Century Aluminum Company — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless noted. Century produces primary aluminum. Ravenswood remained curtailed; Hawesville restart activity contributed to higher direct shipments. Figures below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Net sales | $326.2 million | $326.3 million |
| Gross profit | $20.6 million | $42.3 million |
| Operating income | $8.4 million | $37.6 million |
| Net income (loss) | $(4.4) million | $25.0 million |
| Basic and diluted EPS | $(0.05) | $0.25 |
| Operating cash flow | $4.9 million | $(3.6) million |
| Investing cash flow | $(1.7) million | $(7.2) million |
| Cash and equivalents | $182.5 million | $183.4 million at Dec. 31, 2011 |
| Total current assets / current liabilities | $486.4 million / $189.5 million | $488.3 million / $193.4 million at Dec. 31, 2011 |
| Debt and contingent obligation | $271.9 million | $271.3 million at Dec. 31, 2011 |
Gross margin fell to approximately 6.3% from 13.0%. Total primary aluminum shipments rose 11% to 159,967 metric tons. The filing reports no revolving-facility borrowings at quarter-end and approximately $52.9 million of availability, net of letters of credit; $41.5 million of letters of credit were outstanding. Senior notes include $249.8 million of 8.0% secured notes due May 2014; industrial revenue bonds are $7.8 million and classified current because of weekly remarketing. The $14.3 million E.ON obligation is contingent on Hawesville operations and aluminum prices.
Material changes and drivers
- Sales were essentially unchanged: lower aluminum price realizations reduced sales by $38.3 million, substantially offset by a $38.2 million benefit from higher shipment volumes.
- Gross profit declined $21.7 million. Lower price realizations, net of LME-linked alumina and power costs, reduced gross profit by $34.2 million; higher volume added $3.1 million. Net cost increases were $7.5 million, including higher materials, supplies, maintenance, power and natural gas costs.
- Cost of goods sold benefited by $17.1 million from inventory previously written down; management cited a $16.9 million quarter-to-quarter positive gross-profit effect from the inventory adjustment.
- Other operating expense was $3.7 million versus $5.9 million of income in Q1 2011. The prior-year period included $9.4 million of net Ravenswood benefits, largely related to retiree medical plan changes.
- Operating cash flow improved year over year, primarily due to lower Icelandic withholding-tax payments and lower pension and benefit contributions, partly offset by lower LME prices. Investing cash use decreased, including a $3.2 million receipt on advances to joint ventures. Financing cash use of $4.0 million reflected stock repurchases.
Outlook, risks and unusual items
- Management estimated 2012 capital spending, excluding Helguvik, at approximately $25–30 million. Helguvik spending was expected to continue at about $1 million per month until major construction resumes; timing depends on power availability, financing and other factors. Estimated cancellation exposure was approximately $20 million.
- The filing provides no earnings or revenue guidance. Management stated first-quarter results are not necessarily indicative of full-year results.
- Century had repurchased 4.79 million shares for $49.9 million under its $60 million program by March 31, leaving approximately $10.1 million authorized. It repurchased 400,000 shares during the quarter at an average $10.08 per share.
- Management expected approximately $9 million of 2012 contributions to sponsored qualified defined benefit plans; $3.9 million had been contributed through March 31. A PBGC dispute over whether Ravenswood’s curtailment constitutes a cessation of operations could accelerate pension contributions or require collateral or another arrangement.
- A proposed VEBA contribution arrangement for Ravenswood retirees is contingent on a facility restart and other events; neither restart nor finalization of the arrangement was certain. Management said it did not expect E.ON payments before 2019 based on then-current price and operating assumptions.
- Risks include aluminum-price and foreign-currency fluctuations, power and raw-material costs, Helguvik power-delivery conditions and financing, and environmental and legal matters. A former CEO’s lawsuit alleges severance payments exceeding $20 million and is in arbitration; Century disputed the claims. Certain St. Croix environmental and other litigation outcomes could not be estimated clearly, though management did not expect known legal matters to materially affect financial condition, results or liquidity.
- Unusual correction: The 10-Q reflects a non-cash depreciation correction that increased cost of goods sold by $625,000, reduced income-tax expense by $112,000, and increased the quarter’s net loss by $513,000 to $4.401 million.
Important facts for investors to verify
- Whether aluminum prices, premiums, input costs and shipment levels support a recovery in margins after the sharp year-over-year decline.
- Whether the Hawesville restart, Ravenswood status, and related power, pension and retiree-benefit obligations change.
- Helguvik’s power agreements, project schedule, financing needs and potential cancellation costs.
- Liquidity and refinancing plans ahead of the 2014 senior-note maturities, including the effect of letters of credit and borrowing-base changes.
- Developments in the PBGC discussions, former CEO arbitration, environmental claims, and the pending securities-litigation appeal.