UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

Century Aluminum Company

(Exact name of Registrant as specified in its Charter)

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

     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. þ 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 þ   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 þ No

     The registrant had 32,406,104 shares of common stock outstanding at April 30, 2006.

 

 

PART I — FINANCIAL INFORMATION

Item 1. — Financial Statements.

CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

		March 31, 2006				December 31, 2005
ASSETS
ASSETS:
Cash and cash equivalents		$	17,512			$	17,752
Restricted cash			6,029				2,028
Accounts receivable — net			98,656				83,016
Due from affiliates			21,703				18,638
Inventories			127,965				111,436
Prepaid and other current assets			23,190				23,918
Deferred taxes — current portion			50,475				37,705
Total current assets			345,530				294,493
Property, plant and equipment — net			1,124,584				1,070,158
Intangible asset — net			71,381				74,643
Goodwill			94,844				94,844
Other assets			246,727				143,293
TOTAL		$	1,883,066			$	1,677,431
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable — trade		$	61,110			$	61,919
Due to affiliates			207,755				158,682
Accrued and other current liabilities			47,598				53,715
Long term debt — current portion			16,087				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			524,698				467,045
Senior unsecured notes payable			250,000				250,000
Nordural debt			273,787				230,436
Revolving credit facility			5,100				8,069
Accrued pension benefits costs — less current portion			10,638				10,350
Accrued postretirement benefits costs — less current portion			99,875				96,660
Due to affiliates – less current portion			605,416				337,416
Other liabilities			28,988				28,010
Deferred taxes			16,890				16,890
Total noncurrent liabilities			1,290,694				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; 32,402,106 and 32,188,165 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively)			324				322
Additional paid-in capital			427,668				419,009
Accumulated other comprehensive loss			(123,389	)			(91,418	)
Accumulated deficit			(236,929	)			(95,358	)
Total shareholders’ equity			67,674				232,555
TOTAL		$	1,883,066			$	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 March 31,
		2006				2005
NET SALES:
Third-party customers		$	298,473			$	247,410
Related parties			48,473				37,971
			346,946				285,381
Cost of goods sold			270,478				233,814
Gross profit			76,468				51,567
Selling, general and administrative expenses			12,119				8,796
Operating income			64,349				42,771
Interest expense			(6,751	)			(6,822	)
Interest income			196				218
Net loss on forward contracts			(286,760	)			(23,495	)
Other income (expense)			(161	)			545
Income (loss) before income taxes and equity in earnings of joint ventures			(229,127	)			13,217
Income tax benefit (expense)			84,356				(4,853	)
Income (loss) before equity in earnings of joint ventures			(144,771	)			8,364
Equity in earnings of joint ventures			3,200				3,366
Net income (loss)		$	(141,571	)		$	11,730
EARNINGS (LOSS) PER COMMON SHARE:
Basic and Diluted		$	(4.39	)		$	0.37
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000):
Basic			32,263				32,057
Diluted			32,263				32,129

See notes to consolidated financial statements

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

		Three months ended
		March 31,
		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(141,571	)		$	11,730
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Unrealized net loss on forward contracts			286,138				22,269
Depreciation and amortization			14,897				13,794
Deferred income taxes			(84,356	)			4,853
Pension and other post retirement benefits			3,503				3,214
Stock-based compensation			2,559				—
Excess tax benefit from share-based compensation			(855	)			—
Changes in operating assets and liabilities:
Accounts receivable – net			(15,640	)			(8,202	)
Due from affiliates			(3,064	)			102
Inventories			(16,529	)			4,169
Prepaids and other current assets			(3,398	)			(1,395	)
Accounts payable – trade			4,724				(3,175	)
Due to affiliates			(11,206	)			(9,146	)
Accrued and other current liabilities			(16,325	)			(7,951	)
Other – net			(2,838	)			(3,138	)
Net cash provided by operating activities			16,039				27,124
CASH FLOWS FROM INVESTING ACTIVITIES:
Nordural expansion			(68,769	)			(48,988	)
Purchase of other property, plant and equipment			(2,632	)			(2,540	)
Restricted cash deposits			(4,001	)			—
Net cash used in investing activities			(75,402	)			(51,528	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings			59,000				105,325
Repayment of debt			(143	)			(68,658	)
Net borrowings under revolving credit facility			(2,969	)			—
Financing fees			—				(4,617	)
Excess tax benefits from shared-based compensation			855				—
Issuance of common stock			2,380				949
Net cash provided by financing activities			59,123				32,999
NET CHANGE IN CASH AND CASH EQUIVALENTS			(240	)			8,595
Cash and cash equivalents at the beginning of the year			17,752				44,168
Cash and cash equivalents at the end of the period		$	17,512			$	52,763

See notes to consolidated financial statements

CENTURY ALUMINUM COMPANY
Notes to Consolidated Financial Statements
Three month periods ending March 31, 2006 and 2005
(Dollars in thousands, except per share amounts)
(Unaudited)

1. General

     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 three 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. “Glencore” refers to Glencore International AG and its subsidiaries.

2. Stock-Based Compensation

     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
						March 31, 2005
Net income applicable to common shareholders		As Reported				$	11,730
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects							1,431
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects							(1,561	)
Pro forma net income						$	11,600
Basic and Diluted earnings per share		As reported				$	0.37
		Pro forma				$	0.36

     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 3,618,000 shares remaining in the 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 March 31, 2006, approximately 83,500 restricted stock awards have been authorized and will vest upon the employees rendering service 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-

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

for-one basis on their vesting dates. As of March 31, 2006, approximately 141,000 performance share units have been authorized and will vest upon the attainment of the performance goals.

     Non-Employee Directors Stock Option Plan — Our non-employee directors’ stock option plan is no longer an active plan. As of March 31, 2006, this plan has 64,000 outstanding options, but no new options will be issued out of this plan. The remaining shares available under this plan were transferred to the Stock Incentive 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		$	19.01			$	15.19
Risk-free interest rate			4.32—4.75	%			3.98—4.29	%
Expected dividend yield		$	0.00			$	0.00
Expected volatility			67	%			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 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 divestiture of 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 shares outstanding under our Stock Incentive Plan and the Non-Employee Directors Stock Option Plan during the three months ended March 31, 2006 is presented below:

Options

						Weighted Average
		Number				Exercise Price
Outstanding at January 1, 2006			453,661			$	20.93
Granted			40,000				30.79
Exercised			(134,893	)			17.62
Forfeited			(667	)			24.32
Outstanding at March 31, 2006			358,101			$	23.27

Service-based stock awards (1)

		Number
Outstanding at January 1, 2006			59,000
Granted			24,500
Outstanding at March 31, 2006			83,500

     The following table summarizes information about outstanding stock options at March 31, 2006:

Options Outstanding:

		Number				Weighted Avg.				Weighted Avg.
Range of		Outstanding				Remaining				Exercise				Aggregate
Exercise Prices		at 3/31/2006				Contractual Life				Price				Intrinsic Value
$24.10 to $34.78			164,158			9.5 years				$	26.67			$	1,313
$12.86 to $23.98			169,309			8.6 years				$	22.17				2,116
$ 7.03 to $11.59			24,634			5.9 years				$	8.21				652
			358,101											$	4,081

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

Exercisable Options:

		Number				Weighted Avg.				Weighted Avg.
Range of		Exercisable at				Remaining				Exercise				Aggregate
Exercise Prices		3/31/2006				Contractual Life				Price				Intrinsic Value
$24.10 to $34.78			68,836			9.3 years				$	26.66			$	551
$12.86 to $23.98			53,333			6.5 years				$	18.49				863
$ 7.03 to $11.59			24,634			5.9 years				$	8.21				652
			146,803											$	2,066

     The following table summarizes the shares of non-vested stock options for the three months ended March 31, 2006 and March 31, 2005:

     Non-vested Options:

		2006								2005
						Weighted Average								Weighted Average
		Number				Fair Value				Number				Fair Value
Non-vested options at January 1,			197,214			$	14.57				70,588			$	13.50
Granted			26,668				19.00				6,667				18.11
Vested			(11,917	)			16.07				(8,583	)			14.51
Forfeited			(667	)			14.48				—				—
Non-vested options at March 31,			211,298			$	15.04				68,672			$	13.82

     The following table summarizes the compensation cost recognized for the three months ended March 31, 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 March 31,
		2006				2005
Compensation expense reported:
Stock option grants		$	2,006			$	—
Service-based stock awards			441				—
Performance-based stock grants			2,536				2,236
Total compensation expense, before income tax			4,983				2,236
Income tax benefit			(1,779	)			(805	)
Total compensation expense net of income tax benefit		$	3,204			$	1,431

     As of March 31, 2006, we had unrecognized compensation expense of $3,621 before taxes, related to non-vested stock options and service-based stock awards. This expense will be recognized over a weighted average period of 1.7 years. The unrecognized compensation expense is expected to be recognized over the following periods:

		Remainder
		2006				2007				2008
Stock-based compensation expense (pre-tax)		$	1,786			$	1,609			$	226

     During the three month period ended March 31, 2006, we received $2,380 from employees for the exercise of stock options. We recorded a tax benefit of $855 related to these stock option exercises. In addition, we issued

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

approximately 79,000 net performance shares 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.

3. Inventories

Inventories consist of the following:

		March 31, 2006				December 31, 2005
Raw materials		$	54,864			$	47,352
Work-in-process			16,160				11,461
Finished goods			6,006				5,446
Operating and other supplies			50,935				47,177
		$	127,965			$	111,436

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

4. Goodwill and Intangible Asset

     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. 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 March 31, 2006, the gross carrying amount of the intangible asset was $155,986 with accumulated amortization of $84,605.

     For the three month periods ended March 31, 2006 and March 31, 2005, amortization expense for the intangible asset totaled $3,262 and $3,540, 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.

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

5. Debt

		March 31,				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			16,087				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)			265,500				222,000
Various Nordural loans, with interest rates ranging from 2.70% to 6.75% due 2012 to 2020, less current portion			8,287				8,436
Borrowings under revolving credit facility (4)			5,100				8,069
Total Debt		$	727,789			$	671,901

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. The Credit Facility is subject to customary covenants, including limitations on capital expenditures, additional indebtedness, affiliate transactions, liens, guarantees, mergers and acquisitions, dividends, distributions, capital redemptions and investments. We had $5,100 of outstanding borrowings under the Credit Facility as of March 31, 2006 with an interest rate of 7.50%. As of March 31, 2006, we had a borrowing availability of $94,699 under the Credit Facility. We pay a commitment fee for the unused portion of the line.

6. Contingencies and Commitments

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 March 31, 2006, we have expended approximately $440 on the Recovery Plan. Although there is no limit on the obligation to make indemnification payments, we expect the future potential payments under this indemnification to comply with the Order will be approximately $200, which may be offset in part by sales of recoverable hydrocarbons.

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

     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.

     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 $655 and $532 at March 31, 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 the future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on 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. In the fourth quarter of 2005, we priced an additional 10% of this power through 2006. In the first quarter of 2006 we priced all but two percent of previously unpriced power for 2006. Hawesville’s unpriced power requirements increase to 27% of its total power requirements in calendar years 2007 through 2010. We are reviewing our options for our unpriced energy requirements.

     Appalachian Power Company supplies all of Ravenswood’s power requirements. After December 31, 2007, Century Aluminum of West Virginia, Inc. may terminate the agreement by providing 12 months notice of termination. Power delivered under the new power supply agreement will be as set forth in currently published tariffs. Appalachian Power Company filed a rate case on September 26, 2005, seeking increases in its tariff rates. It has advised Century it expects those rates to become effective July 28, 2006. We are endeavoring to reach a negotiated settlement with the parties in the rate case.

     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.

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

(“HS”) and Orkuveita Reykjavíkur (“OR”) to supply the power required for the additional 130,000 metric tons of capacity. The price for power delivered by HS and OR is also LME-based.

     In April 2006, we announced that we will accelerate the further expansion of the Nordural facility from 220,000 metric tons per year (“mtpy”) to 260,000 mtpy. The construction of the additional 40,000 mtpy in expansion capacity is expected to be completed by 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, Iceland’s national power company, has agreed on an interim basis to deliver power to facilitate the early startup of the expansion in July 2007 until power is available from OR in late 2008.

     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 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 Steelworker’s of America (the “USWA”). A tentative agreement reached with the USWA covering production and maintenance employees at Hawesville was not ratified in voting on May 1, 2006. Century Aluminum of Kentucky and the USWA have agreed to extend their current labor agreement through May 19, 2006 and to meet in good faith during the extension period to resolve all outstanding issues.

     Our Ravenswood labor agreement expires May 31, 2006.

     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 March 31, 2006 and December 31, 2005, we had outstanding capital commitments related to the Nordural expansion of $45,363 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.

7. Forward Delivery Contracts and Financial Instruments

     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.

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

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		20,000 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

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

     Apart from the contracts listed in the Primary Aluminum Sales Contracts table above, we had forward delivery contracts to sell 92,121 metric tons and 107,546 metric tons of primary aluminum at March 31, 2006 and December 31, 2005, respectively. Of these forward delivery contracts, we had fixed price commitments to sell 2,679 metric

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

tons and 4,643 metric tons of primary aluminum at March 31, 2006 and December 31, 2005, respectively, of which 186 metric tons were with Glencore at December 31, 2005 (none were with Glencore at March 31, 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)
		March 31, 2006												December 31, 2005
		Cash Flow												Cash Flow
		Hedges				Derivatives				Total				Hedges				Derivatives				Total
2006			109,500				31,800				141,300				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
2010—2015			—				375,000				375,000				—				375,000				375,000
Total			238,000				767,400				1,005,400				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 shipment 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 754,500 metric tons. These contracts will be settled monthly. We had no fixed price financial contracts to purchase aluminum at March 31, 2006 or December 31, 2005.

     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)
		March 31,				December 31,
		2006				2005
2006			2,920				1,680
2007			780				780
2008			480				480
Total			4,180				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 March 31, 2006, an accumulated other comprehensive loss of $73,210 is expected to be reclassified as a reduction to earnings over the next 12 month period.

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

     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. Supplemental Cash Flow Information

		Three months ended March 31,
		2006				2005
Cash paid for:
Interest		$	15,080			$	11,377
Income tax			6,698				2,465
Cash received for:
Interest			196				208
Income tax refunds			135				—
Non-cash investing activities:
Accrued Nordural expansion costs			(5,534	)			11,287

9. Asset Retirement Obligations

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

		For the three months				For the year ended
		ended March 31,				December 31,
		2006				2005
Beginning balance, ARO liability		$	11,808			$	17,232
Additional ARO liability incurred			1,085				1,849
ARO liabilities settled			(797	)			(3,330	)
Accretion expense			248				1,370
FIN 47 adoption			—				(5,313	)
Ending balance, ARO liability		$	12,344			$	11,808

10. Recently Adopted Accounting Standards

     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 be based on the facilities’ normal production capacity. The adoption of SFAS No. 151 did not impact our financial position and results of operations.

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

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

     Comprehensive Income:

		Three months ended March 31,
		2006				2005
Net income (loss)		$	(141,571	)		$	11,730
Other comprehensive income (loss):
Net unrealized loss on financial instruments, net of tax of $26,613 and $13,454, respectively			(47,272	)			(23,472	)
Net amount reclassified to income, net of tax of $(8,719) and $(4,190), respectively			15,301				7,304
Comprehensive income (loss)		$	(173,542	)		$	(4,438	)

     Components of Accumulated Other Comprehensive Loss:

		March 31, 2006				December 31, 2005
Unrealized loss on financial instruments, net of tax of $67,670 and $49,776		$	(120,429	)		$	(88,458	)
Minimum pension liability adjustment, net of tax of $1,665 and $1,665			(2,960	)			(2,960	)
		$	(123,389	)		$	(91,418	)

12. Earnings Per Share

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

		For the Three months ended March 31,
		2006												2005
		Income				Shares				Per-Share				Income				Shares				Per-Share
Net income (loss)		$	(141,571	)										$	11,730
Basic EPS:
Income (loss) applicable to common shareholders			(141,571	)			32,263			$	(4.39	)			11,730				32,057			$	0.37
Effect of Dilutive Securities:
Plus:
Options			—				—								—				72
Diluted EPS:
Income (loss) applicable to common shareholders with assumed conversion		$	(141,571	)			32,263			$	(4.39	)		$	11,730				32,129			$	0.37

     Options to purchase 358,101 and 282,912 shares of common stock were outstanding during the periods ended March 31, 2006 and 2005, respectively. There were 83,500 unvested shares of service-based stock outstanding during period ended March 31, 2006. Based on the average price for our common stock in the three months ended March 31, 2006, we would have been required to issue approximately 683,000 shares upon an assumed conversion of our convertible debt. For the three month period ending March 31, 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. For the three month period ending March 31, 2005, 10,000 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.

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

     Service-based stock for which vesting is based upon continued service are not considered issued and outstanding shares of common stock until vested. However, the service-based stock is considered a common stock equivalent and therefore would have been included, using the treasury stock method, in average common shares outstanding for diluted earnings per share computations, if they had 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.

13. Components of Net Periodic Benefit Cost

										Other Postemployment
		Pension Benefits								Benefits
		Three months ended March 31,
		2006				2005				2006				2005
Service cost		$	1,030			$	1,031			$	1,468			$	1,338
Interest cost			1,214				1,119				2,420				2,094
Expected return on plan assets			(1,700	)			(1,443	)			—				—
Amortization of prior service cost			103				182				(219	)			(220	)
Amortization of net gain			214				113				1,035				765
Net periodic benefit cost		$	861				1,002			$	4,704			$	3,977

14. Condensed Consolidating Financial Information

     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 March 31, 2006 and March 31, 2005, we allocated total corporate income (expense) of ($3,601) and $518 to our subsidiaries, respectively. Additionally, we charge interest on certain intercompany balances.

     The following summarized condensed consolidating balance sheets as of March 31, 2006 and December 31, 2005, condensed consolidating statements of operations for the three months ended March 31, 2006 and March 31, 2005 and the condensed consolidating statements of cash flows for the three months ended March 31, 2006 and March 31, 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.

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

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2006

		Combined				Combined								Reclassifications
		Guarantor				Non-Guarantor				The				and
		Subsidiaries				Subsidiaries				Company				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	—			$	19,968			$	(2,456	)		$	—			$	17,512
Restricted cash			6,029				—				—				—				6,029
Accounts receivable — net			84,120				14,536				—				—				98,656
Due from affiliates			77,713				—				884,341				(940,351	)			21,703
Inventories			106,536				21,917				—				(488	)			127,965
Prepaid and other assets			5,834				11,666				5,690				—				23,190
Deferred taxes — current portion			59,109				—				—				(8,634	)			50,475
Total current assets			339,341				68,087				887,575				(949,473	)			345,530
Investment in subsidiaries			16,323				—				(30,116	)			13,793				—
Property, plant and equipment — net			449,246				675,052				286				—				1,124,584
Intangible asset — net			71,381				—				—				—				71,381
Goodwill			—				94,844				—				—				94,844
Other assets			53,787				9,501				270,437				(86,998	)			246,727
Total assets		$	930,078			$	847,484			$	1,128,182			$	(1,022,678	)		$	1,883,066
Liabilities and shareholders’ equity:
Accounts payable – trade		$	33,207			$	27,902			$	1			$	—			$	61,110
Due to affiliates			365,525				53,451				47,860				(259,081	)			207,755
Industrial revenue bonds			7,815				—				—				—				7,815
Long term debt — current portion			—				16,087				—				—				16,087
Accrued and other current liabilities			18,228				3,739				25,631				—				47,598
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			432,914				101,179				258,320				(267,715	)			524,698
Senior unsecured notes payable			—				—				250,000				—				250,000
Nordural debt			—				273,787				—				—				273,787
Revolving credit facility			—				—				5,100				—				5,100
Accrued pension benefit costs — less current portion			—				—				10,638				—				10,638
Accrued postretirement benefit costs — less current portion			98,904				—				971				—				99,875
Other liabilities/intercompany loan			372,942				333,571				—				(677,525	)			28,988
Due to affiliates — less current portion			69,937				—				535,479				—				605,416
Deferred taxes			96,402				11,719				—				(91,231	)			16,890
Total noncurrent liabilities			638,185				619,077				802,188				(768,756	)			1,290,694
Shareholders’ equity:
Common stock			60				12				324				(72	)			324
Additional paid-in capital			259,148				85,190				427,668				(344,338	)			427,668
Accumulated other comprehensive income (loss)			(122,924	)			—				(123,389	)			122,924				(123,389	)
Retained earnings (accumulated deficit)			(277,305	)			42,026				(236,929	)			235,279				(236,929	)
Total shareholders’ equity			(141,021	)			127,228				67,674				13,793				67,674
Total liabilities and shareholders’ equity		$	930,078			$	847,484			$	1,128,182			$	(1,022,678	)		$	1,883,066

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

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2005

		Combined				Combined								Reclassifications
		Guarantor				Non-Guarantor				The				and
		Subsidiaries				Subsidiaries				Company				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	—			$	19,005			$	(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				15,485				(47,626	)			158,682
Industrial revenue bonds			7,815				—				—				—				7,815
Long term debt — current portion			—				581				—				—				581
Accrued and other current liabilities			19,994				3,357				31,514				(1,150	)			53,715
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			211,233				81,395				231,827				(57,410	)			467,045
Senior unsecured notes payable			—				—				250,000				—				250,000
Nordural debt			—				230,436				—				—				230,436
Revolving credit facility											8,069				—				8,069
Accrued pension benefit costs — less current portion			—				—				10,350				—				10,350
Accrued postretirement benefit costs — less current portion			95,731				—				929				—				96,660
Other liabilities/intercompany loan			397,778				327,073				—				(696,841	)			28,010
Due to affiliates — less current portion			58,090				—				279,326				—				337,416
Deferred taxes			83,019				12,225				—				(78,354	)			16,890
Total noncurrent liabilities			634,618				569,734				548,674				(775,195	)			977,831
Shareholders’ equity:
Common stock			60				12				322				(72	)			322
Additional paid-in capital			259,148				85,190				419,009				(344,338	)			419,009
Accumulated other comprehensive income (loss)			(90,953	)			—				(91,418	)			90,953				(91,418	)
Retained earnings (accumulated deficit)			(125,398	)			33,312				(95,358	)			92,086				(95,358	)
Total shareholders’ equity			42,857				118,514				232,555				(161,371	)			232,555
Total liabilities and shareholders’ equity		$	888,708			$	769,643			$	1,013,056			$	(993,976	)		$	1,677,431

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months ended March 31, 2006

		Combined				Combined Non-
		Guarantor				Guarantor								Reclassifications
		Subsidiaries				Subsidiaries				The Company				and Eliminations				Consolidated
Net sales:
Third-party customers		$	253,181			$	45,292			$	—			$	—			$	298,473
Related parties			48,473				—				—				—				48,473
			301,654				45,292				—				—				346,946
Cost of goods sold			241,214				29,967				—				(703	)			270,478
Gross profit (loss)			60,440				15,325				—				703				76,468
Selling, general and admin expenses			11,968				151				—				—				12,119
Operating income			48,472				15,174				—				703				64,349
Interest expense – third party			(6,390	)			(361	)			—				—				(6,751	)
Interest expense – affiliates			7,449				(7,449	)			—				—				—
Interest income			56				140				—				—				196
Net gain (loss) on forward contracts			(286,760	)			—				—				—				(286,760	)
Loss on early extinguishment of debt			—				—				—				—				—
Other income (expense) — net			(106	)			(55	)			—				—				(161	)
Income (loss) before taxes and equity in earnings (loss) of subsidiaries			(237,279	)			7,449				—				703				(229,127	)
Income tax (expense) benefit			84,129				480				—				(253	)			84,356
Net income (loss) before equity in earnings (loss) of subsidiaries			(153,150	)			7,929				—				450				(144,771	)
Equity earnings (loss) of subsidiaries and joint ventures			3,534				784				(141,571	)			140,453				3,200
Net income (loss)		$	(149,616	)		$	8,713			$	(141,571	)		$	140,903			$	(141,571	)