10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 1-34474
Century Aluminum Company
(Exact name of registrant as specified in its charter)
|
| |
Delaware (State or other jurisdiction of incorporation or organization) | 13-3070826 (IRS Employer Identification No.) |
One South Wacker Drive Suite 1000 Chicago, Illinois (Address of principal executive offices) | 60606 (Zip Code) |
Registrant’s telephone number, including area code: (312) 696-3101
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | |
Large accelerated filer | o | Accelerated filer | x |
Non-accelerated filer (Do not check if a smaller reporting company) | o | Smaller reporting company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
The registrant had 87,059,733 shares of common stock outstanding at April 28, 2016.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
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| | | | | | | |
CENTURY ALUMINUM COMPANY |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
(Unaudited) |
| Three months ended March 31, |
| 2016 | | 2015 |
NET SALES: | | | |
Related parties | $ | 280,377 |
| | $ | 575,729 |
|
Third-party customers | 38,477 |
| | 12,182 |
|
Total net sales | 318,854 |
| | 587,911 |
|
Cost of goods sold | 321,906 |
| | 493,816 |
|
Gross profit (loss) | (3,052 | ) | | 94,095 |
|
Selling, general and administrative expenses | 9,625 |
| | 11,971 |
|
Other operating expense - net | 881 |
| | 2,079 |
|
Operating income (loss) | (13,558 | ) | | 80,045 |
|
Interest expense | (5,493 | ) | | (5,551 | ) |
Interest income | 114 |
| | 142 |
|
Net gain on forward and derivative contracts | 353 |
| | 353 |
|
Unrealized gain on fair value of contingent consideration | — |
| | 6,527 |
|
Other income (expense) - net | (6 | ) | | 1,054 |
|
Income (loss) before income taxes and equity in earnings of joint ventures | (18,590 | ) | | 82,570 |
|
Income tax benefit (expense) | 2,070 |
| | (9,301 | ) |
Income (loss) before equity in earnings of joint ventures | (16,520 | ) | | 73,269 |
|
Equity in earnings of joint ventures | 357 |
| | 510 |
|
Net income (loss) | $ | (16,163 | ) | | $ | 73,779 |
|
| | | |
Net income (loss) allocated to common stockholders | $ | (16,163 | ) | | $ | 67,813 |
|
EARNINGS (LOSS) PER COMMON SHARE: | | | |
Basic and Diluted | $ | (0.19 | ) | | $ | 0.76 |
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | |
Basic | 87,040 |
| | 88,814 |
|
Diluted | 87,040 |
| | 89,369 |
|
See condensed notes to consolidated financial statements
|
| | | | | | | |
CENTURY ALUMINUM COMPANY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(in thousands) |
(Unaudited) |
| Three months ended March 31, |
| 2016 | | 2015 |
Comprehensive income (loss): | | | |
Net income (loss) | $ | (16,163 | ) | | $ | 73,779 |
|
Other comprehensive income (loss) before income tax effect: | | | |
Net gain on foreign currency cash flow hedges reclassified as income | (46 | ) | | (47 | ) |
Defined benefit plans and other postretirement benefits: | | | |
Amortization of prior service benefit during the period | (667 | ) | | (936 | ) |
Amortization of actuarial net loss during the period | 1,919 |
| | 1,444 |
|
Other comprehensive income before income tax effect | 1,206 |
| | 461 |
|
Income tax effect | (383 | ) | | (383 | ) |
Other comprehensive income | 823 |
| | 78 |
|
Total comprehensive income (loss) | $ | (15,340 | ) | | $ | 73,857 |
|
See condensed notes to consolidated financial statements
|
| | | | | | | |
CENTURY ALUMINUM COMPANY |
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share amounts) |
(Unaudited) |
| March 31, 2016 | | December 31, 2015 |
ASSETS | | | |
Cash and cash equivalents | $ | 126,461 |
| | $ | 115,393 |
|
Restricted cash | 795 |
| | 791 |
|
Accounts receivable - net | 12,668 |
| | 9,475 |
|
Due from affiliates | 15,478 |
| | 17,417 |
|
Inventories | 220,502 |
| | 231,872 |
|
Prepaid and other current assets | 29,622 |
| | 42,412 |
|
Assets held for sale | 29,715 |
| | 30,697 |
|
Total current assets | 435,241 |
| | 448,057 |
|
Property, plant and equipment - net | 1,215,222 |
| | 1,232,256 |
|
Other assets | 73,142 |
| | 72,155 |
|
TOTAL | $ | 1,723,605 |
| | $ | 1,752,468 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
LIABILITIES: | | | |
Accounts payable, trade | $ | 84,587 |
| | $ | 90,489 |
|
Due to affiliates | 6,173 |
| | 10,045 |
|
Accrued and other current liabilities | 50,169 |
| | 48,822 |
|
Accrued employee benefits costs | 10,054 |
| | 10,148 |
|
Industrial revenue bonds | 7,815 |
| | 7,815 |
|
Total current liabilities | 158,798 |
| | 167,319 |
|
Senior notes payable | 247,380 |
| | 247,278 |
|
Accrued pension benefits costs - less current portion | 43,437 |
| | 43,999 |
|
Accrued postretirement benefits costs - less current portion | 125,941 |
| | 125,999 |
|
Other liabilities | 51,799 |
| | 53,009 |
|
Deferred taxes | 93,399 |
| | 96,994 |
|
Total noncurrent liabilities | 561,956 |
| | 567,279 |
|
COMMITMENTS AND CONTINGENCIES (NOTE 10) |
| |
|
SHAREHOLDERS’ EQUITY: | | | |
Preferred stock (Note 6) | 1 |
| | 1 |
|
Common stock (Note 6) | 942 |
| | 942 |
|
Additional paid-in capital | 2,513,952 |
| | 2,513,631 |
|
Treasury stock, at cost | (86,276 | ) | | (86,276 | ) |
Accumulated other comprehensive loss | (111,827 | ) | | (112,650 | ) |
Accumulated deficit | (1,313,941 | ) | | (1,297,778 | ) |
Total shareholders’ equity | 1,002,851 |
| | 1,017,870 |
|
TOTAL | $ | 1,723,605 |
| | $ | 1,752,468 |
|
See condensed notes to consolidated financial statements
|
| | | | | | | |
CENTURY ALUMINUM COMPANY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
(Unaudited) |
| Three months ended March 31, |
| 2016 |
| 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income (loss) | $ | (16,163 | ) | | $ | 73,779 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Unrealized gain on fair value of contingent consideration | — |
|
| (6,527 | ) |
Unrealized gain on E.ON contingent obligation | (353 | ) | | (353 | ) |
Lower of cost or market inventory adjustment | (5,784 | ) | | — |
|
Depreciation and amortization | 21,260 |
| | 18,131 |
|
Pension and other postretirement benefits | 632 |
| | (984 | ) |
Deferred income taxes | (3,587 | ) | | 8,851 |
|
Stock-based compensation | 321 |
| | 405 |
|
Equity in earnings of joint ventures
| (357 | ) | | (510 | ) |
Change in operating assets and liabilities: | | | |
Accounts receivable - net | (3,193 | ) | | 72,702 |
|
Due from affiliates | 1,939 |
| | (53,559 | ) |
Inventories | 17,648 |
| | (14,335 | ) |
Prepaid and other current assets | 14,290 |
| | 5,960 |
|
Accounts payable, trade | (5,983 | ) | | (18,508 | ) |
Due to affiliates | (5,372 | ) | | 27,773 |
|
Accrued and other current liabilities | 1,253 |
| | 2,874 |
|
Other - net | (1,648 | ) | | 568 |
|
Net cash provided by operating activities | 14,903 |
| | 116,267 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchase of property, plant and equipment | (3,835 | ) | | (12,627 | ) |
Restricted and other cash deposits | — |
| | (21,012 | ) |
Net cash used in investing activities | (3,835 | ) | | (33,639 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings under revolving credit facilities | 371 |
| | 455 |
|
Repayments under revolving credit facilities | (371 | ) | | (455 | ) |
Repurchase of common stock | — |
| | (19,439 | ) |
Net cash used in financing activities | — |
| | (19,439 | ) |
CHANGE IN CASH AND CASH EQUIVALENTS | 11,068 |
| | 63,189 |
|
Cash and cash equivalents, beginning of period | 115,393 |
| | 163,242 |
|
Cash and cash equivalents, end of period | $ | 126,461 |
| | $ | 226,431 |
|
See condensed notes to consolidated financial statements
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements
Three months ended March 31, 2016 and 2015
(amounts in thousands, except share and per share amounts)
(Unaudited)
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, 2015. 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 three months of 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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.
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2. | Related party transactions |
Our significant related party transactions occurring during the three months ended March 31, 2016 and 2015 are described below. We believe that all of the transactions with our related parties were at prices that approximate market.
Glencore ownership
As of March 31, 2016, Glencore plc and its affiliates (together "Glencore") own 42.9% of Century’s outstanding common stock and all of our outstanding Series A Convertible Preferred stock. Through its ownership of our common and preferred stock, Glencore has an overall 47.5% economic ownership in Century Aluminum.
Sales to Glencore
We entered into an agreement with Glencore pursuant to which we agreed to sell, and Glencore agreed to purchase, substantially all of our primary aluminum production in North America for 2015 and 2016 on a take-or-pay basis at prices determined by reference to the Midwest Transaction Price plus additional negotiated product premiums. The current term of the agreement continues through December 31, 2016. In addition, we recently reached an agreement to sell Glencore approximately 24,500 tonnes of molten aluminum during 2017 at prices based on the Midwest Transaction Price.
We sell primary aluminum produced at our Grundartangi facility under a long-term sales contract through 2017 with Glencore at prices based on the London Metal Exchange ("LME") price for primary aluminum plus the European Duty Paid premium and any applicable product premiums. We also receive tolling fees from Glencore under tolling agreements that provide for delivery of primary aluminum produced at our Grundartangi facility through June 2016. The fee paid by Glencore under these tolling agreements is based on the LME price for primary aluminum plus a portion of the European Duty Paid premium.
Glencore purchases the aluminum we produce for resale to end users.
Purchases from Glencore
We purchase alumina from Glencore on both a spot basis and under a long-term supply agreement. Glencore has agreed to supply us with alumina under a long-term supply agreement through 2017 at prices indexed to the LME price of primary aluminum or based on a published alumina index. In 2015 and 2016 our purchases from Glencore have been based on a published alumina index.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Transactions with Baise Haohai Carbon Co., Ltd. ("BHH")
We own a 40% stake in BHH, a joint venture that owns a carbon anode and cathode facility located in the Guangxi Zhuang Autonomous Region of south China. We purchase carbon anodes from BHH. In the fourth quarter of 2015, we completed the construction of a second furnace at our carbon anode facility in Vlissingen, Netherlands. This investment increased our capacity to produce carbon anodes and significantly reduced the quantity of carbon anodes that we source from BHH. As a result, in the fourth quarter of 2015, we made the decision to pursue an exit from our investment in BHH and recorded an $11,584 impairment loss.
Summary
A summary of the aforementioned significant related party transactions for the three months ended March 31, 2016 and 2015 is as follows:
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| | | | | | | |
| | Three months ended March 31, |
| | 2016 | 2015 |
Net sales to Glencore | | $ | 280,377 |
| $ | 575,729 |
|
Purchases from Glencore | | 44,013 |
| 107,814 |
|
Purchases from BHH | | 2,383 |
| 14,820 |
|
Acquisition of Mt. Holly aluminum smelter
On October 23, 2014, our wholly-owned subsidiary, Berkeley Aluminum Inc. ("Berkeley") entered into a stock purchase agreement (the "Stock Purchase Agreement") with Alumax Inc. ("Alumax"), a wholly-owned subsidiary of Alcoa Inc. ("Alcoa"), pursuant to which Berkeley acquired all of the issued and outstanding shares of Alumax of South Carolina, Inc. ("Alumax of SC") and thereby acquired Alcoa’s 50.3% stake in Mt. Holly. Berkeley had previously owned 49.7% of Mt. Holly. Immediately following the consummation of the transaction on December 1, 2014, Berkeley merged with and into Alumax of SC with Alumax of SC surviving and changing its name to Century Aluminum of South Carolina, Inc. ("CASC"). Following the consummation of the transaction, CASC owns 100% of Mt. Holly. Mt. Holly, located in Goose Creek, South Carolina, employed approximately 600 people and had an annual production capacity of 231,000 tonnes of primary aluminum as of the acquisition date.
Pursuant to the terms of the Stock Purchase Agreement, Berkeley acquired all of the issued and outstanding shares of capital stock of Alumax of SC for $67,500 in cash subject to a contingent earn-out payment, working capital and other similar adjustments. The acquisition was funded with available cash on hand.
We incurred acquisition-related costs for Mt. Holly of $1,539 which were expensed to selling, general and administrative expenses in the period that they were incurred.
The following table summarizes all of the elements of purchase consideration for the transaction as of December 1, 2014.
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| | | |
| |
| |
Purchase price | $ | 67,500 |
|
Contingent consideration | 13,780 |
|
Economic, working capital and other closing adjustments | (13,513 | ) |
Total consideration | $ | 67,767 |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Contingent Consideration - Earn-out provision
The Stock Purchase Agreement provided for a contingent cash payment to be made following December 31, 2015. We measured the fair value of contingent consideration and recognized a $13,780 liability at the closing date. Each period, until the end of the measurement period on December 31, 2015, we remeasured the fair value of the contingent consideration and the change in the fair value was recognized in earnings. We recognized gains, primarily related to decreases in the forward curve of the LME price of primary aluminum, of $7,943 and $18,337 during the twelve month periods ended December 31, 2014 and 2015, respectively, $6,527 of which was recognized during the three month period ended March 31, 2015. Alcoa paid us $12,500 in settlement of the contingent consideration in March 2016.
Economic Adjustment, working capital and other adjustments
The Stock Purchase Agreement provided for an economic adjustment that was established to put the parties in the same economic position as if the closing date for the acquisition had occurred on September 30, 2014. We received $11,189 from Alcoa for the economic adjustment in April 2015.
The Stock Purchase Agreement also contained provisions for a payment for working capital adjustments based on actual working capital at closing compared to established working capital targets. We received $124 from Alcoa for the working capital adjustments in April 2015.
Other adjustments include $200 due to Alcoa and amounts due to CASC for expected future post-employment benefit payments and certain other items. We received $2,400 from Alcoa for these other adjustments at closing.
Net cash consideration
The total net cash consideration paid to Alcoa after final resolution of all post-closing adjustments, including the earn-out provision, was $41,487.
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4. | Fair value measurements |
The following section describes the valuation methodology used to measure our financial assets and liabilities that were accounted for at fair value and are categorized based on the fair value hierarchy described in Accounting Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures."
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| | |
Overview of Century’s valuation methodology |
| Level | Significant inputs |
Cash equivalents | 1 | Quoted market prices |
Trust assets (1) | 1 | Quoted market prices |
Surety bonds | 1 | Quoted market prices |
E.ON contingent obligation | 3 | Quoted LME forward market, management’s estimates of the LME forward market prices for periods beyond the quoted periods and management’s estimate of future level of operations |
| |
(1) | Trust assets are currently invested in money market funds. These trust assets are held to fund the non-qualified supplemental executive pension benefit obligations for certain of our officers. The trust has sole authority to invest the funds in secure interest producing investments consisting of short-term securities issued or guaranteed by the United States government or cash and cash equivalents. |
Our fair value measurements include the consideration of market risks that other market participants might consider in pricing the particular asset or liability, specifically non-performance risk and counterparty credit risk. Considerations of the non-performance risk and counterparty credit risk are used to establish the appropriate risk-adjusted discount rates used in our fair value measurements.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and the placement within the fair value hierarchy levels. There were no transfers between Level 1 and 2 during the periods presented. There were no transfers into or out of Level 3 during the periods presented. It is our policy to recognize transfers into and transfers out of Level 3 as of the date of the event or change in circumstances that caused the transfer.
The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis by the level of input within the ASC 820 fair value hierarchy.
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| | | | | | | | | | | | |
Recurring Fair Value Measurements | As of March 31, 2016 |
| Level 1 | Level 2 | Level 3 | Total |
ASSETS: | | | | |
Cash equivalents | $ | 120,061 |
| $ | — |
| $ | — |
| $ | 120,061 |
|
Trust assets | 4,789 |
| — |
| — |
| 4,789 |
|
Surety bonds | 1,870 |
| — |
| — |
| 1,870 |
|
TOTAL | $ | 126,720 |
| $ | — |
| $ | — |
| $ | 126,720 |
|
| | | | |
LIABILITIES: | | | | |
E.ON contingent obligation - net | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
TOTAL | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | |
Recurring Fair Value Measurements | As of December 31, 2015 |
| Level 1 | Level 2 | Level 3 | Total |
ASSETS: | | | | |
Cash equivalents | $ | 102,675 |
| $ | — |
| $ | — |
| $ | 102,675 |
|
Trust assets | 5,226 |
| — |
| — |
| 5,226 |
|
Surety bonds | 1,870 |
| — |
| — |
| 1,870 |
|
TOTAL | $ | 109,771 |
| $ | — |
| $ | — |
| $ | 109,771 |
|
LIABILITIES: | | | | |
E.ON contingent obligation – net | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
TOTAL | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
5.Earnings (loss) per share
Basic earnings (loss) per share ("EPS") amounts are calculated by dividing net income (loss) allocated to common stockholders by the weighted average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive common shares outstanding.
The following table shows the basic and diluted earnings (loss) per share for the three months ended March 31, 2016 and 2015:
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| | | | | | | | | | | | | | | | | |
| | | | | | | |
| For the three months ended March 31, |
| 2016 | | 2015 |
| Loss | Shares (000) | Per-Share | | Income | Shares (000) | Per-Share |
Net income (loss) | $ | (16,163 | ) | | | | $ | 73,779 |
| | |
Amount allocated to common stockholders | 100.00 | % | | | | 91.91 | % | | |
Basic EPS: | | | | | | | |
Net income (loss) allocated to common stockholders | (16,163 | ) | 87,040 |
| $ | (0.19 | ) | | 67,813 |
| 88,814 |
| $ | 0.76 |
|
Effect of Dilutive Securities: | | | | | | | |
Share-based compensation plans | — |
| — |
| | | — |
| 555 |
| |
Diluted EPS: | | | | | | | |
Net income (loss) allocated to common stockholders | $ | (16,163 | ) | 87,040 |
| $ | (0.19 | ) | | $ | 67,813 |
| 89,369 |
| $ | 0.76 |
|
|
| | | | |
Securities excluded from the calculation of diluted EPS: | Three months ended March 31, |
| 2016 | 2015 |
| | |
Stock options (1) | 393,237 |
| 333,266 |
|
Service-based share awards (1) | 498,809 |
| — |
|
| |
(1) | In periods when we report a net loss, all share awards are excluded from the calculation of diluted weighted average shares outstanding because of their antidilutive effect on earnings (loss) per share. In periods when we report net income, certain option awards may be excluded from the calculation of diluted EPS if the exercise price of the option award was greater than the average market price of the underlying common stock. |
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Common Stock
As of March 31, 2016 and December 31, 2015, we had 195,000,000 shares of common stock, $0.01 cent par value, authorized under our Restated Certificate of Incorporation, of which 94,246,254 shares were issued and 87,059,733 shares were outstanding at March 31, 2016; 94,224,571 shares were issued and 87,038,050 shares were outstanding at December 31, 2015.
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.
Stock Repurchase Program
In 2011, our Board of Directors approved a $60,000 common stock repurchase program which was expanded in 2015 to $130,000. Through December 31, 2015 we had repurchased 7,186,521 shares of common stock for an aggregate purchase price of $86,276. There have been no share repurchases since April 2015 and we have $43,724 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.
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.
Preferred Stock
As of March 31, 2016 and December 31, 2015 we had 5,000,000 shares of preferred stock, $0.01 cent par value per share, authorized under our Restated Certificate of Incorporation. In 2008, we issued 160,000 shares of our Series A Convertible Preferred Stock, all of which is held by Glencore, and at March 31, 2016 and December 31, 2015, 76,446 and 76,539 shares 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 for each share of preferred stock. Our Series A Convertible Preferred Stock has a par value of $0.01 per share.
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, liquidation 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.
The Common and Preferred Stock Activity table below contains additional information about preferred stock conversions during the three months ended March 31, 2016 and 2015.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | |
Common and Preferred Stock Activity: | Preferred stock | | Common stock |
(in shares) | Series A convertible | | Treasury | Outstanding |
Beginning balance as of December 31, 2015 | 76,539 |
| | 7,186,521 |
| 87,038,050 |
|
Repurchase of common stock | — |
| | — |
| — |
|
Conversion of convertible preferred stock | (93 | ) | | — |
| 9,305 |
|
Issuance for share-based compensation plans | — |
| | — |
| 12,378 |
|
Ending balance as of March 31, 2016 | 76,446 |
| | 7,186,521 |
| 87,059,733 |
|
| | | | |
Beginning balance as of December 31, 2014 | 78,141 |
| | 4,786,521 |
| 89,064,582 |
|
Repurchase of common stock | — |
| | 1,200,000 |
| (1,200,000 | ) |
Conversion of convertible preferred stock | (80 | ) | | — |
| 7,947 |
|
Issuance for share-based compensation plans | — |
| | — |
| 10,828 |
|
Ending balance as of March 31, 2015 | 78,061 |
| | 5,986,521 |
| 87,883,357 |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
We recorded an income tax benefit for the three months ended March 31, 2016 of $2,070 which primarily consisted of foreign income tax benefits. Our U.S. and certain foreign deferred tax assets, net of deferred tax liabilities, are subject to a valuation allowance.
We recorded income tax expense for the three months ended March 31, 2015 of $9,301 which primarily consisted of foreign and state income taxes.
Our income tax benefit or expense is based on an annual effective tax rate forecast, including estimates and assumptions that could change during the year. The application of the requirements for accounting for income taxes in interim periods, after consideration of our valuation allowance, causes a significant variation in the typical relationship between income tax expense and pretax accounting income.
As of March 31, 2016, 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.
|
| | | | | | |
Inventories consist of the following: | March 31, 2016 | December 31, 2015 |
Raw materials | $ | 54,914 |
| $ | 52,121 |
|
Work-in-process | 28,302 |
| 34,025 |
|
Finished goods | 18,821 |
| 15,988 |
|
Operating and other supplies | 118,465 |
| 129,738 |
|
Total inventories | $ | 220,502 |
| $ | 231,872 |
|
Inventories are stated at the lower of cost or market using the first-in, first out method.
|
| | | | | | |
| March 31, 2016 | December 31, 2015 |
Debt classified as current liabilities: | | |
Hancock County industrial revenue bonds ("IRBs") due 2028, interest payable quarterly (variable interest rates (not to exceed 12%)) (1) | $ | 7,815 |
| $ | 7,815 |
|
Debt classified as non-current liabilities: | | |
7.5% senior secured notes due June 1, 2021, net of debt discount of $2,620 and $2,722, respectively, interest payable semiannually
| 247,380 |
| 247,278 |
|
Total | $ | 255,195 |
| $ | 255,093 |
|
| |
(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 IRB interest rate at March 31, 2016 was 0.59%. |
U.S. Revolving Credit Facility
General. We and certain of our direct and indirect domestic subsidiaries are party to a senior secured revolving credit facility, dated May 24, 2013, as amended, with a syndicate of lenders which provides for borrowings of up to $150,000 in the aggregate, including up to $110,000 under a letter of credit sub-facility (the "U.S. revolving credit facility"). Our U.S. revolving credit facility matures in June 2020. Any letters of credit issued and outstanding under the U.S. revolving credit facility reduce our borrowing availability on a dollar-for-dollar basis. The availability of funds under the U.S. revolving credit facility is limited by a specified borrowing base consisting of accounts receivable, inventory and qualified cash deposits of the borrowers which meet the eligibility criteria.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Status of our U.S. revolving credit facility:
|
| | | |
| March 31, 2016 |
Credit facility maximum amount | $ | 150,000 |
|
Borrowing availability | 85,844 |
|
Outstanding letters of credit issued | 44,759 |
|
Outstanding borrowings | — |
|
Borrowing availability, net of outstanding letters of credit and borrowings | 41,085 |
|
Iceland Revolving Credit Facility
General. We have also entered into, through our wholly-owned subsidiary Nordural Grundartangi ehf, a $50 million revolving credit facility, dated November 27, 2013 (the "Iceland revolving credit facility"). The Iceland revolving credit facility was renewed in April 2016 with the term extended through November 27, 2018. The availability of funds under the Iceland revolving credit facility is limited by a specified borrowing base consisting of inventory and accounts receivable of Grundartangi.
Status of our Iceland revolving credit facility:
|
| | | |
| March 31, 2016 |
Credit facility maximum amount | $ | 50,000 |
|
Borrowing availability | 45,397 |
|
Outstanding borrowings | — |
|
Borrowing availability, net of borrowings | 45,397 |
|
7.5% Notes due 2021
General. On June 4, 2013, we issued $250,000 of our 7.5% Notes due June 1, 2021 (the "2021 Notes") in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. The 2021 Notes were issued at a discount and bear interest at the rate of 7.5% per annum on the principal amount, payable semi-annually in arrears in cash on June 1st and December 1st of each year.
Fair Value. Fair value for our 2021 Notes was based on the latest trading data available and was $184,063 and $169,220, as of March 31, 2016 and December 31, 2015, respectively. 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.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
| |
10. | Commitments and contingencies |
Environmental Contingencies
Based upon all available information, we believe our current environmental liabilities do not have, and are not likely to have, a material adverse effect on our financial condition, results of operations or liquidity. However, because of the inherent uncertainties in estimating environmental liabilities primarily due to unknown facts and circumstances and changing governmental regulations and legal standards regarding liability, there can be no assurance that future capital expenditures and costs for environmental compliance at currently or formerly owned or operated properties will not result in liabilities that may have a material adverse effect on our financial condition, results of operations or liquidity.
It is our policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental-related accrued liabilities were $1,248 and $1,112 at March 31, 2016 and December 31, 2015, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. Costs for ongoing environmental compliance, including maintenance and monitoring are expensed as incurred.
In July 2006, we were named as a defendant, together with certain affiliates of Alcan Inc., in a lawsuit brought by Alcoa Inc. seeking to determine responsibility for certain environmental indemnity obligations related to the sale of a cast aluminum plate manufacturing facility located in Vernon, California, which we purchased from Alcoa Inc. in December 1998, and sold to Alcan Rolled Products-Ravenswood LLC in July 1999. The complaint also seeks costs and attorney fees. The matter is in a preliminary stage in the U.S. District Court for the District of Delaware, and we cannot predict the ultimate outcome of this action or estimate a range of possible losses related to this matter at this time.
Matters relating to the St. Croix Alumina Refining Facility
We are a party to a United States Environmental Protection Agency Administrative Order on Consent (the "Order") pursuant to which certain past and present owners of an alumina refining facility at St. Croix, Virgin Islands (the "St. Croix Alumina Refinery") have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage hydrocarbons floating on groundwater underlying the facility. Pursuant to the Hydrocarbon Recovery Plan, recovered hydrocarbons and groundwater are delivered to the adjacent petroleum refinery where they are received and managed. In connection with the sale of the facility by Lockheed Martin Corporation ("Lockheed") to one of our affiliates, Virgin Islands Alumina Corporation ("Vialco"), in 1989, Lockheed, Vialco and Century entered into the Lockheed-Vialco Asset Purchase Agreement. The indemnity provisions contained in the Lockheed-Vialco Asset Purchase Agreement allocate responsibility for certain environmental matters. Lockheed has tendered indemnity to Vialco. We have likewise tendered indemnity to Lockheed. Through March 31, 2016, we have expended approximately $1,085 on the Hydrocarbon Recovery Plan. At this time, we are not able to estimate the amount of any future potential payments under this indemnification to comply with the Order, but we do not anticipate that any such amounts will have a material adverse effect on our financial condition, results of operations or liquidity, regardless of the final outcome. Vialco sold the St. Croix Alumina Refinery to St. Croix Alumina, LLC, a subsidiary of Alcoa, in 1995.
In December 2010, Century was among several defendants named in a lawsuit filed by plaintiffs who either worked, resided or owned property in the area downwind from the St. Croix Alumina Refinery. In March 2011, Century was also named a defendant in a nearly identical suit brought by certain additional plaintiffs. The plaintiffs in both suits allege damages caused by the presence of red mud and other particulates coming from the alumina facility and are seeking unspecified monetary damages, costs and attorney fees as well as certain injunctive relief. We tendered indemnity and defense to St. Croix Alumina LLC and Alcoa Alumina & Chemical LLC under the terms of an acquisition agreement relating to the facility and have filed motions to dismiss plaintiffs’ claims. In August 2015, the Superior Court of the Virgin Islands, Division of St. Croix denied the motions to dismiss but ordered all plaintiffs to refile individual complaints. At this time, it is not possible to predict the ultimate outcome of or to estimate a range of possible losses for any of the foregoing actions relating to the St. Croix Alumina Refinery.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Legal Contingencies
In addition to the foregoing matters, we have pending against us or may be subject to various lawsuits, claims and proceedings related primarily to employment, commercial, stockholder, safety and health matters. While the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such matters 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, should the 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 contingencies, it is our policy to take into consideration factors such as the facts and circumstances asserted, our historical experience with contingencies of a similar nature, the likelihood of our prevailing and the severity of any potential loss. For some matters, no accrual is established because we have assessed our risk of loss to be remote. Where the risk of loss is probable and the amount of the loss can be reasonably estimated, we record an accrual, either on an individual basis or with respect to a group of matters involving similar claims, based on the factors set forth above.
When we have assessed that a loss associated with legal contingencies is reasonably possible, we determine if estimates of possible losses or ranges of possible losses are in excess of related accrued liabilities, if any. Based on current knowledge, management has ascertained estimates for losses that are reasonably possible and management does not believe that any reasonably possible outcomes in excess of our accruals, if any, either individually or in aggregate, would be material to our financial condition, results of operations or liquidity. We reevaluate and update our assessments and accruals as matters progress over time.
Ravenswood Retiree Medical Benefits changes
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, 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. These actions, entitled Dewhurst, et al. v. Century Aluminum Co., et al., and Century Aluminum of West Virginia, Inc. v. United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO/CLC, et al., have been consolidated and venue has been set in the District Court for the Southern District of West Virginia.
In September 2015, the trial court granted CAWV's motion for summary judgment of these actions. The trial court decision is currently being appealed by the USW to the Court of Appeals for the 4th Circuit.
PBGC Settlement
In April 2013, we entered into a settlement agreement with the Pension Benefit Guarantee Corporation ("PBGC") regarding an alleged "cessation of operations" at our Ravenswood facility as a result of the curtailment of operations at the facility and, pursuant to the agreement, we agreed to make additional contributions (above any minimum required contributions) to our defined benefit pension plans totaling approximately $17.4 million. The agreement permits us to defer payments during periods of lower primary aluminum prices relative to our cost of operations. We remeasure aluminum prices against our cost of operations on an annual basis based on our fourth quarter results. To the extent that we elect to defer one or more of these payments, we are required to provide the PBGC with acceptable security for any such deferred payments. We made contributions pursuant to this agreement of $1.1 million in March 2015 and $6.7 million in 2013. We did not make any contributions during 2014. The remaining contributions under this agreement are approximately $9.6 million.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Power Commitments and Contingencies
Hawesville
Hawesville has a power supply arrangement with Kenergy and EDF Trading North America, LLC (“EDF") which provides market-based power to the Hawesville smelter. Under this arrangement, the power companies purchase power on the open market and pass it through to Hawesville at Midcontinent Independent System Operator ("MISO") pricing plus transmission and other costs. The power supply arrangement with Kenergy has an effective term through December 2023. The arrangement with EDF to act as our market participant with MISO has an effective term through May 2017, extending year to year thereafter unless a one year notice is given.
Sebree
Sebree has a power supply arrangement with Kenergy and EDF which provides market-based power to the Sebree smelter. Similar to the arrangement at Hawesville, the power companies purchase power on the open market and pass it through to Sebree at MISO pricing plus transmission and other costs. The power supply arrangement with Kenergy has an effective term through December 2023. The arrangement with EDF to act as our market participant with MISO has an effective term through May 2017, extending year to year thereafter unless a one year notice is given.
Mt. Holly
CASC's former power agreement with the South Carolina Public Service Authority ("Santee Cooper") for power to the Mt. Holly smelter expired on December 31, 2015. Mt. Holly is currently operating at 50% capacity under a short-term power arrangement while CASC works on a long-term solution that would allow Mt. Holly to access market power for all its power supply requirements. This short-term agreement with Santee Cooper provides for the supply of power to Mt. Holly from two sources: (1) 25% of the Mt. Holly load is served from Santee Cooper’s generation at a standard cost-based industrial rate and (2) 75% of the Mt. Holly load is sourced from a third party supplier from generation that is outside Santee Cooper’s service territory at market prices that are tied to natural gas prices. CASC pays a third party for transmission services to Santee Cooper’s system and pays Santee Cooper its standard transmission tariff for transmission services to Mt. Holly. The agreement with Santee Cooper has a term through December 31, 2018 but can be terminated by CASC on 60 days' notice; the current third party supply contract has a term through August 31, 2016.
Grundartangi
Grundartangi has power purchase agreements with HS Orka hf ("HS"), Landsvirkjun and Orkuveita Reykjavikur ("OR") to provide power to its Grundartangi smelter. These power purchase agreements, which will expire on various dates from 2019 through 2036 (subject to extension), provide power at LME-based variable rates. Each power purchase agreement contains take-or-pay obligations with respect to a significant percentage of the total committed and available power under such agreement.
Helguvik
Nordural Helguvik ehf ("Helguvik") has power purchase agreements with HS and OR to provide power to the Helguvik project. These power purchase agreements provide power at LME-based variable rates and contain take-or-pay obligations with respect to a significant percentage of the total committed and available power under such agreements. The power purchase agreements contain certain conditions to HS’s and OR’s obligations. HS (with respect to all phases) and OR (with respect to all phases other than the first phase) have alleged that certain of these conditions have not been satisfied. The first stage of power under the OR power purchase agreement (approximately 47.5 MW) became available in the fourth quarter of 2011 and is currently being utilized at Grundartangi. In July 2014, HS commenced arbitration proceedings against Helguvik seeking, among other things, an order declaring, (i) that the conditions to the power contract have not been fulfilled and, (ii) that the power contract is therefore no longer valid. Helguvik believes HS' claims are without merit and intends to defend itself against them.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Other Commitments and Contingencies
Labor Commitments
The bargaining unit employees at our Grundartangi, Vlissingen, Hawesville, Sebree and Ravenswood facilities are represented by labor unions, representing 63% of our total workforce.
Approximately 84% of Grundartangi’s work force is represented by five labor unions, governed by a labor agreement which is effective through December 31, 2019 that establishes wages and work rules for covered employees. 100% of Vlissingen's work force is represented by the Federation for the Metal and Electrical Industry ("FME") which negotiates working conditions with trade unions on behalf of its members. In March 2016, a new labor agreement was reached with the FME which is effective retroactively from May 1, 2015 to June 1, 2018.
Approximately 52% of our U.S. based work force is represented by the USW. In June 2015, CAKY entered into a new collective bargaining agreement with the USW for its employees at the Hawesville smelter. The agreement is effective through April 1, 2020. Century Sebree, LLC has a collective bargaining agreement with the USW for its employees at the Sebree smelter that is effective through October 28, 2019.
| |
11. | Components of accumulated other comprehensive loss |
|
| | | | | | |
| March 31, 2016 | December 31, 2015 |
Defined benefit plan liabilities | $ | (120,658 | ) | $ | (121,910 | ) |
Unrealized loss on financial instruments | (1,481 | ) | (1,435 | ) |
Other comprehensive loss before income tax effect | (122,139 | ) | (123,345 | ) |
Income tax effect (1) | 10,312 |
| 10,695 |
|
Accumulated other comprehensive loss | $ | (111,827 | ) | $ | (112,650 | ) |
| |
(1) | The allocation of the income tax effect to the components of other comprehensive income is as follows: |
|
| | | | | | |
| March 31, 2016 | December 31, 2015 |
Defined benefit plan liabilities | $ | 10,852 |
| $ | 11,243 |
|
Unrealized loss on financial instruments | (540 | ) | (548 | ) |
The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive loss ("AOCL"):
|
| | | | | | | | | |
| Defined benefit plan and other postretirement liabilities | Unrealized loss on financial instruments | Total, net of tax |
Balance, December 31, 2015 | $ | (110,667 | ) | $ | (1,983 | ) | $ | (112,650 | ) |
Net amount reclassified to net loss | 861 |
| (38 | ) | 823 |
|
Balance, March 31, 2016 | $ | (109,806 | ) | $ | (2,021 | ) | $ | (111,827 | ) |
| | | |
Balance, December 31, 2014 | $ | (115,852 | ) | $ | (1,830 | ) | $ | (117,682 | ) |
Net amount reclassified to net income | 117 |
| (39 | ) | 78 |
|
Balance, March 31, 2015 | $ | (115,735 | ) | $ | (1,869 | ) | $ | (117,604 | ) |
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
Reclassifications out of AOCL were included in the consolidated statements of operations as follows:
|
| | | | | | | |
| | For the three months ended March 31 |
AOCL Components | Location | 2016 | 2015 |
Defined benefit plan and other postretirement liabilities | Cost of goods sold | $ | 777 |
| $ | 325 |
|
| Selling, general and administrative expenses | 125 |
| 183 |
|
| Other operating expense, net | 350 |
| — |
|
| Income tax expense | (391 | ) | (391 | ) |
| Net of tax | $ | 861 |
| $ | 117 |
|
| | | |
Unrealized loss on financial instruments | Cost of goods sold | $ | (46 | ) | $ | (47 | ) |
| Income tax benefit | 8 |
| 8 |
|
| Net of tax | $ | (38 | ) | $ | (39 | ) |
| |
12. | Components of net periodic benefit cost |
|
| | | | | | | |
| Pension Benefits |
|
| Three months ended March 31, |
|
| 2016 | 2015 |
Service cost | | $ | 1,270 |
| $ | 1,704 |
|
Interest cost | | 3,480 |
| 3,388 |
|
Expected return on plan assets | | (4,816 | ) | (5,494 | ) |
Amortization of prior service costs | | 28 |
| 25 |
|
Amortization of net loss | | 1,043 |
| 620 |
|
Net periodic benefit cost | | $ | 1,005 |
| $ | 243 |
|
|
| | | | | | | |
| Other Postretirement Benefits ("OPEB") |
| | Three months ended March 31, |
| | 2016 | 2015 |
Service cost | | $ | 330 |
| $ | 562 |
|
Interest cost | | 1,456 |
| 1,591 |
|
Amortization of prior service cost | | (695 | ) | (961 | ) |
Amortization of net loss | | 876 |
| 865 |
|
Net periodic benefit cost | | $ | 1,967 |
| $ | 2,057 |
|
Employer contributions
During the three months ended March 31, 2016, we made contributions of $464 to the qualified defined benefit and unqualified supplemental executive retirement benefits ("SERB") plans that we sponsor.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
In March 2015, we posted $21,000 cash collateral with EDF Trading North America, LLC ("EDF") for the annual Midcontinent Independent System Operator ("MISO") power capacity auction and recorded restricted cash deposits for the three months ended March 31, 2015. In April 2015, EDF released our $21,000 cash collateral because it was no longer required based on the final MISO auction clearing price.
| |
14. | Supplemental cash flow information |
|
| | | | | | |
| Three months ended March 31, |
| 2016 | 2015 |
Cash paid for: | | |
Interest | $ | 160 |
| $ | 5 |
|
Income taxes | 2,596 |
| 1,142 |
|
Non-cash investing activities: | | |
Accrued capital costs | $ | 206 |
| $ | 1,202 |
|
| |
15. | Condensed consolidating financial information |
Our 2021 Notes are guaranteed by each of our material existing and future domestic subsidiaries, except for Nordural US LLC and Century Aluminum Development LLC. The Guarantor Subsidiaries are 100% owned by Century. All guarantees are full and unconditional; all guarantees are joint and several. These notes are not guaranteed by our foreign subsidiaries (such foreign subsidiaries, Nordural US LLC and Century Aluminum Development LLC, collectively the “Non-Guarantor Subsidiaries”). We allocate corporate expenses or income to our subsidiaries and charge interest on certain intercompany balances.
The following summarized condensed consolidating statements of comprehensive income (loss) for the three months ended March 31, 2016 and 2015, condensed consolidating balance sheets as of March 31, 2016 and December 31, 2015 and the condensed consolidating statements of cash flows for the three months ended March 31, 2016 and 2015 present separate results for Century, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, consolidating adjustments and total consolidated amounts. Although Century Aluminum West Virginia (which owns our curtailed Ravenswood smelter) has guaranteed our Notes due 2021, because we are in the process of selling substantially all of its assets, we have included its assets and results of operations in the columns under the caption Non-Guarantor Subsidiaries.
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statements of Comprehensive Income (Loss) |
For the three months ended March 31, 2016 |
| | The Company | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Total Consolidated |
NET SALES: | | | | | | | | | | |
Related parties | | $ | — |
| | $ | 162,120 |
| | $ | 141,654 |
| | $ | (23,397 | ) | | $ | 280,377 |
|
Third-party customers | | — |
| | 38,468 |
| | 9 |
| | — |
| | 38,477 |
|
Total net sales | | — |
| | 200,588 |
| | 141,663 |
| | (23,397 | ) | | 318,854 |
|
Cost of goods sold | | — |
| | 209,573 |
| | 136,304 |
| | (23,971 | ) | | 321,906 |
|
Gross profit (loss) | | — |
| | (8,985 | ) | | 5,359 |
| | 574 |
| | (3,052 | ) |
Selling, general and administrative expenses | | 8,299 |
| | — |
| | 1,326 |
| | — |
| | 9,625 |
|
Other operating expense - net | | — |
| | — |
| | 881 |
| | — |
| | 881 |
|
Operating income (loss) | | (8,299 | ) | | (8,985 | ) | | 3,152 |
| | 574 |
| | (13,558 | ) |
Interest expense - third parties | | (5,065 | ) | | (382 | ) | | (46 | ) | | — |
| | (5,493 | ) |
Interest income (expense) - affiliates | | 9,548 |
| | — |
| | (9,548 | ) | | — |
| | — |
|
Interest income - third parties | | 37 |
| | — |
| | 77 |
| | — |
| | 114 |
|
Net gain on forward and derivative contracts | | — |
| | 353 |
| | — |
| | — |
| | 353 |
|
Other income (expense) - net | | 771 |
| | (6 | ) | | (771 | ) | | — |
| | (6 | ) |
Loss before income taxes and equity in earnings (loss) of joint ventures | | (3,008 | ) | | (9,020 | ) | | (7,136 | ) | | 574 |
| | (18,590 | ) |
Income tax benefit | | 620 |
| | — |
| | 1,450 |
| | — |
| | 2,070 |
|
Loss before income taxes and equity in earnings (loss) of joint ventures | | (2,388 | ) | | (9,020 | ) | | (5,686 | ) | | 574 |
| | (16,520 | ) |
Equity in earnings (loss) of joint ventures | | (13,775 | ) | | — |
| | 357 |
| | 13,775 |
| | 357 |
|
Net loss | | $ | (16,163 | ) | | $ | (9,020 | ) | | $ | (5,329 | ) | | $ | 14,349 |
| | $ | (16,163 | ) |
Other comprehensive income before income tax effect | | 1,206 |
| | 778 |
| | 303 |
| | (1,081 | ) | | 1,206 |
|
Income tax effect | | (383 | ) | | — |
| | 8 |
| | (8 | ) | | (383 | ) |
Other comprehensive income (loss) | | 823 |
| | 778 |
| | 311 |
| | (1,089 | ) | | 823 |
|
Total comprehensive loss | | $ | (15,340 | ) | | $ | (8,242 | ) | | $ | (5,018 | ) | | $ | 13,260 |
| | $ | (15,340 | ) |
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statements of Comprehensive Income (Loss) |
For the three months ended March 31, 2015 |
| | The Company | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Total Consolidated |
NET SALES: | | | | | | | | | | |
Related parties | | $ | — |
| | $ | 403,064 |
| | $ | 173,779 |
| | $ | (1,114 | ) | | $ | 575,729 |
|
Third-party customers | | — |
| | 12,874 |
| | 6 |
| | (698 | ) | | 12,182 |
|
Total net sales | | — |
| | 415,938 |
| | 173,785 |
| | (1,812 | ) | | 587,911 |
|
Cost of goods sold | | — |
| | 362,302 |
| | 136,028 |
| | (4,514 | ) | | 493,816 |
|
Gross profit | | — |
| | 53,636 |
| | 37,757 |
| | 2,702 |
| | 94,095 |
|
Selling, general and administrative expenses | | 10,837 |
| | (944 | ) | | 1,078 |
| | 1,000 |
| | 11,971 |
|
Other operating expense - net | | — |
| | — |
| | 2,079 |
| | — |
| | 2,079 |
|
Operating income (loss) | | (10,837 | ) | | 54,580 |
| | 34,600 |
| | 1,702 |
| | 80,045 |
|
Interest expense - third parties | | (5,109 | ) | | (396 | ) | | (46 | ) | | — |
| | (5,551 | ) |
Interest income (expense) - affiliates | | 10,226 |
| | — |
| | (10,226 | ) | | — |
| | — |
|
Interest income - third parties | | 15 |
| | 4 |
| | 123 |
| | — |
| | 142 |
|
Net gain on forward and derivative contracts | | — |
| | 353 |
| | — |
| | — |
| | 353 |
|
Unrealized gain on fair value of contingent consideration | | — |
| | 6,527 |
| | — |
| | — |
| | 6,527 |
|
Other income (expense) - net | | 537 |
| | (484 | ) | | 2,731 |
| | (1,730 | ) | | 1,054 |
|
Income (loss) before income taxes and equity in earnings of joint ventures | | (5,168 | ) | | 60,584 |
| | 27,182 |
| | (28 | ) | | 82,570 |
|
Income tax expense | | (299 | ) | | — |
| | (9,052 | ) | | 50 |
| | (9,301 | ) |
Income (loss) before equity in earnings of joint ventures | | (5,467 | ) | | 60,584 |
| | 18,130 |
| | 22 |
| | 73,269 |
|
Equity in earnings of joint ventures | | 79,246 |
| | — |
| | 510 |
| | (79,246 | ) | | 510 |
|
Net income | | $ | 73,779 |
| | $ | 60,584 |
| | $ | 18,640 |
| | $ | (79,224 | ) | | $ | 73,779 |
|
Other comprehensive income before income tax effect | | 461 |
| | 33 |
| | 245 |
| | (278 | ) | | 461 |
|
Income tax effect | | (383 | ) | | — |
| | 8 |
| | (8 | ) | | (383 | ) |
Other comprehensive income (loss) | | 78 |
| | 33 |
| | 253 |
| | (286 | ) | | 78 |
|
Total comprehensive income | | $ | 73,857 |
| | $ | 60,617 |
| | $ | 18,893 |
| | $ | (79,510 | ) | | $ | 73,857 |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Balance Sheet |
As of March 31, 2016 |
| | The Company | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Total Consolidated |
Cash & cash equivalents | | $ | 49,667 |
| | $ | (74 | ) | | $ | 76,868 |
| | $ | — |
| | $ | 126,461 |
|
Restricted cash | | — |
| | 795 |
| | — |
| | — |
| | 795 |
|
Accounts receivable - net | | — |
| | 12,088 |
| | 580 |
| | — |
| | 12,668 |
|
Due from affiliates | | 382 |
| | 13,955 |
| | 1,141 |
| | — |
| | 15,478 |
|
Inventories | | 180 |
| | 142,070 |
| | 80,526 |
| | (2,274 | ) | | 220,502 |
|
Prepaid and other current assets | | 7,073 |
| | 4,290 |
| | 18,259 |
| | — |
| | 29,622 |
|
Assets held for sale | | — |
| | — |
| | 29,715 |
| | — |
| | 29,715 |
|
Total current assets | | 57,302 |
| | 173,124 |
| | 207,089 |
| | (2,274 | ) | | 435,241 |
|
Property, plant and equipment - net | | 8,863 |
| | 352,384 |
| | 853,975 |
| | — |
| | 1,215,222 |
|
Investment in subsidiaries | | 580,999 |
| | — |
| | — |
| | (580,999 | ) | | — |
|
Due from affiliates - less current portion | | 639,780 |
| | — |
| | — |
| | (639,780 | ) | | — |
|
Other assets | | 30,025 |
| | 19,328 |
| | 16,371 |
| | 7,418 |
| | 73,142 |
|
TOTAL | | $ | 1,316,969 |
| | $ | 544,836 |
| | $ | 1,077,435 |
| | $ | (1,215,635 | ) | | $ | 1,723,605 |
|
| | | | | | | | | | |
Accounts payable, trade | | $ | 2,582 |
| | $ | 47,777 |
| | $ | 34,228 |
| | $ | — |
| | $ | 84,587 |
|
Due to affiliates | | 1,500 |
| | 1,210 |
| | 547 |
| | 2,916 |
| | 6,173 |
|
Accrued and other current liabilities | | 14,280 |
| | 11,073 |
| | 24,816 |
| | — |
| | 50,169 |
|
Accrued employee benefits costs | | 1,824 |
| | 7,550 |
| | 680 |
| | — |
| | 10,054 |
|
Industrial revenue bonds | | — |
| | 7,815 |
| | — |
| | — |
| | 7,815 |
|
Total current liabilities | | 20,186 |
| | 75,425 |
| | 60,271 |
| | 2,916 |
| | 158,798 |
|
Senior notes payable | | 247,380 |
| | — |
| | — |
| | — |
| | 247,380 |
|
Accrued pension benefits costs cost - less current portion | | 39,552 |
| | (11,009 | ) | | 14,894 |
| | — |
| | 43,437 |
|
Accrued postretirement benefits costs - less current portion | | 4,834 |
| | 119,529 |
| | 1,578 |
| | — |
| | 125,941 |
|
Other liabilities | | 1,893 |
| | 30,749 |
| | 11,739 |
| | 7,418 |
| | 51,799 |
|
Intercompany loan | | — |
| | 126,343 |
| | 518,353 |
| | (644,696 | ) | | — |
|
Deferred taxes | | — |
| | — |
| | 93,399 |
| | — |
| | 93,399 |
|
Total noncurrent liabilities | | 293,659 |
| | 265,612 |
| | 639,963 |
| | (637,278 | ) | | 561,956 |
|
Series A Preferred stock | | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Common stock | | 942 |
| | — |
| | 228,424 |
| | (228,424 | ) | | 942 |
|
Additional paid-in capital | | 2,513,952 |
| | 191,023 |
| | 2,182,533 |
| | (2,373,556 | ) | | 2,513,952 |
|
Treasury stock, at cost | | (86,276 | ) | | — |
| | — |
| | — |
| | (86,276 | ) |
Accumulated other comprehensive loss | | (13,391 | ) | | (59,249 | ) | | (39,187 | ) | | — |
| | (111,827 | ) |
Accumulated deficit | | (1,412,104 | ) | | 72,025 |
| | (1,994,569 | ) | | 2,020,707 |
| | (1,313,941 | ) |
Total shareholder's equity | | 1,003,124 |
| | 203,799 |
| | 377,201 |
| | (581,273 | ) | | 1,002,851 |
|
TOTAL | | $ | 1,316,969 |
| | $ | 544,836 |
| | $ | 1,077,435 |
| | $ | (1,215,635 | ) | | $ | 1,723,605 |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Balance Sheet |
As of December 31, 2015 |
| | The Company | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Total Consolidated |
Cash & cash equivalents | | $ | 58,421 |
| | $ | (3,647 | ) | | $ | 60,619 |
| | $ | — |
| | $ | 115,393 |
|
Restricted cash | | — |
| | 791 |
| | — |
| | — |
| | 791 |
|
Accounts receivable - net | | 104 |
| | 8,891 |
| | 480 |
| | — |
| | 9,475 |
|
Due from affiliates | | 13 |
| | 14,493 |
| | 2,911 |
| | — |
| | 17,417 |
|
Inventories | | 180 |
| | 148,280 |
| | 85,937 |
| | (2,525 | ) | | 231,872 |
|
Prepaid and other current assets | | 7,713 |
| | 16,242 |
| | 18,457 |
| | — |
| | 42,412 |
|
Assets held for sale | | — |
| | — |
| | 30,697 |
| | — |
| | 30,697 |
|
Total current assets | | 66,431 |
| | 185,050 |
| | 199,101 |
| | (2,525 | ) | | 448,057 |
|
Property, plant and equipment - net | | 9,188 |
| | 361,626 |
| | 861,442 |
| | — |
| | 1,232,256 |
|
Investment in subsidiaries | | 593,604 |
| | — |
| | — |
| | (593,604 | ) | | — |
|
Due from affiliates - less current portion | | 632,170 |
| | — |
| | — |
| | (632,170 | ) | | — |
|
Other assets | | 29,536 |
| | 19,153 |
| | 16,047 |
| | 7,419 |
| | 72,155 |
|
TOTAL | | $ | 1,330,929 |
| | $ | 565,829 |
| | $ | 1,076,590 |
| | $ | (1,220,880 | ) | | $ | 1,752,468 |
|
| | | | | | | | | | |
Accounts payable, trade | | $ | 2,380 |
| | $ | 53,145 |
| | $ | 34,964 |
| | $ | — |
| | $ | 90,489 |
|
Due to affiliates | | 2,143 |
| | 7,167 |
| | 735 |
| | — |
| | 10,045 |
|
Accrued and other current liabilities | | 11,247 |
| | 14,759 |
| | 22,816 |
| | — |
| | 48,822 |
|
Accrued employee benefits costs | | 1,824 |
| | 7,644 |
| | 680 |
| | — |
| | 10,148 |
|
Industrial revenue bonds | | — |
| | 7,815 |
| | — |
| | — |
| | 7,815 |
|
Total current liabilities | | 17,594 |
| | 90,530 |
| | 59,195 |
| | — |
| | 167,319 |
|
Senior notes payable | | 247,278 |
| | — |
| | — |
| | — |
| | 247,278 |
|
Accrued pension benefits costs cost - less current portion | | 39,831 |
| | (11,021 | ) | | 15,189 |
| | — |
| | 43,999 |
|
Accrued postretirement benefits costs - less current portion | | 4,524 |
| | 119,911 |
| | 1,564 |
| | — |
| | 125,999 |
|
Other liabilities | | 3,307 |
| | 30,505 |
| | 11,779 |
| | 7,418 |
| | 53,009 |
|
Intercompany loan | | — |
| | 124,518 |
| | 509,652 |
| | (634,170 | ) | | — |
|
Deferred taxes | | — |
| | — |
| | 96,994 |
| | — |
| | 96,994 |
|
Total noncurrent liabilities | | 294,940 |
| | 263,913 |
| | 635,178 |
| | (626,752 | ) | | 567,279 |
|
Series A Preferred stock | | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Common stock | | 942 |
| | — |
| | 224,424 |
| | (224,424 | ) | | 942 |
|
Additional paid-in capital | | 2,513,631 |
| | 191,023 |
| | 2,038,138 |
| | (2,229,161 | ) | | 2,513,631 |
|
Treasury stock, at cost | | (86,276 | ) | | — |
| | — |
| | — |
| | (86,276 | ) |
Accumulated other comprehensive loss | | (13,125 | ) | | (60,026 | ) | | (39,499 | ) | | — |
| | (112,650 | ) |
Accumulated deficit | | (1,396,778 | ) | | 80,389 |
| | (1,840,846 | ) | | 1,859,457 |
| | (1,297,778 | ) |
Total shareholder's equity | | 1,018,395 |
| | 211,386 |
| | 382,217 |
| | (594,128 | ) | | 1,017,870 |
|
TOTAL | | $ | 1,330,929 |
| | $ | 565,829 |
| | $ | 1,076,590 |
| | $ | (1,220,880 | ) | | $ | 1,752,468 |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Cash Flows |
For the three months ended March 31, 2016 |
| | The Company | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Total Consolidated |
Net cash provided by (used in) operating activities | | $ | (8,754 | ) | | $ | 5,435 |
| | $ | 9,956 |
| | $ | 8,266 |
| | $ | 14,903 |
|
Purchase of property, plant and equipment | | — |
| | (1,426 | ) | | (2,409 | ) | | — |
| | (3,835 | ) |
Net cash used in investing activities | | — |
| | (1,426 | ) | | (2,409 | ) | | — |
| | (3,835 | ) |
Borrowings under revolving credit facilities | | 371 |
| | — |
| | — |
| | — |
| | 371 |
|
Repayments under revolving credit facilities | | (371 | ) | | — |
| | — |
| | — |
| | (371 | ) |
Intercompany transactions | | — |
| | (436 | ) | | 8,702 |
| | (8,266 | ) | | — |
|
Net cash provided by (used in) financing activities | | — |
| | (436 | ) | | 8,702 |
| | (8,266 | ) | | — |
|
CHANGE IN CASH AND CASH EQUIVALENTS | | (8,754 | ) | | 3,573 |
| | 16,249 |
| | — |
| | 11,068 |
|
Cash and cash equivalents, beginning of period | | 58,421 |
| | (3,647 | ) | | 60,619 |
| | — |
| | 115,393 |
|
Cash and cash equivalents, end of period | | $ | 49,667 |
| | $ | (74 | ) | | $ | 76,868 |
| | $ | — |
| | $ | 126,461 |
|
CENTURY ALUMINUM COMPANY
Condensed Notes to the Consolidated Financial Statements (continued)
(amounts in thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Cash Flows |
For the three months ended March 31, 2015 |
| | The Company | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Total Consolidated |
Net cash provided by (used in) operating activities | | $ | 113,179 |
| | $ | 40,025 |
| | $ | (222,561 | ) | | $ | 185,624 |
| | $ | 116,267 |
|
Purchase of property, plant and equipment | | (348 | ) | | (6,726 | ) | | (5,553 | ) | | — |
| | (12,627 | ) |
Restricted and other cash deposits | | — |
| | (21,012 | ) | | — |
| | — |
| | < |