Fair value measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair value measurements

Fair value measurements

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

Our fair value measurements include the consideration of market risks that other market participants might consider in pricing the particular asset or liability, specifically non-performance risk and counterparty credit risk. Consideration of the non-performance risk and counterparty credit risk are used to establish the appropriate risk-adjusted discount rates used in our fair value measurements.

The following section describes the valuation methodology used to measure our financial assets and liabilities that were accounted for at fair value.

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

(1) Trust assets are currently invested in money market funds. The trust has sole authority to invest the funds in secure interest producing investments consisting of short-term securities issued or guaranteed by the United States government or cash and cash equivalents.

Fair value measurements

The following table sets forth by level within the ASC 820 fair value hierarchy our financial assets and liabilities that are accounted for at fair value on a recurring basis. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and the placement within the fair value hierarchy levels. There were no transfers between Level 1 and 2 during the periods presented. There were no transfers into or out of Level 3 during the periods presented below.

Recurring Fair Value Measurements	As of September 30, 2012
	Level 1		Level 2		Level 3		Total
ASSETS:
Cash equivalents	$	167,325	$	—	$	—	$	167,325
Trust assets	14,572		—		—		14,572
Surety bond – workers comp insurance	2,381		—		—		2,381
TOTAL	$	184,278	$	—	$	—	$	184,278
LIABILITIES:
E.ON contingent obligation	$	—	$	—	$	15,016	$	15,016
Primary aluminum sales contract	—		—		1,379		1,379
TOTAL	$	—	$	—	$	16,395	$	16,395

Recurring Fair Value Measurements	As of December 31, 2011
	Level 1		Level 2		Level 3		Total
ASSETS:
Cash equivalents	$	176,284	$	—	$	—	$	176,284
Trust assets	15,889		—		—		15,889
Surety bonds – workers comp insurance	2,391		—		—		2,391
Primary aluminum put option contracts	—		9,331		—		9,331
Power contract	—		—		106		106
TOTAL	$	194,564	$	9,331	$	106	$	204,001
LIABILITIES:
Natural gas forward financial contracts	$	—	$	281	$	—	$	281
E.ON contingent obligation	—		—		13,958		13,958
Primary aluminum sales contract – premium collar	—		—		908		908
TOTAL	$	—	$	281	$	14,866	$	15,147

Change in Level 3 Fair Value Measurements during the three months ended September 30,
	Derivative liabilities - net
	2012			2011
Beginning balance, July 1,	$	(16,024	)	$	(14,536	)
Total loss (realized/unrealized) included in earnings	(371		)	(45		)
Settlements	—			(29		)
Ending balance, September 30,	$	(16,395	)	$	(14,610	)
Amount of loss included in earnings attributable to the change in unrealized losses relating to assets and liabilities held at September 30,	$	(371	)	$	(45	)

Change in Level 3 Fair Value Measurements during the nine months ended September 30,
	Derivative liabilities - net
	2012			2011
Beginning balance, January 1,	$	(14,760	)	$	(13,802	)
Total loss (realized/unrealized) included in earnings	(1,529		)	(1,275		)
Settlements	(106		)	467
Ending balance, September 30,	$	(16,395	)	$	(14,610	)
Amount of loss included in earnings attributable to the change in unrealized losses relating to assets and liabilities held at September 30,	$	(1,529	)	$	(1,275	)

The net gain (loss) on our derivative assets and liabilities is recorded in our statement of operations under net gain (loss) on forward contracts. See Note 4 Derivative and hedging instruments for the location of our Level 3 derivative assets and liabilities within our consolidated balance sheets.