Business Context and Reporting Period
Company: Century Aluminum Company (Century)
Filing Type: Form 8-K (Current Report)
Date of Report: March 16, 2004
Event: Century announced an agreement to acquire Nordural hf, an Icelandic primary aluminum producer, from Columbia Ventures Corporation (CVC). The Nordural plant has a current capacity of 90,000 metric tons per year (mtpy) with a planned expansion to 180,000 mtpy by 2006.
Key Financial Metrics and Transaction Terms
Acquisition Structure and Pricing
- Initial Stake: Century will acquire 49.9% of Nordural for $75 million.
- Full Acquisition: Century anticipates increasing ownership to 100% subject to conditions expected to be met by March 31, 2004. The total purchase price for 100% is $150 million.
- Contingent Payment: An additional $25 million is payable to CVC upon the commencement of the plant expansion.
- Debt Assumption: Nordural carries long-term debt (including current portion) of approximately $190 million.
- Financing: Century intends to fund the acquisition through a registered equity offering.
- Closing Date: Expected by May 31, 2004.
Nordural hf Historical Performance (Audited, Icelandic GAAP)
| Metric (in thousands) | 2001 | 2002 | 2003 |
|---|---|---|---|
| Net Sales | $85,680 | $97,006 | $100,939 |
| Gross Profit | $37,243 | $37,164 | $34,319 |
| Net Profit | $10,309 | $10,624 | $13,153 |
| Cash from Operations | $26,476 | $16,445 | $15,108 |
| Total Debt (Long-term + Current) | N/A | $161,590 | $195,016 |
Note: Nordural's financial statements are prepared under Icelandic GAAP. Adjustments to U.S. GAAP are detailed in the filing notes.
Pro Forma Impact (100% Acquisition)
Based on unaudited pro forma data for the year ended December 31, 2003:
- Pro Forma Net Income: $15.2 million (compared to Century's standalone loss of $1.0 million).
- Pro Forma EPS (Diluted): $0.48.
- Pro Forma Total Assets: $1.176 billion.
- Pro Forma Total Liabilities: $823 million (including assumed debt).
Material Changes and Outlook
Strategic Expansion: The acquisition doubles Century's primary aluminum production capacity upon the completion of Nordural's expansion to 180,000 mtpy by 2006. The transaction is expected to significantly alter Century's financial profile, turning a reported net loss into a net profit on a pro forma basis.
Accounting Adjustments: The filing highlights significant differences between Icelandic and U.S. GAAP, particularly regarding deferred income taxes, capital leases, and the treatment of derivative financial instruments. Under U.S. GAAP, Nordural's 2003 net income would be approximately $12.96 million compared to $13.15 million under Icelandic GAAP.
Forward-Looking Statements: Century cautions that actual results may differ materially from projections due to risks including the successful completion of the equity offering, satisfaction of closing conditions, and fluctuations in aluminum prices.
Investor Verification Checklist
- Equity Offering Status: Verify the successful completion of the registered equity offering required to finance the $150 million purchase price.
- Closing Conditions: Monitor the satisfaction of customary closing conditions and the specific conditions required to increase ownership from 49.9% to 100% by March 31, 2004.
- Debt Covenants: Review Nordural's credit facility terms, specifically the provisions regarding aluminum price floors and debt coverage ratios that could trigger payment deferrals or acceleration.
- Expansion Timeline: Confirm the commencement of the expansion project to trigger the $25 million contingent payment and achieve the 180,000 mtpy capacity target.
- GAAP Reconciliation: Analyze the final U.S. GAAP reconciliation of Nordural's financials, as the pro forma data relies on preliminary fair value allocations.