Century Aluminum Company Form 10-Q for the period ending June 30, 2006



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2006.
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______.
 
Commission file number 0-27918
 
 

 
 
Century Aluminum Company
 
(Exact name of Registrant as specified in its Charter)
 
Delaware
(State of Incorporation)
 
13-3070826
(IRS Employer Identification No.)
 
2511 Garden Road
Building A, Suite 200
Monterey, California
(Address of principal executive offices)
 
93940
(Zip Code)

Registrant’s telephone number, including area code: (831) 642-9300
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o     Accelerated Filer x  Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o Yes     x No
 
The registrant had 32,426,835 shares of common stock outstanding at August 1, 2006.




TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes to Consolidated Financial Statements
1. General
2. Stock-Based Compensation
3. Inventories
4. Goodwill and Intangible Asset
5. Debt
6. Contingencies and Commitments
7. Forward Delivery Contracts and Financial Instruments
8. Supplemental Cash Flow Information
9. Asset Retirement Obligations
10. Recently Adopted Accounting Standards
11. New Accounting Standard
12. Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
13. Earnings Per Share
14. Components of Net Periodic Benefit Cost
15. Other Assets
16. Condensed Consolidating Financial Information
17. Subsequent Events
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Recent Developments
Results of Operations
Liquidity and Capital Resources
Other Contingencies
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Sensitivity
Interest Rates
 
Item 4. Controls and Procedures
 
PART II. OTHER INFORMATION
 
Item 1A. Risk Factors
 
Item 4. Submission of Matters to a Vote of Stockholders
 
Item 6. Exhibit Index
 
SIGNATURES
 
EXHIBT 31.1 - Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
 
EXHIBT 31.2 - Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
 
EXHIBT 32.1 - SECTION 1350 CERTIFICATIONS


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
   
June 30, 2006
 
December 31, 2005
 
ASSETS
         
ASSETS:
         
Cash and cash equivalents
 
$
29,175
 
$
17,752
 
Restricted cash
   
6,029
   
2,028
 
Accounts receivable — net
   
118,191
   
83,016
 
Due from affiliates
   
15,635
   
18,638
 
Inventories
   
132,956
   
111,436
 
Prepaid and other current assets
   
21,375
   
23,918
 
Deferred taxes — current portion
   
53,281
   
37,705
 
Total current assets
   
376,642
   
294,493
 
Property, plant and equipment — net
   
1,155,732
   
1,070,158
 
Intangible asset — net
   
68,118
   
74,643
 
Goodwill
   
94,844
   
94,844
 
Other assets
   
251,358
   
143,293
 
TOTAL
 
$
1,946,694
 
$
1,677,431
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
             
LIABILITIES:
             
Accounts payable — trade
 
$
59,291
 
$
61,919
 
Due to affiliates
   
221,650
   
158,682
 
Accrued and other current liabilities
   
52,691
   
53,715
 
Long term debt — current portion
   
16,093
   
581
 
Accrued employee benefits costs — current portion
   
9,333
   
9,333
 
Convertible senior notes
   
175,000
   
175,000
 
Industrial revenue bonds
   
7,815
   
7,815
 
Total current liabilities
   
541,873
   
467,045
 
Senior unsecured notes payable
   
250,000
   
250,000
 
Nordural debt
   
283,636
   
230,436
 
Revolving credit facility
   
--
   
8,069
 
Accrued pension benefits costs — less current portion
   
10,904
   
10,350
 
Accrued postretirement benefits costs — less current portion
   
103,245
   
96,660
 
Due to affiliates — less current portion
   
592,550
   
337,416
 
Other liabilities
   
28,420
   
28,010
 
Deferred taxes
   
16,890
   
16,890
 
Total noncurrent liabilities
   
1,285,645
   
977,831
 
               
CONTINGENCIES AND COMMITMENTS (NOTE 6)
             
SHAREHOLDERS’ EQUITY:
             
Preferred stock (one cent par value, 5,000,000 shares authorized, and no shares outstanding)
   
--
   
--
 
Common stock (one cent par value, 100,000,000 shares authorized; 32,426,835 and 32,188,165 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively)
   
324
   
322
 
Additional paid-in capital
   
429,797
   
419,009
 
Accumulated other comprehensive loss
   
(119,816
)
 
(91,418
)
Accumulated deficit
   
(191,129
)
 
(95,358
)
Total shareholders’ equity
   
119,176
   
232,555
 
TOTAL
 
$
1,946,694
 
$
1,677,431
 
 
See notes to consolidated financial statements


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

   
Three months ended June 30,
 
Six months ended June 30,
 
   
2006
 
2005
 
2006
 
2005
 
NET SALES:
                 
Third-party customers
 
$
356,242
 
$
243,329
 
$
654,715
 
$
490,754
 
Related parties
   
49,734
   
39,927
   
98,207
   
77,898
 
     
405,976
   
283,256
   
752,922
   
568,652
 
Cost of goods sold
   
297,972
   
237,908
   
568,450
   
471,737
 
Gross profit
   
108,004
   
45,348
   
184,472
   
96,915
 
                           
Selling, general and administrative expenses
   
8,376
   
8,046
   
20,495
   
16,842
 
Operating income
   
99,628
   
37,302
   
163,977
   
80,073
 
                           
Interest expense
   
(8,799
)
 
(6,517
)
 
(15,550
)
 
(13,201
)
Interest income
   
152
   
275
   
348
   
493
 
Net gain (loss) on forward contracts
   
(30,456
)
 
24,496
   
(317,216
)
 
1,001
 
Other income (expense)
   
37
   
(472
)
 
(124
)
 
(65
)
Income (loss) before income taxes and equity in earnings of joint ventures
   
60,562
   
55,084
   
(168,565
)
 
68,301
 
Income tax benefit (expense)
   
(19,109
)
 
(17,880
)
 
65,247
   
(22,733
)
Income (loss) before equity in earnings of joint ventures
   
41,453
   
37,204
   
(103,318
)
 
45,568
 
Equity in earnings of joint ventures
   
4,347
   
3,540
   
7,547
   
6,906
 
Net income (loss)
 
$
45,800
 
$
40,744
 
$
(95,771
)
$
52,474
 
                           
EARNINGS (LOSS) PER COMMON SHARE:
                         
Basic
 
$
1.41
 
$
1.27
 
$
(2.96
)
$
1.63
 
Diluted
 
$
1.35
 
$
1.27
 
$
(2.96
)
$
1.63
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000):
                         
Basic
   
32,419
   
32,140
   
32,341
   
32,099
 
Diluted
   
34,297
   
32,196
   
32,341
   
32,162
 

See notes to consolidated financial statements


CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

   
Six months ended June 30,
 
   
2006
 
2005
 
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net income (loss)
 
$
(95,771
)
$
52,474
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
             
Unrealized net (gain) loss on forward contracts
   
283,573
   
(3,429
)
Depreciation and amortization
   
32,224
   
28,050
 
Deferred income taxes
   
(29,806
)
 
7,681
 
Pension and other post retirement benefits
   
7,139
   
7,421
 
Stock-based compensation
   
3,872
   
--
 
Excess tax benefits from share-based compensation
   
(1,090
)
 
--
 
(Gain) loss on disposal of assets
   
45
   
(4
)
Non-cash loss on early extinguishment of debt
   
--
   
253
 
               
Changes in operating assets and liabilities:
             
Accounts receivable - net
   
(35,175
)
 
(24,999
)
Due from affiliates
   
3,003
   
327
 
Inventories
   
(17,880
)
 
6,834
 
Prepaid and other current assets
   
(3,459
)
 
(5,712
)
Accounts payable - trade
   
(710
)
 
(6,745
)
Due to affiliates
   
2,173
   
(9,548
)
Accrued and other current liabilities
   
(69,243
)
 
11,104
 
Other - net
   
(11,605
)
 
(4,983
)
Net cash provided by operating activities
   
67,290
   
58,724
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Nordural expansion
   
(109,002
)
 
(113,654
)
Purchase of other property, plant and equipment
   
(7,568
)
 
(5,481
)
Business acquisitions, net of cash acquired 
   
--
   
(7,000
)
Restricted cash deposits
   
(4,001
)
 
(350
)
Proceeds from sale of property, plant and equipment 
   
10
   
59
 
Net cash used in investing activities
   
(120,561
)
 
(126,426
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Borrowings
   
69,000
   
145,378
 
Repayment of debt
   
(288
)
 
(83,023
)
Net repayments under revolving credit facility
   
(8,069
)
 
--
 
Financing fees
   
--
   
(4,617
)
Excess tax benefits from shared-based compensation
   
1,090
   
--
 
Dividends 
   
--
   
(16
)
Issuance of common stock
   
2,961
   
986
 
Net cash provided by financing activities
   
64,694
   
58,708
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
   
11,423
   
(8,994
)
               
Cash and cash equivalents at the beginning of the period
   
17,752
   
44,168
 
Cash and cash equivalents at the end of the period
 
$
29,175
 
$
35,174
 
 
See notes to consolidated financial statements


4

CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements
 Six month periods ending June 30, 2006 and 2005
 (Dollars in thousands, except per share amounts)
 (Unaudited)


1.
 
The accompanying unaudited interim consolidated financial statements of Century Aluminum Company should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2005. In management’s opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for the first six months of 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. Certain reclassifications of 2005 information were made to conform to the 2006 presentation. Throughout this Form 10-Q, and unless expressly stated otherwise or as the context otherwise requires, "Century Aluminum," "Century," "we," "us," "our" and "ours" refer to Century Aluminum Company and its consolidated subsidiaries.
 
2.

We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” on January 1, 2006. Prior to January 1, 2006, we accounted for stock based compensation in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.” Prior to the adoption of SFAS 123(R), we recognized expense for our performance share units and service-based stock awards, but not our stock option awards because the exercise prices of the stock options granted were equal to the market value of our common stock on the date of grant. Had compensation cost for these awards been determined using the fair value method provided under SFAS No. 123(R), our net income and earnings per share would have changed to the pro forma amounts indicated as follows:

       
Three months ended
 
Six months ended
 
       
June 30, 2005
 
June 30, 2005
 
               
Net income applicable to common shareholders
   
As reported
 
$
40,744
 
$
52,474
 
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects
         
252
   
1,683
 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
         
(392
)
 
(1,953
)
Pro forma net income
       
$
40,604
 
$
52,204
 
                     
Basic earnings per share
   
As reported
 
$
1.27
 
$
1.63
 
 
   
Pro forma 
 
$
1.26
 
$
1.63
 
Diluted earnings per share
   
As reported
 
$
1.27
 
$
1.63
 
 
   
Pro forma 
 
$
1.26
 
$
1.62
 

1996 Stock Incentive Plan— We award performance-based and service-based (time vested) stock awards and grant qualified incentive stock options and nonqualified stock options to our salaried officers, non-employee directors, and other key employees from our 1996 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan has 5,000,000 shares authorized for issuance with approximately 3,599,920 shares remaining in reserve. Granted stock options have a term of 10 years and typically vest one-third on the grant date and additional one-third on the first and second anniversary dates of the grant. Our non-employee director’s annual option grants vest one-fourth each calendar quarter. In addition to the stock options, we grant service-based stock awards that typically vest over a period of three years from the date of grant provided that the recipient is still our employee at the time of vesting. As of June 30, 2006, options to purchase 384,372 shares of common stock were outstanding and approximately 98,500 service-based stock awards have been authorized and will vest if the employee recipients are employed for the requisite service periods.
 
The Stock Incentive Plan provides for grants of performance share units upon the attainment of certain established performance goals. The performance share units represent the right to receive common stock, on a one-for-one basis on their vesting dates. As of June 30, 2006, approximately 195,000 performance share units have been authorized and will vest upon the attainment of the performance goals.

5

CENTURY ALUMINUM COMPANY
 Notes to Consolidated Financial Statements - (continued)
 
Non-Employee Directors Stock Option Plan— Our non-employee directors’ stock option plan is no longer an active plan. As of June 30, 2006, this plan has 57,334 outstanding options, but no new options will be issued out of this plan.
 
Option Pricing Model - The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions for 2006 and 2005.
   
2006
 
2005
 
Weighted average fair value per option granted during the period
 
$
26.81
 
$
15.19
 
Risk-free interest rate
   
4.30-4.99
%
 
3.98-4.29
%
Expected dividend yield
 
$
0.00
 
$
0.00
 
Expected volatility
   
60
%
 
67
%
Expected forfeiture rate
   
5
%
 
--
 
Expected lives (years)
   
5.5
   
5.5
 
 
The risk-free interest rate is based on the yield on the measurement date for five year zero-coupon U.S. Treasury bonds. The dividend yield is based on our current expectation to not pay dividends on our common stock for the foreseeable future. Expected volatility is based on the historical volatility of the price of our common stock over the expected term of the options. The expected forfeiture rate is based on our historical forfeiture rate after 1999 (the year we sold our rolling business). The expected life of the options is estimated using the method specified in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107.
 
A summary of the changes in options outstanding under our Stock Incentive Plan and the Non-Employee Directors Stock Option Plan during the six months ended June 30, 2006 is presented below:

 
Options
 
Number
 
Weighted Average Exercise Price
 
Outstanding at January 1, 2006
   
453,661
 
$
20.93
 
Granted
   
91,000
   
37.27
 
Exercised
   
(159,622
)
 
18.55
 
Forfeited
   
(667
)
 
24.32
 
Outstanding at June 30, 2006
   
384,372
 
$
25.78
 

 
Service-based stock awards (1)
 
Number
 
Outstanding at January 1, 2006
   
59,000
 
Granted
   
39,500
 
Outstanding at June 30, 2006
   
98,500
 

(1) All of our service-based stock awards require the recipients to remain an employee for a certain period of time before the award vests. Recipients receive common stock upon vesting.
 
The following table summarizes information about outstanding stock options at June 30, 2006:

Options Outstanding:
 
Range of  Exercise Prices
 
Number
Outstanding  at 6/30/2006
 
Weighted Avg.
Remaining
Contractual Life
 
Weighted Avg.
Exercise
Price
 
Aggregate Intrinsic Value
 
$26.70 to $47.61
 
113,834
   
9.6 years
 
$
35.19
 
$
920
 
$23.98 to $24.70
   
188,010
   
9.3 years
 
$
24.25
   
3,575
 
$7.03 to $23.18
   
82,528
   
6.3 years
 
$
16.21
   
2,233
 
     
384,372
             
$
6,728
 
 
6

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)
 
Exercisable Options:
 
Range of  Exercise Prices
 
Number
Exercisable at 6/30/2006
 
Weighted Avg.
Remaining
Contractual Life
 
Weighted Avg.
Exercise
Price
 
Aggregate Intrinsic Value
 
$26.70 to $47.61
   
37,581
   
9.5 years
 
$
33.20
 
$
379
 
$23.98 to $24.70
   
27,929
   
8.6 years
 
$
24.35
   
528
 
$7.03 to $23.18
   
63,597
   
5.7 years
 
$
14.13
   
1,853
 
     
129,107
             
$
2,760
 

The following table summarizes the changes in non-vested stock options during the six months ended June 30, 2006:
Non-vested Options:
 
Number
 
Weighted Average Fair Value
 
Non-vested options at January 1, 2006
   
205,430
 
$
14.59
 
Granted
   
67,669
   
22.98
 
Vested
   
(17,167
)
 
16.05
 
Forfeited
   
(667
)
 
14.48
 
Non-vested options at June 30, 2006
   
255,265
 
$
16.72
 
 
The following table summarizes the compensation cost recognized for the three and six months ended June 30, 2006 and 2005, respectively, for all options and service-based stock awards. No stock-based compensation cost was capitalized during these periods.

   
Three months ended June 30,
 
Six months ended June 30,
 
   
2006
 
2005
 
2006
 
2005
 
Compensation expense reported:
                         
Stock option grants
 
$
916
 
$
--
 
$
2,921
 
$
--
 
Service-based stock awards
   
398
   
--
   
839
   
--
 
Performance-based stock grants
   
231
   
394
   
2,767
   
2,630
 
Total compensation expense before income tax
   
1,545
   
394
   
6,527
   
2,630
 
Income tax benefit
   
(552
)
 
(142
)
 
(2,330
)
 
(947
)
Total compensation expense, net of income tax benefit
 
$
993
 
$
252
 
$
4,197
 
$
1,683
 

As of June 30, 2006, we had unrecognized compensation expense of $4,332 before taxes, related to non-vested stock options and service-based stock awards. This expense will be recognized over a weighted average period of 1.3 years. The unrecognized compensation expense is expected to be recognized over the following periods:

   
Remainder 2006
 
2007
 
2008
 
2009
 
Stock-based compensation expense (pre-tax)
 
$
1,564
 
$
2,195
 
$
516
 
$
57
 
 
During the six month periods ended June 30, 2006, we received $2,961 from employees for the exercise of stock options. For the three and six month periods ended June 30, 2006, we recorded a tax benefit of $235 and $1,090, respectively, related to these stock option exercises. In addition, we issued approximately 79,000 common shares (net of shares withheld to satisfy tax liabilities) in the first quarter 2006 to satisfy a performance share liability of $5,208.
 
It has been our policy to issue new shares to satisfy the requirements of our stock-based compensation plans. We do not expect to repurchase shares in the future to support our stock-based compensation plans.

7

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)
 
3.
 
Inventories consist of the following:
 
   
June 30, 2006
 
December 31, 2005
 
           
Raw materials 
 
$
57,086
 
$
47,352
 
Work-in-process 
   
18,235
   
11,461
 
Finished goods 
   
5,410
   
5,446
 
Operating and other supplies 
   
52,225
   
47,177
 
   
$
132,956
 
$
111,436
 
 
Inventories are stated at the lower of cost or market, using the first-in, first-out method.
 
4.
 
We test our goodwill for impairment annually in the second quarter of the fiscal year and at other times whenever events or circumstances indicate that the carrying amount of goodwill may exceed its fair value. If the carrying value of goodwill exceeds its fair value an impairment loss will be recognized. No impairment loss was recorded in 2006 or 2005. The fair value is estimated using market comparable information.
 
The intangible asset consists of the power contract acquired in connection with our acquisition of the Hawesville facility (“Hawesville”). The contract value is being amortized over its term using a method that results in annual amortization equal to the percentage of a given year’s expected gross annual benefit to the total as applied to the total recorded value of the power contract. As of June 30, 2006, the gross carrying amount of the intangible asset was $155,986 with accumulated amortization of $87,868.
 
For the three month periods ended June 30, 2006 and June 30, 2005, amortization expense for the intangible asset totaled $3,262 and $3,674, respectively. For the six month periods ended June 30, 2006 and June 30, 2005, amortization expense for the intangible asset totaled $6,524 and $7,214, respectively.
 
For the year ending December 31, 2006, the estimated aggregate amortization expense for the intangible asset will be approximately $13,048. The estimated aggregate amortization expense for the intangible asset through the Hawesville power contract’s term is as follows:
 
 
 
2007
 
 
2008
 
 
2009
 
 
2010
 
Estimated Amortization Expense
 
$
13,991
 
$
15,076
 
$
16,149
 
$
16,379
 
 
The intangible asset is reviewed for impairment in accordance with SFAS 142, “Goodwill and Other Intangible Assets,” whenever events or circumstances indicate that its net carrying amount may not be recoverable.
 
 
8

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

5.
Debt

   
June 30,
 
December 31,
 
   
2006
 
2005
 
Debt classified as current liabilities:
             
1.75% convertible senior notes due 2024, interest payable semiannually (1)(2)(3)(4)
 
$
175,000
 
$
175,000
 
Hancock County industrial revenue bonds due 2028 (“IRBs”), interest payable quarterly (variable interest rates (not to exceed 12%))(1)
   
7,815
   
7,815
 
Current portion of long-term debt
   
16,093
   
581
 
Long-term debt:
             
7.5% senior unsecured notes payable due 2014, interest payable semiannually (3)(4)(6)
   
250,000
   
250,000
 
Nordural Senior term loan facility maturing in 2010, variable interest rate, principal and interest payments due semiannually through 2010, less current portion (5)
   
275,500
   
222,000
 
Various Nordural loans, with interest rates ranging from 2.70% to 6.75% due 2012 to 2020, less current portion
   
8,136
   
8,436
 
Borrowings under revolving credit facility (4)
   
--
   
8,069
 
Total Debt
 
$
732,544
 
$
671,901
 
 

(1) The convertible notes are classified as current because they are convertible at any time by the holder. The IRBs are classified as current liabilities because they are remarketed weekly and could be required to be repaid upon demand if there is a failed remarketing. The IRB interest rate at June 30, 2006 was 4.27%.
(2) The convertible notes are convertible at any time by the holder at an initial conversion rate of 32.7430 shares of Century common stock per one thousand dollars of principal amount of convertible notes, subject to adjustments for certain events. The initial conversion rate is equivalent to a conversion price of approximately $30.5409 per share of Century common stock. Upon conversion, the holder of the convertible note shall receive cash equal to the principal amount of the convertible note and, at our election, either cash or Century common stock, or a combination thereof, for the conversion value in excess of such principal amount, if any.
(3) The obligations of Century pursuant to the notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of our existing domestic restricted subsidiaries.
(4) The indentures governing our note obligations contain customary covenants, including limitations on our ability to incur additional indebtedness, pay dividends, sell assets or stock of certain subsidiaries and purchase or redeem capital stock. Our revolving credit facility contains customary covenants, including limitations on capital expenditures, additional indebtedness, affiliate transactions, liens, guarantees, mergers and acquisitions, dividends, distributions, capital redemptions and investments.
(5) The senior term loan interest rate at June 30, 2006 was 6.87%. Nordural's $365,000 loan facility contains customary covenants, including limitations on additional indebtedness, investments, capital expenditures (other than related to the expansion project), dividends, and hedging agreements. Nordural is also subject to various financial covenants, including a net worth covenant and certain maintenance covenants, including minimum interest coverage and debt service coverage beginning as of December 31, 2006. Nordural's obligations under the term loan facility are secured by a pledge of all of Nordural's shares pursuant to a share pledge agreement with the lenders. In addition, substantially all of Nordural's assets are pledged as security under the loan facility. Nordural is required to make the following minimum repayments of principal on the facility: $15,500 on February 28, 2007 and $14,000 on each of August 31, 2007, February 29, 2008, August 31, 2008, February 28, 2009, August 31, 2009, and all remaining outstanding principal amount on February 28, 2010.
(6) On or after August 15, 2009, we may redeem any of the senior notes, in whole or in part, at an initial redemption price equal to 103.75% of the principal amount, plus accrued and unpaid interest. The redemption price will decline each year after 2009 and will be 100% of the principle amount, plus accrued and unpaid interest, beginning on August 15, 2012.


9

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

Revolving Line of Credit
 
In September 2005, we replaced our revolving credit facility that was due to expire in March 2006 with a new $100,000 senior secured revolving credit facility (“Credit Facility”) with a syndicate of banks. The Credit Facility will mature September 19, 2010. Our obligations under the Credit Facility are unconditionally guaranteed by our domestic subsidiaries (other than Century Aluminum Holdings, Inc., Century Louisiana, Inc., and Nordural US LLC) and secured by a first priority security interest in all accounts receivable and inventory belonging to Century and our subsidiary borrowers. The availability of funds under the Credit Facility is subject to a $15,000 reserve and limited by a specified borrowing base consisting of certain eligible accounts receivable and inventory. Borrowings under the Credit Facility are, at our option, at the LIBOR rate or bank base rate, plus or minus in each case an applicable margin. We issued two letters of credit totaling $800 in June 2006. Other than the letters of credit issued, we had no other outstanding borrowings under the Credit Facility as of June 30, 2006. As of June 30, 2006, we had a borrowing availability of $99,053 under the Credit Facility. We could issue up to a maximum of $25,000 in letters of credit under the Credit Facility. We pay a commitment fee for the unused portion of the line.
 
6.
 
Environmental Contingencies
 
We believe our current environmental liabilities do not have, and are not likely to have, a material adverse effect on our financial condition, results of operations or liquidity. However, there can be no assurance that future requirements or conditions at currently or formerly owned or operated properties will not result in liabilities which may have a material adverse effect.
 
Century Aluminum of West Virginia, Inc. (“Century of West Virginia”) continues to perform remedial measures at our Ravenswood, West Virginia facility (“Ravenswood”) pursuant to an order issued by the Environmental Protection Agency (“EPA”) in 1994 (the “3008(h) Order”). Century of West Virginia also conducted a RCRA facility investigation (“RFI”) under the 3008(h) Order evaluating other areas at Ravenswood that may have contamination requiring remediation. The RFI has been approved by appropriate agencies. Century of West Virginia has completed interim remediation measures at two sites identified in the RFI, and we believe no further remediation will be required. A Corrective Measures Study, which will formally document the conclusion of these activities, is being completed with the EPA. We believe a significant portion of the contamination on the two sites identified in the RFI is attributable to the operations of third parties and is their financial responsibility.
 
Prior to our purchase of Hawesville, the EPA issued a final Record of Decision (“ROD”) under the Comprehensive Environmental Response, Compensation and Liability Act. By agreement, Southwire is to perform all obligations under the ROD. Century Aluminum of Kentucky, LLC (“Century Kentucky”) has agreed to operate and maintain the ground water treatment system required under the ROD on behalf of Southwire, and Southwire will reimburse Century Kentucky for any expense that exceeds $400 annually.
 
Century is a party to an EPA Administrative Order on Consent (the “Order”) pursuant to which other past and present owners of an alumina refining facility at St. Croix, Virgin Islands have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage hydrocarbons floating on groundwater underlying the facility. Pursuant to the Hydrocarbon Recovery Plan, recovered hydrocarbons and groundwater are delivered to the adjacent petroleum refinery where they are received and managed. Lockheed Martin Corporation (“Lockheed”), which sold the facility to one of our affiliates, Virgin Islands Alumina Corporation (“Vialco”), in 1989, has tendered indemnity and defense of this matter to Vialco pursuant to the terms of the Lockheed-Vialco Asset Purchase Agreement. Management does not believe Vialco’s liability under the Order or its indemnity to Lockheed will require material payments. Through June 30, 2006, we have expended approximately $440 on the Recovery Plan. Although there is no limit on our obligation to make indemnification payments, we expect the future potential indemnification payments related to the Order will be approximately $200, which may be offset in part by sales of recoverable hydrocarbons.
 
In May 2005, Century and Vialco were among the defendants listed in a lawsuit filed by the Commissioner of the Department of Planning and Natural Resources, in his capacity as Trustee for Natural Resources of the United States Virgin Islands. The complaint alleges damages to natural resources caused by alleged releases from the alumina refinery facility at St. Croix and the adjacent petroleum refinery. Lockheed has tendered indemnity and defense of the case to Vialco pursuant to terms of the Lockheed-Vialco Asset Purchase Agreement. The complaint seeks unspecified monetary damages, costs and attorney fees.

10

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)
 
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 (formerly Pechiney Rolled Products, LLC) in July 1999. The complaint also seeks costs and attorney fees.
 
It is our policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental-related accrued liabilities were $729 and $532 at June 30, 2006 and December 31, 2005, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to cost for ongoing environmental compliance, including maintenance and monitoring, such costs are expensed as incurred.
 
Because of the issues and uncertainties described above, and our inability to predict the requirements of future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on our future financial condition, results of operations, or liquidity. Based upon all available information, management does not believe that the outcome of these environmental matters will have a material adverse effect on our financial condition, results of operations, or liquidity.
 
Legal Contingencies
 
We have pending against us or may be subject to various lawsuits, claims and proceedings related primarily to employment, commercial, environmental and safety and health matters. Although it is not presently possible to determine the outcome of these matters, management believes their ultimate disposition will not have a material adverse effect on our financial condition, results of operations, or liquidity.
 
Power Commitments
 
Hawesville currently purchases substantially all of its power from Kenergy Corp. (“Kenergy”), a local retail electric cooperative, under a power supply contract that expires at the end of 2010. Approximately 73% of this power is at fixed prices. Kenergy acquires the power it provides to Hawesville mostly from a subsidiary of LG&E Energy Corporation (“LG&E”), with delivery guaranteed by LG&E. For 2006, all but two percent of our power requirements at Hawesville are priced. Hawesville’s unpriced power requirements increase to 27% of its total power requirements in calendar years 2007 through 2010.
 
Appalachian Power Company supplies all of Ravenswood’s power requirements. After December 31, 2007, Century Aluminum of West Virginia, Inc. (“CAWV”) may terminate the agreement by providing 12 months notice of termination. Power delivered under the supply agreement is as set forth published tariffs. Effective July 28, 2006, the Public Service Commission for the State of West Virginia approved an experimental rate design in connection with an increase in the applicable tariff rates. Under the experimental rate, CAWV 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.
 
The Mt. Holly facility (“Mt. Holly”) purchases all of its power from the South Carolina Public Service Authority at rates established by published schedules. Mt. Holly’s current power contract expires December 31, 2015. Power delivered through 2010 will be priced as set forth in currently published schedules, subject to adjustments for fuel costs. Rates for the period 2011 through 2015 will be as provided under then-applicable schedules.
 
The Nordural facility purchases power from Landsvirkjun, a power company jointly owned by the Republic of Iceland and two Icelandic municipal governments, under a 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. Nordural has entered into a power contract with Hitaveita Suðurnesja hf. (“HS”) and Orkuveita Reykjavíkur (“OR”) to supply the power required for the expansion from 90,000 to 220,000 metric tons (“mtpy”) of production capacity.

11

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)
 
In April 2006, we announced that a further expansion of the Nordural facility from 220,000 mtpy to 260,000 mtpy is expected to be completed by the fourth quarter of 2007. Previously, we announced that OR had agreed to deliver the power for the additional expansion by late 2008. Landsvirkjun has agreed to deliver power for the additional capacity on an interim basis until power is available from OR in late 2008.
 
In June 2006, Nordural signed a memorandum of understanding (“MOU”) to purchase power from HS and OR for a planned primary aluminum reduction project in Helguvik, Iceland. Under the agreement, power will be supplied to the new Helguvik plant in stages, beginning with an initial phase of up to 250 megawatts (“MW”), which will support production capacity of up to 150,000 mtpy. HS will provide up to 150 MW in this initial stage, and OR will supply up to 100 MW. Electricity delivery for this first phase is targeted for 2010. The MOU provides for a total of 435 MW, which will ultimately provide power for a 250,000 mtpy facility. The agreement is subject to the satisfaction of certain conditions.
 
Power under Nordural’s agreements with HS and OR will be generated from geothermal resources and prices will be LME-based. Landsvirkjun has agreed on a best commercial efforts basis to provide backup power to Nordural’s Grundartangi smelter should HS or OR be unable to meet the obligations of their contract to provide power for the Nordural expansion.
 
Labor Commitments
 
Approximately 82% of our U.S. based work force is represented by the United Steelworkers of America (the “USWA”). In May 2006, our Hawesville, Kentucky plant employees represented by the USWA ratified a four-year collective bargaining agreement that will extend through April 1, 2010. The agreement covers approximately 600 hourly workers at the Hawesville plant.
 
Our Ravenswood USWA workers issued a 72 hour strike notice on July 29, 2006. On August 1, 2006 Century and the United Steelworkers jointly announced that they reached a tentative agreement on a restructured offer. As a result, the union rescinded a 72 hour notice to strike and extended the current labor contract to permit a ratification vote on the tentative agreement. On August 4, 2006, the membership of United Steelworkers Local 5668 voted to ratify a three-year labor agreement covering approximately 580 hourly workers at the Ravenswood facility.
 
Approximately 89% of Nordural’s work force is represented by six labor unions under an agreement that expires on December 31, 2009.
 
Other Commitments and Contingencies
 
Our income tax returns are periodically examined by various tax authorities. We are currently under audit by the Internal Revenue Service (“IRS”) for the tax years through 2002. In connection with such examinations, the IRS has raised issues and proposed tax deficiencies. We are reviewing the issues raised by the IRS and have filed an administrative appeal with the IRS, contesting the proposed tax deficiencies. We believe our tax position is well supported and based on current information, we do not believe that the outcome of the tax audit will have a material impact on our financial condition or results of operations.
 
At June 30, 2006 and December 31, 2005, we had outstanding capital commitments related to the Nordural expansion of approximately $88,759 and $89,910, respectively. Our cost commitments for the Nordural expansion may materially change depending on the exchange rate between the U.S. dollar and certain foreign currencies, principally the Euro and the Icelandic krona.
 
In May 2006, we purchased foreign currency options with a notional value of $41,627 to hedge a portion of our foreign currency risk in the Icelandic krona associated with capital expenditures from the ongoing 40,000 mtpy expansion to 260,000 mtpy at Nordural. The option contracts, which are designated as cash flow hedges and qualify for hedge accounting under SFAS 133, have maturities through November 2007.  The critical terms of the contracts match those of the underlying exposure. 
 
As of June 30, 2006, the fair value of the foreign currency options of $1,483 is recorded in other assets.  The accumulated other comprehensive income balance includes an unrealized loss of $595, net of taxes.

12

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

7.
 
As a producer of primary aluminum products, we are exposed to fluctuating raw material and primary aluminum prices. We routinely enter into fixed and market priced contracts for the sale of primary aluminum and the purchase of raw materials in future periods. The following tables present our long-term primary aluminum sales and tolling contracts. “Glencore” refers to Glencore International AG and its subsidiaries.
 
Primary Aluminum Sales Contracts
 
Contract
Customer
Volume
Term
Pricing
         
Alcan Metal Agreement (1)
Alcan
276 to 324 million pounds per year
Through July 31, 2007
Based on U.S. Midwest market
Glencore Metal Agreement I (2)
Glencore
50,000 mtpy
Through December 31, 2009
LME-based
Glencore Metal Agreement II (3)
Glencore
20,400 mtpy
Through December 31, 2013
Based on U.S. Midwest market
Southwire Metal Agreement (4)
Southwire
240 million pounds per year (high purity molten aluminum)
Through March 31, 2011
Based on U.S. Midwest market
   
60 million pounds per year (standard-grade molten aluminum)
Through December 31, 2010
Based on U.S. Midwest market

 
(1) Alcan has the right, upon 12 months notice, to reduce its purchase obligations by 50% under this contract. Following receipt of a 72 hour notice to strike by the USWA, we commenced an orderly shutdown of the Ravenswood facility and on August 2, 2006 delivered a force majeure notice to Alcan informing it that deliveries under the Alcan Metal Agreement were being reduced. USWA workers approved a new labor agreement on August 4, 2006 and full deliveries under the Alcan Metal Agreement are expected to resume in three months. See Note 17, Subsequent Events.
 
(2) 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.
 
(3) 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. Following receipt of a 72 hour notice to strike by the USWA, we commenced an orderly shutdown of the Ravenswood facility and on August 2, 2006 delivered a force majeure notice to Glencore informing it that deliveries under the Glencore Metal Agreement II were being reduced. USWA workers approved a new labor agreement on August 4, 2006 and full deliveries under the Alcan Metal Agreement are expected to resume in three months. See Note 17, Subsequent Events.
 
(4) 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.

13

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

 
Tolling Contracts

Contract
Customer
Volume
Term
Pricing
Billiton Tolling Agreement (1)
BHP Billiton
130,000 mtpy
Through December 31, 2013
LME-based
Glencore Tolling Agreement (2)(3)
Glencore
90,000 mtpy
Through July 2016
LME-based

(1) In September 2005, Nordural and BHP Billiton amended the Billiton Tolling Agreement to increase the tolling arrangement from 90,000 metric tons to 130,000 metric tons of the per annum production capacity at Nordural effective upon the completion of the expansion.
(2) Nordural entered into a 10-year LME-based alumina tolling agreement with Glencore for 90,000 metric tons of the expansion capacity at Nordural. In July 2006, we began deliveries under the Glencore Tolling agreement.
(3) In December 2005, Glencore assigned 50% of its tolling rights under this agreement to Hydro Aluminum for the period 2007 to 2010.
 
Apart from the contracts listed in the Primary Aluminum Sales Contracts table above, we had forward delivery contracts to sell 79,526 metric tons and 107,546 metric tons of primary aluminum at June 30, 2006 and December 31, 2005, respectively. Of these forward delivery contracts, we had fixed price commitments to sell 3,879 metric tons and 4,643 metric tons of primary aluminum at June 30, 2006 and December 31, 2005, respectively, of which 186 metric tons were with Glencore at December 31, 2005 (none were with Glencore at June 30, 2006).
 
Financial Sales Agreements
 
To mitigate the volatility in our unpriced forward delivery contracts, we enter into fixed price financial sales contracts which settle in cash in the period corresponding to the intended delivery dates of the forward delivery contracts. Certain of these fixed price financial sales contracts are accounted for as cash flow hedges depending on our designation of each contract at its inception. Glencore is the counterparty for all of the contracts summarized below:
 

Primary Aluminum Financial Sales Contracts as of:
 
   
(Metric Tons)
 
   
June 30, 2006
 
December 31, 2005
 
   
Cash Flow Hedges
 
Derivatives
 
Total
 
Cash Flow Hedges
 
Derivatives
 
Total
 
2006
   
73,000
   
12,600
   
85,600
   
142,750
   
51,000
   
193,750
 
2007
   
119,500
   
50,400
   
169,900
   
119,500
   
50,400
   
169,900
 
2008
   
9,000
   
100,200
   
109,200
   
9,000
   
100,200
   
109,200
 
2009
   
--
   
105,000
   
105,000
   
--
   
105,000
   
105,000
 
2010
   
--
   
105,000
   
105,000
   
--
   
105,000
   
105,000
 
2011-2015
   
--
   
375,000
   
375,000
   
--
   
375,000
   
375,000
 
Total
   
201,500
   
748,200
   
949,700
   
271,250
   
786,600
   
1,057,850
 
 
In the event of a material adverse change in our creditworthiness, our counterparty under these primary aluminum financial sales contracts has the option to require a letter of credit, or any other acceptable security or collateral for outstanding balances on these contracts.
 
Substantially all of the contracts accounted for as derivatives contain clauses that trigger additional volume when the market price for a contract month is above the contract ceiling price. If the market price exceeds the ceiling price for all contract months through 2015, the maximum additional shipment volume would be 748,200 metric tons. These contracts will be settled monthly. We had no fixed price financial contracts to purchase aluminum at June 30, 2006 or December 31, 2005.

14

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

 
Additionally, to mitigate the volatility of the natural gas markets, we enter into financial purchase contracts, accounted for as cash flow hedges, which settle in cash in the period corresponding to the intended usage of natural gas.
 
Natural Gas Financial Purchase Contracts as of:
 
   
(Thousands of DTH)
 
   
June 30, 2006
 
December 31, 2005
 
           
2006
   
2,500
   
1,680
 
2007
   
780
   
780
 
2008
   
480
   
480
 
Total
   
3,760
   
2,940
 
 
Based on the fair value of our financial sales contracts for primary aluminum and financial purchase contracts for natural gas that qualify as cash flow hedges as of June 30, 2006, an accumulated other comprehensive loss of $76,238 is expected to be reclassified as a reduction to earnings over the next 12 month period.
 
The forward financial sales and purchase contracts are subject to the risk of non-performance by the counterparties. However, we only enter into forward financial contracts with counterparties we determine to be creditworthy. If any counterparty failed to perform according to the terms of the contract, the accounting impact would be limited to the difference between the contract price and the market price applied to the contract volume on the date of settlement.
 
8.

   
Six months ended June 30,
 
   
2006
 
2005
 
Cash paid for:
             
Interest
 
$
20,273
 
$
13,514
 
Income tax
   
31,448
   
2,975
 
               
Cash received for:
             
Interest
   
300
   
415
 
Income tax refunds
   
577
   
--
 
               
Non-cash investing activities:
             
Accrued Nordural expansion costs
 
$
(1,918
)
$
7,192
 
 
9.
 
The reconciliation of the changes in the asset retirement obligations is as follows:

   
For the six months ended June 30, 2006
 
For the year ended December 31, 2005
 
 
Beginning balance, ARO liability 
 
$
11,808
 
$
17,232
 
Additional ARO liability incurred 
   
1,332
   
1,849
 
ARO liabilities settled 
   
(1,474
)
 
(3,330
)
Accretion expense 
   
851
   
1,370
 
FIN 47 adoption
   
--
   
(5,313
)
Ending balance, ARO liability 
 
$
12,517
 
$
11,808
 

 
15

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

10.

We adopted SFAS No. 151, “Inventory Costs” in the first quarter of 2006. This Statement amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing” to clarify the accounting treatment for certain inventory costs. In addition, the Statement requires that the allocation of production overheads to the cost of conversion be based on the normal capacity of the production facilities. The adoption of SFAS No. 151 did not impact our financial position and results of operations.
 
11.
 
In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition.
 
The Interpretation was issued to provide consistent criteria to recognize, derecognize, and measure benefits related to income taxes. SFAS No. 109 contains no specific guidance on how to address uncertainty in accounting for income tax assets and liabilities. Disclosure provisions of the Interpretation will provide more information about the uncertainty in income taxes and liabilities.
 
The Interpretation will be effective for our 2007 fiscal year. We are currently assessing the Interpretation and have not yet determined the impact of adopting FIN No. 48 on our financial position and results of operations.

 
12.
 

Comprehensive Income:
         
   
Six months ended June 30,
 
   
2006
 
2005
 
Net income (loss)
 
$
(95,771
)
$
52,474
 
Other comprehensive income (loss):
             
Net unrealized (gain) loss on financial instruments, net of tax of $37,319 and $(8,762), respectively
   
(66,647
)
 
15,205
 
Net amount reclassified to income, net of tax of $(21,625) and $(9,413), respectively
   
38,249
   
16,354
 
Comprehensive income (loss)
 
$
(124,169
)
$
84,033
 


 
Components of Accumulated Other Comprehensive Loss:
 
   
 
June 30, 2006
 
 
December 31, 2005
 
Unrealized loss on financial instruments, net of tax of $65,471 and $49,776
 
$
(116,856
)
$
(88,458
)
Minimum pension liability adjustment, net of tax of $1,665
   
(2,960
)
 
(2,960
)
Accumulated other comprehensive loss
 
$
(119,816
)
$
(91,418
)
 


16

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

13.
 
The following table provides a reconciliation of the computation of the basic and diluted earnings per share:
 
   
For the three months ended June 30,
 
   
2006
 
2005
 
   
 
Income
 
 
Shares
 
 
Per-Share
 
 
Income
 
 
Shares
 
 
Per-Share
 
 
Net income
 
$
45,800
             
$
40,744
             
Basic EPS:
                                     
Income applicable to common shareholders
   
45,800
   
32,419
 
$
1.41
   
40,744
   
32,140
 
$
1.27
 
Effect of Dilutive Securities:
Plus:
                                     
Options
   
--
   
99
         
--
   
56
       
Service-based stock awards
   
--
   
93
         
--
   
--
       
Assumed conversion of convertible debt
   
490
   
1,686
         
--
   
--
       
Diluted EPS:
                                     
Income applicable to common shareholders with assumed conversion
 
$
46,290
   
34,297
 
$
1.35
 
$
40,744
   
32,196
 
$
1.27
 

   
For the six months ended June 30,
 
   
2006
 
2005
 
   
 
Income
 
 
Shares
 
 
Per-Share
 
 
Income
 
 
Shares
 
 
Per-Share
 
Net income (loss)
 
$
(95,771
)
           
$
52,474
             
Basic EPS:
                                     
Income (loss) applicable to common shareholders
   
(95,771
)
 
32,341
 
$
(2.96
)
 
52,474
   
32,099
 
$
1.63
 
Effect of Dilutive Securities:
Plus:
                                     
Options
   
--
   
--
         
--
   
63
       
Diluted EPS:
                                     
Income (loss) applicable to common shareholders with assumed conversion
 
$
(95,771
)
 
32,341
 
$
(2.96
)
$
52,474
   
32,162
 
$
1.63
 
 
Options to purchase 384,372 and 276,913 shares of common stock were outstanding during the periods ended June 30, 2006 and 2005, respectively. There were 98,500 unvested shares of service-based stock outstanding during the period ended June 30, 2006. Based on the average price for our common stock in the three months ended June 30, 2006, we would have been required to issue approximately 1,686,000 shares upon an assumed conversion of our convertible debt. For the three month period ending June 30, 2006, 25,000 options were excluded from the calculation of diluted EPS because the option exercise prices were greater than the average market price of the underlying common shares. For the six month period ending June 30, 2006 all options, service-based stock, and shares to be issued upon the assumed conversion of our convertible debt were excluded from the calculation of diluted EPS because of their antidilutive effect on earnings per share.
 
Service-based stock for which vesting is based upon continued service is not considered issued and outstanding shares of common stock until vested. However, the service-based stock is considered a common stock equivalent and therefore was included in average common shares outstanding for diluted earnings per share computations, if they had a dilutive effect on earnings per share. Our goal-based performance share units are not considered common stock equivalents until it becomes probable that performance goals will be obtained.

17

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

14.
 
   
Pension Benefits
 
   
Three months ended June 30,
 
Six months ended June 30,
 
   
2006
 
2005
 
2006
 
2005
 
Service cost
 
$
1,030
 
$
929
 
$
2,060
 
$
1,962
 
Interest cost
   
1,214
   
1,222
   
2,427
   
2,341
 
Expected return on plan assets
   
(1,700
)
 
(1,506
)
 
(3,400
)
 
(2,950
)
Amortization of prior service cost
   
103
   
1,299
   
207
   
1,481
 
Amortization of net gain
   
214
   
202
   
427
   
314
 
Net periodic benefit cost
 
$
861
 
$
2,146
 
$
1,721
 
$
3,148
 

   
Other Postemployment Benefits
 
   
Three months ended June 30,
 
Six months ended June 30,
 
   
2006
 
2005
 
2006
 
2005
 
Service cost
 
$
1,468
 
$
1,178
 
$
2,936
 
$
2,516
 
Interest cost
   
2,420
   
2,345
   
4,840
   
4,439
 
Expected return on plan assets
   
--
   
--
   
--
   
--
 
Amortization of prior service cost
   
(219
)
 
(220
)
 
(438
)
 
(439
)
Amortization of net gain
   
1,035
   
1,093
   
2,070
   
1,857
 
Net periodic benefit cost
 
$
4,704
 
$
4,396
 
$
9,408
 
$
8,373
 
 
15.
 
   
 
June 30, 2006
 
 
December 31, 2005
 
Deferred tax assets
 
$
156,940
 
$
56,053
 
Other assets (primarily investment in joint ventures)
   
80,107
   
71,640
 
Deferred financing fees
   
14,311
   
15,600
 
Other assets
 
$
251,358
 
$
143,293
 
 
16.
 

 
Our 7.5% Senior Notes due 2014, and 1.75% Convertible Senior Notes due 2024 are guaranteed by each of our material existing and future domestic subsidiaries, except for Nordural US LLC. These notes are not guaranteed by our foreign subsidiaries (such subsidiaries and Nordural US LLC, collectively the “Non-Guarantor Subsidiaries”). During the second quarter of 2005, Century Kentucky became a guarantor subsidiary. In the periods presented prior to the current reporting period, Century Kentucky was classified with the Non-Guarantor Subsidiaries. Our policy for financial reporting purposes is to allocate corporate expenses or income to subsidiaries. For the three months ended June 30, 2006 and June 30, 2005, we allocated total corporate income (expense) of $149 and $2,505 to our subsidiaries, respectively. For the six months ended June 30, 2006 and June 30, 2005, we allocated total corporate income (expense) of ($3,452) and $1,986 to our subsidiaries, respectively. Additionally, we charge interest on certain intercompany balances.
 
The following summarized condensed consolidating balance sheets as of June 30, 2006 and December 31, 2005, condensed consolidating statements of operations for the three and six months ended June 30, 2006 and June 30, 2005 and the condensed consolidating statements of cash flows for the three months ended June 30, 2006 and June 30, 2005 present separate results for Century, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.
 
This summarized condensed consolidating financial information may not necessarily be indicative of the results of operations or financial position had Century, the Guarantor Subsidiaries or the Non-Guarantor Subsidiaries operated as independent entities.

18

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
 
As of June 30, 2006
 
 
   
Combined Guarantor Subsidiaries
 
Combined Non-Guarantor Subsidiaries
 
The Company
 
Reclassifications and Eliminations
 
Consolidated
 
Assets:
                     
Cash and cash equivalents
 
$
 
$
11,554
 
$
17,621
 
$
 
$
29,175
 
Restricted cash
   
6,029
   
   
   
   
6,029
 
Accounts receivable — net
   
102,830
   
15,361
   
   
   
118,191
 
Due from affiliates
   
63,628
   
   
843,540
   
(891,533
)
 
15,635
 
Inventories
   
109,161
   
25,126
   
   
(1,331
)
 
132,956
 
Prepaid and other assets
   
3,906
   
12,178
   
5,291
   
   
21,375
 
Deferred taxes — current portion
   
61,915
   
   
   
(8,634
)
 
53,281
 
Total current assets
   
347,469
   
64,219
   
866,452
   
(901,498
)
 
376,642
 
Investment in subsidiaries
   
18,354
   
   
18,283
   
(36,637
)
 
 
Property, plant and equipment — net
   
442,772
   
712,632
   
328
   
   
1,155,732
 
Intangible asset — net
   
68,118
   
   
   
   
68,118
 
Goodwill
   
   
94,844
   
   
   
94,844
 
Other assets
   
56,003
   
12,024
   
301,659
   
(118,328
)
 
251,358
 
Total assets
 
$
932,716
 
$
883,719
 
$
1,186,722
 
$
(1,056,463
)
$
1,946,694
 
                                 
Liabilities and shareholders’ equity:
                               
Accounts payable - trade
 
$
29,510
 
$
29,765
 
$
16
 
$
 
$
59,291
 
Due to affiliates
   
363,753
   
54,563
   
53,914
   
(250,580
)
 
221,650
 
Industrial revenue bonds
   
7,815
   
   
   
   
7,815
 
Long term debt — current portion
   
   
16,093
   
   
   
16,093
 
Accrued and other current liabilities
   
19,545
   
3,681
   
29,465
   
   
52,691
 
Accrued employee benefits costs — current portion
   
8,139
   
   
1,194
   
   
9,333
 
Deferred tax liability - current
   
   
   
8,634
   
(8,634
)
 
 
Convertible senior notes
   
   
   
175,000
   
   
175,000
 
Total current liabilities
   
428,762
   
104,102
   
268,223
   
(259,214
)
 
541,873
 
Senior unsecured notes payable
   
   
   
250,000
   
   
250,000
 
Nordural debt
   
   
283,636
   
   
   
283,636
 
Accrued pension benefit costs — less current portion
   
   
   
10,904
   
   
10,904
 
Accrued postretirement benefit costs — less current portion
   
102,233
   
   
1,012
   
   
103,245
 
Other liabilities/intercompany loan
   
324,450
   
340,206
   
   
(636,236
)
 
28,420
 
Due to affiliates — less current portion
   
55,143
   
   
537,407
   
   
592,550
 
Deferred taxes
   
128,553
   
12,713
   
   
(124,376
)
 
16,890
 
Total noncurrent liabilities
   
610,379
   
636,555
   
799,323
   
(760,612
)
 
1,285,645
 
Shareholders’ equity:
                               
Common stock
   
60
   
12
   
324
   
(72
)
 
324
 
Additional paid-in capital
   
259,148
   
85,190
   
429,797
   
(344,338
)
 
429,797
 
Accumulated other comprehensive income (loss)
   
(118,832
)
 
(595
)
 
(119,816
)
 
119,427
   
(119,816
)
Retained earnings (accumulated deficit)
   
(246,801
)
 
58,455
   
(191,129
)
 
188,346
   
(191,129
)
Total shareholders’ equity
   
(106,425
)
 
143,062
   
119,176
   
(36,637
)
 
119,176
 
Total liabilities and shareholders’ equity
 
$
932,716
 
$
883,719
 
$
1,186,722
 
$
(1,056,463
)
$
1,946,694
 

 
19

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements - (continued)
 

CONDENSED CONSOLIDATING BALANCE SHEET
 
As of December 31, 2005
 
 
   
Combined Guarantor Subsidiaries
 
Combined Non-Guarantor Subsidiaries
 
The Company
 
Reclassifications and Eliminations
 
Consolidated
 
Assets:
                     
Cash and cash equivalents
 
$
 
$
 
$
(1,253
)
$
 
$
17,752
 
Restricted cash
   
2,028
   
   
   
   
2,028
 
Accounts receivable — net
   
73,540
   
9,476
   
   
   
83,016
 
Due from affiliates
   
60,246
   
   
703,995
   
(745,603
)
 
18,638
 
Inventories
   
96,347
   
15,372
   
   
(283
)
 
111,436
 
Prepaid and other assets
   
7,693
   
8,627
   
7,598
   
   
23,918
 
Deferred taxes — current portion
   
46,339
   
   
   
(8,634
)
 
37,705
 
Total current assets
   
286,193
   
52,480
   
710,340
   
(754,520
)
 
294,493
 
Investment in subsidiaries
   
15,205
   
   
146,166
   
(161,371
)
 
 
Property, plant and equipment — net
   
458,618
   
613,368
   
308
   
(2,136
)
 
1,070,158
 
Intangible asset — net
   
74,643
   
   
   
   
74,643
 
Goodwill
   
   
94,844
   
   
   
94,844
 
Other assets
   
54,049
   
8,951
   
156,242
   
(75,949
)
 
143,293
 
Total assets
 
$
888,708
 
$
769,643
 
$
1,013,056
 
$
(993,976
)
$
1,677,431
 
                                 
Liabilities and shareholders’ equity:
                               
Accounts payable - trade
 
$
36,670
 
$
25,249
 
$
 
$
 
$
61,919
 
Due to affiliates
   
138,615
   
52,208