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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

We measure certain of our assets and liabilities at fair value. Fair value represents 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.

The fair value hierarchy provides transparency regarding the inputs we use to measure fair value. We categorize each fair value measurement in its entirety into the following three levels, based on the lowest level input that is significant to the entire measurement:

•Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

•Level 2 Inputs - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•Level 3 Inputs - significant unobservable inputs for the asset or liability.


Recurring Fair Value Measurements	As of September 30, 2020
	Level 1		Level 2		Level 3		Total
ASSETS:
Cash equivalents	$	71.2	$	—	$	—	$	71.2
Trust assets (1)	0.2		—		—		0.2

Derivative instruments	—		11.4		6.6		18.0
TOTAL	$	71.4	$	11.4	$	6.6	$	89.4

LIABILITIES:
Contingent obligation – net	$	—	$	—	$	—	$	—
Derivative instruments	—		4.9		0.8		5.7
TOTAL	$	—	$	4.9	$	0.8	$	5.7

(1) Trust assets are currently invested in money market funds. These trust assets are held to fund the non-qualified supplemental executive pension benefit obligations for certain of our officers.


Recurring Fair Value Measurements	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
ASSETS:
Cash equivalents	$	23.3	$	—	$	—	$	23.3
Trust assets (1)	0.2		—		—		0.2
Surety bonds (2)	1.8		—		—		1.8
Derivative instruments	—		9.1		10.6		19.7
TOTAL	$	25.3	$	9.1	$	10.6	$	45.0

LIABILITIES:
Contingent obligation – net	$	—	$	—	$	—	$	—
Derivative instruments	—		1.3		2.9		4.2
TOTAL	$	—	$	1.3	$	2.9	$	4.2

(1) Trust assets are currently invested in money market funds. These trust assets are held to fund the non-qualified supplemental executive pension benefit obligations for certain of our officers.

(2) Surety bonds were invested in U.S. treasury bills and represent collateral against our workers' compensation insurance policy.

We use the following valuation techniques and inputs for fair value measurements categorized within Level 2 of the fair value hierarchy:

Level 2 Fair Value Measurements:

Asset / Liability

Level

Valuation Techniques

Inputs

LME forward financial sales contracts

Discounted cash flows

Quoted LME forward market

MWP forward financial sales contracts

Discounted cash flows

Quoted MWP forward market

Fixed for floating swaps

Discounted cash flows

Quoted LME forward market, quoted MWP forward market

Nord Pool power price swaps

Discounted cash flows

Quoted Nord Pool forward market

MISO Indiana Hub power price swaps

Discounted cash flows

Quoted Indy Hub forward market

FX swaps

Discounted cash flows

Euro/USD forward exchange rate

When valuing Level 3 assets and liabilities, we use certain significant unobservable inputs. Management incorporates various inputs and assumptions including forward commodity prices, commodity price volatility, and macroeconomic conditions, including interest rates and discount rates. Our estimates of significant unobservable inputs are ultimately based on our estimates of risks that market participants would consider when valuing our assets and liabilities.

The following table presents the inputs for fair value measurements categorized within Level 3 of the fair value hierarchy, along with information regarding significant unobservable inputs used to value Level 3 assets and liabilities:

Level 3 Fair Value Measurements:

Asset / Liability

Fair Value at September 30, 2020

Valuation Technique

Observable Inputs

Significant Unobservable Input

Value/Range of Unobservable Input

LME forward financial sales contracts

6.6

Discounted cash flows

Quoted LME forward market prices

Discount rate (1)

10.00%

Contingent obligation

—

Discounted cash flows

Quoted LME forward market prices

Management's estimates of the LME forward market price beyond the quoted periods (2)

$1,754/T-$2,312/T

Hawesville L4 power price swaps

(0.8)

Discounted cash flows

Quoted Indy Hub forward market prices

Estimates of locational margin prices during contract term in megawatt hours (MWh) (3)

$0.45/MWh

(1) Represents risk adjusted discount rate.

(2) Represents the range of estimated forward LME prices of primary aluminum through the term of the agreement in December 2028.

(3) Represents historical average of locational margin prices from January 2017-September 2020

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis.


	Level 3 Assets		Level 3 Liabilities
For the three months ended September 30, 2020	LME forward financial sales contracts		Hawesville L4 power price swaps
Balance as of July 1, 2020	$	6.1	$	(1.5)
Total realized/unrealized gains (losses)
Included in net income (loss) (1)	(4.2)		(0.2)
Purchases, sales, settlements
Purchases	—		—
Sales	—		—
Settlements	—		0.9
Transfers into Level 3 (2)	4.7		—
Transfers out of Level 3	—		—
Balance as of September 30, 2020	$	6.6	$	(0.8)

Change in unrealized gains (losses) (1)	$	(4.2)	$	0.7

(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."

(2) Transfers into Level 3 due to contracts with applied discount rate during the third quarter of 2020.


For the three months ended September 30, 2019	Level 3 Assets		Level 3 Liabilities
	U.S. LME forward financial sales contracts		Hawesville L4 Power Price Swaps
Balance as of July 1, 2019	$	6.9	$	(2.7)
Total realized/unrealized gains (losses)
Included in Net Income (1)	8.8		1.2
Purchases, sales, settlements
Purchases	—		—
Sales	—		—
Settlements	—		—
Transfers into Level 3	—		—
Transfers out of Level 3	—		—
Balance as of September 30, 2019	$	15.7	$	(1.5)

Change in unrealized gains (losses) (1)	$	8.8	$	1.2

(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."


	Level 3 Assets		Level 3 Liabilities
For the nine months ended September 30, 2020	LME forward financial sales contracts		Hawesville L4 power price swaps
Balance as of January 1, 2020	$	10.6	$	(2.9)
Total realized/unrealized gains (losses)
Included in net income (loss) (1)	0.8		(1.6)
Purchases, sales, settlements
Purchases	—		—
Sales	—		—
Settlements	—		3.7
Transfers into Level 3 (2)	4.7		—
Transfers out of Level 3 (3)	(9.5)		—
Balance as of September 30, 2020	$	6.6	$	(0.8)

Change in unrealized gains (losses) (1)	$	0.8	$	2.1

(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."

(2) Transfers into Level 3 due to contracts with applied discount rate during the third quarter of 2020.

(3) Transfer out of Level 3 due to period of time remaining in derivative contract.


For the nine months ended September 30, 2019	Level 3 Assets				Level 3 Liabilities
	Nord Pool power price swaps		US LME forward financial sales contracts		Hawesville L4 Power Price Swaps		Iceland LME forward financial sales contracts		FX Swaps
Balance as of January 1, 2019	$	4.7	$	0.3	$	—	$	(0.2)	$	(0.3)
Total realized/unrealized gains (losses)
Included in Net Income (1)	(1.0)		15.6		1.2		(0.1)		(0.3)
Purchases, sales, settlements
Purchases	—		—		—		—		—
Sales	—		—		—		—		—
Settlements	—		—		—		—		—
Transfers into Level 3 (2)	—		(0.2)		(2.7)		—		—
Transfers out of Level 3	(3.7)		—		—		0.3		0.6
Balance as of September 30, 2019	$	—	$	15.7	$	(1.5)	$	—	$	—

Change in unrealized gains (losses) (1)	$	(1.0)	$	15.4	$	(1.5)	$	(0.1)	$	(0.3)

(1) Gains and losses are presented in the Consolidated Statement of Operations within the line item "Net gain (loss) on forward and derivative contracts."

(2) Transfer into Level 3 resulting from derivative contracts entered into during the first nine months of 2019.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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