CENX

Century Aluminum Company 2009 10-K Summary

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2009. Century Aluminum Company is a primary aluminum producer with operations in the United States (Hawesville, Kentucky; Ravenswood, West Virginia; Mt. Holly, South Carolina) and Iceland (Grundartangi). The company operates in a single reportable segment: primary aluminum. The reporting period was characterized by a severe global economic downturn, a 62% drop in LME aluminum prices from 2008 highs, and significant operational restructuring.

Key Financial Metrics

Note: 2008 results were significantly impacted by a $744.4 million net loss on forward contracts and a $515.1 million tax adjustment. 2009 results include a $73.2 million loss on the disposition of joint ventures and $41.7 million in curtailment costs.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 54% ($1.07 billion) primarily due to lower aluminum prices (down 35% on average) and reduced shipment volumes resulting from capacity curtailments.
• Operational Restructuring: The company fully curtailed operations at the Ravenswood facility (170,000 mtpy) in February 2009 and one potline at Hawesville (49,000 mtpy) in March 2009. Total active capacity was reduced to approximately 566,000 mtpy.
• Joint Venture Disposition: In September 2009, the company sold its 50% interest in Gramercy Alumina and St. Ann Bauxite to Noranda, recording a $73.2 million loss.
• Debt Restructuring: The company exchanged approximately $128 million of 1.75% convertible notes for common stock and exchanged approximately $243 million of 7.5% notes for new 8.0% senior secured notes.
• Power Contract Gain: A $57.8 million after-tax benefit was recorded related to the termination of a previous power contract and the execution of a new long-term agreement at Hawesville.

Guidance, Outlook, and Risks

Outlook and Management Commentary: Management states that cost reduction actions combined with available cash provide adequate liquidity for 2010. The company is evaluating the Helguvik smelter project in Iceland and has significantly reduced spending, with 2010 capital expenditures for the project estimated at $40-$45 million pending a decision to restart major construction. The company expects to have a new revolving credit facility in place before the current one matures in September 2010.

Key Risks and Contingencies:

• Liquidity and Debt: The company has approximately $307 million in outstanding debt. The revolving credit facility availability is constrained by curtailments reducing the borrowing base. Holders of 1.75% notes have the option to require repurchase at par in August 2011.
• Aluminum Prices: Continued declines in LME prices could force further curtailments. The company's operating costs have not fallen as sharply as aluminum prices.
• Helguvik Project: Significant delays or failure to secure power and financing could render the project infeasible, potentially requiring a write-down of the $108 million capitalized to date.
• Legal Proceedings: The company faces a consolidated shareholder class action regarding accounting for forward contract terminations and an EPA Notice of Violation regarding Clean Air Act standards at Hawesville.
• International Risks: Deteriorating economic conditions in Iceland and changes in Icelandic tax law (increasing liabilities for 2010-2012) pose significant risks.

Investor Verification Checklist

• Liquidity Runway: Verify the sufficiency of the $198 million cash balance and $41 million credit facility availability against the $307 million debt load and ongoing curtailment costs.
• Debt Maturity Wall: Confirm the status of refinancing the revolving credit facility (due Sept 2010) and the potential cash outflow for the 1.75% note repurchase option (Aug 2011).
• Helguvik Viability: Assess the likelihood of restarting the Helguvik project given the $108 million sunk cost and the requirement for additional financing.
• Customer Concentration: Note that 70% of 2009 sales came from three customers (Southwire, Glencore, BHP Billiton), creating significant concentration risk.
• Legal Exposure: Monitor the outcome of the shareholder class action and the EPA investigation at Hawesville for potential material liabilities.