2012 Q3 10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
£    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: 001-34741
 

NORANDA ALUMINUM HOLDING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation)
20-8908550
(I.R.S. Employer Identification Number)
801 Crescent Centre Drive, Suite 600
Franklin, Tennessee
(Address of Principal Executive Offices)
37067
(Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 771-5700
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.
YES x        NO £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).
YES x        NO £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  £
Accelerated Filer S
Non-accelerated filer (Do not check if a smaller reporting company)  £
Smaller reporting company  £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES£    NO x
As of October 19, 2012, there were 67,712,263 shares of Noranda common stock outstanding.
 

1

NORANDA ALUMINUM HOLDING CORPORATION
TABLE OF CONTENTS
FINANCIAL INFORMATION
OTHER INFORMATION
Item 4.
Mine Safety Disclosures
SIGNATURES


2

Part I.    FINANCIAL INFORMATION

Item 1.
Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(unaudited)
 
September 30, 2012
December 31, 2011
 
$
$
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
33.9

42.7

Accounts receivable, net
122.8

107.6

Inventories, net
202.9

186.5

Taxes receivable
8.3

—

Prepaid expenses
19.5

13.3

Other current assets
12.3

41.3

Total current assets
399.7

391.4

Property, plant and equipment, net
693.1

699.8

Goodwill
137.6

137.6

Other intangible assets, net
62.7

67.1

Other assets
86.6

81.6

Total assets
1,379.7

1,377.5

LIABILITIES AND EQUITY
 
 
Current liabilities:
 
 
Accounts payable
105.9

95.9

Accrued liabilities
59.3

87.3

Taxes payable
—

2.6

Derivative liabilities, net
10.4

40.9

Deferred tax liabilities
6.2

35.9

Current portion of long-term debt
3.3

2.4

Total current liabilities
185.1

265.0

Long-term debt, net
593.2

426.1

Long-term derivative liabilities, net
0.4

0.1

Pension and other post-retirement benefit ("OPEB") liabilities
179.1

175.7

Other long-term liabilities
48.0

46.2

Long-term deferred tax liabilities
206.9

202.8

Common stock subject to redemption (0.2 shares at September 30, 2012 and December 31, 2011)
2.0

2.0

Shareholders’ equity:
 
 
Preferred stock (25.0 shares authorized, $0.01 par value; no shares issued and outstanding at September 30, 2012 and December 31, 2011)
—

—

Common stock (200.0 shares authorized; $0.01 par value; 67.7 shares issued and outstanding at September 30, 2012; 67.3 shares issued and outstanding at December 31, 2011, including 0.2 shares subject to redemption at September 30, 2012 and December 31, 2011)
0.7

0.7

Capital in excess of par value
232.5

231.9

Retained earnings
16.5

63.4

Accumulated other comprehensive loss
(90.7
)
(42.4
)
Total shareholders’ equity
159.0

253.6

Non-controlling interest
6.0

6.0

Total equity
165.0

259.6

Total liabilities and equity
1,379.7

1,377.5

See accompanying notes

3

NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share information)
(unaudited)
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Sales
336.8

400.4

1,062.0

1,221.3

Operating costs and expenses:
 
 
 
 
Cost of sales
323.3

350.4

959.4

1,031.8

Selling, general and administrative expenses
24.3

26.8

64.8

72.3

Total operating costs and expenses
347.6

377.2

1,024.2

1,104.1

Operating income (loss)
(10.8
)
23.2

37.8

117.2

Other (income) expense:
 
 
 
 
Interest expense, net
8.9

5.2

24.2

16.4

Gain on hedging activities, net
(25.4
)
(19.5
)
(62.5
)
(65.6
)
Debt refinancing expense
—

—

8.1

—

Total other income, net
(16.5
)
(14.3
)
(30.2
)
(49.2
)
Income before income taxes
5.7

37.5

68.0

166.4

Income tax expense
1.9

6.7

22.7

49.9

Net income
3.8

30.8

45.3

116.5

Net income per common share:
 
 
 
 
Basic
$
0.06

$
0.46

$
0.67

$
1.74

Diluted
$
0.05

$
0.45

$
0.66

$
1.71

Weighted-average common shares outstanding:
 
 
 
 
Basic
67.68

67.23

67.49

67.00

Diluted
69.12

68.49

69.10

68.32

Cash dividends declared per common share
$
0.04

$
—

$
1.37

$
—

See accompanying notes

4

NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Net income
3.8

30.8

45.3

116.5

Other comprehensive income (loss):
 
 
 
 
Unrealized pension loss
(16.7
)
—

(16.7
)
—

Reclassification of pension and OPEB amounts realized in net income
2.9

—

8.6

—

Unrealized loss on derivatives
(0.1
)
(4.8
)
(3.5
)
(7.6
)
Reclassification of derivative amounts realized in net income
(25.3
)
(27.1
)
(64.3
)
(73.5
)
Total other comprehensive loss, before tax
(39.2
)
(31.9
)
(75.9
)
(81.1
)
Income tax benefit related to components of other comprehensive loss
14.3

11.6

27.6

29.5

Total other comprehensive loss, net of tax
(24.9
)
(20.3
)
(48.3
)
(51.6
)
Total comprehensive income (loss)
(21.1
)
10.5

(3.0
)
64.9

See accompanying notes


5

NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
(unaudited)
 
Preferred
stock
Common
stock
Capital in
excess of par
value
Retained
earnings
(accumulated
deficit)
Accumulated
other
comprehensive
income (loss)
Non-controlling
interest
Total
equity
 
$
$
$
$
$
$
$
Balance, December 31, 2010
—

0.7

227.7

(8.2
)
69.5

6.0

295.7

Net income
—

—

—

140.9

—

—

140.9

Other comprehensive loss
—

—

—

—

(111.9
)
—

(111.9
)
Issuance of common shares for equity-based awards
—

—

0.7

—

—

—

0.7

Stock compensation expense related to equity-based awards
—

—

4.6

—

—

—

4.6

Excess taxes related to share-based payment arrangements
—

—

0.7

—

—

—

0.7

Dividends to shareholders @ $1.03 per share
—

—

—

(69.3
)
—

—

(69.3
)
Distribution to share-based award holders @ $1.00 per share
—

—

(1.8
)
—

—

—

(1.8
)
Balance, December 31, 2011
—

0.7

231.9

63.4

(42.4
)
6.0

259.6

Net income
—

—

—

45.3

—

—

45.3

Other comprehensive loss
—

—

—

—

(48.3
)
—

(48.3
)
Issuance of common shares for equity-based awards
—

—

0.5

—

—

—

0.5

Stock compensation expense related to equity-based awards
—

—

3.7

—

—

—

3.7

Excess taxes related to share-based payment arrangements
—

—

(0.1
)
—

—

—

(0.1
)
Shares repurchased
—

—

(0.4
)
—

—

—

(0.4
)
Dividends to shareholders @ $1.37 per share
—

—

—

(92.2
)
—

—

(92.2
)
Distribution to share-based award holders @ $1.25 per share
—

—

(3.1
)
—

—

—

(3.1
)
Balance, September 30, 2012
—

0.7

232.5

16.5

(90.7
)
6.0

165.0


See accompanying notes

6

NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Nine months ended September 30,
 
2012
2011
 
$
$
OPERATING ACTIVITIES
 
 
Net income
45.3

116.5

Adjustments to reconcile net income to cash provided by (used in) operating activities:
 
 
Depreciation and amortization
70.2

73.1

Non-cash interest expense
2.1

11.0

Last in, first out and lower of cost or market inventory adjustments
(14.3
)
17.3

(Gain) loss on disposal of assets
(1.4
)
1.8

Gain on hedging activities, excluding cash settlements
(99.6
)
(83.1
)
Debt refinancing expense
8.1

—

Deferred income taxes
2.1

(2.3
)
Share-based compensation expense
3.9

4.4

Excess tax benefit related to share-based payment arrangements
—

(0.7
)
Changes in other assets
(6.0
)
(5.7
)
Changes in pension, other post-retirement and other long-term liabilities
(1.3
)
(13.9
)
Changes in current operating assets and liabilities:
 
 
Accounts receivable, net
(15.2
)
(8.4
)
Inventories, net
(3.5
)
(22.2
)
Taxes receivable and taxes payable
(11.1
)
(1.8
)
Other current assets
24.6

(20.0
)
Accounts payable
10.3

17.0

Accrued liabilities
(28.0
)
27.3

Cash provided by (used in) operating activities
(13.8
)
110.3

INVESTING ACTIVITIES
 
 
Capital expenditures
(59.8
)
(44.1
)
Proceeds from sale of property, plant and equipment
4.8

2.6

Cash used in investing activities
(55.0
)
(41.5
)
FINANCING ACTIVITIES
 
 
Proceeds from issuance of common shares
0.5

0.6

Dividends paid to shareholders
(92.2
)
—

Distributions paid to share-based award holders
(3.1
)
—

Repurchase of shares
(0.4
)
—

Repayments of long-term debt
(154.8
)
—

Borrowings on long-term debt, net
322.6

—

Payments of financing costs
(12.6
)
—

Excess tax benefit related to share-based payment arrangements
—

0.7

Cash provided by financing activities
60.0

1.3

Change in cash and cash equivalents
(8.8
)
70.1

Cash and cash equivalents, beginning of period
42.7

33.8

Cash and cash equivalents, end of period
33.9

103.9

See accompanying notes

7
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

1.    ACCOUNTING POLICIES
Organization, Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements represent the consolidation of Noranda Aluminum Holding Corporation and all companies that we directly or indirectly control ("Noranda," "the Company," "we," "us," and "our"). "Noranda HoldCo" refers only to Noranda Aluminum Holding Corporation, excluding its subsidiaries. "Noranda AcquisitionCo" refers only to Noranda Aluminum Acquisition Corporation, the wholly-owned direct subsidiary of Noranda HoldCo, excluding its subsidiaries.
These unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial information. The consolidated financial statements, including these condensed notes, are unaudited and exclude some of the disclosures required in annual consolidated financial statements. Consolidated balance sheet data as of December 31, 2011 was derived from our audited consolidated financial statements. In management's opinion, these unaudited consolidated financial statements include all adjustments (including normal recurring accruals) that are considered necessary for the fair presentation of our financial position and operating results. All intercompany transactions and accounts have been eliminated in consolidation.
The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. For example, our interim operating results are affected by peak power usage rates from June through September each year which affect our operating costs at the New Madrid smelter. We are also subject to seasonality associated with the demand cycles of our end-use customers, which results in lower shipment levels from November to February relative to other periods during the year.
These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on March 12, 2012.

2.    SEGMENTS
We manage and operate our business segments based on the markets we serve and the products we produce. We have five reportable segments consisting of Bauxite, Alumina, Primary Aluminum, Flat-Rolled Products and Corporate.
Segment profit (in which certain items, primarily non-recurring costs or non-cash expenses, are not allocated to the segments and in which certain items, primarily the income statement effects of current period cash settlements of hedges, are allocated to the segments) is a measure used by management as a basis for resource allocation.

8
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

The following tables present operating and asset information for our reportable segments (in millions):
 
Three months ended September 30, 2012
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
13.6

48.6

129.1

145.5

—

—

336.8

Intersegment
20.0

32.0

18.1

—

—

(70.1
)
—

Total sales
33.6

80.6

147.2

145.5

—

(70.1
)
336.8

 
 
 
 
 
 
 
 
Capital expenditures
2.6

4.6

7.1

2.7

0.9

—

17.9

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
0.3

1.8

3.1

12.0

(7.3
)
0.2

10.1

Depreciation and amortization
(2.1
)
(5.8
)
(11.0
)
(4.4
)
(0.3
)
—

(23.6
)
Last in, first out and lower of cost or market inventory adjustments
—

—

3.0

6.8

—

0.2

10.0

Gain (loss) on disposal of assets
0.2

—

(1.4
)
—

—

—

(1.2
)
Non-cash pension, accretion and stock compensation
—

(0.2
)
(1.4
)
(1.3
)
(1.1
)
—

(4.0
)
Relocation and severance
—

—

0.1

(0.1
)
(0.1
)
—

(0.1
)
Consulting fees
—

—

—

—

(0.2
)
—

(0.2
)
Cash settlements on hedging transactions
—

—

0.2

2.3

—

—

2.5

Other, net
—

—

(3.6
)
(0.1
)
—

(0.6
)
(4.3
)
Operating income (loss)
(1.6
)
(4.2
)
(11.0
)
15.2

(9.0
)
(0.2
)
(10.8
)
Interest expense, net
8.9

Gain on hedging activities, net
(25.4
)
Debt refinancing expense
—

Total other income, net
(16.5
)
Income before income taxes
5.7


In third quarter 2012, we incurred $3.5 million of contingency costs related to assembling a back-up labor force during the renegotiation of our collective bargaining agreement at our New Madrid smelter. This is reflected in the table above in "Other, net."


9
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Three months ended September 30, 2011
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
17.4

60.6

159.2

163.2

—

—

400.4

Intersegment
23.5

43.5

28.5

—

—

(95.5
)
—

Total sales
40.9

104.1

187.7

163.2

—

(95.5
)
400.4

 
 
 
 
 
 
 
 
Capital expenditures
1.3

4.1

6.5

2.7

0.2

—

14.8

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
6.8

23.4

21.8

12.1

(8.0
)
4.1

60.2

Depreciation and amortization
(3.2
)
(5.3
)
(11.5
)
(4.7
)
(0.3
)
—

(25.0
)
Last in, first out and lower of cost or market inventory adjustments
—

—

(2.0
)
0.7

—

3.2

1.9

Gain (loss) on disposal of assets
—

—

(0.4
)
0.1

—

—

(0.3
)
Non-cash pension, accretion and stock compensation
(0.1
)
(0.1
)
(0.8
)
(0.6
)
(1.0
)
—

(2.6
)
Relocation and severance
—

—

(0.6
)
(0.1
)
(0.5
)
—

(1.2
)
Consulting fees
—

—

—

—

(1.4
)
—

(1.4
)
Cash settlements on hedging transactions
—

—

0.3

—

—

—

0.3

Other, net
0.1

(0.1
)
0.1

—

(3.5
)
(5.3
)
(8.7
)
Operating income (loss)
3.6

17.9

6.9

7.5

(14.7
)
2.0

23.2

Interest expense, net
5.2

Gain on hedging activities, net
(19.5
)
Debt refinancing expense
—

Total other income, net
(14.3
)
Income before income taxes
37.5


10
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Nine months ended September 30, 2012
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
37.3

162.1

413.1

449.5

—

—

1,062.0

Intersegment
61.8

106.2

58.2

—

—

(226.2
)
—

Total sales
99.1

268.3

471.3

449.5

—

(226.2
)
1,062.0

 
 
 
 
 
 
 
 
Capital expenditures
6.6

12.8

27.8

10.4

2.2

—

59.8

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
3.9

29.2

51.9

41.1

(22.3
)
—

103.8

Depreciation and amortization
(6.3
)
(16.3
)
(32.9
)
(13.7
)
(1.0
)
—

(70.2
)
Last in, first out and lower of cost or market inventory adjustments
—

—

7.4

7.2

—

(0.3
)
14.3

Gain (loss) on disposal of assets
0.2

—

(3.0
)
4.2

—

—

1.4

Non-cash pension, accretion and stock compensation
(0.1
)
(0.6
)
(4.1
)
(3.7
)
(4.6
)
—

(13.1
)
Relocation and severance
—

—

(0.1
)
(0.2
)
(0.2
)
—

(0.5
)
Consulting fees
—

—

—

—

(0.7
)
—

(0.7
)
Cash settlements on hedging transactions
—

—

0.7

6.3

—

—

7.0

Other, net
—

(0.4
)
(3.5
)
—

(0.2
)
(0.1
)
(4.2
)
Operating income (loss)
(2.3
)
11.9

16.4

41.2

(29.0
)
(0.4
)
37.8

Interest expense, net
24.2

Gain on hedging activities, net
(62.5
)
Debt refinancing expense
8.1

Total other income, net
(30.2
)
Income before income taxes
68.0


In third quarter 2012, we incurred $3.5 million of contingency costs related to assembling a back-up labor force during the renegotiation of our collective bargaining agreement at our New Madrid smelter. This is reflected in the table above in "Other, net."

11
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Nine months ended September 30, 2011
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
52.0

182.2

498.8

488.3

—

—

1,221.3

Intersegment
63.4

135.0

62.3

—

—

(260.7
)
—

Total sales
115.4

317.2

561.1

488.3

—

(260.7
)
1,221.3

 
 
 
 
 
 
 
 
Capital expenditures
6.7

9.4

18.7

8.4

0.9

—

44.1

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
19.2

73.9

117.6

41.8

(21.8
)
0.1

230.8

Depreciation and amortization
(7.6
)
(15.7
)
(34.8
)
(14.1
)
(0.9
)
—

(73.1
)
Last in, first out and lower of cost or market inventory adjustments
—

—

(10.4
)
(7.6
)
—

0.7

(17.3
)
Loss on disposal of assets
0.7

—

(1.6
)
(0.9
)
—

—

(1.8
)
Non-cash pension, accretion and stock compensation
(0.4
)
(0.4
)
(2.2
)
(1.8
)
(4.8
)
—

(9.6
)
Relocation and severance
—

(0.2
)
(0.8
)
(0.2
)
(0.6
)
—

(1.8
)
Consulting fees
—

—

—

—

(1.8
)
—

(1.8
)
Cash settlements on hedging transactions
—

—

(0.1
)
(2.4
)
—

—

(2.5
)
Other, net
0.1

(0.3
)
(0.1
)
—

(3.7
)
(1.7
)
(5.7
)
Operating income (loss)
12.0

57.3

67.6

14.8

(33.6
)
(0.9
)
117.2

Interest expense, net
16.4

Gain on hedging activities, net
(65.6
)
Debt refinancing expense
—

Total other income, net
(49.2
)
Income before income taxes
166.4


 
September 30, 2012
December 31, 2011
Segment assets:
$
$
Bauxite
149.9

148.3

Alumina
243.2

241.7

Primary Aluminum
549.3

574.5

Flat-Rolled Products
387.5

367.5

Corporate
90.9

83.6

Eliminations
(41.1
)
(38.1
)
Total assets
1,379.7

1,377.5



12
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

3.    SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Consolidated statements of cash flows:
Depreciation and amortization in the accompanying unaudited consolidated statements of cash flows comprised depreciation of property, plant and equipment and other, amortization of intangible assets and amortization of other long-term assets as follows (in millions):
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Depreciation of property, plant and equipment
20.9

21.4

62.0

63.9

Amortization of intangible assets
1.5

1.4

4.5

4.4

Amortization of other long-term assets
1.2

2.2

3.7

4.8

Total depreciation and amortization
23.6

25.0

70.2

73.1

Cash paid for interest and income taxes was as follows (in millions):
 
Nine months ended September 30,
 
2012
2011
 
$
$
Interest paid
19.9

2.1

U.S. Federal and state income taxes paid, net of refunds received
32.5

59.8

Jamaican income taxes paid
—

4.0

Purchases of property, plant and equipment accrued in accounts payable and not yet paid were $8.3 million and $3.4 million for the nine months ended September 30, 2012 and 2011, respectively, and were not reflected as capital expenditures in the unaudited consolidated statements of cash flows. For the nine months ended September 30, 2012 and 2011, we capitalized interest of $0.8 million and $0.6 million, respectively, related to long-term capital projects.
During second quarter 2012, we received net proceeds of $4.5 million upon the sale of idle mill equipment from our Flat Rolled Products segment. This gain is included in (gain) loss on disposal of assets in the unaudited consolidated statement of cash flows for the nine months ended September 30, 2012. Gains and losses on disposal of assets are reported net as a component of selling, general and administrative expenses in the accompanying unaudited statements of operations.
Consolidated statements of equity:
Changes in accumulated other comprehensive income (loss) ("AOCI") were as follows (in millions):
 
Unrealized net actuarial gain (loss), prior service cost and other related to pension and OPEB
Accumulated tax benefit (expense) related to unrealized net actuarial gain/loss, prior service cost and other related to pension and OPEB
Unrealized gain (loss) on derivatives
Accumulated tax benefit (expense) related to unrealized gain or loss on derivatives
Total, net of tax
Balance, December 31, 2010
(99.4)
36.8
207.1
(75.0)
69.5
Amounts recorded to AOCI for the period
(70.4)
26.6
(14.3)
5.3
(52.8)
Reclassification of amounts realized in net income
6.0
(2.2)
(98.7)
35.8
(59.1)
Balance, December 31, 2011
(163.8)
61.2
94.1
(33.9)
(42.4)
Amounts recorded to AOCI for the period
(16.7)
6.1
(3.5)
1.3
(12.8)
Reclassification of amounts realized in net income
8.6
(3.2)
(64.3)
23.4
(35.5)
Balance, September 30, 2012
(171.9)
64.1
26.3
(9.2)
(90.7)


13
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

Consolidated balance sheets:
Cash and cash equivalents consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Cash
33.9

39.8

Money market funds
—

2.9

Total cash and cash equivalents
33.9

42.7

Accounts receivable, net, consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Trade
122.9

107.7

Allowance for doubtful accounts
(0.1
)
(0.1
)
Total accounts receivable, net
122.8

107.6

Other current assets consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Current foreign deferred tax asset
3.0

3.3

Employee loans receivable, net
2.3

2.2

Current derivative assets (see Note 11, "Derivative Financial Instruments")
3.2

2.0

Restricted cash (see Note 7, "Commitments and Contingencies")
—

30.1

Other current assets
3.8

3.7

Total other current assets
12.3

41.3

Other assets consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Deferred financing costs, net of amortization
10.0

8.1

Cash surrender value of life insurance
25.3

25.1

Pension asset (see Note 10, "Pensions and Other Post-Retirement Benefits")
7.4

7.0

Restricted cash (see Note 9, "Asset Retirement and Other Obligations")
12.7

12.7

Supplies
13.6

12.7

Prepaid Jamaican income taxes
6.0

6.0

Derivative asset
0.5

—

Other
11.1

10.0

Total other assets
86.6

81.6


14
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

Accrued liabilities consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Compensation and benefits
16.2

22.5

Workers’ compensation
5.2

4.6

Other operating expenses
16.3

11.1

Power rate case related accruals (see Note 7, "Commitments and Contingencies")
—

30.1

Accrued interest
5.4

2.4

Asset retirement obligations (see Note 9, "Asset Retirement and Other Obligations")
2.4

1.8

Land obligation (see Note 9 "Asset Retirement and Other Obligations")
4.8

4.3

Reclamation obligation (see Note 9, "Asset Retirement and Other Obligations")
0.8

2.8

Environmental remediation obligations (see Note 7 "Commitments and Contingencies")
1.8

1.9

Obligations to the Government of Jamaica (see Note 17, "Non-Controlling Interest")
5.4

4.7

Pension and OPEB liabilities (see Note 10, "Pensions and Other Post-Retirement Benefits")
0.9

0.9

Restricted stock unit ("RSU") liability awards (see Note 13, "Share-Based Payments")
0.1

0.2

Total accrued liabilities
59.3

87.3

Other long-term liabilities consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Reserve for uncertain tax positions
0.8

0.8

Workers’ compensation
14.7

13.1

Asset retirement obligations (see Note 9, "Asset Retirement and Other Obligations")
13.3

13.9

Land obligation (see Note 9, "Asset Retirement and Other Obligations")
9.1

8.9

Reclamation obligation (see Note 9, "Asset Retirement and Other Obligations")
1.4

1.8

Environmental remediation obligations (see Note 7, "Commitments and Contingencies")
2.2

2.2

Deferred compensation and other
6.5

5.5

Total other long-term liabilities
48.0

46.2


4.    FAIR VALUE MEASUREMENTS
The tables below set forth by level the fair value hierarchy of our assets and liabilities that were measured at fair value on a recurring basis (in millions):
 
September 30, 2012
 
Level 1
Level 2
Level 3
Total
 
$
$
$
$
Derivative assets
—

6.0

—

6.0

Derivative liabilities
—

(13.1
)
—

(13.1
)
RSU liability awards
(0.1
)
—

—

(0.1
)
Total
(0.1
)
(7.1
)
—

(7.2
)
 
December 31, 2011
 
Level 1
Level 2
Level 3
Total
 
$
$
$
$
Cash equivalents
2.9

—

—

2.9

Derivative assets
—

2.5

—

2.5

Derivative liabilities
—

(41.5
)
—

(41.5
)
RSU liability awards
(0.2
)
—

—

(0.2
)
Total
2.7

(39.0
)
—

(36.3
)
Cash equivalents as of December 31, 2011 were temporary cash investments with high credit quality financial institutions, which included money market funds invested in U.S. treasury securities, short-term treasury bills and commercial paper. These instruments were valued based upon unadjusted, quoted prices in active markets and were classified within Level 1. We held no cash equivalents as of September 30, 2012.
Fair values of all derivative instruments were classified as Level 2 and were primarily measured using industry standard models that incorporated inputs including quoted forward prices for commodities, interest rate curves, and current market prices for those assets and liabilities. Substantially all of the inputs are observable throughout the full term of the instrument. The counterparty of our derivative trades is Merrill Lynch, with the exception of a small portion of our other hedging contracts related to Midwest premiums.
In Note 13 "Share-Based Payments," we discuss RSU liability awards. The fair value of this Level 1 liability was determined based on the closing market price of our common stock at each balance sheet date.
In Note 8, "Long-Term Debt" we disclose the fair values of our debt instruments. The fair value of our AcquisitionCo Notes was based on recent market transactions and was classified as Level 2 within the hierarchy. While the AcquisitionCo Notes have quoted market prices used to determine fair value, we do not believe transactions of those instruments occur in sufficient frequency or volume for a Level 1 classification. The fair values of the Term B 2012 Loan and revolver were based on interest rates available at each balance sheet date. These instruments were also classified as Level 2.
We made no transfers between fair value hierarchy levels during third quarter 2012.

5.    INVENTORIES
We use the LIFO method of valuing raw materials, work-in-process and finished goods inventories at our New Madrid smelter and our rolling mills. Supplies inventories at our rolling mills are valued at FIFO. Inventories at Gramercy and St. Ann and supplies at New Madrid are valued at weighted-average cost and are not subject to the LIFO adjustment. Gramercy and St. Ann inventories comprise approximately 27% and 26% of total inventories, at cost, at September 30, 2012 and December 31, 2011, respectively.
Inventories, net, consisted of the following (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Raw materials, at cost
65.0

71.2

Work-in-process, at cost
62.9

51.7

Finished goods, at cost
24.0

26.3

Total inventories, at cost
151.9

149.2

Last in first out adjustment
21.2

10.3

Lower of cost or market reserve
(7.8
)
(11.5
)
Inventories, at lower of cost or market
165.3

148.0

Supplies
37.6

38.5

Total inventories, net
202.9

186.5


6.    PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following (in millions):
 
Estimated useful lives in years
September 30, 2012
December 31, 2011
 
$
$
Land
49.8

49.2

Buildings and improvements
10
—
47
149.2

128.2

Machinery and equipment
3
—
50
863.8

831.3

Construction in progress
46.4

59.1

Property, plant and equipment, at cost
1,109.2

1,067.8

Accumulated depreciation
(416.1
)
(368.0
)
Total property, plant and equipment, net
693.1

699.8



15
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

7.
COMMITMENTS AND CONTINGENCIES
Labor Commitments
We are a party to six collective bargaining agreements, each of which expires within the next five years. Our collective bargaining agreements are with the following unions: the United Steelworkers of America ("USWA"); the International Association of Machinists and Aerospace Workers; the University and Allied Workers Union ("UAWU"); the Union of Technical, Administrative and Supervisory Personnel ("UTASP"); and the Bustamante Industrial Trade Union ("BITU").
•
A new agreement at our mining operations in St. Ann, Jamaica ("St. Ann") with the UTASP was signed in July 2012, which expires in December 2013.
•
The agreement at St. Ann with the BITU expires in December 2012. This contract covers a small portion of our St. Ann workforce.
•
On August 31, 2012, the Company reached an agreement with the USWA to temporarily extend the New Madrid aluminum smelter collective bargaining agreement, which had been scheduled to expire that day. A new five-year contract with the USWA, representing approximately 80% of our New Madrid workforce, was ratified on September 7, 2012. The newly ratified agreement will expire in August of 2017.
•
The three-year contract in place with the USWA, representing our unionized employees at the Salisbury rolling mill, will expire in November of 2012. This contract covers approximately 88% of our Salisbury workforce.
Legal Contingencies
We are a party to legal proceedings incidental to our business. We assess the likelihood of an unfavorable outcome of each legal proceeding based upon the available facts and our historical experience with similar matters. We do not accrue a liability when we assess the likelihood of an unfavorable outcome to be remote. Where the risk of loss is probable and the costs can be reasonably estimated, we accrue a liability based on the factors mentioned above. Where the risk of loss is considered reasonably possible, we estimate the range of reasonably possible losses and disclose any reasonably possible losses, if material. We update our loss assessment as matters progress over time. Based on current knowledge, we do not believe any reasonably possible losses in excess of our accruals would be material to our unaudited consolidated financial statements.
Environmental Matters
We cannot predict what environmental laws or regulations will be enacted or amended in the future, how existing or future laws or regulations will be interpreted or enforced or the amount of future expenditures that may be required to comply with such laws or regulations. Such future requirements may result in liabilities which may have a material adverse effect on our financial condition, results of operations or cash flows.
The Environmental Protection Agency ("EPA") has developed National Ambient Air Quality Standards ("NAAQS") for six compounds currently identified as criteria pollutants. The NAAQS establishes acceptable ambient air levels of each pollutant based on a review of their effects to human health and the environment. Sulfur dioxide ("SO2"), an emission from our New Madrid smelter facility, is one such criteria pollutant. To determine our smelter's compliance with NAAQS, we measure emissions using currently acceptable methods.
In 2010, the EPA issued regulations that increased the stringency of the SO2 NAAQS. Federal and state regulators are in the process of developing measurement methods and time lines that will govern the implementation of those regulations. Once finalized, these implementation requirements may present material implications for our smelter's compliance with NAAQS. Failure to meet NAAQS may require us to incur significant capital or operational costs to bring our smelter into compliance and could have negative implications for permits necessary to support increases in production volumes at our smelter.
Power Contract
Electricity is our largest cash cost component in the production of primary aluminum and is a key factor to our long-term competitive position in the primary aluminum business. We have a power purchase agreement with Ameren pursuant to which we have agreed to purchase substantially all of New Madrid’s electricity through May 2020. Included in the contract is a minimum purchase requirement equal to five mega watts, calculated at peak and non-peak demand charges, or approximately $4.0 million over the remaining life of the contract. This minimum purchase requirement represents significantly less power usage than we require, given the power-intensive nature of our smelter facility. Our current rate structure with Ameren consists of two components: a base rate and a fuel adjustment clause ("FAC").
On September 3, 2010, Ameren filed a new rate case with the Missouri Public Service Commission ("MoPSC") seeking an 11.0% base rate increase. In July 2011, the MoPSC ruled on this rate case approving Ameren to increase its base rates, which increased our base rate by 5.2% effective July 31, 2011.

16
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

We are currently a party to the appeal of several rate-related issues, including rate increases approved by the MoPSC in May 2010 and July 2011 and the amount of cost increases related to the FAC. Despite these appeals, our unaudited consolidated financial statements reflect our payment of power costs at the enacted rates, with disputed amounts held in escrow by the Missouri Circuit Court. As of December 31, 2011, other current assets (see Note 3, "Supplemental Financial Statement Information" to our accompanying unaudited condensed consolidated financial statements) included $30.1 million, held in escrow related to these appeals, with a corresponding liability recorded in accrued liabilities. On November 7, 2011, the Missouri Court of Appeals issued a decision to uphold the MoPSC's January 2009 rate increase approval, and as a result, the escrowed funds were released to Ameren during first quarter 2012. The release of these funds did not result in any impact to our operating results, our net working capital, or our net assets. We had no disputed amounts held in escrow as of September 30, 2012.
On February 3, 2012, Ameren filed a new rate case with the MoPSC seeking a 14.6% base rate increase. As we have in previous rate cases, we expect to be an active participant in the MoPSC rate setting process. Any increase approved would be effective at the beginning of the month following the MoPSC's ruling. We expect a ruling on this request by January 3, 2013.

8.    LONG-TERM DEBT
The carrying values and fair values of our outstanding debt were as follows (in millions):
 
September 30, 2012
December 31, 2011
 
Carrying
value
Fair
value
Interest
rate
Carrying
value
Fair
value
Interest
rate
 
$
$
%
$
$
%
Senior Floating Rate Notes due 2015 ("AcquisitionCo Notes")
275.3

261.5

4.73
%
350.3

324.0

4.66
%
Term B Loan, net
321.2

321.2

5.75
%
78.2

78.2

2.05
%
Revolver
—

—

 
—

—

 
Total debt, net
596.5

 
 
428.5

 


Less: Current portion
(3.3
)
 
 
(2.4
)
 
 
Long-term debt, net
593.2

 
 
426.1

 
 
2012 Refinancing
In first quarter 2012, we refinanced our existing senior secured credit facilities and entered into the new senior secured credit facilities consisting of the 2012 Term B Loan ($325.0 million) and the 2012 Revolver (up to $250.0 million.) We also repaid the remaining $78.2 million balance of our existing term loan. We refer to this transaction as the "2012 Refinancing." We are required to repay $0.8 million of the 2012 Term B Loan quarterly.
Using proceeds from the 2012 Refinancing, in first quarter 2012, Noranda AcquisitionCo repurchased $75.0 million in aggregate principal amount of AcquisitionCo Notes ("the 2012 Tender Offer"). Noranda AcquisitionCo paid a total of $73.9 million, including fees, in connection with the 2012 Tender Offer. The 2012 Refinancing and the 2012 Tender Offer resulted in a $169.4 million increase in our outstanding indebtedness.
We recorded debt refinancing expense of $8.1 million related to the 2012 Refinancing, comprising $5.7 million of creditor fees related to the new senior secured credit facilities and $2.4 million of deferred financing fees related to the existing senior secured credit facilities.
As of September 30, 2012, we had $321.2 million outstanding under the 2012 Term B Loan, which is recorded in our accompanying unaudited consolidated balance sheet net of $2.3 million of unamortized discount. The 2012 Revolver had no outstanding balance and outstanding letters of credit totaled $36.1 million at September 30, 2012. Our borrowing base under the 2012 Revolver is equal to the lesser of (i) $250.0 million or (ii) a calculated borrowing base. The calculated borrowing base fluctuates monthly based on the value of inventory and accounts receivable, which are influenced heavily by the LME aluminum price. Because our Revolver Fixed-Charge Coverage Ratio was less than the minimum ratio required under our debt agreements as of September 30, 2012, we must maintain at least $20.0 million of available borrowing capacity under our 2012 Revolver. This restriction will be removed when the ratio meets the required threshold. Had this restriction been in effect as of September 30, 2012, our effective calculated borrowing base would have been $132.8 million.
In September 2012, Standard & Poor's downgraded our corporate credit rating to B from B+, with a stable outlook.


17
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

9.    ASSET RETIREMENT AND OTHER OBLIGATIONS
Reclamation Obligation
St. Ann has an obligation to rehabilitate land disturbed by St. Ann's Bauxite mining operations.
Our reclamation obligations activity at St. Ann follows (in millions):
 
Nine months ended September 30, 2012
 
$
Balance, beginning of period
4.6

Additional liabilities incurred
1.5

Liabilities settled
(4.0
)
Accretion
0.1

Balance, end of period
2.2

Land Obligation
In cases where land to be mined is privately owned, St. Ann acquires the right to mine either through a purchase of the land or by compensating the owner for disturbing the owner's surface rights. In the case of a purchase of the land, the consideration is typically cash and or a commitment to resettle the owner to another area ("St. Ann Land Obligation"). Additional consideration is paid for crops, homes, and other structures that may exist on the land but which may be destroyed or damaged by the mining activities.
Our St. Ann Land Obligation activity follows (in millions):
 
Nine months ended September 30, 2012
 
$
Balance, beginning of period
13.2

Additional liabilities incurred
1.6

Liabilities settled
(0.9
)
Balance, end of period
13.9

Asset Retirement Obligations
Our asset retirement obligations consist of costs related to the disposal of certain spent pot liners associated with the New Madrid smelter, as well as costs associated with the future closure and post-closure care of "red mud lakes" at the Gramercy facility, where Gramercy disposes of wastes from its refining process. Asset retirement obligations are estimated based on cash flows discounted at a credit-adjusted risk-free rate.
Our asset retirement obligations activity follows (in millions):
 
Nine months ended September 30, 2012
 
$
Balance, beginning of period
15.7

Additional liabilities incurred
0.9

Liabilities settled
(1.5
)
Accretion
0.6

Balance, end of period
15.7

As of September 30, 2012 and December 31, 2011, we had $9.2 million of restricted cash in an escrow account as security for the payment of red mud lake closure obligations that will arise under state environmental laws if we were to cease operations at the Gramercy facility. This amount is included in other assets in the accompanying unaudited consolidated balance sheets. The remaining restricted cash in other assets relates primarily to funds for workers’ compensation claims.
Environmental Remediation Obligations
In addition to our asset retirement obligations, we have identified certain environmental conditions requiring remedial action or ongoing monitoring at the Gramercy refinery. As of September 30, 2012 and December 31, 2011, we had undiscounted liabilities of $1.8 million and $1.9 million, respectively, in accrued liabilities and $2.2 million, in other long-term liabilities at each period end, for remediation of Gramercy’s known environmental conditions. Approximately $0.8 million of the recorded liability represents monitoring

18
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

costs which will be incurred ratably over a 30 year period. The remainder is related to clean-up costs expected to be incurred between 2012 and 2014. These estimates are subject to change based on cost. No other responsible parties are involved in any ongoing environmental remediation activities.

10.    PENSIONS AND OTHER POST-RETIREMENT BENEFITS
We sponsor defined benefit pension plans for hourly and salaried employees. Benefits under our sponsored defined benefit plans are based on years of service and/or eligible compensation prior to retirement. We also sponsor OPEB plans for certain employees. These benefits include life and health insurance. In addition, we provide supplemental executive retirement benefits for certain executive officers.
On September 7, 2012, we ratified a new labor contract with the USWA at our New Madrid smelter, which includes changes to pension benefits for approximately 80% of our New Madrid workforce. The increase in benefits increased our pension liability and our unrecognized pension loss in accumulated other comprehensive income by $16.7 million (pre-tax), which we recorded during third quarter 2012. Net periodic cost for the three and nine months ended September 30, 2012 increased $0.1 million as a result of the increase in pension benefits.
Net periodic benefit costs related to the pension plans included the following (in millions):
 
Noranda Pension Plans
St. Ann Pension Plans
 
Three months ended September 30,
Three months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
3.4

2.7

0.2

0.2

Interest cost
4.5

4.5

0.4

0.4

Expected return on plan assets
(4.7
)
(4.9
)
(0.6
)
(0.5
)
Recognized actuarial loss
2.8

1.3

—

—

Amortization of prior service cost
0.1

0.1

—

—

Net periodic cost
6.1

3.7

—

0.1

 
Noranda Pension Plans
St. Ann Pension Plans
 
Nine months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
10.0

7.9

0.6

0.5

Interest cost
13.4

13.7

1.2

1.1

Expected return on plan assets
(14.2
)
(14.7
)
(1.7
)
(1.4
)
Recognized actuarial loss
8.3

3.9

—

—

Amortization of prior service cost
0.3

0.3

—

0.1

Net periodic cost
17.8

11.1

0.1

0.3

Net periodic benefit costs related to the OPEB plans included the following (in millions):
 
Noranda OPEB Plans
St. Ann OPEB Plans
 
Three months ended September 30,
Three months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
0.1

0.1

0.1

0.1

Interest cost
0.2

0.1

0.1

0.2

Recognized actuarial loss
—

—

—

0.1

Net periodic cost
0.3

0.2

0.2

0.4


19
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Noranda OPEB Plans
St. Ann OPEB Plans
 
Nine months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
0.3

0.3

0.3

0.3

Interest cost
0.5

0.3

0.3

0.6

Recognized actuarial loss
—

—

—

0.2

Net periodic cost
0.8

0.6

0.6

1.1

Expected Employer Contributions
We contributed $22.8 million and $0.5 million to the Noranda Pension Plans and the St. Ann Pension Plans, respectively, during the nine months ended September 30, 2012. We anticipate making approximately $4.8 million of pension funding payments in fourth quarter 2012.

11.    DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative instruments to mitigate the risks associated with fluctuations in aluminum prices, natural gas prices and interest rates. All derivatives are held for purposes other than trading.
Fixed price aluminum swaps. In 2007 and 2008, we implemented a hedging strategy designed to reduce commodity price risk and protect operating cash flows in the Primary Aluminum segment through the use of fixed price aluminum sale swaps. In addition, during first quarter 2009, we entered into fixed price aluminum purchase swaps to lock in a portion of the favorable market position of our fixed price aluminum sale swaps. In March 2009, we entered into a hedge settlement agreement with Merrill Lynch to provide a mechanism for us to monetize our favorable net fixed price swap positions to fund debt repurchases, subject to certain limitations.
In May 2010, we settled all of our remaining fixed price aluminum swaps and used the proceeds to repay indebtedness. As of September 30, 2012, we had no outstanding fixed price aluminum swaps.
Fixed-price customer arrangements. From time to time, we enter into forward contracts with our customers to sell aluminum in the future at fixed prices in the normal course of business. Prior to fourth quarter 2011, we made a determination under ASC 815-10-15 "Derivatives and Hedging" to elect normal sale accounting on our sales contracts. Beginning in fourth quarter 2011, we began not to elect normal sale accounting on certain of these customer contracts and began to record those contracts as derivatives ("fixed-price aluminum customer contracts"). Because these fixed-price customer contracts expose us to aluminum market price fluctuations, we economically hedge this risk by entering into variable price aluminum swap contracts ("variable-price aluminum offset swaps") with various brokers, typically for terms less than one year.
As of September 30, 2012, our outstanding fixed-price aluminum customer contracts were as follows:
 
Average hedged price per pound
Pounds hedged
Year
$
(in millions)
2012
1.04

17.3

2013
1.06

42.3

As of September 30, 2012, our outstanding variable-price aluminum offset swaps were as follows:
 
Average hedged price per pound
Pounds hedged
Year
$
(in millions)
2012
0.96

22.7

2013
0.95

46.5

Natural gas swaps. We purchase natural gas to meet our production requirements. These purchases expose us to the risk of fluctuating natural gas prices. To offset changes in the Henry Hub Index Price of natural gas, we enter into financial swaps, by purchasing the fixed forward price for the Henry Hub Index and simultaneously entering into an agreement to sell the actual Henry Hub Index Price.

20
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

As of September 30, 2012, our outstanding natural gas swaps were as follows:
 
Average price per million BTUs
 BTUs hedged
Year
$
(in millions)
2012
7.46

2.0

Fixed-price natural gas contract. In March 2012, we exercised a provision in the natural gas supply contract for our alumina refinery to set fixed prices for 7.7 million BTUs of the refinery's anticipated natural gas usage in the period from April through October 2012. In May 2012, we set fixed prices for an additional 3.0 million BTUs for the remaining anticipated usage through December 2012. We record these contracts as derivatives, based on the fair value of the Henry Hub Index. As of September 30, 2012, 3.6 million BTUs remain economically hedged.
We recognize all derivative instruments as either assets or liabilities at their estimated fair value in our accompanying unaudited consolidated balance sheets. The following table presents the carrying values, which were recorded at fair value, of our derivative instruments outstanding (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Fixed-price aluminum customer contracts
(1.9
)
2.0

Variable-price aluminum offset swaps and other
2.3

(7.5
)
Natural gas swaps
(8.3
)
(33.5
)
Natural gas fixed-price contract
0.8

—

Total
(7.1
)
(39.0
)
Merrill Lynch is the counterparty for a substantial portion of our derivatives. All swap arrangements with Merrill Lynch are part of a master arrangement which is subject to the same guarantee and security provisions as our senior secured credit facilities. The master arrangement does not require us to post additional collateral, or cash margin. We present the fair values of derivatives where Merrill Lynch is the counterparty in a net position on the consolidated balance sheets as a result of our master netting agreement. The following is a presentation of the gross components of our net derivative balances (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Current derivative assets
5.5

2.5

Current derivative liabilities
(12.7
)
(41.4
)
Current derivative assets (liabilities), net
(7.2
)
(38.9
)
Long-term derivative assets
0.5

—

Long-term derivative liabilities
(0.4
)
(0.1
)
Long-term derivative assets (liabilities), net
0.1

(0.1
)
The following is a gross presentation of the derivative balances segregated by type of contract and between derivatives that are designated and qualify for hedge accounting and those that are not (in millions):
 
September 30, 2012
December 31, 2011
 
Derivatives that qualify for hedge accounting
Derivatives that do not qualify
for hedge accounting
Derivatives that qualify for hedge accounting
Derivatives that do not qualify
for hedge accounting
 
Asset
Liability
Asset
Liability
Asset
Liability
Asset
Liability
Fixed-price aluminum customer contracts
—

—

0.9

(2.8
)
—

—

2.0

—

Variable-price aluminum offset swaps and other
—

—

4.3

(2.0
)
—

—

0.5

(8.0
)
Natural gas swaps
—

—

—

(8.3
)
—

(21.9
)
—

(11.6
)
Natural gas fixed-price contract
—

—

0.8

—

—

—

—

—

Total
—

—

6.0

(13.1
)
—

(21.9
)
2.5

(19.6
)
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of any gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

21
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

•
Fixed-price aluminum swaps. From January 1, 2008 to January 29, 2009, fixed price aluminum-swaps were designated and qualified as cash flow hedges. As a result of the New Madrid power outage in January 2009, we concluded that certain hedged sale transactions were no longer probable of occurring, and we discontinued hedge accounting for all our aluminum fixed price sale swaps on January 29, 2009. At that date, amounts were frozen in AOCI until such time as they are reclassified into earnings in the period the hedged sales occur, or until it is determined that the original forecasted sales are probable of not occurring. During third quarter 2012, we determined that certain of the forecasted sales transactions were no longer probable of occurring and as a result, we reclassified $2.6 million of gains into earnings, which is reflected in Gain on Hedging Activities for the three and nine months ended September 30, 2012.
•
Natural gas swaps. We entered into certain natural gas contracts during the fourth quarter of 2009 that qualified for and were designated as cash flow hedges based on a portion of estimated consumption of natural gas. As a result of entering into the fixed-price natural gas contract discussed above, we discontinued hedge accounting for those swaps covered under that contract. As a result, during March 2012 and May 2012, amounts were frozen in AOCI and will be reclassified into earnings in the period the hedged transactions occur.
The following table presents the net amount of unrealized gains (losses) on cash flow hedges as of September 30, 2012 that were reported as a component of AOCI and are expected to be reclassified into earnings during the next twelve months (in millions):
 
 
Net unrealized gains (losses) on cash flow hedges, pre-tax, in AOCI
 
 
 
 
$
 
Fixed-price aluminum swaps
32.2

 
Natural gas swaps
(5.9
)
 
Total
26.3

Gains and losses on the derivatives representing hedge ineffectiveness are recognized in current earnings, along with amounts that are reclassified from AOCI; however, these amounts were not material for the periods presented. Derivatives that do not qualify for hedge accounting or have not been designated for hedge accounting treatment are adjusted to fair value through earnings in gains (losses) on hedging activities in the unaudited consolidated statements of operations.

22
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

The following table presents how our hedging activities affected our unaudited consolidated statements of operations for each period (in millions):
 
Derivatives qualified as hedges
Derivatives not
qualified as hedges
 
 
Amount reclassified from AOCI
Change in fair value
Total (gain) loss on hedging activities
 
$
$
$
Three months ended September 30, 2011:
 
 
 
Fixed-price aluminum swaps
(30.7
)
—

(30.7
)
Variable-price aluminum offset swaps and other
—

6.0

6.0

Natural gas swaps
3.6

1.6

5.2

Total
(27.1
)
7.6

(19.5
)
Three months ended September 30, 2012:
 
 
 
Fixed-price aluminum swaps
(31.7
)
—

(31.7
)
Fixed-price aluminum customer contracts
—

7.1

7.1

Variable-price aluminum offset swaps and other
—

(6.3
)
(6.3
)
Natural gas swaps
6.4

(0.3
)
6.1

Natural gas fixed-price contract
—

(0.6
)
(0.6
)
Total
(25.3
)
(0.1
)
(25.4
)
 
 
 
 
Nine months ended September 30, 2011:
 
 
 
Fixed-price aluminum swaps
(84.1
)
—

(84.1
)
Variable-price aluminum offset swaps and other
—

4.9

4.9

Natural gas swaps
10.6

2.9

13.5

Interest rate swaps
—

0.1

0.1

Total
(73.5
)
7.9

(65.6
)
Nine months ended September 30, 2012:
 
 
 
Fixed-price aluminum swaps
(83.9
)
—

(83.9
)
Fixed-price aluminum customer contracts
—

3.9

3.9

Variable-price aluminum offset swaps and other
—

(2.2
)
(2.2
)
Natural gas swaps
19.6

0.9

20.5

Natural gas fixed-price contract
—

(0.8
)
(0.8
)
Total
(64.3
)
1.8

(62.5
)

12.    SHAREHOLDERS' EQUITY
Dividends declared and paid during the nine months ended September 30, 2012 were as follows:
Declaration date
Per share dividend amount
Date paid
Total cash payment

$/share

$ in millions
February 15, 2012
0.04
March 21, 2012
2.6

February 29, 2012
1.25
March 19, 2012
84.3

April 24, 2012
0.04
May 30, 2012
2.6

July 24, 2012
0.04
August 29, 2012
2.7

On October 24, 2012, the Board declared a regular quarterly dividend of $0.04 per share to be paid on November 28, 2012 to shareholders of record as of November 5, 2012. Cash payments related to this dividend will total approximately $2.7 million.


23
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

13.    SHARE-BASED PAYMENTS
We recorded stock compensation expense as follows (in millions):
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Stock options
0.1

0.3

0.4

2.3

Restricted stock and restricted stock unit equity awards
0.8

0.6

3.3

1.6

Restricted stock unit liability awards
—

—

0.2

0.5

Total stock compensation expense
0.9

0.9

3.9

4.4

Share-based payment awards held by employee and non-employee directors include stock options, restricted stock, and restricted stock units ("RSUs"). Restricted stock and RSU awards have either service-vesting and/or performance-vesting requirements. We account for RSUs granted to the investor director provider group, which consists of the five full-time employees of our principal shareholders affiliated with Apollo Management VI ("Apollo") who serve on our board of directors, as liability awards.
During first quarter 2012, in respect of the supplemental dividend of $1.25 discussed in Note 12, "Shareholders' Equity", holders of stock options and of service-vesting restricted stock and RSUs received $1.25 for each share underlying such awards. We accelerated $1.2 million of stock compensation expense in connection with this payment. Holders of performance-vesting restricted stock and RSUs were granted additional performance-vesting restricted stock or RSUs, as applicable, with respect to the $1.25 per share supplemental dividend. The number of additional shares or units was computed by dividing the amount of the dividend the award holder would have received for a number of shares of our common stock equal to the number subject to the applicable award divided by the fair market value of a share of our common stock on the last trading day before the dividend payment date. These additional shares or units are subject to the same vesting conditions as the underlying awards. Generally, holders of service-vesting and performance-vesting restricted stock and RSUs were granted additional shares or units, with respect to the $0.04 per share regular quarterly dividends in the first, second and third quarters of 2012. The number of additional shares or units was computed by dividing the amount of dividend the award holder would have received had the holder owned a number of shares equal to the number subject to the applicable award by the fair market value of a share of our common stock on the last trading day before the date of the dividend payment. These additional shares or units are subject to the same vesting conditions as the underlying award.
As of September 30, 2012, total unrecognized stock compensation expense related to share-based payment awards was $5.6 million. We will recognize this amount over a weighted-average period of 1.5 years. We have not yet recognized stock compensation expense for performance-vesting restricted stock or RSUs because the performance conditions had not been determined as of September 30, 2012. Outstanding share-based payment awards include dividend equivalent units issued to restricted stock and RSU holders in connection with dividend payments to shareholders.
Our stock option activity was as follows:
 
Employee options and non-employee
director options
Investor director provider options
 
Common
shares
Weighted-average
exercise price
Intrinsic value (in millions)
Common
shares
Weighted-average
exercise price
Intrinsic value (in millions)
 
 
$
$
 
$
$
Outstanding, December 31, 2011
1,637,431

1.81

13.4

140,000

9.00

—

Exercised
(309,442
)
1.89

1.9

—

—

 
Outstanding, September 30, 2012
1,327,989

1.90

6.5

140,000

9.00

—

Fully vested and exercisable, September 30, 2012 (weighted-average remaining contractual term of 4.8 years and 5.1 years, respectively)
935,158

2.11

4.4

140,000

9.00

—

Options that were not in-the-money at December 31, 2011 and September 30, 2012, and therefore have a negative intrinsic value, have been excluded from intrinsic value calculations.

24
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

Restricted stock and RSU equity award activity was as follows:
 
Service-vesting restricted stock and RSUs
Performance-vesting restricted stock and RSUs
 
Awards
Weighted-average grant
date fair value
Awards (target)
 
#
$
#
Non-vested, December 31, 2011
479,465

13.66

260,866

Granted
407,760

11.75

462,053

Dividend equivalent units granted
11,466

7.94

97,321

Vested (aggregate intrinsic value of $1.5 million)
(126,928
)
14.19

—

Forfeited
(12,094
)
13.67

(4,758
)
Non-vested, September 30, 2012 (aggregate intrinsic value of $10.5 million)
759,669

12.46

815,482

We determine grant date fair value of service-vesting restricted stock and RSUs based on the closing price of our common stock on the grant date. We estimate a forfeiture rate for share-based payment awards based on historical forfeiture rates of similar awards, which was 7% for restricted stock and RSUs granted to employees during 2012. We expect all share-based payment awards granted to executives and directors to vest. Service-vesting restricted stock and RSUs will generally vest over three years, on the anniversary of the grant date, in the following increments: 25% on the first anniversary, 25% on the second anniversary and 50% on the third anniversary. A grant date had not been determined for performance-vesting awards as of September 30, 2012, because the performance conditions had not yet been determined.
As of September 30, 2012 and December 31, 2011, our accrued liabilities in the accompanying unaudited consolidated balance sheets included $0.1 million and $0.2 million related to RSU liability awards.
RSU liability award activity was as follows:
 
RSUs
 
#
Non-vested, December 31, 2011
34,148

Granted
25,000

Dividend equivalent units granted
457

Vested
(34,442
)
Non-vested, September 30, 2012
25,163


14.    NET INCOME PER COMMON SHARE
Basic and diluted net income per common share ("EPS") were calculated as follows (in millions, except per share):
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
Net income
$
3.8

$
30.8

$
45.3

$
116.5

Weighted-average common shares outstanding:
 
 
 
 
Basic
67.68

67.23

67.49

67.00

Effect of dilutive securities
1.44

1.26

1.61

1.32

Diluted
69.12

68.49

69.10

68.32

Net income per common share:
 
 
 
 
Basic
$
0.06

$
0.46

$
0.67

$
1.74

Diluted
$
0.05

$
0.45

$
0.66

$
1.71


25
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

Certain share-based payment awards whose terms and conditions are described in Note 13 "Share-Based Payments" could potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been antidilutive. Those antidilutive securities were as follows (in millions):
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
Antidilutive securities
0.68

—

0.50

—


15.    INCOME TAXES
Our effective income tax rate was approximately 33.3% for the third quarter 2012 and was 17.9% for the third quarter 2011. The effective tax rate for both periods was impacted by state income taxes, the Internal Revenue Code Section 199 manufacturing deduction, and accrued interest related to unrecognized tax benefits. The effective income tax rate for third quarter 2011 was impacted by the release of a portion of our reserve for uncertain tax positions which reduced third quarter 2011 income tax expense.
Our effective income tax rate was approximately 33.4% for the nine months ended September 30, 2012 and was 30.0% for the nine months ended September 30, 2011. The effective tax rate for both periods was primarily impacted by state income taxes, the Internal Revenue Code Section 199 manufacturing deduction, and accrued interest related to unrecognized tax benefits.

16.    RELATED PARTY TRANSACTIONS
We sell flat-rolled products to two customers that are affiliated with Apollo. Sales to these companies were as follows (in millions):
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Berry Plastics Corporation
2.5

2.1

7.1

7.1

Metals USA Holdings Corp.
3.4

4.2

9.1

11.5

Accounts receivable from these related parties were as follows (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Berry Plastics Corporation
0.7

0.4

Metals USA Holdings Corp.
1.2

3.7

In connection with the 2012 Refinancing, we paid $0.7 million in fees to Apollo Global Securities, LLC, an affiliate of Apollo that participated in the arrangement and structuring of the 2012 Refinancing.

17.    NON-CONTROLLING INTEREST
Through St. Ann, we hold a 49% partnership interest in Noranda Jamaica Bauxite Partners ("NJBP"), in which the GOJ holds a 51% interest. NJBP mines bauxite, approximately 50% of which was sold to Gramercy during 2011, with the remaining majority sold to Sherwin Alumina Company.
Under an establishment agreement between our subsidiary, Noranda Bauxite Limited ("NBL"), and the GOJ, NBL committed to make certain expenditures for haulroad development, maintenance, dredging, land purchases, contract mining, training and other general capital expenditures from 2009 through 2014. If we do not meet our commitment to the GOJ regarding these expenditures, we would owe to the GOJ a penalty that could be material to our consolidated financial statements. We believe there is a remote possibility that we will not meet the commitment.
We have determined that NJBP is a variable interest entity under U.S. GAAP, and St. Ann is NJBP’s primary beneficiary. The determination that St. Ann is the primary beneficiary was based on the fact that St. Ann absorbs the profits and losses associated with the partnership, while the GOJ receives certain fees from St. Ann (royalties, production and asset usage fees, etc.). We consolidate NJBP into our consolidated financial statements as follows (in millions):

26
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
September 30, 2012
December 31, 2011
 
NJBP
balances
Impact of
Eliminations
Impact on
consolidated
statements
NJBP
balances
Impact of
Eliminations
Impact on
consolidated
statements
 
$
$
$
$
$
$
Cash and cash equivalents
0.4

—

0.4

1.9

—

1.9

Accounts receivable, net
12.6

(12.6
)
—

11.2

(11.2
)
—

Inventories, net (consisting of maintenance supplies, inventory and fuel)
14.1

—

14.1

12.0

—

12.0

Other current assets
2.5

—

2.5

2.1

—

2.1

Property, plant and equipment, net
40.1

—

40.1

38.4

—

38.4

Other assets
4.5

—

4.5

5.2

—

5.2

Accounts payable
(56.5
)
45.8

(10.7
)
(50.1
)
42.8

(7.3
)
Accrued liabilities
(3.7
)
—

(3.7
)
(4.3
)
—

(4.3
)
Environmental, land and reclamation liabilities
(2.2
)
—

(2.2
)
(4.6
)
—

(4.6
)
Non-controlling interest
(6.0
)
—

(6.0
)
(6.0
)
—

(6.0
)
NBP’s net investment and advances to NJBP
5.8

33.2

39.0

5.8

31.6

37.4


18.    SUBSIDIARY ISSUER OF GUARANTEED NOTES
The AcquisitionCo Notes are fully and unconditionally guaranteed on a senior unsecured, joint and several basis by the existing and future wholly owned domestic subsidiaries of Noranda AcquisitionCo that guarantee the senior secured credit facilities. NHB and St. Ann are not guarantors of the senior secured credit facilities and, are not guarantors of the AcquisitionCo Notes. Noranda HoldCo fully and unconditionally guarantees the AcquisitionCo Notes on a joint and several basis with the subsidiary guarantors. The guarantee by Noranda HoldCo is not required by the indenture governing the AcquisitionCo Notes and may be released by Noranda HoldCo at any time. Noranda HoldCo has no independent operations or any assets other than its interest in Noranda AcquisitionCo. Noranda AcquisitionCo is a wholly owned finance subsidiary of Noranda HoldCo with no operations independent of its subsidiaries.
The following unaudited condensed consolidating financial statements present separately the financial condition and results of operations and cash flows for Noranda HoldCo (as parent guarantor), Noranda AcquisitionCo (as the issuer), the subsidiary guarantors, the subsidiary non-guarantors and eliminations ("the guarantor financial statements"). The guarantor financial statements have been prepared and presented in accordance with SEC Regulation S-X Rule 3-10 "Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered."
The accounting policies used in the preparation of the guarantor financial statements are consistent with those found elsewhere in the accompanying unaudited consolidated financial statements. Intercompany transactions have been presented gross in the guarantor financial statements; however these transactions eliminate in consolidation.
We have reduced the amount for other intangible assets in the Subsidiary guarantors' column by $6.0 million in the following unaudited consolidating balance sheet as of December 31, 2011 to reclassify an intercompany elimination among subsidiary guarantors which had been incorrectly included within the Eliminations column.

27
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
Consolidating Balance Sheet
September 30, 2012
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
0.8

29.9

1.3

1.9

—

33.9

Accounts receivable, net:












Trade
—

—

118.6

4.2

—

122.8

Affiliates
22.1

11.9

1.6

20.7

(56.3
)
—

Inventories, net
—

—

177.0

27.6

(1.7
)
202.9

Taxes receivable
7.8

—

0.8

(0.3
)
—

8.3

Prepaid expenses
0.2

—

10.9

8.4

—

19.5

Other current assets
—

—

5.4

6.9

—

12.3

Total current assets
30.9

41.8

315.6

69.4

(58.0
)
399.7

Investments in affiliates
353.4

1,508.0

—

—

(1,861.4
)
—

Advances due from affiliates
—

119.8

669.1

63.5

(852.4
)
—

Property, plant and equipment, net
—

—

632.5

60.6

—

693.1

Goodwill
—

—

137.6

—

—

137.6

Other intangible assets, net
—

—

62.7

—

—

62.7

Other assets
—

10.0

55.4

21.2

—

86.6

Total assets
384.3

1,679.6

1,872.9

214.7

(2,771.8
)
1,379.7

LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable:
 
 
 
 
 
 
Trade
—

0.1

94.8

11.0

—

105.9

Affiliates
—

22.1

20.7

13.5

(56.3
)
—

Accrued liabilities
0.1

5.4

32.4

21.4

—

59.3

Derivative liabilities, net
—

—

10.4

—

—

10.4

Deferred tax liabilities
0.4

2.1

3.7

—

—

6.2

Current portion of long-term debt
—

3.3

—

—

—

3.3

Total current liabilities
0.5

33.0

162.0

45.9

(56.3
)
185.1

Long-term debt, net
—

593.2

—

—

—

593.2

Long-term derivative liabilities, net
—

—

0.4

—

—

0.4

Pension and other "OPEB" liabilities
—

—

171.3

7.8

—

179.1

Other long-term liabilities
—

(0.1
)
37.3

10.8

—

48.0

Advances due to affiliates
183.6

668.8

—

—

(852.4
)
—

Long-term deferred tax liabilities
39.2

31.3

134.6

3.5

(1.7
)
206.9

Common stock subject to redemption
2.0

—

—

—

—

2.0

Shareholders’ equity:
 
 
 
 
 
 
Preferred stock
—

—

—

—

—

—

Common stock
0.7

—

—

—

—

0.7

Capital in excess of par value
232.5

352.1

1,199.7

83.7

(1,635.5
)
232.5

Retained earnings (accumulated deficit)
16.5

92.0

255.7

59.6

(407.3
)
16.5

Accumulated other comprehensive income (loss)
(90.7
)
(90.7
)
(88.1
)
(2.6
)
181.4

(90.7
)
Total shareholders' equity
159.0

353.4

1,367.3

140.7

(1,861.4
)
159.0

Non-controlling interest
—

—

—

6.0

—

6.0

Total equity
159.0

353.4

1,367.3

146.7

(1,861.4
)
165.0

Total liabilities and equity
384.3

1,679.6

1,872.9

214.7

(2,771.8
)
1,379.7


28
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
Consolidating Balance Sheet
December 31, 2011
(in millions)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
3.3

31.3

3.3

4.8

—

42.7

Accounts receivable, net:
 
 
 
 
 
 
Trade
—

—

102.5

5.1

—

107.6

Affiliates
21.7

11.9

0.7

21.6

(55.9
)
—

Inventories, net
—

—

163.5

24.3

(1.3
)
186.5

Prepaid expenses
0.2

—

6.4

6.7

—

13.3

Other current assets
—

—

33.2

8.1

—

41.3

Total current assets
25.2

43.2

309.6

70.6

(57.2
)
391.4

Investments in affiliates
422.3

1,451.5

—

—

(1,873.8
)
—

Advances due from affiliates
—

91.9

682.5

63.4

(837.8
)
—

Property, plant and equipment, net
—

—

642.5

57.3

—

699.8

Goodwill
—

—

137.6

—

—

137.6

Other intangible assets, net
—

—

67.1

—

—

67.1

Other assets
—

8.1

53.0

20.5

—

81.6

Total assets
447.5

1,594.7

1,892.3

211.8

(2,768.8
)
1,377.5

LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable:
 
 
 
 
 
 
Trade
—

—

88.3

7.6

—

95.9

Affiliates
—

21.7

21.6

12.6

(55.9
)
—

Accrued liabilities
0.2

2.4

63.4

21.3

—

87.3

Taxes payable
1.7

—

0.6

0.3

—

2.6

Derivative liabilities net
—

—

40.9

—

—

40.9

Deferred tax liabilities
0.1

—

35.8

—

—

35.9

Current portion of long-term debt
—

2.4

—

—

—

2.4

Total current liabilities
2.0

26.5

250.6

41.8

(55.9
)
265.0

Long-term debt
—

426.1

—

—

—

426.1

Long-term derivative liabilities, net
—

—

0.1

—

—

0.1

Pension and other "OPEB" liabilities
—

—

168.3

7.4

—

175.7

Other long-term liabilities
—

0.1

35.3

10.8

—

46.2

Advances due to affiliates
152.2

685.6

—

—

(837.8
)
—

Long-term deferred tax liabilities
37.7

34.1

128.8

3.5

(1.3
)
202.8

Common stock subject to redemption
2.0

—

—

—

—

2.0

Shareholders’ equity:
 
 
 
 
 
 
Preferred stock
—

—

—

—

—

—

Common stock
0.7

—

—

—

—

0.7

Capital in excess of par value
231.9

352.1

1,199.7

83.7

(1,635.5
)
231.9

Retained earnings (accumulated deficit)
63.4

112.6

149.3

61.2

(323.1
)
63.4

Accumulated other comprehensive income (loss)
(42.4
)
(42.4
)
(39.8
)
(2.6
)
84.8

(42.4
)
Total shareholders’ equity
253.6

422.3

1,309.2

142.3

(1,873.8
)
253.6

Non-controlling interest
—

—

—

6.0

—

6.0

Total equity
253.6

422.3

1,309.2

148.3

(1,873.8
)
259.6

Total liabilities and equity
447.5

1,594.7

1,892.3

211.8

(2,768.8
)
1,377.5


29
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
Consolidating Statement of Operations
Three months ended September 30, 2012
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
Sales
—

—

323.2

33.6

(20.0
)
336.8

Operating costs and expenses:
 
 
 
 
 
 
Cost of sales
—

—

311.0

32.3

(20.0
)
323.3

Selling, general and administrative expenses
1.3

0.1

19.9

3.0

—

24.3

Total operating costs and expenses
1.3

0.1

330.9

35.3

(20.0
)
347.6

Operating loss
(1.3
)
(0.1
)
(7.7
)
(1.7
)
—

(10.8
)
Other (income) expense:
 
 
 
 
 
 
Interest expense (income), net
(0.1
)
9.1

(0.1
)
—

—

8.9

Gain on hedging activities, net
—

—

(25.4
)
—

—

(25.4
)
Total other (income) expense, net
(0.1
)
9.1

(25.5
)
—

—

(16.5
)
Income (loss) before income taxes
(1.2
)
(9.2
)
17.8

(1.7
)
—

5.7

Income tax (benefit) expense
(0.4
)
(3.0
)
5.9

(0.6
)
—

1.9

Equity in net income (loss) of subsidiaries
4.6

10.8

—

—

(15.4
)
—

Net income (loss)
3.8

4.6

11.9

(1.1
)
(15.4
)
3.8

Other comprehensive income (loss)
(24.9
)
(24.9
)
(24.9
)
—

49.8

(24.9
)
Total comprehensive income (loss)
(21.1
)
(20.3
)
(13.0
)
(1.1
)
34.4

(21.1
)

NORANDA ALUMINUM HOLDING CORPORATION
Consolidating Statement of Operations
Three months ended September 30, 2011
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
Sales
—

—

383.0

40.9

(23.5
)
400.4

Operating costs and expenses:
 
 
 
 
 
 
Cost of sales
—

—

340.1

33.8

(23.5
)
350.4

Selling, general and administrative expenses
1.2

—

22.0

3.6

—

26.8

Total operating costs and expenses
1.2

—

362.1

37.4

(23.5
)
377.2

Operating income (loss)
(1.2
)
—

20.9

3.5

—

23.2

Other (income) expense:
 
 
 
 
 
 
Interest expense (income), net
(0.1
)
5.2

0.1

—

—

5.2

Gain on hedging activities, net
—

—

(19.5
)
—

—

(19.5
)
Total other (income) expense, net
(0.1
)
5.2

(19.4
)
—

—

(14.3
)
Income (loss) before income taxes
(1.1
)
(5.2
)
40.3

3.5

—

37.5

Income tax (benefit) expense
(0.2
)
(1.7
)
7.4

1.2

—

6.7

Equity in net income of subsidiaries
31.7

35.2

—

—

(66.9
)
—

Net income
30.8

31.7

32.9

2.3

(66.9
)
30.8

Other comprehensive income (loss)
(20.3
)
(20.3
)
(20.3
)
—

40.6

(20.3
)
Total comprehensive income (loss)
10.5

11.4

12.6

2.3

(26.3
)
10.5


30
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
Consolidating Statement of Operations
Nine months ended September 30, 2012
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
Sales
—

—

1,024.7

99.1

(61.8
)
1,062.0

Operating costs and expenses:
 
 
 
 
 

Cost of sales
—

—

929.0

92.2

(61.8
)
959.4

Selling, general and administrative expenses
5.1

0.8

49.6

9.3

—

64.8

Total operating costs and expenses
5.1

0.8

978.6

101.5

(61.8
)
1,024.2

Operating income (loss)
(5.1
)
(0.8
)
46.1

(2.4
)
—

37.8

Other (income) expense:
 
 
 
 
 
 
Interest expense (income), net
(0.3
)
24.5

—

—

—

24.2

Gain on hedging activities, net
—

—

(62.5
)
—

—

(62.5
)
Debt refinancing expense
—

8.1

—

—

—

8.1

Total other (income) expense, net
(0.3
)
32.6

(62.5
)
—

—

(30.2
)
Income (loss) before income taxes
(4.8
)
(33.4
)
108.6

(2.4
)
—

68.0

Income tax (benefit) expense
(1.5
)
(11.2
)
36.2

(0.8
)
—

22.7

Equity in net income (loss) of subsidiaries
48.6

70.8

—

—

(119.4
)
—

Net income (loss)
45.3

48.6

72.4

(1.6
)
(119.4
)
45.3

Other comprehensive income (loss)
(48.3
)
(48.3
)
(48.3
)
—

96.6

(48.3
)
Total comprehensive income (loss)
(3.0
)
0.3

24.1

(1.6
)
(22.8
)
(3.0
)

NORANDA ALUMINUM HOLDING CORPORATION
Consolidating Statement of Operations
Nine months ended September 30, 2011
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
Sales
—

—

1,169.4

115.3

(63.4
)
1,221.3

Operating costs and expenses:
 
 
 
 
 
 
Cost of sales
—

—

1,001.9

93.3

(63.4
)
1,031.8

Selling, general and administrative expenses
5.5

0.3

56.4

10.1

—

72.3

Total operating costs and expenses
5.5

0.3

1,058.3

103.4

(63.4
)
1,104.1

Operating income (loss)
(5.5
)
(0.3
)
111.1

11.9

—

117.2

Other (income) expense:
 
 
 
 
 
 
Interest expense (income), net
(0.3
)
16.6

0.1

—

—

16.4

Gain on hedging activities, net
—

—

(65.6
)
—

—

(65.6
)
Total other (income) expense, net
(0.3
)
16.6

(65.5
)
—

—

(49.2
)
Income (loss) before income taxes
(5.2
)
(16.9
)
176.6

11.9

—

166.4

Income tax (benefit) expense
(1.3
)
(5.6
)
52.8

4.0

—

49.9

Equity in net income of subsidiaries
120.4

131.7

—

—

(252.1
)
—

Net income
116.5

120.4

123.8

7.9

(252.1
)
116.5

Other comprehensive income (loss)
(51.6
)
(51.6
)
(51.6
)
—

103.2

(51.6
)
Total comprehensive income (loss)
64.9

68.8

72.2

7.9

(148.9
)
64.9


31
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2012
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
OPERATING ACTIVITIES
 
 
 
 
 
 
Cash provided by (used in) operating activities
—

(63.9
)
46.4

3.7

—

(13.8
)
INVESTING ACTIVITIES












Capital expenditures
—

—

(53.2
)
(6.6
)
—

(59.8
)
Proceeds from sale of property, plant and equipment
—

—

4.8

—

—

4.8

Cash used in investing activities
—

—

(48.4
)
(6.6
)
—

(55.0
)
FINANCING ACTIVITIES
 
 
 
 
 


Proceeds from issuance of common shares, equity offerings
0.5

—

—

—

—

0.5

Dividends paid to shareholders
(92.2
)
—

—

—

—

(92.2
)
Distributions paid to share-based award holders
(3.1
)
—

—

—

—

(3.1
)
Repurchase of shares
(0.4
)
—

—

—

—

(0.4
)
Repayments of long-term debt
—

(154.8
)
—

—

—

(154.8
)
Borrowings on long-term debt, net
—

322.6

—

—

—

322.6

Payments of financing costs
—

(12.6
)
—

—

—

(12.6
)
Distribution (to parent) from subsidiary
92.7

(92.7
)
—

—

—

—

Cash provided by (used in) financing activities
(2.5
)
62.5

—

—

—

60.0

Change in cash and cash equivalents
(2.5
)
(1.4
)
(2.0
)
(2.9
)
—

(8.8
)
Cash and cash equivalents, beginning of period
3.3

31.3

3.3

4.8

—

42.7

Cash and cash equivalents, end of period
0.8

29.9

1.3

1.9

—

33.9


32
NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2011
(in millions)
(unaudited)
 
Parent guarantor (Noranda HoldCo)
Issuer (Noranda AcquisitionCo)
Subsidiary guarantors
Subsidiary non-guarantors
Eliminations
Consolidated
 
$
$
$
$
$
$
OPERATING ACTIVITIES
 
 
 
 
 
 
Cash provided by (used in) operating activities
(1.9
)
65.5

38.0

8.7

—

110.3

INVESTING ACTIVITIES
 
 
 
 
 


Capital expenditures
—

—

(37.4
)
(6.7
)
—

(44.1
)
Proceeds from sale of property, plant and equipment
—

—

0.2

2.4

—

2.6

Cash used in investing activities
—

—

(37.2
)
(4.3
)
—

(41.5
)
FINANCING ACTIVITIES
 
 
 
 
 
 
Proceeds from issuance of common shares, equity offerings
0.6

—

—

—

—

0.6

Excess tax benefit related to share-based payment arrangements
0.7

—

—

—

—

0.7

Distribution (to parent) from subsidiary
0.9

(0.9
)
—

—

—

—

Cash provided by (used in) financing activities
2.2

(0.9
)
—

—

—

1.3

Change in cash and cash equivalents
0.3

64.6

0.8

4.4

—

70.1

Cash and cash equivalents, beginning of period
7.3

20.4

2.5

3.6

—

33.8

Cash and cash equivalents, end of period
7.6

85.0

3.3

8.0

—

103.9


33

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Except as otherwise indicated herein or as the context otherwise requires, references in this report to (a) "Noranda HoldCo" refer only to Noranda Aluminum Holding Corporation, a Delaware corporation, excluding its subsidiaries, (b) "Noranda AcquisitionCo" refer only to Noranda Aluminum Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Noranda HoldCo, excluding its subsidiaries, and (c) "Noranda," the "Company," "we," "our," and "us" refer collectively to Noranda HoldCo and its subsidiaries on a consolidated basis. "AcquisitionCo Notes" refer to senior floating rate notes due 2015 issued by Noranda AcquisitionCo.
Overview
We are a leading North American integrated producer of value-added primary aluminum and high quality rolled aluminum coils. We have two businesses: our upstream business and downstream business. Our upstream business consists of three reportable segments: Primary Aluminum, Alumina, and Bauxite. These three segments are closely integrated and consist of a smelter near New Madrid, Missouri, which we refer to as "New Madrid," and supporting operations at our bauxite mine and alumina refinery. In 2011, New Madrid produced approximately 583 million pounds (264,000 metric tonnes) of primary aluminum, representing approximately 13% of total 2011 U.S. primary aluminum production, based on statistics from CRU, an independent mining and metals consultancy group. Our downstream business comprises our Flat-Rolled Products segment, which is one of the largest aluminum foil producers in North America and consists of four rolling mill facilities with a combined maximum annual production capacity of 410 to 495 million pounds, depending on production mix.
Our third quarter 2012 operating results reflect continued decline in the London Metal Exchange ("LME") aluminum price. The impact of a lower LME aluminum price was compounded by seasonal peak power rates at New Madrid, lower external shipment volumes, and costs associated with the negative effects of Hurricane Isaac in the Alumina segment and production variability in the Primary and Flat-Rolled Products segments. Although we believe demand for our products was stable across all segments, these location specific production variability issues had a negative impact on our shipment volumes.
•
Lower prices negatively impacted our operating results by $61.1 million in third quarter 2012 relative to third quarter 2011, driven by lower LME aluminum prices.
◦
Persisting global macro-economic concerns, particularly the European sovereign-debt crisis and fears of slowing economic growth in China, have dampened LME aluminum prices since the second half of 2011. Substantially all of our external revenues are linked to the LME aluminum price, which averaged $0.87 per pound in third quarter 2012 compared to $1.09 per pound in third quarter 2011.
◦
In our Primary Aluminum segment, the effects of lower LME aluminum price levels have been partially offset by higher product premiums, particularly the Midwest Transaction Premium ("MWP"). The MWP increased to an average of $0.11 per pound in third quarter 2012 from a third quarter 2011 average of $0.08 per pound. Our average realized price, the Midwest transaction price ("MWTP") inclusive of the MWP, was $0.96 in third quarter 2012 compared to $1.18 in third quarter 2011.
•
Results for third quarter 2012 reflect a $5.9 million negative impact to segment profit from Hurricane Isaac, which made landfall near Gramercy, Louisiana on August 29, 2012. This $5.9 million impact is due to lost contribution margin, losses on replacement alumina, and production inefficiencies incurred while the refinery operated below normal levels.
◦
Third quarter 2012 integrated primary aluminum net cash cost ("Net Cash Cost") was $0.92 per pound shipped compared to $0.81 per pound in third quarter 2011. The effects of the disruption caused by the hurricane and production decreases at our smelter due to the timing and concentration of pots taken out of production to be rebuilt both contributed to the increase in Net Cash Cost.
•
Over the course of 2011, the costs of certain raw material inputs, such as carbon-based products used in our Primary Aluminum segment and chemical products used in our Alumina segment, increased significantly. During 2012, those costs plateaued, and have begun to decline, resulting in generally more favorable raw material input costs in third quarter 2012 relative to third quarter 2011.
◦
Through the period of raw material inflation, we maintained our emphasis on driving cost savings through our CORE productivity program--achieving $8.6 million in cost savings in third quarter 2012, and a total of $109.5 million since the beginning of 2011.
Forward-looking Statements
This report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements about future, not past, events and involve certain important risks and uncertainties, any of which could cause the Company's actual results to differ materially from those expressed in forward-looking statements, including, without limitation: the cyclical nature of the aluminum industry and fluctuating commodity prices, which cause variability in earnings and cash flows; a downturn in general economic conditions, including changes in interest rates, as well as a downturn in the end-use markets for certain of the Company's products; fluctuations in the relative cost of certain raw materials and energy compared to the price

34

of primary aluminum and aluminum rolled products; the effects of competition in Noranda's business lines; Noranda's ability to retain customers, a substantial number of which do not have long-term contractual arrangements with the Company; the ability to fulfill the business's substantial capital investment needs; labor relations (i.e. disruptions, strikes or work stoppages) and labor costs; unexpected issues arising in connection with Noranda's operations outside of the United States; the ability to retain key management personnel; and Noranda's expectations with respect to its acquisition activity, or difficulties encountered in connection with acquisitions, dispositions or similar transactions.
Forward-looking statements contain words such as "believes," "expects," "may," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or similar expressions that relate to Noranda's strategy, plans or intentions. All statements Noranda makes relating to its estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to the Company's expectations regarding future industry trends are forward-looking statements. Noranda undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect management's current estimates, projections, expectations or beliefs. All forward-looking statements herein are based upon information available to us on the date of this report on Form 10-Q
Important factors that could cause actual results to differ materially from our expectations, which we refer to as cautionary statements, are disclosed herein under Part II, Item 1A "Risk Factors," and in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2011. All forward-looking information in this report on Form 10-Q and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by our cautionary statements. In light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report on Form 10-Q may not in fact occur. Accordingly, investors should not place undue reliance on those statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Critical Accounting Policies and Estimates
Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). Preparation of these financial statements requires management to make significant judgments and estimates. See Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1, "Accounting Policies" in our audited consolidated financial statements for the year ended December 31, 2011, included in our Annual Report on Form 10-K, as filed March 12, 2012, for a discussion of our critical accounting policies and estimates.
Goodwill Impairment
Goodwill represents the excess of acquisition consideration paid over the fair value of identifiable net tangible and identifiable intangible assets acquired. Goodwill and other indefinite-lived intangible assets are not amortized, but are reviewed for impairment at least annually, in the fourth quarter, or upon the occurrence of certain triggering events. We evaluate goodwill for impairment using a two-step process. The first step is to compare the fair value of each of our reporting units to their respective book values, including goodwill. If the fair value of a reporting unit exceeds its book value, reporting unit goodwill is not considered impaired and the second step of the impairment test is not required. If the book value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit's goodwill with the book value of that goodwill. If the book value of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
The carrying value of our Primary Aluminum segment's goodwill was $137.6 million at September 30, 2012. As of October 1, 2011, the date of our last annual goodwill impairment, the fair value of the Primary Aluminum segment exceeded its carrying value by 11%. Our fair value analysis included assumptions about key factors affecting the Primary Aluminum segment's future profitability and cash flows. These key factors relate primarily to the long-term price for primary aluminum, as well as production inputs such as alumina, power, and carbon-based products. Should the Primary Aluminum segment's expected future cash flows decline beyond our current expectations, its goodwill may be at risk for impairment in the future. Factors that could cause such a decline include a sustained decline in demand for primary aluminum, a sustained downward shift in expected aluminum prices without corresponding decreases in expected prices for production inputs, or a significant increase in cash flow discount rates.
Inventory Valuation
An actual valuation of inventory under the last-in, first-out ("LIFO") method is made only at the end of each year based on the inventory costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory costs. Because these calculations are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation which could significantly differ from interim estimates. To estimate the effect of LIFO on interim periods, we calculate a LIFO reserve each quarter, giving consideration to expected year-end inventory pricing.

35

The following table illustrates the sensitivity of our LIFO adjustment by showing the amount by which pre-tax income would have changed for the nine months ended September 30, 2012, given certain specified changes in inventory costs:
Inventory item
Sensitivity
Increase (decrease) in pre-tax income ($ in millions)
Primary Aluminum segment:
 
Carbon-based products
10% increase in price
(1.5
)
Alumina
$0.10 increase in LME per pound
(1.9
)
Flat-Rolled Products segment:
 
Metal
$0.10 increase in LME per pound
(5.4
)

Results of operations
To aid the reader in understanding the results of operations of each of these distinctive periods, we have provided the following discussion. You should read the following discussion of the results of operations and financial condition with the unaudited consolidated financial statements and related notes included herein.

36

Results of Operations
The following table sets forth certain consolidated financial information for the periods ended September 30, 2012 and 2011 (in millions, except per share data and where noted):
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
 
$
$
$
$
Statements of operations data:
 
 
 
 
Sales
336.8

400.4

1,062.0

1,221.3

Operating costs and expenses:
 
 
 
 
Cost of sales
323.3

350.4

959.4

1,031.8

Selling, general and administrative expenses
24.3

26.8

64.8

72.3

Total operating costs and expenses
347.6

377.2

1,024.2

1,104.1

Operating income (loss)
(10.8
)
23.2

37.8

117.2

Other expenses (income):
 
 
 
 
Interest expense, net
8.9

5.2

24.2

16.4

Gain on hedging activities, net
(25.4
)
(19.5
)
(62.5
)
(65.6
)
Debt refinancing expense
—

—

8.1

—

Total other income, net
(16.5
)
(14.3
)
(30.2
)
(49.2
)
Income before income taxes
5.7

37.5

68.0

166.4

Income tax expense
1.9

6.7

22.7

49.9

Net income
3.8

30.8

45.3

116.5

Net income per common share:
 
 
 
 
Basic
0.06

0.46

0.67

1.74

Diluted
0.05

0.45

0.66

1.71

Weighted-average common shares outstanding:
 
 
 
 
Basic
67.68

67.23

67.49

67.00

Diluted
69.12

68.49

69.10

68.32

Cash dividends declared per common share
0.04

—

1.37

—

Sales by segment:
 
 
 
 
Bauxite
33.6

40.9

99.1

115.4

Alumina
80.6

104.1

268.3

317.2

Primary Aluminum
147.2

187.7

471.3

561.1

Flat-Rolled Products
145.5

163.2

449.5

488.3

Eliminations
(70.1
)
(95.5
)
(226.2
)
(260.7
)
Total
336.8

400.4

1,062.0

1,221.3

Segment profit (loss):
 
 
 
 
Bauxite
0.3

6.8

3.9

19.2

Alumina
1.8

23.4

29.2

73.9

Primary Aluminum
3.1

21.8

51.9

117.6

Flat-Rolled Products
12.0

12.1

41.1

41.8

Corporate
(7.3
)
(8.0
)
(22.3
)
(21.8
)
Eliminations
0.2

(2.1
)
—

0.1

Total
10.1

54.0

103.8

230.8

Financial and other data:
 
 
 
 
Average realized Midwest transaction price (per pound)
0.96

1.18

1.01

1.21

Net Cash Cost (per pound shipped)
0.92

0.81

0.81

0.72

Shipments:
 
 
 
 
Third party shipments:
 
 
 
 
Bauxite (kMts)
666.1

619.9

1,676.9

1,853.9

Alumina (kMts)
150.7

160.2

479.0

482.2

Primary Aluminum (pounds, in millions)
120.0

123.8

369.1

383.0

Flat-Rolled Products (pounds, in millions)
97.6

94.9

292.8

286.3

Intersegment shipments:




 
 
Bauxite (kMts)
601.1

749.3

1,897.6

2,018.3

Alumina (kMts)
120.4

123.9

369.0

380.9

Primary Aluminum (pounds, in millions)
18.8

24.8

58.1

52.6


37

Discussion of quarterly consolidated operating results
Sales
Sales for third quarter 2012 were $336.8 million compared to $400.4 million in third quarter 2011, a decrease of 15.9%. Of the decrease in sales, $61.1 million was attributable to lower realized prices. LME aluminum prices averaged $0.87 per pound in third quarter 2012 compared to $1.09 per pound in third quarter 2011. Our average realized MWTP, inclusive of the MWP, was $0.96 in third quarter 2012 compared to $1.18 in third quarter 2011.
Sales to external customers from our Primary Aluminum segment reflected a decrease of 18.9% to $129.1 million in third quarter 2012 from $159.2 million in third quarter 2011, driven by lower realized prices for aluminum and decreased shipment volumes.
•
Average LME aluminum price declined as noted above and average realized MWTP for third quarter 2012 was $0.96 per pound, compared to $1.18 per pound in third quarter 2011.
•
External shipment volumes in the Primary Aluminum segment showed a decrease of 3.1%, comparing third quarter 2012 to third quarter 2011, attributable to a difference in the timing of shipments, compounded by the timing and concentration of pots taken out of production to be rebuilt.
Sales to our external customers in our Flat-Rolled Products segment reflected a decrease of 10.8% to $145.5 million during third quarter 2012 from $163.2 million in third quarter 2011, primarily due to the decline in the average LME aluminum price, partially offset by slightly more favorable volume.
•
Lower LME prices contributed $22.3 million to the sales decline. Fabrication premiums were relatively unchanged.
•
Shipment volumes showed an increase of 2.8% or $4.6 million when compared to third quarter 2011in our Flat-Rolled Products segment.
Sales to external customers from our Bauxite and Alumina segments for third quarter 2012 were $13.6 million and $48.6 million, respectively, compared to $17.4 million and $60.6 million, respectively, in third quarter 2011. These decreases were primarily due to lower LME-linked realized pricing across both segments and lower external shipment volumes in the Alumina segment, due to the production disruption following Hurricane Isaac.
Cost of sales
Cost of sales for third quarter 2012 was $323.3 million compared to $350.4 million in third quarter 2011. The decrease in cost of sales is mainly the result of the decrease in LME prices combined with more favorable raw material prices.
Selling, general and administrative expenses
Selling, general and administrative expenses in the third quarter 2012 were $24.3 million, compared to $26.8 million in third quarter 2011. The majority of the decrease is attributable to lower incentive compensation expenses, due to the negative impacts on operating results from declining LME aluminum prices.
Operating income (loss)
Operating loss in third quarter 2012 was $10.8 million compared to $23.2 million of operating income in third quarter 2011. The decrease in operating income related to the sales margin decline, partially offset by the decrease in selling, general and administrative expenses.
Sales margin was $13.5 million for third quarter 2012 compared to $50.0 million in third quarter 2011. This decrease resulted from the unfavorable impacts of lower realized prices and shipment volumes, compounded by the effects of production variability in the Alumina, Primary, and Flat Rolled segments, offset by more favorable raw material prices.
Interest expense, net
In first quarter 2012, we refinanced our existing senior secured credit facilities and entered into our new senior secured credit facilities consisting of the 2012 Term B Loan ($325.0 million) and the 2012 Revolver (up to $250.0 million.) We also repaid the remaining $78.2 million balance of our existing loan. We refer to this transaction as the "2012 Refinancing." Using proceeds from the 2012 Refinancing, in first quarter 2012, Noranda AcquisitionCo repurchased $75.0 million in aggregate principal amount of AcquisitionCo Notes.
Due to the refinancing activities discussed above, our average outstanding indebtedness increased to $596.5 million in third quarter 2012 from $428.5 million in third quarter 2011. Interest expense during third quarter 2012 increased to $8.9 million compared to $5.2 million in third quarter 2011.
Gain on hedging activities, net
Gain on hedging activities was $25.4 million in third quarter 2012 compared to $19.5 million in third quarter 2011. Reclassifications of aluminum and natural gas hedge gains and losses from AOCI into earnings in third quarter 2012 were $25.3 million, compared to $27.1 million in third quarter 2011.

38

Income before income taxes
Income before income taxes was $5.7 million in third quarter 2012, compared to $37.5 million in third quarter 2011. The special items outlined below significantly impacted the comparability of our pre-tax income (in millions):
 
Three months ended September 30,
 
2012
2011
 
$
$
 
Increase (decrease) to net income
Special items:
 
 
Release of indemnification receivables related to uncertain tax positions (1)
—

(3.4
)
Labor negotiation contingency cost (2)
(3.5
)
—

Gain on hedging activities
25.4

19.5

Total special items (pre-tax)
21.9

16.1

(1) 
In third quarter 2011, we expensed $3.4 million of an indemnification receivable from Xstrata through selling, general and administrative expenses because statutes to examine certain income tax returns expired. Net income was not impacted by the release of this indemnification receivable as a corresponding tax benefit of $3.4 million was recorded.
(2) 
In third quarter 2012, we incurred $3.5 million of contingency costs related to assembling a back-up labor force during the renegotiation of our collective bargaining agreement at our New Madrid smelter.
Income tax expense
Income tax expense was $1.9 million in third quarter 2012, compared to $6.7 million in third quarter 2011.
Our effective income tax rate was approximately 33.3% for the third quarter 2012 and was 17.9% for the third quarter 2011. The effective tax rate for both periods was primarily impacted by state income taxes, the Internal Revenue Code Section 199 manufacturing deduction, and accrued interest related to unrecognized tax benefits. The effective income tax rate for third quarter 2011 was impacted by the release of a portion of our reserve for uncertain tax positions which reduced third quarter 2011 income tax expense, as noted in the table above.
Net income
Net income was $3.8 million in third quarter 2012, compared to $30.8 million in third quarter 2011. The decrease in net income resulted from a $34.0 million decrease in operating income and a $3.7 million increase in interest expense offset by a $4.8 million decrease in income tax expense and a $5.9 million increase in gain on hedging activities.
Discussion of quarterly segment results
Bauxite
Bauxite segment sales for third quarter 2012 were $33.6 million, compared to $40.9 million for third quarter 2011. The sales volume decreased by 7.4%, a decrease related to the impact of lower volumes of $3.0 million, coupled with a $4.3 million impact of lower realized pricing.
Segment profit in third quarter 2012 was $0.3 million compared to $6.8 million in third quarter 2011. Compared to third quarter 2011, third quarter 2012 Bauxite segment profit decreased due primarily to lower LME-linked external bauxite prices and increased shipping demurrage costs.
Alumina
Alumina segment sales for third quarter 2012 were $80.6 million compared to $104.1 million for third quarter 2011. This decrease is primarily pricing related, as reflected by the LME-indexed nature of alumina pricing, coupled with a decline in production following Hurricane Isaac.
Segment profit in third quarter 2012 was $1.8 million compared to $23.4 million in third quarter 2011. In addition to the $5.9 million impact from the production disruption following Hurricane Isaac, alumina results reflect the negative impact of lower LME-indexed internal and external selling prices, which were partially offset by the favorable impact of lower natural gas prices.
Primary Aluminum
Primary Aluminum segment sales decreased to $147.2 million in third quarter 2012 from $187.7 million in third quarter 2011.
•
An 18.6% decrease in average realized MWTP in third quarter 2012 compared to third quarter 2011 decreased Primary Aluminum segment revenue by approximately $28.1 million.
•
A 6.6% decrease in total primary aluminum shipments decreased revenue by approximately $12.4 million comparing third quarter 2012 to third quarter 2011.

39

Segment profit in third quarter 2012 was $3.1 million compared to $21.8 million in third quarter 2011. The decrease in segment profit resulted from lower 2012 LME aluminum prices, partially offset by more favorable alumina and carbon-based products raw materials pricing. Additionally, third quarter 2012 Primary Aluminum segment results were affected by $6.0 million of unfavorable production variabilities.
Flat-Rolled Products
Sales in our Flat-Rolled Products segment were $145.5 million in third quarter 2012 compared to $163.2 million in the third quarter 2011. The $17.7 million decrease was primarily due to the decrease in LME prices.
•
Lower LME aluminum prices contributed $22.3 million to the sales decrease. Fabrication premiums were relatively unchanged.
•
Shipment volumes increased compared to third quarter 2011, contributing $4.6 million to sales, partially offsetting the impact of lower LME aluminum prices.
Flat-Rolled Products segment costs were lower due to the decrease in the LME price, since the majority of flat rolled product cost represents the pass-through cost of metal.
Segment profit in third quarter 2012 was relatively unchanged at $12.0 million compared to $12.1 million in third quarter 2011.
Discussion of year-to-date consolidated operating results
Sales
Sales for the nine months ended September 30, 2012 were $1,062.0 million compared to $1,221.3 million in the nine months ended September 30, 2011, a decrease of 13.0%. Of the decrease in sales, $146.1 million was attributable to lower realized prices. LME aluminum price averaged $0.92 per pound in the nine months ended September 30, 2012 compared to $1.14 per pound in the nine months ended September 30, 2011.
The remaining $13.2 million decrease in sales was attributable primarily to lower Bauxite, Alumina and Primary Aluminum segment third-party volumes.
Sales to external customers from our Primary Aluminum segment decreased 17.2% to $413.1 million in the nine months ended September 30, 2012 from $498.8 million in the nine months ended September 30, 2011, driven primarily by lower realized prices for aluminum.
•
Average LME aluminum price and average realized MWTP decreased as noted above for the nine months ended September 30, 2012 was $1.01 per pound, compared to $1.21 per pound in the nine months ended September 30, 2011.
•
Demand in the Primary Aluminum segment remained strong in the nine months ended September 30, 2011, as billet and rod shipments increased. The decrease in external shipments from the Primary Aluminum segment was not due to a decline in underlying demand, rather was attributable to (i) the needs of the Flat-Rolled Products business in an environment of tight availability for physical metal, (ii) the timing and concentration of pots taken out of production to be rebuilt, and (iii) timing of shipments as we and our customers planned around the collective bargaining agreement negotiations.
Sales to our external customers in our Flat-Rolled Products segment decreased 7.9% to $449.5 million during the nine months ended September 30, 2012 from $488.3 million in the nine months ended September 30, 2011, primarily due to the decline in the average LME aluminum price, partially offset by slightly more favorable volume.
•
Lower LME prices contributed $49.9 million to the sales decline. Fabrication premiums were relatively unchanged.
•
Shipment volumes increased 2.3%, resulting in a sales increase of $11.1 million compared to third quarter 2011 in our Flat-Rolled Products segment.
Sales to external customers from our Bauxite and Alumina segments for the nine months ended September 30, 2012 were $37.3 million and $162.1 million, respectively, compared to $52.0 million and $182.2 million, respectively, in the nine months ended September 30, 2011. The decreases were primarily due to lower realized pricing across both segments and lower external shipment volumes in the Bauxite and Alumina segments.
Cost of sales
Cost of sales for the nine months ended September 30, 2012 was $959.4 million compared to $1,031.8 million in the nine months ended September 30, 2011. The decrease in cost of sales is mainly the result of the decrease in LME prices, reflected in the pass-through nature of the Flat-Rolled Products segment, and lower natural gas prices. These decreases were partially offset by the impact of raw material inflation in the Alumina segment.
Selling, general and administrative expenses
Selling, general and administrative expenses in the nine months ended September 30, 2012 were $64.8 million, compared to $72.3 million in the nine months ended September 30, 2011. The majority of the $7.5 million decrease is primarily related to a gain of

40

$4.5 million realized upon the sale of idle mill equipment in second quarter 2012, as well as lower incentive compensation expenses, due to the negative impacts on operating results from declining LME aluminum prices.
Operating income
Operating income in the nine months ended September 30, 2012 was $37.8 million compared to $117.2 million in the nine months ended September 30, 2011. The decrease in operating income related primarily to the sales margin decline.
Sales margin was $102.6 million for the nine months ended September 30, 2012 compared to $189.5 million in the nine months ended September 30, 2011. This decrease resulted from the unfavorable impacts of lower realized prices and shipment volumes, compounded by the effects of production variability in the Alumina, Primary, and Flat Rolled segments, offset by more favorable natural gas prices.
Interest expense, net
In first quarter 2012, we refinanced our existing senior secured credit facilities and entered into our new senior secured credit facilities consisting of the 2012 Term B Loan ($325.0 million) and the 2012 Revolver (up to $250.0 million.) We also repaid the remaining $78.2 million balance of our existing loan. We refer to this transaction as the "2012 Refinancing." Using proceeds from the 2012 Refinancing, in first quarter 2012, Noranda AcquisitionCo repurchased $75.0 million in aggregate principal amount of AcquisitionCo Notes.
Due to the refinancing activities discussed above, our average outstanding indebtedness increased to $565.2 million for the nine months ended September 30, 2012 from $424.6 million for the nine months ended September 30, 2011. As a result, interest expense in the nine months ended September 30, 2012 increased to $24.2 million compared to $16.4 million in the nine months ended September 30, 2011.
Gain on hedging activities, net
Gain on hedging activities was $62.5 million in the nine months ended September 30, 2012 compared to $65.6 million in the nine months ended September 30, 2011. Reclassifications of aluminum and natural gas hedge gains and losses from AOCI into earnings in the nine months ended September 30, 2012 were $64.3 million compared to $73.5 million in the nine months ended September 30, 2011.
Debt refinancing expense
We recorded debt refinancing expense of $8.1 million related to the 2012 Refinancing, comprising $5.7 million of creditor fees related to the new senior secured credit facilities and $2.4 million of deferred financing fees related to existing senior secured credit facilities.
Income before income taxes
Income before income taxes was $68.0 million in the nine months ended September 30, 2012, compared to $166.4 million in the nine months ended September 30, 2011. The special items outlined below significantly impacted the comparability of our pre-tax income (in millions):
 
Nine months ended September 30,
 
2012
2011
 
$
$
 
Increase (decrease) to net income
Special items:
 
 
Transaction costs (1)
(8.6
)
—

Modification of stock options (2)
(1.2
)
—

Gain on sale of idle mill equipment
4.5

—

Release of indemnification receivables related to uncertain tax positions (3)
—

(3.4
)
Labor negotiation contingency cost (4)
(3.5
)
—

Gain on hedging activities
62.5

65.6

Total special items (pre-tax)
53.7

62.2

(1) 
Includes $8.1 million of costs related to the refinancing and the tender offer, including creditor and third-party fees as well as the write-off of deferred financing fees. This amount also includes $0.5 million of costs related to the public secondary offering of 10 million shares of our common stock by Apollo.
(2) 
During first quarter 2012, holders of stock options, service-vesting restricted stock and restricted stock units were paid cash for the $1.25 per share supplemental dividend. We accelerated $1.2 million of share-based payment compensation expense in connection with this award modification.
(3) 
In third quarter 2011, the Company expensed $3.4 million of an indemnification receivable from Xstrata through selling, general and administrative expenses because statutes to examine certain income tax returns expired. Net income was not impacted by the release of this indemnification receivable as a corresponding tax benefit of $3.4 million was recorded.

41

(4) 
In third quarter 2012, we incurred $3.5 million of contingency costs related to assembling a back-up labor force during the renegotiation of our collective bargaining agreement at our New Madrid smelter.
Income tax expense
Income tax expense was $22.7 million in the nine months ended September 30, 2012, compared to $49.9 million in the nine months ended September 30, 2011.
Our effective income tax rate was approximately 33.4% for the nine months ended September 30, 2012 and was 30.0% for the nine months ended September 30, 2011. The effective tax rate for both periods was primarily impacted by state income taxes, the Internal Revenue Code Section 199 manufacturing deduction, and accrued interest related to unrecognized tax benefits.
Net income
Net income was $45.3 million in the nine months ended September 30, 2012, compared to $116.5 million in the nine months ended September 30, 2011. The decrease in net income resulted from a $79.4 million decrease in operating income, a $3.1 million decrease in gain on hedging activities, the $8.1 million of debt refinancing expense and a $7.8 million increase in interest expense, offset by a $27.2 million decrease in income tax expense.
Discussion of year-to-date segment results
Bauxite
Bauxite segment sales for the nine months ended September 30, 2012 were $99.1 million, compared to $115.4 million for the nine months ended September 30, 2011. Sales volume decreased by 7.7% resulting in a $8.9 million unfavorable impact to sales, coupled with the $7.4 million impact of lower realized pricing.
Segment profit in the nine months ended September 30, 2012 was $3.9 million compared to $19.2 million in the nine months ended September 30, 2011. Compared to the nine months ended September 30, 2011, the nine months ended September 30, 2012 segment profit reflected the negative impact from lower LME-linked external bauxite prices, lower 2012 sales volumes and higher contract mining and operating costs.
Alumina
Alumina segment sales for the nine months ended September 30, 2012 were $268.3 million compared to $317.2 million for the nine months ended September 30, 2011. This decrease is primarily related to the LME-indexed nature of our alumina pricing arrangements.
Segment profit in the nine months ended September 30, 2012 was $29.2 million compared to $73.9 million in the nine months ended September 30, 2011. Compared to the nine months ended September 30, 2011, the nine months ended September 30, 2012 segment profit reflected the $43.3 million negative impact on internal and external revenues from lower LME-linked alumina prices and the $5.9 million negative impact from the production disruption following Hurricane Isaac. The impact of raw material inflation was offset by more favorable natural gas prices.
Primary Aluminum
Primary Aluminum segment sales decreased to $471.3 million in the nine months ended September 30, 2012 from $561.1 million in the nine months ended September 30, 2011.
•
A 16.5% decrease in average realized MWTP in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 decreased Primary Aluminum segment revenue by approximately $79.0 million.
•
A 1.9% decrease in total primary aluminum shipments decreased segment revenue by approximately $10.8 million comparing the nine months ended September 30, 2012 to the nine months ended September 30, 2011. The decrease in external shipments was partially offset by increases in shipments to our rolling mills.
Segment profit in the nine months ended September 30, 2012 was $51.9 million compared to $117.6 million in the nine months ended September 30, 2011. The decrease in segment profit reflected the impact from significantly lower 2012 LME aluminum prices, offset in part by more favorable raw materials prices for alumina. The impact of the timing and concentration of pots taken out of production to be relined further decreased segment profit.
Flat-Rolled Products
Sales in our Flat-Rolled Products segment were $449.5 million in the nine months ended September 30, 2012 compared to $488.3 million in the the nine months ended September 30, 2011. The $38.8 million decrease was primarily due to the decrease in LME prices, offset by the impact of a 2.3% increase in shipment volume.
•
Lower LME aluminum prices contributed $49.9 million to the sales decrease. Fabrication premiums were relatively unchanged.
•
The increase in shipment volumes partially offset the impact of lower LME aluminum prices by contributing $11.1 million to sales.

42

Flat-Rolled Products segment costs were lower due to the decrease in the LME price, since the majority of flat rolled product cost represents the pass-through cost of metal.
Segment profit in nine months ended September 30, 2012 was $41.1 million compared to $41.8 million in the nine months ended September 30, 2011. Compared to the nine months ended September 30, 2011, nine months ended September 30, 2012 segment profit was relatively flat, which reflects the stable demand trends across key product groups in this segment.

Liquidity and Capital Resources
Our primary sources of liquidity are available cash balances, cash provided by operating activities and available borrowings under our 2012 Revolver.
On February 29, 2012, we entered into a new, seven year $325.0 million senior secured term loan facility agreement ("the 2012 Term B Loan"). We used 2012 Term B Loan proceeds to repay the remaining $78.2 million term loan balance outstanding under our previous senior secured credit facility and to fund a tender offer for $75.0 million in aggregate principal amount of our existing Senior Floating Rate Notes due 2015. We also used 2012 Term B Loan proceeds to pay a supplemental dividend of $1.25 per share, totaling approximately $87.4 million in aggregate. We also entered into a new asset-based revolving credit facility (up to $250.0 million) (the "2012 Revolver").
•
In the nine months ended September 30, 2012, we used $13.8 million of cash for operating activities.
•
At September 30, 2012, we had $33.9 million of cash and cash equivalents.
•
At September 30, 2012, the 2012 Revolver was undrawn and we had $36.1 million in outstanding letters of credit. Our borrowing base under the 2012 Revolver is equal to the lesser of (i) $250.0 million or (ii) a calculated borrowing base. The calculated borrowing base fluctuates monthly based on the value of inventory and accounts receivable, which are influenced heavily by the LME aluminum price. Our calculated borrowing base was $152.8 million, net of outstanding letters of credit, as of September 30, 2012. Beginning in October 2012, we must maintain at least $20.0 million of available borrowing capacity under our 2012 Revolver because our Revolver Fixed-Charge Coverage Ratio (as defined below) was less than 1.0 to 1.0 as of September 30, 2012. This restriction will be removed when the ratio meets the required threshold. Had this restriction been effective at September 30, 2012, our effective calculated borrowing base would have been $132.8 million.
•
In the nine months ended September 30, 2012, we made cash payments to shareholders and option holders totaling $92.2 million, and $3.1 million, respectively, related to regular and supplemental dividends.
In addition to financing the working capital needs of our business, our primary continuing liquidity requirements are to (i) fund capital expenditures and acquisitions, (ii) meet debt service obligations and (iii) pay dividends. Based on our current level of operations, we believe the combination of cash flow from operations and available cash and borrowings will be adequate to meet our short-term liquidity needs. Our ability to make scheduled payments of principal, pay interest on, or to refinance our indebtedness, to pay dividends or to fund planned capital expenditures, will depend on our ability to generate cash in the future. This ability is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
In September 2012, Standard & Poor's downgraded our corporate credit rating to B from B+, with a stable outlook.
As of September 30, 2012 and December 31, 2011, the carrying value of our long-term debt was as follows (in millions):
 
September 30, 2012
December 31, 2011
 
$
$
Senior Floating Rate Notes due 2015 ("AcquisitionCo Notes")
275.3

350.3

2012 Term B Loan
321.2

78.2

2012 Revolver
—

—

Total debt, net
596.5

428.5

Less: Current portion
(3.3
)
(2.4
)
Long-term debt, net
593.2

426.1

The following table sets forth unaudited condensed consolidated cash flow information for the periods indicated (in millions):
 
Nine months ended September 30,
 
2012
2011
 
$
$
Cash provided by (used in) operating activities
(13.8
)
110.3

Cash used in investing activities
(55.0
)
(41.5
)
Cash provided by financing activities
60.0

1.3

Change in cash and cash equivalents
(8.8
)
70.1


43

Operating activities
Operating activities used $13.8 million of cash in the nine months ended September 30, 2012 compared to generating cash of $110.3 million in the nine months ended September 30, 2011. In the nine months ended September 30, 2012, we produced $74.1 million of Adjusted EBITDA, comprising $103.8 million of total segment profit less $29.7 million of cash payments on natural gas hedges (Adjusted EBITDA is defined and discussed under the following "Covenant Compliance and Financial Ratios" section).
As summarized in the table below, the variability in operating cash flow is driven primarily by different levels of segment profit and seasonal working capital changes in each of the quarters (in millions):
 
Nine months ended September 30,
(in millions)
2012
2011
$
$
Segment profit
$
103.8

$
230.8

Gas hedges
(29.7
)
(18.6
)
Other operating cash flows
(27.1
)
(20.1
)
Interest
(19.9
)
(4.4
)
Tax payments
(32.5
)
(63.8
)
Operating working capital
(8.4
)
(13.6
)
Cash provided by (used in) operating activities
$
(13.8
)
$
110.3

Investing activities
Capital expenditures were $59.8 million in the nine months ended September 30, 2012 and $44.1 million in the nine months ended September 30, 2011.
Purchases of property, plant and equipment accrued in accounts payable and not yet paid were $8.3 million and $3.4 million for the nine months ended September 30, 2012 and 2011, respectively, and are not reflected as capital expenditures in the unaudited consolidated statements of cash flows.
We evaluate spending on capital growth projects on an ongoing basis, taking into consideration the specific benefit, scope and timing of each project, as well as overall market conditions, including the LME aluminum price, and our future liquidity expectations. The following capital projects are in progress as of September 30, 2012:
•
$38 million investment re-launched during late 2010 to improve operating reliability and expand aluminum production capacity at our New Madrid smelter. The project involves a combination of additional rectifiers and upgraded equipment allowing for increased aluminum production up to 35 million pounds ("the Rectifier Project"). The Rectifier Project has the added benefit of greater efficiency and reliability through upgrades and redundancy of equipment. We expect efficiency gains and reliability improvements to be achieved as rectifiers and equipment upgrades are installed, independent of any increase in production level, which is subject to the constraints below.
We spent $2.7 million on the Rectifier Project during the nine months ended September 30, 2012 and have spent $10.3 million since re-launching the project in late 2010. We anticipate the spending related to the achievement of reliability improvements, approximately $16 million, to be incurred primarily in 2013 and 2014, although we have yet to make commitments related to that spending and the timing of such commitments may be dependent on our liquidity profile. The timing of the remaining $12 million is dependent on overall market conditions, including the LME aluminum price, our liquidity profile, and the resolution of permitting regulations described in Note 7, Commitments and Contingencies.
•
Two investments announced in July 2012 are still in their early phases. As such, we have yet to make significant resource commitments for those projects and the timing of such commitments may be dependent on our liquidity profile. These investments include a $45 million investment to build a new rod mill, the scope of which includes infrastructure development and construction of a new, state-of-the-art mill to produce redraw rod, and an $11 million investment to further expand harbor capacity at Port Rhodes in Discovery Bay, Jamaica.
Financing activities
During the nine months ended September 30, 2012, our financing cash flows mainly reflected the 2012 Refinancing. We borrowed $322.6 million under a new 2012 Term B Loan, net of a $2.4 million discount, repaid $78.2 million under the old 2007 Term B Loan and paid $75.0 million pursuant to the 2012 Tender Offering associated with the AcquisitionCo Notes. We incurred $12.6 million of financing costs associated with the 2012 Refinancing transactions. In addition, we paid $92.2 million in regular and supplemental dividends and paid $3.1 million in distributions to share-based award holders.

44

Dividends declared and paid during the nine months ended September 30, 2012 were as follows:
Declaration date
Per share dividend amount
Date paid
Total cash payment

$/share

$ in millions
February 15, 2012
0.04
March 21, 2012
2.6
February 29, 2012
1.25
March 19, 2012
84.3
April 24, 2012
0.04
May 30, 2012
2.6
July 24, 2012
0.04
August 29, 2012
2.7
On October 24, 2012, the Board declared a regular quarterly dividend of $0.04 per share to be paid on November 28, 2012 to shareholders of record as of November 5, 2012. Cash payments related to this dividend will total approximately $2.7 million. The Board anticipates declaring this dividend in future quarters on a regular basis; however, changes in the Company's financial condition and cash needs could result in dividends being declared in different amounts, or not at all.
Covenant Compliance and Financial Ratios
Certain covenants contained in our debt agreements governing our senior secured credit facilities and the indentures governing our Notes restrict our ability to take certain actions if we are unable to meet certain ratios including, among others:(i) the ratio of our Adjusted EBITDA, calculated on a trailing four-quarter basis, to our fixed charges (the "Fixed-Charge Coverage Ratio") or (ii) the ratio of our Adjusted EBITDA, calculated on a trailing four-quarter basis and subtracting certain cash payments, including certain taxes, capital expenditures and dividends, to our fixed charges (the "Revolver Fixed-Charge Coverage Ratio") or (iii) the ratio of our senior first-lien secured net debt to our Adjusted EBITDA, calculated on a trailing four-quarter basis (the "Net Senior Secured Leverage Ratio"). The actions which could be restricted include incurring additional secured or unsecured debt, expanding borrowings under existing term loan facilities, paying dividends, engaging in mergers, acquisitions and certain other investments, and retaining proceeds from asset sales. Upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. Furthermore, our ability to take certain actions, including paying dividends and making acquisitions and certain other investments, depends on the amounts available for such actions under the applicable covenants, which amounts accumulate with reference to our Adjusted EBITDA, or our net income, on a quarterly basis.
Certain of the minimum or maximum ratio levels set forth in our covenants as conditions to our undertaking certain actions and our actual performance are summarized below:


Requirements
Actual as of
September 30, 2012
December 31, 2011
AcquisitionCo Notes (1)
Fixed Charge
Coverage Ratio
Minimum
2.0 to 1.0
2.6 to 1.0
8.9 to 1.0
2012 Revolver (2)
Revolver
Fixed Charge
Coverage Ratio
Minimum
1.0 to 1.0
--
3.6 to 1.0
2012 Term B Loan and 2012 Revolver (3)
Total Net Senior First Lien Secured Leverage Ratio
Maximum
2.25 to 1.0
2.9 to 1.0
0.9 to 1.0
(1) 
For Noranda AcquisitionCo, fixed charges on a pro forma basis (giving effect to debt repayments) for the four quarters ended September 30, 2012 and the year ended December 31, 2011 were $38.0 million and $26.5 million, respectively.
(2) 
As defined in the credit agreement governing 2012 Revolver, fixed charges for the four quarters ended September 30, 2012 and the year ended December 31, 2011 were $29.1 million and $34.7 million, respectively. For the four quarters ended September 30, 2012, our Revolver Fixed-Charge Coverage Ratio was less than 1.0 to 1.0.
(3) 
As used in calculating this ratio, "senior first-lien secured net debt" means the amount outstanding under the 2012 Term B Loan and 2012 Revolver immediately following the 2012 Refinancing (for the actual ratio as of December 31, 2011) or outstanding as of September 30, 2012 (for the actual ratio as of September 30, 2012) and any debt secured by a first priority lien on assets of Noranda AcquisitionCo and/or any of its subsidiaries, less "unrestricted cash" and "permitted investments" (as defined under our 2012 Senior Secured Credit Facilities) up to a cap of $100.0 million. The ratios presented are assuming the 2012 Refinancing had been in place at December 31, 2011. Under this assumption, at September 30, 2012 and December 31, 2011, senior first lien secured debt was $323.4 million and $325.0 million, respectively, and unrestricted cash and permitted investments were $33.1 million and $100.0 million (including the approximate $73.0 million increase in cash immediately following the 2012 Refinancing and 2012 Tender Offer), respectively, resulting in senior first lien secured net debt of $290.3 million and $225.0 million, respectively.
Because we did not satisfy certain financial ratio levels relevant to these covenants as of September 30, 2012, we may be limited in our ability to expand borrowings under existing term loan facilities, incur additional secured or unsecured debt, make acquisitions or certain other investments, or engage in mergers and pay dividends. These restrictions do not interfere with the day-to-day-conduct of our business. Based on our debt agreement provisions pertaining to dividends, we do not expect these restrictions to affect our ability to continue paying the current $0.04 per share regular quarterly dividend in the foreseeable future, although our Board of Directors retains the ability to change the amount of such dividends, including the right not to declare any such dividends.

45

Because our Revolver Fixed-Charge Coverage Ratio was less than 1.0 to 1.0 as of September 30, 2012, we must maintain at least $20.0 million of available borrowing capacity under our 2012 Revolver. Our debt agreements do not otherwise require us to maintain any financial performance metric or ratio in order to avoid a default.
Management uses "Adjusted EBITDA" as a liquidity measure in respect of the Fixed-Charge Coverage Ratio, the Revolver Fixed-Charge Coverage Ratio and the Net Senior Secured Leverage Ratio, as defined in our debt agreements. As used herein, Adjusted EBITDA means net income before income taxes, net interest expense and depreciation and amortization, adjusted to eliminate certain non-cash expenses and other specified items of income or expense as outlined below (in millions):
 
Three months ended September 30,
Nine months ended September 30,
Twelve months ended
 
September 30,
December 31,
2012
2011
2012
2011
2012
2011
 
$
$
$
$
$
$
Adjusted EBITDA
0.5

54.0

74.1

212.2

97.7

235.8

Last in, first out and lower of cost or market inventory adjustments (a)
10.0

1.9

14.3

(17.3
)
19.0

(12.6
)
Gain (loss) on disposal of assets
(1.2
)
(0.3
)
1.4

(1.8
)
(0.1
)
(3.3
)
Non-cash pension, accretion and stock compensation
(4.0
)
(2.6
)
(13.1
)
(9.6
)
(15.9
)
(12.4
)
Relocation and severance
(0.1
)
(1.2
)
(0.5
)
(1.8
)
(1.6
)
(2.9
)
Consulting fees
(0.2
)
(1.4
)
(0.7
)
(1.8
)
(1.2
)
(2.3
)
Interest rate swap
—

—

—

(2.3
)
(2.3
)
(4.6
)
Debt refinancing expense
—

—

(8.1
)
—

(8.1
)
—

Non-cash derivative gains (b)
37.4

25.9

99.1

83.9

132.2

117.0

Other, net
(4.2
)
(8.6
)
(4.1
)
(5.6
)
(7.7
)
(9.2
)
Depreciation and amortization
(23.6
)
(25.0
)
(70.2
)
(73.1
)
(94.8
)
(97.7
)
Interest expense, net
(8.9
)
(5.2
)
(24.2
)
(16.4
)
(29.3
)
(21.5
)
Income tax
(1.9
)
(6.7
)
(22.7
)
(49.9
)
(18.2
)
(45.4
)
Net income
3.8

30.8

45.3

116.5

69.7

140.9

(a) 
Our New Madrid smelter and our rolling mills use the LIFO method of inventory accounting for financial reporting and tax purposes. This adjustment restates net income to the FIFO method by eliminating LIFO expenses related to inventories held at the New Madrid smelter and the rolling mills. Product inventories at Gramercy and St. Ann and supplies inventories at New Madrid are stated at lower of weighted-average cost or market, and are not subject to the LIFO adjustment. We also reduce inventories to the lower of cost (adjusted for purchase accounting) or market value.
(b) 
We use derivative financial instruments to mitigate effects of fluctuations in aluminum and natural gas prices. This adjustment eliminates the non-cash gains and losses resulting from fair market value changes of aluminum swaps. Cash settlements (received) or paid, except settlements on hedge terminations, related to our derivatives are included in Adjusted EBITDA and are shown in the table below:
 
Three months ended September 30,
Nine months ended September 30,
Twelve months ended
 
September 30,
December 31,
2012
2011
2012
2011
2012
2011
 
$
$
$
$
$
$
Variable price aluminum offset swaps and other
2.6

0.3

7.1

(2.5
)
9.5

(0.1
)
Natural gas swaps
9.6

6.2

29.7

18.6

37.2

26.1

Interest rate swaps
—

—

—

2.3

2.3

4.6

Total
12.2

6.5

36.8

18.4

49.0

30.6

Adjusted EBITDA is not a measure of financial performance under U.S. GAAP, and may not be comparable to similarly titled measures used by other companies in our industry. Adjusted EBITDA should not be considered in isolation from or as an alternative to net income, income from continuing operations, operating income or any other performance measures derived in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA excludes certain tax payments that may represent a reduction in cash available to us; does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; does not reflect capital cash expenditures, future requirements for capital expenditures or contractual commitments; does not reflect changes in, or cash requirements for, our working capital needs; and does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness. Adjusted EBITDA also includes incremental stand-alone costs and adds back non-cash hedging gains and losses, and certain other non-cash charges that are deducted in calculating net income. However, these are expenses that may recur, vary greatly and are difficult to predict. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. You should not consider our Adjusted EBITDA as an alternative to operating income or net income, determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of our cash flows or as a measure of liquidity.

46

The following table reconciles Adjusted EBITDA to cash flow from operating activities for the periods presented (in millions):
 
Three months ended September 30,
Nine months ended September 30,
Twelve months ended
 
September 30,
December 31,
2012
2011
2012
2011
2012
2011
 
$
$
$
$
$
$
Adjusted EBITDA
0.5

54.0

74.1

212.2

97.7

235.8

Stock compensation expense
0.9

0.9

3.9

4.4

4.8

5.3

Changes in other assets
(2.6
)
1.2

(6.0
)
(5.7
)
(7.0
)
(6.7
)
Changes in pension, other post-retirement liabilities and other long-term liabilities
(2.4
)
(11.6
)
(1.3
)
(13.9
)
(1.7
)
(14.3
)
Changes in current operating assets and liabilities
25.9

21.1

(22.9
)
(8.1
)
16.0

30.8

Changes in current income taxes
0.1

(14.4
)
(20.6
)
(52.9
)
(38.2
)
(70.5
)
Changes in accrued interest
(8.2
)
(4.5
)
(22.1
)
(5.4
)
(26.5
)
(9.8
)
Non-cash pension, accretion and stock compensation
(4.0
)
(2.6
)
(13.1
)
(9.6
)
(15.9
)
(12.4
)
Restructuring, relocation and severance
(0.1
)
(1.2
)
(0.5
)
(1.8
)
(1.6
)
(2.9
)
Consulting and sponsor fees
(0.2
)
(1.4
)
(0.7
)
(1.8
)
(1.2
)
(2.3
)
Interest rate swaps
—

—

—

(2.3
)
(2.3
)
(4.6
)
Other, net
(5.4
)
(7.8
)
(4.6
)
(4.8
)
(7.6
)
(7.8
)
Cash flow provided by (used in) operating activities
4.5

33.7

(13.8
)
110.3

16.5

140.6



47

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the market risks disclosed in our Annual Report on Form 10-K, as filed on March 12, 2012.


48

Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2012. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


49

PART II    OTHER INFORMATION
Item 1.
Legal Proceedings
There have been no material changes to the description of our legal proceedings previously disclosed in our Annual Report on Form 10-K, as filed on March 12, 2012.

Item 1A.    Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K, as filed on March 12, 2012.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None

Item 3.
Defaults upon Senior Securities
None

Item 4.
Mine Safety Disclosures
We believe ensuring the safety of our workforce is our number one accountability as an employer. We are committed to continuing and improving upon each facility’s focus on safety in the workplace. We have a number of safety programs in place, which include regular safety meetings and training sessions to teach proper safe work procedures.
Our executive management, along with site managers and union leadership, are actively involved in supporting and promoting the ongoing emphasis on workplace safety. Improvement in safety performance is a key metric used in determining annual incentive awards for our U.S. employees.
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 of this report, which is incorporated herein by reference.

Item 5.    Other Information
None.

Item 6.
Exhibits
See the index to Exhibits


50

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
 
NORANDA ALUMINUM HOLDING CORPORATION
October 29, 2012
/S/ ROBERT B. MAHONEY
 
Robert B. Mahoney
Chief Financial Officer
(Principal Financial and Accounting Officer)


51

INDEX TO EXHIBITS
Exhibit
number
Description
2.1
Stock Purchase Agreement, dated April 10, 2007, by and among Noranda Aluminum Acquisition Corporation, Noranda Finance, Inc. and Xstrata (Schweiz) A.G. (incorporated by reference to Exhibit 2.1 of Noranda Aluminum Holding Corporation’s Registration Statement on Form S-4 filed on January 31, 2008)
3.1
Amended and Restated Certificate of Incorporation of Noranda Aluminum Holding Corporation (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 (File No. 333-166947), filed on May 19, 2010)
3.2
Amended and Restated By-Laws, of Noranda Aluminum Holding Corporation (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-8 (File No. 333-166947), filed on May 19, 2010)
12.1
Computation of Ratio of Earnings to Fixed Charges
31.1
Chief Executive Officer Certification
31.2
Chief Financial Officer Certification
32.1
Certification of Chief Executive Officer and Chief Financial Officer
95.1
Mine Safety Disclosures
101. INS
XBRL Instance Document
101. SCH
XBRL Taxonomy Extension Schema Document
101. CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101. DEF
XBRL Taxonomy Extension Definition Linkbase Document
101. LAB
XBRL Taxonomy Extension Label Linkbase Document
101. PRE
XBRL Taxonomy Extension Presentation Linkbase Document

52