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
September 30, Nine months ended
September 30,
2023 2022 2023 2022
NET SALES:
Related parties $ 400.9 $ 404.9 $ 1,240.3 $ 1,321.5
Other customers 144.3 232.3 432.8 925.9
Total net sales 545.2 637.2 1,673.1 2,247.4
Cost of goods sold 556.7 680.2 1,620.6 2,181.3
Gross (loss) profit ( 11.5 ) ( 43.0 ) 52.5 66.1
Selling, general and administrative expenses 10.8 8.7 36.2 26.2
Asset impairment — — — 159.4
Other operating expense (income) - net 1.9 ( 0.2 ) 13.7 0.2
Operating (loss) income ( 24.2 ) ( 51.5 ) 2.6 ( 119.7 )
Interest expense ( 9.2 ) ( 7.9 ) ( 26.6 ) ( 20.9 )
Interest income 0.4 0.1 1.1 0.2
Net (loss) gain on forward and derivative contracts ( 25.2 ) 112.6 ( 73.7 ) 287.7
Other income (expense) - net 1.3 11.6 ( 2.5 ) 16.7
(Loss) income before income taxes ( 56.9 ) 64.9 ( 99.1 ) 164.0
Income tax benefit (expense) 11.0 ( 20.6 ) 21.2 ( 64.6 )
(Loss) income before equity in earnings of joint ventures ( 45.9 ) 44.3 ( 77.9 ) 99.4
Equity in earnings of joint ventures 0.0 0.0 0.0 0.0
Net (loss) income ( 45.9 ) 44.3 ( 77.9 ) 99.4
Net loss attributable to noncontrolling interests ( 3.9 ) — ( 4.8 ) —
Net (loss) income attributable to Century stockholders ( 42.0 ) 44.3 ( 73.1 ) 99.4
Less: net income allocated to participating securities — 2.7 — 6.0
Net (loss) income allocated to common stockholders $ ( 42.0 ) $ 41.6 $ ( 73.1 ) $ 93.4
(LOSS) INCOME ATTRIBUTABLE TO CENTURY STOCKHOLDERS PER COMMON SHARE:
Basic $ ( 0.45 ) $ 0.46 $ ( 0.79 ) $ 1.02
Diluted $ ( 0.45 ) $ 0.43 $ ( 0.79 ) $ 0.97
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 92.4 91.3 92.4 91.3
Diluted 92.4 97.3 92.4 97.6
See Condensed Notes to the Consolidated Financial Statements
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in millions)
(Unaudited)
Three months ended
September 30, Nine months ended
September 30,
2023 2022 2023 2022
Comprehensive (loss) income:
Net (loss) income $ ( 45.9 ) $ 44.3 $ ( 77.9 ) $ 99.4
Other comprehensive income (loss) before income tax effect:
Net income (loss) on foreign currency cash flow hedges reclassified as income 0.0 0.0 ( 0.1 ) ( 0.1 )
Defined benefit plans and other postretirement benefits:
OPEB curtailment gain, net — ( 8.0 ) — ( 8.0 )
Amortization of prior service benefit (cost) during the period — ( 0.3 ) 0.1 ( 1.2 )
Amortization of net loss during the period 1.7 1.1 5.0 3.6
Other comprehensive income (loss) before income tax effect 1.7 ( 7.2 ) 5.0 ( 5.7 )
Income tax effect — ( 0.1 ) — ( 0.2 )
Other comprehensive income (loss) 1.7 ( 7.3 ) 5.0 ( 5.9 )
Comprehensive (loss) income ( 44.2 ) 37.0 ( 72.9 ) 93.5
Comprehensive loss attributable to noncontrolling interests ( 3.9 ) — ( 4.8 ) —
Comprehensive (loss) income attributable to Century stockholders $ ( 40.3 ) $ 37.0 $ ( 68.1 ) $ 93.5
See Condensed Notes to the Consolidated Financial Statements
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CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
September 30, 2023 December 31, 2022
ASSETS
Cash and cash equivalents $ 70.3 $ 54.3
Restricted cash 24.4 1.2
Accounts receivable - net 65.3 66.9
Due from affiliates 20.1 4.8
Inventories 465.9 398.8
Derivative assets 9.5 127.3
Prepaid and other current assets 28.9 24.5
Total current assets 684.4 677.8
Property, plant and equipment - net 994.8 744.4
Other assets 81.8 49.8
TOTAL $ 1,761.0 $ 1,472.0
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable, trade $ 221.4 $ 167.3
Accrued compensation and benefits 42.2 33.0
Due to affiliates 60.3 17.0
Accrued and other current liabilities 61.6 37.6
Derivative liabilities 2.9 9.7
Deferred credit - preliminary bargain purchase gain 161.6 —
Current maturities of long-term debt 84.0 146.1
Total current liabilities 634.0 410.7
Long-term debt 418.0 381.6
Accrued benefits - less current portion 112.6 118.0
Other liabilities 53.5 31.4
Long-term debt due to affiliates 10.0 —
Due to affiliates - less current portion 1.7 8.3
Deferred tax liabilities 83.9 103.1
Asset retirement obligations 60.6 19.6
Total noncurrent liabilities 740.3 662.0
COMMITMENTS AND CONTINGENCIES (NOTE 12)
SHAREHOLDERS’ EQUITY:
Preferred stock (Note 8)
0.0 0.0
Common stock (Note 8)
1.0 1.0
Additional paid-in capital 2,541.8 2,539.6
Treasury stock, at cost ( 86.3 ) ( 86.3 )
Accumulated other comprehensive loss ( 89.0 ) ( 94.0 )
Accumulated deficit ( 2,034.1 ) ( 1,961.0 )
Total Century shareholders’ equity 333.4 399.3
Noncontrolling interest 53.3 —
Total equity $ 386.7 $ 399.3
TOTAL $ 1,761.0 $ 1,472.0
See Condensed Notes to the Consolidated Financial Statements
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Nine months ended September 30,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ ( 77.9 ) $ 99.4
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Unrealized loss (gain) on derivative instruments 84.2 ( 302.3 )
Other postretirement benefits gain — ( 8.0 )
Lower of cost or NRV inventory adjustment — 46.5
Depreciation, depletion and amortization 55.3 57.5
Deferred tax (benefit) provision ( 23.5 ) 52.3
Asset impairment — 159.4
Other non-cash items - net ( 1.2 ) ( 12.5 )
Change in operating assets and liabilities, net of acquisition:
Accounts receivable - net 21.4 8.5
Due from affiliates ( 13.0 ) ( 5.6 )
Inventories 26.3 ( 4.1 )
Prepaid and other current assets 4.8 5.6
Accounts payable, trade ( 45.1 ) ( 9.6 )
Due to affiliates 15.8 ( 34.0 )
Accrued and other current liabilities ( 2.0 ) 12.5
Ravenswood retiree medical settlement ( 2.0 ) ( 2.0 )
PBGC Settlement ( 4.5 ) —
Other - net 1.0 ( 6.4 )
Net cash provided by operating activities 39.6 57.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 62.7 ) ( 70.2 )
Proceeds from sales of property, plant and equipment 25.7 0.1
Acquisition of subsidiary net of cash acquired 19.4 —
Net cash used in investing activities ( 17.6 ) ( 70.1 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities 575.2 910.2
Repayments under revolving credit facilities ( 632.0 ) ( 910.4 )
Debt issuance costs — ( 1.6 )
Repayment of Iceland Term Facility ( 9.8 ) —
Borrowings under Grundartangi casthouse debt facility 40.0 40.0
Borrowings under Vlissingen Facility Agreement 10.0 —
Carbon credit proceeds 33.8 —
Net cash provided by financing activities 17.2 38.2
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 39.2 25.3
Cash, cash equivalents and restricted cash, beginning of period 55.5 40.7
Cash, cash equivalents and restricted cash, end of period $ 94.7 $ 66.0
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Nine months ended September 30,
2023 2022
Supplemental Cash Flow Information:
Cash paid for:
Interest $ 22.3 $ 14.0
Taxes, net of refunds 1.0 1.9
Non-cash investing activities:
Capital expenditures 10.2 1.1
Capitalized interest 4.0 3.4
See Condensed Notes to the Consolidated Financial Statements
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data)
(Unaudited)
Preferred stock Common stock Additional paid-in capital Treasury stock, at cost Accumulated other comprehensive loss Accumulated
deficit Total Century Equity Noncontrolling Interest Total equity
Shares Amount Shares Amount
Three months ended
September 30, 2023
Balance, June 30, 2023 53,707 $ 0.0 92,358,549 $ 1.0 $ 2,541.0 $ ( 86.3 ) $ ( 90.7 ) $ ( 1,992.1 ) $ 372.9 $ 31.9 $ 404.8
Net income (loss) — 0.0 — — — — — ( 42.0 ) ( 42.0 ) ( 3.9 ) ( 45.9 )
Other comprehensive income — — — — — — 1.7 — 1.7 — 1.7
Share-based compensation — 0.0 26,324 0.0 0.8 — — — 0.8 — 0.8
Conversion of preferred stock to common stock ( 199 ) 0.0 19,790 0.0 0.0 — — — 0.0 — 0.0
Noncontrolling interest of business acquired — 0.0 — 0.0 — — — — — 25.3 25.3
Balance, September 30, 2023 53,508 $ 0.0 92,404,663 $ 1.0 $ 2,541.8 $ ( 86.3 ) $ ( 89.0 ) $ ( 2,034.1 ) $ 333.4 $ 53.3 $ 386.7
Three months ended
September 30, 2022
Balance, June 30, 2022 58,376 $ 0.0 91,270,374 $ 1.0 $ 2,537.0 $ ( 86.3 ) $ ( 80.9 ) $ ( 1,891.8 ) $ 479.0 $ — $ 479.0
Net income — 0.0 — — — — — 44.3 44.3 — 44.3
Other comprehensive income — — — — — — ( 7.3 ) — ( 7.3 ) — ( 7.3 )
Share-based compensation — 0.0 43,873 0.0 0.6 — — — 0.6 — 0.6
Conversion of preferred stock to common stock ( 330 ) 0.0 32,982 0.0 0.0 — — — 0.0 — 0.0
Balance, September 30, 2022 58,046 $ 0.0 91,347,229 $ 1.0 $ 2,537.6 $ ( 86.3 ) $ ( 88.2 ) $ ( 1,847.5 ) $ 516.6 $ — $ 516.6
See Condensed Notes to the Consolidated Financial Statements
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CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data)
(Unaudited)
Preferred stock Common stock Additional paid-in capital Treasury stock, at cost Accumulated other comprehensive loss Accumulated
deficit Total Century Equity Noncontrolling Interest Total equity
Shares Amount Shares Amount
Nine Months Ended
September 30, 2023
Balance, December 31, 2022 53,855 $ 0.0 92,323,978 $ 1.0 $ 2,539.6 $ ( 86.3 ) $ ( 94.0 ) $ ( 1,961.0 ) $ 399.3 $ — $ 399.3
Net loss — — — — — — — ( 73.1 ) ( 73.1 ) ( 4.8 ) ( 77.9 )
Other comprehensive income — — — — — — 5.0 — 5.0 — 5.0
Share-based compensation — — 46,059 0.0 2.2 — — — 2.2 — 2.2
Conversion of preferred stock to common stock ( 347 ) 0.0 34,626 0.0 — — — — — — 0.0
Noncontrolling interest of business acquired — — — — — — — — — 58.1 58.1
Balance, September 30, 2023 53,508 $ 0.0 92,404,663 $ 1.0 $ 2,541.8 $ ( 86.3 ) $ ( 89.0 ) $ ( 2,034.1 ) $ 333.4 $ 53.3 $ 386.7
Nine Months Ended
September 30, 2022
Balance, December 31, 2021 58,542 $ 0.0 91,231,611 $ 1.0 $ 2,535.5 $ ( 86.3 ) $ ( 82.3 ) $ ( 1,946.9 ) $ 421.0 $ — $ 421.0
Net income — — — — — — — 99.4 99.4 — 99.4
Other comprehensive income — — — — — — ( 5.9 ) — ( 5.9 ) — ( 5.9 )
Share-based compensation — 0.0 66,001 0.0 2.1 — — — 2.1 — 2.1
Conversion of preferred stock to common stock ( 496 ) 0.0 49,617 0.0 0.0 — — — 0.0 — 0.0
Balance, September 30, 2022 58,046 $ 0.0 91,347,229 $ 1.0 $ 2,537.6 $ ( 86.3 ) $ ( 88.2 ) $ ( 1,847.5 ) $ 516.6 $ — $ 516.6
See Condensed Notes to the Consolidated Financial Statements
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CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements
Nine months ended September 30, 2023 and 2022
(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, 2022. 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 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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.
Certain prior period amounts included in the Consolidated Balance Sheets have been reclassified to conform with the current period presentation.
Our consolidated financial statements include the consolidated results of the Jamalco joint venture, an unincorporated joint venture between the Company and Clarendon Alumina Production Limited. Clarendon Alumina Production's interest in the joint venture is reflected as noncontrolling interest on the accompanying Consolidated Balance Sheet.
2. Acquisition of Jamalco
On May 2, 2023, our wholly-owned subsidiary, Century Aluminum Jamaica Holdings, Inc., completed the acquisition of all the outstanding share capital of General Alumina Holdings Limited, the holder of a 55 % interest in Jamalco JV ("Jamalco"), an unincorporated joint venture engaged in bauxite mining and alumina production in Jamaica. The remaining 45 % interest in Jamalco is owned by Clarendon Alumina Production Limited ("CAP"), which in turn is owned by the Government of Jamaica. Total consideration for the acquisition was approximately $ 8.3 million in cash, comprised of a purchase price of $ 1.00 and $ 8.3 million related to the remaining restricted cash acquired as of the completion date. The acquisition is expected to result in a bargain purchase gain in part due to the seller experiencing financial distress following curtailment of Jamalco's operations in the second half of 2021 due to a facility fire, with operations restarting in the second half of 2022.
The acquisition was accounted for as a business combination under the acquisition method of accounting. Determining the fair value of identified assets acquired, liabilities assumed and noncontrolling interest requires judgment and involves the use of significant estimates and assumptions. The Company based its fair value estimates on assumptions it believes to be reasonable but are inherently uncertain. These estimates and valuation of the property, plant and equipment, current assets, c urrent liabilities, other long-term assets, provision for resettlement obligations included in other liabilities and asset retirement obligations acquired as well as the related deferred bargain purchase gain and noncontrolling interest are preliminary as of September 30, 2023 and are subject to change as we finalize the valuation or if additional information about the facts and circumstances that existed at the acquisition date become available. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date.
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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 consideration transferred and the estimated fair value of identified assets acquired, liabilities assumed and noncontrolling interest at the date of acquisition:
Preliminary purchase price allocation Amount
Consideration transferred
Cash paid $ 8.3
Total consideration transferred $ 8.3
Less: identifiable assets acquired and liabilities assumed
Cash and cash equivalents $ 19.4
Restricted cash 8.3
Inventories 93.4
Accounts receivable - net 8.0
Prepaid and other current assets 7.8
Property, plant and equipment - net 250.9
Other assets
28.0
Accounts payable, trade ( 92.9 )
Accrued and other current liabilities ( 33.9 )
Other liabilities ( 24.5 )
Asset retirement obligations ( 36.5 )
Total identifiable net assets acquired 228.0
Less: noncontrolling interest ( 58.1 )
Deferred credit - preliminary bargain purchase gain ( 161.6 )
Fair value allocated to net assets acquired, net of bargain purchase gain $ 8.3
For the three and nine months ended September 30, 2023, Jamalco contributed $ 63.4 million and $ 107.1 million to our total revenues. In connection with the acquisition, the Company incurred approximately $ 0.2 million and $ 1.9 million of transaction costs, respectively, for the three and nine months ended September 30, 2023 which are included in selling, general and administrative expenses on the Consolidated Statements of Operations.
The following unaudited pro forma financial information reflects the results of operations of the Company for the three and nine months ended September 30, 2023 and 2022, respectively, as if the acquisition of Jamalco had been completed on January 1, 2022. This unaudited pro forma financial information has been prepared for informational purposes and is not necessarily indicative of the actual consolidated results of operations had the acquisition been completed on January 1, 2022, nor is the information indicative of future results of operations of the combined companies.
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Revenue $ 545.2 $ 649.5 $ 1,722.8 $ 2,259.6
Earnings $ ( 42.0 ) $ 40.7 $ ( 77.0 ) $ 103.1
3. Curtailment of Operations - Hawesville
In August 2022, we fully curtailed production at the Hawesville facility and expect to continue to maintain the plant with the intention of restarting operations when market conditions permit, including energy prices returning to more normalized levels and aluminum prices maintaining levels that can support the on-going costs and capital expenditures necessary to restart and operate the plant.
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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)
For the three and nine months ended September 30, 2023, we incurred curtailment charges of approximately $ 2.0 million and $ 13.4 million, including $ 0.0 million and $ 9.0 million related to excess capacity charges, respectively. These charges were partially offset by income related to scrap and materials sales of $ 0.0 million and $ 1.2 million for the three and nine months ended September 30, 2023. Comparatively, for the three and nine months ended September 30, 2022 we recognized $ 4.5 million and $ 12.6 million, respectively, of expenses related to accrued wages and severance, triggered by our issuance of the WARN notice and excess capacity charges, partially offset by final plant idling activities. We also recognized a non-cash other postretirement benefits ("OPEB") curtailment gain, net totaling $ 8.0 million for the three and nine months ended September 30, 2022. See Note 1 4 . Components of N et P eriodic B enefit C ost for additional information.
4. Related Party Transactions
The significant related party transactions occurring during the nine months ended September 30, 2023 and 2022 are described below. We believe all of our transactions with related parties are at prices that approximate market.
Glencore Ownership
As of September 30, 2023 , Glencore plc and its affiliates (together "Glencore") beneficially owned 42.9 % of Century’s outstanding common stock ( 46.0 % 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 8. 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 borrowing and other debt transactions.
Sales to Glencore
For the three months ended September 30, 2023 and 2022, we derived approximately 73.5 % and 63.5 % of our consolidated net sales from Glencore, respectively.
Glencore purchases aluminum produced at our U.S. smelters at prices based on 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 entered into agreements with Glencore pursuant to which we sell certain amounts of alumina at market-based prices. For the three and nine months ended September 30, 2023, we recorded $ 50.0 million and $ 136.8 million of revenue related to alumina sales to Glencore, respectively. For the three and nine months ended September 30, 2022, we recorded $ 4.9 million and $ 18.8 million, respectively, of revenue related to alumina sales to Glencore.
Purchases from Glencore
We purchase a portion of our alumina and certain other raw material requirements from Glencore. Alumina purchases from Glencore during the three months ended September 30, 2023 were priced based on published alumina and aluminum indices as well as fixed prices.
Financial Contracts with Glencore
We have certain financial contracts with Glencore. See Note 15. Derivatives regarding these forward financial sales contracts.
Vlissingen Facility Agreement
On December 9, 2022, Vlissingen entered into a Facility Agreement with Glencore International AG pursuant to which Vlissingen may borrow from time to time up to $ 90 million (the "Vlissingen Facility Agreement") in one or more loans at a fixed interest rate equal to 8.75 % per annum and payable on December 2, 2024. See Note 11. Debt for additional information. Borrowings under the Vlissingen Facility Agreement are expected to be used for general corporate and working capital purposes of Century and its subsidiaries.
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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)
Carbon Credit Repurchase Agreement
On September 28, 2023, our wholly owned subsidiary Nordural Grundartangi ehf ("Grundartangi"), entered into a structured repurchase arrangement with an affiliate of Glencore pursuant to which it sold 390,000 European Union Allowances ("Carbon Credits") at a price of € 82.18 per Carbon Credit, for an aggregate amount of € 32.1 million. Pursuant to the terms of the transaction, Grundartangi will repurchase the same number of Carbon Credits by December 21, 2023, at a price of € 83.72 per Carbon Credit, for an aggregate amount of EUR € 32.7 million. Given the repurchase element of the agreement, the Company substantially retains all of the remaining benefits of the assets and has accounted for the transaction as a financing arrangement in accordance with Topic 606.
Summary
A summary of the aforementioned significant related party sales and purchases is as follows:
Three months ended
September 30, Nine months ended
September 30,
2023 2022 2023 2022
Net sales to Glencore $ 400.9 $ 404.9 $ 1,240.3 $ 1,321.5
Purchases from Glencore (1)
23.2 56.0 174.5 268.5
(1) Includes settlements of financial contract positions.
5. Revenue
We disaggregate our revenue by geographical region as follows:
Net Sales Three months ended
September 30, Nine months ended
September 30,
2023 2022 2023 2022
United States $ 273.9 $ 353.5 $ 935.7 $ 1,443.0
Iceland 207.9 283.7 630.3 804.4
Jamaica 63.4 — 107.1 —
Total $ 545.2 $ 637.2 $ 1,673.1 $ 2,247.4
Contract liabilities are recorded when cash payments are received or due in advance of performance. As of September 30, 2023, $ 10.1 million was recorded in Due to affiliates. There were no contract liabilities as of December 31, 2022.
6. 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.
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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 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 - unobservable inputs for the asset or liability.
Recurring Fair Value Measurements As of September 30, 2023
Level 1
Level 2
Level 3
Total
ASSETS:
Cash equivalents $ 15.8 $ — $ — $ 15.8
Trust assets (1)
0.6 — — 0.6
Derivative instruments — 12.4 — 12.4
TOTAL $ 16.4 $ 12.4 $ — $ 28.8
LIABILITIES:
Derivative instruments $ — $ ( 10.4 ) $ — $ ( 10.4 )
TOTAL $ — $ ( 10.4 ) $ — $ ( 10.4 )
Recurring Fair Value Measurements As of December 31, 2022
Level 1
Level 2
Level 3
Total
ASSETS:
Cash equivalents $ 5.6 $ — $ — $ 5.6
Trust assets (1)
0.1 — — 0.1
Derivative instruments — 127.3 1.8 129.1
TOTAL $ 5.7 $ 127.3 $ 1.8 $ 134.8
LIABILITIES:
Derivative instruments $ — $ 26.4 $ 4.6 $ 31.0
TOTAL $ — $ 26.4 $ 4.6 $ 31.0
(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.
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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 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
Casthouse currency hedges Discounted cash flows Euro/USD forward exchange rate; ISK/USD forward exchange rate
NYMEX Henry Hub natural gas price swaps Discounted cash flows Quoted NYMEX Henry Hub forward market
Heavy Fuel Oil ("HFO") price swaps Discounted cash flows Quoted HFO 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 recurring 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:
Recurring Level 3 Fair Value Measurements: As of September 30, 2023
As of December 31, 2022
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)
$ — 8.58 % $ ( 2.8 ) 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. There was no activity related to Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2023.
Level 3 Assets Level 3 Liabilities
For the three months ended September 30, 2022
LME Forward financial sales contracts LME forward financial sales contracts Casthouse currency hedges
Balance as of July 1, 2022 $ 1.6 $ ( 3.8 ) —
Total realized/unrealized gains (losses)
Included in Net income (1)
1.6 1.5 —
Transfers into Level 3 (2)
— — 0.0
Balance as of September 30, 2022
$ 3.2 $ ( 2.3 ) $ 0.0
Change in unrealized gains (losses) (1)
$ 1.6 $ 1.5 $ 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 period of time remaining in derivative contract.
For the nine months ended September 30, 2023
Level 3 Assets Level 3 Liabilities
LME forward financial sales contracts LME forward financial sales contracts
Balance as of January 1, 2023 $ 1.8 $ ( 4.6 )
Transfers out of Level 3 (1)
( 1.8 ) 4.6
Balance as of September 30, 2023
$ — $ —
Change in unrealized gains (losses) (2)
$ — $ —
(1) Transfers out of Level 3 due to period of time remaining in derivative contract.
(2) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."
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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 nine months ended September 30, 2022
LME forward financial sales contracts Nord Pool Swaps LME forward financial sales contracts FX Swaps Casthouse currency hedges
Balance as of January 1, 2022 $ — $ 0.2 $ ( 5.1 ) $ ( 0.2 ) $ —
Total realized/unrealized gains (losses)
Included in Net income (1)
1.6 — 5.3 — —
Transfers into Level 3 (2)
1.6 — ( 2.5 ) — —
Transfers out of Level 3 (3)
— ( 0.2 ) — 0.2 0.0
Balance as of September 30, 2022
$ 3.2 $ — $ ( 2.3 ) $ — $ —
Change in unrealized gains (losses) (1)
$ 1.6 $ — $ 5.3 $ — $ —
(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 entered into during the nine months ended September 30, 2022.
(3) Transfers out of Level 3 due to period of time remaining in derivative contract.
7. Earnings Per Share
Basic earnings 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.
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
The following table shows the basic and diluted (loss) earnings per share:
For the three months ended September 30,
2023 2022
Net Income (Loss) Shares
(in millions)
Per Share Net Income (Loss) Shares
(in millions)
Per Share
Net (loss) income attributable to Century stockholders $ ( 42.0 ) $ 44.3
Less: net income allocated to participating securities — 2.7
Basic EPS:
Net (loss) income allocated to common stockholders $ ( 42.0 ) 92.4 $ ( 0.45 ) $ 41.6 91.3 $ 0.46
Effect of Dilutive Securities (1) :
Share-based compensation — — ( 0.4 ) 1.4
Convertible senior notes — — 0.7 4.6
Diluted EPS:
Net income allocated to common stockholders with assumed conversion $ ( 42.0 ) 92.4 $ ( 0.45 ) $ 41.9 97.3 $ 0.43
For the nine months ended September 30,
2023
2022
Net Income (Loss) Shares
(in millions)
Per Share Net Income (Loss) Shares
(in millions)
Per Share
Net (loss) income attributable to Century stockholders $ ( 73.1 ) $ 99.4
Less: net income allocated to participating securities — 6.0
Basic EPS:
Net (loss) income allocated to common stockholders $ ( 73.1 ) 92.4 $ ( 0.79 ) $ 93.4 91.3 $ 1.02
Effect of Dilutive Securities (1) :
Share-based compensation — — ( 1.2 ) 1.7
Convertible senior notes — — 2.1 4.6
Diluted EPS:
Net (loss) income allocated to common stockholders with assumed conversion $ ( 73.1 ) 92.4 $ ( 0.79 ) $ 94.3 97.6 $ 0.97
Three months ended
September 30, Nine months ended
September 30,
Securities excluded from the calculation of diluted EPS (in millions) (1) :
2023 2022 2023 2022
Share-based compensation 0.8 — 0.9 —
Convertible preferred shares 5.4 5.8 5.4 5.8
Convertible notes 4.6 — 4.6 —
(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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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
8. Shareholders’ Equity
Common Stock
As of September 30, 2023 and December 31, 2022, we had 195,000,000 shares of common stock, $ 0.01 cent par value per share, authorized under our Restated Certificate of Incorporation, of which 99,591,184 shares were issued and 92,404,663 shares were outstanding at September 30, 2023, and 99,510,499 were issued and 92,323,978 shares were outstanding at December 31, 2022.
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 September 30, 2023 and December 31, 2022, we had 5,000,000 shares of preferred stock, $ 0.01 cent 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 September 30, 2023 and December 31, 2022, 53,508 and 53,854 shares of Series A Convertible Preferred Stock were 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 of preferred to common shares is 100 shares of common stock for each share of preferred stock. Our Series A Convertible Preferred Stock has a par value of $ 0.01 per share.
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 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.
Through September 30, 2023 we repurchased 7,186,521 shares of common stock for an aggregate purchase price of $ 86.3 million. We have made no repurchases since April 2015 and have approximately $ 43.7 million remaining under the repurchase program authorization as of September 30, 2023.
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
9. Income Taxes
For the three months ended September 30, 2023 and September 30, 2022, we recorded an income tax benefit of $ 11.0 million and an income tax expense of $ 20.6 million, respectively. For the nine months ended September 30, 2023 and September 30, 2022, we recorded an income tax benefit of $ 21.2 million and an income tax expense of $ 64.6 million, respectively. The change is primarily due to changes in pretax income amounts and jurisdictional mix on a year over year basis.
Our income tax expense or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items. The application of the accounting requirements for income taxes in interim periods, after consideration of our valuation allowance on domestic losses, causes a significant variation in the typical relationship between income tax expense/benefit and pre-tax accounting income/loss as reported on the Consolidated Statement of Operations.
As of September 30, 2023, 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.
The Inflation Reduction Act of 2022 ("IRA") was signed into law on August 16, 2022, and the CHIPS and Science Act of 2022 was signed into law on August 9, 2022. These laws, effective January 1, 2023, implement new tax provisions, primarily a 15% corporate alternative minimum tax and a nondeductible 1% excise tax on the fair market value of stock repurchased by publicly traded corporations. As of September 30, 2023, these provisions, which were effective January 1, 2023, have not had any material impact on the financial statements. The IRA provides several tax incentives to promote clean energy and the production of critical minerals in the U.S. We are continuing to evaluate potential tax benefits available under the acts and expect the release of additional guidance from the U.S. Department of Treasury by the end of the year.
10. Inventories
Inventories consist of the following:
September 30, 2023 December 31, 2022
Raw materials $ 142.7 $ 64.9
Work-in-process 43.0 46.0
Finished goods 36.5 58.0
Operating and other supplies 243.7 229.9
Total inventories $ 465.9 $ 398.8
Inventories are stated at the lower of cost or Net Realizable Value ("NRV") using the first-in, first-out or the weighted average cost method.
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
11. Debt
September 30, 2023 December 31, 2022
Debt classified as current liabilities:
Hancock County industrial revenue bonds ("IRBs") due April 1, 2028 , interest payable quarterly (variable interest rates (not to exceed 12 %) ) (1)
$ 7.8 $ 7.8
U.S. Revolving Credit Facility (2)
68.2 90.0
Iceland Revolving Credit Facility (3)
— 35.0
Grundartangi casthouse facility (5)
3.1 —
Iceland Term Facility (4)
4.8 13.3
Vlissingen Facility Agreement (6)
0.1 —
Debt classified as non-current liabilities:
Grundartangi casthouse facility, net of financing fees of $ 0.7 million at September 30, 2023 (4)
86.2 49.4
Iceland Term Facility, net of financing fees of $ 0.0 million and current portion at September 30, 2023 (5)
— 1.2
Vlissingen Facility Agreement (6)
10.0 —
7.5 % senior secured notes due April 1, 2028, net of financing fees of $ 2.8 million at September 30, 2023, interest payable semiannually
247.2 246.6
2.75 % convertible senior notes due May 1, 2028, net of financing fees of $ 1.6 million at September 30, 2023, interest payable semiannually
84.6 84.4
Total $ 512.0 $ 527.7
(1) 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 interest rate at September 30, 2023 was 4.11 %.
(2) We incur interest at a base rate plus applicable margin as defined within the agreement. The interest rate at September 30, 2023 was 9.25 %.
(3) We incur interest at base rate plus applicable margin as defined within the agreement. The interest rate at September 30, 2023 wa s 8.40 %.
(4) We incur interest at a base rate plus applicable margin as defined within the agreement. The interest rate at September 30, 2023 was 8.77 %.
(5) We incur interest at a rate equal to 3.2 % plus EUR EURIBOR 1 month as published by the European Money Market Institute as defined within the agreement. The interest rate at September 30, 2023 was 6.88 %.
(6) We incur interest at a fixed rate of 8.75 %.
7.5 % Senior Secured Notes due 2028
In April 2021, we issued $ 250.0 million in aggregate principal amount of 7.5 % senior secured notes due April 1, 2028 (the "2028 Notes"). We received proceeds of $ 245.2 million, after payment of certain financing fees and related expenses. The 2028 Notes bear interest semi-annually in arrears on April 1 and October 1 of each year, which began on October 1, 2021, at a rate of 7.5 % per annum in cash. 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.
As of September 30, 2023, the total estimated fair value of the 2028 Notes was $ 237.5 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.
Convertible Notes due 2028
In April 2021, we completed a private offering of $ 86.3 million aggregate principal amount of convertible senior notes due May 1, 2028 unless earlier converted, repurchased, or redeemed (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
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
financing fees and related expenses. The Convertible Notes bear interest semi-annually in arrears on May 1 and November 1 of each year, which began on November 1, 2021, at a rate of 2.75 % per annum in cash.
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. As of September 30, 2023, the conversion rate remains unchanged.
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.
As of September 30, 2023, the if-converted value of the Convertible Note s does not exceed the outstanding principal amount.
As of September 30, 2023, the total estimated fair value of the Convertible Notes was $ 59.2 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.
U.S. Revolving Credit Facility
We and certain of our direct and indirect domestic subsidiaries have a senior secured revolving credit facility with a syndicate of lenders (as amended from time to time, the "U.S. revolving credit facility"). On June 14, 2022 we amended our U.S. revolving credit facility, increasing our borrowing capacity to $ 250.0 million in the aggregate, including up to $ 150.0 million under a letter of credit sub-facility. The U.S. revolving credit facility matures on June 14, 2027.
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 September 30, 2023, there were $ 68.2 million in outstanding borrowings and $ 41.8 million of outstanding letters of credit issued 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: September 30, 2023
Credit facility maximum amount 250.0
Borrowing availability 142.6
Outstanding letters of credit issued 41.8
Outstanding borrowings 68.2
Borrowing availability, net of outstanding letters of credit and borrowings 32.6
Iceland Revolving Credit Facility
Our wholly-owned subsidiary, Nordural Grundartangi ehf ("Grundartangi"), entered into a $ 80.0 million revolving credit facility agreement with Landsbankinn hf., dated November 2013, as amended (the "Iceland revolving credit facility"). On September 28, 2022, we further amended the Iceland revolving credit facility and increased the facility amount to $ 100.0 million in the aggregate. Under the terms of the Iceland revolving credit facility, when Grundartangi borrows funds it will designate a repayment date, which may be any date prior to the maturity of the Iceland revolving credit facility. At September 30, 2023, there were no outstanding borrowings under our Iceland revolving credit facility. The Iceland revolving credit facility has a term through November 2024.
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Status of our Iceland revolving credit facility: September 30, 2023
Credit facility maximum amount 100.0
Borrowing availability 100.0
Outstanding letters of credit issued —
Outstanding borrowings —
Borrowing availability, net of borrowings 100.0
Grundartangi Casthouse Facility
Our wholly-owned subsidiary, Grundartangi, has entered into an eight-year Term Facility Agreement with Arion Bank hf, dated November 2021, as amended (the "Casthouse Facility") to provide for borrowings up to $ 130.0 million associated with construction of the new billet casthouse at Grundartangi (the"casthouse project"). Under the Casthouse Facility, repayments of principal amounts will be made in equal quarterly installments equal to 1.739 % of the principal amount, the first payment occurring in July 2024, with the remaining 60 % of the principal amount to be paid no later than the termination date in December 2029. As of September 30, 2023, there were $ 86.9 million in outstanding borrowings under the Casthouse Facility.
Iceland Term Facility
Our wholly-owned subsidiary, Grundartangi, entered into a Term Facility Agreement with Arion Bank hf, dated September 2022, (the "Iceland Term Facility") to provide for borrowings up to € 13.6 million. Repayments of principal amounts are made in equal monthly installments, the first payment occurring in February 2023, with the remainder of the principal amount to be paid no later than the termination date in January 2024. Borrowings under the Iceland Term Facility bear interest at a rate equal to 3.2 % plus EUR EURIBOR 1 month as published at any time by the European Money Markets Institute. As of September 30, 2023, there were € 4.5 million ($ 4.8 million, based on the prevailing exchange rate on September 30, 2023) in outstanding borrowings under the Iceland Term Facility.
Vlissingen Facility Agreement
On December 9, 2022, Vlissingen entered into a Facility Agreement with Glencore International AG pursuant to which Vlissingen may borrow from time to time up to $ 90.0 million (the "Vlissingen Facility Agreement") in one or more loans at a fixed interest rate equal to 8.75 % per annum and payable on December 2, 2024, the maturity date of the Vlissingen Facility Agreement. As of September 30, 2023, there were $ 10.0 million in outstanding borrowings under the Vlissingen Facility Agreement.
Surety Bond Facility
As part of our normal business operations, we are required to provide surety bonds or issue letters of credit in certain states in which we do business as collateral for certain workers' compensation obligations. In June 2022, we entered into a surety bond facility with an insurance company to provide such bonds when applicable. As of September 30, 2023, we had issued surety bonds totaling $ 6.6 million. As we had previously guaranteed our workers' compensation obligations through issuance of letters of credit against our revolving credit facility, the surety bond issuance increases credit facility availability.
12. 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
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
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
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 September 30, 2023, $ 2.0 million was recorded in other current liabilities and $ 3.2 million was recorded in other liabilities.
PBGC Settlement
In 2013, we entered into a settlement agreement with the Pension Benefit Guaranty Corporation (the "PBGC") regarding an alleged "cessation of operations" at our Ravenswood f acility (the "PBGC Settlement Agreement"). Pursuant to the terms of the PBGC Settlement 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 were able to defer one or more of these payments, provided that we provide the PBGC with acceptable security for such deferred payments. We historically elected to defer certain payments under the PBGC Settlement Agreement and provided the PBGC with the appropriate security. In October 2021, we amended the PBGC Settlement Agreement (the "Amended PBGC Settlement Agreement") such that we removed the deferral mechanism and agreed to contribute approximately $ 2.4 million per year to our defined benefit pension plans for a total of approximately $ 9.6 million, over the next four years beginning on November 30, 2022 and ending on November 30, 2025, subject to acceleration if certain terms and conditions are met in such amendment. As of September 30, 2023, we made contributions of $ 6.9 million, including $ 4.5 million during the three months ended September 30, 2023, related to the Amended PBGC Settlement Agreement. We did no t make any contributions for the three months ended September 30, 2022.
Power Commitments and Contingencies
Hawesville
Hawesville has a power supply arrangement with Kenergy and Century Marketer, LLC (“Century Marketer"), Century's wholly-owned subsidiary that acts as a MISO market participant. Under this arrangement, Hawesville gets access to power at Midcontinent Independent System Operator ("MISO") pricing plus transmission and other costs. As the MISO Market Participant, Century Marketer purchases power from MISO for resale to Kenergy, which then resells the power to Hawesville. The power supply arrangement with Kenergy has an effective term through May 2028.
Sebree
Sebree has a power supply arrangement with Kenergy and Century Marketer, LLC (“Century Marketer"), Century's wholly-owned subsidiary that acts as a MISO market participant. Under this arrangement, Sebree gets access to power at Midcontinent Independent System Operator ("MISO") pricing plus transmission and other costs. As the MISO Market Participant, Century Marketer purchases power from MISO for resale to Kenergy, which then resells the power to Sebree. The power supply arrangement with Kenergy has an effective term through May 2028.
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
Mt. Holly
Century Aluminum of South Carolina, Inc. has a power supply agreement with Santee Cooper that has an effective term from April 1, 2021 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 provides sufficient energy to allow Mt. Holly to produce at 75 % of full production capacity. On October 27, 2023, we entered into a new power supply agreement effective January 2024. See Note 16. Subsequent Events for further details.
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. In July 2021, Grundartangi 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, including the Grundartangi casthouse project. In September 2022, this agreement was amended to provide for 42 MW at a fixed price and 119 MW at rates linked to Nord Pool plus transmission through 2023 and beginning January 1, 2024 through December 31, 2026, this agreement allows for fixed rates plus a small variable rate portion of the full 182 MW. 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, Sebree and Jamalco facilities are represented by labor unions, representing approximately 59 % of our total workforce.
Approximately 87 % 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 is effective through May 31, 2024.
Approximately 41 % of our U.S. based work force is represented by USW through separately negotiated labor agreements for each facility. The labor agreement for Hawesville employees is effective through April 1, 2026. Upon announcement of the temporary curtailment, Hawesville and the USW local union entered into effects bargaining. An agreement was reached on July 19, 2022, covering the curtailment period. Century Sebree's labor agreement with the USW for its employees was effective through October 28, 2023 and was extended until November 10, 2023. Century Sebree and the USW are currently in active negotiations on the terms of a new agreement. Mt. Holly employees are not represented by a labor union.
Approximately 62 % of Jamalco’s work force is represented by the Union of Technical, Administrative, and Supervisory Personnel ("UTASP") through separately negotiated labor agreements for hourly and salaried employee groups. Both contracts are effective through December 31, 2023.
Contingent obligations
We have a contingent obligation in connection with the "unwind" of a contractual arrangement between CAKY, Big Rivers Electric Corporation ("Big Rivers") and a third party and the execution of a long-term cost-based power contract with Kenergy, a member of a cooperative of Big Rivers, in July 2009. This contingent obligation consists of the aggregate payments made to Big Rivers by the third party on CAKY’s behalf in excess of the agreed upon base amount under the long-term cost-based power contract with Kenergy. As of September 30, 2023, the principal and accrued interest for the contingent obligation was $ 30.5 million, which was fully offset by a derivative asset. We may be required to make installment payments for the contingent obligation in the future. These payments are contingent based on the LME price of primary aluminum and the level of Hawesville’s operations. As of September 30, 2023, the LME forward market prices do not exceed the threshold for
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Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in millions, except share and per share amounts)
(Unaudited)
payment. In addition, based on the current level of Hawesville's operations, including the temporary curtailment, we believe that we will not be required to make payments on the contingent obligation during the term of the agreement, which expires in 2028. There can be no assurance that circumstances will not change thus accelerating the timing of such payments.
13. Components of Accumulated Other Comprehensive Loss
Components of AOCL: September 30, 2023
December 31, 2022
Defined benefit plan liabilities
$ ( 92.9 ) $ ( 98.0 )
Unrealized gain on financial instruments 1.7 1.7
Other comprehensive loss before income tax effect
( 91.2 ) ( 96.3 )
Income tax effect (1)
2.2 2.3
Accumulated other comprehensive loss
$ ( 89.0 ) $ ( 94.0 )
(1) The allocation of the income tax effect to the components of other comprehensive loss is as follows:
September 30, 2023
December 31, 2022
Defined benefit plan liabilities $ 2.6 $ 2.6
Unrealized gain on financial instruments ( 0.4 ) ( 0.3 )
The following table summarizes the changes in the accumulated balances for each component of AOCL:
Defined benefit plan and other postretirement liabilities Unrealized gain on financial instruments Total, net of tax
Balance, June 30, 2023
$ ( 92.2 ) $ 1.5 $ ( 90.7 )
Net amount reclassified to net loss 1.7 0.0 1.7
Balance, September 30, 2023
$ ( 90.5 ) $ 1.5 $ ( 89.0 )
Balance, June 30, 2022
$ ( 82.6 ) $ 1.7 $ ( 80.9 )
Net amount reclassified to net income ( 7.3 ) 0.0 ( 7.3 )
Balance, September 30, 2022
$ ( 89.9 ) $ 1.7 $ ( 88.2 )
Balance, January 1, 2023
$ ( 95.6 ) $ 1.6 $ ( 94.0 )
Net amount reclassified to net loss 5.1 ( 0.1 ) 5.0
Balance, September 30, 2023
$ ( 90.5 ) $ 1.5 $ ( 89.0 )
Balance, January 1, 2022
$ ( 84.0 ) $ 1.7 $ ( 82.3 )
Net amount reclassified to net income ( 5.9 ) 0.0 ( 5.9 )
Balance, September 30, 2022
$ ( 89.9 ) $ 1.7 $ ( 88.2 )
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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)
Reclassifications out of AOCL were included in the consolidated statements of operations as follows:
Three months ended
September 30, Nine months ended
September 30,
AOCL Components Location 2023 2022 2023 2022
Defined benefit plan and other postretirement liabilities Cost of goods sold $ 1.1 $ 0.4 $ 3.3 $ 1.3
Other income (expense) - net — ( 8.0 ) — ( 8.0 )
Selling, general and administrative expenses 0.1 0.2 0.4 0.5
Other operating expense - net 0.5 0.2 1.4 0.7
Income tax effect — ( 0.1 ) — ( 0.3 )
Net of tax $ 1.7 $ ( 7.3 ) $ 5.1 $ ( 5.8 )
Unrealized gain (loss) on financial instruments Cost of goods sold $ 0.0 $ 0.0 $ ( 0.1 ) $ ( 0.1 )
Income tax effect 0.0 0.0 0.0 0.0
Net of tax $ 0.0 $ 0.0 $ ( 0.1 ) $ ( 0.1 )
14. Components of Net Periodic Benefit Cost
Pension Benefits
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Service cost $ 0.6 $ 1.1 $ 1.7 $ 3.2
Interest cost 3.5 2.6 10.5 7.7
Expected return on plan assets ( 3.8 ) ( 5.9 ) ( 11.3 ) ( 17.6 )
Amortization of prior service costs — 0.0 0.1 0.1
Amortization of net loss 1.7 0.9 4.9 2.6
Net periodic benefit cost (income) $ 2.0 $ ( 1.3 ) $ 5.9 $ ( 4.0 )
Other Postretirement Benefits
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Service cost $ — $ — $ 0.1 $ 0.1
Interest cost 1.0 0.9 2.9 2.2
Amortization of prior service cost — ( 0.3 ) — ( 1.3 )
Amortization of net loss 0.0 0.2 0.1 1.0
Curtailment gain, net — ( 8.0 ) — ( 8.0 )
Net periodic benefit cost $ 1.0 $ ( 7.2 ) $ 3.1 $ ( 6.0 )
15. Derivatives
As of September 30, 2023, we had an open position of 74,993 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 have also
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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)
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 September 30, 2023, we had 949 tonnes related to fixed for floating swaps that will settle monthly through November 2023.
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”). All of the Nord Pool power price swaps are expected to cash settle monthly through December 2023. The Nord Pool power price swaps are settled in Euros; therefore, we have entered into financial contracts to hedge the risk of fluctuations associated with the Euro ("FX swaps"). As of September 30, 2023, we had an open position related to the FX swaps of € 8.2 million that will settle monthly through December 2023.
During the third quarter of 2022, we entered certain floating Nord Pool financial contracts to unwind a portion of our fixed contract position, making us predominantly hedged against Nord Pool power price fluctuations during 2023. As of September 30, 2023, we had an open net position of 249,612 MWh related to the Nord Pool power price swaps 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 September 30, 2023, we had an open position of 44,160 MWh. The Indiana Hub power price swaps are expected to settle monthly through December 2023.
We have entered into forward contracts to hedge the risk of fluctuations associated with the Icelandic Krona (ISK) and Euro for contracts related to the construction of the Grundartangi casthouse and the Sebree casthouse project denominated in these currencies ("casthouse currency hedges"). As of September 30, 2023, we had an open position related to the ISK casthouse swaps of kr 1.7 billion that will settle monthly through January 2024. As of September 30, 2023, we had an open position related to the Euro casthouse swaps of € 5.3 million that will settle monthly through January 2024.
We have entered into financial contracts to hedge a portion of our exposure at our operations to the NYMEX Henry Hub (“NYMEX Henry Hub natural gas price swaps”). The natural gas volume is measured per million British Thermal Units ("MMBtu"). As of September 30, 2023, we had an open position of 900,000 MMBtu. The NYMEX Henry Hub natural gas price swaps are expected to settle monthly through December 2023.
We have entered into financial contracts to hedge a portion of our exposure at our operations to Heavy Fuel Oil (“HFO price swaps”). The HFO volume is measured per barrel. As of September 30, 2023, we had an open position of 100,000 barrels. The HFO price swaps are expected to settle monthly through March 2024.
Our agreements with derivative counterparties contain certain provisions requiring collateral to be posted in the event the market value of our position exceeds the margin threshold limit of our master agreement with the counterparty. As of September 30, 2023 and December 31, 2022, the Company had not recorded restricted cash as collateral related to open derivative contracts under the master arrangements with our counterparties.
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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 tables set forth the Company's derivative assets and liabilities that were accounted for at fair value and not designated as cash flow hedges as of September 30, 2023 and December 31, 2022, respectively:
Asset Fair Value
September 30, 2023 December 31, 2022
Commodity contracts (1)
$ 12.4 $ 129.1
Foreign exchange contracts (2)
— —
Total $ 12.4 $ 129.1
Liability Fair Value
September 30, 2023 December 31, 2022
Commodity contracts (1)
$ 8.4 $ 23.7
Foreign exchange contracts (2)
2.0 7.3
Total $ 10.4 $ 31.0
(1) Commodity contracts reflect our outstanding LME forward financial sales contracts, fixed for floating swaps, Nord Pool power price swaps, NYMEX Henry Hub natural gas price swaps, HFO price swaps, and Indiana Hub power price swaps. At September 30, 2023, $ 2.3 million of Due from affiliates, $ 5.6 million of Due to affiliates, and $ 1.7 million of Due to affiliates - less current portion were related to commodity contracts with Glencore. At December 31, 2022, $ 11.9 million of Due to affiliates, and $ 8.3 million of Due to affiliates - less current portion were related to commodity contract liabilities with Glencore.
(2) Foreign exchange contracts reflect our outstanding FX swaps and the casthouse currency hedges.
The following table summarizes the net (loss) gain on forward and derivative contracts:
Three months ended
September 30, Nine months ended
September 30,
2023 2022 2023 2022
Commodity contracts (1)
$ ( 24.8 ) $ 120.0 $ ( 74.9 ) $ 301.3
Foreign exchange contracts ( 0.4 ) ( 7.4 ) 1.2 ( 13.6 )
Total $ ( 25.2 ) $ 112.6 $ ( 73.7 ) $ 287.7
(1) For the three months ended September 30, 2023, $ 3.1 million of the net loss was with Glencore, and for the three months ended September 30, 2022, $ 13.1 million of the net gain was with Glencore. For the nine months ended September 30, 2023, $ 6.6 million of the net loss with Glencore, and for the nine months ended September 30, 2022, $ 19.4 million of the net gain was with Glencore.
16. Subsequent Events
Mt. Holly Power Contract
On October 27, 2023, our wholly-owned subsidiary, Century Aluminum of South Carolina, Inc. ("CASC"), entered into an agreement with the South Carolina Public Service Authority (also known as Santee Cooper) for a new, three-year power contract for Century's Mt. Holly aluminum smelter. The contract will be effective as of January 1, 2024, and run through December 2026, and will provide for 295 MW of electric power at rates allowing the Mt. Holly smelter to continue operating at its current capacity.
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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 alum inum market and aluminum prices (including premiums);
• Our assessment of alumina pricing, the outlook on when energy prices, both in the United States and Europe, may return to more normalized levels, costs associated with our other key raw materials and supply and availability of those key raw materials, including power (and related natural gas and coal), and the likelihood and extent of any power curtailments;
• Our assessment of power prices and availability for our U.S. and European operations;
• The impact of the COVID-19 pandemic and governmental guidance and regulations aimed at addressing the pandemic, including any possible impact on our b usiness, operations, financial condition, results of operation, global supply chains or workforce;
• The impact of the war in Ukraine, including any sanctions and export controls targeting Russia and businesses tied to Russia and to sanctioned entities and individuals, including any possible impact on our business, operations, financial condition, results of operations, and global supply chains;
• 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 restarting curtailed production;
• Our plans with regards to future operations of our Hawesville smelter, including our expectations as to the timing, costs and benefits associated with restarting curtailed production;
• Our plans and expectations with regards to the Grundartangi casthouse project, including our expectations as to the timing, costs and benefits associated with the Grundartangi casthouse project;
• Our plans and expectations with respect to the acquisition of a 55% interest in Jamalco, including our expectations as to the costs and benefits associated with this transaction;
• Our ability to successfully obtain and/or retain 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 or any changes in interpretation of existing laws or regulations;
• Our anticipated tax liabilities, benefits or refunds including the realization of U.S. and certain foreign deferred tax assets and liabilities;
• Our ability to qualify for and realize potential tax benefits under the Inflation Reduction Act of 2022;
• 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;
• Our assessment and 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 current labor unions or future representation by a union of our employees;
• Our assessment of any information technology-related risks, including the risk from cyberattacks or other data security breaches, including the cybersecurity incident that occurred on February 16, 2022;
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• Our plans and expectations regarding potential M&A including our ability to consummate such transactions and our assessments of certain risks associated with the same, including, for example, unforeseen costs and expenses associated with unidentified liabilities, and difficulties integrating an acquired asset into our existing operations; 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. 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.