Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of October, 2006 Commission File Number: 1-15142
NORTH AMERICAN PALLADIUM LTD.
(Name of Registrant)
130 Adelaide Street West
Suite 2116
Toronto, Ontario
Canada M5H 3P5
(Address of Principal Executive Offices)
Indicate by checkmark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
Form 20-F [ ] Form 40-F [X]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): __
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): __
Indicate by checkmark whether the registrant, by furnishing the information
contained in this Form is also thereby furnishing the information to the SEC
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes [ ] Assigned File No. ____________ No [X]
If "Yes" is marked, indicate the file number assigned to the Registrant in
connection with Rule 12g3-2(b).
This report on Form 6-K, dated October 4, 2006, is specifically incorporated by
reference into North American Palladium's registration statement on Form S-8
(File No. 333-13766), which was originally filed with the Securities and
Exchange Commission (the "SEC") in July 2001. This report on Form 6-K is also
specifically incorporated by reference into North American Palladium's
registration statement on Form F-10 (File No. 333-133668) originally filed with
the SEC on May 1, 2006, registration statement on Form F-10 (File No.
333-134764) originally filed with the SEC on June 6, 2006 and registration
statement on Form F-10 (File No. 333-136317) originally filed with the SEC on
August 4, 2006.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTH AMERICAN PALLADIUM LTD.
Date: October 4, 2006 By: /s/ Mary Batoff
--------------------- --------------------
Mary Batoff
Title: Vice President, Legal and
Secretary
EXHIBIT INDEX
Exhibit Description of Exhibit
--------------------------------------------------------------------------------
1 Reconciliation to Accounting Principles Generally Accepted in
the U.S.
EXHIBIT 1
Reconciliation to Accounting Principles Generally Accepted in the U.S.
The Company's unaudited interim consolidated financial statements for
the three and six month periods ended June 30, 2006 and 2005 have been prepared
in accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"), which differ in some respects from those in the United States. The
following table presents amounts that would have been reported had the Company's
unaudited interim consolidated financial statements been prepared on the basis
of accounting principles generally accepted in the United States ("U.S. GAAP"):
(Canadian funds in thousands of dollars, except per share amounts)
-------------------------------------------- -------------------------------- -------------------------------
Three months ended Six months ended
June 30 June 30
-------------------------------------------- -------------------------------- -------------------------------
2006 2005 2006 2005
-------------------------------------------- --------------- ---------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------------------------------- --------------- ---------------- --------------- ---------------
Statement of operations and deficit:
-------------------------------------------- --------------- ---------------- --------------- ---------------
Loss under Canadian GAAP $ (11,325) $ (15,228) $ (15,466) $ (22,964)
-------------------------------------------- --------------- ---------------- --------------- ---------------
Capitalized interest (a) -- 176 603 380
-------------------------------------------- --------------- ---------------- --------------- ---------------
Amortization of capitalized interest (a) (82) (16) (97) (32)
-------------------------------------------- --------------- ---------------- --------------- ---------------
Concentrates and crushed and broken ore
stockpiles (b) -- (3,298) -- (2,944)
-------------------------------------------- --------------- ---------------- --------------- ---------------
Derivative financial instruments (c) -- 1,449 277 1,034
-------------------------------------------- --------------- ---------------- --------------- ---------------
Tax liability on flow-through financing (e) -- -- (143) (1,116)
-------------------------------------------- --------------- ---------------- --------------- ---------------
Accretion expense relating to convertible
notes (h) (130) -- (130) --
-------------------------------------------- --------------- ---------------- --------------- ---------------
Amortization of deferred financing costs (h) (103) -- (103) --
-------------------------------------------- --------------- ---------------- --------------- ---------------
Fair value adjustment on embedded
derivatives and common share purchase
warrants (h) 7,984 -- 7,984 --
-------------------------------------------- --------------- ---------------- --------------- ---------------
Loss and comprehensive loss under U.S. GAAP $ (3,656) $ (16,917) $ (7,075) $ (25,642)
-------------------------------------------- --------------- ---------------- --------------- ---------------
Basic and diluted loss per share under
U.S. GAAP $ (0.07) $ (0.33) $ (0.14) $ (0.49)
-------------------------------------------- --------------- ---------------- --------------- ---------------
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June 30, December 31,
Balance sheets: 2006 2005
------------------------------------------------------------------ --------------------- --------------------
(unaudited)
------------------------------------------------------------------ --------------------- --------------------
$ $
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Current assets (b) and (c) 94,542 70,417
------------------------------------------------------------------ --------------------- --------------------
Mining interests (a) 160,653 161,108
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Crushed and broken ore stockpiles - long term (b) 274 239
------------------------------------------------------------------ --------------------- --------------------
Deferred financing costs (h) 2,257 654
------------------------------------------------------------------ --------------------- --------------------
Liabilities - current portion of convertible notes
payable (h) 5,133 --
------------------------------------------------------------------ --------------------- --------------------
- convertible notes payable (h) 28,600 --
------------------------------------------------------------------ --------------------- --------------------
- embedded derivatives (h) 9,108 --
------------------------------------------------------------------ --------------------- --------------------
- common share purchase warrants (h) 6,238 --
------------------------------------------------------------------ --------------------- --------------------
Common share capital and common share purchase warrants
(d),(e),(h) 334,306 331,137
------------------------------------------------------------------ --------------------- --------------------
Equity component of convertible notes payable (h) -- --
------------------------------------------------------------------ --------------------- --------------------
Deficit (d),(e),(h) (172,236) (165,161)
------------------------------------------------------------------ --------------------- --------------------
(a) Under Canadian GAAP, the Company capitalizes interest on major
projects where direct indebtedness has occurred and commences amortization upon
reaching commercial production. Under U.S. GAAP, interest is capitalized as it
arises from indebtedness incurred, directly or indirectly, to finance
development and construction activities on assets that are not yet subject to
amortization or depletion. For the three and six month periods ended June 30,
2006, interest of $Nil and $603, respectively, has been capitalized related to
the investment in the underground development, which reached commercial
production during the first quarter of 2006. Upon the underground mine reaching
commercial production, the Company commenced amortization of interest
capitalized for the underground development, in addition to the amortization of
interest amounts previously capitalized under U.S. GAAP.
(b) The cost of the Company's concentrate inventory and crushed and
broken ore stockpiles is determined using the average production costs including
an allocation of the amortization of production related assets. At June 30,
2006, the Company recorded its concentrate inventory and crushed and broken ore
stockpiles at their net realizable value. Amounts deducted under U.S. GAAP for
the three and six months ended June 30, 2005 include amounts previously included
in the cost of these inventories under U.S. GAAP for periods prior to January 1,
2004, the date the Company commenced including amortization in the cost of
inventories under Canadian GAAP.
(c) Under U.S. GAAP, the Company has chosen not to designate its
derivative financial instruments as hedging instruments and thus they are
carried on the balance sheet at their fair value and any changes in fair value
are being recorded to earnings in the period of the change.
(d) Canadian GAAP allows for the reduction of the stated capital of
outstanding common shares with a corresponding offset to deficit. This
reclassification, which the Company made in 1991, is not permitted by U.S. GAAP
and would result in an increase in both capital stock and deficit of $6,098 as
at June 30, 2006 and December 31, 2005.
(e) Under U.S. GAAP, the renunciation of tax deductions to holders of
flow-through shares is treated as a future tax expense rather than as a cost of
issuing equity as required by Canadian GAAP.
(f) U.S. GAAP requires that amounts totaling 5% or more of current
liabilities be identified separately. As at June 30, 2006, these amounts were as
follows: trade payables and accruals - $12,269; other accruals - $2,447.
(g) U.S. GAAP does not permit the disclosure of subtotal of cash from
operations before changes in non-cash working capital.
(h) Under Canadian GAAP, the components of the convertible notes
payable must be bifurcated and accounted for separately as debt and equity
instruments. The attached warrants are separable from the convertible notes and
are accounted for as an equity instrument. The Company allocated the gross
proceeds received to the debt and equity components of the notes and the
warrants on a relative fair value basis. The Series I proceeds received were
allocated as follows; US$20,558 to the debt, US$8,808 to the equity component
and US$5,634 to the warrants. The Series II proceeds were allocated as follows:
US$9,578 to the debt, US$2,312 to the equity component and US$1,610 to the
warrants. Issuance costs of $2,364 were allocated pro-rata to the debt ($1,398)
and equity components ($589) and to the associated warrants ($377) on a relative
fair value basis. The issuance costs related to the debt components will be
amortized over the respective terms of the convertible notes on an effective
yield basis (Series I- 42%; Series II- 28%). In addition, a liability (the
"Equity Premium") was recognized for the holders' option to receive common
shares, in lieu of cash, at a 10% discount to the five day weighted trading
price for interest and principal payments. The Company will be required to
accrete the carrying value of the convertible notes and the Equity Premium such
that at each installment payment date, the carrying value of the notes and the
Equity Premium will be equal to the face value of the notes and the liability
related to the Equity Premium. The Company recorded accretion expense of $2,460
during the three months ended June 30, 2006 of which $576 represented the
accretion relating to the Equity Premium which was included in the carrying
value of the convertible notes payable as at June 30, 2006.
Under U.S. GAAP, an embedded derivative included in a debt arrangement for which
the economic characteristics and risks are not clearly and closely related to
the economic characteristics of the debt host contract must be measured at fair
value and presented as a liability. Changes in fair value of the embedded
derivatives are recorded in the consolidated statements of operations and
deficit at each reporting date. Embedded derivatives that meet the criteria for
bifurcation from the convertible notes payable and that are measured at fair
value consist of; the holders' conversion right, the holders' call option to
purchase an additional US$10 million principal amount of convertible notes, the
Company's contingent conversion option and the holders' contingent redemption
and conversion rights in the event of a change in control or an event of
default. Under Canadian GAAP, there is no requirement to identify and measure
the other embedded derivatives.
Under U.S. GAAP, the common share warrants are presented as a liability and
subsequent changes in fair value are recorded in the consolidated statements of
operations and deficit at each reporting date.
Under U.S. GAAP the Company allocated the residual amount of the gross proceeds
received to the convertible notes payable after the separate fair value
measurement of the warrants and embedded derivatives. The Company allocated the
Series I proceeds as follows: US$18,504 to the debt, US$10,060 to the embedded
derivatives and US$6,436 to the warrants. The Company allocated the Series II
proceeds as follows: US$9,952 to the debt, US$2,092 to the embedded derivatives
and US$1,456 to the warrants.
All of the issuance costs related to the convertible note issuances are
recognized as deferred financing costs under U.S. GAAP and are amortized to the
consolidated statements of operations and deficit using the effective yield
basis over the respective terms of the notes. The Series I notes and Series II
notes carry an effective yield of 49% and 25%, respectively.
Differences in U.S. GAAP and Canadian GAAP result from the initial allocation
differences and the subsequent accretion expenses, amortization of deferred
financing costs and from the fair value re-measurement of the warrant and
embedded derivatives as liabilities each reporting period under U.S.GAAP.
Adoption of new United States accounting pronouncements
-------------------------------------------------------
In November 2004, the Financial Accounting Standards Board ("FASB") issued FAS
No. 151, which clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material as they relate to inventory
costing and requires these items to be recognized as current period expenses.
Additionally, the allocation of fixed production overheads to the cost of
inventory should be based on the normal capacity of the production facilities.
The adoption of FAS No. 151 on January 1, 2006 by the Company had no material
impact on the consolidated financial statements.
In December 2004, FAS No. 123 (revised) "Share-Based Payment", was issued. This
statement requires an entity to recognize the grant date fair value of stock
options and other equity-based compensation issued to employees. In the income
statement, FAS No. 123 (revised) eliminates the ability to account for
share-based compensation transactions using the intrinsic value method in APB
No. 25. The adoption of FAS No. 123 (revised) on January 1, 2006 by the Company,
using the modified prospective application method, had no material impact on the
consolidated financial statements.
In May 2005, the FASB issued FAS No. 154, "Accounting Changes and Error
Corrections, a Replacement of APB Opinion No. 20 and FAS No. 3". FAS No. 154
requires retrospective application of changes in accounting principle to prior
periods' financial statements, rather than the use of the cumulative effect of a
change in accounting principle, unless impracticable. If impracticable to
determine the impact on prior periods, then the new accounting principle should
be applied to the balances of assets and liabilities as of the beginning of the
earliest period for which retrospective application is practicable, with a
corresponding adjustment to equity, unless impracticable for all periods
presented, in which case prospective treatment should be applied. FAS No. 154
applies to all voluntary changes in accounting principle as well as those
required by the issuance of new accounting pronouncements if no specific
transition guidance is provided. FAS No.154 does not change the previously
issued guidance for reporting a change in accounting estimate or correction of
an error. The adoption of FAS No. 154 on January 1, 2006 by the Company had no
material impact on the consolidated financial statements.
In March 2005, the FASB ratified EITF 04-06 "Accounting for Stripping Costs in
the Mining Industry". The consensus reached is that stripping costs incurred
during the production phase of a mine are variable production costs that should
be included in the costs of the inventory produced during the period that the
stripping costs are incurred. EITF 04-06 is effective for the first reporting
period in fiscal years beginning after December 15, 2005 with early adoption
permitted. The adoption of EITF 04-06 on January 1, 2006 by the Company had no
material impact on the consolidated financial statements.
Impact of recently issued United States accounting pronouncements
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments ("SFAS No. 155") - an amendment of SFAS No. 133 and SFAS
140. SFAS No. 155, permits fair value re-measurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are
not subject to the requirements of SFAS No. 133, establishes a requirement to
evaluate interest in securitized financial assets to identify interests in that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS No. 155 is effective for the Company for all financial
instruments acquired or issued after January 1, 2007. The adoption of SFAS No.
155 is not expected to have a material impact on the Company's consolidated
financial position and results of operations.
Statement of Financial Accounting Standards No. 157, "Fair Value Measurement"
("SFAS 157") was issued September 2006. The Statement provides guidance for
using fair value to measure assets and liabilities. The Statement also expands
disclosures about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value, and the effect of
fair value measurement on earnings. This Statement applies under other
accounting pronouncements that require or permit fair value measurements. This
Statement does not expand the use of fair value measurements in any new
circumstances. Under this Statement, fair value refers to the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the entity
transacts. SFAS 157 is effective for the Company for fair value measurements and
disclosures made by the Company in its fiscal year beginning on January 1, 2008.
The Company is currently reviewing the impact of this statement.
FASB Interpretation No.48 "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement 109" ("FIN 48") was issued in June 2006. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
"Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition requirements. The
Company is currently reviewing the impact on this interpretation which will
become effective for fiscal years beginning after December 15, 2006,
specifically, January 1, 2007 for the Company.