SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 16, 2004
CENTURY ALUMINUM COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 0-27918 13-3070826
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
Incorporation)
2511 GARDEN ROAD
BUILDING A, SUITE 200
MONTEREY, CALIFORNIA 93940
(Address of principal executive offices) (Zip Code)
(831) 642-9300
(Registrant's telephone number, including area code)
1
ITEM 5. OTHER EVENTS.
On March 16, 2004, Century Aluminum Company ("Century") issued a press
release announcing that it entered into an agreement with Columbia Ventures
Corporation ("CVC"), a U.S. company, to purchase up to 100 percent of the shares
of Nordural hf, an Icelandic company that owns and operates a 90,000 metric ton
per year (mtpy) primary aluminum plant at Grundartangi, Iceland. The Nordural
plant began operation in 1998. An expansion is planned that will double its
capacity to 180,000 mtpy by 2006.
The agreement provides that Century will acquire 49.9 percent of Nordural
from CVC for $75 million. Century anticipates that its purchase will increase to
100 percent of Nordural subject to the satisfaction of certain conditions that
are expected to be met by March 31, 2004. The purchase price for CVC's entire
interest would be $150 million. In addition, Nordural has long-term debt
(including current portion) of approximately $190 million. The agreement also
provides for a contingent payment of $25 million to CVC upon the commencement of
the expansion. The purchase price is subject to a customary adjustment based on
changes in selected balance sheet accounts, calculated as of the date of
closing. Century intends to use proceeds from a registered equity offering to
finance the acquisition. The transaction is expected to close by May 31, 2004,
subject to satisfaction of customary closing conditions.
A copy of the press release is attached hereto as Exhibit 99.1.
The audited financial statements for Nordural hf begin on page 4 of this
Form 8-K, followed by separate unaudited pro forma consolidated financial
information reflecting Century's acquisition of both a 100% and 49.9% interest
in Nordural.
FORWARD-LOOKING STATEMENTS
This Form 8-K may contain certain "forward-looking statements." Century
has based these forward-looking statements on current expectations and
projections about future events. Many of these statements may be identified by
the use of forward-looking words such as "expects," "anticipates," "plans,"
"believes," "projects," "estimates," "should," "will," and "potential" and
variations of such words. These forward-looking statements are subject to risks,
uncertainties and assumptions and readers are cautioned that actual results
could differ materially and, therefore, they should not place undue reliance on
any forward-looking statements. Century does not undertake, and specifically
disclaims, any obligation to revise any forward-looking statements to reflect
the occurrence of anticipated or unanticipated events or circumstances after the
date such forward-looking statements are made.
2
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AUDITED FINANCIAL STATEMENTS FOR NORDURAL HF
Report of PricewaterhouseCoopers hf......................................................... 4
Statements of Income for the Years Ended December 31, 2001, 2002 and 2003................... 5
Balance Sheets as of December 31, 2002 and 2003............................................. 6
Statements of Stockholder's Equity for the Years Ended December 31, 2001, 2002 and 2003..... 7
Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003............... 8
Notes to Financial Statements............................................................... 9
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
100% ACQUISITION
Introduction to Unaudited Pro Forma Consolidated Financial Information...................... 18
Unaudited Pro Forma Consolidated Balance Sheet.............................................. 19
Notes to Unaudited Pro Forma Consolidated Balance Sheet..................................... 20
Unaudited Pro Forma Consolidated Statement of Operations.................................... 21
Notes to Unaudited Pro Forma Consolidated Statement of Operations........................... 23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
49.9% ACQUISITION
Introduction to Unaudited Pro Forma Consolidated Financial Information...................... 24
Unaudited Pro Forma Consolidated Balance Sheet.............................................. 25
Notes to Unaudited Pro Forma Consolidated Balance Sheet..................................... 26
Unaudited Pro Forma Consolidated Statement of Operations.................................... 27
Notes to Unaudited Pro Forma Consolidated Statement of Operations........................... 28
3
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF NORDURAL HF
We have audited the accompanying balance sheets of Nordural hf, as of December
31, 2003 and 2002, and the related statements of income, of cash flows and of
stockholder's equity for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards
in Iceland and the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nordural hf, at December 31,
2003 and 2002, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in Iceland.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for deferred income taxes during the year ended
December 31, 2003.
Accounting principles generally accepted in Iceland vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
net income for each of the three years in the period ended December 31, 2003 and
the determination of stockholders' equity at December 31, 2003 and 2002 to the
extent summarized in Note 14 to the financial statements.
Reykjavik, February 24, 2004
PRICEWATERHOUSECOOPERS HF
/s/ Reynir Vignir /s/ Kristinn Freyr Kristinsson
Reynir Vignir Kristinn Freyr Kristinsson
State authorized public accountant State authorized public accountant
4
NORDURAL HF
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
2001 2002 2003
---- ---- ----
Net sales ......................... $ 85,680,296 $ 97,005,762 $ 100,938,674
Cost of goods sold ................ 48,437,463 59,841,355 66,619,936
------------- ------------- -------------
Gross profit ...................... 37,242,833 37,164,407 34,318,738
General and administrative expenses 563,823 945,666 557,673
Depreciation and amortization ..... 12,918,975 14,980,220 15,383,262
------------- ------------- -------------
Profit before interest and taxes .. 23,760,035 21,238,521 18,377,803
Interest expenses ................. (13,450,888) (10,984,055) (5,401,436)
Investment income ................. 0 369,929 3,063,420
------------- ------------- -------------
Profit before taxes ............... 10,309,147 10,624,395 16,039,787
Income tax ........................ 0 0 2,887,162
------------- ------------- -------------
Net profit ........................ $ 10,309,147 $ 10,624,395 $ 13,152,625
============= ============= =============
5
NORDURAL HF
BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2003
ASSETS 2002 2003
------ ---- ----
CURRENT ASSETS
Cash ................................... $ 16,712,627 $ 9,898,090
Accounts receivable .................... 2,851,606 5,897,351
Advance to parent company .............. 2,341,041 14,876,843
Inventory and supplies ................. 10,952,489 12,634,998
Prepaid cost ........................... 1,125,819 366,383
Taxes receivable ....................... 1,231,076 1,296,825
------------- -------------
TOTAL CURRENT ASSETS ................... 35,214,658 44,970,490
------------- -------------
LONG-TERM ASSETS
Property, plant and equipment, net ..... 227,652,060 215,897,001
Other assets ........................... 14,925,663 13,925,811
------------- -------------
TOTAL LONG-TERM ASSETS ................. 242,577,723 229,822,812
------------- -------------
TOTAL ASSETS ........................... $ 277,792,381 $ 274,793,302
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable ....................... $ 5,975,318 $ 6,463,226
Accounts payable, parent company ....... 0 146,559
Accrued interest ....................... 982,907 135,831
Accrued liabilities .................... 1,422,196 1,931,894
Current portion of long-term liabilities 10,033,404 14,410,808
------------- -------------
18,413,825 23,088,318
------------- -------------
LONG-TERM LIABILITIES
Senior credit facility ................. 151,556,600 178,321,500
Debt payable to bank ................... 2,976,190 2,692,065
Smelter site lease agreement ........... 7,651,007 7,421,441
Other long-term liabilities ............ 1,196,517 2,140,999
Deferred income taxes .................. 0 4,439,585
------------- -------------
163,380,314 195,015,590
Current portion of long-term liabilities (10,033,404) (14,410,808)
------------- -------------
153,346,910 180,604,782
------------- -------------
TOTAL LIABILITIES ...................... 171,760,735 203,693,100
------------- -------------
STOCKHOLDER'S EQUITY
Capital stock .......................... 97,444,856 59,500,000
Retained earnings ...................... 8,586,790 11,600,202
------------- -------------
106,031,646 71,100,202
------------- -------------
TOTAL EQUITY AND LIABILITIES ........... $ 277,792,381 $ 274,793,302
============= =============
6
NORDURAL HF
STATEMENTS OF STOCKHOLDER'S EQUITY
CAPITAL STOCK RETAINED EARNINGS TOTAL EQUITY
------------- ----------------- ------------
Balance at January 1, 2001........................... $ 97,444,856 $ (12,346,752) $ 85,098,104
Net profit........................................... 10,309,147 10,309,147
-------------- -------------- --------------
Balance at December 31, 2001......................... 97,444,886 (2,037,605) 95,407,251
Net profit........................................... 10,624,395 10,624,395
-------------- -------------- --------------
Balance at December 31, 2002......................... 97,444,856 8,586,790 106,031,646
Dividend............................................. (8,586,790) (8,586,790)
Repurchased capital stock............................ (37,944,856) (37,944,856)
Deferred tax liability............................... (1,552,423) (1,552,423)
Net profit........................................... 13,152,625 13,152,625
---------------- ---------------- ----------------
Balance at December 31, 2003......................... $ 59,500,000 $ 11,600,202 $ 71,100,202
============== ============== ==============
7
NORDURAL HF
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
2001 2002 2003
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Cash from operations:
Net profit ............................................... $ 10,309,147 $ 10,624,395 $ 13,152,625
Items not affecting cash:
Depreciation and amortization ............................ 12,918,975 14,980,220 15,383,262
Changes in deferred tax liability ........................ 0 0 2,887,162
Gain on the sale of assets ............................... 0 0 (41,942)
------------ ------------ ------------
23,228,122 25,604,615 31,381,107
------------ ------------ ------------
DECREASE (INCREASE) IN OPERATING ASSETS
Accounts receivable and other current assets ............. 3,780,189 51,081 (2,352,058)
Inventories .............................................. (3,409,093) (1,602,905) (1,682,509)
Increase in accounts receivable, parent company .......... 0 (2,862,189) (12,535,802)
INCREASE (DECREASE) IN OPERATING LIABILITIES
Accounts payable ......................................... (1,339,535) 830,551 487,908
Accounts payable, parent company ......................... 4,675,668 (6,854,256) 146,559
Accrued interest and liabilities ......................... (459,197) 1,278,313 (337,378)
------------ ------------ ------------
3,248,032 (9,159,405) (16,273,280)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................ 26,476,154 16,445,210 15,107,827
------------ ------------ ------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Investment in property, plant and equipment .............. (27,240,488) (2,194,901) (831,761)
Investment in other assets ............................... (1,063,921) (196,147) (1,900,048)
Assets sold .............................................. 0 0 145,400
------------ ------------ ------------
(28,304,409) (2,391,048) (2,586,409)
------------ ------------ ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
New long-term liabilities ................................ 22,286,546 910,590 41,149,682
Payment of long-term liabilities ......................... (7,146,999) (20,483,812) (13,953,991)
Changes in current liabilities due to expansion .......... (2,757,400) 0 0
Dividend paid ............................................ 0 0 (8,586,790)
Repurchase of capital stock .............................. 0 0 (37,944,856)
------------ ------------ ------------
12,382,147 (19,573,222) (19,335,955)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH .......................... 10,553,892 (5,519,060) (6,814,537)
Cash, beginning of period ................................ 11,677,795 22,231,687 16,712,627
------------ ------------ ------------
CASH, END OF PERIOD ...................................... $ 22,231,687 $ 16,712,627 $ 9,898,090
============ ============ ============
8
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Nordural hf (the "Company"), a wholly-owned subsidiary of Columbia
Ventures Corporation, was incorporated in Reykjavik, Iceland, on February 28,
1997. The Company was formed to develop and operate an aluminum smelter in
Grundartangi, Iceland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements are stated on an accrual basis
prepared in accordance with Generally Accepted Accounting Principles in Iceland.
Functional currency
Amounts in the Company's books and these financial statements are
denominated in US dollars as all of the Company's revenues and a significant
portion of the Company's expenses are denominated in US dollars.
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance
sheet. Actual results could differ from those estimates.
Changes in Accounting Policies and Presentation
In 2003, changes were made to the Icelandic law which require calculations
and recording of a deferred income tax liability in the financial statements.
Accordingly, during 2003, a deferred income tax liability is recorded in the
Company's financial statements to provide for the tax consequences in future
years of the differences between the tax basis of assets and liabilities and
their financial reporting amounts. The amount of the cumulative deferred tax
liability that applies to 2002 has been recorded as a reduction to retained
earnings of $1,552,423 as of January 1, 2003.
Property, Plant and Equipment
Property plant and equipment is stated at cost. Additions, renewals and
improvements are capitalized. Maintenance and repairs are expensed as incurred
and costs of improvements and renewals are capitalized. Depreciation is
determined by the straight-line method based on the estimated useful lives of
the related assets. Upon disposal, cost and related accumulated depreciation of
the assets are removed from the accounts and resulting gains or losses are
included in earnings.
Depreciation is calculated on a straight line basis. The following annual
percentages of cost are used:
Buildings and improvements............................................ 20 to 40 years
Machinery and equipment............................................... 5 to 33 years
Transportation vehicles............................................... 5 years
9
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Other assets
Other assets primarily include net unamortized financing costs of
$7,857,767 in connection with the senior credit facility and payments made to
expand production capacity according to contracts for supply of certain raw
materials of $5,536,057, net of amortization. Such payments represent a
downpayment on raw materials to be supplied through 2013. The Company's policy
is to amortize those payments using the greater of (a) straight line over the
contract period; or (b) the ratio of current purchases of raw materials in the
period to the total of current and anticipated future purchases. Since raw
materials are generally used ratably over the contract period, applying either
method results in approximately the same amounts. Financing costs are amortized
over 10 to 15 years and the payments made for the supply contract are amortized
over 12.5 years, in accordance with the length of the contract.
Inventories and Supplies
Inventories and supplies are stated at the lower of cost or market value.
Cost is determined by the first-in, first-out (FIFO) method except for supplies
inventories which are based upon the average cost method.
Accounts receivable
Accounts receivable are valued at nominal value. The Company's accounts
receivable with a tolling customer described in Note 8 comprise 89.26% and
92.01% of the remaining balance of accounts receivable at December 31, 2002 and
2003.
Derivative Financial Instruments
The Company enters into various derivative instruments to protect itself
from fluctuating prices and rates. From time to time the Company purchases
options to hedge a portion of its exposure to price fluctuations of aluminum.
Hedging gains and losses are recognized concurrently with related sales
transactions.
Revenue Recognition
Revenues are recognized when title, risk of loss and ownership passes to
customers in accordance with contract terms. Revenues for the conversion of
alumina and processing of aluminum under tolling arrangements are recognized
upon completion of the tolling process. The tolling process is considered
complete when the customer assumes the risk of ownership of the finished
aluminum (Note 8).
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at the balance sheet date based on enacted tax laws
and statutory tax rates applicable to the years in which the differences are
expected to affect taxable income.
A deferred income tax liability generally reflects the income tax which
would be payable, according to current tax law, if the Company's assets were to
be sold or redeemed at book value. Under an agreement with Icelandic Authorities
the Company's tax rate is 33%. The agreement contains a provision which allows
for the Company to opt out of the agreement and be subject to general corporate
tax rates in Iceland. Effective January 1, 2002, the general corporate tax rate
was reduced from 33% to 18%. The Company has used the statutory Icelandic tax
rate of 18% to calculate the deferred tax liability as it is anticipated that
this will be the effective tax rate when tax payments will have to be made.
10
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. LONG-TERM ASSETS
Changes in net value of property, plant and equipment:
2002 2003
---- ----
Booked value, beginning of year ......... $ 237,578,397 $ 227,652,060
Additions ............................... 2,194,901 831,761
Properties sold ......................... (103,458)
Depreciation charges .................... (12,121,238) (12,483,362)
------------- -------------
Net value, end of year .................. $ 227,652,060 $ 215,897,001
============= =============
CHANGES IN NET VALUE OF OTHER ASSETS:
FINANCING AND CARBON ANODE CONTRACT COST:
Net value, beginning of year ............ $ 17,320,039 $ 14,461,057
Additions ............................... 1,832,667
Amortization ............................ (2,858,982) (2,899,900)
------------- -------------
Net value, end of year .................. 14,461,057 13,393,824
Other intangible assets ................. 430,699 498,080
Other ................................... 33,907 33,907
------------- -------------
$ 14,925,663 $ 13,925,811
============= =============
4. TAXES RECEIVABLE
Taxes receivable includes Value Added Tax from the Icelandic tax office
and tax on interest earned.
5. INVENTORIES AND SUPPLIES
Inventories and supplies are as follows at December 31,
2002 2003
---- ----
Aluminum in pots ..... $ 1,855,800 $ 1,983,600
Molten/bath chemicals 1,188,950 1,345,583
Carbon anodes ........ 1,958,245 2,140,808
Lining material ...... 1,158,421 1,952,312
Materials and supplies 4,791,073 5,212,695
----------- -----------
$10,952,489 $12,634,998
=========== ===========
6. INCOME TAXES
Changes in the deferred income tax liability during the year is as
follows:
Deferred tax liability, January 1, 2003 .................. $1,552,423
Calculated income tax for the year ended December 31, 2003 2,887,162
Income tax to be paid in 2004 due to 2003 operations ..... 0
----------
Deferred tax liability, December 31, 2003 ................ $4,439,585
==========
11
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Components of the deferred income tax liability are as follows:
JANUARY 1, 2003 DECEMBER 31, 2003
--------------- -----------------
Property, plant and equipment........................................ $ 22,569,250 $ 46,646,798
Net operating loss carry forward..................................... (17,722,472) (24,354,936)
Cost allowance....................................................... (120,000) (7,500)
Investment fund under tax law........................................ 3,897,794 2,380,000
------------- -------------
Net temporary differences......................................... 8,624,572 24,664,362
------------- -------------
Income tax (18%)..................................................... $ 1,552,423 $ 4,439,585
============= =============
7. LONG-TERM LIABILITIES
Long-term liabilities consist of the following:
2002 2003
---- ----
Credit facility payable to banks, due in semiannual installments with final
repayment on June 30, 2018; interest paid at the end of each interest period
which can vary from one to six months, at LIBOR (London Interbank Offered Rate)
plus 1.45% (interest rate 2.5838% at December 31, 2003)........................... $ 178,321,500
Credit facility payable to banks, due in semiannual installments with final
repayment on June 30, 2013; interest paid at the end of each interest period
which can vary from one to six months at London Interbank Offered Rate (LIBOR)
plus 1.3% to 1.5% margin (interest rate 3.26% at December 31, 2002)............... $ 151,556,600
Debt payable to bank due in quarterly installments (annuity) with final
repayment on August 1, 2012; interest payable at three month London Interbank
Offered Rate (LIBOR) plus 0.2% (interest rate 2.01% and 1.34% at December 31,
2002 and 2003).................................................................... 2,976,190 2,692,065
Other long-term liability will accumulate until April 25, 2005 when a bond will
be issued; interest will be accumulated and is calculated at three month London
Interbank Offered Rate (LIBOR) plus 0.75% (interest rate 2.71% and 1.98% at
December 31, 2001 and 2002) 1,196,517 2,140,999
------------- -------------
155,729,307 183,154,564
Less: current portion (9,803,839) (14,165,104)
------------- -------------
$ 145,925,468 $ 168,989,460
============= =============
12
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Future annual maturities of the above long-term debts are as follows:
2003
----
Maturity 2004.............................................................................. 14,165,104
Maturity 2005.............................................................................. 12,317,362
Maturity 2006.............................................................................. 11,208,427
Maturity 2007.............................................................................. 12,136,092
Maturity 2008.............................................................................. 12,961,415
Thereafter................................................................................. 120,366,164
------------
$183,154,564
============
All of the assets of the Company are pledged as collateral for the credit
facility. If the price of aluminum falls below designated levels for six months
prior to a payment date and certain debt coverage ratios are not met, the credit
facility agreement provides for deferral of principal payments. Acceleration of
principal payments is required if certain debt coverage ratios are exceeded.
Leases
The State Treasury of Iceland provided $7,000,000 to cover certain site
infrastructure costs of Nordural. Accrued interest on the loan of $1,113,932 has
been added to the principal. The value of these infrastructure costs shall be
repaid as part of the lease payments for the site over a period of seventeen
years, plus interest at a fixed rate (6.725% at December 31, 2003), which is
tied to the long-term borrowing rate of an agency of the Icelandic government.
Future lease principal payments are as follows:
2004....................................................................................... $ 245,704
2005....................................................................................... 262,980
2006....................................................................................... 281,480
2007....................................................................................... 300,000
2008....................................................................................... 320,000
Thereafter................................................................................. 6,011,277
--------------
$ 7,421,441
==============
8. TOLLING CONTRACT
The Company is a party to a tolling contract which expires December 31,
2013. Under the contract the customer owns all of the primary raw material and
finished goods. Nordural receives revenues based upon the London Metal Exchange
price of aluminum for converting the primary raw materials into finished goods.
The contract specifies standard usage rates of the primary raw materials.
Variations of actual usage from such standard usage may result in additional
amounts due to or due from the customer. Sales under the tolling agreement
totalled approximately $84,588,000 in 2001, $95,850,000 in 2002 and $100,961,000
in 2003.
9. DERIVATIVE FINANCIAL INSTRUMENTS
In 2002 and 2003, the Company purchased put options that allowed the
Company to sell 4,500 metric tons of aluminum per month at $1,250 per metric ton
through the end of April 2004. Premiums paid in 2003 were $513,000, of which
$171,000 were deducted from net sales and $342,000 is a part of prepaid cost in
the Balance sheet at December 31, 2003. In addition, prepaid premiums at January
1, 2003 of $1,008,000 were deducted from net sales during 2003.
13
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The company had made advances to its sole shareholder in the amount of
$2,341,041 and $14,876,843 at December 31, 2002 and 2003.
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into an operating land lease. Lease obligations
accrue from July 1, 1997, and payments will be made on January 2nd of each year.
Future minimum lease commitments are as follows:
2004....................................................................................... $ 15,000
2005-2009.................................................................................. 75,000
2010-2014.................................................................................. 75,000
2015-2019.................................................................................. 75,000
2020....................................................................................... 15,000
--------------
$ 255,000
==============
The Company purchases all of its power (the majority on a take or pay
basis) from the Iceland Power Company at a rate that varies with the price of
aluminum. The contract expires October 31, 2019. To the extent that the Company
has received a benefit of reduced power prices, the Company may pay higher power
prices in the future should the price of aluminum exceed specified levels.
The Company is a party to a contract for the annual purchase of 48,000
metric tons (+/-10%) of certain raw materials for delivery through 2013. The
purchase price is adjusted annually throughout the term of the contract based
upon the supplier's raw material and operating costs.
In conjunction with the refinancing of the Senior Credit Facility
completed in September 2003, the Company will be obligated to pay the bank group
additional fees of $832,500 if specific bank financing for the expansion of the
annual operating capacity of the plant to 180,000 tonnes is not completed by
June 10, 2004.
The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies none of which the
Management of the Company believes will have a ultimate resolution that will be
material.
The Company has entered into several operating lease agreements for mobile
equipment and monthly lease payments are charged to the income statement. At the
year end the remaining amount of these agreements are approximately $1,041,800
and expire through the year 2008.
12. MORTGAGES
The Company has issued a general bond of $197,600,000 as a guarantee for
the senior credit facility specified in Note 7. The general bond holds a first
mortgage on all the following assets:
A. All assets located within the smelter site.
B. The harbour installations.
C. All other properties and assets owned by the Company from time to
time.
14
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
13. OPERATING LICENSE
The Company has an operating license for the production of up to 180,000
tonnes of aluminum per year in the smelter at Grundartangi. This operating
license was issued by the Icelandic Minister for the Environment on March 26,
1997 and confirmed by the Environmental and Food Agency of Iceland on November
2, 1999. The Company continues to operate pursuant to this license. In February
2003, this license was amended subject to start up of additional production
capacity to allow for production up to 300,000 tonnes of aluminum per year.
14. SUMMARY OF DIFFERENCES BETWEEN ICELANDIC AND U.S. GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in Iceland (Icelandic GAAP) which
differ in certain material respects from accounting principles generally
accepted in the United States (U.S. GAAP). The following is a summary of the
material adjustments to net profit which would have been required, if U.S. GAAP
had been applied instead of Icelandic GAAP.
Effect on net profit of differences between Icelandic GAAP and U.S. GAAP:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2002 DECEMBER 31, 2003
Net profit under Icelandic GAAP ................. $ 10,309,147 $ 10,624,395 $ 13,152,625
U.S. GAAP adjustments:
Deferred financing costs ..................... 284,754 340,388 (264,016)
Capital leases ............................... (20,284) 48,199 33,203
Income taxes ................................. 1,018,395 (2,445,243) 41,547
------------ ------------ ------------
Net income under U.S. GAAP ...................... 11,592,012 8,567,739 12,963,359
Other comprehensive income:
Unrealized gain (loss) on interest rate swaps,
net of $1,404,000 in tax ................... (2,850,000) 2,850,000
Unrealized gains (losses) on hedging
transactions, net of tax of $80,421 and
$61,527 in 2002 and 2003 ................... (366,361) 86,068
------------ ------------ ------------
Other comprehensive income ...................... $ 8,742,012 $ 11,051,378 $ 13,049,427
============ ============ ============
15
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Effect on Stockholder's Equity of differences between Icelandic GAAP and
U.S. GAAP:
DECEMBER 31, DECEMBER 31,
2002 2003
---- ----
Stockholder's equity under Icelandic GAAP .............. $ 106,031,646 $ 71,100,202
Adjustments:
Deferred financing costs ............................ (596,843) (860,859)
Capital leases ...................................... (63,010) (29,807)
Deferred income taxes ............................... (1,426,849) 167,121
Cumulative unrealized losses on hedging transactions,
net of income taxes ............................... (366,361) (280,293)
------------- -------------
Stockholder's equity under U.S. GAAP ................... $ 103,578,583 $ 70,096,364
============= =============
A summary of the principal differences applicable to the financial
statements is set out below:
Deferred financing costs
Under Icelandic GAAP, the Company capitalizes all bank fees and third
party costs associated with refinancing the senior credit facility. In addition,
upon refinancing, deferred costs have been amortized over the original term of
the related facility.
Under U.S. GAAP, fees paid to a bank upon refinancing may be deferred and
amortized over the term of the credit facility. However, all third party costs
associated with a refinancing that is not debt extinguishment must be expensed.
In addition, any unamortized costs from an earlier financing are amortized
over the term of the new credit facility.
Capital leases
Under Icelandic GAAP, payments associated with equipment leases whose term
approximates the useful life of the associated equipment may be expensed as
incurred, even though title to equipment passes to the lessee at the end of the
term.
Under U.S. GAAP, if there is a bargain purchase option at the end of the
lease or title to equipment transfers to the lessee, then these leases shall be
accounted for as capital leases. Under U.S. GAAP, at the onset of a lease, the
cost of the equipment is recorded in the assets of the company as property,
plant and equipment and depreciated over its useful life, while a corresponding
liability entitled, "Obligation under Capital Lease" is recorded. As payments
are made on the leases, the liability is reduced while an interest portion of
each payment is recorded as expense in the income statement. The gross amount of
equipment recorded under capital leases was $1,539,790 and $1,418,476 at
December 31, 2003 and 2002.
Interest rate swap contracts and derivative financial instruments
Under Icelandic GAAP, interest rate swap contracts undertaken for the
purpose of hedging outstanding borrowings are accounted for off-balance sheet by
recording net payments or receipts as a component of interest expense. In
addition, the cost of financial derivatives undertaken for the purpose of
hedging the future price volatility of a commodity are deferred and recorded in
sales concurrent with the sale of the commodity that was hedged.
16
NORDURAL HF
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The requirements for hedge accounting under U.S. GAAP are more
prescriptive than those under Icelandic GAAP. Under U.S. GAAP, to qualify for
hedge accounting, interest rate swaps and commodity derivatives must not only be
designated as hedges, but at inception and throughout the term of the swap there
must be a high correlation between the market values of the contracts and the
outstanding balance of the underlying debt or commodity being hedged. The
principal amounts of the Company's outstanding debt and the volume of the
commodity hedged correlate sufficiently with the notional amounts of the swap
contracts and commodities derivative instruments to qualify for hedge
accounting. Given the nature of these contracts, they are accounted for as cash
flow hedges. Therefore, under U.S. GAAP these contracts are marked to market at
the balance sheet dates with any difference between the market value and the
carrying amount recorded in the equity section of the balance sheet as other
comprehensive income (loss).
Deferred income taxes
Under Icelandic GAAP, prior to 2003, deferred income taxes were not
required to be recorded in the financial statements of a company. Rather,
footnote disclosure of the items that caused a difference between book income
and taxable income was made. Beginning in 2003, it was required that deferred
taxes be recorded in the financial statements.
Under U.S. GAAP, deferred taxes are accounted for on all temporary
differences, including those resulting from other U.S. GAAP adjustments, and a
valuation allowance is established to reduce deferred tax assets to the amount
which more likely than not will not be realized in future periods based on
current estimates of future taxable income, along with proper tax planning
strategies.
The components of the net deferred tax liabilities under U.S. GAAP, which
have been netted with respect to noncurrent amounts, as of December 31, 2002 and
2003 are as follows:
2002 2003
ASSET (LIABILITY) ASSET (LIABILITY)
Tax over book depreciation ........... $(4,735,667) $(8,816,673)
Tax loss carryforwards ............... 3,308,818 4,544,208
----------- -----------
Net non-current deferred tax liability $(1,426,849) $(4,272,464)
=========== ===========
On January 1, 2002, the Icelandic statutory rate was decreased from 33% to
18%. This decrease in effective rate resulted in a decrease to net deferred tax
assets and additional tax expense of $462,907.
In 2001, the Company's provision for income taxes includes tax expense
calculated at a statutory tax rate of 33% of $3,489,293 which is offset by a
reduction of a valuation allowance of $4,507,688 which nets to a tax benefit of
$1,018,395. In 2001, the valuation allowance was reduced to zero as based upon
the Company's ability to generate profits, a valuation allowance was no longer
deemed necessary.
17
INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(100% ACQUISITION)
The following tables present Century's unaudited pro forma consolidated
balance sheet as of December 31, 2003 and unaudited pro forma consolidated
statement of operations for the year ended December 31, 2003. The unaudited pro
forma consolidated financial data presented below has been derived from (1)
Century Aluminum Company's audited consolidated financial statements and
accompanying notes included in its Annual Report on Form 10-K for the year ended
December 31, 2003; and (2) the separate audited financial statements and
accompanying notes of Nordural hf for the year ended December 31, 2003, which
are included in this Current Report on Form 8-K. The unaudited pro forma
consolidated financial data has been prepared for illustrative purposes only and
does not purport to represent what Century's results of operations or financial
condition would actually have been had the transactions described below in fact
occurred as of the dates specified. In addition, the unaudited pro forma
consolidated financial data does not purport to project Century's results of
operations or financial condition as of any date or for any future period. Among
other things, the unaudited pro forma consolidated financial data does not
reflect the effects of Century's acquisition of the remaining 20% interest in
its Hawesville primary aluminum reduction facility prior to the closing of that
acquisition in April 2003.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 2003 gives pro forma effect to the following events as if
they were consummated on January 1, 2003:
- Century's acquisition of 100% of the outstanding equity shares of
Nordural hf;
- Century's anticipated issuance and sale of common stock to finance
the Nordural acquisition; and
- other adjustments that management believes are directly related to
the Nordural acquisition.
The unaudited pro forma consolidated balance sheet as of December 31, 2003
gives effect to these events as if they were consummated on December 31, 2003.
The Nordural acquisition would be accounted for using the purchase method
of accounting. Under the purchase method of accounting, the cash payment of the
estimated aggregate purchase price for Nordural (including transaction fees and
expenses) would be allocated to the tangible assets, identifiable intangible
assets and liabilities of Nordural, based upon their respective fair values. The
allocation of the purchase price, useful lives assigned to assets and other
adjustments made to the unaudited pro forma consolidated financial data are
based upon available information and certain preliminary assumptions that we
believe are reasonable under the circumstances. Century has not yet completed
the fair market value allocation to the specific assets and liabilities of
Nordural. Consequently, the final amounts allocated and the related useful lives
could differ from those reflected in the unaudited pro forma consolidated
financial data and the effects could be material. The acquisition of Nordural is
subject to certain conditions, including the successful completion of a planned
equity offering, and there can be no assurance that the acquisition will be
consummated.
The unaudited pro forma consolidated financial data should be read in
conjunction with: (1) Century's audited consolidated financial statements and
accompanying notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in its Annual Report on Form 10-K
for the year ended December 31, 2003, and (2) the separate audited financial
statements and accompanying notes of Nordural hf which are included elsewhere in
this Current Report on Form 8-K.
18
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(100% ACQUISITION)
AS OF DECEMBER 31, 2003
(Dollars in Thousands)
U.S. GAAP U.S. GAAP PRO FORMA PRO FORMA
CENTURY NORDURAL ADJUSTMENTS NORDURAL ADJUSTMENTS CONSOLIDATED
------- -------- ----------- -------- ----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 28,204 $ 9,898 $ 9,898 $ 3,277 (1) $ 41,379
165,675 (3)
(165,675) (2)
Accounts receivable - net................ 51,370 5,897 5,897 57,267
Due from affiliates...................... 10,957 14,877 14,877 (14,877) (1) 10,957
Inventories.............................. 89,360 12,635 12,635 101,995
Prepaid and other current assets......... 4,101 1,663 1,663 5,764
Deferred taxes - current portion......... 3,413 - 3,413
---------- ---------- ---------- ---------- --------- -----------
Total current assets............. 187,405 44,970 - 44,970 (11,600) 220,775
Property, Plant and Equipment - net........ 494,957 215,897 832 216,729 115,971 (2) 827,657
Intangible Asset - net..................... 99,136 - 99,136
Other Assets............................... 28,828 13,926 (861) 13,065 (13,065) (2) 28,828
---------- ---------- ---------- ---------- --------- -----------
Total............................ $ 810,326 $ 274,793 (29) $ 274,764 $ 91,306 $ 1,176,396
========== ========== ========== ========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade.................. $ 34,829 $ 6,463 $ 6,463 41,292
Due to affiliates........................ 27,139 147 147 27,286
Industrial revenue bonds................. 7,815 - 7,815
Current portion of long term debt........ 14,411 14,411 14,411
Accrued and other current liabilities.... 30,154 2,067 280 2,347 32,501
Accrued employee benefits costs -
current portion........................ 8,934 - 8,934
Deferred Taxes - current portion......... - - -
---------- ---------- ---------- ---------- --------- -----------
Total current liabilities............... 108,871 23,088 280 23,368 - 132,239
Long Term Debt - net....................... 322,310 174,024 862 174,886 497,196
Notes Payable - Affiliates................. 14,000 - 14,000
Accrued Pension Benefits Costs - Less current
portion.................................. 10,764 - 10,764
Accrued Postretirement Benefits Costs - Less
current portion.......................... 78,218 - 78,218
Other Liabilities.......................... 33,372 2,141 2,141 35,513
Deferred Taxes - Less current portion..... 55,094 4,440 (167) 4,273 (4,273) (2) 55,094
---------- ---------- ---------- ---------- --------- -----------
Total noncurrent liabilities..... 513,758 180,605 695 181,300 (4,273) 690,785
CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS' EQUITY:
Convertible preferred stock (8.0% cumulative,
500,000 shares outstanding)............. 25,000 - 25,000
Common stock (one cent par value, 50,000,000
shares authorized; 21,130,839 shares
outstanding at December 31, 2003)....... 211 - 63 (3) 274
Capital stock............................ - 59,500 59,500 (59,500) (2) -
Additional paid-in capital............... 173,138 - 165,612 (3) 338,750
Accumulated Other Comprehensive Income
(Loss)................................. (5,222) (280) (280) 280 (2) (5,222)
Retained Earnings (Deficit).............. (5,430) 11,600 (724) 10,876 724 (2) (5,430)
(11,600) (1)
---------- ---------- ---------- ---------- --------- -----------
Total shareholders' equity....... 187,697 71,100 (1,004) 70,096 95,579 353,372
---------- ---------- ---------- ---------- --------- -----------
Total............................ $ 810,326 $ 274,793 $ (29) $ 274,764 $ 91,306 $ 1,176,396
========== ========== ========== ========== ========= ===========
See accompanying notes to the unaudited pro forma consolidated balance sheet.
19
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(100% ACQUISITION)
AS OF DECEMBER 31, 2003
1. Reflects an adjustment to eliminate shareholder loans, a portion of which
is expected to be repaid prior to closing and the balance is expected to
be offset against retained earnings.
2. Reflects the cash payment and allocation of the estimated aggregate
purchase price for Nordural, including acquired cash and estimated
transaction fees and expenses (subject to adjustment for an additional
payment not to exceed $25.0 million due upon commencement of the
expansion). Acquired cash reflects pro forma cash on the balance sheet of
Nordural which Century has agreed to purchase. Century will also
compensate the seller for the cash flow generated by the business from
December 31, 2003 through closing which could be material.
PURCHASE PRICE:
Purchase price $ 150,000
Acquired cash 13,175
Transaction fees and expenses 2,500
---------
Total purchase price $ 165,675
PRELIMINARY ALLOCATION OF PURCHASE PRICE:
Current assets $ 33,370
Property, plant and equipment 332,700
Current liabilities (23,368)
Noncurrent liabilities (177,027)
---------
Total purchase price $ 165,675
3. Records the proceeds, net of financing costs, from Century's anticipated
issuance and sale of common stock to finance the Nordural acquisition.
20
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(100% ACQUISITION)
YEAR ENDED DECEMBER 31, 2003
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
U.S. GAAP U.S. GAAP PRO FORMA PRO FORMA
CENTURY NORDURAL ADJUSTMENTS NORDURAL ADJUSTMENTS CONSOLIDATED
------- -------- ----------- -------- ----------- ------------
NET SALES:
Third-party customers.................................. $ 660,593 $ 100,939 $ 100,939 $ 761,532
Related parties ....................................... 121,886 - - 121,886
--------- ---------- ------ ---------- ---------- -----------
782,479 100,939 - 100,939 - 883,418
Cost of Goods Sold .................................... 734,441 82,003 231 82,234 (2,977) (1) 810,534
(3,164) (2)
--------- ---------- ------ ---------- ---------- -----------
Gross Profit .......................................... 48,038 18,936 (231) 18,705 6,141 72,884
Selling, General and Administrative Expenses........... 20,833 558 558 21,391
--------- ---------- ------ ---------- ---------- -----------
Operating Income ...................................... 27,205 18,378 (231) 18,147 6,141 51,493
Interest Expense - Third Party......................... (41,269) (5,401) (5,401) (46,670)
Interest Expense - Related Party....................... (2,579) (2,579)
Interest Income........................................ 339 339
Net Gain (Loss) On Forward Contracts .................. 25,691 - - 25,691
Investment income...................................... 3,063 3,063 3,063
Other Income (Expense) -- Net ......................... (688) - - (688)
--------- ---------- ------ ---------- ---------- -----------
Income (Loss) Before Income Taxes and Minority Interest 8,699 16,040 (231) 15,809 6,141 30,649
Income Tax Benefit (Expense) .......................... (2,841) (2,887) 41 (2,846) (2,149) (3) (10,523)
(2,687) (4)
--------- ---------- ------ ---------- ---------- -----------
Income (Loss) Before Minority Interest and
Cumulative Effect of Change in Accounting Principle.. 5,858 13,153 (190) 12,963 1,305 20,126
Minority Interest ..................................... 986 - 986
--------- ---------- ------ ---------- ---------- -----------
Income (Loss) before Cumulative Effect of
Change in Accounting Principle...................... 6,844 13,153 (190) 12,963 1,305 21,112
Cumulative Effect of Change in Accounting Principle,
net of tax benefit of $3,430........................ (5,878) - - (5,878)
--------- ---------- ------ ---------- ---------- -----------
Net Income (Loss)...................................... 966 13,153 (190) 12,963 1,305 15,234
Preferred Dividends ................................... (2,000) - - (2,000)
--------- ---------- ------ ---------- ---------- -----------
Net Income (Loss) Applicable to Common Shareholders ... $ (1,034) $ 13,153 $ (190) $ 12,963 $ 1,305 $ 13,234
========= ========== ====== ========== ========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Income (Loss) before cumulative effect of change in
accounting principle................................ $ 0.23 $ 0.69
Cumulative effect of change in accounting principle.... (0.28) (0.21)
--------- -----------
Net Income (Loss)................................. $ (0.05) $ 0.48
========= ===========
Diluted:
Income (Loss) before cumulative effect of
change in accounting principle............... $ 0.23 $ 0.69
Cumulative effect of change in accounting
principle.................................... (0.28) (0.21)
--------- -----------
Net Income (Loss)................................. $ (0.05) $ 0.48
========= ===========
21
U.S. GAAP U.S. GAAP PRO FORMA PRO FORMA
CENTURY NORDURAL ADJUSTMENTS NORDURAL ADJUSTMENTS CONSOLIDATED
------- -------------------- -------- ----------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic ............................................... 21,073 6,557 (5) 27,630
========= ===== ===========
Diluted ............................................. 21,099 6,557 (5) 27,656
========= ===== ===========
See accompanying notes to the unaudited pro forma consolidated statement of
operations.
22
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(100% ACQUISITION)
YEAR ENDED DECEMBER 31, 2003
1. Reflects an adjustment to depreciation expense based on the preliminary
purchase accounting fair market valuation of Nordural's property, plant
and equipment using an estimated average useful life of 35 years.
2. Reflects an adjustment to eliminate Nordural's historical amortization
expense related to deferred financing and carbon anode contract costs.
3. Reflects an adjustment to record income tax expense for the effects of the
pro forma adjustments using an effective tax rate of 35%.
4. Reflects an adjustment to record the incremental increase in income tax
expense for the historical results of Nordural using an effective tax rate
of 35% as opposed to the historical rate of 18%.
5. Records the additional shares outstanding from Century's anticipated
issuance of common stock to finance the Nordural acquisition using
Century's closing price per share of $26.79 as of March 15, 2004.
23
INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(49.9% ACQUISITION)
The following tables present Century's unaudited pro forma consolidated
balance sheet as of December 31, 2003 and unaudited pro forma consolidated
statement of operations for the year ended December 31, 2003. The unaudited pro
forma consolidated financial data presented below has been derived from (1)
Century's audited consolidated financial statements and accompanying notes
included in its Annual Report on Form 10-K for the year ended December 31, 2003,
and (2) the separate audited financial statements and accompanying notes of
Nordural hf for the year ended December 31, 2003, which are included elsewhere
in this Current Report of Form 8-K. The unaudited pro forma consolidated
financial data has been prepared for illustrative purposes only and does not
purport to represent what Century's results of operations or financial condition
would actually have been had the transactions described below in fact occurred
as of the dates specified. In addition, the unaudited pro forma consolidated
financial data does not purport to project Century's results of operations or
financial condition as of any date or for any future period. Among other things,
the unaudited pro forma consolidated financial data does not reflect the effects
of Century's acquisition of the remaining 20% interest in its Hawesville primary
aluminum reduction facility prior to the closing of that acquisition in April
2003.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 2003 gives pro forma effect to the following events as if
they were consummated on January 1, 2003:
- Century's acquisition of 49.9% of the outstanding equity shares of
Nordural hf;
- Century's anticipated issuance and sale of common stock to finance
the Nordural acquisition; and
- other adjustments that management believes are directly related to
the Nordural acquisition.
The unaudited pro forma consolidated balance sheet as of December 31, 2003
gives effect these events as if they were consummated on December 31, 2003.
The Nordural acquisition would be accounted for using the equity method of
accounting. Under the equity method of accounting, the cash payment of the
estimated aggregate purchase price for 49.9% of the shares of Nordural
(including transaction fees and expenses) would be allocated to the tangible
assets, identifiable intangible assets and liabilities of Nordural, based upon
their respective fair values, and recorded as a single line item on the
unaudited pro forma consolidated balance sheet. Century would recognize its pro
rata share of Nordural's earnings before income taxes, adjusted for the fair
market value allocation of the purchase price, as a single line item on the
unaudited pro forma consolidated statement of operations. The allocation of the
purchase price, useful lives assigned to assets and other adjustments made to
the unaudited pro forma consolidated financial data are based upon available
information and certain preliminary assumptions that we believe are reasonable
under the circumstances. Century has not yet completed the fair market value
allocation to the specific assets and liabilities of Nordural. Consequently, the
final amounts allocated and the related useful lives could differ from those
reflected in the unaudited pro forma consolidated financial data and the effects
could be material. The acquisition of Nordural is subject to certain conditions,
including the successful completion of a planned equity offering, and there can
be no assurance that the acquisition will be consummated.
The unaudited pro forma consolidated financial data should be read in
conjunction with: (1) Century's audited consolidated financial statements and
accompanying notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in its Annual Report on Form 10-K
for the year ended December 31, 2003; and (2) the separate audited financial
statements and accompanying notes of Nordural included elsewhere in this Current
Report on Form 8-K.
24
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(49.9% ACQUISITION)
AS OF DECEMBER 31, 2003
(DOLLARS IN THOUSANDS)
PRO FORMA PRO FORMA
CENTURY ADJUSTMENTS CENTURY
------- ----------- -------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 28,204 $ 84,074 (2) $ 28,204
(84,074) (1)
Accounts receivable - net ................................. 51,370 -- 51,370
Due from affiliates ....................................... 10,957 -- 10,957
Inventories ............................................... 89,360 -- 89,360
Prepaid and other current assets .......................... 4,101 -- 4,101
Deferred taxes - current portion .......................... 3,413 -- 3,413
--------- --------- ---------
Total current assets .................................... 187,405 -- 187,405
Property, plant and equipment - net .......................... 494,957 -- 494,957
Intangible assets - net ...................................... 99,136 -- 99,136
Investment in Nordural ....................................... -- 84,074 (1) 84,074
Other assets ................................................. 28,828 -- 28,828
--------- --------- ---------
Total ................................................... $ 810,326 $ 84,074 $ 894,400
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current Liabilities:
$ --
Accounts payable, trade ................................... $ 34,829 -- $ 34,829
Due to affiliates ......................................... 27,139 -- 27,139
Industrial revenue bonds .................................. 7,815 -- 7,815
Accrued and other current liabilities ..................... 30,154 -- 30,154
Accrued employee benefits costs - current portion ......... 8,934 --------- 8,934
--------- -- ---------
Total current liabilities ............................... 108,871 -- 108,871
--
Long term debt - net ......................................... 322,310 -- 322,310
Notes payable - affiliates ................................... 14,000 -- 14,000
Accrued pension benefits costs - less current portion ........ 10,764 -- 10,764
Accrued postretirement benefits costs - less current portion . 78,218 -- 78,218
Other liabilities ............................................ 33,372 --------- 33,372
Deferred taxes ............................................... 55,094 -- 55,094
--------- ---------
Total noncurrent liabilities ............................ 513,758 513,758
CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS' EQUITY:
Convertible preferred stock (8.0% cumulative, 500,000 --
shares outstanding) ..................................... 25,000 25,000
Common stock ($0.01 par value, 50,000,000 shares
authorized; 21,130,839 shares outstanding at December 31, 32 (2)
2003) ................................................... 211 84,042 (2) 243
Additional paid-in capital ................................ 173,138 -- 257,180
Accumulated other comprehensive loss ...................... (5,222) -- (5,222)
Accumulated deficit ....................................... (5,430) --------- (5,430)
--------- 84,074 ---------
Total shareholders' equity .............................. 187,697 --------- 271,771
--------- $ 84,074 ---------
Total ................................................... $ 810,326 ========= $ 894,400
========= =========
See the accompanying notes to the unaudited pro forma consolidated balance sheet
as of December 31, 2003.
25
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(49.9% ACQUISITION)
AS OF DECEMBER 31, 2003
(1) Reflects the cash payment of the estimated aggregate purchase price for
49.9% of the shares of Nordural, including acquired cash, transaction fees
and expenses. Acquired cash reflects Century's pro rata share of pro forma
cash on the balance sheet of Nordural which Century has agreed to
purchase. Century will also compensate the seller for its pro rata share
of the cash flow generated by the business from December 31, 2003 through
closing which could be material.
Purchase price .............. $75,000
Acquired cash ............... 6,574
Transaction fees and expenses 2,500
-------
Total purchase price ........ $84,074
(2) Records the proceeds, net of financing costs, from Century's anticipated
issuance of common stock to finance the Nordural acquisition.
26
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(49.9% ACQUISITION)
YEAR ENDED DECEMBER 31, 2003
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
CENTURY ADJUSTMENTS CONSOLIDATED
------- ----------- ------------
NET SALES:
Third-party customers ................................. $ 660,593 $ -- $ 660,593
Related parties ....................................... 121,886 -- 121,886
--------- --------- ---------
782,479 -- 782,479
Cost of goods sold ....................................... 734,441 -- 734,441
--------- --------- ---------
Gross profit ............................................. 48,038 -- 48,038
Selling, general and administrative expenses ............. 20,833 -- 20,833
--------- --------- ---------
Operating income ......................................... 27,205 -- 27,205
Interest expense - third party ........................... (41,269) -- (41,269)
Interest expense - related parties ....................... (2,579) -- (2,579)
Interest income .......................................... 339 -- 339
Net gain on forward contracts ............................ 25,691 -- 25,691
Equity income in Nordural ................................ 6,320 (1) 6,320
Other income (expense) - net ............................. (688) -- (688)
--------- --------- ---------
Income before income taxes and minority interest ........ 8,699 6,320 15,019
Income tax benefit (expense) ............................. (2,841) (2,212)(2) (5,053)
--------- --------- ---------
Income before minority interest and cumulative effect of .
change in accounting principle ........................ 5,858 4,108 9,966
Minority interest ........................................ 986 -- 986
--------- --------- ---------
Income before cumulative effect of change in accounting
principle ............................................. 6,844 4,108 10,952
Cumulative effect of change in accounting principle,
net of tax benefit of $3,430 .......................... (5,878) -- (5,878)
--------- --------- ---------
Net income ............................................... 966 4,108 5,074
Preferred dividends ...................................... (2,000) -- (2,000)
--------- --------- ---------
Net income (loss) applicable to common shareholders ...... $ (1,034) $ 4,108 $ 3,074
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Income before cumulative effect of change in accounting
principle ........................................... $ 0.23 $ -- $ 0.37
Cumulative effect of change in accounting principle ... (0.28) -- (0.24)
--------- --------- ---------
Net income (loss) ..................................... $ (0.05) $ -- $ 0.13
========= ======= =========
Diluted:
Income before cumulative effect of change in accounting
principle ........................................... $ 0.23 $ -- $ 0.37
Cumulative effect of change in accounting principle ... (0.28) -- (0.24)
--------- --------- ---------
Net income (loss) ..................................... $ (0.05) $ -- $ 0.13
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS):
Basic .................................................... 21,073 3,325 (3) 24,398
========= ========= =========
Diluted .................................................. 21,099 3,325 (3) 24,424
========= ========= =========
See the accompanying notes to the unaudited pro forma consolidated statement of
operations for the year ended December 31, 2003.
27
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(49.9% ACQUISITION)
YEAR ENDED DECEMBER 31, 2003
(1) Reflects an adjustment to record Century's 49.9% share of Nordural's U.S.
GAAP earnings before income taxes, adjusted for additional depreciation
attributable to the excess purchase price ascribed to fixed assets using an
estimated useful life of 35 years, calculated as follows:
U.S. GAAP net income .................................................. $ 12,963
Income tax benefit on U.S. GAAP adjustments ........................... (41)
Income tax expense on Icelandic GAAP profit ........................... 2,887
--------
U.S. GAAP earnings before income taxes ................................ 15,809
Ownership ............................................................. 49.9%
--------
Equity income in Nordural before amortization ......................... 7,888
Estimated amortization of excess purchase price ....................... (1,568)
--------
Equity income in Nordural ............................................. $ 6,320
========
(2) Reflects an adjustment to record income tax expense for the effects of the
pro forma adjustment using an effective tax rate of 35%.
(3) Records the additional shares outstanding from Century's issuance and sale
of common stock to finance the Nordural acquisition using Century's
closing price per share of $26.79 as of March 15, 2004.
28
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C) EXHIBITS.
The following exhibits are filed with this report on Form 8-K:
EXHIBIT INDEX
Exhibit Number Description
23.1 Consent of PricewaterhouseCoopers hf.
99.1 Press Release, dated March 16, 2004, announcing agreement with
Columbia Ventures Corporation.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY ALUMINUM COMPANY
Date: March 16, 2004 By: /s/ Gerald J. Kitchen
-----------------------------------------
Name: Gerald J. Kitchen
Title: Executive Vice President, General
Counsel, Chief Administrative
Officer and Secretary
30
EXHIBIT INDEX
Exhibit Number Description
23.1 Consent of PricewaterhouseCoopers hf.
99.1 Press Release, dated March 16, 2004, announcing agreement with
Columbia Ventures Corporation.
31