Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Century Aluminum Company and should be read in conjunction with the accompanying consolidated financial statements and related notes thereto. This MD&A contains “forward-looking statements” - see “Forward-Looking Statements” above.
Overview
We are a global producer of primary aluminum with aluminum reduction facilities, or "smelters," in the United States and Iceland. In addition to our primary aluminum assets, we have a 55% joint venture interest in the Jamalco bauxite mining operation and alumina refinery in Jamaica. The Jamalco refinery supplies a substantial amount of the alumina used for the production of primary aluminum at our Grundartangi, Iceland facility. We also own a carbon anode production facility located in the Netherlands. The key determinants of our results of operations and cash flows from operations are as follows:
• the price of primary aluminum, which is based on the London Metal Exchange ("LME") and other exchanges, plus any regional premiums and value-added product premiums;
• the cost of goods sold, the principal components of which are electrical power, alumina, carbon products, labor and other controllable costs, which in aggregate represent more than 78% of our cost of goods sold; and
• our production volume and product mix.
Recent Developments
Section 45X of the Inflation Reduction Act
On October 24, 2024, the U.S. Treasury Department and the Internal Revenue Service issued final regulations implementing Section 45X of the Inflation Reduction Act, which provide guidance on rules taxpayers must satisfy to qualify for the tax credit. The government has incentivized the production of aluminum by offering a tax credit equal to 10% of eligible domestic production costs. Based on the final regulations, for the three and nine months ended September 30, 2024, we recognized $47.3 million and $69.9 million as a reduction in Cost of goods sold and $0.8 million and $2.0 million, respectively, as a reduction in Selling, general and administrative expenses within the Consolidated Statements of Operations, resulting in an equally offsetting receivable. As of September 30, 2024 and December 31, 2023, we recognized a manufacturing credit receivable of $78.8 million and $59.3 million, respectively, and as of September 30, 2024, we recognized a non-current manufacturing credit receivable of $52.4 million within Other assets on the Consolidated Balance Sheets.
U.S. Department of Energy Award
On March 25, 2024, the U.S. Department of Energy ("DOE") Office of Clean Energy Demonstrations selected the Company to begin award negotiations for up to $500.0 million in Bipartisan Infrastructure Law and Inflation Reduction Act funding to build a new aluminum smelter as part of the Industrial Demonstrations Program ("IDP"). With the help of this funding, we plan to build the first new U.S. primary aluminum smelter in 45 years at a site within the Ohio/Mississippi River Basins.
Acquisition of 55% interest in Jamalco
On May 2, 2023, our wholly-owned subsidiary, CAJH, acquired for $1.00 all of the outstanding share capital of GAHL, the indirect holder of a 55% interest in Jamalco, an unincorporated joint venture with CAP, which is owned by the Government of Jamaica. Jamalco is engaged in bauxite mining and alumina refining in Jamaica. The Company's indirect wholly-owned subsidiary, GAJL, is the manager of Jamalco. Jamalco has alumina production capacity of approximately 1.4 million tonnes. We finalized the purchase accounting and recognized a bargain purchase gain of $245.9 million within the Consolidated Statements of Operations for the nine months ended September 30, 2024. Our historical financial statements for periods prior to May 2, 2023 do not include the results of Jamalco. Refer to Note 2. Acquisition of Jamalco for further information.
Equipment Failure
Starting in June 2023, we experienced power disruptions due to damage to the Jamalco power generation unit. The equipment returned to full capacity as of the end of October 2023. We are actively engaged with our insurance carriers in connection with this equipment failure to determine the specific amount of coverage available to us under our business interruption insurance, including any applicable deductibles. The cumulative impact of the equipment failure was approximately $38.8 million.
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Hurricane Beryl
In early July 2024, Hurricane Beryl temporarily impacted our operations in Jamaica. Jamalco’s production facilities escaped significant damage, but the port facility was impacted by the storm, where a portion of the alumina conveyor was damaged. Jamalco's bauxite mining and alumina production joint venture returned to full production on July 12, 2024. Jamalco secured alternative port arrangements to allow for alumina shipments to its customers while the repairs to the conveyor were ongoing. On September 17, 2024, we resumed normal shipping operations at Jamalco’s Rocky Point port following the completion of repairs to the port.
Hawesville curtailment
In August 2022 we fully curtailed production at the Hawesville facility. We continue to explore all options related to the Hawesville facility.
For the three and nine months ended September 30, 2024, we incurred curtailment charges of approximately $2.7 million and $5.0 million, respectively. These charges were partially offset by income related to scrap and materials sales of $0.5 million for the nine months ended September 30, 2024. There were no scrap and materials sales as of the three months ended September 30, 2024. Comparatively, 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 demand capacity charges for power, respectively. These charges were partially offset by income related to scrap and materials sales of $0.0 million and $1.2 million for the three and nine months ended September 30, 2023
Pricing of aluminum
The overall price of primary aluminum consists of three components: (i) the base commodity price, which is based on quoted prices on the LME and other exchanges; plus (ii) any regional premium (e.g., the Midwest premium for metal sold in the United States ("MWP") and the European Duty Paid premium for metal sold into Europe ("EDPP")); plus (iii) any value-added product premium. Each of these price components has its own drivers and variability.
The price of aluminum is influenced by a number of factors, including global supply-demand balance, inventory levels, speculative activities by market participants, production activities by producers, geopolitical and economic conditions, as well as production costs in major production regions. These factors can be highly variable and difficult to predict, which can lead to significant volatility in the price of aluminum. Increases or decreases in primary aluminum prices drive variability in our revenues (assuming all other factors are unchanged). From time to time, we may seek to manage our exposure to fluctuations in the LME price of primary aluminum and/or associated regional premiums through financial instruments designed to limit our downside price risk. Information regarding financial contracts is included in Note 15. Derivatives and risks associated with such financial contracts are disclosed specifically in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
We saw a decline in the pricing of aluminum through the third quarter of 2024. The following table summarizes the average price for primary aluminum per tonne for the three months ended September 30, 2024 and June 30, 2024 compared to the average price for primary aluminum per tonne for the nine months ended September 30, 2024 and 2023 .
Three months ended Nine months ended
($ per tonne) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Average LME $ 2,383 $ 2,520 $ 2,367 $ 2,272
Average MWP $ 411 431 415 544
Average EDPP $ 341 323 303 301
Results of Operations
The following discussion for the three and nine months ended September 30, 2024 reflects no change in production capacities.
Our net sales are impacted primarily by the LME price for aluminum, regional and value-added premiums, and the volume and product mix of aluminum we ship during the period. In general, our results reflect the LME and regional premium pricing on an approximately one to three month lag basis reflecting contractual terms with our customers.
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Electrical power, alumina, carbon products, labor, and other controllable costs are the principal components of our cost of goods sold. Power costs can be volatile as a result of a number of factors beyond our control. See “Item 1A. Risk Factors — Increases in energy costs may adversely affect our business, financial position, results of operations and liquidity” in our Annual Report on Form 10-K for the year ended December 31, 2023. Power costs at our Kentucky plants are impacted by capacity demand charges, which are determined based on available power generating capacity in MISO, from which we purchase energy. The price of such capacity is set by auction annually in the spring. Our expected capacity demand costs for power were approximately $2 million for the twelve months ending May 31, 2024 , in addition to the market price of power used. We anticipate the capacity demand power costs resulting from the spring 2024 auction for the twelve months ending May 31, 2025 to be approximately $3 million .
In 2024, energy prices in the U.S. and Europe have moderated from their previously elevated levels. European energy markets impact our Vlissingen facility in the Netherlands, which utilizes natural gas to produce anodes used in our Grundartangi operations. The energy market in Europe has historically been dependent upon imported natural gas from Russia, and the significant reduction in Russian gas supply to Europe has resulted in increased uncertainty with respect to the price and availability of natural gas. Adverse changes to European natural gas prices or availability could adversely affect operations at Vlissingen, and in turn operations at Grundartangi, if we are not able to source an alternative supply of anodes.
In general, our results reflect the market cost of alumina on an approximately three-month lag reflecting the terms of our alumina contracts and inventory levels.
Quarter ended Nine months ended
Sequential Year-to-date
September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
NET SALES:
Related parties $ 332.1 $ 324.2 $ 971.3 $ 1,240.3
Other customers 207.0 236.6 618.1 432.8
Total net sales 539.1 560.8 1,589.4 1,673.1
Gross profit (loss) 81.8 20.4 118.7 52.5
Net income (loss) 42.3 (6.7) 280.3 (77.9)
Net loss attributable to noncontrolling interests (5.0) (4.2) (11.3) (4.8)
Net income (loss) attributable to Century stockholders 47.3 (2.5) 291.6 (73.1)
NET INCOME (LOSS) ATTRIBUTABLE TO CENTURY STOCKHOLDERS PER COMMON SHARE:
Basic $ 0.48 $ (0.03) $ 2.98 $ (0.79)
Diluted 0.46 (0.03) 2.83 (0.79)
SHIPMENTS - PRIMARY ALUMINUM (1)
United States Iceland Total
Tonnes Sales $
(in millions)
Tonnes Sales $
(in millions)
Tonnes Sales $
(in millions)
2024
3 rd Quarter
97,173 $ 282.6 71,582 $ 202.8 168,755 $ 485.4
2 nd Quarter
93,805 $ 266.5 74,103 $ 185.8 167,908 $ 452.3
1 st Quarter
97,602 $ 258.1 77,025 $ 189.5 174,627 $ 447.6
2023
3 rd Quarter
93,675 $ 265.8 78,320 $ 207.9 171,995 $ 473.7
2 nd Quarter
97,224 $ 296.4 76,425 $ 212.3 173,649 $ 508.7
1 st Quarter
102,430 317.6 78,735 210.1 181,165 527.7
(1) Excludes scrap aluminum sales, purchased aluminum and alumina sales.
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Net sales
Quarter ended Nine months ended
Sequential Year-to-date
(in millions) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Net sales $ 539.1 $ 560.8 $ 1,589.4 $ 1,673.1
Net sales decreased by $21.7 million for the three months ended September 30, 2024, compared to the three months ended June 30, 2024, primarily driven by a decrease in third-party alumina sales of $56.5 million partially offset by favorable volume and sales mix of $3.8 million and realized LME and regional price premiums of $31.0 million.
Net sales decreased by $83.7 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily driven by unfavorable realized LME and regional price premiums of $49.2 million and volume and sales mix of $73.7 million, partially offset by an increase in third-party alumina sales of $37.6 million.
Gross profit
Quarter ended Nine months ended
Sequential Year-to-date
(in millions) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Gross profit $ 81.8 $ 20.4 $ 118.7 $ 52.5
Gross profit increased by $61.4 million for the three months ended September 30, 2024, compared to the three months ended June 30, 2024, primarily attributable to favorable realized LME and regional price premiums of $31.0 million, and raw material price realization of $2.9 million and $36.6 million attributable to the IRA Section 45X credit, partially offset by lower volume and sales mix of $4.4 million, unfavorable power price realization of $2.9 million, and additional operating expenses of $3.7 million.
Gross profit increased by $66.2 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, driven by favorable raw material price realization of $71.2 million, power price realization of $21.8 million, and $69.9 million attributable to the IRA Section 45X credit, partially offset by lower volume and sales mix of $23.6 million, unfavorable realized LME and regional price premiums of $49.2 million, and additional operating expenses of $17.0 million.
Selling, general and administrative expenses
Quarter ended Nine months ended
Sequential Year-to-date
(in millions) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Selling, general and administrative expenses $ 15.6 $ 12.3 $ 42.0 $ 36.2
Selling, general and administrative expenses increased by $3.3 million for the three months ended September 30, 2024, compared to the three months ended June 30, 2024, primarily driven by increased professional services and share-based compensation costs during the period.
Selling, general and administrative expenses increased by $5.8 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily driven by an increase in professional services and share-based compensation costs resulting from the increase of the Company's stock price between periods .
Net gain (loss) on forward and derivative contracts
Quarter ended Nine months ended
Sequential Year-to-date
(in millions) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Net gain (loss) on forward and derivative contracts $ (4.0) $ (4.0) $ (0.6) $ (73.7)
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Net loss on forward and derivative contracts was $4.0 million for the three months ended September 30, 2024, which was flat as compared to the three months ended June 30, 2024.
Net loss on forward and derivative contracts was $0.6 million for the nine months ended September 30, 2024, a difference of $73.1 million as compared to the nine months ended September 30, 2023. The difference was primarily driven by reduced losses on Nord Pool derivative contracts which were settled in December 2023.
Bargain purchase gain
Quarter ended Nine months ended
Sequential Year-to-date
(in millions) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Bargain purchase gain $ — $ — $ 245.9 $ —
We finalized the purchase accounting as of March 31, 2024 related to the acquisition of General Alumina Holdings Limited and subsidiaries, which was acquired on May 2, 2023, and recognized no bargain purchase gain for the three months ended September 30, 2024 and recognized $245.9 million for the nine months ended September 30, 2024.
Income tax (expense) benefit
Quarter ended Nine months ended
Sequential Year-to-date
(in millions) September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023
Income tax (expense) benefit $ (2.0) $ (0.5) $ (3.0) $ 21.2
Income tax expense increased for the three months ended September 30, 2024, compared to $0.5 million for the three months ended June 30, 2024, primarily driven by changes in the jurisdictional mix of earnings on a quarter-over-quarter basis.
Income tax benefit changed to an expense of $3.0 million for the nine months ended September 30, 2024, compared to a benefit of $21.2 million for the nine months ended September 30, 2023, primarily driven by changes in the jurisdictional mix of earnings on a year-over-year basis. See Note 9. Income Taxes to the consolidated financial statements included herein for additional information.
Liquidity and Capital Resources
Liquidity
Our principal sources of liquidity are available cash and cash flows from operations. We also have access to our existing U.S. and Iceland revolving credit facilities (collectively, the "revolving credit facilities") and have raised capital in the past through public equity and debt markets. Our principal uses of cash include the funding of operating costs (including post-retirement benefits), debt service requirements, capital expenditures, investments in our growth activities and in related businesses, working capital and other general corporate requirements.
We believe that cash provided from operations and financing activities will be adequate to cover our operations and business needs over the next twelve months. As of September 30, 2024, we had cash and cash equivalents of approximately $32.6 million and unused availability under our revolving credit facilities of $246.3 million (including $80 million under the Vlissingen Credit Facility referred to below, which expires in December 2026). Our cash and cash equivalents and unused availability under our revolving credit facilities comprise our liquidity position, which was $278.9 million as of September 30, 2024.
Available Cash
Our available cash and cash equivalents balance at September 30, 2024 was $32.6 million compared to $88.8 million at December 31, 2023.
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Sources and Uses of Cash
Our statements of cash flows are summarized below:
Nine months Ended September 30,
(in millions) 2024 2023
Net cash provided by operating activities $ 16.8 $ 39.6
Net cash used in investing activities (66.8) (17.6)
Net cash (used) provided by financing activities (4.9) 17.2
Change in cash, cash equivalents and restricted cash $ (54.9) $ 39.2
The decrease in net cash provided by operating activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily driven by timing of payments and receipts.
The increase in net cash used in investing activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to higher cash spend on the purchase of property, plant and equipment in the current year attributable to the Grundartangi casthouse project and Jamalco port repair. Additionally, in the nine months ended September 30, 2023, the Company received cash inflows of $19.4 million from the acquisition of subsidiary, net of cash acquired.
The change in net cash provided by financing activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to reduction in net borrowings on our revolving credit facilities and Grundartangi Casthouse Facility as well as the repayment of carbon credits.
Availability Under Our Credit Facilities
Our U.S. revolving credit facility, dated May 2018 (as amended, the "U.S. revolving credit facility"), previously provided for borrowings of up to $220.0 million, including up to $110.0 million under a letter of credit sub-facility. In June 2022, we entered into a Fourth Amendment to our existing $220.0 million U.S. revolving credit facility, increasing the maximum capacity from $220.0 million to $250.0 million, including up to $150.0 million under a letter of credit sub-facility. The U.S. revolving credit facility matures in June 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.
We have also entered into, through our wholly-owned subsidiary, Nordural Grundartangi ehf ("Grundartangi"), a $50.0 million revolving credit facility, dated November 2013, as amended (the "Iceland revolving credit facility"). On February 4, 2022, we amended the Iceland revolving credit facility and increased the facility amount to $80.0 million in the aggregate. On September 28, 2022, we further amended the Iceland revolving credit facility and increased the facility amount to $100.0 million in the aggregate. The Iceland revolving credit facility matures in December 2026.
The availability of funds under our credit facilities is limited by a specified borrowing base consisting of certain accounts receivable, inventory and qualified cash deposits which meet the lenders' eligibility criteria. Increases in the price of aluminum and/or restarts of previously curtailed operations, for example, increase our borrowing base by increasing our accounts receivable and inventory balances; decreases in the price of aluminum and/or curtailments of production capacity would decrease our borrowing base by reducing our accounts receivable and inventory balances. As of September 30, 2024, our U.S. revolving credit facility had a borrowing availability of $149.9 million , outstanding borrowings of $9.6 million , and $74.0 million of outstanding letters of credit with total availability of $66.3 million . Of the outstanding letters of credit, $13.7 million are related to our power commitments, $33.2 million are related to raw materials and the remaining $27.1 million are primarily for the purpose of securing certain debt and workers’ compensation commitments. As of September 30, 2024, our Iceland revolving credit facility had a borrowing base of $100.0 million and no outstanding borrowings, with total availability of $100.0 million .
As of September 30, 2024, our credit facilities had $246.3 million of net availability after consideration of our outstanding borrowings and letters of credit. We may borrow and make repayments under our credit facilities in the ordinary course based on a number of factors, including the timing of payments from our customers and payments to our suppliers.
Our credit facilities contain customary covenants, including restrictions on mergers and acquisitions, indebtedness, affiliate transactions, liens, dividends and distributions, dispositions of collateral, investments and prepayments of indebtedness, including in the U.S. revolving credit facility, a springing financial covenant that requires us to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 as of any date of determination on which availability under the U.S. revolving credit facility is less than or equal to $25.0 million, or 10% of the borrowing base, but not less than $17.85 million. We intend to maintain
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availability to comply with these levels any time we would not meet the ratio, which could limit our ability to access the full amount of our availability under our U.S revolving credit facility. Our Iceland revolving credit facility contains a covenant that requires Grundartangi to maintain a minimum equity ratio. As of September 30, 2024, we were in compliance with all such covenants or maintained availability above such covenant triggers.
Grundartangi Casthouse Facility
On November 2, 2021, Grundartangi entered into an eight-year Term Facility Agreement with Arion Bank hf, to provide for borrowings up to $130 million in connection with the casthouse project at Grundartangi (the "Casthouse Facility"). 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. The Casthouse Facility will mature in December 2029. The Casthouse Facility bears interest at a rate plus applicable margin as defined within the agreement. As of September 30, 2024 there were $125.5 million in outstanding borrowings under the Casthouse Facility.
The Casthouse Facility also contains customary covenants, including restrictions on mergers and acquisitions, indebtedness, preservation of assets, and dispositions of assets and contains a covenant that requires Grundartangi to maintain a minimum equity ratio. As of September 30, 2024, we were in compliance with all such covenants.
Senior Notes and Convertible Senior Notes
In April 2021, we issued $250.0 million principal of senior secured notes that will mature on April 1, 2028 (the "2028 Notes"), unless earlier refinanced in accordance with their terms. Interest on the 2028 Notes is payable semi-annually on April 1 and October 1 of each year, at a rate of 7.5% per year. 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.
In April 2021, we issued $86.3 million in aggregate principal amount of Convertible Notes (the "Convertible Notes"), that will mature on May 1, 2028, unless earlier converted, repurchased or redeemed. The principal included the full exercise of the option by the initial purchasers of the Convertible Notes to purchase $11.3 million of additional principal amount. The Convertible Notes bear interest semi-annually in arrears on May 1 and November 1 of each year, at a rate of 2.75% per annum in cash.
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. Under the Iceland Term Facility, repayments of principal amounts were made in equal monthly installments, the first payment occurring in February 2023, with the remainder of the principal amount paid in January 2024. Borrowings under the Iceland Term Facility bore interest at a rate equal to 3.2% plus EUR EURIBOR 1 month as published at any time by the European Money Markets Institute. The Iceland Term Facility has been repaid in full and has terminated pursuant to its terms in the first quarter of 2024.
Vlissingen Credit Facility
On December 9, 2022, Vlissingen entered into a $90.0 million Facility Agreement with Glencore International AG, which was amended and extended on October 1, 2024. The availability period for borrowings under the Vlissingen Credit Facility was extended by two years and now ends on December 2, 2026. Pursuant to the terms of the Vlissingen Credit Facility, Vlissingen may borrow from time to time up to $90.0 million in one or more loans at a fixed interest rate equal to 8.75% per annum (the "Fixed Rate"), or (ii) a variable interest rate equal to the 1-month SOFR rate plus 3.687 percentage points, subject to an absolute maximum level of 9.00% and an absolute minimum level of 7.00%. The Fixed Rate is only applicable to borrowings made on or before December 1, 2024, after which the Variable Rate shall apply to all borrowings under the Vlissingen Credit Facility. As of September 30, 2024, there were $10.0 million in outstanding borrowings under the Vlissingen Credit Facility.
The obligations under the Vlissingen Credit Facility are secured by liens on the ground lease on which Vlissingen's facilities are located, Vlissingen's moveable assets, financial assets, receivables and other assets, and Vlissingen’s shares. The Vlissingen Credit Facility contains customary covenants, including with respect to mergers, guarantees and preservation and dispositions of assets. Amounts drawn, if any, under the Vlissingen Credit Facility are expected to be used for general corporate and working capital purposes of Century and its subsidiaries.
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Supplemental Guarantor Financial Information
The Company has filed a Registration Statement on Form S-3 (the "Universal Shelf Registration Statement") with the SEC pursuant to which the Company may, from time to time, offer an indeterminate amount of securities, which may include securities that are guaranteed by certain of the Company's subsidiaries. As of September 30, 2024, we have not issued any debt securities pursuant to the Universal Shelf Registration Statement. However, any securities that we may issue in the future may limit our ability, and the ability of certain of our subsidiaries, to pay dividends or make distributions in respect of capital stock.
"Guarantor Subsidiaries" refers to all of our material domestic subsidiaries except for Nordural US LLC, Century Aluminum Development LLC, Century Aluminum of West Virginia, Inc. and Century Aluminum Jamaica Holdings, Inc. The Guarantor Subsidiaries are 100% owned by Century. All guarantees will be joint and several, full and unconditional. Our foreign subsidiaries, together with Nordural US LLC, Century Aluminum Development LLC, Century Aluminum of West Virginia, Inc. and Century Aluminum Jamaica Holdings, Inc. are collectively referred to as the "Non-Guarantor Subsidiaries." We allocate corporate expenses or income to our subsidiaries and charge interest on certain intercompany balances.
The following summarized financial information of both the Company and the Guarantor Subsidiaries ("Guarantors") is presented on a combined basis. Intercompany balances and transactions between the Company and the Guarantors have been eliminated and the summarized financial information does not reflect investments of the Company or the Guarantors in the Non-Guarantor Subsidiaries ("Non-Guarantors"). The Company’s or Guarantors’ amounts due from, amounts due to, and transactions with the Non-Guarantors are disclosed below:
September 30, 2024 December 31, 2023
Current assets $ 382.9 $ 361.5
Non-current assets 710.1 648.6
Current liabilities 249.8 253.6
Non-current liabilities 501.8 485.7
Nine months Ended September 30, 2024
Net sales $ 1,269.3
Gross profit 106.7
Income before income taxes 65.1
Net income 291.7
As of September 30, 2024 and December 31, 2023, an intercompany receivable due to the Company and Guarantors from the Non-Guarantors totaled $98.0 million and $48.7 million, respectively, and an intercompany non-current loan due to the Company from the Non-Guarantors totaled $351.0 million and $384.9 million, respectively. An intercompany current loan due to the Company from the Non-Guarantors totaled $2.9 million as of December 31, 2023, and as of September 30, 2024 there was no outstanding balance on this loan.
Contingent Commitments
We have a contingent obligation in connection with the "unwind" of a contractual arrangement between Century Aluminum of Kentucky ("CAKY"), Big Rivers Electric Corporation and a third party and the execution in July 2009 of a long-term cost-based power contract with Kenergy, a member of a cooperative of Big Rivers. 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, 2024, the principal and accrued interest for the contingent obligation was $32.0 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, 2024, based on the LME forward market prices and our expected level of Hawesville operations, 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.
Employee Benefit Plan Contributions
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 facility (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
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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 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, 2024, we made contributions of $7.2 million rela ted to the Amended PBGC Settlement Agreement. We did not make any contributions for the three months ended September 30, 2024 and 2024.
Section 232 Aluminum Tariff
On March 23, 2018, the U.S. implemented a 10% tariff on imported primary aluminum products into the U.S. These tariffs are intended to protect U.S. national security and incentivize the restart of primary aluminum production in the U.S., reducing reliance on imports and ensuring that domestic producers, like Century, can supply all the aluminum necessary for critical industries and national defense. In addition to primary aluminum products, the tariffs also cover certain other semi-finished products. All imports that directly compete with our products are covered by the tariff, with the exception of imports from Australia, Canada and Mexico. Additionally, primary aluminum imports from Argentina are allowed up to an annual quota limit of 169,000 metric tonnes, the first 18,000 metric tonnes of imports from the European Union and the first 900 metric tonnes of imports from the United Kingdom are also allowed duty free. Imports that receive a product exclusion from the Department of Commerce may also enter the US duty free. In July 2022, the International Trade Commission (ITC) initiated a review of the Section 301 and 232 duties as required by law every four years.
On March 15, 2023, the ITC submitted a report to the United States Congress entitled, 'Economic Impact of Section 232 and 301 Tariffs on U.S. Industries,' in which the ITC found that the tariffs increased the production of domestic aluminum while causing prices to increase by less than two percent. Accordingly, we do not believe there will be any material changes to the current tariffs in the near future.
Section 301 Tariffs
On May 22, 2024, the United States Trade Representative (USTR) issued a proposal (the “Proposal”) to implement new
tariffs on certain items and increase existing tariffs on other items imported from China pursuant to USTR’s authority under
Section 301 of the Trade Act of 1974. The new and increased tariffs were adopted pursuant to the USTR’s authority to
investigate unfair trade barriers and impose measures to counteract a foreign country’s unfair or discriminatory trade practices.
Under the Proposal, tariffs on aluminum imported from China are expected to increase to 25% from the current 7.5% tariff
imposed in 2018. The increased tariff is in addition to the 10% tariff imposed under Section 232 of the Trade Expansion Act. The new and increased Section 301 tariffs are only applicable to imports with China as the country of origin.
Other Items
In August 2022, President Biden signed the IRA into law. The IRA provides for substantial tax credits and incentives for the development of critical minerals (including aluminum), renewable energy, clean fuels, electric vehicles, and supporting infrastructure, among other provisions. Section 45X of the IRA contains a production tax credit equal to 10% of certain eligible production costs, including, without limitation, labor, energy, depreciation and amortization and overhead expenses. On October 24, 2024, the U.S. Department of the Treasury and the Internal Revenue Service released final rules to provide guidance on the production tax credit requirements under Internal Revenue Code Section 45X (the “Proposed Regulations”). The Final Regulations provide guidance on rules that taxpayers must satisfy to qualify for the Section 45X tax credit. For the three and nine months ended September 30, 2024, we recognized $47.3 million and $69.9 million as a reduction in Cost of goods sold and $0.8 million and $2.0 million, respectively, as a reduction in Selling, general and administrative expenses within the Consolidated Statements of Operations, resulting in an equally offsetting receivable. As of September 30, 2024 and December 31, 2023, we recognized a Manufacturing credit receivable of $78.8 million and $59.3 million, respectively, and as of September 30, 2024, we recognized a Non-current Manufacturing credit receivable of $52.4 million within Other assets on the Consolidated Balance Sheets.
During 2021, we announced plans for construction of a new billet casthouse at Grundartangi. The Grundartangi casthouse project began in late 2021 and was completed during the second quarter of 2024. The Grundartangi casthouse project was funded primarily through the Casthouse Facility. The project is complete and billets have started to ship from the casthouse in the second half of 2024.
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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. We made no repurchases during the years ended 2021, 2022, and 2023. As of September 30, 2024, we had $43.7 million remaining under the repurchase program authorization. The repurchase program may be expanded, suspended or discontinued by our Board, in its sole discretion, at any time.
In November 2009, Century Aluminum of West Virginia, Inc. ("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, 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 agreed to pay the remaining amounts under the settlement agreement in annual increments of $2.0 million for nine years. At September 30, 2024, we had $2.0 million in other current liabilities and $1.5 million in other liabilities related to this agreement.
We are a defendant in several actions relating to various aspects of our business. While it is impossible to predict the ultimate disposition of any litigation, we do not believe that any of these lawsuits, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or liquidity. See Note 12. Commitments and Contingencies to the consolidated financial statements included herein for additional information.
Capital Resources
We intend to finance our future capital expenditures from available cash, cash flows from operations and if necessary, borrowing under our existing revolving credit facilities. For major investment projects we would likely seek financing from various capital and loan markets and may potentially pursue the formation of strategic alliances. We may be unable, however, to issue additional debt or equity securities, or enter into other financing arrangements on attractive terms, or at all, due to a number of factors including a lack of demand, unfavorable pricing, poor economic conditions, unfavorable interest rates, or our financial condition or credit rating at the time. Future uncertainty in the U.S. and international markets and economies may adversely affect our liquidity, our ability to access the debt or capital markets and our financial condition.
Capital expenditures incurred for the nine months ended September 30, 2024 were $35.3 million, including expenditures related to the Jamalco port repair, but excludes expenditures of $33.8 million associated with the Grundartangi casthouse project. We estimate our total remaining capital spending in 2024 will be approximately $10 to $15 million, related to our ongoing investment and sustainability projects at our aluminum smelters and alumina refinery.
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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.