This Management's Discussion and Analysis ("MD&A") provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations ofCentury Aluminum Company and should be read in conjunction with the accompanying consolidated financial statements and related notes thereto. This MD&A contains "forward-looking statements" - see "Forward-Looking Statements" above. Overview We are a global producer of primary aluminum with aluminum reduction facilities, or "smelters," inthe United States andIceland . The key determinants of our results of operations and cash flow from operations are as follows: •the price of primary aluminum, which is based on theLondon Metal Exchange ("LME") and other exchanges, plus any regional premiums and value-added product premiums; •the cost of goods sold, the principal components of which are electrical power, alumina, carbon products and labor, which in aggregate represent more than 75% of our cost of goods sold; and •our production volume. Pricing of aluminum The overall price of primary aluminum consists of three components: (i) the base commodity price, which is based on quoted prices on the LME and other exchanges; plus (ii) any regional premium (e.g., the Midwest premium for metal sold inthe United States ("MWP") and the European Duty Paid premium for metal sold intoEurope ); plus (iii) any product premium. Each of these price components has its own drivers and variability. The aluminum price is influenced by a number of factors, including global supply-demand balance, inventory levels, speculative activities by market participants, production activities by competitors and political and economic conditions, as well as production costs in major production regions. These factors can be highly speculative and difficult to predict which can lead to significant volatility in the aluminum price. Increases or decreases in primary aluminum prices result in increases and decreases in our revenues (assuming all other factors are unchanged). Information regarding financial contracts is included in Note 13. Derivatives and risks affiliated with such financial contracts are disclosed specifically in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . We have seen increases in the pricing of aluminum throughout the first half of 2021. The average LME price for primary aluminum was$2,004 per tonne forJanuary 2021 , increasing to an average LME price for primary aluminum of$2,324 inApril 2021 and then to$2,439 inJune 2021 . The average MWP price was$330 per tonne inJanuary 2021 , increasing to$517 inApril 2021 and then to$608 inJune 2021 . The average European Duty Paid premium was$152 per tonne inJanuary 2021 , increasing to$231 inApril 2021 and then to$251 inJune 2021 . Results of Operations The following discussion for the three and six months endedJune 30, 2021 reflects no change in production capacities at our operating facilities. Our net sales are impacted primarily by the LME price for aluminum, regional and value-added premiums, and the volume and product mix of aluminum we ship during the period. In general, our results reflect the LME and regional premium pricing on an approximately one to three month lag basis reflecting contractual terms with our customers. Electrical power, alumina, carbon products and labor are the principal components of our cost of goods sold. In general, our results reflect the market cost of alumina on an approximately three-month lag reflecting the terms of our alumina contracts and inventory levels. 33 --------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 (in millions, except per share data)NET SALES : Related parties$ 306.4 $ 285.6 $ 574.7 $ 556.6 Other customers 221.6 116.3 397.3 266.5 Total net sales 528.0 401.9 972.0 823.1 Gross profit (loss) 20.9 (13.0) 0.2 (8.2) Net income (loss) (35.1) (26.9) (175.1) (29.6) EARNINGS (LOSS) PER COMMON SHARE: Basic and Diluted$ (0.39) $ (0.30) $ (1.94) $ (0.33)
SHIPMENTS - PRIMARY ALUMINUM(1)
United States Iceland Total Net Sales (in Net Sales (in Net Sales (in Tonnes millions) Tonnes millions) Tonnes millions) 2021 2nd Quarter 112,792$ 314.0 78,102$ 180.1 190,894$ 494.1 1st Quarter 116,437$ 275.6 79,260$ 164.2 195,697$ 439.8 Total 229,229$ 589.6 157,362$ 344.3 386,591$ 933.9 2020 2nd Quarter 130,645$ 246.6 79,664$ 145.9 210,309$ 392.5 1st Quarter 129,114$ 273.8 73,791$ 141.0 202,905$ 414.8 Total 259,759 520.4 153,455 286.9 413,214 807.3 (1) Excludes scrap aluminum and alumina sales. Net sales (in millions) 2021 2020 Three months ended June 30,$ 528.0 $ 401.9 Six months ended June 30,$ 972.0 $ 823.1
Net sales (excluding alumina sales) increased by
Net sales (excluding alumina sales) increased by
Gross profit (loss) (in millions) 2021 2020
Three months ended
$ 0.2 $ (8.2) Gross profit increased by$33.9 million for the three months endedJune 30, 2021 , compared to the same period in 2020, primarily driven by favorable LME and regional premium price realizations of$130.6 million partially offset by unfavorable power price realizations of$42.1 million , unfavorable alumina price realizations of$18.2 million , unfavorable volume impacts of$8.1 million and increased operating costs. Gross profit increased by$8.4 million for the six months endedJune 30, 2021 , compared to the same period in 2020, primarily driving by favorable LME and regional premium price realizations of$171.2 million , partially offset by unfavorable 34
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power price realizations of
Selling, general and administrative expenses (in millions) 2021
2020 Three months ended June 30,$ 8.7 $ 11.8 Six months ended June 30,$ 24.8 $ 20.7 Selling, general and administrative expenses decreased by$3.1 million for the three months endedJune 30, 2021 compared to the same period in 2020, primarily driven by a decrease in share-based compensation costs due to differences in fluctuations of the stock price period over period. Selling, general and administrative expenses increased by$4.1 million for the six months endedJune 30, 2021 compared to the same period in 2020, primarily driven by an increase in share-based compensation costs. Net gain (loss) on forward and derivative contracts (in millions) 2021 2020 Three months ended June 30,$ (64.4) $ 3.7 Six months ended June 30,$ (162.5) $ 7.5 For the three months endedJune 30, 2021 , net loss on forward and derivative contracts increased by$68.1 million compared to the same period in 2020 primarily due to increases in LME and MWP prices fromMarch 31, 2021 toJune 30, 2021 .
For the six months ended
Income tax benefit (expense) (in millions) 2021 2020
Three months ended
$ 48.3 $ (0.9) Six months ended June 30,$ 50.6 $ 1.9 We have a valuation allowance against all of ourU.S. and certain foreign deferred tax assets. The period to period change is primarily due to a discrete tax benefit of$49.8 million in the current quarter tax provision related to the recognition of certain foreign deferred tax assets. See Note 7. Income Taxes to the consolidated financial statements included herein for additional information. Liquidity and Capital Resources Liquidity Our principal sources of liquidity are available cash and cash flow from operations. We also have access to our existing revolving credit facilities and have raised capital in the past through public equity and debt markets. We regularly explore various other financing alternatives. Our principal uses of cash include the funding of operating costs (including post-retirement benefits), debt service requirements, capital expenditures, investments in our growth activities and in related businesses, working capital and other general corporate requirements. We believe that cash provided from operations and financing activities will be adequate to cover our operations and business needs over the next twelve months. As ofJune 30, 2021 , we had cash and cash equivalents of approximately$9.0 million and unused availability under our revolving credit facilities of$99.6 million , resulting in a total liquidity position of approximately$108.6 million . 35 -------------------------------------------------------------------------------- OnApril 14, 2021 , we issued$250.0 million in aggregate principal amount of our senior secured notes that will mature in 2028 (the "2028 Notes") and used a portion of the proceeds to purchase$195.9 million of our 12.0% senior secured notes due 2025 (the "2025 Notes") pursuant to a cash tender offer for the 2025 Notes. OnApril 9, 2021 , we issued$86.3 million in aggregate principal amount of convertible senior notes due 2028 (the "Convertible Notes"). The remaining proceeds from the issuance of the 2028 Notes and a portion of the proceeds from the issuance of the Convertible Notes were used to redeem the remaining 2025 Notes onMay 14, 2021 . The remaining proceeds from the Convertible Notes offering were used to repay borrowings under our revolving credit facilities and to pay for the cost of the capped call transactions in connection with the issuance of the Convertible Notes. With these transactions, we have effectively extended the maturities of our principal debt obligations, reduced the interest rate on these obligations, and raised additional liquidity through the issuance of convertible senior notes. Available Cash Our available cash and cash equivalents balance atJune 30, 2021 , was$9.0 million compared to$81.6 million atDecember 31, 2020 . Sources and Uses of Cash Our statements of cash flows are summarized below: Six months ended June 30, 2021 2020 (in millions) Net cash provided by (used in) operating activities$ (87.9) $ 71.6 Net cash provided by (used in) investing activities (25.9) (9.5) Net cash provided by (used in) financing activities 39.7 76.0 Change in cash, cash equivalents and restricted cash $
(74.1)
The increase in net cash used in operating activities was primarily driven by an increase in net loss and changes in working capital. The changes in working capital are primarily attributable to timing of receivable collections and timing of raw material receipts.
The increase in net cash used in investing activities was primarily due to
higher spending on capital projects during the six months ended
The decrease in net cash provided by financing activities was primarily due to increased repayments of borrowings on the revolving credit facilities, offset by the issuance of the convertible senior notes inApril 2021 . Availability Under Our Credit Facilities TheU.S. revolving credit facility, datedMay 2018 , as amended, provides for borrowings of up to$175.0 million in the aggregate including up to$110.0 million under a letter of credit sub-facility, and also includes an uncommitted accordion feature whereby borrowers may increase the capacity of theU.S. revolving credit facility by up to$50.0 million , subject to agreement with the lenders. TheU.S. revolving credit facility matures inMay 2023 . Any letters of credit issued and outstanding under theU.S. revolving credit facility reduce our borrowing availability on a dollar-for-dollar basis. We have also entered into, through our wholly-owned subsidiary Nordural Grundartangi ehf ("Grundartangi"), a$50.0 million revolving credit facility, datedNovember 2013 , as amended (the "Iceland revolving credit facility"). TheIceland revolving credit facility matures inNovember 2022 . The availability of funds under our credit facilities is limited by a specified borrowing base consisting of certain accounts receivable, inventory and qualified cash deposits which meet the lenders' eligibility criteria. Increases in the price of aluminum and/or restarts of previously curtailed operations, for example, increase our borrowing base by increasing our accounts receivable and inventory balances; decreases in the price of aluminum and/or curtailments of production capacity would decrease our borrowing base by reducing our accounts receivable and inventory balances. As ofJune 30, 2021 , ourU.S. revolving credit facility had a borrowing base of$173.5 million ,$39.6 million in borrowings and$84.4 million in letters of credit outstanding. Of the outstanding letters of credit,$12.1 million are related to our power commitments,$54.2 million are related to hedging collateral, and the remainder are primarily for the purpose of securing certain debt and workers' 36 -------------------------------------------------------------------------------- compensation commitments. As ofJune 30, 2021 , ourIceland revolving credit facility had a borrowing base of$50.0 million and no outstanding borrowings. As ofJune 30, 2021 , our credit facilities had$99.6 million of net availability after consideration of our outstanding borrowings and letters of credit. We may borrow and make repayments under our credit facilities in the ordinary course based on a number of factors, including the timing of payments from our customers and payments to our suppliers. Our credit facilities contain customary covenants, including restrictions on mergers and acquisitions, indebtedness, affiliate transactions, liens, dividends and distributions, dispositions of collateral, investments and prepayments of indebtedness, including in theU.S. revolving credit facility, a springing financial covenant that requires us to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 as of any date of determination availability under theU.S. revolving credit facility is less than or equal to$17.5 million , or 10% of the borrowing base but not less than$12.5 million . We intend to maintain availability to comply with these levels any time we would not meet the ratio, which could limit our ability to access the full amount of our availability under ourU.S revolving credit facility. OurIceland revolving credit facility contains a covenant that requires Grundartangi to maintain a minimum equity ratio. As ofJune 30, 2021 , we were in compliance with all such covenants or maintained availability above such covenant triggers. Senior Notes and Convertible Senior Notes OnApril 14, 2021 , we issued$250.0 million principal of senior secured notes that will mature onMay 1, 2028 , unless earlier refinanced in accordance with their terms. Interest on the 2028 Notes is payable semi-annually onApril 1 andOctober 1 of each year, beginning onOctober 1, 2021 , at a rate of 7.5% per year. The indenture governing the 2028 Notes contains customary covenants which may limit our ability, and the ability of certain of our subsidiaries, to: (i) incur additional debt; (ii) incur additional liens; (iii) pay dividends or make distributions in respect of capital stock; (iv) purchase or redeem capital stock; (v) make investments or certain other restricted payments; (vi) sell assets; (vii) issue or sell stock of certain subsidiaries; (viii) enter into transactions with shareholders or affiliates; and (ix) effect a consolidation or merger. OnApril 9, 2021 , we issued$86.3 million in aggregate principal amount of convertible senior notes due 2028, unless earlier converted, repurchased or redeemed. The principal included the full exercise of the option by the initial purchasers of the Convertible Notes to purchase$11.3 million of additional principal amount. The Notes bear interest semi-annually in arrears onMay 1 andNovember 1 of each year, beginning onNovember 1, 2021 , at a rate of 2.75% per annum in cash. We applied the net proceeds from the offering of the 2028 Notes and a portion of the net proceeds from the Convertible Notes described above toward payment of the total consideration amount to holders whose 2025 Notes were accepted and purchased in the tender offer and to fund the redemption of any remaining 2025 Notes. Hawesville Term Loan OnApril 29, 2019 , we entered into a term loan agreement withGlencore Ltd. pursuant to which the Company borrowed$40.0 million . Borrowings under the Hawesville Term Loan were used to partially finance the second phase of theHawesville restart project. The Hawesville Term Loan matures onDecember 31, 2021 , and is being repaid in 24 equal monthly installments of principal that began onJanuary 31, 2020 . The Hawesville Term Loan bears interest, due monthly, at a floating rate equal to LIBOR plus 5.375% per annum. The Hawesville Term Loan is not secured by any collateral. As ofJune 30, 2021 , the outstanding balance of the Hawesville Term Loan was$10.0 million . Supplemental Guarantor Financial Information The Company has filed a Registration Statement on Form S-3 (the "Universal Shelf Registration Statement") with theSEC pursuant to which the Company may, from time to time, offer an indeterminate amount of securities, which may include securities that are guaranteed by certain of the Company's subsidiaries. As ofJune 30, 2021 , we have not issued any debt securities pursuant to the Universal Shelf Registration Statement. However, the securities that we may issue in the future may limit our ability, and the ability of certain of our subsidiaries to pay dividends or make distributions in respect of capital stock. "Guarantor Subsidiaries" refers to all of our material domestic subsidiaries except forNordural US LLC ,Century Aluminum Development LLC andCentury Aluminum of West Virginia, Inc. The Guarantor Subsidiaries are 100% owned by Century. All guarantees will be full and unconditional; all guarantees will be joint and several. Our foreign subsidiaries, together withNordural US LLC ,Century Aluminum Development LLC andCentury Aluminum of West Virginia, Inc. , are collectively referred to as the "Non-Guarantor Subsidiaries". We allocate corporate expenses or income to our subsidiaries and charge interest on certain intercompany balances. The following summarized financial information of both the Company and the Guarantors Subsidiaries ("Guarantors") is presented on a combined basis. Intercompany balances and transactions between the Company and the Guarantors have been 37 -------------------------------------------------------------------------------- eliminated and the summarized financial information does not reflect investments of the Company or the Guarantors in the Non-Guarantor Subsidiaries ("Non-Guarantors"). The Company's or Guarantors' amounts due from, amounts due to, and transactions with the Non-Guarantors are disclosed below: June 30, 2021 December 31, 2020 Current assets$ 304.9 $ 252.4 Non-current assets 977.7 972.3 Current liabilities 308.7 169.2 Non-current liabilities 608.8 483.7 Six months ended June 30, 2021 Net sales $ 624.1 Gross profit (loss) (7.8) Income (loss) before income taxes (205.1) Net income (loss) (175.1) As ofJune 30, 2021 andDecember 31, 2020 , an intercompany receivable due to the Company and Guarantors from the Non-Guarantors totaled$18.8 million and$14.6 million , respectively, and an intercompany non-current loan due to the Company from the Non-Guarantors totaled$544.2 million and$554.9 million , respectively. Contingent Commitments We have a contingent obligation in connection with the "unwind" of a contractual arrangement betweenCentury Aluminum of Kentucky ("CAKY"),Big Rivers Electric Corporation and a third party and the execution of a long-term cost-based power contract withKenergy , a member of a cooperative of Big Rivers inJuly 2009 . This contingent obligation consists of the aggregate payments made to Big Rivers by the third party on CAKY's behalf in excess of the agreed upon base amount under the long-term cost-based power contract withKenergy . As ofJune 30, 2021 , the principal and accrued interest for the contingent obligation was$27.4 million , which was fully offset by a derivative asset. We may be required to make installment payments for the contingent obligation in the future. These payments are contingent based on the LME price of primary aluminum and the level ofHawesville's operations. Based on the LME forward market atJune 30, 2021 , we believe that we will not be required to make payments on the contingent obligation during the term of the agreement, which expires in 2028. There can be no assurance that circumstances will not change thus accelerating the timing of such payments. Employee Benefit Plan Contributions In 2013, we entered into a settlement agreement with thePension Benefit Guarantee Corporation ("PBGC") regarding an alleged "cessation of operations" at ourRavenswood facility. Pursuant to the terms of the agreement, we agreed to make additional contributions (above any minimum required contributions) to our defined benefit pension plans totaling approximately$17.4 million . Under certain circumstances, in periods of lower primary aluminum prices relative to our cost of operations, we are able to defer one or more of these payments, but would then be required to provide the PBGC with acceptable security for deferred payments. We did not make any contributions in the three month periods endedJune 30, 2021 and 2020. We have elected to defer certain payments under the PBGC agreement and have provided the PBGC with the appropriate security. The remaining contributions under this agreement are approximately$9.6 million . 38 -------------------------------------------------------------------------------- Section 232 Aluminum Tariff OnMarch 23, 2018 , theU.S. implemented a 10% tariff on imported primary aluminum products into theU.S. These tariffs are intended to protectU.S. national security by incentivizing the restart of primary aluminum production in theU.S. , reducing reliance on imports and ensuring that domestic producers, like Century, can supply all the aluminum necessary for critical industries and national defense. In addition to primary aluminum products, the tariffs also cover certain other semi-finished products. All imports that directly compete with our products are covered by the tariff, with the exception of imports fromAustralia ,Argentina ,Canada andMexico or imports that receive a product exclusion from theDepartment of Commerce . Other Items InMarch 2018 , we announced our intention to return ourHawesville smelter, which since 2015 had been operating at approximately 40% capacity, to full production and upgrade its existing reduction technology. The first phase of the project, which involved the restart of the three potlines and approximately 150,000 tonnes of production capacity that had been curtailed in 2015, was successfully completed on budget and ahead of schedule in early 2019. The second phase of the project involves the rebuilding of the pots from the two potlines that had continued to operate past their expected life cycle and the implementation of certain new technology across all production. These two potlines were taken out of production in February andSeptember 2019 , respectively. The rebuild of the first of these potlines was completed in the second quarter of 2020 with total project costs to date of approximately$108.3 million . OurHawesville facility experienced several equipment issues in lateDecember 2020 that partially reduced the plant's production level; however, the process of returning to our planned operating level of 80% of capacity began in the second quarter of 2021 and continues to progress. The rebuild of the fifth and final potline and the completion of the technology upgrades is expected to be completed over the next several years subject to market conditions. Our new power contract withSantee Cooper for the Mt. Holly aluminum smelter began onApril 1, 2021 and runs throughDecember 2023 . It is expected to provide sufficient energy to allow the Mt. Holly smelter to increase its production by 50% (resulting in total production of 75% of Mt. Holly's full capacity once the restart project is completed) at cost of service based rates. Restart work at the Mt. Holly smelter is progressing on schedule and is expected to be completed in the fourth quarter of 2021. In 2011, our Board of Directors approved a$60.0 million common stock repurchase program and subsequently increased this program by$70.0 million in the first quarter of 2015. Under the program, Century is authorized to repurchase up to$130.0 million of our outstanding shares of common stock, from time to time, on the open market at prevailing market prices, in block trades or otherwise. The timing and amount of any shares repurchased will be determined by our management based on its evaluation of market conditions, the trading price of our common stock and other factors. We made no repurchases during the years ended 2018, 2019, and 2020. As ofJune 30, 2021 , we had$43.7 million remaining under the repurchase program authorization. The repurchase program may be expanded, suspended or discontinued by our Board, in its sole discretion, at any time. InNovember 2009 ,Century Aluminum of West Virginia, Inc. ("CAWV") filed a class action complaint for declaratory judgment against the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial andService Workers International Union ("USW"), the USW's local and certain CAWV retirees, individually and as class representatives ("CAWV Retirees"), seeking a declaration of CAWV's rights to modify/terminate retiree medical benefits. Later inNovember 2009 , the USW and representatives of a retiree class filed a separate suit against CAWV,Century Aluminum Company , Century Aluminum Master Welfare Benefit Plan, and various John Does with respect to the foregoing. OnAugust 18, 2017 , theDistrict Court for the Southern District of West Virginia approved a settlement agreement in respect of these actions, pursuant to which, CAWV agreed to make payments into a trust for the benefit of the CAWV Retirees in the aggregate amount of$23.0 million over the course of ten years. Upon approval of the settlement, we paid$5.0 million to the aforementioned trust inSeptember 2017 and agreed to pay the remaining amounts under the settlement agreement in annual increments of$2.0 million for nine years. AtJune 30, 2021 , we had$2.0 million in other current liabilities and$7.8 million in other liabilities related to this agreement. We are a defendant in several actions relating to various aspects of our business. While it is impossible to predict the ultimate disposition of any litigation, we do not believe that any of these lawsuits, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or liquidity. See Note 10. Commitments and Contingencies to the consolidated financial statements included herein for additional information. Capital Resources We intend to finance our future capital expenditures from available cash, cash flow from operations and if necessary, borrowing under our existing revolving credit facilities. For major investment projects we would likely seek financing from 39 -------------------------------------------------------------------------------- various capital and loan markets and may potentially pursue the formation of strategic alliances. We may be unable, however, to issue additional debt or equity securities, or enter into other financing arrangements on attractive terms, or at all, due to a number of factors including a lack of demand, unfavorable pricing, poor economic conditions, unfavorable interest rates, or our financial condition or credit rating at the time. Future uncertainty in theU.S. and international markets and economies may adversely affect our liquidity, our ability to access the debt or capital markets and our financial condition. Capital expenditures incurred for the six months endedJune 30, 2021 were$6.3 million , excluding expenditures of$22.4 million associated with the restart project at Mt. Holly. We estimate our total capital spending in 2021, excluding the Mt. Holly restart project, will be approximately$25.0 million related to our ongoing investment and sustainability projects at our plants. 40
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