S-4/A 1 ds4a.htm AMENDMENT NO. 3 TO FORM S-4 Amendment No. 3 to Form S-4
Table of Contents

As filed with the Securities and Exchange Commission on May 9, 2008

Registration No. 333-148977

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Amendment No. 3

to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NORANDA ALUMINUM HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   3334   20-8908550
(State or other jurisdiction of Incorporation)   (Primary Industrial Classification Code Number)   (I.R.S. Employer Identification Number)

NORANDA ALUMINUM ACQUISITION CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   3334   20-8908458
(State or other jurisdiction of Incorporation)   (Primary Industrial Classification Code Number)   (I.R.S. Employer Identification Number)

801 Crescent Centre Drive, Suite 600

Franklin, TN 37067

(615) 771-5700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Alan Brown, Esq.

Secretary and General Counsel

801 Crescent Centre Drive, Suite 600

Franklin, TN 37067

(615) 771-5700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

SEE TABLE OF ADDITIONAL REGISTRANT GUARANTORS

Copy to:

Andrew J. Nussbaum, Esq.

Wachtell, Lipton, Rosen & Katz

51 W. 52nd Street

New York, NY 10019

(212) 403-1000

Approximate date of commencement of proposed exchange offer:  As promptly as practicable after the effective date of this registration statement.

If the securities being registered on this Form are offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

 

 
Title of Each Class of
Securities to be Registered
   Amount
to be
Registered
   Proposed Maximum
Offering Price
per Note(1)
   Proposed Maximum
Aggregate Offering
Price(1)
   Amount of
Registration
Fee(1)

Senior Floating Rate Notes due 2015 issued by Noranda Aluminum Acquisition Corporation(2)

   $740,000,000    100%    $740,000,000    $29,090

Guarantees of the Senior Floating Rate Notes due 2015 issued by Noranda Aluminum Acquisition Corporation(3)

   $740,000,000    n/a    n/a    (4)

Senior Floating Rate Notes due 2014 issued by Noranda Aluminum Holding Corporation(5)

   $385,000,000    100%    $385,000,000    $15,135
 
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f)(2) promulgated under the Securities Act of 1933 at a rate equal to $39.30 per $1,000,000 of the proposed maximum aggregate offering price. Previously paid.
(2) Includes $230,000,000 principal amount of such notes which may be issued, at the option of the Registrant, in lieu of cash interest payments thereon. Such additional principal amount constitutes the Registrants’ reasonable good faith estimate of the amount of such notes which may be paid as interest in lieu of cash.
(3) The entities listed on the Table of Additional Registrant Guarantors on the following page have guaranteed the Senior Floating Rate Notes due 2015 being registered hereby.
(4) Pursuant to Rule 457(n) under the Securities Act, no additional registration fee is due for guarantees.
(5) Includes $165,000,000 principal amount of such notes which may be issued, at the option of the Registrant, in lieu of cash interest payments thereon. Such additional principal amount constitutes the Registrants’ reasonable good faith estimate of the amount of such notes which may be paid as interest in lieu of cash.

 

The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.

 

 

 


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Table of Additional Registrant Guarantors

 

Exact Name

  

Jurisdiction of
Organization

   Primary
Standard
Industrial
Classification
Code Number
   I.R.S.
Employer
Identification
No.
  

Name, Address and Telephone
Number of Principal
Executive Offices

Noranda Intermediate Holding Corporation    Delaware    3334    34-1453238    801 Crescent Centre Drive,
Suite 600 Franklin, TN 37067
(615) 771-5700
Noranda Aluminum, Inc.    Delaware    3334    36-2665285    801 Crescent Centre Drive,
Suite 600 Franklin, TN 37067
(615) 771-5700
Gramercy Alumina Holdings Inc.    Delaware    3334    20-0991941    801 Crescent Centre Drive, Suite 600 Franklin, TN 37067
(615) 771-5700
Norandal USA, Inc.    Delaware    3350    31-0946477    801 Crescent Centre Drive,
Suite 600 Franklin, TN 37067
(615) 771-5700


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The information in this prospectus is not complete and may be changed. We may not sell these securities or accept any offer to buy these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated May 9, 2008.

PROSPECTUS

LOGO

Noranda Aluminum Holding Corporation

Noranda Aluminum Acquisition Corporation

EXCHANGE OFFER FOR

Senior Floating Rate Notes Due 2015 issued by

Noranda Aluminum Acquisition Corporation

($510,000,000 principal amount outstanding)

Senior Floating Rate Notes Due 2014 issued by

Noranda Aluminum Holding Corporation

($220,000,000 principal amount outstanding)

 

 

We are offering, upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal, to exchange up to $510,000,000 aggregate principal amount of our Senior Floating Rate Notes Due 2015 and up to $220,000,000 aggregate principal amount of our Senior Floating Rate Notes Due 2014 that are registered under the Securities Act of 1933, which we refer to as the “exchange notes,” for an equal principal amount of our outstanding Senior Floating Rate Notes Due 2015 and Senior Floating Rate Notes Due 2014, which we refer to as the “old notes.” We refer to the old notes and the exchange notes collectively in this prospectus as the “notes.” The terms of the exchange notes are identical in all material respects (including principal amount, interest rate, maturity and redemption rights) to the old notes for which they may be exchanged, except that the exchange notes generally will not be subject to transfer restrictions or be entitled to registration rights and the exchange notes will not have the right to earn additional interest under circumstances relating to our registration obligations. The exchange notes will be issued under the same indentures as the old notes. The registered Senior Floating Rate Notes Due 2015 will be fully and unconditionally guaranteed on a senior unsecured basis by Noranda Aluminum Holding Corporation and certain of our domestic subsidiaries.

The exchange offer expires at 11:59 pm, New York City time,

on                     , 2008, unless extended.

Terms of the Exchange Offer

 

  ·  

We will exchange all old notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer.

 

  ·  

You may withdraw tendered old notes at any time prior to the expiration of the exchange offer.

 

  ·  

You are required to make the representations described on page 38.

 

  ·  

We will not receive any cash proceeds from the exchange offer.

 

  ·  

The exchange of old notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes.

 

  ·  

There is no existing market for the exchange notes to be issued, and we do not intend to apply for listing or quotation on any securities exchange or market.

See “ Risk Factors” beginning on page 21 of this prospectus for a discussion of factors you should consider before participating in this exchange offer.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

 

The date of this prospectus is                     , 2008


Table of Contents

TABLE OF CONTENTS

 

     Page

WHERE YOU CAN FIND MORE INFORMATION

   ii

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

   iii

INDUSTRY AND MARKET DATA

   iv

SUMMARY

   1

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA

   17

RISK FACTORS

   21

THE EXCHANGE OFFER

   37

THE TRANSACTIONS

   46

USE OF PROCEEDS

   48

CAPITALIZATION

   49

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

   50

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

   53

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   56

BUSINESS

   75

MANAGEMENT

   89

EXECUTIVE COMPENSATION

   93

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   109

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

   111

DESCRIPTION OF CERTAIN INDEBTEDNESS

   112

DESCRIPTION OF THE ACQUISITIONCO NOTES

   114

DESCRIPTION OF THE HOLDCO NOTES

   172

BOOK-ENTRY SETTLEMENT AND CLEARANCE

   230

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

   232

PLAN OF DISTRIBUTION

   233

LEGAL MATTERS

   234

EXPERTS

   234

INDEX TO FINANCIAL STATEMENTS

   F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state or other jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus.

Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The accompanying letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”


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WHERE YOU CAN FIND MORE INFORMATION

We have filed with the United States Securities and Exchange Commission, or the “SEC,” a registration statement on Form S-4 under the Securities Act relating to the exchange offer that includes important business and financial information about us that is not included in or delivered with this prospectus. If we have made references in this prospectus to any contracts, agreements or other documents and also filed any of those contracts, agreements or other documents as exhibits to the registration statement, you should read the relevant exhibit for a more complete understanding of the document or the matter involved.

After the registration statement becomes effective, we will file annual, quarterly and current reports and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov.

You may obtain copies of the information and documents incorporated by reference in this prospectus at no charge by writing or telephoning us at the following address or telephone number:

Noranda Aluminum Holding Corporation

801 Crescent Centre Drive, Suite 600

Franklin, TN 37067

Attention: Investor Relations

(615) 771-5700

We also maintain an Internet site at http://www.norandaaluminum.com. We will, as soon as reasonably practicable after the electronic filing of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports if applicable, make available such reports free of charge on our website. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or registration statement of which this prospectus forms a part, and you should not rely on any such information in making your decision whether to exchange our securities.

To obtain timely delivery of any of our filings, agreements or other documents, you must make your request to us no later than                     , 2008. In the event that we extend the exchange offer, you must submit your request at least five business days before the expiration date of the exchange offer, as extended. We may extend the exchange offer in our sole discretion. See “The Exchange Offer” for more detailed information.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this prospectus.

Important factors that could cause actual results to differ materially from our expectations, which we refer to as cautionary statements, are disclosed under “Risk Factors” and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All forward-looking information in this prospectus and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include:

 

  ·  

our substantial indebtedness described in this prospectus, and the possibility that we may incur more indebtedness;

 

  ·  

restrictive covenants in our indebtedness that may adversely affect our operational flexibility;

 

  ·  

repayment of our debt is dependent on cash flow generated by our subsidiaries;

 

  ·  

the cyclical nature of the aluminum industry and fluctuating commodity prices, which cause variability in our earnings and cash flows;

 

  ·  

a downturn in general economic conditions, including changes in interest rates, as well as a downturn in the end-use markets for certain of our products;

 

  ·  

losses caused by disruptions in the supply of electrical power;

 

  ·  

fluctuations in the relative cost of certain raw materials and energy compared to the price of primary aluminum and aluminum rolled products;

 

  ·  

the effectiveness of our hedging strategies in reducing the variability of our cash flows;

 

  ·  

unexpected issues arising in connection with our joint ventures;

 

  ·  

the effects of competition in our business lines;

 

  ·  

the relative appeal of aluminum compared with alternative materials;

 

  ·  

our ability to retain customers, a substantial number of which do not have long-term contractual arrangements with us;

 

  ·  

our ability to fulfill our business’s substantial capital investment needs;

 

  ·  

the cost of compliance with and liabilities under environmental, safety, production and product regulations;

 

  ·  

natural disasters;

 

  ·  

labor relations (i.e., disruptions, strikes or work stoppages) and labor costs;

 

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  ·  

unexpected issues arising in connection with our operations outside of the United States;

 

  ·  

our ability to retain key management personnel;

 

  ·  

our expectations with respect to our acquisition activity, or difficulties encountered in connection with acquisitions, dispositions or similar transactions;

 

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the ability of our insurance to cover fully our potential exposures; and

 

  ·  

our lack of history as an independent company or financial statements that reflect operation as an independent company.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this prospectus may not in fact occur. Accordingly, investors should not place undue reliance on those statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

INDUSTRY AND MARKET DATA

This prospectus includes industry and trade association data, forecasts and information that we have prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.

 

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SUMMARY

This summary highlights certain information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. For a more complete understanding of this offering, we encourage you to read the entire prospectus, including the consolidated financial statements and the related notes and the section entitled “Risk Factors,” included elsewhere in this prospectus. In addition, this prospectus includes forward-looking information that involves risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.”

Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to (a) “Noranda HoldCo” refer only to Noranda Aluminum Holding Corporation, which was formerly named Music City Holding Corporation, excluding its subsidiaries, (b) “Noranda AcquisitionCo” refer only to Noranda Aluminum Acquisition Corporation, which was formerly named Music City Acquisition Corporation, excluding its subsidiaries, (c) “Noranda,” the “company,” “we,” “our,” and “us” refer collectively to (1) Noranda Aluminum, Inc. and its subsidiaries on a consolidated basis prior to the consummation of the Apollo Acquisition described below and (2) Noranda HoldCo, Noranda AcquisitionCo, Noranda Intermediate Holding Corporation and Noranda Aluminum, Inc. and its subsidiaries on a consolidated basis after the completion of the Apollo Acquisition described below, (d) the “AcquisitionCo notes” refer to both the senior floating rate notes due 2015 being offered hereby and our outstanding senior floating rate notes due 2015, both issued by Noranda AcquisitionCo, (e) the “HoldCo notes” refer to both the senior floating rate notes due 2014 being offered hereby and our outstanding senior floating rate notes due 2014, both issued by Noranda HoldCo and (f) the “Issuer” refer to Noranda AcquisitionCo with respect to the AcquisitionCo notes and Noranda HoldCo with respect to the HoldCo notes.

The Company

Overview

We are a leading North American integrated producer of value-added primary aluminum products as well as high quality rolled aluminum coils. We have two businesses: our primary metals business, or upstream business, which produces approximately 258,000 metric tons of primary aluminum annually and accounts for approximately 10% of total United States primary aluminum production, and our rolling mills, or downstream business, which is one of the largest foil producers in North America and a leading North American producer of foil and light gauge sheet products. The upstream business produces value-added aluminum products in the form of billet, used mainly for building construction, architectural and transportation applications; rod, used mainly for electrical applications and steel de-oxidation; value-added sow, used mainly for aerospace; and foundry, used mainly for transportation. In addition to these value-added products, which account for approximately 85% of our primary metal output, the remaining 15% is produced in the form of commodity grade sow, the majority of which is used in our rolling mills. Our downstream business consists of four rolling mill facilities, our largest of which is a state-of-the-art facility, which contributes to our being a low cost domestic producer. Our two major foil products are finstock, used mainly for the air conditioning, ventilation and heating industry, which we refer to as HVAC finstock, and container stock, used mainly for food packaging, pie pans and convenience food containers. For the year ended December 31, 2007, we generated revenue of $1.40 billion.

Our upstream business is fully integrated from bauxite to alumina to primary aluminum metal, ensuring a secure raw material supply at a long-term competitive cost. Our primary aluminum smelter, in New Madrid, Missouri, which we refer to throughout this prospectus as New Madrid, has a long-term contract for the secure supply of electricity that we believe is competitively priced. The smelter receives substantially all of its alumina requirements at cost plus freight from Gramercy Alumina LLC, or Gramercy, our 50% owned joint venture with Century Aluminum Company, or Century. St. Ann Bauxite Limited, or St. Ann, our other 50% owned joint venture, also with Century, supplies bauxite to Gramercy. We believe that this combination of captive, cost-efficient raw material and secure power gives our upstream business a competitive advantage over many other

 

 

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domestic aluminum producers. Approximately 80% of our smelter’s value-added products are sold at the prior month’s Midwest Transaction Price, or MWTP, plus a fabrication premium. The MWTP consists of a base price for high-grade aluminum set on the London Metal Exchange, which we refer to as the LME and such price as the LME price, plus a Midwest premium charged due to both the cost to transport aluminum from LME warehouses to the Midwest United States and supply and demand dynamics. Our downstream business, in addition to having an attractive cost structure, prices its products using a combination of market-based aluminum prices plus a negotiated fabrication price.

We have implemented a hedging strategy to reduce our exposure to aluminum price risk and earnings volatility in the upstream business. We have hedged approximately 50% of our expected cumulative primary aluminum shipments through December 2012. Specifically, we have entered into fixed price forward aluminum swaps with respect to a portion of our expected shipments through 2012 at prices that we consider attractive relative to historical levels and which we believe will help ensure positive cash flows based on our expected cost structure. These hedges should increase visibility into our revenue and EBITDA levels going forward. We may increase or amend our hedging strategy based on our view in the future of actual and anticipated aluminum prices.

Industry Overview

Upstream

Primary aluminum is produced and consumed worldwide and its metallurgical properties and environmentally friendly attributes, such as its light weight and ability to be recycled, make it a highly desirable metal. Primary aluminum is currently experiencing strong price trends based on healthy global demand and structural increases in the cost to produce aluminum. Daily LME settlement prices averaged $1.20 per pound for the year ended December 31, 2007 and currently remain above their five-year and ten-year averages. We believe the supply and demand outlook for aluminum supports sustainable, higher LME prices than historical averages due to the following trends:

 

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strong global demand driven by economic growth and increased demand from emerging markets, especially China;

 

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an increase on a global basis in the cost and scarcity of power, which is a significant input cost in the production of primary aluminum;

 

  ·  

substitution away from other metals (e.g., steel and copper) to aluminum due to aluminum’s strength-to-weight and value-to-weight ratios and relative price compared to other metals; and

 

  ·  

weaker U.S. dollar relative to historical periods.

According to Brook Hunt, a leading international mining and metals consulting firm, the global production of aluminum increased by 12.3% to 38.2 million metric tons in 2007. Strong global demand, particularly in China and India, resulted in a tightening of the aluminum supply-demand balance and worldwide stocks ended 2007 at 47 days of consumption, their lowest ever recorded levels. In 2007, North American production increased by 5.4% to 5.6 million metric tons, and the region continues its significant reliance on imports with 6.7 million metric tons of consumption. In 2008, global production is expected to grow by approximately 10% to over 42 million metric tons. Consumption is expected to remain strong, fueled primarily by a 25% growth in China, and worldwide stocks are expected to decrease to 46 days of consumption, reflecting a tight supply-demand balance. Recently, China and South Africa, which account for approximately 35% of global production, have experienced weather and energy related production curtailments that are expected to keep supplies tight in the near term.

 

 

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Downstream

In 2007, shipments from the North American flat rolled product industry totaled 9.8 billion pounds as compared to 10.3 billion pounds in 2006. Our downstream business is a top tier producer in the foil and certain light gauge sheet segments, which two segments collectively accounted for approximately 1.7 billion pounds of demand in North America in 2007.

According to Aluminum Association data and company estimates, demand for the foil and light gauge sheet products we sell experienced a 2.7% trend line growth rate over the 15-year period from 1993–2007. Our most important products (HVAC finstock and container stock) have enjoyed trend line growth rates of 5.6% and 6.8%, respectively, over the same period. Although HVAC finstock demand was favorably impacted by 2005’s federally mandated 30% boost in efficiency standards for residential air conditioners, the 2007 net impact was offset by the downturn in the housing market. A similar regulatory change involving commercial air conditioners will come into effect in 2010. For container stock, demographic shifts favoring convenience food consumption and restaurant dining are expected to maintain the segment’s long term growth trend.

Pricing in the downstream business is generally based on a “pass through” model, which means the price of the end product is equal to the cost of the metal (or LME price) plus a predetermined, negotiated fabrication margin, which is largely unaffected by short-term volatility in the underlying LME price of primary aluminum. Fabrication margins in these segments are generally determined in large part by industry capacity utilization, among several other factors. Capacity utilization has generally been strong since 2004, reflecting tightened supply-demand fundamentals for our products, especially finstock and semi-rigid container stock. However, during 2007 and continuing thus far in 2008, the United States housing market has contracted, resulting in lower industry capacity utilization levels.

Competitive Strengths

We believe that the following strengths allow us to maintain a competitive advantage within the markets in which we operate:

Strategically Located Assets with Attractive Industry Positions. We estimate that our upstream business supplies approximately 10% of the primary aluminum in the United States and has the capacity to produce approximately 18% of the rod and 9% of the primary extrusion billet manufactured in North America. Our upstream facilities are strategically located. The ease of access and close proximity of Gramercy to St. Ann and New Madrid to Gramercy significantly reduce the cost of freight. New Madrid is the closest Midwest smelter to the Gulf Coast, the entry point for approximately 80% of the alumina shipped to the United States, which allows New Madrid to internally source its Gramercy alumina or purchase alumina from third parties at a lower freight cost than other U.S. based smelters. Additionally, New Madrid’s location in the Midwest on the Mississippi River positions it in close proximity to its customers, with approximately 90% of sales volumes falling within a one-day truck delivery distance allowing for lower freight rates and excellent customer service. Also, because domestically produced primary aluminum cannot satisfy local demand and imports require higher freight costs, a basis differential, or Midwest premium, exists for aluminum delivered to the Midwestern United States. In 2007, our monthly average Midwest premium was 3.1 cents per pound above the monthly average of the daily LME settlement price.

Our downstream business is one of the largest foil producers in North America, and is a leading producer of HVAC finstock and container and transformer sheet. Our downstream facilities are also strategically located, as the majority of domestic air conditioners, transformers, semi-rigid containers and foil packaging products are manufactured in the eastern and central part of the United States. As a result of its locations in this area, the downstream business is able to ship approximately 60% of its output within a one-day truck delivery distance.

 

 

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Vertically Integrated Upstream Assets. The upstream business has secured long-term, reliable alumina supply from the Gramercy alumina refinery at a net cost well below recent spot market prices. Additionally, Gramercy has secured long-term reliable bauxite supply from the St. Ann mine at prices below historical and current spot prices.

Secure Supply of Electricity. Power is a significant component of production costs in our primary aluminum business. Our New Madrid smelter has entered into a long-term (through 2020) power supply contract with AmerenUE, ensuring the stable supply of a key component of our cost structure. In addition, unlike many power purchase agreements, our contract is not a take or pay contract, which lowers our risk and provides production flexibility.

Attractive End-Use Segments. We have the ability to produce a variety of end-use aluminum products from our upstream operations in New Madrid. These products include billet, rod, sow, and value-added sow. From an industry perspective, the overall demand for North American upstream billet and rod has steadily increased year over year from 2001 through 2006, due to strong construction and transportation output. In 2007, the demand for extrusion produced from billet and electrical wire decreased by 16%, primarily due to the general economic slowdown, and our sales of this type of product decreased by only 12%. Similarly, the industry also experienced an 8% reduction in cable produced from rod, while our rod sales marginally increased. Overall, in 2007 we achieved record production levels of 255,000 metric tons.

Our downstream foil and sheet sales are concentrated in HVAC finstock and container stock and we expect long-term revenue growth from the sale of these products. A federally mandated increase in the minimum Seasonal Energy Efficiency Rating, or SEER, for residential air conditioners boosted HVAC finstock usage in 2006; however, due to the housing sector slowdown, demand decreased by 13% in 2007. A federally mandated regulatory change involving the efficiency of commercial air conditioners is expected to come into effect in 2010.

High Quality Downstream Assets. Our downstream business’s largest rolling mill, the Huntingdon—West facility, is recognized as the fastest, widest and most modern rolling facility in North America with state-of-the-art technology. This mill has the lowest conversion cost excluding ingot for foil stock production in North America, according to the 2006 edition of “Aluminum Rolling Cost Service” published by CRU, an independent business analysis and consultancy group focused in part on the mining and metals sectors.

Production Flexibility. Our efficient facilities and competitive cost position enable us to produce a variety of products. Therefore, we can shift production among our various end products based on customer demand and forecasted volume, pricing and profitability trends. The casthouse and rod-making facilities at New Madrid are positioned to be very flexible and produce a diversified product mix, allowing us to adapt to changing market conditions. The ability to provide commodity grade or high purity sow, extrusion billet in a vast array of diameters and lengths and continuous cast rod in multiple sizes allows our customers to choose from a wide variety of products. The ability to vary product mix allows us to optimize production and maximize profitability. We also manufacture our own anodes at New Madrid, an integral component in aluminum production, providing a competitive advantage versus other smelters that purchase anodes at market prices.

Experienced Management Team with Solid Track Record. We have a seasoned management team, whose members average more than 22 years of experience in the metals industry. Financial discipline has been a priority of our management team, including control of operating expenses and minimization of balance sheet liabilities, such as pensions and post-employment medical insurance. In March 2008, Layle K. “Kip” Smith joined our business as President and Chief Executive Officer. Mr. Smith has diverse leadership experience, including various management assignments with The Dow Chemical Company and positions as COO of Resolution Performance Products and CEO of Covalence Specialty Materials.

 

 

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Business Strategy

Maximize Cash Flow. Prior to the Apollo Acquisition (as defined below) our business was managed and operated as part of a larger diversified metals and mining company, focused on optimizing its entire portfolio in the context of its own business and financial goals. As a stand-alone business, senior management has implemented a focused strategy to allocate our resources to compete and maximize profitability and cash flow in the aluminum business. We have invested approximately $212.6 million over the past five years to expand and enhance the production of our facilities. As a result of this spending, we expect to enjoy significant productivity enhancements and production growth opportunities. With this enhanced management focus, we intend to manage our working capital, capital expenditures and operational expenditures to generate increased cash flow. We believe that our excess free cash flow will enable us to reduce leverage by repaying our debt obligations and to reinvest in our business, which will include projects to increase capacity at our New Madrid smelter and drive efficiencies in our downstream business.

Focus on Productivity Improvements and Capacity Utilization in Downstream Business. We believe there are significant opportunities to reduce our aluminum costs through judicious development projects that target higher scrap usage in our production without sacrificing end-product quality. Additionally, we believe there are significant opportunities to reduce our manufacturing costs by increasing our focus on Six Sigma-based initiatives, focusing on improved energy utilization and expanding predictive maintenance practices.

Stabilize Upstream Cash Flow. The cash flow of our upstream business is exposed to fluctuations in aluminum prices. In order to reduce commodity price risk and earnings volatility in the upstream business, we have implemented a hedging strategy that establishes the price at which approximately 50% of our expected cumulative primary aluminum shipments will be sold through December 2012. Specifically, we have entered into fixed price forward aluminum swaps with respect to a substantial portion of our expected shipments through 2012 at prices that we consider attractive relative to historical levels and which we believe will help ensure positive cash flows, based on our expected cost structure, regardless of fluctuations in the price of commodity aluminum. While we may terminate these arrangements or alter our hedging strategy at any time, the pricing protection of our current hedges should enable us to maintain relatively stable cash flow in the event of a decline in aluminum prices.

Risk Factors

Investing in our notes involves substantial risk. Our ability to execute our strategy also is subject to certain risks. The risks described under the heading “Risk Factors” immediately following this summary may cause us not to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy, as well as impact our ability to service the notes. You should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.”

The Transactions

On May 18, 2007, Noranda AcquisitionCo acquired the Noranda aluminum business of Xstrata (Schweiz) A.G., or Xstrata, through the acquisition of the stock of a subsidiary of Xstrata. We refer to this acquisition throughout this prospectus as the Apollo Acquisition. Noranda HoldCo and Noranda AcquisitionCo were formed by investment funds affiliated with, or co-investment vehicles managed by, Apollo Management, L.P., including Apollo Investment Fund VI, L.P., which we refer to throughout this prospectus collectively as Apollo, solely for the purpose of completing the Apollo Acquisition.

 

 

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In order to partially finance the Apollo Acquisition, Noranda AcquisitionCo issued the senior floating rate notes due 2015, or the AcquisitionCo notes, and entered into senior secured credit facilities, or the existing senior secured credit facilities, comprised of a term loan and a revolving credit facility. For a more detailed discussion of the existing senior secured credit facilities, see “Description of Certain Indebtedness.” As used in this prospectus, the term Transactions means, collectively, the Apollo Acquisition and the related financings.

In addition, at the time of the Apollo Acquisition, affiliates of Apollo, in exchange for common stock of Noranda HoldCo, contributed cash of $214.2 million to Noranda HoldCo, which was contributed to Noranda AcquisitionCo. The proceeds from the issuance of AcquisitionCo notes, borrowings under the existing senior secured credit facilities and the investment by Apollo were used to pay the purchase price for the Apollo Acquisition. Subsequent to the Apollo Acquisition, on May 29, 2007, certain members of management of Noranda HoldCo contributed an additional $1.9 million in cash to Noranda HoldCo, in exchange for common stock of Noranda HoldCo.

On June 7, 2007, Noranda HoldCo issued $220.0 million in senior floating rate notes due 2014, or the HoldCo notes. Noranda HoldCo used the proceeds for the HoldCo notes, as well as $4.3 million of cash on hand, to pay a $216.1 million net cash distribution to its stockholders, which include Apollo and certain members of its management, to make a cash payment of $4.1 million to its optionholders (as part of an adjustment to preserve the value of the Noranda HoldCo options following the dividend), and to pay for fees and expenses related to the offering of the HoldCo notes. As used in this prospectus, the term Special Dividend means the payments to stockholders and optionholders, along with the related financing. For a more complete description of the Transactions and the Special Dividend, see “The Transactions.”

Prior to December 31, 2005, Xstrata accumulated a 19.9% ownership in Falconbridge Limited, which owned 100% of Noranda Aluminum, Inc. at that time. On August 15, 2006, through a tender offer, Xstrata effectively acquired the remaining 80.1% of the outstanding shares in Falconbridge Limited by which Noranda Aluminum, Inc. became Xstrata’s wholly owned subsidiary. We refer to this acquisition throughout the prospectus as the Xstrata Acquisition.

Use of Proceeds

We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes, we will receive in exchange the old notes in like principal amount, which will be cancelled and as such will not result in any increase in our indebtedness.

Our Principal Stockholder

Apollo Investment Fund VI, L.P., an investment fund with committed capital, along with its co-investment affiliates, of over $11 billion, has been our principal equity sponsor since completing the Apollo Acquisition. Founded in 1990, Apollo is a leading private equity and capital markets investor with more than 16 years of experience investing across the capital structure of leveraged companies. The firm employs more than 175 professionals and has offices in New York, Los Angeles, London, Frankfurt, Paris and Singapore. Since its inception, Apollo has managed more than $41 billion of capital across a wide variety of industries both domestically and internationally.

Companies owned or controlled by Apollo Management, L.P. or in which Apollo Management, L.P. or its affiliates have a significant equity investment include, among others, Rexnord Holdings, Inc., CEVA Logistics, Verso Paper Holdings LLC, Momentive Performance Materials Inc., Hexion Specialty Chemicals, Inc., Affinion Group Holdings, Inc. and Metals USA Holdings Corp.

 

 

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Additional Information

Noranda Aluminum Holding Corporation, which was formerly named Music City Holding Corporation, was incorporated in Delaware on March 27, 2007. The principal executive offices of Noranda Aluminum Holding Corporation are at 801 Crescent Centre Drive, Suite 600, Franklin, TN 37067, and the telephone number there is (615) 771-5700.

Noranda Aluminum Acquisition Corporation, which was formerly named Music City Acquisition Corporation, was incorporated in Delaware on March 27, 2007. The principal executive offices of Noranda Aluminum Acquisition Corporation are at 801 Crescent Centre Drive, Suite 600, Franklin, TN 37067, and the telephone number there is (615) 771-5700.

We also maintain an internet site at www.norandaaluminum.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which this prospectus forms a part, and you should not rely on any such information in making your decision whether to purchase our securities.

 

 

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Summary of Terms of the Exchange Offer

The following is a brief summary of the terms of the exchange offer. We entered into registration rights agreements with the initial purchasers of the old notes, in which we agreed to use our commercially reasonable efforts to file a registration statement with the SEC relating to an offer to exchange the old notes for the exchange notes. We also agreed to use our commercially reasonable efforts to cause it to become effective under the Securities Act in no event later than May 19, 2008 with respect to the AcquisitionCo notes and June 6, 2008 with respect to the HoldCo notes. The total amount of indebtedness under the exchange notes will be the same as that under the old notes. For a more complete description of the exchange offer, see “The Exchange Offer.”

 

The Exchange Offer

We are offering to exchange up to:

 

  ·  

$510,000,000 aggregate principal amount of Senior Floating Rate Notes Due 2015 issued by Noranda AcquisitionCo, which have been registered under the Securities Act, for any and all outstanding Senior Floating Rate Notes Due 2015 issued by Noranda AcquisitionCo, and

 

  ·  

$220,000,000 aggregate principal amount of Senior Floating Rate Notes Due 2014 issued by Noranda HoldCo, which have been registered under the Securities Act, for any and all outstanding Senior Floating Rate Notes Due 2014 issued by Noranda HoldCo.

 

  You may only exchange old notes in denominations of $2,000 and integral multiples of $1,000 in excess thereof.

 

  The form, terms and aggregate amount of debt of these exchange notes are identical in all material respects to those of the old notes of the same series except that:

 

  ·  

the exchange notes are registered under the Securities Act;

 

  ·  

the exchange notes are not entitled to certain registration rights which are applicable to the old notes under the registration rights agreements; and

 

  ·  

certain additional interest rate provisions are no longer applicable.

 

Transferability of Exchange Notes

Based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that you:

 

  ·  

are acquiring the exchange notes in the ordinary course of business;

 

  ·  

have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person or entity, including any of our affiliates, to participate in, a distribution of the exchange notes; and

 

  ·  

are not our “affiliate” as defined in Rule 405 under the Securities Act.

 

 

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  If you are not acquiring the exchange notes in the ordinary course of your business, or if you are engaging in, intend to engage in, or have any arrangement or understanding with any person to participate in, a distribution of the exchange notes, or if you are our affiliate, then:

 

  ·  

you cannot rely on the position of the staff of the Commission expressed in Exxon Capital Holdings Corp. (April 13, 1998), Morgan Stanley & Co., Inc. (June 5, 1991) or similar no-action letters; and

 

  ·  

in the absence of an exemption, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale or other transfer of the exchange notes.

 

  In addition, each participating broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for old notes that were acquired as a result of market-making or other trading activity must also acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For more information, see “Plan of Distribution.”

 

Expiration Date; Withdrawal of Tenders

The exchange offer will expire at 11:59 p.m. (New York City time) on                     , 2008, or such later date and time to which we extend it. We do not currently intend to extend the expiration date. You may withdraw your tender of old notes pursuant to the exchange offer at any time prior to the expiration date. Any old notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer.

 

Interest on the Exchange Notes and the Old Notes

The exchange notes will bear interest from the most recent interest payment date to which interest has been paid on the old notes. No interest will be paid on old notes following their acceptance for exchange.

 

Conditions to the Exchange Offer

The exchange offer is not conditioned upon any minimum aggregate principal amount of old notes being tendered for exchange. The exchange offer is subject to customary conditions, some of which we may waive. For more information, see “The Exchange Offer—Certain Conditions to the Exchange Offer.”

 

Procedures for Tendering Notes

If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a copy of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or the copy, together with the old notes and any other required documents, to the exchange agent at the address set forth on the cover of the letter of transmittal. If you hold old notes in book-entry form through The Depository Trust Company, or DTC,

 

 

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  and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal.

 

  By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

 

  ·  

any exchange notes that you receive will be acquired in the ordinary course of your business;

 

  ·  

you have no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes (within the meaning of the Securities Act);

 

  ·  

you are not our “affiliate” as defined in Rule 405 under the Securities Act, or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act; and

 

  ·  

if you are a broker-dealer that will receive exchange notes for your own account in exchange for old notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of the exchange notes.

 

Special Procedures for Beneficial Owners

If you are a beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you want to tender old notes in the exchange offer, you should contact the registered owner promptly and instruct the registered holder to tender on your behalf. See “The Exchange Offer—Procedures for Tendering.”

 

Guaranteed Delivery Procedures

If you wish to tender your old notes and your old notes are not immediately available or you cannot deliver your old notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC’s Automated Tender Offer Program prior to the expiration date, you must tender your old notes according to the guaranteed delivery procedures set forth in this prospectus under “The Exchange Offer—Guaranteed Delivery Procedures.”

 

Effect on Holders of Old Notes

As a result of making this exchange offer, and upon acceptance for exchange of all validly tendered old notes, we will have fulfilled a covenant contained in each registration rights agreement and, accordingly, we will not be obligated to pay additional interest as described the registration rights agreements. If you are a holder of old notes and do not tender your old notes in the exchange offer, you will continue to hold such old notes and you will be entitled to all the rights and limitations applicable to the old notes in the applicable indenture, except for any rights under the applicable registration rights agreement that by their terms terminate upon the consummation of the exchange offer.

 

 

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Consequences of Failure to Exchange

Any old notes that are not tendered in the exchange offer, or that are not accepted in the exchange, will remain subject to the restrictions on transfer. Because the old notes have not been registered under the U.S. federal securities laws, you will not be able to offer or sell the old notes except under an exemption from the requirements of the Securities Act or unless the old notes are registered under the Securities Act. Upon the completion of the exchange offer, we will have no further obligations, except under limited circumstances, to provide for registration of the old notes under the U.S. federal securities laws. See “The Exchange Offer—Effect of Not Tendering.”

 

Material United States Federal Income Tax Consequences

The exchange of old notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. For more information, see “Material United States Federal Income Tax Consequences.”

 

Use of Proceeds

We will not receive any cash proceeds from the issuance of the exchange notes pursuant to the exchange offer.

 

Exchange Agent

Wells Fargo Bank, N.A. is the exchange agent for the exchange offer. The address and telephone number of the exchange agent are set forth in “The Exchange Offer—Exchange Agent.”

 

 

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Summary of Terms of the Exchange Notes

The summary below describes the principal terms of the exchange notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The “Description of the AcquisitionCo Notes” and “Description of the HoldCo Notes” sections of this prospectus offer a more detailed description of the terms and conditions of the exchange notes.

The exchange notes are identical in all material respects to the old notes for which they are being exchanged except:

 

  ·  

the exchange notes will have been registered under the Securities Act, and thus generally will not be subject to the restrictions on transfer applicable to the old notes or bear restrictive legends;

 

  ·  

the exchange notes will not be entitled to registration rights; and

 

  ·  

the exchange notes will not have the right to earn additional interest under circumstances relating to our registration obligations.

 

Issuers

Noranda Aluminum Acquisition Corporation is the issuer of the Senior Floating Rate Notes due 2015.

 

  Noranda Aluminum Holding Corporation is the issuer of the Senior Floating Rate Notes due 2014.

 

Securities Offered

Up to $510,000,000 initial aggregate principal amount of Senior Floating Rate Notes Due 2015 (the “AcquisitionCo notes”).

 

  Up to $220,000,000 initial aggregate principal amount of Senior Floating Rate Notes Due 2014 (the “HoldCo notes”).

 

Maturity Date

The AcquisitionCo notes mature on May 15, 2015 and the HoldCo notes mature on November 15, 2014.

 

Interest Payment Dates

Interest will be paid on the notes in arrears on May 15 and November 15 of each year, having commenced on November 15, 2007.

 

Interest on the AcquisitionCo Notes

The November 15, 2007 payment on the AcquisitionCo notes was paid entirely in cash. For any interest period thereafter through May 15, 2011, the Issuer may elect to pay interest on the AcquisitionCo notes, at its option: entirely in cash (“cash interest”); entirely by increasing the principal amount of the AcquisitionCo notes or issuing new AcquisitionCo notes (“AcquisitionCo PIK interest”); or 50% in cash interest and 50% in AcquisitionCo PIK interest. Cash interest will accrue at a rate of six-month LIBOR plus 4% per annum, reset semiannually, from the issue date or from the most recent date to which interest has been paid, and AcquisitionCo PIK interest will accrue at a rate of six-month LIBOR plus 4 3/4% per annum, reset semiannually, from the issue date or from the most recent date to which interest has been paid. If the Issuer elects to pay AcquisitionCo PIK interest, it will increase the principal amount of the AcquisitionCo notes or issue new AcquisitionCo notes in an

 

 

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amount equal to the amount of AcquisitionCo PIK interest for the applicable interest period (rounded up to the nearest $1.00) to holders of AcquisitionCo notes on the relevant record date. The AcquisitionCo notes will bear interest on the increased principal amount thereof from the applicable interest payment date on which a payment of AcquisitionCo PIK interest is made. The Issuer must elect the form of interest payment with respect to each interest period prior to the beginning of the applicable interest period. In the absence of such an election or proper notification of such election to the trustee, interest will be payable in the form of the interest payment for the prior interest period. After May 15, 2011, the Issuer must pay all interest on the AcquisitionCo notes entirely in cash.

 

Interest on the HoldCo Notes

The initial interest payment on the HoldCo notes was paid entirely in cash. For any subsequent interest period through May 15, 2012, the Issuer may elect to pay interest on the HoldCo notes, at its option: entirely in cash; entirely by increasing the principal amount of the HoldCo notes or issuing new HoldCo notes (“HoldCo PIK interest”); or 50% in cash interest and 50% in HoldCo PIK interest. After May 15, 2012, the Issuer must pay all interest payments on the HoldCo notes in cash. Cash interest will accrue at a rate of six-month LIBOR plus 5 3/4 % per annum, reset semiannually, from the issue date or from the most recent date to which interest has been paid, and HoldCo PIK interest will accrue at a rate of six-month LIBOR plus 6 1/2% per annum, reset semiannually, from the issue date or from the most recent date to which interest has been paid. If the Issuer elects to pay HoldCo PIK interest, it will increase the principal amount of the HoldCo notes or issue new HoldCo notes in an amount equal to the amount of HoldCo PIK interest for the applicable interest period (rounded up to the nearest $1.00) to holders of HoldCo notes on the relevant record date. The HoldCo notes will bear interest on the increased principal amount thereof from the applicable interest payment date on which a payment of HoldCo PIK interest is made. The Issuer must elect the form of interest payment with respect to each interest period prior to the beginning of the applicable interest period. In the absence of such an election or proper notification of such election to the trustee, interest will be payable in the form of the interest payment for the prior interest period.

 

Guarantees

The AcquisitionCo notes will be fully and unconditionally guaranteed on a senior unsecured basis by each of Noranda AcquisitionCo’s existing and future wholly owned U.S. subsidiaries that guarantee Noranda AcquisitionCo’s senior unsecured credit facilities, and by Noranda HoldCo.

 

  The HoldCo notes will not be guaranteed.

 

Ranking

The AcquisitionCo notes and the guarantees thereof will be our and our guarantors’ senior unsecured obligations and will:

 

  ·  

rank equally with all of Noranda AcquisitionCo’s existing and future senior indebtedness;

 

 

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  ·  

rank senior to all of Noranda AcquisitionCo’s existing and future subordinated indebtedness;

 

  ·  

be effectively subordinated to all secured obligations of Noranda AcquisitionCo, including our senior secured credit facilities and certain obligations in respect of hedging arrangements, to the extent of the value of the collateral securing such obligations; and

 

  ·  

be effectively subordinated to all liabilities (including trade payables) of any of Noranda AcquisitionCo’s subsidiaries that do not guarantee the AcquisitionCo notes and of the company’s joint ventures with Century.

 

  The HoldCo notes will be our senior unsecured obligations and will:

 

  ·  

rank equally with all of Noranda HoldCo’s existing and future senior indebtedness;

 

  ·  

rank senior to all of Noranda HoldCo’s existing and future subordinated indebtedness;

 

  ·  

be effectively subordinated to all current and future secured obligations of Noranda HoldCo to the extent of the value of the assets securing such obligations; and

 

  ·  

be effectively subordinated to all obligations, including the existing senior secured credit facilities, certain obligations in respect of hedging arrangements, the AcquisitionCo notes and all other liabilities (including trade payables) of any of Noranda HoldCo’s subsidiaries and of the company’s joint ventures with Century.

 

  As of December 31, 2007, Noranda HoldCo and its subsidiaries had $1,153.8 million in aggregate principal amount of senior indebtedness (including the old notes) outstanding (excluding unused commitments).

 

  See “Description of the AcquisitionCo Notes—Ranking” and “Description of the HoldCo Notes—Ranking.”

 

Optional Redemption

Prior to May 15, 2008, we may redeem some or all of the notes at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. The notes will be subject to redemption at the option of their respective Issuer, in whole or in part, at any time or from time to time on or after May 15, 2008, upon not less than 30 nor more than 60 days’ prior notice, at the redemption prices set forth herein, plus accrued and unpaid interest thereon (if any) to the redemption date.

 

  In addition, at any time or from time to time on or prior to May 15, 2008, the Issuer may redeem up to 35% of each series of notes (after giving effect to any issuance of additional notes) at a redemption price equal to 100% of the principal amount thereof plus a premium

 

 

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(expressed as a percentage of the principal amount thereof) equal to the cash interest rate per annum on the applicable notes on the date that notice of redemption is given, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of one or more qualified equity offerings; provided that at least 50% of the original aggregate principal amount of such series of notes would remain outstanding immediately after giving effect to such redemption. Any such redemption shall be made within 90 days of such qualified equity offering. See “Description of the AcquisitionCo Notes—Optional Redemption” and “Description of the HoldCo Notes—Optional Redemption.”

 

Mandatory Offers to Purchase

Within 60 days of the occurrence of a Change of Control (as defined) as to the HoldCo notes and within 30 days as to the AcquisitionCo notes, the Issuer will be required to make an offer to purchase all outstanding notes at a price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the purchase date. See “Description of the AcquisitionCo Notes—Change of Control” and “Description of the HoldCo Notes—Change of Control.”

 

  Certain asset dispositions will be triggering events which may require us to use the proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase if such proceeds are not otherwise used within 16 months (15 months as to the AcquisitionCo notes):

 

  ·  

to repay secured indebtedness, including indebtedness under our existing senior secured credit facilities (with a corresponding permanent reduction in commitment, if applicable), any subsidiary indebtedness and certain other indebtedness; or

 

  ·  

to invest or commit to invest in one or more businesses, assets, property or capital expenditures used or useful in a similar business or that replace the properties and assets that are the subject of the asset sale.

 

  See “Description of the AcquisitionCo Notes—Certain Covenants—Asset Sales” and “Description of the HoldCo Notes—Certain Covenants—Asset Sales.”

 

Mandatory Principal Redemption

If the notes would otherwise constitute “applicable high yield discount obligations” (“AHYDO”) within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), at the end of each accrual period ending after the fifth anniversary of the notes’ issuance (each, an “AHYDO redemption date”), we will be required to redeem for cash a portion of each note then outstanding equal to the “mandatory principal redemption amount” (each such redemption, a “mandatory principal

 

 

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  redemption”). The redemption price for the portion of each note redeemed pursuant to a mandatory principal redemption will be 100% of the principal amount of such portion plus any accrued interest thereon on the date of redemption. The “mandatory principal redemption amount” means the portion of a note required to be redeemed to prevent such note from being treated as an AHYDO within the meaning of Section 163(i)(1) of the Code. No partial redemption or repurchase of the notes prior to an AHYDO redemption date pursuant to any other provision of the indenture alters our obligation to make the mandatory principal redemption with respect to any notes that remain outstanding on each AHYDO redemption date.

 

Certain Covenants

The indentures governing the notes contain certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on incurring or guaranteeing additional indebtedness; (ii) limitation on paying dividends and making other restricted payments; (iii) limitation on creating restrictions on dividend and other payments to us from certain of our subsidiaries; (iv) limitation on creating or incurring certain liens; (v) limitation on sales of assets and subsidiary stock; (vi) transactions with affiliates; (vii) reports; (viii) future guarantors of the notes; and (ix) limitations on transferring all or substantially all of our assets or entering into merger or consolidation transactions.

 

  All of the covenants are subject to a number of important qualifications and exceptions. See “Description of the AcquisitionCo Notes” and “Description of the HoldCo Notes.” Certain covenants will cease to apply to the notes during such time that the notes are rated investment grade by both Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”); provided that no default or event of default has occurred and is continuing. Similarly, the “Change of Control” covenant will be suspended with respect to the notes during all periods when the notes have investment grade ratings from Moody’s and S&P; provided that no event of default has occurred and is continuing.

 

 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA

The following table presents the summary condensed historical consolidated financial and other data of Noranda Aluminum, Inc. and the summary condensed historical and pro forma consolidated financial and other data of Noranda HoldCo. This information is only a summary and should be read in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Condensed Consolidated Statement of Operations” and with the audited consolidated financial statements of Noranda Aluminum, Inc. and HoldCo and their notes included elsewhere in this prospectus, as well as the other financial information included in this prospectus.

Noranda HoldCo, Noranda AcquisitionCo and Noranda Intermediate Holding Corporation are recently formed companies that have not engaged in any business or other activities prior to the Apollo Acquisition except in connection with their formation, the Transactions and the Special Dividend described elsewhere in this prospectus. Accordingly, for the purposes of this prospectus, all financial and other information herein relating to periods prior to the completion of the Transactions and the Special Dividend is that of Noranda Aluminum, Inc.

The financial information for the periods from January 1, 2006 to August 15, 2006 and for the year ended December 31, 2005 includes the financial condition, results of operations and cash flows for Noranda Aluminum, Inc. on a basis reflecting the historical carrying values of Noranda Aluminum, Inc. prior to the Xstrata Acquisition and is referred to as “Pre-predecessor.” The financial information for the periods from August 16, 2006 to December 31, 2006 and from January 1, 2007 to May 17, 2007 includes the financial condition, results of operations and cash flows for Noranda Aluminum, Inc. on a basis reflecting the stepped-up values of Noranda Aluminum, Inc. prior to the Apollo Acquisition, but subsequent to the Xstrata Acquisition, and is referred to as “Predecessor.” The financial information for the period from May 18, 2007 to December 31, 2007 includes the financial condition, results of operations and cash flows for Noranda HoldCo on a basis reflecting the impact of the preliminary purchase allocation of the Apollo Acquisition, and is referred to as “Successor.”

As discussed in Note 2 to the audited consolidated financial statements, during the preparation process for the 2007 annual financial statements, we concluded that certain errors identified subsequent to filing prior period financial statements were material to those periods; accordingly, we have restated these previously issued financial statements.

The consolidated statements of operations and cash flows data for the year ended December 31, 2005 and for the periods from January 1, 2006 to August 15, 2006, from August 16, 2006 to December 31, 2006, from January 1, 2007 to May 17, 2007 and from May 18, 2007 to December 31, 2007 and the summary consolidated balance sheet data as of December 31, 2006 and 2007 have been derived from the audited consolidated financial statements included elsewhere in this prospectus.

The following unaudited pro forma condensed consolidated statements of operations data for the 12 months ended December 31, 2007 is based on the historical consolidated statements of operations for the Predecessor for the period from January 1, 2007 to May 17, 2007 and the Successor for the period from May 18, 2007 to December 31, 2007 and give effect to the Transactions and the Special Dividend as if they had occurred on January 1, 2007.

For comparability purposes management has presented a combined twelve months ended December 31, 2006, which combines the Pre-predecessor period from January 1, 2006 to August 15, 2006 and the Predecessor period from August 16, 2006 to December 31, 2006 and a combined twelve months ended December 31, 2007, which combines the Predecessor period from January 1, 2007 to May 17, 2007 and the Successor period from May 18, 2007 to December 31, 2007. These combined periods have been prepared using two different bases of accounting as a result of the acquisitions.

 

 

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The summary unaudited pro forma condensed consolidated statement of operations data is for informational purposes only and does not purport to present what our results of operations would have been if the Transactions and the Special Dividend had occurred as of the date indicated, nor does it project our results of operations for any future period. Furthermore, this data does not reflect any additional costs necessary to become a stand-alone company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 

 

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    Pre-predecessor     Predecessor     Combined
Pre-predecessor
and Predecessor
 

(Dollars in millions, except ratios)

  As of and for
the year
ended
December 31,
2005
    Period from
January 1,
2006 to
August 15,
2006
    As of
December 31,
2006 and for
the period
from
August 16,
2006 to
December 31,
2006
    Twelve months
ended
December 31,
2006
 
                (As Restated)     (As Restated)  

Statement of Operations Data:

       

Sales

  $ 1,026.4     $ 816.0     $ 496.7     $ 1,312.7  

Operating costs and expenses

       

Cost of sales

    950.1       674.4       417.3       1,091.7  

Selling, general and administrative expenses

    3.2       10.1       5.7       15.8  

Other charges (recoveries), net

    1.6       (0.1 )     (0.5 )     (0.6 )
                               
    954.9       684.4       422.5       1,106.9  
                               

Operating income

    71.5       131.6       74.2       205.8  

Other expenses (income)

       

Interest expense, net

    28.5       12.7       6.4       19.1  

(Gain) loss on derivative instruments and hedging activities

    (7.9 )     16.6       5.4       22.0  

Equity in net income of investments in affiliates

    (9.8 )     (8.3 )     (3.2 )     (11.5 )

Other, net

    0.6       —         —         —    
                               

Income from continuing operations before income taxes

    60.1       110.6       65.6       176.2  

Income tax expense

    18.6       38.7       23.6       62.3  
                               

Income from continuing operations

    41.5       71.9       42.0       113.9  

Discontinued operations, net of tax effects

    8.8       —         —         —    
                               

Net income for the period

  $ 50.3     $ 71.9     $ 42.0     $ 113.9  
                               

Balance Sheet Data:

       

Cash and cash equivalents

  $ 1.4       $ 40.5    

Property, plant and equipment, net

  $ 528.7       $ 672.8    

Total assets

  $ 988.1       $   1,616.7    

Long-term debt (including current portion)(1)

  $ 252.0       $ 160.0    

Shareholders’ equity

  $ 472.3       $ 1,008.5    

Working capital(2)

  $ 127.5       $ 201.7    

Cash Flow Data:

       

Operating activities

  $ 57.2     $ 81.9     $ 107.8     $ 189.7  

Investing activities

  $ (17.8 )   $ (20.5 )   $ (31.8 )   $ (52.3 )

Financing activities

  $ (41.1 )   $ (37.7 )   $ (60.5 )   $ (98.2 )

Financial and Other Data:

       

Ratio of earnings to fixed charges(3)

    3.0       9.4       10.4       9.8  

Upstream—shipments (pounds in millions)

    502.7       308.8       187.7       496.5  

Downstream—shipments (pounds in millions)

    392.2       259.1       150.2       409.3  

See the related notes on the following page.

 

 

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    Predecessor     Successor     Combined
Predecessor
and
Successor
    Pro Forma
Noranda
Aluminum
Holding
Corporation
 

(Dollars in millions, except ratios)

  Period from
January 1,
2007 to
May 17, 2007
    As of
December 31,
2007 and for
the period
from May 18,
2007 to
December 31,
2007
    Twelve
months
ended
December 31,
2007
    Twelve
months
ended
December 31,
2007
 
    (As Restated)                    

Statement of Operations Data:

       

Sales

  $    527.7     $      867.4     $    1,395.1     $   1,395.1  

Operating costs and expenses

       

Cost of sales

    432.6       783.1       1,215.7       1,234.7  

Selling, general and administrative expenses

    8.7       24.1       32.8       33.5  

Other (recoveries) charges, net

    —         (0.5 )     (0.5 )     (0.5 )
                               
    441.3       806.7       1,248.0       1,267.7  
                               

Operating income

    86.4       60.7       147.1       127.4  

Other expenses (income)

       

Interest expense, net

    6.2       67.2       73.4       109.0  

Loss (gain) on derivative instruments and hedging activities

    56.6       (12.5 )     44.1       44.1  

Equity in net income of investments in affiliates

    (4.3 )     (7.3 )     (11.6 )     (11.3 )
                               

Income (loss) before income taxes

    27.9       13.3       41.2       (14.4 )

Income tax expense (benefit)

    13.6       5.1       18.7       (2.3 )
                               

Net income (loss) for the period

  $ 14.3     $ 8.2     $ 22.5     $ (12.1 )
                               

Balance sheet data:

       

Cash and cash equivalents

    $ 75.6      

Property, plant and equipment, net

    $ 657.8      

Total assets

    $ 1,650.5      

Long-term debt (including current portion)(1)

    $ 1,151.7      

Shareholder’s equity (deficit)

    $ (0.1 )    

Working capital(2)

    $ 211.5      

Cash flow data:

       

Operating activities

  $ 41.2     $ 160.8     $ 202.0    

Investing activities

  $ 5.1     $ (1,197.7 )   $ (1,192.6 )  

Financing activities

  $ (83.7 )   $ 1,112.5     $ 1,028.8    

Financial and other data:

       

Ratio of earnings to fixed charges(3)

    5.3       1.2       1.6    

Upstream—shipments (pounds in millions)

    202.3       321.1       523.4    

Downstream—shipments (pounds in millions)

    135.6       236.0       371.6    

 

(1)

Long-term debt includes long-term debt due to related parties and to third parties, including current installments of long-term debt. For the Successor period long-term debt does not include issued and undrawn letters of credit under the existing $250.0 million revolving credit facility.

(2)

Working capital is defined as current assets net of current liabilities.

(3)

For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and a portion of rental expense that management believes is representative of the interest component of rental expense.

 

 

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RISK FACTORS

Investing in our notes involves a high degree of risk. You should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before investing in our notes, or deciding whether you will or will not participate in our exchange offer. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations or cash flows. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or cash flows. In such a case, you may lose all or part of your original investment.

Risks Related to the Exchange Offer

There may be adverse consequences if you do not exchange your old notes.

If you do not exchange your old notes for exchange notes in the exchange offer, then you will continue to be subject to the transfer restrictions on the old notes as set forth in the offering memorandum distributed in connection with the private offering of the old notes. In general, the old notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreements, we do not intend to register resales of the old notes under the Securities Act. You should refer to “Summary—The Exchange Offer” and “The Exchange Offer” for information about how to tender your old notes.

The tender of old notes under the exchange offer will reduce the amount of each series of the old notes outstanding, which may have an adverse effect upon and increase the volatility of, the market price of the old notes due to reduction in liquidity.

Your ability to transfer the exchange notes may be limited by the absence of an active trading market, and there is no assurance that any active trading market will develop for the exchange notes.

The exchange notes are new issues of securities for which there is no established public market. We do not intend to apply for listing or quotation of the exchange notes on any exchange and we do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. The initial purchasers in the private offerings of the old notes are not obligated to make a market in any of the exchange notes, and any market-making activity may be discontinued at any time without notice. Therefore, an active market for any of the exchange notes may not develop or, if developed, it may not continue. The liquidity of any market for the exchange notes will depend upon the number of holders of the exchange notes, our performance, the market for similar securities, the interest of securities dealers in making a market in the exchange notes and other factors. A liquid trading market may not develop for the exchange notes or any series of notes. If a market develops, the exchange notes could trade at prices that may be lower than the initial offering price of the exchange notes. If an active market does not develop or is not maintained, the price and liquidity of the exchange notes may be adversely affected. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes. The market, if any, for any of the exchange notes may not be free from similar disruptions and any such disruptions may adversely affect the prices at which you may sell your exchange notes. In addition, subsequent to their initial issuance, the exchange notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, our performance and other factors.

You may not receive the exchange notes in the exchange offer if the exchange offer procedures are not properly followed.

We will issue the exchange notes in exchange for your old notes only if you properly tender the old notes before expiration of the exchange offer. Neither we nor the exchange agent are under any duty to give notification of defects or irregularities with respect to the tenders of the old notes for exchange. If you are the beneficial holder of old notes that are held through your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender such notes in the exchange offer, you should promptly contact the person through whom your old notes are held and instruct that person to tender on your behalf.

 

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Risks Related to our Indebtedness

We have substantial indebtedness, which could adversely affect our ability to meet our obligations under the notes and may otherwise restrict our activities.

We have substantial leverage. As of December 31, 2007, our total indebtedness was $1,151.7 million (net of unamortized discount of $2.1 million). Based on the amount of indebtedness outstanding and interest rates at December 31, 2007, our annualized cash interest expense is approximately $97.4 million, none of which would have represented cash interest expense on fixed-rate obligations. In the event we make an AcquisitionCo PIK interest or HoldCo PIK interest election on the notes, our debt will increase. Our subsidiaries’ ability to generate sufficient cash flow from operations to make scheduled payments on their and our debt depends on a range of economic, competitive and business factors, many of which are outside their and our control. Our subsidiaries’ inability to generate cash flow sufficient to satisfy their and our debt obligations, or to refinance their and our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations and could require us and our subsidiaries to do one or more of the following:

 

  ·  

raise additional capital through debt or equity issuances or both;

 

  ·  

cancel or scale back current and future business initiatives; or

 

  ·  

sell businesses or properties.

Our and our subsidiaries’ substantial indebtedness could have important consequences, including:

 

  ·  

making it more difficult for us to satisfy our obligations under our indebtedness, including the notes;

 

  ·  

limiting our ability to borrow money for our working capital, capital expenditures, debt service requirements or other corporate purposes;

 

  ·  

requiring our subsidiaries to dedicate a substantial portion of their cash flow to payments on their and our indebtedness, which would reduce the amount of cash flow available for working capital, capital expenditures, product development and other corporate requirements;

 

  ·  

increasing our vulnerability to general economic and industry conditions;

 

  ·  

limiting our ability to respond to business opportunities; and

 

  ·  

subjecting us and our subsidiaries to financial and other restrictive covenants, which, if we and our subsidiaries fail to comply with these covenants and such failure is not waived or cured, could result in an event of default under their and our debt.

Because Noranda HoldCo is the sole obligor on the HoldCo notes, and its subsidiaries will not guarantee its obligations under the HoldCo notes or have any obligation with respect to the HoldCo notes, the HoldCo notes will be structurally subordinated to the debt and liabilities of its subsidiaries and joint ventures.

Noranda HoldCo has no operations of its own and derives all of its revenues and cash flow from its subsidiaries. Our subsidiaries and joint ventures are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the HoldCo notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments.

As of December 31, 2007, the aggregate amount of indebtedness and other liabilities of our subsidiaries (including trade payables) structurally senior to the HoldCo notes was approximately $1,432.7 million. Further, approximately $250.0 million was undrawn under the existing senior secured credit facilities and our subsidiaries are liable with respect to any liabilities we may incur in connection with our hedging activities (discussed below). We had $3.5 million in outstanding letters of credit at December 31, 2007, which reduced our availability under the existing senior secured credit facilities to $246.5 million. Holders of the HoldCo notes will not have any claim as creditors against our subsidiaries or joint ventures. None of our subsidiaries or joint ventures will guarantee our obligations under the HoldCo notes. The HoldCo notes are structurally subordinated to any existing and future indebtedness and other liabilities of any of our subsidiaries and joint ventures, even if those obligations do not constitute indebtedness.

 

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Any right that we have to receive any assets of any of our subsidiaries and joint ventures upon the liquidation or reorganization of those subsidiaries and joint ventures, and the consequent rights of holders of the HoldCo notes to realize proceeds from the sale of any of those subsidiaries’ and joint ventures’ assets, will be effectively subordinated to the claims of those entities’ creditors, including holders of existing notes, lenders under the existing senior secured facilities, trade creditors and holders of preferred equity interests of those entities. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries or joint ventures, these entities will pay the holders of their debts, holders of preferred equity interests and their trade creditors before they will be able to distribute any of their assets to us. Moreover, Noranda HoldCo is a guarantor of the existing senior secured credit facilities and the AcquisitionCo notes, and as such, is an obligor of any indebtedness outstanding under such credit facilities and notes and has pledged all of its equity interests in Noranda AcquisitionCo to secure its obligations under the existing senior secured credit facilities. As of December 31, 2007, there were $423.8 million in loans outstanding and $246.5 million available for borrowing under the existing senior secured credit facilities. Accordingly, there might only be a limited amount of assets available to satisfy your claims as a holder of the HoldCo notes upon an acceleration of the maturity of the HoldCo notes. We cannot assure you that if our subsidiaries and joint ventures have their debt accelerated, we will be able to repay the HoldCo notes. We also cannot assure you that our and our subsidiaries’ assets will be sufficient to fully repay the HoldCo notes and our subsidiaries’ other indebtedness. See “Description of Certain Indebtedness.”

Restrictive covenants under the indentures governing the notes and the existing senior secured credit facilities may adversely affect our operational flexibility.

The terms of the indentures governing the notes and the existing senior secured credit facilities contain, and any future indebtedness we incur may contain, a number of restrictive covenants that will impose significant operating and financial restrictions on us and our subsidiaries, including restrictions on our and our subsidiaries’ ability to, among other things:

 

  ·  

incur or guarantee additional debt;

 

  ·  

pay dividends or make distributions to our stockholders;

 

  ·  

repurchase or redeem capital stock;

 

  ·  

make loans, capital expenditures, acquisitions or investments;

 

  ·  

sell assets including stock of subsidiaries;

 

  ·  

create or incur liens;

 

  ·  

merge or consolidate with other companies or transfer all or substantially all of our assets;

 

  ·  

enter into transactions with our affiliates; and

 

  ·  

engage in certain business activities.

As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

A failure to comply with the covenants contained in the existing senior secured credit facilities and the indentures governing the notes or any future indebtedness could result in an event of default under the existing senior secured credit facilities, the indentures governing the notes or the future indebtedness, which, if not cured or waived, could have a material adverse affect on our business, financial condition and results of operations. In the event of any default under the existing senior secured credit facilities, the indentures governing the notes or our other indebtedness, our and our subsidiaries’ debt holders and lenders:

 

  ·  

will not be required to lend any additional amounts to us and our subsidiaries;

 

  ·  

could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable;

 

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  ·  

may have the ability to require us to apply all of our available cash to repay these borrowings; or

 

  ·  

may prevent us and our subsidiaries from making debt service payments under our and our subsidiaries’ other agreements, including the indentures governing the notes, any of which could result in an event of default under the notes.

If the indebtedness under the existing senior secured credit facilities or our other indebtedness, including the notes, were to be accelerated, there can be no assurance that our and our subsidiaries’ assets would be sufficient to repay such indebtedness in full. See “Description of Certain Indebtedness,” “Description of the AcquisitionCo Notes” and “Description of the HoldCo Notes.”

Despite our substantial indebtedness, we and our subsidiaries may still be able to incur significantly more debt. This could increase the risks associated with our substantial leverage, including our ability to service our indebtedness.

The terms of the indentures governing the notes contain, and the existing senior secured credit facilities contain, restrictions on our and/or our subsidiaries’ ability to incur additional indebtedness. These restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we and our subsidiaries could incur significant additional indebtedness in the future, much of which could constitute secured or senior indebtedness. As of the date of this prospectus, Noranda AcquisitionCo had $246.1 million available for additional borrowing and potential letters of credit under the existing revolving credit facility, all of which would be secured. The more leveraged we and our subsidiaries become, the more we and our subsidiaries, and in turn our security holders, become exposed to the risks described above under “—We have substantial indebtedness, which could adversely affect our ability to meet our obligations under the notes and may otherwise restrict our activities.”

Repayment of our debt, including the notes, is dependent on cash flow generated by our subsidiaries.

The Issuers are holding companies with no operations or assets of their own. Our subsidiaries and joint ventures own all of our assets and conduct substantially all of our operations. Accordingly, repayment of our indebtedness, including the notes, is dependent, to a significant extent, on the generation of cash flow by our subsidiaries and joint ventures and their ability to make such cash available to us, by dividend, debt repayment or otherwise. However, our subsidiaries and joint ventures do not have any obligation to pay amounts due on the notes or to make funds available for that purpose.

Our subsidiaries and joint ventures may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes. Each subsidiary and joint venture is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from them. The terms of the existing senior secured credit facilities and the terms of the indentures governing the notes each significantly restricts our subsidiaries from paying dividends and otherwise transferring assets to us. The terms of each of those debt instruments provide our subsidiaries with “baskets” that can be used to make certain types of “restricted payments,” including dividends or other distributions to us. For example, pursuant to the indenture governing the AcquisitionCo notes, the ability of Noranda AcquisitionCo and its subsidiaries to make such payments is governed by a formula based on 50% of its consolidated net income (as defined in such indenture). In addition, as a condition to making such payments to Noranda HoldCo based on such formula, Noranda AcquisitionCo must have a fixed charge coverage ratio of at least 2.0 to 1 after giving effect to any such payments. Notwithstanding such restrictions, the indenture governing the AcquisitionCo notes permits an aggregate amount not to exceed the greater of $40.0 million and 3.5% of the total assets of Noranda AcquisitionCo of such payments to be made whether or not there is availability under the formula or the conditions to its use are met.

We cannot assure you that our subsidiaries will have sufficient payment capacity under the existing senior secured credit facilities or the notes in order to make funds available to us to pay interest on the notes or make

 

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payments upon a change of control or payments at the maturity of the notes. In particular, the HoldCo notes mature earlier than the AcquisitionCo notes, and there is no assurance that we will have sufficient capacity under our baskets for the AcquisitionCo notes to repay the principal amount of the HoldCo notes due at maturity. In addition, the terms of any future indebtedness incurred by us or any of our subsidiaries may include additional restrictions on our and their ability to make funds available to us to make payments on the notes, which may be more restrictive than those contained in the terms of the existing senior secured credit facilities or the existing notes.

In the event the Issuers do not have sufficient cash available to make any required payments on the notes, with respect to interest payments, they may elect to pay AcquisitionCo PIK interest and/or HoldCo PIK interest, or in the case of interest or other payments they and their subsidiaries will be required to adopt one or more alternatives, such as refinancing all of their and their subsidiaries’ indebtedness, obtaining the consents from the lenders in respect of that indebtedness, selling equity securities or seeking capital contributions from their affiliates. None of their affiliates is obligated to make any capital contributions, loans or other payments to them with respect to their obligations on the notes.

Further, we cannot assure you that any of the foregoing actions could be effected on satisfactory terms, if at all, or that any of the foregoing actions would enable us to refinance our or our subsidiaries’ indebtedness or pay the required amounts on the notes, or that any such actions would be permitted by the terms of the indentures governing the notes or the terms of any other debt of ours or our subsidiaries then in effect. See “Description of Certain Indebtedness.”

While the indentures governing the notes limit the ability of our subsidiaries and joint ventures to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries or joint ventures, we may be unable to make required principal and interest payments on our indebtedness, including the notes.

Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

Certain of our and our subsidiaries’ indebtedness, including the notes and borrowings under the existing senior secured credit facilities, are subject to variable rates of interest and expose us to interest rate risk. See “Description of the AcquisitionCo Notes,” “Description of the HoldCo Notes” and “Description of Certain Indebtedness.” If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. The Company has floating-rate debt which is subject to variations in interest rates. On August 16, 2007, the Company entered into interest rate swap agreements to limit our exposure to floating interest rates for the periods from November 15, 2007 to November 15, 2011 with a notional amount of $500.0 million. Although we may enter into additional interest rate swaps, involving the exchange of floating for fixed-rate interest payments, to reduce interest rate volatility, we cannot assure you we will be able to do so.

If we or our subsidiaries default on obligations to pay other indebtedness, we may not be able to make payments on the notes.

Any default under the agreements governing our or our subsidiaries’ indebtedness, including a default under the existing senior secured credit facilities that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could prohibit us from making payments of principal, premium, if any, or interest on the notes and could substantially decrease the market value of the notes. If we and our subsidiaries are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, or interest on our and their indebtedness, or if we or our subsidiaries otherwise fail to comply with the various covenants in the instruments governing our and their indebtedness (including the existing senior secured credit facilities and the indenture governing the existing notes), we and our

 

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subsidiaries could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest. More specifically, the lenders under the existing revolving credit facility could elect to terminate their commitments and cease making further loans and such lenders along with the lenders under the existing term loan could institute foreclosure proceedings against our and our subsidiaries’ assets, and we and our subsidiaries could be forced into bankruptcy or liquidation. We may in the future need to seek waivers from the required lenders under the existing senior secured credit facilities to avoid being in default. If we and our subsidiaries breach the covenants under the existing senior secured credit facilities and seek a waiver, we and our subsidiaries may not be able to obtain a waiver from the required lenders. If this occurs, we and our subsidiaries would be in default under the existing senior secured credit facilities, the lenders could exercise their rights as described above, and we and our subsidiaries could be forced into bankruptcy or liquidation. See “Description of Certain Indebtedness,” “Description of the AcquisitionCo Notes” and “Description of the HoldCo Notes.”

We may not be able to generate sufficient cash to service all of our indebtedness, including the notes, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.

The Issuers have no operations of their own and conduct their operations through their operating subsidiaries and joint ventures. As a result, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, including payments on our indebtedness. We cannot be certain that our earnings and the earnings of our operating subsidiaries will be sufficient to allow us to make payments in respect of the notes and meet our other obligations.

Our subsidiaries’ ability to generate cash from operations will depend upon, among other things:

 

  ·  

their future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond their control; and

 

  ·  

the future availability of borrowings under the existing senior secured credit facilities, which depends on, among other things, complying with the covenants in the existing senior secured credit facilities.

We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under the existing senior secured credit facilities or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on the notes. See “Cautionary Statement Concerning Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

If our and our subsidiaries’ cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including the notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our and our subsidiaries’ business operations. In addition, the terms of existing or future debt agreements, including the existing senior secured credit facilities and the indentures governing the notes, may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. Also, Apollo has no continuing obligation to provide us or our subsidiaries with debt or equity financing.

 

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We may not be able to repurchase the notes upon a change of control.

Upon a change of control as defined in the indentures governing the notes, we will be required to make an offer to repurchase all outstanding notes at 101% of their principal amount, plus accrued and unpaid interest, unless we give notice of our intention to exercise our right to redeem the notes. We may not have sufficient financial resources to purchase all of the notes that are tendered upon a change of control offer or, if then permitted under the indentures governing the notes, to redeem the notes. A failure to make the applicable change of control offer or to pay the applicable change of control purchase price when due would result in a default under the indentures. The occurrence of a change of control would also constitute an event of default under the existing senior secured credit facilities and may constitute an event of default under the terms of our or our subsidiaries’ other indebtedness. The terms of the loan and security agreement governing the existing senior secured credit facilities limit our right to purchase or redeem certain indebtedness. In the event any purchase or redemption is prohibited, we may seek to obtain waivers from the required lenders under the existing senior secured credit facilities to permit the required repurchase or redemption, but the required lenders have no obligation to grant, and may refuse to grant, such a waiver. A change of control is defined in the indentures governing the notes and would not include all transactions that could involve a change of control in our day-to-day operations.

Federal and state statutes may allow courts, under specific circumstances, to void the notes and/or the guarantees and require noteholders to return payments received.

The issuance of the notes and the incurrence of the guarantees of the notes may be subject to review under federal and state fraudulent transfer and conveyance statutes in a bankruptcy, liquidation or reorganization case or if a lawsuit, including under circumstances in which bankruptcy is not involved, were commenced at some future date by us or on behalf of our unpaid creditors. Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer and fraudulent conveyance laws, a court may void or otherwise decline to enforce the notes and/or the guarantees or a court may subordinate the notes and/or the guarantees to the Issuers’ and their subsidiaries’ existing and future indebtedness.

While the relevant laws may vary from state to state, a court might void or otherwise decline to enforce the notes or the guarantees if it found that when the notes were issued or the guarantees were incurred, or, in some states, when payments became due under the notes or the guarantees, an Issuer or any of the guarantors received less than reasonably equivalent value or fair consideration and either:

 

  ·  

the applicable Issuer or guarantor was insolvent or rendered insolvent by reason of such incurrence; or

 

  ·  

the applicable Issuer or guarantor was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or

 

  ·  

the applicable Issuer or guarantor intended to incur, or believed or reasonably should have believed that it would incur, debts beyond its ability to pay such debts as they mature; or

 

  ·  

the applicable Issuer or guarantor was a defendant in an action for money damages, or had a judgment for money damages docketed against it if, in either case, after final judgment, the judgment is unsatisfied.

The court might also void the notes or guarantees without regard to the above factors, if the court found that an Issuer or guarantor, as applicable, issued the notes or incurred a guarantee with actual intent to hinder, delay or defraud our creditors.

A court would likely find that an Issuers or a guarantor did not receive reasonably equivalent value or fair consideration for the notes or such a guarantee if it did not substantially benefit directly or indirectly from the issuance of the notes or the applicable guarantee. As a general matter, value is given for a note if, in exchange for the note, property is transferred or an antecedent debt is satisfied. A debtor may not be considered to have received value in connection with a debt offering if the debtor uses the proceeds of that offering to make a dividend payment or otherwise retire or redeem equity securities issued by the debtor.

 

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The measures of insolvency for purposes of fraudulent conveyance laws vary depending upon the law of the particular jurisdiction that is being applied. Generally, however, an entity would be considered insolvent if:

 

  ·  

the sum of its debts, including subordinated and contingent liabilities, was greater than the fair saleable value of its assets;

 

  ·  

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including subordinated and contingent liabilities, as they become absolute and mature; or

 

  ·  

it could not pay its debts as they become due.

We cannot be certain as to the standards a court would use to determine whether or not an Issuer or a guarantor was solvent at the relevant time, or regardless of the standard used, that the issuance of the notes or the incurrence of the guarantees would not be subordinated to our other debt.

In the event of a finding that a fraudulent conveyance or transfer has occurred, the court may void, or hold unenforceable, the notes and/or the guarantees, which could mean that you may not receive any payments on the notes and the court may direct you to repay any amounts that you have already received from the Issuers and the guarantors for the benefit of their creditors. Furthermore, the holders of voided notes would cease to have any direct claim against the Issuers and the guarantors. Consequently, each Issuer’s assets would be applied first to satisfy its other liabilities, before any portion of its assets could be applied to the payment of the notes. Sufficient funds to repay the notes may not be available from other sources. Moreover, the voidance of the notes could result in an event of default with respect to its other debt that could result in acceleration of such debt (if not otherwise accelerated due to insolvency or other proceeding).

Although each guarantee entered into by a subsidiary will contain a provision intended to limit that guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer, such a provision may not be effective to protect those guarantees from being voided under fraudulent transfer law, or it may reduce that guarantor’s obligation to an amount that effectively makes its guarantee worthless.

Certain restrictive covenants in the indentures governing the notes will be suspended if the notes achieve investment grade ratings.

Most of the restrictive covenants in the indentures governing the notes will not apply for so long as the notes achieve investment grade ratings from Moody’s and S&P and no default or event of default has occurred. If these restrictive covenants cease to apply, we may take actions, such as incurring additional debt, undergoing a change of control transaction or making certain dividends or distributions that would otherwise be prohibited under, or would otherwise require a prepayment offer to noteholders under, the indentures governing the notes. Ratings are given by these rating agencies based upon analyses that include many subjective factors. We cannot assure you that the notes will (or will not) achieve investment grade ratings, nor can we assure you that investment grade ratings, if granted, will reflect all of the factors that would be important to holders of the notes.

Our ability to generate the significant amount of cash needed to pay interest and principal on the notes and service our other debt and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt will depend on our financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control, including those described under “—Risks Related to Our Business” below.

 

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If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

The existing senior secured revolving credit facility will mature in 2013 and the existing senior secured term loan facility will mature in 2014. As a result, we may be required to refinance any outstanding amounts under those facilities prior to the maturity dates of the notes. We cannot assure you that we will be able to refinance any of our indebtedness or obtain additional financing. As a result, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The existing senior secured credit facilities and the indentures governing the notes will restrict our ability to dispose of assets and use the proceeds from any such dispositions. We cannot assure you we will be able to consummate any sales of assets, or if we do, what the timing of such sales will be or whether the proceeds that we realize will be adequate to meet debt service obligations when due.

Risks Related to Our Business

Cyclical fluctuations in the primary aluminum industry cause variability in our earnings and cash flows.

Our operating results depend on the market for primary aluminum, which is a cyclical commodity with prices subject to worldwide market forces of supply and demand and other related factors such as speculative activities by market participants, production activities by competitors, political and economic conditions, as well as production costs in major production regions. Prices have been historically volatile. Over the past ten years, the average daily LME settlement price has ranged from a low of $0.53 per pound in 1999 to a high of $1.44 per pound in 2006. The average daily LME settlement price was $0.86 per pound for the year ended December 31, 2005, $1.18 per pound for the year ended December 31, 2006 and $1.20 per pound for the year ended December 31, 2007. During the first quarter of 2008, the LME price ranged from $1.07 to $1.44 per pound. In addition, a substantial increase in primary aluminum production capacity could further affect prices. Although we have entered into forward sale arrangements to manage our exposure to the volatility of LME-based prices, we have not hedged our entire expected aluminum production. We may also terminate our current hedges or enter into new hedging arrangements in the future, which may not be beneficial, depending on subsequent LME price changes. Thus, primary aluminum prices could decline below current levels, reducing our earnings and cash flows. A prolonged downturn in prices for primary aluminum could significantly reduce the amount of cash available to us to meet our current obligations and fund our long-term business strategies.

Conversely, if prices for primary aluminum increase, certain of our hedging transactions, including our LME-based aluminum contracts, may limit our ability to take advantage of the increased prices.

A downturn in general economic conditions, as well as a downturn in the end-use markets for certain of our products, could have a material adverse effect on our financial results.

Historically, global supply and demand for primary aluminum have fluctuated in part due to general economic and market conditions in the United States and other major global economies, including China. In addition, certain end-use markets for our rolled products, such as the housing, construction and transportation industries, experience demand cycles that are highly correlated to the general economic environment. Economic downturns in regional and global economies or a decrease in manufacturing activity in industries such as construction, packaging and consumer goods, all of which are sensitive to a number of factors outside our control, could have a material adverse effect on our financial results.

Losses caused by disruptions in the supply of electrical power would reduce the profitability of our operations.

We are subject to losses associated with equipment shutdowns, which may be caused by the loss or interruption of electrical power to our facilities due to unusually high demand, blackouts, equipment failure, natural disasters or other catastrophic events. We use large amounts of electricity to produce primary aluminum,

 

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and any loss of power which causes an equipment shutdown can result in the hardening or “freezing” of molten aluminum in the pots where it is produced. If this occurs, we may experience significant losses if the pots are damaged and require repair or replacement, a process that could limit or shut down our production operations for a prolonged period of time. Although we maintain property and business interruption insurance to mitigate losses resulting from catastrophic events, we may be required to pay significant amounts under the deductible provisions of those insurance policies. In addition, our coverage may not be sufficient to cover all losses, or may not cover certain events. Certain of our insurance policies do not cover any losses we may incur if our suppliers are unable to provide us with power during periods of unusually high demand.

Our operations consume substantial amounts of energy and our profitability may decline if energy costs rise.

Electricity and natural gas are essential to our businesses, which are energy intensive. The costs of these resources can vary widely and unpredictably. The factors that affect our energy costs tend to be specific to each of our facilities. Electricity is a key cost component at our New Madrid smelter. New Madrid has a power purchase agreement with AmerenUE, pursuant to which New Madrid has agreed to purchase substantially all of its electricity through May 2020. AmerenUE must obtain the approval of the Missouri Public Service Commission to increase the rates that it charges. AmerenUE applied for a 12.1% rate increase and a fuel adjustment clause in April 2008 and we expect a ruling from the Missouri Public Service Commission not later than March 2009. Our electricity costs will increase if AmerenUE is successful in receiving any rate increase, the fuel adjustment clause or any combination of the two requests. If AmerenUE is fully successful in its rate increase request, New Madrid’s costs will increase by $15.5 million annually. An increase in our costs due to a fuel adjustment clause cannot be estimated at this time. Our electricity costs may increase further if AmerenUE applies for and is granted additional rate increases in the future. See “Business—Primary Metal—Upstream Business—Raw Materials and Supply” for additional details.

Electricity is also a key cost component at our rolling mill facilities. While we purchase virtually all of our electricity for our rolling mills under a fixed-price contract, this contract may be terminated by the distributor at any time upon twelve months’ notice. If we are unable to obtain power at affordable rates upon termination of this contract, we may be forced to curtail or idle a portion of our production capacity, which would lower our revenues and adversely affect the profitability of our operations.

Natural gas is the largest cost component at our Gramercy refinery and a key cost component at our rolling mill facilities. Our Gramercy refinery has contracts to guarantee secure supply from two local suppliers at an index-based price. Our downstream business purchases natural gas on the open market. The price of natural gas can be particularly volatile. As a result, our natural gas costs may fluctuate dramatically, and we may not be able to mitigate the effect of higher natural gas costs on our cost of sales. Any substantial increases in energy costs could cause our operating costs to increase and negatively affect our financial condition, results of operations and cash flows.

We may encounter increases in the cost of raw material, which could cause our cost of goods sold to increase, thereby reducing operating results and limiting our operating flexibility.

We require substantial amounts of raw materials in our business, consisting principally of alumina, primary aluminum, recycled aluminum and aluminum scrap. While our upstream business is fully integrated, and thus has a secure supply of raw material at long-term competitive costs, prices for the raw materials used by our downstream business, including primary aluminum, recycled aluminum and alloying elements, are subject to continuous volatility and may increase from time to time. Our sales are generally made on the basis of a “margin over metal price,” but if prices increase we may not be able to pass on the entire cost of the increases to our customers or offset fully the effects of high raw materials costs, other than metal, through productivity improvements, which may cause our profitability to decline. In addition, a sustained material increase in raw materials prices may cause some of our customers to substitute other materials for our products.

Our hedging activities may not be effective in reducing the variability of our revenues.

We have entered into derivative transactions related to a substantial portion of our expected primary aluminum shipment volumes through 2012, which enables us to receive a minimum price for such portion of our

 

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expected shipments. If we do not undertake further hedging activities, we will continue to have price risk with respect to the unhedged portion of our primary aluminum shipments. In addition, our actual future shipment volumes may be higher or lower than we estimated. Further, the derivative instruments we utilize for our hedging activities are based on posted market prices for primary aluminum, which may differ from the prices that we realize in our operations. As a result of these factors, our hedging activities may be less effective than expected in reducing the economic variability of our future revenues. We are under no obligation under the notes or otherwise to maintain our existing hedging arrangements or to enter into further hedging arrangements and there can be no guarantee that future market prices for aluminum, and our revenues, will not decline materially. For additional information regarding our hedging activities, see “Business—Commodity Risk Management.”

We face risks relating to certain joint ventures and subsidiaries that we do not entirely control.

Some of our activities are, and will in the future be, conducted through entities that we do not entirely control or wholly own. These entities include our Gramercy and St. Ann joint ventures. Risks we face in connection with these joint ventures include the following:

 

  ·  

Under the governing documents for these joint ventures, we do not solely determine certain key matters, such as the timing and amount of cash distributions from these entities or the terms on which they supply us with raw material. As a result, our ability to generate cash from and set supply terms with these entities may be more restricted than if they were wholly owned entities.

 

  ·  

We may be required to make cash contributions to the joint ventures on a regular basis in order to provide for their ongoing operational costs, maintenance capital expenditure and working capital needs. To the extent these needs exceed the joint ventures’ third-party revenues, we may be required to make a significant cash investment.

 

  ·  

The agreements governing the joint ventures contain restrictions on our ability to transfer our interest in the joint ventures, including a right of first refusal of our joint venture partner, a requirement that the transferee have a minimum level of tangible net worth and other requirements. Our joint venture partner consented to the Apollo Acquisition, so these restrictions were not triggered by the Apollo Acquisition, but they could be triggered by a future transaction involving the joint ventures.

 

  ·  

We have negotiated certain economic terms of the St. Ann joint venture with the Government of Jamaica, which are currently under review. We expect negotiations regarding these terms to begin in May 2008 and if these economic terms are altered, our profitability could be adversely affected.

Approximately 50% of the bauxite mined at St. Ann is sold to third party. Revenues from these sales reduce the net cost of bauxite to Gramercy. We are currently in discussions for a new contract of sale with this third party purchaser. In the event we are unable to successfully arrange a new contract, the cost of our bauxite will increase, affecting our results of operations and profitability.

We may be unable to continue to compete successfully in the highly competitive markets in which we operate.

We are engaged in a highly fragmented and competitive industry. We compete with a number of large, well-established companies in each of the markets in which we operate. Our upstream business competes with a large number of other value-added metals producers on an international, national, regional and local basis. We also compete, to a much lesser extent, with primary metals producers, who typically sell to very large customers requiring regular shipments of large volumes of metals. Our downstream business competes in the production and sale of rolled aluminum products with a number of other aluminum rolling mills, including large, single-purpose sheet mills, continuous casters and other multi-purpose mills. Aluminum also competes with other materials, such as steel, copper, plastics, composite materials and glass, among others, for various applications. In the past, for certain applications customers have demonstrated a willingness to substitute other materials for aluminum. In both businesses, some of our competitors are larger than us and have greater financial and technical resources than we do. These larger competitors may be better able to withstand reductions in price or other adverse industry or economic conditions. A current or new competitor may also add or build new capacity, which

 

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could diminish our profitability by decreasing price. New competitors could emerge from within North America or globally, including China. If we do not compete successfully, our business, operating margins, financial condition, cash flows and profitability could be adversely affected.

In addition, our downstream business competes with other rolled products suppliers, principally multi-purpose mills, on the basis of quality, price, timeliness of delivery, technological innovation and customer service. One competitive factor, particularly in the flat rolled business, is price. We may be required in the future to reduce fabrication prices or shift our production to products that generally yield lower fabrication prices in order to remain at full capacity, which could impact our level of profitability. In addition, technological innovation is important to our customers and if we are unable to lead or effectively meet new innovations to meet our customers’ needs, our financial performance could be negatively impacted. Increased competition in any of our businesses could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Aluminum may become less competitive with alternative materials, which could reduce our share of industry sales, lower our selling prices and reduce our sales volumes.

Aluminum competes with other materials such as steel, copper, plastics, composite materials and glass for various applications. Higher aluminum prices relative to substitute materials tend to make aluminum products less competitive with these alternative materials. Environmental or other regulations may increase our costs and be passed on to our customers, making our products less competitive. The willingness of customers to accept aluminum substitutions, or the ability of large customers to exert leverage in the marketplace to affect pricing for fabricated aluminum products, could result in a reduced share of industry sales or reduced prices for our products and services, which could decrease revenues or reduce volumes, either of which could have a negative effect on our financial condition, results of operations and cash flows.

If we were to lose order volumes from any of our largest customers, our sales volumes and revenues could be reduced and our cash flows lessened.

Our business is exposed to risks related to customer concentration. In 2007, our ten largest customers were responsible for 30% of our consolidated revenues. No one customer accounted for more than 5% of our consolidated revenues in 2007. A loss of order volumes from, or a loss of industry share by, any major customer could negatively affect our financial condition and results of operations by lowering sales volumes, increasing costs and lowering profitability. In addition, our customers may become involved in bankruptcy or insolvency proceedings or default on their obligations to us. We currently provide no significant reserves for customer defaults.

We do not have long-term contractual arrangements with a substantial number of our customers, and our sales volumes and revenues could be reduced if our customers switch their suppliers.

A significant majority of our customer contracts have a term of one year or less, although we have long- term relationships with many of our customers. Many of these customers purchase products and services from us on a purchase order basis and may choose not to continue to purchase our products and services. The loss of these customers or a significant reduction in their purchase orders could have a material negative impact on our sales volume and business, or cause us to reduce our prices, diminishing profitability.

Our business requires substantial capital investments that we may be unable to fulfill.

Our operations are capital intensive. Capital expenditures were $41.9 million and $41.6 million for 2007 and 2006, respectively, excluding our joint ventures. Including our joint ventures, capital expenditures were $52.8 million and $53.0 million for 2007 and 2006, respectively.

 

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We may not generate sufficient operating cash flows and our external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures, service or refinance our indebtedness or fund other liquidity needs. If we are unable to make upgrades or purchase new plant and equipment, our financial condition and results of operations could be affected by higher maintenance costs, lower sales volumes due to the impact of reduced product quality and other competitive influences.

We may be adversely affected by environmental, safety, production and product regulations or concerns.

Our operations are subject to a wide variety of U.S. federal, state, local and non-U.S. environmental laws and regulations, including those governing emissions to air, discharges to waters, the generation, use, storage, transportation, treatment and disposal of hazardous materials and wastes and employee health and safety matters. Compliance with environmental laws and regulations can be costly, and we have incurred and will continue to incur costs, including capital expenditures, to comply with these requirements. As these regulatory costs increase and are passed through to our customers, our products may become less competitive than other materials, which could reduce our sales. If we are unable to comply with environmental laws and regulations, we could incur substantial costs, including fines and civil or criminal sanctions, or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance. In addition, environmental requirements change frequently and have tended to become more stringent over time. We cannot predict what environmental laws or regulations will be enacted or amended in the future, how existing or future laws or regulations will be interpreted or enforced, or the amount of future expenditures that may be required to comply with such laws or regulations. We therefore cannot assure you that our costs of compliance with current and future environmental requirements will not be material.

In addition, as an owner and operator of real property and a generator of hazardous waste, we may be subject to environmental cleanup liability, regardless of fault, pursuant to Superfund or analogous state or non-U.S. laws. Thus, we could incur substantial costs, including cleanup costs and costs arising from third-party property damage or personal injury claims, relating to environmental contamination at properties currently or formerly operated by us or at third-party sites at which wastes from our operations have been disposed. Contaminants have been discovered in the soil and/or groundwater at some of our facilities. While we are not aware of any contaminated sites as to which material outstanding claims or obligations exist, the discovery of additional contaminants or the imposition of additional cleanup obligations at these or other sites could result in significant liability.

Xstrata has agreed to indemnify us from certain environmental liabilities relating to Xstrata’s operation of the business. If Xstrata becomes unable to, or otherwise does not, comply with its indemnity obligations, or if certain environmental conditions or other liabilities for which we are obligated are not subject to indemnification, we could be subject to significant unforeseen liabilities.

Some of our facilities are located in areas that have been subject to natural disasters. Future natural disasters in these areas could damage our facilities and disrupt our operations.

Our smelter for the production of aluminum is located in New Madrid, Missouri on the banks of the Mississippi River, in an area that may be subject to natural disasters such as floods, tornados and earthquakes. If such a disaster were to occur, it could damage the facility in question and disrupt our production of aluminum. Our bauxite mine is located in St. Ann, Jamaica and our refinery is located in Gramercy, Louisiana, areas that may be exposed to hurricanes. In addition, our other facilities may be subject to natural disasters. We maintain insurance to protect the company from events that may be caused by flood, earthquake, tornado and hurricane in amounts that we believe are commercially reasonable and sufficient to protect our interests, but there can be no assurance that such insurance would be available on a timely basis or adequate to completely reimburse us for the losses that might be sustained or to provide funds for the reconstruction of the smelter or the bauxite mine, and in any event such insurance would not enable us to immediately reconstruct the smelter or bauxite mine to avoid a suspension or disruption of our business while reconstruction proceeded to completion or alternative sourcing

 

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was located. In addition, our hedging arrangements could require us to deliver aluminum even if we are unable to produce such aluminum, which could cause us to incur unexpected costs in purchasing aluminum on the open market.

We could experience labor disputes that disrupt our business.

Approximately 68% of our employees are represented by unions or equivalent bodies and are covered by collective bargaining or similar agreements which are subject to periodic renegotiation. Collective bargaining agreements for all of our union employees expire within the next five years. The collective bargaining agreement at our Newport rolling mill, where approximately 120 employees are represented by the International Association of Machinists, expires in May 2008. Two collective bargaining agreements at our St. Ann joint venture expired in 2007. Consistent with Jamaican labor practices, negotiations with each union are on-going as of the date of this prospectus. We recently experienced a brief work slowdown in connection with these negotiations.

Labor negotiations may not conclude successfully and, in that case, may result in a significant increase in the cost of labor or may break down and result in work stoppages or labor disturbances, disrupting our operations. Any such stoppages or disturbances may have a negative impact on our financial condition and results of operations by limiting plant production, sales volumes and profitability.

Our operations have been and will continue to be exposed to various business and other risks, changes in conditions and events beyond our control in foreign countries.

We are, and will continue to be, subject to financial, political, economic and business risks in connection with our non-U.S. operations. We have made investments and carry on production activities outside the United States via our joint venture with Century to mine bauxite in St. Ann, Jamaica. In addition to the business risks inherent in operating outside the United States, economic conditions may be more volatile, legal and regulatory systems less developed and predictable and the possibility of various types of adverse governmental action more pronounced.

In addition, our revenues, expenses, cash flows and results of operations could be affected by actions in foreign countries that more generally affect the global market for primary aluminum, including inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labor problems. Our operations and the commercial markets for our products could also be adversely affected by acts of war, terrorism or the threat of any of these events as well as government actions such as controls on imports, exports and prices, tariffs, new forms of taxation or changes in fiscal regimes and increased government regulation in countries engaged in the manufacture or consumption of aluminum products. Unexpected or uncontrollable events or circumstances in any of these markets could have a material adverse effect on our financial results.

We are controlled by Apollo and their interests as equity holders may conflict with yours as a creditor.

Apollo beneficially owns substantially all of the common stock of Noranda HoldCo. As a result, Apollo is entitled to elect all of our directors, to appoint new management and to approve actions requiring the approval of our stockholders, including approving or rejecting proposed mergers or sales of all or substantially all of our assets, regardless of whether noteholders believe that any such transactions are in their own best interests. The interests of Apollo may not always be aligned with yours. For example, our equity holders may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investment, even though these transactions might involve risks to you as a holder of notes.

Apollo is in the business of making or advising on investments in companies and holds, and may from time to time in the future acquire, interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. They may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as Apollo continues to own a significant majority of our equity, even if such amount is less than 50%, it will continue to be able to strongly influence or effectively control our business decisions.

 

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The loss of certain members of our management may have an adverse effect on our operating results.

Our success will depend, in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, engineering, manufacturing, financial and administrative skills that are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more of our senior officers, our financial condition and results of operations may be negatively affected. Moreover, the market for qualified individuals may be highly competitive and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise.

Past and future acquisitions or divestitures may adversely affect our financial condition.

We have grown partly through the acquisition of other businesses, including our joint venture businesses acquired from Kaiser Aluminum & Chemical Company in 2004. As part of our strategy, we may continue to pursue acquisitions, divestitures or strategic alliances, which may not be completed or, if completed, may not be ultimately beneficial to us. There are numerous risks commonly encountered in business combinations, including the risk that we may not be able to complete a transaction that has been announced, effectively integrate businesses acquired or generate the cost savings and synergies anticipated. Failure to do so could have a material adverse effect on our financial results.

The insurance that we maintain may not fully cover all potential exposures.

We maintain property, casualty and workers’ compensation insurance, but such insurance may not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental compliance or remediation. In addition, from time to time, various types of insurance for companies in our industries have not been available on commercially acceptable terms or, in some cases, have not been available at all. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

Neither our historical nor our pro forma financial information may be representative of results we would have achieved as an independent company or our future results.

Certain of the historical financial information we have included in this prospectus has been derived from Noranda Aluminum, Inc.’s consolidated financial statements and does not necessarily reflect what our results of operations, financial position or cash flows would have been had we been an independent company during the periods presented. For this reason, as well as the inherent uncertainties of our business, the historical financial information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future. Although our pro forma adjustments reflect certain changes that have occurred in our capital and cost structure as a result of our separation from Xstrata, the subsequent acquisition by Apollo and other adjustments, they do not necessarily indicate the actual changes in capital and cost structure that may occur following our separation from Xstrata, the subsequent acquisition by Apollo and as we operate as an independent company.

We previously have identified a material weakness in our internal controls over financial reporting. If we fail to achieve and maintain effective internal controls or if additional material weaknesses are detected, our business could be adversely affected.

In connection with the completion of the December 31, 2007 financial statement audit, our auditors identified post-close adjustments resulting from deficiencies in our internal control over financial reporting, which our auditors described in a letter dated April 9, 2008 as a material weakness under standards established by the Public Company Accounting Oversight Board (United States), or PCAOB. The PCAOB defines a material weakness as a single deficiency, or a combination of deficiencies, that result in a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected by our internal controls over financial reporting on a timely basis. The material weakness principally related to adjustments associated with previously reported improperly recorded revenue from bill and hold transactions in 2006 and 2007 and improperly classified metal sales in 2007. These adjustments were recorded as part of the restatement discussed in Note 2 to the December 31, 2007 consolidated financial statements contained elsewhere in this prospectus.

 

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In connection with the completion of the December 31, 2006 financial statement audit, our auditors identified post-close adjustments resulting from deficiencies in our internal control over financial reporting, which our auditors described in a letter issued May 3, 2007, as a material weakness under standards established by the American Institute of Certified Public Accountants (the “AICPA”). The AICPA defines a material weakness as a single deficiency, or a combination of deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or deterred by our internal controls. The material weakness principally related to an improperly deferred loss on natural gas hedging activities and an error in LIFO inventory reserve calculation in the financial information submitted by certain reporting units that form part of the consolidated financial statements. Adjustments related to these items are reflected in the December 31, 2006 consolidated financial statements contained elsewhere in this prospectus.

We will be required to comply with the internal control reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, for the fiscal year ended December 31, 2009. We are in the process of documenting and testing our internal control procedures in order to enable us to satisfy the requirements of Section 404 on a stand-alone basis in the future. As a stand-alone entity, certain adjustments to our internal control procedures are required. This process may be time-consuming and costly. If we fail to achieve and maintain an effective internal control environment, it could have a material adverse effect on our business.

Beginning in the second half of 2007, we initiated the following activities aimed at addressing the material weakness discussed above:

 

  ·  

expanded our Audit Committee to include two independent directors;

 

  ·  

created an internal audit function and hired qualified internal audit personnel;

 

  ·  

added corporate resources related to accounting, financial reporting and information technology to provide for the proper selection and application of accounting policies, as well as timely detailed reviews and analyses of the information underlying the consolidated financial statements;

 

  ·  

reorganized our accounting, reporting and information technology team to better align reporting responsibilities and to improve the efficiency and effectiveness of our financial reporting and review process; and

 

  ·  

made improvements in our information systems and reports used to support our financial reporting and review process.

Additional measures may be necessary and the measures we have taken and expect to take to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that such material weakness or other material weaknesses would not result in a material misstatement of our annual or interim financial statements. In addition, we cannot guarantee that other material weaknesses or significant deficiencies will not be identified in the future, or that we have identified all material weaknesses or significant deficiencies. If we are unable to correct deficiencies in internal controls in a timely manner or discover additional material weaknesses or significant deficiencies, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, and to prevent fraud, will be adversely affected, and our financial statements could prove unreliable. In addition, the discovery of further material weaknesses or significant deficiencies could require the restatement of prior period operating results. Any of the foregoing could negatively affect the market price and trading liquidity of the notes, result in a breach of the covenants under our debt agreements, cause investors to lose confidence in our reported financial information, subject us to regulatory investigations and penalties and generally materially and adversely impact our business and financial condition.

 

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THE EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

We entered into registration rights agreements with the initial purchasers of the old notes, in which we agreed to use our commercially reasonable efforts to file a registration statement with the SEC relating to an offer to exchange the old notes for the exchange notes. We also agreed to use our commercially reasonable efforts to cause it to become effective under the Securities Act in no event later than May 19, 2008 with respect to the AcquisitionCo notes and June 6, 2008 with respect to the HoldCo notes. The registration statement of which this prospectus forms a part was filed in compliance with this obligation. The exchange notes will have terms substantially identical to the old notes, except that the exchange notes do not contain terms with respect to transfer restrictions, registration rights and additional interest payable for the failure to consummate the exchange offer.

Within 180 days of the occurrence of any of the circumstances outlined below, we have agreed to file a shelf registration statement with the SEC to cover the resale of the old notes by the holders thereof. We have further agreed that we will use our commercially reasonable efforts to cause the SEC to declare such a shelf registration statement effective within 365 days of the occurrence of such an event and to keep the shelf registration statement effective for up to two years after the effective date of the shelf registration statement. These circumstances include:

 

  ·  

the exchange offer is not permitted by applicable law or SEC policy;

 

  ·  

the exchange offer is not consummated within 30 days after the date notice of the exchange offer is required to be mailed to the holders of old notes; or

 

  ·  

any holder of old notes notifies us prior to the 20th day following consummation of the exchange offer that:

 

  (a) it is prohibited by law or SEC policy from participating in the exchange offer; or

 

  (b) that it may not resell to the public the exchange notes acquired by it in the exchange offer without delivering a prospectus (other than by reason of such holder’s status as our affiliate), and the prospectus contained in this exchange offer registration statement is not appropriate or available for such resales; or

 

  (c) that it is a broker-dealer and owns old notes acquired directly from us or our affiliate.

Transferability of the Exchange Notes

We are making this exchange offer in reliance on interpretations of the staff of the SEC set forth in several no-action letters. We, however, have not sought our own no-action letter. Based upon these interpretations, we believe that you, or any other person receiving exchange notes, may offer for resale, resell or otherwise transfer such exchange notes without complying with the registration and prospectus delivery requirements of the U.S. federal securities laws, if:

 

  ·  

you are, or the person or entity receiving such exchange notes is, acquiring such exchange notes in the ordinary course of business;

 

  ·  

you are not, nor is any such person or entity, participating in or intending to participate in a distribution of the exchange notes within the meaning of the U.S. federal securities laws;

 

  ·  

you do not, nor does any such person or entity, have an arrangement or understanding with any person or entity to participate in any distribution of the exchange notes;

 

  ·  

you are not, nor is any such person or entity, our “affiliate” as such term is defined under Rule 405 under the Securities Act; and

 

  ·  

you are not acting on behalf of any person or entity who could not truthfully make these statements.

 

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In order to participate in the exchange offer, each holder of exchange notes must represent to us that each of these statements is true:

 

  ·  

such holder is not an affiliate of ours;

 

  ·  

such holder is not engaged in, does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the exchange notes; and

 

  ·  

any exchange notes such holder receives will be acquired in the ordinary course of business.

This prospectus may be used for an offer to resell, for the resale or for other retransfer of exchange notes only as specifically set forth in this prospectus. With regard to broker-dealers, only broker-dealers that acquired the old notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Please read “Plan of Distribution” for more details regarding the transfer of exchange notes.

Terms of the Exchange Offer

Upon the terms and subject to the conditions of the exchange offer, we will accept any and all old notes validly tendered and not withdrawn prior to the expiration date. The date of acceptance for exchange of the old notes, and completion of the exchange offer, is the exchange date, which will be the first business day following the expiration date (unless extended as described in this prospectus). We will issue, on or promptly after the exchange date, an aggregate principal amount of up to $510.0 million of AcquisitionCo exchange notes and up to $220.0 million of HoldCo exchange notes in exchange for a like principal amount of old notes tendered and accepted in the exchange offer. Holders may tender some or all of their old notes pursuant to the exchange offer. Holders may only tender old notes in denominations of $2,000 and integral multiples of $1,000 in excess thereof.

The form and terms of the exchange notes will be identical in all material respects to the form and terms of the old notes except that:

 

  ·  

the exchange notes are registered under the U.S. federal securities laws and will not bear any legend restricting their transfer;

 

  ·  

the exchange notes bear different CUSIP numbers from the old notes;

 

  ·  

the exchange notes are not subject to transfer restrictions or entitled to registration rights; and

 

  ·  

the holders of the exchange notes are not entitled to certain rights under the registration rights agreements, including the provisions for an increase in the interest rate on the old notes in some circumstances relating to the timing of the exchange offer.

The exchange notes will evidence the same debt as the old notes. The exchange notes will be issued under and entitled to the benefits of the same indentures under which the old notes were issued, and the exchange notes and the old notes will constitute a single class for all purposes under the indentures. For a description of the indentures, please see “Description of the AcquisitionCo Notes” and “Description of the HoldCo Notes.”

As of the date of this prospectus, $510.0 million aggregate principal amount of Senior Floating Rate Notes due 2015 and $220.0 million aggregate principal amount of Senior Floating Rate Notes due 2014 were outstanding. This prospectus and a letter of transmittal are being sent to all registered holders of old notes. There will be no fixed record date for determining registered holders of old notes entitled to participate in the exchange offer.

We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreements, the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as

 

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amended (the “Exchange Act”), and the rules and regulations of the SEC. Holders of old notes do not have any appraisal or dissenters’ rights in connection with the exchange offer. Old notes that are not tendered for exchange or are tendered but not accepted in connection with the exchange offer will remain outstanding and be entitled to the benefits of the indentures under which they were issued, including accrual of interest but, subject to a limited exception, will not be entitled to any registration rights under the applicable registration rights agreement. See “—Effect of Not Tendering.”

We will be deemed to have accepted validly tendered old notes when and if we have given oral or written notice of our acceptance to the applicable exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us. If any tendered old notes are not accepted for exchange because of an invalid tender, the occurrence of other events described in this prospectus or otherwise, we will return any unaccepted old notes, at our expense, to the tendering holder promptly after expiration of the exchange offer.

Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees with respect to the exchange of old notes. Tendering holders will also not be required to pay transfer taxes in the exchange offer. We will pay all charges and expenses in connection with the exchange offer as described under the subheading “—Fees and Expenses.” However, we will not pay any taxes incurred in connection with a holder’s request to have exchange notes or non-exchanged notes issued in the name of a person other than the registered holder. See “—Fees and Expenses” in this section below.

Expiration Date; Extensions, Amendment

As used in this prospectus, the term “expiration date” means 11:59 p.m., New York City time, on                     , 2008, the date that is 31 days after the date of this prospectus. However, if we, in our sole discretion, extend the period of time for which the exchange offer is open, the term “expiration date” will mean the latest time and date to which we shall have extended the expiration of the offer. To extend the period of time during which the exchange offer is open, we will notify the exchange agent and each registered holder of old notes of any extension before 9:00 a.m. New York City time, on the next business day after the previously scheduled expiration date. We reserve the right to extend the exchange offer, to delay accepting any tendered old notes or, if any of the conditions described below under the heading “—Conditions to the Exchange Offer” have not been satisfied, to terminate the exchange offer. Subject to the terms of the registration rights agreements, we also reserve the right to amend the terms of the exchange offer in any manner.

Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice to the registered holders of the old notes. If we amend the exchange offer in a manner that we determine to constitute a material change, including the waiver of a material condition, we will promptly disclose the amendment by press release or other public announcement as required by Rule 14e-1(d) of the Exchange Act and will extend the offer period if necessary so that at least five business days remain in the offer following notice of the material change.

Conditions to the Exchange Offer

Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or issue any exchange notes for, any old notes, and we may terminate or amend the exchange offer before accepting any old notes for exchange, if:

 

  ·  

we determine that the exchange offer violates any law, statute, rule, regulation or interpretation by the staff of the SEC or any order of any governmental agency or court of competent jurisdiction; or

 

  ·  

any action or proceeding is instituted or threatened in any court or by or before any governmental agency relating to the exchange offer which, in our judgment, could reasonably be expected to impair our ability to proceed with the exchange offer.

 

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In addition, we will not be obligated to accept for exchange the old notes of any holder that has not made to us:

 

  ·  

the representations set forth in the second paragraph under the heading “—Transferability of the Exchange Notes”; and

 

  ·  

any other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registration of the exchange notes under the Securities Act.

We expressly reserve the right at any time or at various times to extend the period of time during which the exchange offer is open. Consequently, we may delay acceptance of any old notes by notice by press release or other public announcement as required by Rule 14e-1(d) of the Exchange Act of such extension to their holders. During any such extensions, all old notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange. We will return any old notes that we do not accept for exchange for any reason without expense to their tendering holder as promptly after the expiration or termination of the exchange offer.

We expressly reserve the right to amend or terminate the exchange offer and to reject for exchange any old notes not previously accepted for exchange upon the occurrence of any of the conditions of the exchange offer specified above. We will give notice by press release or other public announcement as required by Rule 14e-1(d) of the Exchange Act of any extension, amendment, non-acceptance or termination to the holders of the old notes. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.

The conditions listed above are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any of these conditions. We may waive these conditions in our reasonable discretion in whole or in part at any time and from time to time prior to the expiration date. The failure by us at any time to exercise any of the above rights will not be considered a waiver of such right, and such right will be considered an ongoing right that may be asserted at any time and from time to time.

Procedures for Tendering Old Notes

The old notes may be tendered via a letter of transmittal unless the tender is being made in book-entry form as described under the heading “—Book-entry Delivery Procedures.” To tender in the exchange offer using a letter of transmittal, you must:

 

  ·  

complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal;

 

  ·  

have the signatures guaranteed if required by the letter of transmittal; and

 

  ·  

mail or otherwise deliver the letter of transmittal or such facsimile, together with the old notes and any other required documents, to the exchange agent prior to 11:59 p.m., New York City time, on the expiration date.

All tenders not withdrawn before the expiration date, and the acceptance of the tender by us, will constitute agreement between you and us under the terms and subject to the conditions in this prospectus and in the letter of transmittal, including an agreement to deliver good and marketable title to all tendered notes prior to the expiration date, free and clear of all liens, charges, claims, encumbrances, adverse claims and rights and restrictions of any kind.

The method of delivery of the old notes, the letter of transmittal, and all other required documents to the exchange agent is at the election and sole risk of the holder. Instead of delivery by mail, you should use an overnight or hand-delivery service. In all cases, you should allow for sufficient time to ensure delivery to the

 

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exchange agent before the expiration of the exchange offer. You may request your broker, dealer, commercial bank, trust company or nominee to effect these transactions for you. You should not send any note, letter of transmittal or other required document to us.

If you are a beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee and you wish to tender your notes, you should promptly contact the registered holder and instruct the registered holder to tender on your behalf. If you wish to tender old notes yourself, you must either:

 

  ·  

make appropriate arrangements to register ownership of the old notes in your name; or

 

  ·  

obtain a properly completed bond power from the registered holder of old notes.

The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date and you must make these arrangements or follow these procedures prior to completing and executing the letter of transmittal and delivering the old notes.

The exchange of old notes will be made only after timely receipt by the exchange agent of a letter of transmittal, where applicable, and all other required documents, or timely completion of a book-entry transfer. If any tendered notes are not accepted for any reason, or if old notes are submitted for a greater principal amount than the holder desires to exchange, the exchange agent will return such unaccepted or non-exchanged notes to the tendering holder promptly after the expiration or termination of the exchange offer. In the case of old notes tendered by book-entry transfer, the exchange agent will credit the non-exchanged notes to an account maintained with DTC.

Guarantee of Signatures; Bond Powers and Endorsements

Signatures on letters of transmittal or notices of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Exchange Act, unless the old notes tendered pursuant thereto are tendered:

 

  ·  

by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; and

 

  ·  

for the account of an eligible guarantor institution.

If the applicable letter of transmittal is signed by a person other than the registered holder of any old notes listed on the old notes, such old notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the old notes and an eligible guarantor institution must guarantee the signature on the bond power.

If the applicable letter of transmittal or any certificates representing old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, those persons should so indicate when signing and, unless waived by us, they should also submit to the exchange agent satisfactory evidence of their authority to act in such capacity.

Book-entry Delivery Procedures

Promptly after the date of this prospectus, the exchange agent will establish an account with respect to the old notes at DTC as the book-entry transfer facility, for purposes of the exchange offer. Any financial institution that is a participant in the book-entry transfer facility’s system may make book-entry delivery of the old notes by

 

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causing the book-entry transfer facility to transfer those old notes into the exchange agent’s account at the facility in accordance with the facility’s procedures for such transfer. To be timely, book-entry delivery of old notes requires receipt of a confirmation of a book-entry transfer, a “book-entry confirmation,” prior to the expiration date. In addition, although delivery of old notes may be effected through book-entry transfer into the exchange agent’s account at the applicable book-entry transfer facility, the applicable letter of transmittal or a manually signed facsimile thereof, together with any required signature guarantees and any other required documents, or an “agent’s message,” as defined below, in connection with a book-entry transfer, must, in any case, be delivered or transmitted to and received by the exchange agent at its address set forth below prior to the expiration date to receive exchange notes for tendered old notes, or the guaranteed delivery procedure described below must be complied with. Tender will not be deemed made until such documents are received by the exchange agent. Delivery of documents to the applicable book-entry transfer facility does not constitute delivery to the exchange agent.

The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC’s system may use DTC’s Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange, electronically transmit their acceptance of the exchange by causing DTC to transfer the old notes to the exchange agent in accordance with DTC’s Automated Tender Offer Program procedures for transfer. DTC will then send an agent’s message to the exchange agent. The term “agent’s message” means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, that states that:

 

  ·  

DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that is tendering old notes that are the subject of the book-entry confirmation;

 

  ·  

the participant has received and agrees to be bound by the terms of the letter of transmittal or, in the case of an agent’s message relating to guaranteed delivery, such participant has received and agrees to be bound by the applicable notice of guaranteed delivery; and

 

  ·  

we may enforce that agreement against such participant.

Guaranteed Delivery Procedures

If you desire to tender old notes pursuant to the exchange offer and (1) time will not permit your letter of transmittal and all other required documents to reach the applicable exchange agent on or prior to the expiration date or (2) the procedures for book-entry transfer (including delivery of an agent’s message) cannot be completed on or prior to the expiration date, you may nevertheless tender such old notes with the effect that such tender will be deemed to have been received on or prior to the expiration date if all the following conditions are satisfied:

 

  ·  

the tender is made through an eligible guarantor institution;

 

  ·  

prior to the expiration date, the exchange agent receives from such eligible guarantor institution either: (i) a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by us herewith, by facsimile transmission, mail, or hand delivery or (ii) a properly transmitted agent’s message and notice of guaranteed delivery; and

 

  ·  

the exchange agent receives the properly completed and executed letter of transmittal or facsimile thereof, as well as certificate(s) representing all tendered old notes in proper form for transfer or a book-entry confirmation of transfer of the old notes into the exchange agent’s account at DTC, and all other documents required by the letter of transmittal within three New York Stock Exchange trading days after the expiration date.

Determination of Valid Tenders; Our Rights under the Exchange Offer

All questions as to the validity, form, eligibility, time of receipt, acceptance and withdrawal of tendered notes will be determined by us in our sole discretion, which determination will be final and binding on all parties. We expressly reserve the absolute right, in our sole discretion, to reject any or all old notes not properly tendered

 

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or any old notes the acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the absolute right in our sole discretion to waive or amend any conditions of the exchange offer or to waive any defects or irregularities of tender for any particular note, whether or not similar defects or irregularities are waived in the case of other notes. Our interpretation of the terms and conditions of the exchange offer will be final and binding on all parties. No alternative, conditional or contingent tenders will be accepted. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured by the tendering holder within such time as we determine.

Although we intend to request the exchange agent to notify holders of defects or irregularities in tenders of old notes, neither we, the exchange agent nor any other person will have any duty to give notification of defects or irregularities in such tenders or will incur any liability to holders for failure to give such notification. Holders will be deemed to have tendered old notes only when such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.

Withdrawal Rights

Except as otherwise provided in this prospectus, you may withdraw tendered notes at any time before 11:59 p.m., New York City time, on the expiration date. For a withdrawal of tendered notes to be effective, a written or facsimile transmission notice of withdrawal must be received by the exchange agent on or prior to the expiration of the exchange offer at the address set forth herein. Any notice of withdrawal must:

 

  ·  

specify the name of the person having tendered the old notes to be withdrawn;

 

  ·  

identify the old notes to be withdrawn and principal amount of such notes or, in the case of notes transferred by book-entry transfer, the name and number of the account(s) at the book-entry transfer facility;

 

  ·  

be signed by the holder in the same manner as the original signature on the letter of transmittal by which such old notes were tendered, with any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the old notes register the transfer of such old notes into the name of the person withdrawing the tender; and

 

  ·  

specify the name in which any such notes are to be registered, if different from that of the registered holder.

If the old notes have been tendered under the book-entry delivery procedures described above, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn old notes and otherwise comply with the procedures of the applicable book-entry transfer facility.

We will determine all questions as to the validity, form and eligibility (including time of receipt) of such old notes in our sole discretion, and our determination will be final and binding on all parties. Any permitted withdrawal of notes may not be rescinded. Any notes properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the exchange offer. The exchange agent will return any withdrawn notes without cost to the holder promptly after withdrawal of the notes. Holders may retender properly withdrawn notes at any time before the expiration of the exchange offer by following one of the procedures described above under the heading “—Procedures for Tendering Old Notes.”

Exchange Agent

Wells Fargo Bank, N.A. has been appointed as exchange agent for the exchange offer. ALL EXECUTED LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE EXCHANGE AGENT AT THE ADDRESS

 

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LISTED BELOW. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows:

 

By Overnight Courier or Regular Mail:

Wells Fargo Bank, N.A.

Corporate Trust Operations

MAC N9303-121

6th & Marquette Avenue

Minneapolis, MN 55479

Attn: Reorg

  

By Registered or Certified Mail:

Wells Fargo Bank, N.A.

Corporate Trust Operations

MAC N9303-121

P.O. Box 1517

Minneapolis, MN 55480

Attn: Reorg

 

By Hand Delivery:

Wells Fargo Bank, N.A.

Corporate Trust Services

Northstar East Bldg.—12th Floor

608 2nd Avenue South

Minneapolis, MN 55402

Attn: Reorg

 

To Confirm by Facsimile:   To Confirm by Telephone:

(612) 667-6282

 

(800) 344-5128 or (612) 667-9764

DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.

Effect of Not Tendering

After the completion of the exchange offer, the old notes will remain subject to restrictions on transfer. Because the old notes have not been registered under the U.S. federal securities laws, they bear a legend restricting their transfer, absent registration or the availability of a specific exemption from registration. The holders of old notes not tendered will have no further registration rights, except that, under limited circumstances, we may be required to file a “shelf” registration statement for a continuous offer of old notes.

Accordingly, the old notes not tendered may be resold only:

 

  ·  

to us or our subsidiaries;

 

  ·  

pursuant to a registration statement that has been declared effective under the Securities Act;

 

  ·  

for so long as the old notes are eligible for resale pursuant to Rule 144A under the Securities Act to a person the seller reasonably believes is a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the transfer is being made in reliance on Rule 144A; or

 

  ·  

pursuant to any other available exemption from the registration requirements of the Securities Act (in which case we and the trustee shall have the right to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to us and the trustee), subject in each of the foregoing cases to any requirements of law that the disposition of the seller’s property or the property of such investor account or accounts be at all times within its or their control and in compliance with any applicable state securities laws.

Upon completion of the exchange offer, due to the restrictions on transfer of the old notes and the absence of such restrictions applicable to the exchange notes, it is likely that the market, if any, for old notes will be relatively less liquid than the market for exchange notes. Consequently, holders of old notes who do not participate in the exchange offer could experience significant diminution in the value of their old notes, compared to the value of the exchange notes.

 

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Regulatory Approvals

Other than the U.S. federal securities laws, there are no U.S. federal or state regulatory requirements that we must comply with, and there are no approvals that we must obtain in connection with the exchange offer.

Fees and Expenses

The registration rights agreements provide that we will bear all expenses in connection with the performance of our obligations relating to the registration of the exchange notes and the conduct of the exchange offer. These expenses include registration and filing fees, accounting and legal fees and printing costs, among others. We will pay the exchange agent reasonable and customary fees for its services and reasonable out-of-pocket expenses. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for customary mailing and handling expenses incurred by them in forwarding this prospectus and related documents to their clients that are holders of old notes and for handling or tendering for such clients.

We have not retained any dealer-manager in connection with the exchange offer and will not pay any fee or commission to any broker, dealer, nominee or other person, other than the exchange agent, for soliciting tenders of old notes pursuant to the exchange offer.

Transfer Taxes

We will pay all transfer taxes, if any, applicable to the exchanges of old notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:

 

  ·  

exchange notes are to be delivered to, or issued in the name of, any person other than the registered holder of the old notes tendered;

 

  ·  

tendered old notes are registered in the name of any person other than the person signing the letter of transmittal; or

 

  ·  

a transfer tax is imposed for any reason other than the exchange of old notes in connection with the exchange offer.

If satisfactory evidence of payment of such taxes or exemption from them is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to the tendering holder.

Accounting Treatment

The exchange notes will be recorded at the same carrying value as the old notes as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes upon the completion of the exchange offer. The expenses of the exchange offer that we pay will be charged to expense in accordance with generally accepted accounting principles.

Other

Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

We may in the future seek to acquire untendered old notes in the open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any old notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old notes.

 

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THE TRANSACTIONS

On April 10, 2007, Noranda AcquisitionCo entered into a Stock Purchase Agreement with Xstrata and one of its subsidiaries, pursuant to which it agreed to purchase the stock of Noranda Intermediate Holding Corporation, a newly formed subsidiary of Xstrata. This newly formed subsidiary owns all of the outstanding shares of Noranda Aluminum, Inc., which together with its subsidiaries constituted the Noranda aluminum business of Xstrata.

Noranda HoldCo and Noranda AcquisitionCo were formed by investment funds affiliated with, or co-investment vehicles managed by, Apollo, solely for the purpose of completing the Apollo Acquisition, and they have no material assets, obligations, employees or operations other than those relating to the Transactions.

Financings related to the Apollo Acquisition, which were completed on May 18, 2007, consisted of $510.0 million in senior floating rate notes due 2015, or the AcquisitionCo notes, issued by Noranda AcquisitionCo, and senior secured credit facilities, or the existing senior secured credit facilities, consisting of a $500.0 million senior secured term credit facility and a $250.0 million senior secured revolving credit facility, which is undrawn as of the date of this prospectus, entered into by Noranda AcquisitionCo. The existing senior secured credit facilities are guaranteed by Noranda HoldCo and all of Noranda AcquisitionCo’s existing and future wholly owned U.S. subsidiaries; the AcquisitionCo notes are guaranteed by Noranda HoldCo and all of Noranda AcquisitionCo’s existing and future wholly owned U.S. subsidiaries. For a more detailed discussion of the existing senior secured credit facilities, see “Description of Certain Indebtedness.”

In addition, at the time of the Apollo Acquisition, affiliates of Apollo, in exchange for common stock of Noranda HoldCo, contributed cash of $214.2 million to Noranda HoldCo, which was contributed to Noranda AcquisitionCo. The proceeds from the issuance of AcquisitionCo notes, borrowings under the existing senior secured credit facilities and the investment by Apollo were used to pay the purchase price for Noranda Intermediate Holding Corporation. Subsequent to the Apollo Acquisition, on May 29, 2007, certain members of management of Noranda HoldCo contributed an additional $1.9 million in cash to Noranda HoldCo, in exchange for common stock of Noranda HoldCo.

On June 7, 2007, Noranda HoldCo issued $220.0 million in senior floating rate notes due 2014, or the HoldCo notes. Noranda HoldCo used the proceeds for the HoldCo notes, as well as $4.3 million of cash on hand, to pay a $216.1 million net cash dividend to its stockholders, which include Apollo and certain members of its management, to make a cash payment of $4.1 million to its optionholders (as part of an adjustment to preserve the value of the Noranda HoldCo options following the dividend) and to pay for fees and expenses related to the offering of the HoldCo notes.

Prior to December 31, 2005, Xstrata accumulated a 19.9% ownership in Falconbridge Limited, which owned 100% of Noranda Aluminum, Inc. at that time. On August 15, 2006, through a tender offer, Xstrata effectively acquired the remaining 80.1% of the outstanding shares in Falconbridge Limited, by which Noranda Aluminum, Inc. became Xstrata’s wholly owned subsidiary.

 

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Ownership and Corporation Structure

The following diagram illustrates our ownership and debt structure as of the date hereof.

LOGO

 

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USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes, we will receive in exchange the old notes in like principal amount, which will be cancelled and as such will not result in any increase in our indebtedness.

 

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CAPITALIZATION

The following table sets forth our cash and capitalization as of December 31, 2007. This table should be read in conjunction with the audited consolidated financial statements and the related notes included elsewhere in this filing and “Summary Historical and Unaudited Pro Forma Financial and Other Data,” “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Noranda Aluminum
Holding Corporation
 

(in millions)

   As of December 31,
2007
 

Cash and cash equivalents

   $ 75.6  
        

Revolving credit facility

     —    

Term Loan B due 2014

   $ 423.8  

Senior Floating Rate Notes due 2015 issued by Noranda AcquisitionCo

     510.0  

Senior Floating Rate Notes due 2014 issued by Noranda HoldCo

     217.9  
        

Total debt, including current portion

     1,151.7  
        

Shareholders’ deficiency

     (0.1 )
        

Total capitalization

   $ 1,151.6  
        

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

The following unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2007 is based on the historical consolidated statements of operations of the Predecessor period from January 1, 2007 to May 17, 2007 and the Successor period from May 18, 2007 to December 31, 2007 and gives effect to the Transactions and the Special Dividend as if they had occurred on January 1, 2007. A pro forma balance sheet has not been presented as the Transactions and the Special Dividend are reflected in the Successor’s December 31, 2007 balance sheet, included elsewhere in this prospectus. The unaudited pro forma condensed consolidated statement of operations includes pro forma adjustments that we believe are (i) directly attributable to the Transactions and the Special Dividend, (ii) factually supportable and (iii) expected to have a continuing impact on the consolidated results. Pro forma adjustments were made to reflect:

 

  ·  

Changes in depreciation and amortization expenses resulting from fair value adjustments to net tangible and amortizable intangible assets;

 

  ·  

Excluded historical debt and related interest not assumed as part of the Apollo Acquisition;

 

  ·  

Transaction fees and debt issuance costs incurred as a result of the Transactions and the Special Dividend;

 

  ·  

Increase in interest expense resulting from additional indebtedness incurred in connection with the Transactions and the Special Dividend;

 

  ·  

Excluded intercompany income and expenses not acquired as part of the Apollo Acquisition;

 

  ·  

Management fees which will be incurred as part of the Apollo Acquisition; and

 

  ·  

The effect of income tax expense at the Company’s statutory tax rate of the pro forma adjustments.

The Apollo Acquisition has been accounted for using the purchase method of accounting. The pro forma information presented, including allocations of purchase price, is based on preliminary estimates of the fair values of assets acquired and liabilities assumed in connection with the Apollo Acquisition. These preliminary estimates are based on available information and certain assumptions we consider reasonable and may be revised as additional information becomes available.

The final purchase price allocation for the Apollo Acquisition will be dependent upon the finalization of asset and liability valuations, which may depend in part on prevailing market rates and conditions. Any final adjustments may result in a change to the unaudited pro forma condensed consolidated statement of operations.

We believe that the assumptions used to derive the unaudited pro forma condensed consolidated statement of operations are reasonable given the information available; however, such assumptions are subject to change and the effect of any such change could be material. The unaudited pro forma condensed consolidated statement of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical consolidated financial statements and related notes of Noranda Aluminum, Inc. and Noranda HoldCo, included elsewhere in this prospectus. The unaudited pro forma condensed consolidated statement of operations is presented for information purposes only and is not intended to represent or be indicative of the consolidated results of operations that we would have reported had the Transactions and the Special Dividend been completed for the periods presented, nor are they necessarily indicative of future results.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2007

(in millions)

 

    Predecessor     Successor     Combined
Predecessor and
Successor
          Pro forma
Noranda
Aluminum
Holding
Corporation
 
    Period from
January 1,
2007 to May 17,
2007(1)
    Period from
May 18, 2007 to
December 31,
2007(1)
    Year ended
December 31,
2007
    Pro forma
adjustments
    Year ended
December 31,
2007
 
   

(As Restated)

                         

Sales

  $ 527.7     $ 867.4     $ 1,395.1     $ —       $ 1,395.1  

Operating costs and expenses

         

Cost of sales

    432.6       783.1       1,215.7       19.0  (2)     1,234.7  

Selling, general and administrative expenses

    8.7       24.1       32.8       0.7  (3)     33.5  

Other charges (recoveries), net

    —         (0.5 )     (0.5 )     —         (0.5 )
                                       
    441.3       806.7       1,248.0       19.7       1,267.7  
                                       

Operating income

    86.4       60.7       147.1       (19.7 )     127.4  
                                       

Other expenses (income)

         

Interest expense, (income) net

         

Parent and related party

    7.2       —         7.2       (7.2 )(4)     —    

Other

    (1.0 )     67.2       66.2       42.8  (5)     109.0  

Loss (gain) on derivative instruments and hedging activities

    56.6       (12.5 )     44.1       —         44.1  

Equity in net income of investments in affiliates

    (4.3 )     (7.3 )     (11.6 )     0.3  (6)     (11.3 )
                                       

Total other expenses

    58.5       47.4       105.9       35.9       141.8  
                                       

Income (loss) before income taxes

    27.9       13.3       41.2       (55.6 )     (14.4 )

Income tax expense (benefit)

    13.6       5.1       18.7       (21.0 )(7)     (2.3 )
                                       

Net income (loss)

  $ 14.3     $ 8.2     $ 22.5     $ (34.6 )   $ (12.1 )
                                       

 

 

See the accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

(dollars in millions)

 

(1) Represents the historical consolidated results of operations.
(2) Reflects an increase of $12.6 million for the year ended December 31, 2007 of depreciation resulting from fair value adjustments to property, plant and equipment as a result of the Apollo Acquisition. The adjustment also reflects an increase of $6.4 million for the year ended December 31, 2007 resulting from the fair value adjustment to inventory as a result of the Apollo Acquisition.
(3) Includes (i) an increase of $0.4 million for the year ended December 31, 2007 of amortization resulting from fair value adjustments to amortizable intangible assets as a result of the Apollo Acquisition; and (ii) the addition of a management fee of $0.3 million for the year ended December 31, 2007 that we are permitted to pay to Apollo for certain financial, strategic, advisory and consulting services under the terms of the indentures governing the notes (see “Certain Relationships and Related Party Transactions—Apollo Management Agreement and Transaction Fee”).
(4) Reflects the elimination of historical intercompany interest income and expenses, related to intercompany balances which were not acquired as part of the Apollo Acquisition.
(5) Reflects the net effect of the increase in interest expense related to the additional indebtedness, incurred in the Transactions and the Special Dividend in the aggregate principal amount of $1,227.9 million, bearing interest at a weighted average interest rate of 8.3%. The interest rates used for pro forma purposes are based on assumptions of the rates at December 31, 2007. The adjustment assumes straight-line amortization of deferred financing costs on the Special Dividend. A 0.125% change in the interest rates on our pro forma indebtedness would change our annual pro forma interest expense by $1.5 million.
(6) Reflects an increase of $0.3 million for the year ended December 31, 2007 of amortization of excess of carrying value of investment over the Company’s share of the investments’ underlying net assets resulting from the fair value adjustments to the Company’s joint ventures as a result of the Apollo Acquisition.
(7) Reflects the estimated tax effect of the pro forma adjustments at the company’s statutory tax rate.

The above unaudited pro forma condensed consolidated statement of operations does not adjust the following non-recurring items: (i) write-off of deferred financing costs of $1.4 million and (ii) the fee we paid to Apollo in connection with the Transactions, which are included in the historical consolidated results of operations included elsewhere in this prospectus.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table presents our selected condensed historical consolidated financial data. This information should be read in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Condensed Consolidated Statements of Operations” and with the audited consolidated financial statements of Noranda Aluminum, Inc. and HoldCo and their notes included elsewhere in this prospectus, as well as the other financial information included in this prospectus.

Noranda HoldCo, Noranda AcquisitionCo and Noranda Intermediate Holding Corporation are recently formed companies that have not engaged in any business or other activities prior to the Apollo Acquisition except in connection with their formation, the Transactions and the Special Dividend described elsewhere in this prospectus. Accordingly, for the purposes of this prospectus, all financial and other information herein relating to periods prior to the completion of the Transactions and the Special Dividend is that of Noranda Aluminum, Inc.

The financial information for the period from January 1, 2006 to August 15, 2006 and for the years ended December 31, 2005, 2004 and 2003 includes the financial condition, results of operations and cash flows for Noranda Aluminum, Inc. on a basis reflecting the historical carrying values of Noranda Aluminum, Inc. prior to the Xstrata Acquisition and is referred to as “Pre-predecessor.” The financial information as of December 31, 2006 and for the periods from August 16, 2006 to December 31, 2006 and from January 1, 2007 to May 17, 2007 includes the financial condition, results of operations and cash flows for Noranda Aluminum, Inc. on a basis reflecting the stepped-up values of Noranda Aluminum, Inc. prior to the Apollo Acquisition, but subsequent to the Xstrata Acquisition, and is referred to as “Predecessor.” The financial information as of December 31, 2007 and for the period from May 18, 2007 to December 31, 2007 includes the financial condition, results of operations and cash flows for Noranda HoldCo on a basis reflecting the impact of the preliminary purchase allocation of the Apollo Acquisition, and is referred to as “Successor.”

The consolidated statements of operations data for the year ended December 31, 2005 and for the periods from January 1, 2006 to August 15, 2006, from August 16 to December 31, 2006, from January 1, 2007 to May 17, 2007 and from May 18, 2007 to December 31, 2007 and the consolidated balance sheet data as of December 31, 2006 and 2007 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. As discussed in Note 2 to the audited consolidated financial statements, during the preparation process for the 2007 annual audited consolidated financial statements, we concluded that certain errors identified subsequent to filing prior period financial statements were material to those periods; accordingly, we have restated these previously issued financial statements. The consolidated statement of operations data for the year ended December 31, 2004 and the consolidated balance sheet data as of December 31, 2005 have been derived from our consolidated financial statements which are not included in this prospectus. The consolidated statements of operations data for the year ended December 31, 2003 and the consolidated balance sheet data as of December 31, 2003 and 2004 have been derived from our unaudited consolidated financial statements, which have been adjusted for discontinued operations and for certain restatements and reclassifications, and which are not included in this prospectus. For comparability purposes management has presented a combined twelve months ended December 31, 2006, which combines the Pre-predecessor period from January 1, 2006 to August 15, 2006 and the Predecessor period from August 16, 2006 to December 31, 2006 and a combined twelve months ended December 31, 2007, which combines the Predecessor period from January 1, 2007 to May 17, 2007 and the Successor period from May 18, 2007 to December 31, 2007. These combined periods have been prepared using two different bases of accounting as a result of the acquisitions.

 

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The following information should be read in conjunction with, and is qualified by reference to, our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited consolidated financial statements and the notes included elsewhere in this prospectus, as well as the other financial information included in this prospectus.

 

    Pre-predecessor     Combined
Pre-predecessor
and Predecessor
    Combined
Predecessor and
Successor
 

(Dollars in millions, except ratios)

  As of December 31,
2003 and for

the year ended
December 31,
2003
    As of December 31,
2004 and for

the year ended
December 31,
2004
    As of December 31,
2005 and for

the year ended
December 31,
2005
    As of December 31,
2006 and for
the twelve months ended
December 31,

2006
    As of December 31,
2007 and for
the twelve months ended
December 31,

2007
 
                     

(As Restated)

       

Statement of Operations Data:

         

Sales

  $   693.0     $      919.1     $ 1,026.4     $   1,312.7     $    1,395.1  

Operating costs and expenses

         

Cost of sales

    681.0       848.9       950.1       1,091.7       1,215.7  

Selling, general and administrative expenses

    10.1       13.9       3.2       15.8       32.8  

Other charges (recoveries), net

    —         —         1.6       (0.6 )     (0.5 )
                                       
    691.1       862.8       954.9       1,106.9       1,248.0  
                                       

Operating income

    1.9       56.3       71.5       205.8       147.1  

Other expenses (income)

         

Interest expense, net

    33.6       27.3       28.5       19.1       73.4  

(Gain) loss on derivative instruments and hedging activities

    (3.3 )     (0.5 )     (7.9 )     22.0       44.1  

Gain on settlement of contract

    —         (129.0 )     —         —         —    

Equity in net loss (income) of investments in affiliates

    —         0.4       (9.8 )     (11.5 )     (11.6 )

Other, net

    (9.6 )     12.6       0.6       —         —    
                                       

(Loss) income from continuing operations before income taxes

    (18.8 )     145.5       60.1       176.2       41.2  

Income tax expense

    —         57.0       18.6       62.3       18.7  
                                       

(Loss) income from continuing operations

    (18.8 )     88.5       41.5       113.9       22.5  

Discontinued operations, net of tax effects

    (32.8 )     (65.7 )     8.8       —         —    
                                       

(Loss) income before cumulative effect of accounting change

    (51.6 )     22.8       50.3       113.9       22.5  

Cumulative effect of accounting change, net of taxes

    (2.0 )     —         —         —         —    
                                       

Net (loss) income for the period

  $ (53.6 )   $ 22.8     $ 50.3     $ 113.9     $ 22.5  
                                       

Balance Sheet Data:

         

Cash and cash equivalents

  $ 34.1     $ 1.1     $ 1.4     $ 40.5     $ 75.6  

Property, plant and equipment, net

  $ 537.9     $ 520.8     $ 528.7     $ 672.8     $ 657.8  

Total assets

  $ 911.1     $ 1,024.6     $ 988.1     $ 1,616.7     $ 1,650.5  

Long-term debt (including current portion)(1)

  $ 790.5     $ 329.5     $ 252.0     $ 160.0     $ 1,151.7  

Shareholders’ (deficit) equity

  $ (43.8 )   $ (15.2 )   $ 472.3     $ 1,008.7     $ (0.1 )

Working capital(2)

  $ 161.3     $ 173.2     $ 127.5     $ 201.7     $ 211.5  

Cash Flow Data:

         

Operating activities

  $ 1.2     $ 1.2     $ 57.2     $ 189.7     $ 202.0  

Investing activities

  $ (24.2 )   $ (52.9 )   $ (17.8 )   $ (52.3 )   $ (1,192.6 )

Financing activities

  $ 53.2     $ 20.7     $ (41.1 )   $ (98.2 )   $ 1,028.8  

Financial and Other Data:

         

Ratio of earnings to fixed charges(3)

    —         6.2       3.0       9.8       1.6  

Upstream—shipments (pounds in millions)

    449.2       492.5       502.7       496.5       523.4  

Downstream—shipments (pounds in millions)

    323.5       383.3       392.2       409.3       371.6  

 

(1) Long-term debt includes long-term debt due to related parties and to third parties, including current installments of long-term debt. For the Successor period, long-term debt does not include issued undrawn letters of credit under our existing $250.0 million revolving credit facility.
(2) Working capital is defined as current assets net of current liabilities.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and a portion of rental expense that management believes is representative of the interest component of rental expense. For the year ended December 31, 2003, fixed charges exceeded earnings by $18.9 million.

 

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    Pre-
predecessor
    Predecessor     Combined
Pre-predecessor
and Predecessor
    Predecessor     Successor     Combined
Predecessor and
Successor
 

(Dollars in millions, except ratios)

  Period from
January 1,
2006 to
August 15,
2006
    Period from
August 16,
2006 to
December 31,
2006
    As of December 31,
2006 and for the
year ended
December 31,
2006
    Period from
January 1,
2007 to
May 17,
2007
    Period from
May 18, 2007
to
December 31,
2007
    As of December 31,
2007 and for
the twelve months ended
December 31,
2007
 
         

(As Restated)

   

(As Restated)

   

(As Restated)

             

Statement of Operations Data:

           

Sales

  $   816.0     $   496.7     $   1,312.7     $   527.7     $       867.4     $    1,395.1  

Operating costs and expenses

           

Cost of sales

    674.4       417.3       1,091.7       432.6       783.1       1,215.7  

Selling, general and administrative expenses

    10.1       5.7       15.8       8.7       24.1       32.8  

Other (recoveries) charges, net

    (0.1 )     (0.5 )     (0.6 )     —         (0.5 )     (0.5 )
                                               
    684.4       422.5       1,106.9       441.3       806.7       1,248.0  
                                               

Operating income

    131.6       74.2       205.8       86.4       60.7       147.1  

Other expenses (income)

           

Interest expense, net

    12.7       6.4       19.1       6.2       67.2       73.4  

Loss (gain) on derivative instruments and hedging activities

    16.6       5.4       22.0       56.6       (12.5 )     44.1  

Equity in net income of investments in affiliates

    (8.3 )     (3.2 )     (11.5 )     (4.3 )     (7.3 )     (11.6 )
                                               

Income before income taxes

    110.6       65.6       176.2       27.9       13.3       41.2  

Income tax expense

    38.7       23.6       62.3       13.6       5.1       18.7  
                                               

Net income for the period

  $ 71.9     $ 42.0     $ 113.9     $ 14.3     $ 8.2     $ 22.5  
                                               

Balance sheet data:

           

Cash and cash equivalents

      $ 40.5         $ 75.6  

Property, plant and equipment, net

      $ 672.8         $ 657.8  

Total assets

      $ 1,616.7         $ 1,650.5  

Long-term debt (including current portion)(1)

      $ 160.0         $ 1,151.7  

Shareholders’ equity

      $ 1,008.5         $ (0.1 )

Working capital(2)

      $ 201.7         $ 211.5  

Cash flow data:

           

Operating activities

  $ 81.9     $ 107.8     $ 189.7     $ 41.2     $ 160.8     $ 202.0  

Investing activities

  $ (20.5 )   $ (31.8 )   $ (52.3 )   $ 5.1     $ (1,197.7 )   $ (1,192.6 )

Financing activities

  $ (37.7 )   $ (60.5 )   $ (98.2 )   $ (83.7 )   $ 1,112.5     $ 1,028.8  

Financial and other data:

           

Ratio of earnings to fixed charges(3)

    9.4       10.4       9.8       5.3       1.2       1.6  

Upstream—shipments (pounds in millions)

    308.8       187.7       496.5       202.3       321.1       523.4  

Downstream—shipments (pounds in millions)

    259.1       150.2       409.3       135.6       236.0       371.6  

 

(1) Long-term debt includes long-term debt due to related parties and to third parties, including current installments of long-term debt. For the successor period, long-term debt does not include issued undrawn letters of credit under our existing $250.0 million revolving credit facility.
(2) Working capital is defined as current assets net of current liabilities.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and a portion of rental expense that management believes is representative of the interest component of rental expense.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations and financial condition covers periods prior to the consummation of the Transactions. Accordingly, the discussion and analysis of historical periods does not reflect the significant impact that the Transactions will have on us, including significantly increased leverage and liquidity requirements. You should read the following discussion of our results of operations and financial condition with the “Unaudited Pro Forma Condensed Consolidated Statement of Operations,” “Selected Historical Consolidated Financial Data” and the audited consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and that involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements.”

Introduction

Noranda HoldCo is a holding company created for the purpose of the Apollo Acquisition. Prior to the Apollo Acquisition, Noranda HoldCo did not engage in any business or other activities except in connection with its formation. Therefore, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, focuses on the historical results of operations of our operating company, Noranda Aluminum, Inc., for periods prior to the Apollo Acquisition.

This MD&A is provided as a supplement to the audited consolidated financial statements and the related notes included elsewhere in the prospectus to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The MD&A is organized as follows:

Company Overview. This section provides a general description of our business as well as recent developments that we believe are necessary to understand our financial condition and results of operations and to anticipate future trends in our business.

Critical Accounting Policies and Estimates. This section discusses the accounting policies and estimates that we consider to be important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application.

Results of Operations. This section provides an analysis of our results of operations for the year ended December 31, 2005 and for each of the aggregated years ended December 31, 2006 and 2007, respectively.

Liquidity and Capital Resources. This section provides an analysis of our cash flows for the year ended December 31, 2005 and for each of the aggregated years ended December 31, 2006 and 2007, respectively, as well as a discussion of the potential impact of the Transactions on our liquidity.

Contractual Obligations and Contingencies. This section provides a discussion of our commitments as of December 31, 2007.

Quantitative and Qualitative Disclosures about Market Risk. This section discusses our exposure to potential losses arising from adverse changes in interest rates and commodity prices.

Recent Accounting Pronouncements. This section describes new accounting requirements that we have not yet adopted but that could potentially impact our results of operations and financial position.

Company Overview

We are a leading North American integrated producer of value-added primary aluminum products as well as high-quality rolled aluminum coils. We have two businesses, our primary metals business, or upstream business, which accounts for approximately 10% of total United States primary aluminum production, and our rolling

 

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mills, or downstream business, which is one of the largest foil producers in North America and a leading North American producer of foil and light gauge sheet products. The upstream and downstream businesses constitute our two reportable segments as defined by Statement of Financial Accounting Standards, or SFAS, No. 131, Disclosure about Segments of an Enterprise and Related Information.

The upstream business produces value-added aluminum products in the form of billet, used mainly for building construction, architectural and transportation applications; rod, used mainly for electrical applications and steel de-oxidation; value-added sow, used mainly for aerospace; and foundry, used mainly for transportation. In addition to these value-added products, which account for approximately 85% of our primary metal output, the remaining 15% is produced in the form of commodity grade sow, the majority of which is used in our rolling mills. Our upstream business is fully integrated from bauxite to alumina to primary aluminum metal, ensuring a secure raw material supply at a long-term competitive cost. Our primary aluminum smelter, in New Madrid, Missouri, has a long-term contract for the secure supply of electricity that we believe is competitively priced. This combination of captive, cost-efficient raw material and secure power gives our upstream business a competitive advantage over many other aluminum producers.

All of our primary aluminum production occurs at the smelter in New Madrid, which has production capacity of approximately 570 million pounds of primary aluminum annually. The plant site also includes a fabrication facility that converts molten aluminum into value-added saleable products, such as rod, extrusion billet and foundry ingot. Approximately 80% of our value-added products are sold at the prior month’s Midwest Transaction Price plus a fabrication premium. Our smelter is a strategically located facility on the Mississippi River in close proximity to our major target customers, which are located in the Midwestern United States and Mexico. New Madrid has a logistical advantage relative to other smelters because of the ease of access and close proximity of Gramercy to St. Ann and New Madrid to Gramercy, which significantly reduces the cost of freight. New Madrid is the closest Midwest smelter to the Gulf Coast, the entry point for approximately 80% of the alumina supplied to the United States, which allows New Madrid to internally source its Gramercy alumina or purchase alumina from third parties at a lower freight cost than other U.S. based smelters. Our aluminum smelter in New Madrid, Missouri receives substantially all of its alumina requirements at cost plus freight from Gramercy. Our Gramercy refinery receives substantially all of its bauxite from St. Ann. We account for Gramercy and St. Ann in our consolidated financial statements under the equity method.

Our downstream business, which operates under the brand name Norandal, is a fully integrated manufacturer of aluminum foil and light sheet. Our two major foil products are finstock, used mainly for the air conditioning, ventilation and heating industry, which we refer to as HVAC finstock, and container stock, used mainly for food packaging, pie pans and convenience food containers. We primarily sell our products to original equipment manufacturers of air conditioners, transformers, semi-rigid containers and foil packaging, most of whom are located in the eastern and central part of the United States. Our plants are well situated to serve these customers and approximately 60% of sales are within a one-day delivery distance, resulting in freight savings and customer service benefits. Versatile manufacturing capabilities and advantageous geographic locations provide our rolling mills the flexibility to serve a diverse range of end uses while maintaining a low cost base. Our downstream business, in addition to having an attractive cost structure, prices its products using a combination of market-based aluminum prices plus a negotiated fabrication price, which covers all conversion costs plus a profit margin, resulting in earnings that are less volatile than underlying aluminum prices.

Stand-alone public company

We have not historically operated as a stand-alone public company, but instead as a subsidiary of Xstrata and prior to our acquisition by Xstrata, as a subsidiary of Falconbridge Limited. This financial information does not, however, reflect what our results of operations, financial position, cash flows or costs and expenses would have been if we had been a separate, stand-alone public entity during the Pre-predecessor and Predecessor periods presented, or will be in the future.

 

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Key factors affecting our results of operations

Demand

Primary aluminum is produced and consumed worldwide and its metallurgical properties and environmentally friendly attributes, such as its light weight and ability to be recycled, make it a highly desirable metal. Primary aluminum is currently experiencing a period of favorable high prices based on strong demand worldwide and an increase in the cost to produce and supply aluminum. We believe the current strong aluminum prices are driven by the following characteristics:

 

  ·  

strong global demand driven by economic growth and increased demand from emerging markets, especially China;

 

  ·  

an increase on a global basis in the cost and scarcity of power, which is a significant input cost in the production of primary aluminum;

 

  ·  

substitution trends away from other metals (e.g., steel and copper) to aluminum, due to aluminum’s strength-to-weight and value-to-weight ratios and relative price compared to other metals; and

 

  ·  

weaker U.S. dollar relative to historical periods.

In addition to these global trends, there is currently a shortage of domestically produced primary aluminum in North America. We believe that this has caused the recommencement by some of our competitors of their aluminum reduction plants and a slight rise in the Midwest premium, which is the cost of freight and handling to ship aluminum from the LME warehouses to the Midwestern USA and is added to the price of primary aluminum as quoted on the LME.

Production

Our upstream business produced 562 million pounds of primary aluminum in 2007, compared to 559 million pounds in 2006 and 541 million pounds in 2005. Our smelter in New Madrid is currently implementing four facility enhancement projects at a total cost of $21 million to achieve improved energy efficiency and increase metal production by 26 million pounds per annum by 2011.

Production from our downstream business increased 8% from 2004 to 2006 through general efficiency improvements at all plants and the addition of a new caster at our Huntingdon facility that commenced production in January 2006; however, due to the downturn in the housing industry, our downstream business produced 406 million pounds of rolled products in 2007, compared to 476 million pounds in 2006 and 443 million pounds in 2005.

Prices and markets

We have experienced, and expect to continue to be subject to, potentially volatile primary aluminum prices, which are influenced primarily by the world supply-demand balance for those commodities and related processing services, and other related factors such as speculative activities by market participants, production activities by competitors and political and economic conditions, as well as production costs in major production regions. In order to reduce commodity price risk and earnings volatility in the upstream business, we have currently implemented a hedging strategy that ensures the aluminum price at which approximately 50% of our expected cumulative primary aluminum shipments will be sold through December 2012. As of December 31, 2007, we had hedged approximately 43% of our expected cumulative primary aluminum shipments through December 2011. We believe that this strategy will help reduce our price risk and earnings volatility in the upstream business. However, as discussed in the section “Critical Accounting Policies and Estimates” below, we did not achieve hedge accounting for these hedges for the periods from August 16, 2006 to December 31, 2006, from January 1, 2007 to May 17, 2007 or from May 18, 2007 to December 31, 2007.

Our fabrication prices are not impacted by volatility in LME prices. Instead, they are dependent upon capacity utilization in the industry, which in turn is driven by supply-demand fundamentals for our products. Our average prices have increased between 2004 and 2007, reflecting strong supply-demand fundamentals for the

 

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goods made using our products, especially finstock and semi-rigid container products. During 2007, the downturn in the housing market resulted in lower demand, which reduced capacity utilization from 2006 levels and had a negative impact on our financial results.

Production costs

Our production costs are largely influenced by mine planning, processing technology and energy and supply costs.

The key cost components at our smelter are power and alumina. Power is supplied by AmerenUE under a 15-year contract that commenced on June 1, 2005 and includes an evergreen renewal option. Rate changes to this contract are subject to regulatory review and approval. We obtain alumina from Gramercy, which in turn obtains bauxite from St. Ann, and alumina supply arrangements provide us with a secure source of alumina supply at a cost equal to the combined net cash cost of production and maintenance capital investment at the mine and refinery, thus creating a competitive and stable cost structure for the upstream business. Compared with other global aluminum smelters that do not have the benefit of captive bauxite and alumina supplies, our smelter has a competitive advantage. Over the past several years, amidst rising prices for bauxite and alumina, we believe this advantage has contributed to our smelter’s improved relative global cost position. In addition to supplying raw materials for the two joint venture partners, St. Ann sells bauxite to third parties and Gramercy sells chemical grade alumina to third parties. These third-party sales help reduce the cost for producing smelter grade alumina for our smelter in New Madrid.

For our downstream business, production costs comprise approximately 75% of aluminum metal units and 25% of value-added conversion costs. Conversion costs include labor, energy and operating supplies, including maintenance materials. Energy includes natural gas and electricity, which make up about 17% of conversion costs.

Reconciliation of Net Income between Noranda AcquisitionCo and Noranda HoldCo

Noranda HoldCo was formed on March 27, 2007, and its principal asset is its wholly owned subsidiary, Noranda AcquisitionCo, which was also formed on March 27, 2007, for the purpose of acquiring Noranda Intermediate Holding Corporation. For comparability purposes, management has presented a combined twelve months ended December 31, 2007, which combines the Predecessor period from January 1, 2007 to May 17, 2007 and the Successor period from May 18, 2007 to December 31, 2007. The following table reconciles the results of operations of Noranda HoldCo and Noranda AcquisitionCo:

 

     Predecessor    Successor     Combined
Predecessor
and Successor
 

(in millions)

   Period from
January 1,
2007 to May
17, 2007
   Period from
May 18,
2007 to
December 31,
2007
    Twelve months
ended
December 31,
2007
 
     (As Restated)             

Consolidated net income of Noranda AcquisitionCo

   $ 14.3    $ 16.9     $ 31.2  

HoldCo interest expense

     —        (13.9 )     (13.9 )

HoldCo tax effects

     —        5.2       5.2  
                       

Consolidated net income of Noranda HoldCo

   $ 14.3    $ 8.2     $ 22.5  
                       

Critical Accounting Policies and Estimates

Our principal accounting policies are described in Note 1 of the audited consolidated financial statements included elsewhere in this prospectus. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results

 

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could differ from these estimates. Management believes the accounting estimates discussed below represent those accounting estimates requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results.

Revenue recognition

Revenue is recognized when title and risk of loss pass to customers in accordance with contract terms. The Company periodically enters into supply contracts with customers and receives advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue, and revenue is recognized as shipments are made and title, ownership, and risk of loss pass to the customer during the term of the contracts.

Impairment of long-lived assets

Our long-lived assets, primarily property, plant and equipment, comprise a significant amount of our total assets. We evaluate our long-lived assets and make judgments and estimates concerning the carrying value of these assets, including amounts to be capitalized, depreciation and useful lives. The carrying values of these assets are reviewed for impairment periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. This evaluation requires us to make long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for our products and future market conditions. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

Asset retirement obligations

We record our environmental costs for legal obligations associated with the retirement of a tangible long-lived asset that results from its acquisition, construction, development or normal operation as asset retirement obligations. We recognize liabilities, at fair value, for our existing legal asset retirement obligations and adjust these liabilities for accretion costs and revision in estimated cash flows. The related asset retirement costs are capitalized as increases to the carrying amount of the associated long-lived assets and depreciation on these capitalized costs is recognized.

Inventories

The majority of our inventories, including alumina and aluminum inventories, are stated at the lower of cost, using the last-in, first-out (LIFO) method, or market. The remaining inventories (principally supplies) are stated at cost using the first-in, first-out (FIFO) method. The valuation of inventories include variable and fixed overhead costs and requires significant management estimates to determine the amount of overhead variances to capitalize into inventories. We capitalize overhead variances into inventories based on estimates of related cost drivers.

Pensions and post-retirement benefits

We sponsor defined-benefit pension plans and other post-retirement benefits. We calculate our funding obligations based on calculations performed by independent actuaries using assumptions about expected service periods, salary increases, retirement ages of employees, interest rates, investment returns, rates of inflation, mortality rates and future employment levels. These assumptions directly affect our liability for accrued pensions costs and the amounts we record as pension costs.

Derivative instruments and hedging activities

We account for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, or SFAS 133. For derivatives that are designated and

 

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qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item, is recognized in earnings in the current year. Any ineffective portion of the hedge is reflected immediately in gain (loss) on derivative instruments and hedging activities. For derivatives that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is initially recorded in accumulated other comprehensive income as a separate component of shareholders’ equity and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss is reported in (gain) loss on derivative instruments and hedging activities immediately. For derivative instruments not designated as hedging instruments, changes in the fair values are recognized in earnings in the period of change. We did not designate derivatives as fair value or cash flow hedges for the period from August 16, 2006 to December 31, 2006, or for the periods from January 1, 2007 to May 17, 2007 and from May 18, 2007 to December 31, 2007. Accordingly, we did not achieve hedge accounting for the derivatives for these periods.

Income taxes

We recognize deferred tax effects of tax loss carryforwards and temporary differences in our consolidated financial statements. We record a valuation allowance when we believe that it is more likely than not that tax assets will not be fully recoverable in the future. When we prepare our consolidated financial statements, we estimate our income taxes based on regulations in the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which we show on our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a tax expense in our statement of operations. When we reduce the valuation allowance, we record a tax benefit in our statement of operations. Determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax assets requires significant management judgment and estimates and assumptions about matters that are highly uncertain. The valuation allowance recorded in relation to accumulated income tax losses depends on our assessment of the probability of generation of future taxable profits within the legal entity in which the related deferred tax asset is recorded. We adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, or FIN 48, in the first quarter of 2007. We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to these uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover a substantial majority of the deferred tax assets recorded on our consolidated condensed balance sheets. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not probable.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. As a result of the implementation of FIN 48, we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such

 

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amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Results of Operations

As discussed in Note 2 to the audited consolidated financial statements, during the preparation process for the 2007 annual financial statements, we concluded that certain errors identified subsequent to filing prior period financial statements were material to those periods, accordingly, we have restated these previously issued financial statements.

Aggregated year ended December 31, 2007 compared to aggregated year ended December 31, 2006

The following table sets forth certain historical consolidated and aggregated financial information for the years ended December 31, 2007 and 2006:

 

    Pre-
predecessor
    Predecessor     Combined
Pre-

predecessor
and
Predecessor
    Predecessor     Successor     Combined
Predecessor
and Successor
 

(in millions)

  Period from
January 1,
2006 to
August 15,
2006
    Period from
August 16,
2006 to
December 31,
2006
    Twelve months
ended
December 31,
2006
    Period from
January 1,
2007 to May
17, 2007
    Period from
May 18,
2007 to
December 31,
2007
    Twelve months
ended
December 31,
2007
 
         

(As Restated)

   

(As Restated)

   

(As Restated)

             

Sales

  $ 816.0     $ 496.7     $ 1,312.7     $ 527.7     $ 867.4     $ 1,395.1  

Operating costs and expenses

           

Cost of sales

    674.4       417.3       1,091.7       432.6       783.1       1,215.7  

Selling, general and administrative expenses and other

    10.0       5.2       15.2       8.7       23.6       32.3  
                                               
    684.4       422.5       1,106.9       441.3       806.7       1,248.0  
                                               

Operating income

    131.6       74.2       205.8       86.4       60.7       147.1  

Other expenses (income)

           

Interest expense (income), net

           

Parent and a related party

    12.6       7.1       19.7       7.2       —         7.2  

Third parties, net

    0.1       (0.7 )     (0.6 )     (1.0 )     67.2       66.2  

Loss (gain) on derivative instruments and hedging activities

    16.6       5.4       22.0       56.6       (12.5 )     44.1  

Equity in net income of investments in affiliates

    (8.3 )     (3.2 )     (11.5 )     (4.3 )     (7.3 )     (11.6 )
                                               

Total other expenses

    21.0       8.6       29.6       58.5       47.4       105.9  
                                               

Income before income taxes

    110.6       65.6       176.2       27.9       13.3       41.2  

Income tax expense

    38.7       23.6       62.3       13.6       5.1       18.7  
                                               

Net income for the period

  $ 71.9     $ 42.0     $ 113.9     $ 14.3     $ 8.2     $ 22.5  
                                               

Sales by segment

           

Upstream

  $ 400.3     $ 243.6     $ 643.9     $ 275.2     $ 423.7     $ 698.9  

Downstream

    415.7       253.1       668.8       252.5       443.7       696.2  
                                               

Total

  $ 816.0     $ 496.7     $ 1,312.7     $ 527.7     $ 867.4     $ 1,395.1  
                                               

Operating income

           

Upstream

  $ 121.5     $ 65.7     $ 187.2     $ 78.2     $ 55.8     $ 134.0  

Downstream

    10.1       8.5       18.6       8.2       4.9       13.1  
                                               

Total

  $ 131.6     $ 74.2     $ 205.8     $ 86.4     $ 60.7     $ 147.1  
                                               

Shipments (pounds in millions)

           

Upstream

    308.8       187.7       496.5       202.3       321.1       523.4  

Downstream

    259.1       150.2       409.3       135.6       236.0 *     371.6 *

 

* excludes shipments related to long-metal sales

 

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Sales in 2007 were $1,395.1 million, compared to $1,312.7 million in 2006, an increase of 6.3%. Sales to external customers in our upstream business grew from $643.9 million in 2006 to $698.9 million in 2007, an increase of 8.5%, due to an increase in the average realized Midwest primary aluminum price from 120 cents per pound in 2006 compared to 123 cents per pound in 2007, and a 5.4% increase in shipments during the period. Sales in our downstream business increased from $668.8 million in 2006 to $696.2 million in 2007. This increase relates to stronger aluminum prices and $51.4 million of “long-metal” sales, in which the Company sold excess aluminum inventories. The increase was offset by a decline in sales of HVAC finstock, which was affected by the recent downturn in the housing market and a corresponding weakening in demand for aluminum in building products.

Cost of sales in 2007 was $1,215.7 million, compared to $1,091.7 million in 2006, an increase of 11.4%. The cost of sales was primarily impacted by the $51.4 million in long metal sales, an increase in depreciation of $39.9 million resulting from fair value adjustments of property and equipment and also LIFO cost inventory adjustments associated with purchase accounting from the Apollo Acquisition. Cost of sales in our upstream business was $533.9 million in 2007, compared to $442.0 million in 2006, an increase of 20.8%. The increase was primarily due to higher depreciation of $31.4 million, inventory fair value adjustments in connection with purchase accounting related to the Apollo Acquisition and increases in power and insurance costs. Cost of sales in our downstream business of $681.8 million in 2007 increased 4.9% compared to $649.7 million in 2006. This is a result of the long metal sales, an increase in primary aluminum prices, inventory fair value adjustments in connection with purchase accounting from the Apollo Acquisition and an increase in depreciation of $8.9 million.

Selling, general and administrative expenses and other in 2007 were $32.3 million, compared to $15.2 million in 2006, an increase of $17.1 million. During 2007, the Company recorded $3.3 million related to the amortization of intangibles, $7.9 million of stock compensation expense (including $4.1 million expense related to repricing of stock options), a $2.4 million bonus paid by Xstrata to our current management upon the closing of the Apollo Acquisition, $4.9 million in consulting and registration fees and $2.0 million for sponsor fees paid to Apollo. During 2006 the Company recorded $0.9 million related to amortization of intangibles, $2.6 million of stock compensation expense and $1.8 million of severance, bonus and relocation expense.

Operating income in 2007 was $147.1 million, compared to $205.8 million in 2006, a decrease of $58.7 million. This decrease was primarily the result of the net effect of the items described above.

Interest expense (income), net in 2007 was $73.4 million, compared to $19.1 million in 2006, an increase of $54.3 million. This increase was primarily the result of the indebtedness incurred by Noranda AcquisitionCo in connection with the Transactions and by Noranda HoldCo in connection with the HoldCo notes offering completed on June 7, 2007 and the amortization of deferred financing costs associated with the prepayment of debt in April 2007 to Noranda Islandi, a company under common control of Xstrata, and associated with the $75.0 million of term loan voluntarily prepaid in June 2007.

Loss (gain) on derivative instruments and hedging activities in 2007 consisted of a $44.1 million loss compared to $22.0 million loss in 2006, an increase of $22.1 million. The increase in loss in 2007 was primarily the result of the change in the fair value of forward contracts entered into to hedge our exposure to aluminum price fluctuations and the change in the fair value of interest rate swaps entered into to hedge our exposure to fluctuations in LIBOR. The loss in 2006 resulted from the fair value of natural gas financial swaps entered into to hedge our exposure to natural gas price fluctuations.

Income taxes decreased from $62.3 million in 2006 to $18.7 million in 2007, primarily as a result of a decrease in taxable income. The Company’s effective income tax rates were approximately 48.9% for the period from January 1, 2007 to May 17, 2007, primarily impacted by a permanent tax difference related to the divestiture of a subsidiary; 38.3% for the period from May 18, 2007 to December 31, 2007, primarily impacted by state and foreign income taxes offset by permanent differences; 35.0% for the period from January 1, 2006 to

 

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August 15, 2006, primarily impacted by the favorable benefit of stock options exercised; and 35.9% for the period from August 16, 2006 to December 31, 2006, primarily impacted by state and foreign income taxes and the lack of beneficial differences. The overall effective tax rate was 35.4% and 45.4% for the year ended December 31, 2006 and 2007, respectively. For 2008, we expect the overall effective tax rate to range from 33% to 35%.

Net income decreased from $113.9 million in 2006 to $22.5 million in 2007, a decrease of $91.4 million. The decrease in net income was primarily due to an increase in cost of sales, due to higher depreciation and amortization resulting from fair value adjustments to inventory, property and equipment and intangible assets in connection with the purchase accounting from the Apollo Acquisition, higher interest expense resulting from indebtedness incurred by Noranda AcquisitionCo in connection with the Transactions and by Noranda HoldCo in connection with the HoldCo notes offering completed on June 7, 2007. This decrease was partially offset by the favorable impact of a higher realized aluminum price.

 

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Aggregated Year ended December 31, 2006 compared to year ended December 31, 2005

The following table sets forth certain historical consolidated and aggregated financial information for the years ended December 31, 2005 and 2006.

 

     Pre-predecessor     Pre-predecessor     Predecessor     Combined Pre-
predecessor and
Predecessor
 

(in millions)

   Year ended
December 31,
2005
    Period from
January 1, 2006
to August 15,
2006
    Period from
August 16, 2006
to December 31,
2006
    Twelve months
ended
December 31,
2006
 
                

(As Restated)

    (As Restated)  

Sales

   $ 1,026.4     $ 816.0     $ 496.7     $ 1,312.7  

Operating costs and expenses

        

Cost of sales

     950.1       674.4       417.3       1,091.7  

Selling, general and administrative expenses and other

     4.8       10.0       5.2       15.2  
                                
     954.9       684.4       422.5       1,106.9  
                                

Operating income

     71.5       131.6       74.2       205.8  

Other expenses (income)

        

Interest expense (income), net

        

Parent and a related party

     24.3       12.6       7.1       19.7  

Third parties, net

     4.2       0.1       (0.7 )     (0.6 )

(Gain) loss on derivative instruments and hedging activities

     (7.9 )     16.6       5.4       22.0  

Equity in net income of investments in affiliates

     (9.8 )     (8.3 )     (3.2 )     (11.5 )

Other, net

     0.6       —         —         —    
                                

Total other expenses

     11.4       21.0       8.6       29.6  
                                

Income from continuing operations before income taxes

     60.1       110.6       65.6       176.2  

Income tax expense

     18.6       38.7       23.6       62.3  
                                

Income from continuing operations

     41.5       71.9       42.0       113.9  

Loss on discontinued operations, net of income tax benefit of $2.4

     (12.4 )     —         —         —    

Gain on disposal of discontinued operations, net of income tax benefit of $50.6

     21.2       —         —         —    
                                

Net income for the period

   $ 50.3     $ 71.9     $ 42.0     $ 113.9  
                                

Sales by segment

        

Upstream

   $ 502.8     $ 400.3     $ 243.6     $ 643.9  

Downstream

     523.6       415.7       253.1       668.8  
                                

Total

   $ 1,026.4     $ 816.0     $ 496.7     $ 1,312.7  
                                

Operating income

        

Upstream

   $ 41.7     $ 121.5     $ 65.7     $ 187.2  

Downstream

     29.8       10.1       8.5       18.6  
                                

Total

   $ 71.5     $ 131.6     $ 74.2     $ 205.8  
                                

Shipments (pounds in millions)

        

Upstream

     502.7       308.8       187.7       496.5  

Downstream

     392.2       259.1       150.2       409.3  

 

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Sales in 2006 were $1,312.7 million, compared to $1,026.4 million in 2005, an increase of 27.9%. Sales in our upstream business grew from $502.8 million in 2005 to $643.9 million in 2006, an increase of 28.1%, mainly due to an increase in the realized primary aluminum price from 91 cents per pound in 2005 to 120 cents per pound in 2006. Sales in our downstream business grew from $523.6 million in 2005 to $668.8 million in 2006, an increase of 27.7%. Price-related factors accounted for the most significant portion of this increase with growth in sales volumes accounting for the rest. Prices increased largely due to increases in primary metal prices, but also from increased fabrication prices. Downstream sales volume increased from 392.2 million pounds in 2005 to 409.3 million pounds in 2006 and was driven by strong customer demand and increased production capacity.

Cost of sales in 2006 was $1,091.7 million, compared to $950.1 million in 2005, an increase of 14.9%. Cost of sales in our upstream business was $442.0 million in 2006, compared to $457.4 million in 2005, a decrease of 3.4%, primarily due to lower third-party sales volumes, partially offset by increases in alumina costs and power costs. Cost of sales in our downstream business was $649.7 million in 2006, compared to $492.7 million in 2005, an increase of 31.9%, primarily due to higher primary aluminum prices and increased sales volumes. Other factors offsetting the increase in cost of sales in 2006 compared to 2005 was an expense of $9.5 million in 2005 related to environmental costs incurred by the Company.

Selling, general and administrative expenses in 2006 were $15.2 million, compared to $4.8 million in 2005, an increase of $10.4 million. Of the increase, $6.7 million relates to the increase in the selling, general and administrative expenses for our upstream business from a benefit of $1.3 million in 2005 to an expense of $5.4 million in 2006, primarily due to a loss on the disposal of fixed assets in 2006 and the reversal of a litigation reserve of $2.4 million in 2005 upon receipt of a favorable judgment. The other factor that primarily affected the increase in selling, general and administrative expenses was the result of non-recurring compensation-related charges incurred in 2006 for bonuses, severance, relocation and stock-based compensation for options exercised as a result of the acquisition of Falconbridge Limited, our parent at the time, by Xstrata in August 2006.

Operating income in 2006 was $205.8 million, compared to $71.5 million in 2005, an increase of $134.3 million. This increase was primarily the result of the net effect of the items described above.

Loss (gain) on derivative instruments and hedging activities was a loss of $22.0 million in 2006 compared to a gain of $7.9 million in 2005. The loss in 2006 was primarily the result of change in fair value of derivative instruments, which we entered into to hedge our exposure to natural gas and primary aluminum prices, which did not qualify for hedge accounting. The gain in 2005 relates to unrealized gains arising from our fair value hedges of primary aluminum prices that did not qualify for hedge accounting.

Income taxes increased from $18.6 million in 2005, to $62.3 million in 2006, primarily as a result of an increase in income from continuing operations and accordingly in our taxable income in 2006. The effective income tax rate from continuing operations in 2006 was 35.4% as compared to 30.9% in 2005.

Discontinued operations, net of income taxes relates to a gain, net of income taxes, of $21.2 million in 2005 arising from the sale of American Racing Equipment, Inc. and a loss of $12.4 million from the operations of that entity in 2005 prior to the disposal.

Net income increased from $50.3 million in 2005 to $113.9 million in 2006, an increase of $63.6 million. The improvement in net income was primarily due to a favorable realized aluminum price, an increase in sales volumes and an increase in income from investments in affiliates, partially offset by unfavorable losses on derivative hedging activities.

 

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Liquidity and Capital Resources

Prior to the Transactions and the Special Dividend

Historically, our principal sources of liquidity have been cash generated from operations and available borrowings under a revolving credit facility. We also have, from time to time, borrowed from related-party lenders and factored certain receivables. Our primary liquidity requirements have been the funding of capital expenditures and working capital requirements.

Following the Transactions and the Special Dividend

Our primary sources of liquidity are cash flows from operations and funds available under our existing senior secured credit facilities. Our primary continuing liquidity needs will be to finance our working capital, capital expenditures and debt service needs. We have incurred substantial indebtedness in connection with the Transactions and the Special Dividend. As of December 31, 2007, our total indebtedness was $1,151.7 million and our annualized cash interest expense based on our indebtedness and current interest rates as of December 31, 2007 was approximately $97.4 million.

In addition to the indebtedness incurred as a result of the Transactions and the Special Dividend, we may borrow additional amounts under the revolving credit facility depending upon our working capital, capital expenditure and other corporate and strategic needs. We paid down $75.0 million of the term loan in June 2007 with the remaining balance due and payable in full in 2014. This voluntary prepayment may be applied against otherwise scheduled future amortization obligations. The revolving credit facility is available until 2013. The AcquisitionCo notes and the HoldCo notes will be due and payable in 2015 and 2014, respectively.

Our existing senior secured credit facilities contain various restrictive covenants that will prohibit us from prepaying subordinated indebtedness and restrict our ability to incur indebtedness or liens, make investments or declare or pay any dividends. However, all of these covenants are subject to significant exceptions. For more information, see “Description of Certain Indebtedness—The Existing Senior Secured Credit Facilities.”

From time to time, depending upon market, pricing and other conditions, as well as on our cash balances and liquidity, we may seek to repurchase a portion of the notes in the market. Additionally, our affiliates, which include Apollo, from time to time and depending upon market, pricing and other conditions, may purchase a portion of the notes in the market. Any such future purchases may be made in the open market, privately negotiated transactions, tender offers or otherwise.

Our ability to make scheduled payments of principal, to pay interest on, or to refinance our indebtedness, or to fund planned capital expenditures, will depend on our ability to generate cash in the future. This ability is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our existing senior secured credit facilities, will be adequate to meet our short-term liquidity needs. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our existing senior secured credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. We cannot assure you that we will be able to refinance any of our indebtedness, on commercially reasonable terms or at all.

 

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The following table sets forth certain historical consolidated and aggregated cash flow information for the years ended December 31, 2006 and 2005:

 

     Pre-predecessor     Predecessor     Combined
Pre-predecessor
and Predecessor
 

(in millions)

   Year ended
December 31,
2005
    Period from
January 1,
2006 to
August 15,
2006
    Period from
August 16,
2006 to
December 31,
2006
    Year ended
December 31,
2006
 

Cash provided by operating activities

   $ 57.2     $ 81.9     $ 107.8     $ 189.7  

Cash used in investing activities

     (17.8 )     (20.5 )     (31.8 )     (52.3 )

Cash used in financing activities

     (41.1 )     (37.7 )     (60.5 )     (98.2 )
                                

Net (decrease) increase in cash and cash equivalents

   $ (1.7 )   $ 23.7     $ 15.5     $ 39.2  
                                

Net cash provided by operating activities totaled $189.7 million in 2006 compared to $57.2 million in 2005. The increase was mainly due to an increase in the price of primary aluminum, offset by increases in power and natural gas costs.

Net cash used in investing activities was $52.3 million in 2006 compared to $17.8 million in 2005. The increase was mainly due to proceeds of $40.5 million from the sale of American Racing Equipment, Inc. received in 2005 and an increase in advances due from Noranda Finance, Inc., an entity wholly owned by our parent at the time, Falconbridge Limited, of $10.7 million, offset by a decrease in capital expenditures of $10.3 million.

Net cash used in financing activities totaled $98.2 million and $41.1 million in 2006 and 2005, respectively. The increase in cash flows used in financing activities in 2006 compared to 2005 was mainly due to an increase in net repayments on long-term debt of $14.5 million and a decrease in advances payable to Noranda Finance, Inc. of $38.9 million.

 

The following table sets forth certain historical consolidated and aggregated cash flow information for the years ended December 31, 2007 and 2006:

 

     Pre-
predecessor
    Predecessor     Combined
Pre-predecessor and
Predecessor
    Predecessor     Successor     Combined
Predecessor
and
Successor
 

(in millions)

   Period from
January 1,
2006 to
August 15,
2006
    Period from
August 16,
2006 to
December 31,
2006
    Year ended
December 31, 2006
    Period from
January 1,
2007 to
May 17,
2007
    Period from
May 18,
2007 to
December 31,
2007
    Year ended
December 31,
2007
 

Cash provided by operating activities

   $ 81.9     $ 107.8     $ 189.7     $ 41.2     $ 160.8     $ 202.0  

Cash (used in) provided by investing activities

     (20.5 )     (31.8 )     (52.3 )     5.1       (1,197.7 )     (1,192.6 )

Cash (used in) provided by financing activities

     (37.7 )     (60.5 )     (98.2 )     (83.7 )     1,112.5       1,028.8  
                                                

Net change in cash and cash equivalents

   $ 23.7     $ 15.5     $ 39.2     $ (37.4 )   $ 75.6     $ 38.2  
                                                

Net cash provided by operating activities totaled $202.0 million in 2007, compared to $189.7 million in 2006. The increase in cash flows from operating activities in 2007 compared with 2006 was mainly due to an increase in the price of primary aluminum and reductions in working capital.

 

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Net cash used in investing activities was $1,192.6 million in 2007, compared to $52.3 million in 2006. The increase in cash flows used in investing activities in 2007 was mainly due to cash used in the Apollo Acquisition of $1,161.5 million, which consisted of the purchase consideration including acquisition costs.

Net cash (used in) provided by financing activities totaled inflows of $1,028.8 million in 2007, compared to $98.2 million of outflows in 2006. The increase in cash flows provided in financing activities in 2007 compared to 2006 was mainly due to the proceeds from the debt issued on May 18, 2007 by Noranda AcquisitionCo in connection with the Transactions and the HoldCo Notes issued by Noranda HoldCo on June 7, 2007 totaling $1,227.8 million, the equity contribution by Apollo in connection with the Transactions of $214.2 million, the equity contribution by our management of $1.9 million and the capital contributions from our former parent company of $101.3 million, which was offset by the payment of a Special Dividend in June 2007 of $216.3 million, the deferred financing costs of $39.0 million incurred as part of the Transactions and the HoldCo Notes issue, the voluntary repayment of $75.0 million of term loan b on June 28, 2007 and the repayment of long-term debt with Noranda Islandi EHF, a company under common control of Xstrata, of $160.0 million.

EBITDA

EBITDA represents net income before income taxes, net interest expense and depreciation and amortization. We have provided EBITDA figures herein because we believe they provide investors with additional information to measure our performance. We use EBITDA as one criterion for evaluating our performance relative to our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.

Adjusted EBITDA

Certain covenants contained in the agreements governing the senior secured credit facilities and the notes restrict our ability to take certain actions. For example, under the Indentures, the minimum pro forma Adjusted EBITDA to Fixed Charge ratio required to incur additional debt is, subject to certain exceptions specified therein, 1.75 to 1.0 for Noranda HoldCo and 2.0 to 1.0 for Noranda AcquisitionCo. Our pro forma ratio for the four quarters ended December 31, 2007 was 2.8 to 1 for HoldCo and 3.7 to 1 for Noranda AcquisitionCo.

These covenants also require us to calculate Adjusted EBITDA. We have provided Adjusted EBITDA figures herein because we believe they provide investors with additional information to evaluate our ability to meet debt covenants and incur additional debt. Adjusted EBITDA, as presented in accordance with our debt agreements, is EBITDA adjusted to eliminate management fees to related parties, one-time, non-recurring charges related to the use of purchase accounting, and other non-cash income or expenses, which are more particularly defined in our credit documents and the indentures governing the notes. Our credit documents and the indentures governing the notes require us to meet or exceed specified minimum financial performance thresholds in order to consummate certain acts, such as completing acquisitions, declaring or paying dividends and incurring additional indebtedness, and one of the more significant measures contained in our credit documents and the indentures governing the notes is Adjusted EBITDA. EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP and may not be comparable to similarly titled measures used by other companies in our industry. EBITDA and Adjusted EBITDA should not be considered in isolation from or as alternatives to net income, income from continuing operations, operating income or any other performance measures derived in accordance with GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.

For example, EBITDA excludes certain tax payments that may represent a reduction in cash available to us; does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; does not reflect capital cash expenditures, future requirements for capital expenditures or contractual commitments; does not reflect changes in, or cash requirements for, our working capital needs; and does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal

 

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payments, on our indebtedness. Adjusted EBITDA, in addition to the adjustments set forth under EBITDA above, includes incremental stand-alone costs and adds back non-cash derivative gains and losses, non-recurring natural gas contract losses and certain other non-cash charges that are deducted in calculating net income. However, these are expenses that may recur, vary greatly and are difficult to predict. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. You should not consider our EBITDA or Adjusted EBITDA as an alternative to operating or net income, determined in accordance with GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of our cash flows or as a measure of liquidity.

The following tables reconcile net income to EBITDA and Adjusted EBITDA for the periods presented, as defined in the credit agreements, which also requires the calculation of Adjusted EBITDA for the last twelve months:

 

    Pre-
predecessor
  Predecessor   Combined
Pre-
predecessor
and
Predecessor
    Predecessor   Successor   Combined
Predecessor
and Successor
 

(in millions)

  Period from
January 1,
2006 to
August 15,
2006
  Period from
August 16,
2006 to
December 31,
2006
  Year ended
December 31,
2006
    Period from
January 1,
2007 to
May 17, 2007
  Period from
May 18,
2007 to
December 31,
2007
  Year ended
December 31,
2007
 
        (As Restated)   (As Restated)     (As Restated)          

Net income

  $ 71.9   $ 42.0   $ 113.9     $ 14.3   $ 8.2   $ 22.5  

Income taxes

    38.7     23.6     62.3       13.6     5.1     18.7  

Interest expense, net

    12.7     6.4     19.1       6.2     67.2     73.4  

Depreciation and amortization

    24.3     33.0     57.3       29.7     69.7     99.4  
                                       

EBITDA

  $ 147.6   $ 105.0   $ 252.6     $ 63.8   $ 150.2   $ 214.0  
                                       

Joint venture EBITDA(a)

        13.2           15.3  

LIFO expense(b)

        5.7           (5.6 )

LCM adjustment(c)

        —             14.3  

Non-cash derivative gains and losses(d)

        7.5           54.0  

Non-recurring natural gas losses(e)

        14.6           —    

Incremental stand-alone costs(f)

        (4.5 )         (2.7 )

Employee compensation items(g)

        2.6           10.4  

Other items, net(h)

        4.6           9.6  
                       

Adjusted EBITDA

      $ 296.3         $ 309.3  
                       

 

(a) Our upstream business is fully integrated from bauxite mined by St. Ann to alumina produced by Gramercy to primary aluminum metal manufactured by our aluminum smelter in New Madrid, Missouri. Our reported EBITDA includes 50% of the net income of Gramercy and St. Ann, based on transfer prices that are generally in excess of the actual costs incurred by the joint venture operations. To reflect the underlying economics of the vertically integrated upstream business, this adjustment eliminates the following components of equity income to reflect 50% of the EBITDA of the joint ventures, for the following combined periods:

 

     Combined
Pre-predecessor
and Predecessor
     Combined
Predecessor and
Successor
 

(in millions)

   Year ended
December 31, 2006
     Year ended
December 31, 2007
 
     (As Restated)         

Depreciation and amortization

   $ 8.6      $ 12.4  

Net tax expense

     3.6        3.2  

Interest income

     (0.3 )      (0.3 )

Non-cash purchase accounting adjustments

     1.3        —    
                 

Total joint venture EBITDA adjustments

   $ 13.2      $ 15.3  
                 

 

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(b) We use the LIFO method of inventory accounting for financial reporting and tax purposes. To achieve better matching of revenues and expenses, particularly in the downstream business where customer LME pricing terms generally correspond to the timing of primary aluminum purchases, this adjustment restates EBITDA to the FIFO method of inventory accounting by eliminating the LIFO expenses related to inventory held at the smelter and downstream facilities. The adjustment also includes non-cash charges relating to inventories that have been revalued at fair value at the date of the Xstrata Acquisition and Apollo Acquisition and recorded in cost of sales during the periods presented resulting from the sales of inventories.
(c) Reflects adjustments to reduce inventory to the lower of cost, adjusted for purchase accounting, to market value.
(d) We use derivative financial instruments to mitigate effects of fluctuations in aluminum and natural gas prices. We do not enter into derivative financial instruments for trading purposes. This adjustment eliminates the non-cash gains and losses resulting from fair market value changes of aluminum swaps.
(e) During 2006, as mandated by Falconbridge Limited, we entered into natural gas swaps for the period between April and December 2006 in response to rising natural gas costs at the end of 2005. Natural gas prices, however, decreased in 2006, and as a result, we generated losses on the natural gas swaps. Our credit agreements provide for the exclusion of losses incurred from those natural gas swaps.
(f) Reflects (i) the incremental insurance, audit and other administrative costs on a stand-alone basis, net of certain corporate overheads allocated by the former parent that we no longer expect to incur on a go-forward basis and (ii) the elimination of income from administrative and treasury services provided to Noranda Aluminum, Inc.’s former parent and its affiliates that are no longer provided.
(g) Represents stock compensation expense, repricing of stock options and bonus payments related to the Xstrata Acquisition.
(h) Represents the elimination of non-cash and non-recurring items such as advisory fees paid in relation to our acquisition and the registration of the exchange notes, gains and losses from disposal of assets, non-recurring insurance recoveries, non-cash pension expenses, losses relating to GCA Leasing Holding, Inc., an entity retained by Xstrata in connection with the Transactions, and the annual management fees to Apollo.

Off balance sheet arrangements

We do not have any off balance sheet arrangements.

Seasonality

We do not experience significant seasonality of demand.

Effect of inflation

While inflationary increases in certain input costs, such as wages, have an impact on our operating results, inflation has had minimal net impact on our operating results during the last three years, as overall inflation has been offset by increased selling prices and cost reduction actions. We cannot assure you, however, that we will not be affected by general inflation in the future.

Contractual Obligations and Contingencies

The following table reflects certain of our contractual obligations as of December 31, 2007. The table below does not include deferred tax liabilities.

 

                             

(in millions)

  Total   2008   2009   2010   2011   2012   2013 and
beyond

Long-term debt(1)

  $ 1,151.7   $ 36.2   $ —     $ —     $ —     $ —     $ 1,115.5

Interest on long-term debt(2)

    659.1     95.3     94.7     94.7     94.7     94.7     185.0

Operating lease commitments(3)

    9.0     2.0     1.6     1.5     1.5     1.0     1.4

Purchase obligations(4)

    274.7     215.8     17.9     31.6     5.6     0.7     3.1

Other contractual obligations(5)

    189.4     15.0     15.7     16.7     17.7     18.8     105.5
                                         

Total

  $ 2,283.9   $ 364.3   $ 129.9   $ 144.5   $ 119.5   $ 115.2   $ 1,410.5
                                         

 

(1) We have required annual paydowns on our term loan b, which are based on annual company performance; however, payments in future years related to the term loan cannot be reasonably estimated and are not reflected.
(2)

Interest on long-term debt was calculated based on the weighted average effective LIBOR rate of 4.8% at December 31, 2007. The fronting fee and the undrawn capacity fee of the revolving credit facility are not included

 

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here. In addition, interest is assumed to be paid entirely in cash. A 1% increase in the interest rate would increase our annual interest expense by $11.5 million prior to any consideration of the impact of interest rate swaps with a notional amount of $500 million. Payments related to our interest rate swap cannot be reasonably estimated and are not included.

(3) We enter into operating leases in the normal course of business. Our operating leases include the leases on certain of our manufacturing and warehouse facilities.
(4) Purchase obligations include any outstanding aluminum and gas hedge obligations and minimum purchase requirements under New Madrid’s power contract over the 15-year life of the contract. Additionally, take-or-pay obligations related to the purchase of metal units through 2008 for Norandal, USA, Inc. are included, for which we calculated related expected future cash flows based on the LME forward market at December 31, 2007, increased for an estimated Midwest Premium.
(5) We have other contractual obligations that are reflected in the consolidated financial statements, including pension obligations, asset retirement obligations and environmental matters, and service agreements.

Quantitative and Qualitative Disclosures about Market Risk

In addition to the risks inherent in its operations, the Company is exposed to financial, market and economic risks. The following discussion provides information regarding the Company’s exposure to the risks of changing commodity prices and interest rates. The interest rate, aluminum and natural gas contracts are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility, and to cover underlying exposures.

Commodity Price Risks

The Company is a leading North American integrated producer of primary aluminum and aluminum fabricated products. In order to reduce commodity price risk and earnings volatility in the upstream business, the Company implemented a hedging strategy that locks in the aluminum price by entering into forward sales arrangements. The liability relating to these forward sales agreements has a fair value totaling $38.2 million as of December 31, 2007. The Company believes that this strategy will help to reduce price risk and earnings volatility in the upstream business. The Company has not qualified these contracts for hedge accounting treatment under SFAS 133, and therefore, any gains or losses resulting from the change in the fair value of these contracts are recorded in other expense (income) in the consolidated statement of operations.

The Company purchases natural gas to meet its production requirements. These purchases expose the Company to the risk of higher prices. To offset changes in the Henry Hub Index Price of natural gas, the Company enters into financial swaps, by purchasing the fixed forward price for the Henry Hub Index and simultaneously entering into an agreement to sell the actual Henry Hub Index Price. The natural gas financial swaps were not designated as hedging instruments under SFAS 133. Accordingly, any gains or losses resulting from changes in the fair value of the financial swap contracts are recorded in other expense (income) in the consolidated statement of operations. As of December 31, 2007, there were no outstanding natural gas contracts.

Financial Risk

Interest Rates—The Company has floating-rate debt which is subject to variations in interest rates. On August 16, 2007, the Company entered into interest rate swap agreements to limit our exposure to floating interest rates for the periods from November 15, 2007 to November 15, 2011 with a notional amount of $500.0 million. The interest rate swap agreements were not designated as hedging instruments under SFAS No. 133. Accordingly, any gains or losses resulting from changes in the fair value of the interest rate swap contracts were recorded in (gain) loss on derivative instruments and hedging activities in the condensed consolidated statement of operations. As of December 31, 2007, the fair value of such contracts totaled a $11.7 million liability.

 

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Fair Values and Sensitivity Analysis—the fair value of an aluminum swap is the present value of the net cash flows from the fixed and floating legs of the swap and is based on market prices of aluminum quoted on the LME for the term of the swap. The sensitivity of the fair value of the swap to aluminum prices was estimated by shifting forward aluminum prices by +/-10% and re-calculating the fair value. At December 31, 2007, an average 10% decrease to $1.07 in the aluminum prices applicable to the swaps results in an increase in fair value of $96.6 million.

The effect on the fair values of interest rate swap contracts of a hypothetical increase and decrease of 50 basis points in the market rates that existed at December 31, 2007, results in an increase of $7.0 million and a decrease of $16.4 million in fair value, respectively.

The sensitivity analysis is not disclosed for natural gas contracts due to the fact that all contracts expired in November 2007.

We have issued variable-rate debt to finance the Acquisition and will be subject to the variations in interest rates in respect of our floating-rate debt. As of December 31, 2007, outstanding long term debt was $1,151.7 million. Assuming a 1% increase in the interest rate, our annual interest expense would increase by $11.5 million.

Material Limitations—the disclosures with respect to commodity prices and interest rates do not take into account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on the futures contracts may be offset. Actual results will be determined by a number of factors that are not under the Company’s control and could vary significantly from those factors disclosed. The Company is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, as well as credit or performance risk with respect to its customers. Although nonperformance is possible, the Company does not anticipate nonperformance by any of these parties. Contracts are with creditworthy counterparties.

Recent Accounting Pronouncements

Business Combinations

On December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. According to transition rules of the new standard, the Company will apply it prospectively to any business combinations with an acquisition date on or after January 1, 2009, except that certain changes in FASB Statement 109 may apply to acquisitions which were completed prior to January 1, 2009. Early adoption is not permitted. The Company is currently evaluating the effect of SFAS No. 141(R) on the Company’s consolidated financial statements.

Consolidated Financial Statements

On December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51. Statement 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. According to transition rules of the new standard, we will apply it for the Company’s fiscal year beginning January 1, 2009. The Company is currently evaluating the effect of SFAS No. 160 on the Company’s consolidated financial statements.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS No. 157. This statement defines fair value, establishes a consistent framework for measuring fair value under GAAP and expands disclosures about fair value measurements. SFAS No. 157 applies to accounting pronouncements that require or permit fair value measurements, where the FASB previously concluded in those accounting

 

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pronouncements that fair value is the most relevant measurement attribute. Accordingly, this new statement does not establish any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. However, in February 2008, the FASB issued FSP FAS 157-b, Effective Date of FASB Statement No. 157, which defers the effective date of SFAS No. 157 for one year for all nonfinancial assets and nonfinancial liabilities which are recognized or disclosed at fair value on a non-recurring basis. SFAS 157’s recognition and disclosure requirements still apply to financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are measured at least annually. The adoption of SFAS No. 157 is not expected to have a material effect on the Company’s consolidated financial statements.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115, or SFAS 159. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the effect of SFAS 159 on our consolidated financial statements.

 

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BUSINESS

Company Overview

We are a leading North American integrated producer of value-added primary aluminum products as well as high-quality rolled aluminum coils. We have two businesses: our primary metals business, or upstream business, which produces approximately 258,000 metric tons of primary aluminum annually and accounts for approximately 10% of total United States primary aluminum production, and our rolling mills, or downstream business, which is one of the largest foil producers in North America and a leading North American producer of foil and light gauge sheet products. The upstream business produces value-added aluminum products in the form of billet, used mainly for building construction and architectural and transportation applications; rod, used mainly for electrical applications and steel de-oxidation; value-added sow, used mainly for aerospace; and foundry, used mainly for transportation. In addition to these value-added products, which account for approximately 85% of our primary metal output, the remaining 15% is produced in the form of commodity grade sow, the majority of which is used in our rolling mills. Our downstream business consists of four rolling mills, our largest of which is a state-of-the-art facility, which contributes to our being a low cost producer. Our two major foil products are finstock, used mainly for the air conditioning, ventilation and heating industry, which we refer to as HVAC finstock, and container stock, used mainly for food packaging, pie pans and convenience food containers.

Our upstream business is fully integrated from bauxite to alumina to primary aluminum metal, ensuring a secure raw material supply at a long-term competitive cost. Our primary aluminum smelter, in New Madrid, Missouri, has a long-term contract for the secure supply of electricity that we believe is competitively priced. This combination of captive, cost-efficient raw material and secure power gives our upstream business a competitive advantage over many other aluminum producers. Our downstream business, in addition to having an attractive cost structure, prices its products using a combination of market-based aluminum prices plus a negotiated fabrication price, which covers all conversion costs plus a profit margin, resulting in earnings that are less volatile than underlying aluminum prices. We have implemented a hedging strategy to reduce our exposure to aluminum price risk and earnings volatility in the upstream business. We have hedged approximately 50% of our expected cumulative primary aluminum shipments through December 2012. Specifically, we have entered into fixed price forward aluminum swaps with respect to a portion of our expected shipments through 2012 at prices that we consider attractive relative to historical levels and which we believe will ensure positive cash flows based on our expected cost structure. These hedges should increase visability into our revenue and EBITDA levels going forward. We may increase or amend our hedging strategy, based on our view in the future of actual and anticipated aluminum prices.

The following chart indicates the percentages of sales and operating income represented by each of the upstream and downstream businesses during 2007, 2006 and 2005:

 

       Percentage of Sales      Percentage of Operating Income  

Segment

     2007      2006      2005      2007      2006      2005  
       %      %      %      %      %      %  

Upstream

     50.1 %    49.1 %    49.0 %    91.2 %    90.9 %    58.3 %

Downstream

     49.9 %    50.9 %    51.0 %    8.8 %    9.1 %    41.7 %
                                           

Total

     100.0 %    100.0 %    100.0 %    100.0 %    100.0 %    100.0 %

Industry Overview

Upstream Business. Primary aluminum is produced and consumed worldwide and its metallurgical properties and environmentally friendly attributes, such as its light weight and ability to be recycled, make it a highly desirable metal. Primary aluminum is currently experiencing strong price trends based on healthy global demand and structural increases in the cost to produce aluminum. Daily LME settlement prices averaged $1.20 per pound for the year ended December 31, 2007 and currently remain above their 5-year and 10-year averages. We believe the supply and demand outlook for aluminum supports sustainable higher LME prices than historical averages due to the following trends:

 

  ·  

strong global demand driven by economic growth and increased demand from emerging markets, especially China;

 

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  ·  

an increase on a global basis in the cost and scarcity of power, which is a significant input cost in the production of primary aluminum;

 

  ·  

substitution away from other metals (e.g., steel and copper) to aluminum due to aluminum’s strength-to-weight and value-to-weight ratios and relative price compared to other metals; and

 

  ·  

a weaker U.S. dollar relative to historical periods.

According to Brook Hunt, a leading international mining and metals consulting firm, the global production of aluminum increased by 12.3% to 38.2 million metric tons in 2007. Strong global demand, particularly in China and India, resulted in a tightening of the aluminum supply-demand balance and worldwide stocks ended 2007 at 47 days of consumption, their lowest ever recorded levels. In 2007, North American production increased by 5.4% to 5.6 million metric tons, and the region continues its significant reliance on imports with 6.7 million metric tons of consumption. In 2008, global production is expected to grow by approximately 10% to over 42 million metric tons. Consumption is expected to remain strong, fueled primarily by a 25% growth in China, and worldwide stocks are expected to decrease to 46 days of consumption, reflecting a tight supply-demand balance. Recently, China and South Africa, which account for approximately 35% of global production, have experienced weather and energy related production curtailments that are expected to keep supplies tight in the near term.

Downstream Business. The aluminum rolled products market represents the supply of and demand for aluminum sheet, plate and foil produced either from sheet ingot or continuously cast roll-stock in rolling mills operated by independent aluminum rolled products producers and integrated aluminum companies alike. Aluminum rolled products are semi-finished aluminum products that constitute the raw material for the manufacture of finished goods ranging from automotive body panels to household foil. There are two major types of manufacturing processes for aluminum rolled products differing mainly in the initial stage of processing:

 

  ·  

“hot mills” that require sheet ingot, a rectangular slab of aluminum, as starter material; and

 

  ·  

“continuous casting mills” that can convert molten metal directly into semi-finished sheet.

Both processes require subsequent rolling, which we call cold rolling, and finishing steps such as annealing, coating, leveling or slitting to achieve the desired thicknesses and metal properties. Most customers receive shipments in the form of aluminum coil, a large roll of metal, which can be fed into their fabrication processes.

There has been a long-term industry trend towards lighter gauge (thinner) rolled products, which we refer to as downgauging, where customers request products with similar properties using less metal in order to reduce costs and weight. As a result of this trend, aluminum tonnage across the spectrum of aluminum rolled products has declined on a per unit basis, but actual rolling machine hours per unit have increased. Because the industry has historically tracked growth based on aluminum tonnage shipped, we believe the downgauging trend may contribute to an understatement of the actual growth of revenue attributable to rolling in some end-use markets.

In 2007, shipments from the North American flat rolled product industry totaled 9.8 billion pounds as compared to 10.3 billion pounds in 2006. Our downstream business is a top tier producer in the foil and certain light gauge sheet segments, which two segments collectively accounted for 1.7 billion pounds of demand in North America in 2007.

According to Aluminum Association data and company estimates, demand for the foil and light gauge sheet products we sell experienced a 2.7% trend line growth rate over the 15-year period from 1993 to 2007. Our most important products (HVAC finstock and container stock) have enjoyed trend line growth rates of 5.6% and 6.8%, respectively, over the same period. Although HVAC finstock demand was favorably impacted by 2005’s federally mandated 30% boost in efficiency standards for residential air conditioners, the 2007 net impact was offset by the downturn in the housing market. A similar regulatory change involving commercial air conditioners will come into effect in 2010. For container stock, demographic shifts favoring convenience food consumption and restaurant dining are expected to maintain the segment’s long-term growth trend.

 

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Pricing in the downstream business is generally based on a “pass through” model, which means the price of the end product is equal to the cost of the metal (or LME price) plus a predetermined, negotiated fabrication margin, which is largely unaffected by short-term volatility in the underlying LME price of primary aluminum. Fabrication margins in these segments are generally determined in large part by industry capacity utilization, among several other factors. Capacity utilization has generally been strong since 2004, reflecting tightened supply-demand fundamentals for our products, especially finstock and semi-rigid container stock. During 2007 and continuing thus far in 2008, however, the United States housing market has contracted, resulting in lower industry capacity utilization from 2006 levels.

Competitive Strengths

We believe that the following strengths allow us to maintain a competitive advantage within the markets in which we operate:

Strategically Located Assets with Attractive Industry Positions. We estimate that our upstream business supplies approximately 10% of the primary aluminum in the United States and has the capacity to produce approximately 18% of the rod and 9% of the primary extrusion billet manufactured in North America. Our upstream facilities are strategically located. The ease of access and close proximity of Gramercy to St. Ann and New Madrid to Gramercy significantly reduce the cost of freight. In addition, New Madrid is the closest Midwest smelter to the Gulf Coast, the entry point for approximately 80% of the alumina shipped to the United States, which allows New Madrid to internally source its Gramercy alumina or purchase alumina from third parties at a lower freight cost than other U.S. based smelters. Additionally, New Madrid’s location in the Midwest on the Mississippi River positions it in close proximity to its customers, with approximately 90% of sales volumes falling within a one-day truck delivery distance allowing for lower freight rates and excellent customer service. Also, because domestically produced primary aluminum cannot satisfy local demand and imports require higher freight costs, a basis differential, or Midwest premium, exists for aluminum delivered to the Midwestern United States. In 2007, our realized monthly average Midwest premium was 3.1 cents per pound above the monthly average of the daily LME settlement price.

Our downstream business is one of the largest foil producers in North America, and is a leading producer of HVAC finstock and, container and transformer sheet. Our downstream facilities are also strategically located since the majority of domestic air conditioners, transformers, semi-rigid containers and foil packaging products are manufactured in the eastern and central part of the United States. As a result of its locations in this area, the downstream business is able to ship approximately 60% of its output within a one-day truck delivery distance.

Vertically Integrated Upstream Assets. The upstream business has secured long-term, reliable alumina supply from the Gramercy alumina refinery at a net cost well below recent spot market prices. Additionally, Gramercy has secured long-term reliable bauxite supply from the St. Ann mine at prices below historical and current spot prices.

Secure Supply of Electricity. Power is a significant component of production costs in our primary aluminum business. Our New Madrid smelter has entered into a long-term (through 2020) power supply contract with AmerenUE, ensuring the stable supply of a key component of our cost structure. In addition, unlike many power purchase agreements, our contract with AmerenUE is not a take-or-pay contract, which lowers our risk and provides production flexibility.

Attractive End-Use Segments. We have the ability to produce a variety of end-use aluminum products from our upstream operations in New Madrid. These products include billet, rod, sow, and value-added sow. From an industry perspective, the overall demand for North American upstream billet and rod has steadily increased year over year from 2001 through 2006, due to strong construction and transportation output. In 2007, the demand for extrusion produced from billet and electrical wire decreased by 16%, primarily due to the general economic

 

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slowdown, and our sales of this type of product decreased by only 12%. Similarly, the industry also experienced an 8% reduction in cable produced from rod, while our rod sales marginally increased. Overall, in 2007 we achieved record production levels of 255,000 metric tons.

Our downstream foil and sheet sales are concentrated in HVAC finstock and container stock and we expect long-term revenue growth from the sale of these products. A federally mandated increase in the minimum Seasonal Energy Efficiency Rating, or SEER, for residential air conditioners boosted HVAC finstock usage in 2006; however, due to the housing sector slowdown, demand decreased by 13% in 2007. A federally mandated regulatory change involving the efficiency of commercial air conditioners is expected to come into effect in 2010.

High-Quality Downstream Assets. Our downstream business’s largest rolling mill, the Huntingdon–West facility, is recognized as the fastest, widest and most modern rolling facility in North America with state-of-the-art technology. This mill has the lowest conversion cost excluding ingot for foil stock production in North America, according to the 2006 edition of CRU’s “Aluminum Rolling Cost Service.”

Production Flexibility. Our efficient facilities and competitive cost position enable us to produce a variety of products. Therefore, we can quickly and seamlessly shift production among our various end products based on customer demand and forecasted volume, pricing and profitability trends. The casthouse and rod-making facilities at New Madrid are positioned to be very flexible and produce a diversified product mix, allowing us to adapt to changing market conditions. The ability to provide commodity grade or high purity sow, extrusion billet in a vast array of diameters and lengths and continuous cast rod in multiple sizes allows our customers to choose from a wide variety of products. The ability to vary product mix allows us to optimize production and maximize profitability. We also manufacture our own anodes at New Madrid an integral component in the production of aluminum, providing a competitive advantage versus other smelters that must purchase anodes at market prices.

Experienced Management Team with Solid Track Record. We have a seasoned management team, whose members average more than 22 years of experience in the metals industry. Financial discipline has been a priority of our management team, including control of operating expenses and minimization of balance sheet liabilities, such as pensions and post-employment medical insurance. In March 2008, Layle K. “Kip” Smith joined our business as President and Chief Executive Officer. Mr. Smith has diverse leadership experience, including various management assignments with The Dow Chemical Company and positions as COO of Resolution Performance Products and CEO of Covalence Specialty Materials.

Business Strategy

Maximize Cash Flow. Prior to the Apollo Acquisition our business was managed and operated as part of a larger diversified metals and mining company, focused on optimizing its entire portfolio in the context of its own business and financial goals. As a stand-alone business, senior management has implemented a focused strategy to allocate our resources to compete and maximize profitability and cash flow in the aluminum business. We have invested approximately $212.6 million in capital expenditures over the past five years to expand and enhance the production of our facilities. As a result of this spending, we expect to enjoy significant productivity enhancements and production growth opportunities. With this enhanced management focus, we intend to manage our working capital, capital expenditures and operational expenditures to generate increased cash flow. We believe that our excess free cash flow will enable us to reduce leverage by repaying our debt obligations and to reinvest in our business, which will include projects to increase production capacity at our New Madrid smelter and drive efficiencies in our downstream business.

Focus on Productivity Improvements and Capacity Utilization in Downstream Business. We believe there are significant opportunities to reduce our aluminum costs through judicious development projects that target higher scrap usage in our production without sacrificing end-product quality. Additionally, we believe there are significant opportunities to reduce our manufacturing costs by increasing our focus on Six Sigma-based initiatives, focusing on improved energy utilization and expanding predictive maintenance practices.

 

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Stabilize Upstream Cash Flow. The cash flow of our upstream business is exposed to fluctuations in aluminum prices. In order to reduce commodity price risk and earnings volatility in the upstream business, we have implemented a hedging strategy that establishes the price at which approximately 50% of our expected cumulative primary aluminum shipments will be sold through December 2012. Specifically, we have entered into fixed price forward aluminum swaps with respect to a substantial portion of our expected shipments through 2012, at prices that we consider attractive relative to historical levels and which we believe will help ensure positive cash flows, based on our expected cost structure, regardless of fluctuations in the price of commodity aluminum. While we may terminate these arrangements or alter our hedging strategy at any time, the pricing protection of our current hedges should enable us to maintain relatively stable cash flow in the event of a decline in aluminum prices.

Primary Metal—Upstream Business

Business Overview. Our upstream business is a vertically integrated producer of primary aluminum, as the business consists of a bauxite mine, an alumina refinery and an aluminum smelter.

 

    

Location

  

2007 Production

  

Ownership

LOGO    Jamaica    4.9 mm tonnes    50% joint venture interest
        
   Louisiana    1.2 mm tonnes    50% joint venture interest
        
   Missouri    562 mm lbs    100%
        
        
        

The process of making aluminum is power intensive and requires a large amount of alumina (aluminum oxide). Alumina is derived from the raw material bauxite, and approximately four pounds of bauxite are required to produce approximately two pounds of alumina, and the two pounds of alumina will produce approximately one pound of aluminum. Our aluminum smelter in New Madrid, Missouri receives substantially all of its alumina requirements at cost plus freight from our Gramercy joint venture. New Madrid has a logistical advantage relative to other smelters because the ease of access and close proximity of Gramercy to St. Ann and New Madrid to Gramercy significantly reduce the cost of freight. In addition, New Madrid is the closest Midwest smelter to the Gulf Coast, the entry point for approximately 80% of the alumina supplied to the United States, which would allow New Madrid to purchase alumina from third parties at a lower freight cost than other smelters to the extent it needs alumina in excess of Gramercy’s capabilities in the future. The smelter is also located in an area with abundant sources of electrical power, and in June 2005, we entered into a 15-year power purchase agreement with AmerenUE for the electricity supply of the smelter at a rate that we believe is competitive.

All of our primary aluminum production occurs at the smelter in New Madrid, which has production capacity of approximately 570 million pounds of primary aluminum annually. The plant site also includes a fabrication facility that converts molten aluminum into value-added saleable products and has the capacity to produce annually approximately 160 million pounds of rod, 286 million pounds of extrusion billet and 75 million pounds of foundry ingot. Molten aluminum that is not used in these product lines is produced as 1,500 pound primary ingots for sale to other aluminum fabricators. Approximately 80% of our value-added products are sold at the prior month’s MWTP plus a fabrication premium. The MWTP consists of the base price for primary-grade aluminum set on the LME, plus a Midwest premium charged due to both the cost to transport aluminum from LME warehouses to the Midwest United States and supply and demand dynamics. In order to reduce commodity price risk and earnings volatility in the upstream business, we have implemented a hedging strategy that establishes the price at which approximately 50% of our expected cumulative primary aluminum shipments will

 

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be sold through December 2012. See “—Commodity Risk Management.” Our value-added products are supported by excellent customer service and delivery, which we believe results in a higher net realized price versus some of our competitors. Our major target customers are located in the Midwestern United States and Mexico.

In 2004, we and Century, through a 50/50 joint venture, purchased from Kaiser Aluminum & Chemical Company, the Gramercy, Louisiana alumina refinery that supplies the alumina used at our New Madrid and Century’s Hawesville primary aluminum production facilities. As part of the acquisition, we and Century, through a separate 50/50 joint venture, also purchased an interest in a Jamaican partnership that owns bauxite mining assets in St. Ann, Jamaica. Bauxite is the principal raw material used in the production of alumina and substantially all of the bauxite used at the Gramercy alumina refinery is purchased from the Jamaican partnership. Gramercy currently produces alumina at a capacity rate of approximately 1.2 million metric tons per year, consisting of approximately 80% smelter grade alumina, or SGA, and 20% alumina hydrate, or chemical grade alumina, or CGA. Third-party sales of chemical grade alumina reduce the net cash cost of New Madrid’s alumina supply. In 2007, St. Ann produced approximately 4.5 million tons of bauxite, of which it sold approximately 50% to a third party, Sherwin Alumina, which reduced the net cost of bauxite transferred to Gramercy.

Through our wholly owned subsidiary Gramercy Alumina Holdings Inc., we hold an interest in the two joint venture companies as shown below:

LOGO

Competition. The market for primary aluminum is diverse and highly competitive as we compete in the production and sale of primary aluminum with numerous other producers. Our principal competitors are Alcoa, Alcan, Norsk, Hydro, Chalco, Rusal, BHP Billiton and various other smaller primary and secondary aluminum producers. Aluminum also competes with other materials such as steel, plastic, copper, titanium and glass which may be used as alternatives for some applications based upon functionality and relative pricing.

We believe that we compete on the basis of price, quality, timeliness of delivery and customer service, with our focus on the latter three areas. Some of our competitors have substantially greater manufacturing and financial resources, and some have cost structures that are more advantageous than ours. We anticipate that continuing industry consolidation will intensify competition and further emphasize the importance of cost-efficient operations.

Raw Materials and Supply. Electrical power and alumina are the main cost components for aluminum production. New Madrid has a power purchase agreement with AmerenUE, pursuant to which New Madrid has agreed to purchase substantially all of its electricity through May 2020. This contract specifies the rate we pay per kilowatt hour, which depends on the season but otherwise may not be altered without the consent of the Missouri Public Service Commission. AmerenUE applied for a 12.1% rate increase and a fuel adjustment clause in April 2008 and we expect a ruling from the Missouri Public Service Commission not later than March 2009. If AmerenUE is fully successful in its rate increase request, New Madrid’s costs will increase by $15.5 million annually. An increase in our costs due to a fuel adjustment clause cannot be estimated at this time.

 

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Our upstream business is fully integrated from bauxite to alumina to primary aluminum metal, ensuring security of raw material supply at long-term competitive costs. New Madrid receives alumina at cost plus freight from our Gramercy refinery. New Madrid is the closest Midwest smelter to the alumina source and therefore has less freight cost than its competition. In addition, our Gramercy refinery also sells chemical grade alumina (hydrate) which helps reduce the production cost for smelter grade alumina consumed by the New Madrid smelter.

Our Gramercy refinery has contracts with two local suppliers of natural gas, Coral Energy Resources, L.P. and Atmos Energy Marketing, LLC, which expire on April 30, 2010 and April 30, 2009, respectively. These contracts guarantee a secure supply of natural gas at a price based on the Henry Hub index plus transportation/pipeline costs. In addition, our contract with Atmos provides security in case of a short-term supply emergency (such as a hurricane or other force majeure situation), by granting Gramercy the option to obligate Atmos to utilize its storage assets to supply Gramercy’s full natural gas supply requirements.

Sales and Marketing; Customers. We employ a sales force consisting of inside and outside salespeople. Inside salespeople are responsible for maintaining customer relationships, receiving and soliciting individual orders and responding to service and other inquiries by customers. Our outside sales force is responsible for identifying potential customers and calling on them to explain our services as well as maintaining and expanding our relationships with our current customers. The sales force is trained and knowledgeable about the characteristics and applications of various metals, as well as the manufacturing methods employed by our customers.

Our sales and marketing focus is on the identification of original equipment manufacturers, or OEMs, and other metals end-users that could achieve significant cost savings through the use of our inventory management, value-added processing, just-in-time delivery and other services. We use a variety of methods to identify potential customers, including the use of databases, direct mail and participation in manufacturers’ trade shows. Customer referrals and the knowledge of our sales force about regional end-users also result in the identification of potential customers. Once a potential customer is identified, our outside salespeople assume responsibility for visiting the appropriate contact, typically the vice-president of purchasing or operations and business owners.

All of our value-added (billet, foundry, rod) sales are on a negotiated price basis. In some cases, sales are the result of a competitive bid process where a customer provides a list of products, along with requirements, to us and several competitors and we submit a bid on each product. We have a diverse customer base, with no single customer accounting for more than 8% of our net sales in each of the last three years. We are not a “Tier One” supplier to the automotive industry. Our ten largest customers represented 43% of our net sales in 2007.

St. Ann Bauxite Mine. On October 1, 2004, we and Century, through 50/50 joint venture companies, acquired an alumina refinery in Gramercy, Louisiana and related bauxite mining assets in Jamaica from Kaiser Aluminum & Chemical Company. The bauxite mining assets supply all of the bauxite ore used for the production of alumina at the Gramercy refinery and also supply bauxite ore to a third-party refinery in Texas.

The bauxite mining assets were acquired by St. Ann Jamaica Bauxite Partnership or SAJBP, a partnership of which the Jamaican government owns 51% and St. Ann owns 49%. St. Ann is a Jamaican limited liability company jointly owned by Century and Noranda. The bauxite mining rights are granted from the Government of Jamaica and give St. Ann the right to mine bauxite in Jamaica through 2030. Throughout this prospectus, we refer to the Government of Jamaica as the GOJ, the mining rights granted under the concession as the mining rights, and the physical assets held by the partnership as the mining assets.

The mining assets consist primarily of rail facilities, other mobile equipment, dryers and loading and dock facilities. The age and remaining lives of the mining assets vary and they may be repaired or replaced from time to time as part of SAJBP’s ordinary capital expenditure plan. Under the terms of the concession, St. Ann manages the operations of the new partnership, pays operating costs and is entitled to all of its bauxite production. The GOJ receives: (i) a royalty based on the amount of bauxite mined, (ii) an annual “asset usage fee” for the use of

 

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the GOJ’s 51% interest in the mining assets and (iii) certain fees for lands owned by the GOJ that are covered by the concession. St. Ann also pays to the GOJ customary income and other taxes and fees pursuant to an Establishment Agreement with the GOJ that establishes the fiscal regime for St. Ann. In calculating income tax on revenues related to sales to our Gramercy refinery, St. Ann uses a set market price, which is negotiated periodically between St. Ann and the GOJ.

A production levy has historically been applicable on bauxite mined in Jamaica and was waived for St. Ann prior to the purchase of St. Ann by SAJBP. St. Ann’s management is currently in negotiations with the Jamaican government regarding the waiver of the levy, as well as the process for establishing the fiscal regime structure beyond 2008. It is expected that any potential reinstatement of the levy beyond 2008 will be factored into the final negotiated fiscal regime structure.

Under the terms of the GOJ concession, SAJBP mines the land covered by the concession and the GOJ retains surface rights and ownership of the land. The GOJ granted the concession and entered into other agreements with St. Ann for the purpose of ensuring the Gramercy plant will have sufficient reserves to meet its annual alumina requirements and existing or contemplated future obligations under third-party contracts. Under the concession, St. Ann is entitled to annually ship 4.5 million dry metric tons, or DMT, of bauxite from mining operations in the specified concession area through September 30, 2030. The GOJ is required to provide additional concessions if the specified concession does not contain sufficient quantities of commercially exploitable bauxite. St. Ann is responsible for reclamation of the land that it mines. In addition, St. Ann assumed reclamation obligations related to prior operations. The current outstanding reclamation liability is $8.0 million.

Currently, approximately 50% of the bauxite from St. Ann is refined into alumina at the refinery in Gramercy, Louisiana, and the rest is sold to a single third party. The refinery process chemically extracts the alumina (Al3O2) from the bauxite. During the years ended December 31, 2005, 2006 and 2007, the bauxite assets mined 3.7 million, 4.9 million and 4.5 million DMTs of bauxite, respectively. Annual bauxite production at St. Ann is expected to be 5.4 million tonnes by 2008.

Gramercy Alumina Refinery. At the Gramercy refinery, bauxite is chemically refined and converted into alumina, the principal raw material used in the production of primary aluminum. The Gramercy refinery had extensive portions rebuilt and modernized during 2000 through 2002. Gramercy has an annual production capacity of 1.2 million metric tons of alumina, approximately 80% of which is supplied to our New Madrid and Century’s Hawesville primary aluminum production facilities. The Gramercy refinery is the primary source for the New Madrid facility’s alumina requirements. New Madrid does from time to time purchase alumina from third parties, but the quantities are minimal. The remaining alumina production at the Gramercy refinery is in the form of alumina hydrate, or chemical grade alumina, which is sold to third parties.

Gramercy produces approximately 1.2 million tonnes of alumina per year, which can be divided into two product categories:

 

  ·  

Smelter Grade Alumina. Gramercy produces approximately 1.0 million tonnes of SGA annually. The entirety of SGA production is consumed 50% by Noranda Aluminum’s New Madrid, Missouri plant, and 50% by Century’s Hawesville, Kentucky plant, located on the Mississippi River and Ohio River, respectively.

 

  ·  

Chemical Grade Alumina (Hydrate). The other 240,000 tonnes of alumina produced per year are chemical grade. Chemical grade typically sells at a premium to metallurgical grade. The hydrate is sold to four to six major clients, who typically have annual or multi-year contracts. The remaining products are sold either by short-term contract or on spot markets to smaller customers. The hydrate is broken down into two product groups, dry hydrate and wet cake. The dry hydrate is transported by railcar or truck, whereas the wet cake is calcined and transported by truck or barge. Sale of chemical grade alumina helps to reduce production cost for SGA consumed by the New Madrid smelter.

 

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New Madrid Primary Aluminum Smelter. Our primary smelter, which we refer to as our New Madrid facility, is responsible for approximately 10% of the aluminum produced in the United States and is strategically located as the closest facility in the Midwest to the supply of alumina. It is also located in an area with abundant sources of electrical power. See “—Raw Materials and Supply” above. The smelter was built in 1971 and underwent significant capacity expansion in 1976, 1983 and 2001. The smelter is located at the mid-point of the Mississippi River near New Madrid, Missouri. It occupies 250 acres of the 4,200 acre St. Jude Industrial Park and has 44 acres under roof. Noranda owns and manages approximately 2,600 acres of the St. Jude Industrial Park, which is the largest industrial park in the State of Missouri. The Company is in the enviable position of having land either available for expansion or sale to prospective tenants. The smelter is fully integrated with its own raw material unloading facility, environmental control systems and aluminum reduction plant, including carbon anode fabrication, necessary for the annual production capacity of approximately 258,000 tonnes of aluminum.

The plant site also includes a fabrication business for the production of continuous cast rod, extrusion billet and foundry ingot. This is a stand-alone business that converts molten aluminum into value-added saleable products. The business has the capacity to annually produce 160 million pounds of rod, 286 million pounds of extrusion billet and 75 million pounds of foundry ingot. Molten aluminum that is not used in these product lines is produced as 1,500 pound primary ingots for sale to other aluminum fabricators. Approximately 80% of the products are sold at the prior month’s Midwest Transaction Price plus a fabrication premium. The remainder is either sold at current month pricing plus the Midwest Transaction Price or is fixed 30 days prior to the pricing period. The products are considered to be premium priced and supported by excellent customer service and delivery. Our major target customers are located in the Midwestern United States and Mexico. New Madrid produces 18% of the rod manufactured in North America and supplies 9% of North American primary extrusion billet. We employ on average approximately 208 people in the fabrication business unit.

Rolling Mills—Downstream Business

Business Overview. Our downstream business is a fully integrated manufacturer of aluminum foil and light sheet that owns and operates some of the most modern and widest rolling mills in the world. Our rolling mills are located in the southeastern United States, Huntingdon, Tennessee, Salisbury, North Carolina and Newport, Arkansas, with a combined annual production capacity of 495 million pounds, including intra-company shipments. Our products include heavy gauge foil products such as finstock and semi-rigid container stock, light gauge converter foils used for packaging applications, consumer foils and light gauge sheet products such as transformer windings and building products. We primarily sell our products to OEMs of air conditioners, transformers, semi-rigid containers and foil packaging, most of whom are located in the eastern and central part of the United States. Our plants are well situated to serve these customers and approximately 60% of sales are within a one-day delivery distance, resulting in freight savings and customer service benefits. Versatile manufacturing capabilities and advantageous geographic locations provide our rolling mills the flexibility to serve a diverse range of end uses while maintaining a low cost base. Our downstream business maintains a continuous improvement philosophy with a strong Six Sigma culture and has ISO 9001-2000 certification in Huntingdon. Our products are produced at our four rolling mills:

 

Plant

   Location    Approximate
Capacity (in
lbs.)
   % of Total
Capacity
 

Products

Huntingdon—West

   Huntingdon, TN    235 million    48%   Finstock, container stock, intercompany reroll and miscellaneous heavy gauge products

Huntingdon—East

   Huntingdon, TN    130 million    26%   Finstock, container stock, transformer windings and miscellaneous heavy gauge products

 

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Plant

   Location    Approximate
Capacity (in
lbs.)
   % of Total
Capacity
 

Products

Salisbury

   Salisbury,
NC
   95 million    19%   Light gauge products including flexible packaging, finstock, container stock, lithographic sheet, intercompany reroll and miscellaneous leveled building products

Newport

   Newport,
AR
   35 million    7%   Light gauge products including flexible packaging
              

Total

   495 million    100%  
              

Sales prices for our products are a combination of market-based aluminum prices, plus a negotiated fabrication price. The fabrication price covers all conversion costs to fabricate the rolled products, including working capital financing costs, plus a profit margin. The cost of primary metal is passed through to customers; therefore, the Company’s profitability is largely insulated from movement in aluminum prices. We use both primary aluminum, which is sourced from various smelters, and discounted metal units, which can take the form of scrap or recycled scrap ingot. We seek to maximize profitability by optimizing both the mix of rolled products produced and the prime-to-scrap ratio in our metal feed. Our primary aluminum plant in New Madrid, Missouri typically supplies only 10-15% of our downstream business’s metal feed requirements.

Competition. The aluminum rolled products market is highly competitive. We face global competition from a number of companies in the markets in which we operate. Our primary competitors are J.W. Aluminum, Aleris, Novelis, Alcoa and imports. The factors influencing competition vary by region and end-use, but we generally compete on the basis of our value proposition, including price, product quality, the ability to meet customers’ specifications, range of products offered, lead times, technical support and customer service.

In addition to competition from within the aluminum rolled products industry, the industry faces competition from non-aluminum materials. In the packaging market, aluminum rolled products’ primary competitors are plastics and cardboard. However, for our most important heat exchanger customers, usage of aluminum finstock is well entrenched because no other material offers more favorable economics. Factors affecting competition with substitute materials include technological innovation, relative prices, ease of manufacture, consumer preference and performance characteristics.

Raw Materials and Supply. The principal raw materials that we use in rolled products manufacturing include primary aluminum, recycled aluminum and alloying elements. Total metal units purchased in 2007 were approximately 365 million pounds. These raw materials are generally available from several sources and are not subject to supply constraints under normal market conditions. We also consume considerable amounts of energy in the operation of our facilities, which is a significant component of our non-metal conversion costs.

Natural gas and electricity represented 100% of our energy consumption in 2007. Fuel oil can be used at our Salisbury plant as a substitute for natural gas, but was not consumed in 2007. The majority of energy usage occurs during the melting/casting process in the form of natural gas. Most of our electricity is consumed in the cold rolling process. We purchase our natural gas on the open market, which subjects us to market pricing fluctuations. Recent natural gas pricing volatility in the United States has increased our energy costs. Forward purchase contracts are used from time to time to help stabilize gas price volatility.

Electricity is purchased through medium-term contracts at competitive industrial rates from regional utilities supplied through local distributors. Supply reliability at all plants has been excellent.

Sales and Marketing; Customers. We divide our sales force into inside and outside salespeople. Our outside sales force is primarily responsible for identifying potential customers and calling on them to negotiate profitable

 

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business and handling any subsequent issues that may arise. Inside salespeople are primarily responsible for maintaining customer relationships, receiving and soliciting individual orders and responding to service and other inquiries by customers. The sales force is trained and knowledgeable about the characteristics and applications of our various products, as well as our manufacturing methods and the end-use markets in which our customers are involved.

Our sales and marketing focus is on servicing OEMs who are major participants in the markets where our products are used as inputs. However, our staff participate in industry groups and attend trade shows in order to keep abreast of market developments and to identify potential new accounts. Once a potential new customer is identified, our outside salespeople assume responsibility for visiting the appropriate contact, typically the purchasing manager or manager of operations, to explore and develop business opportunities.

Nearly all business is conducted on a negotiated price basis with a few sales made at list prices, typically to smaller accounts.

We have a diverse customer base, with no single customer accounting for more than 10% of our net sales in each of the last three years. In 2007, our ten largest customers represented 52% of net sales. Of our ten largest customers, we have done business with eight for ten years or more, and with six for 20 years or more.

Products. Aluminum foil has several outstanding characteristics that account for a wide range of commercial applications:

 

  ·  

long life: the aluminum surface has a natural hard, transparent layer of oxide which substantially precludes further oxidation;

 

  ·  

high electrical and thermal conductivity;

 

  ·  

nontoxic and nonabsorbent;

 

  ·  

excellent moisture barrier even at thicknesses less than the diameter of a human hair;

 

  ·  

light weight;

 

  ·  

highly reflective and attractive in appearance;

 

  ·  

“dead fold” for packaging applications;

 

  ·  

the most plentiful metal in the earth’s crust;

 

  ·  

the most recycled packaging material in the world; and

 

  ·  

attractive cost-to-weight ratio compared to other metals such as copper and tin.

We have a variety of distinctive product and service capabilities, providing us with a strong competitive position. Our main product lines are the following:

 

  ·  

Finstock: Bare aluminum foil and sheet ranging in gauge from 0.002” to 0.007” is widely used as a heat exchanger in air conditioners because it provides more heat transfer area per unit of cost than any other material. Aluminum sheet and foil finstock are used in commercial, residential and automotive applications.

 

  ·  

Semi-Rigid Containers: These products are typically made with harder alloys than finstock although the range of gauges is similar, encompassing both foil and light sheet. Formed, disposable aluminum containers are among the most versatile of all packages and are widely used for pre-packaged foods, easily withstanding all normal extremes of heating and freezing.

 

  ·  

Flexible Packaging: Aluminum foil is laminated to papers, paperboards and plastic films to make flexible and semi-rigid pouches and cartons for a wide range of food, drink, agricultural and industrial products. The laminating process is known as “converting,” hence the term “converter foil” for rolled aluminum products used in this application.

 

  ·  

Transformer Windings: Aluminum sheet cut into strips and insulated is widely used as the conducting medium that forms the windings of electrical transformers widely used on power grids. Aluminum’s relatively low cost is key to this application.

 

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Facilities. We operate four plants at three locations in the Southeastern United States and our corporate headquarters are located in Franklin, Tennessee.

 

Plant

   Location    Approximate
Capacity
(lbs.)
   % of Total
Capacity
   Number of
Employees(1)
 

Huntingdon—West

   Huntingdon, TN    235 million    48%    409 (2)

Huntingdon—East

   Huntingdon, TN    130 million    26%    0 (2)

Salisbury

   Salisbury, NC    95 million    19%    206  

Newport

   Newport, AR    35 million    7%    111  

Corporate Headquarters

   Franklin, TN          35  
                   

Total

   495 million    100%