CENX

Century Aluminum Company 2005 10-K Summary

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2005. Century Aluminum Company is a primary aluminum producer and the third-largest in North America. The company operates four primary aluminum facilities in the United States (Hawesville, Ravenswood, Mt. Holly) and one in Iceland (Nordural). It also holds a 50% joint venture interest in the Gramercy alumina refinery in Louisiana and related bauxite mining operations in Jamaica. As of March 10, 2006, Glencore International AG owned approximately 28.8% of the company's outstanding common stock.

Key Financial Metrics

Note: The 2005 Net Loss includes a significant non-cash mark-to-market charge of approximately $198.2 million (after-tax) on forward contracts that did not qualify for cash flow hedge accounting.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 7% to $1.132 billion, driven by higher LME aluminum prices and increased tolling revenue from the Nordural facility. This was partially offset by a decrease in direct shipment volumes.
• Profitability Decline: Despite higher sales, Gross Profit decreased by $23.6 million due to a $77.8 million increase in net costs, including higher raw material costs, increased Gramercy alumina costs, and higher power/natural gas expenses.
• Net Loss Driver: The company reported a net loss of $116.3 million compared to a net income of $33.5 million in 2004. The primary driver was a $309.7 million net loss on forward contracts (compared to a $21.5 million loss in 2004), largely due to mark-to-market adjustments on long-term financial sales contracts with Glencore.
• Debt Increase: Total debt increased by approximately $147.8 million, primarily due to new borrowings under Nordural's term loan facility to fund its expansion project.

Guidance, Outlook, and Risks

• Expansion Projects: The company is expanding the Nordural facility in Iceland, with a projected completion in Q4 2006. This will increase capacity from 90,000 to 220,000 metric tons. Further expansion to 260,000 metric tons is possible by late 2008.
• Cost Pressures: Management anticipates increased alumina costs as long-term contracts expire in 2006. Power costs are also a concern, with unpriced power requirements at Hawesville increasing in 2007-2010 and potential rate increases at Ravenswood.
• Labor Agreements: Key labor contracts at Hawesville and Ravenswood expire in March and May 2006, respectively, presenting a risk of disruption if not renegotiated.
• Market Risks: The company is highly exposed to the cyclical nature of aluminum prices, volatility in electricity and alumina costs, and foreign currency fluctuations (Icelandic krona and Euro) affecting Nordural's margins.
• Liquidity: The company relies on operating cash flow and available borrowings under its revolving credit facility and Nordural's term loan to meet obligations. High indebtedness limits flexibility for additional debt or dividends.

Key Facts for Investor Verification

• Forward Contract Exposure: Verify the specific terms and settlement dates of the forward contracts with Glencore that resulted in the $309.7 million mark-to-market loss, as these significantly impacted 2005 earnings.
• Nordural Expansion Funding: Confirm the funding sources for the remaining $134 million of capital expenditures required for the Nordural expansion in 2006 and the status of the $365 million term loan facility.
• Power Contract Renewals: Monitor the outcome of power contract negotiations for Hawesville (unpriced power for 2007-2010) and Ravenswood (rate case filed by Appalachian Power), as these are critical cost drivers.
• Alumina Supply: Track the renewal of alumina supply contracts for Ravenswood and Mt. Holly, which expire in late 2006, given the tight global alumina market.
• Customer Concentration: Note that the four largest customers (Alcan, Southwire, Glencore, BHP Billiton) accounted for 84.8% of 2005 sales; the loss of any major customer would be material.