Century Aluminum Company — FY2012 Form 10-K
Business context and reporting period. This annual filing covers the year ended December 31, 2012; quarterly figures below identify the fourth quarter. Century produces primary aluminum and reports one segment. Rated primary-aluminum capacity was 785,000 metric tons per year, including 170,000 metric tons at the fully curtailed Ravenswood smelter; 2012 production was approximately 647,000 metric tons. Grundartangi produced approximately 284,000 metric tons. Three customers—Glencore, Southwire and BHP Billiton—accounted for approximately 85% of sales.
Financial results and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $1,272.1 million | $1,356.4 million |
| Gross profit / margin | $46.3 million / 3.6% | $89.5 million / 6.6% |
| Operating income (loss) / margin | ($7.3) million / (0.6)% | $47.3 million / 3.5% |
| Net income (loss) | ($35.6) million; ($0.40) per share | $11.3 million; $0.11 per share |
| Operating cash flow | $37.1 million | ($2.9) million |
| Investing cash flow | ($32.5) million | ($24.9) million |
| Cash and cash equivalents, year-end | $184.0 million | $183.4 million |
| Total debt, including contingent E.ON obligation | $273.8 million | $271.3 million |
Fourth-quarter 2012 sales were $317.7 million, gross profit was $16.5 million and net loss was $6.9 million ($0.08 per share). The filing reports current assets of $487.4 million and current liabilities of $181.7 million at year-end. The revolving facility had no borrowings and approximately $50.0 million of net availability, after about $46.0 million of letters of credit. Approximately $252.2 million of notes principal matures in 2014; the facility matures in July 2014.
Material changes versus the prior year
- Sales declined $84.3 million, as lower aluminum price realizations reduced revenue by $196.9 million, partly offset by a $112.6 million benefit from higher sales volume. Direct shipments rose to 377,314 metric tons from 334,889.
- Average LME aluminum price fell to $2,020 per metric ton from $2,398. Lower realizations, net of LME-linked alumina and power cost reductions, reduced gross profit by $138.1 million; cost savings and reversal of the prior-year inventory reserve partly offset the decline.
- Operating cash flow improved from a $2.9 million use to $37.1 million, mainly because the 2011 working-capital build associated with the Hawesville restart did not recur and Iceland withholding-tax payments were lower.
- Century purchased the Vlissingen anode facility for approximately $12.5 million and spent $13.8 million on its assets and improvements. Year-end shareholders’ equity fell to $982.6 million from $1,038.3 million, reflecting the net loss and other comprehensive loss.
Outlook, management commentary and key risks
- Management identified competitive electricity costs as critical. Hawesville’s power costs were considered among the highest U.S. smelter rates; Century gave notice to terminate its power contract effective August 2013 and was negotiating wholesale-market access. Failure to secure acceptable power could lead to curtailment or closure.
- Mt. Holly amended its power agreement to permit supplemental power from a natural-gas-fired facility through 2015; any benefit depends on natural gas costs relative to Santee Cooper’s system fuel costs.
- The Helguvik project remained substantially curtailed pending resolution of power-supply conditions. Approximately $146 million had been capitalized through year-end; management estimated cancellation exposure of approximately $15 million and expected about $1 million per quarter of project spending until major construction restarts. Completion timing and feasibility were uncertain.
- Management expected 2013 recurring capital spending of approximately $40–$45 million, excluding Helguvik and Vlissingen. It planned approximately $35 million of 2013 capital expenditures to restart Vlissingen’s initial 75,000 metric tons of annual anode capacity, targeted for late 2013; a further approximately $10 million over three years was planned for additional capacity.
- Other significant risks include volatile aluminum prices and high inventories; take-or-pay power and supply commitments; dependence on a few customers; the 2014 debt refinancing requirement; Icelandic currency-transfer and power-contract issues; underfunded pension and postretirement obligations; environmental and litigation contingencies; and potential asset impairment. Century reported $1.2 billion of federal net operating loss carryforwards, subject to potential ownership-change limitations.
- Auditors issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether Century secured economically viable, reliable power for Hawesville and avoided or proceeded with curtailment or closure.
- Progress on refinancing or repaying the approximately $252 million of 2014 note maturities and maintaining revolving-credit availability.
- Resolution of the Helguvik power-supply disputes, project schedule and funding needs, and the recoverability of capitalized project costs.
- Whether aluminum prices, regional premiums, shipment volumes and production costs support a return to profitability and positive operating cash flow.
- Actual Vlissingen restart timing and spending, plus exposure to pension, PBGC, legal and environmental claims or other contingencies.