Century Aluminum Company — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are included below. Century produces primary aluminum in the United States and Iceland and operates a carbon-anode facility in the Netherlands.
Financial performance and liquidity
- Revenue: $1.837 billion, down 3.0% from $1.893 billion in 2018. Aluminum shipments rose to 811,244 tonnes from 749,850 tonnes, but lower realized prices reduced sales. Average LME aluminum price fell to $1,792 per tonne from $2,110; the Midwest premium averaged $396 versus $420.
- Profitability: Gross loss was $23.9 million, compared with a $22.9 million gross loss in 2018. Operating loss was $72.1 million versus $59.0 million; net loss was $80.8 million, or $0.91 per diluted share, versus $66.2 million, or $0.76 per share. Gross, operating and net margins were approximately -1.3%, -3.9% and -4.4%, respectively.
- Fourth quarter: Revenue was $435.5 million, gross profit $6.7 million, and net loss $4.8 million ($0.05 per share). In Q4 2018, revenue was $486.9 million, gross loss $59.3 million, and net loss $65.0 million ($0.74 per share). The 2018 quarter included a $30.6 million inventory valuation adjustment.
- Cash flow: Operating cash flow was positive $17.7 million, versus negative $69.1 million in 2018. Management attributed the improvement mainly to lower inventory costs and reduced receivables from collection timing. Investing cash outflow was $38.8 million and financing cash inflow was $21.1 million; cash and restricted cash ended the year at $39.7 million.
- Balance sheet and debt: Total assets were $1.500 billion and shareholders’ equity $675.0 million. Total debt was $301.0 million, up from $279.7 million. This included $250 million of 7.5% senior secured notes due June 2021 and a $40 million Glencore term loan, with repayments beginning January 2020. The filing identifies refinancing and debt-service capacity as risks.
- Liquidity: Cash and cash equivalents were $38.9 million. Net availability under the U.S. and Iceland revolving facilities was $161.6 million at year-end; availability depends on eligible receivables and inventory. The company reported compliance with debt covenants.
Material changes versus prior year
- Lower LME prices drove $249.5 million of unfavorable sales-price realization, partly offset by $136.2 million from volume and product mix. Higher shipments reflected the Hawesville restart and Sebree’s return to full operations after its 2018 equipment outage.
- Lower alumina and other raw-material costs, power-price realizations and improved volume/mix partly offset lower aluminum prices; gross loss nevertheless widened by $1.0 million.
- Hawesville’s three previously curtailed potlines returned to production in early 2019. A second restart phase is rebuilding two older potlines and installing technology upgrades.
- Century sold its 40% interest in BHH, a Chinese carbon-anode and cathode joint venture, for $20.8 million cash and recorded a $4.3 million loss.
- Debt increased following the $40 million Hawesville loan from Glencore. Cash remained level year over year, while operating cash flow improved substantially.
Outlook, commentary and key risks
- Management expected the first rebuilt Hawesville potline to return to production in early 2020; completion of the final potline and technology upgrades was planned over several years, subject to market conditions. The full project was estimated at approximately $150 million: about $75 million for phase one and an additional $75 million for phase two.
- Estimated 2020 capital spending excluding the Hawesville restart was approximately $20 million. Management expected remaining restart costs to be funded by operating cash flow and existing cash. No earnings or aluminum-price guidance was provided.
- Mt. Holly operated at about 50% capacity because of uncompetitive power costs. Its power arrangements were due to expire at the end of 2020; failure to secure competitive long-term power could lead to further curtailments or closure.
- Key exposures include volatile aluminum prices and regional premiums, alumina and electricity costs, power interruptions, restart execution and funding, concentrated customers, labor negotiations, environmental obligations, and access to financing. Glencore accounted for approximately 65% of sales and held 42.9% of common stock (46.9% fully diluted); Southwire represented approximately 13% of sales.
- The $250 million notes mature in June 2021, creating a significant refinancing requirement. Certain contracts also have take-or-pay commitments. The filing describes litigation and environmental contingencies, including a Vernon, California case scheduled for trial in March 2020; management stated it could not estimate a reasonably possible loss range for that matter.
- The company reported a $492.4 million valuation allowance against U.S. and certain Icelandic deferred tax assets and approximately $1.520 billion of federal net operating loss carryforwards. Their usability may be limited by a tax-law ownership change.
Most important facts for investors to verify
- Progress, cost and funding of the Hawesville rebuild and expected production restart timing.
- Whether Mt. Holly secures competitive power beyond 2020 and whether its operating capacity changes.
- Availability of refinancing or repayment funding for the 2021 notes and the terms and amortization of Glencore’s term loan.
- Aluminum price, regional premiums, alumina costs and power prices, including the extent of hedging and natural hedges.
- Sales dependence on Glencore and other major customers, and the terms of related-party sales, purchases and financing.
- Developments in the Vernon litigation, environmental obligations, labor negotiations and potential deferred-tax-asset limitations.