-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CM46UrYPOUmnZPq19/vXP3aNFjLRot/aZPgjoyNL1W5niHjenVwITZSVdRRyiB42 HtNrP7aC/T0iBXg+I7J9bg== 0000950133-04-000960.txt : 20040317 0000950133-04-000960.hdr.sgml : 20040317 20040317063009 ACCESSION NUMBER: 0000950133-04-000960 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040316 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY ALUMINUM CO CENTRAL INDEX KEY: 0000949157 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 133070826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27918 FILM NUMBER: 04674121 BUSINESS ADDRESS: STREET 1: 2511 GARDEN ROAD STREET 2: BUILDING A SUITE 200 CITY: MONTEREY STATE: CA ZIP: 93940 BUSINESS PHONE: 3042736000 MAIL ADDRESS: STREET 1: 2511 GARDEN ROAD STREET 2: BUILDING A SUITE 200 CITY: MONTEREY STATE: CA ZIP: 93940 8-K 1 y95290e8vk.txt CENTURY ALUMINUM COMPANY 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 EX-23.1 3 y95290exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Registration Statements No. 333-15689, No. 333-42534 and No. 333-65924 for the Century Aluminum Company 1996 Stock Incentive Plan, Registration Statement No. 333-15671 for the Century Aluminum Company Non-Employee Directors Stock Option Plan, Registration Statement No. 333-07239 for the Century Aluminum of West Virginia, Inc. Salaried Employee Defined Contribution Retirement Plan, and Registration Statement No. 333-28827 for the Century Aluminum of West Virginia, Inc. United Steelworkers of America Savings Plan (all on Forms S-8), of our report dated February 24, 2004 relating to the financial statements of Nordural hf as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, all of the foregoing appearing in this Current Report on Form 8-K of Century Aluminum Company dated March 16, 2004. PricewaterhouseCoopers hf Reykjavik, Iceland March 16, 2004 /s/ Reynir Vignir /s/ Kristinn Freyr Kristinsson ------------------------------- ------------------------------- Reynir Vignir Kristinn Freyr Kristinsson State authorized public accountant State authorized public accountant EX-99.1 4 y95290exv99w1.txt PRESS RELEASE EXHIBIT 99.1 CENTURY AGREES TO ACQUIRE PRIMARY ALUMINUM CAPACITY IN ICELAND March 16, 2004, Monterey, CA - Century Aluminum Company (NASDAQ: CENX) has 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 of approximately $190 million. The agreement also provides for a contingent payment of $25 million to CVC upon the commencement of the expansion. The transaction is expected to close by May 31, 2004. Announcing the acquisition, Century's Chairman and Chief Executive Officer Craig A. Davis said: "The Nordural plant is a world-class facility. The acquisition is a significant step forward in achieving Century's strategic goals of reducing our average cost to produce aluminum and geographically diversifying our asset base. Iceland is a politically and economically stable country with a positive investment climate. In addition, Iceland has extensive hydroelectric power capacity and geothermal reserves for producing electricity." Century currently owns 525,000 mtpy of primary aluminum capacity. It owns and operates the 170,000-mtpy plant at Ravenswood, WV and the 244,000-mtpy plant at Hawesville, KY. Century also owns a 49.67 percent interest in the 222,000-mtpy reduction plant at Mt. Holly, SC. Alcoa Inc. owns the remainder and is the operating partner. Century's headquarters are in Monterey, CA. Columbia Ventures is a privately-owned investment company headquartered in Vancouver, WA. Subsequent to this transaction its remaining major investments will be in CTC Communications, the largest facilities-based Competitive Local Exchange Carrier headquartered in New England; Hibernia Atlantic, a transatlantic fiber-optic cable providing broadband connections between Boston, Halifax, Dublin and the United Kingdom; Og Vodafone, a full-service facilities-based telecommunications company in Iceland; Globalstar, the satellite telephony and data provider; Tecnol, an aluminum extruder in Mexico; and Columbia Commercial Building Products in Rockwall, Texas." Century's press releases may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The company cautions that such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results may vary. The Company will hold a conference call on Wednesday, March 17, 2004, at 2:00 P.M. Eastern Time to discuss the Nordural acquisition. The dial-in number within the United States is (800) 553-0273 and the International dial-in number is (612) 288-0337. These telephone numbers operate in the listen only mode. A playback number has been established for those unable to participate in the conference call. Playback begins at 7:15 P.M. Eastern Time on Wednesday, March 17, 2004, and ends at 11:59 p.m. Eastern Time on Friday, March 19, 2004. The playback number within the United States is (800) 475-6701 and International (320) 365-3844, the access code is 724989. After March 19, 2004, interested parties will be able to access an archived transcript of the call, which will be posted in the Investors section of the company's web site located at www.centuryaluminum.com. The transcript will remain available on the company's website for six months. Editorial Contact: A. T. Posti 831 642-9364 -----END PRIVACY-ENHANCED MESSAGE-----