XNYS:NOR Noranda Aluminum Holding Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 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 July 20, 2012, there were 67,690,078 shares of Noranda common stock outstanding.
 

1


NORANDA ALUMINUM HOLDING CORPORATION
TABLE OF CONTENTS


2


Part I.    FINANCIAL INFORMATION

Item 1.
Financial Statements

NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(unaudited)
 
June 30, 2012
December 31, 2011
 
$
$
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
50.6

42.7

Accounts receivable, net
136.5

107.6

Inventories, net
197.8

186.5

Taxes receivable
1.6


Prepaid expenses
22.0

13.3

Other current assets
14.1

41.3

Total current assets
422.6

391.4

Property, plant and equipment, net
695.3

699.8

Goodwill
137.6

137.6

Other intangible assets, net
64.1

67.1

Other assets
86.0

81.6

Total assets
1,405.6

1,377.5

LIABILITIES AND EQUITY
 
 
Current liabilities:
 
 
Accounts payable
97.5

95.9

Accrued liabilities
54.0

87.3

Taxes payable

2.6

Derivative liabilities, net
25.5

40.9

Deferred tax liabilities
24.2

35.9

Current portion of long-term debt
3.3

2.4

Total current liabilities
204.5

265.0

Long-term debt, net
593.9

426.1

Long-term derivative liabilities, net
0.4

0.1

Pension and other post-retirement benefit ("OPEB") liabilities
167.3

175.7

Other long-term liabilities
48.6

46.2

Long-term deferred tax liabilities
201.1

202.8

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


Common stock (200.0 shares authorized; $0.01 par value; 67.5 shares issued and outstanding at June 30, 2012; 67.3 shares issued and outstanding at December 31, 2011, including 0.2 shares subject to redemption at June 30, 2012 and December 31, 2011)
0.7

0.7

Capital in excess of par value
231.5

231.9

Retained earnings
15.4

63.4

Accumulated other comprehensive loss
(65.8
)
(42.4
)
Total shareholders’ equity
181.8

253.6

Non-controlling interest
6.0

6.0

Total equity
187.8

259.6

Total liabilities and equity
1,405.6

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 June 30,
Six months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Sales
371.7

426.3

725.2

820.9

Operating costs and expenses:
 
 
 
 
Cost of sales
331.9

353.1

636.1

681.4

Selling, general and administrative expenses
14.8

20.6

40.5

45.5

Total operating costs and expenses
346.7

373.7

676.6

726.9

Operating income
25.0

52.6

48.6

94.0

Other (income) expense:
 
 
 
 
Interest expense, net
8.8

5.5

15.3

11.2

Gain on hedging activities, net
(22.4
)
(24.3
)
(37.1
)
(46.1
)
Debt refinancing expense


8.1


Total other income, net
(13.6
)
(18.8
)
(13.7
)
(34.9
)
Income before income taxes
38.6

71.4

62.3

128.9

Income tax expense
13.3

24.0

20.8

43.2

Net income
25.3

47.4

41.5

85.7

Net income per common share:
 
 
 
 
Basic
$
0.38

$
0.71

$
0.62

$
1.28

Diluted
$
0.36

$
0.69

$
0.60

$
1.26

Weighted-average common shares outstanding:


 
 
 
Basic
67.46

66.93

67.40

66.88

Diluted
69.33

68.32

69.09

68.22

Cash dividends declared per common share
$
0.04

$

$
1.33

$

See accompanying notes
NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Net income
25.3

47.4

41.5

85.7

Other comprehensive income:
 
 
 
 
Reclassification of pension and OPEB amounts realized in net income
2.8


5.7


Unrealized loss on derivatives
0.4

(2.3
)
(3.4
)
(2.8
)
Reclassification of derivative amounts realized in net income
(22.3
)
(26.7
)
(39.0
)
(46.4
)
Total other comprehensive loss, before tax
(19.1
)
(29.0
)
(36.7
)
(49.2
)
Income tax benefit related to components of other comprehensive loss
7.0

10.6

13.3

17.9

Total other comprehensive loss, net of tax
(12.1
)
(18.4
)
(23.4
)
(31.3
)
Total comprehensive income
13.2

29.0

18.1

54.4

See accompanying notes


4


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 tax benefit 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



41.5



41.5

Other comprehensive loss




(23.4
)

(23.4
)
Issuance of common shares for equity-based awards


0.2




0.2

Stock compensation expense related to equity-based awards


2.8




2.8

Shares repurchased


(0.3
)



(0.3
)
Dividends to shareholders @ $1.33 per share



(89.5
)


(89.5
)
Distribution to share-based award holders @ $1.25 per share


(3.1
)



(3.1
)
Balance, June 30, 2012

0.7

231.5

15.4

(65.8
)
6.0

187.8


See accompanying notes

5


NORANDA ALUMINUM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Six months ended June 30,
 
2012
2011
 
$
$
OPERATING ACTIVITIES
 
 
Net income
41.5

85.7

Adjustments to reconcile net income to cash provided by (used in) operating activities:
 
 
Depreciation and amortization
46.6

48.1

Non-cash interest expense
1.4

10.3

Last in, first out and lower of cost or market inventory adjustments
(4.3
)
19.2

(Gain) loss on disposal of assets
(2.6
)
1.5

Gain on hedging activities, net of cash settlements
(61.0
)
(58.0
)
Debt refinancing expense
8.1


Deferred income taxes
0.1

5.4

Share-based compensation expense
3.0

3.5

Excess tax benefit related to share-based payment arrangements

(0.7
)
Changes in other assets
(3.4
)
(6.9
)
Changes in pension, other post-retirement and other long-term liabilities
1.1

(2.3
)
Changes in current operating assets and liabilities:
 
 
Accounts receivable, net
(29.0
)
(18.0
)
Inventories, net
(8.7
)
(28.6
)
Taxes receivable and taxes payable
(4.2
)
(7.1
)
Other current assets
22.2

(18.1
)
Accounts payable
4.5

28.3

Accrued liabilities
(33.6
)
14.3

Cash provided by (used in) operating activities
(18.3
)
76.6

INVESTING ACTIVITIES
 
 
Capital expenditures
(41.9
)
(29.3
)
Proceeds from sale of property, plant and equipment
4.8

2.4

Cash used in investing activities
(37.1
)
(26.9
)
FINANCING ACTIVITIES
 
 
Proceeds from issuance of common shares
0.2

0.6

Dividends paid to shareholders
(89.5
)

Distributions paid to share-based award holders
(3.1
)

Repurchase of shares
(0.3
)

Repayments of long-term debt
(154.0
)

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 (used in) financing activities
63.3

1.3

Change in cash and cash equivalents
7.9

51.0

Cash and cash equivalents, beginning of period
42.7

33.8

Cash and cash equivalents, end of period
50.6

84.8

See accompanying notes
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.

6

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 June 30, 2012
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
13.0

55.9

143.9

158.9



371.7

Intersegment
19.3

37.3

18.3



(74.9
)

Total sales
32.3

93.2

162.2

158.9


(74.9
)
371.7

 
 
 
 
 
 
 
 
Capital expenditures
2.7

3.9

8.0

4.9

0.8


20.3

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
1.4

13.7

23.1

14.6

(6.3
)
2.6

49.1

Depreciation and amortization
(2.2
)
(5.3
)
(11.1
)
(4.8
)
(0.3
)

(23.7
)
Last in, first out and lower of cost or market inventory adjustments


1.0

(1.6
)


(0.6
)
Gain (loss) on disposal of assets


(1.1
)
4.3



3.2

Non-cash pension, accretion and stock compensation
(0.1
)
(0.2
)
(1.3
)
(1.1
)
(1.3
)

(4.0
)
Relocation and severance



(0.1
)
(0.1
)

(0.2
)
Consulting fees







Cash settlements on hedging transactions


0.5

2.8



3.3

Other, net

(0.3
)
0.1

0.1


(2.0
)
(2.1
)
Operating income (loss)
(0.9
)
7.9

11.2

14.2

(8.0
)
0.6

25.0

Interest expense, net
8.8

Gain on hedging activities, net
(22.4
)
Debt refinancing expense

Total other income, net
(13.6
)
Income before income taxes
38.6


7

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Three months ended June 30, 2011
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
17.8

60.5

174.3

173.7



426.3

Intersegment
18.6

48.7

18.3



(85.6
)

Total sales
36.4

109.2

192.6

173.7


(85.6
)
426.3

 
 
 
 
 
 
 
 
Capital expenditures
2.3

3.0

6.1

3.7

0.7


15.8

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
6.0

27.6

48.0

16.2

(7.2
)
(2.1
)
88.5

Depreciation and amortization
(2.8
)
(5.2
)
(11.6
)
(4.6
)
(0.3
)

(24.5
)
Last in, first out and lower of cost or market inventory adjustments


(3.6
)
(2.4
)

(3.1
)
(9.1
)
Gain (loss) on disposal of assets
0.7


(0.7
)
(0.4
)


(0.4
)
Non-cash pension, accretion and stock compensation
(0.2
)
(0.2
)
(0.7
)
(0.6
)
(1.6
)

(3.3
)
Relocation and severance

(0.1
)

(0.1
)


(0.2
)
Consulting fees




(0.1
)

(0.1
)
Cash settlements on hedging transactions


(0.2
)
(1.4
)


(1.6
)
Other, net
0.1


(0.3
)
0.1

(0.2
)
3.6

3.3

Operating income (loss)
3.8

22.1

30.9

6.8

(9.4
)
(1.6
)
52.6

Interest expense, net
5.5

Gain on hedging activities, net
(24.3
)
Debt refinancing expense

Total other income, net
(18.8
)
Income before income taxes
71.4


8

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Six months ended June 30, 2012
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
23.7

113.5

284.0

304.0



725.2

Intersegment
41.8

74.2

40.1



(156.1
)

Total sales
65.5

187.7

324.1

304.0


(156.1
)
725.2

 
 
 
 
 
 
 
 
Capital expenditures
4.0

8.2

20.7

7.7

1.3


41.9

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
3.6

27.4

48.8

29.1

(15.0
)
(0.2
)
93.7

Depreciation and amortization
(4.2
)
(10.5
)
(21.9
)
(9.3
)
(0.7
)

(46.6
)
Last in, first out and lower of cost or market inventory adjustments


4.4

0.4


(0.5
)
4.3

Gain (loss) on disposal of assets


(1.6
)
4.2



2.6

Non-cash pension, accretion and stock compensation
(0.1
)
(0.4
)
(2.7
)
(2.4
)
(3.5
)

(9.1
)
Relocation and severance


(0.2
)
(0.1
)
(0.1
)

(0.4
)
Consulting fees




(0.5
)

(0.5
)
Cash settlements on hedging transactions


0.5

4.0



4.5

Other, net

(0.4
)
0.1

0.1

(0.2
)
0.5

0.1

Operating income (loss)
(0.7
)
16.1

27.4

26.0

(20.0
)
(0.2
)
48.6

Interest expense, net
15.3

Gain on hedging activities, net
(37.1
)
Debt refinancing expense
8.1

Total other income, net
(13.7
)
Income before income taxes
62.3


9

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Six months ended June 30, 2011
 
Bauxite
Alumina
Primary Aluminum
Flat-Rolled Products
Corporate
Eliminations
Consolidated
 
$
$
$
$
$
$
$
Sales:
 
 
 
 
 
 
 
External customers
34.6

121.6

339.6

325.1



820.9

Intersegment
39.9

91.5

33.8



(165.2
)

Total sales
74.5

213.1

373.4

325.1


(165.2
)
820.9

 
 
 
 
 
 
 
 
Capital expenditures
5.4

5.3

12.2

5.7

0.7


29.3

 
 
 
 
 
 
 
 
Reconciliation of segment profit (loss) to operating income:
 
 
 
 
 
 
 
Segment profit (loss)
12.4

50.5

95.8

29.7

(13.8
)
(4.0
)
170.6

Depreciation and amortization
(4.4
)
(10.4
)
(23.3
)
(9.4
)
(0.6
)

(48.1
)
Last in, first out and lower of cost or market inventory adjustments


(8.4
)
(8.3
)

(2.5
)
(19.2
)
Loss on disposal of assets
0.7


(1.2
)
(1.0
)


(1.5
)
Non-cash pension, accretion and stock compensation
(0.3
)
(0.3
)
(1.4
)
(1.2
)
(3.8
)

(7.0
)
Relocation and severance

(0.2
)
(0.2
)
(0.1
)
(0.1
)

(0.6
)
Consulting fees




(0.4
)

(0.4
)
Cash settlements on hedging transactions


(0.4
)
(2.4
)


(2.8
)
Other, net

(0.2
)
(0.2
)

(0.2
)
3.6

3.0

Operating income (loss)
8.4

39.4

60.7

7.3

(18.9
)
(2.9
)
94.0

Interest expense, net
11.2

Gain on hedging activities, net
(46.1
)
Debt refinancing expense

Total other income, net
(34.9
)
Income before income taxes
128.9


 
June 30, 2012
December 31, 2011
Segment assets:
$
$
Bauxite
149.7

148.3

Alumina
245.6

241.7

Primary Aluminum
557.8

574.5

Flat-Rolled Products
393.7

367.5

Corporate
101.3

83.6

Eliminations
(42.5
)
(38.1
)
Total assets
1,405.6

1,377.5


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):

10

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Three months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Depreciation of property, plant and equipment
20.9

21.1

41.1

42.6

Amortization of intangible assets
1.5

1.5

3.0

3.0

Amortization of other long-term assets
1.3

1.9

2.5

2.5

Total depreciation and amortization
23.7

24.5

46.6

48.1

Cash paid for interest and income taxes was as follows (in millions):
 
Six months ended June 30,
 
2012
2011
 
$
$
Interest paid
15.1

1.4

U.S. Federal and state income taxes paid, net of refunds received
25.1

42.3

Jamaican income taxes paid

4.0

Purchases of property, plant and equipment accrued in accounts payable and not yet paid were $5.6 million and $3.0 million for the six months ended June 30, 2012 and 2011, respectively, and were not reflected as capital expenditures in the unaudited consolidated statements of cash flows. For the six months ended June 30, 2012 and 2011, we capitalized interest of $0.6 million and $0.3 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 six months ended June 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
(3.4)
1.2
(2.2)
Reclassification of amounts realized in net income
5.7
(2.1)
(39.0)
14.2
(21.2)
Balance, June 30, 2012
(158.1)
59.1
51.7
(18.5)
(65.8)

Consolidated balance sheets:
Cash and cash equivalents consisted of the following (in millions):
 
June 30,
December 31,
 
2012
2011
 
$
$
Cash
30.6

39.8

Money market funds
20.0

2.9

Total cash and cash equivalents
50.6

42.7


11

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

Accounts receivable, net, consisted of the following (in millions):
 
June 30,
December 31,
 
2012
2011
 
$
$
Trade
136.6

107.7

Allowance for doubtful accounts
(0.1
)
(0.1
)
Total accounts receivable, net
136.5

107.6

Other current assets consisted of the following (in millions):
 
June 30,
December 31,
 
2012
2011
 
$
$
Current foreign deferred tax asset
3.3

3.3

Employee loans receivable, net
2.3

2.2

Current derivative assets (see Note 11, "Derivative Financial Instruments")
4.9

2.0

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

30.1

Other current assets
3.6

3.7

Total other current assets
14.1

41.3

Other assets consisted of the following (in millions):
 
June 30,
December 31,
 
2012
2011
 
$
$
Deferred financing costs, net of amortization
10.7

8.1

Cash surrender value of life insurance
25.3

25.1

Pension asset (see Note 10, "Pensions and Other Post-Retirement Benefits")
7.3

7.0

Restricted cash (see Note 9, "Asset Retirement and Other Obligations")
12.9

12.7

Supplies
13.8

12.7

Prepaid Jamaican income taxes
6.0

6.0

Derivative assets (see Note 11, "Derivative Financial Instruments")
0.5


Other
9.5

10.0

Total other assets
86.0

81.6

Accrued liabilities consisted of the following (in millions):
 
June 30,
December 31,
 
2012
2011
 
$
$
Compensation and benefits
16.6

22.5

Workers’ compensation
5.2

4.6

Other operating expenses
13.8

11.1

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

30.1

Accrued interest
2.1

2.4

Asset retirement obligations (see Note 9, "Asset Retirement and Other Obligations")
2.2

1.8

Land obligation (see Note 9 "Asset Retirement and Other Obligations")
4.9

4.3

Reclamation obligation (see Note 9, "Asset Retirement and Other Obligations")
1.5

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")
5.0

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")

0.2

Total accrued liabilities
54.0

87.3


12

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

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

0.8

Workers’ compensation
14.3

13.1

Asset retirement obligations (see Note 9, "Asset Retirement and Other Obligations")
13.7

13.9

Land obligation (see Note 9, "Asset Retirement and Other Obligations")
9.4

8.9

Reclamation obligation (see Note 9, "Asset Retirement and Other Obligations")
1.6

1.8

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

2.2

Deferred compensation and other
6.6

5.5

Total other long-term liabilities
48.6

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):
 
June 30, 2012
 
Level 1
Level 2
Level 3
Total
 
$
$
$
$
Cash equivalents
20.0



20.0

Derivative assets

6.8


6.8

Derivative liabilities

(27.3
)

(27.3
)
Total
20.0

(20.5
)

(0.5
)
 
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 are temporary cash investments with high credit quality financial institutions, which include money market funds invested in U.S. treasury securities, short-term treasury bills and commercial paper. These instruments are valued based upon unadjusted, quoted prices in active markets and are classified within Level 1.
Fair values of all derivative instruments are classified as Level 2 and are primarily measured using industry standard models that incorporate 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 is based on recent market transactions and is 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 are based on interest rates available at each balance sheet date. These instruments are also classified as Level 2.
We had no transfers between fair value hierarchy levels during second 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 25% and 26% of total inventories, at cost, at June 30, 2012 and December 31, 2011, respectively.
Inventories, net, consisted of the following (in millions):
 
June 30,
December 31,
 
2012
2011
 
$
$
Raw materials, at cost
74.1

71.2

Work-in-process, at cost
58.7

51.7

Finished goods, at cost
22.7

26.3

Total inventories, at cost
155.5

149.2

Last in first out adjustment
16.7

10.3

Lower of cost or market reserve
(13.2
)
(11.5
)
Inventories, at lower of cost or market
159.0

148.0

Supplies
38.8

38.5

Total inventories, net
197.8

186.5


6.    PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following (in millions):
 
Estimated useful lives in years
June 30,
December 31,
 
2012
2011
 
$
$
Land
49.3

49.2

Buildings and improvements
10
47
148.7

128.2

Machinery and equipment
3
50
857.4

831.3

Construction in progress
40.3

59.1

Property, plant and equipment, at cost
1,095.7

1,067.8

Accumulated depreciation
(400.4
)
(368.0
)
Total property, plant and equipment, net
695.3

699.8


7.
COMMITMENTS AND CONTINGENCIES
Labor Commitments
We are a party to six collective bargaining agreements, each of which expire 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.
The five-year contract in place with the USWA, representing our unionized employees at the New Madrid smelter, will expire in August 2012. This contract covers approximately 80% of our New Madrid workforce.
The three-year contract in place with the USWA, representing our unionized employees at the Salisbury rolling mill, will expire in November 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 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.
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. We had no disputed amounts held in escrow as of June 30, 2012.
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, $30.0 million of 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.
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):
 
June 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
321.9

321.9

5.75
%
78.2

78.2

2.05
%
Revolver


 


 
Total debt, net
597.2

 
 
428.5

 


Less: Current portion
(3.3
)
 
 
(2.4
)
 
 
Long-term debt, net
593.9

 
 
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 June 30, 2012, we had $321.9 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 June 30, 2012. Availability under the 2012 Revolver is subject to a calculated borrowing base, which totaled $165.5 million as of June 30, 2012.

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):
 
Six months ended June 30, 2012
 
$
Balance, beginning of period
4.6

Additional liabilities incurred
1.0

Liabilities settled
(2.6
)
Accretion
0.1

Balance, end of period
3.1

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):

13

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Six months ended June 30, 2012
 
$
Balance, beginning of period
13.2

Additional liabilities incurred
1.6

Liabilities settled
(0.5
)
Balance, end of period
14.3

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):
 
Six months ended June 30, 2012
 
$
Balance, beginning of period
15.7

Additional liabilities incurred
0.5

Liabilities settled
(0.7
)
Accretion
0.4

Balance, end of period
15.9

As of June 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 June 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 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.
Net periodic benefit costs related to the pension plans included the following (in millions):
 
Noranda Pension Plans
St. Ann Pension Plans
 
Three months ended June 30,
Three months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
3.5

2.6

0.2

0.1

Interest cost
4.4

4.6

0.4

0.3

Expected return on plan assets
(4.8
)
(4.9
)
(0.6
)
(0.4
)
Recognized actuarial loss
2.7

1.3



Amortization of prior service cost
0.1

0.1


0.1

Net periodic cost
5.9

3.7


0.1


14

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Noranda Pension Plans
St. Ann Pension Plans
 
Six months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
6.6

5.2

0.4

0.3

Interest cost
8.9

9.2

0.8

0.7

Expected return on plan assets
(9.5
)
(9.8
)
(1.1
)
(0.9
)
Recognized actuarial loss
5.5

2.6



Amortization of prior service cost
0.2

0.2


0.1

Net periodic cost
11.7

7.4

0.1

0.2

Net periodic benefit costs related to the OPEB plans included the following (in millions):
 
Noranda OPEB Plans
St. Ann OPEB Plans
 
Three months ended June 30,
Three months ended June 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

 
Noranda OPEB Plans
St. Ann OPEB Plans
 
Six months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Service cost
0.2

0.2

0.2

0.2

Interest cost
0.3

0.2

0.2

0.4

Recognized actuarial loss



0.1

Net periodic cost
0.5

0.4

0.4

0.7

Expected Employer Contributions
We contributed $14.6 million and $0.3 million to the Noranda Pension Plans and the St. Ann Pension Plans, respectively, during the six months ended June 30, 2012. We are currently evaluating our pension funding for the remainder of 2012 in light of recent legislation.

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 June 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 June 30, 2012, our outstanding fixed-price aluminum customer contracts were as follows:

15

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Average hedged price
per pound
Pounds hedged
Year
$
(in millions)
2012
1.05

33.3

2013
1.07

31.7

As of June 30, 2012, our outstanding variable-price aluminum offset swaps were as follows:
 
Average hedged price
per pound
Pounds hedged
Year
$
(in millions)
2012
0.98

45.7

2013
0.97

32.4

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

4.1

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 June 30, 2012, 7.1 million BTUs remain 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):
 
June 30, 2012
December 31, 2011
 
$
$
Fixed-price aluminum customer contracts
5.3

2.0

Variable-price aluminum offset swaps
(7.9
)
(7.5
)
Natural gas swaps
(18.1
)
(33.5
)
Natural gas fixed-price contract
0.2


Total
(20.5
)
(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):
 
June 30, 2012
December 31, 2011
 
$
$
Current derivative assets
6.1

2.5

Current derivative liabilities
(26.7
)
(41.4
)
Current derivative assets (liabilities), net
(20.6
)
(38.9
)
Long-term derivative assets
0.7


Long-term derivative liabilities
(0.6
)
(0.1
)
Long-term derivative assets (liabilities), net
0.1

(0.1
)

16

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

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):
 
June 30, 2012
December 31, 2011
 
Hedges that qualify for hedge accounting
Hedges that do not qualify
for hedge accounting
Hedges that qualify for hedge accounting
Hedges that do not qualify
for hedge accounting
 
Asset
Liability
Asset
Liability
Asset
Liability
Asset
Liability
Fixed-price aluminum customer contracts


5.3




2.0


Variable-price aluminum offset swaps


1.3

(9.2
)


0.5

(8.0
)
Natural gas swaps

(5.8
)

(12.3
)

(21.9
)

(11.6
)
Natural gas fixed-price contract


0.2






Total

(5.8
)
6.8

(21.5
)

(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.
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.
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 June 30, 2012 that were reported as a component of AOCI and are expected to be reclassified into earnings during the year ending December 31, 2012 (in millions):
 
 
Net unrealized gains (losses) on cash flow hedges, pre-tax, in AOCI
 
 
 
 
$
 
Fixed-price aluminum swaps
63.9

 
Natural gas swaps
(12.2
)
 
Total
51.7

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.
The following table presents how our hedging activities affected our unaudited consolidated statements of operations for each period (in millions):

17

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
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 June 30, 2011:
 
 
 
Fixed-price aluminum swaps
(30.1
)

(30.1
)
Variable-price aluminum offset swaps

1.3

1.3

Natural gas swaps
3.4

1.0

4.4

Interest rate swaps

0.1

0.1

Total
(26.7
)
2.4

(24.3
)
Three months ended June 30, 2012:
 
 
 
Fixed-price aluminum swaps
(29.2
)

(29.2
)
Fixed-price aluminum customer contracts

(3.8
)
(3.8
)
Variable-price aluminum offset swaps

7.1

7.1

Natural gas swaps
6.9

(0.8
)
6.1

Natural gas fixed-price contract

(2.6
)
(2.6
)
Total
(22.3
)
(0.1
)
(22.4
)
 
 
 
 
Six months ended June 30, 2011:
 
 
 
Fixed-price aluminum swaps
(53.4
)

(53.4
)
Variable-price aluminum offset swaps

(1.1
)
(1.1
)
Natural gas swaps
7.0

1.3

8.3

Interest rate swaps

0.1

0.1

Total
(46.4
)
0.3

(46.1
)
Six months ended June 30, 2012:
 
 
 
Fixed-price aluminum swaps
(52.2
)

(52.2
)
Fixed-price aluminum customer contracts

(3.2
)
(3.2
)
Variable-price aluminum offset swaps

4.1

4.1

Natural gas swaps
13.2

1.2

14.4

Natural gas fixed-price contract

(0.2
)
(0.2
)
Total
(39.0
)
1.9

(37.1
)

12.    SHAREHOLDERS' EQUITY
Dividends declared and paid during the six months ended June 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

On July 24, 2012, the Board declared a regular quarterly dividend of $0.04 per share to be paid on August 29, 2012 to shareholders of record as of August 6, 2012. Cash payments related to this dividend will total approximately $2.7 million

13.    SHARE-BASED PAYMENTS
We recorded stock compensation expense as follows (in millions):

18

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
Three months ended June 30,
Six months ended June 30,
 
2012
2011
2012
2011
 
$
$
$
$
Stock options
0.1

0.5

0.3

2.0

Restricted stock and restricted stock unit equity awards
0.7

0.7

2.5

1.0

Restricted stock unit liability awards

0.3

0.2

0.5

Total stock compensation expense
0.8

1.5

3.0

3.5

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 first and second quarter 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 date. These additional shares or units are subject to the same vesting conditions as the underlying award.
As of June 30, 2012, total unrecognized stock compensation expense related to share-based payment awards was $6.8 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 June 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
(120,320
)
1.73

1.0




Outstanding, June 30, 2012
1,517,111

1.91

9.2

140,000

9.00


Fully vested and exercisable, June 30, 2012 (weighted-average remaining contractual term of 4.3 years and 5.3 years, respectively)
1,124,279

2.09

6.6

140,000

9.00


Options that were not in-the-money at December 31, 2011 and June 30, 2012, and therefore have a negative intrinsic value, have been excluded from intrinsic value calculations.
Restricted stock and RSU equity award activity was as follows:

19

NORANDA ALUMINUM HOLDING CORPORATION
Condensed Notes to Unaudited Consolidated Financial Statements

 
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
6,539

9.30

92,034

Vested (aggregate intrinsic value of $1.4 million)
(122,624
)
14.25


Forfeited
(5,023
)
14.32

(1,707
)
Non-vested, June 30, 2012 (aggregate intrinsic value of $12.6 million)
766,117

12.51

813,246

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 June 30, 2012, because the performance conditions had not yet been determined.
As of December 31, 2011, our accrued liabilities in the accompanying unaudited consolidated balance sheets included $0.2 million related to RSU liability awards. At June 30, 2012, the fair value of non-vested RSU liability awards was immaterial.
RSU liability award activity was as follows:
 
RSUs
 
#
Non-vested, December 31, 2011
34,148

Granted
25,000

Dividend equivalent units granted
294

Vested
(34,442
)
Non-vested, June 30, 2012
25,000


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 June 30,
Six months ended June 30,
 
2012
2011
2012
2011
Net income
$
25.3

$
47.4

$
41.5

$
85.7

Weighted-average common shares outstanding: