CENTURY ALUMINUM CO
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 1-34474
Century Aluminum Company
(Exact name of Registrant as specified in its Charter)
|
Delaware
(State or other Jurisdiction of Incorporation or Organization)
|
13-3070826
(IRS Employer Identification No.)
|
|
2511 Garden Road
Building A, Suite 200
Monterey, California
(Address of principal executive offices)
|
93940
(Zip Code)
|
Registrant’s telephone number, including area code: (831) 642-9300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*
o
Yes
o
No
* - The registrant is not currently required to submit interactive data files.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer
|
o
|
Accelerated Filer
|
x
|
|
Non-Accelerated Filer
(Do not check if a smaller reporting company)
|
o
|
Smaller Reporting Company
|
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
The registrant had 92,741,687 shares of common stock outstanding at November 8, 2010.
|
Page
|
|
|
1
|
|
|
1
|
|
|
4-33
|
|
|
35
|
|
|
44
|
|
|
46
|
|
|
47
|
|
|
47
|
|
|
47
|
|
|
47
|
|
|
48
|
|
|
CENTURY ALUMINUM COMPANY
|
||||||||
|
|
||||||||
|
(Dollars in thousands, except share data)
|
||||||||
|
(Unaudited)
|
||||||||
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 265,243 | $ | 198,234 | ||||
|
Restricted cash
|
22,524 | 8,879 | ||||||
|
Accounts receivable — net
|
38,979 | 37,706 | ||||||
|
Due from affiliates
|
34,790 | 19,255 | ||||||
|
Inventories
|
139,522 | 131,473 | ||||||
|
Prepaid and other current assets
|
25,506 | 93,921 | ||||||
|
Total current assets
|
526,564 | 489,468 | ||||||
|
Property, plant and equipment — net
|
1,263,730 | 1,298,288 | ||||||
|
Due from affiliates – less current portion
|
6,982 | 5,859 | ||||||
|
Other assets
|
79,227 | 68,135 | ||||||
|
TOTAL
|
$ | 1,876,503 | $ | 1,861,750 | ||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
LIABILITIES:
|
||||||||
|
Accounts payable, trade
|
$ | 74,942 | $ | 77,301 | ||||
|
Due to affiliates
|
37,577 | 32,708 | ||||||
|
Accrued and other current liabilities
|
36,079 | 38,598 | ||||||
|
Accrued employee benefits costs — current portion
|
15,517 | 12,997 | ||||||
|
Convertible senior notes
|
44,907 | 43,239 | ||||||
|
Industrial revenue bonds
|
7,815 | 7,815 | ||||||
|
Total current liabilities
|
216,837 | 212,658 | ||||||
|
Senior notes payable
|
248,295 | 247,624 | ||||||
|
Accrued pension benefits costs — less current portion
|
42,757 | 43,281 | ||||||
|
Accrued postretirement benefits costs — less current portion
|
149,103 | 177,231 | ||||||
|
Other liabilities
|
25,560 | 31,604 | ||||||
|
Deferred taxes
|
91,546 | 81,622 | ||||||
|
Total noncurrent liabilities
|
557,261 | 581,362 | ||||||
|
CONTINGENCIES AND COMMITMENTS (NOTE 12)
|
||||||||
|
SHAREHOLDERS’ EQUITY:
|
||||||||
|
Series A Preferred stock (one cent par value, 5,000,000 shares authorized; 82,633 and 83,452 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively)
|
1 | 1 | ||||||
|
Common stock (one cent par value, 195,000,000 shares authorized; 92,741,687 and 92,530,068 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively)
|
927 | 925 | ||||||
|
Additional paid-in capital
|
2,505,094 | 2,501,389 | ||||||
|
Accumulated other comprehensive loss
|
(37,993 | ) | (74,270 | ) | ||||
|
Accumulated deficit
|
(1,365,624 | ) | (1,360,315 | ) | ||||
|
Total shareholders’ equity
|
1,102,405 | 1,067,730 | ||||||
|
TOTAL
|
$ | 1,876,503 | $ | 1,861,750 | ||||
See notes to consolidated financial statements
|
CENTURY ALUMINUM COMPANY
|
||||||||||||||||
|
|
||||||||||||||||
|
(Dollars in thousands, except per share amounts)
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
NET SALES:
|
||||||||||||||||
|
Third-party customers
|
$ | 174,339 | $ | 169,927 | $ | 550,316 | $ | 480,438 | ||||||||
|
Related parties
|
104,839 | 58,772 | 302,104 | 162,001 | ||||||||||||
| 279,178 | 228,699 | 852,420 | 642,439 | |||||||||||||
|
Cost of goods sold
|
263,409 | 231,051 | 781,159 | 722,379 | ||||||||||||
|
Gross profit (loss)
|
15,769 | (2,352 | ) | 71,261 | (79,940 | ) | ||||||||||
|
Other operating expenses (income) – net
|
3,096 | (55,599 | ) | 12,205 | (22,101 | ) | ||||||||||
|
Selling, general and administrative expenses
|
12,486 | 11,395 | 35,701 | 32,786 | ||||||||||||
|
Operating income (loss)
|
187 | 41,852 | 23,355 | (90,625 | ) | |||||||||||
|
Interest expense – third party
|
(6,477 | ) | (8,004 | ) | (19,231 | ) | (24,023 | ) | ||||||||
|
Interest income – third party
|
190 | 159 | 392 | 1,235 | ||||||||||||
|
Interest income – related parties
|
113 | 145 | 333 | 431 | ||||||||||||
|
Net loss on forward contracts
|
(12,136 | ) | (914 | ) | (4,814 | ) | (7,784 | ) | ||||||||
|
Other income (expense) - net
|
(417 | ) | (243 | ) | 221 | 101 | ||||||||||
|
Income (loss) before income taxes and equity in earnings (losses) of joint ventures
|
(18,540 | ) | 32,995 | 256 | (120,665 | ) | ||||||||||
|
Income tax (expense) benefit
|
570 | 6,577 | (8,330 | ) | 8,100 | |||||||||||
|
Income (loss) before equity in earnings (losses) of joint ventures
|
(17,970 | ) | 39,572 | (8,074 | ) | (112,565 | ) | |||||||||
|
Equity in earnings (losses) of joint ventures
|
1,183 | 570 | 2,765 | (69,063 | ) | |||||||||||
|
Net income (loss)
|
$ | (16,787 | ) | $ | 40,142 | $ | (5,309 | ) | $ | (181,628 | ) | |||||
|
Net income (loss) allocated to common shareholders
|
$ | (16,787 | ) | $ | 33,270 | $ | (5,309 | ) | $ | (181,628 | ) | |||||
|
EARNINGS (LOSS) PER COMMON SHARE:
|
||||||||||||||||
|
Basic and Diluted
|
$ | (0.18 | ) | $ | 0.45 | $ | (0.06 | ) | $ | (2.56 | ) | |||||
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
||||||||||||||||
|
Basic
|
92,738 | 74,214 | 92,654 | 71,023 | ||||||||||||
|
Diluted
|
92,738 | 74,721 | 92,654 | 71,023 | ||||||||||||
See notes to consolidated financial statements
|
CENTURY ALUMINUM COMPANY
|
||||||||
|
|
||||||||
|
(Dollars in thousands)
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine months ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net loss
|
$ | (5,309 | ) | $ | (181,628 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Unrealized net loss on forward contracts
|
4,456 | 1,680 | ||||||
|
Unrealized net gain on contractual receivable
|
— | (81,168 | ) | |||||
|
Realized benefit on contractual receivable
|
47,323 | 8,634 | ||||||
|
Write-off of intangible asset
|
— | 23,759 | ||||||
|
Accrued and other plant curtailment costs – net
|
(3,305 | ) | 12,956 | |||||
|
Debt discount amortization
|
2,339 | 6,067 | ||||||
|
Depreciation and amortization
|
47,313 | 56,886 | ||||||
|
Lower of cost or market inventory adjustment
|
(301 | ) | (40,494 | ) | ||||
|
Deferred income taxes
|
9,949 | 26,212 | ||||||
|
Pension and other postretirement benefits
|
11,918 | 10,721 | ||||||
|
Stock-based compensation
|
3,092 | 2,068 | ||||||
|
(Gain) loss on disposal of assets
|
(503 | ) | 224 | |||||
|
Non-cash gain on early extinguishment of debt
|
— | (768 | ) | |||||
|
Non-cash loss from disposition of equity investments
|
— | 73,234 | ||||||
|
Undistributed earnings of joint ventures
|
(2,765 | ) | (4,171 | ) | ||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable – net
|
(1,273 | ) | 16,198 | |||||
|
Sale of short-term trading securities
|
— | 13,686 | ||||||
|
Due from affiliates
|
(20,334 | ) | 23,010 | |||||
|
Inventories
|
(7,748 | ) | 29,656 | |||||
|
Prepaid and other current assets
|
16,556 | 69,284 | ||||||
|
Accounts payable, trade
|
(1,306 | ) | (11,260 | ) | ||||
|
Due to affiliates
|
4,880 | (18,152 | ) | |||||
|
Accrued and other current liabilities
|
2,818 | (7,058 | ) | |||||
|
Other – net
|
(7,468 | ) | (865 | ) | ||||
|
Net cash provided by operating activities
|
100,332 | 28,711 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase of property, plant and equipment
|
(5,378 | ) | (14,667 | ) | ||||
|
Nordural expansion
|
(15,099 | ) | (17,606 | ) | ||||
|
Investments in and advances to joint ventures
|
(32 | ) | (1,038 | ) | ||||
|
Proceeds from sale of property, plant and equipment
|
808 | — | ||||||
|
Restricted and other cash deposits
|
(13,645 | ) | (7,504 | ) | ||||
|
Net cash used in investing activities
|
(33,346 | ) | (40,815 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Repayments under revolving credit facility
|
— | (25,000 | ) | |||||
|
Issuance of common stock – net
|
23 | 104,041 | ||||||
|
Net cash provided by financing activities
|
23 | 79,041 | ||||||
|
CHANGE IN CASH AND CASH EQUIVALENTS
|
67,009 | 66,937 | ||||||
|
Cash and cash equivalents, beginning of the period
|
198,234 | 129,400 | ||||||
|
Cash and cash equivalents, end of the period
|
$ | 265,243 | $ | 196,337 | ||||
See notes to consolidated financial statements
- 3 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements for the
Three and nine months ended September 30, 2010 and 2009
(Dollar amounts in thousands, except per share amounts)
(UNAUDITED)
|
General
|
The accompanying unaudited interim consolidated financial statements of Century Aluminum Company should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009. In management’s opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for the first nine months of 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. Throughout this Form 10-Q, and unless expressly stated otherwise or as the context otherwise requires, "Century Aluminum," "Century," "we," "us," "our" and "ours" refer to Century Aluminum Company and its consolidated subsidiaries.
|
2.
|
Long-term power contract for Hawesville
|
To secure a new, long-term power contract for our primary aluminum smelter in Hawesville, Kentucky on July 16, 2009, our wholly owned subsidiary, Century Aluminum of Kentucky (“CAKY”) along with E.ON U.S. (“E.ON”) and Big Rivers Energy Corporation (“Big Rivers” or “BREC”), agreed to an “unwind” of the former contractual arrangement between Big Rivers and E.ON and entered into a new arrangement (“Big Rivers Agreement”) to provide long-term cost-based power to CAKY. The term of the Big Rivers Agreement is through 2023 and provides adequate power for full production capacity requirements for our facility in Hawesville, Kentucky (“Hawesville”) (approximately 482 megawatts (“MW”)) with pricing based on the power provider’s cost of production. The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production. Under the terms of the agreement, any power not required by Hawesville would be available for sale and we would receive credits for actual power sales up to our cost for that power.
E.ON has agreed to mitigate a significant portion of the near-term risk of this agreement through December 2010. During this time, to the extent Hawesville does not use all the power under the take-or-pay contract, E.ON will, with some limitations, assume CAKY's obligations. As part of this arrangement, E.ON will pay up to approximately $81,500 to CAKY in the form of direct payments to Big Rivers under the Big Rivers Agreement to provide price protection. This effectively results in CAKY paying prices which approximate the previous contract prices and volume protection resulting in CAKY receiving credits for unused power without sustaining a loss. At Hawesville's current production rate, Hawesville would receive the entirety of these economic benefits during 2009 and 2010. To the extent the aggregate payments made by E.ON exceed the approximately $81,500 commitment, Hawesville would repay this excess to E.ON over time, but only if the LME aluminum price were to exceed certain thresholds.
|
Contractual receivable
|
||||
|
Contractual receivable as of December 31, 2009
|
$ | 55,531 | ||
|
E.ON payments to BREC on our behalf through September 30, 2010
|
(47,323 | ) | ||
|
Unrealized gain on contractual receivable
|
167 | |||
|
Contractual receivable as of September 30, 2010
|
$ | 8,375 | ||
- 4 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
After December 2010, we will pay the full production cost of power under the Big Rivers Agreement. While the full cost for the production of power is recorded in our cost of goods sold, our cash payments for Hawesville power were $15,130 and $47,323 lower for the three and nine months ended September 30, 2010, respectively, due to the gain recognized at the contract inception in 2009.
The new power contract has been designated as a normal purchase contract under ASC 815. Unlike the previous power contract that was a fixed price contract where the purchase price of power was below market prices without an explicit net settlement provision, the Big Rivers Agreement is a cost-based contract that is not expected to have any significant value and is with a regulated power generator. While the Big Rivers Agreement is a take-or-pay contract, under which we may net settle any unused power with Big Rivers, we would only receive credits up to our cost for such power sales and would not profit on any sales made above our cost for such power under the current election.
|
3.
|
Curtailment of Operations – Ravenswood and Hawesville
|
In February 2009, Century Aluminum of West Virginia, Inc. fully curtailed its plant operations at the facility in Ravenswood, West Virginia (“Ravenswood”). Layoffs for the majority of Ravenswood's employees were completed in February 2009. The decision to curtail operations was due to the relatively high operating cost at Ravenswood and the depressed global price for primary aluminum.
In March 2009, CAKY curtailed one of its five potlines at Hawesville. The action reduced primary aluminum production by approximately 49,000 metric tons per year.
We incurred curtailment charges of $3,096 and $1,810 during the three months ended September 30, 2010 and September 30, 2009, respectively, and $12,205 and $35,308 during the nine months ended September 30, 2010 and September 30, 2009, respectively, which are reported in other operating expenses (income) - net in the consolidated statements of operations. The majority of the curtailment charges are related to Ravenswood. The components of the curtailment costs are as follows:
|
Three months ended
|
Nine months ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Severance/employee-related cost
|
$ | (173 | ) | $ | (3,220 | ) | $ | 649 | $ | 21,243 | ||||||
|
Alumina contract – amendments and spot sales net losses
|
— | 36 | — | 6,753 | ||||||||||||
|
Power/other contract termination costs
|
— | — | — | 6,332 | ||||||||||||
|
Ongoing site costs
|
3,269 | 4,994 | 11,556 | 13,332 | ||||||||||||
|
Pension plan curtailment adjustment
|
— | — | — | 2,478 | ||||||||||||
|
OPEB plan curtailment adjustment
|
— | — | — | (14,830 | ) | |||||||||||
|
Net expense
|
$ | 3,096 | $ | 1,810 | $ | 12,205 | $ | 35,308 | ||||||||
- 5 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Cash curtailment expenditures
|
Nine months ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Curtailment of operations at Ravenswood and Hawesville
|
$ | 7,940 | $ | 16,822 | ||||
|
Ongoing idling costs at Ravenswood
|
5,767 | 8,592 | ||||||
|
Contract termination and amendment costs
|
— | 12,315 | ||||||
|
Total
|
$ | 13,707 | $ | 37,729 | ||||
|
4.
|
Fair Value Measurements
|
ASC 820, “Fair Value Measurements and Disclosures,” (formerly, SFAS No. 157) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This pronouncement applies to a broad range of other existing accounting pronouncements that require or permit fair value measurements. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value is an exit price and that exit price should reflect all the assumptions that market participants would use in pricing the asset or liability.
The following section describes the valuation methodology used to measure our financial assets and liabilities that were accounted for at fair value.
Cash equivalents
. Our cash equivalents include investments in money market funds. Investments in this category can be redeemed immediately at the current net asset value per share. A money market fund is a mutual fund whose investments are primarily in short-term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar.
Derivatives
. Our derivative contracts have included natural gas forward financial purchase contracts, foreign currency forward contracts, primary aluminum forward physical delivery and financial sales contracts, the Ravenswood power contract, primary aluminum put option contracts and primary aluminum collar contracts (a combination of a put option contract and a call option contract). We determine the fair value of the put and collar contracts using a Black-Scholes model with market data provided by an independent source. For our other contracts, we measure the fair value of these contracts based on the quoted future market prices (if available) at the reporting date in their respective principal markets for all available periods. Primary aluminum forward physical delivery contracts that are accounted for as derivatives are marked-to-market using the LME spot and forward market for primary aluminum and the U.S. Midwest premium. Because there is no quoted futures market price for the U.S. Midwest premium component of the market price for primary aluminum, it is necessary for management to estimate the U.S. Midwest premium based on the historical U.S. Midwest premium. The Ravenswood power contract derivative is priced based on a formula that includes the LME and therefore is valued based in part on the LME forward market.
- 6 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Fair Value Measurements
The following table sets forth by level within the ASC 820 fair value hierarchy our financial assets and liabilities that are accounted for at fair value on a recurring basis. As required by generally accepted accounting principles for fair value measurements and disclosures, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and the placement within the fair value hierarchy levels.
|
Recurring Fair Value Measurements
|
As of September 30, 2010
|
|||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Cash equivalents
|
$ | 261,882 | $ | — | $ | — | $ | 261,882 | ||||||||
|
Primary aluminum put option contracts
|
— | 7,032 | — | 7,032 | ||||||||||||
|
Power contract
|
— | — | 119 | 119 | ||||||||||||
|
TOTAL
|
$ | 261,882 | $ | 7,032 | $ | 119 | $ | 269,033 | ||||||||
|
LIABILITIES:
|
||||||||||||||||
|
Natural gas forward financial purchase contracts
|
$ | (67 | ) | $ | — | $ | — | $ | (67 | ) | ||||||
|
Derivative liabilities
|
— | — | (840 | ) | (840 | ) | ||||||||||
|
TOTAL
|
$ | (67 | ) | $ | — | $ | (840 | ) | $ | (907 | ) | |||||
|
Recurring Fair Value Measurements
|
As of December 31, 2009
|
|||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Cash equivalents
|
$ | 195,894 | $ | — | $ | — | $ | 195,894 | ||||||||
|
Primary aluminum put option contracts
|
— | 1,839 | — | 1,839 | ||||||||||||
|
Power contract
|
— | — | 101 | 101 | ||||||||||||
|
TOTAL
|
$ | 195,894 | $ | 1,839 | $ | 101 | $ | 197,834 | ||||||||
|
LIABILITIES:
|
||||||||||||||||
|
Derivative liabilities
|
$ | — | $ | (1,763 | ) | $ | (1,733 | ) | $ | (3,496 | ) | |||||
|
Change in Level 3 Fair Value Measurements during the three months ended September 30,
|
||||||||
|
Derivative liabilities/assets
|
||||||||
|
2010
|
2009
|
|||||||
|
Beginning balance, July 1,
|
$ | (844 | ) | $ | (2,093 | ) | ||
|
Total gain (realized/unrealized) included in earnings
|
151 | 720 | ||||||
|
Settlements
|
(28 | ) | 235 | |||||
|
Ending balance, September 30,
|
$ | (721 | ) | $ | (1,138 | ) | ||
|
Amount of total loss (gain) included in earnings attributable to the change in unrealized losses (gains) relating to assets and liabilities held at September 30,
|
$ | 151 | $ | (2,615 | ) | |||
- 7 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
Change in Level 3 Fair Value Measurements during the nine months ended September 30,
|
||||||||
|
Derivative liabilities/assets
|
||||||||
|
2010
|
2009
|
|||||||
|
Beginning balance, January 1,
|
$ | (1,632 | ) | $ | 443 | |||
|
Total loss (realized/unrealized) included in earnings
|
(28 | ) | (4,385 | ) | ||||
|
Settlements
|
939 | 2,804 | ||||||
|
Ending balance, September 30,
|
$ | (721 | ) | $ | (1,138 | ) | ||
|
Amount of total gain included in earnings attributable to the change in unrealized gains relating to assets and liabilities held at September 30,
|
$ | (28 | ) | $ | (4,385 | ) | ||
|
5.
|
Derivative instruments and hedging
|
The following table provides the fair value and balance sheet classification of our derivatives:
|
Fair Value of Derivative Assets and Liabilities
|
|||||||||
|
Balance sheet location
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Assets:
|
|||||||||
|
Primary aluminum put option contracts – current portion
|
Due from affiliates
|
$ | 2,509 | $ | 1,839 | ||||
|
Primary aluminum put option contracts – current portion
|
Prepaid and other current assets
|
2,513 | — | ||||||
|
Power contract
|
Prepaid and other current assets
|
119 | 101 | ||||||
|
Primary aluminum put option contracts – less current portion
|
Other assets
|
1,005 | — | ||||||
|
Primary aluminum put option contracts – less current portion
|
Due from affiliates – less current portion
|
1,005 | — | ||||||
|
Total Assets
|
$ | 7,151 | $ | 1,940 | |||||
|
Liabilities:
|
|||||||||
|
Natural gas forward financial purchase contracts
|
Accrued and other current liabilities
|
$ | (67 | ) | $ | — | |||
|
Primary aluminum call option contracts
|
Accrued and other current liabilities
|
— | (1,763 | ) | |||||
|
Calcined petroleum coke contracts
|
Accrued and other current liabilities
|
— | (1,019 | ) | |||||
|
Aluminum sales premium contracts – current portion
|
Accrued and other current liabilities
|
(450 | ) | (281 | ) | ||||
|
Aluminum sales premium contracts – less current portion
|
Other liabilities
|
(390 | ) | (433 | ) | ||||
|
Total Liabilities
|
$ | (907 | ) | $ | (3,496 | ) | |||
The following tables provide changes in our accumulated other comprehensive loss for our derivatives that were designated as cash flow hedges during the three and nine months ended September 30, 2010 and 2009:
Derivatives in cash flow hedging relationships
:
|
Three months ended September 30, 2010
|
||||||||||||||
|
Amount of loss recognized in OCI on derivatives (effective portion)
|
Loss reclassified from OCI to income on derivatives (effective portion)
|
Loss recognized in income on derivatives (ineffective portion)
|
||||||||||||
|
Amount
|
Location
|
Amount
|
Location
|
Amount
|
||||||||||
|
Natural gas forward financial purchase contracts
|
$ | (110 | ) |
Cost of goods sold
|
$ | 65 |
Net loss on forward contracts
|
$ | — | |||||
- 8 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
Nine months ended September 30, 2010
|
||||||||||||||
|
Amount of loss recognized in OCI on derivatives (effective portion)
|
Loss reclassified from OCI to income on derivatives (effective portion)
|
Loss recognized in income on derivatives (ineffective portion)
|
||||||||||||
|
Amount
|
Location
|
Amount
|
Location
|
Amount
|
||||||||||
|
Natural gas forward financial purchase contracts
|
$ | (110 | ) |
Cost of goods sold
|
$ | 65 |
Net loss on forward contracts
|
$ | — | |||||
|
Three months ended September 30, 2009
|
||||||||||||||
|
Amount of loss recognized in OCI on derivatives (effective portion)
|
Loss reclassified from OCI to income on derivatives (effective portion)
|
Loss recognized in income on derivatives (ineffective portion)
|
||||||||||||
|
Amount
|
Location
|
Amount
|
Location
|
Amount
|
||||||||||
|
Natural gas forward financial purchase contracts (1)
|
$ | — |
Cost of goods sold
|
$ | (1,047 | ) |
Net loss on forward contracts
|
$ | — | |||||
|
Foreign currency forward contracts (2)
|
$ | (898 | ) |
Cost of goods sold
|
$ | (1,488 | ) |
Net loss on forward contracts
|
$ | — | ||||
|
Nine months ended September 30, 2009
|
||||||||||||||
|
Amount of loss recognized in OCI on derivatives (effective portion)
|
Loss reclassified from OCI to income on derivatives (effective portion)
|
Loss recognized in income on derivatives (ineffective portion)
|
||||||||||||
|
Amount
|
Location
|
Amount
|
Location
|
Amount
|
||||||||||
|
Natural gas forward financial purchase contracts (1)
|
$ | — |
Cost of goods sold
|
$ | (14,449 | ) |
Net loss on forward contracts
|
$ | — | |||||
|
Foreign currency forward contracts (2)
|
$ | (898 | ) |
Cost of goods sold
|
$ | (6,194 | ) |
Net loss on forward contracts
|
$ | (1,701 | ) | |||
|
(1)
|
Upon the transfer of our joint venture investment in Gramercy in the third quarter of 2009, we discontinued accounting for these contracts as cash flow hedges.
|
|
(2)
|
We had no foreign currency forward contracts or options outstanding at September 30, 2009. Amounts recognized in OCI will be reclassified in the period that the hedged forecasted transaction affects earnings. The ineffective portion was related to changes in the probability of the occurrence of the forecasted foreign currency transactions.
|
Natural gas forward financial purchase contracts
To mitigate the volatility of the natural gas markets, we enter into fixed-price forward financial purchase contracts, accounted for as cash flow hedges, which settle in cash in the period corresponding to the intended usage of natural gas. These forward contracts, which are designated as cash flow hedges and qualify for hedge accounting under ASC 815, have maturities through December 2010. The critical terms of the contracts essentially match those of the underlying exposure.
The effective portion of the forward contracts gain or loss is reported in accumulated other comprehensive loss, and the ineffective portion is reported currently in earnings. Each month, when we settle the natural gas forward contracts, the realized gain or loss on our cash flow hedges are recognized in income as part of our cost of goods sold.
We had the following outstanding forward financial purchase contracts to hedge forecasted transactions:
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Natural gas forward financial purchase contracts (in thousands of MMBTU)
|
90 | — | ||||||
- 9 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Upon the transfer of our joint venture investment in Gramercy in the third quarter of 2009, we discontinued cash flow hedge treatment for certain of our natural gas forward financial purchase contracts because the originally forecasted natural gas transactions would not occur during the originally specified time periods. We accounted for these contracts as derivative instruments at the time it was determined the forecasted transactions would not occur and marked the contracts to market. In accordance with ASC 815, the subsequent changes in the fair value of these contracts were recorded in the consolidated statements of operations in net loss on forward contracts.
Foreign currency forward contracts
We are exposed to foreign currency risk due to fluctuations in the value of the U.S. dollar as compared to various foreign currencies, primarily the Icelandic krona (“ISK”), the euro and the Chinese yuan. The labor costs, maintenance costs and other local services at our smelter in Grundartangi, Iceland (“Grundartangi”) are denominated in ISK and a portion of its anode costs are denominated in euros. As a result, an increase or decrease in the value of those currencies relative to the U.S. dollar would affect Grundartangi’s operating margins. In addition, we continue to incur additional capital expenditures for the construction of a primary aluminum facility in Helguvik, Iceland (the “Helguvik project”). A significant portion of the future capital expenditures for the Helguvik project are forecasted to be denominated in currencies other than the U.S. dollar, with a significant portion in ISK.
We manage our foreign currency exposure by entering into foreign currency forward contracts when management deems such transactions appropriate. We have, in the past, entered into foreign currency forward contracts to manage the currency risk associated with Grundartangi operating costs and the Helguvik project capital expenditures. These contracts were designated as cash flow hedges, qualified for hedge accounting under ASC 815 and had maturities through September 2009. As of September 30, 2010 and December 31, 2009, we had no foreign currency forward contracts outstanding.
The realized gain or loss on our foreign currency forward contracts cash flow hedges for Grundartangi operating costs was recognized in income as part of our cost of goods sold in 2009. The realized gain or loss for our cash flow hedges for the Helguvik project capital expenditures were recorded in accumulated other comprehensive loss and will be reclassified to earnings when the project is completed as part of the depreciation expense of the capital assets.
We recognized losses of approximately $1,701 in the nine months ended September 30, 2009, respectively, (none in the three months ended September 30, 2009) on the ineffective portions of the forward contracts for the forecasted Helguvik project capital expenditures. These losses are recorded in net loss on forward contracts in our consolidated statements of operations. The ineffective portion of these forward contracts represents forward contract positions in excess of the revised forecast schedule of Helguvik project capital expenditures.
Power contracts
We are party to a power supply agreement at Ravenswood through 2011 that contains LME-based pricing provisions that are an embedded derivative. The embedded derivative does not qualify for cash flow hedge treatment and is marked to market quarterly. Based on our expected power usage over the expected remaining term of the contract, gains and losses associated with the embedded derivative are recorded in net loss on forward contracts in the consolidated statements of operations. We have recorded a derivative asset of $119 and $101 for the embedded derivative at September 30, 2010 and December 31, 2009, respectively.
- 10 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Primary aluminum put option and collar contracts
We entered into primary aluminum put option contracts and collar contracts (combination of a put and a call option) that settle monthly through December 2011 based on LME prices. The put option contracts account for approximately 60% of Hawesville’s current production level through 2010 and approximately 42% of their current production level for 2011 with a strike price around Hawesville’s cash break-even price. These options were purchased to partially mitigate primary aluminum price risk.
|
Primary Aluminum option contracts outstanding as of September 30, 2010 (in metric tons):
|
||||||||
|
Glencore
|
Other counterparties
|
|||||||
|
Put option contracts, settle monthly in 2010
|
15,000 | 15,000 | ||||||
|
Call option contracts, settle monthly in 2010
|
— | 7,500 | ||||||
|
Put option contracts, settle monthly in 2011
|
37,800 | 43,800 | ||||||
|
Primary Aluminum option contracts outstanding as of December 31, 2009 (in metric tons):
|
||||||||
|
Glencore
|
Other counterparties
|
|||||||
|
Put option contracts, settle monthly in 2010
|
60,000 | 60,000 | ||||||
|
Call option contracts, settle monthly in 2010
|
— | 30,000 | ||||||
Our counterparties include Glencore (a related party) and non-related third parties. We paid a cash premium to enter into the put option contracts and recorded an asset in due from affiliates, prepaid and other assets, due from affiliates – less current portion and other assets on the consolidated balance sheets. The collar contracts were entered into at no initial cash cost to Century. We determine the fair value of the put and call option contracts using a Black-Scholes model with market data provided by an independent source and account for the contracts as derivative financial instruments with gains and losses in the fair value of the contracts recorded on the consolidated statements of operations in net loss on forward contracts.
Aluminum sales premium contracts
We have a physical delivery contract for 20,400 metric tons per year of primary aluminum through December 31, 2013 with variable, LME-based pricing (the “Glencore Metal Agreement I”). Under the Glencore Metal Agreement I, pricing is based on market prices, adjusted by a negotiated premium with a cap and a floor as applied to the U.S. Midwest premium. We account for the Glencore Metal Agreement I as a derivative instrument under ASC 815. Gains and losses on the derivative are based on the difference between the contract premium and actual and forecasted U.S. Midwest premiums. Settlements are recorded in related party sales. Unrealized gains (losses) based on forecasted U.S. Midwest premiums are recorded in net loss on forward contracts on the consolidated statements of operations.
- 11 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
Derivatives not designated as hedging instruments:
|
|||||||||||||||||
|
Gain (loss) recognized in income from derivatives
|
|||||||||||||||||
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||
|
Location
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Power contract
|
Net loss on forward contracts
|
$ | 119 | $ | (11 | ) | $ | 99 | $ | (4,788 | ) | ||||||
|
Primary aluminum put option and collar contracts
|
Net loss on forward contracts
|
(12,175 | ) | 555 | (4,428 | ) | 555 | ||||||||||
|
Natural gas forward financial contracts (1)
|
Net loss on forward contracts
|
— | (1,381 | ) | — | (1,381 | ) | ||||||||||
|
Aluminum sales premium contracts
|
Related party sales
|
112 | 1,103 | 358 | 2,779 | ||||||||||||
|
Aluminum sales premium contracts
|
Net loss on forward contracts
|
(80 | ) | (77 | ) | (485 | ) | (469 | ) | ||||||||
|
(1)
|
We discontinued cash flow hedge treatment for our natural gas forward contracts after the transfer of our joint venture investment in Gramercy in the third quarter of 2009. Amount represents contract settlements after the transfer.
|
We had the following outstanding forward contracts that were entered into that were not designated as hedging instruments:
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Power contract (in megawatt hours (“MWH”)) (1)
|
6,580 | 8,760 | ||||||
|
Primary aluminum sales contract premium (metric tons) (2)
|
66,517 | 81,600 | ||||||
|
Primary aluminum put option contracts (metric tons)
|
111,600 | 120,000 | ||||||
|
Primary aluminum call option contracts (metric tons)
|
7,500 | 30,000 | ||||||
|
(1)
|
We mark the Ravenswood power contract to market based on our expected usage during the remaining term of the contract.
|
|
(2)
|
Represents the remaining physical deliveries under the Glencore Metal Agreement I.
|
Counterparty credit risk.
The primary aluminum put option contracts are subject to counterparty credit risk. However, we only enter into forward financial contracts with counterparties we determine to be creditworthy at the time of entering into the contract. If any counterparty failed to perform according to the terms of the contract, the impact would be limited to the difference between the contract price and the market price applied to the contract volume on the date of settlement.
As of September 30, 2010, an accumulated other comprehensive loss of $42 is expected to be reclassified to earnings over the next 12-month period for derivative instruments that have been designated and have qualified as cash flow hedging instruments and for the related hedged transactions.
- 12 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
6.
|
Earnings Per Share
|
The following table provides a reconciliation of the computation of the basic and diluted earnings per share:
|
For the three months ended September 30,
|
||||||||||||||||||||||||
|
2010
|
2009
|
|||||||||||||||||||||||
|
Loss
|
Shares (000)
|
Per-Share
|
Income
|
Shares (000)
|
Per-Share
|
|||||||||||||||||||
|
Net income (loss)
|
$ | (16,787 | ) | 92,738 | $ | 40,142 | 74,214 | |||||||||||||||||
|
Amount allocated to common shareholders (1)
|
100 | % | 82.88 | % | ||||||||||||||||||||
|
Basic EPS:
|
||||||||||||||||||||||||
|
Income (loss) allocable to common shareholders
|
$ | (16,787 | ) | 92,738 | $ | (0.18 | ) | $ | 33,270 | 74,214 | $ | 0.45 | ||||||||||||
|
Effect of Dilutive Securities:
Plus:
|
||||||||||||||||||||||||
|
Options
|
— | — | — | 5 | ||||||||||||||||||||
|
Service-based stock awards
|
— | — | — | 502 | ||||||||||||||||||||
|
Diluted EPS:
|
||||||||||||||||||||||||
|
Income (loss) applicable to common shareholders with assumed conversion
|
$ | (16,787 | ) | 92,738 | $ | (0.18 | ) | $ | 33,270 | 74,721 | $ | 0.45 | ||||||||||||
|
(1)
|
We have not allocated the 2010 net loss allocable to common shareholders between common and preferred shareholders, as the holders of our preferred shares do not have a contractual obligation to share in the loss.
|
|
For the nine months ended September 30,
|
|||||||||||||||||||||
|
2010
|
2009
|
||||||||||||||||||||
|
Loss
|
Shares (000)
|
Per-Share
|
Loss
|
Shares (000)
|
Per-Share
|
||||||||||||||||
|
Net loss
|
$ | (5,309 | ) | 92,654 | $ | (181,628 | ) | 71,023 | $ | (2.56 | ) | ||||||||||
|
Amount allocated to common shareholders (1)
|
100 | % | 100 | % | |||||||||||||||||
|
Basic EPS:
|
|||||||||||||||||||||
|
Loss applicable to common shareholders with assumed conversion
|
$ | (5,309 | ) | 92,654 |
$(0.06)
|
$ | (181,628 | ) | 71,023 | $ | (2.56 | ) | |||||||||
|
(1)
|
We have not allocated the 2010 and 2009 net losses allocable to common shareholders between common and preferred shareholders, as the holders of our preferred shares do not have a contractual obligation to share in the loss.
|
Impact of our outstanding Series A Convertible Preferred Stock on EPS
Our Series A Convertible Preferred Stock has similar characteristics of a “participating security” as described by ASC 260-10-45 “Participating Securities and the Two-Class Method”. In accordance with the guidance in the ASC 260-10-45, we calculate basic EPS using the Two-Class Method, allocating undistributed income to our preferred shareholder consistent with their participation rights, and diluted EPS using the If-Converted Method, when applicable.
- 13 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
The generally accepted accounting principles for reporting EPS do not require the presentation of basic and diluted EPS for securities other than common stock and the EPS amounts, as presented, only pertain to our common stock.
The Two-Class Method is an earnings allocation formula that determines earnings per share for common shares and participating securities according to dividends declared (or accumulated) and the participation rights in undistributed earnings. See Note 7 Shareholders’ Equity for additional information about the rights and privileges of Series A Preferred Stock.
The holders of our convertible preferred stock do not have a contractual obligation to share in the losses of Century. Thus, in periods where we report net losses, we will not allocate the net losses to the convertible preferred stock for the computation of basic or diluted EPS.
Calculation of EPS
Options to purchase 690,075 and 692,075 shares of common stock were outstanding as of September 30, 2010 and September 30, 2009, respectively. For the three and nine months ended September 30, 2010, all options, service-based stock and shares to be issued upon the assumed conversion of our convertible debt were excluded from the calculation of diluted EPS because of their antidilutive effect on earnings per share. The average price for our common stock in the three and nine months ended September 30, 2010 was below the conversion price of our 1.75% convertible senior notes due 2024.
For the three months ended September 30, 2009, approximately 383,000 options were excluded from the calculation of diluted EPS because the exercise price of these options was greater than the average market price of the underlying common stock. For the nine months ended September 30, 2009, all options, service-based stock and shares to be issued upon the assumed conversion of our convertible debt were excluded from the calculation of diluted EPS because of their antidilutive effect on earnings per share. The average price for our common stock in the three and nine months ended September 30, 2009 was below the conversion price of our 1.75% convertible senior notes due 2024.
Service-based stock for which vesting is based upon continued service is not considered issued and outstanding shares of common stock until vested and issued. However, the service-based stock is considered a common stock equivalent and, therefore, the weighted average service-based stock is included, using the treasury stock method, in common shares outstanding for diluted earnings per share computations if they have a dilutive effect on earnings per share. There were approximately 585,000 and 502,000 unvested shares of service-based stock outstanding at September 30, 2010 and 2009, respectively.
We reported a net loss for the three and nine months ended September 30, 2010 and for the nine months ended September 30, 2009 and therefore did not allocate any of our net loss to the convertible preferred stock. For the calculation of basic and diluted EPS for the three months ended September 30, 2009, using the Two-Class Method, we allocated $6,872 of our undistributed income to the convertible preferred stock.
|
Three months ended September 30, 2009
|
||||||||||||
|
Common stock
|
Preferred stock (1)
|
Total
|
||||||||||
|
Weighted average shares outstanding
|
74,214 | 15,329 | 89,543 | |||||||||
|
Undistributed earnings
|
$ | 33,270 | $ | 6,872 | $ | 40,142 | ||||||
|
(1)
|
Represents the participation rights of our preferred shareholder as if it held the number of common shares into which its shares of preferred stock are convertible as of the record date.
|
- 14 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
7.
|
Shareholders’ Equity
|
Common Stock
Under our Restated Certificate of Incorporation, as amended, our Board of Directors is authorized to issue up to 195,000,000 shares of our common stock.
Series A Convertible Preferred Stock conversions
All shares of Series A Convertible Preferred Stock are held by Glencore. The issuance of common stock under our stock incentive programs, debt exchange transactions and any stock offering that excludes Glencore participation triggers anti-dilution provisions of the preferred stock agreement and results in the automatic conversion of Series A Convertible Preferred Stock shares into shares of common stock.
|
Series A Convertible Preferred Stock:
|
2010
|
|||
|
Shares outstanding at December 31, 2009
|
83,452 | |||
|
Automatic conversions during the nine months ended September 30, 2010
|
(819 | ) | ||
|
Total shares outstanding at September 30, 2010
|
82,633 | |||
Tax Benefit Preservation Plan expired
Our Tax Benefit Preservation Plan (the “Plan”) was designed to provide us some protection against a possible limitation on our ability to use net operating losses, tax credits and other tax assets to reduce potential future U.S. federal income tax obligations. The Plan expired in accordance with its terms on September 29, 2010.
|
8.
|
Income Taxes
|
As of September 30, 2010 and December 31, 2009, we had total unrecognized tax benefits (excluding interest) of $22,949 and $21,216, respectively. The total amount of unrecognized tax benefits (including interest and net of federal benefit) that, if recognized, would affect the effective tax rate as of September 30, 2010 and December 31, 2009, respectively, are $3,308 and $4,586.
We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. As of September 30, 2010 and December 31, 2009, we had approximately $635 and $806, respectively, of accrued interest related to unrecognized income tax benefits.
We do not expect a significant change in the balance of unrecognized tax benefits within the next twelve months.
Our federal income tax returns from 2005 through 2008 are currently under examination. Our California corporate income tax return for 2008 is currently under examination. The majority of our state returns beginning in 2003 are subject to examination. Our Icelandic tax returns are subject to examination and income tax matters have been concluded for years through 2002.
- 15 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the “Health Care Acts”) were enacted in March 2010. The Health Care Acts amend certain tax rules applicable to employers so that the portion of employer health care costs that are reimbursed by the Medicare Part D prescription drug subsidy will no longer be deductible by the employer for federal income tax purposes effective for years beginning after December 31, 2012. Because of the loss of the future tax deduction, a reduction in the deferred tax asset related to the nondeductible OPEB liabilities accrued to date will be recorded with an equal offsetting adjustment to our valuation allowance. The Health Care Acts are not expected to affect our cash flows or financial condition because we have a valuation allowance against all of our federal and state deferred tax assets due to our belief that it is more likely than not that these assets will not be realized.
|
9.
|
Inventories
|
Inventories consist of the following:
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Raw materials
|
$ | 43,240 | $ | 25,694 | ||||
|
Work-in-process
|
13,135 | 13,400 | ||||||
|
Finished goods
|
9,677 | 11,156 | ||||||
|
Operating and other supplies
|
73,470 | 81,223 | ||||||
|
Inventories
|
$ | 139,522 | $ | 131,473 | ||||
Inventories are stated at the lower of cost or market, using the first-in, first-out method (“FIFO”). Due to the curtailment of our Ravenswood operations in February 2009, approximately $18,023 of items that were classified as inventory at December 31, 2008 are not expected to be consumed within one year and have been classified as other assets.
|
10.
|
Intangible Asset
|
In July 2009, we terminated the existing power contract at Hawesville and entered into a new power agreement. See Note 2 Long-term Power Contract for Hawesville for additional information about this transaction. As a result of terminating Hawesville’s previous power contract, we wrote off the remaining carrying amount of the intangible asset of $23,759 in July 2009. As of September 30, 2010 and December 31, 2009, we had no intangible assets.
For the three and nine months ended September 30, 2009, amortization expense for the intangible asset totaled $695 and $8,769, respectively.
- 16 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
11.
|
|
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Debt classified as current liabilities:
|
||||||||
|
1.75% convertible senior notes due 2024, net of debt discount of $2,160 and $3,828, respectively, interest payable semiannually (1)
|
$ | 44,907 | $ | 43,239 | ||||
|
Hancock County industrial revenue bonds (“IRBs”) due 2028, interest payable quarterly (variable interest rates (not to exceed 12%))(1)
|
7,815 | 7,815 | ||||||
|
Debt classified as non-current liabilities:
|
||||||||
|
8.0% senior secured notes payable due May 15, 2014, interest payable semiannually, net of debt discount of $3,912 and $4,800, respectively
|
245,692 | 240,676 | ||||||
|
7.5% senior unsecured notes payable due August 15, 2014, interest payable semiannually
|
2,603 | 6,948 | ||||||
|
Total debt
|
$ | 301,017 | $ | 298,678 | ||||
|
(1)
|
The convertible notes are classified as current because they are convertible at any time by the holder. The IRBs are classified as current liabilities because they are remarketed weekly and could be required to be repaid upon demand if there is a failed remarketing. The IRB interest rate at September 30, 2010 was 0.57%.
|
Debt exchange transactions
We completed additional debt-for-debt exchanges in January and March 2010. We issued a total of $4,128 of 8.0% senior secured notes due May 15, 2014 (the “8.0% Notes”) in exchange for $4,345 of 7.5% senior unsecured notes due August 15, 2014 (the “7.5% Notes”). As of September 30, 2010, we had $2,603 and $249,604 of aggregate principal amount outstanding of the 7.5% Notes and 8.0% Notes, respectively.
Investors received $950 worth of 8.0% Notes for every $1,000 principal amount tendered of 7.5% Notes. In addition, these investors received the accrued interest for their 7.5% Notes, net of interest that has accrued on the 8.0% notes since the original issuance date.
Century enters into new revolving credit facility
On July 1, 2010, we and certain of our direct and indirect domestic subsidiaries (together with Century, the "Borrowers") entered into a new four-year $100,000 senior secured revolving credit facility pursuant to a Loan and Security Agreement, dated as of July 1, 2010, among the Borrowers and Wells Fargo Capital Finance, LLC, as lender and agent (the "New Credit Facility"), a portion of which was later syndicated to Credit Suisse AG. The New Credit Facility replaced our previous credit facility that would have expired on September 19, 2010. The New Credit Facility, which expires on July 1, 2014, provides for borrowings of up to $100,000 in the aggregate, including up to $50,000 under a letter of credit sub-facility. Any letters of credit issued and outstanding under the New Credit Facility reduce our borrowing availability on a dollar-for-dollar basis. As of September 30, 2010, no amounts have been borrowed under the New Credit Facility, although the Borrowers may in the future use the New Credit Facility to repay existing indebtedness, to issue standby or commercial letters of credit, to finance capital expenditures and for ongoing working capital needs and other general corporate purposes.
- 17 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
The Borrowers' obligations under the New Credit Facility are guaranteed by certain of our domestic subsidiaries and secured by a first priority security interest in all of the Borrowers' accounts receivable, inventory and certain bank accounts. The availability of funds under the revolving credit facility is limited by a specified borrowing base consisting of accounts receivable and inventory which meet customary eligibility criteria. Any amounts outstanding under the New Credit Facility will bear interest, at our option, at LIBOR or a base rate, plus, in each case, an applicable interest margin.
The New Credit Facility contains customary covenants, including restrictions on mergers and acquisitions, indebtedness, affiliate transactions, liens, dividends and distributions, dispositions of collateral, investments and prepayments of indebtedness, as well as a covenant that requires the Borrowers to maintain certain minimum liquidity or availability requirements. The New Credit Facility also includes customary events of default, including nonpayment, misrepresentation, breach of covenant, bankruptcy, change of ownership, certain judgments and certain cross defaults. Upon the occurrence of an event of default, commitments under the New Credit Facility may be terminated and amounts outstanding may be accelerated and declared immediately due and payable.
As of September 30, 2010, we had no outstanding letters of credit or loans under the New Credit Facility. As of September 30, 2010, we had a borrowing availability of approximately $83,000 under the New Credit Facility. We pay a commitment fee for the unused portion of the line.
1.75% convertible senior notes
The 1.75% convertible senior notes due 2024 (“1.75% Notes”) are convertible at any time at an initial conversion rate of 32.7430 shares of our common stock per one thousand dollars of 1.75% Notes, subject to adjustments for certain events. The initial conversion rate is equivalent to a conversion price of approximately $30.54 per share of common stock. Upon conversion of the 1.75% Notes, we would be required to pay cash in respect of the conversion obligation (determined as the number of shares into which the note is convertible multiplied by our stock price at such time) up to the principal amount of the note. Any excess conversion obligation can be paid, at our option, in cash, common stock, or a combination thereof.
|
12.
|
Contingencies and Commitments
|
Environmental Contingencies
We believe our current environmental liabilities do not have, and are not likely to have, a material adverse effect on our financial condition, results of operations or liquidity. However, there can be no assurance that future requirements or conditions at currently or formerly owned or operated properties will not result in liabilities which may have a material adverse effect.
In July 2005, the Environmental Protection Agency (“EPA”) began an initiative to perform an oversight inspection of all Secondary Maximum Achievable Control Technology (“MACT”) facilities which deal with casting furnaces, including Hawesville. Partial inspections were also conducted at collocated Primary MACT facilities which deal with potlines, including Hawesville. In April 2008, the EPA sent CAKY requests under the Clean Air Act for copies of certain records dating back to 2000. In November 2009, the EPA sent CAKY a Notice of Violation (“NOV”) alleging 12 violations relating to the Clean Air Act including, among other things, violations of the MACT emissions standards and the prevention of significant deterioration program for unpermitted major modifications. The matter is under investigation. An initial hearing with the EPA occurred in January 2010 at which CAKY agreed to provide the EPA with additional information regarding the alleged violations. CAKY provided such information in February 2010. We cannot reasonably estimate the liabilities with respect to this matter, but they are not expected to be material. We expect to resolve the matter in late 2010 or early 2011.
- 18 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Century Aluminum of West Virginia, Inc. (“CAWV”) continues to perform remedial measures at Ravenswood pursuant to an order issued by the EPA in 1994 (the “3008(h) Order”). CAWV also conducted a RCRA facility investigation (“RFI”) under the 3008(h) Order evaluating other areas at Ravenswood that may have contamination requiring remediation. The RFI has been approved by appropriate agencies. CAWV has completed interim remediation measures at two sites identified in the RFI, and we believe no further remediation will be required. A Corrective Measures Study, which will formally document the conclusion of these activities, is being completed with the EPA. EPA approval of the Corrective Measures Study is anticipated in 2010. We believe a significant portion of the contamination on the two sites identified in the RFI is attributable to the operations of third parties and is their financial responsibility.
Prior to our purchase of Hawesville, the EPA issued a final Record of Decision (“ROD”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). By agreement, Southwire Company (“Southwire”), the former owner and operator is to perform all obligations under the ROD. CAKY has agreed to operate and maintain the ground water treatment system required under the ROD on behalf of Southwire, and Southwire will reimburse CAKY for any expense that exceeds $400 annually.
We are a party to an EPA Administrative Order on Consent (the “Order”) pursuant to which other past and present owners of an alumina refining facility at St. Croix, Virgin Islands have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage hydrocarbons floating on groundwater underlying the facility. Pursuant to the Hydrocarbon Recovery Plan, recovered hydrocarbons and groundwater are delivered to the adjacent petroleum refinery where they are received and managed. In connection with the sale of the facility by Lockheed Martin Corporation (“Lockheed”), to one of our affiliates, Virgin Islands Alumina Corporation (“Vialco”), in 1989, Lockheed, Vialco and Century entered into the Lockheed-Vialco Asset Purchase Agreement. The indemnity provisions contained in the Lockheed-Vialco Asset Purchase Agreement allocate responsibility for certain environmental matters. Lockheed has tendered indemnity and defense of the above matter to Vialco. We have likewise tendered indemnity to Lockheed. Management does not believe Vialco’s liability under the Order or its indemnity to Lockheed will require material payments. Through September 30, 2010, we have expended approximately $800 on the Hydrocarbon Recovery Plan. We expect the future potential payments under this indemnification to comply with the Order will be approximately $500, which may be offset in part by sales of recoverable hydrocarbons.
In May 2005, we and Vialco were among several defendants listed in a lawsuit filed by the Commissioner of the Department of Planning and Natural Resources (“DPNR”), in his capacity as Trustee for Natural Resources of the United States Virgin Islands. The complaint alleges damages to natural resources caused by alleged releases from the alumina refinery facility at St. Croix and the adjacent petroleum refinery. The primary cause of action is pursuant to the natural resource damage provisions of CERCLA, but various ancillary Territorial law causes of action were included as well. We and Lockheed have each tendered indemnity and defense of the case to the other pursuant to the terms of the Lockheed-Vialco Asset Purchase Agreement. The complaint seeks unspecified monetary damages, costs and attorney fees. On July 13, 2010, motions for summary judgment filed by us, Vialco and other defendants were granted as to several of plaintiff’s claims on the basis that such claims were time-barred (the “July 13
th
Ruling”). However, on August 20, 2010, the court granted plaintiff’s motion for reconsideration of several of the claims that were the subject of the July 13
th
Ruling. As of September 30, 2010, no trial date has been set for the remaining claims.
In December 2006, Vialco and the two succeeding owners of the alumina facility were named as defendants in a lawsuit filed by the Commissioner of the DPNR. The complaint alleges the defendants failed to take certain actions specified in a Coastal Zone management permit issued to Vialco in October 1994, and alleges violations of territorial water pollution control laws during the various defendants’ periods of ownership. The complaint seeks statutory and other unspecified monetary penalties for the alleged violations. Vialco filed its answer to the complaint asserting factual and affirmative defenses. The parties are currently engaged in the discovery process.
- 19 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
In May 2009, St. Croix Renaissance Group, L.L.L.P. (“SCRG”) filed a third-party complaint for contribution and other relief against several third-party defendants, including Vialco, relating to a lawsuit filed against SCRG seeking recovery of response costs relating to the aforementioned DPNR CERCLA matter. On January 8, 2010, DPNR filed a motion to assert claims directly against certain third-party defendants, including Vialco. On January 29, 2010, the court granted DPNR’s motion. The parties are currently engaged in the discovery process. The case is currently set for trial in March 2011.
We intend to defend the Vialco lawsuits vigorously and to assert all applicable defenses. Pursuant to the terms of the asset purchase agreement between Vialco and the purchaser of the facility in 1995, the purchaser assumed responsibility for all costs and other liabilities associated with the bauxite waste disposal facilities, including pre-closure and post-closure liabilities. At this time, it is not practicable to predict the ultimate outcome of these actions or to estimate a range of possible damage awards for any of the Vialco lawsuits.
In July 2006, we were named as a defendant, together with certain affiliates of Alcan Inc., in a lawsuit brought by Alcoa Inc. seeking to determine responsibility for certain environmental indemnity obligations related to the sale of a cast aluminum plate manufacturing facility located in Vernon, California, which we purchased from Alcoa Inc. in December 1998, and sold to Alcan Rolled Products-Ravenswood LLC in July 1999. The complaint also seeks costs and attorney fees. At this time, it is not practicable to predict the ultimate outcome of these actions or to estimate a range of possible damage awards.
It is our policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental-related accrued liabilities were $936 and $966 at September 30, 2010 and December 31, 2009, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to costs for ongoing environmental compliance, including maintenance and monitoring, such costs are expensed as incurred.
Because of the issues and uncertainties described above, and our inability to predict the requirements of future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on our future financial condition, results of operations, or liquidity. Based upon all available information, management does not believe that the outcome of these environmental matters will have a material adverse effect on our financial condition, results of operations, or liquidity.
Legal Contingencies
We have pending against us or may be subject to various lawsuits, claims and proceedings related primarily to employment, commercial, environmental, shareholder, safety and health matters. Although it is not presently possible to determine the outcome of these matters, management believes their ultimate disposition will not have a material adverse effect on our financial condition, results of operations, or liquidity.
On April 27, 2010, the purported stockholder class actions consolidated as In re: Century Aluminum Company Securities Litigation were dismissed without prejudice by the court for failure to state a claim. On May 28, 2010 and June 24, 2010 plaintiffs filed amended complaints, which, like the previous complaints, alleged that we improperly accounted for cash flows associated with the termination of certain forward financial sales contracts which accounting allegedly resulted in artificial inflation of our stock price and investor losses. Plaintiffs are seeking rescission of our February 2009 common stock offering, unspecified compensatory damages, including interest thereon, costs and expenses and attorneys’ fees. A hearing was held on September 3, 2010 to hear our motion to dismiss the amended complaints, but no ruling has yet been made on the motion. Management intends to vigorously defend these actions, but at the date of this report, it is not possible to predict the ultimate outcome of these actions or to estimate a range of possible damage awards.
- 20 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Ravenswood Retiree Medical Benefits changes
Century Aluminum of West Virginia, Inc. amended its post retirement medical benefit plan effective January 1, 2010 for all current and former CAWV salaried employees, their dependents and all bargaining unit employees who retired before June 1, 2006, and their dependents.
The principal changes to the plan are that, upon attainment of age 65, all CAWV provided retiree medical benefits will cease for retirees and dependents. In addition, bargaining unit retirees under age 65 and qualified dependents under age 65 are covered by the salary retiree medical plan which requires out-of pocket payments for premiums, co-pays and deductibles by participants.
In November 2009, CAWV filed a class action complaint for declaratory judgment against the United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO/CLC (the “USWA”), the USWA’s local union, and four CAWV retirees, individually and as class representatives, seeking a declaration of CAWV’s rights to modify/terminate retiree medical benefits as described above. Later in November, the USWA and representatives of a retiree class filed a separate suit against CAWV, Century Aluminum Company, Century Aluminum Master Welfare Benefit Plan, and various John Does with respect to the foregoing. These actions, entitled Dewhurst, et al. v. Century Aluminum Co., et al., and Century Aluminum of West Virginia, Inc. v. United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO/CLC, et al., have been consolidated and venue has been set in the District Court for the Southern District of West Virginia. In January 2010, the USWA filed a motion for preliminary injunction to prevent us from implementing the foregoing changes while these lawsuits are pending, which was dismissed by the court The USWA has appealed the decision and proceedings have been stayed pending the outcome of the appeal. Based upon our analysis of the court’s ruling during the third quarter of 2010, in accordance with ASC 715-60, “Compensation – Retirement Plans – Defined Benefit Plans – Other Postretirement”, the amendment to the CAWV post retirement medical plan benefits was recorded as a negative plan amendment in the third quarter of 2010. Post retirement medical benefit liabilities were reduced by approximately $39,000 with an equal offset to other comprehensive income. We will continue to vigorously pursue our case in the foregoing actions.
Power Commitments
Big Rivers Agreement
On July 16, 2009, CAKY, along with
E.ON
and
Big Rivers
, agreed to an “unwind” of the former contractual arrangement between Big Rivers and E.ON and entered into the Big Rivers Agreement to provide long-term cost-based power to CAKY.
The term of the Big Rivers Agreement is through 2023 and provides adequate power for Hawesville’s full production capacity requirements (approximately 482 MW) with pricing based on the provider’s cost of production. The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production. Under the terms of the agreement, any power not required by Hawesville would be available for sale and we would receive credits for actual power sales up to our cost for that power. The current market price of electrical power in this region is less than Big Rivers’ forecasted cost.
See Note 2 Long-term power contract for Hawesville for additional information about these agreements.
Mt. Holly power agreement amended
The South Carolina Public Service Authority (“Santee Cooper”) agreed to amend the Mt. Holly power contract to, among other things, provide that power delivered through 2015 will be priced at rates fixed under currently published schedules, subject to adjustments to cover Santee Cooper’s fuel costs, and allow Mt. Holly to terminate the power contract early, in whole or in part, without penalty, if the LME goes below certain negotiated levels.
- 21 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Appalachian Power Company (“APCo”) Rate filing
APCo supplies all of Ravenswood’s power requirements under an agreement at prices set forth in published tariffs, which are subject to change. Under the special rate contract, Ravenswood may be excused from or may defer the payment of the increase in the tariff rate if aluminum prices as quoted on the LME fall below pre-determined levels. In September 2009, the PSC attributed approximately $16,000 of unrecovered fuel costs to Ravenswood. This amount will be factored into the special rate provision. In June 2010, the PSC agreed to extend the special rate contract terms through 2011. We are in discussions with APCo to provide for a long-term special rate arrangement that establishes the LME-based cap on the tariff rates.
Labor Commitments
Approximately 75% of our U.S. based work force is represented by the USWA. CAWV’s Ravenswood plant employees represented by the USWA are under a labor agreement that expired on August 31, 2010. Negotiations for a new labor agreement are ongoing. The agreement covers hourly employees at the Ravenswood plant. For additional information about Ravenswood operations, see Note 3 Curtailment of Operations – Ravenswood and Hawesville.
CAKY’s Hawesville plant employees represented by the USWA are under a collective bargaining agreement that expired on May 7, 2010. The agreement covered approximately 525 hourly workers at the Hawesville plant. As negotiations between the two parties continue, the collectively bargained employees remain on the job and the plant has continued to operate normally. See Note 20 Subsequent Events for additional information about the labor negotiations at Hawesville.
In April 2010, Nordural Grundartangi ehf entered into a new labor agreement with the five labor unions representing approximately 84% of Grundartangi’s work force. The wage terms of the labor agreement expire on January 1, 2011 after which the wage terms may be renegotiated. The labor agreement in its entirety expires on December 31, 2014.
Other Commitments
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act were enacted in March 2010. The Health Care Acts extend health care coverage to many uninsured individuals and expand coverage to those already insured. The Health Care Acts contain provisions which could impact our accounting for retiree medical benefits in future periods. However, the extent of that impact, if any, cannot be determined until regulations are promulgated under the Health Care Acts and additional interpretations of the Health Care Acts become available. We are continuing to assess the potential impacts that this legislation may have on our future results of operations, cash flows and financial position related to our health care benefits and other postemployment benefits (“OPEB”) obligations. Among other things, the Health Care Acts will eliminate the tax deductibility of the Medicare Part D subsidy for companies that provide qualifying prescription drug coverage to retirees effective for years beginning after December 31, 2012. See Note 8 Income Taxes for additional information about the impact of the change in the deductibility of the Medicare Part D subsidy.
|
13.
|
Forward Delivery Contracts and Financial Instruments
|
As a producer of primary aluminum, we are exposed to fluctuating raw material and primary aluminum prices. We enter into fixed and market priced contracts for the sale of primary aluminum and the purchase of raw materials in future periods.
- 22 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Forward Physical Delivery Agreements
Primary Aluminum Sales Contracts
|
Contract
|
Customer
|
Volume
|
Term
|
Pricing
|
|
Alcan Rolled Products Metal Agreement
|
Alcan
|
14 million pounds per year
|
Through December 31, 2010
|
Variable, based on U.S. Midwest market
|
|
Glencore Metal Agreement II
|
Glencore
|
18 million pounds per year
|
Through December 31, 2010
|
Variable, based on U.S. Midwest market
|
|
Glencore Metal Agreement I (1)
|
Glencore
|
20,400 metric tons per year ("mtpy")
|
Through December 31, 2013
|
Variable, based on U.S. Midwest market
|
|
Glencore Sweep Agreement (2)
|
Glencore
|
24,000 mtpy - minimum
|
Through December 31, 2010
|
Variable, based on U.S. Midwest market
|
|
Glencore Nordural Metal Agreement
|
Glencore
|
9,300 metric tons
|
Through December 31, 2010
|
Variable, based on the LME
|
|
Southwire Metal Agreement
|
Southwire
|
240 million pounds per year (high conductivity molten aluminum)
|
Through March 31, 2011
|
Variable, based on U.S. Midwest market
|
|
Southwire Metal Agreement
|
Southwire
|
60 million pounds per year (standard-grade molten aluminum)
|
Through December 31, 2010
|
Variable, based on U.S. Midwest market
|
|
(1)
|
We account for the Glencore Metal Agreement I as a derivative instrument in accordance with generally accepted accounting principles for derivative instruments and hedging activities. Under the Glencore Metal Agreement I, pricing is based on then-current market prices, adjusted by a negotiated U.S. Midwest premium with a cap and a floor as applied to the current U.S. Midwest premium.
|
|
(2)
|
The Glencore Sweep Agreement is for all metal produced by Century in the U.S. in 2010, less existing sales agreements and high-purity metal sales. The term of the contract may be extended for one year upon mutual agreement.
|
Tolling Contracts
|
Contract
|
Customer
|
Volume
|
Term
|
Pricing
|
|
Billiton Tolling Agreement (1)
|
BHP Billiton
|
130,000 mtpy
|
Through December 31, 2013
|
LME-based
|
|
Glencore Toll Agreement (1)(2)
|
Glencore
|
90,000 mtpy
|
Through July 31, 2016
|
LME-based
|
|
Glencore Toll Agreement (1)
|
Glencore
|
46,500 mtpy
|
Through December 31, 2014
|
LME-based
|
|
(1)
|
Grundartangi’s tolling revenues include a premium based on the European Union (“EU”) import duty for primary aluminum. Any
decrease in the EU import duty for primary aluminum would negatively impact Grundartangi’s revenues
.
|
|
(2)
|
Glencore assigned 50% of its tolling rights under this agreement to Hydro Aluminum through December 31, 2010.
|
Apart from the Alcan Rolled Products Metal Agreement, the Glencore Metal Agreement I, the Glencore Metal Agreement II, Glencore Sweep Agreement, Glencore Nordural Metal Agreement and the Southwire Metal Agreement, we had forward delivery contracts to sell 17,450 metric tons and 26,140 metric tons of primary aluminum at September 30, 2010 and December 31, 2009, respectively. Of these forward delivery contracts, we had fixed price commitments to sell 1,190 metric tons of primary aluminum at September 30, 2010 and 1,559 metric tons at December 31, 2009 of which 58 metric tons were with Glencore at September 30, 2010 and none were with Glencore at December 31, 2009.
- 23 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
Forward Financial Instruments
We are party to various forward financial and physical delivery contracts that are accounted for as derivative instruments. See Note 5 Derivative instruments and hedging for additional information about these instruments.
|
14.
|
Supplemental Cash Flow Information
|
|
Nine months ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash paid for:
|
||||||||
|
Interest
|
$ | 9,813 | $ | 22,066 | ||||
|
Income tax
|
3,101 | 445 | ||||||
|
Cash received for:
|
||||||||
|
Interest
|
371 | 1,761 | ||||||
|
Income tax refunds (1)
|
18,171 | 91,041 | ||||||
|
(1)
|
See Note 8 Income Taxes for more information.
|
Non-cash activities
In the first quarters of 2010 and 2009, we issued shares of common stock to certain key employees to satisfy performance share liabilities of $964 and $694, respectively.
In connection with the Big Rivers Agreement at Hawesville, we received commitments from E.ON to help mitigate a significant portion of the near-term risk associated with the new power contract through December 2010. See Note 2 Long-term power contract for Hawesville for additional information.
In the third quarter of 2009, we recorded an asset of $80,723, which represented the fair value of the contractual receivable from E.ON.
E.ON makes payment for these amounts directly to Big Rivers when Hawesville consumes power under the contract.
In the third quarter of 2009, we issued 1,229,824 shares of common stock in an exchange transaction with holders of our 1.75% Notes for $14,858 principal value of our 1.75% Notes.
Due to the curtailment of our Ravenswood operations in February 2009, we reclassified certain inventory items into other assets. As a result, there was an $18,326 non-cash change in the inventories and other assets account balances due to this reclassification.
- 24 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
15.
|
Asset Retirement Obligations
|
Our asset retirement obligations (“ARO”) consist primarily of costs associated with the disposal of spent pot liner used in the reduction cells of our domestic facilities.
The reconciliation of the changes in the asset retirement obligations is presented below:
|
Nine months ended September 30, 2010
|
Year ended December 31, 2009
|
|||||||
|
Beginning balance, ARO liability
|
$ | 15,233 | $ | 14,337 | ||||
|
Additional ARO liability incurred
|
793 | 896 | ||||||
|
ARO liabilities settled
|
(898 | ) | (1,116 | ) | ||||
|
Accretion expense
|
780 | 1,116 | ||||||
|
Adjustments (1)
|
(1,845 | ) | — | |||||
|
Ending balance, ARO liability
|
$ | 14,063 | $ | 15,233 | ||||
|
(1)
|
We adjusted our ARO liability in the first quarter of 2010 for changes in the estimated amounts and timing of costs associated with the disposal of spent potliner.
|
Certain conditional AROs related to the disposal costs of fixed assets at our primary aluminum facilities have not been recorded because they have an indeterminate settlement date. These conditional AROs will be initially recognized in the period in which sufficient information exists to estimate their fair value.
|
16.
|
Comprehensive income (loss) and accumulated other comprehensive loss
|
|
Comprehensive income (loss):
|
||||||||
|
Nine months ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net loss
|
$ | (5,309 | ) | $ | (181,628 | ) | ||
|
Other comprehensive income (loss):
|
||||||||
|
Net unrealized loss on financial instruments, net of $0 tax
|
(176 | ) | (5,701 | ) | ||||
|
Net losses on cash flow hedges reclassified to income, net of $0 tax
|
65 | 15,830 | ||||||
|
Net (gain) loss on foreign currency cash flow hedges reclassified to income, net of tax of $25 and $(929), respectively
|
(114 | ) | 6,966 | |||||
|
Defined benefit pension and other postemployment benefit plans:
|
||||||||
|
Net gain arising during the period, net of $0 tax (1)
|
34,627 | 59,618 | ||||||
|
Amortization of prior service cost during the period, net of $263 and $(241) tax, respectively
|
(474 | ) | 811 | |||||
|
Amortization of net loss during the period, net of $(1,299) and $1,060 tax, respectively
|
2,349 | (3,576 | ) | |||||
|
Change in equity investee other comprehensive income, net of $0 tax
|
— | 1,549 | ||||||
|
Other comprehensive income:
|
36,277 | 75,497 | ||||||
|
Comprehensive income (loss)
|
$ | 30,968 | $ | (106,131 | ) | |||
|
(1)
|
In September 2010, we recorded a net gain in accumulated other comprehensive loss and a corresponding reduction in our accumulated postretirement benefit costs - less current portion of $39,362 for amendments to the Century Aluminum of West Virginia, Inc. postretirement medical benefit plan that became effective January 1, 2010. See Note 12 Commitments and Contingencies.
|
- 25 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
Components of accumulated other comprehensive loss:
|
||||||||
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Unrealized loss on financial instruments, net of $(724) and $749 tax benefit, respectively
|
$ | (1,292 | ) | $ | (1,068 | ) | ||
|
Defined benefit plan liabilities, net of $25,691 and $26,728 tax benefit, respectively
|
(28,134 | ) | (64,635 | ) | ||||
|
Equity in investee other comprehensive income, net of $0 and $0 tax, respectively (1)
|
(8,567 | ) | (8,567 | ) | ||||
|
Accumulated other comprehensive loss
|
$ | (37,993 | ) | $ | (74,270 | ) | ||
|
(1)
|
The amount includes our equity in the other comprehensive income of Mt. Holly Aluminum Company which consists primarily of pension and other postretirement benefit obligations.
|
|
17.
|
Components of net periodic benefit cost
|
|
Pension Benefits
|
||||||||||||||||
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Service cost
|
$ | 745 | $ | 650 | $ | 2,234 | $ | 2,135 | ||||||||
|
Interest cost
|
1,601 | 1,629 | 4,805 | 4,852 | ||||||||||||
|
Expected return on plan assets
|
(1,344 | ) | (1,077 | ) | (4,032 | ) | (3,258 | ) | ||||||||
|
Amortization of prior service cost
|
35 | 34 | 104 | 127 | ||||||||||||
|
Amortization of net loss
|
415 | 486 | 1,245 | 1,620 | ||||||||||||
|
Curtailment
|
— | — | — | 2,576 | ||||||||||||
|
Net periodic benefit cost
|
$ | 1,452 | $ | 1,722 | $ | 4,356 | $ | 8,052 | ||||||||
|
Other Postretirement Benefits
|
||||||||||||||||
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Service cost
|
$ | 880 | $ | 645 | $ | 2,640 | $ | 2,887 | ||||||||
|
Interest cost
|
2,748 | 2,686 | 8,246 | 8,399 | ||||||||||||
|
Expected return on plan assets
|
— | — | — | — | ||||||||||||
|
Amortization of prior service cost
|
(280 | ) | (102 | ) | (841 | ) | (939 | ) | ||||||||
|
Amortization of net loss
|
801 | 521 | 2,403 | 1,956 | ||||||||||||
|
Curtailment
|
— | — | — | (14,975 | ) | |||||||||||
|
Net periodic benefit cost
|
$ | 4,149 | $ | 3,750 | $ | 12,448 | $ | (2,672 | ) | |||||||
- 26 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
18.
|
Recently Issued Accounting Standards
|
In February 2010, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”), which amends FASB ASC Topic 855, Subsequent Events. The update provides that SEC filers, as defined in ASU 2010-09, are no longer required to disclose the date through which subsequent events have been evaluated. The update also requires SEC filers to evaluate subsequent events through the date the financial statements are issued rather than the date the financial statements are available to be issued. We adopted ASU 2010-09 upon issuance. This update had no impact on our financial position, results of operations or cash flows.
In January 2010, the FASB issued FASB Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which amends FASB ASC Topic 820-10, Fair Value Measurements and Disclosures. The update provides additional disclosures for transfers into and out of Levels 1 and 2 and separate disclosures about purchases, issuances and settlements relating to Level 3 measurements and clarifies certain other existing disclosure requirements. In addition ASU 2010-06 amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by major categories of assets. We adopted ASU 2010-06 in the first quarter of 2010. This update had no impact on our financial position, results of operations or cash flows.
|
19.
|
Condensed Consolidating Financial Information
|
Our 8.0% senior secured notes due 2014, 7.5% senior unsecured notes due 2014 and 1.75% convertible senior notes due 2024 are guaranteed by each of our material existing and future domestic subsidiaries, except for Nordural US LLC (collectively the “Guarantor Subsidiaries”). Each subsidiary guarantor is 100% owned by Century. All guarantees are full and unconditional; all guarantees are joint and several.
These notes are not guaranteed by our foreign subsidiaries (such subsidiaries and Nordural US LLC, collectively the “Non-Guarantor Subsidiaries”). We allocate corporate expenses or income to our subsidiaries and charge interest on certain intercompany balances.
The following summarized condensed consolidating balance sheets as of September 30, 2010 and December 31, 2009, condensed consolidating statements of operations for the three and nine months ended September 30, 2010 and September 30, 2009 and the condensed consolidating statements of cash flows for the nine months ended September 30, 2010 and September 30, 2009 present separate results for Century, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, consolidating adjustments and total consolidated amounts.
This summarized condensed consolidating financial information may not necessarily be indicative of the results of operations or financial position had Century, the Guarantor Subsidiaries or the Non-Guarantor subsidiaries operated as independent entities.
- 27 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
||||||||||||||||||||
|
As of September 30, 2010
|
||||||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Reclassifications and Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 196,323 | $ | 68,920 | $ | — | $ | 265,243 | ||||||||||
|
Restricted cash
|
10,772 | — | 11,752 | — | 22,524 | |||||||||||||||
|
Accounts receivable — net
|
24,122 | 14,857 | — | — | 38,979 | |||||||||||||||
|
Due from affiliates
|
594,561 | 4,719 | 2,532,234 | (3,096,724 | ) | 34,790 | ||||||||||||||
|
Inventories
|
89,721 | 49,801 | — | — | 139,522 | |||||||||||||||
|
Prepaid and other current assets
|
11,213 | 11,568 | 2,725 | — | 25,506 | |||||||||||||||
|
Total current assets
|
730,389 | 277,268 | 2,615,631 | (3,096,724 | ) | 526,564 | ||||||||||||||
|
Investment in subsidiaries
|
33,685 | — | (991,018 | ) | 957,333 | — | ||||||||||||||
|
Property, plant and equipment — net
|
371,539 | 890,808 | 1,522 | (139 | ) | 1,263,730 | ||||||||||||||
|
Due from affiliates — less current portion
|
1,005 | 5,977 | — | — | 6,982 | |||||||||||||||
|
Other assets
|
22,835 | 32,568 | 23,824 | — | 79,227 | |||||||||||||||
|
Total
|
$ | 1,159,453 | $ | 1,206,621 | $ | 1,649,959 | $ | (2,139,530 | ) | $ | 1,876,503 | |||||||||
|
Liabilities and shareholders’ equity:
|
||||||||||||||||||||
|
Accounts payable, trade
|
$ | 31,496 | $ | 42,659 | $ | 787 | $ | — | $ | 74,942 | ||||||||||
|
Due to affiliates
|
2,099,121 | 63,347 | 203,540 | (2,328,431 | ) | 37,577 | ||||||||||||||
|
Accrued and other current liabilities
|
12,658 | 6,066 | 17,355 | — | 36,079 | |||||||||||||||
|
Accrued employee benefits costs — current portion
|
13,211 | — | 2,306 | — | 15,517 | |||||||||||||||
|
Convertible senior notes
|
— | — | 44,907 | — | 44,907 | |||||||||||||||
|
Industrial revenue bonds
|
7,815 | — | — | — | 7,815 | |||||||||||||||
|
Total current liabilities
|
2,164,301 | 112,072 | 268,895 | (2,328,431 | ) | 216,837 | ||||||||||||||
|
Senior notes payable
|
— | — | 248,295 | — | 248,295 | |||||||||||||||
|
Accrued pension benefit costs — less current portion
|
21,042 | — | 21,715 | — | 42,757 | |||||||||||||||
|
Accrued postretirement benefit costs — less current portion
|
144,959 | — | 4,144 | — | 149,103 | |||||||||||||||
|
Other liabilities/intercompany loan
|
49,050 | 741,162 | 4,505 | (769,157 | ) | 25,560 | ||||||||||||||
|
Deferred taxes
|
— | 90,821 | — | 725 | 91,546 | |||||||||||||||
|
Total noncurrent liabilities
|
215,051 | 831,983 | 278,659 | (768,432 | ) | 557,261 | ||||||||||||||
|
Shareholders’ equity:
|
||||||||||||||||||||
|
Preferred stock
|
— | — | 1 | — | 1 | |||||||||||||||
|
Common stock
|
60 | 12 | 927 | (72 | ) | 927 | ||||||||||||||
|
Additional paid-in capital
|
297,300 | 144,383 | 2,505,094 | (441,683 | ) | 2,505,094 | ||||||||||||||
|
Accumulated other comprehensive income (loss)
|
(51,683 | ) | (1,182 | ) | (37,993 | ) | 52,865 | (37,993 | ) | |||||||||||
|
Retained earnings (accumulated deficit)
|
(1,465,576 | ) | 119,353 | (1,365,624 | ) | 1,346,223 | (1,365,624 | ) | ||||||||||||
|
Total shareholders’ equity
|
(1,219,899 | ) | 262,566 | 1,102,405 | 957,333 | 1,102,405 | ||||||||||||||
|
Total
|
$ | 1,159,453 | $ | 1,206,621 | $ | 1,649,959 | $ | (2,139,530 | ) | $ | 1,876,503 | |||||||||
- 28 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
||||||||||||||||||||
|
As of December 31, 2009
|
||||||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Reclassifications and Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 109,798 | $ | 88,436 | $ | — | $ | 198,234 | ||||||||||
|
Restricted cash
|
8,879 | — | — | — | 8,879 | |||||||||||||||
|
Accounts receivable — net
|
28,884 | 8,822 | — | — | 37,706 | |||||||||||||||
|
Due from affiliates
|
544,068 | 7,040 | 2,471,600 | (3,003,453 | ) | 19,255 | ||||||||||||||
|
Inventories
|
74,881 | 56,592 | — | — | 131,473 | |||||||||||||||
|
Prepaid and other current assets
|
56,046 | 10,291 | 27,584 | — | 93,921 | |||||||||||||||
|
Total current assets
|
712,758 | 192,543 | 2,587,620 | (3,003,453 | ) | 489,468 | ||||||||||||||
|
Investment in subsidiaries
|
31,959 | — | (1,023,412 | ) | 991,453 | — | ||||||||||||||
|
Property, plant and equipment — net
|
396,416 | 899,854 | 2,080 | (62 | ) | 1,298,288 | ||||||||||||||
|
Due from affiliates — less current portion
|
— | 5,859 | — | — | 5,859 | |||||||||||||||
|
Other assets
|
21,867 | 29,770 | 16,498 | — | 68,135 | |||||||||||||||
|
Total
|
$ | 1,163,000 | $ | 1,128,026 | $ | 1,582,786 | $ | (2,012,062 | ) | $ | 1,861,750 | |||||||||
|
Liabilities and shareholders’ equity:
|
||||||||||||||||||||
|
Accounts payable, trade
|
$ | 37,939 | $ | 39,164 | $ | 198 | $ | — | $ | 77,301 | ||||||||||
|
Due to affiliates
|
2,076,143 | 53,002 | 178,604 | (2,275,041 | ) | 32,708 | ||||||||||||||
|
Accrued and other current liabilities
|
21,638 | 4,640 | 12,320 | — | 38,598 | |||||||||||||||
|
Accrued employee benefits costs — current portion
|
11,632 | — | 1,365 | — | 12,997 | |||||||||||||||
|
Convertible senior notes
|
— | — | 43,239 | — | 43,239 | |||||||||||||||
|
Industrial revenue bonds
|
7,815 | — | — | — | 7,815 | |||||||||||||||
|
Total current liabilities
|
2,155,167 | 96,806 | 235,726 | (2,275,041 | ) | 212,658 | ||||||||||||||
|
Senior notes payable
|
— | — | 247,624 | — | 247,624 | |||||||||||||||
|
Accrued pension benefit costs — less current portion
|
22,042 | — | 21,239 | — | 43,281 | |||||||||||||||
|
Accrued postretirement benefit costs — less current portion
|
173,816 | — | 3,415 | — | 177,231 | |||||||||||||||
|
Other liabilities/intercompany loan
|
52,547 | 700,478 | 7,052 | (728,473 | ) | 31,604 | ||||||||||||||
|
Deferred taxes
|
— | 81,622 | — | — | 81,622 | |||||||||||||||
|
Total noncurrent liabilities
|
248,405 | 782,100 | 279,330 | (728,473 | ) | 581,362 | ||||||||||||||
|
Shareholders’ equity:
|
||||||||||||||||||||
|
Preferred stock
|
— | — | 1 | — | 1 | |||||||||||||||
|
Common stock
|
60 | 12 | 925 | (72 | ) | 925 | ||||||||||||||
|
Additional paid-in capital
|
297,299 | 144,384 | 2,501,389 | (441,683 | ) | 2,501,389 | ||||||||||||||
|
Accumulated other comprehensive income (loss)
|
(89,485 | ) | (1,068 | ) | (74,270 | ) | 90,553 | (74,270 | ) | |||||||||||
|
Retained earnings (accumulated deficit)
|
(1,448,446 | ) | 105,792 | (1,360,315 | ) | 1,342,654 | (1,360,315 | ) | ||||||||||||
|
Total shareholders’ equity
|
(1,240,572 | ) | 249,120 | 1,067,730 | 991,452 | 1,067,730 | ||||||||||||||
|
Total
|
$ | 1,163,000 | $ | 1,128,026 | $ | 1,582,786 | $ | (2,012,062 | ) | $ | 1,861,750 | |||||||||
- 29 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||||||
|
For the three months ended September 30, 2010
|
||||||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Reclassifications and Eliminations
|
Consolidated
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||||||
|
Third-party customers
|
$ | 108,345 | $ | 65,994 | $ | — | $ | — | $ | 174,339 | ||||||||||
|
Related parties
|
63,391 | 41,448 | — | — | 104,839 | |||||||||||||||
| 171,736 | 107,442 | — | — | 279,178 | ||||||||||||||||
|
Cost of goods sold
|
174,306 | 89,103 | — | — | 263,409 | |||||||||||||||
|
Gross profit (loss)
|
(2,570 | ) | 18,339 | — | — | 15,769 | ||||||||||||||
|
Other operating expenses - net
|
3,096 | — | — | — | 3,096 | |||||||||||||||
|
Selling, general and admin expenses
|
10,863 | 1,623 | — | — | 12,486 | |||||||||||||||
|
Operating income (loss)
|
(16,529 | ) | 16,716 | — | — | 187 | ||||||||||||||
|
Interest expense – third party
|
(6,477 | ) | — | — | — | (6,477 | ) | |||||||||||||
|
Interest expense – affiliates
|
16,921 | (16,921 | ) | — | — | — | ||||||||||||||
|
Interest income – third party
|
50 | 140 | — | — | 190 | |||||||||||||||
|
Interest income – affiliates
|
— | 113 | — | — | 113 | |||||||||||||||
|
Net loss on forward contracts
|
(12,136 | ) | — | — | — | (12,136 | ) | |||||||||||||
|
Other income (expense) - net
|
736 | (1,153 | ) | — | — | (417 | ) | |||||||||||||
|
Loss before taxes and equity in earnings (loss) of subsidiaries and joint ventures
|
(17,435 | ) | (1,105 | ) | — | — | (18,540 | ) | ||||||||||||
|
Income tax benefit (expense)
|
2,987 | (2,417 | ) | — | — | 570 | ||||||||||||||
|
Loss before equity in earnings (loss) of subsidiaries and joint ventures
|
(14,448 | ) | (3,522 | ) | — | — | (17,970 | ) | ||||||||||||
|
Equity earnings (loss) of subsidiaries and joint ventures
|
(300 | ) | 1,183 | (16,787 | ) | 17,087 | 1,183 | |||||||||||||
|
Net loss
|
$ | (14,748 | ) | $ | (2,339 | ) | $ | (16,787 | ) | $ | 17,087 | $ | (16,787 | ) | ||||||
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||||||
|
For the three months ended September 30, 2009
|
||||||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Reclassifications and Eliminations
|
Consolidated
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||||||
|
Third-party customers
|
$ | 109,704 | $ | 60,223 | $ | — | $ | — | $ | 169,927 | ||||||||||
|
Related parties
|
29,267 | 30,050 | — | (545 | ) | 58,772 | ||||||||||||||
| 138,971 | 90,273 | — | (545 | ) | 228,699 | |||||||||||||||
|
Cost of goods sold
|
154,359 | 76,705 | — | (13 | ) | 231,051 | ||||||||||||||
|
Gross profit (loss)
|
(15,388 | ) | 13,568 | — | (532 | ) | (2,352 | ) | ||||||||||||
|
Other operating income - net
|
(55,599 | ) | — | — | — | (55,599 | ) | |||||||||||||
|
Selling, general and admin expenses
|
11,293 | 102 | — | — | 11,395 | |||||||||||||||
|
Operating income (loss)
|
28,918 | 13,466 | — | (532 | ) | 41,852 | ||||||||||||||
|
Interest expense – third party
|
(8,004 | ) | — | — | — | (8,004 | ) | |||||||||||||
|
Interest expense – affiliates
|
15,668 | (15,668 | ) | — | — | — | ||||||||||||||
|
Interest income – third party
|
92 | 67 | — | — | 159 | |||||||||||||||
|
Interest income – affiliates
|
— | 145 | — | — | 145 | |||||||||||||||
|
Net loss on forward contracts
|
(914 | ) | — | — | — | (914 | ) | |||||||||||||
|
Other income (expense) – net
|
516 | (759 | ) | — | — | (243 | ) | |||||||||||||
|
Income (loss) before taxes and equity in earnings (loss) of subsidiaries and joint ventures
|
36,276 | (2,749 | ) | — | (532 | ) | 32,995 | |||||||||||||
|
Income tax benefit (expense)
|
9,757 | (3,180 | ) | — | — | 6,577 | ||||||||||||||
|
Income (loss) before equity in earnings (loss) of subsidiaries and joint ventures
|
46,033 | (5,929 | ) | — | (532 | ) | 39,572 | |||||||||||||
|
Equity earnings (loss) of subsidiaries and joint ventures
|
(684 | ) | 567 | 40,142 | (39,455 | ) | 570 | |||||||||||||
|
Net income (loss)
|
$ | 45,349 | $ | (5,362 | ) | $ | 40,142 | $ | (39,987 | ) | $ | 40,142 | ||||||||
- 30 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||||||
|
For the nine months ended September 30, 2010
|
||||||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Reclassifications and Eliminations
|
Consolidated
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||||||
|
Third-party customers
|
$ | 335,856 | $ | 214,460 | $ | — | $ | — | $ | 550,316 | ||||||||||
|
Related parties
|
185,810 | 116,294 | — | — | 302,104 | |||||||||||||||
| 521,666 | 330,754 | — | — | 852,420 | ||||||||||||||||
|
Cost of goods sold
|
526,004 | 255,155 | — | — | 781,159 | |||||||||||||||
|
Gross profit (loss)
|
(4,338 | ) | 75,599 | — | — | 71,261 | ||||||||||||||
|
Other operating expenses - net
|
12,205 | — | — | — | 12,205 | |||||||||||||||
|
Selling, general and admin expenses
|
31,923 | 3,778 | — | — | 35,701 | |||||||||||||||
|
Operating income (loss)
|
(48,466 | ) | 71,821 | — | — | 23,355 | ||||||||||||||
|
Interest expense – third party
|
(19,231 | ) | — | — | — | (19,231 | ) | |||||||||||||
|
Interest expense – affiliates
|
49,283 | (49,283 | ) | — | — | — | ||||||||||||||
|
Interest income – third party
|
108 | 284 | — | — | 392 | |||||||||||||||
|
Interest income – affiliates
|
— | 333 | — | — | 333 | |||||||||||||||
|
Net loss on forward contracts
|
(4,814 | ) | — | — | — | (4,814 | ) | |||||||||||||
|
Other income (expense) - net
|
1,027 | (806 | ) | — | — | 221 | ||||||||||||||
|
Income (loss) before taxes and equity in earnings (loss) of subsidiaries and joint ventures
|
(22,093 | ) | 22,349 | — | — | 256 | ||||||||||||||
|
Income tax benefit (expense)
|
3,223 | (11,553 | ) | — | — | (8,330 | ) | |||||||||||||
|
Income (loss) before equity in earnings (loss) of subsidiaries and joint ventures
|
(18,870 | ) | 10,796 | — | — | (8,074 | ) | |||||||||||||
|
Equity earnings (loss) of subsidiaries and joint ventures
|
1,740 | 2,765 | (5,309 | ) | 3,569 | 2,765 | ||||||||||||||
|
Net income (loss)
|
$ | (17,130 | ) | $ | 13,561 | $ | (5,309 | ) | $ | 3,569 | $ | (5,309 | ) | |||||||
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||||||
|
For the nine months ended September 30, 2009
|
||||||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Reclassifications and Eliminations
|
Consolidated
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||||||
|
Third-party customers
|
$ | 323,121 | $ | 157,317 | $ | — | $ | — | $ | 480,438 | ||||||||||
|
Related parties
|
85,470 | 78,174 | — | (1,643 | ) | 162,001 | ||||||||||||||
| 408,591 | 235,491 | — | (1,643 | ) | 642,439 | |||||||||||||||
|
Cost of goods sold
|
500,810 | 223,785 | — | (2,216 | ) | 722,379 | ||||||||||||||
|
Gross profit (loss)
|
(92,219 | ) | 11,706 | — | 573 | (79,940 | ) | |||||||||||||
|
Other operating income - net
|
(22,101 | ) | — | — | — | (22,101 | ) | |||||||||||||
|
Selling, general and admin expenses
|
32,386 | 400 | — | — | 32,786 | |||||||||||||||
|
Operating income (loss)
|
(102,504 | ) | 11,306 | — | 573 | (90,625 | ) | |||||||||||||
|
Interest expense – third party
|
(24,023 | ) | — | — | — | (24,023 | ) | |||||||||||||
|
Interest expense – affiliates
|
45,592 | (45,592 | ) | — | — | — | ||||||||||||||
|
Interest income – third party
|
685 | 550 | — | — | 1,235 | |||||||||||||||
|
Interest income – affiliates
|
— | 431 | — | — | 431 | |||||||||||||||
|
Net loss on forward contracts
|
(6,083 | ) | (1,701 | ) | — | — | (7,784 | ) | ||||||||||||
|
Other income (expense) - net
|
786 | (685 | ) | — | — | 101 | ||||||||||||||
|
Income (loss) before taxes and equity in earnings (loss) of subsidiaries and joint ventures
|
(85,547 | ) | (35,691 | ) | — | 573 | (120,665 | ) | ||||||||||||
|
Income tax benefit (expense)
|
9,697 | (1,597 | ) | — | — | 8,100 | ||||||||||||||
|
Income (loss) before equity in earnings (loss) of subsidiaries and joint ventures
|
(75,850 | ) | (37,288 | ) | — | 573 | (112,565 | ) | ||||||||||||
|
Equity earnings (loss) of subsidiaries and joint ventures
|
(43,815 | ) | (20,763 | ) | (181,628 | ) | 177,143 | (69,063 | ) | |||||||||||
|
Net income (loss)
|
$ | (119,665 | ) | $ | (58,051 | ) | $ | (181,628 | ) | $ | 177,716 | $ | (181,628 | ) | ||||||
- 31 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
||||||||||||||||
|
For the nine months ended September 30, 2010
|
||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Consolidated
|
|||||||||||||
|
Net cash provided by operating activities
|
$ | 75,056 | $ | 25,276 | $ | — | $ | 100,332 | ||||||||
|
Investing activities:
|
||||||||||||||||
|
Purchase of property, plant and equipment
|
(1,872 | ) | (3,445 | ) | (61 | ) | (5,378 | ) | ||||||||
|
Nordural expansion
|
— | (15,099 | ) | — | (15,099 | ) | ||||||||||
|
Proceeds from sale of property
|
808 | — | — | 808 | ||||||||||||
|
Investments in and advances to joint ventures
|
— | — | (32 | ) | (32 | ) | ||||||||||
|
Restricted and other cash deposits
|
(1,893 | ) | — | (11,752 | ) | (13,645 | ) | |||||||||
|
Net cash used in investing activities
|
(2,957 | ) | (18,544 | ) | (11,845 | ) | (33,346 | ) | ||||||||
|
Financing activities:
|
||||||||||||||||
|
Intercompany transactions
|
(72,099 | ) | 79,793 | (7,694 | ) | — | ||||||||||
|
Issuance of common stock – net
|
— | — | 23 | 23 | ||||||||||||
|
Net cash provided by (used in) financing activities
|
(72,099 | ) | 79,793 | (7,671 | ) | 23 | ||||||||||
|
Net change in cash and cash equivalents
|
— | 86,525 | (19,516 | ) | 67,009 | |||||||||||
|
Cash and cash equivalents, beginning of the period
|
— | 109,798 | 88,436 | 198,234 | ||||||||||||
|
Cash and cash equivalents, end of the period
|
$ | — | $ | 196,323 | $ | 68,920 | $ | 265,243 | ||||||||
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
||||||||||||||||
|
For the nine months ended September 30, 2009
|
||||||||||||||||
|
Combined Guarantor Subsidiaries
|
Combined Non-Guarantor Subsidiaries
|
The Company
|
Consolidated
|
|||||||||||||
|
Net cash provided by (used in) operating activities
|
$ | 56,193 | $ | (27,482 | ) | $ | — | $ | 28,711 | |||||||
|
Investing activities:
|
||||||||||||||||
|
Purchase of property, plant and equipment
|
(10,157 | ) | (3,450 | ) | (1,060 | ) | (14,667 | ) | ||||||||
|
Nordural expansion
|
— | (17,606 | ) | — | (17,606 | ) | ||||||||||
|
Investments in and advances to joint ventures
|
— | — | (1,038 | ) | (1,038 | ) | ||||||||||
|
Restricted and other cash deposits
|
(7,504 | ) | — | — | (7,504 | ) | ||||||||||
|
Net cash used in investing activities
|
(17,661 | ) | (21,056 | ) | (2,098 | ) | (40,815 | ) | ||||||||
|
Financing activities:
|
||||||||||||||||
|
Repayment under revolving credit facility
|
— | — | (25,000 | ) | (25,000 | ) | ||||||||||
|
Intercompany transactions
|
(38,532 | ) | 70,734 | (32,202 | ) | — | ||||||||||
|
Issuance of common stock – net
|
— | — | 104,041 | 104,041 | ||||||||||||
|
Net cash provided by (used in) financing activities
|
(38,532 | ) | 70,734 | 46,839 | 79,041 | |||||||||||
|
Net change in cash and cash equivalents
|
— | 22,196 | 44,741 | 66,937 | ||||||||||||
|
Cash and cash equivalents, beginning of the period
|
— | 71,545 | 57,855 | 129,400 | ||||||||||||
|
Cash and cash equivalents, end of the period
|
$ | — | $ | 93,741 | $ | 102,596 | $ | 196,337 | ||||||||
- 32 -
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(UNAUDITED)
|
20.
|
Subsequent Events
|
We have evaluated all subsequent events through the date the financial statements were issued.
Hawesville contract proposal not ratified by USWA
On October 29, 2010, Century Aluminum of Kentucky was informed by the USWA that the contract proposal covering approximately 525 hourly workers at the Hawesville aluminum smelter was not ratified by the local membership. The facility has continued to operate normally and we plan to discuss the next steps with the union leadership as appropriate.
Ravenswood retiree health benefit changes
On November 1, 2010, CAWV communicated to its current retirees that medical benefits will be eliminated effective January 2011. In addition, retiree medical benefits are being eliminated for all salaried employees at the Ravenswood plant. The retiree medical benefits of CAWV’s bargaining unit employees are subject to negotiations that are currently in progress.
These actions were taken to restructure costs at the Ravenswood plant to position it more favorably for a potential restart.
.
FORWARD-LOOKING STATEMENTS – CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995.
This Quarterly Report on Form 10-Q contains forward-looking statements. We have based these forward-looking statements on current expectations and projections about future events. Many of these statements may be identified by the use of forward-looking words such as “expects,” “anticipates,” “plans,” “believes,” “projects,” “estimates,” “intends,” “should,” “could,””may,” “would,” “will,” “scheduled,” and “potential” and similar words. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things, those discussed under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 1, “Financial Statements,” Part II, Item 1A “Risk Factors,” and:
|
·
|
Declines in aluminum prices have adversely affected our financial position and results of operations in the recent past and future declines in aluminum prices or an increase in our operating costs could result in further curtailment of operations at one or more of our facilities if alternate sources of liquidity are not available.
|
|
·
|
We have curtailed and may continue to curtail operations at one or more of our facilities, which actions have required us to incur and may require us to further incur substantial costs and subject us to substantial risks in the future.
|
|
·
|
A continuation or worsening of global financial and economic conditions could adversely affect our financial position and results of operations.
|
|
·
|
Our ability to access the credit and capital markets on acceptable terms to obtain funding for our operations and capital projects or refinancing of our existing obligations may be limited due to our credit ratings, our financial condition or the deterioration of these markets.
|
|
·
|
Poor performance in the financial markets and/or our curtailment actions could have significant and adverse effects on our pension funding obligations.
|
|
·
|
The cyclical nature of the aluminum industry causes variability in and could adversely affect our earnings and cash flows.
|
|
·
|
International operations expose us to political, regulatory, currency and other related risks.
|
|
·
|
If economic and political conditions in Iceland deteriorate, our financial position and results of operations could be adversely affected.
|
|
·
|
Any future reductions in the duty on primary aluminum imports into the European Union would decrease our revenues at our smelter in Grundartangi, Iceland (“Grundartangi”).
|
|
·
|
Substantial additional delays in the completion of the Helguvik project may increase its cost, lower the project’s financial returns and impose other risks to completion that are not foreseeable today.
|
|
·
|
Our power supply agreements for the Helguvik project are subject to fulfillment of certain conditions, and there can be no assurance that these conditions will be met or that the cost required to meet the conditions will not make the project impracticable or less attractive from a financial standpoint.
|
|
·
|
If we are unable to complete the Helguvik project, we may have to recognize a substantial loss on our investment, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
|
|
·
|
Changes in the relative cost and availability of certain raw materials and energy compared to the price of primary aluminum could adversely affect our operating results.
|
|
·
|
Many of our contracts for raw materials, including certain contracts for alumina and electrical power, require us to take-or-pay for fixed quantities of such materials that may limit our ability to curtail unprofitable production capacity.
|
|
·
|
Further consolidation within the metals industry could provide advantages to our competitors.
|
|
·
|
Disruptions in our power supplies could adversely affect our operations.
|
|
·
|
Union disputes, our inability to successfully conclude the labor negotiations at Hawesville or our inability to extend any of our other existing collective bargaining agreements could raise our production costs or impair our production operations.
|
|
·
|
We are subject to a variety of laws and regulations that could result in significant costs or liabilities to us including, among other things, Icelandic and U.S. environmental laws and the U.S. Patient Protection and Affordable Care Act.
|
|
·
|
Climate change legislation or regulations restricting certain types of emission of “greenhouse gases” could result in increased operating costs and cost of compliance for our business.
|
|
·
|
We may be required to write down the book value of certain assets.
|
|
·
|
We require significant cash flow to meet our debt service requirements, which increases our vulnerability to adverse economic and industry conditions, reduces cash available for other purposes and limits our operational flexibility.
|
|
·
|
Despite our substantial level of debt, we may incur additional debt in the future.
|
|
·
|
We depend upon intercompany transfers from our subsidiaries to meet our debt service obligations and any limitations on the ability of our subsidiaries to do so may adversely affect our ability to meet our debt service obligations.
|
Many of these factors are beyond our control. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date of this filing. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. When reading any forward-looking statements in this filing, the reader should consider the risks described above and elsewhere in this report as well as those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q or in Current Reports on Form 8-K filed with the Securities and Exchange Commission. Given these uncertainties and risks, the reader should not place undue reliance on these forward-looking statements.
Recent Developments
Hawesville contract proposal not ratified by USWA
On October 29, 2010, Century Aluminum of Kentucky was informed by the USWA that the contract proposal covering approximately 525 hourly workers at the Hawesville aluminum smelter was not ratified by the local membership. The plant has continued to operate normally and we plan to discuss the next steps with the union leadership as appropriate.
Ravenswood retiree health benefit changes
On November 1, 2010, CAWV communicated to its current retirees that medical benefits will be eliminated effective January 2011. In addition, retiree medical benefits are being eliminated for all salaried employees at the Ravenswood plant. The retiree medical benefits of CAWV’s bargaining unit employees are subject to negotiations that are currently in progress.
These actions were taken to restructure costs at the Ravenswood plant to position it more favorably for a potential restart.
Nordural seeks arbitration to interpret one of its Helguvik power contracts
On August 4, 2010, Nordural Helguvik ehf (“Nordural Helguvik”), a subsidiary of Nordural, commenced arbitration proceedings with HS Orka ehf (“HS”) regarding, among other things, the satisfaction of several conditions to the supply of power under the Helguvik power contract between the parties. Management intends to vigorously pursue these claims, but at the date of this report, it is not possible to predict the ultimate outcome of these actions.
Nordural Helguvik continues to negotiate with Orkuveita Reykjavikur regarding the satisfaction of conditions under their existing power contract.
New revolving credit facility
On July 1, 2010, we and certain of our direct and indirect domestic subsidiaries entered into a new four-year $100 million senior secured revolving credit facility (the "New Credit Facility"). The New Credit Facility replaces our previous credit facility that was scheduled to expire on September 19, 2010. The New Credit Facility, which expires on July 1, 2014, provides for borrowings of up to $100 million in the aggregate, including up to $50 million under a letter of credit sub-facility. See Note 11 Debt for additional information about our new credit facility.
Mt. Holly power agreement amended
The South Carolina Public Service Authority (“Santee Cooper”) agreed to amend the Mt. Holly power contract to, among other things, provide that power delivered through 2015 will be priced at rates fixed under currently published schedules, subject to adjustments to cover Santee Cooper’s fuel costs, and allow Mt. Holly to terminate the power contract early, in whole or in part, without penalty, if the LME goes below certain negotiated levels.
West Virginia extends special rate mechanism
Upon reviewing the Ravenswood power contract with Appalachian Power Company (“APCo”) in June 2010, the West Virginia Public Service Commission extended the special rate mechanism for one year.
Stockholder class actions amended
On April 27, 2010, the purported stockholder class actions pending against us consolidated as
In re: Century Aluminum Company Securities Litigation,
were dismissed without prejudice. On May 28, 2010 and June 24, 2010 plaintiffs submitted amended complaints. A hearing was held on September 3, 2010 to hear our motion to dismiss the amended complaints, but no ruling has yet been made on the motion. See Note 12 Contingencies and Commitments – Legal Contingencies for more information about these actions.
Five-year labor agreement signed at Nordural
In April 2010, Nordural Grundartangi ehf (“Nordural”) reached a new labor agreement with the five labor unions representing approximately 84% of Grundartangi’s work force. The wage terms of the labor agreement expire on January 1, 2011 after which the wage terms may be renegotiated. The labor agreement in its entirety expires on December 31, 2014.
Health care legislation enacted in March 2010
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the “Health Care Acts”) were enacted in March 2010. The Health Care Acts extend health care coverage to many uninsured individuals and expand coverage to those already insured. The Health Care Acts contain provisions which could impact our accounting for retiree medical benefits in future periods. However, the extent of that impact, if any, cannot be determined until regulations are promulgated under the Health Care Acts and additional interpretations of the Health Care Acts become available. We are continuing to assess the potential impact that this legislation may have on our future results of operations, cash flows and financial position related to our health care benefits and OPEB obligations.
The Health Care Acts amend certain tax rules applicable to employers so that the portion of employer health care costs that are reimbursed by the Medicare Part D prescription drug subsidy will no longer be deductible by the employer for federal income tax purposes effective for years beginning after December 31, 2012. Because of the loss of the future tax deduction, a reduction in the deferred tax asset related to the nondeductible OPEB liabilities accrued to date will be recorded with an equal offsetting adjustment to our valuation allowance. The Health Care Acts did not affect our cash flows or financial condition because we have a valuation allowance against all of our federal and state deferred tax assets due to our belief that it is more likely than not that these assets will not be realized.
Century receives $16 million in tax refunds in April 2010
In April 2010, we received federal income tax refunds totaling $16 million for net operating loss carrybacks for the 2004 through 2007 tax years.
West Virginia enacts special power rate legislation
The West Virginia state legislature enacted legislation which permits the Public Service Commission to set special electric power rates for specific types of customers. This legislation gives us the ability to enter into discussions with utilities and the public service commission regarding an enabling power contract for the curtailed plant. The new law is an important step toward the possible restart of the Ravenswood smelter. We expect to continue to engage in discussions with APCo and the public service commission to discuss an enabling power contract.
Additional 7.5% Note Exchanges in January and March 2010
We completed debt-for-debt exchanges in January and March 2010. We issued approximately $4.1 million of 8.0% senior secured notes payable due May 15, 2014 (the “8.0% Notes”) in exchange for approximately $4.3 million of 7.5% senior unsecured notes payable due August 15, 2014 (the “7.5% Notes”). As of September 30, 2010, we had $2.6 million and $249.6 million of aggregate principal amount outstanding of the 7.5% Notes and 8.0% Notes, respectively.
Investors received $950 worth of 8.0% Notes for every $1,000 principal amount tendered of 7.5% Notes. In addition, these investors received the accrued interest for their 7.5% Notes, net of interest that has accrued on the 8.0% notes since the original issuance date.
LME approves Century as a high grade primary aluminum brand
In February 2010, the LME approved the listing of Century as a high grade primary aluminum brand. This allows our facility in Hawesville, Kentucky (“Hawesville”) and its customers to sell primary aluminum to any LME warehouse at any time and receive the LME cash price for the Century metal. We expect this approval to provide our Hawesville smelter ready access to a terminal market and reduce liquidity risk in slow or declining market conditions.
Results of Operations
The following discussion reflects our historical results of operations.
Century’s financial highlights include:
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
(In thousands, except per share data)
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||
|
Third-party customers
|
$ | 174,339 | $ | 169,927 | $ | 550,316 | $ | 480,438 | ||||||||
|
Related party customers
|
104,839 | 58,772 | 302,104 | 162,001 | ||||||||||||
|
Total
|
$ | 279,178 | $ | 228,699 | $ | 852,420 | $ | 642,439 | ||||||||
|
Gross profit (loss)
|
$ | 15,769 | $ | (2,352 | ) | $ | 71,261 | $ | (79,940 | ) | ||||||
|
Net income (loss)
|
$ | (16,787 | ) | $ | 40,142 | $ | (5,309 | ) | $ | (181,628 | ) | |||||
|
Earnings (loss) per common share:
|
||||||||||||||||
|
Basic and Diluted
|
$ | (0.18 | ) | $ | 0.45 | $ | (0.06 | ) | $ | (2.56 | ) | |||||
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Shipments – primary aluminum (metric tons):
|
||||||||||||||||
|
Direct
|
81,693 | 77,023 | 234,867 | 251,232 | ||||||||||||
|
Toll
|
65,523 | 69,222 | 201,605 | 206,195 | ||||||||||||
|
Total
|
147,216 | 146,245 | 436,472 | 457,427 | ||||||||||||
|
Net sales (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 279.2 | $ | 228.7 | $ | 50.5 | 22.1 | % | ||||||||
|
Nine months ended September 30,
|
$ | 852.4 | $ | 642.4 | $ | 210.0 | 32.7 | % | ||||||||
Higher price realizations for our primary aluminum shipments in the three months ended September 30, 2010, due to higher LME prices for primary aluminum, resulted in a $46.1 million sales increase. Higher shipment volumes had a $4.4 million positive impact on net sales. Direct shipments increased 4,670 metric tons in the three months ended September 30, 2010. Approximately 3,100 metric tons of the increase is due to a shift from toll to direct sales at the Grundartangi smelter. In addition, the Grundartangi smelter experienced a transformer outage in 2010, resulting in a reduction in aluminum production.
Higher price realizations for our primary aluminum shipments in the nine months ended September 30, 2010, due to higher LME prices for primary aluminum, resulted in a $240.3 million sales increase. Lower shipment volumes had a $30.3 million negative impact on net sales. Direct shipments decreased 16,365 metric tons in the nine months ended September 30, 2010 primarily due to capacity curtailments that occurred in the first quarter of 2009. Toll shipments decreased 4,590 metric tons from the same period in 2009 due to a shift from toll to direct sales in the third quarter of 2010 and a transformer outage at the Grundartangi smelter in 2010.
|
Gross profit (loss) (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 15.8 | $ | (2.4 | ) | $ | 18.2 | 758.3 | % | |||||||
|
Nine months ended September 30,
|
$ | 71.3 | $ | (79.9 | ) | $ | 151.2 | 189.2 | % | |||||||
During the three months ended September 30, 2010, higher price realizations, net of LME-based alumina cost and LME-based power cost, increased gross profit by $27.1 million. The volume impact was a $0.8 million decrease to gross profit. In addition, we experienced $13.1 million in net cost increases, relative to the same period in 2009, comprised of: increased power and natural gas costs at our U.S. smelters (primarily attributable to our new power contract at Hawesville), $5.4 million; increased costs for materials, supplies and maintenance, $5.8 million; and other cost increases, $2.7 million; offset by lower depreciation and amortization expense, $0.8 million.
During the nine months ended September 30, 2010, higher price realizations, net of LME-based alumina cost and LME-based power cost, increased gross profit by $213.6 million. Gross profit increased $11.8 million in the current nine month period as a result of lower shipment volumes which were in a gross loss position in 2009. Lower shipment volumes were due to capacity curtailments that occurred in the first quarter of 2009. In addition, we experienced $47.6 million in net cost increases, compared to the same period in 2009, comprised of: increased power and natural gas costs at our U.S. smelters (primarily attributable to our new power contract at Hawesville), $29.2 million; increased costs for materials, supplies and maintenance, $9.6 million; and other cost increases, $18.5 million; offset by lower depreciation and amortization expense, $9.7 million.
Due to the turnover of inventory during the three and nine months ended September 30, 2010 and increased market prices at the end of the third quarter of 2010, the previously recognized lower of cost or market inventory reserves were adjusted to reflect the current value for our September 30, 2010 ending inventory. Relative to the comparable 2009 periods, these adjustments represent a period to period positive swing in gross profit of $5.0 million for the three months ended September 30, 2010 and a period to period negative swing in gross profit of $26.6 million for the nine months ending September, 2010.
|
Other operating income (expenses) - net (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | (3.1 | ) | $ | 55.6 | $ | (58.7 | ) | (105.6 | )% | ||||||
|
Nine months ended September 30,
|
$ | (12.2 | ) | $ | 22.1 | $ | (34.3 | ) | (155.2 | )% | ||||||
In February and March 2009, CAWV curtailed the remaining three potlines at its Ravenswood facility and CAKY curtailed one potline at its Hawesville facility. Charges totaling $1.8 million and $35.3 million in the three and nine months ended September 30, 2009, respectively, represent the recognition of employee–related liabilities, contractual obligations and losses on alumina sales associated with the curtailment of capacity, as well as expenses incurred while the Ravenswood facility was in a curtailed state. The charges in 2010 are for expenses incurred while the Ravenswood facility is in a curtailed state. For further discussion see Note 3 Curtailment of Operations – Ravenswood and Hawesville in the consolidated financial statements included herein.
During the three and nine months ended September 30, 2009, we recorded a gain of $81.2 million related to our agreement with E.ON that was consummated concurrently with the new long term power contract for Hawesville. In addition, we wrote off the remaining carrying value of the intangible asset associated with the previous power contract that was terminated July 16, 2009. The amount of the write-off was $23.8 million. See Note 2 Long-term power contract for Hawesville for additional information about this contract.
|
Selling, general and administrative expenses (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 12.5 | $ | 11.4 | $ | 1.1 | 9.6 | % | ||||||||
|
Nine months ended September 30,
|
$ | 35.7 | $ | 32.8 | $ | 2.9 | 8.8 | % | ||||||||
Selling, general and administrative expenses remained fairly constant between the 2010 and 2009 periods, except that in 2010, we have experienced increased administrative costs associated with the Helguvik project that are not part of the capital project expenses.
|
Interest expense – third party (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 6.5 | $ | 8.0 | $ | (1.5 | ) | (18.8 | )% | |||||||
|
Nine months ended September 30,
|
$ | 19.2 | $ | 24.0 | $ | (4.8 | ) | (20.0 | )% | |||||||
The decrease in interest expense for the three and nine months ended September 30, 2010 from the same periods in 2009 is the result of the exchange of our convertible debt for equity in the third and fourth quarters of 2009, partially offset by increased interest expense due to the exchange of 8.0% Notes for 7.5% Notes in the fourth quarter of 2009 and the first quarter of 2010.
|
Net loss on forward contracts (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 12.1 | $ | 0.9 | $ | 11.2 | 1244.4 | % | ||||||||
|
Nine months ended September 30,
|
$ | 4.8 | $ | 7.8 | $ | (3.0 | ) | (38.5 | )% | |||||||
The net loss in the three and nine months ended September 30, 2010 relate primarily to marking-to-market options that were put in place to provide partial price protection for our Hawesville facility. The net loss in the three months ended September 30, 2009 relates to the discontinuation of cash flow hedge accounting treatment for our natural gas financial forward contracts with the transfer of our ownership interest in Gramercy. The net loss in the nine months ended September 30, 2009 relates primarily to the recognition of previously settled Icelandic krona hedges associated with the Helguvik project, discontinuation of cash flow hedge accounting treatment for our natural gas financial forward contracts and losses on derivatives associated with the Hawesville and Ravenswood power contracts.
|
Income tax benefit (expense) (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 0.6 | $ | 6.6 | $ | (6.0 | ) | (90.9 | )% | |||||||
|
Nine months ended September 30,
|
$ | (8.3 | ) | $ | 8.1 | $ | (16.4 | ) | (202.5 | )% | ||||||
The change in the income tax provision for the three months ended September 30, 2010 from the same period in 2009 is primarily due to the favorable benefit from the release of income tax reserves in 2009 that were no longer required. The change in the income tax provision for the nine months ended September 30, 2010 from the same period in 2009 is primarily due to the release of income tax reserves in 2009 and improved earnings at our Grundartangi facility. In addition, the Icelandic statutory tax rate increased to 18% in 2010 from 15% in 2009. We continue to have a full valuation allowance against our U.S. federal and state deferred tax assets due to our belief that it is more likely than not that these assets will not be realized.
|
Equity in earnings (losses) of joint ventures (in millions)
|
2010
|
2009
|
$ Difference
|
% Difference
|
||||||||||||
|
Three months ended September 30,
|
$ | 1.2 | $ | 0.6 | $ | 0.6 | 100 | % | ||||||||
|
Nine months ended September 30,
|
$ | 2.8 | $ | (69.1 | ) | $ | 71.9 | (104.1 | )% | |||||||
In August 2009, we signed an agreement to transfer our ownership interests in Gramercy and St. Ann to our joint venture partner, Noranda. As such, we concluded that our equity investments in joint ventures, Gramercy and St. Ann, were not fully recoverable as of June 30, 2009. A charge of $73.2 million was recorded to reduce the investment to its estimated recoverable value. The earnings reported in 2010 represent the net earnings from our equity investments, BHH and Mincenco.
Liquidity and Capital Resources
Our principal sources of liquidity are available cash, cash flow from operations and available borrowings under our revolving credit facility. We have also raised capital through public offerings of our common stock in each of the last three completed fiscal years and in 2004 we accessed the public debt markets. We are continuously exploring various financing alternatives. Our principal uses of cash are the funding of operating costs (including post-employment benefits), maintenance of curtailed production facilities, payments of principal and interest on our outstanding debt, the funding of capital expenditures, payments for primary aluminum put option contracts, investments in our aluminum growth activities and in related businesses, working capital and other general corporate requirements.
Based on current actuarial and other assumptions, we expect to make a required contribution to the defined benefit plans we sponsor of approximately $1 million in the fourth quarter of 2010 and additional contributions of approximately $14 to 18 million during 2011.
In September 2010, we recorded an approximately $39 million net reduction in our accrued postretirement benefit costs for amendments to the Century Aluminum of West Virginia, Inc. post retirement medical benefit plan that were effective January 1, 2010. We expect these plan amendments will significantly reduce our future cash payments for post retirement medical benefits. See Note 12 Commitments and Contingencies in the consolidated financial statements included herein for additional information about the Ravenswood retiree medical benefit changes.
Our consolidated cash and cash equivalents balance at September 30, 2010 was approximately $265 million compared to $198 million at December 31, 2009. Century's revolving credit facility, which would have matured in September 2010, was refinanced in July 2010 with a generally similar facility that matures in July 2014. As of September 30, 2010, our New Credit Facility had no loan amounts outstanding and approximately $83 million of net availability. We have approximately $11.5 million of restricted cash deposits related to collateral for issued but undrawn letters of credit placed under our previous credit facility and $7.5 million cash collateral for the Big Rivers power contract. We expect to fully recover these restricted cash deposits in the fourth quarter of 2010 and replace these letters of credit and cash collateral with new letters of credit under the New Credit Facility. Availability under the New Credit Facility has been and will continue to be negatively impacted by the curtailment of production capacity at Ravenswood and the partial curtailment of production capacity at Hawesville, which have reduced the amount of our domestic accounts receivable and inventory, which comprise the borrowing base of our credit facility. Further curtailments of domestic production capacity would incrementally reduce domestic accounts receivable and inventory, further reducing availability under the New Credit Facility.
Recently enacted federal tax legislation allowed Century to carryback our net operating losses for up to five years, two years longer than the law previously allowed. Under the new law, we filed for and received in April 2010 tax refunds of approximately $16 million by carrying back losses to earlier previous tax years. We do not expect to receive any material tax refunds in the near future.
Capital Resources
We intend to finance our future recurring capital expenditures from available cash and our cash flow from operations. For major investment projects, such as the Helguvik project, we would seek financing from various capital and loan markets and may potentially pursue the formation of strategic alliances. We may be unable to issue additional debt or equity securities, or to issue these securities on attractive terms, due to a number of factors including a lack of demand, unfavorable pricing, poor economic conditions, unfavorable interest rates, or our financial condition or credit rating at the time. Continued uncertainty in the U.S. and international markets and economies may adversely affect our liquidity, our ability to access the capital markets and our financial condition.
Capital expenditures for the first nine months of 2010 were $20.5 million, $15.1 million of which was related to the Helguvik project, with the balance principally related to upgrading production equipment, improving facilities and complying with environmental requirements. We believe capital spending in 2010, excluding the activity on the Helguvik project, will be approximately $10 to 15 million compared to $16.9 million in 2009.
We have made and continue to make capital expenditures for the construction and development of our Helguvik project. We have substantial future contractual commitments for the Helguvik project. If we were to cancel the Helguvik project, we would expect to incur an additional $25 to $35 million in contract cancellation costs. We are working to complete the activities required for a full restart of construction activity at Helguvik, including the finalization of outstanding conditions under the contracts with the power suppliers and the confirmation that they will be in a firm position to finance and deliver the power per an agreed schedule. The portion of capital expenditures for this project that we expect to fund from our existing cash and operating cash flow will be approximately $20 million during 2010.
Historical
Our statements of cash flows for the nine months ended September 30, 2010 and 2009 are summarized below:
|
Nine months ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
(dollars in millions)
|
||||||||
|
Net cash provided by operating activities
|
$ | 100.3 | $ | 28.7 | ||||
|
Net cash used in investing activities
|
(33.3 | ) | (40.8 | ) | ||||
|
Net cash provided by financing activities
|
— | 79.0 | ||||||
|
Net change in cash and cash equivalents
|
$ | 67.0 | $ | 66.9 | ||||
Net cash from operating activities in the nine months ended September 30, 2010 was $100.3 million compared to $28.7 million in the first nine months of 2009. The increase in cash flow from operations was due, in part, to higher operating income as a result of higher LME prices and lower cash payments in 2010 for curtailment costs relative to 2009. The increase was partially offset by lower income tax refunds received in 2010 relative to 2009 and an increase in working capital in the first nine months of 2009 as compared to a smaller increase in working capital in 2010.
Our net cash used in investing activities for the nine months ended September 30, 2010 was $33.3 million compared to $40.8 million in the first nine months of 2009. The decrease was due to lower investments in capital expenditures to maintain and improve plant operations and reduced spending on the Helguvik project. The decrease was partially offset by an increase in restricted cash deposits to temporarily collateralize certain obligations in 2010.
Net cash provided by financing activities during the nine months ended September 30, 2009 was $79.0 million. We received proceeds from the issuance of common stock of $104.0 million related to the February 2009 public offering of common stock, net of offering expenses and we repaid $25.0 million for amounts outstanding under our revolving credit facility.
Other Commitments and Contingencies
Hawesville power agreement
On July 16, 2009, we announced the completion of a new, long-term power contract for our Hawesville, Kentucky smelter. This contract requires us to provide credit support equivalent to two months of our obligations to Big Rivers under the power agreement. Upon closing of the transaction, Century funded $7.5 million into a cash collateral account in partial satisfaction of this requirement. Additional collateral will be required in November and December 2010 to satisfy the full credit support amount. We expect to use letters of credit from our New Credit Facility to meet this collateral requirement and to replace the cash collateral currently held in partial satisfaction of the requirement.
Stockholder class actions amended
On April 27, 2010, the purported stockholder class actions pending against us consolidated as
In re: Century Aluminum Company Securities Litigation,
were dismissed without prejudice. On May 28, 2010 and June 24, 2010 plaintiffs submitted amended complaints. A hearing was held on September 3, 2010 to hear our motion to dismiss the amended complaints, but no ruling has yet been made on the motion. See Note 12 Contingencies and Commitments – Legal Contingencies for more information about these actions.
Commodity price risk
We are exposed to price risk for primary aluminum. We manage our exposure to fluctuations in the price of primary aluminum by selling aluminum at fixed prices for future delivery, purchasing primary aluminum put option contracts, or entering into collar contracts (a combination of a put and a call option) as well as by purchasing certain of our alumina and power requirements under supply contracts with prices tied to the same indices as our aluminum sales contracts (the LME price of primary aluminum). Our risk management activities do not include any trading or speculative transactions.
Apart from the Alcan Rolled Products Metal Agreement, the Glencore Metal Agreement I, the Glencore Metal Agreement II, Glencore Sweep Agreement, Glencore Nordural Metal Agreement and the Southwire Metal Agreement, we had forward delivery contracts to sell 17,450 metric tons and 26,140 metric tons of primary aluminum at September 30, 2010 and December 31, 2009, respectively. Of these forward delivery contracts, we had fixed price commitments to sell 1,190 metric tons of primary aluminum at September 30, 2010 and 1,559 metric tons at December 31, 2009 of which 58 metric tons were with Glencore at September 30, 2010 and none were with Glencore at December 31, 2009.
We had no outstanding primary aluminum forward financial sales at September 30, 2010 and December 31, 2009. We had no fixed price forward financial contracts to purchase aluminum at September 30, 2010 or December 31, 2009.
Primary aluminum put option and collar contracts
We entered into primary aluminum put option contracts and collar contracts (combination of a put and a call option) that settle monthly through December 2011 based on LME prices. The put option contracts account for approximately 60% of Hawesville’s current production level through 2010 and approximately 42% of its current production level for 2011 with a strike price around Hawesville’s cash break-even price. These options were purchased to partially mitigate primary aluminum price risk and we may consider purchasing additional put options or other hedging vehicles in the future.
|
Primary aluminum option contracts outstanding as of September 30, 2010 (in metric tons):
|
||||||||
|
Glencore
|
Other counterparties
|
|||||||
|
Put option contracts, settle monthly in 2010
|
15,000 | 15,000 | ||||||
|
Call option contracts, settle monthly in 2010
|
— | 7,500 | ||||||
|
Put option contracts, settle monthly in 2011
|
37,800 | 43,800 | ||||||
Natural gas forward financial purchase contracts
To mitigate the volatility of the natural gas markets, from time to time, we enter into fixed-price forward financial purchase contracts which settle in cash in the period corresponding to the intended usage of natural gas. These forward contracts are designated as cash flow hedges.
We had the following outstanding forward financial purchase contracts to hedge forecasted transactions:
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
Natural gas forward financial purchase contracts (in thousands of MMBTU)
|
90 | — | ||||||
On a hypothetical basis, a $1.00 per million British Thermal Units (“MMBTU”) decrease in the market price of natural gas is estimated to have an unfavorable impact of $0.1 million on accumulated other comprehensive loss for the period ended September 30, 2010 as a result of the natural gas forward financial purchase contracts outstanding at September 30, 2010.
Foreign currency
We are exposed to foreign currency risk due to fluctuations in the value of the U.S. dollar as compared to, the Icelandic krona (“ISK”), the euro and the Chinese yuan. Grundartangi’s labor, maintenance and other local service costs are denominated in Icelandic krona and a portion of its anode costs are denominated in euros. As a result, an increase or decrease in the value of those currencies relative to the U.S. dollar would affect Grundartangi’s operating margins. In addition, we expect a significant portion of the capital expenditures for construction of the Helguvik project will be denominated in currencies other than the U.S. dollar with a significant portion in ISK.
We may manage our exposure by entering into foreign currency forward contracts or option contracts for forecasted transactions and projected cash flows for foreign currencies in future periods. As of September 30, 2010, we had no foreign currency forward contracts outstanding.
Natural hedges
Our alumina contracts are indexed to the LME price for primary aluminum. As of September 30, 2010, these contracts hedge approximately 15% of our production for the remainder of 2010. As of September 30, 2010, approximately 35% of our production for the remainder of 2010 is hedged by our LME-based alumina contracts and Grundartangi’s electrical power and tolling contracts.
Our metals, natural gas and foreign currency risk management activities are subject to the control and direction of senior management. These activities are regularly reported to our audit committee and board of directors.
a. Evaluation of Disclosure Controls and Procedures
As of September 30, 2010, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our management, including the Chief Executive Officer and the Chief Financial Officer, have concluded that our disclosure controls and procedures were effective as of September 30, 2010.
b. Changes in Internal Controls over Financial Reporting
During the three months ended September 30, 2010, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
On April 27, 2010, the purported stockholder class actions pending against us consolidated as
In re: Century Aluminum Company Securities Litigation,
were dismissed without prejudice. On May 28, 2010 and June 24, 2010 plaintiffs submitted amended complaints. A hearing was held on September 3, 2010 to hear our motion to dismiss the amended complaints, but no ruling has yet been made on the motion. See Note 12 Contingencies and Commitments – Legal Contingencies for more information about these actions.
For a discussion of risk factors relating to our business, please refer to Item 1A of Part I of our 2009 Annual Report on Form 10-K and Item 1A of Part II or our Quarterly Report on Form 10-Q for the period ended June 30, 2010, which are incorporated by reference herein.
|
Exhibit Number
|
Description of Exhibit
|
Incorporated by Reference
|
Filed Herewith
|
||
|
Form
|
File No.
|
Filing Date
|
|||
|
10.1
|
Loan and Security Agreement, dated as of July 1, 2010, by and among Century Aluminum Company, Berkeley Aluminum, Inc., Century Aluminum of West Virginia, Inc., Century Aluminum of Kentucky General Partnership and NSA General Partnership, as borrowers, and Wells Fargo Capital Finance, LLC, as agent and lender
|
8-K
|
001-34474
|
July 2, 2010
|
|
|
10.2
|
Amendment No 1 to Loan and Security Agreement, dated as of August 18, 2010, among Century Aluminum Company, Berkeley Aluminum, Inc., Century Aluminum of West Virginia, Inc., Century Aluminum of Kentucky General Partnership and NSA General Partnership, as borrowers, and Wells Fargo Capital Finance, LLC, as agent and lender
|
X
|
|||
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
|
X
|
|||
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
|
X
|
|||
|
32.1
|
Section 1350 Certifications.
|
X
|
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Century Aluminum Company
|
||||
|
Date:
|
November 9, 2010
|
By:
|
/s/ Logan W. Kruger
|
|
|
Logan W. Kruger
|
||||
|
President and Chief Executive Officer
|
||||
|
Date:
|
November 9, 2010
|
By:
|
/s/ Michael A. Bless
|
|
|
Michael A. Bless
|
||||
|
Executive Vice-President and Chief Financial Officer
|
Exhibit Index
|
Exhibit Number
|
Description of Exhibit
|
Incorporated by Reference
|
Filed Herewith
|
||
|
Form
|
File No.
|
Filing Date
|
|||
|
10.1
|
Loan and Security Agreement, dated as of July 1, 2010, by and among Century Aluminum Company, Berkeley Aluminum, Inc., Century Aluminum of West Virginia, Inc., Century Aluminum of Kentucky General Partnership and NSA General Partnership, as borrowers, and Wells Fargo Capital Finance, LLC, as agent and lender
|
8-K
|
001-34474
|
July 2, 2010
|
|
|
10.2
|
Amendment No 1 to Loan and Security Agreement, dated as of August 18, 2010, among Century Aluminum Company, Berkeley Aluminum, Inc., Century Aluminum of West Virginia, Inc., Century Aluminum of Kentucky General Partnership and NSA General Partnership, as borrowers, and Wells Fargo Capital Finance, LLC, as agent and lender
|
X
|
|||
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
|
X
|
|||
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
|
X
|
|||
|
32.1
|
Section 1350 Certifications.
|
X
|
|||
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits