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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
Commission file number 0-27918
Century Aluminum Company
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3070826
(State of Incorporation) (IRS Employer Identification No.)
ROUTE 2 SOUTH
RAVENSWOOD, WEST VIRGINIA 26164
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (304) 273-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
--- -----
The registrant had 20,000,000 shares of common stock outstanding at April 30,
1996.
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CENTURY ALUMINUM COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
Part I - Financial Information
Item 1 - Financial Statements Page Number
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Income for the three
months ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statement of Shareholders' Equity
for the three months ended March 31, 1996. . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 4
Notes to the Condensed Consolidated Financial Statements. . . . . . . . . 5-12
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 13-17
Part II - Other Information
Item 6 -Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Exhibit 11.1 - Calculation of Earnings per Common Share. . . . . . . . . . 21
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Part I. Financial Information
Item 1. Financial Statements
CENTURY ALUMINUM COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
ASSETS
CURRENT ASSETS:
Cash ............................................................... $ 10,291 $ 42,910
Restricted cash equivalents ........................................ 5,801 6,585
Accounts receivable, trade - net ................................... 106,322 58,595
Due from affiliates ................................................ 14,404 16,188
Inventories ........................................................ 160,680 159,856
Prepaid and other assets ........................................... 112 1,290
--------- --------
Total current assets .......................................... 297,610 285,424
PROPERTY, PLANT AND EQUIPMENT - NET ..................................... 171,008 173,046
OTHER ASSETS ............................................................ 8,420 7,379
NET ASSETS OF DISCONTINUED OPERATIONS ................................... - 72,271
--------- --------
TOTAL ......................................................... $ 477,038 $538,120
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade ............................................. $ 41,817 $ 37,687
Due to affiliates .................................................. 9,513 14,721
Accrued and other current liabilities .............................. 33,373 31,193
Accrued employee benefits costs - current portion .................. 57,816 50,499
--------- --------
Total current liabilities ..................................... 142,519 134,100
--------- --------
ACCRUED PENSION BENEFITS COSTS - Less current portion ................... 37,245 45,560
ACCRUED POSTRETIREMENT BENEFITS COSTS - Less current portion ............ 108,149 106,002
OTHER LIABILITIES ....................................................... 26,971 26,949
--------- --------
Total noncurrent liabilities .................................. 172,365 178,511
--------- --------
CONTINGENCIES AND COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock (one cent par value, 50,000,000 shares authorized;
20,000,000 and 23,120,000 shares outstanding at March 31, 1996
and December 31, 1995, respectively .............................. 200 231
Additional paid-in capital ......................................... 161,954 232,257
Accumulated deficit ................................................ - (6,979)
--------- --------
Total shareholders' equity .................................... 162,154 225,509
--------- --------
TOTAL ......................................................... $ 477,038 $538,120
========= ========
See notes to condensed consolidated financial statements.
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CENTURY ALUMINUM COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in Thousands, Except Per Share Amounts)
(Unaudited)
Three months ended
March 31,
-------------------
1996 1995
-------- ---------
NET SALES:
Third-party customers ..... $145,419 $ 162,108
Related parties ........... 35,985 30,618
-------- ---------
181,404 192,726
COST OF GOODS SOLD ............. 163,983 155,972
-------- ---------
GROSS PROFIT ................... 17,421 36,754
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ... 3,129 2,947
-------- ---------
OPERATING INCOME ............... 14,292 33,807
INTEREST INCOME (EXPENSE) - Net 87 (2,302)
NET GAIN ON FORWARD
CONTRACTS ................. - 7,775
-------- ---------
INCOME FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES ....... 14,379 39,280
INCOME TAX EXPENSE ............. 5,464 15,590
-------- ---------
INCOME FROM
CONTINUING OPERATIONS ..... 8,915 23,690
INCOME FROM
DISCONTINUED OPERATIONS -
Net of income taxes ....... 264 340
-------- ---------
NET INCOME ..................... $ 9,179 $ 24,030
======== =========
EARNINGS PER COMMON SHARE:
Income from continuing
operations .............. $ 0.39 $ 1.02
Income from discontinued
operations .............. 0.01 0.02
-------- ---------
Net income ................ $ 0.40 $ 1.04
======== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........ 23,120 23,120
======== =========
See notes to condensed consolidated financial statements.
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CENTURY ALUMINUM COMPANY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
Additional Total
Common Paid-in Accumulated Shareholders'
Stock Capital Deficit Equity
------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1995 $ 231 $ 232,257 ($6,979) $ 225,509
Net Income (Unaudited) 9,179 9,179
Special distribution of
discontinued operations (31) (70,303) (2,200) (72,534)
------- --------- ------- ---------
BALANCE, MARCH 31, 1996 $ 200 $ 161,954 $ 0 $ 162,154
======= ========= ======= =========
See notes to condensed consolidated financial statements.
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CENTURY ALUMINUM COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three months ended
March 31,
---------------------------
1996 1995
---------- ----------
CASH FLOWS FROM (USED IN) OPERATIONS:
Net income ................................................................... $ 9,179 $ 24,030
Adjustments to reconcile net income to net cash from (used in)
operating activities:
Depreciation and amortization ............................................. 4,602 4,355
Deferred income taxes ..................................................... (2,308) 11,088
Pension and other postretirement benefits ................................. 1,097 1,065
Workers' compensation ..................................................... 500 124
Gain on sale of facilities and equipment .................................. (105) --
Non-cash portion of net gain on forward contracts ......................... -- (689)
Income from discontinued operations ....................................... (264) (340)
Change in working capital items:
Accounts receivable, trade - net ..................................... 2,273 (19,277)
Due from affiliates .................................................. 1,784 3,013
Inventories .......................................................... (824) (4,971)
Prepaids and other assets ............................................ 1,178 171
Accounts payable, trade .............................................. 4,130 8,137
Due to affiliates .................................................... (5,208) (15,762)
Accrued and other current liabilities ................................ 2,180 (5,205)
Other - net ............................................................... 744 98
-------- --------
Net cash from (used in) operating activities ................................. 18,958 5,837
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of receivables ...................................................... (50,000) --
Purchase of property, plant and equipment .................................... (2,564) (1,637)
Disposal of fixed assets ..................................................... 203 --
Restricted cash deposits ..................................................... 784 --
Investment in discontinued operations ........................................ -- (6,117)
-------- --------
Net cash from (used in) investing activities ................................. (51,577) (7,754)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES .................................... -- --
NET DECREASE IN CASH .............................................................. (32,619) (1,917)
CASH, BEGINNING OF PERIOD ......................................................... 42,910 1,955
-------- --------
CASH, END OF PERIOD ............................................................... $ 10,291 $ 38
======== ========
See notes to condensed consolidated financial statements.
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31, 1996 AND 1995
(Dollars in Thousands Except as Otherwise Noted)
(Unaudited)
1. GENERAL
Century Aluminum Company (the "Company") is a holding company which owns
Ravenswood Aluminum Corporation ("Ravenswood"). Ravenswood owns and operates a
primary reduction facility and rolling mill in Ravenswood, West Virginia.
Ravenswood also owns Berkeley Aluminum, Inc. ("Berkeley") which holds a 26.7%
interest in a partnership which operates a primary reduction facility in Mt.
Holly, South Carolina.
In April 1996 the Company completed its initial public offering. Glencore AG and
Vialco Holdings Ltd., the selling shareholders, which are wholly owned
subsidiaries of Glencore International AG (together with its subsidiaries, the
"Glencore Group"), have retained 7,925,000 common shares, or 39.6% of the common
shares outstanding. The Company and the Glencore Group will continue to enter
into various transactions related to the purchases and sales of primary and
scrap aluminum and metals risk management.
The accompanying unaudited interim condensed consolidated financial statements
of the Company should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1995. In management's
opinion, the unaudited interim condensed 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. Certain reclassifications of
prior-period information were made to conform to the current presentation.
2. ACCOUNTS RECEIVABLE
On January 30, 1996, Ravenswood purchased $50,000 of accounts receivable from
Monte Rosa Capital Corporation and canceled the related Receivables Purchase
Agreement.
3. INVENTORIES
Inventories consist of the following: March 31, December 31,
1996 1995
------------ -------------
Raw materials ............................ $ 49,604 $ 49,087
Work-in-process .......................... 61,239 61,005
Finished goods ........................... 30,549 32,232
Operating and other supplies ............. 19,288 17,532
-------- --------
$160,680 $159,856
======== ========
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
At March 31, 1996 and December 31, 1995 approximately 88% and 89%, respectively,
of inventories were valued at the lower of last-in, first-out ("LIFO") cost or
market. The excess of the LIFO cost (or market, if lower) of inventory over the
first-in, first-out ("FIFO") cost was approximately $21,568 and $16,365 at March
31, 1996 and December 31, 1995, respectively.
4. DEBT
On January 30, 1996 Ravenswood and Berkeley entered into a Bank Revolving Credit
Facility with BankAmerica Business Credit, Inc. ("BankAmerica"). The Bank
Revolving Credit Facility provides for a three-year $150,000 revolving credit
facility which consists of revolving loans and letters of credit up to $150,000
in the aggregate. This facility replaced the $40,000 Revolving Credit
Facility-Affiliate, the $35,000 Term Loan Agreement and the $50,000 Receivables
Purchase Agreement. The three replaced facilities were terminated on January 30,
1996.
5. DISCONTINUED OPERATIONS
On March 31, 1996 the Company distributed certain holdings of the Company in the
form of a pro rata redemption of shares. The distribution consisted of
businesses unrelated to the continuing aluminum operations of the Company. The
Company redeemed and retired 3,120,000 shares of stock and distributed assets
with a net book value of $72,534. The excess of cost over par value of the
redeemed shares was charged to accumulated deficit and additional paid-in
capital.
6. CONTINGENCIES AND COMMITMENTS
ENVIRONMENTAL CONTINGENCIES
The Company's operations are subject to various environmental laws and
regulations, including the Clean Air Act, as amended. Because environmental laws
and regulations are quite stringent and are generally becoming more stringent,
the Company has expended, and will expect to expend in the future, substantial
amounts for compliance with environmental laws and regulations.
Pursuant to an order issued in September 1994 under Section 3008(h) (the
"3008(h) order") of the Resource Conservation and Recovery Act ("RCRA"),
Ravenswood will be required to perform interim measure activities at a former
oil pond area and in connection with cyanide contamination in the groundwater, a
RCRA facility investigation ("RFI") and a corrective- measures study ("CMS")
which will evaluate and develop corrective action alternatives for any areas
that have contamination exceeding certain levels. The Environmental Protection
Agency ("EPA") has approved work plans for a general facility investigation and
interim measure activities in connection with the former oil pond area, and the
Company is currently
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
implementing the required interim measures pursuant to such work plans. In
addition, the EPA has approved the RFI work plans conditioned on the performance
by the Company of some additional sampling and analysis which was not contained
in the initial work plans proposed by the Company. The Company began sampling
and analysis pursuant to the RFI work plans in December 1995. However, since the
Company has only begun the initial sampling and analysis in connection with the
RFI, it is unable to determine the type and extent of clean-up measures, if any,
that may be required. The Company does not anticipate that the RFI will be
completed before mid to late 1996. Once the RFI and CMS activities are complete,
the EPA will assess the need for any clean-up and if any clean-up is required, a
subsequent order will be issued. It is likely that cleanup activities will be
required in at least some areas of the facility. The Company is currently aware
of some environmental contamination at the Ravenswood facility, including
cyanide, fluoride and lead in certain areas. The Company believes that a
significant portion of this contamination is attributable to a prior owner as
discussed below.
Pursuant to an order issued by the West Virginia Department of Environmental
Protection ("DEP"), Ravenswood will be required to investigate and install
treatment technology to replace the current wastewater spray field by September
1, 1997. In addition, Ravenswood and the DEP entered into an order relating to
various alleged violations of hazardous waste regulations, including disposing
of certain hazardous wastes in the on-site solid waste landfill. The Company
will be investigating any contamination that may exist in the spray field and
the landfill as part of the RFI. Previous sampling has shown that certain
contaminants, particularly lead, were detected in the groundwater underlying the
spray field. Should the investigation reveal that significant hazardous waste
contamination is present in the landfill, the DEP and the EPA could insist that
the landfill be closed as a RCRA hazardous waste disposal unit, which would
significantly increase the cost of closing the landfill.
Prior to the Company's acquisition of the Ravenswood facility, Kaiser Aluminum &
Chemical Corporation ("Kaiser") owned and operated the facility for
approximately thirty years. Many of the issues that the Company is required to
address under the 3008(h) order arose during Kaiser's ownership and operation.
The Company believes that Kaiser will be responsible for a significant portion
of the costs of the RFI and required cleanup under the acquisition agreements.
Kaiser also has retained ownership and responsibility for certain areas under
these agreements. Under current environmental laws and regulations, the Company
may be required to remediate any contamination discovered during or after
completion of the RFI, which contamination was discharged from areas which
Kaiser previously owned or operated or for which Kaiser has retained ownership
or responsibility. However, if such remediation is required, the Company
believes that Kaiser will be liable for some or all of the costs thereof
pursuant to the acquisition agreements.
The Company is also aware of some contamination, including gasoline and diesel
fuel, in the soil and groundwater at the previously owned Virgin Islands Alumina
Corporation ("Vialco") facility. The Company believes that a substantial amount
of the contamination has resulted from
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
an adjacent facility. The adjacent facility is currently investigating some of
the contamination and has installed monitoring wells at the Vialco facility.
There can be no assurances that the Company will not be required to conduct any
remediation activity with respect to such contamination. Pursuant to the
contract for sale of the Vialco facility to St. Croix Alumina, L.L.C. ("St.
Croix Alumina") a subsidiary of Alcoa Alumina and Chemicals L.L.C., the Company
has retained liability for environmental conditions existing at the time of sale
only to the extent such conditions require remedial action, or give rise to
claims, under laws in effect at the time of sale. The Company will not have
liability if remediation is required or claims are made due to changes in law
after the time of sale. The Company has agreed to indemnify St. Croix Alumina
against claims arising from environmental conditions for which the Company has
retained liability. The indemnity is capped at $18,000 and any claims under the
indemnity must be brought by July 24, 2001. Management of the Company does not
believe that the ultimate amount of the retained liability, if any, will have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
It is the Company's policy to accrue for costs associated with environmental
assessments and remedial efforts when it becomes probable that a liability has
been incurred and the cost can be reasonably estimated. The aggregate
environmental related accrued liabilities were $1,890 and $2,294 at March 31,
1996 and December 31, 1995, respectively. All accruals have been recorded
without giving effect to any possible future insurance or Kaiser indemnity
proceeds. With respect to ongoing environmental compliance costs, including
maintenance and monitoring, such costs are expensed as incurred.
Because of the issues and uncertainties concerning the extent of required
cleanup, the complexity of applicable government laws and regulations and their
interpretation, the varying costs and effectiveness of alternative cleanup
technologies and methods, and the uncertain level of recoveries from insurance,
the Kaiser indemnity or other types of recovery, 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. However, management, based upon all available
information and after consultation with counsel, does not believe that the
outcome of these environmental matters will have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
LEGAL CONTINGENCIES
On February 14, 1995, a suit was brought in the Territorial Court in St. Croix,
U.S. Virgin Islands against Vialco, Bechtel Corporation and Mitsubishi Heavy
Industries, Ltd. by three plaintiffs, purportedly on behalf of a class
consisting of more than 800 persons. As of the present date, the proposed class
has not been certified and the monetary award sought by the plaintiff has not
been specified. The proposed class is comprised of residents of Harvey Project,
Bethlehem Village, and Estate Profit (residential areas in the vicinity of the
Vialco facility) who claim personal injury, property damage and nuisance from
pollutants, toxins, dusts, and
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
deleterious fumes, mists, vapors, particulates and/or gases allegedly discharged
into the atmosphere since Vialco restarted operations at the Vialco facility in
1989. Plaintiffs also seek a monetary award in an unspecified amount which would
create a fund to cover the cost of permanent medical monitoring for members of
the proposed plaintiff class. Vialco has filed an answer to the suit denying
liability and intends to defend the matter vigorously. The lawsuit is in a
preliminary stage and no discovery has been conducted. While there is an element
of uncertainty associated with this lawsuit and while it is impossible to
predict the ultimate disposition of this litigation, the Company does not
believe that the outcome will have a material adverse effect on the Company's
financial condition or liquidity, although it is possible that an adverse
outcome could materially affect the Company's results of operations in a given
period. Vialco has filed a third-party claim against an adjacent facility for
contribution.
Ravenswood is a named defendant (along with other companies) in approximately
1,550 civil actions brought by individuals seeking to recover significant
compensatory and/or punitive damages in connection with various asbestos-related
diseases. All of the plaintiffs have been employees of independent contractors
who claim to have been exposed to asbestos in the course of performing services
at various facilities, including the Ravenswood facility. The cases are
typically resolved based upon factual determinations as to the facilities at
which the plaintiffs worked, the periods of time during which work was
performed, the type of work performed and the conditions in which work was
performed. The vast majority of cases which have named Ravenswood as a defendant
have been resolved through settlement. In Ravenswood's case, if the plaintiffs'
work was performed during the period when Kaiser owned the Ravenswood facility,
Kaiser has retained responsibility. In a typical case or consolidated group of
cases, Ravenswood is served and turns the complaint over to Kaiser with a demand
for defense and indemnity. Kaiser assumes the defense and liability, subject to
a reservation of rights against Ravenswood in the event that any plaintiff is
shown to have worked at the Ravenswood facility after the time Ravenswood
purchased the facility from Kaiser. To date, Ravenswood has not been required to
make a payment in connection with the settlement or judicial resolution of any
of the asbestos cases, and the Company believes it is unlikely that existing or
potential plaintiffs were exposed to asbestos at the Ravenswood facility after
Ravenswood purchased the facility from Kaiser, although eight plaintiffs have
claimed they were exposed during this period of time. Therefore, while the
precise impact of the asbestos proceedings is impossible to predict, the Company
believes it has meritorious defenses to the actions and that the ultimate
resolution will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
In August 1994, Ravenswood received a Civil Investigative Demand ("CID") from
the Antitrust Division of the U.S. Department of Justice (the "Antitrust
Division") in connection with an investigation by the Antitrust Division to
determine whether there had been or was an unlawful agreement to restrict the
production of primary aluminum. In March 1995, Ravenswood received a second CID
from the Antitrust Division in connection with an investigation by the Antitrust
Division to determine whether there had been or was an unlawful agreement to fix
the
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
price of aluminum can stock. The CIDs demanded that Ravenswood submit certain
documents and information to the Antitrust Division. Ravenswood has complied
with both CIDs and has not received any further requests from the Antitrust
Division.
The Company has pending against it or may be subject to various 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.
COMMITMENTS
Ravenswood has a power supply agreement with a public utility expiring in 1998,
which includes specified daily minimum usage commitments. Billings are computed
by using a formula based principally upon the utility's operating costs. Such
billings are decreased if the London Metals Exchange ("LME") aluminum price is
less than certain specified levels, and increased, limited to the extent of
cumulative net decreases, if the LME aluminum price is greater than certain
specified levels. Accruals for such increases are recognized when it becomes
probable that they will be paid. No accruals were required as of March 31, 1996
and December 31, 1995.
Ravenswood has entered into a memorandum of understanding with the same public
utility covering the period from January 1, 1996 through July 31, 2003. Under
this memorandum of understanding, Ravenswood would generally pay a fixed price
for electricity used; however, for the period from January 1, 1996 through July
31, 1998, if the LME aluminum prices were to exceed certain specified levels,
the price for electricity used would increase, limited to the extent of
cumulative net price decreases under the existing contract.
On January 23, 1996 the Company and the Pension Benefit Guaranty Corporation
entered into an agreement (the "PBGC Agreement") which provided that the Company
make a cash contribution of $12,500 to its pension plan for hourly employees
upon consummation of its initial public offering. The Company made the
contribution in April 1996. The PBGC Agreement also provides for scheduled
contributions to be made to the Company's pension plan for hourly employees with
respect to 1996, 1997, 1998 and 1999. The Company estimates that these
contributions will be approximately $7,500, $6,000, $7,000 and $7,000,
respectively, above the minimum required contributions under Section 412 of the
Code for such years.
During 1992, Ravenswood established a progress sharing plan for eligible union
employees. Accrued and other current liabilities as of March 31, 1996 and
December 31, 1995 include an accrual for the 1996 and 1995 progress sharing
pool.
The Company has agreed to provide a $27,500 letter of credit to ensure its
performance under
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
the Owners Agreement governing the Mt. Holly facility. The Company's obligation
to maintain the letter of credit will terminate at such time as the Company
achieves certain financial measurements.
7. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS
Beginning in mid-1994 the Company entered into forward purchase contracts with a
related party for primary aluminum to hedge specific sheet and plate sales and
deferred $3,742 of unrealized gains at December 31, 1994; such gains were
recognized in the first quarter of 1995 when the product sales occurred. The
Company had fixed price commitments to sell 278.6 million pounds and 248.6
million pounds of primary and scrap aluminum and aluminum sheet and plate
products at March 31, 1996 and March 31, 1995, respectively. Forward purchase
contracts for approximately 26.5 million pounds and 96.2 million pounds of
primary aluminum at March 31, 1996 and March 31, 1995, respectively, did not
qualify for hedge accounting treatment because the Company's aggregate metals
position exceeded its fixed-price sales commitments at such dates. Cost of goods
sold includes a net credit relating to the unrealized gains on these contracts
that did not satisfy the technical requirements for hedge accounting, realized
gains from the cash settlement of certain other forward contracts, and
unrealized losses on purchase and sales commitments; net credits so included
were $546 and $6,406 for the periods ended March 31, 1996 and March 31, 1995,
respectively.
During 1994, the Company entered into a forward purchase contract for 120
million pounds of primary aluminum with a related party to cover a portion of
its 1995 sheet and plate product sales. During the quarter ended March 31, 1995,
the Company entered into forward sales contracts with a related party which had
the effect of offsetting the metal it was obligated to acquire under the forward
purchase contract. For the quarter ended March 31, 1995 the Company recognized a
net gain of $7,775 relating to these forward purchase and sales contracts.
During the first quarter of 1996, the Company had no similar transactions and
therefore, had no gains or losses from these activities.
The Company entered into a long-term supply agreement for 936 million pounds of
alumina annually, beginning January 1, 1996. The Company will pay a fixed price
for alumina with fixed annual price increases of approximately 2.5% through
2001. Pricing for the years 2002 through 2006 will be subject to agreement
between the parties.
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CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
8. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended
Cash paid for: March 31,
---------------------------
Interest: 1996 1995
--------- ---------
Affiliates .......................... $ 0 $ 172
Other ............................... 93 2,171
Income taxes ............................. 2,515 0
Non-Cash Investing Activities
On March 31, 1996 the Company made a non-cash special distribution as described
in Note 5. The Company redeemed and retired 3,120,000 shares of stock and
distributed assets with a book value of $72,534.
Non-Cash Financing Activities
During the three months ended March 31, 1995, the principal amount outstanding
under the Revolving Credit Facility - Affiliate of $40,000 was converted into
additional paid-in capital.
9. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," is effective for financial statements for fiscal years beginning after
December 15, 1995. This standard, among other things, requires entities to
review long-lived assets for impairment whenever events or changes in
circumstances indicate that their carrying value may not be recoverable.
Adoption of this standard on January 1, 1996 has no impact on the Company's
financial condition, results of operations or cash flows.
SFAS No. 123, "Accounting for Stock-Based Compensation," is effective for
financial statements for fiscal years beginning after December 15, 1995. This
standard, among other things, defines a fair value based method of accounting
for employee stock option and similar plans and requires certain disclosures.
Effective with the consummation of the initial public offering of its common
stock, the Company adopted certain stock incentive and option plans. Management
has determined the Company will not adopt the measurement provisions of SFAS No.
123.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is an integrated manufacturer of primary aluminum and a broad range
of value-added and specialized flat-rolled sheet and plate aluminum products.
The aluminum industry is highly cyclical and the market price of aluminum (which
trades as a commodity) has been volatile from time to time. In turn, prices of
flat-rolled sheet and plate aluminum products have reflected this volatility as
well as fluctuations attributable to general and industry-specific economic
conditions. However, there is less price volatility in the higher value-added
products such as plate. The principal elements comprising the Company's cost of
goods sold are raw materials, energy and labor. The major raw materials and
energy sources used by the Company in its production process are alumina,
aluminum scrap, coal tar, pitch, petroleum coke, aluminum fluoride and
electricity.
During the first quarter of 1996, the aluminum market remained flat. Moderating
consumption growth in the United States and the continued pull back by commodity
fund investors from the metals market contributed to the decline in the price of
aluminum and aluminum products. The cash price for aluminum on the LME averaged
$1,598 and $1,927 per tonne during the quarters ended March 31, 1996 and 1995,
respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the three months ended March 31, 1996 and
1995, the percentage relationship to net sales of certain items included in the
Company's condensed consolidated statements of income.
Percentage of Net Sales
1996 1995
------ ------
Net sales ................................................. 100.0% 100.0%
Cost of goods sold ........................................ 90.4% 80.9%
----- -----
Gross profit .......................................... 9.6% 19.1%
Selling, general and administrative expenses .............. 1.7% 1.5%
----- -----
Operating income ..................................... 7.9% 17.6%
Interest expense .......................................... 0.0% 1.2%
Net gain on forward contracts ............................. 0.0% 4.0%
----- -----
Income from continuing operations
before income taxes ....................................... 7.9% 20.4%
Income tax expense ........................................ 3.0% 8.1%
----- -----
Income from continuing operations ......................... 4.9% 12.3%
===== =====
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The following table sets forth, for the periods indicated, the pounds and the
average sales price per pound for certain of the Company's products (pounds in
thousands):
Flat-Rolled Sheet and Plate Products Primary Aluminum
Direct (1) Toll Direct (1)(2) Toll(2)
---------- ---- ------------- -------
1st Quarter Pounds $/Pound Pounds $/Pound Pounds $/Pound Pounds $/Pound
------- ------- ------ ------- ------ ------- ------- -------
1995 119,961 $ 1.265 27,284 $ 0.313 14,434 $ 0.842 26,033 $ 0.687
1996 115,707 $ 1.171 20,936 $ 0.320 46,774 $ 0.785 N/A N/A
(1) Does not include forward sales contracts without physical delivery.
(2) During 1995, all of Berkeley's sales were tolled; during the
first quarter of 1996, all of Berkeley's sales were direct.
Net Sales. Net sales decreased $11.3 million, or 5.9%, in the first quarter of
1996 to $181.4 million from $192.7 million in the first quarter of 1995. Of the
$11.3 million sales decline, $7.4 million is attributable to lower sheet and
plate shipments, while increased sales of primary aluminum from the Ravenswood
and Berkeley facilities resulted in increased revenues of $5.5 million. Lower
realized prices for the direct sheet and plate shipments decreased sales by
$10.9 million, while higher realized prices for tolled sheet and plate increased
sales by $0.2 million. Lower realized prices for primary aluminum shipped from
Ravenswood decreased sales by $1.9 million. All of the primary aluminum shipped
by Berkeley during the first quarter of 1995 was processed through a tolling
arrangement. For the quarter ended March 31, 1996, all of the shipments were
direct sales. As a result, revenue increased $3.2 million for the first quarter
of 1996.
Shipments of primary aluminum products increased 15.6% to 46.8 million pounds
from 40.5 million pounds shipped during the first quarter of 1995. Shipments of
sheet and plate products decreased 7.2% to 136.6 million pounds from 147.2
million pounds shipped during the first quarter of 1995.
Gross Profit. Gross profit decreased $19.4 million in the first quarter of 1996
to $17.4 million from $36.8 million in the first quarter of 1995. This decrease
was primarily the result of lower prices for primary aluminum.
Net Income. Net income decreased $14.8 million in the first quarter of 1996 to
$9.2 million from $24.0 million in the first quarter of 1995. The decrease was
due primarily to the lower gross profit described above. Also, during the first
quarter of 1995, the Company recognized an after-tax gain of $4.7 million on
forward contracts which did not satisfy the technical requirements for hedge
accounting and were marked-to-market. During the first quarter of 1996 the
Company had no similar transactions.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1996 and 1995 was $155.1 million and $151.3
million, respectively. The Company's liquidity requirements arise from working
capital needs, capital investments, and to a lesser extent, debt service.
The Company's statements of cash flows for the periods indicated are summarized
below (dollars in thousands):
Three Months Ended
March 31,
--------------------------------
1996 1995
------------- -------------
Net cash from (used in) operating activities . . . . $ 18,958 $ 5,837
Net cash from (used in) investing activities . . . . (51,577) (7,754)
Net cash from (used in) financing activities . . . . 0 0
-------- -------
Decrease in cash ($ 32,619) ($ 1,917)
======== =======
Net cash from operating activities was $19.0 million during the first quarter of
1996 compared with $5.8 million during the first quarter of 1995. The difference
was primarily due to a decrease in net income in the first quarter of 1996
offset by cash used in the first quarter of 1995 to fund the increased levels of
accounts receivable and inventories required to support the Company's growth in
net sales.
Capital expenditures were $2.6 million and $1.6 million for the three months
ended March 31, 1996 and 1995, respectively. The Company used these expenditures
to purchase, modernize or upgrade production equipment, maintain facilities and
comply with environmental regulations. The cash invested in unrelated businesses
presented as discontinued operations amounted to $0 and $6.1 million for the
three months ended March 31, 1996 and 1995, respectively. In addition, the
Company purchased $50.0 million of its accounts receivable concurrent with the
refinancing of the Company's credit facilities as discussed below.
On January 30, 1996, Ravenswood, Berkeley and BankAmerica entered into an
agreement pursuant to which BankAmerica is providing Ravenswood and Berkeley a
three-year, $150 million Bank Revolving Credit Facility. The interest rate is,
at the Company's election, (i) the BankAmerica base rate plus .5% or (ii) the
one-, two-, three- or six-month LIBOR plus 1.75%. The interest margins of .5%
and 1.75% will increase for the term of the facility to .75% and 2.00%,
respectively, if the availability under the Bank Revolving Credit Facility is
less than $75 million at any time during 1996. Borrowings under the Bank
Revolving Credit Facility are collateralized by all of Ravenswood's and
Berkeley's inventory and receivables and are guaranteed by the Company. The Bank
Revolving Credit Facility is subject to early termination for various covenant
defaults. Based on its current financial condition and internal forecasts
through the end of 1996, the Company believes that it will remain in compliance
with all covenants.
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Pursuant to the PBGC Agreement the Company made a cash contribution of $12.5
million to its pension plans for hourly employees in April 1996. The PBGC
Agreement also provides for scheduled contributions to be made to the Company's
pension plan for hourly employees with respect to 1996, 1997, 1998 and 1999. The
Company estimates that these contributions will be approximately $7.5 million,
$6.0 million, $7.0 million and $7.0 million, respectively, above the minimum
required contributions under Section 412 of the Code for such years.
The Company believes that cash flow from operations and funds available under
the Bank Revolving Credit Facility will be sufficient to fund its working
capital requirements, capital expenditures and debt service requirements in the
near term and for the foreseeable future.
METALS RISK MANAGEMENT
The Company produces primary aluminum products and manufactures aluminum sheet
and plate products and manages the risks of each accordingly. With respect to
its primary aluminum products, the Company attempts to assure itself a fixed
margin over its primary aluminum production costs through the use of forward
sales contracts. With respect to its aluminum sheet and plate sales, the Company
attempts to assure itself a fixed margin over its aluminum raw material costs
through the use of forward purchase contracts.
The Company had fixed-price commitments to sell 278.6 million pounds and 248.6
million pounds of primary and scrap aluminum and aluminum sheet and plate
products at March 31, 1996 and March 31, 1995, respectively. Forward purchase
contracts for approximately 26.5 million pounds and 96.2 million pounds of
primary aluminum at March 31, 1996 and March 31, 1995, respectively, did not
qualify for hedge accounting treatment because the Company's aggregate metals
position exceeded it fixed-price sales commitments at such dates. Cost of goods
sold includes a net credit relating to the unrealized gains on these contacts
that did not satisfy the technical requirements for hedge accounting, realized
gains from the cash settlement of certain other forward contracts, and
unrealized losses on purchase and sales commitments; net credits so included
were $546 and $6,406 for the periods ended March 31, 1996 and March 31, 1995,
respectively.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
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 cost can be reasonably estimated. The aggregate
environmental related accrued liabilities were $1,890 and $2,294 at March 31,
1996 and December 31, 1995, respectively. The Company has incurred and, in the
future, will continue to incur capital expenditures and operating expenses for
matters relating to environmental control, remediation, monitoring and
compliance. The Company believes that compliance with current environmental laws
and regulations is not likely to have a material adverse effect on the Company's
financial condition, results of operations or liquidity; however, environmental
laws and regulations have changed rapidly in recent years and the Company may
become subject to more stringent environmental laws and regulations in the
future. In addition, the Company may be required to conduct remediation
activities in the future pursuant to various orders issued by the EPA and DEP.
There can be no assurance that
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compliance with more stringent environmental laws and regulations that may be
enacted in the future, or future remediation costs, would not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
The Company is a defendant in several actions relating to various aspects of its
business. While it is impossible to predict the ultimate disposition of any
litigation, the Company does not believe that any of these lawsuits, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition or liquidity, although it is possible that an
adverse outcome in the Vialco lawsuit could materially affect the results of
operations in any given period.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1 - Statement Re: Calculation of Earnings per Common Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century Aluminum Company
Date: May 8, 1996 By: /s/ Craig A. Davis
----------- --------------------------------
Craig A. Davis
Chairman/Chief Executive Officer
Date: May 8, 1996 By: /s/ David W. Beckley
----------- --------------------------------
David W. Beckley
Executive Vice-President/Chief
Financial Officer
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EXHIBIT INDEX
Exhibit Page
Number Description Number
11.1 Calculation of Earnings per Common Share. . . . . . . . . . . . 21
27 Financial Data Schedule
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