UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005.

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 0-27918

Century Aluminum Company

(Exact name of Registrant as specified in its Charter)

Delaware		13-3070826
(State of Incorporation)		(IRS Employer Identification No.)
2511 Garden Road Building A, Suite 200 Monterey, California (Address of principal executive offices)		93940 (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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     The registrant had 32,149,154 shares of common stock outstanding at August 4, 2005.

 

 

PART I — FINANCIAL INFORMATION

Item 1. — Financial Statements.

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

		June 30,				December 31,
		2005				2004
						(Restated)
ASSETS
Current Assets:
Cash and cash equivalents		$	35,174			$	44,168
Restricted cash			2,027				1,678
Accounts receivable — net			104,575				79,576
Due from affiliates			14,044				14,371
Inventories			104,450				111,284
Prepaid and other current assets			16,172				10,055
Deferred taxes — current portion			23,458				24,642
Total current assets			299,900				285,774
Property, plant and equipment — net			916,008				806,250
Intangible asset — net			81,989				86,809
Goodwill			94,844				95,610
Due from affiliates — less current portion			2,747				—
Other assets			74,614				58,110
Total		$	1,470,102			$	1,332,553
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable — trade		$	47,926			$	47,479
Due to affiliates			44,574				84,815
Accrued and other current liabilities			59,258				53,309
Accrued employee benefits costs — current portion			8,458				8,458
Long-term debt — current portion			561				10,582
Convertible senior notes			175,000				175,000
Industrial revenue bonds			7,815				7,815
Total current liabilities			343,592				387,458
Senior unsecured notes payable			250,000				250,000
Nordural debt			153,739				80,711
Accrued pension benefits costs — less current portion			12,358				10,685
Accrued postretirement benefits costs — less current portion			91,296				85,549
Other liabilities			35,459				34,961
Due to affiliates — less current portion			17,402				30,416
Deferred taxes			94,778				68,273
Total noncurrent liabilities			655,032				560,595
Contingencies and Commitments (See Note 8)
Shareholders’ equity:
Common stock (one cent par value, 50,000,000 shares authorized; 32,149,154 and 32,038,297 shares outstanding at June 30, 2005 and December 31, 2004, respectively)			321				320
Additional paid-in capital			418,412				415,453
Accumulated other comprehensive loss			(20,626	)			(52,186	)
Retained earnings			73,371				20,913
Total shareholders’ equity			471,478				384,500
Total		$	1,470,102			$	1,332,553

See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
						(Restated)								(Restated)
NET SALES:
Third-party customers		$	243,329			$	225,430			$	490,754			$	417,776
Related parties			39,927				38,303				77,898				78,051
			283,256				263,733				568,652				495,827
Cost of goods sold			237,908				217,054				471,737				410,795
Gross profit			45,348				46,679				96,915				85,032
Selling, general and administrative expenses			8,046				3,991				16,842				9,399
Operating income			37,302				42,688				80,073				75,633
Interest expense — third party			(6,517	)			(11,474	)			(13,201	)			(21,849	)
Interest expense — related party			—				(51	)			—				(380	)
Interest income			275				244				493				341
Net gain (loss) on forward contracts			24,496				(1,177	)			1,001				(13,997	)
Other income (expense)			(472	)			9				(65	)			(605	)
Income before income taxes and equity in earnings of joint ventures			55,084				30,239				68,301				39,143
Income tax expense			(19,239	)			(11,020	)			(26,074	)			(14,331	)
Income before equity in earnings of joint ventures			35,845				19,219				42,227				24,812
Equity in earnings of joint ventures			4,899				—				10,247				—
Net income			40,744				19,219				52,474				24,812
Preferred dividends			—				(269	)			—				(769	)
Net income applicable to common shareholders		$	40,744			$	18,950			$	52,474			$	24,043
EARNINGS PER COMMON SHARE:
Basic		$	1.27			$	0.64			$	1.63			$	0.95
Diluted		$	1.27			$	0.63			$	1.63			$	0.94
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic			32,140				29,629				32,099				25,412
Diluted			32,196				30,542				32,162				25,588

See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

		Six months ended
		June 30,
		2005				2004
						(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	52,474			$	24,812
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized net (gain) loss on forward contracts			(3,429	)			6,659
Depreciation and amortization			28,050				23,731
Deferred income taxes			26,074				5,994
Pension and other post retirement benefits			7,421				5,376
(Gain) loss on disposal of assets			(4	)			695
Non-cash loss on early extinguishment of debt			253				—
Changes in operating assets and liabilities:
Accounts receivable — net			(24,999	)			(8,264	)
Due from affiliates			327				(1,059	)
Inventories			6,834				(5,768	)
Prepaids and other current assets			(5,712	)			(2,724	)
Accounts payable — trade			(6,745	)			(1,294	)
Due to affiliates			(9,548	)			(3,383	)
Accrued and other current liabilities			(3,948	)			9,308
Other — net			(8,324	)			(2,472	)
Net cash provided by operating activities			58,724				51,611
CASH FLOWS FROM INVESTING ACTIVITIES:
Nordural expansion			(113,654	)			—
Purchase of other property, plant and equipment			(5,481	)			(5,712	)
Business acquisitions, net of cash acquired			(7,000	)			(184,869	)
Restricted cash deposits			(350	)			—
Proceeds from sale of property, plant and equipment			59				—
Net cash used in investing activities			(126,426	)			(190,581	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings			145,378				—
Repayment of debt			(83,023	)			(20,659	)
Financing fees			(4,617	)			—
Dividends			(16	)			(3,311	)
Issuance of common stock			986				209,905
Net cash provided by financing activities			58,708				185,935
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(8,994	)			46,965
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			44,168				28,204
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	35,174			$	75,169

See notes to consolidated financial statements

Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(unaudited)

1. General

     The accompanying unaudited interim consolidated financial statements of Century Aluminum Company (the “Company” or “Century”) should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2004. In management’s opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for the first six months of 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

2. Acquisitions

  Nordural Acquisition

     The Company acquired Nordural in April 2004 and accounted for the acquisition as a purchase using the accounting standards established in Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” In the first quarter of 2005, goodwill decreased $766 from previously reported amounts at year-end as the result of asset allocation adjustments. The Company recognized $94,844 of goodwill in the transaction. None of the goodwill is expected to be deductible for Icelandic tax purposes; however, all of the goodwill is expected to be deductible for U.S. tax purposes. During the second quarter of 2005, the Company determined that certain Nordural earnings would remain invested outside the United States indefinitely.

     The purchase price for Nordural was $195,346, allocated as follows:

Allocation of Purchase Price:
Current assets		$	41,322
Property, plant and equipment			276,597
Goodwill			94,844
Current liabilities			(25,848	)
Long-term debt			(177,898	)
Other non-current liabilities			(13,671	)
Total purchase price		$	195,346

     The following table represents the unaudited pro forma results of operations for the period ended June 30, 2004 assuming the acquisition occurred on January 1, 2004. The unaudited pro forma amounts may not be indicative of the results that actually would have occurred if the transaction described above had been completed and in effect for the periods indicated. The pro forma results of operations reflect the retroactive restatement of earnings for a change in accounting principle, see Note 3.

		Three months ended				Six months ended
		June 30, 2004				June 30, 2004
Net sales		$	272,721			$	534,202
Net income			20,381				31,719
Net income available to common shareholders			20,112				30,950
Earnings per share:
Basic		$	0.65			$	1.00
Diluted		$	0.64			$	1.00

Notes to Consolidated Financial Statements — (continued)

3. Change in Accounting Principle

     During the second quarter of fiscal 2005, the Company changed its method of inventory costing from last-in-first-out (LIFO) to first-in-first-out (FIFO). The Company believes that using the FIFO method provides better matching of expenses and revenues and provides more consistent inventory costing on a company-wide basis. Prior to the change approximately 69% of the Company’s inventory was valued based upon the LIFO method. The change has been applied retroactively and the financial statements have been restated for all prior periods presented. In the first quarter of 2005, the Company previously reported net income, basic and diluted earnings per share of $11,127 or $0.35 a share. As the result of the change in inventory costing, first quarter 2005 net income increased $603 to $11,730 and basic and diluted earnings per share increased $0.02 to $0.37. The effect of the change on net income for the three and six months ended June 30, 2005 was a (decrease)/increase of ($93) and $510, respectively. The effect of the change on retained earnings for the year ended December 31, 2004 was an increase of $1,683. The effect of the accounting change on income and earnings per share during the three and six month periods ended June 30, 2004, is as follows:

		Three months				Six months
		ended				ended
		June 30,				June 30,
		2004				2004
		(Restated)				(Restated)
Net income applicable to common shareholders as reported			18,019				22,319
Change in inventory costing method			931				1,724
Net income applicable to common shareholders as restated			18,950				24,043
Basic earnings per share as reported			0.61				0.88
Change in inventory costing method			0.03				0.07
Basic earnings per share as restated			0.64				0.95
Diluted earnings per share as reported			0.60				0.87
Change in inventory costing method			0.03				0.07
Diluted earnings per share as restated			0.63				0.94

4. Stock-Based Compensation

     The Company has elected not to adopt the recognition provisions for employee stock-based compensation as permitted in SFAS No. 123, “Accounting for Stock-Based Compensation.” As such, the Company accounts for stock based compensation in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.” No compensation cost has been recognized for the stock option portions of the plan because the exercise prices of the stock options granted were equal to the market value of the Company’s stock on the date of grant. Had compensation cost for the Stock Incentive Plan been determined using the fair value method provided under SFAS No. 123, the Company’s net income and earnings per share would have changed to the pro forma amounts indicated below:

Notes to Consolidated Financial Statements — (continued)

						Three months ended								Six months ended
						June 30,								June 30,
						2005				2004				2005				2004
										(Restated)								(Restated)
Net income applicable to common shareholders		As Reported				$	40,744			$	18,950			$	52,474			$	24,043
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects							252				169				1,683				1,046
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects							(392	)			(235	)			(1,953	)			(1,179	)
Pro forma net income						$	40,604			$	18,884			$	52,204			$	23,910
Basic earnings per share		As reported				$	1.27			$	0.64			$	1.63			$	0.95
		Pro forma				$	1.26			$	0.64			$	1.63			$	0.94
Diluted earnings per share		As reported				$	1.27			$	0.63			$	1.63			$	0.94
		Pro forma				$	1.26			$	0.63			$	1.62			$	0.93

5. Inventories

     Inventories consist of the following:

		June 30,				December 31,
		2005				2004
Raw materials		$	51,064			$	54,186
Work-in-process			18,693				10,215
Finished goods			4,298				8,954
Operating and other supplies			30,395				37,929
		$	104,450			$	111,284

     Inventories are stated at the lower of cost, using the first-in, first-out method, or market.

6. Goodwill and Intangible Asset

     The Company recognized $94,844 of goodwill in the Nordural acquisition, see Note 2. The Company will annually test its goodwill for impairment in the second quarter of the fiscal year and at other times whenever events or circumstances indicate that the carrying amount of goodwill may exceed its fair value. If the carrying value of goodwill exceeds its fair value, an impairment loss will be recognized. The fair value is estimated using market comparable information.

     The intangible asset consists of the power contract acquired in connection with the Company’s acquisition of the Hawesville facility. The contract value is being amortized over its term (10 years) using a method that results in annual amortization equal to the percentage of a given year’s expected gross annual benefit to the total as applied to the total recorded value of the power contract. As of June 30, 2005, the gross carrying amount of the intangible asset was $155,986 with accumulated amortization of $73,997. In April 2005, the Company made a $7,000 post-

Notes to Consolidated Financial Statements — (continued)

closing payment to Southwire related to the acquisition of the Hawesville facility. This payment satisfied in full the Company’s obligation to pay contingent consideration to Southwire under the acquisition agreement. This post-closing payment obligation was allocated to the acquired fixed assets and intangible asset based on the allocation percentages used in original acquisition. The gross carrying amount of the intangible asset increased $2,394 as a result of this liability.

     For the six month periods ended June 30, 2005 and June 30, 2004, amortization expense for the intangible asset totaled $7,214 and $6,164, respectively. For the three month periods ended June 30, 2005 and June 30, 2004, amortization expense for the intangible asset totaled $3,674 and $3,082, respectively.

     For the year ending December 31, 2005, the estimated aggregate amortization expense for the intangible asset will be approximately $14,561. The estimated aggregate amortization expense for the intangible asset for the following five years is as follows:

		For the year ending December 31,
		2006				2007				2008				2009				2010
Estimated Amortization Expense		$	13,048			$	13,991			$	15,076			$	16,149			$	16,379

     The intangible asset is reviewed for impairment in accordance with SFAS 142, “Goodwill and Other Intangible Assets,” whenever events or circumstances indicate that its net carrying amount may not be recoverable.

7. Debt

  Secured First Mortgage Notes

     In April 2005, the Company exercised its right to call the remaining 11.75% senior secured first mortgage notes due 2008 at 105.875% of the principal balance, plus accrued and unpaid interest. The early extinguishment of the Notes resulted in a $253 loss reported as other income (expense).

  Nordural’s Term Loan Facility

     On February 15, 2005, Nordural closed and borrowed under a new $365.0 million senior term loan facility. Amounts borrowed under the new term loan facility were used to refinance debt under Nordural’s previous term loan facility, and will be used to finance a portion of the costs associated with the ongoing expansion of the Nordural facility and for Nordural’s general corporate purposes. Amounts borrowed under Nordural’s new term loan facility generally will bear interest at a margin over the applicable Eurodollar rate. Nordural’s obligations under the new term loan facility have been secured by a pledge of all of Nordural’s shares pursuant to a share pledge agreement with the lenders. In addition, substantially all of Nordural’s assets are pledged as security under the loan facility. Nordural is required to make the following minimum repayments of principal on the facility: $15.5 million on February 28, 2007 and $14.0 million on each of August 31, 2007, February 29, 2008, August 31, 2008, February 28, 2009, August 31, 2009 and February 28, 2010. If Nordural makes a dividend payment (dividends are not permitted until the Nordural facility has been expanded to a production level of 212,000 metric tons per year), it must simultaneously make a repayment of principal in an amount equal to 50% of the dividend. The new term loan facility is non-recourse to Century Aluminum Company. All outstanding principal must be repaid at final maturity on February 28, 2010.

     Nordural’s loan facility contains customary covenants, including limitations on additional indebtedness, investments, capital expenditures (other than related to the expansion project), dividends, and hedging agreements. Nordural is also subject to various financial covenants, including a net worth covenant and certain maintenance covenants, including minimum interest coverage and debt service coverage beginning December 31, 2006.

Notes to Consolidated Financial Statements — (continued)

8. Contingencies and Commitments

  Environmental Contingencies

     The Company believes its current environmental liabilities do not have, and are not likely to have, a material adverse effect on the Company’s financial condition, results of operations or liquidity. However, there can be no assurance that future requirements at currently or formerly owned or operated properties will not result in liabilities which may have a material adverse effect.

     Century Aluminum of West Virginia, Inc. (“Century of West Virginia”) continues to perform remedial measures at its Ravenswood facility pursuant to an order issued by the Environmental Protection Agency (“EPA”) in 1994 (the “3008(h) Order”). Century of West Virginia also conducted a RCRA facility investigation (“RFI”) under the 3008(h) Order evaluating other areas at the Ravenswood facility that may have contamination requiring remediation. The RFI has been approved by appropriate agencies. Century of West Virginia has completed interim remediation measures at two sites identified in the RFI, and the Company believes no further remediation will be required. A Corrective Measures Study, which will formally document the conclusion of these activities, is being completed with the EPA. The Company believes a significant portion of the contamination on the two sites identified in the RFI is attributable to the operations of other third parties and is their financial responsibility.

     Prior to the Company’s purchase of the Hawesville facility, the EPA issued a final Record of Decision (“ROD”) under the Comprehensive Environmental Response, Compensation and Liability Act. By agreement, Southwire is to perform all obligations under the ROD. Century Kentucky, LLC (“Century Kentucky”) has agreed to operate and maintain the ground water treatment system required under the ROD on behalf of Southwire, and Southwire will reimburse Century Kentucky for any expense that exceeds $400 annually.

     Century is a party to an EPA Administrative Order on Consent (the “Order”) pursuant to which other past and present owners of an alumina refining facility at St. Croix, Virgin Islands have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage hydrocarbons floating on groundwater underlying the facility. Pursuant to the Hydrocarbon Recovery Plan, recovered hydrocarbons and groundwater are delivered to the adjacent petroleum refinery where they are received and managed. Lockheed Martin Corporation (“Lockheed”), which sold the facility to one of the Company’s affiliates, Virgin Islands Alumina Corporation (“Vialco”), in 1989, has tendered indemnity and defense of this matter to Vialco pursuant to terms of the Lockheed–Vialco Asset Purchase Agreement. Management does not believe Vialco’s liability under the Order or its indemnity to Lockheed will require material payments. Through June 30, 2005, the Company has expended approximately $440 on the Recovery Plan. Although there is no limit on the obligation to make indemnification payments, the Company expects the future potential payments under this indemnification to comply with the Order will be approximately $200, which may be offset in part by sales of recoverable hydrocarbons.

     On May 5, 2005, a complaint was filed by the Commissioner of the Department of Planning and Natural Resources, in his capacity as Trustee for Natural Resources of the United States Virgin Islands against the Company, Vialco and other parties. The complaint alleges damages to natural resources caused by alleged releases from the alumina refinery facility at St. Croix and the adjacent petroleum refinery. Lockheed has tendered indemnity and defense of the case to Vialco pursuant to terms of the Lockheed-Vialco Asset Purchase Agreement. The complaint seeks unspecified monetary damages, costs and attorney fees.

     It is the Company’s policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental-related accrued liabilities were $706 and $596 at June 30, 2005 and December 31, 2004, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to cost for ongoing environmental compliance, including maintenance and monitoring, such costs are expensed as incurred.

     Because of the issues and uncertainties described above, and the Company’s inability to predict the requirements of the future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on the Company’s future financial condition, results of operations, or liquidity. Based upon all available information, management does not believe that the

Notes to Consolidated Financial Statements — (continued)

outcome of these environmental matters will have a material adverse effect on the Company’s financial condition, results of operations, or liquidity .

  Legal Contingencies

     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.

  Power Commitments

     The Hawesville facility currently purchases all of its power from Kenergy Corporation (“Kenergy”), a local retail electric cooperative, under a power supply contract that expires at the end of 2010. Kenergy acquires the power it provides to the Hawesville facility mostly from a subsidiary of LG&E Energy Corporation (“LG&E”), with delivery guaranteed by LG&E. The Hawesville facility currently purchases all of its power from Kenergy at fixed prices. Approximately 130 megawatts (“MW”) or 27% of the Hawesville facility’s power requirements are unpriced in calendar years 2006 through 2010. The Company will negotiate the price for the unpriced portion of the contract at such times as the Company deems appropriate.

     The Company purchases all of the electricity requirements for the Ravenswood facility from Ohio Power Company, a unit of American Electric Power Company, under a fixed price power supply agreement that runs through December 31, 2005. Under a new power contract approved by the Public Services Commission of West Virginia, Appalachian Power Company has agreed to supply power to the Ravenswood facility from January 1, 2006 through December 31, 2010; provided that after December 31, 2007, Century Aluminum of West Virginia, Inc. may terminate the agreement by providing 12 months notice of termination.

     The Mt. Holly facility purchases all of its power from the South Carolina Public Service Authority at rates established by published schedules. The Mt. Holly facility’s current power contract expires December 31, 2015. Power delivered through 2010 will be priced as set forth in currently published schedules, subject to adjustments for fuel costs. Rates for the period 2011 through 2015 will be as provided under then-applicable schedules.

     The Nordural facility purchases power from Landsvirkjun, a power company jointly owned by the Republic of Iceland and two Icelandic municipal governments, under a contract due to expire in 2019. The power delivered to the Nordural facility under its current contract is from hydroelectric and geothermal sources, both competitively-priced and renewable sources of power in Iceland, at a rate based on the London Metal Exchange (“LME”) price for primary aluminum. In connection with the planned expansion, Nordural has entered into power contracts with Hitaveita Sujurnesja hf. (“Sudurnes Energy”) and Orkuveita Reykjavíkur (“Reykjavik Energy”) for the supply of the additional power required for the expansion capacity up to 220,000 metric tons per year and with Reykjavik Energy for further expansion up to 260,000 metric tons per year, subject to certain conditions. Power under these agreements will be generated from predominately geothermal resources and prices will be LME-based. By the terms of a Second Amendment to the Landsvirkjun/Nordural Power Contract, dated as of April 21, 2004, Landsvirkjun has agreed on a best commercial efforts basis to provide backup power to Nordural should Sudurnes Energy or Reykjavik Energy be unable to meet the obligations of their contract to provide power for the Nordural expansion capacity.

Notes to Consolidated Financial Statements — (continued)

  Labor Commitments

     Approximately 81% of the Company’s U.S. based workforce is represented by the United Steelworker’s of America (the “USWA”) and working under agreements that expire as follows: March 31, 2006 (Hawesville) and May 31, 2006 (Ravenswood).

     Approximately 80% of Nordural’s workforce is represented by six national labor unions under an agreement that expires on December 31, 2009.

   Other Commitments and Contingencies

     The Company’s income tax returns are periodically examined by various tax authorities. The Company is currently under audit by the Internal Revenue Service (“IRS”) for the tax years through 2002. In connection with such examinations, the IRS has raised issues and proposed tax deficiencies. The Company is reviewing the issues raised by the IRS and plans to contest the proposed tax deficiencies. Based on current information, the Company does not believe that the outcome of the tax audit will have a material impact on the Company’s financial condition or results of operations.

     At June 30, 2005 and December 31, 2004, the Company had outstanding capital commitments related to the Nordural expansion of $199,847 and $218,800, respectively. The Company’s cost commitments for the Nordural expansion may materially change depending on the exchange rate between the U.S. dollar and certain foreign currencies, principally the euro and the Icelandic krona.

9. Forward Delivery Contracts and Financial Instruments

     As a producer of primary aluminum products, the Company is exposed to fluctuating raw material and primary aluminum prices. The Company routinely enters into fixed and market priced contracts for the sale of primary aluminum and the purchase of raw materials in future periods.

   Primary Aluminum Sales Contracts

Contract		Customer		Volume		Term		Pricing
Pechiney Metal Agreement  (1)		Pechiney		125,192 to 146,964 metric tons per year (“mtpy”)		Through July 31, 2007		Based on U.S. Midwest market
Glencore Metal Agreement  I (2)		Glencore		50,000 mtpy		Through December 31, 2009		LME-based
Glencore Metal Agreement  II (3)		Glencore		20,000 mtpy		Through December 31, 2013		Based on U.S. Midwest market
Southwire Metal  Agreement (4)		Southwire		108,862 mtpy (high purity molten aluminum)		Through March 31, 2011		Based on U.S. Midwest market
				27,216 mtpy (standard-grade molten aluminum)		Through December 31, 2008		Based on U.S. Midwest market

Notes to Consolidated Financial Statements — (continued)

   Tolling Contracts

Contract		Customer		Volume		Term		Pricing
Billiton Tolling Agreement  (1)		BHP Billiton		90,000 mtpy		Through December 31, 2013		LME-based
Glencore Tolling   Agreement (2)		Glencore		90,000 mtpy		Through July 2016		LME-based

     Apart from the Pechiney Metal Agreement, Glencore Metal Agreement I, Glencore Metal Agreement II and Southwire Metal Agreement, the Company had forward delivery contracts to sell 93,569 metric tons and 113,126 metric tons of primary aluminum at June 30, 2005 and December 31, 2004, respectively. Of these forward delivery contracts, the Company had fixed price commitments to sell 8,923 metric tons and 6,033 metric tons of primary aluminum at June 30, 2005 and December 31, 2004, respectively, of which none were with Glencore.

   Alumina Supply Agreements

     The Company is party to long-term agreements with Glencore that supply a fixed quantity of alumina to the Company’s Ravenswood and Mt. Holly facilities at prices indexed to the price of primary aluminum quoted on the LME. In addition, as part of the Gramercy acquisition, the Company entered into a long-term agreement on November 2, 2004 with Gramercy Alumina LLC that supplies a fixed quantity of alumina to the Company’s Hawesville facility at prices based on the alumina production costs at the Gramercy refinery. A summary of these agreements is provided below. The Company’s Nordural facility toll converts alumina provided by BHP Billiton, and will toll convert alumina provided by Glencore beginning in 2006.

Facility		Supplier		Term		Pricing
Ravenswood		Glencore		Through December 31, 2006		LME-based
Mt. Holly		Glencore		Through December 31, 2006 (54% of requirement)		LME-based
Mt. Holly		Glencore		Through January 31, 2008 (46% of requirement)		LME-based
Hawesville		Gramercy Alumina(1)		Through December 31, 2010		Cost-based

Notes to Consolidated Financial Statements — (continued)

   Anode Purchase Agreement

     Nordural has a contract for the supply of anodes for its existing capacity which expires in 2013. Pricing for the anode contract is variable and is indexed to the raw material market for petroleum coke products, certain labor rates, and maintenance cost indices. On August 4, 2005, Nordural signed a memorandum of understanding for the provision of anodes for its presently planned expansion capacity.

   Financial Sales Agreements

     To mitigate the volatility in its unpriced forward delivery contracts, the Company enters into fixed price financial sales contracts, which settle in cash in the period corresponding to the intended delivery dates of the forward delivery contracts. Certain of these fixed price financial sales contracts are accounted for as cash flow hedges depending on the Company’s designation of each contract at its inception.

Fixed Price Financial Sales Contracts at June 30, 2005:

		(Metric Tons)
		2005				2006				2007				2008				2009				Thereafter				Total
Primary aluminum			103,500				167,950				169,900				109,200				105,000				480,000				1,135,550

     At June 30, 2005 and December 31, 2004, the Company had fixed price financial sales contracts with Glencore for 1,135,550 metric tons and 764,933, respectively, of which 374,750 metric tons and 464,333 metric tons, respectively, were designated as cash flow hedges. These fixed price financial sales contracts are scheduled for settlement at various dates in 2005 through 2015. Certain of these sales contracts, for the period 2006 through 2015, contain clauses that trigger additional shipment volume when the market price for a contract month is above the contract ceiling price. These contracts will be settled monthly, and if the market price exceeds the ceiling price for all contract months through 2015, the maximum additional shipment volume would be 760,800 metric tons. The Company had no fixed price financial purchase contracts to purchase aluminum at June 30, 2005 or December 31, 2004.

     Additionally, to mitigate the volatility of the natural gas markets, the Company enters into fixed price financial purchase contracts, accounted for as cash flow hedges, which settle in cash in the period corresponding to the intended usage of natural gas.

Fixed Price Financial Purchase Contracts at June 30, 2005:

		(Thousands of DTH)
		2005				2006				2007				2008				Total
Natural Gas			1,990				1,680				780				480				4,930

     At June 30, 2005 and December 31, 2004, the Company had fixed price financial purchase contracts for 4.9 million and 4.3 million DTH (one decatherm is equivalent to one million British Thermal Units), respectively. These financial instruments are scheduled for settlement at various dates in 2005 through 2008.

     Based on the fair value of the Company’s fixed price financial sales contracts for primary aluminum and financial purchase contracts for natural gas that qualify as cash flow hedges as of June 30, 2005, accumulated other

Notes to Consolidated Financial Statements — (continued)

comprehensive loss of $8,642 is expected to be reclassified as a reduction to earnings over the next 12 month period.

     The forward financial sales and purchase contracts are subject to the risk of non-performance by the counterparties. However, the Company only enters into forward financial contracts with counterparties it determines to be creditworthy. If any counterparty failed to perform according to the terms of the contract, the accounting impact would be limited to the difference between the contract price and the market price applied to the contract volume on the date of settlement.

10. Supplemental Cash Flow Information

		Six months ended
		June 30,
		2005				2004
Cash paid for:
Interest		$	13,514			$	21,230
Income tax			2,975				198
Cash received for:
Interest			415				339
Income tax refunds			—				135
Non-cash Investing activities:
Accrued Nordural expansion costs			7,192				—

11. Asset Retirement Obligations

     The reconciliation of the changes in the asset retirement obligations is as follows:

		For the six months				For the Year ended
		ended June 30, 2005				December 31, 2004
Beginning balance, ARO liability		$	17,232			$	16,495
Additional ARO liability incurred			903				1,383
ARO liabilities settled			(1,439	)			(3,379	)
Accretion expense			459				2,733
Ending balance, ARO liability		$	17,155			$	17,232

12. New Accounting Standards

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This Statement replaces the guidance in APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” The Statement provides guidance on the accounting for and reporting of accounting changes and error corrections. It requires retrospective application as the required method for reporting a change in accounting principle, unless impracticable. The Statement differentiates retrospective application for changes in accounting principle and changes in reporting entity from restatement for corrections of errors. In addition, the reporting of a correction of an error by restating previously issued financial statements is also addressed by this Statement. The Statement is effective for fiscal year 2006 and thereafter. The Company is currently assessing the Statement and does not expect the impact of adopting SFAS No. 154 to have a material effect on the Company’s financial position and results of operations.

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share Based Payment.” This Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock

Notes to Consolidated Financial Statements — (continued)

Issued to Employees.” This statement focuses primarily on accounting for transactions in which a company obtains services in share-based payment transactions. This Statement will require the Company to recognize the grant date fair value of an award of equity-based instruments to employees and the cost will be recognized over the period in which the employees are required to provide service. The Statement is effective for fiscal year 2006 and thereafter. The Company is currently assessing the Statement and does not expect the impact of adopting SFAS No. 123(R) to have a material effect on the Company’s financial position and results of operations.

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” This Statement amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing” to clarify the accounting treatment for certain inventory costs. In addition, the Statement requires that the allocation of production overheads be based on the facilities’ normal production capacity. The Statement is effective for fiscal year 2006 and thereafter. The Company is currently assessing the Statement and has not yet determined the impact of adopting SFAS No. 151 on the Company’s financial position and results of operations.

13. Comprehensive Income and Accumulated Other Comprehensive Income (Loss)

  Comprehensive Income:

		Six months ended
		June 30,
		2005				2004
						(Restated)
Net income		$	52,474			$	24,812
Other comprehensive income (loss):
Net unrealized gain (loss) on financial instruments, net of tax of ($8,762) and $5,848, respectively			15,205				(10,442	)
Net amount reclassified to income, net of tax of ($9,413) and ($612), respectively			16,534				1,108
Comprehensive income		$	84,033			$	15,478

   Composition of Accumulated Other Comprehensive Loss:

		June 30,				December 31,
		2005				2004
Net unrealized loss on financial instruments, net of tax of $9,837 and $28,011		$	(17,553	)		$	(49,113	)
Minimum pension liability adjustment, net of tax of $1,728 and $1,728			(3,073	)			(3,073	)
Total accumulated other comprehensive loss		$	(20,626	)		$	(52,186	)

Notes to Consolidated Financial Statements — (continued)

14. Earnings Per Share

     The following table provides a reconciliation of the computation of the basic and diluted earnings per share:

		Three months ended June 30,
		2005												2004
		Income				Shares				Per-Share				Income				Shares				Per-Share
														(Restated)
Net income		$	40,744											$	19,219
Less: Preferred stock dividends			—												(269	)
Basic EPS:
Income applicable to common shareholders			40,744				32,140			$	1.27				18,950				29,629			$	0.64
Effect of Dilutive Securities:
Plus: Incremental shares			—				56								—				162
Plus: Convertible preferred stock			—				—								269				751
Diluted EPS:
Income applicable to common shareholders with assumed conversions		$	40,744				32,196			$	1.27			$	19,219				30,542			$	0.63

		Six months ended June 30,
		2005												2004
		Income				Shares				Per-Share				Income				Shares				Per-Share
														(Restated)
Net income		$	52,474											$	24,812
Less: Preferred stock dividends			—												(769	)
Basic EPS:
Income applicable to common shareholders			52,474				32,099			$	1.63				24,043				25,412			$	0.95
Effect of Dilutive Securities:
Plus: Incremental shares			—				63								—				176
Diluted EPS:
Income applicable to common shareholders with assumed conversions		$	52,474				32,162			$	1.63			$	24,043				25,588			$	0.94

     Options to purchase 276,913 and 597,593 shares of common stock were outstanding during the periods ended June 30, 2005 and 2004, respectively. At June 30, 2005, 20,000 options were not included in the calculation of diluted EPS because the option’s exercise price exceeded the average market price of the common stock.

Notes to Consolidated Financial Statements — (continued)

15. Components of Net Periodic Benefit Cost

		Pension Benefits
		Three months								Six months ended
		ended June 30,								June 30,
		2005				2004				2005				2004
Service cost		$	929			$	775			$	1,962			$	1,678
Interest cost			1,222				1,103				2,341				2,129
Expected return on plan assets			(1,506	)			(1,175	)			(2,950	)			(2,376	)
Amortization of prior service cost			1,299				211				1,481				421
Amortization of net gain			202				138				314				163
Net periodic benefit cost		$	2,146			$	1,052			$	3,148			$	2,015

		Other Postemployment Benefits
		Three months								Six months ended
		ended June 30,								June 30,
		2005				2004				2005				2004
Service cost		$	1,178			$	1,184			$	2,516			$	2,302
Interest cost			2,345				2,131				4,439				3,991
Expected return on plan assets			—				—				—				—
Amortization of prior service cost			(220	)			(84	)			(439	)			(168	)
Amortization of net gain			1,093				795				1,857				1,233
Net periodic benefit cost		$	4,396			$	4,026			$	8,373			$	7,358

16. Condensed Consolidating Financial Information

     The Company’s 7.5% Senior Unsecured Notes due 2014 and 1.75% Convertible Senior Notes due 2024 are guaranteed by each of the Company’s existing and future domestic subsidiaries other than Nordural U.S. LLC. These notes are not guaranteed by the Company’s foreign subsidiaries (the “Non-Guarantor Subsidiaries”). During the quarter, Century Aluminum of Kentucky LLC (the “LLC”) became a guarantor subsidiary. In periods prior to this reporting period, the LLC was included in Non-Guarantor Subsidiaries. The Company’s policy for financial reporting purposes is to allocate expenses or income to subsidiaries. For the three months ended June 30, 2005 and June 30, 2004, the Company allocated total corporate income/(expense) of $2,505 and ($1,143) to its subsidiaries, respectively. For the six months ended June 30, 2005 and June 30, 2004, the Company allocated total corporate income/(expense) of $1,986 and ($56) to its subsidiaries, respectively. Additionally, the Company charges interest on certain intercompany balances.

     The following summarized condensed consolidating balance sheets as of June 30, 2005 and December 31, 2004, condensed consolidating statements of operations for the three and six months ended June 30, 2005 and June 30, 2004 and the condensed consolidating statements of cash flows for the six months ended June 30, 2005 and June 30, 2004 present separate results for Century Aluminum Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.

     This summarized condensed consolidating financial information may not necessarily be indicative of the results of operations or financial position had the Company, the Guarantor Subsidiaries or the Non-Guarantor Subsidiaries operated as independent entities.

Notes to Consolidated Financial Statements — (cotinued)

CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2005

		Combined				Combined
		Guarantor				Non-Guarantor				The				Reclassifications
		Subsidiaries				Subsidiaries				Company				and Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	—			$	20,263			$	14,911			$	—			$	35,174
Restricted cash			2,027				—				—				—				2,027
Accounts receivables — net			94,489				10,086				—				—				104,575
Due from affiliates			222,356				—				688,912				(897,224	)			14,044
Inventories			93,647				12,850				—				(2,047	)			104,450
Prepaid and other current assets			4,229				6,374				5,569				—				16,172
Deferred taxes — current portion			20,460				—				2,998				—				23,458
Total current assets			437,208				49,573				712,390				(899,271	)			299,900
Investment in subsidiaries			12,884				—				365,694				(378,578	)			—
Property, plant and equipment — net			464,120				451,537				351				—				916,008
Intangible asset — net			81,989				—				—				—				81,989
Goodwill			—				94,844				—				—				94,844
Due from affiliates — less current portion			—				—				2,747				—				2,747
Deferred taxes — less current portion			—				—				14,343				(14,343	)			—
Other assets			41,499				12,233				20,882				—				74,614
Total assets		$	1,037,700			$	608,187			$	1,116,407			$	(1,292,192	)		$	1,470,102
Liabilities and shareholders’ equity:
Accounts payable — trade		$	28,052			$	19,874			$	—			$	—			$	47,926
Due to affiliates			54,768				44,160				168,300				(222,654	)			44,574
Industrial revenue bonds			7,815				—				—				—				7,815
Accrued and other current liabilities			17,746				3,101				38,411				—				59,258
Long-term debt — current portion			—				561				—				—				561
Accrued employee benefits costs — current portion			8,458				—				—				—				8,458
Deferred taxes — current			—				—				—				—				—
Convertible senior notes			—				—				175,000				—				175,000
Total current liabilities			116,839				67,696				381,711				(222,654	)			343,592
Senior unsecured notes payable			—				—				250,000				—				250,000
Nordural debt			—				153,739				—				—				153,739
Accrued pension benefits costs — less current portion			—				—				12,358				—				12,358
Accrued post retirement benefits costs — less current portion			90,436				—				860				—				91,296
Other liabilities/intercompany loan			440,353				273,040				—				(677,934	)			35,459
Due to affiliates — less current portion			17,402				—				—				—				17,402
Deferred taxes — less current portion			90,656				17,149				—				(13,027	)			94,778
Total non-current liabilities			638,847				443,928				263,218				(690,961	)			655,032
Shareholders’ Equity:
Common stock			60				12				321				(72	)			321
Additional paid-in capital			247,016				75,339				418,412				(322,355	)			418,412
Accumulated other comprehensive income (loss)			(20,626	)			—				(20,626	)			20,626				(20,626	)
Retained earnings (accumulated deficit)			55,564				21,212				73,371				(76,776	)			73,371
Total shareholders’ equity			282,014				96,563				471,478				(378,577	)			471,478
Total liabilities and equity		$	1,037,700			$	608,187			$	1,116,407			$	(1,292,192	)		$	1,470,102

Notes to Consolidated Financial Statements — (continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2004 (as restated)

		Combined				Combined								Reclassifications
		Guarantor				Non-Guarantor				The				and
		Subsidiaries				Subsidiaries				Company				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	185			$	1,759			$	42,224			$	—			$	44,168
Restricted cash			1,174				504				—				—				1,678
Accounts receivable — net			71,051				8,449				76				—				79,576
Due from affiliates			168,328				8,474				684,458				(846,889	)			14,371
Inventories			73,515				38,688				—				(918	)			111,284
Prepaid and other assets			1,514				4,299				4,242				—				10,055
Deferred taxes — current portion			24,018				293				—				331				24,642
Total current assets			339,785				62,466				731,000				(847,447	)			285,774
Investment in subsidiaries			66,393				—				270,178				(336,571	)			—
Property, plant and equipment — net			464,418				341,692				140				—				806,250
Intangible asset — net			—				86,809				—				—				86,809
Goodwill			—				95,610				—				—				95,610
Other assets			20,391				16,792				20,927				—				58,110
Total assets		$	890,987			$	603,369			$	1,022,245			$	(1,184,048	)		$	1,332,553
Liabilities and shareholders’ equity:
Accounts payable — trade		$	12,000			$	35,479			$	—			$	—			$	47,479
Due to affiliates			84,151				2,499				162,150				(163,985	)			84,815
Industrial revenue bonds			7,815				—				—				—				7,815
Accrued and other current liabilities			15,545				10,023				27,741				—				53,309
Long term debt — current portion			—				704				9,878				—				10,582
Accrued employee benefits costs — current portion			6,507				1,951				—				—				8,458
Convertible senior notes			—				—				175,000				—				175,000
Total current liabilities			126,018				50,656				374,769				(163,985	)			387,458
Senior unsecured notes payable			—				—				250,000				—				250,000
Nordural debt			—				80,711				—				—				80,711
Accrued pension benefit costs — less current portion			—				—				10,685				—				10,685
Accrued postretirement benefit costs — less current portion			56,947				27,812				790				—				85,549
Other liabilities/intercompany loan			479,213				239,124				—				(683,376	)			34,961
Due to affiliates — less current portion			30,416				—				—				—				30,416
Deferred taxes			47,509				19,379				1,501				(116	)			68,273
Total noncurrent liabilities			614,085				367,026				262,976				(683,492	)			560,595
Shareholders’ Equity:
Common stock			59				13				320				(72	)			320
Additional paid-in capital			188,424				242,818				415,453				(431,242	)			415,453
Accumulated other comprehensive income (loss)			(51,665	)			(521	)			(52,186	)			52,186				(52,186	)
Retained earnings (accumulated deficit)			14,066				(56,623	)			20,913				42,557				20,913
Total shareholders’ equity			150,884				185,687				384,500				(336,571	)			384,500
Total liabilities and shareholders’ equity		$	890,987			$	603,369			$	1,022,245			$	(1,184,048	)		$	1,332,553