SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 2, 2001
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
Incorporation) Identification No.)
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)
Item 5. Other Events.
On April 2, 2001, Century Aluminum Company, a Delaware corporation (the
"Company") filed a Current Report on Form 8-K (the "Century Aluminum Initial
Report") describing the acquisition of NSA, Ltd. ("NSA") and its aluminum
reduction facility in Hawesville, Kentucky (the "Hawesville Facility") from
Southwire Company, a privately-held wire and cable manufacturing company based
in Carrollton, Georgia. This Current Report on Form 8-K/A amends the Century
Aluminum Initial Report by including with this Form 8-K/A the financial
statements and pro forma financial information required under Item 7 of Form
8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
NSA, Ltd.
Financial Statements
CONTENTS
Report of Ernst & Young LLP.......................................... 3
Balance Sheets as of December 31, 2000 and 1999...................... 4
Statements of Income for the Years Ended December 31, 2000,
1999 and 1998........................................................ 5
Statements of Net Equity for the Years Ended December 31, 2000,
1999 and 1998........................................................ 6
Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998........................................................ 7
Notes to Financial Statements........................................ 8
2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Southwire Company
We have audited the accompanying balance sheets of NSA, Ltd. (A Kentucky
Limited Partnership) (the "Company") as of December 31, 2000 and 1999 and the
related statements of income, net equity, and cash flows for each of the three
years in the period ended December 31, 2000. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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
statement 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 NSA, Ltd. at December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 23, 2001
3
NSA, LTD.
(A Kentucky Limited Partnership)
BALANCE SHEETS
December 31
-----------
2000 1999
--------- ---------
(In thousands)
Assets
Current assets:
Cash ................................................................ $ 26 $ 31
Accounts receivable, net of allowances for doubtful accounts
and claims of $280 in 2000 and $240 in 1999 ...................... 21,858 23,776
Accounts receivable from Parent ..................................... 8,076 14,605
Inventories ......................................................... 36,946 37,675
Other current assets ................................................ 145 186
--------- ---------
Total current assets ................................................... 67,051 76,273
Property, plant and equipment, at cost:
Land and land improvements .......................................... 6,287 6,350
Buildings ........................................................... 69,979 67,784
Machinery and equipment ............................................. 260,597 251,860
Construction in progress ............................................ 975 9,570
--------- ---------
337,838 335,564
Less accumulated depreciation ....................................... 176,546 158,768
--------- ---------
161,292 176,796
Other assets ........................................................... 102 3,000
--------- ---------
Total assets ........................................................... $ 228,445 $ 256,069
========= =========
Liabilities and Net Equity
Current liabilities:
Accounts payable .................................................... $ 25,456 $ 29,007
Accrued expenses .................................................... 4,108 2,808
Environmental remediation liabilities ............................... 8,770 9,204
Industrial development bonds ........................................ 7,815 7,815
--------- ---------
Total current liabilities .............................................. 46,149 48,834
Payable to Parent for employee benefits ................................ 7,352 5,590
--------- ---------
Total liabilities ...................................................... 53,501 54,424
Commitments and contingencies .......................................... -- --
Net equity:
Partners' capital ................................................... 310,983 229,122
Advances to Parent .................................................. (136,039) (27,477)
--------- ---------
Total net equity ....................................................... 174,944 201,645
--------- ---------
Total liabilities and net equity ....................................... $ 228,445 $ 256,069
========= =========
See accompanying notes.
4
NSA, Ltd.
(A Kentucky Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
-----------------------
2000 1999 1998
--------- --------- ---------
(In thousands)
Sales to third parties ................................................. $ 177,597 $ 137,935 $ 148,854
Sales to Parent ........................................................ 232,264 189,040 161,842
--------- --------- ---------
Net sales .............................................................. 409,861 326,975 310,696
Cost of sales .......................................................... 318,705 271,400 258,160
--------- --------- ---------
Gross profit ........................................................... 91,156 55,575 52,536
Selling and distribution expenses ...................................... 2,911 2,880 3,205
General and administrative expenses .................................... 12,338 11,624 11,653
--------- --------- ---------
Operating income ....................................................... 75,907 41,071 37,678
Interest income, net (principally amounts from Parent, see Note 5) .... 4,639 1,818 5,688
Other income, net ...................................................... 1,315 1,555 15
--------- --------- ---------
Income before income taxes ............................................. 81,861 44,444 43,381
Benefit from income taxes .............................................. -- -- (10,131)
--------- --------- ---------
Net income ............................................................. $ 81,861 $ 44,444 $ 53,512
========= ========= =========
See accompanying notes.
5
NSA, Ltd.
(A Kentucky Limited Partnership)
STATEMENTS OF NET EQUITY
Divisional Partners' Advances (to)
Equity Capital From Parent Total
--------- ------- --------- ---------
(In thousands)
Balance at January 1, 1998 .................................. $ 129,954 $ -- $ (35,146) $ 94,808
Transfer of divisional assets into a limited partnership .... (129,954) 129,954 -- --
Net income .................................................. -- 53,512 -- 53,512
Capital contributions ....................................... -- 1,212 -- 1,212
Advances to Parent .......................................... -- -- (28,448) (28,448)
--------- --------- --------- ---------
Balance at December 31, 1998 ................................ -- 184,678 (63,594) 121,084
Net income .................................................. -- 44,444 -- 44,444
Advances from Parent ........................................ -- 36,117 36,117
--------- --------- --------- ---------
Balance at December 31, 1999 ................................ -- 229,122 (27,477) 201,645
Net income .................................................. -- 81,861 -- 81,861
Advances to Parent .......................................... -- -- (108,562) (108,562)
--------- --------- --------- ---------
Balance at December 31, 2000 ................................ $ -- $ 310,983 $(136,039) $ 174,944
========= ========= ========= =========
See accompanying notes.
6
NSA, Ltd.
(A Kentucky Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
2000 1999 1998
--------- --------- ---------
(In thousands)
Operating Activities
Net income ...................................................... $ 81,861 $ 44,444 $ 53,512
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................... 18,153 11,804 8,569
Deferred income taxes ........................................... -- -- (10,131)
Change in operating assets and liabilities:
Accounts receivable ............................................. 8,447 (8,522) 21,663
Inventories and other assets .................................... 729 (9,910) 62
Accounts payable, accrued expenses and environmental
remediation liabilities ...................................... (923) 13,905 (237)
Other ........................................................... 3,484 (187) 550
--------- --------- ---------
Net cash provided by operating activities ....................... 111,751 51,534 73,988
Investing Activities
Purchases of property, plant, and equipment ..................... (3,194) (87,667) (54,548)
--------- --------- ---------
Net cash used in investing activities ........................... (3,194) (87,667) (54,548)
Financing Activities
Advances (to) from Parent ....................................... (108,562) 36,117 (28,448)
Proceeds from the issuance of debt .............................. -- -- 7,815
Equity contribution from Parent ................................. -- -- 1,212
--------- --------- ---------
Net cash (used in) provided by financing activities ............. (108,562) 36,117 (19,421)
--------- --------- ---------
(Decrease) increase in cash ..................................... (5) (16) 19
Cash at beginning of year ....................................... 31 47 28
--------- --------- ---------
Cash at end of year ............................................. $ 26 $ 31 $ 47
--------- --------- ---------
Cash paid for interest .......................................... $ 389 $ 271 $ 76
========= ========= =========
See accompanying notes.
7
NSA, Ltd.
(A Kentucky Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
(In thousands)
1. Description of Business and Significant Accounting Policies
Description of Business
NSA, Ltd. (the "Company"), is engaged in the smelting and sale of primary
aluminum. The Company operates an aluminum smelter in Hancock County, Kentucky.
The Company's metal sales are made to Southwire Company (the "Parent") and other
fabricators, brokers, and producers located primarily in the United States. The
Company is a Kentucky limited partnership in which a 99% limited partnership
interest is held by Forte Power Systems, Inc., a wholly owned subsidiary of the
Parent. The remaining 1% general partnership interest is held by Metalsco, Ltd.,
a wholly owned subsidiary of the Parent. See Note 4 for further description of
ownership structure as of and prior to January 1, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and the differences could be material.
Revenue Recognition
Revenue from the sale of primary metals is recognized when ownership and
price risk of the products are legally transferred to the customer and includes
any applicable shipping and handling costs invoiced to the customer. The Company
performs routine credit verification of its customers and generally does not
require collateral. Credit losses have not been significant.
Inventories
Inventories of substantially all materials are stated at the lower of
last-in, first-out (LIFO) cost or market. The current FIFO cost of the Company's
inventory exceeded LIFO cost by $4,686 and $4,590 at December 31, 2000 and 1999,
respectively. The cost of approximately 81% and 85% of total inventories was
determined using LIFO methods at December 31, 2000 and 1999, respectively.
8
Inventories consist of the following:
December 31,
------------
2000 1999
------- -------
Raw materials, supplies and other .... $27,823 $28,164
Finished goods ....................... 9,123 9,511
------- -------
$36,946 $37,675
======= =======
Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost less
accumulated depreciation and includes any repair and maintenance items that
extend the estimated useful lives of the assets. All other repair and
maintenance items are expensed as incurred.
Depreciation is computed using the straight-line method such that the cost
is amortized over the estimated economic lives of the respective assets. The
principal economic lives employed are:
Buildings................................................ 15-39 years
Machinery and equipment.................................. 12 years
Transportation equipment................................. 4 years
Furniture................................................ 10-15 years
The Company capitalized approximately $0, $182, and $0 of interest costs
incurred in 2000, 1999, and 1998, respectively, from debt outstanding during the
year relative to construction of property, plant, and equipment.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. The Company will
adopt the new Statement effective January 1, 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through income or
held in equity until the hedged item is recognized in income. The ineffective
portion of a hedge's change in fair value will be immediately recognized in
income. Based on the Company's derivative positions at December 31, 2000, the
Company estimates that the impact of adopting the Statement on the Company's
financial statement will be immaterial.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 outlines the basic criteria for revenue recognition and related
disclosures. SAB 101 was adopted by the Company beginning in the fourth quarter
of fiscal 2000. Management believes its revenue recognition policies were
consistent with SAB 101 and as a result, the adoption of SAB 101 did not have a
material impact on the Company's financial position or results of operations.
9
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts
receivable, industrial development bonds and accounts payable approximate their
fair values due to the short maturities of these instruments.
2. Employee Benefits
All employees of the Company are leased from the Parent. The Parent has
qualified defined-contribution retirement plans for participating eligible
employees. The costs of full time employees are generally charged directly to
the Company. The Parent charged the Company an allocation of approximately
$2,638, $1,351, and $2,002 for the leased employees participation in the plans
for 2000, 1999 and 1998, respectively. A portion of these contributions is based
upon a profit-sharing formula of the Parent. Accordingly, these allocations
fluctuate with the Company's net income. The Parent offers a medical and a life
insurance plan to a substantial portion of its retirees. The Parent charged an
allocation to the Company of approximately $1,762, $1,332 and $1,332 for the
leased employees participation in the plans for 2000, 1999 and 1998,
respectively. Such allocated amounts for retiree benefits are classified in the
accompanying balance sheet as Payable to Parent for employee benefits, as the
Parent retains the obligation to the employees under the plans.
3. Debt
The Company has $7,815 of industrial development bonds, due through 2028.
These bonds have certain terms that could cause the Company to repay the bonds
in less than one year. Interest is payable monthly at rates that vary in
relation to current market conditions. The interest rate as of December 31, 2000
and 1999 is 5.3%. In the event the bonds were presented for redemption, the
Company would be required to repay the bonds; accordingly, the bonds have been
classified as short-term in the accompanying balance sheets.
4. Income Taxes
Prior to January 1, 1998, the Company operated as a division of a
corporation taxable under subchapter C of the Internal Revenue Code. As a
division, the Company provided for income taxes for periods prior to January 1,
1998 on a separate return basis. On January 1, 1998, the Company reorganized as
a partnership. Subsequent to January 1, 1998, income taxes are the
responsibility of the partners. Accordingly, on January 1, 1998, net deferred
income tax liabilities aggregating $10,131 were eliminated and recognized in the
statement of income and no provisions for income taxes are required.
5. Transactions with Related Parties
The Company had accounts receivable of approximately $8,076 and $14,605
from the Parent for sales of products at December 31, 2000 and 1999,
respectively. The Company has advanced amounts to the Parent aggregating
approximately $136,039 and $27,477 at December 31, 2000 and 1999, respectively.
These advances, which bear interest, are included in net equity.
10
Interest income of approximately $4,905, $2,098 and $5,835 was earned on
advances to the Parent in 2000, 1999 and 1998, respectively.
The Company was allocated approximately $5,515, $3,798 and $3,714 by its
Parent as reimbursement for certain administrative functions in 2000, 1999 and
1998, respectively, including amounts for certain employee benefits (see Note 2)
and insurance requirements that are provided by affiliates of the Company.
Management determined the amounts allocated based on methods deemed reasonable
by management. While the basis used for determining these charges are
subjective, management believes the charges approximate an amount consistent
with the services provided by the Parent. However, actual charges incurred by
the Company on a stand-alone basis could be materially different from such
estimated amounts allocated from the Parent. Certain contracts and other assets
that relate to the operation of the Company's business are owned by affiliates
of the Company. For purposes of these financial statements these items have been
assigned to the Company.
6. Derivative Contracts
The Company sells futures contracts and periodically enters into other
agreements to hedge anticipated aluminum sales against the risk of falling
prices. In addition, the Company purchases futures contracts to hedge fixed
price sales commitments of aluminum products. Gains and losses related to
transactions that qualify for hedge accounting are deferred and reflected in the
statement of income when the underlying physical transaction takes place. Gains
and losses related to transactions that do not qualify for hedge accounting are
recognized in earnings immediately as a part of cost of sales. Accounting
convention requires that certain instruments covering fixed price sales must be
recorded at market value. The Company recorded unrealized income of $102 and
$3,000 at December 31, 2000 and 1999, respectively, related to such positions.
If necessary, realized deferred gains or losses are reflected on the balance
sheet in other liabilities or assets. The physical transactions hedged by these
contracts will occur over the next year.
The effectiveness of hedges is monitored to ensure that correlation between
changes in the fair values of financial instruments and changes in the fair
values associated with the underlying hedged items exist to such a degree that
they substantially offset. In the event a high degree of correlation is not
maintained, or anticipated transactions do not occur, deferred gains or losses
on the affected financial instruments are recognized in earnings immediately.
11
The following sets forth the open aluminum positions and values of such
positions:
December 31,
--------------------------------------------------------------------
2000 1999
-------------------------------- -------------------------------
Fair Carrying Fair Carrying
Pounds Value Value Pounds Value Value
---------- -------- ---------- --------- --------- --------
(millions) (millions)
Short futures.......................... 45 $ (709) 14 $ (342)
Long futures........................... 36 153 47 4,456
------- -------
Net unrealized (losses) gains.......... $ (556) $ 4,114
------- -------
Carrying value......................... $ (102) $ 3,000
------- -------
The fair values are based upon quoted market prices.
7. Commitments, Contingencies and Other Matters
The Company, through its affiliates, is obligated under a contract expiring
in 2010 for the purchase of electricity used in the production of aluminum. The
contract has minimum demand charge provisions of $15,564 in each of years 2001
and 2002 and $4,447 in each year thereafter through the end of the contract
period. The Company purchased electricity totaling $96,300, $86,300 and $76,500
during 2000, 1999 and 1998, respectively.
The Company's Parent has been negotiating with The United Steelworkers of
America and its local Union (collectively the "Union") on a labor contract for
the employees leased by the Company. Approximately 75% of such employees are
represented by the Union. On June 26, 1998, the Union commenced a strike against
the Company. The Union has filed a series of charges against the Company
alleging that the strike was an unfair labor practice strike. The Union further
contends that the Company had an obligation to return the strikers to work
within five working days of March 5, 1999, the date upon which the Union made an
unconditional offer to return on behalf of all of the strikers. The Company
disagrees with the Union's characterization of the strike as an unfair labor
practice strike. Rather, it believes that the strike was an economic strike.
The Union has sued claiming back wages and other damages. A trial was held
before a National Labor Relations Board ("NLRB") Administrative Law Judge and,
on September 26, 2000, the judge rendered his Decision and Recommended Order
concluding that the strike was an unfair labor practice strike and ruling that
the Company owed the Union back wages and other damages.
In August 2000, the Parent entered into an agreement to sell the Company to
a third party (the "Purchaser"). The agreement was to expire on November 30,
2000 but has been extended through February 15, 2001. The Purchaser has the
option of an additional 45-day extension. As a condition of the sale, the
Purchaser and the union entered into a collective bargaining agreement that
includes the withdrawal of all outstanding litigation by the Union, against the
Company and the Parent. In connection with this agreement, the Purchaser agreed
to make hardship and other payments of approximately $4 million to the Union
Employees. This agreement is contingent upon the ultimate sale of the Company.
The Parent and Company are not a party to and are not bound by the terms of the
agreement.
12
Currently, the Company's case is on hold at the NLRB's Memphis Regional
Office pending the culmination of the aforementioned sale of the Company. Should
the transaction not be completed, the Company intends to vigorously appeal the
Administrative Law Judge's decision to the NLRB and, if necessary, the United
States Court of Appeals. The Company and its Parent would also begin good faith
bargaining with the Union and the Company believes it could reach an agreement
resolving these matters that would not include a monetary settlement or payment
of back pay. It is reasonably possible, but not probable, that the resolution of
this matter could have a material adverse impact on the Company's financial
position and results of operations. Management believes it has an adequate
defense in this matter. No amounts have been accrued for this matter.
The Company is subject to numerous federal, state and local environmental
laws and regulations. The Company is currently involved in the assessment and
remediation of various sites, some owned by the Company and some by third
parties. Environmental expenditures that relate to an existing condition caused
by past operations and which have no significant future economic benefit to the
Company are expensed. Future environmental-related expenditures cannot be
reliably estimated in many circumstances due to the early stages of
investigations, the uncertainty of specific remediation methods, changing
environmental laws and interpretations and other matters. Such costs are accrued
at the time the expenditure becomes probable and the costs can be reasonably
estimated. Costs are accrued based upon amounts estimated by management. In
situations, where a range of costs to be incurred is determined, and no amount
in the range is more likely than another, the lower amount of the range is
recorded.
A portion of the Company's property has been designated as a superfund site
and will require remediation. The Company proposed a plan of remediation to the
U.S. Environmental Protection Agency ("EPA") for the Company's entire site,
which includes areas not designated as a superfund site. In July 2000, the EPA
issued a final record of decision ("ROD"), approving the Company's proposed
plan. The ROD is subject to approval through a consent order issued by the
Department of Justice, at which time the Company may commence implementation of
the plan. The Company believes that the Department of Justice will approve the
final ROD in its current form.
The Company had approximately $8,770 and $9,204 accrued for all such
matters at December 31, 2000 and 1999, respectively. The Company recorded
environmental remediation expense of $641, $6,390, and $1,036 for 2000, 1999,
and 1998, respectively. It is possible that costs in excess of amounts accrued
will be incurred, and such additional amounts may have a material effect on the
Company's financial position and results of operations, although a reasonable
estimate of such amounts cannot currently be made.
Further, certain claims and lawsuits relating to a variety of other issues
involving the Company are pending. The amounts asserted in some of these cases
are material to the Company's financial statements, and certain claimants have
not yet asserted an amount. Because of the early stages of discovery in these
matters, management considers them to be reasonably possible, but not probable,
loss contingencies. While any litigation contains an element of uncertainty,
management presently believes it has adequate defenses against such actions. No
amounts have been accrued for such matters.
13
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents the Company's unaudited pro forma consolidated
balance sheet as of December 31, 2000 and unaudited pro forma income statement
for the year ended December 31, 2000. The unaudited pro forma consolidated
financial data presented below has been derived from the historical financial
statements of the Company, Xstrata Aluminum Corporation (from which the Company
purchased its additional interest in the Mt. Holly, South Carolina, reduction
facility), a wholly-owned subsidiary of Xstrata AG, and NSA. The unaudited pro
forma consolidated financial data has been prepared for illustrative purposes
only and does not purport to represent what the Company'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 the Company's
results of operations or financial condition as of any date or for any future
period. Among other things, the unaudited pro forma financial data does not
reflect the effects of:
o certain administrative costs of NSA reflected in its historical
financial statements that were allocated from Southwire Company,
including significant expense allocations for employee-related costs,
as a result of which the actual administrative costs incurred by the
Company for the Hawesville Facility following the NSA acquisition may
be materially different;
o changes to labor costs that might occur as a result of the collective
bargaining agreement the Company negotiated with the USWA which covers
all hourly employees at the Hawesville Facility and became effective
following the NSA acquisition; or
o the differences, if any, between the effects the Company's hedging
activities will have on the Company's results of operations following
the acquisition compared to the hedging activities of Southwire
Company during its ownership of the Hawesville Facility.
The unaudited pro forma consolidated income statement for the year ended
December 31, 2000 gives pro forma effect to the following events, as if they
were consummated on January 1, 2000:
o the Company's acquisition in April 2000 of an additional 23% ownership
interest in the Mt. Holly facility;
o the NSA acquisition, which was completed concurrently with the closing
of the offering of $325 million in aggregate principal amount of the
Company's 11-3/4% Senior Secured First Mortgage Notes (the "Notes"),
together with the related aluminum supply contract between the Company
and Southwire Company and the sale of a 20% interest in the Hawesville
Facility to Glencore AG ("Glencore");
14
o the financing transactions related to the NSA acquisition, including
(1) the issuance of the Notes, (2) the borrowings under the Company's
revolving credit facility and (3) the sale of the Company's
convertible preferred stock to Glencore; and
o other adjustments that management believes are directly related to the
NSA acquisition and are factually supportable.
The unaudited pro forma consolidated balance sheet as of December 31, 2000 gives
effect to the NSA acquisition and related transactions as if they were
consummated as of the balance sheet date.
The NSA acquisition will be accounted for under the purchase method of
accounting. Under purchase accounting, the purchase price will be allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed
based on their respective fair values. The allocation of the purchase price and
useful lives assigned to assets acquired and other adjustments made in the
unaudited pro forma consolidated financial data are based upon available
information and certain assumptions that the Company believes are reasonable
under the circumstances. Consequently, the final amounts allocated and the
related useful lives could differ from those reflected in the unaudited pro
forma consolidated financial data.
The unaudited pro forma consolidated financial data should be read in
conjunction with the separate historical financial statements of NSA included in
this 8-K/A and the historical consolidated financial statements of Century
Aluminum Company and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's filing on Form
10-K for the year ended December 31, 2000.
15
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 2000
(Dollars in thousands)
Historical Pro Forma Adjustments
---------- ---------------------
Century Sale to Glencore
Aluminum Acquisition of NSA of 20% interest Pro Forma
Consolidated NSA and financing in NSA Consolidated
------------ --- ------------------ ----------------- -----------
ASSETS
Cash and cash equivalents ...................... $ 32,962 $ 26 $ 336,917 (1) $ 100,479 (2) $ 988
(469,396)(3)
Accounts receivable, net ....................... 31,119 21,858 280 (3) -- 61,333
8,076 (4)
Inventory ...................................... 44,081 36,946 6,762 (3) -- 87,789
Due from affiliates ............................ 15,672 8,076 (8,076)(4) -- 15,672
Prepaid and other current assets ............... 9,487 145 (55)(3) -- 9,577
--------- --------- --------- --------- ---------
Current assets ................................. 133,321 67,051 (125,492) 100,479 175,359
Property, plant and equipment, net ............. 184,526 161,292 144,502 (3) (63,465)(2) 426,855
Capitalized financing fees ..................... -- -- 14,000 (1) -- 14,000
Intangible assets .............................. -- -- 163,684 (3) -- 163,684
Other assets ................................... 15,923 102 (43)(3) (12)(2) 15,970
--------- --------- --------- --------- ---------
Total assets ............................... $ 333,770 $ 228,445 $ 196,651 $ 37,002 $ 795,868
========= ========= ========= ========= =========
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities ....... $ 52,635 $ 38,334 $ (6,954)(3) $ -- $ 84,015
Due to affiliates .............................. 3,985 -- -- 8,531 (2) 12,516
Industrial revenue bonds ....................... -- 7,815 -- (1,563)(2) 6,252
Current portion of deferred taxes .............. -- -- 2,637 (3) -- 2,637
--------- --------- --------- --------- ---------
Current liabilities ............................ 56,620 46,149 (4,317) 6,968 105,420
Long-term debt ................................. -- -- 325,917 (1) -- 325,917
Accrued pension benefits
costs (excluding current portion) ............ 3,656 -- -- -- 3,656
Accrued postretirement
benefits costs (excluding current portion) ... 42,170 7,352 6,164 (3) (2,703)(2) 52,983
Deferred taxes (excluding current portion) ..... 22,125 -- 18,831 (3) -- 40,956
Other noncurrent liabilities ................... 6,560 -- -- -- 6,560
--------- --------- --------- --------- ---------
Total liabilities .......................... 131,131 53,501 346,595 4,265 535,492
Minority interest in limited
liability company ............................ -- -- -- 32,737 (2) 32,737
Shareholders' equity:
Convertible preferred stock .................... -- -- 25,000 (1) -- 25,000
Common stock ................................... 203 -- -- -- 203
Additional paid-in capital ..................... 166,184 -- -- -- 166,184
Retained earnings .............................. 36,252 310,983 (310,983)(3) -- 36,252
Advances to parent ............................. -- (136,039) 136,039 (3) -- --
--------- --------- --------- --------- ---------
Total shareholders' equity ..................... 202,639 174,944 (149,944) -- 227,639
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ..... $ 333,770 $ 228,445 $ 196,651 $ 37,002 $ 795,868
========= ========= ========= ========= =========
See accompanying notes to the unaudited pro forma consolidated balance sheet.
16
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
1. Records the proceeds and related obligations, net of capitalized
financing costs, from the sale of the notes, borrowings under the revolving
credit facility, and the sale of convertible preferred stock. Financing costs
will be amortized straight line over the life of the related debt. Proceeds from
the sale of the notes, borrowings under the revolving credit facility, and the
sale of convertible preferred stock are summarized as follows:
Long-term debt:
Revolving credit facility ................................................ $ 4,745
Senior secured first mortgage notes, net of discount of $3.8 million ..... 321,172
---------
Total increase in debt ................................................. 325,917
---------
Convertible preferred stock .............................................. 25,000
---------
Total increase in shareholders' equity ................................. 25,000
---------
Total proceeds ............................................................... 350,917
Capitalized financing costs .................................................. (14,000)
---------
Net proceeds ................................................................. $ 336,917
=========
2. Reflects the cash proceeds and allocation of the proceeds from the sale
of the fifth potline, a 20% interest in the limited liability company that will
hold the power contract and a 20% undivided interest in the remaining net assets
of NSA (excluding the original four potlines, which will be 100% owned by
Century Aluminum) to Glencore. Selling price is subject to adjustment as a
result of changes in selected working capital accounts and to an additional
payment of up to $1,400 as provided for in the agreement.
Selling price .............................................................. $ 99,000
Estimate for working capital adjustment .................................... 479
Commissions, fees and expenses ............................................. 1,000
--------
Total selling price ........................................................ $100,479
========
Preliminary allocation of net assets sold:
Property, plant and equipment and other noncurrent assets .................. $ 63,477
Minority interest in limited liability operating company ................... 32,737
Liabilities ................................................................ 4,265
--------
Net assets sold ............................................................ $100,479
========
17
3. Reflects the cash payment and allocation of the estimated aggregate
purchase price for NSA, including the estimated transaction fees and expenses
(subject to adjustment as a result of changes in selected working capital
accounts and to an additional payment not to exceed $7.0 million as provided for
in the agreement). The purchase price allocation to property, plant and
equipment will be amortized over the estimated useful lives of the assets
ranging from 5 to 30 years. The intangible asset, consisting of the fair market
value of the power contract acquired in connection with the NSA acquisition,
will be amortized over its term (ten years) using a systematic method that is
reflective of the underlying value of the asset.
Purchase price:
Purchase price ..................................... $ 460,000
Estimate for working capital adjustment ............ 2,396
Commissions, fees and expenses ..................... 7,000
---------
Total purchase price ............................... $ 469,396
=========
Preliminary allocation of purchase price:
Total current assets ............................... $ 74,038
Property, plant and equipment ...................... 305,794
Intangible and other noncurrent assets ............. 163,743
Liabilities assumed ................................ (52,711)
Deferred taxes (including current portion) ......... (21,468)
---------
Total purchase price ............................... $ 469,396
=========
4. Reflects the adjustment to reclassify receivables from Southwire from
related party to third party.
18
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
Year Ended December 31, 2000
(Dollars in thousands, except per share data)
Pro Forma
Acquisition of Century Historical
Additional Aluminum and NSA
Interest Additional as
Century in Mt. Holly Pro Forma Mt. Holly adjusted Pro Forma Pro Forma
Aluminum Facility(1) Adjustments Interest (2) Adjustments Consolidated
-------- ----------------------- -------- --- ----------- ------------
Net sales, third parties .................. $299,277 $ -- $ -- $299,277 $142,078 $ (586)(3) $619,499
178,730 (4)
Net sales, related parties ................ 129,320 18,081 -- 147,401 185,811 (178,730)(4) 154,482
-------- -------- -------- -------- -------- -------- --------
Total net sales ........................... 428,597 18,081 -- 446,678 327,889 (586) 773,981
Cost of good sold ......................... 396,139 16,940 185 (5) 413,634 254,964 1,473 (6) 695,022
-- -- 370 (7) -- -- 24,951 (8)
-------- -------- -------- -------- -------- -------- --------
Gross profit (loss) ....................... 32,458 1,141 (555) 33,044 72,925 (27,010) 78,959
Selling, general and
administrative expenses ................. 13,931 -- -- 13,931 12,199 (539)(9) 25,591
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) ................... 18,527 1,141 (555) 19,113 60,726 (26,471) 53,368
Gain on sale of rolling and
fabrication businesses .................. 5,156 -- -- 5,156 -- -- 5,156
Interest income (expense), net ............ 2,267 (1,475) 121 (10) 913 3,711 (46,615)(11) (41,991)
Other income (expense), net ............... 6,461 (108) -- 6,353 1,052 -- 7,405
Net gain on forward contracts ............. 4,195 -- -- 4,195 -- -- 4,195
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ................ 36,606 (442) (434) 35,730 65,489 (73,086) 28,133
Income tax (expense) benefit .............. (11,301) (15) 165 (12) (11,151) -- 27,571 (13) (9,121)
(25,541)(14)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before minority
interest ................................ 25,305 (457) (269) 24,579 65,489 (71,056) 19,012
Minority interest, net of tax ............. -- -- -- -- -- 3,044 (15) 3,044
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ......................... $ 25,305 $ (457) $ (269) $ 24,579 $ 65,489 $(68,012) $ 22,056
======== ======== ======== ======== ======== ======== ========
Preferred dividends ....................... -- -- -- -- -- (2,000)(16) (2,000)
-------- -------- -------- -------- -------- -------- --------
Earnings available to common
shareholders ............................ $ 25,305 $ (457) $ (269) $ 24,579 $ 65,489 $(70,012) $ 20,056
======== ======== ======== ======== ======== ======== ========
Earnings per common share:
Basic .................................. $ 1.25 $ 1.21 $ 0.99
Diluted ................................ $ 1.24 $ 1.20 $ 0.98
Weighted average common shares outstanding:
Basic .................................. 20,308 20,308 20,308
Diluted ................................ 20,478 20,478 20,478
See accompanying notes to the unaudited pro forma consolidated income statement.
19
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
(Dollars in thousands)
1. Reflects the addition of the historical operating results of Xstrata
Aluminum Corporation's 23% interest in the Mt. Holly facility, which was
acquired by Century Aluminum effective April 1, 2000, for the three months ended
March 31, 2000.
2. As a result of the NSA acquisition, the concurrent sale of a 20%
interest in the Hawesville facility to Glencore, and the operating and other
agreements entered into with Glencore related to these transactions, Century
Aluminum will be required to pay 80% of the operating expenses for the facility
and will be entitled to 80% of the aggregate production of the facility. As a
result, this column reflects 80% of the historical amounts reported in the NSA
income statement for the year ended December 31, 2000.
3. Reflects the adjustment to record the estimated effects of Century
Aluminum's interest in the new metal supply agreement between Century Aluminum
and Southwire as if the agreement had been in place as of January 1, 2000.
4. Reflects the adjustment to reclassify net NSA sales to Southwire from
related party to third party and sales to Glencore from third party to related
party.
5. Reflects the adjustment to record the estimated incremental depreciation
expense associated with the purchase accounting write-up of the additional 23%
undivided interest in the property, plant and equipment at the Mt. Holly
facility.
6. Reflects the adjustment to record the estimated effect of the higher
incremental depreciation expense associated with the purchase accounting
write-up to the appraised fair value, based on allocation of the purchase price,
of Century Aluminum's direct and undivided interest in NSA's property, plant and
equipment.
7. Reflects the adjustment to cost of sales associated with the incremental
effects of the new last-in, first-out (LIFO) base year values established in
accordance with the purchase method of accounting.
8. Reflects the adjustment to record the estimated amortization expense
associated with the purchase accounting write-up of NSA's intangible assets,
consisting of the fair market value of the power contract acquired in connection
with the NSA acquisition, which will be held by the limited liability company.
The contract value will be amortized over its term (ten years) using a
systematic method that is reflective of the underlying value of the contract.
Pro forma amortization expense is estimated to be $25.0 in the first year of the
contract, $25.0 million in the second year, $18.7 million in the third year,
$11.8 million in the fourth year, $13.9 million in the fifth year, and $12.3
million in the sixth year.
9. Reflects the adjustment to record management fees paid to Century
Aluminum under the new owners agreement with Glencore.
20
10. Reflects the pro forma interest expense adjustments to:
a) eliminate the historical interest expense associated with the
additional 23% interest in the Mt. Holly facility acquired as the
indebtedness was not assumed in the purchase, and
b) eliminate the interest income for the year ended December 31, 2000
giving effect to the use of available cash for the acquisition of the
additional 23% interest in the Mt. Holly facility.
Year Ended
December 31, 2000
-----------------
Elimination of historical interest income at Century Aluminum ............. $(1,213)
Elimination of historical interest income at the Mt. Holly facility ....... 1,475
Additional interest costs related to revolving credit facility ............ (141)
-------
Decrease in interest expense .............................................. $ 121
=======
11. Interest expense adjustments to arrive at pro forma NSA include the
following:
Year Ended
December 31, 2000
-----------------
Additional interest costs related to:
Elimination of historical interest income at Century Aluminum ............. $ 1,054
Elimination of historical interest income at NSA .......................... 3,989
Revolving credit facility, including commitment fees ...................... 837
Senior secured first mortgage notes ....................................... 38,188
Amortization of discount on notes ......................................... 547
Amortization of deferred financing costs .................................. 2,000
-------
Increase in interest expense .............................................. $46,615
=======
The interest expense on borrowings under the revolving credit facility was
determined based on the amount borrowed of $4.7 million as if it were
outstanding during the fiscal year ended December 31, 2000. Interest costs
associated with estimated borrowings under the revolving credit facility were
calculated based on an average interest rate of 7.61% for the fiscal year ended
December 31, 2000 (computed based on LIBOR + 2.75%). A hypothetical 12.5 basis
point change in the relevant interest rate for the revolving credit facility
would have changed our annual interest expense by $0.01 million, assuming no
debt reduction.
12. Reflects an adjustment to record income tax benefit for the effects of
the pro forma adjustments for the purchase of the additional interest in the Mt.
Holly facility using a 38% effective tax rate.
13. Reflects an adjustment to record income tax benefit for the effects of
the pro forma adjustments using an effective tax rate of 38%.
14. Reflects an adjustment to record income tax expense for Century
Aluminum's interest in the historical operating results of NSA, using an
effective tax rate of 39%, as it will be a taxable entity as opposed to a
partnership with no tax provision.
21
15. Reflects an adjustment to record the minority interest allocation of
the amortization associated with the intangible asset held by the limited
liability company.
16. Reflects an adjustment to record preferred dividends on the convertible
preferred stock, which will be issued upon closing of the transaction. Preferred
dividends are calculated using the stated rate of 8.0%.
22
(c) Exhibits.
The following exhibit is filed with this report on Form 8-K:
Exhibit Number Description
- -------------- -----------
99.1 Consent of Ernst & Young, LLP
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: May 11, 2001 By: /s/ Gerald J. Kitchen
---------------- ---------------------------------
Name: Gerald J. Kitchen
Title: Executive Vice President, General
Counsel and Secretary
24
Exhibit Index
EXHIBIT DESCRIPTION
99.1 Consent of Ernst & Young, LLP