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EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE CHIEF FINANCIAL OFFICER. - CENTURY ALUMINUM COexhibit31_2.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER. - CENTURY ALUMINUM COexhibit31_1.htm
EX-32.1 - SECTION 1350 CERTIFICATIONS. - CENTURY ALUMINUM COexhibit32_1.htm
 


 
 

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, 2010
 
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).*  o  Yes      o  No
* - The registrant is not currently required to submit interactive data files.

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
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 92,738,877 shares of common stock outstanding at August 4, 2010.
 
 





 




CENTURY ALUMINUM COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
(Dollars in thousands, except share data)
 
(Unaudited)
 
   
June 30, 2010
   
December 31, 2009
 
ASSETS
           
Cash and cash equivalents
  $ 256,264     $ 198,234  
Restricted cash
    9,862       8,879  
Accounts receivable — net
    36,693       37,706  
Due from affiliates
    34,222       19,255  
Inventories
    135,636       131,473  
Prepaid and other current assets
    39,913       93,921  
Total current assets
    512,590       489,468  
Property, plant and equipment — net
    1,274,199       1,298,288  
Due from affiliates – less current portion
    9,828       5,859  
Other assets
    79,663       68,135  
TOTAL
  $ 1,876,280     $ 1,861,750  
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
LIABILITIES:
               
Accounts payable, trade
  $ 69,739     $ 77,301  
Due to affiliates
    33,329       32,708  
Accrued and other current liabilities
    32,016       38,598  
Accrued employee benefits costs — current portion
    16,027       12,997  
Convertible senior notes
    44,342       43,239  
Industrial revenue bonds
    7,815       7,815  
Total current liabilities
    203,268       212,658  
Senior notes payable
    248,069       247,624  
Accrued pension benefits costs — less current portion
    42,073       43,281  
Accrued postretirement  benefits costs — less current  portion
    186,625       177,231  
Other liabilities
    27,239       31,604  
Deferred taxes
    90,822       81,622  
Total noncurrent liabilities
    594,828       581,362  
CONTINGENCIES AND COMMITMENTS (NOTE 12)
               
SHAREHOLDERS’ EQUITY:
               
Series A Preferred stock (one cent par value, 5,000,000 shares authorized; 82,661 and 83,452 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively)
    1       1  
Common stock (one cent par value, 195,000,000 shares authorized; 92,734,496 and 92,530,068 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively)
    927       925  
Additional paid-in capital
    2,504,165       2,501,389  
Accumulated other comprehensive loss
    (78,072 )     (74,270 )
Accumulated deficit
    (1,348,837 )     (1,360,315 )
Total shareholders’ equity
    1,078,184       1,067,730  
TOTAL
  $ 1,876,280     $ 1,861,750  

See notes to consolidated financial statements



 

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,
 
   
2010
   
2009
   
2010
   
2009
 
NET SALES:
                       
Third-party customers
  $ 183,045     $ 140,097     $ 375,977     $ 310,511  
Related parties
    104,808       49,056       197,265       103,229  
      287,853       189,153       573,242       413,740  
Cost of goods sold
    266,337       194,380       517,750       491,328  
Gross profit (loss)
    21,516       (5,227 )     55,492       (77,588 )
Other operating expenses – net
    4,644       9,166       9,109       33,498  
Selling, general and administrative expenses
    10,964       11,271       23,215       21,391  
Operating income (loss)
    5,908       (25,664 )     23,168       (132,477 )
Interest expense – third party
    (6,357 )     (7,977 )     (12,755 )     (16,019 )
Interest income – third party
    102       352       203       1,076  
Interest income – related parties
    111       144       220       286  
Net gain (loss) on forward contracts
    9,294       (3,268 )     7,322       (6,870 )
Other income - net
    230       586       638       344  
Income (loss) before income taxes and equity in earnings (losses) of joint ventures
    9,288       (35,827 )     18,796       (153,660 )
Income tax (expense) benefit
    (4,619 )     (2,573 )     (8,900 )     1,523  
Income (loss) before equity in earnings (losses) of joint ventures
    4,669       (38,400 )     9,896       (152,137 )
Equity in earnings (losses) of joint ventures
    477       (68,746 )     1,582       (69,633 )
Net income (loss)
  $ 5,146     $ (107,146 )   $ 11,478     $ (221,770 )
                                 
Net income (loss) allocated to common shareholders
  $ 4,723     $ (107,146 )   $ 10,532     $ (221,770 )
                                 
INCOME (LOSS) PER COMMON SHARE:
                               
Basic and Diluted
  $ 0.05     $ (1.45 )   $ 0.11     $ (3.20 )
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                               
Basic
    92,672       74,143       92,611       69,402  
Diluted
    93,332       74,143       93,218       69,402  



See notes to consolidated financial statements



 

CENTURY ALUMINUM COMPANY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Dollars in thousands)
 
(Unaudited)
 
   
Six months ended June 30,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ 11,478     $ (221,770 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Unrealized net gain (loss) on forward contracts
    (7,568 )     2,514  
Realized benefit on contractual receivable
    32,193        
Accrued and other plant curtailment costs – net
    (2,576 )     21,051  
Debt discount amortization
    1,548       4,004  
Depreciation and amortization
    31,505       40,063  
Lower of cost or market inventory adjustment
    6,999       (38,187 )
Deferred income taxes
    9,217       25,030  
Pension and other postretirement benefits
    8,218       7,495  
Stock-based compensation
    2,163       1,269  
Non-cash loss from disposition of equity investments
          73,234  
Undistributed earnings of joint ventures
    (1,582 )     (3,601 )
Changes in operating assets and liabilities:
               
Accounts receivable – net
    1,013       26,250  
Sale of short-term trading securities
          13,686  
Due from affiliates
    (16,671 )     24,999  
Inventories
    (11,162 )     31,140  
Prepaid and other current assets
    20,423       77,891  
Accounts payable, trade
    (6,725 )     (24,768 )
Due to affiliates
    621       (11,435 )
Accrued and other current liabilities
    (2,189 )     (7,109 )
Other – net
    (4,773 )     4,916  
Net cash provided by operating activities
    72,132       46,672  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property, plant and equipment
    (3,012 )     (11,927 )
Nordural expansion
    (10,113 )     (12,132 )
Investments in and advances to joint ventures
    (17 )     (1,023 )
Restricted and other cash deposits
    (983 )      
Net cash used in investing activities
    (14,125 )     (25,082 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayments under revolving credit facility
          (25,000 )
Issuance of common stock – net
    23       104,041  
Net cash provided by financing activities
    23       79,041  
CHANGE IN CASH AND CASH EQUIVALENTS
    58,030       100,631  
Cash and cash equivalents, beginning of the period
    198,234       129,400  
Cash and cash equivalents, end of the period
  $ 256,264     $ 230,031  
 
See notes to consolidated financial statements

 
- 3 -

CENTURY ALUMINUM COMPANY
Notes to the Consolidated Financial Statements for the
Three and six months ended June 30, 2010 and 2009
(Dollar amounts in thousands, except per share amounts)
(UNAUDITED)


1.
 
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, 2009.  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 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  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.
Long-term power contract for Hawesville
 
To secure a new, long-term power contract for our primary aluminum smelter in Hawesville, Kentucky on July 16, 2009, our wholly owned subsidiary, Century Aluminum of Kentucky (“CAKY”) along with E.ON U.S. (“E.ON”) and Big Rivers Energy Corporation (“Big Rivers” or “BREC”), agreed to an “unwind” of the former contractual arrangement between Big Rivers and E.ON and entered into a new arrangement (“Big Rivers Agreement”) to provide long-term cost-based power to CAKY.  The term of the Big Rivers Agreement is through 2023 and provides adequate power for full production capacity requirements for our facility in Hawesville, Kentucky (“Hawesville”) (approximately 482 megawatts (“MW”)) with pricing based on the power provider’s cost of production.  The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production.  Under the terms of the agreement, any power not required by Hawesville would be available for sale and we would receive credits for actual power sales up to our cost for that power.
 
E.ON has agreed to mitigate a significant portion of the near-term risk of this agreement through December 2010.  During this time, to the extent Hawesville does not use all the power under the take-or-pay contract, E.ON will, with some limitations, assume CAKY's obligations.  As part of this arrangement, E.ON will pay up to approximately $81,500 to CAKY in the form of direct payments to Big Rivers under the Big Rivers Agreement to provide price protection which effectively results in CAKY paying prices which approximate the previous contract prices and volume protection resulting in CAKY receiving credits for unused power without sustaining a loss.  At Hawesville's current production rate, Hawesville would receive the entirety of these economic benefits during 2009 and 2010.  To the extent the aggregate payments made by E.ON exceed the approximately $81,500 commitment, Hawesville would repay this excess to E.ON over time, but only if the LME aluminum price were to exceed certain thresholds.
 

   
Contractual receivable
 
Contractual receivable as of December 31, 2009
  $ 55,531  
E.ON payments to BREC on our behalf through June 30, 2010
    (32,193 )
Unrealized gain on contractual receivable
    122  
Contractual receivable as of June 30, 2010
  $ 23,460  


 
- 4 -

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



 
After December 2010, we currently expect to be paying the full production cost of power under the Big Rivers Agreement.  While the full cost for the production of power is recorded in our cost of goods sold, our cash payments for Hawesville power were $16,825 and $32,193 lower for the three and six months ended June 30, 2010, respectively, due to the gain recognized at the contract inception in 2009.
 
The new power contract has been designated as a normal purchase contract under ASC 815.  Unlike the previous power contract that was a fixed price contract where the purchase price of power was below market prices without an explicit net settlement provision, the Big Rivers Agreement is a cost-based contract that is not expected to have any significant value and is with a regulated power generator.  While the Big Rivers Agreement is a take-or-pay contract, under which we may net settle any unused power with Big Rivers, we would only receive credits up to our cost for such power sales and would not profit on any sales made above our cost for such power under the current election.

3.
Curtailment of Operations – Ravenswood and Hawesville
 
In February 2009, Century Aluminum of West Virginia, Inc. (“CAWV”) fully curtailed its plant operations at the facility in Ravenswood, West Virginia (“Ravenswood”).  Layoffs for the majority of Ravenswood's employees were completed in February 2009.  The decision to curtail operations was due to the relatively high operating cost at Ravenswood and the depressed global price for primary aluminum.
 
In March 2009, CAKY curtailed one of its five potlines at Hawesville.  The action reduced primary aluminum production by approximately 49,000 metric tons per year.
 
We incurred curtailment charges of $4,644 and $9,166 during the three months ended June 30, 2010 and June 30, 2009, respectively, and $9,109 and $33,498 during the six months ended June 30, 2010 and June 30, 2009, respectively, which are reported in other operating expenses - net in the Consolidated Statements of Operations.  The majority of the curtailment charges related to Ravenswood.  The components of the curtailment costs are as follows:

   
Three months ended
   
Six months ended
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
Severance/employee-related cost
  $ 168     $ (127 )   $ 822     $ 24,463  
Alumina contract – spot sales net (gains) losses
          (2,614 )           717  
Power/other contract termination costs
          6,000             12,332  
Ongoing site costs
    4,476       6,749       8,287       8,338  
Pension plan curtailment adjustment
          (5 )           2,478  
OPEB plan curtailment adjustment
          (837 )           (14,830 )
Net expense
  $ 4,644     $ 9,166     $ 9,109     $ 33,498  
 

 

 
- 5 -

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



 
Cash curtailment expenditures
 
   
Six months ended
 
   
June 30, 2010
   
June 30, 2009
 
Curtailment of operations at Ravenswood and Hawesville
  $ 5,957     $ 11,490  
Ongoing idling costs at Ravenswood
    3,702       6,888  
Contract termination and amendment costs
          9,972  
Total
  $ 9,659     $ 28,350  


4.
Fair Value Measurements
 
ASC 820, “Fair Value Measurements and Disclosures,” (formerly, SFAS No. 157) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  This pronouncement 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.
 
The following section describes the valuation methodology used to measure our financial assets and liabilities that were accounted for at fair value.
 
Cash equivalents.  Our cash equivalents include investments in money market funds.  Investments in this category can be redeemed immediately at the current net asset value per share.  A money market fund is a mutual fund whose investments are primarily in short-term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar.
 
Derivatives.  Our derivative contracts have included natural gas forward financial purchase contracts, foreign currency forward contracts, primary aluminum forward physical delivery and financial sales contracts, the Ravenswood power contract, primary aluminum put option contracts and primary aluminum collar contracts (a combination of a put option contract and a call option contract).  We determined the fair value of the put and collar contracts using a Black-Scholes model with market data provided by an independent source.  For our other contracts, we measure the fair value of these contracts based on the quoted future market prices (if available) at the reporting date in their respective principal markets for all available periods.  Primary aluminum forward physical delivery contracts that are accounted for as derivatives are marked-to-market using the LME spot and forward market for primary aluminum and the U.S. Midwest Premium.  Because there is no quoted futures market price for the U.S. Midwest premium component of the market price for primary aluminum, it is necessary for management to estimate the U.S. Midwest premium based on the historical U.S. Midwest premium.  The Ravenswood power contract derivative is priced based on a formula that includes the LME and therefore is valued based in part on the LME forward market.
 


 
- 6 -

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


 

 

 
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 generally accepted accounting principles for fair value measurements and disclosures, 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, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
ASSETS:
                       
Cash equivalents
  $ 247,708     $     $     $ 247,708  
Primary aluminum put option contracts
          15,410             15,410  
Power contract
                28       28  
TOTAL
  $ 247,708     $ 15,410     $ 28     $ 263,146  
                                 
LIABILITIES:
                               
Natural gas forward financial purchase contracts
  $ (39 )   $     $     $ (39 )
Primary aluminum premium derivative liabilities
                (872 )     (872 )
TOTAL
  $ (39 )   $     $ (872 )   $ (911 )
 

 
Recurring Fair Value Measurements
 
As of December 31, 2009
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
ASSETS:
                       
Cash equivalents
  $ 195,894     $     $     $ 195,894  
Primary aluminum put option contracts
          1,839             1,839  
Power contract
                101       101  
TOTAL
  $ 195,894     $ 1,839     $ 101     $ 197,834  
                                 
LIABILITIES:
                               
Derivative liabilities
  $     $ (1,763 )   $ (1,733 )   $ (3,496 )
 

 
Change in Level 3 Fair Value Measurements during the three months ended June 30,
 
   
Derivative liabilities/assets
 
   
2010
   
2009
 
Beginning balance April 1,
  $ (766 )   $ (1,339 )
Total loss (realized/unrealized) included in earnings
    (53 )     (3,159 )
Settlements
    (25 )     2,405  
Ending balance, June 30,
  $ (844 )   $ (2,093 )
                 
Amount of total loss included in earnings attributable to the change in unrealized (gains) losses relating to assets and liabilities held at June 30,
  $ (53 )   $ (2,911 )

 
- 7 -

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




Change in Level 3 Fair Value Measurements during the six months ended June 30,
 
   
Derivative liabilities/assets
 
   
2010
   
2009
 
Beginning balance January 1,
  $ (1,632 )   $ 443  
Total loss (realized/unrealized) included in earnings
    (179 )     (5,105 )
Settlements
    967       2,569  
Ending balance, June 30,
  $ (844 )   $ (2,093 )
                 
Amount of total loss included in earnings attributable to the change in unrealized (gains) losses relating to assets and liabilities held at June 30,
  $ (179 )   $ (4,681 )
 

 

5.
Derivative instruments and hedging

    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, 2010
   
December 31, 2009
 
Assets:
             
Primary aluminum put option contracts – current portion
Due from affiliates
  $ 3,981     $ 1,839  
Primary aluminum put option contracts – current portion
Prepaid and other current assets
    3,569        
Power contract
Prepaid and other current assets
    28       101  
Primary aluminum put option contracts – less current portion
Other assets
    3,930        
Primary aluminum put option contracts – less current portion
Due from affiliates – less current portion
    3,930        
Total Assets
    $ 15,438     $ 1,940  
                   
Liabilities:
                 
Natural gas forward financial purchase contracts
Accrued and other current liabilities
  $ (39 )   $  
Primary aluminum call option contracts
Accrued and other current liabilities
          (1,763 )
Calcined petroleum coke contracts
Accrued and other current liabilities
          (1,019 )
Aluminum sales premium contracts – current portion
Accrued and other current liabilities
    (445 )     (281 )
Aluminum sales premium contracts – less current portion
Other liabilities
    (427 )     (433 )
Total Liabilities
    $ (911 )   $ (3,496 )
 
 
The following table provides changes in our accumulated other comprehensive loss for our derivatives that were designated as cash flow hedges during the three and six months ended June 30, 2010 and 2009:

Derivatives in cash flow hedging relationships:

   
Three months ended June 30, 2010
 
   
Amount of loss recognized in OCI on derivatives, net of tax (effective portion)
 
Loss reclassified from OCI to income on derivatives (effective portion)
   
Loss recognized in income on derivatives (ineffective portion)
 
   
Amount
 
Location
 
Amount
   
Location
   
Amount
 
Natural gas forward financial purchase contracts
  $ (42 )
Cost of goods sold
                 

 
 

 
- 8 -

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




   
Six months ended June 30, 2010
 
   
Amount of loss recognized in OCI on derivatives, net of tax (effective portion)
 
Loss reclassified from OCI to income on derivatives (effective portion)
   
Loss recognized in income on derivatives (ineffective portion)
 
   
Amount
 
Location
 
Amount
   
Location
   
Amount
 
Natural gas forward financial purchase contracts
  $ (42 )
Cost of goods sold
                 

 
   
Three months ended June 30, 2009
 
   
Amount of loss recognized in OCI on derivatives, net of tax (effective portion)
 
Loss reclassified from OCI to income on derivatives (effective portion)
   
Loss recognized in income on derivatives (ineffective portion)
 
   
Amount
 
Location
 
Amount
   
Location
   
Amount
 
Natural gas forward financial purchase contracts
  $ (2,051 )
Cost of goods sold
  $ (4,634 )            
Foreign currency forward contracts (1)
  $ (2,163 )
Cost of goods sold
  $ (2,181 )  
Net loss on forward contracts
    $ (94 )
 

 
   
Six months ended June 30, 2009
 
   
Amount of loss recognized in OCI on derivatives, net of tax (effective portion)
 
Loss reclassified from OCI to income on derivatives (effective portion)
   
Loss recognized in income on derivatives (ineffective portion)
 
   
Amount
 
Location
 
Amount
   
Location
   
Amount
 
Natural gas forward financial purchase contracts
  $ (2,051 )
Cost of goods sold
  $ (13,377 )            
Foreign currency forward contracts (1)
  $ (2,163 )
Cost of goods sold
  $ (4,706 )  
Net loss on forward contracts
    $ (1,701 )
 

 
(1)
We had no foreign currency forward contracts or options outstanding at June 30, 2009.  Amounts recognized in OCI will be reclassified in the period that the hedged forecasted transaction affects earnings.  The ineffective portion was related to changes in the probability of the occurrence of the forecasted foreign currency transactions.

Natural gas forward financial purchase contracts
 
To mitigate the volatility of the natural gas markets, we enter into fixed-price forward financial purchase contracts, accounted for as cash flow hedges, which settle in cash in the period corresponding to the intended usage of natural gas.  These forward contracts, which are designated as cash flow hedges and qualify for hedge accounting under ASC 815, have maturities through December 2010.  The critical terms of the contracts essentially match those of the underlying exposure.
 
The effective portion of the forward contracts gain or loss is reported in other comprehensive income, and the ineffective portion is reported currently in earnings.  Each month, when we settle the natural gas forward contracts, the realized gain or loss on our cash flow hedges are recognized in income as part of our cost of goods sold.
 
We had the following outstanding forward financial purchase contracts to hedge forecasted transactions:
 

 
 
June 30, 2010
December 31, 2009
Natural gas forward financial contracts (in thousands of MMBTU)
260

 
- 9 -

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



 
Upon the transfer of our joint venture investment in Gramercy in the third quarter of 2009, we discontinued cash flow hedge treatment for certain of our natural gas forward financial purchase contracts because the originally forecasted natural gas transactions would not occur during the originally specified time periods.  We accounted for these contracts as derivative instruments at the time it was determined the forecasted transactions would not occur and marked the contracts to market.  In accordance with ASC 815, the subsequent changes in the fair value of these contracts were recorded in the consolidated statements of operations in net loss on forward contracts.

 
Foreign currency forward contracts
 
We are exposed to foreign currency risk due to fluctuations in the value of the U.S. dollar as compared to various foreign currencies, primarily the Icelandic krona (“ISK”), the euro and the Chinese yuan.  The labor costs, maintenance costs and other local services at our smelter in Grundartangi, Iceland (“Grundartangi”) are denominated in ISK and a portion of its anode costs 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 operating margins.  In addition, we expect to incur additional capital expenditures for the construction of a primary aluminum facility in Helguvik, Iceland (the “Helguvik project”).  A significant portion of the future capital expenditures for the Helguvik project are forecasted to be denominated in currencies other than the U.S. dollar with a significant portion in ISK.
 
We manage our foreign currency exposure by entering into foreign currency forward contracts when management deems such transactions appropriate.  We have in the past entered into foreign currency forward contracts to manage the currency risk associated with Grundartangi operating costs and the Helguvik project capital expenditures.  These contracts were designated as cash flow hedges, qualified for hedge accounting under ASC 815 and had maturities through September 2009.  As of June 30, 2010 and December 31, 2009, we had no foreign currency forward contracts outstanding.
 
The realized gain or loss on our foreign currency forward contracts cash flow hedges for Grundartangi operating costs was recognized in income as part of our cost of goods sold in 2009.  The realized gain or loss for our cash flow hedges for the Helguvik project capital expenditures was accumulated in other comprehensive income and will be reclassified to earnings when the project is completed as part of the depreciation expense of the capital assets.
 
We recognized losses of approximately $94 and $1,701 for the three and six months ended June 30, 2009, respectively, on the ineffective portions of the forward contracts for the forecasted Helguvik project capital expenditures.  These losses are recorded in net loss on forward contracts in our consolidated statements of operations.  The ineffective portion of these forward contracts represents forward contract positions in excess of the revised forecast schedule of Helguvik project capital expenditures.
 
Power contracts
 
We are party to a power supply agreement at Ravenswood through June 2011 that contains LME-based pricing provisions that are an embedded derivative.  The embedded derivative does not qualify for cash flow hedge treatment and is marked to market quarterly.  Based on our expected power usage over the expected remaining term of the contract, gains and losses associated with the embedded derivative are recorded in net gain (loss) on forward contracts in the consolidated statements of operations.  We have recorded a derivative asset of $28 and $101 for the embedded derivative at June 30, 2010 and December 31, 2009, respectively.

 
- 10 -

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



 
Primary aluminum put option and collar contracts
 
We entered into primary aluminum put option contracts and collar contracts (combination of a put and a call option) that settle monthly from October 2009 through December 2011 based on LME prices.  The put option contracts account for approximately 60% of Hawesville’s current production level through 2010 and approximately 27% of their current production level for 2011 with a strike price around Hawesville’s cash break-even price.  These options were purchased to partially mitigate primary aluminum price risk.

Primary Aluminum option contracts outstanding as of June 30, 2010 (in metric tons):
 
   
Glencore
   
Other counterparties
 
Put option contracts, settle monthly in 2010
    30,000       30,000  
Call option contracts, settle monthly in 2010
          15,000  
Put option contracts, settle monthly in 2011
    27,000       27,000  


Primary Aluminum option contracts outstanding as of December 31, 2009 (in metric tons):
 
   
Glencore
   
Other counterparties
 
Put option contracts, settle monthly in 2010
    60,000       60,000  
Call option contracts, settle monthly in 2010
          30,000  
 
Our counterparties include Glencore, a related party, and a non-related third party.  We paid a cash premium to enter into the put option contracts and recorded an asset in due from affiliates, prepaid and other assets, due from affiliates – less current portion and other assets on the consolidated balance sheets.  The collar contracts were entered into at no initial cost to Century.  We determined the fair value of the put and call option contracts using a Black-Scholes model with market data provided by an independent source and account 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
 
We have a physical delivery contract for 20,400 mtpy of primary aluminum through December 31, 2013 with variable, LME-based pricing (the “Glencore Metal Agreement I”).  Under the Glencore Metal Agreement I, pricing is based on market prices, adjusted by a negotiated premium with a cap and a floor as applied to the U.S. Midwest premium.  We account for the Glencore Metal Agreement I as a derivative instrument under ASC 815.  Gains and losses on the derivative are based on the difference between the contract 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.

 
- 11 -

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




Derivatives not designated as hedging instruments:
 
 
Gain (loss) recognized in income from derivatives
 
     
Three months ended June 30,
   
Six months ended June 30,
 
 
Location
 
2010
   
2009
   
2010
   
2009
 
Power contract
Net gain (loss) on forward contracts
  $ 6     $ (431 )   $ (21 )   $ (2,547 )
Primary aluminum put option and collar contracts
Net gain (loss) on forward contracts
    9,475             7,747        
Aluminum sales premium contracts
Related party sales
    127       872       246       1,676  
Aluminum sales premium contracts
Net gain (loss) on forward contracts
    (186 )     (514 )     (404 )     (392 )

 
We had the following outstanding forward contracts that were entered into that were not designated as hedging instruments:

   
June 30, 2010
   
December 31, 2009
 
Power contract (in megawatt hours (“MWH”)) (1)
    8,832       8,760  
Primary aluminum sales contract premium (metric tons) (2)
    71,582       81,600  
Primary aluminum put option contracts (metric tons)
    114,000       120,000  
Primary aluminum call option contracts (metric tons)
    15,000       30,000  

(1)
We mark the Ravenswood power contract to market based on our expected usage during the remaining term of the contract.
(2)
Represents the remaining physical deliveries under the Glencore Metal Agreement I.
 
Counterparty credit risk.  The primary aluminum put option and collar contracts are subject to counterparty credit risk.  However, 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, 2010, an accumulated other comprehensive loss of $110 is expected to be reclassified to 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 -

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




6.
Earnings Per Share
 
The following table provides a reconciliation of the computation of the basic and diluted earnings per share:
 
   
For the three months ended June 30,
 
   
2010
   
2009
 
   
Income
   
Shares (000)
   
Per-Share
   
Loss
   
Shares (000)
   
Per-Share
 
Net income (loss)
  $ 5,146                 $ (107,146 )            
Amount allocated to common shareholders (1)
    91.79 %                 100 %            
Basic EPS:
                                       
Income (loss) allocable to common shareholders
    4,723       92,672     $ 0.05       (107,146 )     74,143     $ (1.45 )
Effect of Dilutive Securities:
Plus:
                                               
Options
          40                              
Service-based stock awards
          620                              
Diluted EPS:
                                               
Income (loss) applicable to common shareholders with assumed conversion
  $ 4,723       93,332     $ 0.05     $ (107,146 )     74,143     $ (1.45 )

(1)
We have not allocated the 2009 net loss allocable to common shareholders between common and preferred shareholders, as the holders of our preferred shares do not have a contractual obligation to share in the loss.
 

 
   
For the six months ended June 30,
 
   
2010
   
2009
 
   
Income
   
Shares (000)
   
Per-Share
   
Loss
   
Shares (000)
   
Per-Share
 
Net income (loss)
  $ 11,478                 $ (221,770 )            
Amount allocated to common shareholders (1)
    91.76 %                 100 %            
Basic EPS:
                                       
Income (loss) allocable to common shareholders
    10,532       92,611     $ 0.11       (221,770 )     69,402     $ (3.20 )
Effect of Dilutive Securities:
Plus:
                                               
Options
          46                              
Service-based stock awards
          561                              
Diluted EPS:
                                               
Income (loss) applicable to common shareholders with assumed conversion
  $ 10,532       93,218     $ 0.11     $ (221,770 )     69,402     $ (3.20 )

(1)
We have not allocated the 2009 net loss allocable to common shareholders between common and preferred shareholders, as the holders of our preferred shares do not have a contractual obligation to share in the loss.
 

 
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 their participation rights, and diluted EPS using the If-Converted Method, when applicable.

 
- 13 -

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



 

 
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.  See Note 7 Shareholders’ Equity for additional information about the rights and privileges of Series A Preferred Stock.
 
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.
 
Impact of the Tax Benefit Preservation Plan on EPS
 
Our Tax Benefit Preservation Plan grants each common shareholder and preferred shareholder rights to purchase Series B Junior Participating Preferred Stock (“Rights”).  These Rights would only be exercisable upon the occurrence of certain triggering events.  Each Right will allow non-excluded holders to purchase Series B Junior Participating Preferred Stock, once the Rights become exercisable.  The Series B Junior Participating Preferred Stock has dividend, voting, and liquidation rights similar to our common stock.  Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.  Upon the occurrence of a triggering event, our Board of Directors may extinguish the Rights by exchanging common stock for the Rights.
 
In accordance with generally accepted accounting principles for the calculation of EPS, the Rights are considered contingently issuable shares but will not be included in the calculation of EPS until the necessary conditions for exercise or exchange have been satisfied.  Upon an issuance, the Series B Junior Participating Preferred stock would be participating securities and we would calculate EPS in accordance with the Two-Class Method described above.  See Note 7 Shareholders’ Equity for additional information about the Tax Benefit Preservation Plan.
 
Calculation of EPS
 
Options to purchase 690,075 and 692,075 shares of common stock were outstanding as of June 30, 2010 and June 30, 2009, respectively.  For the three and six months ended June 30, 2010, approximately 381,000 options were excluded from the calculation of EPS because their exercise price exceeded the average market price of the underlying common stock.  Shares to be issued upon the assumed conversion of our convertible debt were excluded from the calculation of diluted EPS because the average price for our common stock in the three and six months ended June 30, 2010 was below the conversion price of our 1.75% convertible senior notes.
 
For the three and six months ended June 30, 2009, all options, service-based stock and shares to be issued upon the assumed conversion of our convertible debt were excluded from the calculation of diluted EPS because of their antidilutive effect on earnings per share.  The average price for our common stock in the three and six months ended June 30, 2009 was below the conversion price of our 1.75% convertible senior notes.
 
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.  There were approximately 529,000 and 503,000 unvested shares of service-based stock outstanding at June 30, 2010 and 2009, respectively.  Our Series B Junior Participating Preferred Stock are considered contingently issuable shares and will not be included in the calculation of EPS until the necessary conditions for exercise or exchange have been satisfied.

 
- 14 -

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



 

 
For the calculation of basic and diluted EPS for the three and six months ended June 30, 2010, using the Two-Class Method, we allocated $423 and $946, respectively, of our undistributed income to the convertible preferred stock.  We reported a net loss for the three and six months ended June 30, 2009.  See the reconciliation for the three and six months ended June 30, 2010 below:
 

   
Three months ended June 30, 2010
   
Six months ended June 30, 2010
 
   
Weighted average shares outstanding
   
Undistributed earnings
   
Weighted average shares outstanding
   
Undistributed earnings
 
Common stock (000)
    92,672     $ 4,723       92,611     $ 10,532  
Preferred stock (000) (1)
    8,294       423       8,319       946  
Total
    100,966     $ 5,146       100,930     $ 11,478  

(1)
Represents the participation rights of our preferred shareholder as if it held the number of common shares into which its shares of preferred stock are convertible as of the record date.


7.
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.
 
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 shares of Series A Convertible Preferred Stock into shares of common stock.
 

Series A Convertible Preferred Stock:
 
2010
 
       
Shares outstanding at December 31, 2009
    83,452  
Automatic conversions during the six months ended June 30, 2010
    (791 )
Total shares outstanding at June 30, 2010
    82,661  

 
Tax Benefit Preservation Plan
 
 
Our Tax Benefit Preservation Plan (the “Plan”) is designed to provide us some protection against a possible limitation on our ability to use net operating losses, tax credits and other tax assets (the “Tax Attributes”), to reduce potential future U.S. federal income tax obligations.  We have experienced substantial operating losses in the past, and under the Internal Revenue Code of 1986, as amended (the “Code”), and rules promulgated by the Internal Revenue Service, we may carry forward these losses in certain circumstances to offset future earnings and thus reduce our federal income tax liability, subject to certain requirements and restrictions.  As of June 30, 2010, we had Tax Attributes of approximately $1,700,000.  To the extent that the Tax Attributes do not otherwise become limited, we believe that we might be able to use a significant amount of the Tax Attributes, and therefore these Tax Attributes could be a substantial asset to us. 

 
- 15 -

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



 

 
Our ability to use these Tax Attributes would be substantially limited if there were an "ownership change" as defined under Section 382 of the Code. In general, an ownership change would occur if five-percent shareholders (as defined under U.S. federal income tax laws) collectively increase their ownership in Century by more than 50 percentage points over a rolling three-year period.  Under the Plan, each share of our common stock will carry with it one preferred share purchase right and each share of Series A Preferred Stock will carry with it one hundred Rights, until the distribution date or earlier expiration of the Rights.  In accordance with the Plan, shares held by any person who acquires, without the approval of our Board of Directors, beneficial ownership of 4.9% or more (or if already the beneficial holder of at least 4.9%, by acquiring additional shares of our common stock representing 1.0% or more) of our outstanding common stock (including any ownership interest held by that person's affiliates and associates as defined under the Plan) could be subject to significant dilution.  We currently expect that the Plan will expire in accordance with its terms on September 29, 2010.


8.
Income Taxes
 
As of June 30, 2010 and December 31, 2009, we had total unrecognized tax benefits (excluding interest) of $23,099 and $21,216, respectively.  The total amount of unrecognized tax benefits (including interest and net of federal benefit) that, if recognized, would affect the effective tax rate as of June 30, 2010 and December 31, 2009, respectively, are $4,682 and $4,586.
 
We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.  As of June 30, 2010 and December 31, 2009, we had approximately $912 and $806 respectively, of accrued interest related to unrecognized income tax benefits.
 
We do not expect a significant change in the balance of unrecognized tax benefits within the next twelve months.
 
Our federal income tax returns from 2005 through 2008 are currently under examination.  Our California corporate income tax return for 2008 is currently under examination.  The majority of our state returns beginning in 2003 are subject to examination.  Our Icelandic tax returns are subject to examination and income tax matters have been concluded for years through 2002.
 
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the “Acts”) were enacted in March 2010.  The Acts amend certain tax rules applicable to employers so that the portion of employer health care costs that are reimbursed by the Medicare Part D prescription drug subsidy will no longer be deductible by the employer for federal income tax purposes effective for years beginning after December 31, 2012.  Because of the loss of the future tax deduction, a reduction in the deferred tax asset related to the nondeductible OPEB liabilities accrued to date will be recorded with an equal offsetting adjustment to our valuation allowance.  The Acts are not expected to affect our cash flows or financial condition because we have a valuation allowance against all of our federal and state deferred tax assets due to our belief that it is more likely than not that these assets will not be realized.
 


 
- 16 -

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



 

9.
Inventories
 
Inventories consist of the following:
 
   
June 30, 2010
   
December 31, 2009
 
Raw materials
  $ 40,025     $ 25,694  
Work-in-process
    14,019       13,400  
Finished goods
    8,515       11,156  
Operating and other supplies
    73,077       81,223  
Inventories
  $ 135,636     $ 131,473  
 
Inventories are stated at the lower of cost or market, using the first-in, first-out method (“FIFO”).  Due to the curtailment of our Ravenswood operations in February 2009, approximately $18,023 of items that were classified as inventory at December 31, 2008 are not expected to be consumed within one year and have been classified as other assets.
 

10.
Intangible Asset
 
At June 30, 2009, the intangible asset consisted of a power contract acquired in connection with our acquisition of Hawesville.  In July 2009, we terminated the existing power contract at Hawesville and entered into a new power agreement.  See Note 2 Long-term Power Contract for Hawesville for additional information about this transaction.  As a result of terminating Hawesville’s previous power contract, we wrote off the remaining carrying amount of the intangible asset of $23,759 in July 2009.  As of June 30, 2010, we had no intangible assets.
 
As of June 30, 2009, the gross carrying amount of the intangible asset was $155,986 with accumulated amortization of $131,533.  For the three and six months ended June 30, 2009, amortization expense for the intangible asset totaled $4,037 and $8,074, respectively.
 

11.
Debt

       
   
June 30, 2010
   
December 31, 2009
 
Debt classified as current liabilities:
           
1.75% convertible senior notes due 2024, net of debt discount of $2,725 and $3,828, respectively,  interest payable semiannually (1)
  $ 44,342     $ 43,239  
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:
               
8.0% senior secured notes payable due May 15, 2014, interest payable semiannually, net of debt discount of $4,137 and $4,800, respectively
    245,466       240,676  
7.5% senior unsecured notes payable due August 15, 2014, interest payable semiannually
    2,603       6,948  
Total debt
  $ 300,226     $ 298,678  
 


(1)
The convertible notes are classified as current because they are convertible at any time by the holder.  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, 2010 was 0.61%.


 
- 17 -

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



 

 
Debt exchange transactions
 
 
We completed debt-for-debt exchanges in January and March 2010.  We exchanged a total of $4,128 of 8.0% senior secured notes payable due May 15, 2014 (the “8.0% Notes”) for $4,345 of 7.5% senior unsecured notes payable due August 15, 2014 (the “7.5% Notes”).  As of June 30, 2010, we had $2,603 and $249,603 of aggregate principal amount outstanding of the 7.5% Notes and 8.0% Notes, respectively.
 
 
Investors received $950 worth of 8.0% Notes for every $1,000 principal amount tendered of 7.5% Notes and did not receive a cash consent fee.  In addition, these investors received the accrued interest for their 7.5% Notes, net of interest that has accrued on the 8.0% notes since the original issuance date.
 
 
 Senior secured revolving credit facility
 
We have a $100,000 senior secured revolving credit facility (“Credit Facility”) with a syndicate of banks that will mature September 19, 2010.  See Note 20 Subsequent Events for information about the refinancing of our Credit Facility.  Our obligations under the Credit Facility are unconditionally guaranteed by certain of our domestic subsidiaries and secured by a first priority security interest in all accounts receivable and inventory belonging to Century and our subsidiary borrowers.  The availability of funds under the Credit Facility is subject to a $15,000 reserve and limited by a specified borrowing base consisting of certain eligible accounts receivable and inventory.  Borrowings under the Credit Facility are, at our option, at the LIBOR rate or bank base rate, plus or minus in each case an applicable margin.  The Credit Facility is subject to customary covenants, including limitations on capital expenditures, additional indebtedness, affiliate transactions, liens, guarantees, mergers and acquisitions, dividends, distributions, capital redemptions and investments. We could issue up to a maximum of $25,000 in letters of credit under the Credit Facility. As of June 30, 2010, we had approximately $11,500 issued but undrawn letters of credit under the facility.  Any outstanding letters of credit reduce our borrowing availability on a dollar-for-dollar basis.   We had no outstanding loans under the Credit Facility as of June 30, 2010.  As of June 30, 2010, we had additional borrowing availability of approximately $51,000 under the Credit Facility.  We pay a commitment fee for the unused portion of the line.
 
 
1.75% convertible senior notes
 
The 1.75% Notes are convertible at any time at an initial conversion rate of 32.7430 shares of our common stock per one thousand dollars of 1.75% Notes, subject to adjustments for certain events. The initial conversion rate is equivalent to a conversion price of approximately $30.5409 per share of common stock. Upon conversion of the 1.75% Notes, we would be required to pay cash in respect of the conversion obligation (determined as the number of shares into which the note is convertible multiplied by our stock price at such time) up to the principal amount of the note. Any excess conversion obligation can be paid at our option in cash, common stock, or a combination thereof.


 
- 18 -

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




12.
Contingencies and Commitments

Environmental Contingencies
 
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, there can be no assurance that future requirements or conditions at currently or formerly owned or operated properties will not result in liabilities which may have a material adverse effect.
 
In July 2005, the Environmental Protection Agency (“EPA”) began an initiative to perform an oversight inspection of all Secondary Maximum Achievable Control Technology (“MACT”) facilities which deal with casting furnaces, including Hawesville.  Partial inspections were also conducted at co-located Primary MACT facilities which deal with potlines, including Hawesville.  In April 2008, the EPA sent CAKY requests under the Clean Air Act for copies of certain records dating back to 2000.  In November 2009, the EPA sent CAKY a Notice of Violation (“NOV”) alleging 12 violations relating to the Clean Air Act including, among other things, violations of the MACT emissions standards and the prevention of significant deterioration program for unpermitted major modifications.  The matter is under investigation.  An initial hearing with the EPA occurred in January 2010 at which CAKY agreed to provide the EPA with additional information regarding the alleged violations.  CAKY provided such information in February 2010.  We cannot reasonably estimate the liabilities with respect to this matter, but they are not expected to be material.  We expect to resolve the matter in 2010.
 
Century Aluminum of West Virginia, Inc. (“CAWV”) continues to perform remedial measures at Ravenswood pursuant to an order issued by the Environmental Protection Agency (“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 will formally document the conclusion of these activities, is being completed with the EPA.  EPA approval of the Corrective Measures Study is anticipated in 2010.  We believe a significant portion of the contamination on the two sites identified in the RFI is attributable to the operations of third parties and is their financial responsibility.
 
Prior to our purchase of Hawesville, the EPA issued a final Record of Decision (“ROD”) under the Comprehensive Environmental Response, Compensation and Liability Act. 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.
 
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 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.  Management does not believe Vialco’s liability under the Order or its indemnity to Lockheed will require material payments.  Through June 30, 2010, we have expended approximately $800 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.

 
- 19 -

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



 
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 alumina refinery facility at St. Croix and the adjacent petroleum refinery.  The primary cause of action is pursuant to the natural resource damage provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (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.  On July 15, 2009, we and Vialco and other defendants filed motions for summary judgment on the issue of the applicability of the statute of limitations.  On July 13, 2010, the motions for summary judgment were granted as to several of plaintiff’s claims on the basis that such claims were time-barred.  As of June 30, 2010, no trial date has been set for the remaining claims. 
 
In December 2006, Vialco and the two succeeding owners of the alumina facility were named as defendants in a lawsuit filed by the Commissioner of the Department of Planning and Natural Resources of the United States Virgin Islands.  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.  Vialco filed its answer to the complaint asserting factual and affirmative defenses.  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. On January 8, 2010, DPNR filed a motion to assert claims directly against certain third-party defendants, including Vialco. On January 29, 2010, the court granted plaintiff’s motion.  The parties are currently engaged in the discovery process. The case is currently set for trial in March 2011.
 
We intend to defend the Vialco lawsuits vigorously and to assert all applicable defenses.  Pursuant to the terms of the asset purchase agreement between Vialco and the purchaser of the facility 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 not practicable to predict the ultimate outcome of these actions or to estimate a range of possible damage awards for any of the Vialco lawsuits.
 
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 (formerly Pechiney Rolled Products, LLC) in July 1999. The complaint also seeks costs and attorney fees.  At this time, it is not practicable to predict the ultimate outcome of these actions or to estimate a range of possible damage awards.
 
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 $889 and $966 at June 30, 2010 and December 31, 2009, 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.
 
Because of the issues and uncertainties described above, and our inability to predict the requirements of future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on our future financial condition, results of operations, or liquidity. Based upon all available information, management does not believe that the outcome of these environmental matters will have a material adverse effect on our financial condition, results of operations, or liquidity.
 
 

 
- 20 -

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



 
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. 
 
On April 27, 2010, the purported stockholder class actions previously consolidated as In re: Century Aluminum Company Securities Litigation (prior to consolidation referred to as Petzschke v. Century Aluminum Co., et al., Abrams v. Century Aluminum Co., et al., McClellan v. Century Aluminum Co., et al., and Hilyard v. Century Aluminum Co., et al) were dismissed without prejudice by the court for failure to state a claim.  On May 28, 2010 plaintiffs filed a second amended complaint, which, like the previous complaints, alleged 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.  On June 24, 2010, plaintiffs filed a third amended complaint correcting one misstatement in the second amended complaint.  Plaintiffs are seeking rescission of our February 2009 common stock offering, unspecified compensatory damages, including interest thereon, costs and expenses and attorneys’ fees.  Management intends to vigorously defend these actions, but at the date of this report, it is not possible to predict the ultimate outcome of these actions or to estimate a range of possible damage awards.
 
Ravenswood Retiree Medical Benefits changes
 
Century Aluminum of West Virginia, Inc. amended its post retirement medical benefit plan effective January 1, 2010 for all current and former salaried employees, their dependents and all bargaining unit employees who retired before June 1, 2006, and their dependents.
 
The principal changes to the plan are upon attainment of age 65, all CAWV provided retiree medical benefits will cease for retirees and dependents.  In addition, bargaining unit retirees under age 65 and dependents under age 65 are covered by the salary retiree medical plan which requires 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 United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO/CLC (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, 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.  On June 24, 2010, the court denied the USWA’s motion.  The USWA has appealed the decision and proceedings have been stayed pending the outcome of the appeal.  We intend to vigorously pursue our case in the foregoing actions, but as of the date of this report, it is not possible to predict the ultimate outcome of these actions.
 
 

 
- 21 -

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



 
Power Commitments
 
Big Rivers Agreement
 
To secure a new, long-term power contract for the Hawesville facility, on July 16, 2009, CAKY, along with E.ON and Big Rivers, agreed to an “unwind” of the former contractual arrangement between Big Rivers and E.ON and entered into the Big Rivers Agreement to provide long-term cost-based power to CAKY.  The term of the Big Rivers Agreement is through 2023 and provides adequate power for Hawesville’s full production capacity requirements (approximately 482 MW) with pricing based on the provider’s cost of production.  The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production.  Under the terms of the agreement, any power not required by Hawesville would be available for sale and we would receive credits for actual power sales up to our cost for that power.  The current market price of electrical power in this region is less than Big Rivers’ forecasted cost.  See Note 2 Long-term power contract for Hawesville for additional information about these agreements.

APCo Rate filing
 
APCo supplies all of Ravenswood’s power requirements under an agreement at prices set forth in published tariffs, which are subject to change.  Under the special rate contract, Ravenswood may be excused from or may defer the payment of the increase in the tariff rate if aluminum prices as quoted on the LME fall below pre-determined levels.   In September 2009, the PSC attributed approximately $16,000 of the unrecovered fuel costs to Ravenswood.  This amount will be factored into the special rate provision.  In June 2010, the PSC agreed to extend the special rate contract terms through 2011.  We are in discussions with APCo to provide for a long-term special rate arrangement that establishes the LME-based cap on the tariff rates.
 
Labor Commitments
 
Approximately 75% of our U.S. based work force is represented by the USWA.  CAWV’s Ravenswood plant employees represented by the USWA are under a labor agreement that was extended to August 31, 2010.  The agreement covers hourly employees at the Ravenswood plant.  For additional information about Ravenswood operations, see Note 3 Curtailment of Operations – Ravenswood and Hawesville.  CAKY’s Hawesville plant employees represented by the USWA are under a collective bargaining agreement that expired on May 7, 2010, as extended.  The agreement covered approximately 525 hourly workers at the Hawesville plant.  As negotiations between the two parties continue, the collectively bargained employees remain on the job and the plant is operating normally.
 
In April 2010, Nordural entered into a new labor agreement with the five labor unions representing approximately 84% of Grundartangi’s work force.  The wage terms of the labor agreement expire on January 1, 2011 after which the wage terms may be renegotiated.  The labor agreement in its entirety expires on December 31, 2014.
 

 
- 22 -

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



 
Other Commitments
 
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act were enacted in March 2010.  The Acts extend health care coverage to many uninsured individuals and expand coverage to those already insured.  The Acts contain provisions which could impact our accounting for retiree medical benefits in future periods.  However, the extent of that impact, if any, cannot be determined until regulations are promulgated under the Acts and additional interpretations of the 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 benefits (“OPEB”) obligations.  Among other things, the 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.  See Note 8 Income Taxes for additional information about the impact of the change in the deductibility of the Medicare Part D subsidy.


13.
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
Alcan Rolled Products Metal Agreement
Alcan
14 million pounds per year
Through December 31, 2010
Variable, based on U.S. Midwest market
Glencore Metal Agreement II
Glencore
18 million pounds per year
Through December 31, 2010
Variable, based on U.S. Midwest market
Glencore Metal Agreement I (1)
Glencore
20,400 mtpy
Through December 31, 2013
Variable, based on U.S. Midwest market
Glencore Sweep Agreement (2)
Glencore
24,000 mtpy - minimum
Through December 31, 2010
Variable, based on U.S. Midwest market
Glencore Nordural Metal Agreement
Glencore
9,300 metric tons
Through December 31, 2010
Variable, based on the LME
Southwire Metal Agreement
Southwire
240 million pounds per year (high conductivity molten aluminum)
Through March 31, 2011
Variable, based on U.S. Midwest market
Southwire Metal Agreement
Southwire
60 million pounds per year (standard-grade molten aluminum)
Through December 31, 2010
Variable, based on U.S. Midwest market

(1)
We account for the Glencore Metal Agreement I as a derivative instrument in accordance with generally accepted accounting principles for derivatives instruments and hedging activities.  Under the Glencore Metal Agreement I, pricing is based on then-current 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 by Century in the U.S. in 2010, less existing sales agreements and high-purity metal sales.  The term of the contract may be extended for one year upon mutual agreement.


 
- 23 -

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



 
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)(2)
Glencore
90,000 mtpy
Through July 31, 2016
LME-based
Glencore Toll Agreement (1)
Glencore
46,500 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.  In May 2007, the EU members reduced the EU import duty for primary aluminum from six percent to three percent and agreed to review the new duty after three years.  This decrease in the EU import duty for primary aluminum negatively impacts Grundartangi’s revenues and further decreases would also have a negative impact on Grundartangi’s revenues, but it is not expected to have a material effect on our financial position and results of operations.
(2)
Glencore assigned 50% of its tolling rights under this agreement to Hydro Aluminum through December 31, 2010.

Apart from the Alcan Rolled Products Metal Agreement, the Glencore Metal Agreement I, the Glencore Metal Agreement II, Glencore Sweep Agreement, Glencore – Nordural Metal Agreement and the Southwire Metal Agreement, we had forward delivery contracts to sell 14,750 metric tons and 26,140 metric tons of primary aluminum at June 30, 2010 and December 31, 2009, respectively.  Of these forward delivery contracts, we had no fixed price commitments to sell primary aluminum at June 30, 2010 and 1,559 metric tons of fixed price commitments at December 31, 2009 of which none were with Glencore at June 30, 2010 or December 31, 2009.

Forward Financial Instruments
 
We are party to various forward financial and physical delivery contracts that are accounted for as derivative instruments.  See Note 5 Derivative instruments and hedging for additional information about these instruments.
 

14.
Supplemental Cash Flow Information

   
Six months ended June 30,
 
   
2010
   
2009
 
Cash paid for:
           
Interest
  $ 9,292     $ 11,085  
Income tax
    1,881       106  
                 
Cash received for:
               
Interest
    214       1,564  
Income tax refunds (1)
    18,171       91,041  

(1)
See Note 8 Income Taxes for more information.

 
Non-cash activities
 
In the first quarter of 2010 and 2009, we issued shares of common stock to certain key employees to satisfy a performance share liability of $964 and $694, respectively.
 
Due to the curtailment of our Ravenswood operations in February 2009, we reclassified certain inventory items into other assets.  As a result, there was an $18,326 non-cash change in the inventory and other asset account balances due to this reclassification.

 
- 24 -

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



 

15.
Asset Retirement Obligations
 
Our asset retirement obligations (“ARO”) 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, 2010
   
Year ended December 31, 2009
 
Beginning balance, ARO liability
  $ 15,233     $ 14,337  
Additional ARO liability incurred
    528       896  
ARO liabilities settled
    (635 )     (1,116 )
Accretion expense
    520       1,116  
Adjustments (1)
    (1,804 )      
Ending balance, ARO liability
  $ 13,842     $ 15,233  

(1)
We adjusted our ARO liability in the first quarter of 2010 for changes in the estimated amounts and timing of costs associated with the disposal of spent potliner.
 
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.
 
 

16.
Comprehensive income (loss) and Accumulated other comprehensive loss

Comprehensive income (loss):
 
   
Six months ended June 30,
 
   
2010
   
2009
 
             
Net income (loss)
  $ 11,478     $ (221,770 )
Other comprehensive income (loss):
               
Net unrealized loss on financial instruments, net of $0 tax
    (42 )     (5,323 )
Net losses on cash flow hedges reclassified to income, net of $0 tax
          13,402  
Net (gain) loss on foreign currency cash flow hedges reclassified to income, net of tax of $17 and $(706), respectively
    (76 )     5,701  
Defined benefit pension and other postemployment benefit plans:
               
Net gain (loss) arising during the period, net of $0 tax
    (4,939 )     56,124  
Amortization of net loss during the period, net of $173 and $(294) tax, respectively
    (318 )     673  
Amortization of prior service cost during the period, net of $(859) and $949 tax, respectively
    1,573       (2,174 )
Change in equity investee other comprehensive income, net of $0 tax
          1,549  
Other comprehensive income (loss):
    (3,802 )     69,952  
Comprehensive income (loss)
  $ 7,676     $ (151,818 )


 
- 25 -

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




Components of accumulated other comprehensive loss:
           
   
June 30, 2010
   
December 31, 2009
 
Unrealized loss on financial instruments, net of $732 and $749 tax benefit, respectively
  $ (1,186 )   $ (1,068 )
Defined benefit plan liabilities, net of $26,042 and $26,728 tax benefit, respectively
    (68,319 )     (64,635 )
Equity in investee other comprehensive income, net of $0 and $0 tax, respectively (1)
    (8,567 )     (8,567 )
Accumulated other comprehensive loss
  $ (78,072 )   $ (74,270 )

(1)
The amount includes our equity in the other comprehensive income of Mt. Holly Aluminum Company which consists primarily of pension and other postretirement benefit obligations.
 


17.
Components of Net Periodic Benefit Cost
 

   
Pension Benefits
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Service cost
  $ 749     $ 650     $ 1,489     $ 1,485  
Interest cost
    1,611       1,620       3,204       3,223  
Expected return on plan assets
    (1,465 )     (1,077 )     (2,688 )     (2,181 )
Amortization of prior service cost
    34       32       69       93  
Amortization of net loss
    407       501       830       1,135  
Curtailment
          (25 )           2,576  
Net periodic benefit cost
  $ 1,336     $ 1,701     $ 2,904     $ 6,331  

   
Other Postretirement Benefits
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Service cost
  $ 738     $ 728     $ 1,760     $ 2,242  
Interest cost
    2,747       2,728       5,497       5,713  
Expected return on plan assets
                       
Amortization of prior service cost
    (300 )     (415 )     (560 )     (837 )
Amortization of net loss
    844       340       1,602       1,435  
Curtailment
          (663 )           (14,975 )
Net periodic benefit cost
  $ 4,029     $ 2,718     $ 8,299     $ (6,422 )


 
- 26 -

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




18.
Recently Issued Accounting Standards
 
In February 2010, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”), which amends FASB ASC Topic 855, Subsequent Events. The update provides that SEC filers, as defined in ASU 2010-09, are no longer required to disclose the date through which subsequent events have been evaluated.  The update also requires SEC filers to evaluate subsequent events through the date the financial statements are issued rather than the date the financial statements are available to be issued. We adopted ASU 2010-09 upon issuance. This update had no impact on our financial position, results of operations or cash flows.
 
In January 2010, the FASB issued FASB Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which amends FASB ASC Topic 820-10, Fair Value Measurements and Disclosures. The update provides additional disclosures for transfers into and out of Levels 1 and 2 and separate disclosures about purchases, issuances and settlements relating to Level 3 measurements and clarifies certain other existing disclosure requirements.  In addition ASU 2010-06 amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by major categories of assets.  We adopted ASU 2010-06 in the first quarter of 2010. This update had no impact on our financial position, results of operations or cash flows.


19.
Condensed Consolidating Financial Information
 
Our 8.0% senior secured notes due 2014, 7.5% senior unsecured notes due 2014 and 1.75% convertible senior notes due 2024 are guaranteed by each of our material existing and future domestic subsidiaries, except for Nordural US LLC (collectively the “Guarantor Subsidiaries”).  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, 2010 and December 31, 2009, condensed consolidating statements of operations for the three and six months ended June 30, 2010 and June 30, 2009 and the condensed consolidating statements of cash flows for the six months ended June 30, 2010 and June 30, 2009 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 -

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





CONDENSED CONSOLIDATING BALANCE SHEET
 
As of June 30, 2010
 
   
Combined Guarantor Subsidiaries
   
Combined Non-Guarantor Subsidiaries
   
The Company
   
Reclassifications and Eliminations
   
Consolidated
 
Assets:
                             
Cash and cash equivalents
  $     $ 172,498     $ 83,766     $     $ 256,264  
Restricted cash
    9,862                         9,862  
Accounts receivable — net
    21,714       14,979                   36,693  
Due from affiliates
    581,680       4,042       2,512,586       (3,064,086 )     34,222  
Inventories
    85,462       50,174                   135,636  
Prepaid and other current assets
    27,303       9,158       3,452             39,913  
Total current assets
    726,021       250,851       2,599,804       (3,064,086 )     512,590  
Investment in subsidiaries
    33,990             (1,014,883 )     980,893        
Property, plant and equipment — net
    379,282       893,364       1,668       (115 )     1,274,199  
Due from affiliates — less current portion
    3,930       5,898                   9,828  
Other assets
    25,752       31,370       22,541             79,663  
Total
  $ 1,168,975     $ 1,181,483     $ 1,609,130     $ (2,083,308 )   $ 1,876,280  
                                         
Liabilities and shareholders’ equity:
                                       
Accounts payable, trade
  $ 32,731     $ 36,621     $ 387     $     $ 69,739  
Due to affiliates
    2,091,965       56,904       194,265       (2,309,805 )     33,329  
Accrued and other current liabilities
    15,246       5,791       10,979             32,016  
Accrued employee benefits costs — current portion
    13,721             2,306             16,027  
Convertible senior notes
                44,342             44,342  
Industrial revenue bonds
    7,815                         7,815  
Total current liabilities
    2,161,478       99,316       252,279       (2,309,805 )     203,268  
Senior notes payable
                248,069             248,069  
Accrued pension benefit costs — less current portion
    20,773             21,300             42,073  
Accrued postretirement benefit costs — less current portion
    182,982             3,643             186,625  
Other liabilities/intercompany loan
    49,579       726,401       5,655       (754,396 )     27,239  
Deferred taxes
          90,822                   90,822  
Total noncurrent liabilities
    253,334       817,223       278,667       (754,396 )     594,828  
Shareholders’ equity:
                                       
Preferred stock
                1             1  
Common stock
    60       12       927       (72 )     927  
Additional paid-in capital
    297,300       144,383       2,504,165       (441,683 )     2,504,165  
Accumulated other comprehensive income (loss)
    (92,370 )     (1,144 )     (78,072 )     93,514       (78,072 )
Retained earnings (accumulated deficit)
    (1,450,827 )     121,693       (1,348,837 )