424(b)5
Filed pursuant to Rule 424(b)(5)
Registration Statement No. 333-143315
CALCULATION OF REGISTRATION FEE
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Title of Each Class |
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of Securities to Be |
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Amount to Be |
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Maximum Offering |
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Maximum Aggregate |
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Amount of |
Registered |
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Registered |
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Price Per Share |
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Offering Price |
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Registration Fee |
Common Stock, par value $0.01
per share |
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8,337,500(1) |
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$52.50 |
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$437,718,750 |
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$13,438(2) |
(1) |
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Includes shares issuable upon exercise of the underwriters over-allotment option. |
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(2) |
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The registration fee of $13,438 is calculated in accordance with Rule 457(r) of the Securities Act of 1933. |
Filed Pursuant to Rule 424(b)5
Registration No. 333-143315
PROSPECTUS
SUPPLEMENT TO PROSPECTUS DATED MAY 29, 2007
7,250,000 Shares
Common Stock
Century Aluminum Company is offering 7,250,000 shares of
its common stock.
Our common stock trades on the NASDAQ Global Select
Market®
under the symbol CENX. On June 7, 2007, the
last reported sale price of our common stock was $53.07 per
share. We have applied to list Global Depositary Receipts
representing shares of our common stock from this offering to be
offered and sold in Iceland on the First North Iceland market in
Iceland.
Investing in our common stock involves risks. Before buying
any of these shares you should carefully read the discussion of
material risks of investing in our common stock in the section
entitled Risk Factors beginning on page
S-9 of this
prospectus supplement.
We have granted the underwriters an option to purchase up to an
additional 1,087,500 shares from us to cover
over-allotments.
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Proceeds to
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Underwriting
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Century
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Price to
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Discounts and
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Aluminum
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Public
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Commissions
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Company
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Per Share
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$
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52.50
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$
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2.5725
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$
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49.9275
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Total
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$
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380,625,000
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$
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18,650,625
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$
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361,974,375
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Delivery of the shares of common stock will be made on or about
June 13, 2007.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Global Coordinators
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Credit
Suisse |
Morgan
Stanley |
Co-Managers
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Kaupthing
Bank hf. |
Kaupthing
Securities, Inc. |
Landsbanki
Islands hf. |
The date of this prospectus supplement is June 7, 2007.
TABLE OF
CONTENTS
Prospectus
Supplement
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S-ii
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S-1
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S-9
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S-18
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S-19
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S-19
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S-19
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S-20
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S-21
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S-21
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S-22
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S-25
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S-43
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S-51
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S-53
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S-69
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S-70
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S-73
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S-76
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S-77
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S-77
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S-78
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S-78
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F-i
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Prospectus
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B-1
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B-1
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B-1
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B-2
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B-2
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B-3
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B-3
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B-6
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B-6
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B-6
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You should rely only on the information contained or
incorporated by reference into this prospectus supplement and
the accompanying prospectus. Neither we nor the underwriters
have authorized any other person to provide you with information
different from that contained in this prospectus supplement and
the accompanying prospectus. We are offering to sell and are
seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The
information contained in this prospectus supplement and the
accompanying prospectus is accurate only as of the date such
information is presented regardless of the time of delivery of
this prospectus supplement and the accompanying prospectus or
any sale of common stock.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement is a supplement to the accompanying
prospectus that is also a part of this document. This prospectus
supplement and the accompanying prospectus are part of a
registration statement that we filed with the Securities and
Exchange Commission, or the SEC, using a shelf
registration process. Under the shelf registration statement, we
may offer and sell shares of our common stock described in the
accompanying prospectus in one or more offerings. In this
prospectus supplement, we provide you with specific information
about the terms of this offering. Both this prospectus
supplement and the accompanying prospectus include important
information about us, our common stock and other information you
should know before investing in our common stock. This
prospectus supplement may also add, update and change
information contained in the accompanying prospectus. To the
extent that any statement that we make in this prospectus
supplement is inconsistent with the statements made in the
accompanying prospectus, the statements made in the accompanying
prospectus are deemed modified or superseded by the statements
made in this prospectus supplement.
This prospectus supplement and the accompanying prospectus
incorporate important business and financial information about
us that is not included in or delivered with this prospectus
supplement and the accompanying prospectus. We will provide
without charge to each person, including any beneficial owner,
to whom a prospectus supplement and the accompanying prospectus
are delivered, upon written or oral request of any such person,
a copy of any or all of the information that we have
incorporated by reference in this prospectus supplement and the
accompanying prospectus but have not delivered with this
prospectus supplement and the accompanying prospectus. You may
request a copy of these filings and our restated certificate of
incorporation and amended and restated bylaws, by writing or
telephoning us at: Century Aluminum Company, 2511 Garden Road,
Building A, Suite 200, Monterey, CA 93940, Attention:
Corporate Secretary or
(831) 642-9300.
S-ii
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights selected information contained
elsewhere, or incorporated by reference, in this prospectus
supplement and the accompanying prospectus. This summary may not
contain all the information that you should consider before
investing in our common stock. You should read the entire
prospectus supplement and the accompanying prospectus carefully,
including the section entitled Risk Factors and the
consolidated financial statements included in, and incorporated
by reference into, this prospectus supplement and the
accompanying prospectus, before making an investment decision.
Except where we state otherwise, the information we present in
this prospectus supplement assumes no exercise of the
underwriters option to purchase additional shares of our
common stock. Unless the context indicates otherwise, references
in this prospectus supplement to Century Aluminum
Company, Century Aluminum,
Century, we, our and
us refer to Century Aluminum Company and its
subsidiaries.
Century
Aluminum Company
Overview
We are a global producer of primary aluminum and the third
largest primary aluminum producer in North America. Aluminum is
an internationally traded commodity, and its price is
effectively determined on the London Metal Exchange, or LME. Our
primary aluminum facilities produce standard-grade and
value-added primary aluminum products. We produced approximately
680,000 metric tons of primary aluminum in 2006 and recorded net
sales of approximately $1.6 billion. In 2006 we more than
doubled the capacity at our Grundartangi facility in Iceland
from 90,000 metric tons per year, or mtpy, at the
time of our acquisition of the facility to 220,000 mtpy.
Following such expansion, our total primary aluminum production
capacity is currently 745,000 mtpy. With the ongoing further
expansion of our Grundartangi facility from 220,000 mtpy to
260,000 mtpy, our production capacity is scheduled to increase
to 785,000 mtpy in the fourth quarter of 2007. In addition to
our primary aluminum assets, we have 50 percent joint
venture interests in an alumina refinery, located in Gramercy,
Louisiana, and a related bauxite mining operation in Jamaica.
The Gramercy refinery supplies substantially all of the alumina
used for the production of primary aluminum at our Hawesville,
Kentucky, primary aluminum facility.
Our
Primary Aluminum Facilities:
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Total Capacity
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Facility
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Location
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Operational
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(mtpy)
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Ownership
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Grundartangi
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Iceland
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1998
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220,000
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100
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Hawesville
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Kentucky, USA
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1970
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244,000
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100
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Ravenswood
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West Virginia, USA
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1957
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170,000
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100
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Mt. Holly
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South Carolina, USA
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1980
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224,000
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49.7
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Our
Bauxite and Alumina Facilities:
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Total Capacity
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Facility
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Location
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Type
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(mtpy)
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Ownership
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Gramercy
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Louisiana, USA
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Alumina Refinery
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1.2 million
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50
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St. Ann
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Jamaica
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Bauxite
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4.5 million
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50
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Recent
Trends in the Primary Aluminum Industry
The primary aluminum industry has been experiencing a period of
strong prices. Industry analysts generally believe these market
conditions are based primarily on favorable global supply and
demand fundamentals. Spot aluminum prices, as quoted on the LME,
averaged $2,800 per metric ton in the first quarter of 2007
and remain well above historical long-term averages. Significant
continuing demand growth in China and the generally favorable
conditions in the global economy are believed by industry
analysts to be the primary drivers of the robust market
conditions.
S-1
In 2006, according to industry sources, global demand for
primary aluminum increased approximately 8.0% while global
supply grew by about 6.0%, resulting in a deficit of
approximately 500,000 metric tons. In the first quarter of 2007,
global supply exceeded demand by over 100,000 metric tons, in
part due to restarts of idled capacity, principally in China,
the United States and Europe. Current capacity utilization rates
indicate that producers are operating at or near full capacity
globally. In addition, industry experts believe there is little
viable idled capacity left to be restarted. Aluminum inventories
remain relatively lean on a historical basis, with producer and
LME stocks representing 35 to 40 days of Western World
consumption.
Competitive
Strengths
Our key competitive strengths are:
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Focus on Upstream Aluminum Business. We
operate principally in the production of primary aluminum. We
also have a 50 percent joint venture interest in an alumina
refinery and a related bauxite mining operation. By
concentrating our activities in the upstream part of the
aluminum industry, we are able to focus our resources on our
existing operations, take advantage of growth opportunities,
minimize overhead costs and avoid exposure to fluctuations in
demand in any single end-use market.
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Balanced Mix of Assets. Our portfolio
of assets is balanced between mature and growth-oriented
operations. Our facilities in the U.S. and Jamaica require
modest sustaining investment, operate productively and produce
attractive returns in the current market environment. We operate
a modern, globally competitive smelter in Grundartangi, Iceland.
We have increased the Grundartangi facilitys production
capacity from 90,000 mtpy in 2004 (the time of our acquisition
of Grundartangi) to 220,000 mtpy at year-end 2006 and expect to
further expand production to 260,000 mtpy by year-end 2007. We
intend to replicate the success of this project through the
construction of a new smelter near Helguvik, Iceland.
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Attractive Business Model in
Iceland. Grundartangis operating model
provides numerous competitive advantages. Our electrical power
supply in Iceland is clean, renewable and globally competitive.
Power pricing at Grundartangi is variable and is linked directly
to the LME price for primary aluminum. This arrangement provides
a natural hedge to the price of the commodity. Our tolling
arrangements, under which we sell all of our production from
Grundartangi, yield a number of benefits. Under these contracts,
we process our customers alumina into primary aluminum;
for this service, we receive a fee linked to the LME price for
primary aluminum. We thus bear no risk of the alumina market
(which has historically been volatile), and require modest
amounts of working capital to operate our business. The nature
of these tolling agreements and limited number of customers
under them allow us to reduce our sales and marketing costs.
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Secure Power Supply. Electricity is our
single largest operating cost. Power pricing at Grundartangi,
provided under long-term contracts which expire at various dates
from 2019 through 2028, is variable and is linked directly to
the LME price for primary aluminum. The power contracts for our
U.S. facilities provide for primarily fixed-price power,
subject to certain adjustments through June 2009.
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Record of Successful Growth. We have
successfully and consistently grown our asset base. From the
beginning of 2000 through the planned completion of the
expansion at Grundartangi in the fourth quarter of 2007, our
primary aluminum production capacity will have increased by
558,000 mtpy, representing a compound annual growth rate of
approximately 19%. We have produced this growth through
acquisitions as well as via the major expansion of existing
facilities. We have funded this development through a
combination of cash flow from existing operations, debt and
equity financings.
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Relationship with Glencore. We benefit
from our business relationship with our largest shareholder,
Glencore International AG, one of the worlds largest
suppliers of a wide range of commodities and raw materials to
industrial consumers. Glencore has been an important business
partner for us and has assisted in the execution of our growth
strategy and our metal hedging program. In addition, Glencore
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S-2
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has consistently been a major customer as well as a significant
supplier of alumina. All of our commercial transactions with
Glencore are entered into on terms which we believe are at
market.
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Experienced Management Team. Members of
our executive management team have significant experience in the
aluminum industry, the broader metals and mining sector, the
development of large and complex projects and the functional
disciplines we require to manage and grow our business. In
addition, the managers of our production facilities have
substantial backgrounds and expertise in the technical and
operational aspects of these plants.
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Business
Strategy
Our strategic objectives are to: (a) increase our primary
aluminum business in Iceland by expanding our existing capacity
and by building additional greenfield capacity;
(b) diversify our geographic presence and expand our
primary aluminum business by investing in or acquiring
additional capacity in other favorable regions that offer
attractive returns and lower our per unit production costs; and
(c) pursue additional upstream opportunities in bauxite
mining and alumina refining. The following table shows our
primary aluminum shipment volumes since 2000.
Century
Aluminum Primary Aluminum Shipments
To date, our growth activities have included:
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acquiring an additional 23% interest in Mt. Holly in April 2000;
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acquiring an 80% interest in Hawesville in April 2001;
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acquiring the remaining 20% interest in Hawesville in April 2003;
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acquiring the 90,000 mtpy Grundartangi facility in April 2004;
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acquiring a 50% joint venture interest in Gramercy, our first
alumina refining facility, together with related bauxite mining
assets, in October 2004; and
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an ongoing expansion of Grundartangis production capacity
to 260,000 mtpy of primary aluminum, which is scheduled for
completion in the fourth quarter of 2007.
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S-3
Recent
Developments
Proposed
Helguvik Smelter
We intend to use the net proceeds from the sale of our common
stock in this offering primarily as partial funding for the
construction of a greenfield aluminum smelter near Helguvik,
Iceland. We will also need to arrange additional third-party
debt for this project, in addition to using current cash flows.
This smelter would be located approximately 30 miles from
the city of Reykjavik and would be operated through our Nordural
Helguvik subsidiary. The site is adjacent to a longstanding
U.S. Department of Defense base, which was recently closed,
causing the loss of 700 direct jobs and over 1,000 additional
related jobs. This site provides a flat location and existing
harbor, as well as proximity to the capital and other industry.
To date, we have signed a harbor agreement, site agreement and
an agreement to grant, as required, the necessary construction
licenses and permits and terms regarding principles of taxation,
with the Reykjanesbaer Municipal Council, the Gardur Municipal
Council and the Reykjanes Harbour Board. In addition, we have
signed contracts to purchase electrical energy from both of the
major Icelandic geothermal power producers. The contracts are
subject to the satisfaction of certain conditions, including
approvals by the boards of directors of the power companies,
environmental agency approval and the construction of the new
facility. The first phase of construction is currently being
planned based on the anticipated availability of up to 250 Mega
Watts (MW) of power in 2010, corresponding to a
production capacity of about 150,000 mtpy. An additional
185 MW is expected to become available by 2015 which would
allow us to increase the Helguvik projects capacity to
approximately 250,000 mtpy. For additional information see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Recent
Developments on
page S-26.
Successful completion of the Helguvik project is subject to
risks as described under Risk Factors on
page S-9.
Proceeds not used for the Helguvik project may also be used for
general corporate purposes, including capital expenditures. See
Use of Proceeds on
page S-19.
Grundartangi
Expansion Schedule Accelerated
In April 2006, we announced an acceleration in the further
expansion of our Grundartangi facility in Iceland from 220,000
mtpy to 260,000 mtpy. The construction of the expansion is
expected to be completed in the fourth quarter of 2007. We had
previously announced that Orkuveita Reykjavikur (OR)
had agreed to deliver the power for the additional expansion by
late 2008. Landsvirkjun, Icelands national power company,
has agreed to deliver power for the additional capacity on an
interim basis as available until power is available from OR in
late 2008. If Landsvirkjun is not able to deliver power on a
short-term basis, we will need to enter into alternative
arrangements for provision of power. On April 30, 2007,
Grundartangi and Glencore entered into a toll conversion
agreement for the additional 40,000 mtpy of expansion capacity
which commences when the expansion capacity is operational.
Republic
of Congo Aluminum Venture Memorandum of Understanding
Signed
In February 2007, we signed a Memorandum of Understanding
(MOU) with the Republic of Congo (ROC)
in West Africa in connection with the exclusive right granted to
us to develop an integrated aluminum business in the ROC
consisting of an aluminum smelter, an alumina refinery and a
bauxite mine. The project contemplated by the MOU is in the
early stages of feasibility study and review and is subject to
the results of that study and review, the negotiation of
definitive contracts, and the satisfaction of various conditions.
The ROC port area of Pointe-Noire has been identified as a
potential site for the aluminum smelter and alumina refinery.
The location of the bauxite mine is dependent upon a future
assessment and mapping of the ROC bauxite reserves. The project
contemplated by the MOU is based on the Government of ROC
assisting us to secure the provision of a minimum annual
commitment of 500 MW of gas-generated electrical energy to
the facility.
For additional information on our recent developments see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Recent
Developments on
page S-26.
S-4
Risk
Factors
An investment in our common stock involves various risks. You
should carefully consider the matters discussed under the
section entitled Risk Factors commencing on
page S-9
of this prospectus supplement and the risk factors incorporated
by reference, as the same may be updated or supplemented by our
future filings with the SEC that are incorporated by reference
into this prospectus supplement, before making any investment in
our common stock. Some statements contained in this prospectus
supplement, the accompanying prospectus or in documents
incorporated by reference herein or therein are
forward-looking statements. You should not place
undue reliance on forward-looking statements because they are
subject to a variety of risks that may cause material
differences between our actual and anticipated results,
performance or achievements. See Forward-Looking
Statements on
page S-18.
Other
Information
We are a corporation organized under the laws of the State of
Delaware in 1981. Our principal executive offices are located at
2511 Garden Road, Building A, Suite 200, Monterey,
California 93940. Our telephone number at that address is
(831) 642-9300.
You may also obtain additional information about us from our
website, which is located at www.centuryaluminum.com. The
information included on our website is not, and should not be
considered as, a part of this prospectus supplement or the
accompanying prospectus.
S-5
THE
OFFERING
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Common stock offered by us |
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7,250,000 shares |
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Common stock outstanding prior to completion of the offering |
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32,611,320 shares(1) |
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Common stock to be outstanding after the offering |
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39,861,320 shares(1) |
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Underwriters over-allotment option |
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1,087,500 shares |
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Common stock to be outstanding after this offering, assuming
exercise of the underwriters over-allotment option in full |
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40,948,820 shares(1) |
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Use of proceeds |
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We expect to receive approximately $360.1 million in net
proceeds (after underwriting discounts and commissions of
approximately $18.7 million and offering expenses of
approximately $1.9 million from this offering), or
approximately $416.3 million if the underwriters exercise
their over-allotment option in full. We intend to use the net
proceeds from the sale of our common stock under this prospectus
supplement primarily as partial funding for the construction of
a greenfield aluminum smelter near Helguvik, Iceland. Successful
completion of the Helguvik project is subject to various risks
described under Risk Factors on
page S-9.
Proceeds not used for the Helguvik project may also be used for
general corporate purposes, including other capital
expenditures. From time to time, we evaluate the possibility of
acquiring businesses and additional production facilities, and
we may use a portion of the proceeds as consideration for such
acquisitions. Until we use the net proceeds for these purposes,
we expect to use them primarily to reduce debt or invest them in
interest-bearing securities, in particular, we intend to repay
all or a substantial portion of our Nordural subsidiarys
term loan, subject to obtaining reasonable assurance that we
will be able to secure borrowing capacity for the Helguvik
project. See Use of Proceeds on
page S-19. |
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Nasdaq Global Select Market Symbol |
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CENX |
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(1) |
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Based on shares of common stock outstanding as of May 31,
2007. This number excludes approximately 414,000 shares of
our common stock issuable upon exercise of outstanding stock
options under our stock option plans and approximately
520,000 shares of our common stock reserved for future
issuance under our stock option plans and unvested shares of
restricted stock. |
S-6
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following selected financial data for the three years ended
December 31, 2006 are derived from the audited consolidated
financial statements of Century Aluminum Company. The financial
data for the three months ended March 31, 2007 and 2006 are
derived from our unaudited consolidated financial statements.
The unaudited financial statements include all adjustments,
which are of a normal and recurring nature, which we consider
necessary for a fair presentation of the financial position and
the results of operations for these periods.
Operating results for the three months ended March 31, 2007
are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2007. The
data should be read in conjunction with the consolidated
financial statements, related notes, and other financial
information incorporated by reference herein.
Our selected historical results of operations include: the
results of operations from Nordural since we acquired it in
April 2004; our equity in the earnings of our joint venture
investments in Gramercy and St. Ann since we acquired an
interest in those companies in October 2004; and the results of
operations from our 130,000 mtpy expansion of Grundartangi which
became fully operational in the fourth quarter of 2006.
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Three Months
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Ended March 31,
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Year Ended December 31,
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2007
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2006(1)
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2006(2)
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2005(3)
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2004(4)
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|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share and per pound data)
|
|
|
Net sales
|
|
$
|
447,657
|
|
|
$
|
346,946
|
|
|
$
|
1,558,566
|
|
|
$
|
1,132,362
|
|
|
$
|
1,060,747
|
|
Gross profit
|
|
|
110,652
|
|
|
|
76,468
|
|
|
|
348,522
|
|
|
|
161,677
|
|
|
|
185,287
|
|
Operating income
|
|
|
97,685
|
|
|
|
64,349
|
|
|
|
309,159
|
|
|
|
126,904
|
|
|
|
160,371
|
|
Net income (loss)
|
|
|
64,249
|
|
|
|
(141,571
|
)
|
|
|
(40,955
|
)
|
|
|
(116,255
|
)
|
|
|
33,482
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
1.98
|
|
|
$
|
(4.39
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
1.14
|
|
Diluted:
|
|
$
|
1.87
|
|
|
$
|
(4.39
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
1.14
|
|
Total assets
|
|
$
|
2,247,946
|
|
|
$
|
1,883,066
|
|
|
$
|
2,185,234
|
|
|
$
|
1,677,431
|
|
|
$
|
1,332,553
|
|
Total debt(5)
|
|
|
772,602
|
|
|
|
727,789
|
|
|
|
772,251
|
|
|
|
671,901
|
|
|
|
524,108
|
|
Long-term debt(6)
|
|
|
575,176
|
|
|
|
528,887
|
|
|
|
559,331
|
|
|
|
488,505
|
|
|
|
330,711
|
|
Net cash flow from operating
activities
|
|
|
98,118
|
|
|
|
16,039
|
|
|
|
185,353
|
|
|
|
134,936
|
|
|
|
105,828
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments Primary
aluminum:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct shipment pounds (000)
|
|
|
290,057
|
|
|
|
291,843
|
|
|
|
1,152,617
|
|
|
|
1,153,731
|
|
|
|
1,179,824
|
|
Toll shipment pounds (000)(7)
|
|
|
116,968
|
|
|
|
54,177
|
|
|
|
346,390
|
|
|
|
203,967
|
|
|
|
138,248
|
|
Average LME per pound
|
|
$
|
1.27
|
|
|
$
|
1.10
|
|
|
$
|
1.166
|
|
|
$
|
0.861
|
|
|
$
|
0.778
|
|
Average Midwest premium per pound
|
|
$
|
0.032
|
|
|
$
|
0.055
|
|
|
$
|
0.055
|
|
|
$
|
0.056
|
|
|
$
|
0.068
|
|
Average realized price per pound:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct shipments
|
|
$
|
1.15
|
|
|
$
|
1.03
|
|
|
$
|
1.09
|
|
|
$
|
0.86
|
|
|
$
|
0.83
|
|
Toll shipments
|
|
$
|
0.98
|
|
|
$
|
0.83
|
|
|
$
|
0.88
|
|
|
$
|
0.67
|
|
|
$
|
0.62
|
|
|
|
|
(1) |
|
Net income (loss) includes an after-tax charge of
$183.5 million, or $5.54 per diluted share for
mark-to-market
losses on forward contracts that do not qualify for cash flow
hedge accounting. |
|
(2) |
|
Net income (loss) includes an after-tax charge of
$241.7 million, or $7.19 per diluted share, for
mark-to-market
losses on forward contracts that do not qualify for cash flow
hedge accounting and a gain on the sale of surplus land. |
S-7
|
|
|
(3) |
|
Net income (loss) includes an after-tax charge of
$198.2 million, or $6.15 per diluted share, for
mark-to-market
losses on forward contracts that do not qualify for cash flow
hedge accounting. |
|
(4) |
|
Net income (loss) includes an after-tax charge of
$30.4 million, or $1.06 per diluted share, for a loss
on early extinguishment of debt. See Note 5 in the Audited
Consolidated Financial Statements included herein. |
|
(5) |
|
Total debt includes all long-term debt obligations and any debt
classified as short-term obligations, including the current
portion of our long-term debt, industrial revenue bonds and
1.75% convertible senior notes. Total debt does not reflect
repayment of $70 million of Nordural debt in April 2007
from available cash. |
|
(6) |
|
Long-term debt includes all payment obligations under long-term
borrowing arrangements, excluding the current portion of
long-term debt. Total debt does not reflect repayment of
$70 million of Nordural debt in April 2007 from available
cash. |
|
(7) |
|
Grundartangi completed a 130,000 mtpy capacity expansion in the
fourth quarter of 2006. |
S-8
RISK
FACTORS
Investment in the common stock offered pursuant to this
prospectus supplement and the accompanying prospectus involves
risks. In addition to the information presented in this
prospectus supplement and the accompanying prospectus and the
risk factors in our most recent Annual Report on
Form 10-K
and our other filings with the SEC that are incorporated by
reference in this prospectus supplement and the accompanying
prospectus, you should consider carefully the following risks
before deciding to purchase our common stock.
The following describes certain of the risks and uncertainties
we face that could cause our future results to differ materially
from our current results and from those anticipated in our
forward-looking statements. These risk factors should be
considered together with the other risks and uncertainties
described in Managements Discussion and Analysis of
Financial Condition and Results of Operations on
page S-25
and elsewhere herein.
Risks
Relating to Our Business
The
cyclical nature of the aluminum industry causes variability in
our earnings and cash flows; our hedging transactions may limit
our ability to benefit from increased aluminum prices which are
currently near historical highs.
Our operating results depend on the market for primary aluminum,
which is a highly cyclical commodity with prices that are
affected by global demand and supply factors and other
conditions. Historically, aluminum prices have been volatile and
we expect such volatility to continue. Currently, aluminum
prices are near historical highs. These prices are driven, in
part, by global demand for aluminum arising from favorable
global economic conditions and strong demand in China. Although
we use contractual arrangements to manage our exposure to
fluctuations in the commodity price, a decline in primary
aluminum prices would reduce our earnings and cash flows. Any
significant downturn in prices for primary aluminum would
significantly reduce the amount of cash available to meet our
current obligations and fund our long-term business strategies
and may force the curtailment of all or a portion of our
operations at one or more of our smelters.
Conversely, as prices for aluminum increase, certain of our
hedging transactions, including our forward sales of primary
aluminum and our LME-based alumina and power contracts, limit
our ability to take advantage of these increased prices.
We
sell molten aluminum to the major customers of Ravenswood and
Hawesville; the loss of one of these major customers would
increase our production costs at those facilities and could
increase our sales and marketing costs.
Approximately 53% of our consolidated net sales for 2006 was
derived from sales to Alcan and Southwire. Alcans facility
is located adjacent to Ravenswood and Southwires facility
is located adjacent to Hawesville. Due to this proximity, we are
able to deliver molten aluminum to these customers, thereby
eliminating our casting and shipping costs and our
customers freight and remelting costs and reducing our
sales and marketing costs. Century has contracts with Alcan and
Southwire which are due to expire in July 2007 and March 2011,
respectively. We may be unable to extend or replace these
contracts when they terminate. If we are unable to renew these
contracts when they expire, or if either customer significantly
reduces its purchases under those contracts, we would incur
higher casting and shipping costs and potentially higher sales
and marketing costs.
A
material change in our relationship with Glencore could affect
how we hedge our exposure to metal price risk.
We benefit from our relationship with Glencore, our largest
shareholder. We enter into forward sales and hedging contracts
with Glencore that help us manage our exposure to fluctuating
aluminum prices. Because
S-9
Glencore is our sole metal hedge counterparty, a material change
in our relationship with Glencore could affect how we hedge our
exposure to metal price risk, which could impact our results of
operations.
Losses
caused by disruptions in the supply of power would reduce the
profitability of our operations.
We use large amounts of electricity to produce primary aluminum.
Any loss of power which reduces the amperage to our equipment or
causes an equipment shutdown would result in a reduction in the
volume of molten aluminum produced and may result in the
hardening or freezing of molten aluminum in the pots
where it is produced. Interruptions in the supply of electrical
power to our facilities can be caused by a number of
circumstances, including unusually high demand, blackouts,
equipment failure, natural disasters or other catastrophic
events. If such a condition were to occur, we may lose
production for a prolonged period of time and incur significant
losses. We maintain property and business interruption insurance
to mitigate losses resulting from catastrophic events, but are
required to pay significant amounts under the deductible
provisions of those insurance policies. In addition, the
coverage under those policies may not be sufficient to cover all
losses, or may not cover certain events. Certain of our
insurance policies do not cover any losses that may be incurred
if our suppliers are unable to provide power during periods of
unusually high demand. Certain losses or prolonged interruptions
in our operations may trigger a default under our revolving
credit facility.
The
cost of alumina used at Hawesville may be higher than under our
LME-based alumina contracts.
We acquire alumina used at Ravenswood and Mt. Holly at
prices based on the LME price for primary aluminum. Gramercy
supplies all of the alumina used at Hawesville at prices based
on Gramercys production costs. Those production costs
could be materially higher than the price paid under LME-based
contracts during periods when aluminum prices are low and raw
material costs used in the production of alumina, such as
natural gas, are high.
Changes
or disruptions to our current alumina and other raw material
supply arrangements could increase our raw material
costs.
We depend on a limited number of suppliers for alumina, the
principal raw material used to produce primary aluminum.
Disruptions to our supply of alumina could occur for a variety
of reasons, including disruptions of production at a particular
suppliers alumina refinery. These disruptions may require
Century to purchase alumina on the spot market on less favorable
terms than under our current agreements.
Gramercy supplies substantially all the alumina used at
Hawesville. Our joint venture bauxite mining operation in St.
Ann, Jamaica supplies all of the bauxite used in the production
of alumina at Gramercy. If there is a significant disruption of
St. Ann bauxite shipments in the future, Gramercy could incur
additional costs if it is required to use bauxite from other
sources. For example, in the fourth quarter of 2006, a
disruption in our Gramercy power supply increased our costs as
we replaced Gramercy supplied alumina with more
expensive spot market.
Our business also depends upon the adequate supply of other raw
materials, including caustic soda, aluminum fluoride, calcined
petroleum coke, pitch, and cathodes, at competitive prices.
Although there remain multiple sources for these raw materials
worldwide, consolidation among certain North American suppliers
has reduced the number of available suppliers in this industry.
A disruption in our raw materials supply from our existing
suppliers due to a labor dispute, shortage of their raw
materials or other unforeseen factors may adversely affect our
operating results if we are unable to secure alternate supplies
of these materials at comparable prices.
Changes
in the relative cost and availability of certain raw materials
and energy compared to the price of primary aluminum could
affect our operating results.
Our operating results vary significantly with changes in the
price of primary aluminum and the raw materials used in its
production, including alumina, caustic soda, aluminum fluoride,
calcined petroleum coke,
S-10
pitch, and cathodes. Because we sell our products based on the
LME price for primary aluminum, we cannot pass on increased
costs to our customers. Although we attempt to mitigate the
effects of price fluctuations through the use of various
fixed-price commitments and financial instruments and by pricing
some of our raw materials and energy contracts based on LME
prices, these efforts also limit our ability to take advantage
of favorable changes in the market prices for primary aluminum
or raw materials. In addition, because we have sold forward a
certain amount of our production capacity in future years,
rising raw material and energy prices would negatively impact
our earnings and cash flow.
Electricity represents our single largest operating cost. As a
result, the availability of electricity at economic prices is
critical to the profitability of our operations. We purchase
virtually all of our electricity for our U.S. facilities
under fixed-price contracts through 2007. At Mt. Holly,
portions of the contracted cost of the electricity supplied to
Mt. Holly vary with the suppliers fuel costs. An increase
in these fuel costs would increase the price this facility pays
for electricity. Hawesville has unpriced power requirements of
approximately 27% of its power requirements from 2008 through
2010. The profitability of Hawesville could be adversely
affected if we are unable to obtain power for the unpriced
portions of Hawesvilles power requirements at economic
rates. We are currently reviewing our options for pricing power
in 2008 through 2010 at Hawesville. We are working with a local
power company on a proposal that would restructure and extend
Hawesvilles existing power supply contract through 2023.
If we are not successful at replacing such power requirements,
we may be forced to curtail or idle a portion of our production
capacity, which would lower our revenues and adversely affect
the profitability of our operations. At Ravenswood, power prices
have some variability based upon the LME price for primary
aluminum and are subject to possible adjustments in the
published tariff. For instance, on May 31, 2007, an
agreement was reached in a tariff rate case pending before the
West Virginia Public Service Commission, or PSC, which, if
approved by the PSC, would be effective July 1, 2007 and
would increase the special contract rate for Ravenswood by
approximately 10%. Other possible future rate cases could
lead to a further increase in the price that Ravenswood pays for
electricity and thereby decrease profit margins. We need to
obtain additional electricity for our expansions in Iceland
where we have entered into MOUs or contracts. If we are unable
to finalize these, we will need to seek alternative sources of
electricity, which could increase our costs.
Unexpected
events, including natural disasters, may increase our cost of
doing business or disrupt our operations.
Unexpected events, including fires or explosions at our
facilities, natural disasters, such as hurricanes, unplanned
power outages, supply disruptions, or equipment failures, may
increase our cost of doing business or otherwise disrupt our
operations.
We are
subject to the risk of union disputes.
The bargaining unit employees at Ravenswood and Hawesville and
at the Gramercy refinery are represented by the United
Steelworkers of America (USWA). Centurys USWA
labor contracts at Hawesville and Ravenswood and the labor
contract at Gramercy expire in March 2010, May 2009, and
September 2010, respectively. Our bargaining unit employees at
Grundartangi are represented by five unions under a collective
bargaining agreement that expires on December 31, 2009.
If we fail to maintain satisfactory relations with any labor
union representing our employees, our labor contracts may not
prevent a strike or work stoppage at any of these facilities in
the future. As a result of a threatened strike in July 2006, we
commenced an orderly shut down of one of the four potlines at
Ravenswood. Although the notice to strike was rescinded after we
reached agreement with the USWA on a new labor contract, our
production at Ravenswood was curtailed while we restarted the
potline. Any threatened or actual work stoppage in the future
could prevent or significantly impair our ability to conduct
production operations at our unionized facilities, which could
have a material adverse effect on our financial results.
S-11
We are
subject to a variety of environmental laws that could result in
costs or liabilities.
We are obligated to comply with various federal, state and other
environmental laws and regulations, including the environmental
laws and regulations of the United States, Iceland, the European
Union (EU) and Jamaica. Environmental laws and
regulations may expose us to costs or liabilities relating to
our manufacturing operations or property ownership. We incur
operating costs and capital expenditures on an ongoing basis to
comply with applicable environmental laws and regulations. In
addition, we are currently and may in the future be responsible
for the cleanup of contamination at some of our current and
former facilities or for the amelioration of damage to natural
resources.
We, along with others, including current and former owners of a
facility on St. Croix in the Virgin Islands, formerly owned by a
subsidiary of ours, have been sued for alleged natural resources
damages at the facility. In addition, in December 2006, we and
the company that purchased the assets of our St. Croix facility
in 1995 were sued by the Commissioner of the U.S. Virgin
Islands Department of Planning and Natural Resources alleging
our failure to take certain actions specified in a Virgin
Islands Coastal Zone management permit issued to our subsidiary,
Virgin Island Alumina Corporation LLC, in October 1994. Also, in
July 2006, Century was named as a defendant together with
certain affiliates of Alcan Inc. in a lawsuit brought by Alcoa
Inc. seeking to determine responsibility for certain
environmental indemnity obligations related to the sale of a
cast aluminum plate manufacturing facility located in Vernon,
California, which we purchased from Alcoa Inc. in December 1998,
and sold to Alcan Rolled Products-Ravenswood LLC in July 1999.
Our known liabilities with respect to these and other matters
relating to environmental compliance and cleanup, based on
current information, are not expected to be material. If more
stringent compliance or cleanup standards under environmental
laws or regulations are imposed, previously unknown
environmental conditions or damages to natural resources are
discovered or alleged, or if contributions from other
responsible parties with respect to sites for which we have
cleanup responsibilities are not available, we may be subject to
additional liability, which may be material and could affect our
liquidity and our operating results. Further, additional
environmental matters for which we may be liable may arise in
the future at our present sites where no problem is currently
known, with respect to sites previously owned or operated by us,
by related corporate entities or by our predecessors, or at
sites that we may acquire in the future. In addition, overall
production costs may become prohibitively expensive and prevent
us from effectively competing in price sensitive markets if
future capital expenditures and costs for environmental
compliance or cleanup are significantly greater than current or
projected expenditures and costs.
Acquisitions
may present difficulties.
We have a history of making acquisitions and we expect to make
acquisitions in the future. We are subject to numerous risks as
a result of our acquisitions, including the following:
|
|
|
|
|
it may be challenging for us to manage our existing business as
we integrate acquired operations;
|
|
|
|
we may not achieve the anticipated benefits from our
acquisitions; and
|
|
|
|
management of acquisitions will require continued development of
financial controls and information systems, which may prove to
be expensive, time-consuming, and difficult to maintain.
|
Accordingly, our past or future acquisitions might not
ultimately improve our competitive position and business
prospects as anticipated.
International
operations expose us to political, regulatory, currency and
other related risks.
Grundartangi, in Iceland, was our first facility located outside
of the United States. Following completion of the ongoing
expansion at that facility, it will represent approximately 33%
of our overall primary aluminum production capacity. We also
intend to construct a greenfield aluminum smelter near Helguvik,
Iceland and are exploring opportunities in other countries. The
St. Ann bauxite operations related to the Gramercy plant are
located in Jamaica. We are considering the development of
greenfield upstream aluminum projects in several
S-12
foreign countries, including the Republic of Congo and Jamaica.
We may in the future consider other investments in other foreign
countries. International operations expose us to risks,
including unexpected changes in foreign laws and regulations,
political and economic instability, challenges in managing
foreign operations, increased cost to adapt our systems and
practices to those used in foreign countries, export duties,
tariffs and other trade barriers, and the burdens of complying
with a wide variety of foreign laws. In addition, we may be
exposed to fluctuations in currency exchange rates and, as a
result, an increase in the value of foreign currencies relative
to the U.S. dollar could increase our operating expenses
which are denominated and payable in those currencies. For
example, Nordurals revenues are denominated in
U.S. dollars, while its labor costs are denominated in
Icelandic krona and a portion of its anode costs are denominated
in euros. In addition, a majority of our costs in connection
with the ongoing expansion of the Grundartangi facility are
denominated in currencies other than the U.S. dollar. As we
continue to expand the Grundartangi facility, construct the
Helguvik facility and explore other opportunities, our currency
risk with respect to the Icelandic krona and other foreign
currencies will significantly increase.
Our
historical financial information may not be comparable to our
results for future periods.
Our historical financial information is not necessarily
indicative of our future results of operations, financial
position and cash flows. For example, certain of our historical
financial data do not reflect the effects of:
|
|
|
|
|
our acquisition of Nordural prior to April 27, 2004;
|
|
|
|
the equity in the earnings of our joint ventures prior to
October 1, 2004; and
|
|
|
|
the 130,000 mtpy expansion capacity of Grundartangi that was
completed in the fourth quarter of 2006.
|
Our
high level of indebtedness requires significant cash flow to
meet our debt service requirements, which reduces cash available
for other purposes, such as the payment of dividends, and limits
our ability to pursue our growth strategy.
We are highly leveraged. We had an aggregate of approximately
$773 million of outstanding indebtedness as of
March 31, 2007. In addition, we could borrow additional
amounts under our $100 million credit facility, and we
expect to incur additional indebtedness to finance the Helguvik
project. The level of our indebtedness could have important
consequences, including:
|
|
|
|
|
limiting cash flow available for capital expenditures,
acquisitions, dividends, working capital and other general
corporate purposes because a substantial portion of our cash
flow from operations must be dedicated to servicing our debt;
|
|
|
|
increasing our vulnerability to adverse economic and industry
conditions; and
|
|
|
|
limiting our flexibility in planning for, or reacting to,
competitive and other changes in our business and the industry
in which we operate.
|
We will be required to settle in cash up to the principal amount
of our $175 million convertible notes (which are
convertible by the holder at any time) upon conversion, which
could increase our debt service obligations. In addition to our
indebtedness, we have liabilities and other obligations which
could reduce cash available for other purposes and could limit
our ability to pursue our growth strategy. More information
about our liquidity and debt service obligations is set forth
under Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources on
page S-37.
We are also exposed to risks of interest rate increases. We had
approximately $341 million of debt with variable interest
rates at March 31, 2007, of which, at March 31, 2007,
approximately $332 million were borrowings under
Nordurals $365 million senior term loan facility. At
April 30, 2007, Nordural had borrowings under its senior
term loan facility of approximately $262 million.
Nordurals annual debt service requirements will vary, as
amounts outstanding under its term loan facility bear interest
at a variable rate.
S-13
Our ability to pay interest and to repay or refinance our
indebtedness, including Nordurals senior term loan
facility, our senior unsecured notes and convertible notes, and
to satisfy other commitments, including funding the ongoing
Grundartangi expansion, will depend upon our future operating
performance, which is subject to general economic, financial,
competitive, legislative, regulatory, business and other
factors, including market prices for primary aluminum, that are
beyond our control. Accordingly, there is no assurance that our
business will generate sufficient cash flow from operations or
that future borrowings will be available to us in an amount
sufficient to enable us to pay debt service obligations or to
fund our other liquidity needs. If we are unable to meet our
debt service obligations or fund our other liquidity needs, we
could attempt to restructure or refinance our indebtedness or
seek additional equity capital. There can be no assurance that
we would be able to accomplish those actions on satisfactory
terms.
Restrictive
covenants in our credit facility and the indenture governing our
senior notes limit our ability to incur additional debt and
pursue our growth strategy.
Our revolving credit facility and the indenture governing our
senior unsecured notes each contain various covenants that
restrict the way we conduct our business and limit our ability
to incur debt, pay dividends and engage in transactions such as
acquisitions and investments, which may impair our ability to
pursue our growth strategy. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Contractual Obligations on
page S-39.
Any failure to comply with those covenants may constitute a
breach under the revolving credit facility or the indenture
governing the notes, which may result in the acceleration of all
or a substantial portion of our outstanding indebtedness and
termination of commitments under our revolving credit facility.
If our indebtedness is accelerated, we may be unable to repay
the required amounts and our secured lenders could foreclose on
any collateral securing our secured debt.
Substantially all of Nordurals assets are pledged as
security under its term loan facility. In addition, the shares
of Nordural have been pledged to the lenders as collateral. If
Nordural is unable to comply with the covenants in its term
loan, the lenders would be able to cause all or part of the
amounts outstanding under the loan facility to be immediately
due and payable and foreclose on any collateral securing the
loan facility. The term loan facility also contains restrictions
on Nordurals ability to pay dividends, including a
requirement that Nordural make a repayment of principal in an
amount equal to 50% of any dividend paid to shareholders. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources on
page S-37.
Further
metals industry consolidation could provide competitive
advantages to our competitors.
The metals industry has experienced consolidation over the past
several years and there may be more consolidation transactions
in the future. Consolidation by our competitors may enhance
their capacity and their access to resources, lower their cost
structure and put us at a competitive disadvantage. Continued
consolidation may limit our ability to implement our strategic
objectives effectively. We cannot reliably predict the impact on
us of further consolidation in the aluminum industry.
The
Helguvik project is subject to certain conditions and risks. If
we do not proceed with this project, we would have broad
discretion in deciding how to use the proceeds from this
offering which were allocated for the Helguvik
project.
We are not obligated to use the proceeds to us from this
offering for any particular purpose. Accordingly, we will have
considerable discretion in the application of the net proceeds.
We intend to use the net proceeds from this offering primarily
as part of the funding for the construction of a greenfield
aluminum smelter near Helguvik, Iceland. This project is subject
to various Icelandic regulatory and other approvals and
conditions. Recently, there has been increasing opposition among
some voters in Iceland to the construction of new aluminum
smelters and the further development of heavy industry in
general. In March 2007, a local referendum in another area of
Iceland resulted in the disapproval of a smelter expansion
project proposed by another primary aluminum producer for the
municipality in which the
S-14
referendum was held. There can be no assurance that we will
receive the necessary approvals to proceed with construction of
our Helguvik smelter, on a timely basis or at all. In addition,
such approvals as we do receive may be subject to conditions
that are unfavorable or make the project impracticable or less
attractive from a financial standpoint. Even if we receive
necessary approvals on terms that we determine are acceptable,
the construction of this project is a complex undertaking. There
can be no assurance that we will be able to complete the project
within our projected budget and schedule. In addition,
unforeseen technical difficulties could increase the cost of the
project, delay the project or render the project not feasible.
Any delay in the completion of the project or increased costs
could have a material negative impact on our financial
performance and future prospects. To successfully execute this
project, we will also need to arrange additional financing and
either enter into tolling arrangements or secure a supply of
alumina.
If we do not use the proceeds from this offering to finance a
portion of the Helguvik project, we would seek to direct such
proceeds to a financially attractive alternative use; however,
there is no assurance that we would be able to find financially
attractive alternative investments. The net proceeds may be used
for corporate purposes that ultimately do not improve our
operating results or market value, and you will not have the
opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the
proceeds. See Use of Proceeds on
page S-19.
If we
are unable to procure a reliable source of power, the proposed
Helguvik project would not be feasible.
Our proposed greenfield smelter near Helguvik, Iceland will
require generation and transmission of geothermally-generated
electricity to power the smelter. Our wholly-owned Iceland
subsidiary, Nordural Helguvik sf, has entered into agreements
with two providers of geothermal power in Iceland for a
substantial portion of this power. These two power company
agreements are subject to certain conditions, some of which are
not expected to be satisfied until the second quarter of 2008.
These conditions include approvals by the boards of directors of
the power companies, as well as environmental agency approvals.
Additionally, Nordural Helguvik is in the process of finalizing
with Icelands transmission company an agreement to
transmit the power to the new smelter. Conclusion of this
power-transmission agreement will require consent of the
municipalities affected by the transmission of the power.
Generation of the electrical power contracted for the Helguvik
smelter will require successful development of new geothermal
energy sources within designated areas in Iceland. If there are
construction delays or technical difficulties in developing
these new geothermal fields, power may be delayed or may not be
available. Factors which could delay or impede the generation
and delivery of electric power are substantially beyond our
ability to control, influence or predict.
Reductions
in the duty on primary aluminum imports into the European Union
decrease our revenues at Grundartangi.
Grundartangis tolling revenues include a premium based on
the EU import duty for primary aluminum. In May 2007, the EU
members reduced the import duty for primary aluminum from six
percent to three percent and agreed to review the new duty after
three years. This decrease in the EU import duty for primary
aluminum negatively impacts Grundartangis revenues and
further decreases would also have a negative impact on
Grundartangis revenues.
Risks
Associated with Our Common Stock and this Offering
We
depend upon dividends from our subsidiaries to meet our debt
service obligations.
We are a holding company and conduct all of our operations
through our subsidiaries. Our ability to meet our debt service
obligations depends upon the receipt of dividends from our
subsidiaries. Nordurals senior term loan facility places
significant limitations on Nordurals ability to pay
dividends. Subject to the restrictions contained in our
revolving credit facility and the indentures governing our
senior and convertible notes, future borrowings by our
subsidiaries could contain restrictions or prohibitions on the
payment of
S-15
dividends by those subsidiaries. In addition, under applicable
law, our subsidiaries could be limited in the amounts that they
are permitted to pay as dividends on their capital stock.
The
price of our common stock has fluctuated
significantly.
The market price of our common stock has experienced significant
volatility from time to time, and this volatility may continue
in the future. From January 1, 2006, through June 7,
2007, the
intra-day
sales price of our common stock on NASDAQ ranged from $26.14 to
$58.60 per share. In addition, the securities markets have
experienced significant price and volume fluctuations. The
market price for our common stock may be affected by a number of
factors, including actual or anticipated variations in our
quarterly results of operations, expectations about the future
price of aluminum, changes in earnings estimates or
recommendations by securities analysts, changes in research
coverage by securities analysts, any announcement by us of
significant acquisitions, strategic partnerships, joint ventures
or capital commitments, developments in the aluminum industry,
including with respect to our major competitors, and sales of
substantial numbers of shares by current holders of our common
stock in the public market. In addition, general economic,
political and market conditions and other factors unrelated to
our operating performance may cause the market price of our
common stock to be volatile.
Provisions
in our charter documents and state law may make it difficult for
others to obtain control of Century Aluminum, even though some
stockholders may consider them to be beneficial.
Certain provisions of our restated certificate of incorporation
and amended and restated bylaws, as well as provisions of the
Delaware General Corporation Law, may have the effect of
delaying, deferring or preventing a change in control of
Century, including transactions in which our stockholders might
otherwise have received a substantial premium for their shares
over then-current market prices. For example, these provisions:
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give authority to our board of directors to issue preferred
stock and to determine the price, rights, preferences,
privileges and restrictions of the shares of preferred stock
without any stockholder vote;
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provide, under our charter documents, for a board of directors
consisting of three classes, each of which serves for a
different three-year term;
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require stockholders to give advance notice prior to submitting
proposals for consideration at stockholders meetings or to
nominate persons for election as directors; and
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restrict, under our charter documents, certain business
combinations between us and any person who beneficially owns 10%
or more of our outstanding voting stock.
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In addition, several of our officers have entered into
employment and severance compensation agreements that provide
for cash payments, immediate vesting of stock options and
performance shares and acceleration of other benefits under
certain circumstances, including a change in control of Century.
Our 1996 Stock Incentive Plan, as amended, also provides for
acceleration of the ability to exercise stock options and the
vesting of performance shares upon a change in control, and our
Non-Employee Directors Stock Option Plan provides for
acceleration of an option holders ability to exercise
stock options upon a change in control.
Investors
in this offering will experience immediate and substantial
dilution.
The market price of our common stock is substantially higher
than the net tangible book value per share of our common stock
immediately after the completion of this offering. Therefore, if
you purchase our common stock in this offering, you will incur
immediate dilution of $38.92 in net tangible book value per
share from the price you paid. In the past, we have issued
options to acquire common stock at prices significantly below
the public offering price. To the extent these outstanding
options are exercised, there will be further dilution to
investors.
S-16
Possible
future sales of our shares by Glencore could adversely affect
the market for our stock.
According to its filings with the SEC, Glencore holds
approximately 28.6% of our common stock and we understand
Glencore has subscribed to approximately that percentage of the
shares of our common stock offered by this prospectus supplement
(including shares subject to the underwriters
over-allotment option). Although Glencore has entered into a
lockup agreement with the underwriters, as described under
Underwriters on
page S-73,
once the lockup period of 90 days has expired, Glencore may
sell its shares of our common stock in compliance with
applicable laws. Although we can make no prediction as to the
effect, if any, that such sales would have on the market price
of our common stock, sales of substantial amounts of our common
stock, or the perception that such sales could occur, could
adversely affect the market price of our common stock.
Our
management will have broad discretion over the use of the net
proceeds from this offering and may invest or spend the net
proceeds of this offering in ways with which you
disagree.
Our management will have broad discretion in the application of
the net proceeds we receive from this offering.
Managements failure to apply these funds effectively could
impair our ability to execute our business plan and the value of
your investment. In addition, our stock price may fall if the
investment community does not view our use of the proceeds from
this offering favorably.
This
list of significant risk factors is not necessarily in order of
importance.
S-17
FORWARD-LOOKING
STATEMENTS
This prospectus supplement contains forward-looking statements.
We have based these forward-looking statements on current
expectations and projections about future events. Many of these
statements may be identified by the use of forward-looking words
such as expects, anticipates,
plans, believes, projects,
estimates, intends, should,
could, would, will,
scheduled, potential and similar words.
These forward-looking statements are subject to risks,
uncertainties and assumptions including, among other things,
those outlined in our SEC filings incorporated by reference and
those outlined in this document under the captions Risk
Factors on
page S-9
and Managements Discussion and Analysis of Financial
Condition and Results of Operations on
page S-25,
as well as the following:
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The cyclical nature of the aluminum industry causes variability
in our earnings and cash flows;
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The loss of a customer to whom we deliver molten aluminum would
increase our production costs and potentially our sales and
marketing costs;
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Glencore owns a large percentage of our common stock and has the
ability to influence matters requiring shareholder approval;
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We enter into forward sales and hedging contracts with Glencore
that help us manage our exposure to fluctuating aluminum prices.
Because Glencore is our sole metal hedge counterparty, a
material change in our relationship with Glencore could affect
how we hedge our exposure to metal price risk;
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We could suffer losses due to a temporary or prolonged
interruption of the supply of electrical power to one or more of
our facilities, which can be caused by unusually high demand,
blackouts, equipment failure, natural disasters or other
catastrophic events;
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Due to volatile prices for alumina and electricity, the
principal cost components of primary aluminum production, our
production costs could be materially impacted if we experience
changes to or disruptions in our current alumina or power supply
arrangements, production costs at our alumina refining operation
increase significantly, or if we are unable to obtain economic
replacement contracts for our alumina supply or power as those
contracts expire;
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By expanding our geographic presence and diversifying our
operations through the acquisition of bauxite mining, alumina
refining and additional aluminum reduction assets, we are
exposed to new risks and uncertainties that could adversely
affect the overall profitability of our business;
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Changes in the relative cost of certain raw materials and energy
compared to the price of primary aluminum could affect our
margins;
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Most of our employees are unionized and any labor dispute could
materially impair our ability to conduct our production
operations at our unionized facilities;
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We are subject to a variety of existing environmental laws that
could result in unanticipated costs or liabilities and our
planned environmental spending over the next three years may be
inadequate to meet our requirements;
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We may not realize the expected benefits of our growth strategy
if we are unable to successfully integrate the businesses we
acquire;
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We cannot guarantee that our subsidiary Nordural will be able to
complete its planned expansion of the Grundartangi facility from
220,000 mtpy to 260,000 mtpy in the time forecast or without
cost overruns; and
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Our high level of indebtedness reduces cash available for other
purposes and limits our ability to incur additional debt and
pursue our growth strategy.
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We believe the expectations reflected in our forward-looking
statements are reasonable, based on information available to us
on the date of this prospectus supplement. However, given the
described uncertainties and risks, we cannot guarantee our
future performance or results of operations and you should
S-18
not place undue reliance on these forward-looking statements. We
undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise. The risks described herein under the
headings Risk Factors on
page S-9
and Managements Discussion and Analysis of Financial
Conditions and Results of Operations on
page S-25
and in our other SEC filings should be considered when reading
any forward-looking statements in this document.
MARKET
AND INDUSTRY DATA
We obtained the market data included or incorporated by
reference in this prospectus supplement and accompanying
prospectus from our own research and from surveys or studies
conducted by third parties and cited in industry or general
publications, including studies prepared by CRU International
Inc., an internationally recognized research firm which collects
and analyzes data about the aluminum industry. Industry and
general publications and surveys generally state that they have
obtained information from sources believed to be reliable, but
do not guarantee the accuracy and completeness of such
information. While we believe that each of these studies and
publications is reliable, we have not independently verified
such data and do not make any representation as to the accuracy
of such information. Similarly, we believe our internal research
is reliable but it has not been verified by any independent
sources.
USE OF
PROCEEDS
We expect to receive approximately $360.1 million in net
proceeds (after underwriting discounts and commissions of
approximately $18.7 and offering expenses of approximately
$1,875,000 from this offering), or approximately
$416.3 million if the underwriters exercise their
over-allotment option in full.
We intend to use the net proceeds from the sale of our common
stock under this prospectus supplement primarily as partial
funding for the construction of a greenfield aluminum smelter
near Helguvik, Iceland. Successful completion of the Helguvik
project is subject to various risks described herein under
Risk Factors on
page S-9.
Proceeds not used for the Helguvik project may also be used for
general corporate purposes, including other capital
expenditures. From time to time, we evaluate the possibility of
acquiring businesses and additional production facilities, and
we may use a portion of the proceeds as consideration for such
acquisitions. Until we use the net proceeds for these purposes,
we expect to use them primarily to reduce debt or invest them in
interest-bearing securities, in particular, we intend to repay
all or a substantial portion of our Nordural subsidiarys
term loan, subject to obtaining reasonable assurance that we
will be able to secure borrowing capacity for the Helguvik
project.
PRICE
RANGE OF COMMON STOCK
Our common stock is listed on the Nasdaq Global Select Market,
under the symbol CENX. The following table sets
forth for the periods indicated the high and low sale prices per
share of our common stock as reported by the Nasdaq Global
Select Market.
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2007
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2006
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2005
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Year
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High Sales Price
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Low Sales Price
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High Sales Price
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Low Sales Price
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High Sales Price
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Low Sales Price
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First quarter
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$
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49.83
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$
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38.65
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$
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44.50
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$
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26.14
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$
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34.70
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$
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23.69
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Second quarter (through
June 7, 2007)
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$
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58.60
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$
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46.35
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$
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56.57
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$
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31.28
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$
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32.18
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$
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20.16
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Third quarter
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$
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39.16
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$
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29.60
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$
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27.60
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$
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20.00
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Fourth quarter
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$
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47.34
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$
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30.31
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$
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26.79
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$
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17.82
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The closing price of our common stock on June 7, 2007 was
$53.07. As of May 31, 2007, we had 32,611,320 shares
of our common stock issued and outstanding and approximately
520,000 shares reserved for issuance upon the exercise of
options and vesting of restricted stock awards.
S-19
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2007:
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on an actual basis; and
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on an as adjusted basis to give effect to this offering, after
deducting the estimated underwriting discounts and commissions
and our estimated offering expenses (utilizing the public
offering price of $52.50 per share and assuming the
underwriters option to purchase an additional
1,087,500 shares of our common stock is not exercised).
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The information set forth below should be read in conjunction
with our consolidated financial statements and related notes
included in, and incorporated by reference into, this prospectus
supplement and the accompanying prospectus.
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As of March 31, 2007
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Actual
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As
Adjusted(1)
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(Unaudited)
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(Dollars in thousands)
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Cash and cash
equivalents
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$
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168,124
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$
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196,723
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Short-term debt:
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1.75% convertible senior notes
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175,000
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175,000
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Industrial revenue bonds
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7,815
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7,815
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Current portion of long-term debt
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14,611
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611
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Long-term debt:
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7.5% senior unsecured notes
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250,000
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250,000
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Nordurals senior term loan
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317,500
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Other Nordural long-term debt
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7,676
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7,676
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Total Debt
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772,602
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441,102
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Shareholders
equity:
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Common stock
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326
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399
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Additional paid-in capital
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437,375
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797,402
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Accumulated other comprehensive
loss
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(136,715
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(136,715
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Accumulated deficit
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(79,964
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(82,174
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Total shareholders
equity
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221,022
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578,912
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Total capitalization
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$
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993,624
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$
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1,020,014
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(1) |
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Does not reflect repayment of $70 million of Nordural debt
in April 2007 from available cash. |
S-20
DIVIDEND
POLICY
We did not declare dividends in 2006, 2005 or 2004 on our common
stock, nor have we declared any dividends in 2007. We do not
anticipate paying cash dividends in the foreseeable future.
Our revolving credit facility and the indenture governing our
senior notes contain restrictions which limit our ability to pay
dividends. Nordurals term loan facility contains
restrictions on Nordurals ability to pay dividends.
DILUTION
Our net tangible book value as of March 31, 2007 was
approximately $68 million, or $2.09 per share. Our net
tangible book value per share represents our total tangible
assets less total liabilities divided by the number of shares of
our common stock outstanding as of March 31, 2007.
After giving effect to the sale of 7,250,000 shares of
common stock offered by us in this offering based on a per share
offering price of $52.50, and deducting the estimated
underwriting discount and commissions on shares sold by us and
other estimated expenses related to the offering, our net
tangible book value would have been approximately
$10.75 per share. This amount represents an immediate
increase in net tangible book value of $8.66 per share to
the existing stockholders and an immediate dilution of
$38.92 per share to new investors.
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Public offering price per share
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$
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52.50
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Net tangible book value per share
as of March 31, 2007
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$
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2.09
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Increase per share attributable to
this offering
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$
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8.66
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Net tangible book value per share
after this offering
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$
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10.75
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Dilution in net tangible book
value per share to new investors
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$
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38.92
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If the underwriters exercise their over-allotment option in
full, our net tangible book value as of March 31, 2007
would have been $11.79 per share, representing an immediate
increase to existing stockholders of $9.70 per share and an
immediate dilution of $37.91 per share to new investors.
The above information does not reflect approximately
520,000 shares reserved for issuance, as of March 31,
2007, upon the exercise of outstanding stock options and vesting
of restricted stock awards.
S-21
SELECTED
HISTORICAL FINANCIAL INFORMATION
The following selected financial data at or for the five years
ended December 31, 2006 are derived from the audited
consolidated financial statements of Century Aluminum Company.
The financial data at or for the three months ended
March 31, 2007 and 2006 is derived from our unaudited
consolidated financial statements. The unaudited financial
statements include all adjustments, which are of a normal and
recurring nature, which we consider necessary for a fair
presentation of the financial position and the results of
operations for these periods.
In the second quarter of 2005, we changed our method of
inventory costing from the
last-in-first-out,
or LIFO, method to the
first-in-first-out,
or FIFO method. The operating results for the years ended
December 31, 2004, 2003 and 2002 shown below reflect our
results of operations using the FIFO method of costing
inventory. Additional information about this change in
accounting principle is available in our consolidated financial
statements for the year ended December 31, 2005
incorporated by reference herein.
Operating results for the three months ended March 31, 2007
are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2007. The
data should be read in conjunction with the consolidated
financial statements, related notes, and other financial
information incorporated by reference herein.
Our results for these quarterly periods for the three months
ended March 31, 2006 and 2007 and prior year-end periods
are not fully comparable to our results of operations for fiscal
year 2006 and may not be indicative of our future financial
position or results of operations.
S-22
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Three Months Ended March 31,
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Year Ended December 31,
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2007
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2006(1)
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2006(2)
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2005(3)
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2004(4)
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2003(5)
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2002
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(Unaudited)
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(In thousands, except per share and per pound data)
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Net sales
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$
|
447,657
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$
|
346,946
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$
|
1,558,566
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|
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$
|
1,132,362
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$
|
1,060,747
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$
|
782,479
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$
|
711,338
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Gross profit
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|
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110,652
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|
|
|
76,468
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|
|
|
348,522
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|
|
|
161,677
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|
|
|
185,287
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|
|
|
43,370
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|
|
|
20,360
|
|
Operating income
|
|
|
97,685
|
|
|
|
64,349
|
|
|
|
309,159
|
|
|
|
126,904
|
|
|
|
160,371
|
|
|
|
22,537
|
|
|
|
4,577
|
|
Income (loss) before cumulative
effect of change in accounting principle
|
|
|
(64,249
|
)
|
|
|
(141,571
|
)
|
|
|
(40,955
|
)
|
|
|
(116,255
|
)
|
|
|
33,482
|
|
|
|
3,922
|
|
|
|
(18,443
|
)
|
Net income (loss)
|
|
|
64,249
|
|
|
|
(141,571
|
)
|
|
|
(40,955
|
)
|
|
|
(116,255
|
)
|
|
|
33,482
|
|
|
|
(1,956
|
)
|
|
|
(18,443
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of change in accounting principle
|
|
$
|
1.98
|
|
|
$
|
(4.39
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
1.14
|
|
|
$
|
0.09
|
|
|
$
|
(0.99
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
1.98
|
|
|
$
|
(4.39
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
1.14
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of change in accounting principle
|
|
$
|
1.87
|
|
|
$
|
(4.39
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
1.14
|
|
|
$
|
0.09
|
|
|
$
|
(0.99
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
1.87
|
|
|
$
|
(4.39
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
1.14
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.15
|
|
Total assets
|
|
$
|
2,247,946
|
|
|
$
|
1,883,066
|
|
|
$
|
2,185,234
|
|
|
$
|
1,677,431
|
|
|
$
|
1,332,553
|
|
|
$
|
804,242
|
|
|
$
|
763,751
|
|
Total debt(6)
|
|
|
772,602
|
|
|
|
727,789
|
|
|
|
772,251
|
|
|
|
671,901
|
|
|
|
524,108
|
|
|
|
344,125
|
|
|
|
329,667
|
|
Long-term debt(7)
|
|
|
575,176
|
|
|
|
528,887
|
|
|
|
559,331
|
|
|
|
488,505
|
|
|
|
330,711
|
|
|
|
336,310
|
|
|
|
321,852
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments Primary
aluminum:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct shipment pounds (000)
|
|
|
290,057
|
|
|
|
291,843
|
|
|
|
1,152,617
|
|
|
|
1,153,731
|
|
|
|
1,179,824
|
|
|
|
1,126,542
|
|
|
|
1,049,295
|
|
Toll shipment pounds (000)(8)
|
|
|
116,968
|
|
|
|
54,177
|
|
|
|
346,390
|
|
|
|
203,967
|
|
|
|
138,248
|
|
|
|
|
|
|
|
|
|
Average LME per pound
|
|
$
|
1.269
|
|
|
$
|
1.098
|
|
|
$
|
1.166
|
|
|
$
|
0.861
|
|
|
$
|
0.778
|
|
|
$
|
0.649
|
|
|
$
|
0.612
|
|
Average Midwest premium per pound
|
|
$
|
0.032
|
|
|
$
|
0.055
|
|
|
$
|
0.055
|
|
|
$
|
0.056
|
|
|
$
|
0.068
|
|
|
$
|
0.037
|
|
|
$
|
0.041
|
|
Average realized price per pound:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct shipments
|
|
$
|
1.15
|
|
|
$
|
1.03
|
|
|
$
|
1.09
|
|
|
$
|
0.86
|
|
|
$
|
0.83
|
|
|
$
|
0.69
|
|
|
$
|
0.68
|
|
Toll shipments
|
|
$
|
0.98
|
|
|
$
|
0.83
|
|
|
$
|
0.88
|
|
|
$
|
0.67
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
S-23
|
|
|
(1) |
|
Income (loss) before cumulative effect of change in accounting
principle and Net income (loss) include an after-tax charge of
$183.5 million, or $5.54 per diluted share, for
mark-to-market
losses on forward contracts that do not qualify for cash flow
hedge accounting. |
|
(2) |
|
Income (loss) before cumulative effect of change in accounting
principle and Net income (loss) include an after-tax charge of
$241.7 million, or $7.19 per diluted share, for
mark-to-market
losses on forward contracts that do not qualify for cash flow
hedge accounting and by a gain on the sale of surplus land. |
|
(3) |
|
Income (loss) before cumulative effect of change in accounting
principle and Net income (loss) include an after-tax charge of
$198.2 million, or $6.15 per diluted share, for
mark-to-market
losses on forward contracts that do not qualify for cash flow
hedge accounting. |
|
(4) |
|
Income (loss) before cumulative effect of change in accounting
principle and Net income (loss) include an after-tax charge of
$30.4 million, or $1.06 per diluted share, for a loss
on early extinguishment of debt. See Note 5 in the Audited
Consolidated Financial Statements included herein. |
|
(5) |
|
We adopted Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset
Retirement Obligations on January 1, 2003. As a
result, we recorded a one-time, non-cash charge of $5,878, for
the cumulative effect of a change in accounting principle. |
|
(6) |
|
Total debt includes all long-term debt obligations and any debt
classified as short-term obligations, including the current
portion of long-term debt, the industrial revenue bonds
(IRBs) and the 1.75% convertible senior notes,
excluding any outstanding preferred stock. Total debt does not
reflect repayment of $70 million of Nordural debt in April
2007 from available cash. |
|
(7) |
|
Long-term debt includes all payment obligations under long-term
borrowing arrangements, excluding the current portion of
long-term debt. Total debt does not reflect repayment of
$70 million of Nordural debt in April 2007 from available
cash. |
|
(8) |
|
Grundartangi completed a 130,000 mtpy capacity expansion in the
fourth quarter of 2006. |
S-24
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion reflects our historical results of
operations, certain portions of which do not include results
from:
|
|
|
|
|
our ownership of Grundartangi until acquired in late April 2004;
|
|
|
|
our ownership interest in the Gramercy assets until acquired in
October 2004; and
|
|
|
|
the 130,000 mtpy expansion capacity of Grundartangi that was
completed in the fourth quarter of 2006.
|
Accordingly, the results for fiscal years 2004 and 2005 are not
fully comparable to the results of operations for fiscal year
2006. Our historical results are not indicative of our current
business. You should read the following discussion in
conjunction with our consolidated financial statements, related
notes, and other financial information incorporated by reference
herein.
Overview
We are a global producer of primary aluminum and the third
largest primary aluminum producer in North America. The
aluminum industry is cyclical and the price of primary aluminum
(which trades as a commodity) is determined primarily by global
supply and demand. Through our ownership of Ravenswood,
Hawesville and Grundartangi, and our ownership interest in Mt.
Holly, we have an annual production capacity of approximately
745,000 mtpy of primary aluminum. We expect our production
capacity to increase to 785,000 mtpy by the fourth quarter of
2007 as a result of the ongoing expansion at Grundartangi. The
key determinants of our results of operations and cash flow from
operations are as follows:
|
|
|
|
|
Our selling price is based on the LME and U.S. Midwest
prices of primary aluminum and fixed price sales contracts.
|
|
|
|
Our facilities operate at or near capacity, and fluctuations in
volume, other than through expansions and acquisitions,
generally are small.
|
|
|
|
The principal components of cost of goods sold are alumina,
electrical power and labor, which in aggregate were in excess of
70% of the 2006 cost of goods sold. Many of these costs are
covered by long-term contracts, as described below.
|
Shipment volumes, average realized price and cost of goods sold
per pound shipped are our key performance indicators. Revenue
can vary significantly from period to period due to fluctuations
in the LME and Midwest price of primary aluminum. Any adverse
changes in the conditions that affect shipment volumes or the
market price of primary aluminum could have a material adverse
effect on our results of operations and cash flows. Revenue is
also impacted by our hedging activities. Fluctuations in working
capital are influenced by shipments, the LME and Midwest price
of primary aluminum and by the timing of cash receipts and
disbursements from major customers and suppliers.
Alumina and power are our two major costs of goods sold.
Fluctuations in the cost of alumina in our U.S. facilities
are expected as the pricing in these contracts is variable and,
except for the Gramercy alumina contract, is based on LME
prices. Power contracts for our U.S. facilities primarily
provide for fixed priced power through 2009, subject to
adjustments for fuel costs in Mt. Holly and possible adjustments
in tariff rates in Ravenswood. Approximately 27% of
Hawesvilles power requirements (126 MW) are unpriced
beginning in 2008 through 2010. We have negotiated short-term
contracts to cover this requirement through 2007 at
approximately market prices prevailing at the time we entered
into such contracts. We are currently reviewing our options for
pricing the unpriced power in 2008 through 2010. We are working
with Big Rivers Electric Corporation and Kenergy Corporation on
a proposal that would restructure and extend Hawesvilles
existing power supply contract through 2023. We expect power
rates for the unpriced power to be significantly higher than the
rates paid under our current long-term power contracts.
Effective July 28, 2006, the Public Service Commission for
the State of West Virginia approved an experimental rate design
in conjunction with an increase in the applicable tariff rates.
Under the experimental rate, Ravenswood may be excused from or
may
S-25
defer the payment of the increase in the tariff rate if aluminum
prices as quoted on the LME fall below pre-determined levels.
Power contract pricing for Grundartangi is variable and based on
LME prices.
In 2006, we entered into LME-based, long-term alumina contracts
for the supply of alumina to Ravenswood and Mt. Holly beginning
in January 2007 and expiring at the end of 2009 and 2013,
respectively. These contracts were negotiated during a period of
tight supply in the alumina market and as a result, the LME
pricing in our new alumina contracts is higher than under the
contracts they replaced. Labor agreements with the USWA at our
Hawesville and Ravenswood facilities were ratified in 2006 and
will expire in 2010 and 2009, respectively.
Recent
Developments
Proposed
Helguvik Smelter
We intend to use the net proceeds from the sale of our common
stock in this offering primarily as partial funding for the
construction of a greenfield aluminum smelter near Helguvik,
Iceland. We will also need to arrange additional third-party
debt for this project, in addition to using current cash flows.
This smelter would be located approximately 30 miles from
the city of Reykjavik and would be operated through our Nordural
subsidiary. The site is adjacent to a longstanding
U.S. Department of Defense base, which was recently closed,
causing the loss of 700 direct jobs and over 1,000 additional
related jobs. This site provides a flat location and existing
harbor, as well as proximity to the capital and other industry.
To date, we have signed a harbor agreement, site agreement and
an agreement to grant, as required, the necessary construction
licenses and permits and terms regarding principles of taxation,
with the Reykjanesbaer Municipal Council, the Gardur Municipal
Council and the Reykjanes Harbour Board. In addition, we have
signed contracts to purchase electrical energy from both of the
major Icelandic geothermal power producers. The contracts are
subject to the satisfaction of certain conditions, approvals by
the boards of directors of the power companies, environmental
agency approval and the construction of the new facility. The
first phase of construction is currently being planned based on
the anticipated availability of up to 250 MW of power in
2010, corresponding to a production capacity of about 150,000
mtpy. An additional 185 MW is expected to become available
by 2015 which would allow us to increase the Helguvik
projects capacity to approximately 250,000 mtpy.
Successful completion of the Helguvik project is subject to
risks as described under Risk Factors on
page S-9
above. Proceeds not used for the Helguvik project may also be
used for general corporate purposes, including capital
expenditures. See Use of Proceeds on
page S-19.
Grundartangi
Expansion Schedule Accelerated
In April 2006, we announced an acceleration in the further
expansion of our Grundartangi facility from 220,000 mtpy to
260,000 mtpy. The construction of the expansion is expected to
be completed in the fourth quarter of 2007. We had previously
announced that OR had agreed to deliver the power for the
additional expansion by late 2008. Landsvirkjun, Icelands
national power company, has agreed to deliver power for the
additional capacity on an interim basis as available until power
is available from OR in late 2008. If Landsvirkjun is not able
to deliver power on a short-term basis, we will need to enter
into alternative arrangements for provision of power. On
April 30, 2007, Grundartangi and Glencore entered into a
toll conversion agreement for the additional 40,000 mtpy of
expansion capacity which commences when the expansion capacity
is operational.
Republic
of the Congo Aluminum Venture Memorandum of Understanding
Signed
In February 2007, we signed an MOU with the Republic of Congo
(ROC) in West Africa in connection with the
exclusive right granted to us to develop an integrated aluminum
business in the ROC consisting of an aluminum smelter, an
alumina refinery and a bauxite mine. The project contemplated by
the MOU is in the early stages of feasibility study and review
and is subject to the results of that study and review, the
negotiation of definitive contracts, and the satisfaction of
various conditions.
S-26
The ROC port area of Pointe-Noire has been identified as a
potential site for the aluminum smelter and alumina refinery.
The location of the bauxite mine is dependent upon a future
assessment and mapping of the ROC bauxite reserves. The project
contemplated by the MOU is based on the Government of ROC
assisting us to secure the provision of a minimum annual
commitment of 500 MW of gas-generated electrical energy to
the facility.
Joint
Venture with Minmetals Aluminum Co. Ltd.
In April 2006, we entered into a joint venture agreement with
Minmetals Aluminum Co. Ltd. to explore the potential of
developing a bauxite mine and associated 1.5 million mtpy
alumina refining facility in Jamaica.
The first stage of the project, a pre-feasibility stage, will
assess the quality and quantity of bauxite reserves. This stage
is expected to take up to 18 months. If this stage is
successful, a full feasibility study would follow. The parties
estimate that the mine and alumina refinery could be operational
within three years following the successful completion of the
full feasibility study.
Key
Long-Term Contracts
Primary
Aluminum Sales Contracts
We routinely enter into market priced contracts for the sale of
primary aluminum. A summary of Centurys long-term primary
aluminum sales contracts is provided below.
|
|
|
|
|
|
|
|
|
Contract
|
|
Customer
|
|
Volume
|
|
Term
|
|
Pricing
|
|
Alcan Metal Agreement
|
|
Alcan
|
|
276 to 324 million pounds per
year
|
|
Through July 31, 2007
|
|
Variable, based on
U.S. Midwest market
|
Glencore Metal Agreement I(1)
|
|
Glencore
|
|
50,000 mtpy
|
|
Through December 31, 2009
|
|
Variable, LME-based
|
Glencore Metal Agreement II(2)
|
|
Glencore
|
|
20,400 mtpy
|
|
Through December 31, 2013
|
|
Variable, based on
U.S. Midwest market
|
Southwire Metal Agreement
|
|
Southwire
|
|
240 million pounds per year
(high purity molten aluminum) 60 million pounds per year
(standard-grade molten aluminum) 48 million pounds per year
(standard-grade molten aluminum)
|
|
Through March 31, 2011(3)
Through December 31, 2010(3)
Through December 31, 2007
|
|
Variable, based on
U.S. Midwest market
Variable, based on U.S. Midwest market
Variable, based on U.S. Midwest market
|
|
|
|
(1) |
|
We account for the Glencore Metal Agreement I as a derivative
instrument under SFAS No. 133. We have not designated
the Glencore Metal Agreement I as normal because it
replaced and substituted for a significant portion of a sales
contract which did not qualify for this designation. Because the
Glencore Metal Agreement I is variably priced, we do not expect
significant variability in its fair value, other than changes
that might result from the absence of the U.S. Midwest
premium. |
|
(2) |
|
We account for the Glencore Metal Agreement II as a
derivative instrument under SFAS No. 133. Under the
Glencore Metal Agreement II, pricing is based on
then-current market prices, adjusted by a negotiated
U.S. Midwest premium with a cap and a floor as applied to
the current U.S. Midwest premium. |
|
(3) |
|
The Southwire Metal Agreement will automatically renew for
additional five-year terms, unless either party provides
12 months notice that it has elected not to renew. |
S-27
Tolling
Contracts
|
|
|
|
|
|
|
|
|
Contract
|
|
Customer
|
|
Volume
|
|
Term
|
|
Pricing
|
|
Billiton Tolling Agreement(1)(4)
|
|
BHP Billiton
|
|
130,000 mtpy
|
|
Through December 2013
|
|
LME-based
|
Glencore Tolling Agreement(2)(3)(4)
|
|
Glencore
|
|
90,000 mtpy
|
|
Through July 2016
|
|
LME-based
|
Glencore Tolling Agreement(4)
|
|
Glencore
|
|
40,000 mtpy
|
|
Through December 2014
|
|
LME-based
|
|
|
|
(1) |
|
In September 2005, Nordural and BHP Billiton amended the
Billiton Tolling Agreement to increase the tolling arrangement
from 90,000 mtpy to 130,000 mtpy of the annual production
capacity at Grundartangi effective upon the completion of the
expansion to 220,000 mtpy. |
|
(2) |
|
Nordural entered into a
10-year
LME-based alumina tolling agreement with Glencore for 90,000
mtpy of the expansion capacity at Grundartangi. Deliveries under
this agreement started in July 2006. |
|
(3) |
|
In December 2005, Glencore assigned 50% of its tolling rights
under this agreement for the period 2007 to 2010. Nordural
consented to the assignment. |
|
(4) |
|
Grundartangis tolling revenues include a premium based on
the EU import duty for primary aluminum. In May 2007, the EU
members reduced the import duty for primary aluminum from six
percent to three percent and agreed to review the new duty after
three years. Decreases in the EU import duty have a negative
impact on Grundartangis revenues. |
Key
Long-Term Supply Agreements
Alumina
Supply Agreements
A summary of our alumina supply agreements is provided below.
Nordural toll converts alumina provided by BHP Billiton, Hydro
and Glencore.
|
|
|
|
|
|
|
Facility
|
|
Supplier
|
|
Term
|
|
Pricing
|
|
Mt. Holly
|
|
Glencore
|
|
Through January 31, 2008 (46%
of requirements)
|
|
Variable, LME-based
|
Mt. Holly(1)
|
|
Trafigura
|
|
January 1, 2007 through
December 31, 2013
|
|
Variable, LME-based
|
Hawesville
|
|
Gramercy Alumina
|
|
Through December 31, 2010
|
|
Variable, Cost-based
|
Ravenswood
|
|
Glencore
|
|
January 1, 2007 through
December 31, 2009
|
|
Variable, LME-based
|
|
|
|
(1) |
|
The alumina supply contract with Trafigura will provide Century
with 125,000 mtpy in 2007 and 220,000 mtpy in 2008 through 2013. |
S-28
Electrical
Power Supply Agreements
We use significant amounts of electricity in the aluminum
production process. A summary of these power supply agreements
is provided below.
|
|
|
|
|
|
|
Facility
|
|
Supplier
|
|
Term
|
|
Pricing
|
|
Ravenswood(1)(2)
|
|
Appalachian Power Company
|
|
Through June 30, 2009
|
|
Based on published tariff, with
provisions for a reduction in pricing based on the LME price for
primary aluminum
|
Mt. Holly
|
|
South Carolina Public Service
Authority
|
|
Through December 31, 2015
|
|
Fixed price, with fuel cost
adjustment clause through 2010; subject to a new fixed price
schedule after 2010
|
Hawesville
|
|
Kenergy
|
|
Through December 31, 2010
|
|
Fixed price through 2010
(approximately 73% of Hawesvilles requirement)
|
Grundartangi(3)
|
|
Landsvirkjun
|
|
Through 2019
|
|
Variable rate based on the LME
price for primary aluminum
|
Grundartangi(4)
|
|
Hitaveita Sudurnesja
|
|
Through 2026-2028
|
|
Variable rate based on the LME
price for primary aluminum
|
Grundartangi(4)
|
|
Orkuveita Reykjavikur
|
|
Through 2026-2028
|
|
Variable rate based on the LME
price for primary aluminum
|
|
|
|
(1) |
|
Appalachian Power supplies all of Ravenswoods power
requirements. After December 31, 2007, Ravenswood may
terminate the agreement by providing 12 months notice of
termination. Effective July 28, 2006, the Public Service
Commission of the State of West Virginia approved an
experimental rate design in connection with an increase in the
applicable tariff rates. Under the experimental rate, Ravenswood
may be excused from or may defer the payment of the increase in
the tariff rate if aluminum prices as quoted on the LME fall
below pre-determined levels. |
|
(2) |
|
This contract contains LME-based pricing provisions that are
considered an embedded derivative. The embedded derivative does
not qualify for cash flow hedge treatment and is marked to
market quarterly. Gains and losses on the embedded derivative
are included in the Net gain (loss) on forward contracts in the
Consolidated Statement of Operations. |
|
(3) |
|
In April 2006, we announced an expansion of the Grundartangi
facility from 220,000 mtpy to 260,000 mtpy which is expected to
be completed in the fourth quarter of 2007. OR has agreed to
deliver the power for the additional expansion capacity by late
2008. Landsvirkjun has agreed to deliver power for the
additional capacity on an interim basis as available until power
is available from OR in late 2008. |
|
(4) |
|
The power agreement for the power requirements for the expansion
to 220,000 mtpy is through 2026. The term of the power agreement
for the expansion to 260,000 mtpy is until 2028. |
Labor
Agreements
Our labor costs at Ravenswood and Hawesville are subject to the
terms of labor contracts which generally have provisions for
annual fixed increases in hourly wages and benefits adjustments.
The five labor unions represented at Grundartangi operate under
a labor contract that establishes wages and work rules for
covered employees. The employees at Mt. Holly are employed by
Alcoa and are not unionized. A summary of key labor agreements
is provided below.
S-29
|
|
|
|
|
Facility
|
|
Organization
|
|
Term
|
|
Hawesville
|
|
USWA
|
|
Through March 31, 2010
|
Ravenswood
|
|
USWA
|
|
Through May 31, 2009
|
Grundartangi
|
|
Icelandic labor unions
|
|
Through December 31, 2009
|
Gramercy
|
|
USWA
|
|
Through September 30, 2010
|
St. Ann
|
|
Jamaican labor unions
|
|
Through April 30, 2007(1)
|
|
|
|
(1) |
|
St. Ann has two labor unions, the University and Allied Workers
Union (the UAWU) and the Union of Technical and
Supervisory Personnel (the UTASP). The UAWU labor
agreement expired on April 30, 2007. On February 14,
2006, the UTASP agreed to a labor contract that will expre on
December 31, 2007. Consistent with Jamaican labor union
practice, we expect that negotiations for labor contracts to
replace these contracts will commence following expiration of
these contracts. |
Application
of Critical Accounting Policies
Our significant accounting policies are discussed in Note 1
of the Audited Consolidated Financial Statements. The
preparation of the financial statements requires that management
make subjective estimates, assumptions and judgments in applying
these accounting policies. Those judgments are normally based on
knowledge and experience about past and current events and on
assumptions about future events. Critical accounting estimates
require management to make assumptions about matters that are
highly uncertain at the time of the estimate and a change in
these estimates may have a material impact on the presentation
of our financial position or results of operations. Significant
judgments and estimates made by our management include expenses
and liabilities related to pensions and other postemployment
benefits and forward delivery contracts and financial
instruments.
Pension
and Other Postemployment Benefit Liabilities
We sponsor various pension plans and also participate in a union
sponsored multi-employer pension plan for the collective
bargaining unit employees at Hawesville. The liabilities and
annual income or expense of our pension and other postemployment
benefit plans are determined using methodologies that involve
several actuarial assumptions, the most significant of which are
the discount rate and the long-term rate of asset return.
In developing our expected long-term rate of return assumption
for pension fund assets, we evaluated input from our actuaries,
including their review of asset class return expectations as
well as long-term inflation assumptions. Projected returns are
based on historical returns of broad equity and bond indices. We
also considered our historical
10-year
compound returns. We anticipate that our pension investments
will generate long-term rates of return of 9.0%. Our expected
long-term rate of return is based on an assumed asset allocation
of 65% equity funds and 35% fixed-income funds.
Discount
Rate Selection
It is our policy to select a discount rate for purposes of
measuring obligations under the pension and retiree medical
plans by matching cash flows separately for each plan to yields
on zero coupon bonds. We use the Citigroup Pension Liability
Index for determining these yields.
The Citigroup Pension Liability Index was specifically developed
to meet the criteria set forth in paragraph 186 of
Statement of Financial Accounting Standards (SFAS)
No. 106, Employers Accounting for
Postretirement Benefits Other than Pensions. The published
information at the end of each calendar month includes spot rate
yields (zero coupon bond yield estimates) in half year
increments for use in tailoring a discount rate to a particular
plans projected benefit cash flows. The Citigroup Pension
Liability Index rate represents the discount rate developed from
these spot rate yields, based on the pattern and duration of the
benefit payments of a typical, large, somewhat mature pension
plan.
S-30
The individual characteristics of each plan, including projected
cash flow patterns and payment durations, have been taken into
account, since discount rates are determined on a
plan-by-plan
basis. We will generally select a discount rate rounded to the
nearest 0.25%, unless specific circumstances provide for a more
appropriate non-rounded rate to be used. We believe the
projected cash flows used to determine the Citigroup Pension
Liability Index rate provide a good approximation of the timing
and amounts of our defined benefits payments under our plans and
no adjustment to the Citigroup Pension Liability Index rate has
been made.
Therefore, as of December 31, 2006, Century selected a
discount rate of 5.75% for all of the pension and
post-employment benefit plans and 5.25% for our workers
compensation plans.
Although the duration of the Supplemental Executive Retirement
Benefits Plan (SERB) is slightly shorter than our
other pension plans, Century will also use a 5.75% discount rate
for this plan, because we do not believe that the difference in
duration is significant, and because the obligations of the SERB
are small in comparison to the other plans, we believe that the
disclosure of a single rate that was used for the majority of
the obligations will enhance the readers understanding of
the employee benefit footnote, rather than a weighted average
rate that may complicate any determinations the reader may have.
Lowering the expected long-term rate of return by 0.5% (from
9.0% to 8.5%) would have increased our pension expense for the
year ended December 31, 2006 by approximately
$0.3 million. Lowering the discount rate assumptions by
0.5% would have increased our pension expense for the year ended
December 31, 2006 by approximately $0.4 million.
Century provides postemployment benefit plans that provide
health care and life insurance benefits for substantially all
retired employees of our U.S. based operations.
SFAS No. 106 requires the accrual of the estimated
cost of providing postretirement benefits during the working
careers of those employees who could become eligible for such
benefits when they retire. We fund these benefits as the
retirees submit claims.
Measurement of our postretirement benefit obligations requires
the use of several assumptions about factors that will affect
the amount and timing of future benefit payments. The assumed
health care cost trend rates are the most critical assumptions
for measurement of the postretirement benefits obligation.
Changes in the health care cost trend rates have a significant
effect on the amounts reported for the health care benefit
obligations.
Century assumes medical inflation is initially 10%, declining to
5% over six years and thereafter. A one-percentage-point change
in the assumed health care cost trend rates would have the
following effects in 2007:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point
|
|
|
One Percentage Point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Effect on total service and
interest cost components
|
|
$
|
3,786
|
|
|
$
|
(2,808
|
)
|
Effect on accumulated
post-retirement benefit obligation
|
|
$
|
38,024
|
|
|
$
|
(30,417
|
)
|
Forward
Delivery Contracts and Financial Instruments
Estimating the fair value of certain of our forward financial
and physical delivery contracts requires us to make assumptions
about future market prices of primary aluminum and the
U.S. Midwest premium. We routinely enter into market priced
physical and fixed-priced financial contracts for the sale of
primary aluminum and the purchase of raw materials in future
periods. We apply the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended, in accounting for these types of
contracts. We have fixed price financial contracts for the sale
of primary aluminum with settlement dates through 2015, but the
LME futures quotes run through 2012. Determining the fair value
of these forward contracts requires us to make certain
assumptions about future market prices of primary aluminum
beyond the quoted future market prices in 2012. In addition, our
Glencore Metal Agreement II forward physical sales contract is
accounted for as a derivative and contains pricing provisions
based on the U.S. Midwest market price of primary aluminum.
Because there is no quoted futures market price for the
U.S. Midwest premium component of the market price for
primary aluminum, it is necessary for us to estimate the
U.S. Midwest premium for future periods. For those physical
delivery contracts which management believes are probable of
S-31
future delivery, such contracts are classified as normal
purchases and normal sales and are not accounted for as
derivatives.
The aluminum-based financial and physical delivery contracts
that are derivatives and do not qualify for the normal purchases
and normal sales exception, as provided for in current
accounting standards, are
marked-to-market
using the LME spot and forward market for primary aluminum. For
derivative contracts extending beyond the quoted LME market
periods, we estimate the forward LME market price beyond the
quoted periods based upon market price trends in the final
months of the quoted LME market. We estimate the
U.S. Midwest premium by using third party expectations for
future U.S. Midwest premiums, when available. Third-party
estimates rarely extend beyond 24 months. For periods
beyond the third-party information, we estimate the
U.S. Midwest premium by using its
10-year
rolling average. Fluctuations in the LME price of primary
aluminum and U.S. Midwest premium have a significant impact
on gains and losses included in our financial statements from
period to period. Unrealized gains and losses are either
included in Other comprehensive income (loss) (for cash flow
hedges) or Net gain (loss) on forward contracts (for derivative
instruments), depending on criteria as provided for in the
accounting standards.
The forward natural gas purchase contracts are
marked-to-market
using the NYMEX spot and forward market for natural gas.
Fluctuations in the NYMEX price of natural gas can have an
impact on Other comprehensive income in our financial statements
from period to period. We have designated these forward
contracts as cash flow hedges for forecasted natural gas
transactions in accordance with the provisions of
SFAS No. 133 (as amended). We assess the effectiveness
of these cash flow hedges quarterly. The effective portion of
the gains and losses are recorded in Other comprehensive income
(loss) and subsequently reclassified into earnings when the
forecasted transaction affects earnings. The ineffective portion
of the gain or loss is reported in earnings immediately.
The principal contracts affected by these standards and the
resulting effects on the financial statements are described in
Note 13 to the Audited Consolidated Financial Statements
included herein.
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items included
in our Statements of Operations. The following table includes
the results from Nordural since our acquisition of it in April
2004 and the results from our interest in the Gramercy assets
since its acquisition in October 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Sales
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
(75.3
|
)
|
|
|
(78.0
|
)
|
|
|
(77.6
|
)
|
|
|
(85.7
|
)
|
|
|
(82.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
24.7
|
|
|
|
22.0
|
|
|
|
22.4
|
|
|
|
14.3
|
|
|
|
17.5
|
|
Selling, general and
administrative expenses
|
|
|
(2.9
|
)
|
|
|
(3.5
|
)
|
|
|
(2.5
|
)
|
|
|
(3.1
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
21.8
|
|
|
|
18.5
|
|
|
|
19.9
|
|
|
|
11.2
|
|
|
|
15.1
|
|
Interest expense
|
|
|
(2.4
|
)
|
|
|
(2.0
|
)
|
|
|
(2.4
|
)
|
|
|
(2.3
|
)
|
|
|
(3.8
|
)
|
Interest income
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Loss on early extinguishment of
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(4.5
|
)
|
Other income (expense)
net
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
(0.1
|
)
|
Net gain (loss) on forward
contracts
|
|
|
0.1
|
|
|
|
(82.7
|
)
|
|
|
(25.0
|
)
|
|
|
(27.2
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and equity in earnings of joint ventures
|
|
|
19.9
|
|
|
|
(66.0
|
)
|
|
|
(7.0
|
)
|
|
|
(18.3
|
)
|
|
|
4.8
|
|
Income tax benefit (expense)
|
|
|
(6.3
|
)
|
|
|
24.3
|
|
|
|
3.3
|
|
|
|
7.1
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
earnings of joint ventures
|
|
|
13.6
|
|
|
|
(41.7
|
)
|
|
|
(3.7
|
)
|
|
|
(11.2
|
)
|
|
|
3.1
|
|
Equity in earnings of joint
ventures
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
1.1
|
|
|
|
0.9
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
14.4
|
%
|
|
|
(40.8
|
)%
|
|
|
(2.6
|
)%
|
|
|
(10.3
|
)%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-32
The following table sets forth, for the periods indicated, the
shipment volumes and the average sales price per pound shipped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Aluminum
|
|
|
|
|
|
|
Direct (1)
|
|
|
|
|
|
|
|
|
Toll (2)(3)
|
|
|
|
|
|
|
Metric Tons
|
|
|
Pounds (000)
|
|
|
$/Pound
|
|
|
Metric Tons
|
|
|
Pounds (000)
|
|
|
$/Pound
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
131,568
|
|
|
|
290,057
|
|
|
$
|
1.15
|
|
|
|
53,055
|
|
|
|
116,968
|
|
|
$
|
0.98
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
131,041
|
|
|
|
288,895
|
|
|
$
|
1.12
|
|
|
|
50,634
|
|
|
|
111,630
|
|
|
$
|
0.90
|
|
Third Quarter
|
|
|
126,810
|
|
|
|
279,568
|
|
|
|
1.07
|
|
|
|
42,788
|
|
|
|
94,331
|
|
|
|
0.86
|
|
Second Quarter
|
|
|
132,590
|
|
|
|
292,311
|
|
|
|
1.12
|
|
|
|
39,123
|
|
|
|
86,252
|
|
|
|
0.90
|
|
First Quarter
|
|
|
132,378
|
|
|
|
291,843
|
|
|
|
1.03
|
|
|
|
24,574
|
|
|
|
54,177
|
|
|
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
522,819
|
|
|
|
1,152,617
|
|
|
$
|
1.09
|
|
|
|
157,119
|
|
|
|
346,390
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
132,712
|
|
|
|
292,581
|
|
|
$
|
0.88
|
|
|
|
23,302
|
|
|
|
51,373
|
|
|
$
|
0.69
|
|
Third Quarter
|
|
|
129,555
|
|
|
|
285,619
|
|
|
|
0.83
|
|
|
|
23,435
|
|
|
|
51,665
|
|
|
|
0.64
|
|
Second Quarter
|
|
|
130,974
|
|
|
|
288,748
|
|
|
|
0.86
|
|
|
|
23,025
|
|
|
|
50,761
|
|
|
|
0.67
|
|
First Quarter
|
|
|
130,083
|
|
|
|
286,783
|
|
|
|
0.88
|
|
|
|
22,756
|
|
|
|
50,168
|
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
523,324
|
|
|
|
1,153,731
|
|
|
$
|
0.86
|
|
|
|
92,518
|
|
|
|
203,967
|
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
133,940
|
|
|
|
295,287
|
|
|
$
|
0.87
|
|
|
|
23,468
|
|
|
|
51,737
|
|
|
$
|
0.64
|
|
Third Quarter
|
|
|
132,893
|
|
|
|
292,978
|
|
|
|
0.83
|
|
|
|
23,147
|
|
|
|
51,030
|
|
|
|
0.61
|
|
Second Quarter
|
|
|
133,726
|
|
|
|
294,816
|
|
|
|
0.82
|
|
|
|
16,094
|
|
|
|
35,481
|
|
|
|
0.60
|
|
First Quarter
|
|
|
134,601
|
|
|
|
296,743
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
535,160
|
|
|
|
1,179,824
|
|
|
$
|
0.83
|
|
|
|
62,709
|
|
|
|
138,248
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Direct shipments do not include toll shipments from Grundartangi. |
|
(2) |
|
Grundartangi expansion capacity
start-up
began in February 2006. Full expansion production of 220,000
mtpy was reached in the fourth quarter of 2006. |
|
(3) |
|
The table includes the results from our purchase of Nordural
since its acquisition in April 2004. |
S-33
Quarter
Ended March 31, 2007 Compared to Quarter Ended
March 31, 2006 (Unaudited)
Centurys financial highlights include:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Third-party customers
|
|
$
|
380,853
|
|
|
$
|
298,473
|
|
Related party customers
|
|
|
66,804
|
|
|
|
48,473
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
447,657
|
|
|
$
|
346,946
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
110,652
|
|
|
$
|
76,468
|
|
Net income (loss)
|
|
$
|
64,249
|
|
|
$
|
(141,571
|
)
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.98
|
|
|
$
|
(4.39
|
)
|
Diluted
|
|
$
|
1.87
|
|
|
$
|
(4.39
|
)
|
Shipments primary
aluminum (millions of pounds)
|
|
|
|
|
|
|
|
|
Direct
|
|
|
290.1
|
|
|
|
291.8
|
|
Toll
|
|
|
117.0
|
|
|
|
54.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
407.1
|
|
|
|
346.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
2007
|
|
|
2006
|
|
|
$ Difference
|
|
|
% Difference
|
|
|
|
(In millions)
|
|
|
Three months ended March 31,
|
|
$
|
447.7
|
|
|
$
|
346.9
|
|
|
$
|
100.8
|
|
|
|
29.1
|
%
|
Higher price realizations for primary aluminum in the first
quarter of 2007, due to improved LME prices for primary
aluminum, contributed $50.2 million to the sales increase.
Additional net sales volume contributed $50.6 million to
the sales increase. Direct shipments were 1.8 million
pounds less than the previous year period. Toll shipments
increased 62.8 million pounds from the previous year period
due to the Grundartangi expansion capacity that came on-stream
during 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
2007
|
|
|
2006
|
|
|
$ Difference
|
|
|
% Difference
|
|
|
|
(In millions)
|
|
|
Three months ended March 31,
|
|
$
|
110.7
|
|
|
$
|
76.4
|
|
|
$
|
34.3
|
|
|
|
44.9
|
%
|
During the three months ended March 31, 2007, improved
price realizations, net of increased market-based alumina costs
and LME-based power cost increases, improved gross profit by
$35.8 million. Increased shipment volume contributed
$21.0 million in additional gross profit. Partially
offsetting these gains were $22.5 million in net cost
increases comprised of: increased costs for maintenance,
materials and supplies, $7.6 million; increased power and
natural gas costs at our U.S. smelters, $3.8 million;
increased costs for Gramercy supplied alumina,
$0.9 million; increased post-retirement costs,
$2.2 million; increased net amortization and depreciation
charges, primarily at Grundartangi, $4.0 million; and other
spending increases, $4.0 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative Expenses
|
|
2007
|
|
|
2006
|
|
|
$ Difference
|
|
|
% Difference
|
|
|
|
(In millions)
|
|
|
Three months ended March 31,
|
|
$
|
13.0
|
|
|
$
|
12.1
|
|
|
$
|
0.9
|
|
|
|
7.4
|
%
|
The increase in selling, general and administrative expenses for
the three months ended March 31, 2007 from the same period
in 2006 was primarily due to spending on the proposed Helguvik
project that must be expensed.
S-34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
2007
|
|
|
2006
|
|
|
$ Difference
|
|
|
% Difference
|
|
|
|
(In millions)
|
|
|
Three months ended March 31,
|
|
$
|
11.0
|
|
|
$
|
6.8
|
|
|
$
|
4.2
|
|
|
|
61.8
|
%
|
The increase in interest expense for the three months ended
March 31, 2007 from the same period in 2006 was due to
higher loan balances on the Nordural debt and a reduction in
capitalized interest associated with reduced spending for the
Grundartangi expansion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain (Loss) on Forward Contracts
|
|
2007
|
|
|
2006
|
|
|
$ Difference
|
|
|
% Difference
|
|
|
|
(In millions)
|
|
|
Three months ended March 31,
|
|
$
|
0.4
|
|
|
$
|
(286.8
|
)
|
|
$
|
287.2
|
|
|
|
(100.1
|
)%
|
The gain (loss) on forward contracts reported for the
three-month periods ended March 31, 2007 and 2006,
respectively, was primarily a result of
mark-to-market
adjustments associated with our long-term financial sales
contracts that do not qualify for cash flow hedge accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Provision
|
|
2007
|
|
|
2006
|
|
|
$ Difference
|
|
|
% Difference
|
|
|
|
(In millions)
|
|
|
Three months ended March 31,
|
|
$
|
28.1
|
|
|
$
|
(84.4
|
)
|
|
$
|
(112.5
|
)
|
|
|
(133.3
|
%)
|
The changes in the income tax provision were primarily a result
of the changes in pre-tax income.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Net sales: Net sales for the year ended
December 31, 2006 increased $426.2 million or 38% to
$1,558.6 million. Higher price realizations for primary
aluminum in 2006, due to improved LME prices and U.S. Midwest
premiums, contributed $331.5 million of the sales increase.
This amount was partially offset by a $1.0 million decrease
in direct shipment revenues. Direct shipments were
1.1 million pounds less than the previous year due to the
potline shutdown at Ravenswood, offset by production increases
at the other U.S. smelters. The additional revenue provided
by the increase in Grundartangi tolling shipments for the year
ended December 31, 2006 contributed $95.7 million to
the 2006 net sales increase.
Gross profit: For the year ended
December 31, 2006, gross profit increased
$186.8 million to $348.5 million. Improved price
realizations net of increased LME-based alumina costs improved
gross profit by $213.6 million. Improved tolling fee
realizations net of increased LME-based power costs improved
gross profit by $48.2 million. Increased shipment volume,
the result of the Grundartangi expansion, contributed
$33.3 million in additional gross profit. Offsetting these
gains were $108.3 million in net cost increases comprised
of: higher power and natural gas costs, $41.2 million;
higher raw materials, supplies and maintenance costs,
$26.3 million; increased cost for Gramercy alumina,
$12.3 million; restart and increased average costs due to
the temporary potline shutdown at Ravenswood, $7.3 million;
increased net amortization and depreciation charges,
$12.7 million; increased pension and other postemployment
benefit accruals, $4.6 million; and other increased
spending, $3.9 million.
Selling, general and administrative
expenses: Selling, general and administrative
expenses for the year ended December 31, 2006 increased
$4.6 million to $39.4 million relative to the same
period in 2005. The increase is primarily due to the adoption of
SFAS No. 123(R), Share-Based Payments.
Interest expense, net: Interest expense for
the year ended December 31, 2006 increased
$11.0 million to $35.3 million. The increase in
interest expense is due to higher Nordural debt loan balances.
Net gain/loss on forward contracts: For the
year ended December 31, 2006, net loss on forward contracts
was $389.8 million compared to a net loss on forward
contracts of $309.7 million for 2005. The losses reported
for the years ended December 31, 2006 and 2005 were
primarily a result of
mark-to-market
losses associated with our long-term financial sales contracts
with Glencore that do not qualify for cash flow hedge
accounting. Cash settlements of financial metal sales contracts
that do not qualify for cash flow hedge treatment accounted for
$54.2 million of the net loss, of which $2.6 million
loss is due to the non-cash settlements of derivatives
associated with the Glencore Metal agreements. The remaining
$335.6 million is unrealized losses consisting of:
$335.4 million unrealized losses related to our outstanding
financial metals
S-35
sales contracts that do not qualify for treatment as cash flow
hedges due for settlement in 2007 through 2015, and
$0.2 million unrealized loss due to an embedded derivative
in our Ravenswood power contract.
Tax provision: We recorded an income tax
benefit for the year ended December 31, 2006 of
$52.0 million, a reduction of $28.7 million from the
recorded tax benefit of $80.7 million for the year ended
December 31, 2005. The reduction in the tax benefit is due
to the reduced loss before income taxes and increased equity in
earnings of joint ventures.
Equity in earnings of joint venture: Equity in
earnings from the Gramercy and St. Ann Bauxite Limited
(SABL) investments improved to $16.1 million
for the year ended December 31, 2006 from
$10.7 million in 2005. These earnings represent our share
of profits from third party bauxite, hydrate and chemical grade
alumina sales.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Net sales: Net sales for the year ended
December 31, 2005 increased $71.6 million or 7% to
$1,132.4 million. Higher price realizations for primary
aluminum in 2005, due to an improved LME price and
U.S. Midwest premium, contributed an additional
$41.7 million in sales. This amount was partially offset by
a $21.5 million decrease in direct shipment revenues.
Direct shipments were 26.1 million pounds less than the
previous year due to a reduced pot count at Hawesville and fewer
days in 2005 versus 2004. The additional revenue provided by
Grundartangi tolling activities for the year ended
December 31, 2005 contributed $51.4 million to the
2005 net sales increase.
Gross profit: For the year ended
December 31, 2005, gross profit decreased
$23.6 million to $161.7 million. Improved price
realizations net of increased alumina costs improved gross
profit by $42.6 million. Increased shipment volume, the
result of the Nordural acquisition, contributed
$11.6 million in additional gross profit. Offsetting these
gains were $77.8 million in net cost increases comprised
of: higher raw material costs and replacement of pot cells,
$22.9 million; increased cost of Gramercy alumina,
$19.5 million; higher power and natural gas costs,
$17.6 million; increased net amortization and depreciation
charges, $6.2 million; increased pension and other
post-employment benefit accruals, $3.3 million; and other
increased spending, $8.3 million.
Selling, general and administrative
expenses: Selling, general and administrative
expenses for the year ended December 31, 2005 increased
$9.9 million to $34.8 million relative to the same
period in 2004. Approximately 63%, or $6.2 million of the
increase, was a result of increased compensation and pension
expense, with the remaining increase associated with increased
professional fees and other general expenses. In addition,
allowance for bad debts was reduced $0.6 million in 2004,
reflecting the settlement of a claim.
Interest expense, net: Interest expense for
the year ended December 31, 2005 declined
$14.9 million to $24.3 million. The reduction in
interest expense was a direct result of our refinancing
activities during the year 2004.
Net gain/loss on forward contracts: For the
year ended December 31, 2005, net loss on forward contracts
was $309.7 million as compared to a net loss on forward
contracts of $21.5 million for the same period in 2004. The
loss reported for the year ended December 31, 2005 was
primarily a result of
mark-to-market
losses associated with our long-term financial sales contracts
with Glencore that do not qualify for cash flow hedge
accounting. The losses reported for the year ended
December 31, 2004 primarily relate to the early termination
of a fixed-price forward sales contract with Glencore.
Loss on early extinguishment of debt: For the
year ended December 31, 2005, we recorded a loss of
$0.8 million related to the redemption of the remaining
$9.9 million of outstanding 11.75% senior secured
first mortgage notes. For the year ended December 31, 2004,
we recorded a loss of $47.4 million for the cost of
tendering for the first mortgage notes.
Tax provision: We recorded an income tax
benefit for the year ended December 31, 2005 of
$80.7 million, a change of $98.9 million from the
recorded tax expense of $18.2 million for the year ended
December 31, 2004. The change in the tax provision is due
to changes in the income (loss) before income
S-36
taxes and the discontinuance of accrual for United States taxes
on Nordurals earnings, resulting from a decision made in
2005 that such earnings would remain invested outside the United
States indefinitely. These items were partially offset by
changes in equity in earnings of joint ventures.
Equity in earnings of joint venture: Equity in
earnings from the Gramercy and SABL investments, which were
acquired on October 1, 2004, was $10.7 million for the
year ended December 31, 2005. These earnings represent our
share of profits from third party bauxite, hydrate and chemical
grade alumina sales.
Liquidity
and Capital Resources
Our principal sources of liquidity are cash flow from operations
and available borrowings under our revolving credit facility. We
believe these sources of cash will be sufficient to meet our
near-term working capital needs. We have not determined the
sources of funding for our long-term debt repayment
requirements; however, we believe that our cash flow from
operations, available borrowing under our revolving credit
facility and, to the extent necessary
and/or
economically attractive, future financial market activities will
be adequate to address our long-term liquidity requirements. Our
principal uses of cash are operating costs, payments of interest
on our outstanding debt, the funding of capital expenditures and
investments in related businesses, working capital and other
general corporate requirements.
As of December 31, 2006, we had $772.3 million of
indebtedness outstanding, including $175.0 million of
principal under our 1.75% convertible senior notes,
$250.0 million of principal under our 7.5% senior
notes, $331.0 million of indebtedness under the term loan
at Nordural, $7.8 million of principal under our industrial
revenue bonds, and $8.5 million indebtedness for various
site loans at Nordural. More information concerning the various
debt instruments and our borrowing arrangements is available in
Note 5 to the Audited Consolidated Financial Statements
included herein.
As of March 31, 2007, we had borrowing availability of
$97.6 million under our credit facility, subject to
customary covenants. We issued letters of credit totaling
$2.1 million. We had no other outstanding borrowings under
the credit facility as of March 31, 2007. We could issue up
to a maximum of $25.0 million in letters of credit under
our credit facility. On April 30, 2007, Nordural made a
$70 million optional principal payment under its term loan.
Capital
Resources
Capital expenditures for the three months ended March 31,
2007 were $31.6 million, $29.2 million of which was
for the expansion project at Grundartangi, with the balance
principally related to upgrading production equipment,
maintaining facilities and complying with environmental
requirements. Exclusive of the Grundartangi expansion, we
anticipate capital expenditures of approximately $30.0 to
$35.0 million in 2007. The Grundartangi expansion will
require approximately $95.0 million of capital expenditures
in 2007 to complete the expansion to 260,000 mtpy. At
March 31, 2007, we had outstanding capital commitments of
approximately $57.4 million, primarily related to the
Grundartangi expansion project.
We expect to incur approximately $10 million of projected
development costs for the Helguvik greenfield project in 2007.
Our cost commitments for the Grundartangi 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. Capital expenditures for 2006 were
$217.1 million, $193.5 million of which was related to
the expansion projects at Grundartangi, with the balance
principally related to upgrading production equipment, improving
facilities and complying with environmental requirements. In May
2006, we purchased foreign currency options with a notional
value of $41.6 million to hedge our foreign currency risk
in the Icelandic krona associated with a portion of the capital
expenditures from the expansion project. The option contracts,
which are designated as cash flow hedges and qualify for hedge
accounting under SFAS No. 133, have maturities through
November 2007. The critical terms of the contracts match those
of the underlying exposure.
As of March 31, 2007, the fair value of the foreign
currency options of $2.9 million was recorded in other
assets. Accumulated other comprehensive loss included an
unrealized gain, net of tax, of $2.3 million related to the
foreign currency options.
S-37
Historical
Cash Flows
Our Statements of Cash Flows for the quarters ended
March 31, 2007 and 2006 and for the years ended
December 31, 2006, 2005 and 2004 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash provided by operating
activities
|
|
$
|
98,118
|
|
|
$
|
16,039
|
|
|
$
|
185,353
|
|
|
$
|
134,936
|
|
|
$
|
105,828
|
|
Net cash used in investing
activities
|
|
|
(29,013
|
)
|
|
|
(75,402
|
)
|
|
|
(211,938
|
)
|
|
|
(305,339
|
)
|
|
|
(275,286
|
)
|
Net cash provided by financing
activities
|
|
|
2,654
|
|
|
|
59,123
|
|
|
|
105,197
|
|
|
|
143,987
|
|
|
|
185,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
$
|
71,759
|
|
|
$
|
(240
|
)
|
|
$
|
78,613
|
|
|
$
|
(26,416
|
)
|
|
$
|
15,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities in the first three months of
2007 was $98.1 million due to improved market conditions,
additional shipment volume from Grundartangi and increases in
our working capital.
Our net cash used in investing activities for the three-month
period ended March 31, 2007 was $29.0 million,
primarily a result of the ongoing expansion of the Grundartangi
facility. The remaining net cash used in investing activities
consisted of capital expenditures to maintain and improve plant
operations and the return of cash placed on deposit for energy
purchases. Our net cash used in investing activities for the
three-month period ended March 31, 2006 was
$75.4 million, primarily a result of the expansion of the
Grundartangi facility to 220,000 mpty capacity. The remaining
net cash used in investing activities consisted of capital
expenditures to maintain and improve plant operations and cash
placed on deposit to support future energy purchases.
Net cash provided by financing activities during the first three
months of 2007 was $2.7 million. We increased our
borrowings under Nordurals $365.0 million senior term
loan facility by $30.0 million, which was offset by
principal payments of $29.6 million on Nordural debt. We
received proceeds from the issuance of common stock of
$2.0 million related to the exercise of stock options and
excess tax benefits from share-based compensation of
$0.3 million. Net cash provided by financing activities
during the first three months of 2006 was $59.1 million. We
increased our borrowings under Nordurals
$365.0 million senior term loan facility by
$59.0 million. We also received proceeds from the issuance
of common stock of $2.4 million related to the exercise of
stock options and excess tax benefits from share-based
compensation of $0.8 million, which were offset by
repayments on our revolving credit facility of $3.0 million
and other long-term debt of $0.1 million.
Net cash from operating activities of $185.4 million in
2006 was $50.4 million higher than the same period in 2005.
This increase was a direct result of improved price realizations
and the added margin contributions from the expansion capacity
at Grundartangi.
Net cash from operating activities of $134.9 million in
2005 was $29.1 million higher than the same period in 2004.
Exclusive of the $50.3 million cash payment in 2004 for the
tender premium plus accrued interest for the refinancing of our
first mortgage notes, net cash from operating activities
decreased $21.2 million in 2005. This decrease was a direct
result of increased cost of goods sold, offset by lower debt
service costs related to the 2004 debt refinancing.
Net cash from operating activities of $105.8 million in
2004 was $18.4 million higher than the same period in 2003.
Exclusive of the $35.5 million settlement received in 2003
from the termination of a primary aluminum sales contract and
entering into the Glencore Metal Agreement I for the years 2005
through 2009 and the $50.3 million cash payment in 2004 for
the tender premium plus accrued interest for the refinancing of
our first mortgage notes, net cash from operating activities
increased $104.2 million in 2004. This increase was a
direct result of improved price realizations and the added
margin contributions from Nordural which was acquired in April
2004.
S-38
Net cash used in investing activities in 2006 was
$211.9 million, a decrease of $93.4 million from 2005.
Exclusive of the $7.8 million proceeds from the sale of
property, plant, and equipment in 2006 and net acquisition cost
of $7.0 million for a Southwire contingency payment in
April 2005, related to the Hawesville acquisition in 2001, the
decrease was $78.6 million. This decrease was due primarily
to lower expenditures on the Grundartangi expansion project of
$86.6 million, offset by higher purchases of property,
plant and equipment and restricted and other cash deposits
during the year of $7.8 million.
Net cash used in investing activities in 2005 was
$305.3 million, an increase of $30.0 million from
2004. Exclusive of the net acquisition cost of $7.0 million
for a Southwire contingency payment in April 2005, related to
the Hawesville acquisition in 2001, the net acquisition cost of
Nordural in April 2004 was $184.9 million and the net
acquisition cost of the Gramercy assets in October 2004 was
$13.7 million, net cash used in investing activities
increased $221.6 million. Purchases of property, plant and
equipment, including the Nordural expansion costs, were
$298.1 million in 2005 as compared to the purchases of
property, plant and equipment of $75.0 million in 2004.
Net cash used in investing activities in 2004 was
$275.3 million, an increase of $196.6 million from
2003. The net acquisition cost of Nordural in April 2004 was
$184.9 million and the Gramercy assets in October 2004 was
$13.7 million as compared to the net acquisition cost for
the additional 20% interest in Hawesville in April 2003 of
$59.8 million. Purchases of property, plant and equipment,
including the Nordural expansion costs, were $75.0 million
in 2004 as compared to purchases of property, plant and
equipment of $18.9 million in 2003.
Net cash provided by financing activities during 2006 was
$105.2 million, a decrease of $38.8 million from the
previous year. During 2006, we borrowed $109.0 million
under Nordurals term loan facility and repaid
$8.7 million, consisting of payments of $8.1 million
for the repayment of the revolving credit facility and
$0.6 million for other miscellaneous debt payments. We
received proceeds of $3.5 million from the issuance of
common stock and realized a $1.4 million tax benefit from
our share-based compensation programs.
Net cash provided by financing activities during 2005 was
$144.0 million, a decrease of $41.4 million from the
previous year. During 2005, we borrowed $222.9 million
under Nordurals new term loan facility, borrowed
$8.1 million under our revolving credit facility, and
received proceeds from the issuance of common stock of
$1.4 million. The additional borrowings were partially
offset by debt repayments of $83.3 million, consisting of
payments of $9.9 million for the remaining first mortgage
notes tendered in a debt refinancing, $68.5 million for the
prior Nordural term loan facility and $4.9 million for
other miscellaneous debt payments. Additionally, we paid
$5.1 million of financing fees for Nordurals new term
loan facility and the refinancing of our revolving credit
facility.
Net cash provided by financing activities during 2004 was
$185.4 million; this amount was primarily due to the
issuance of $425.9 million of debt, and the issuance of
$215.8 million of common stock, which was partially offset
by debt repayments of $439.9 million, consisting of
$315.1 million for the first mortgage notes tendered in a
debt refinancing, $109.8 million for the Nordural term loan
facility, $14.0 million for the repayment of a note to
Glencore, and $1.0 million for other miscellaneous debt
payments. Additionally, we paid $13.1 million of financing
fees for the debt issued in the fourth quarter of 2004 and
$3.3 million payment of accrued preferred dividends in the
second quarter of 2004.
Contractual
Obligations
In the normal course of business, we have entered into various
contractual obligations that will be settled in cash. These
obligations consist primarily of long-term debt obligations and
purchase obligations. The expected future cash flows required to
meet these obligations, as of December 31, 2006, are shown
in the table below. More information is available about these
contractual obligations in Note 12 to the Audited
Consolidated Financial Statements included herein.
S-39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
|
(Dollars in millions)
|
|
|
Long-term debt(1)
|
|
$
|
772
|
|
|
$
|
30
|
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
246
|
|
|
$
|
1
|
|
|
$
|
437
|
|
Estimated interest payments(2)
|
|
|
299
|
|
|
|
46
|
|
|
|
44
|
|
|
|
42
|
|
|
|
32
|
|
|
|
24
|
|
|
|
111
|
|
Purchase obligations(3)
|
|
|
3,084
|
|
|
|
684
|
|
|
|
508
|
|
|
|
470
|
|
|
|
327
|
|
|
|
182
|
|
|
|
913
|
|
OPEB obligations(4)
|
|
|
103
|
|
|
|
7
|
|
|
|
7
|
|
|
|
8
|
|
|
|
10
|
|
|
|
11
|
|
|
|
60
|
|
Other long-term liabilities(5)
|
|
|
43
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,301
|
|
|
$
|
773
|
|
|
$
|
593
|
|
|
$
|
554
|
|
|
$
|
620
|
|
|
$
|
223
|
|
|
$
|
1,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term debt includes principal repayments on the
7.5% senior notes, 1.75% convertible senior notes, the IRBs
and the Nordural debt, but does not reflect the
$70.0 million principal repayment on the Nordural debt in
April 2007. |
|
(2) |
|
Estimated interest payments on our long-term debt are based on
several assumptions, including an assumption that our term loan
debt is repaid on established schedules and is not refinanced.
Our variable rate debt is based primarily on the Eurodollar rate
plus an applicable margin. We assume that the Eurodollar rate
will be 5.50% in 2007 and remain steady thereafter. The IRB
interest rate is variable and our estimated future payments are
based on a rate of 4.20%. In addition, we assume the
7.5% senior notes due 2014 and 1.75% convertible
senior notes due 2024 will remain outstanding until their
respective due dates. |
|
(3) |
|
Purchase obligations include long-term alumina, electrical power
contracts, anode contracts and the Grundartangi expansion
project commitments. Grundartangis power contracts and our
domestic alumina contracts, except for our Gramercy alumina
contract, are priced as a percentage of the LME price of primary
aluminum. We assumed an LME price consistent with the LME
forward market at December 31, 2006, decreasing to the
10-year
average LME and remaining steady thereafter for purposes of
calculating expected future cash flows for these contracts. Our
Gramercy long-term alumina contract has variable cost-based
pricing. We used Gramercy Alumina LLC cost forecasts to
calculate the expected future cash flows for this contract. The
Grundartangi anode contract and some Grundartangi expansion
contract commitments are denominated in euros. We assumed a
$1.30/Euro
conversion rate to estimate the obligations under these
contracts. |
|
(4) |
|
Includes the estimated benefit payments for our OPEB obligations
through 2015, which are unfunded. |
|
(5) |
|
Other long-term liabilities include our expected SERB benefit
payments, workers compensation benefit payments and asset
retirement obligations. Expected benefit payments for the SERB
plans, which are unfunded, are included for 2007 through 2015.
Asset retirement obligations are estimated disposal costs for
the existing spent potliner. |
Related
Party Transactions
For a discussion of our related party transactions, see
Note 15 to the Audited Consolidated Financial Statements
included herein and Certain Relationships and Related
Transactions on
page S-51.
Environmental
Expenditures and Other Contingencies
We have incurred and in the future will continue to incur
capital expenditures and operating expenses for matters relating
to environmental control, remediation, monitoring and compliance.
The aggregate environmental related accrued liabilities were
$0.8 million, $0.6 million and $0.5 million at
March 31, 2007, December 31, 2006 and
December 31, 2005, respectively. We believe that compliance
with current environmental laws and regulations is not likely to
have a material adverse effect on our financial condition,
results of operations or liquidity; however, environmental laws
and regulations may change, and we may become subject to more
stringent environmental laws and regulations in the future.
S-40
We have planned environmental capital expenditures of
approximately $2.0 million for 2007. In addition, we expect
to incur operating expenses relating to environmental matters of
approximately $10 to $15 million each year during 2007,
2008 and 2009. These amounts do not include any projected
capital expenditures or operating expenses for our joint venture
interest in the Gramercy assets. As part of our general capital
expenditure plan, we also expect to incur capital expenditures
for other capital projects that may, in addition to improving
operations, reduce certain environmental impacts. See
Note 12 to the Audited Consolidated Financial Statements
included herein.
Century and its subsidiaries file income tax returns in the U.S.
federal jurisdiction and various state and local jurisdictions,
and Iceland. We have substantially concluded all material U.S.
federal income tax matters for years through 1999. Federal
income tax returns for 2000 through 2002 are currently under
examination by the Internal Revenue Service (IRS). In connection
with these examinations, the IRS has raised issues and proposed
tax deficiencies. We have filed an administrative appeal with
the IRS and it is likely that this examination will conclude in
2007. Returns beginning in 2003 are subject to examination.
Material state and local income tax matters have been concluded
for years through 2002. West Virginia income tax returns for
2003 through 2005 are currently under examination and the
majority of other state returns beginning in 2003 are subject to
examination. We are not currently under examination for our
Icelandic filed tax returns and income tax matters have been
concluded for years through 2001.
We are a defendant in several actions relating to various
aspects of our business. While it is impossible to predict the
ultimate disposition of any litigation, we do not believe that
any of these lawsuits, either individually or in the aggregate,
will have a material adverse effect on our financial condition,
results of operations or liquidity.
Recently
Adopted Accounting Standards
FIN 48. We adopted the provisions of Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. As a result of adoption,
we recognized a charge of approximately $7.9 million to the
January 1, 2007 retained earnings balance. As of the
adoption date, we had gross tax-affected unrecognized tax
benefits of $21.8 million of which, if recognized,
$18.3 million would affect the effective tax rate.
Centurys policy is to recognize potential accrued interest
and penalties related to unrecognized tax benefits in income tax
expense. We recognized approximately $5 million for the
payment of interest at January 1, 2007 which is included as
a component of the $21.8 million unrecognized tax benefit
noted above. During the three months ended March 31, 2007,
Century recognized approximately $0.7 million in potential
interest associated with uncertain tax positions.
SFAS 158. In September 2006, the
Financial Accounting Standards Board (FASB) issued
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment to SFAS No. 87, 88,
106, and 132(R). This statement required us to recognize
the funded status of a defined benefit and other postretirement
plan obligations in our financial statements and to recognize
changes in that funded status in the year in which the changes
occur through comprehensive income. In addition, the statement
requires additional disclosure about certain effects on net
periodic benefit cost that arise from delayed recognition of the
gains or losses, prior service costs or credits, and transition
asset or obligation.
We have adopted SFAS No. 158 as of December 31,
2006. The impacts of the new pronouncement are discussed in
Note 7 to our Audited Consolidated Financial Statements
included herein.
SFAS 123(R). In December 2004, the 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 Issued to Employees. This statement focuses
primarily on accounting for transactions in which a company
obtains services in share-based payment transactions. This
Statement requires us to recognize the grant date fair value of
an
S-41
award of equity-based instruments to employees and the cost to
be recognized over the period in which the employees are
required to provide service. The Statement is effective for
fiscal year 2006 and thereafter.
We have adopted SFAS No. 123(R) effective
January 1, 2006. We have elected to use the Modified
Prospective Application Method. Under this method, we will
recognize the fair value of employee stock-based compensation
awards as compensation cost beginning January 1, 2006.
SFAS No. 123(R) will apply to new awards granted
subsequent to our adoption and for any portion of previous
awards that had not vested as of January 1, 2006. The
compensation cost recognized from the unvested awards will be
based on the original grant-date fair value used to calculate
our pro forma financial disclosure under SFAS No. 123.
The impacts of the new pronouncement are discussed in
Note 9 to our Audited Consolidated Financial Statements
included herein.
Recently
Issued Accounting Standards
SFAS No. 157. In September 2006, the
FASB issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. This pronouncement
applies to other existing accounting pronouncements that require
or permit fair value measurements. The pronouncement does not
require any new fair value measurements. SFAS No. 157
will be effective for financial statements issued for fiscal
years beginning after November 15, 2007, and the interim
periods within those years. We are currently assessing the new
pronouncement and have not yet determined the impact of adopting
SFAS No. 157 on our financial position and results of
operations.
SFAS No. 159. In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities. The
Statement would permit us to measure certain financial
instruments and other items at their fair value. The objective
of the Statement is to mitigate the volatility in reported
earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. This fair value option would allow us to choose to
measure eligible items at fair value at a specified election
date.
The Statement is effective for us as of January 1, 2008. We
are currently assessing the Statement and have not yet
determined what, if any, impact the adoption of
SFAS No. 159 will have on our financial position or
results of operations.
S-42
BUSINESS
Overview
We are a global producer of primary aluminum and the third
largest primary aluminum producer in North America. Aluminum is
an internationally traded commodity, and its price is
effectively determined on the London Metal Exchange, or LME. Our
primary aluminum facilities produce standard-grade and
value-added primary aluminum products. We produced approximately
680,000 metric tons of primary aluminum in 2006 and recorded net
sales of approximately $1.6 billion. In 2006 we more than
doubled the capacity at our Grundartangi facility in Iceland
from 90,000 mtpy, at the time of our acquisition of the facility
to 220,000 mtpy. Following such expansion, our total primary
aluminum production capacity is currently 745,000 mtpy. With the
ongoing further expansion of our Grundartangi facility from
220,000 mtpy to 260,000 mtpy, our production capacity is
scheduled to increase to 785,000 mtpy in the fourth quarter of
2007. In addition to our primary aluminum assets, we have
50 percent joint venture interests in an alumina refinery,
located in Gramercy, Louisiana, and a related bauxite mining
operation in Jamaica. The Gramercy refinery supplies
substantially all of the alumina used for the production of
primary aluminum at our Hawesville, Kentucky, primary aluminum
facility.
Our strategic objectives are to: (a) increase our primary
aluminum business in Iceland by expanding our existing capacity
and by building additional greenfield capacity;
(b) diversify our geographic presence and expand our
primary aluminum business by investing in or acquiring
additional capacity in other favorable regions that offer
attractive returns and lower our per unit production costs; and
(c) pursue additional upstream opportunities in bauxite
mining and alumina refining.
Our
Primary Aluminum Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capacity
|
|
|
|
|
Facility
|
|
Location
|
|
Operational
|
|
|
(mtpy)
|
|
|
Ownership
|
|
|
Grundartangi(1)
|
|
Iceland
|
|
|
1998
|
|
|
|
220,000
|
|
|
|
100
|
%
|
Hawesville(2)
|
|
Kentucky, USA
|
|
|
1970
|
|
|
|
244,000
|
|
|
|
100
|
%
|
Ravenswood
|
|
West Virginia, USA
|
|
|
1957
|
|
|
|
170,000
|
|
|
|
100
|
%
|
Mt. Holly(3)
|
|
South Carolina, USA
|
|
|
1980
|
|
|
|
224,000
|
|
|
|
49.7
|
%
|
|
|
|
(1) |
|
Grundartangis production capacity is scheduled to increase
to 260,000 mtpy in the fourth quarter of 2007 upon completion of
the expansion. |
|
(2) |
|
The facility completed a 49,000 metric ton expansion in 1999,
increasing its capacity to 244,000 mtpy of primary aluminum. |
|
(3) |
|
Alcoa holds the remaining 50.3% ownership interest and is the
operator. Centurys share of Mt. Hollys capacity is
approximately 111,000 mtpy. |
Our
Bauxite and Alumina Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capacity
|
|
|
|
|
Facility
|
|
Location
|
|
Type
|
|
(mtpy)
|
|
|
Ownership
|
|
|
Gramercy
|
|
Louisiana, USA
|
|
Alumina Refinery
|
|
|
1.2 million
|
|
|
|
50
|
%
|
St. Ann(1)
|
|
Jamaica
|
|
Bauxite
|
|
|
4.5 million
|
|
|
|
50
|
%
|
|
|
|
(1) |
|
The Government of Jamaica has granted St. Ann rights to mine
4.5 million dry metric tons of bauxite on specified lands
annually through September 30, 2030. |
The
Aluminum Industry
The primary aluminum industry has been experiencing a period of
strong prices. Industry analysts generally believe these market
conditions are based primarily on favorable global supply and
demand fundamentals. Spot aluminum prices, as quoted on the LME,
averaged $2,800 per metric ton in the first
S-43
quarter of 2007 and remain well above historical long-term
averages. Significant continuing demand growth in China and the
generally favorable conditions in the global economy are
believed by industry analysts to be the primary drivers of the
robust market conditions.
In 2006, according to industry sources, global demand for
primary aluminum increased approximately 8.0% while global
supply grew by about 6.0%, resulting in a deficit of
approximately 500,000 metric tons. In the first quarter of 2007,
global supply exceeded demand by over 100,000 metric tons, in
part due to restarts of idled capacity, principally in China,
the United States and in Europe. Current capacity utilization
rates indicate that producers are operating at or near full
capacity utilization globally. In addition, industry experts
believe there is little viable idled capacity left to be
restarted. Aluminum inventories remain relatively lean on a
historical basis, with producer and LME stocks representing 35
to 40 days of Western World consumption.
Recent
Developments
Information regarding our recent developments appears under the
caption Managements Discussion and Analysis of
Financial Condition and Results of Operations Recent
Developments on
page S-26.
Competition
The market for primary aluminum is global, and demand for
aluminum varies widely from region to region. We compete with
U.S. and international companies in the aluminum industry
primarily in the areas of price, quality and service. In
addition, aluminum competes with materials such as steel,
copper, plastic and glass, which may be substituted for aluminum
in certain applications.
Our Hawesville and Ravenswood plants are each located adjacent
to their largest customer which allows them to deliver metal in
molten form, at a cost savings to both parties, providing a
competitive advantage over other potential suppliers. Our
Hawesville plant also has a competitive advantage due to its
ability to produce the high purity aluminum needed by its
largest customer for the manufacture of electrical transmission
lines.
Customer
Base
In 2006, we derived approximately 84% of our consolidated sales
from the following four major customers: Southwire, Alcan,
Glencore and BHP Billiton. Additional information about the
revenues and percentage of sales to these major customers is
available in Note 17 of the Audited Consolidated Financial
Statements included herein. A loss of any of these customers
could have a material adverse effect on our results of
operations. We currently have long-term primary aluminum sales
or tolling contracts with Southwire, Glencore and BHP Billiton
(the Alcan Metal Agreement expires in July 2007). For additional
information about these contracts, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations Key Long-Term Contracts
Primary Aluminum Sales Contracts on
page S-27.
Financial
Information About Segments and Geographic Areas
We operate in one reportable segment, primary aluminum.
Additional information about our primary aluminum segment and
certain geographic information is available in Note 17 to
the Audited Consolidated Financial Statements included herein.
For a description of certain risks attendant to our foreign
operations, see Risk Factors on
page S-9.
Energy,
Key Supplies and Raw Materials
We consume the following key supplies and raw materials in the
primary aluminum reduction process:
|
|
|
|
|
electricity
|
|
carbon
|
|
silicon carbide
|
alumina
|
|
cathode blocks
|
|
caustic soda
|
aluminum fluoride
|
|
liquid pitch
|
|
calcined
petroleum coke
|
natural gas
|
|
|
|
|
S-44
Electrical power, alumina, and labor are the principal
components of cost of goods sold. These components together
represented over 70 percent of our 2006 cost of goods sold.
We have long-term contracts to ensure the future availability of
many of these cost components. For additional information about
these contracts, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Key Long-Term Supply Agreements on
page S-28.
For a description of certain risks attendant to our raw material
supplies and labor, see Risk Factors on
page S-9.
Pricing
Our operating results are sensitive to changes in the price of
primary aluminum and the raw materials used in our production.
As a result, we try to mitigate the effects of fluctuations in
primary aluminum and raw material prices through the use of
various fixed-price commitments and financial instruments.
We offer a number of pricing alternatives to our customers
which, combined with our metals risk management activities, are
designed to achieve a certain level of price stability on our
primary aluminum sales. Generally, we price our products at an
indexed or market price, in which the customer pays
an
agreed-upon
premium over the LME price or other market indices.
Grundartangi derives substantially all of its revenues from
tolling arrangements whereby it converts alumina provided by its
customers into primary aluminum for a fee based on the LME price
for primary aluminum. Grundartangis revenues are subject
to market price risk for the LME price of primary aluminum;
however, because it produces primary aluminum under a tolling
arrangement, Grundartangi is not exposed to fluctuations in the
price for alumina, the principal raw material used in the
production of primary aluminum. Grundartangis tolling
revenues include a premium based on the exemption available to
Icelandic aluminum producers from the EU import duty for primary
aluminum. See Managements Discussion and Analysis of
Financial Condition and Results of Operations Recent
Developments on
page S-26.
Decreases in the EU import duty negatively impact
Grundartangis revenue. In addition, under its current
power contract, Grundartangi purchases power at a rate which is
a percentage of the LME price for primary aluminum. By linking
its most significant production cost to the LME price for
primary aluminum, Grundartangi is partially hedged against
downswings in the market for primary aluminum; however, this
hedge also limits Grundartangis upside as the LME price
increases.
Primary
Aluminum Facilities
Grundartangi
The Grundartangi facility located in Grundartangi, Iceland, is
owned and operated by our subsidiary, Nordural ehf. Grundartangi
is our most modern and lowest cost facility. Operations at
Grundartangi began in 1998 and production capacity was expanded
in 2001 and again in 2006. The facility has an annual production
capacity of 220,000 mtpy, which is scheduled to increase by
40,000 mtpy to 260,000 mtpy upon completion of the expansion
expected in the fourth quarter of 2007.
Grundartangi operates under various long-term agreements with
the Government of Iceland, local municipalities, and
Faxafloahafnir sf (which operates the harbor at Grundartangi and
is jointly owned by several municipalities). These agreements
include: (i) an investment agreement which establishes
Nordurals tax status and the Governments obligations
to grant certain permits; (ii) a reduction plant site
agreement by which Nordural leases the property through 2020,
subject to renewal at its option; and (iii) a harbor
agreement by which Nordural is granted access to the port at
Grundartangi. In connection with its expansion, Nordural has
entered into amendments to the investment agreement and the
reduction plant site agreements with the Government of Iceland.
Expansion Project. In late 2006, we completed
the expansion of the Grundartangi facility from an annual
production capacity of 90,000 mtpy to 220,000 mtpy at a total
cost of approximately $482 million. A further expansion to
260,000 mtpy of annual production capacity began in 2006 and is
projected to be completed in the fourth quarter of 2007 at an
estimated total cost of approximately $132 million. We
expect to fund the remaining costs of the expansion with
operating cash flow generated by Grundartangis operations.
S-45
Tolling Agreements. Nordural has a long-term
alumina tolling contract with a subsidiary of BHP Billiton which
expires December 31, 2013. Under this contract, which is
for approximately 130,000 metric tons of Grundartangis
annual capacity, Nordural receives an LME-based fee for the
conversion of alumina, supplied by BHP Billiton, into primary
aluminum. Grundartangis tolling revenues include a premium
based on the exemption available to Icelandic aluminum producers
from the EU import duty for primary aluminum. Nordural has
entered into a
10-year
alumina tolling contract with Glencore for 90,000 metric tons of
annual capacity that expires in 2016. Deliveries under this
agreement started in July 2006. Nordural receives an LME-based
fee under the Glencore contract. In 2005, Glencore assigned
45,000 mtpy of its tolling rights under this agreement to Hydro
Aluminum AS (Hydro) for the period 2007 to 2010.
Nordural consented to the assignment. On April 30, 2007,
Nordural and Glencore entered into a toll conversion agreement
for the additional 40,000 mtpy of expansion capacity which
commences when the expansion capacity is operational.
Power. Landsvirkjun, a power company owned by
the Republic of Iceland, provides power for 90,000 mtpy of the
Grundartangi facilitys production capacity under a
long-term contract due to expire in 2019. The power delivered by
Landsvirkjun is priced at a rate based on the LME price for
primary aluminum and is from hydroelectric and geothermal
sources. Hitaveita Sudurnesja hf. (HS) and Orkuveita
Reykjavikur (OR) supply the power required for
Grundartangis remaining 130,000 mtpy of production
capacity. The price paid by Nordural for power delivered by HS
and OR is also LME-based. OR has agreed to deliver additional
power, on a long-term basis, which will allow a further
expansion of Grundartangis production capacity to 260,000
mtpy. Delivery of power from OR under the additional agreement
is scheduled to start in late 2008. Nordural has made a
short-term agreement with Landsvirkjun which will allow startup
of the further expansion to 260,000 mtpy in the fourth quarter
of 2007, subject to availability. If Landsvirkjun is not able to
deliver power on a short-term basis, we will need to enter into
alternative arrangements for provision of power. The power
agreement is subject to the satisfaction of certain conditions.
Employees. Our employees at Grundartangi are
represented by five labor unions that operate under a labor
contract that establishes wages and work rules for covered
employees for the period through December 31, 2009.
Hawesville
Hawesville is owned by our subsidiary, Century Kentucky, Inc.
Hawesville is located adjacent to the Ohio River near
Hawesville, Kentucky and began operations in 1970. Hawesville
has five reduction potlines with an annual production capacity
of 244,000 metric tons.
Hawesvilles original four potlines have an annual
production capacity of approximately 195,000 metric tons and are
specially configured and operated to produce high purity primary
aluminum. The average purity level of primary aluminum produced
by these potlines is 99.9%, compared to standard-purity aluminum
which is approximately 99.7%. High purity primary aluminum is
sold at a premium to standard-purity aluminum. The high purity
primary aluminum provides the conductivity required by
Hawesvilles largest customer, Southwire, for its
electrical wire and cable products as well as for certain
aerospace applications. A fifth potline added in 1999 has an
annual capacity of approximately 49,000 metric tons of
standard-purity aluminum.
Metal Sales Agreement. Hawesville has a
long-term aluminum sales contract with Southwire (the
Southwire Metal Agreement). The Southwire Metal
Agreement expires March 31, 2011, subject to automatic
renewal for additional five-year terms, unless either party
provides 12 months notice that it has elected not to
renew. The price for the molten aluminum delivered to Southwire
is variable and is determined by reference to the
U.S. Midwest Market Price. Under the contract, Hawesville
supplies 240 million pounds (approximately 109,000 metric
tons) of high-purity molten aluminum annually to
Southwires adjacent wire and cable manufacturing facility.
Under this contract, Southwire will also purchase
60 million pounds (approximately 27,000 metric tons) of
standard-grade molten aluminum each year through December 2010.
Southwire has an option to purchase an equal amount of
standard-grade molten aluminum in 2011. In addition, Southwire
will purchase an additional 48 million pounds
(approximately 22,000 metric tons) of standard-grade molten
aluminum during 2007.
S-46
Alumina. Hawesville purchases alumina under a
supply agreement with Gramercy Alumina LLC (GAL).
GAL is a joint venture company of which Century owns 50%, and
which owns and operates the Gramercy alumina refinery. The
alumina supply agreement runs through December 31, 2010 and
the contract pricing varies based on GALs cost of
production.
Power. Hawesville purchases all of its power
from Kenergy Corp. (Kenergy), a local retail
electric cooperative, under a power supply contract that expires
December 31, 2010. Kenergy acquires most of the power it
provides to Hawesville from a subsidiary of LG&E Energy
Corp., with delivery guaranteed by LG&E. In 2007,
Hawesville has unpriced power requirements of approximately
14 MW or about three percent of its power requirements. All
unpriced power will be priced at market prices. Hawesville has
unpriced power requirements of 126 MW or 27% of its power
requirements from 2008 through 2010. We are currently reviewing
our options for pricing the unpriced power in 2008 through 2010.
In addition, we are working with Big Rivers Electric Corporation
(Big Rivers) and Kenergy on a proposal that would
restructure and extend the existing power supply contract from
2008 through 2023.
Employees. The bargaining unit employees at
Hawesville are represented by the USWA. Centurys
collective bargaining agreement, which covers all of the
represented hourly employees at Hawesville, expires
March 31, 2010.
Ravenswood
The Ravenswood facility (Ravenswood) is owned and
operated by our subsidiary, Century Aluminum of West Virginia,
Inc. (Century of West Virginia). Built in 1957,
Ravenswood operates four potlines with an annual production
capacity of 170,000 metric tons. The facility is located
adjacent to the Ohio River near Ravenswood, West Virginia.
Metal Sales Agreements. Ravenswood produces
molten aluminum that is delivered to Alcans adjacent
fabricating facility and standard-grade ingot that we sell in
the marketplace. We have a contract with Alcan under which Alcan
purchases 23 to 27 million pounds (approximately 10,500 to
12,250 metric tons) per month of molten aluminum produced at
Ravenswood through July 31, 2007 (the Alcan Metal
Agreement). The price for primary aluminum delivered under
the Alcan Metal Agreement is variable and determined by
reference to the U.S. Midwest Market Price. This contract
requires us to deliver molten aluminum, which reduces our
casting and shipping costs. Ravenswood also sells 10,200 mtpy of
primary aluminum under a contract with Glencore (the
Glencore Metal Agreement II) through
December 31, 2013. Under the Glencore Metal Agreement II,
Glencore purchases 20,400 mtpy of the primary aluminum produced
at the Ravenswood and Mt. Holly facilities, at a price
determined by reference to the U.S. Midwest Market Price,
subject to an agreed cap and floor as applied to the
U.S. Midwest Premium.
Alumina. Glencore supplies the alumina used at
Ravenswood under a contract that expires on December 31,
2009. The contract pricing varies based on the LME price for
primary aluminum.
Power. Appalachian Power Company supplies all
of Ravenswoods power requirements. Power delivered under
the supply agreement is at prices set forth in published
tariffs. Effective July 28, 2006, the Public Service
Commission for the State of West Virginia, or PSC, approved an
experimental rate design in connection with an increase in the
applicable tariff rates. Power prices have some variability
based upon the LME price for primary aluminum and are subject to
possible adjustments in the published tariff. Under the
experimental rate, Ravenswood may also be excused from or may
defer the payment of the increase in the tariff rate if aluminum
prices as quoted on the LME fall below pre-determined levels. On
May 31, 2007, an agreement was reached in the tariff rate
case pending before the PSC on proposed adjustments to the
tariff rate paid by Ravenswood. If approved by the PSC, the
agreement would be effective July 1, 2007 and would
increase by approximately 10% the special contract rate
established in July 2006 for Ravenswood as a result of pollution
control additions and higher than anticipated increases in fuel
purchased power and capacity charges. After December 31,
2007, Ravenswood may terminate the agreement by providing 12
months notice of termination.
S-47
Employees. The bargaining unit employees at
Ravenswood are represented by the USWA. The collective
bargaining agreement that covers all of the represented hourly
employees at Ravenswood expires May 31, 2009.
Mt.
Holly
Mt. Holly, located in Mt. Holly, South Carolina, was built
in 1980 and is the most recently constructed aluminum reduction
facility in the United States. The facility consists of two
potlines with a total annual production capacity of 224,000
metric tons and casting equipment used to cast molten aluminum
into standard-grade ingot, extrusion billet and other
value-added primary aluminum products. Value-added primary
aluminum products are sold at a premium to standard-grade
primary aluminum. Our 49.7% interest represents approximately
111,000 metric tons of the facilitys annual production
capacity.
Our interest in Mt. Holly is held through our subsidiary,
Berkeley Aluminum, Inc. (Berkeley). Under the Mt.
Holly ownership structure, we hold an undivided 49.7% interest
in the property, plant and equipment comprising the aluminum
reduction operations at Mt. Holly and an equivalent share in the
general partnership responsible for the operation and
maintenance of the facility. Alcoa owns the remaining 50.3%
interest in Mt. Holly and an equivalent share of the operating
partnership. Under the terms of the operating partnership, Alcoa
is responsible for operating and maintaining the facility. Each
owner supplies its own alumina for conversion to primary
aluminum and is responsible for its proportionate share of
operational and maintenance costs.
Metal Sales Agreements. We have a contract to
sell to Glencore 50,000 metric tons of primary aluminum produced
at Mt. Holly each year through December 31, 2009 (the
Glencore Metal Agreement I). The Glencore Metal
Agreement I provides for variable pricing determined by
reference to the quoted LME price of primary aluminum. We also
sell an additional 10,200 mtpy of primary aluminum under the
Glencore Metal Agreement II at Mt. Holly. More information
on the Glencore Metal Agreement II is available under
Primary Aluminum Sales Contracts in
Managements Discussion and Analysis of Financial
Condition and Results of Operations on
page S-27.
Alumina. Glencore supplies approximately 46%
of our alumina requirements for Mt. Holly under a contract which
expires January 31, 2008. As of January 1, 2007, under
an agreement that extends through 2013, Trafigura AG provides us
with 54% of Mt. Hollys alumina requirements for 2007 and
will provide all of Mt. Hollys alumina requirements when
our agreement with Glencore expires in 2008. The price for
alumina under our contracts with Trafigura and Glencore is
variable and based on the LME price for primary aluminum.
Power. Mt. Holly purchases all of its power
requirements from the South Carolina Public Service Authority
(SCPSA) under a contract that runs through 2015.
Power delivered through 2010 will be priced at rates fixed under
currently published schedules, subject to adjustments to cover
SCPSAs fuel costs. Rates for the period 2011 through 2015
will be as provided under then-applicable schedules.
Employees. The employees at Mt. Holly are
employed by Alcoa and are not unionized.
Joint
Venture Facilities
On October 1, 2004, we assumed 50% ownership of a joint
venture in an alumina refinery in Gramercy, Louisiana and
related bauxite mining assets in Jamaica (collectively, the
Gramercy assets).
Gramercy
Alumina LLC
The alumina refinery in Gramercy, owned by GAL, began operations
in 1959 and consists of a production facility, a powerhouse for
steam and electricity production, a deep water dock and a barge
loading facility. Extensive portions of the Gramercy plant were
rebuilt and modernized between 2000 and 2002.
Alumina Operations. The Gramercy plant has an
annual capacity rate of 1.2 million metric tons.
Gramercys production consists of approximately 80% smelter
grade alumina and 20% alumina hydrate or chemical grade alumina.
GAL sells approximately 50% of its smelter grade alumina to
Hawesville at prices
S-48
based on Gramercys production costs under an alumina
supply contract due to expire on December 31, 2010. All of
the chemical grade alumina production is currently sold under
existing short-term and long-term contracts with approximately
20 third party purchasers.
Supply Agreements. Bauxite is the principal
raw material used in the production of alumina, and natural gas
is the principal energy source. The Gramercy plant purchases all
of its bauxite requirements from SABL under a contract that
expires at the end of 2010. The Gramercy plant purchases its
natural gas requirements at market prices under short-term
agreements with local suppliers.
St.
Ann Bauxite Limited
SABL, which owns the bauxite mining operations, is 50% owned by
Century. The bauxite mining operations are comprised of:
(i) a concession from the Government of Jamaica
(GOJ) to mine bauxite in Jamaica (the mining
rights) and (ii) a 49% interest in a Jamaican
partnership that owns certain mining assets in Jamaica (the
mining assets). The GOJ owns the remaining 51%
interest in the partnership. The mining assets consist primarily
of rail facilities, other mobile equipment, dryers, and loading
and dock facilities.
Bauxite Mining Rights. Under the terms of the
mining rights, SABL manages the operations of the partnership,
pays operating costs and is entitled to all of its bauxite
production. The GOJ receives: (i) a royalty based on the
amount of bauxite mined, (ii) an annual asset usage
fee for the use of the GOJs 51% interest in the
mining assets and (iii) certain fees for lands owned by the
GOJ that are covered by the mining rights. SABL also pays to the
GOJ customary income taxes and certain other fees pursuant to an
agreement with the GOJ that establishes a fiscal regime for
SABL. A production levy normally applicable to bauxite mined in
Jamaica has been waived for SABL through December 2007. If the
levy is subsequently assessed on bauxite produced by SABL, the
Establishment Agreement provides that certain payments to the
GOJ will be reduced and SABL and the GOJ will negotiate
amendments to SABLs fiscal regime in order to mitigate the
effects of the levy.
Under the terms of the mining rights, SABL mines the land
covered by the mining rights and the GOJ retains surface rights
and ownership of the land. The GOJ granted the mining rights and
entered into other agreements with SABL for the purpose of
ensuring the St. Ann facility is able to provide the Gramercy
plant with sufficient reserves to meet its annual alumina
requirements and existing or contemplated future obligations
under third party contracts.
Under the mining rights, the GOJ has granted SABL the rights to
mine 4.5 million dry metric tons of bauxite on specified
lands annually through September 30, 2030. The GOJ will
provide additional land if the land covered by the mining rights
does not contain sufficient quantities of commercially
exploitable bauxite. SABL is responsible for reclamation of the
land that it mines. As of December 31, 2006, SABLs
reclamation obligations amounted to approximately
$8.5 million.
Customers. Approximately 50 percent of
the bauxite from St. Ann is refined into alumina at the Gramercy
refinery and the remainder is sold to a third party alumina
refinery in Texas. SABL and GAL have a contract under which SABL
will supply the Gramercy plants bauxite requirements
through December 2010. The price for bauxite under the contract
is fixed through 2008.
SABL has various short-term agreements with third parties for
the supply of fuel oil, diesel fuel, container leasing and other
locally provided services.
Environmental
Matters
We are subject to various environmental laws and regulations. We
have spent, and expect to spend, significant amounts for
compliance with those laws and regulations. In addition, some of
our past manufacturing activities have resulted in environmental
consequences which require remedial measures. Under certain
environmental laws which may impose liability regardless of
fault, we may be liable for the costs of remediation of
contaminated property, including our current and formerly owned
or operated properties or adjacent areas, or for the
amelioration of damage to natural resources. We believe, based
on currently available information, that our current
environmental liabilities are not likely to have a material
adverse effect on
S-49
Century. However, we cannot predict the requirements of future
environmental laws and future requirements at current or
formerly owned or operated properties or adjacent areas. Such
future requirements may result in unanticipated costs or
liabilities which may have a material adverse effect on our
financial condition, results of operations or liquidity. More
information concerning our environmental contingencies can be
found in Note 12 to the Audited Consolidated Financial
Statements included herein and under Risk Factors on
page S-9.
Intellectual
Property
We own or have rights to use a number of patents or patent
applications relating to various aspects of our operations. We
do not consider our business to be materially dependent on any
of these patents or patent applications.
Employees
We employed a work force of approximately 1,850, consisting of
1,530 hourly employees and 320 salaried employees as of
December 31, 2006; a work force of approximately 1,750,
consisting of 1,460 hourly employees and 290 salaried
employees as of December 31, 2005; and a work force of
approximately 1,625, consisting of 1,313 hourly employees
and 312 salaried employees as of December 31, 2004.
Legal
Proceedings
We have pending against us or may be subject to various
lawsuits, claims and proceedings related primarily to
employment, commercial, environmental, safety and health
matters. Although it is not presently possible to determine the
outcome of these matters, management believes the ultimate
disposition will not have a material adverse effect on our
financial condition, results of operations, or liquidity. For a
description of certain environmental matters to which we are
subject, see Note 12 to the Audited Consolidated Financial
Statements included herein and Risk Factors on
page S-9.
S-50
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On March 20, 2007, the board of directors adopted an
expanded and updated written policy and written procedures for
the review, approval and monitoring of transactions involving
Century and its subsidiaries and related persons.
For the purposes of the policy, related persons
include executive officers, directors and director nominees and
their immediate family members, and stockholders owning five
percent or greater of our outstanding stock and their family
members. A copy of our related person transaction policy is
available in the Investor section of our website,
www.centuryaluminum.com, under the tab Corporate
Governance.
Our related person transaction policy is administered by the
Audit Committee and applies to all related person transactions
entered into after its adoption. This policy applies, subject to
certain specific exclusions, to any transaction, arrangement or
relationship or any series of similar transactions, arrangements
or relationships in which Century or any of its subsidiaries was
or is to be a participant and where any related person had or
will have a direct or indirect interest. Transactions involving
less than $50,000 are not subject to review and approval under
the policy. In addition, the policy defines certain ordinary
course transactions with Glencore that are not material and not
subject to review and approval under the policy, although those
transactions are otherwise reviewed and approved by our Audit
Committee on a quarterly basis. Pursuant to the policy, the
Audit Committee will review all covered related person
transactions. Based on its consideration of all relevant facts
and circumstances, along with considering whether the
transaction is on terms that are fair and reasonable to Century
and whether such a transaction is in the business interests of
Century, the Audit Committee will decide whether or not to
approve or ratify such transaction. If a related person
transaction is submitted to the Audit Committee after the
commencement of the transaction, the Audit Committee will
evaluate all options available, including the ratification,
rescission or termination of such transaction.
For a discussion of our related party transactions, see
Note 15 to the Audited Consolidated Financial Statements
included herein.
Approval
of Transactions with Glencore in 2006
Prior to our initial public offering in April 1996, we were an
indirect, wholly-owned subsidiary of Glencore. As of
April 16, 2007, Glencore, our largest stockholder, owned
28.6% of our outstanding common stock. Glencore is an important
business partner, as a customer, a supplier of alumina to our
facilities, and as a counterparty to our hedges. During 2006,
all transactions with Glencore were approved by the Audit
Committee or by a special committee comprised solely of
independent directors.
Mr. Craig A. Davis, the Chairman of our Board, is a
director of Glencore International AG and was an executive of
Glencore International AG and Glencore AG from September 1990
until June 1996.
Mr. Willy R. Strothotte, a director, is Chairman of the
board of directors of Glencore International AG and served as
its Chief Executive Officer from 1993 through 2001.
Purchases
from Glencore
In 2006, we purchased alumina and primary aluminum from Glencore
on both a spot and long-term contract basis. Such purchases,
which we believe were made at market prices, totaled
$185.5 million in 2006. During 2006, we purchased from
Glencore all of our alumina requirements for our Ravenswood
production facility and for our 49.7% interest in the Mt. Holly
production facility under separate supply agreements. The supply
agreements for Ravenswood and for 54% of our alumina
requirements for Mt. Holly expired December 31, 2006. The
supply agreement for the remaining 46% of our requirements for
Mt. Holly runs through January 31, 2008. We entered into an
alumina supply agreement with Glencore that will supply all of
our alumina requirements for Ravenswood from January 1,
2007 until December 31, 2009.
Sales to
Glencore
We sold primary aluminum to Glencore in 2006 on both a spot and
long-term contract basis, at market prices. For the year ended
December 31, 2006, net sales to Glencore amounted to
$259.5 million, including
S-51
gains and losses realized on the settlement of cash flow hedges.
Sales of primary aluminum to Glencore amounted to 16.7% of our
total revenues in 2006.
We have a long-term contract to sell Glencore approximately
50,000 metric tons of primary aluminum produced at Mt. Holly
each year through December 31, 2009 at a variable price
determined by reference to the price for primary aluminum on the
LME. We have a long-term contract to sell Glencore 20,400 mtpy
of primary aluminum produced at Ravenswood and Mt. Holly through
December 31, 2013 at a variable price based on the LME,
adjusted by a negotiated U.S. Midwest market premium with a
cap and floor as applied to the current U.S. Midwest
premium.
As of December 31, 2006, we had outstanding forward
financial sales contracts with Glencore for 864,100 metric tons
of primary aluminum, of which 128,500 metric tons were
designated as cash flow hedges. These cash flow hedges are
scheduled for settlement at various dates through 2008. In
November 2004 and June 2005, we entered into forward financial
sales contracts with Glencore for the years 2006 through 2010
and 2008 through 2015, respectively. These sales contracts,
which are for a minimum of 300,600 and 460,200 metric tons of
primary aluminum, respectively, over the entire term of the
contracts, 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 each contracts term, the maximum
remaining additional shipment volume under each set of contracts
would be 275,400 and 460,200 metric tons, respectively.
Other
Transactions with Glencore
We are party to a
10-year
LME-based alumina tolling agreement with Glencore for 90,000
metric tons of capacity at Grundartangi. In December 2005,
Glencore assigned 50% of its tolling rights under this agreement
to Hydro Aluminum AS for the period 2007 to 2010. Deliveries
under that agreement commenced in July 2006.
S-52
MANAGEMENT
The following tables set forth information about our directors
and named executive officers.
Directors
Our certificate of incorporation provides for a classified board
of directors consisting of three classes as nearly equal in size
as is practicable. Each class holds office until the third
annual meeting for election of directors following the election
of such class. The terms of office for our directors named below
are as follows:
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2008: Class III Directors, including Messrs. Davis,
Fishman and Thompson;
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2009: Class I Directors, including Messrs. Kruger,
Strothotte and Berntzen; and
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2010: Class II Directors, including Messrs. Fontaine,
OBrien and Jones.
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Business Experience and Principal
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Occupation Employment
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Director
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Name
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Age
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During Past 5 Years; Other Directorships
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Since
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John C. Fontaine
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75
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Our Lead Director since 2005; Of
Counsel, law firm of Hughes Hubbard & Reed LLP since
January 2000 and Partner from July 1997 to December 1999;
President of Knight-Ridder, Inc. from 1995 to 1997; Chairman of
the Board of Trustees of the National Gallery of Art since
September 2006 and a Trustee since 2003.
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1996
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John P. OBrien
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65
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Managing Director of Inglewood
Associates Inc. since 1990; Chairman of Allied Construction
Products since March 1993; Director of Preformed Line Products
Company since May 2004; Director of Oglebay Norton Company since
April 2003; Director of International Total Services, Inc. from
August 1999 to January 2003; Director of American Italian Pasta
Company from 1997 to 2002; Chairman and Chief Executive Officer
of Jeffrey Mining Products L.P. from 1995 to 1999; Member of the
Board of Trustees of Saint Lukes Foundation of Cleveland,
Ohio.
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2000
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Peter C. Jones
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59
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Director of Mizuho Corporate Bank
(Canada) since December 2006; Director of IAMGOLD Corporation
since May 2006; President and Chief Operating Officer of Inco
Ltd. from April 2001 to November 2006; Chairman of Goro Nickel
SAS from 2003 to February 2007; President Commissioner PT
International Nickel Indonesia Tbk. from 1999 to
December 31, 2006; and Director of Inco Ltd. from June 2002
to October 2006.
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2007
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Craig A. Davis
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66
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Chairman of the Board since August
1995; our Chief Executive Officer from August 1995 to December
2002 and from October 2003 to December 2005; Director of
Glencore International AG since 1993 and Executive of Glencore
from 1990 to 1996.
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1995
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S-53
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Business Experience and Principal
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Occupation Employment
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Director
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Name
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Age
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During Past 5 Years; Other Directorships
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Since
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Robert E. Fishman, PhD
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55
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Executive Vice President of
Calpine Corporation since 2001; President of PB Power, Inc. from
1998 to 2001.
|
|
|
2002
|
|
Jack E. Thompson
|
|
|
57
|
|
|
Director of Rinker Group Ltd.
since May 2006; Director of Tidewater Inc. since 2005; Director
of Phelps Dodge Corp. from January 2003 to March 2007; Director
of Stillwater Mining Co. from 2002 to June 2006; Vice Chairman
of Barrick Gold Corporation from 2001 to April 2005; Chairman of
the Board and Chief Executive Officer of Homestake Mining
Company from 1998 to 2001; director of Resource Capital
Funds III & IV LLC since 2002; member of the
Industry Advisory Counsil for the College of Engineering at the
University of Arizona since 2002.
|
|
|
2005
|
|
Logan W. Kruger
|
|
|
56
|
|
|
Our President and Chief Executive
Officer since December 2005; President, Asia/Pacific for Inco
Limited, from September 2005 to November 2005; Executive
Vice-President, Technical Services for Inco Ltd. from September
2003 to September 2005; Commissioner of PT International Nickel
Indonesia Tbk from 2004 to November 2005; Chief Executive
Officer of Anglo American Chile Ltda., from July 2002 to
September 2003; and President and Chief Executive Officer,
Hudson Bay Mining & Smelting Co., Ltd., from September
1996 until June 2002.
|
|
|
2005
|
|
Willy R. Strothotte
|
|
|
63
|
|
|
Chairman of the Board of Glencore
International AG since 1994 and Chief Executive Officer from
1993 to December 2001; Director of Minara Resources Ltd. since
2000; Chairman of the Board of Xstrata AG (formerly
Südelektra Holding AG) since 1990; Director of KKR
Financial Corporation since 2007.
|
|
|
1996
|
|
Jarl Berntzen
|
|
|
40
|
|
|
Partner Head of
Mergers and Acquisitions, ThinkEquity Partners LLC since March
2007, and Managing Director from March 2006; Senior Vice
President, Barrington Associates, LLC from April 2005 to
February 2006; Founder, Berntzen Capital Management, LLC from
March 2003 to April 2005; Managing Director of Providence
Capital, Inc. from September 2002 to March 2003; Vice President,
Mergers and Acquisitions of Goldman, Sachs & Co. from
1998 to 2001.
|
|
|
2006
|
|
S-54
Board and
Committee Meetings; Directors Compensation
Our Board of Directors presently consists of 9 directors.
The Board, which is responsible for supervision of the overall
affairs of Century, establishes corporate policies, sets
strategic direction, and oversees management, which is
responsible for the
day-to-day
operations of Century. The Board met seven times during 2006.
To assist it in carrying out its duties, the Board has
established various standing committees. Each standing committee
of the Board and its members are listed in the table below. The
Board designates the members of each committee and the committee
chair annually, based on the recommendations of the Governance
and Nominating Committee. The Board has adopted written charters
for each of its committees, which are available in the Investor
section of our website, www.centuryaluminum.com, under
the tab Corporate Governance.
The table below identifies the current members of each standing
committee of our Board.
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
Governance and
|
|
Name
|
|
Audit
|
|
|
Compensation
|
|
|
Nominating
|
|
|
Jarl Berntzen
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
Robert E. Fishman
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
John C. Fontaine
|
|
|
|
|
|
|
X
|
*
|
|
|
X
|
|
Peter C. Jones
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
John P. OBrien
|
|
|
X
|
*
|
|
|
X
|
|
|
|
|
|
Jack E. Thompson
|
|
|
|
|
|
|
X
|
|
|
|
X
|
*
|
Audit
Committee
The Audit Committee:
|
|
|
|
|
oversees the financial reporting process for which management is
responsible;
|
|
|
|
approves the engagement of the independent auditors for audit
and non-audit services;
|
|
|
|
monitors the independence of the independent auditors;
|
|
|
|
reviews and approves all audit and non-audit services and fees;
|
|
|
|
reviews the scope and results of the audit with the independent
auditors;
|
|
|
|
reviews the scope and results of internal audit procedures with
our internal auditors;
|
|
|
|
evaluates and discusses with the independent auditors and
management the effectiveness of our system of internal
accounting controls; and
|
|
|
|
makes inquiries into other matters within the scope of its
duties.
|
During 2006, the members of the Audit Committee were
Messrs. Berntzen, Fishman, OBrien and Thompson. Each
member of the Audit Committee is independent, as
required under applicable NASDAQ listing standards and
Rule 10A-3
of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. In addition, the Board has determined that John P.
OBrien is an audit committee financial expert
within the meaning set forth in regulations of the SEC. In 2006,
the Audit Committee held four meetings. Effective March 20,
2007, Mr. Thompson was succeeded on the Audit Committee by
Mr. Jones, who was elected as a director on March 20,
2007.
Compensation
Committee
We have a Compensation Committee which is a standing committee
of our Board of Directors. The Compensation Committee reviews
and establishes the compensation for our executive officers and
is
S-55
responsible for administering and awarding grants of equity
awards under our 1996 Stock Incentive Plan (1996
Plan), as amended. Each member of the Compensation
Committee is independent as required under
applicable NASDAQ listing standards. During 2006, the members of
the Compensation Committee were Messrs. Fontaine,
OBrien and Thompson. The Committee held eight meetings in
2006. Effective March 20, 2007, Mr. Jones, who was
appointed as a director, was also designated a member of the
Compensation Committee for 2007.
The Compensation Committee recognizes the benefit of reviewing
and modifying as appropriate Centurys compensation and
benefit programs, and the principles and philosophies on which
these programs are based. The Compensation Committee also from
time to time reviews the historical application and
implementation of our compensation and benefit programs.
Examples of recent Compensation Committee Actions include:
|
|
|
|
|
Adopting a formal written charter (a copy of this charter is
posted in the Investor section of our website,
www.centuryaluminum.com, under the tab Corporate
Governance);
|
|
|
|
Formalizing its historical practice of using compensation tally
sheets for the named executive officers;
|
|
|
|
Reviewing the impact of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the Code) on the
different components of our executive compensation
programs; and
|
|
|
|
Hiring an external independent compensation consultant to review
the Compensation Committees past procedures and
compensation decisions.
|
Directors
Compensation
Directors who are full-time salaried employees of Century are
not compensated for their service on the Board or on any Board
committee. The Boards general policy is that compensation
for non-employee directors should be a mix of cash and
equity-based compensation. The Compensation Committee evaluates
the appropriate level and form of compensation for non-employee
directors at least annually and recommends changes to the Board
when appropriate. The Board reviews the Compensation
Committees recommendations and determines the amount of
director compensation.
Meeting Fees and Retainers. In August 2006,
the Compensation Committee approved changes to the compensation
for non-employee directors. Effective July 1, 2006,
non-employee directors (other than the Chairman) receive an
annual retainer of $35,000 for their services. The Chairman of
the Board of Directors receives an annual retainer of $100,000.
The Lead Director receives an additional $25,000 annual
retainer, the Chairman of the Audit Committee receives an
additional $10,000 annual retainer and the Chairman of each of
the Compensation Committee and the Governance and Nominating
Committee receives an additional $5,000 annual retainer. In
addition, each non-employee director receives a fee of $2,000
for each Board or Board committee meeting attended. The Chairman
of the Audit Committee receives an additional $1,000 per
Audit Committee meeting attended.
Stock Options. Each non-employee director
receives a one-time grant of options to purchase
10,000 shares of Century common stock. The options vest
one-third on the grant date, and an additional one-third vest on
each of the first and second anniversaries of the grant date. In
addition, each non-employee director continuing in office after
the Annual Meeting of Stockholders each year receives an annual
grant of options that vest one-fourth on each of the three, six,
nine and 12 month anniversaries of the date of grant. The
options are granted on the business day following the Annual
Meeting and are priced at the average of the high and low price
of Centurys common stock on that date.
During 2006, non-employee directors each received options to
purchase 3,000 shares.
Expense Reimbursement. All directors are
reimbursed for their travel and other expenses incurred in
attending Board and Board committee meetings.
S-56
The following table sets forth the compensation paid to each
director in 2006.
2006 Director
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
All Other
|
|
|
|
|
Name(a)
|
|
Paid in Cash(b)
|
|
|
Option Awards(d)
|
|
|
Compensation(g)
|
|
|
Total(h)
|
|
|
Jarl Berntzen
|
|
$
|
41,750
|
|
|
$
|
197,223
|
|
|
|
|
|
|
$
|
238,973
|
|
Craig A. Davis
|
|
$
|
304,000
|
|
|
$
|
50,875
|
|
|
$
|
2,297,570
|
|
|
$
|
2,652,445
|
|
Robert E. Fishman
|
|
$
|
70,000
|
|
|
$
|
50,875
|
|
|
|
|
|
|
$
|
120,875
|
|
John C. Fontaine
|
|
$
|
95,000
|
|
|
$
|
50,875
|
|
|
|
|
|
|
$
|
145,875
|
|
John P. OBrien
|
|
$
|
87,500
|
|
|
$
|
50,875
|
|
|
|
|
|
|
$
|
138,375
|
|
Willy R. Strothotte
|
|
|
|
|
|
$
|
50,875
|
|
|
|
|
|
|
$
|
50,875
|
|
Jack E. Thompson
|
|
$
|
86,500
|
|
|
$
|
50,875
|
|
|
|
|
|
|
$
|
137,375
|
|
Roman A. Bninski
|
|
$
|
24,500
|
|
|
|
|
|
|
|
|
|
|
$
|
24,500
|
|
Stuart M. Schreiber
|
|
$
|
22,500
|
|
|
|
|
|
|
$
|
333,209
|
|
|
$
|
355,709
|
|
|
|
Column (a) |
This column lists all non-employee directors who served on the
Board during 2006. Mr. Kruger did not receive compensation
for serving as a member of the Board. Messrs. Bninski and
Schreiber did not stand for re-election when their terms expired
in June 2006.
|
|
|
Column (b)
|
The amounts in this column reflect the retainer and meeting fees
paid to each non-employee director during 2006 (other than
Mr. Strothotte, who waived his right to receive cash
compensation). For the period from January 1, 2006 to
June 30, 2006, Mr. Davis received $250,000 for his
services as Chairman of the Board. For the remainder of 2006,
Mr. Davis received a retainer of $50,000, which represents
the pro rated portion of the annual retainer paid to the
Chairman of the Board. Mr. Davis received meeting fees,
travel and other expense reimbursement and other compensation
generally paid to our non-employee directors beginning
July 1, 2006.
|
|
Column (d)
|
Amounts shown in this column reflect the dollar amount
recognized for financial statement reporting purposes during
2006 in accordance with Statement of Financial Accounting
Standards 123R, or FAS 123R, for equity award expenses,
disregarding assumptions for the forfeiture of awards. See
Note 9 of our Audited Consolidated Financial Statements
included herein for the assumptions used in the valuation of
these awards and related disclosures. Presented below are the
grant date fair value of each option award granted in 2006
(computed in accordance with FAS 123R and using the
Black-Scholes option pricing model to calculate fair value) and
the aggregate number of vested and unvested stock options and
stock awards held by each continuing director (other than
Mr. Kruger) as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of Stock
|
|
|
|
Grant Date Fair
|
|
|
Options
|
|
|
Awards
|
|
|
|
Value of 2006
|
|
|
Outstanding
|
|
|
Outstanding
|
|
Name
|
|
Option Awards
|
|
|
as of
12/31/06
|
|
|
as of
12/31/06
|
|
|
Jarl Berntzen
|
|
$
|
287,360
|
|
|
|
13,000
|
|
|
|
|
|
Craig A. Davis
|
|
$
|
67,833
|
|
|
|
3,000
|
|
|
|
29,778
|
(1)
|
Robert E. Fishman
|
|
$
|
67,833
|
|
|
|
4,500
|
|
|
|
|
|
John C. Fontaine
|
|
$
|
67,833
|
|
|
|
16,000
|
|
|
|
|
|
John P. OBrien
|
|
$
|
67,833
|
|
|
|
14,000
|
|
|
|
|
|
Willy R. Strothotte
|
|
$
|
67,833
|
|
|
|
22,500
|
|
|
|
|
|
Jack E. Thompson
|
|
$
|
67,833
|
|
|
|
9,334
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the value of performance share units for the
2005-2007
performance program period which were granted to Mr. Davis
when he served as our Chief Executive Officer. Our Compensation
Committee will determine vesting for the
2005-2007
performance period in 2008. |
S-57
|
|
Column (g) |
For Mr. Davis, all other compensation includes $1,360,597
attributed to the cash value realized from the vesting of
performance-based share awards, $930,000 from payments under our
retirement plans, and $6,973 representing the value of a
retirement gift presented by us to Mr. Davis. Pursuant to
the terms of the Implementation Guidelines to our 1996 Plan,
following his retirement as our Chief Executive Officer,
Mr. Davis performance-based share awards could
continue to vest during our
2004-2006
and
2005-2007
performance program periods on an approximately two-thirds and
one-third basis, respectively. As such, amounts included in this
column include stock-based compensation that was awarded to
Mr. Davis when he served as Chief Executive Officer. For
Mr. Schreiber, all other compensation is comprised of
(i) $4,000 in payments made to Mr. Schreiber while he
served as a director in his role as a consultant to the
Compensation Committee, (ii) $25,002 in consulting fees
paid to Mr. Schreiber pursuant to his consulting
arrangement following his service as a director, and
(iii) $304,207 in executive search and placement fees paid
to Integis, a corporation owned by Mr. Schreiber.
|
Executive
Officers
|
|
|
|
|
|
|
|
|
|
|
|
Position and Duration; Business Experience and
|
Name
|
|
Age
|
|
|
Principal Occupation Employment During Past 5 Years
|
|
Logan W. Kruger
|
|
|
56
|
|
|
President and Chief Executive
Officer since December 2005. Prior to joining Century,
Mr. Kruger served as President, Asia/Pacific for Inco
Limited, from September 2005 to November 2005; Executive
Vice-President, Technical Services for Inco Ltd. from September
2003 to September 2005; Chief Executive Officer of Anglo
American Chile Ltd., from July 2002 through September 2003; and
President and Chief Executive Officer, Hudson Bay
Mining & Smelting Co., Limited, from September 1996
until June 2002.
|
Michael A. Bless
|
|
|
41
|
|
|
Executive Vice President and Chief
Financial Officer since January 2006. Prior to joining Century,
Mr. Bless served as managing director of M.
Safra & Co., Inc., from February 2005 to January 2006
and Executive Vice President and Chief Financial Officer of
Maxtor Corporation from August 2004 to October 2004. From August
1997 through January 2004, Mr. Bless served in a number of
senior executive positions with Rockwell Automation, Inc.
(formerly known as Rockwell International Corporation), a
leading industrial automation hardware, software and services
company, including as Senior Vice President and Chief Financial
Officer from June 2001 to January 2004.
|
Wayne R. Hale(1)
|
|
|
51
|
|
|
Executive Vice President and Chief
Operating Officer since February 28, 2007. Prior to joining
Century, Mr. Hale served as Senior Vice President of
Sual-Holding from April 2004 to February 2007; held various
senior management positions with Kennecott Utah Copper
Corporation from April 2000 to April 2004, including as Chief
Operating Officer from April 2002 to April 2004; and served as
President, Primary Products Division for Kaiser
Aluminum & Chemical Corporation from December 1997
through 2000.
|
S-58
|
|
|
|
|
|
|
|
|
|
|
|
Position and Duration; Business Experience and
|
Name
|
|
Age
|
|
|
Principal Occupation Employment During Past 5 Years
|
|
Robert R. Nielsen
|
|
|
62
|
|
|
Executive Vice President, General
Counsel and Secretary since May 2006. Prior to joining Century,
Mr. Nielsen served as Executive Vice President, General
Counsel and Secretary for Tanimura and Antle, Inc. from July
2005 to April 2006, Vice President, General Counsel and
Secretary for Tanimura & Antle, Inc. from March 1993
to June 2005 and Director of Dulcinea Farms, LLC from 2004 to
2005.
|
Steve Schneider
|
|
|
52
|
|
|
Senior Vice President, Chief
Accounting Officer and Controller since June 2006, Vice
President and Corporate Controller since April 2002; Corporate
Controller for more than five years.
|
Giulio Casello
|
|
|
47
|
|
|
Senior Vice President of Business
Development since September 2005. Prior to joining Century,
Mr. Casello served in a number of senior positions with
Alcoa World Alumina Australia from 1986 to 2005, including as
Director of Western Australian Operations from January 2003 to
September 2005; General Manager of Alcoa World Chemicals from
April 2001 to December 2002; and Kwinana Alumina Refinery
Location Manager from April 1999 to April 2001.
|
Peter C. McGuire
|
|
|
59
|
|
|
Vice President and Associate
General Counsel since April 2002; Associate General Counsel for
more than five years.
|
Michelle M. Lair
|
|
|
31
|
|
|
Vice President and Treasurer since
February 2007, Treasurer since June 2006, Assistant Treasurer
since November 2005; Corporate Financial Analyst for more than
five years.
|
|
|
|
(1) |
|
On February 28, 2007, we announced that Wayne R. Hale had
been appointed to succeed E. Jack Gates as Executive Vice
President and Chief Operating Officer, effective March 1,
2007. Mr. Gates will continue as an employee of the Company
through June 30, 2007 and will then serve as a consultant
to the Company through December 31, 2007. |
S-59
Management
Compensation
The following table sets forth the compensation earned by our
Chief Executive Officer, our Chief Financial Officer and each of
our three other most highly compensated executive officers for
fiscal 2006 for services rendered to us in all capacities in
2006. The table also includes Mr. Beckley, who retired from
Century effective March 31, 2006, due to his having served
as our Executive Vice President and Chief Financial Officer from
January 1, 2006 to January 22, 2006, and
Mr. Kitchen, who retired from Century effective
April 30, 2006, based on his compensation earned for the
fiscal year ended December 31, 2006.
Based on the fair value of equity awards granted to named
executive officers in 2006 (exclusive of one-time initial
employment related equity awards and changes in pension value)
and the base salary of the named executive officers,
Salary ranged between approximately 23.5% and 49.6%,
and Bonus ranged between approximately 0% and 36.2%,
respectively, of the total compensation package of the named
executive officers. Because the table below reflects less than
the full fiscal year salary for individuals who were not our
employees for the full fiscal year and because the value of
certain equity awards included below includes accrued
share-based compensation expense from previous years as
calculated under FAS 123(R), these percentages may not be
able to be derived using the amounts reflected in the table
below.
2006
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Nonqualified
|
|
|
All
|
|
|
|
|
Name and Principal
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards(2)
|
|
|
Awards(2)
|
|
|
Plan Comp
|
|
|
Compensation
|
|
|
Comp(11)
|
|
|
Total
|
|
|
Logan W. Kruger
|
|
|
2006
|
|
|
$
|
750,000
|
|
|
$
|
562,500
|
|
|
$
|
783,332
|
(3)
|
|
$
|
428,479
|
(8)
|
|
|
|
|
|
$
|
3,755,628
|
|
|
$
|
65,035
|
(12)
|
|
$
|
6,344,974
|
|
President and CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Bless
|
|
|
2006
|
|
|
$
|
352,397
|
(1)
|
|
$
|
262,500
|
|
|
$
|
278,012
|
(4)
|
|
$
|
378,100
|
(9)
|
|
|
|
|
|
$
|
68,615
|
|
|
$
|
425,698
|
(13)
|
|
$
|
1,765,322
|
|
Executive Vice
President & CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Jack Gates
|
|
|
2006
|
|
|
$
|
360,000
|
|
|
$
|
252,000
|
|
|
$
|
323,659
|
|
|
|
|
|
|
|
|
|
|
$
|
164,153
|
|
|
$
|
12,530
|
|
|
$
|
1,112,342
|
|
Executive Vice
President &
COO (Former)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Nielsen
|
|
|
2006
|
|
|
$
|
233,333
|
(1)
|
|
$
|
164,500
|
|
|
$
|
251,188
|
(5)
|
|
$
|
449,549
|
(10)
|
|
|
|
|
|
$
|
177,084
|
|
|
$
|
720
|
|
|
$
|
1,276,374
|
|
Executive Vice President,
General Counsel & Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Schneider
|
|
|
2006
|
|
|
$
|
230,000
|
|
|
$
|
175,000
|
|
|
$
|
156,299
|
|
|
|
|
|
|
|
|
|
|
$
|
27,131
|
|
|
$
|
11,170
|
(14)
|
|
$
|
599,600
|
|
Senior Vice
President & CAO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David W. Beckley
|
|
|
2006
|
|
|
$
|
148,251
|
(1)
|
|
|
|
|
|
$
|
284,808
|
(6)
|
|
|
|
|
|
|
|
|
|
$
|
60,740
|
|
|
$
|
7,040
|
|
|
$
|
500,839
|
|
Executive Vice
President &
CFO (Former)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald J. Kitchen
|
|
|
2006
|
|
|
$
|
200,168
|
(1)
|
|
$
|
100,000
|
|
|
$
|
292,222
|
(7)
|
|
|
|
|
|
|
|
|
|
$
|
16,069
|
|
|
$
|
256,620
|
(15)
|
|
$
|
865,079
|
|
Executive Vice President,
General Counsel, Chief Administrative Officer, and Secretary
(Former)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts reflected are prorated for the portion of 2006 the
executive was employed by us. Messrs. Beckley and Kitchen
were full-time employees through March 31, 2007 and
April 30, 2007, respectively, while Messrs. Bless and
Nielsen commenced their employment on January 23, 2006 and
May 1, 2006, respectively. |
|
(2) |
|
The values reflected represent the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan and thus may include amounts
from awards granted in and prior to 2006. Assumptions used in
the calculation of these amounts are included in Note 9 to
the Audited Consolidated Financial Statements included herein. |
S-60
|
|
|
(3) |
|
The value reflected includes the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan for 50,000 service-based
performance shares awarded to Mr. Kruger on
December 14, 2005, based on the Black-Scholes fair value
calculation of the award on the grant date.
Mr. Krugers restricted shares vested one-half on
January 1, 2007 and will vest one-half on January 1,
2008. To the extent we pay dividends on our common stock,
dividend equivalents will accrue on the restricted shares from
the date of grant and will become payable upon vesting. |
|
(4) |
|
The value reflected includes the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan for 20,000 service-based
performance shares awarded to Mr. Bless on January 23,
2006, based on the Black-Scholes fair value calculation of the
award on the grant date. Mr. Blesss restricted shares
vested one-third on January 22, 2007, and the balance will
vest equally on each of January 22, 2008 and
January 22, 2009. To the extent we pay dividends on our
common stock, dividend equivalents will accrue on the restricted
shares from the date of grant and will become payable upon
vesting. |
|
(5) |
|
The value reflected includes the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan for 15,000 service-based
performance shares awarded to Mr. Nielsen on May 1,
2006, based on the Black-Scholes fair value calculation of the
award on the grant date. Mr. Nielsens restricted
shares vest one-third on each of May 1, 2007, May 1,
2008 and May 1, 2009. To the extent we pay dividends on our
common stock, dividend equivalents will accrue on the restricted
shares from the date of grant and will become payable upon
vesting. |
|
(6) |
|
Pursuant to the terms of the Implementation Guidelines to our
1996 Plan, following his retirement, Mr. Beckley remained a
participant in our
2004-2006
and
2005-2007
performance program periods on an approximately two-thirds and
one-third basis, respectively. |
|
(7) |
|
Pursuant to the terms of the Implementation Guidelines to our
1996 Plan, following his retirement, Mr. Kitchen remained a
participant in our
2004-2006
and
2005-2007
performance program periods on an approximately two-thirds and
one-third basis, respectively. |
|
(8) |
|
The value reflected represents the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan for 100,000 options to purchase
our common stock awarded to Mr. Kruger on December 14,
2005, based on the Black-Scholes fair value calculation of the
award on the grant date. Mr. Krugers options vested
one-third on December 14, 2006, and the balance will vest
equally on each of December 14, 2007 and December 14,
2008. |
|
(9) |
|
The value reflected represents the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan for 30,000 options to purchase
our common stock awarded to Mr. Bless on January 23,
2006, based on the Black-Scholes fair value calculation of the
award on the grant date. Mr. Blesss options vested
one-third on January 23, 2006 and the balance will vest
equally on each of January 23, 2007 and January 22,
2008. |
|
(10) |
|
The value reflected represents the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended
December 31, 2006, in accordance with FAS 123(R) for
awards pursuant to the 1996 Plan for 20,000 options to purchase
our common stock awarded to Mr. Nielsen on May 1,
2006, based on the Black-Scholes fair value calculation of the
award on the grant date. Mr. Nielsens options vested
one-third on May 1, 2006 and the balance will vest equally
on each of May 1, 2007 and April 30, 2008. |
|
(11) |
|
All other compensation is comprised of (i) matching
contributions under our 401(k) Plan for each of the named
executive officers (other than for Messrs. Bless and
Nielsen, who did not participate in the plan) and
(ii) Company-paid life insurance premiums in 2006. |
|
(12) |
|
For Mr. Kruger, all other compensation also includes
reimbursement payments of $55,300 relating to temporary housing
costs, other relocation expenses and
gross-ups
for taxes thereon, incurred in connection with his relocation. |
S-61
|
|
|
(13) |
|
For Mr. Bless, all other compensation also includes
reimbursement payments of $424,783 relating to temporary housing
costs, other relocation expenses and
gross-ups
for taxes thereon, incurred in connection with his relocation. |
|
(14) |
|
For Mr. Schneider, all other compensation also includes
reimbursement payments for our executive medical wellness
program. |
|
(15) |
|
For Mr. Kitchen, all other compensation also includes
$243,751 in compensation paid pursuant to his Consulting
Agreement, which was effective at the time of his retirement,
and $7,160 representing the value of a retirement gift presented
by us to Mr. Kitchen. A copy of Mr. Kitchens
Consulting Agreement was filed as Exhibit 10.12 to our
Quarterly Report on
Form 10-Q
for the period ended June 30, 2005. |
Grants
of Plan Based Awards
The following table sets forth information regarding the
estimated future payouts under our 1996 Plan to our named
executive officers.
2006
Grants of Plan Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Exercise or
|
|
|
Grant
|
|
|
Fair Value
|
|
|
|
|
|
Estimated Future Payouts Under Equity Incentive Plan
Awards
|
|
|
Awards: # of
|
|
|
Awards: # of
|
|
|
Base Price
|
|
|
Date Stock
|
|
|
of Stock
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Shares of
|
|
|
Underlying
|
|
|
of Option
|
|
|
Closing
|
|
|
and Option
|
|
Name
|
|
Grant Date
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
Stock
|
|
|
Options
|
|
|
Awards(7)
|
|
|
Price
|
|
|
Award(8)
|
|
|
Logan W. Kruger
|
|
June 9, 2006
|
|
|
|
|
|
|
8,044
|
|
|
|
40,222
|
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224,991
|
|
|
|
June 9, 2006
|
|
|
|
|
|
|
16,595
|
|
|
|
41,486
|
(1)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
450,007
|
|
|
|
June 9, 2006
|
|
|
|
|
|
|
15,087
|
|
|
|
25,145
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
674,992
|
|
Michael A. Bless
|
|
June 9, 2006
|
|
|
|
|
|
|
3,575
|
|
|
|
20,111
|
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99,993
|
|
|
|
June 9, 2006
|
|
|
|
|
|
|
7,375
|
|
|
|
20,743
|
(1)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199,988
|
|
|
|
June 9, 2006
|
|
|
|
|
|
|
6,705
|
|
|
|
12,573
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
299,982
|
|
|
|
January 23, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
598,400
|
|
|
|
January 23, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
(5)
|
|
$
|
29.92
|
|
|
$
|
29.75
|
|
|
$
|
554,400
|
|
E. Jack Gates
|
|
June 9, 2006
|
|
|
|
|
|
|
6,437
|
|
|
|
12,070
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
287,991
|
|
Robert R. Nielsen
|
|
June 9, 2006
|
|
|
|
|
|
|
3,128
|
|
|
|
18,770
|
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,490
|
|
|
|
June 9, 2006
|
|
|
|
|
|
|
6,453
|
|
|
|
19,360
|
(1)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,986
|
|
|
|
June 9, 2006
|
|
|
|
|
|
|
5,867
|
|
|
|
11,734
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
262,490
|
|
|
|
May 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
714,150
|
|
|
|
April 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(6)
|
|
$
|
47.61
|
|
|
$
|
47.61
|
|
|
$
|
749,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Schneider
|
|
June 9, 2006
|
|
|
|
|
|
|
3,911
|
|
|
|
8,382
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,978
|
|
David W. Beckley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald J. Kitchen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
When an employee first becomes a participant and therefore
eligible for performance share awards, they also become eligible
to participate in awards for prior performance program periods
on a rolling basis, based on the percentage of the relevant
performance program period during which they served. These
awards for prior years are determined based on the same price
per share for Century common stock used for other award
participants for the relevant performance program period.
Messrs. Kruger, Bless and Nielsen first became a
participant and eligible for performance share awards on
June 9, 2006. |
|
(2) |
|
The amounts shown represent the number of performance share
units awarded to the named executive officer for the
2004-2006
performance program period. On March 19, 2007, our
Compensation Committee approved a 65% vesting of the performance
share units for the
2004-2006
performance program period, resulting in the awards of 5,229,
2,324, 5,578, 2,033, 2,475, 3,951 and 3,793, respectively, of
shares of our common stock to Messrs. Kruger, Bless, Gates,
Nielsen, Schneider, Kitchen and Beckley. |
|
(3) |
|
The amounts shown represent the number of performance share
units awarded to the named executive officer for the
2005-2007
performance program period which performance program period will
be considered by our Compensation Committee in 2008. |
S-62
|
|
|
(4) |
|
The amounts shown represent the number of performance share
units awarded to the named executive officer for the
2006-2008
performance program period which performance program period will
be considered by our Compensation Committee in 2009. |
|
(5) |
|
Upon his employment with Century, Mr. Bless received 20,000
service-based performance shares, and options to purchase
30,000 shares of our common stock with a grant price equal
to $29.915, which was the average of the high and low sales
price for our common stock on NASDAQ on the grant date. |
|
(6) |
|
Upon his employment with Century, Mr. Nielsen received
15,000 service-based performance shares, and options to purchase
25,000 shares of our common stock with a grant price equal
to $47.61, which was the average of the high and low sales price
for our common stock on NASDAQ on the grant date. |
|
(7) |
|
Our 1996 Plan provides that options are granted at not less than
the fair market value of the shares subject to such
option, which is defined in the Plan as the average of the high
and low sales price for shares of our common stock on the grant
date. Mr. Nielsens employment agreement provides that
the exercise price for his options will equal the closing price
of our common stock on April 28, 2006, the last trading day
immediately before his employment start date. The average of the
high and low sales price for shares of our common stock on
April 28, 2006 was $46.72. |
|
(8) |
|
The values reflected represent the grant date fair value of the
awards determined in accordance with FAS 123(R). |
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding
equity awards for our named executive officers as of
December 31, 2006.
2006
Outstanding Equity Awards at Fiscal Year-End Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Number of
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value
|
|
|
Unearned
|
|
|
Payout Value of
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
of Shares or
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Units, or
|
|
|
Shares, Units or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Other Rights
|
|
|
Other Rights
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
That Have
|
|
|
That Have Not
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)(7)
|
|
|
(#)
|
|
|
($)(7)
|
|
|
Logan W. Kruger
|
|
|
33,333
|
|
|
|
66,667
|
(1)
|
|
|
|
|
|
$
|
23.98
|
|
|
|
12/14/2015
|
|
|
|
50,000
|
(4)
|
|
$
|
2,232,500
|
|
|
|
8,044
|
(8)
|
|
$
|
359,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,595
|
(9)
|
|
$
|
740,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,087
|
(10)
|
|
$
|
673,635
|
|
Michael A. Bless
|
|
|
9,999
|
|
|
|
20,001
|
(2)
|
|
|
|
|
|
$
|
29.92
|
|
|
|
1/23/2016
|
|
|
|
20,000
|
(5)
|
|
$
|
893,000
|
|
|
|
3,575
|
(8)
|
|
$
|
159,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,375
|
(9)
|
|
$
|
329,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,705
|
(10)
|
|
$
|
299,378
|
|
E. Jack Gates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
8,581
|
(8)
|
|
$
|
383,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,588
|
(9)
|
|
$
|
428,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,437
|
(10)
|
|
$
|
287,412
|
|
Robert R. Nielsen
|
|
|
8,333
|
|
|
|
16,667
|
(3)
|
|
|
|
|
|
$
|
47.61
|
|
|
|
5/1/2016
|
|
|
|
15,000
|
(6)
|
|
$
|
669,750
|
|
|
|
3,128
|
(8)
|
|
$
|
139,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,453
|
(9)
|
|
$
|
288,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,867
|
(10)
|
|
$
|
261,962
|
|
Steve Schneider
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,808
|
(8)
|
|
$
|
170,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,204
|
(9)
|
|
$
|
187,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,911
|
(10)
|
|
$
|
174,626
|
|
David W. Beckley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,835
|
(8)
|
|
$
|
260,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,553
|
(9)
|
|
$
|
158,619
|
|
Gerald J. Kitchen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,095
|
(8)
|
|
$
|
272,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,804
|
(9)
|
|
$
|
169,842
|
|
|
|
|
(1) |
|
The options vest equally on each of December 14, 2007 and
December 14, 2008. |
|
(2) |
|
The options vest equally on each of January 23, 2007 and
January 22, 2008. |
|
(3) |
|
The options vest equally on each of May 1, 2007 and
April 30, 2008. |
S-63
|
|
|
(4) |
|
The service-based performance shares vested one-half on
January 1, 2007 and will vest one-half on January 1,
2008. |
|
(5) |
|
The service-based performance shares vested one-third on
January 22, 2007, and will vest one-third on each of
January 22, 2008 and January 22, 2009. |
|
(6) |
|
The service-based performance shares vest one-third on each of
May 1, 2007, May 1, 2008 and May 1, 2009. |
|
(7) |
|
Based on the closing market price for shares of our common stock
of $44.65 on December 29, 2006, the last trading day for
the fiscal year ended December 31, 2006. |
|
(8) |
|
The amounts shown represent the number of performance share
units awarded to the named executive officer for the
2004-2006
performance program period. On March 19, 2007, our
Compensation Committee approved a 65% vesting of the performance
share units for the
2004-2006
performance program period, resulting in the awards of 5,229,
2,324, 5,578, 2,033, 2,475, 3,951 and 3,793, respectively, of
shares of our common stock to Messrs. Kruger, Bless, Gates,
Nielsen, Schneider, Kitchen and Beckley. |
|
(9) |
|
The amounts shown represent the number of performance share
units awarded to the named executive officer for the
2005-2007
performance program period which performance program period will
be considered by our Compensation Committee in 2008. |
|
(10) |
|
The amounts shown represent the number of performance share
units awarded to the named executive officer for the
2006-2008
performance program period which performance program period will
be considered by our Compensation Committee in 2009. |
Pension
Benefits
We maintain both the Qualified Plan and the Supplemental
Retirement Income Benefit Plan (SERP) as retirement
plans for our U.S. based salaried employees. The Qualified
Plan provides lifetime annual benefits starting at age 62
equal to 12 multiplied by the greater of: (i) 1.5% of final
average monthly compensation multiplied by years of credited
service (up to 40 years), or (ii) $22.25 multiplied by
years of credited service (up to 40 years), less the total
monthly vested benefit payable as a life annuity at age 62
under plans of a predecessor. We determine final average monthly
compensation under the qualified plans as the highest monthly
average for 36 consecutive months in the
120-month
period ending on the last day of the calendar month completed at
or prior to a termination of service. Participants pension
rights vest after a five-year period of service, or earlier if
the participant has reached the age of 62. An early retirement
benefit (actuarially reduced beginning at age 55) and
a disability benefit are also available. The compensation
covered by the plan includes all compensation, subject to
certain exclusions, before any reduction for 401(k)
contributions, subject to the maximum limits under the Code.
The SERP provides selected senior executives with supplemental
benefits in addition to those benefits they are entitled to
receive under the Qualified Plan.
S-64
The following table sets forth the present value of accumulated
benefits payable to each of the named executive officers,
including the number of years of service credited to each such
named executive officer, under the Qualified Plan and the SERP,
determined using interest rate and mortality rate assumptions
consistent with those used in our financial statements.
2006
Pension Benefits Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
|
|
Present
|
|
|
During
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Last
|
|
|
|
|
|
Years
|
|
|
Accumulated
|
|
|
Fiscal
|
|
Name
|
|
Plan
|
|
Credited
|
|
|
Benefit(1)
|
|
|
Year
|
|
|
Logan W. Kruger
|
|
Non-Contributory Defined Pension
Plan
|
|
|
1
|
|
|
$
|
205,470
|
|
|
|
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
1
|
|
|
$
|
5,996,628
|
(2)
|
|
|
|
|
Michael A. Bless
|
|
Non-Contributory Defined Pension
Plan
|
|
|
1
|
|
|
$
|
68,615
|
|
|
|
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
E. Jack Gates(3)
|
|
Non-Contributory Defined Pension
Plan
|
|
|
6
|
|
|
$
|
205,435
|
|
|
|
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
6
|
|
|
$
|
250,163
|
|
|
|
|
|
Robert R. Nielsen(3)
|
|
Non-Contributory Defined Pension
Plan
|
|
|
1
|
|
|
$
|
177,084
|
|
|
|
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Steve Schneider
|
|
Non-Contributory Defined Pension
Plan
|
|
|
6
|
|
|
$
|
125,871
|
|
|
|
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
|
|
|
|
|
|
|
|
|
|
David W. Beckley
|
|
Non-Contributory Defined Pension
Plan
|
|
|
11
|
|
|
$
|
2,189,656
|
|
|
$
|
125,000
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
11
|
|
|
$
|
1,221,327
|
|
|
$
|
70,000
|
|
Gerald J. Kitchen
|
|
Non-Contributory Defined Pension
Plan
|
|
|
11
|
|
|
$
|
2,050,462
|
|
|
$
|
110,000
|
|
|
|
Supplemental Retirement Income
Benefit Plan (SERP)
|
|
|
11
|
|
|
$
|
1,582,558
|
|
|
$
|
85,000
|
|
|
|
|
(1) |
|
Includes amounts that the named executive officer may not
currently be entitled to receive because such amounts are not
vested. |
|
(2) |
|
When determining present value, vesting is ignored. However,
Mr. Krugers right to participate in the Enhanced SERP
benefit begins on the fifth anniversary of his employment date
and vests 20 percent each year thereafter. In the absence
of a
change-in-control
of Century, only if Mr. Kruger remains employed by Century
for a period of 10 years would he fully vest in his
Enhanced SERP benefit. If vesting were considered for the
Enhanced SERP benefit only, the present value of his benefit
under the SERP would be approximately $2,275,000. |
|
(3) |
|
As of December 31, 2006, of our named executive officers
employed by us on that date, only Messrs. Gates and Nielsen
were eligible to retire and begin receiving a benefit under our
retirement plans. |
Employment
Agreements
Historically it has been our practice to enter into employment
agreements with officers at the executive vice president level
and above. The terms of these agreements, including base salary,
initial equity grants, minimum guaranteed bonuses, participation
in Century benefit plans and other benefits, are approved by the
Compensation Committee. The amounts and types of such
compensation are negotiated terms with each officer. When
reviewing and negotiating these terms, the Compensation
Committee is provided with market data by its compensation
consultants and considers practices of peer companies and, if
applicable, compensation earned
and/or
forfeited by the officer at a previous employer. In 2006, the
Compensation Committee approved employment agreements with
Messrs. Bless and Nielsen in connection with the
commencement of their employment with Century.
Our employment agreement with Logan W. Kruger, our President and
Chief Executive Officer, is made as of December 13, 2005,
and extends through December 31, 2008; however beginning on
January 1, 2008, and
S-65
on each January 1 thereafter, unless timely notice of
termination is delivered by a party pursuant to the terms of the
employment agreement, the period of employment is automatically
extended for successive three-year periods. Under the terms of
his employment agreement, Mr. Kruger will receive a minimum
base salary of $750,000 per year, which amount is subject
to increase from time to time at the discretion of the
Compensation Committee. Mr. Kruger is also eligible to
receive an annual performance-based cash bonus under our
incentive compensation plan, subject to the discretion of the
Compensation Committee. Mr. Krugers agreement
provided that his annual cash bonus for 2006 would be no less
than $325,000. Under the terms of his agreement, Mr. Kruger
is also eligible to receive stock option grants and performance
share awards under the 1996 Plan and to participate in the SERP.
We also had an employment agreement with Mr. E. Jack Gates,
effective October 14, 2003, as amended December 8,
2005, that provided for a term of employment through
December 31, 2006. Under the terms of his employment
agreement, Mr. Gates received a minimum base salary of
$342,500 per year, which could be increased from time to
time at the discretion of the Compensation Committee.
Mr. Gates was also eligible to receive an annual
performance-based cash bonus under Centurys incentive
compensation plan, subject to the discretion of the Compensation
Committee, and was eligible to receive stock option grants and
performance share awards under the 1996 Plan and to participate
in the SERP. Effective March 1, 2007, Wayne R. Hale
succeeded Mr. Gates as our Executive Vice President and
Chief Operating Officer. At that time, we entered into a letter
agreement with Mr. Gates which provided that Mr. Gates
would continue as an employee through June 30, 2007, when
he will retire. Following his retirement, Mr. Gates has
agreed to serve as our consultant through December 31,
2007. Mr. Gates will be paid a minimum of $70,000 during
the consulting term, which will compensate Mr. Gates for
providing consulting services for up to an aggregate of
35 days. Mr. Gates will be paid an additional $2,000
for each day during the consulting term he provides consulting
services in excess of 35 days.
We entered into an employment agreement with Michael A. Bless,
effective January 23, 2006, the date Mr. Bless
succeeded Mr. Beckley as Executive Vice President and Chief
Financial Officer. On May 1, 2006, we entered into an
employment agreement with Robert R. Nielsen, the day
Mr. Nielsen succeeded Mr. Kitchen as Executive Vice
President, General Counsel and Secretary. Our employment
agreements with Messrs. Bless and Nielsen extend through
December 31, 2008; however beginning on January 1,
2008, and on each January 1 thereafter, unless timely notice of
termination is delivered by a party pursuant to the terms of the
employment agreement, the period of employment is automatically
extended for successive three-year periods. These agreements
provide that the base salaries paid to Messrs. Bless and
Nielsen shall not be reduced below $375,000 and
$350,000 per year, respectively, and shall be subject to
increase from time to time at the discretion of the Compensation
Committee. Mr. Bless and Mr. Nielsen will each be
eligible to receive an annual performance-based cash bonus under
our incentive compensation plan, subject to the discretion of
the Compensation Committee. The agreements provide that the 2006
annual cash bonuses for Messrs. Bless and Nielsen would be
no less than $187,500 and $122,500, respectively. In addition,
Messrs. Bless and Nielsen received options to purchase
30,000 and 25,000 shares, respectively, of our common stock
and one-time grants of 20,000 and 15,000, respectively,
service-based performance shares. Messrs. Bless and Nielsen
are also eligible for stock option grants and performance share
awards under the 1996 Plan and participation in the SERP.
Our employment agreements with Messrs. Kruger, Bless, Gates
and Nielsen each provide that upon termination of employment for
any reason other than voluntary resignation, death or for
cause, the terminated executive will be entitled to
receive termination payments equal to 100% of his base salary
and bonus (based on the highest annual bonus payment within the
prior three years) for the remainder of the term of the
agreement (with a minimum of one years salary plus bonus).
If the executive is terminated as a result of the
executives disability, the payments due to the executive
will be reduced by any payments he receives under our disability
plans. Also, any termination payments under the employment
agreements may not be duplicated under the severance
compensation agreements. Prior to their retirement, our
employment agreements with Messrs. Beckley and Kitchen
contained similar terms.
S-66
Post-Termination
Compensation and Benefits
Savings
Plan
We maintain our Century Aluminum 401(k) Plan. This savings plan
is a tax qualified retirement savings plan pursuant to which our
U.S. based salaried employees, including our named
executive officers, are able to contribute a percentage, up to
the limits prescribed by the Internal Revenue Service, of their
annual compensation on a pre-tax basis. In 2006, we matched 60%
of the first 6% of pay that is contributed to the savings plan.
Prior to January 1, 2007, all matching contributions vested
after 2 years of service with Century. Beginning
January 1, 2007, we will match 100% of the first 3% of pay
that is contributed to the savings plan and 50% of the next 2%
of pay contributed, and all matching contributions will be fully
vested on contribution.
Retirement
Plans
We also maintain a non-contributory defined benefit pension plan
for our U.S. based salaried employees who meet certain
eligibility requirements, which we refer to as our Qualified
Plan. We also have adopted a Supplemental Retirement Income
Benefit Plan, or SERP. The SERP is a supplemental
plan that provides selected senior executive officers with
enhanced benefits to those provided under our Qualified Plan.
Those supplemental benefits include an unfunded additional
amount equal to the amount that would normally be paid under our
Qualified Plan if there were no limitations under
Sections 415 and 401(a)(17) of the Code. Final average
monthly compensation for purposes of calculating the
supplemental benefit will be based on the greater of
(a) projected final annual compensation, assuming specified
annual increases until retirement age, or (b) the average
of the highest three years annual compensation over the
last 10 years of employment. Messrs. Kruger, Bless,
Gates, and Nielsen were eligible to participate in these
benefits in 2006.
The SERP also permits selected senior executives to achieve
estimated levels of retirement income when, due to the
executives age and potential years of service at normal
retirement age, benefits under our existing qualified and
nonqualified defined benefit pension plans are projected to be
less than a specified percentage of the executives
estimated final average annual compensation (the Enhanced
SERP). Mr. Kruger is the only named executive officer
currently eligible to participate in the Enhanced SERP, and his
eligibility is subject to certain vesting requirements.
Mr. Krugers right to participate in the Enhanced SERP
benefit begins on the fifth anniversary of his employment date
and vests 20 percent each year thereafter. If
Mr. Kruger remains employed by Century for a period of
10 years he will be fully vested in his Enhanced SERP
benefit. When fully vested, Mr. Krugers Enhanced SERP
benefit will be approximately 50% of his final average
compensation.
Other
Post-Termination Benefits
Selected senior executive officers may also receive benefits
triggered by death, disability or termination without cause.
Century has designed these benefits to be competitive with
industry standards to attract and retain talented executive and
management level personnel.
It is Centurys policy that accelerated benefits for
executive officers should not be triggered in circumstances
where the executive is terminated for cause or resigns
voluntarily.
Change in
Control
Our policy is to provide change in control protection to our
named executive officers based on competitive practice in the
industry. Change in control provisions are contained in various
named executive officer employment agreements, long-term
compensation agreements, retirement plans and severance
protection agreements. Our industry has been subject to
consolidation and reorganizations in recent times. Change in
control protection provides a method to attract and retain
executives who are unlikely to be retained by the acquiring
entity upon a change in control. In addition, change in control
protections are designed to maximize stockholder value by
creating incentives for named executive officers to explore
strategic transactions and work to bring such transactions to
fruition if appropriate.
S-67
Corporate
Governance
We are subject to corporate governance laws, rules and
regulations of the State of Delaware, NASDAQ and the SEC; we
believe that we are in compliance with such laws, rules and
regulations. Except as described in this prospectus supplement
and the accompanying prospectus, there are no potential
conflicts of interest between any duties to Century by any
director or executive officer and their private interests or
other duties. The business address for each of our directors and
executive officers named above is c/o Century Aluminum
Company, 2511 Garden Road, Building A, Suite 200, Monterey,
CA 93940.
Security
Ownership of Directors and Executive Officers
The following table sets forth certain information concerning
the beneficial ownership of our common stock as of
April 16, 2007 by: (i) each of our current directors,
(ii) each executive officer named in the Summary
Compensation Table above, and (iii) all of our directors
and executive officers as a group. No director or executive
officer beneficially owned more than 1% of our outstanding
common stock. All of our directors and executive officers as a
group beneficially owned 1.1% of our outstanding common stock.
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Amount and Nature of Beneficial
Ownership(1)
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Restricted
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Exercisable
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Name
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Common Stock
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Shares(2)
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Stock
Options(3)
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David W. Beckley
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11,551
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8,526
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Jarl Berntzen
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9,666
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Michael A. Bless
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6,607
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14,080
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19,998
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Craig A. Davis
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106,244
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(4)
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29,778
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3,000
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Robert E. Fishman
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4,500
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John C. Fontaine
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250
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(5)
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16,250
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E. Jack Gates
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23,524
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16,025
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Peter C. Jones
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3,333
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Gerald J. Kitchen
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15,179
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8,600
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Logan W. Kruger
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10,228
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31,682
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13,333
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Robert R. Nielsen
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2,140
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12,320
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8,333
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John P. OBrien
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5,000
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14,000
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Steve Schneider
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1,490
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8,155
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Willy R. Strothotte
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(4)
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22,500
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Jack E. Thompson
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3,500
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9,334
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All directors and executive
officers as a group (19 persons)
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189,121
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(4)
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146,505
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157,348
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(1) |
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Each individual has sole voting and investment power, except as
otherwise indicated. |
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(2) |
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Includes the target level of shares of common stock issuable
upon vesting of performance shares awarded to certain executive
officers under our 1996 Plan. Vesting is based upon achievement
of specified performance targets. Award recipients do not have
voting or investment power with respect to performance shares
until vesting. Dividend equivalents accrue and are paid upon
vesting of the performance shares. |
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(3) |
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Represents shares that are subject to options that are presently
exercisable or exercisable within 60 days of April 16,
2007. |
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(4) |
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Excludes 9,320,089 shares beneficially owned by Glencore,
for which Mr. Strothotte serves as Chairman and
Mr. Davis serves as a director. |
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(5) |
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Mr. Fontaine owns 250 shares jointly with his wife. |
S-68
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning
the beneficial ownership of our common stock as of
April 16, 2007 (except as otherwise noted) by each person
known by us to be the beneficial owner of five percent or more
of the outstanding shares of our common stock. The SEC requires
any person who acquires beneficial ownership of five percent or
more of the outstanding shares of our common stock to publicly
disclose such ownership and certain other information. The
percent of class shown below is based on the
32,585,080 shares of common stock outstanding as of
April 16, 2007.
We understand that Glencore has subscribed to a significant
portion of this offering which is approximately proportional to
its present ownership interest in us.
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Name and Address
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Amount and Nature of
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of Beneficial Owner
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Beneficial
Ownership(1)
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Percent of Class
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Glencore International
AG(2)
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9,320,089
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(2)
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28.6
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Guardian Life Insurance Company of
America(3)
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3,121,437
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(3)
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9.6
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Prudential Financial,
Inc(4)
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1,863,899
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(4)
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5.7
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Citadel Limited
Partnership(5)
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1,816,395
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(5)
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5.6
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(1) |
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Each entity has sole voting and investment power, except as
otherwise indicated. |
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(2) |
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Based on information set forth in a Schedule 13D filing
dated May 25, 2004, Glencore International AG beneficially
owns such shares through its subsidiary, Glencore AG. The
principal business address of each of Glencore International AG
and Glencore AG is Baarermattstrasse 3, P.O. Box 555,
CH 6341, Baar, Switzerland. |
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(3) |
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Based on information set forth in a Schedule 13G filed on
February 9, 2007, by Guardian Life Insurance Company
(Guardian), Guardian Investor Services LLC
(GIS), and RS Investment Management Co. LLC
(RIMC) (collectively, the Guardian Reporting
Persons). Guardian is an insurance company and the parent
company of GIS and RIMC. GIS is a registered investment adviser,
a registered broker-dealer, and the parent company of RIMC, a
registered investment adviser. The Guardian Reporting Persons
each share voting and investment power over
3,121,437 shares. The business address of the Guardian
Reporting Persons is 7 Hanover Square, New York, New York 10004. |
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(4) |
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Based on information set forth in a Schedule 13G filed on
February 9, 2007, Prudential Financial, Inc.
(Prudential) shares voting and investment power with
respect to 1,713,797 shares. The shares reported by
Prudential are held for Prudentials benefit or for the
benefit of its clients. The principal business address of
Prudential is 751 Board Street, Newark, New Jersey 07102.
1,790,102 shares reported as beneficially owned by
Prudential are reported as beneficially owned by Jennison
Associates LLC (Jennison), a wholly-owned subsidiary
of Prudential, in a Schedule 13G filed by Jennison on
February 13, 2007. Jennison, which shares investment power
with respect to all 1,790,102 shares, beneficially owns
such shares in its capacity as an investment advisor. The
business address of Jennison is 466 Lexington Avenue, New York,
New York 10017. |
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(5) |
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Based on information set forth in a Schedule 13G filed on
March 6, 2007, Citadel Limited Partnership shares voting
and investment power with respect to all of the reported shares
with Citadel Derivatives Group LLC, Citadel Equity
Fund Ltd., Citadel Investment Group, L.L.C. and Kenneth
Griffin (collectively, the Citadel Reporting
Persons). The business address for the Citadel Reporting
Persons is 131 S. Dearborn Street, 32nd Floor,
Chicago, Illinois 60603. |
S-69
CERTAIN
UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
The following is a general discussion of certain United States
federal income tax consequences of the ownership and disposition
of our common stock to a
non-U.S. holder
(as defined below) that is not the beneficial owner of, and is
not deemed to own, more than 5% of our common stock.
This discussion is based on current provisions of the Code, and
administrative pronouncements, judicial decisions and final,
temporary and proposed Treasury Regulations, all as in effect on
the date hereof, and all of which are subject to change,
possibly with retroactive effect. This discussion assumes that
non-U.S. holders
will hold our common stock issued pursuant to the offering as a
capital asset (generally, property held for investment). This
discussion does not address all aspects of U.S. federal
income taxation that may be relevant to
non-U.S. holders
in light of their particular tax status or circumstances. For
example, United States expatriates, life insurance companies,
tax-exempt organizations, dealers in securities or currency,
banks or other financial institutions, pass-through entities,
trusts, estates, and investors that hold common stock as part of
a hedge, straddle or conversion transaction are among those
categories of potential investors that are subject to special
rules not covered in this discussion. In addition, this
discussion does not address tax consequences to a holder of the
use of a functional currency other than the United States
dollar. This discussion does not address any tax consequences
arising under the laws of any state, local or foreign
jurisdiction or any taxes other than income taxes. Prospective
holders are urged to consult their tax advisors with respect to
the particular tax consequences to them of owning and disposing
of our common stock, including the consequences under the laws
of any state, local or foreign jurisdiction.
For the purpose of this discussion, a
non-U.S. holder
is any individual, corporation, estate or trust that is a
beneficial holder of our common stock and that for United States
federal income tax purposes is not a United States person. For
purposes of this discussion, the term United States person means:
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an individual citizen or resident of the United States;
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a corporation or other entity taxable as a corporation created
or organized in the United States or under the laws of the
United States or any political subdivision thereof;
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|
an estate whose income is subject to United States federal
income tax regardless of its source; or
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a trust (i) whose administration is subject to the primary
supervision of a United States court and which has one or more
United States persons who have the authority to control all
substantial decisions of the trust, or (ii) which has made
an election to be treated as a United States person.
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If a partnership (or an entity treated as a partnership for
United States federal income tax purposes) holds our common
stock, the tax treatment of a partner will generally depend on
the status of the partner and upon the activities of the
partnership. Accordingly, we urge partnerships that hold our
common stock and partners in such partnerships to consult their
tax advisors.
A
non-U.S. holder
does not include an individual who is present in the United
States for 183 days or more in the taxable year of
disposition and is not otherwise a resident of the United States
for U.S. federal income tax purposes. Such an individual
may be subject to special rules and is urged to consult his or
her own tax advisor regarding the U.S. federal income tax
consequences of the sale, exchange or other disposition of our
common stock.
Investors considering the purchase of common stock should
consult their tax advisors regarding the application of the
U.S. federal income tax laws to their particular situations
and the consequences of U.S. federal estate and gift tax
laws, foreign, state and local laws, and tax treaties.
Dividends
Distributions on our common stock, if any, generally will
constitute dividends for U.S. federal income tax purposes
to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. Amounts not treated as dividends for
U.S. federal income tax purposes will constitute a return
of capital and will first be applied against and reduce a
holders adjusted tax basis in the
S-70
common stock, but not below zero, and then the excess, if any,
will be treated as gain from the sale of the common stock.
Dividends paid to a
non-U.S. holder
of common stock generally will be subject to United States
withholding tax at a 30% rate or at a reduced rate specified by
an applicable income tax treaty. In order to obtain a reduced
rate of withholding, a
non-U.S. holder
will be required to provide an Internal Revenue Service
Form W-8BEN
certifying its entitlement to benefits under a treaty.
The withholding tax does not apply to dividends paid to a
non-U.S. holder
that provides a
Form W-8ECI,
certifying that the dividends are effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States.
Instead, the effectively connected dividends will be subject to
regular U.S. income tax as if the
non-U.S. holder
were a U.S. resident, unless an applicable income tax
treaty provides otherwise. In that case, the 30% withholding tax
described above will not apply, provided the
non-U.S. Holder
complies with applicable certification and disclosure
requirements. If a
non-U.S. holder
is eligible for the benefits of a tax treaty between the United
States and its country of residence, any dividend income that is
effectively connected with the conduct of a United States trade
or business will be subject to United States federal income tax
in the manner specified by the treaty and generally will only be
subject to such tax if such income is attributable to a
permanent establishment (or a fixed base in the case of an
individual) maintained by the
non-U.S. holder
in the United States and the
non-U.S. holder
claims the benefit of the treaty by properly submitting an IRS
Form W-8BEN.
A
non-U.S. corporation
receiving effectively connected dividends may also be subject to
an additional branch profits tax imposed at a rate
of 30% (or at an applicable lower treaty rate).
A
non-U.S. holder
may obtain a refund from the IRS to the extent that the amounts
withheld as described above exceed that holders tax
liability if an appropriate claim for refund is timely filed
with the IRS.
Special certification requirements and other requirements apply
to certain
non-U.S. holders
that are entities rather than individuals.
Gain on
Disposition of Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of our common stock
unless:
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the gain is effectively connected with the conduct of a trade or
business of the
non-U.S. holder
in the United States, subject to an applicable treaty providing
otherwise; or
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we are or have been a U.S. real property holding
corporation (as defined in the Code), at any time within
the five-year period preceding the disposition or the
non-U.S. holders
holding period, whichever period is shorter, and our common
stock has ceased to be regularly traded on an established
securities market prior to the beginning of the calendar year in
which the sale or disposition occurs. The determination of
whether we are a U.S. real property holding corporation
depends on the fair market value of our United States real
property interests relative to the fair market value of our
other trade or business assets and foreign real property
interests.
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We believe that we currently are not, and we do not anticipate
becoming, a U.S. real property holding corporation for
United States federal income tax purposes.
If the first exception applies, generally the
non-United
States holder will be required to pay United States federal
income tax on the net gain derived from the sale in the same
manner as a United States person. If a
non-United
States Holder is eligible for the benefits of a tax treaty
between the United States and its country of residence, any such
gain will be subject to United States federal income tax in the
manner specified by the treaty and generally will only be
subject to such tax if such gain is attributable to a permanent
establishment (or a fixed base in the case of an individual)
maintained by the
non-U.S. holder
in the United States and the
non-U.S. holder
claims the benefit of the treaty by properly submitting an IRS
Form W-8BEN
(or suitable successor form). Additionally,
non-U.S. holders
that are treated for United States federal income tax purposes
as corporations and that are engaged in a trade or business or
have a permanent establishment in the United
S-71
States may be subject to a branch profits tax on such income at
a 30% rate or a lower rate if so specified by an applicable
income tax treaty.
Information
Reporting Requirements and Backup Withholding
Information returns will be filed with the Internal Revenue
Service in connection with payments of dividends and the
proceeds from a sale or other disposition of common stock.
Subject to certain exceptions, a similar report is sent to the
holder. Pursuant to tax treaties or other agreements, the IRS
may make its reports available to tax authorities in the
recipients country of residence.
You may have to comply with certification procedures to
establish that you are not a United States person in order to
avoid information reporting and backup withholding tax
requirements. The certification procedures required to claim a
reduced rate of withholding under a treaty generally will
satisfy the certification requirements necessary to avoid the
backup withholding tax as well.
Additional information reporting and backup withholding may
apply in the case of dispositions of our common stock by
non-United
States brokers effected through certain brokers or a United
States office of a broker. Such information reporting and backup
withholding can be avoided by providing the certification
described above to such paying agent.
The backup withholding rate currently is 28%. Backup withholding
is not an additional tax. The amount of any backup withholding
from a payment to you will be allowed as a credit against your
U.S. federal income tax liability and may entitle you to a
refund, provided that the required information is timely
furnished to the Internal Revenue Service.
Non-U.S. holders
should consult their own tax advisors on the application of
information reporting and backup withholding to them in their
particular circumstances (including upon their disposition of
our common stock).
S-72
UNDERWRITERS
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus
supplement, the underwriters named below, for whom Credit Suisse
Securities (USA) LLC and Morgan Stanley & Co.
Incorporated are acting as representatives, have severally
agreed to purchase, and we have agreed to sell to them, the
number of shares indicated below:
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Name
|
|
Number of Shares
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
3,060,000
|
|
Morgan Stanley & Co.
Incorporated
|
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|
2,040,000
|
|
Kaupthing Bank hf.
|
|
|
825,000
|
|
Landsbanki Islands hf.
|
|
|
825,000
|
|
Kaupthing Securities, Inc.
|
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500,000
|
|
|
|
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Total
|
|
|
7,250,000
|
|
The underwriters are offering the shares of common stock subject
to their acceptance of the shares from us and subject to prior
sale. The underwriting agreement provides that the obligations
of the several underwriters to pay for and accept delivery of
the shares of common stock offered by this prospectus supplement
are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock
offered by this prospectus supplement if any such shares are
taken. However, the underwriters are not required to take or pay
for the shares covered by the underwriters over-allotment
option described below.
The underwriters initially propose to offer part of the shares
of common stock directly to the public at the public offering
price listed on the cover page of this prospectus supplement and
part to certain dealers at a price that represents a concession
not in excess of $1.54 a share under the public offering price.
After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be
varied by the representatives.
We are also offering shares of common stock in Iceland
represented by global depositary receipts, or depositary
receipts, with one depositary receipt representing one share of
common stock. Any shares of our common stock represented by
depositary receipts offered and sold in Iceland will be offered
and sold solely by the Icelandic Co-Managers of this offering,
Kaupthing Bank hf. and Landsbanki Islands hf., to institutional
investors.
Kaupthing Bank hf. and Landsbanki Islands hf. are not
SEC-registered broker-dealers, and therefore shall not make
sales of any shares in the United States or to U.S. persons
except in compliance with applicable U.S. laws and
regulations, including the rules of the National Association of
Securities Dealers.
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus supplement, to
purchase up to an aggregate of 1,087,500 additional shares of
common stock at the public offering price set forth on the cover
page of this prospectus supplement, less underwriting discounts
and commissions. The underwriters may exercise this option
solely for the purpose of covering over-allotments, if any, made
in connection with the offering of the shares of common stock
offered by this prospectus supplement. To the extent the option
is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase about the same percentage of the
additional shares of common stock as the number listed next to
the underwriters name in the preceding table bears to the
total number of shares of common stock listed next to the names
of all underwriters in the preceding table.
The following table shows the per share and total underwriting
discounts and commissions to be paid to the underwriters by us,
and the proceeds before expenses to us. These amounts are shown
assuming both no
S-73
exercise and full exercise of the underwriters option to
purchase up to an additional 1,087,500 shares of common
stock:
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Total
|
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Per Share
|
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|
No Exercise
|
|
|
Full Exercise
|
|
|
Public offering price
|
|
$
|
52.5000
|
|
|
$
|
380,625,000
|
|
|
$
|
437,718,750
|
|
Underwriting discounts and
commissions
|
|
$
|
2.5725
|
|
|
$
|
18,650,625
|
|
|
$
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21,448,219
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|
Proceeds, before expenses, to
Century Aluminum
|
|
$
|
49.9275
|
|
|
$
|
361,974,375
|
|
|
$
|
416,270,531
|
|
The estimated offering expenses payable by us, in addition to
the underwriting discounts and commissions, are approximately
$1,875,000 which includes legal, accounting and printing costs
and various other fees associated with registering and listing
the common stock.
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed five percent of the total
number of shares of common stock offered by them.
We have agreed, together with each of our directors, executive
officers and Glencore, that without the prior written consent of
the representatives on behalf of the underwriters, none of us
will, during the period ending 90 days after the date of
this prospectus supplement:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of directly or indirectly, any
shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock; or
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock;
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whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or
otherwise. The restrictions described in this paragraph do not
apply to:
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the sale of shares to the underwriters;
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transactions by any person other than us relating to shares of
our common stock or other securities acquired in open market
transactions after the completion of the offering of the shares;
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the cashless exercise of outstanding options that will expire
during the
90-day
restricted period described above that does not involve the sale
or transfer of shares other than to us and provided that the
shares received upon such exercise remain subject to the
restrictions above;
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the transfer of shares of our common stock as bona fide gifts or
to a trust, provided that the transferred shares remain subject
to the restrictions above and the seller is not required to file
a Form 4 under the Exchange Act;
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sales or other dispositions of shares of common stock to us to
discharge tax withholding obligations resulting from the vesting
of performance options during the term of the period ending
90 days after the date of this prospectus supplement;
provided that the aggregate number of shares withheld by us for
all persons subject to these restrictions does not exceed
100,000 shares of common stock;
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the grant or award of stock options, performance shares or other
stock-based compensation under our 1996 Plan or Non-Employee
Directors Stock Plan as in effect on the date of this prospectus
supplement; or
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|
the issuance by us of shares of common stock upon the exercise
of an option or warrant or the conversion of a security or upon
the vesting of performance shares or restricted stock
outstanding on the date of this prospectus supplement.
|
In order to facilitate the offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common stock, for a period
of 30 calendar days starting on the first day of trading.
Specifically, the underwriters may sell more shares than they
are obligated to
S-74
purchase under the underwriting agreement, creating a short
position. A short sale is covered if the short position is no
greater than the number of shares available for purchase by the
underwriters under the over allotment option. The underwriters
can close out a covered short sale by exercising the over
allotment option or purchasing shares in the open market. In
determining the source of shares to close out a covered short
sale, the underwriters will consider, among other things, the
open market price of shares compared to the price available
under the over allotment option. The underwriters may also sell
shares in excess of the over allotment option, creating a naked
short position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could
adversely affect investors who purchase in the offering. As an
additional means of facilitating the offering, the underwriters
may bid for, and purchase, shares of common stock in the open
market to stabilize the price of the common stock. The
underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases
previously distributed common stock to cover syndicate short
positions or to stabilize the price of the common stock. These
activities may raise or maintain the market price of the common
stock above independent market levels or prevent or retard a
decline in the market price of the common stock. The
underwriters are not required to engage in these activities, and
may end any of these activities at any time.
Credit Suisse Securities (USA) LLC, as the stabilizing agent, or
its agents, will engage in any such activities on behalf of the
underwriters.
Kaupthing Bank hf. and Landsbanki Islands hf. will engage in
market-making activities in Iceland with respect to the
depositary receipts. From time to time, each underwriter has
provided, and continues to provide, investment banking services
to us. An affiliate of Credit Suisse Securities (USA) LLC is a
lender under our revolving credit facility and the credit
facility for our Icelandic subsidiaries. Kaupthing Bank hf. and
Landsbanki Islands hf. are lenders and agents under the credit
facility for our Icelandic subsidiaries, provide us with
customary commercial banking services and have provided us with
listing advisory services in connection with our offering of
depositary receipts in Iceland. Landsbanki Islands hf. is acting
as our certified advisor in connection with the listing of the
depositary receipts on the First North Iceland market.
We and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the
Securities Act.
A prospectus in electronic format will be made available on the
web sites maintained by one or more of the underwriters
participating in this offering and one or more of the
underwriters participating in this offering may distribute
prospectuses electronically. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distribution will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
Each of the underwriters has represented and agreed that:
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it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of section 21 of the United Kingdoms Financial
Services and Markets Act 2000, or FSMA) to persons
who have professional experience in matters relating to
investments falling with Article 19(5) of the FSMA
(Financial Promotion) Order 2005 or in circumstances in which
section 21 of the FSMA does not apply to us; and
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it has complied with, and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
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In relation to each Member State of the European Economic Area
(EEA) (except for Iceland) which has implemented the
Prospectus Directive (each, a Relevant Member
State), with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) our common
stock may be offered to the public in that Relevant Member State
at any
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time under the following exemptions under the Prospectus
Directive, if they have been implemented in that Relevant Member
State:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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by the underwriters to fewer than 100 natural or legal persons
(other than qualified investors as defined in the Prospectus
Directive); or
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive;
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provided that no such offer of common stock shall result in a
requirement for the publication by Century Aluminum or the
underwriters of a prospectus pursuant to Article 3 of the
Prospectus Directive.
Each purchaser of securities described in this prospectus
supplement and the accompanying prospectus located within a
Relevant Member State will be deemed to have represented,
acknowledged and agreed that it is a qualified
investor within the meaning of Article 2(1)(e) of the
Prospectus Directive.
As used above, the expression offered to the public
in relation to any of our common stock in any Relevant Member
State means the communication in any form and by any means of
sufficient information on the terms of the offer and our common
stock to be offered so as to enable an investor to decide to
purchase any of our common stock, as the same may be varied in
that Member State by any measure implementing the Prospectus
Directive in that Member State, and the expression
Prospectus Directive means Directive
2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
The EEA selling restriction is in addition to any other selling
restrictions set out herein.
NOTICE TO
CANADIAN RESIDENTS
Resale
Restrictions
The distribution of the common stock in Canada is being made
only on a private placement basis exempt from the requirement
that we prepare and file a prospectus with the securities
regulatory authorities in each province where trades of common
stock are made. Any resale of the common stock in Canada must be
made under applicable securities laws which will vary depending
on the relevant jurisdiction, and which may require resales to
be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of the common stock.
Representations
of Purchasers
By purchasing common stock in Canada and accepting a purchase
confirmation, a purchaser is representing to us and the dealer
from whom the purchase confirmation is received that:
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the purchaser is entitled under applicable provincial securities
laws to purchase the common stock without the benefit of a
prospectus qualified under those securities laws;
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where required by law, that the purchaser is purchasing as
principal and not as agent;
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the purchaser has reviewed the text above under Resale
Restrictions; and
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the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of the common
stock to the regulatory authority that by law is entitled to
collect the information.
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Further details concerning the legal authority for this
information is available on request.
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Rights of
Action Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of the common stock, for
rescission against us in the event that this prospectus contains
a misrepresentation without regard to whether the purchaser
relied on the misrepresentation. The right of action for damages
is exercisable not later than the earlier of 180 days from
the date the purchaser first had knowledge of the facts giving
rise to the cause of action and three years from the date on
which payment is made for the common stock. The right of action
for rescission is exercisable not later than 180 days from
the date on which payment is made for the common stock. If a
purchaser elects to exercise the right of action for rescission,
the purchaser will have no right of action for damages against
us. In no case will the amount recoverable in any action exceed
the price at which the common stock was offered to the purchaser
and if the purchaser is shown to have purchased the securities
with knowledge of the misrepresentation, we will have no
liability. In the case of an action for damages, we will not be
liable for all or any portion of the damages that are proven to
not represent the depreciation in value of the common stock as a
result of the misrepresentation relied upon. These rights are in
addition to, and without derogation from, any other rights or
remedies available at law to an Ontario purchaser. The foregoing
is a summary of the rights available to an Ontario purchaser.
Ontario purchasers should refer to the complete text of the
relevant statutory provisions.
Enforcement
of Legal Rights
All of our directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of
process within Canada upon us or those persons. All or a
substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against us or those
persons in Canada or to enforce a judgment obtained in Canadian
courts against us or those persons outside of Canada.
Taxation
and Eligibility for Investment
Canadian purchasers of common stock should consult their own
legal and tax advisors with respect to the tax consequences of
an investment in the common stock in their particular
circumstances and about the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
LEGAL
MATTERS
The validity of the common stock offered through this prospectus
will be passed upon for us by Pillsbury Winthrop Shaw Pittman
LLP, San Francisco, California. Certain legal matters in
connection with this offering will be passed upon for the
underwriters by Davis Polk & Wardwell, New York, New
York.
EXPERTS
The consolidated financial statements and the related financial
statement schedule as of December 31, 2006 and 2005, and
for each of the three years in the period ended
December 31, 2006 and managements report on the
effectiveness of internal control over financial reporting as of
December 31, 2006 incorporated by reference in this
prospectus have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in
their reports (which reports (1) express an unqualified
opinion on the financial statements and include an explanatory
paragraph relating to the Companys adoption of Statement
of Financial Accounting Standard No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, (2) express an unqualified
opinion on the financial statement schedule, (3) express an
unqualified opinion on managements assessment regarding
the effectiveness of internal control over financial reporting,
and (4) express an unqualified opinion on the effectiveness of
internal control over financial reporting) and have been so
included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
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WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and file annual,
quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy these reports,
proxy statements and other information at the SECs public
reference room at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. You can request copies of these documents
by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at
1-800-SEC-0330
(1-800-732-0330)
for more information about the operation of the public reference
room. The SEC maintains a web site (http://www.sec.gov) that
contains reports, statements and other information regarding
registrants that file electronically. After listing on First
North Iceland, we anticipate that our SEC reports will also be
available through the First North Iceland news system
(http://omxgroup.com/firstnorth/market_news/). You may
also obtain additional information about us, including copies of
our certificate of incorporation and bylaws, from our web site,
which is located at www.centuryaluminum.com. Our website
provides access to filings made by us through the SECs
EDGAR filing system, including our annual, quarterly and current
reports filed on
Forms 10-K,
10-Q and
8-K,
respectively, and ownership reports filed on Forms 3, 4 and
5 after December 16, 2002 by our directors, executive
officers and beneficial owners of more than 10% of our
outstanding common stock. Information contained in our website
is not incorporated by reference in, and should not be
considered a part of, this prospectus supplement.
We have filed with the SEC a registration statement on
Form S-3,
of which this prospectus supplement is a part, under the
Securities Act with respect to the securities. This prospectus
supplement does not contain all of the information set forth in
the registration statement, certain parts of which are omitted
in accordance with the rules and regulations of the SEC. For
further information concerning us and the securities, reference
is made to the registration statement. Statements contained in
this prospectus supplement as to the contents of any contract or
other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or
documents filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such
reference.
INFORMATION
INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference
information into this prospectus supplement and the accompanying
prospectus, which means that we can disclose important
information to you by referring you to another document filed
separately with the SEC. The information incorporated by
reference herein is deemed to be part of this prospectus
supplement and the accompanying prospectus, except for any
information superseded by information in this prospectus
supplement or the accompanying prospectus. This prospectus
supplement and the accompanying prospectus incorporate by
reference the documents set forth below that we have previously
filed with the SEC (other than information in such documents
that is deemed, in accordance with SEC rules, not to have been
filed). These documents contain important information about us,
our business and our finances.
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Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 (including
those portions of our Proxy Statement on Schedule 14A
relating to our 2007 Annual Meeting of Stockholders, which was
filed on April 23, 2007 incorporated by reference therein);
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Our Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 31, 2007;
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Our Current Reports on
Form 8-K
dated: May 31, 2007; April 30, 2007; April 30,
2007 (amending our Current Report on
Form 8-K
dated August 8, 2006); March 20, 2007 (as amended by
our Current Report on
Form 8-K
filed on April 13, 2007); March 1, 2007; and
February 28, 2007;
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The description of our common stock contained in our
Registration Statement on
Form 8-A
filed on March 4, 1996.
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All documents that we file pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus supplement but before the end of any offering of
securities made hereunder (other than information in such
documents that is deemed, in accordance with SEC rules, not to
have been filed) will also
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be considered to be incorporated by reference, and will
automatically update and, where applicable, supersede any
information contained, or incorporated by reference, in this
prospectus supplement or in the accompanying prospectus.
To the extent that any information contained in any Current
Report on
Form 8-K,
or any exhibit thereto, was furnished to, rather than filed
with, the SEC, such information or exhibit is specifically not
incorporated by reference in this prospectus supplement.
We will provide without charge to each person, including any
beneficial owner, to whom a prospectus is delivered, upon
written or oral request of any such person, a copy of any or all
of the information that we have incorporated by reference in
this prospectus supplement and accompanying prospectus but have
not delivered with this prospectus supplement and accompanying
prospectus. You may request a copy of these filings, by writing
or telephoning us at:
Century Aluminum Company
2511 Garden Road
Building A, Suite 200
Monterey, CA 93940
Attention: Corporate Secretary
(831) 642-9300
S-79
MANAGEMENTS
ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining an
adequate system of internal controls over financial reporting
for the company. This system is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Because of its inherent limitations, a system of internal
controls over financial reporting can provide only reasonable
assurance and may not prevent or detect misstatements. Further,
because of changes in conditions, effectiveness of internal
controls over financial reporting may vary over time. Our system
of internal controls contains self-monitoring mechanisms, and
actions are taken to correct deficiencies as they are identified.
As required by Section 404 of the Sarbanes-Oxley Act,
management conducted an evaluation of the effectiveness of the
system of internal controls over financial reporting for the
year ended December 31, 2006. Managements evaluation
was based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. Based on this
evaluation, management concluded that our system of internal
controls over financial reporting was effective as of
December 31, 2006. Managements assessment of the
effectiveness of our internal control over financial reporting
has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their report under the heading Report of Independent
Registered Public Accounting Firm.
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Century Aluminum Company:
We have audited managements assessment, included in the
accompanying Managements Annual Report on Internal Control
over Financial Reporting, that Century Aluminum Company and
subsidiaries (the Company) maintained effective
internal control over financial reporting as of
December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance