Century Aluminum Company — FY2015 Form 10-K
Business context and reporting period: The filing covers the fiscal year ended December 31, 2015; quarterly figures below identify the fourth quarter. Century produces primary aluminum at smelters in the U.S. and Iceland and operates a carbon-anode facility in the Netherlands. It reported one segment. Annual primary-aluminum capacity was approximately 1.013 million tonnes, with 267,000 tonnes curtailed at year-end; 2015 production was approximately 936,000 tonnes.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $1.950 billion | $1.931 billion |
| Gross profit / margin | $41.3 million / 2.1% | $201.8 million / 10.5% |
| Operating income (loss) | $(39.1) million | $140.1 million |
| Net income (loss) | $(59.3) million | $126.5 million |
| Diluted EPS | $(0.68) | $1.30 |
| Adjusted EBITDA (non-GAAP) | $99.7 million | $215.3 million |
| Operating cash flow | $31.9 million | $207.7 million |
| Capital expenditures | $54.7 million | $55.1 million |
Fourth-quarter 2015 sales were $383.9 million, gross loss was $18.7 million, and net loss was $43.1 million, or $0.50 per diluted share. By comparison, fourth-quarter 2014 net income was $75.8 million.
Cash and cash equivalents were $115.4 million at year-end, down from $163.2 million. Total assets were $1.752 billion and shareholders’ equity was $1.018 billion. Total debt was $255.1 million, including $247.3 million of 7.5% senior secured notes due 2021 and $7.8 million of industrial revenue bonds. No principal payments on long-term borrowings were due in the next five years. The company reported no revolving-credit borrowings and approximately $85 million of combined net availability, subject to borrowing-base limits and letters of credit. Current assets were $448.1 million and current liabilities $167.3 million.
Aluminum market prices weakened: average LME aluminum price fell 11% to $1,663 per tonne; the Midwest premium declined to $279 from $450 per tonne. Direct-shipment average realized price fell to $2,169 per tonne from $2,333. Sales increased slightly, principally reflecting the full-year contribution of Mt. Holly, but lower pricing and costs weighed heavily on profitability.
Material changes and unusual items
- Hawesville was partially curtailed in Q4 and operated at approximately 40% of capacity; Mt. Holly was curtailed to 50% because of power costs and supply uncertainty. Ravenswood was permanently closed in 2015.
- FY2015 results included a $30.9 million Ravenswood impairment and closure charge, $13.1 million of Hawesville labor-disruption costs, $7.6 million of curtailment costs, an $11.6 million impairment of the BHH joint-venture investment, and a $7.5 million inventory valuation charge. The company also recognized an $18.3 million gain on Mt. Holly contingent consideration, a non-cash item.
- Gross profit was adversely affected by $150.1 million from lower price realization and $55.4 million from alumina pricing; higher shipment volume contributed $28.5 million favorably. Lower power and natural-gas costs partly offset operating pressures.
- Cash from operations declined substantially, including a $34.6 million Mt. Holly pension contribution. Investing cash use fell to $43.4 million, partly because 2014 included the Mt. Holly acquisition. Financing cash use of $36.4 million was primarily share repurchases.
Outlook, risks and contingencies
- Management expected FY2016 capital spending of approximately $20–25 million, primarily for Iceland expansion and North American projects. It expected Hawesville and Mt. Holly curtailments to significantly reduce 2016 production versus 2015. No earnings or aluminum-price guidance was provided.
- Mt. Holly’s third-party power supply contract ran through May 31, 2016; the filing warns that failure to secure competitive longer-term power could lead to further or full curtailment. Hawesville and Sebree power costs are market-based and exposed to price volatility.
- Helguvik construction remained curtailed pending resolution of power-contract conditions. A supplier’s arbitration challenging its power agreement was ongoing. Approximately $148 million had been invested; estimated cancellation exposure was about $20 million, with approximately $11.9 million accrued.
- Glencore accounted for approximately 96% of 2015 consolidated sales and also supplied a significant portion of alumina. Glencore owned 42.9% of common stock and all Series A preferred stock, representing 47.5% economic ownership.
- Other material risks include aluminum-price and Chinese oversupply exposure, take-or-pay and other contractual commitments, access to financing, Icelandic currency-transfer restrictions, pension and retiree-benefit obligations, and environmental and litigation matters. Management said current environmental liabilities were not expected to be material, but outcomes and future requirements remain uncertain.
- The company had approximately $1.47 billion of federal NOL carryforwards, but realization is uncertain and could be limited by an ownership change. A $768.8 million valuation allowance applied to deferred tax assets.
Important facts for investors to verify
- Whether Mt. Holly secured competitive power after May 31, 2016, and the resulting operating rate, collateral requirements, and liquidity impact.
- How aluminum prices, regional premiums, alumina costs, and market-based electricity prices affect margins and cash generation under the reduced operating configuration.
- Progress on Helguvik power negotiations and arbitration, project commitments, cancellation exposure, and any impairment decision.
- Whether Glencore continues purchasing substantially all production under the sales agreements and the implications of customer, supplier, and ownership concentration.
- Reconciliation of Q4 inventory valuation effects: the quarterly discussion reports a favorable $23.5 million adjustment, while annual results report a $7.5 million inventory valuation charge; verify the period-specific accounting detail in the financial statements and notes.