1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
Commission file number 0-27918
CENTURY ALUMINUM COMPANY
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3070826
(State of Incorporation) (IRS Employer Identification No.)
2511 GARDEN ROAD
BUILDING A, SUITE 200
MONTEREY, CALIFORNIA 93940
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (831) 642-9300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The registrant had 20,202,538 shares of common stock outstanding at
October 31, 1999.
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CENTURY ALUMINUM COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Part I - Financial Information
Item 1 - Financial Statements Page Number
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 ................................... 1
Consolidated Statements of Operations for the three
months and nine months ended September 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 ................ 3
Notes to the Consolidated Financial Statements .......... 4-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 12-19
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk ............................................. 20-21
Part II - Other Information
Item 1 - Legal Proceedings ....................................... 22
Item 4 - Submission of Matters to a Vote of Stockholders ......... 22
Item 6 - Exhibits and Reports on Form 8-K ........................ 22
Signatures ....................................................... 23
Exhibit Index .................................................... 24
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CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS
CURRENT ASSETS:
Cash .......................................................... $117,796 $ 12
Restricted cash equivalents ................................... 5,818 5,814
Accounts receivable, trade - net .............................. 26,746 74,948
Due from affiliates ........................................... 9,884 16,036
Inventories ................................................... 37,776 197,705
Prepaid and other assets ...................................... 12,328 9,006
-------- --------
Total current assets ..................................... 210,348 303,521
PROPERTY, PLANT AND EQUIPMENT - NET ................................ 102,526 227,320
OTHER ASSETS ....................................................... 6,842 14,789
-------- --------
TOTAL .................................................... $319,716 $545,630
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade ....................................... $ 34,278 $ 37,450
Due to affiliates ............................................. 6,675 15,146
Accrued and other current liabilities ......................... 35,979 36,733
Accrued employee benefits costs - current portion ............. 4,559 26,036
-------- --------
Total current liabilities ................................ 81,491 115,365
-------- --------
REVOLVING TERM LOAN ................................................ -- 89,389
ACCRUED PENSION BENEFITS COSTS - Less current portion .............. 4,262 9,792
ACCRUED POSTRETIREMENT BENEFITS COSTS - Less current portion ....... 38,657 129,318
OTHER LIABILITIES .................................................. 11,041 24,283
-------- --------
Total noncurrent liabilities ............................. 53,960 252,782
-------- --------
SHAREHOLDERS' EQUITY:
Common Stock (one cent par value, 50,000,000 shares authorized;
20,202,205 shares outstanding at September 30, 1999 and
20,000,000 at December 31, 1998) ............................ 202 200
Additional paid-in capital .................................... 164,406 161,953
Retained earnings ............................................. 19,657 15,330
-------- --------
Total shareholders' equity ............................... 184,265 177,483
-------- --------
TOTAL .................................................... $319,716 $545,630
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
NET SALES:
Third-party customers .................... $ 134,334 $ 143,558 $ 428,957 $ 435,985
Related parties .......................... 18,711 19,169 56,453 59,894
--------- --------- --------- ---------
153,045 162,727 485,410 495,879
COST OF GOODS SOLD ......................... 160,189 156,204 491,823 464,018
--------- --------- --------- ---------
GROSS PROFIT (LOSS) ........................ (7,144) 6,523 (6,413) 31,861
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,396 4,376 13,997 13,171
--------- --------- --------- ---------
OPERATING INCOME (LOSS) .................... (12,540) 2,147 (20,410) 18,690
GAIN ON SALE OF FABRICATING BUSINESSES ..... 41,130 -- 41,130 --
INTEREST EXPENSE - Net ..................... (1,808) (437) (5,360) (1,579)
NET GAIN (LOSS) ON FORWARD CONTRACTS ....... (763) 1,068 (3,263) 7,592
OTHER INCOME (EXPENSE) ..................... (5) 256 (673) 109
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ................. 26,014 3,034 11,424 24,812
INCOME TAX EXPENSE ......................... (9,365) (1,092) (2,613) (8,932)
--------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM ....... 16,649 1,942 8,811 15,880
EXTRAORDINARY ITEM - WRITE-OFF OF DEFERRED
BANK FEES, NET OF INCOME TAX BENEFIT OF $766 (1,362) -- (1,362) --
--------- --------- --------- ---------
NET INCOME ................................. $ 15,287 $ 1,942 $ 7,449 $ 15,880
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Basic
Earning before extraordinary item ........ $ 0.82 $ 0.10 $ 0.43 $ 0.79
Extraordinary Item ....................... $ (0.06) $ -- $ (0.06) $ --
Earnings ................................. $ 0.76 $ 0.10 $ 0.37 $ 0.79
Diluted
Earnings before extraordinary item ....... $ 0.81 $ 0.10 $ 0.43 $ 0.78
Extraordinary item ....................... $ (0.06) $ -- $ (0.06) $ --
Earnings ................................. $ 0.75 $ 0.10 $ 0.37 $ 0.78
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic .................................... 20,202 20,000 20,202 20,000
========= ========= ========= =========
Diluted .................................. 20,354 20,227 20,333 20,254
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE ................. $ 0.05 $ 0.05 $ 0.15 $ 0.15
========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 7,449 $ 15,880
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 15,878 14,668
Deferred income taxes ................................ 8,278 (3,767)
Pension and other postretirement benefits ............ (14,560) (8,959)
Inventory market writedown ........................... 5,344 --
Gain on sale of fabricating businesses ............... (41,130) --
Change in operating assets and liabilities:
Accounts receivable, trade - net ................ (31,049) 24,453
Due from affiliates ............................. 5,639 (1,140)
Inventories ..................................... 30,048 (805)
Prepaids and other assets ....................... (3,607) (936)
Accounts payable, trade ......................... 13,663 (12,564)
Due to affiliates ............................... (5,580) (13,123)
Accrued and other current liabilities ........... (7,823) 11,914
Other - net ..................................... 1,692 670
--------- ---------
Net cash provided by (used in) operating activities .. (15,758) 26,291
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ................ (19,639) (30,071)
Purchase price adjustment related to business acquisitions 296 --
Restricted cash deposits ................................. (4) (6)
Proceeds from sale of fabricating businesses ............. 245,400 --
--------- ---------
Net cash provided by (used in) investing activities .. 226,053 (30,077)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ............................................... 340,708 166,533
Repayment of borrowings .................................. (430,097) (159,746)
Dividends ................................................ (3,122) (3,000)
--------- ---------
Net cash provided by (used in) financing activities .. (92,511) 3,787
--------- ---------
NET INCREASE IN CASH .......................................... 117,784 1
CASH, BEGINNING OF PERIOD ..................................... 12 42
--------- ---------
CASH, END OF PERIOD ........................................... $ 117,796 $ 43
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. GENERAL
On September 21, 1999, Century Aluminum Company ("Century" or the
"Company") and Century Aluminum of West Virginia, Inc. ("Century of West
Virginia") sold the net assets of their two aluminum fabricating businesses to
Pechiney Rolled Products LLC ("Pechiney"). Century's fabricating businesses
consisted of Century Cast Plate, Inc. ("Century Cast Plate") located in Vernon,
California and the rolling and casting operations of Century of West Virginia,
located in Ravenswood, West Virginia ("Pechiney Transaction"). The financial
results for the third quarter of 1999 include the operations of the fabricating
businesses through September 21, 1999.
Century is a holding company whose principal subsidiary is Century of West
Virginia, which operates a primary aluminum reduction facility and operated an
aluminum fabrication facility in Ravenswood, West Virginia. Century of West
Virginia, through its wholly-owned subsidiary Berkeley Aluminum, Inc.
("Berkeley"), holds a 26.67% interest in a partnership which operates a primary
aluminum reduction facility in Mt. Holly, South Carolina ("MHAC") and a 26.67%
undivided interest in the property, plant and equipment comprising MHAC. Century
Aluminum Company's other subsidiary was Century Cast Plate, which operated a
cast aluminum plate business located in Vernon, California.
Glencore AG and Vialco Holdings Ltd., which are wholly-owned subsidiaries of
Glencore International AG (together with its subsidiaries, the "Glencore Group")
own 7,925,000 common shares, or 39.2% 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, scrap 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, 1998. In management's opinion, the
unaudited interim consolidated financial statements reflect all adjustments,
which are of a normal and recurring nature, which are necessary for a fair
presentation, in all material respects, of financial results for the interim
periods presented. Operating results for the first nine months of 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. INVENTORIES
Inventories consist of the following:
September 30, December 31,
1999 1998
------------- ------------
Raw materials ................................ $ 22,021 $ 81,474
Work-in-process .............................. 2,139 71,045
Finished goods ............................... 2,755 25,858
Operating and other supplies ................. 10,861 19,328
-------- --------
$ 37,776 $197,705
======== ========
At September 30, 1999 and December 31, 1998, approximately 71% and 90%,
respectively, of inventories were valued at the lower of last-in, first-out
("LIFO") cost or market. The excess of the first-in, first-out ("FIFO") cost
over LIFO cost (or market, if lower) of inventory was approximately $218 at
September 30, 1999 and the excess of LIFO cost (or market, if lower) over FIFO
cost was approximately $20,150 at December 31, 1998.
3. BANK REVOLVING CREDIT FACILITY
On February 24, 1999, the Company entered into an agreement with BankBoston,
N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to
$160,000 of revolving credit facilities to refinance indebtedness, to finance
certain capital expenditures and for other general corporate purposes. The
borrowing base for purposes of determining availability was based upon certain
eligible inventory and receivables. On September 15, 1999 the Bank Agreement was
amended to permit the sale of the fabricating businesses in the Pechiney
Transaction and additionally required that on the closing date the Company repay
all amounts outstanding under the revolving credit facilities (see Note 8 to the
Consolidated Financial Statements). On September 21, 1999, the Company repaid
its outstanding debt under the revolving credit facilities. The Company and its
lenders have agreed to reduce the facilities from $160,000 to $75,000 and to
establish new financial covenants and other terms. The facility may not be used
until such time as new covenants and other terms are established.
4. CONTINGENCIES AND COMMITMENTS
Environmental Contingencies
The Company's operations are subject to various environmental laws and
regulations. The Company has spent, and expects to spend in the future,
significant amounts for compliance with those laws and regulations.
Pursuant to an Environmental Protection Agency ("EPA") order issued in
September 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. The Company also is
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
conducting a RCRA facility investigation ("RFI") and a corrective measures study
("CMS") to evaluate and develop corrective alternatives for any areas that have
contamination exceeding certain levels. The Company anticipates that the RFI
will not be completed before the end of 1999. Once the RFI and CMS are complete,
the EPA will assess the need for clean up, and if any clean up is required, a
subsequent order will be issued. At this time, the Company is unable to
determine the extent of clean-up measures, if any, that may be required.
However, the Company is aware of some environmental contamination at Century of
West Virginia, and it is likely that clean-up activities will be required in at
least some 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 the Century of West Virginia facility,
Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated the
facility for approximately thirty years. Many of the conditions which the
Company is required to investigate under the 3008(h) order arise out of
activities which occurred during Kaiser's ownership and operation, and with
respect to those conditions, Kaiser will be responsible for the costs of the RFI
and required cleanup under the terms of the purchase agreement ("Kaiser Purchase
Agreement"). In addition, Kaiser retained title to certain land within the
Century of West Virginia premises and retains full responsibility for those
areas. Under current environmental laws, the Company may be required to
remediate any contamination 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 Kaiser Purchase Agreement.
The Company is aware of soil and groundwater contamination at its previously
owned Virgin Islands Alumina Company ("Vialco") facility. The Company believes
that a substantial amount of the contamination originated from an adjacent
refinery owned by Hess Oil Virgin Islands, Inc. ("HOVIC"). The Company further
believes that the vast majority of any contamination that did not originate from
HOVIC was caused by releases on the property that predated Vialco's ownership
and will not be the legal responsibility of Vialco. Pursuant to the Acquisition
Agreement by which Vialco sold the premises to St. Croix Alumina, L.L.C., a
subsidiary of Alcoa Alumina and Chemicals L.L.S. ("St. Croix"), Vialco retained
liability for environmental conditions existing at the time of the sale only to
the extent such conditions arose from operation of the facility by Vialco. In
addition, indemnification arises only if the conditions require remediation or
give rise to claims under the laws in effect at the time of sale. Finally, St.
Croix may not request indemnity from Vialco until St. Croix has spent $300 on
such environmental conditions and Vialco's indemnity is capped at $18,000.
Management of the Company does not believe that 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 costs can be
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
reasonably estimated. The aggregate environmental related accrued liabilities
were $1,374 at September 30, 1999 and December 31, 1998, respectively. All
accruals have been recorded without giving effect to any possible future
insurance or Kaiser indemnity proceeds. With respect to ongoing environmental
compliance costs, including maintenance and monitoring, such costs are expensed
as incurred.
Because of the issues and uncertainties described above, and the Company's
inability to predict the requirements of future environmental laws, there can be
no assurance that future capital expenditures and costs for environmental
compliance will not have a material adverse effect on the Company's future
financial condition, results of operations or liquidity. Based upon all
available information, management does not believe that the outcome of these
environmental matters will have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
Legal Contingencies
Century of West Virginia is a named defendant (along with other companies)
in approximately 2,364 civil actions brought by individuals seeking to recover
compensatory and/or punitive damages in connection with alleged asbestos-related
diseases. All plaintiffs have been employees of independent contractors who
claim to have been exposed to asbestos in the course of performing services at
various facilities, including the Century of West Virginia facility. The cases
are typically resolved based upon factual determinations as to the facilities at
which the plaintiffs worked, the periods of time during which work was
performed, the type of work performed and the conditions in which work was
performed. If the plaintiffs' performed the work during the period when Kaiser
owned the Century of West Virginia facility, Kaiser has retained responsibility,
pursuant to the terms of the Kaiser Purchase Agreement, for defense and
indemnity. If a plaintiff is shown to have worked at the Century of West
Virginia facility after the time Century of West Virginia purchased the facility
from Kaiser, Kaiser assumes the defense and liability, subject to a reservation
of rights against Century of West Virginia for work at the Century of West
Virginia facility only after the time Century of West Virginia purchased the
facility from Kaiser. The Company believes it is unlikely that existing or
potential plaintiffs were exposed to asbestos at the Century of West Virginia
facility after Century of West Virginia purchased the facility from Kaiser.
There are currently 10 actions pending by individuals who claim exposure only
after Century of West Virginia's acquisition of the premises. Those matters have
been settled for nominal amounts, pending completion of settlement papers.
Pursuant to the terms of the Pechiney Transaction, in the event a claim is made
that exposure occurred on the fabrication or casting divisions of the Century of
West Virginia facility not subject to the Kaiser Purchase Agreement, such claims
will be turned over to Pechiney. While the impact of the asbestos proceedings is
impossible to predict, the Company believes that the ultimate resolution will
not have a material adverse effect on the Company's financial condition, results
of operations or liquidity.
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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.
Commitments
The Company and a public utility have a fixed price power supply agreement,
covering the period from July 1, 1996 through July 31, 2003.
On January 23, 1996, the Company and the Pension Benefit Guaranty
Corporation ("PBGC") entered into an agreement (the "PBGC Agreement") which
provided that the Company make scheduled cash contributions to its pension plan
for hourly employees in 1996, 1997, 1998 and 1999. The Company made its
scheduled contributions for 1996, 1997, 1998 and through September 30, 1999. The
Company has granted the PBGC a first priority security interest in (i) the
property, plant and equipment at its Century of West Virginia facility and (ii)
all of the outstanding shares of Berkeley. In addition, Century must grant the
PBGC a first priority security interest in the first $50,000 of the property,
plant and equipment of any business or businesses that the Company acquires. The
Company, at its discretion, may, however, substitute Berkeley's undivided
interest in the Mt. Holly Facility in lieu of any such after-acquired property,
plant and equipment as well as the shares of Berkeley.
5. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS
The Company produces primary aluminum products and through September 21,
1999 manufactured aluminum sheet and plate products and has managed the risks of
each accordingly through the issuance of fixed-price commitments and financial
instruments.
The Company had fixed price commitments to sell 181.5 million pounds and
543.9 million pounds of primary, scrap aluminum and sheet and plate products at
September 30, 1999 and December 31, 1998, respectively. Of the total fixed-price
sales commitments, 105.9 million pounds and 34.6 million pounds at September 30,
1999 and December 31, 1998, respectively, were with the Glencore Group. In
addition, the Company had fixed price commitments to purchase 2.1 million pounds
and 190.8 million pounds of aluminum and alloy raw materials at September 30,
1999 and December 31, 1998, respectively. The Company had fixed-price purchase
commitments of 162.1 million pounds at December 31, 1998 with the Glencore
Group.
In order to manage the Company's exposure to fluctuating commodity prices,
the Company enters into forward sales and purchase contracts for primary
aluminum that will be settled in cash. At September 30, 1999 and December 31,
1998, the Company had forward sales contracts, primarily with the Glencore
Group, for 21.9 million and 65.6 million pounds, respectively. At December 31,
1998, the Company had forward purchase contracts, primarily with the Glencore
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Group, for 18.0 million pounds. Forward sales contracts at September 30, 1999
are scheduled for settlement in the fourth quarter of 1999. Based on market
prices at September 30, 1999, these contracts could be settled by the Company
paying approximately $600. The actual settlement will be based on market prices
on the respective settlement dates.
The Company entered into a long-term supply agreement for 936 million pounds
of alumina annually, beginning January 1, 1996. The Company will pay a fixed
price for alumina with annual price increases of approximately 2.5% through
2001. Pricing for the years 2002 through 2006 will be subject to agreement
between the parties.
In connection with the sale of the aluminum fabricating businesses (see
Note 8 to the Consolidated Financial Statements), the Company entered into a
Molten Aluminum Purchase Agreement (the "Metal Agreement") with Pechiney, that
shall continue in effect until July 31, 2003. 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 based on a quoted average primary
aluminum market price as reported for the month immediately preceding the month
of delivery.
6. SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
------ ------
Cash paid for:
Interest ....................... $6,288 $2,972
Income taxes ................... 1,903 7,279
Cash received from income tax refunds 174 5,560
7. BUSINESS SEGMENTS
The Company's two reportable business segments have been primary aluminum
and (through September 21, 1999) sheet and plate products (see Note 8 to the
Consolidated Financial Statement). The primary aluminum segment produces rolling
ingot, t-ingot, extrusion billet and foundry ingot for internal use and sales to
customers. 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 are the same as those described in
the Company's December 31, 1998, Form 10-K, except that intersegment revenues
have been accounted for
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
based upon a market-based standard established by the Company. The Company has
evaluated segment performance based upon gross profit.
Century's business segments have been strategic business units that
manufacture and sell different products. The two business segments have been
managed separately and require different technology, manufacturing processes and
sales and marketing strategies. Information regarding the Company's business
segments is summarized below:
THREE MONTHS ENDED, NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Primary Aluminum
Net sales
Third-party customers $ 17,183 $ 10,718 $ 43,201 $ 29,898
Related party customers 18,711 19,169 56,453 59,894
Intersegment 41,610 57,883 136,848 178,959
--------- --------- --------- ---------
Total net sales $ 77,504 $ 87,770 $ 236,502 $ 268,751
Segment gross profit (loss) (1) $ (6,964) $ 4,506 $ (17,187) 24,952
Sheet and Plate Aluminum
Net Sales
Third-party customers $ 117,151 $ 132,840 $ 385,756 406,087
Segment gross profit (loss) (2) $ (180) $ 2,059 $ 10,774 $ 7,034
Corporate, Unallocated and Eliminations
Net Sales
Intersegment $ (41,610) $ (57,883) $(136,848) $(178,959)
Segment gross (loss) $ -- $ (42) $ -- $ (125)
Totals
Net Sales
Third-party customers $ 134,334 $ 143,558 $ 428,957 $ 435,985
Related party customers 18,711 19,169 56,453 59,894
Intersegment -- -- -- --
--------- --------- --------- ---------
Total net sales $ 153,045 $ 162,727 $ 485,410 $ 495,879
Gross profit (loss) (1)(2) $ (7,144) $ 6,523 $ (6,413) $ 31,861
(1) The Primary segment includes non-cash charges of $6,449 and $7,941 in the
three and nine months ended September 30, 1999, respectively, for inventory
writedowns and LIFO adjustments.
(2) The Sheet and Plate segment includes non-cash charges (through September
21, 1999) of $5,300 and $7,649 in the three and nine months ended September
30, 1999 respectively, for the inventory writedowns and LIFO adjustments.
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CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SALE OF THE FABRICATING BUSINESSES
On September 21, 1999, the Company and Century of West Virginia completed
the sale of their aluminum 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 $248.0 million and the assumption of
approximately $163.4 million of current and noncurrent liabilities, subject
to certain post closing adjustments. Included in the gain is the estimated
net effects resulting from the curtailment and settlement of the Company's
employee benefit plans associated with the fabricating businesses. In
connection with the sale, Century of West Virginia and Pechiney entered
into the Metal Agreement dated as of September 21, 1999 and shall continue
in effect until July 31, 2003. 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. 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 is 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.
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FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT UNDER THE PRIVATE
SECURITIES REFORM ACT OF 1995.
This quarterly report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Words such as "expects,"
"anticipates," "forecasts," "intends," "plans," "believes," "projects," and
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements include, but are not
limited to, statements regarding new business and customers, contingencies, Year
2000 readiness, environmental matters and liquidity under "Part I, Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Part I, Item 3 - Quantitative and Qualitative Disclosures About
Market Risk" and "Part II, Item 1 Legal Proceedings." These statements are not
guarantees of future performance and involve risks and uncertainties and are
based on a number of assumptions that could ultimately prove to be wrong. Actual
results and outcomes may vary materially from what is expressed or forecast in
such statements. Among the factors that could cause actual results to differ
materially are general economic and business conditions, changes in demand for
the Company's products and services or the products of the Company's customers,
fixed asset utilization, competition, the risk of technological changes and the
Company's competitors developing more competitive technologies, the Company's
dependence on certain important customers, the availability and terms of needed
capital, risks of loss from environmental liabilities, and other risks detailed
in this report. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following information should be read in conjunction with the Company's
1998 Form 10-K along with the consolidated financial statements and related
footnotes included within the Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On September 21, 1999, the Company and Century of West Virginia sold their
two aluminum fabricating businesses. Accordingly, the following information
includes the operations of these businesses through September 21, 1999.
The Company has been 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. The principal elements comprising the
Company's cost of goods sold are raw materials, energy and labor. The major raw
materials and energy sources
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used by the Company in its production process have been alumina, aluminum scrap,
coal tar, pitch, petroleum coke, aluminum fluoride and electricity.
In the first quarter of 1998, the average cash price per tonne of primary
aluminum on the London Metal Exchange ("LME") was $1,463. It then declined to
$1,363 in the second quarter of 1998, with a further decline to $1,283 in the
fourth quarter of 1998. The average cash price in the second quarter of 1999 was
$1,306 and it moved higher in the third quarter of 1999 to $1,442.
RESULTS OF OPERATIONS
Century's financial highlights include (in thousands, except per share
data):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net sales
Third-party customers $134,334 $143,558 $428,957 $435,985
Related party customers 18,711 19,169 56,453 59,894
-------- -------- -------- --------
Total 153,045 162,727 485,410 495,879
Net income $ 15,287 $ 1,942 $ 7,449 $ 15,880
Earnings per share - basic $ 0.76 $ 0.10 $ 0.37 $ 0.79
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." Century's operations have consisted of two
segments: primary aluminum and sheet and plate aluminum products. The Company
has evaluated segment performance based upon gross profit. The Company used a
market-based transfer price to record intersegment sales.
Primary Aluminum
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
Net sales
Third-party customers $ 17,183 $ 10,718 $ 43,201 $ 29,898
Related party customers 18,711 19,169 56,453 59,894
Intersegment 41,610 57,883 136,848 178,959
--------- -------- --------- --------
Total 77,504 87,770 236,502 268,751
Gross profit (loss) $ (6,964) $ 4,506 $ (17,187) $ 24,952
Third-party shipment pounds 25,082 15,308 62,690 40,231
Related-party shipment pounds 27,226 27,838 89,718 85,716
Intersegment shipment pounds 63,769 85,506 217,443 249,909
--------- -------- --------- --------
Total 116,077 128,652 369,851 375,856
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The primary aluminum segment produces t-ingot, rolling ingot, extrusion
billet and foundry ingot for internal use and sales to customers. A significant
portion of this segment's sales is to a related party (the Glencore Group).
The primary segment's net sales during the three and nine months ended
September 30, 1999 were $77.5 million and $236.5 million, a decrease of $10.3
million (or 11.7%) and $32.2 million (or 12.0%) from comparable 1998 periods.
The segment shipped 116.1 and 369.9 million pounds of primary aluminum products
in the three and nine months ended September 30, 1999, a decrease of 12.6
million and 6.0 million pounds from comparable 1998 periods. The lower revenue
in 1999 is attributable to the decline in the LME price for primary aluminum and
its influence upon the realized prices for Century's primary aluminum products.
Gross profit for the three and nine months ended September 30, 1999 was
adversely affected by lower realized prices, increased costs due to a shift in
mix to higher cost primary products, a charge of $1.4 million from the temporary
shutdown of one of four production lines at the Company's Ravenswood, West
Virginia operation following an illegal one-day work stoppage in August and a
non-cash charge of $6.4 million and $7.9 for the three and nine months ended
September 30, 1999, respectively, related to inventory writedowns and LIFO
adjustments.
Sheet and Plate Aluminum
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------
1999 1998 1999 1998
--------- -------- -------- --------
Net sales
Direct customers $ 116,741 $130,902 $383,711 $399,436
Toll customers 410 1,938 2,045 6,651
--------- -------- -------- --------
Total 117,151 132,840 385,756 406,087
Gross profit (loss) $ (180) $ 2,059 $ 10,774 $ 7,034
Direct shipment pounds 100,339 109,205 327,669 327,178
Toll shipment pounds 1,818 6,718 8,580 23,464
--------- -------- -------- --------
Total 102,157 115,923 336,249 350,642
The following information reflects the fabricating businesses through
September 21, 1999, the date of closing of the Pechiney Transaction.
The sheet and plate aluminum 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 sheet and plate segment's net sales during the three and nine months
ended September 30, 1999 were $117.2 million and $385.8 million, a decrease of
$15.7 million (or 11.8%)
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compared to third quarter 1998 net sales and a decrease of $20.3 million (or
5.0%) from the first nine months of 1998 net sales. The segment shipped 102.2
million and 336.2 million pounds of sheet and plate products in the three and
nine months ended September 30, 1999, a decrease of 13.8 million pounds compared
to the third quarter 1998 shipments and a decrease of 14.4 million pounds from
the first nine months of 1998 shipments. The Company continued to see
improvements in its sheet and plate product mix, but the lower LME price for
primary aluminum in 1999 and its influence on the prices Century realized for
its sheet and plate products had more than offset the improvement. In addition,
the sale of the fabricating businesses on September 21, 1999 contributed to the
decrease.
Gross loss for the three months ended September 30, 1999 was $180,000 and
the gross profit for the nine months ended September 30, 1999 was $10.8 million,
a decrease of $2.2 million and an increase of $3.7 million from comparable 1998
periods. The increase in the nine months ended September 30, 1999 gross profit
was the result of a shift in product mix from lower to higher margin products
and the positive impact of the lower LME price on aluminum raw material costs.
The gross loss during the three months ended September 30, 1999 was increased by
non-cash charges of $5.3 for inventory writedowns and LIFO adjustments. The
gross profit during the nine months ended September 30, 1999 was decreased by
non-cash charges of $7.6 million for inventory writedowns and LIFO adjustments.
Interest Expense. Interest expense during the three and nine months ended
September 30, 1999 was $1.8 million and $5.4 million, an increase of $1.4
million and $3.8 million from comparable 1998 periods. The increase in debt
outstanding and lower amounts of capitalized interest resulted in increased
interest expense for the Company.
Net Gains(Losses) on Forward Contracts. The Company recorded losses on
forward contracts for the three and nine months ended September 30, 1999 of $0.8
million and $3.3 million, while the Company recorded gains of $1.1 million and
$7.6 million during the three and nine months ended September 30, 1998. Rising
LME aluminum prices in the first three quarters of 1999 decreased the market
value of the Company's forward contracts relative to their December 31, 1998
market value, resulting in a loss. Declining LME aluminum prices in the first
nine months of 1998 increased the market value of the Company's forward
contracts relative to their December 31, 1997 market value, resulting in a gain.
Extraordinary Item. The Company recorded an extraordinary expense related to
the write-off of deferred bank fees of $1.4 million during the three and nine
months ended September 30, 1999. The charge is a result of the early
extinguishment of debt related to the sale of the fabricating businesses and the
required repayment of the outstanding revolving credit facilities.
Net Income. The Company earned $15.3 million and $7.5 million during the
three and nine September 30, 1999 compared to net income of $1.9 million and
$15.9 million during comparable 1998 periods. The gain on the sale of the
fabricating businesses was partially offset by lower LME prices for primary
aluminum and its influence on realized sales prices in both the primary and
sheet and plate segments along with non-cash charges for inventory
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writedowns, LIFO adjustments, marking forward contracts to market and the
illegal one-day work stoppage in August.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $128.9 million and $188.2 million at September
30, 1999 and December 31, 1998, respectively. The decrease is due primarily to
the sale of the fabricating businesses on September 21, 1999. The Company's
liquidity requirements arise primarily from working capital needs, capital
investments and debt service.
The Company's statements of cash flows for the nine months ended September
30, 1999 and 1998 are summarized below (dollars in thousands):
1999 1998
--------- --------
Net cash from (used in) operating activities ...... $ (15,758) $ 26,291
Net cash from (used in) investing activities ...... 226,053 (30,077)
Net cash from (used in) financing activities ...... (92,511) 3,787
--------- --------
Increase in cash .................................. $ 117,784 $ 1
========= ========
Operating activities used $15.8 million in net cash during the first nine
months of 1999. Contributing to the reduction in cash was the growth in accounts
receivable and pension contributions of $15.0 million. This was partially offset
by a reduction in the Company's raw materials inventories. In the first nine
months of 1998, operating activities provided $26.3 million in net cash to the
Company. Net income and a reduction in accounts receivable caused by favorable
changes in product/customer mix and trade accounts receivable terms added to the
positive cash flow, partially offset by payments for metal purchases,
maintenance expenditures and capital expenditures that were accrued at December
31, 1997.
The Company's net cash provided by investing activities was $226.1 million
during the first nine months of 1999. The increase in cash was due primarily to
the proceeds received from the sale of the aluminum fabricating businesses that
was partially offset by capital expenditures of $19.6 million. The Company's net
cash used in investing activities was $30.1 million during the first nine months
of 1998. The decrease in cash was due primarily to capital expenditures. The
Company used the capital expenditures to purchase, modernize or upgrade
production equipment, maintain facilities and comply with environmental
regulations.
Net cash used in financing activities was $92.5 million during the first
nine months of 1999 due primarily to the repayment of the revolving credit
facilities. The net cash provided by financing activities during the first nine
months of 1998 was $3.8 million.
On January 30, 1996 Century of West Virginia and Berkeley entered into a
bank revolving credit facility ("Facility") with BankAmerica Business Credit,
Inc. ("Bank of America"). The Facility provided for a revolving credit facility
that consisted of borrowings and letters of
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credit up to $150.0 million in the aggregate. On March 31, 1999, the Company
refinanced the borrowings outstanding and terminated the Facility.
On February 24, 1999, the Company entered into an agreement with BankBoston,
N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to
$160.0 million of revolving credit facilities to refinance indebtedness, to
finance certain capital expenditures and for other general corporate purposes.
The borrowing base for purposes of determining availability was based upon
certain eligible inventory and receivables. On March 31, 1999, the Company
closed on the revolving loan. The revolving loan was secured by Century of West
Virginia's and Berkeley's inventory and receivables.
On September 15, 1999, the Bank Agreement was amended to permit the sale of
the fabricating businesses in the Pechiney Transaction and additionally required
that on the closing date the Company repay all amounts outstanding under the
revolving credit facilities (see Note 8 to the Consolidated Financial
Statements). The Company and its lenders have agreed to reduce the revolving
credit facilities from $160.0 million to $75.0 million and to establish new
financial covenants and other terms. The facility may not be used until such
time as new covenants and other terms are established.
On September 21, 1999, the Company and Century of West Virginia completed
the Pechiney Transaction. The transaction included the sale of certain assets
and the assumption of certain liabilities of Century of West Virginia's
aluminum fabricating business and the sale of all of the issued and outstanding
shares of common stock of Century Cast Plate, Inc. The proceeds received for
the fabricating businesses were $245.4 million, subject to certain post-closing
adjustments (see Note 8 to the Consolidated Financial Statements).
Pursuant to the PBGC Agreement, the Company has made scheduled contributions
to its pension plan for hourly employees in 1999.
The Company believes that cash flows from operations, funds that will be
available under its bank agreements and proceeds from the sale of its
fabricating businesses will be sufficient to meet its working capital
requirements, capital expenditures, pension funding and debt service
requirements in the near term and for the foreseeable future.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
The Company has incurred and, in the future, will continue to incur capital
expenditures and operating expenses for matters relating to environmental
control, remediation, monitoring and compliance. The aggregate environmental
related accrued liabilities were $1.4 million at September 30, 1999 and December
31, 1998, respectively. The Company believes that compliance with current
environmental laws and regulations is not likely to have a material adverse
effect on the Company's financial condition, results of operations or liquidity;
however, environmental laws and regulations have changed rapidly in recent years
and the Company may become subject to more stringent environmental laws and
regulations in the future. In addition, the Company may be required to conduct
remediation activities in the future pursuant to various orders issued by the
EPA and West Virginia Department of
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Environmental Protection. There can be no assurance that compliance with more
stringent environmental laws and regulations that may be enacted in the future,
or future remediation costs, would not have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
The Company is a defendant in several actions relating to various aspects of
its business. While it is impossible to predict the ultimate disposition of any
litigation, the Company does not believe that any of these lawsuits, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
See Note 4 to Consolidated Financial Statements appearing in Part I, Item 1.
YEAR 2000 COMPLIANCE PROGRAM
The Company began its Year 2000 program in September 1996, using funds from
its annual information services budget. In August 1997, the Board of Directors
approved $8.7 million of funding for this program and for installation of new
systems. At the same time, the Company allocated approximately 30 people (from
both inside and outside resources) to the effort. To date, the Company has
incurred $5.9 million in total costs relating to Year 2000 compliance, which is
approximately 52% of the Company's total information technology budget for the
period (including the August 1997 authorization). The Company estimates total
Year 2000 compliance costs will be about $6.0 million. Century has not had to
defer any of its information technology projects due to its Year 2000 compliance
efforts.
The Company's inventory of potentially affected systems (both information
technology and non-information technology) is complete. Major systems have been
determined to be Year 2000 compliant. Each of the Company's business units
conducted its own inventory, identified its mission-critical systems and
upgraded or replaced those systems that were not Year 2000 compliant.
Each business unit has reported the results of its Year 2000 program
quarterly to a corporate steering committee. This central coordination has
allowed the Company to evaluate and, if necessary, remedy common applications or
software. The Company completed all software and hardware testing and
implementation during the second quarter of 1999.
The Company has prepared its Year 2000 contingency plan. The primary goal is
to ensure that the Company can continue to produce and invoice for production.
The Company's plan emphasizes uninterrupted production, accounting, staffing and
delivery, as well as addresses potential banking, raw material supply and
utility failures. The Company has developed an emergency response team for each
business unit to be on hand for the turn of the millennium. Each team is made up
of senior staff and an information systems representative. Each unit site will
be equipped with satellite telephones to insure communications in the event of a
telephone outage. All locations will thus be able to report problems.
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The Company has sent questionnaires to 349 selected vendors and suppliers,
inquiring as to their Year 2000 readiness. To date, the Company has received
responses to 99% of the questionnaires from those vendors and suppliers. If
vendors and suppliers do not respond, or there is evidence of noncompliance, the
Company contacts those vendors and suppliers directly for more detailed
information. The Company completed its key vendor and supplier review during the
second quarter of 1999. In addition to the foregoing, the Company has visited
critical vendors in order to conduct in person reviews of their Year 2000
readiness preparations. A six page audit form questionnaire is sent to these
vendors in advance of the meetings and is used as a form for discussions with
these critical vendors. If the Company concludes that any of its material
vendors or suppliers are not Year 2000 compliant, the Company will identify
alternative sources for their products and services as part of its contingency
plan, to the extent possible. The Company has, for example, conducted such an
interview with its electrical supplier, since the most reasonably likely worst
case scenario would be a loss of electricity which could result in a shut down
of the facilities and require the Company to incur significant restart costs.
That visit involved a review of the preparations being made by the Company's
electrical supplier.
To date, the Company has received no indication that any third party
supplier or vendor may not have accurately assessed their state of readiness or
that they may have a Year 2000 problem which may have a material adverse affect
on the Company's results of operations. However, the risk remains that those
vendors and suppliers may not have accurately assessed their state of readiness.
The contingency plan addresses, where feasible, solutions to those identifiable
risks.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
modifies the accounting for derivative and hedging activities and is effective
for fiscal years beginning after June 2000. The Company is currently evaluating
the potential impact SFAS No. 133 will have on its results of operations and
financial position.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICES
Century produces primary aluminum products. The Company's earnings are
exposed to aluminum price fluctuations. The Company manages this risk through
the issuance of fixed price commitments and financial instruments. The Company
does not engage in trading or speculative transactions. Although the Company has
not materially participated in the purchase of call options, in cases where
Century sells forward primary aluminum, it may purchase call options to preserve
the benefit from price increases significantly above forward sales prices. In
addition, it may purchase put options to protect itself from price decreases.
The Company had fixed price commitments to sell 181.5 million pounds of
primary and scrap aluminum at September 30, 1999. The Company had fixed price
commitments to purchase 2.1 million pounds of aluminum at September 30, 1999. In
addition, the Company has a long-term supply agreement for 936.0 million pounds
of alumina annually; whereby, the Company will pay a fixed price for alumina
with annual price increases of approximately 2.5% through 2001.
At September 30, 1999, the Company had entered into 21.9 million pounds of
forward primary aluminum sales contracts with the Glencore Group to mitigate the
risk of commodity price fluctuations inherent in a portion of its inventory and
fixed price purchase commitments. These contracts will be settled in cash at
various dates in the fourth quarter of 1999. Based on market prices at September
30, 1999, these financial instruments could be settled by the Company paying
approximately $600,000. The actual settlement will be based on market prices at
the respective settlement dates.
A hypothetical $0.10 per pound increase in the market price of primary
aluminum is estimated to have an unfavorable impact of $1.4 million on net
income for the nine months ended September 30, 1999 as a result of the forward
primary aluminum sale contracts entered into by the Company at September 30,
1999. The effect of the hypothetical change of $0.10 per pound was calculated
using a parallel shift in the September 30, 1999 forward price curve for primary
aluminum. The price curve takes into account the time value of money, as well as
future expectations regarding the price of primary aluminum. Actual changes in
commodity prices may differ from hypothetical changes. This quantification of
the Company's exposure to the commodity price of aluminum is necessarily
limited, as it does not take into consideration the Company's inventory or fixed
price commitments, or the offsetting impact upon the sales price of primary
aluminum products.
All gains and losses from forward contract activity are reported separately
in the statements of operations. Unrealized gains or losses on the forward
primary aluminum contracts, realized gains or losses from the cash settlement of
the forward primary aluminum contracts, and reversals of prior period unrealized
losses are reported as either gains or losses on forward contracts.
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Century monitors its overall position, and its metals risk management
activities are subject to the management, control and direction of senior
management. These activities are regularly reported to the Board of Directors of
Century.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 4. Submission of Matters to a Vote of Stockholders - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.10 - Waiver and Amendment No.1 to Revolving Credit and Term Loan
Agreement, dated as of September 15, 1999.
Exhibit 27.0 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K related to the sale of fabricating businesses
on October 6, 1999.
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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: November 15, 1999 By: /s/ Craig A. Davis
--------------------- ------------------------------------------------
Craig A. Davis
Chairman/Chief Executive Officer
Date: November 15, 1999 By: /s/ David W. Beckley
--------------------- ------------------------------------------------
David W. Beckley
Executive Vice-President/Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
----------------- -----------------------------------------------------------
10.10 Waiver and Amendment No.1 to Revolving Credit and Term Loan
Agreement, dated as of September 15, 1999.
27.0 Financial Data Schedule
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