CENX-6.30.2012-10Q
Table of Contents

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 June 30, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 1-34474
Century Aluminum Company
(Exact name of Registrant as specified in its Charter)
Delaware 
(State or other Jurisdiction of Incorporation or Organization)
13-3070826 
(IRS Employer Identification No.)
2511 Garden Road
Building A, Suite 200
 
Monterey, California 
(Address of principal executive offices)
93940 
(Zip Code)
Registrant’s telephone number, including area code: (831) 642-9300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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.
Large Accelerated Filer
x
Accelerated Filer
o
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 88,467,049 shares of common stock outstanding at July 31, 2012.


Table of Contents



TABLE OF CONTENTS
 
Page
 
 
 
 



2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
 
June 30, 2012
December 31, 2011
ASSETS
 
 
Cash and cash equivalents
$
156,512

$
183,401

Accounts receivable — net
71,936

47,647

Due from affiliates
34,671

44,665

Inventories
158,538

171,961

Prepaid and other current assets
43,131

40,646

Total current assets
464,788

488,320

Property, plant and equipment — net
1,208,029

1,218,225

Other assets
106,284

104,549

TOTAL
$
1,779,101

$
1,811,094

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
LIABILITIES:
 
 
Accounts payable, trade
$
70,360

$
86,172

Due to affiliates
43,055

41,904

Accrued and other current liabilities
44,716

40,776

Accrued employee benefits costs — current portion
16,107

16,698

Industrial revenue bonds
7,815

7,815

Total current liabilities
182,053

193,365

Senior notes payable
250,036

249,512

Accrued pension benefits costs — less current portion
67,762

70,899

Accrued postretirement benefits costs — less current portion
128,429

128,078

Other liabilities
39,690

40,005

Deferred taxes
90,832

90,958

Total noncurrent liabilities
576,749

579,452

COMMITMENTS AND CONTINGENCIES (NOTE 10)


SHAREHOLDERS’ EQUITY:
 
 
Series A Preferred stock (one cent par value, 5,000,000 shares authorized; 80,623 and 80,718 issued and outstanding at June 30, 2012 and December 31, 2011, respectively)
1

1

Common stock (one cent par value, 195,000,000 shares authorized; 93,253,570 issued and 88,467,049 outstanding at June 30, 2012; 93,230,848 issued and 88,844,327 outstanding at December 31, 2011)
933

932

Additional paid-in capital
2,507,053

2,506,842

Treasury stock, at cost
(49,924
)
(45,891
)
Accumulated other comprehensive loss
(132,067
)
(134,588
)
Accumulated deficit
(1,305,697
)
(1,289,019
)
Total shareholders’ equity
1,020,299

1,038,277

TOTAL
$
1,779,101

$
1,811,094


See notes to consolidated financial statements

3

Table of Contents



CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Three months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
NET SALES:
 
 
 
 
Third-party customers
$
184,022

$
207,091

$
372,861

$
395,403

Related parties
139,597

159,186

276,948

297,211

 
323,619

366,277

649,809

692,614

Cost of goods sold
317,662

316,763

623,260

600,784

Gross profit
5,957

49,514

26,549

91,830

Other operating expenses (income) – net
3,817

(5,205
)
7,538

(11,089
)
Selling, general and administrative expenses
7,151

18,557

15,610

29,166

Operating income (loss)
(5,011
)
36,162

3,401

73,753

Interest expense – third party
(5,946
)
(6,386
)
(11,924
)
(13,163
)
Interest income – third party
113

65

251

220

Interest income – related parties
2

70

62

183

Net gain (loss) on forward contracts
1,450

(1,617
)
(3,709
)
(6,426
)
Other income (expense) - net
161

(1,132
)
467

(455
)
Income (loss) before income taxes and equity in earnings of joint ventures
(9,231
)
27,162

(11,452
)
54,112

Income tax expense
(3,395
)
(3,636
)
(6,216
)
(6,759
)
Income (loss) before equity in earnings of joint ventures
(12,626
)
23,526

(17,668
)
47,353

Equity in earnings of joint ventures
349

460

990

1,679

Net income (loss)
$
(12,277
)
$
23,986

$
(16,678
)
$
49,032

Net income (loss) allocated to common shareholders
$
(12,277
)
$
22,061

$
(16,678
)
$
45,066

EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
Basic and Diluted
$
(0.14
)
$
0.24

$
(0.19
)
$
0.48

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
 
Basic
88,452

93,105

88,589

93,036

Diluted
88,452

93,567

88,589

93,432


See notes to consolidated financial statements

4

Table of Contents



CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)
 
Three months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
Comprehensive income (loss)
 
 
 
 
Net income (loss)
$
(12,277
)
$
23,986

$
(16,678
)
$
49,032

Other comprehensive income (loss) before income tax effect:
 
 
 
 
Net unrealized gain (loss) on financial instruments
26

(27
)
(220
)
(33
)
Net loss (gain) reclassified to income on financial instruments
209

(39
)
481

(50
)
Net gain on foreign currency cash flow hedges reclassified to income
(46
)
(47
)
(93
)
(93
)
Defined benefit plans and other postretirement benefits:
 
 
 
 
Net gain (loss) arising during the period
49

(5,769
)
49

(5,769
)
Amortization of prior service benefit
(1,031
)
(15,501
)
(2,056
)
(30,620
)
Amortization of net loss
2,941

6,995

5,125

13,280

Other comprehensive income (loss) before income tax effect
2,148

(14,388
)
3,286

(23,285
)
Income tax effect
(383
)
(2,513
)
(765
)
(4,973
)
Other comprehensive income (loss)
1,765

(16,901
)
2,521

(28,258
)
Comprehensive income (loss)
$
(10,512
)
$
7,085

$
(14,157
)
$
20,774


See notes to consolidated financial statements





5

Table of Contents

CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Six months ended June 30,
 
2012
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
Net income (loss)
$
(16,678
)
$
49,032

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
Unrealized net loss on forward contracts
3,177

6,170

Accrued and other plant curtailment costs — net
2,781

(16,592
)
Lower of cost or market inventory adjustment
(11,617
)
(16
)
Depreciation and amortization
31,288

31,064

Debt discount amortization
523

1,355

Pension and other postretirement benefits
(260
)
(28,608
)
Stock-based compensation
212

2,501

Non-cash loss on early extinguishment of debt

763

Undistributed earnings of joint ventures
(990
)
(1,679
)
Change in operating assets and liabilities:
 
 
Accounts receivable — net
(24,289
)
(10,935
)
Due from affiliates
5,401

11,265

Inventories
25,040

(31,464
)
Prepaid and other current assets
(3,877
)
(28,991
)
Accounts payable, trade
(15,931
)
(1,202
)
Due to affiliates
1,151

(5,834
)
Accrued and other current liabilities
1,750

7,575

Other — net
704

(539
)
Net cash used in operating activities
(1,615
)
(16,135
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Purchase of property, plant and equipment
(6,165
)
(7,353
)
Nordural expansion
(3,586
)
(7,968
)
Purchase of carbon anode assets
(14,524
)

Investments in and advances to joint ventures
(200
)

Payments received on advances from joint ventures
3,166

3,056

Proceeds from the sale of property, plant and equipment
68

56

Restricted and other cash deposits

3,673

Net cash used in investing activities
(21,241
)
(8,536
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Repayments of debt

(47,067
)
Repayment of contingent obligation

(189
)
Borrowings under revolving credit facility
18,076


Repayments under revolving credit facility
(18,076
)

Repurchase of common stock
(4,033
)

Issuance of common stock – net

32

Net cash used in financing activities
(4,033
)
(47,224
)
CHANGE IN CASH AND CASH EQUIVALENTS
(26,889
)
(71,895
)
Cash and cash equivalents, beginning of the period
183,401

304,296

Cash and cash equivalents, end of the period
$
156,512

$
232,401

See notes to consolidated financial statements

6

Table of Contents

CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements for the
Three and six months ended June 30, 2012 and 2011
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
1.
General
The accompanying unaudited interim consolidated financial statements of Century Aluminum Company should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011. In management’s opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for the first six months of 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. Throughout this Form 10-Q, and unless expressly stated otherwise or as the context otherwise requires, "Century Aluminum," "Century," "we," "us," "our" and "ours" refer to Century Aluminum Company and its consolidated subsidiaries.

2.
Asset Acquisition
In June 2012, our wholly owned subsidiary, Century Anodes BV ("Century Anodes"), purchased substantially all of the assets of the former Zalco anode production facility located in Vlissingen, the Netherlands for approximately $12,500. In connection with the purchase, we entered into a ground lease with respect to the facility that is renewable at our option. As part of the transaction, Century Anodes will not assume, and is indemnified against, any historical liabilities of the facility.
The anode production facility, which was curtailed by Zalco in December 2011, will require a significant capital investment to optimize anode production for our smelter in Grundartangi, Iceland ("Grundartangi") and eventually provide anodes for the planned Helguvik smelter and to comply with current environmental regulations. We purchased the assets to provide captive anode production for Grundartangi to replace third-party anode supply contracts that will terminate in 2013.

3.
Fair value measurements
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value, and delineates disclosures about fair value measurements. This guidance applies to a broad range of other existing accounting pronouncements that require or permit fair value measurements. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value is an exit price and that exit price should reflect all the assumptions that market participants would use in pricing the asset or liability.
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. Consideration 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.
The following section describes the valuation methodology used to measure our financial assets and liabilities that were accounted for at fair value.

7

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


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
Primary aluminum put option contracts
2
Quoted London Metal Exchange (“LME”) forward market prices, historical volatility measurements and risk-adjusted discount rates
Natural gas forward financial contracts
2
Quoted natural gas forward market prices for primary aluminum and risk-adjusted discount rates
Ravenswood power contract
3
Quoted LME forward market prices, power tariff prices, management’s estimate of future power usage and risk-adjusted discount rates
E.ON U.S. (“E.ON”) contingent obligation
3
Quoted LME forward market prices for primary aluminum, management’s estimates of the LME forward market prices for primary aluminum for periods beyond the quoted periods and management’s estimate of future level of operations at Century Aluminum of Kentucky, our wholly owned subsidiary (“CAKY”)
Primary aluminum sales premium contracts
3
Management’s estimates of future U.S. Midwest premium and risk-adjusted discount rates
(1)
Trust assets are currently invested in money market funds. 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.

Fair value measurements
The following table sets forth by level within the ASC 820 fair value hierarchy our financial assets and liabilities that are accounted for at fair value on a recurring basis. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and the placement within the fair value hierarchy levels.

Recurring Fair Value Measurements
As of June 30, 2012
 
Level 1
Level 2
Level 3
Total
ASSETS:
 
 
 
 
Cash equivalents
$
145,492

$

$

$
145,492

Trust assets
15,160



15,160

Surety bond – workers comp insurance
2,391



2,391

TOTAL
$
163,043

$

$

$
163,043

LIABILITIES:
 
 
 
 
Natural gas forward financial contracts
$

$
65

$

$
65

E.ON contingent obligation – net


14,663

14,663

Primary aluminum sales contract


1,361

1,361

TOTAL
$

$
65

$
16,024

$
16,089



8

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


Recurring Fair Value Measurements
As of December 31, 2011
 
Level 1
Level 2
Level 3
Total
ASSETS:
 
 
 
 
Cash equivalents
$
176,284

$

$

$
176,284

Trust assets
15,889



15,889

Surety bonds – workers comp insurance
2,391



2,391

Primary aluminum put option contracts

9,331


9,331

Power contract


106

106

TOTAL
$
194,564

$
9,331

$
106

$
204,001

LIABILITIES:
 
 
 
 
Natural gas forward financial contracts
$

$
281

$

$
281

E.ON contingent obligation – net


13,958

13,958

Primary aluminum sales contract – premium collar


908

908

TOTAL
$

$
281

$
14,866

$
15,147


Change in Level 3 Fair Value Measurements during the three months ended June 30,
 
Derivative liabilities - net
 
2012
2011
Beginning balance, April 1,
$
(15,426
)
$
(14,311
)
Total gain (realized/unrealized) included in earnings
(545
)
(758
)
Settlements
(53
)
533

Ending balance, June 30,
$
(16,024
)
$
(14,536
)
Amount of total loss included in earnings attributable to the change in unrealized losses (gains) relating to assets and liabilities held at June 30,
$
(545
)
$
(758
)
Change in Level 3 Fair Value Measurements during the six months ended June 30,
 
Derivative liabilities - net
 
2012
2011
Beginning balance, January 1,
$
(14,760
)
$
(13,802
)
Total gain (realized/unrealized) included in earnings
(1,158
)
(1,231
)
Settlements
(106
)
497

Ending balance, June 30,
$
(16,024
)
$
(14,536
)
Amount of total loss included in earnings attributable to the change in unrealized losses (gains) relating to assets and liabilities held at June 30,
$
(1,158
)
$
(1,231
)
The net gain (loss) on our derivative assets and liabilities is recorded in our statement of operations under net gain (loss) on forward contracts. See Note 4 Derivative and hedging instruments for the location of our Level 3 derivative assets and liabilities within our consolidated balance sheets.

9

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)



4.
Derivative and hedging instruments

The following table provides the fair value and balance sheet classification of our derivatives:

Fair Value of Derivative Assets and Liabilities
 
Balance sheet location
June 30, 2012
December 31, 2011
DERIVATIVE ASSETS:
 
 
 
Primary aluminum put option contracts
Due from affiliates
$

$
5,439

Primary aluminum put option contracts
Prepaid and other current assets

3,892

Power contract
Prepaid and other current assets

106

TOTAL
 
$

$
9,437

DERIVATIVE LIABILITIES:
 
 
 
E.ON contingent obligation
Other liabilities
$
14,663

$
13,958

Aluminum sales premium contracts – current portion
Accrued and other current liabilities
1,048

607

Natural gas forward financial contracts
Accrued and other current liabilities
65

281

Aluminum sales premium contracts – less current portion
Other liabilities
313

301

TOTAL
 
$
16,089

$
15,147


Natural gas forward financial contracts
To mitigate the volatility of our natural gas cost due to the natural gas markets, we have entered into fixed-price forward financial contracts which settle in cash in the period corresponding to the intended usage of natural gas. These forward contracts are designated as cash flow hedges and qualify for hedge accounting under ASC 815.
The natural gas forward financial contracts are derivatives that qualified for cash flow hedge treatment. During the three and six months ended June 30, 2012 and 2011, the changes in our accumulated other comprehensive loss resulting from realized and unrealized gains and losses on these derivatives were not significant to our financial statements. There were no losses recognized for ineffective portions of these derivatives during the periods.
Foreign currency forward contracts
We manage our foreign currency exposure by entering into foreign currency forward contracts when management deems such transactions appropriate. As of June 30, 2012 and December 31, 2011, we had no foreign currency forward contracts outstanding. We are exposed to foreign currency risk due to fluctuations in the value of the U.S. dollar as compared to the euro, the Icelandic krona (“ISK”) and the Chinese yuan. The labor costs, maintenance costs and other local services at our facility in Grundartangi, Iceland (“Grundartangi”) are denominated in ISK and a portion of its anode costs are denominated in euros and Chinese yuan. Labor costs, maintenance costs and other local services at Century Anodes are denominated in euros. As a result, an increase or decrease in the value of those currencies relative to the U.S. dollar would affect Grundartangi’s and Century Anodes's operating margins.
We have realized gains and losses for our foreign currency cash flow hedges for the Grundartangi expansion and Helguvik project capital expenditures that was recognized in accumulated other comprehensive loss and is reclassified to earnings as part of the depreciation expense of the capital assets (for the Helguvik project this would occur when Helguvik is put into service).

10

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)



Ravenswood power contract
We are party to a power supply agreement at our facility in Ravenswood, West Virginia (“Ravenswood”) that contains LME-based pricing provisions (the "special rate mechanism") that are an embedded derivative. The embedded derivative does not qualify for cash flow hedge treatment and is marked to market quarterly.
In June 2011, the Public Service Commission of the State of West Virginia (the “PSC”) extended the special rate mechanism for one year. The current special rate mechanism will remain in place until the PSC issues an order on the recently filed special rate proposal which is expected to occur in September 2012. We cannot be certain if the special pricing provisions will be extended in the future. As of June 30, 2012, based on our estimated future power usage under the special rate mechanism, the embedded derivative has no fair value.
Primary aluminum put option contracts
As of June 30, 2012, we had no primary aluminum put option contracts outstanding. We had previously entered into primary aluminum put option contracts that settled monthly based on LME prices through June 2012. These options were purchased to partially mitigate the risk of a future decline in aluminum prices.
Our counterparties included two non-related third parties and Glencore, a related party. We paid cash premiums to enter into the put option contracts and recorded an asset on the consolidated balance sheets. We determined the fair value of the put option contracts using a Black-Scholes model with market data provided by an independent vendor and accounted for the contracts as derivative financial instruments with gains and losses in the fair value of the contracts recorded on the consolidated statements of operations in net gain (loss) on forward contracts.
Aluminum sales premium contracts
The Glencore Metal Agreement is a physical delivery contract for 20,400 metric tons per year (“mtpy”) of primary aluminum through December 31, 2013 with variable, LME-based pricing. Under the Glencore Metal Agreement, pricing is based on market prices, adjusted by a negotiated U.S. Midwest premium with a cap and a floor as applied to the current U.S. Midwest premium. We account for the Glencore Metal Agreement as a derivative instrument under ASC 815. Gains and losses on the derivative are based on the difference between the contracted U.S. Midwest premium and actual and forecasted U.S. Midwest premiums. Settlements are recorded in related party sales. Unrealized gains (losses) based on forecasted U.S. Midwest premiums are recorded in net gain (loss) on forward contracts on the consolidated statements of operations.

Derivatives not designated as hedging instruments:
 
 
 
Gain (loss) recognized in income from derivatives
 
 
Three months ended June 30,
Six months ended June 30,
 
Location
2012
2011
2012
2011
Primary aluminum put option contracts
Net gain (loss) on forward contracts
$
1,970

$
(1,060
)
$
(2,725
)
$
(5,666
)
Aluminum sales premium contracts
Related party sales
328

162

532

256

Aluminum sales premium contracts
Net gain (loss) on forward contracts
(520
)
(668
)
(985
)
(866
)

11

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


We had the following outstanding forward contracts that were entered into that were not designated as hedging instruments:
 
June 30, 2012
December 31, 2011
Power contracts (in megawatt hours (“MWH”)) (1)

3,772

Primary aluminum sales contract premium (metric tons) (2)
30,600

40,870

Primary aluminum put option contracts (metric tons)

15,000

Primary aluminum put option contracts (metric tons) – related party

18,000

(1)
Represents our expected usage during the remaining term of the Ravenswood power contract. In June 2011, the West Virginia PSC extended the term of this contract for an additional year.
(2)
Represents the remaining physical deliveries under our 2013 Glencore Metal Agreement.
Counterparty credit risk. We only enter into forward financial contracts with counterparties we determine to be creditworthy at the time of entering into the contract. If any counterparty failed to perform according to the terms of the contract, the impact would be limited to the difference between the contract price and the market price applied to the contract volume on the date of settlement.
As of June 30, 2012, income of $65 is expected to be reclassified out of accumulated other comprehensive loss into earnings over the next 12-month period for derivative instruments that have been designated and have qualified as cash flow hedging instruments and for the related hedged transactions.

12

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)



5.
Earnings per share
Basic earnings per share (“EPS”) amounts are calculated by dividing earnings available to common shareholders 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 per share for three and six months ended June 30, 2012 and 2011:
 
For the three months ended June 30,
 
2012
 
2011
 
Income
Shares (000)
Per-Share
 
Income
Shares (000)
Per-Share
Net income (loss)
$
(12,277
)
 
 
 
$
23,986

 
 
Amount allocated to common shareholders
100
%
 
 
 
91.97
%
 
 
Basic EPS:
 
 
 
 
 
 
 
Income (loss) allocable to common shareholders
(12,277
)
88,452

$
(0.14
)
 
22,061

93,105

$
0.24

Effect of Dilutive Securities:
 
 
 
 
 
 
 
Stock compensation plans


 
 

462

 
Diluted EPS:
 
 
 
 
 
 
 
Income (loss) applicable to common shareholders with assumed conversion
$
(12,277
)
88,452

$
(0.14
)
 
$
22,061

93,567

$
0.24

 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2012
 
2011
 
Income
Shares (000)
Per-Share
 
Income
Shares (000)
Per-Share
Net income (loss)
$
(16,678
)
 
 
 
$
49,032

 
 
Amount allocated to common shareholders
100
%
 
 
 
91.91
%
 
 
Basic EPS:
 
 
 
 
 
 
 
Income (loss) allocable to common shareholders
(16,678
)
88,589

$
(0.19
)
 
45,066

93,036

$
0.48

Effect of Dilutive Securities:
 
 
 
 
 
 
 
Stock compensation plans


 
 

396

 
Diluted EPS:
 
 
 
 
 
 
 
Income (loss) applicable to common shareholders with assumed conversion
$
(16,678
)
88,589

$
(0.19
)
 
$
45,066

93,432

$
0.48

 
 
 
 
 
 
 
 


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Impact of our outstanding Series A Convertible Preferred Stock on EPS
Our Series A Convertible Preferred Stock has similar characteristics of a “participating security” as described by ASC 260-10-45 “Participating Securities and the Two-Class Method”. In accordance with the guidance in the ASC 260-10-45, we calculate basic EPS using the Two-Class Method, allocating undistributed income to our preferred shareholder consistent with its participation rights, and diluted EPS using the If-Converted Method, when applicable.
The generally accepted accounting principles for reporting EPS do not require the presentation of basic and diluted EPS for securities other than common stock and the EPS amounts, as presented, only pertain to our common stock.
The Two-Class Method is an earnings allocation formula that determines earnings per share for common shares and participating securities according to dividends declared (or accumulated) and the participation rights in undistributed earnings.
The holders of our convertible preferred stock do not have a contractual obligation to share in the losses of Century. Thus, in periods where we report net losses, we will not allocate the net losses to the convertible preferred stock for the computation of basic or diluted EPS.
Calculation of EPS:
 
Three months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
Options to purchase common stock outstanding
626,334

641,187

626,334

641,187

Weighted average service-based stock awards outstanding
395,791

343,148

370,658

280,366

Excluded from the calculation of diluted EPS:
 
 
 
 
Stock options (1)
626,334

349,000

632,334

349,000

Service-based share award
395,791


370,658


(1)
These stock option awards were excluded from the calculation of diluted EPS because the exercise price of these options was greater than the average market price of the underlying common stock, except in periods when we had a net loss where all option were excluded because of their antidilutive effect on earnings per share.
During the six months ended June 30, 2012, we repurchased 400,000 shares of our common stock under a stock repurchase program. (See Note 6 Shareholders’ Equity for additional information about this program) Shares repurchased under the program are excluded from the calculation of weighted average shares of common stock outstanding.
Service-based stock for which vesting is based upon continued service is not considered issued and outstanding shares of common stock until vested and issued. However, the service-based stock is considered a common stock equivalent and, therefore, the weighted average service-based stock is included, using the treasury stock method, in common shares outstanding for diluted earnings per share computations if they have a dilutive effect on earnings per share.

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6.
Shareholders’ equity
Common Stock
Under our Restated Certificate of Incorporation, as amended, our Board of Directors is authorized to issue up to 195,000,000 shares of our common stock.
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 any series which we may designate and issue in the future.
Common and Preferred Stock Activity:
Preferred stock
Common stock
 
Series A convertible
Treasury
Outstanding
Beginning balance as of December 31, 2011
80,718

4,386,521

88,844,327

Repurchase of common stock

400,000

(400,000
)
Conversion of convertible preferred stock
(95
)

9,488

Issuance for stock compensation plans


13,234

Ending balance as of June 30, 2012
80,623

4,786,521

88,467,049

Stock Repurchase Program
In August 2011, our Board of Directors approved a $60,000 stock repurchase program. Under the program, we may repurchase up to $60,000 in value 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 the stock and other factors. The repurchase program may be suspended or discontinued at any time.
Shares of common stock repurchased are recorded at cost as treasury stock and result in a reduction of shareholders’ equity in the consolidated balance sheets. From time to time, treasury shares may be reissued as contributions to our employee benefit plans and for the conversion of convertible preferred stock. When shares are reissued, we use an average cost method for determining cost. The difference between the cost of the shares and the reissuance price is added to or deducted from additional paid-in capital.
From August 11, 2011 through June 30, 2012, we repurchased 4,786,521 shares of common stock for an aggregate purchase price of $49,924. We had approximately $10,076 remaining under the repurchase program authorization as of June 30, 2012.
Series A Convertible Preferred Stock conversions
All shares of Series A Convertible Preferred Stock are held by Glencore. The issuance of common stock under our stock incentive programs, debt exchange transactions and any stock offering that excludes Glencore participation triggers anti-dilution provisions of the preferred stock agreement and results in the automatic conversion of Series A Convertible Preferred Stock shares into shares of common stock. See Common and Preferred Stock Activity table above for additional information about preferred stock conversions during the period.

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7.
Income taxes
The components of our unrecognized tax positions are as follows:
 
June 30, 2012
December 31, 2011
Highly certain tax positions
$
15,700

$
15,100

Other unrecognized tax benefits
900

800

Gross unrecognized tax benefits
$
16,600

$
15,900

Accrued interest and penalties related to unrecognized tax benefits
$
150

$
100

We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.
We do not expect a significant change in the balance of unrecognized tax benefits within the next twelve months.
Our federal income tax returns beginning in 2008 are subject to examination. Our 2008 tax year is currently under audit by the Internal Revenue Service (“IRS”). Additionally, a 2005 amended return is also under audit with respect to carry back items. Our state returns beginning in 2005 are subject to examination. Our Icelandic tax returns are subject to examination beginning with the 2005 tax year.
For the years 2011, 2010 and 2009, we did not elect to permanently reinvest foreign earnings . In March 2012, we removed our election to permanently reinvest foreign earnings prior to 2009.

8.
Inventories
Inventories consist of the following:
 
June 30, 2012
December 31, 2011
Raw materials
$
33,311

$
41,142

Work-in-process
14,757

15,548

Finished goods
10,634

10,535

Operating and other supplies
99,836

104,736

Inventories
$
158,538

$
171,961

Inventories are stated at the lower of cost or market, using the first-in, first-out method (“FIFO”).

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9.
Debt
 
June 30, 2012
December 31, 2011
Debt classified as current liabilities:
 
 
Hancock County industrial revenue bonds due 2028, interest payable quarterly (variable interest rates (not to exceed 12%))(1)
$
7,815

$
7,815

Debt classified as non-current liabilities:
 
 
8.0% senior secured notes payable due May 15, 2014, net of debt discount of $2,171 and $2,695, respectively, interest payable semiannually
247,433

246,909

7.5% senior unsecured notes payable due August 15, 2014, interest payable semiannually
2,603

2,603

E.ON contingent obligation, principal and accrued interest, contingently payable monthly, annual interest rate of 10.94% (2)
14,663

13,958

TOTAL
$
272,514

$
271,285

(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 June 30, 2012 was 0.43%.
(2)
E.ON contingent obligation principal and interest payments are payable based on CAKY’s operating level and the LME price for primary aluminum. See E.ON contingent obligation below.

Revolving credit facility
On July 1, 2010, we and certain of our direct and indirect domestic subsidiaries (together with Century, the "Borrowers") entered into a four-year $100,000 senior secured revolving credit facility pursuant to a Loan and Security Agreement, dated as of July 1, 2010, among the Borrowers and Wells Fargo Capital Finance, LLC, as lender and agent (the "Credit Facility"), a portion of which was later syndicated to Credit Suisse AG. The Credit Facility will expire on July 1, 2014.
Status of our revolving credit facility:
 
June 30, 2012
Senior secured revolving credit facility amount
$
100,000

Borrowing availability, net of outstanding letters of credit
57,981

Outstanding borrowings on revolving credit facility

Letter of credit sub-facility amount
50,000

Outstanding letters of credit issued under the revolving credit facility
42,019

The availability of funds under the revolving credit facility is limited by a specified borrowing base consisting of accounts receivable and inventory which meet the eligibility criteria.
Our obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries and secured by a first priority security interest in all of the domestic accounts receivable, inventory and certain bank accounts. The guarantees for any and all obligations under the Credit Facility are on a joint and several basis.
Any amounts outstanding under the Credit Facility will bear interest, at our option, at LIBOR or a base rate, plus, in each case, an applicable interest margin. In addition, we pay a commitment fee on undrawn amounts, less the amount of our letters of credit exposure. For standby letters of credit, we are required to pay a fee on the face amount of such letters of credit.

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E.ON contingent obligation
The E.ON contingent obligation consists of the aggregate E.ON payments made on CAKY’s behalf under a power purchase agreement with Big Rivers and E.ON (the “Big Rivers Agreement”) in excess of the agreed upon base amount. Interest accrues at an annual rate equal to 10.94%. The term of the agreement is through December 31, 2028. Our obligation to make repayments is contingent upon certain operating criteria for Hawesville and the LME price of primary aluminum. Based on the LME forward market and our expectation of Hawesville’s future operations, we classified the E.ON contingent obligation within noncurrent liabilities, which includes accrued interest on the obligation. When the conditions for repayment are met, and for so long as those conditions continue to be met, we will be obligated to make principal and interest payments.
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. Because of the issues and uncertainties described below and the inability to predict the requirements of future environmental laws, 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 which may have a material adverse effect.
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 $1,014 and $852 at June 30, 2012 and December 31, 2011, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to costs for ongoing environmental compliance, including maintenance and monitoring, such costs are expensed as incurred.
Century Aluminum of West Virginia, Inc. (“CAWV”) continues to perform remedial measures at Ravenswood pursuant to an order issued by the EPA in 1994 (the “3008(h) Order”).  CAWV also conducted a RCRA facility investigation (“RFI”) under the 3008(h) Order evaluating other areas at Ravenswood that may have contamination requiring remediation. The RFI has been approved by appropriate agencies.  CAWV has completed interim remediation measures at two sites identified in the RFI, and we believe no further remediation will be required. A Corrective Measures Study, which formally documents the conclusion of these activities, has been submitted by the EPS for a final order. 
Prior to our purchase of Hawesville, the EPA issued a final Record of Decision (“ROD”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). By agreement, Southwire Company (“Southwire”), the former owner and operator is to perform all obligations under the ROD.  CAKY has agreed to operate and maintain the ground water treatment system required under the ROD on behalf of Southwire, and Southwire will reimburse CAKY for any expense that exceeds $400 annually.
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, and we cannot predict the ultimate outcome of this action or estimate a range of possible losses related to this matter at this time. We do not expect that the ultimate costs to resolve this action will have a material adverse effect on our financial condition, results of operations or liquidity, regardless of the final outcome.

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Matters relating to the St. Croix Alumina Refining Facility
We are a party to an EPA Administrative Order on Consent (the “Order”) pursuant to which other past and present owners of an alumina refining facility at St. Croix, Virgin Islands (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 and defense of the above matter to Vialco. We have likewise tendered indemnity to Lockheed. Through June 30, 2012, we have expended approximately $940 on the Hydrocarbon Recovery Plan.  We expect the future potential payments under this indemnification to comply with the Order will be approximately $500, which may be offset in part by sales of recoverable hydrocarbons.
In May 2005, we and Vialco were among several defendants listed in a lawsuit filed by the Commissioner of the Department of Planning and Natural Resources (“DPNR”), in his capacity as Trustee for Natural Resources of the United States Virgin Islands.  The complaint alleges damages to natural resources caused by alleged releases from the St. Croix Alumina Refinery and the adjacent petroleum refinery.  The primary cause of action is pursuant to the natural resource damage provisions of CERCLA, but various ancillary Territorial law causes of action were included as well.  We and Lockheed have each tendered indemnity and defense of the case to the other pursuant to the terms of the Lockheed-Vialco Asset Purchase Agreement.  The complaint seeks unspecified monetary damages, costs and attorney fees. In November 2011, the court granted a motion by Century, dismissing Century from the case. Vialco, however, remains a defendant in this case and has asserted factual and affirmative defenses. The parties are currently engaged in the discovery process. As of June 30, 2012, no trial date has been set for the remaining claims. 
In December 2006, Vialco and the two succeeding owners of the St. Croix Alumina Refinery were named as defendants in a lawsuit filed by the Commissioner of the DPNR. The complaint alleges the defendants failed to take certain actions specified in a Coastal Zone management permit issued to Vialco in October 1994, and alleges violations of territorial water pollution control laws during the various defendants’ periods of ownership. The complaint seeks statutory and other unspecified monetary penalties for the alleged violations. The parties are currently engaged in the discovery process.
In May 2009, St. Croix Renaissance Group, L.L.L.P. (“SCRG”) filed a third-party complaint for contribution and other relief against several third-party defendants, including Vialco, relating to a lawsuit filed against SCRG seeking recovery of response costs relating to the aforementioned DPNR CERCLA matter. In February 2011, the court granted a motion by Century, dismissing Century from the case. Vialco, however, remains a defendant in this case. In March 2011, the court granted the remaining defendants’, including Vialco’s, motion for summary judgment, dismissing the case. The plaintiff filed a notice of appeal with the Third Circuit Court of Appeals in May 2011. A date has not been set for the appeal.
In December 2010, Century was among several defendants listed in a lawsuit filed by approximately 2,300 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 approximately 200 plaintiffs previously named in the aforementioned suit. The plaintiffs in both suits allege damages caused by the presence of red mud and other particulates coming from the alumina facility. The plaintiffs in both suits seek unspecified monetary damages, costs and attorney fees as well as certain injunctive relief. We have 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 a motion to dismiss plaintiffs’ claims, but the court has not yet ruled on the motion.

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Pursuant to the terms of the asset purchase agreement between Vialco and the purchaser of the St. Croix Alumina Refinery in 1995, the purchaser assumed responsibility for all costs and other liabilities associated with the bauxite waste disposal facilities, including pre-closure and post-closure liabilities.  At this time, it is not practicable to predict the ultimate outcome of or to estimate a range of possible losses relating to any of the foregoing actions.
Legal Contingencies
We have pending against us or may be subject to various lawsuits, claims and proceedings related primarily to employment, commercial, environmental, shareholder, safety and health matters. Although it is not presently possible to determine the outcome of these matters, management believes their ultimate disposition will not have a material adverse effect on our financial condition, results of operations, or liquidity.
In evaluating whether to accrue for costs 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 costs 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.  
We also determine estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when we have assessed that a loss is reasonably possible.  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, 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.
We have been named as a defendant in a lawsuit filed by our former Chief Executive Officer, Logan Kruger, alleging breach of contract and wrongful termination in violation of public policy.  The lawsuit alleges that Century anticipatorily breached the employment and severance protection agreements between Century and Mr. Kruger and that Century is obligated to make various severance payments in excess of $20,000 to Mr. Kruger under such agreements.  In addition, the complaint seeks unspecified damages, including exemplary and punitive damages, for wrongful termination, as well as costs and attorneys’ fees.  The trial court has transferred the matter to an arbitration panel for resolution. We believe these claims are without merit and intend to vigorously defend ourself against them.   The matter is in a preliminary stage, and we cannot predict the ultimate outcome of this action or estimate a range of possible losses related to this matter at this time. We do not expect that the ultimate costs to resolve this action will have a material adverse effect on our financial condition, results of operations or liquidity, regardless of the final outcome.
In March 2011, the purported stockholder class actions pending against us consolidated as In re: Century Aluminum Company Securities Litigation were dismissed with prejudice by the United States District Court for the Northern District of California. The plaintiffs in the class actions allege that we improperly accounted for cash flows associated with the termination of certain forward financial sales contracts which accounting allegedly resulted in artificial inflation of our stock price and investor losses. Plaintiffs are seeking rescission of our February 2009 common stock offering, unspecified compensatory damages, including interest thereon, costs and expenses and attorneys’ fees. On March 10, 2011, plaintiffs filed a notice of appeal to the order and judgment entered by the court on March 3, 2011. The notice of appeal remains pending before the U.S. Court of Appeals for the Ninth Circuit.

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Ravenswood Retiree Medical Benefits changes
Century Aluminum of West Virginia, Inc. (“CAWV”) amended its postretirement medical benefit plan, effective January 1, 2010, for all current and former CAWV salaried employees, their dependents and all bargaining unit employees who retired before June 1, 2006, and their dependents. Effective January 1, 2011, CAWV no longer provided retiree medical benefits to active salaried CAWV personnel or any other personnel who retired prior to November 1, 2010.
The principal changes to the plan as a result of this amendment were that, upon attainment of age 65, all CAWV provided retiree medical benefits ceased for retirees and dependents. In addition, bargaining unit retirees under age 65 and qualified dependents under age 65 were covered by the salary retiree medical plan which required out-of pocket payments for premiums, co-pays and deductibles by participants.
In November 2009, CAWV filed a class action complaint for declaratory judgment against the USWA, the USWA’s local union, and four CAWV retirees, individually and as class representatives, seeking a declaration of CAWV’s rights to modify/terminate retiree medical benefits as described above.  Later in November 2009, the USWA and representatives of a retiree class filed a separate suit against CAWV, Century Aluminum Company, Century Aluminum Master Welfare Benefit Plan, and various John Does with respect to the foregoing.  These actions, entitled Dewhurst, et al. v. Century Aluminum Co., et al., and Century Aluminum of West Virginia, Inc. v. United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO/CLC, et al., have been consolidated and venue has been set in the District Court for the Southern District of West Virginia.
In January 2010, the USWA filed a motion for preliminary injunction to prevent us from implementing the foregoing changes while these lawsuits are pending, which was dismissed by the trial court. In August 2011, the Fourth Circuit Court of Appeals upheld the District Court’s dismissal of the USWA’s motion for preliminary injunction, finding that the USWA had failed to establish the likelihood of success on the merits of the underlying matter. In October 2011, CAWV filed a motion to dismiss plaintiff’s first amended complaint with the trial court. No ruling has yet been made on the motion. In March 2012, the court granted a stay pending negotiations to restart Ravenswood. The plaintiffs have agreed in principle to settle the lawsuit upon a successful restart of Ravenswood, see “CAWV Retiree VEBA contributions” below.
In June 2011, the Pension Benefit Guaranty Corporation (the “PBGC”) informed us that it believed that a “cessation of operations” under the Employee Retirement Income Security Act of 1974 (“ERISA”) had occurred at our Ravenswood facility as a result of the curtailment of operations at the facility and requested that we engage in discussions with the PBGC relating thereto. We have notified the PBGC that we do not believe that a “cessation of operations” has occurred and have entered into ongoing discussions with the PBGC to resolve the matter. If a “cessation of operations” is ultimately determined to have occurred under ERISA, it may be necessary for Century Aluminum of West Virginia to accelerate the timing of approximately $17,400 in contributions over a period of years to certain of its defined pension plans or post other collateral with the PBGC or negotiate an alternative agreement. 
Power Commitments
Hawesville
The Big Rivers Agreement has a term through December 2023, unless extended.  The Big Rivers Agreement is a cost-based agreement that provides sufficient power for Hawesville’s full production capacity requirements.  The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production.

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Mt. Holly
Mt. Holly has a power purchase agreement (the “Santee Cooper Agreement”) with the South Carolina Public Service Authority (“Santee Cooper”) with a term through December 2015, unless extended.  The Santee Cooper Agreement provides adequate power for Mt. Holly’s full production capacity requirements at prices fixed based on published rate schedules (which are subject to change), with adjustments for fuel prices and other items.  The Santee Cooper Agreement restricts Mt. Holly’s ability to reduce its power consumption (or the associated payment obligations) below contracted levels and to terminate the agreement, unless, in each case, the LME falls below certain negotiated levels.
In April 2012,  Santee Cooper adopted a revised Curtailable Supplemental Power Rate Schedule effective June 1, 2012 and Mt. Holly and Santee Cooper have subsequently amended the terms of Mt. Holly's power agreement to take advantage of the new rate schedule. The revision allows Santee Cooper and Mt. Holly to agree to serve all or a portion of Mt. Holly's Supplemental Power requirements from a designated resource.  The energy charge for Supplemental Power from the designated resource is based on the fuel costs of the resource rather than Santee Cooper's system average fuel costs. The amendments to the power agreement may provide a benefit to Mt. Holly provided that the energy costs of the designated resource are below Santee Cooper's system average fuel costs.
Ravenswood
CAWV has a power purchase agreement (the “ApCo Agreement”) with the Appalachian Power Company (“ApCo”).  CAWV currently purchases a limited amount of power under the ApCo Agreement as necessary to maintain its Ravenswood smelter, which is presently curtailed.  Power is supplied under the ApCo Agreement at prices set forth in published tariffs (which are subject to change), with certain adjustments.  Under the special rate contract, Ravenswood may be excused from, or may defer the payment of, any increase in the tariff rate if LME prices fall below certain negotiated levels.   The current special rate mechanism will remain in place until the PSC issues an order on the recently filed new special rate proposal for an LME-based rate, which is expected to occur in September 2012.
Grundartangi
Nordural Grundartangi ehf 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, 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.
In the fourth quarter of 2011, an additional 47.5 MW of power became available under a power purchase agreement with OR. This power can be used at either Grundartangi or Helguvik and is currently being utilized at Grundartangi. In order to use this additional power, Nordural Grundartangi has temporarily reduced its power purchases under each of its outstanding power purchase agreements, but continues to consume power in excess of its take-or-pay obligation. HS and OR have disputed Nordural Grundartangi's right to make such reductions and have commenced arbitration proceedings against Nordural Grundartangi that are currently expected to occur in the first quarter of 2013.
In June 2012, Nordural Grundartangi entered into a new supplemental power contract with Landsvirkjun. The supplemental power contract, which will expire in October 2029 (or upon the occurrence of certain earlier events), will provide Nordural Grundartangi with supplemental power, as Nordural Grundartangi may request from time to time, at LME-based variable rates. Nordural Grundartangi has agreed to make certain prepayments to Landsvirkjun in connection with the contract, which will reduce the price paid for power at the time of consumption.

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Notes to the Consolidated Financial Statements - continued
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Helguvik
Nordural Helguvik ehf 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 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.  No other power is currently available under either power purchase agreement.  HS (with respect to all phases) and OR (with respect to all phases other than the first phase) have alleged that certain conditions to the delivery of power under the power purchase agreements have not been satisfied.  Nordural Helguvik is in discussion with both HS and OR with respect to such conditions.
Other Commitments and Contingencies
Labor Commitments
Approximately 75% of our U.S. based work force is represented by the USWA. CAKY’s Hawesville plant employees represented by the USWA are under a collective bargaining agreement which expires on March 31, 2015.
In April 2010, Nordural Grundartangi ehf entered into a new labor agreement with the five labor unions representing approximately 84% of Grundartangi’s work force. The labor agreement expires on December 31, 2014.
CAWV’s Ravenswood plant employees represented by the USWA are under a labor agreement that expired on August 31, 2010. Negotiations for a new labor agreement are ongoing.
CAWV Retiree VEBA contributions
We have reached an agreement in principle with the CAWV retirees to make contributions to a voluntary employee beneficiary association (“VEBA”) trust that would provide certain health care benefits to these retirees and their eligible dependents in the event of a restart of our Ravenswood facility.  If this agreement were entered into, our obligations under the agreement, including any contributions to the VEBA, would be contingent upon the occurrence of several future events that are necessary in order to restart the Ravenswood facility.  None of these events, including the finalization of this agreement, are certain to occur.

Other Commitments
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act were enacted in March 2010. The Health Care Acts extend health care coverage to many uninsured individuals and expands coverage to those already insured. The Health Care Acts contain provisions which could impact our retiree medical benefits in future periods. However, the extent of that impact, if any, cannot be determined until regulations are promulgated under the Health Care Acts and additional interpretations of the Health Care Acts become available. We are continuing to assess the potential impacts that this legislation may have on our future results of operations, cash flows and financial position related to our health care benefits and other postemployment benefit obligations. Among other things, the Health Care Acts will eliminate the tax deductibility of the Medicare Part D subsidy for companies that provide qualifying prescription drug coverage to retirees effective for years beginning after December 31, 2012.

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11.
Forward delivery contracts and financial instruments
As a producer of primary aluminum, we are exposed to fluctuating raw material and primary aluminum prices. We enter into fixed and market priced contracts for the sale of primary aluminum and the purchase of raw materials in future periods.

Forward Physical Delivery Agreements

Primary Aluminum Sales Contracts

Contract
Customer
Volume
Term
Pricing
Glencore Metal Agreement (1)
Glencore
20,400 mtpy
Through December 31, 2013
Variable, based on U.S. Midwest market
Glencore Sweep Agreement (2)
Glencore
Surplus primary aluminum produced in the United States
Through December 31, 2012
Variable, based on U.S. Midwest market
Glencore Nordural Metal Agreement
Glencore
Approximately 16,000 metric tons
Through December 31, 2012
Variable, based on LME
Southwire Metal Agreement (3)
Southwire
240 million pounds per year (high conductivity molten aluminum)
Through December 31, 2013
Variable, based on U.S. Midwest market
(1)
We account for the Glencore Metal Agreement as a derivative instrument under ASC 815. Under the Glencore Metal Agreement, pricing is based on then-current Midwest market prices, adjusted by a negotiated U.S. Midwest premium with a cap and a floor as applied to the current U.S. Midwest premium.
(2)
The Glencore Sweep Agreement is for all metal produced in the U.S. in 2012, less existing sales agreements and high-purity metal sales. The term of the contract may be extended for one year upon mutual agreement.
(3)
The Southwire Metal Agreement contains termination rights in the event of a partial or full curtailment of the Hawesville facility.

Long-term Tolling Contracts

Contract
Customer
Volume
Term
Pricing
Billiton Tolling Agreement (1)
BHP Billiton
130,000 mtpy
Through December 31, 2013
LME-based
Glencore Toll Agreement (1)
Glencore
90,000 mtpy
Through July 31, 2016
LME-based
Glencore Toll Agreement (1)
Glencore
45,000 mtpy
Through December 31, 2014
LME-based
(1)
Grundartangi’s tolling revenues include a premium based on the European Union (“EU”) import duty for primary aluminum.
Apart from the Glencore Metal Agreement, the Glencore Sweep Agreement, the Glencore Nordural Metal Agreement and the Southwire Metal Agreement, we had the following forward delivery contractual commitments:


24

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


Other forward delivery contracts
 
June 30, 2012
December 31, 2011
 
(in metric tons)
Other forward delivery contracts – total
40,990

41,504

Other forward delivery contracts – Glencore
2,312

3,423

Other forward delivery contracts – fixed price
199

41


Forward Financial Instruments
We are party to various forward financial and physical delivery contracts, including primary aluminum put option contracts, which are accounted for as derivative instruments. See Note 4 Derivative and hedging instruments for additional information about these instruments.
12.
Supplemental cash flow information

 
Six months ended June 30,
 
2012
2011
Cash paid for:
 
 
Interest
$
10,108

$
11,148

Income/withholding taxes (1)
16,809

27,685

(1)
We paid withholding taxes in Iceland of $9,484 and $26,900 in the six months ended June 30, 2012 and 2011, respectively. Our tax payments in Iceland for withholding taxes, estimated and prepayments of Icelandic income taxes and any associated refunds are denominated in ISK.

13.
Asset retirement obligations (“ARO”)
Our asset retirement obligations consist primarily of costs associated with the disposal of spent pot liner used in the reduction cells of our domestic facilities.

The reconciliation of the changes in the asset retirement obligations is presented below:
 
Six months ended June 30,
Year ended December 31, 2011
Beginning balance, ARO liability
$
15,171

$
14,274

Additional ARO liability incurred
582

1,110

ARO liabilities settled
(690
)
(1,315
)
Accretion expense
584

1,102

Ending balance, ARO liability
$
15,647

$
15,171

Certain conditional AROs related to the disposal costs of fixed assets at our primary aluminum facilities have not been recorded because they have an indeterminate settlement date. These conditional AROs will be initially recognized in the period in which sufficient information exists to estimate their fair value.

25

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)



14.
Components of Accumulated other comprehensive loss
 
 
 
 
June 30, 2012
December 31, 2011
Unrealized loss on financial instruments
$
(871
)
$
(1,040
)
Defined benefit plan liabilities
(139,142
)
(142,259
)
Equity in investee other comprehensive income (1)
(8,476
)
(8,476
)
Other comprehensive loss before income tax effect
(148,489
)
(151,775
)
Income tax effect (2)
16,422

17,187

Accumulated other comprehensive loss
$
(132,067
)
$
(134,588
)
(1)
The amount includes our equity in the other comprehensive income of Mt. Holly Aluminum Company.
(2)The allocation of the income tax effect to the components of other comprehensive income is as follows:
 
June 30, 2012
December 31, 2011
Unrealized loss on financial instruments
$
(665
)
$
(682
)
Defined benefit plan liabilities
16,564

17,311

Equity in investee other comprehensive income
523

558

15.
Components of net periodic benefit cost

 
Pension Benefits
 
Three months ended June 30,
 
Six months ended June 30,
 
2012
2011
 
2012
2011
Service cost
$
506

$
709

 
$
1,401

$
1,566

Interest cost
1,606

1,808

 
3,436

3,488

Expected return on plan assets
(1,782
)
(1,776
)
 
(3,482
)
(3,315
)
Amortization of prior service cost
34

34

 
69

69

Amortization of net loss
1,133

449

 
1,821

931

Net periodic benefit cost
$
1,497

$
1,224

 
$
3,245

$
2,739

 
Other Postretirement Benefits
 
Three months ended June 30,
 
Six months ended June 30,
 
2012
2011
 
2012
2011
Service cost
$
370

$
475

 
$
895

$
834

Interest cost
1,271

1,478

 
2,757

2,864

Expected return on plan assets


 


Amortization of prior service cost (1)
(1,065
)
(15,534
)
 
(2,125
)
(30,689
)
Amortization of net loss
1,808

6,546

 
3,304

12,349

Net periodic benefit cost
$
2,384

$
(7,035
)
 
$
4,831

$
(14,642
)

(1)
Plan amendments made in November 2010 resulted in a reduction in OPEB liability and a credit to accumulated other comprehensive loss. The resulting prior service benefit and actuarial losses were amortized ratably into income over the period November 1, 2010 to June 30, 2011 at which time the CAWV OPEB plan terminated.


26

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)



Employer contributions
During the six months ended June 30, 2012, we have made contributions of approximately $5,458 to the qualified defined benefit plans we sponsor.
16.
Recently issued and adopted accounting standards
We evaluate the impact of the Financial and Accounting Standards Board (“FASB”) accounting standards updates (“ASUs”) issued. When the adoption or planned adoption of recently issued ASUs will potentially have a material impact on our consolidated financial position, results of operations, and cash flows, we disclose the quantitative and qualitative effects of the adoption in our consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement.” This ASU amended the requirements for measuring fair value and disclosing information about fair value measurements and is effective for Century on January 1, 2012. Upon adoption, this standard resulted in changes to our financial disclosures, but did not have any impact on the reporting of our financial condition, results of operations or cash flows.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income”. This ASU addresses the financial statement presentation of other comprehensive income and its components. Companies may elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. At December 31, 2011, we adopted ASU 2011-05 and included the updated presentation requirements in the current financial statements. Upon adoption, this standard resulted in changes to our financial disclosures, but did not have any impact on the reporting of our financial condition, results of operations or cash flows.

17.
Condensed consolidating financial information
Our 8.0% senior secured notes due 2014 and 7.5% senior unsecured notes due 2014 are guaranteed by each of our material existing and future domestic subsidiaries, except for Nordural US LLC. Each subsidiary guarantor is 100% owned by Century. All guarantees are full and unconditional; all guarantees are joint and several. These notes are not guaranteed by our foreign subsidiaries (such subsidiaries and Nordural US LLC, collectively the “Non-Guarantor Subsidiaries”). We allocate corporate expenses or income to our subsidiaries and charge interest on certain intercompany balances.
The following summarized condensed consolidating balance sheets as of June 30, 2012 and December 31, 2011, condensed consolidating statements of operations for the three and six months ended June 30, 2012 and June 30, 2011, condensed consolidating statement of comprehensive income for the three and six months ended June 30, 2012 and June 30, 2011 and the condensed consolidating statements of cash flows for the six months ended June 30, 2012 and June 30, 2011 present separate results for Century, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, consolidating adjustments and total consolidated amounts.
This summarized condensed consolidating financial information may not necessarily be indicative of the results of operations or financial position had Century, the guarantor subsidiaries or the non-guarantor subsidiaries operated as independent entities.


27

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2012
 
Combined Guarantor Subsidiaries
Combined Non-Guarantor Subsidiaries
The Company
Reclassifications and Eliminations
Consolidated
Assets:
 
 
 
 
 
Cash and cash equivalents
$

$
138,699

$
17,813

$

$
156,512

Accounts receivable — net
58,909

13,027



71,936

Due from affiliates
592,844

7,753

2,447,116

(3,013,042
)
34,671

Inventories
92,417

66,121



158,538

Prepaid and other current assets
2,396

36,760

3,975


43,131

Total current assets
746,566

262,360

2,468,904

(3,013,042
)
464,788

Investment in subsidiaries
42,471


(1,004,314
)
961,843


Property, plant and equipment — net
326,414

880,945

980

(310
)
1,208,029

Other assets
21,840

58,061

38,883

(12,500
)
106,284

Total
$
1,137,291

$
1,201,366

$
1,504,453

$
(2,064,009
)
$
1,779,101

Liabilities:
 
 
 
 
 
Accounts payable, trade
$
30,380

$
39,220

$
760

$

$
70,360

Due to affiliates
2,105,339

101,135

181,868

(2,345,287
)
43,055

Accrued and other current liabilities
12,239

34,699

10,278

(12,500
)
44,716

Accrued employee benefits costs — current portion
13,840


2,267


16,107

Industrial revenue bonds
7,815




7,815

Total current liabilities
2,169,613

175,054

195,173

(2,357,787
)
182,053

Senior notes payable


250,036


250,036

Accrued pension benefit costs — less current portion
37,462


30,300


67,762

Accrued postretirement benefit costs — less current portion
122,995


5,434


128,429

Other liabilities/intercompany loan
64,474

640,070

3,211

(668,065
)
39,690

Deferred taxes — less current portion

90,832



90,832

Total noncurrent liabilities
224,931

730,902

288,981

(668,065
)
576,749

Shareholders’ equity:
 
 
 
 
 
Preferred stock


1


1

Common stock
60

12

933

(72
)
933

Additional paid-in capital
302,659

149,743

2,507,053

(452,402
)
2,507,053

Treasury stock, at cost


(49,924
)

(49,924
)
Accumulated other comprehensive loss
(130,034
)
(1,449
)
(132,067
)
131,483

(132,067
)
Retained earnings (accumulated deficit)
(1,429,938
)
147,104

(1,305,697
)
1,282,834

(1,305,697
)
Total shareholders’ equity
(1,257,253
)
295,410

1,020,299

961,843

1,020,299

Total
$
1,137,291

$
1,201,366

$
1,504,453

$
(2,064,009
)
$
1,779,101



28

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2011
 
Combined Guarantor Subsidiaries
Combined Non-Guarantor Subsidiaries
The Company
Reclassifications and Eliminations
Consolidated
Assets:
 
 
 
 
 
Cash and cash equivalents
$

$
159,157

$
24,244

$

$
183,401

Accounts receivable — net
40,062

7,585



47,647

Due from affiliates
616,830

13,517

2,474,727

(3,060,409
)
44,665

Inventories
96,197

75,764



171,961

Prepaid and other current assets
8,668

38,809

3,169

(10,000
)
40,646

Total current assets
761,757

294,832

2,502,140

(3,070,409
)
488,320

Investment in subsidiaries
36,965


(995,131
)
958,166


Property, plant and equipment — net
338,946

878,333

1,211

(265
)
1,218,225

Other assets
21,870

43,269

39,410


104,549

Total
$
1,159,538

$
1,216,434

$
1,547,630

$
(2,112,508
)
$
1,811,094

Liabilities:
 
 
 
 
 
Accounts payable, trade
$
43,215

$
42,278

$
679

$

$
86,172

Due to affiliates
2,103,687

78,411

205,651

(2,345,845
)
41,904

Accrued and other current liabilities
10,596

29,822

10,358

(10,000
)
40,776

Accrued employee benefits costs — current portion
14,267


2,431


16,698

Industrial revenue bonds
7,815




7,815

Total current liabilities
2,179,580

150,511

219,119

(2,355,845
)
193,365

Senior notes payable


249,512


249,512

Accrued pension benefit costs — less current portion
40,277


30,622


70,899

Accrued postretirement benefit costs — less current portion
122,609


5,469


128,078

Other liabilities/intercompany loan
63,369

686,834

4,631

(714,829
)
40,005

Deferred taxes — less current portion

90,958



90,958

Total noncurrent liabilities
226,255

777,792

290,234

(714,829
)
579,452

Shareholders’ equity:
 
 
 
 
 
Preferred stock


1


1

Common stock
60

12

932

(72
)
932

Additional paid-in capital
297,300

144,383

2,506,842

(441,683
)
2,506,842

Treasury stock, at cost


(45,891
)

(45,891
)
Accumulated other comprehensive income (loss)
(132,235
)
(1,373
)
(134,588
)
133,608

(134,588
)
Retained earnings (accumulated deficit)
(1,411,422
)
145,109

(1,289,019
)
1,266,313

(1,289,019
)
Total shareholders’ equity
(1,246,297
)
288,131

1,038,277

958,166

1,038,277

Total
$
1,159,538

$
1,216,434

$
1,547,630

$
(2,112,508
)
$
1,811,094



29

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2012
 
Combined Guarantor Subsidiaries
Combined Non-Guarantor Subsidiaries
The Company
Reclassifications and Eliminations
Consolidated
NET SALES:
 
 
 
 
 
Third-party customers
$
131,721

$
52,301

$

$

$
184,022

Related parties
76,469

63,128



139,597


208,190

115,429



323,619

Cost of goods sold
223,297

94,365



317,662

Gross profit (loss)
(15,107
)
21,064



5,957

Other operating expenses – net
3,817




3,817

Selling, general and administrative expenses (income)
8,238

(1,087
)


7,151

Operating income (loss)
(27,162
)
22,151



(5,011
)
Interest expense – third party
(5,946
)



(5,946
)
Interest expense – affiliates
16,030

(16,030
)



Interest income – third party
3

110



113

Interest income – affiliates

2



2

Net gain on forward contracts
1,450




1,450

Other income (expense) - net
(6
)
167



161

Income (loss) before income taxes and equity in earnings of joint ventures
(15,631
)
6,400



(9,231
)
Income tax expense
(432
)
(2,963
)


(3,395
)
Income (loss) before equity in earnings of joint ventures
(16,063
)
3,437



(12,626
)
Equity in earnings (loss) of joint ventures
386

349

(12,277
)
11,891

349

Net income (loss)
$
(15,677
)
$
3,786

$
(12,277
)
$
11,891

$
(12,277
)


30

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2011
 
Combined Guarantor Subsidiaries
Combined Non-Guarantor Subsidiaries
The Company
Reclassifications and Eliminations
Consolidated
NET SALES:
 
 
 
 
 
Third-party customers
$
143,052

$
64,039

$

$

$
207,091

Related parties
83,751

75,435



159,186


226,803

139,474



366,277

Cost of goods sold
212,685

104,078



316,763

Gross profit
14,118

35,396



49,514

Other operating income – net
(5,205
)



(5,205
)
Selling, general and administrative expenses
16,614

1,943



18,557

Operating income
2,709

33,453



36,162

Interest expense – third party
(6,386
)



(6,386
)
Interest expense – affiliates
17,442

(17,442
)



Interest income – third party
13

52



65

Interest income – affiliates

70



70

Net gain loss on forward contracts
(1,617
)



(1,617
)
Other expense - net
(900
)
(232
)


(1,132
)
Income before income taxes and equity in earnings of joint ventures
11,261

15,901



27,162

Income tax expense (benefit)
1,769

(5,405
)


(3,636
)
Income before equity in earnings of joint ventures
13,030

10,496



23,526

Equity in earnings of joint ventures
1,406

460

23,986

(25,392
)
460

Net income
$
14,436

$
10,956

$
23,986

$
(25,392
)
$
23,986


31

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CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2012
 
Combined Guarantor Subsidiaries
Combined Non-Guarantor Subsidiaries
The Company
Reclassifications and Eliminations
Consolidated
NET SALES:
 
 
 
 
 
Third-party customers
$
267,575

$
105,286

$

$

$
372,861

Related parties
150,999

125,949



276,948


418,574

231,235



649,809

Cost of goods sold
430,233

193,027



623,260

Gross profit (loss)
(11,659
)
38,208



26,549

Other operating expenses – net
7,538




7,538

Selling, general and administrative expenses (income)
16,217

(607
)


15,610

Operating income (loss)
(35,414
)
38,815



3,401

Interest expense – third party
(11,924
)



(11,924
)
Interest expense – affiliates
32,248

(32,248
)



Interest income – third party
14

237



251

Interest income – affiliates

62



62

Net loss on forward contracts
(3,709
)



(3,709
)
Other income (expense) - net
798

(331
)


467

Income (loss) before income taxes and equity in earnings of joint ventures
(17,987
)
6,535



(11,452
)
Income tax expense
(685
)
(5,531
)


(6,216
)
Income (loss) before equity in earnings of joint ventures
(18,672
)
1,004



(17,668
)
Equity in earnings (loss) of joint ventures
156

990

(16,678
)
16,522

990

Net income (loss)
$
(18,516
)
$
1,994

$
(16,678
)
$
16,522

$
(16,678
)

32

Table of Contents
CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements - continued
(Unaudited)


<
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2011
 
Combined Guarantor Subsidiaries
Combined Non-Guarantor Subsidiaries
The Company
Reclassifications and Eliminations
Consolidated
NET SALES:
 
 
 
 
 
Third-party customers
$
273,539

$
121,864

$

$

$
395,403

Related parties
151,063

146,148



297,211


424,602

268,012



692,614

Cost of goods sold
399,705

201,079



600,784

Gross profit
24,897

66,933



91,830

Other operating income – net
(11,089
)



(11,089
)
Selling, general and administrative expenses
25,714

3,452



29,166

Operating income
10,272

63,481



73,753

Interest expense – third party
(13,163
)



(13,163
)
Interest expense – affiliates
34,672

(34,672
)



Interest income – third party
43

177



220

Interest income – affiliates

183



183

Net loss on forward contracts
(6,426
)



(6,426
)
Other expense - net
(284
)
(171
)


(455
)