the services provided by the Parent.
However, actual charges incurred by the Company on a stand-alone basis could be
materially different from such estimated amounts allocated from the Parent.
5. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company is obligated under a contract expiring in 2010 for the purchase
of electricity used in the production of aluminum. The contract has minimum
demand charge provisions of $15,564 in each of years 2001 and 2002 and $4,447 in
each year thereafter through the end of the contract period. The Company
purchased electricity totaling $24,000 (unaudited) and $24,200 (unaudited) for
the three months ended March 31, 2000 and 2001, respectively.
Effective April 1, 2001, the Parent sold the Company to a third party (the
"Purchaser"). As a condition of the sale, the Purchaser and The United
Steelworkers of America and its local Union (collectively, the "Union") entered
into a collective bargaining agreement, which included the withdrawal of all
outstanding litigation by the Union against the Company and the Parent as
described in the Company's audited financial statements for the year ended
December 31, 2000. In connection with this agreement, the Purchaser made
hardship and other payments of approximately $4 million to the Union employees.
The Company is subject to numerous federal, state and local environmental
laws and regulations. The Company is currently involved in the assessment and
remediation of various sites, some owned by the Company and some by third
parties. Environmental expenditures that relate to an existing condition caused
by
F-62
189
NSA, LTD.
(A KENTUCKY LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
past operations and which have no significant future economic benefit to the
Company are expensed. Future environmental-related expenditures cannot be
reliably estimated in many circumstances due to the early stages of
investigations, the uncertainty of specific remediation methods, changing
environmental laws and interpretations and other matters. Such costs are accrued
at the time the expenditure becomes probable and the costs can be reasonably
estimated. Costs are accrued based upon amounts estimated by management. In
situations where a range of costs to be incurred is determined, and no amount in
the range is more likely than another, the lower amount of the range is
recorded.
A portion of the Company's property has been designated as a superfund site
and will require remediation. The Company proposed a plan of remediation to the
U.S. Environmental Protection Agency ("EPA") for the Company's entire site,
which includes areas not designated as a superfund site. In July 2000, the EPA
issued a final record of decision ("ROD"), approving the Company's proposed
plan. The ROD is subject to approval through a consent order issued by the
Department of Justice. The Company believes that the Department of Justice will
approve the final ROD in its current form.
The Company had approximately $8,770 and $8,770 (unaudited) accrued for all
such matters at December 31, 2000 and March 31, 2001, respectively. It is
possible that costs in excess of amounts accrued will be incurred, and such
additional amounts may have a material effect on the Company's financial
position and results of operations, although a reasonable estimate of such
amounts cannot currently be made.
Further, certain claims and lawsuits relating to a variety of other issues
involving the Company are pending. The amounts asserted in some of these cases
are material to the Company's financial statements, and certain claimants have
not yet asserted an amount. Because of the early stages of discovery in these
matters, management considers them to be reasonably possible, but not probable,
loss contingencies. While any litigation contains an element of uncertainty,
management presently believes it has adequate defenses against such actions. No
amounts have been accrued for such matters.
F-63
190
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), the restated certificate of incorporation of Century Aluminum
Company contains a provision to limit the personal liability of our directors
for violations of their fiduciary duties. This provision eliminates each
director's liability to Century Aluminum Company or its stockholders for
monetary damages for breach of fiduciary duties as a director, except for
liability (i) for any breach of the director's duty of loyalty to Century
Aluminum Company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL providing for liability of directors for
unlawful payment of dividends or unlawful stock purchase or redemption, or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including an such actions involving gross negligence.
Section 145 of the DGCL provides that a corporation may indemnify any
person, including officers and directors, who are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), be reason of the fact that
such person was an officer, director, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of such corporation, as a director, officer, employee or agent
of another corporation. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such officer director, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe that
his conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in defense
of any action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually or reasonably incurred. The
restated certificate of incorporation for Century Aluminum Company provides for
indemnification to fullest extent permitted by Section 145 of the DGCL of all
persons who we have the power to indemnify under such section. The restated
by-laws for Century Aluminum Company provide for indemnification of officers and
directors to the fullest extent permitted by the DGCL. In addition, we maintain
officers' and directors' liability insurance which insures against liabilities
that our officers and directors may incur in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
*2.1 Stock Purchase Agreement, dated August 31, 2000, between
Century Aluminum Company and Southwire Company.
*2.2 Asset Purchase Agreement, dated as of April 2, 2001, among
Century Aluminum Company, Century Kentucky, Inc., NSA, Ltd.
and Glencore AG.
*4.1 Purchase Agreement, dated March 28, 2001, among Century
Aluminum Company, Century Aluminum of West Virginia, Inc.,
Berkeley Aluminum, Inc., Century Kentucky, Inc. and Virgin
Islands Alumina Corporation LLC and Credit Suisse First
Boston Corporation and Fleet Securities, Inc. as Initial
Purchasers.
*4.2 Indenture, dated April 2, 2001, among Century, the
Guarantors party thereto and Wilmington Trust Company, as
trustee.
</Table>
II-1
191
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
*4.3 Registration Rights Agreement, dated April 2, 2001, among
Century Aluminum Company, the Guarantors party thereto and
Credit Suisse First Boston Corporation and Fleet Securities,
Inc., as Initial Purchasers.
*4.4 Mortgage, Assignment of Leases and Rents, Security Agreement
and Financing Statement, dated as of April 2, 2001, from
NSA, Ltd. for the benefit of Wilmington Trust Company, as
collateral agent.
*4.5 Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as
of April 2, 2001, from Century Aluminum of West Virginia,
Inc. for the benefit of Wilmington Trust Company, as
collateral agent.
*4.6 Pledge and Security Agreement, dated as of April 2, 2001, by
Century Aluminum Company as Pledgor and the other Pledgors
party thereto in favor of Wilmington Trust Company, as
collateral agent.
5.1 Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP as to
validity of the Exchange Notes.
8.1 Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP as to
certain tax matters.
12.1 Statement re: computation of ratio of earnings to fixed
charges
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Curtis, Mallet-Prevost, Colt & Mosle LLP
(included as part of Exhibit 5.1 hereto)
**24.1 Powers of attorney.
**25.1 Statement of eligibility of the Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Guaranteed Delivery.
**99.3 Form of Tender Instructions.
</Table>
---------------
*Incorporated by reference to the Registrant's Current Report on Form 8-K dated
April 17, 2001.
**Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-2
192
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
CENTURY ALUMINUM COMPANY
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President, Chief Operating Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CRAIG A. DAVIS Chairman and Chief Executive September 24, 2001
--------------------------------------------------- Officer
Craig A. Davis
/s/ GERALD A. MEYERS President, Chief Operating September 24, 2001
--------------------------------------------------- Officer and Director
Gerald A. Meyers
/s/ DAVID W. BECKLEY Executive Vice President and September 24, 2001
--------------------------------------------------- Chief Financial Officer
David W. Beckley
/s/ GERALD J. KITCHEN Executive Vice President, September 24, 2001
--------------------------------------------------- General Counsel, Chief
Gerald J. Kitchen Administrative Officer and
Secretary
/s/ E. JACK GATES Vice President, Reduction September 24, 2001
--------------------------------------------------- Operations
E. Jack Gates
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
---------------------------------------------------
Daniel J. Krofcheck
* Director September 24, 2001
---------------------------------------------------
Roman A. Bninski
* Director September 24, 2001
---------------------------------------------------
John C. Fontaine
</Table>
II-3
193
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Director September 24, 2001
---------------------------------------------------
William R. Hampshire
* Director September 24, 2001
---------------------------------------------------
John P. O'Brien
* Director September 24, 2001
---------------------------------------------------
Stuart M. Schreiber
* By: /s/ GERALD A. MEYERS
--------------------------------------------
Gerald A. Meyers
Attorney-in-fact
</Table>
II-4
194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
CENTURY ALUMINUM OF
WEST VIRGINIA, INC.
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President, Chief Operating Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CRAIG A. DAVIS Chairman and Chief Executive September 24, 2001
--------------------------------------------------- Officer and Director
Craig A. Davis
/s/ GERALD A. MEYERS President, Chief Operating September 24, 2001
--------------------------------------------------- Officer and Director
Gerald A. Meyers
/s/ DAVID W. BECKLEY Vice President, Chief September 24, 2001
--------------------------------------------------- Financial Officer and
David W. Beckley Director
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
---------------------------------------------------
Daniel J. Krofcheck
/s/ GERALD J. KITCHEN Vice President, Secretary September 24, 2001
--------------------------------------------------- and Director
Gerald J. Kitchen
/s/ E. JACK GATES Vice President September 24, 2001
---------------------------------------------------
E. Jack Gates
</Table>
II-5
195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
CENTURY KENTUCKY, INC.
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CRAIG A. DAVIS Chief Executive Officer September 24, 2001
---------------------------------------------------
Craig A. Davis
/s/ GERALD A. MEYERS President and Director September 24, 2001
---------------------------------------------------
Gerald A. Meyers
/s/ DAVID W. BECKLEY Vice President, Chief September 24, 2001
--------------------------------------------------- Financial Officer and
David W. Beckley Director
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
---------------------------------------------------
Daniel J. Krofcheck
/s/ GERALD J. KITCHEN Vice President, Secretary and September 24, 2001
--------------------------------------------------- Director
Gerald J. Kitchen
/s/ E. JACK GATES Vice President September 24, 2001
---------------------------------------------------
E. Jack Gates
</Table>
II-6
196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
BERKELEY ALUMINUM, INC.
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CRAIG A. DAVIS Chairman, Chief Executive September 24, 2001
--------------------------------------------------- Officer and Director
Craig A. Davis
/s/ GERALD A. MEYERS President and Director September 24, 2001
---------------------------------------------------
Gerald A. Meyers
/s/ DAVID W. BECKLEY Vice President, Chief September 24, 2001
--------------------------------------------------- Financial Officer and
David W. Beckley Director
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
---------------------------------------------------
Daniel J. Krofcheck
/s/ GERALD J. KITCHEN Vice President, Secretary and September 24, 2001
--------------------------------------------------- Director
Gerald J. Kitchen
</Table>
II-7
197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
VIRGIN ISLANDS ALUMINA CORPORATION LLC
("VIALCO")
By: Century Aluminum of West Virginia,
Inc.
Its: Sole Member
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERALD A. MEYERS President of Vialco and September 24, 2001
--------------------------------------------------- Director of its Sole Member
Gerald A. Meyers
/s/ DAVID W. BECKLEY Vice President, Chief September 24, 2001
--------------------------------------------------- Financial Officer of Vialco
David W. Beckley and Director of its Sole
Member
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
---------------------------------------------------
Daniel J. Krofcheck
/s/ GERALD J. KITCHEN Vice President, Secretary of September 24, 2001
--------------------------------------------------- Vialco and Director of its
Gerald J. Kitchen Sole Member
</Table>
II-8
198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
METALSCO, LTD.
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERALD A. MEYERS President and Director September 24, 2001
---------------------------------------------------
Gerald A. Meyers
/s/ DAVID W. BECKLEY Vice President, Chief September 24, 2001
--------------------------------------------------- Financial Officer and
David W. Beckley Director
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
---------------------------------------------------
Daniel J. Krofcheck
/s/ GERALD J. KITCHEN Vice President, Secretary and September 24, 2001
--------------------------------------------------- Director
Gerald J. Kitchen
/s/ E. JACK GATES Vice President September 24, 2001
---------------------------------------------------
E. Jack Gates
</Table>
II-9
199
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
SKYLINER, INC.
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERALD A. MEYERS President and Director September 24, 2001
--------------------------------------
Gerald A. Meyers
/s/ DAVID W. BECKLEY Vice President, Chief Financial September 24, 2001
-------------------------------------- Officer and Director
David W. Beckley
/s/ DANIEL J. KROFCHECK Vice President and Treasurer September 24, 2001
--------------------------------------
Daniel J. Krofcheck
/s/ GERALD J. KITCHEN Vice President, Secretary and Director September 24, 2001
--------------------------------------
Gerald J. Kitchen
/s/ E. JACK GATES Vice President September 24, 2001
--------------------------------------
E. Jack Gates
</Table>
II-10
200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on the 24th day of September, 2001.
NSA Ltd.,
By: Metalsco, Ltd.
Its: General Partner
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERALD A. MEYERS Director of Metalsco, Ltd. as September 24, 2001
-------------------------------------- General Partner of NSA Ltd.
Gerald A. Meyers
/s/ DAVID W. BECKLEY Director of Metalsco, Ltd. as September 24, 2001
-------------------------------------- General Partner of NSA Ltd
David W. Beckley
/s/ GERALD J. KITCHEN Director of Metalsco, Ltd. as September 24, 2001
-------------------------------------- General Partner of NSA Ltd.
Gerald J. Kitchen
</Table>
II-11
201
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER
-------
*2.1 Stock Purchase Agreement, dated August 31, 2000, between
Century Aluminum Company and Southwire Company.
*2.2 Asset Purchase Agreement, dated as of April 2, 2001, among
Century Aluminum Company, Century Kentucky, Inc., NSA, Ltd.
and Glencore AG.
*4.1 Purchase Agreement, dated March 28, 2001, among Century
Aluminum Company, Century Aluminum of West Virginia, Inc.,
Berkeley Aluminum, Inc., Century Kentucky, Inc. and Virgin
Islands Alumina Corporation LLC and Credit Suisse First
Boston Corporation and Fleet Securities, Inc. as Initial
Purchasers.
*4.2 Indenture, dated April 2, 2001, among Century, the
Guarantors party thereto and Wilmington Trust Company, as
trustee.
*4.3 Registration Rights Agreement, dated April 2, 2001, among
Century Aluminum Company, the Guarantors party thereto and
Credit Suisse First Boston Corporation and Fleet Securities,
Inc., as Initial Purchasers.
*4.4 Mortgage, Assignment of Leases and Rents, Security Agreement
and Financing Statement, dated as of April 2, 2001, from
NSA, Ltd. for the benefit of Wilmington Trust Company, as
collateral agent.
*4.5 Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as
of April 2, 2001, from Century Aluminum of West Virginia,
Inc. for the benefit of Wilmington Trust Company, as
collateral agent.
*4.6 Pledge and Security Agreement, dated as of April 2, 2001, by
Century Aluminum Company as Pledgor and the other Pledgors
party thereto in favor of Wilmington Trust Company, as
collateral agent.
5.1 Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP as to
validity of the Exchange Notes.
8.1 Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP as to
certain tax matters.
12.1 Statement re: computation of ratio of earnings to fixed
charges
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Curtis, Mallet-Prevost, Colt & Mosle LLP
(included as part of Exhibit 5.1 hereto)
**24.1 Powers of attorney.
**25.1 Statement of eligibility of the Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Tender Instructions.
</Table>
---------------
*Incorporated by reference to the Registrant's Current Report on Form 8-K dated
April 17, 2001.
**Previously filed.
II-12