Item 1. Financial Statements
Item 1. Financial Statements
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
Three months ended June 30,
Six months ended June 30,
2021
2020
2021 2020
NET SALES:
Related parties $ 306.4 $ 285.6 $ 574.7 $ 556.6
Other customers 221.6 116.3 397.3 266.5
Total net sales 528.0 401.9 972.0 823.1
Cost of goods sold 507.1 414.9 971.8 831.3
Gross profit (loss) 20.9 ( 13.0 ) 0.2 ( 8.2 )
Selling, general and administrative expenses 8.7 11.8 24.8 20.7
Other operating (income) expense - net 0.1 0.2 0.2 0.5
Operating income (loss) 12.1 ( 25.0 ) ( 24.8 ) ( 29.4 )
Interest expense - Hawesville term loan ( 0.2 ) ( 0.5 ) ( 0.5 ) ( 1.2 )
Interest expense ( 7.5 ) ( 5.9 ) ( 16.5 ) ( 11.9 )
Interest income 0.1 0.4 0.2 0.5
Net gain (loss) on forward and derivative contracts ( 64.4 ) 3.7 ( 162.5 ) 7.5
Loss on early extinguishment of debt ( 24.7 ) — ( 24.7 ) —
Other income (expense) - net 1.2 1.3 3.1 3.0
Income (loss) before income taxes ( 83.4 ) ( 26.0 ) ( 225.7 ) ( 31.5 )
Income tax benefit (expense) 48.3 ( 0.9 ) 50.6 1.9
Income (loss) before equity in earnings of joint ventures ( 35.1 ) ( 26.9 ) ( 175.1 ) ( 29.6 )
Equity in earnings of joint ventures 0.0 — 0.0 —
Net income (loss) $ ( 35.1 ) $ ( 26.9 ) $ ( 175.1 ) $ ( 29.6 )
Net income (loss) allocated to common stockholders $ ( 35.1 ) $ ( 26.9 ) $ ( 175.1 ) $ ( 29.6 )
EARNINGS (LOSS) PER COMMON SHARE:
Basic and diluted $ ( 0.39 ) $ ( 0.30 ) $ ( 1.94 ) $ ( 0.33 )
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 90.1 89.5 90.1 89.4
See condensed notes to consolidated financial statements
4
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
Three months ended June 30,
Six months ended June 30,
2021
2020
2021 2020
Comprehensive income (loss):
Net income (loss) $ ( 35.1 ) $ ( 26.9 ) $ ( 175.1 ) $ ( 29.6 )
Other comprehensive income before income tax effect:
Net income (loss) on foreign currency cash flow hedges reclassified as income ( 0.1 ) ( 0.0 ) ( 0.1 ) 0.0
Defined benefit plans and other postretirement benefits:
Amortization of prior service benefit (cost) during the period ( 0.8 ) ( 0.8 ) ( 1.6 ) ( 1.6 )
Amortization of net gain (loss) during the period 2.1 1.8 4.2 4.3
Other comprehensive income (loss) before income tax effect 1.2 1.0 2.5 2.7
Income tax effect ( 0.1 ) ( 0.3 ) ( 0.1 ) ( 0.6 )
Other comprehensive income (loss) 1.1 0.7 2.4 2.1
Total comprehensive income (loss) $ ( 34.0 ) $ ( 26.2 ) $ ( 172.7 ) $ ( 27.5 )
See condensed notes to consolidated financial statements
5
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
June 30, 2021
December 31, 2020
ASSETS
Cash and cash equivalents $ 9.0 $ 81.6
Restricted cash 1.2 2.7
Accounts receivable - net 67.0 51.0
Due from affiliates 25.7 10.3
Inventories 331.5 291.1
Derivative assets 25.6 6.4
Prepaid and other current assets 18.0 12.9
Total current assets 478.0 456.0
Property, plant and equipment - net 868.8 880.4
Due from affiliates - less current portion $ — 1.7
Other assets 58.6 61.5
TOTAL $ 1,405.4 $ 1,399.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable, trade $ 133.6 $ 106.1
Interest payable — 15.0
Due to affiliates 50.7 21.7
Accrued and other current liabilities 54.8 54.5
Derivative liabilities 88.0 4.9
Accrued employee benefits costs 9.9 10.3
Hawesville term loan 10.0 20.0
U.S. revolving credit facility 39.6 —
Industrial revenue bonds 7.8 7.8
Total current liabilities 394.4 240.3
Senior notes payable 245.4 243.1
Convertible senior notes payable 83.8 —
Iceland revolving credit facility — 45.0
Accrued pension benefits costs - less current portion 60.2 65.2
Accrued postretirement benefits costs - less current portion 100.7 101.5
Other liabilities 47.5 44.5
Derivative liabilities - less current portion 22.8 0.3
Leases - right of use liabilities 23.1 24.3
Due to affiliates - less current portion 14.3 0.1
Deferred taxes 42.8 89.2
Total noncurrent liabilities 640.6 613.2
COMMITMENTS AND CONTINGENCIES (NOTE 10) — —
SHAREHOLDERS’ EQUITY:
Preferred stock (Note 6)
0.0 0.0
Common stock (Note 6)
1.0 1.0
Additional paid-in capital 2,527.0 2,530.0
Treasury stock, at cost ( 86.3 ) ( 86.3 )
Accumulated other comprehensive loss ( 116.4 ) ( 118.8 )
Accumulated deficit ( 1,954.9 ) ( 1,779.8 )
Total shareholders’ equity
370.4 546.1
TOTAL
$ 1,405.4 $ 1,399.6
See condensed notes to consolidated financial statements
6
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Six months ended June 30,
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ ( 175.1 ) $ ( 29.6 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Unrealized (gain) loss on derivative instruments 127.5 ( 3.6 )
Lower of cost or NRV inventory adjustment — 37.1
Depreciation and amortization 41.8 40.4
Loss on early extinguishment of debt 24.7 —
Change in deferred tax benefit ( 47.6 ) ( 0.5 )
Other non-cash items - net 4.2 2.4
Change in operating assets and liabilities:
Accounts receivable - net ( 16.0 ) 34.1
Due from affiliates ( 16.6 ) 21.6
Inventories ( 40.4 ) 8.4
Prepaid and other current assets ( 4.3 ) ( 1.1 )
Accounts payable, trade 9.7 ( 10.0 )
Due to affiliates 9.8 ( 31.0 )
Accrued and other current liabilities ( 1.3 ) 0.1
Other - net ( 4.3 ) 3.3
Net cash provided by (used in) operating activities ( 87.9 ) 71.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 25.9 ) ( 9.6 )
Proceeds from sales of property, plant & equipment 0.0 0.1
Net cash provided by (used in) investing activities ( 25.9 ) ( 9.5 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Senior Notes due 2025 ( 250.0 ) —
Early redemption and tender premiums paid ( 18.1 ) —
Proceeds from issuance of Senior Notes due 2028 250.0 —
Proceeds from issuance of Convertible Senior Notes 86.3 —
Repayments on Hawesville term loan ( 10.0 ) ( 10.0 )
Borrowings under revolving credit facilities 426.9 122.4
Repayments under revolving credit facilities ( 432.3 ) ( 36.4 )
Debt issuance costs ( 7.4 ) —
Purchases of capped calls related to Convertible Senior Notes ( 5.7 ) —
Net cash provided by (used in) financing activities 39.7 76.0
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 74.1 ) 138.1
Cash, cash equivalents and restricted cash, beginning of period 84.3 39.7
Cash, cash equivalents and restricted cash, end of period $ 10.2 $ 177.8
Supplemental Cash Flow Information:
Cash paid for:
Interest $ 25.7 $ 11.0
Taxes 0.0 0.1
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Six months ended June 30,
2021
2020
Non-cash investing activities:
Capital expenditures 2.8 0.6
See condensed notes to consolidated financial statements
8
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
Preferred stock Common stock Additional paid-in capital Treasury stock, at cost Accumulated other comprehensive loss Accumulated
deficit Total shareholders’ equity
Three months ended June 30, 2021
Balance, March 31, 2021 $ 0.0 $ 1.0 $ 2,530.9 $ ( 86.3 ) $ ( 117.5 ) $ ( 1,919.8 ) $ 408.3
Net income (loss) — — — — — ( 35.1 ) ( 35.1 )
Other comprehensive income (loss) — — — — 1.1 — 1.1
Share-based compensation 0.0 0.0 0.7 — — — 0.7
Conversion of preferred stock to common stock 0.0 0.0 0.0 — — — 0.0
Capped call premiums — — $ ( 4.6 ) — — — $ ( 4.6 )
Balance, June 30, 2021
$ 0.0 $ 1.0 $ 2,527.0 $ ( 86.3 ) $ ( 116.4 ) $ ( 1,954.9 ) $ 370.4
Three months ended June 30, 2020
Balance, March 31, 2020 $ 0.0 $ 1.0 $ 2,526.6 $ ( 86.3 ) $ ( 108.4 ) $ ( 1,659.1 ) $ 673.8
Net income (loss) — — — — — ( 26.9 ) ( 26.9 )
Other comprehensive income (loss) — — — — 0.7 — 0.7
Share-based compensation 0.0 0.0 1.1 — — — 1.1
Conversion of preferred stock to common stock 0.0 0.0 0.0 — — — 0.0
Balance, June 30, 2020
$ 0.0 $ 1.0 $ 2,527.6 $ ( 86.3 ) $ ( 107.6 ) $ ( 1,686.0 ) $ 648.7
Preferred stock Common stock Additional paid-in capital Treasury stock, at cost Accumulated other comprehensive loss Accumulated
deficit Total shareholders’ equity
Six months ended June 30, 2021
Balance, December 31, 2020 $ 0.0 $ 1.0 $ 2,530.0 $ ( 86.3 ) $ ( 118.8 ) $ ( 1,779.8 ) $ 546.1
Net income (loss) — — — — — ( 175.1 ) ( 175.1 )
Other comprehensive income (loss) — — — — 2.4 — 2.4
Share-based compensation — 0.0 1.6 — — — 1.6
Conversion of preferred stock to common stock 0.0 0.0 0.0 — — — 0.0
Capped call premiums — — ( 4.6 ) — — — ( 4.6 )
Balance, June 30, 2021 $ 0.0 $ 1.0 $ 2,527.0 $ ( 86.3 ) $ ( 116.4 ) $ ( 1,954.9 ) $ 370.4
9
Six months ended June 30, 2020
Balance, December 31, 2019 $ 0.0 $ 1.0 $ 2,526.5 $ ( 86.3 ) $ ( 109.8 ) $ ( 1,656.4 ) $ 675.0
Net income (loss) — — — — — ( 29.6 ) ( 29.6 )
Other comprehensive income (loss) — — — — 2.1 — 2.1
Share-based compensation — 0.0 1.1 — — — 1.1
Conversion of preferred stock to common stock 0.0 0.0 0.0 — — — 0.0
Balance, June 30, 2020 $ 0.0 $ 1.0 $ 2,527.6 $ ( 86.3 ) $ ( 107.6 ) $ ( 1,686.0 ) $ 648.7
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements
Six months ended June 30, 2021 and 2020
(amounts in millions, except share and per share amounts)
(Unaudited)
1. 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, 2020. 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 six months of 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Throughout this Form 10-Q, and unless expressly stated otherwise or as the context otherwise requires, "Century Aluminum," "Century," the "Company," "we," "us," "our" and "ours" refer to Century Aluminum Company and its consolidated subsidiaries.
Recently Adopted Accounting Standards
On January 1, 2021, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The ASU amendments include the removal of certain exceptions to the general principles of ASC 740 and to improve and simplify accounting for income taxes by clarifying and amending existing guidance. The adoption of the ASU did not have a material effect on the Company’s consolidated financial statements.
On January 1, 2021, we adopted FASB ASU 2020-06, “Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity" using the modified retrospective method. The ASU amendments include simplification of the accounting models for convertible instruments and conversion options, and amendments to diluted earnings per share (“EPS”) calculations for certain convertible instruments, requiring the inclusion of convertible securities in the calculation of diluted EPS using the if-converted method. The adoption of the ASU did not have a material effect on the Company’s consolidated financial statements.
On January 1, 2021, we adopted the final rule issued by the Securities and Exchange Commission (“SEC”) that amends the disclosure requirements related to issuers and guarantors of certain registered securities under SEC Regulation S-X Rule 3-10. We presented the alternative financial disclosures in Item 2. Management's Discussion and Analysis - Liquidity and Capital Resources. The adoption of the SEC rule is limited to disclosures only and did not have a material effect on the Company’s consolidated financial statements.
2. Related Party Transactions
The significant related party transactions occurring during the six months ended June 30, 2021 and 2020 are described below. We believe all of our transactions with related parties are at prices that approximate market.
Glencore ownership
As of June 30, 2021, Glencore plc and its affiliates (together "Glencore") beneficially owned 42.9 % of Century’s outstanding common stock ( 46.7 % o n a fully-diluted basis assuming the conversion of all of the Series A Convertible Preferred Stock) and all of our outstanding Series A Convertible Preferred Stock. See Note 6. Shareholders' Equity for a description of our outstanding Series A Convertible Preferred Stock. Century and Glencore enter into various transactions from time to time such as the purchase and sale of primary aluminum, purchase and sale of alumina and other raw materials, tolling agreements as well as forward financial contracts and debt transactions.
11
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Sales to Glencore
For the three months ended June 30, 2021 and 2020, approximately 58.0 % and 71.0 %, respectively, of our consolidated net sales were made to Glencore, while for the six months ended June 30, 2021 and 2020, we derived appro ximately 59.1 % an d 67.6 %, respectively, of our consolidated net sales from Glencore.
Glencore purchases aluminum produced at our U.S. smelters at prices primarily based on the London Metal Exchange (the "LME") plus the Midwest regional delivery premium plus any additional market-based product premiums. Glencore purchases aluminum produced at our Grundartangi, Iceland smelter at prices primarily based on the LME plus the European Duty Paid premium plus any additional market-based product premiums.
We have also entered into agreements with Glencore pursuant to which we sell certain amounts of alumina at market-based prices. For the three months and six months ended June 30, 2021, we recorded $ 11.4 million and $ 11.4 million of revenue related to alumina sales to Glencore, respectively. For the three and six months ended June 30, 2020, we recor ded $ 0.9 million and $ 1.2 million of revenue related to alumina sales to Glencore, respectively.
Purchases from Glencore
We purchase a portion of our alumina and certain other raw material requirements from Glencore. Alumina purchases from Glencore during the six months ended June 30, 2021 were priced based on published alumina and aluminum indices.
Financial contracts with Glencore
We have certain financial contracts with Glencore. See Note 13. Derivatives regarding these forward financial sales contracts.
Hawesville Term Loan
On April 29, 2019, we entered into a loan agreement with Glencore Ltd. pursuant to which the Company borrowed $ 40.0 million (the "Hawesville Term Loan”). See Note 9. Debt for additional information.
Summary
A summary of the aforementioned significant related party transactions is as follows:
Three months ended June 30,
Six months ended June 30,
2021
2020
2021 2020
Net sales to Glencore $ 306.4 $ 285.6 $ 574.7 $ 556.6
Purchases from Glencore 79.5 33.4 151.8 73.6
.
3. Revenue
We disaggregate our revenue by geographical region as follows:
Net Sales Three months ended June 30,
Six months ended June 30,
2021
2020
2021
2020
United States $ 347.9 $ 247.9 $ 624.1 $ 522.0
Iceland 180.1 154.0 347.9 301.1
Total $ 528.0 $ 401.9 $ 972.0 $ 823.1
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
4. Fair Value Measurements
We measure certain of our assets and liabilities at fair value. Fair value represents 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.
In general, reporting entities should apply valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are developed using market data and reflect assumptions that market participants would use when pricing the asset or liability. Unobservable inputs are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.
The fair value hierarchy provides transparency regarding the inputs we use to measure fair value. We categorize each fair value measurement in its entirety into the following three levels, based on the lowest level input that is significant to the entire measurement:
• Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
• Level 2 Inputs - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3 Inputs - significant unobservable inputs for the asset or liability.
Recurring Fair Value Measurements As of June 30, 2021
Level 1
Level 2
Level 3
Total
ASSETS:
Cash equivalents $ 0.1 $ — $ — $ 0.1
Trust assets (1)
1.0 — — 1.0
Derivative instruments — 27.6 1.5 29.1
TOTAL $ 1.1 $ 27.6 $ 1.5 $ 30.2
LIABILITIES:
Contingent obligation – net $ — $ — $ — $ —
Derivative instruments — 138.7 18.3 157.0
TOTAL $ — $ 138.7 $ 18.3 $ 157.0
Recurring Fair Value Measurements As of December 31, 2020
Level 1
Level 2
Level 3
Total
ASSETS:
Cash equivalents $ 54.2 $ — $ — $ 54.2
Trust assets (1)
0.0 — — 0.0
Derivative instruments — 12.1 3.0 15.1
TOTAL $ 54.2 $ 12.1 $ 3.0 $ 69.3
LIABILITIES:
Contingent obligation – net $ — $ — $ — $ —
Derivative instruments — 16.7 0.0 16.7
TOTAL $ — $ 16.7 0.0 $ 16.7
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
(1) Trust assets are currently invested in money market funds. These trust assets are held to fund the non-qualified supplemental executive pension benefit obligations for certain of our officers.
The following section describes the valuation techniques and inputs for fair value measurements categorized within Level 2 or Level 3 of the fair value hierarchy:
Level 2 Fair Value Measurements:
Asset / Liability Valuation Techniques Inputs
LME forward financial sales contracts Discounted cash flows Quoted LME forward market
Midwest Premium ("MWP") forward financial sales contracts Discounted cash flows Quoted MWP forward market
Fixed for floating swaps Discounted cash flows Quoted LME forward market, quoted MWP forward market
Nord Pool power price swaps Discounted cash flows Quoted Nord Pool forward market
Indiana Hub power price swaps Discounted cash flows Quoted Indiana Hub forward market
FX swaps Discounted cash flows Euro/USD forward exchange rate
Contingent obligation Discounted cash flows Quoted LME forward market
When valuing Level 3 assets and liabilities, we use certain significant unobservable inputs. Management incorporates various inputs and assumptions including forward commodity prices, commodity price volatility, and macroeconomic conditions, including interest rates and discount rates. Our estimates of significant unobservable inputs are ultimately based on our estimates of risks that market participants would consider when valuing our assets and liabilities. The following table presents the inputs for fair value measurements categorized within Level 3 of the fair value hierarchy, along with information regarding significant unobservable inputs used to value Level 3 assets and liabilities:
Level 3 Fair Value Measurements: As of June 30, 2021 As of December 31, 2020
Asset / Liability Valuation Technique Observable Inputs Significant Unobservable Input Fair Value Value/Range of Unobservable Input Fair Value Value/Range of Unobservable Input
LME forward financial sales contracts Discounted cash flows Quoted LME forward market Discount rate net (1)
$ ( 17.9 ) 8.58 % $ 2.9 10.00 %
FX swaps Discounted cash flows Euro/USD forward exchange rate Discount rate net (1)
$ ( 0.4 ) 8.58 % $ 0.1 10.00 %
Nord Pool power price swaps Discounted cash flows Quoted Nord Pool forward market Discount rate net (1)
$ 1.5 8.58 % — —
(1) Represents risk adjusted discount rate.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis.
Level 3 Assets Level 3 Liabilities
For the three months ended June 30, 2021
Nord Pool LME forward financial sales contracts FX Swaps
Balance as of April 1, 2021 $ — $ ( 6.0 ) $ ( 0.2 )
Total realized/unrealized gains (losses)
Included in net income (loss) (1)
— ( 11.6 ) 0.0
Purchases, sales, settlements
Purchases — — —
Sales — — —
Settlements — — —
Transfers into Level 3 (2)
1.5 ( 0.3 ) ( 0.2 )
Transfers out of Level 3 (3)
— — —
Balance as of June 30, 2021
1.5 ( 17.9 ) $ ( 0.4 )
Change in unrealized gains (losses) (1)
0.0 $ ( 11.6 ) 0.0
(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."
(2) Transfers into Level 3 due to contracts with applied discount rate during the second quarter of 2021.
(3) Transfers out of Level 3 due to period of time remaining in derivative contract.
For the three months ended June 30, 2020
Level 3 Assets Level 3 Liabilities
LME forward financial sales contracts Hawesville L4 Power Price Swaps
Balance as of April 1, 2020 $ 7.8 $ ( 3.2 )
Total realized/unrealized gains (losses)
Included in net income (1)
( 1.7 ) 0.0
Purchases, sales, settlements
Purchases — —
Sales — —
Settlements — 1.7
Transfers into Level 3 (2)
— —
Transfers out of Level 3 (3)
— —
Balance as of June 30, 2020
$ 6.1 $ ( 1.5 )
Change in unrealized gains (losses) $ ( 1.7 ) $ 1.7
(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."
(2) Transfers into Level 3 due to contracts with applied discount rate during the second quarter of 2020.
(3) Transfers out of Level 3 due to period of time remaining in derivative contract.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Level 3 Assets Level 3 Liabilities
For the six months ended June 30, 2021
Nord Pool LME forward financial sales contracts FX Swaps
Balance as of January 1, 2021
$ — $ 2.9 $ 0.1
Total realized/unrealized gains (losses)
Included in net income (loss) (1)
— ( 20.3 ) 0.0
Purchases, sales, settlements
Purchases — — —
Sales — — —
Settlements — — —
Transfers into Level 3 (2)
1.5 ( 1.0 ) ( 0.4 )
Transfers out of Level 3 (3)
— 0.5 ( 0.1 )
Balance as of June 30, 2021
1.5 ( 17.9 ) $ ( 0.4 )
Change in unrealized gains (losses) (1)
0.0 $ ( 20.3 ) 0.0
(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."
(2) Transfers into Level 3 due to contracts with applied discount rate during the six months ended June 30, 2021.
(3) Transfers out of Level 3 due to period of time remaining in derivative contract.
For the six months ended June 30, 2020
Level 3 Assets Level 3 Liabilities
LME forward financial sales contracts Hawesville L4 Power Price Swaps
Balance as of January 1, 2020 $ 10.6 $ ( 2.9 )
Total realized/unrealized gains (losses)
Included in Net Income (1)
5.0 ( 1.4 )
Purchases, sales, settlements
Purchases — —
Sales — —
Settlements — 2.8
Transfers into Level 3 (2)
— —
Transfers out of Level 3 (3)
( 9.5 ) —
Balance as of June 30, 2020
$ 6.1 $ ( 1.5 )
Change in unrealized gains (losses) (1)
$ 5.0 $ 1.4
(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."
(2) Transfers into Level 3 due to contracts with applied discount rate during the six months ended June 30, 2020.
(3) Transfers out of Level 3 due to period of time remaining in derivative contract.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
5. Earnings (Loss) Per Share
Basic earnings (loss) per share ("EPS") amounts are calculated by dividing net income (loss) allocated to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive securities.
The following table shows the basic and diluted earnings (loss) per share:
For the three months ended June 30
2021
2020
Net Income (Loss) Shares (in millions)
Per Share Net Income (Loss) Shares (in millions)
Per Share
Net income (loss)
$ ( 35.1 ) $ ( 26.9 )
Amount allocated to common stockholders
100.0 % 100.0 %
Basic and diluted EPS (1)
$ ( 35.1 ) 90.1 $ ( 0.39 ) $ ( 26.9 ) 89.5 $ ( 0.30 )
For the six months ended June 30
2021 2020
Net Income (Loss) Shares (in millions)
Per Share Net Income (Loss) Shares
(in millions)
Per Share
Net income (loss)
$ ( 175.1 ) $ ( 29.6 )
Amount allocated to common stockholders
100.0 % 100.0 %
Basic and diluted EPS (1)
$ ( 175.1 ) 90.1 $ ( 1.94 ) $ ( 29.6 ) 89.4 $ ( 0.33 )
Three months ended June 30,
Six months ended June 30,
Securities excluded from the calculation of diluted EPS (in millions) (1) :
2021
2020
2021
2020
Share-based compensation 2.4 0.6 2.4 0.7
Convertible preferred shares 6.3 6.6 6.3 6.7
Convertible senior notes 4.8 — 4.8 —
(1) In periods when we report a net loss, all share-based compensation awards, convertible preferred shares and convertible senior notes are excluded from the calculation of diluted weighted average shares outstanding because of their anti-dilutive effect on earnings (loss) per share.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
6. Shareholders’ Equity
Common Stock
As of June 30, 2021 and December 31, 2020, we had 195,000,000 shares of common stock, $ 0.01 par value per share, authorized under our Restated Certificate of Incorporation, of which 97,315,639 shares were issued and 90,129,118 shares were outstanding at June 30, 2021; 97,242,318 shares were issued and 90,055,797 shares were outstanding at December 31, 2020.
The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock which are currently outstanding, including our Series A Convertible Preferred Stock, or which we may designate and issue in the future.
Preferred Stock
As of June 30, 2021 and December 31, 2020, we had 5,000,000 shares of preferred stock, $ 0.01 par value per share, authorized under our Restated Certificate of Incorporation. Our Board of Directors may issue preferred stock in one or more series and determine for each series the dividend rights, conversion rights, voting rights, redemption rights, liquidating preferences, sinking fund terms and the number of shares constituting that series, as well as the designation thereof. Depending upon the terms of preferred stock established by our Board of Directors, any or all of the preferred stock could have preference over the common stock with respect to dividends and other distributions and upon the liquidation of Century. In addition, issuance of any shares of preferred stock with voting powers may dilute the voting power of the outstanding common stock.
Series A Convertible Preferred Stock
Shares Authorized and Outstanding . In 2008, we issued 160,000 shares of our Series A Convertible Preferred Stock. Glencore holds all of the issued and outstanding Series A Convertible Preferred Stock. At June 30, 2021 and December 31, 2020, there were 63,274 and 63,589 shares of Series A Convertible Preferred Stock outstanding, respectively.
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. The conversion ratio of preferred to common shares is 100 shares of common stock for each share of preferred stock.
The Common and Preferred Stock table below contains additional information about preferred stock conversions during the six months ended June 30, 2021 and 2020.
Preferred stock Common stock
Common and Preferred Stock Activity (in shares): Series A Convertible Treasury Outstanding
Beginning balance as of December 31, 2020
63,589 7,186,521 90,055,797
Conversion of convertible preferred stock ( 315 ) — 31,465
Issuance for share-based compensation plans — — 41,856
Ending balance as of June 30, 2021
63,274 7,186,521 90,129,118
Beginning balance as of December 31, 2019
67,323 7,186,521 89,185,661
Conversion of convertible preferred stock ( 1,284 ) — 128,389
Issuance for share-based compensation plans — — 170,784
Ending balance as of June 30, 2020
66,039 7,186,521 89,484,834
Stock Repurchase Program
In 2011, our Board of Directors authorized a $ 60.0 million common stock repurchase program and during the first quarter of 2015, our Board of Directors increased the size of the program by $ 70.0 million. Under the program, Century is authorized to repurchase up to $ 130.0 million of our outstanding shares of common stock, from time to time, on the open market at prevailing market prices, in block trades or otherwise. The timing and amount of any shares repurchased will be determined by
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
our management based on its evaluation of market conditions, the trading price of our common stock and other factors. The stock repurchase program may be suspended or discontinued at any time.
Shares of common stock repurchased are recorded at cost as treasury stock and result in a reduction of shareholders’ equity in the consolidated balance sheets. From time to time, treasury shares may be reissued as contributions to our employee benefit plans and for the conversion of convertible preferred stock. When shares are reissued, we use an average cost method for determining cost. The difference between the cost of the shares and the reissuance price is added to or deducted from additional paid-in capital.
We have repurchased 7,186,521 shares of common stock under the program for an aggregate purchase price of $ 86.3 million. We have made no repurchases since April 2015 and we have $ 43.7 million remaining under the repurchase program authorization as of June 30, 2021.
7. Income Taxes
We recorded an income tax benefit of $ 48.3 million and an income tax expense of $ 0.9 million for the three months ended June 30, 2021 and 2020, respectively and for the six months ended June 30, 2021 and 2020, we recorded an income tax benefit of $ 50.6 million and $ 1.9 million, respectively.
We recorded a discrete tax benefit of $ 49.8 million in the current quarter tax provision related to the recognition of a certain foreign deferred tax asset. The deferred tax asset represents the future tax benefit we expect to realize for deductible costs related to our historical investment in Nordural Helguvik ehf (“Helguvik”). During the period, it became apparent this deferred tax asset would reverse in the foreseeable future. As this deferred tax asset is expected to be realized prior to expiration, we have not recorded a valuation allowance. We did not change our judgment in the current quarter with respect to other valuation allowances previously recorded.
Our income tax benefit or expense is based on an annual effective tax rate forecast, including estimates and assumptions that could change during the year. The application of the accounting requirements for income taxes in interim periods, after consideration of our valuation allowance, causes a significant variation in the typical relationship between income tax expense/benefit and pre-tax accounting income/loss.
As of June 30, 2021, all of Century's U.S. and certain foreign deferred tax assets, net of deferred tax liabilities, continue to be subject to a valuation allowance.
8. Inventories
Inventories consist of the following:
June 30, 2021
December 31, 2020
Raw materials $ 113.3 $ 95.9
Work-in-process 51.2 40.5
Finished goods 24.5 26.9
Operating and other supplies 142.5 127.8
Total inventories $ 331.5 $ 291.1
Inventories are stated at the lower of cost or Net Realizable Value ("NRV") using the first-in, first-out ("FIFO") or the weighted average cost method.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
9. Debt
June 30, 2021
December 31, 2020
Debt classified as current liabilities:
Hawesville Term Loan (1)
$ 10.0 $ 20.0
Hancock County industrial revenue bonds ("IRBs") due April 1, 2028, interest payable quarterly (variable interest rates (not to exceed 12 %)) (2)
7.8 7.8
U.S. Revolving Credit Facility (3)
39.6 —
Debt classified as non-current liabilities:
Iceland Revolving Credit Facility (4)
— 45.0
12.0 % senior secured notes due July 1, 2025, net of debt discount of $ 2.3 million, and financing fees of $ 4.6 million at December 31, 2020, interest payable semiannually
— 243.1
7.5 % senior secured notes due April 1, 2028, net of financing fees of $ 4.6 million at June 30, 2021, interest payable semiannually
245.4 —
2.75 % convertible senior notes due May 1, 2028, net of financing fees of $ 2.5 million at June 30, 2021, interest payable semiannually
83.8 —
Total $ 386.6 $ 315.9
(1) See "Hawesville Term Loan" below. At June 30, 2021, the applicable interest rate was LIBOR of 0.2 % plus margin of 5.375 % and there is no interest payable outstanding. As of June 30, 2021, we have made $ 30.0 million of principal payments and $ 4.4 million of interest payments.
(2) 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 IRBs interest rate at June 30, 2021 was 0.2 %.
(3) We have elected to incur interest at a base rate plus applicable margin as defined within the agreement. The interest rate at June 30, 2021 was 3.75 %.
(4) We have elected to incur interest at LIBOR plus applicable margin as defined within the agreement.
7.5 % Senior Secured Notes due 2028
General . On April 14, 2021, we issued $ 250.0 million in aggregate principal amount of 7.5 % senior secured notes due 2028 (the "2028 Notes"). We received proceeds of $ 245.2 million, after payment of certain financing fees and related expenses.
Interest Rate. The 2028 Notes bear interest semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021, at a rate of 7.5 % per annum in cash.
Maturity. The 2028 Notes mature on April 1, 2028.
Seniority. The 2028 Notes are senior secured obligations of Century, ranking equally in right of payment with all existing and future senior indebtedness of Century, but effectively senior to unsecured debt to the extent of the value of collateral.
Guaranty . Our obligations under the 2028 Notes are guaranteed by all of our existing and future domestic restricted subsidiaries (the “Guarantor Subsidiaries”), except for foreign owned holding companies, any domestic restricted subsidiary that owns no assets other than equity interests or other investments in foreign subsidiaries and certain immaterial subsidiaries, which guaranty shall in each case be a senior secured obligation of such Guarantor Subsidiaries, ranking equally in right of payment with all existing and future senior indebtedness of such Guarantor Subsidiaries but effectively senior to unsecured debt to the extent of the value of collateral.
Collateral. Our obligations under the 2028 Notes and the Guarantor Subsidiaries' obligations under the guarantees are secured by a pledge of and lien on (subject to certain exceptions):
(i) all of our and the Guarantor Subsidiaries' property, plant and equipment (other than certain excluded property);
(ii) all equity interests in subsidiaries directly owned by Century or any Guarantor Subsidiaries; and
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
(iii) proceeds of the foregoing.
Under certain circumstances, the indenture and the security documents governing the 2028 Notes will permit us and the guarantors to incur additional debt that also may be secured by liens on the collateral that are equal to or have priority over the liens securing the 2028 Notes. The collateral agent for the 2028 Notes will agree with the collateral agent for the other debt holders and us under such circumstances to enter into an intercreditor agreement that will cause the liens securing the 2028 Notes to be contractually subordinated to the liens securing such additional debt.
Redemption Rights. Prior to April 1, 2024, we may redeem the 2028 Notes, in whole or in part, at a redemption price equal to 100.00 % of the principal amount plus a make-whole premium and accrued and unpaid interest, and if redeemed during the twelve -month period beginning on April 1 of the years indicated below, at the following redemption prices plus accrued and unpaid interest:
Year Percentage
2024 103.750 %
2025 101.875 %
2026 & Thereafter 100.000 %
Upon a change of control (as defined in the indenture governing the 2028 Notes), we will be required to make an offer to purchase the 2028 Notes at a purchase price equal to 101 % of the outstanding principal amount of the 2028 Notes on the date of the purchase, plus accrued and unpaid interest to, but not including, the date of purchase.
Covenants . The indenture governing the 2028 Notes contains customary covenants which may limit our ability, and the ability of certain of our subsidiaries, to: (i) incur additional debt; (ii) incur additional liens; (iii) pay dividends or make distributions in respect of capital stock; (iv) purchase or redeem capital stock; (v) make investments or certain other restricted payments; (vi) sell assets; (vii) issue or sell stock of certain subsidiaries; (viii) enter into transactions with shareholders or affiliates; and (ix) effect a consolidation or merger.
Fair Value. As of June 30, 2021, the total estimated fair value of the 2028 Notes was $ 265.4 million. Although we use quoted market prices for identical debt instruments, the markets on which they trade are not considered to be active and are therefore considered Level 2 fair value measurements.
12.0 % Notes Tender Offer and Redemption
In April 2021, we commenced a tender offer to the holders of the outstanding 12.0 % senior secured notes due July 2025 (the "2025 Notes") and notified all such holders of our election to redeem all 2025 Notes not purchased in our tender offer on May 14, 2021. We received tenders for approximately $ 195.9 million in aggregate principal amount of the 2025 Notes and the remaining 2025 Notes were redeemed on May 14, 2021 at a redemption price of 107 % of the principal amount thereof, plus accrued and unpaid interest. As a result, the Company's and the guarantors' obligations under the indenture governing the 2025 Notes have been fully discharged. We applied net proceeds from the offering of the 2028 Notes described above, together with a portion of the net proceeds from the Convertible Notes offering described below, toward payment of the total consideration amount to holders whose 2025 Notes were accepted and purchased in the tender offer and to fund the redemption of any remaining 2025 Notes.
Based on the characteristics of the 2025 Notes and the 2028 Notes that were issued, the tender and redemption of the 2025 Notes were accounted for as an extinguishment of the debt. Accordingly, we have recorded a $ 24.7 million loss on early extinguishment of debt, consisting of early redemption and tender premiums of $ 18.1 million, write-off of deferred financing costs and the debt discount associated with the 2025 Notes of $ 4.4 million and $ 2.2 million, respectively.
Convertible Notes due 2028
General. On April 9, 2021, we completed a private offering of $ 86.3 million aggregate principal amount of convertible senior notes due 2028 (the "Convertible Notes"). The Convertible Notes were issued at a price of 100 % of their aggregate principal amount. We received proce eds of $ 83.7 million, a fter payment of certain financing fees and related expenses.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
The initial conversion rate for the Convertible Notes is 53.3547 shares of the Company's common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 18.74 per share of the Company's common stock. The conversion rate and conversion price are subject to customary adjustments under certain circumstances in accordance with the terms of the indenture.
Interest Rate. The Convertible Notes will bear interest semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2021, at a rate of 2.75 % per annum in cash.
Maturity. The Convertible Notes will mature on May 1, 2028, unless earlier converted, repurchased, or redeemed.
Seniority. The Convertible Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s senior secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
Redemption rights. We may not redeem the Notes prior to May 6, 2025. On or after May 6, 2025, we may redeem for cash all or part of the Notes at our option if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period) ending on and including the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest.
Upon conversion, we may satisfy our conversion obligation by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. Additionally in the event of a corporate event constituting a fundamental change (as defined in the indenture), holders of the Convertible Notes may require us to repurchase all or a portion of their Convertible Notes at a repurchase price equal to 100 % of the principal amount of the Notes being repurchased, plus accrued and unpaid interest to, but excluding, the date of the fundamental change repurchase.
As of June 30, 2021, the if-converted value of the Convertible Notes did not exceed the outstanding principal amount.
Fair Value. As of June 30, 2021, the total estimated fair value of the Convertible Notes was $ 83.5 million. Although we use quoted market prices for identical debt instruments, the markets on which they trade are not considered to be active and are therefore considered Level 2 fair value measurements.
Capped Calls
On April 6, 2021 and April 7, 2021, in connection with the pricing of the Convertible Notes, we entered into privately negotiated capped call transactions (the “Capped Calls”) with certain of the initial purchasers and other financial institutions (the "Option Counterparties") at a cost of $ 5.7 million. The Capped Calls cover, subject to customary adjustments, the number of shares of our common stock initially underlying the Convertible Notes. By entering into the Capped Calls, we expect to reduce the potential dilution to our common stock upon any conversion of Notes (or, in the event a conversion of the Convertible Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion of the Convertible Notes our common stock price exceeds the conversion price of the Convertible Notes. The Capped Calls each have an initial strike price of approximately $ 18.74 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Notes. The Capped Calls have an initial cap price of $ 22.95 per share of common stock .
On April 6, 2021 and April 7, 2021, we entered into side letters with the Option Counterparties that modified the terms of the Capped Calls, thus requiring derivative accounting treatment with changes in fair value reported in earnings. On June 29, 2021, we terminated the side letters with the Option Counterparties by mutual agreement. As of June 30, 2021, the Capped Calls meet the criteria for classification in equity and are included as a reduction to additional paid-in-capital within stockholders’ equity. During the period the Capped Calls were classified as derivatives, we recognized $ 1.0 million as a loss on forward and derivative contracts.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Hawesville Term Loan
On April 29, 2019, we entered into a loan agreement with Glencore Ltd. pursuant to which the Company borrowed $ 40.0 million. Borrowings under the Hawesville Term Loan were used to partially finance the second phase of the Hawesville restart project. The Hawesville Term Loan matures on December 31, 2021 and is to be repaid in twenty-four ( 24 ) equal monthly installments of principal beginning on January 31, 2020. The Hawesville Term Loan bears interest, due monthly, at a floating rate equal to LIBOR plus 5.375 % per annum. The Hawesville Term Loan is not secured by any collateral.
U.S. Revolving Credit Facility
We and certain of our direct and indirect domestic subsidiaries (the "Borrowers") have a senior secured revolving credit facility with a syndicate of lenders (as amended from time to time, the "U.S. revolving credit facility"). The U.S. revolving credit facility provides for borrowings of up to $ 175.0 million in the aggregate, including up to $ 110.0 million under a letter of credit sub-facility, and also includes an uncommitted accordion feature whereby borrowers may increase the capacity of the U.S. revolving credit facility by up to $ 50.0 million, subject to agreement with the lenders. The U.S. revolving credit facility matures on May 16, 2023.
Any letters of credit issued and outstanding under the U.S. revolving credit facility reduce our borrowing availability on a dollar-for-dollar basis. At June 30, 2021, there were $ 39.6 million in outstanding borrowings under our U.S. revolving credit facility. Principal payments, if any, are due upon maturity of the U.S. revolving credit facility and may be prepaid without penalty.
Status of our U.S. revolving credit facility: June 30, 2021
Credit facility maximum amount $ 175.0
Borrowing availability 173.5
Outstanding letters of credit issued 84.4
Outstanding borrowings 39.6
Borrowing availability, net of outstanding letters of credit and borrowings 49.6
Iceland Revolving Credit Facility
Our wholly-owned subsidiary, Nordural Grundartangi ehf ("Grundartangi"), has entered into a $ 50.0 million revolving credit facility agreement with Landsbankinn hf., dated November 2013, as amended (the "Iceland revolving credit facility"). At June 30, 2021, there were no outstanding borrowings under our Iceland revolving credit facility. The Iceland revolving credit facility has a term through November 2022. Principal payments, if any, are due upon maturity of the Iceland revolving credit facility and may be prepaid without penalty.
Status of our Iceland revolving credit facility: June 30, 2021
Credit facility maximum amount $ 50.0
Borrowing availability 50.0
Outstanding letters of credit issued —
Outstanding borrowings —
Borrowing availability, net of borrowings 50.0
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
10. Commitments and Contingencies
We have pending against us or may be subject to various lawsuits, claims and proceedings related primarily to employment, commercial, stockholder, environmental, safety and health matters and are involved in other matters that may give rise to contingent liabilities. While the results of such matters and claims cannot be predicted with certainty, we believe that the ultimate outcome of any such matters and claims will not have a material adverse impact on our financial condition, results of operations or liquidity. However, because of the nature and inherent uncertainties of litigation and estimating liabilities, should the resolution or outcome of these actions be unfavorable, our business, financial condition, results of operations and liquidity could be materially and adversely affected.
In evaluating whether to accrue for losses associated with legal or environmental contingencies, it is our policy to take into consideration factors such as the facts and circumstances asserted, our historical experience with contingencies of a similar nature, the likelihood of our prevailing and the severity of any potential loss. For some matters, no accrual is established because we have assessed our risk of loss to be remote. Where the risk of loss is probable and the amount of the loss can be reasonably estimated, we record an accrual, either on an individual basis or with respect to a group of matters involving similar claims, based on the factors set forth above. While we regularly review the status of, and our estimates of potential liability associated with, contingencies to determine the adequacy of any associated accruals and related disclosures, the ultimate amount of loss may differ from our estimates.
Legal Contingencies
Vernon
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. The matter was stayed by the court in 2008 to allow for the remediation of environmental areas at the site. On June 30, 2016, the U.S. District Court for the District of Delaware ordered the stay lifted and reopened the case. Discovery was completed in the third quarter of 2019. Trial was bifurcated and moved to September 2021 for Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") issues and to a later undetermined date for questions of fact. At this stage, we cannot predict the ultimate outcome of this action or estimate a range of reasonably possible losses related to this matter.
Ravenswood Retiree Medical Benefits
In November 2009, Century Aluminum of West Virginia ("CAWV") filed a class action complaint for declaratory judgment against the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union ("USW"), the USW’s local and certain CAWV retirees, individually and as class representatives ("CAWV Retirees"), seeking a declaration of CAWV’s rights to modify/terminate retiree medical benefits. Later in November 2009, the USW 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. On August 18, 2017, the District Court for the Southern District of West Virginia approved a settlement agreement in respect of these actions, pursuant to which agreement, CAWV agreed to make payments into a trust for the benefit of the CAWV Retirees in the aggregate amount of $ 23.0 million over the course of ten years . Upon approval of the settlement, we paid $ 5.0 million to the aforementioned trust in September 2017 and recognized a gain of $ 5.5 million to arrive at the-then net present value of $ 12.5 million. CAWV has agreed to pay the remaining amounts under the settlement agreement in annual increments of $ 2.0 million for nine years . As of June 30, 2021, $ 2.0 million was recorded in other current liabilities and $ 7.8 million was recorded in other liabilities.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
PBGC Settlement
In 2013, we entered into a settlement agreement with the Pension Benefit Guarantee Corporation ("PBGC") regarding an alleged "cessation of operations" at our Ravenswood facility. Pursuant to the terms of the agreement, we agreed to make additional contributions (above any minimum required contributions) to our defined benefit pension plans totaling approximately $ 17.4 million. Under certain circumstances, in periods of lower primary aluminum prices relative to our cost of operations, we are able to defer one or more of these payments, provided that we provide the PBGC with acceptable security for such deferred payments. We did no t make any contributions for the three month periods ended June 30, 2021, and 2020. We have elected to defer certain payments under the PBGC agreement and have provided the PBGC with the appropriate security. The remaining contributions under this agreement are approximately $ 9.6 million.
Environmental Contingencies
Matters relating to the St. Croix Alumina Refining Facility
We are a party to a United States Environmental Protection Agency Administrative Order on Consent (the "Order") pursuant to which certain past and present owners of an alumina refining facility at St. Croix, Virgin Islands (the "St. Croix Alumina Refinery") 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 October 2020, parties participating in the Hydrocarbon Recovery Plan filed a complaint against Century and Virgin Islands Alumina Corporation, L.L.C. relating to the Hydrocarbon Recovery Plan. This matter was settled by all parties and dismissed by the court in June 2021. We recognized $( 0.6 ) million within Other income (expense) during the three months ended June 30, 2021 related to the settlement.
In December 2010, Century was among several defendants named in a lawsuit filed by plaintiffs who either worked, resided or owned property in the area downwind from the St. Croix Alumina Refinery. In March 2011, Century was also named a defendant in a nearly identical suit brought by certain additional plaintiffs. The plaintiffs in both suits allege damages caused by the presence of red mud and other particulates coming from the alumina facility and are seeking unspecified monetary damages, costs and attorney fees as well as certain injunctive relief. We tendered indemnity and defense to St. Croix Alumina LLC and Alcoa Alumina & Chemical LLC under the terms of an acquisition agreement relating to the facility and have filed motions to dismiss plaintiffs’ claims. In August 2015, the Superior Court of the Virgin Islands, Division of St. Croix denied the motions to dismiss but ordered all plaintiffs to refile individual complaints. On February 28, 2018, plaintiffs in both cases filed a Motion for Voluntary Dismissal of Century without prejudice to refiling. The refiling of claims by the plaintiffs is now time barred, and this matter is closed.
Power Commitments and Contingencies
Hawesville
Hawesville has a power supply arrangement with Kenergy and EDF Trading North America, LLC (“EDF") which provides market-based power to the Hawesville smelter. Under this arrangement, the power companies purchase power on the open market and pass it through to Hawesville at Midcontinent Independent System Operator ("MISO") pricing plus transmission and other costs. The power supply arrangement with Kenergy has an effective term through December 2023. The arrangement with EDF to act as our market participant with MISO has an effective term through May 2022. Each of these agreements provide for automatic extension on a year-to-year basis unless a one year notice is given.
Sebree
Sebree has a power supply arrangement with Kenergy and EDF which provides market-based power to the Sebree smelter. Similar to the arrangement at Hawesville, the power companies purchase power on the open market and pass it through to Sebree at MISO pricing plus transmission and other costs. The power supply arrangement with Kenergy has an effective term through December 2023. The arrangement with EDF to act as our market participant with MISO has an effective term through May 2022. Each of these agreements provides for automatic extension on a year-to-year basis unless a one year notice is given.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Mt. Holly
CASC has a power supply agreement with Santee Cooper that has an effective term beginning April 1, 2021 and runs through December 2023. Under this power supply agreement, 100 % of Mt. Holly’s electrical power requirements are supplied from Santee Cooper’s generation at cost of service based rates. The contract is expected to provide sufficient energy to allow Mt. Holly to increase its production to 75 % of full production capacity.
Grundartangi
Grundartangi has power purchase agreements for approximately 545 MW with HS Orka hf ("HS"), Landsvirkjun and Orkuveita Reykjavikur ("OR") to provide power to its Grundartangi smelter. These power purchase agreements expire on various dates from 2026 through 2036 (subject to extension). The power purchase agreements with HS and OR provide power at LME-based variable rates for the duration of these agreements. Grundartangi recently reached an agreement with Landsvirkjun for an extension of its existing 161 MW power contract that would have expired in December 2023. Under the terms of the extension, Landsvirkjun will continue to supply power to Grundartangi from January 1, 2024 through December 31, 2026 and will increase the existing contract from 161 MW to 182 MW over time to provide the necessary flexibility to support the most recent capacity creep requirements and future growth opportunities for value-added products at the Grundartangi plant. Under the terms of this extension, the majority of power supplied by Landsvirkjun will be priced at rates linked to the Nord Pool power market through December 2023 and a small portion of power at a fixed price. Thereafter, beginning January 1, 2024 through December 31, 2026 this agreement provides for only fixed rates. Grundartangi also has a 25 MW power purchase agreement with Landsvirkjun at LME-based variable rates.
Other Commitments and Contingencies
Labor Commitments
The bargaining unit employees at our Grundartangi, Vlissingen, Hawesville and Sebree facilities are represented by labor unions, representing approximately 67 % of our total workforce.
Approximately 88 % of Grundartangi’s work force is represented by five labor unions, governed by a labor agreement that establishes wages and work rules for covered employees. This agreement is effective through December 31, 2024.
100 % of Vlissingen's work force is represented by the Federation for the Metal and Electrical Industry ("FME"), a Netherlands' employers' organization for companies in the metal, electronics, electrical engineering and plastic sectors. The FME negotiates working conditions with trade unions on behalf of its members, which, when agreed upon, are then applicable to all employees of Vlissingen. The current labor agreement expired on December 1, 2020 and since such time we have been operating under the terms of the expired agreement while we engage in negotiations regarding the terms of a new labor agreement.
Approximately 58 % of our U.S. based work force is represented by USW. The labor agreement for Hawesville employees is effective through April 1, 2026. Century Sebree's labor agreement with the USW for its employees is effective through October 28, 2023. Mt. Holly employees are not represented by a labor union.
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
11. Components of Accumulated Other Comprehensive Loss
Components of AOCL: June 30, 2021
December 31, 2020
Defined benefit plan liabilities
$ ( 121.1 ) $ ( 123.7 )
Unrealized gain (loss) on financial instruments
2.1 2.1
Other comprehensive loss before income tax effect
( 119.0 ) ( 121.6 )
Income tax effect (1)
2.6 2.8
Accumulated other comprehensive loss
$ ( 116.4 ) $ ( 118.8 )
(1) The allocation of the income tax effect to the components of other comprehensive loss is as follows:
June 30, 2021
December 31, 2020
Defined benefit plan liabilities $ 3.0 $ 3.2
Unrealized loss on financial instruments ( 0.4 ) ( 0.4 )
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
The following table summarizes the changes in the accumulated balances for each component of AOCL:
Defined benefit plan and other postretirement liabilities Unrealized gain (loss) on financial instruments Total, net of tax
Balance, April 1, 2021 $ ( 119.3 ) $ 1.8 $ ( 117.5 )
Net amount reclassified to net income (loss) 1.2 ( 0.1 ) 1.1
Balance, June 30, 2021
$ ( 118.1 ) $ 1.7 $ ( 116.4 )
Balance, April 1, 2020 $ ( 110.3 ) $ 1.9 $ ( 108.4 )
Net amount reclassified to net income 0.8 $ — 0.8
Balance, June 30, 2020
$ ( 109.5 ) $ 1.9 $ ( 107.6 )
Balance, December 31, 2020 $ ( 120.6 ) $ 1.8 $ ( 118.8 )
Net amount reclassified to net loss 2.5 ( 0.1 ) 2.4
Balance, June 30, 2021
$ ( 118.1 ) $ 1.7 $ ( 116.4 )
Balance, December 31, 2019
$ ( 111.7 ) $ 1.9 $ ( 109.8 )
Net amount reclassified to net income (loss) 2.2 0.0 2.2
Balance, June 30, 2020
$ ( 109.5 ) $ 1.9 $ ( 107.6 )
Reclassifications out of AOCL were included in the consolidated statements of operations as follows:
Three months ended June 30,
Six months ended June 30,
AOCL Components Location 2021
2020
2021
2020
Defined benefit plan and other postretirement liabilities Cost of goods sold $ 0.7 $ 0.4 $ 1.4 $ 1.5
Selling, general and administrative expenses 0.2 0.2 0.4 0.4
Other operating expense, net 0.4 0.5 0.8 0.9
Income tax effect ( 0.1 ) ( 0.3 ) ( 0.2 ) ( 0.6 )
Net of tax $ 1.2 $ 0.8 $ 2.4 $ 2.2
Unrealized loss on financial instruments Cost of goods sold $ ( 0.1 ) $ 0.0 $ ( 0.1 ) $ 0.0
Income tax effect 0.0 0.0 0.0 0.0
Net of tax $ ( 0.1 ) $ 0.0 $ ( 0.1 ) $ 0.0
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
12. Components of Net Periodic Benefit Cost
Pension Benefits
Three months ended June 30,
Six months ended June 30,
2021
2020
2021 2020
Service cost $ 0.9 $ 1.1 $ 2.3 $ 2.4
Interest cost 2.4 $ 2.8 4.8 5.6
Expected return on plan assets ( 5.6 ) $ ( 5.2 ) ( 11.1 ) ( 10.3 )
Amortization of prior service costs 0.1 0.0 0.1 0.0
Amortization of net loss 1.5 $ 1.8 3.0 3.3
Net periodic benefit cost $ ( 0.7 ) $ 0.5 $ ( 0.9 ) $ 1.0
Other Postretirement Benefits ("OPEB")
Three months ended June 30,
Six months ended June 30,
2021
2020
2021 2020
Service cost $ 0.0 $ 0.1 $ 0.1 $ 0.2
Interest cost 0.6 0.7 1.2 1.5
Amortization of prior service cost ( 0.8 ) ( 0.8 ) ( 1.6 ) ( 1.6 )
Amortization of net loss 0.5 0.1 1.1 1.1
Net periodic benefit cost $ 0.3 $ 0.1 $ 0.8 $ 1.2
13. Derivatives
As of June 30, 2021, we had an open position of 164,666 tonnes related to LME forward financial sales contracts to fix the forward LME aluminum price. These contracts are expected to settle monthly through December 2024. We also had an open position of 390,000 tonnes related to MWP forward financial sales contracts to fix the forward MWP price. These contracts are expected to settle through December 2022. We have also entered into financial contracts with various counterparties to offset fixed price sales arrangements with certain of our customers ("fixed for floating swaps") to remain exposed to the LME and MWP aluminum prices. As of June 30, 2021, we had 13,957 tonnes related to fixed for floating swaps that will settle at various dates through June 2022.
We have entered into financial contracts to hedge a portion of Grundartangi's exposure to the Nord Pool power market (“Nord Pool power price swaps”). As of June 30, 2021, we had an open position of 2,058,993 MWh related to the Nord Pool power price swaps. The Nord Pool power price swaps are expected to settle monthly through December 2023. Because the Nord Pool power price swaps are settled in Euros, we have entered into financial contracts to hedge the risk of fluctuations associated with the Euro ("FX swaps"). As of June 30, 2021, we had an open position related to the FX swaps of € 49.4 million that will settle monthly through December 2023.
We have entered into financial contracts to fix a portion of our exposure to the Indiana Hub power market at our Kentucky plants ("Indiana Hub power price swaps"). As of June 30, 2021, we had an open position of 263,520 MWh. The Indiana Hub power price swaps are expected to settle monthly through December 2022.
The following table sets forth the Company's derivative assets and liabilities that were accounted for at fair value and not designated as cash flow hedges as of June 30, 2021 and December 31, 2020, respectively:
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Asset Fair Value
June 30, 2021
December 31, 2020
Commodity contracts (1)
$ 28.8 $ 12.8
Foreign exchange contracts (2)
0.3 2.4
Total $ 29.1 $ 15.2
Liability Fair Value
June 30, 2021
December 31, 2020
Commodity contracts (1)
$ 156.5 $ 16.7
Foreign exchange contracts (2)
0.5 —
Total $ 157.0 $ 16.7
(1) Commodity contracts reflect our outstanding LME forward financial sales contracts, MWP forward financial sales contracts, fixed for floating swaps, Nord Pool power price swaps, and Indiana Hub power price swaps. At June 30, 2021, $ 31.7 million of Due to affiliates and $ 14.9 million of Due to affiliates - less current portion was related to commodity contract liabilities with Glencore. At December 31, 2020, $ 1.2 million of Due from affiliates, $ 1.7 million of Due from affiliates - less current portion, $ 11.3 million of Due to affiliates, and $ 0.1 million of Due to affiliates - less current portion was related to commodity contract assets and liabilities with Glencore.
(2) Foreign exchange contracts reflect our outstanding FX swaps.
The following table summarizes the net (loss) gain on forward and derivative contracts:
Three months ended June 30,
Six months ended June 30,
2021
2020
2021
2020
Commodity contracts (1)
$ ( 63.6 ) $ 2.9 $ ( 159.6 ) $ 11.8
Foreign exchange contracts 0.3 0.8 ( 1.8 ) ( 4.3 )
Total $ ( 63.3 ) $ 3.7 $ ( 161.4 ) $ 7.5
(1) For the three months ended June 30, 2021 and 2020, $( 28.7 ) million and $( 7.9 ) million of the net (loss), respectively, was with Glencore. For the six months ended June 30, 2021 and 2020, $( 53.5 ) million and $ 4.7 million of the net (loss) gain, respectively, was with Glencore.
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FORWARD-LOOKING STATEMENTS
This quarterly report includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to the "safe harbor" created by section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. Forward-looking statements are statements about future events and are based on our current expectations. These forward-looking statements may be identified by the words “believe,” “expect,” “hope,” “target,” “anticipate,” “intend,” “plan,” “seek,” “estimate,” “potential,” “project,” “scheduled,” “forecast” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may.”
Forward-looking statements in this quarterly report and in our other reports filed with the Securities and Exchange Commission (the "SEC"), for example, may include, but are not limited to, statements regarding:
• Our assessment of global and local financial and economic conditions;
• Our assessment of the aluminum market and aluminum prices (including premiums);
• Our assessment of alumina pricing and costs associated with our other key raw materials, including power;
• The impact of the COVID-19 pandemic and governmental guidance and regulations aimed at addressing the pandemic, including any possible impact on our business, operations, financial condition, results of operation, global supply chains or workforce;
• The future financial and operating performance of the Company and its subsidiaries;
• Our ability to successfully manage market risk and to control or reduce costs;
• Our plans and expectations with respect to future operations of the Company and its subsidiaries, including any plans and expectations to curtail or restart production, including the expected impact of any such actions on our future financial and operating performance;
• Our plans and expectations with regards to future operations of our Mt. Holly smelter, including our expectations as to the restart of curtailed production at Mt. Holly, including the timing, costs and benefits associated with this restart project;
• Our plans with regards to future operations of our Hawesville smelter, including our expectations as to the restart of curtailed production at Hawesville and bringing the smelter back to full production and expectations as to the timing, costs and benefits associated with this restart project;
• Our ability to successfully obtain long-term competitive power arrangements for our operations;
• The impact of Section 232 relief, including tariffs or other trade remedies, the extent to which any such remedies may be changed, including through exclusions or exemptions, and the duration of any trade remedy;
• The impact of any new or changed law, regulation, including, without limitation, sanctions or other similar remedies or restrictions;
• Our anticipated tax liabilities, benefits or refunds including the realization of U.S. and certain foreign deferred tax assets and liabilities;
• Our ability to access existing or future financing arrangements and the terms of any such future financing arrangements;
• Our ability to repay or refinance debt in the future;
• Our ability to recover losses from our insurance;
• Estimates of our pension and other postretirement liabilities, legal and environmental liabilities and other contingent liabilities;
• Our assessment of any future tax audits or insurance claims and their respective outcomes;
• Negotiations with labor unions;
• Our assessment of any information technology-related risks, including the risk from cyberattack or data security breaches; and
• Our future business objectives, plans, strategies and initiatives, including our competitive position and prospects.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. Important factors that could cause actual results and events to differ from those described in such forward-looking statements can be found in the risk factors and forward-looking statements cautionary language contained in our Annual Report on Form 10-K, quarterly reports on Form 10-Q and in other filings made with the SEC. Although we have attempted to identify those material factors that could cause actual results or events to differ from those described in such forward-looking statements, there may be other factors that could cause actual results or events to differ from those anticipated, estimated or intended. Many of these factors are beyond our ability to control or predict. Given these uncertainties, the reader is cautioned not to place undue reliance on our forward-looking statements.
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We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.