Century Aluminum Company — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; the filing also reports unaudited fourth-quarter results. Century produces primary aluminum in the United States and Iceland, with carbon-anode operations in the Netherlands and a 40% interest in a China joint venture. It operates as one reportable segment.
Financial performance and position
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net sales | $1,589.1 million | $1,319.1 million |
| Gross profit (loss) | $128.6 million; 8.1% margin | $(11.0) million |
| Operating income (loss) | $93.9 million; 5.9% margin | $(234.2) million |
| Net income (loss) | $48.6 million | $(252.4) million |
| Basic and diluted EPS | $0.51 | $(2.90) |
| Cash from operations | $51.8 million | $38.2 million |
| Capital expenditures | $31.8 million | $21.9 million |
| Cash and cash equivalents at year-end | $167.2 million | $132.4 million |
| Total debt at year-end | $256.0 million | $255.5 million |
Net cash increased $34.8 million during 2017. Cash less total debt was approximately $(88.8) million. Current assets were $553.7 million and current liabilities $190.5 million, implying working capital of about $363.2 million and a current ratio of approximately 2.9. Revolving facilities had no borrowings outstanding; reported net availability was approximately $159.8 million, including letters of credit.
Fourth-quarter 2017 net sales were $433.8 million, gross profit $47.9 million and net income $35.8 million. Net income allocated to common stockholders was $33.0 million; reported quarterly EPS was $0.38 basic and $0.37 diluted.
Material changes versus the prior comparable period
- Sales rose $270.0 million year over year, primarily from higher aluminum price realizations. Average LME aluminum price increased to $1,968 per tonne from $1,604; the U.S. Midwest premium rose to $199 from $169.
- Gross profit improved by $139.6 million, moving from a loss to a profit. Higher realized prices were partly offset by $88.2 million of unfavorable raw-material pricing and $35.2 million of unfavorable power pricing.
- Shipments increased to 743,198 tonnes from 733,825 tonnes. U.S. shipments remained affected by the Hawesville and Mt. Holly curtailments; Iceland output benefited from the Grundartangi expansion.
- Operating results also benefited from the absence of 2016’s $152.2 million Helguvik impairment. 2017 included a $7.3 million Helguvik contractual-commitment extinguishment gain and a $5.5 million non-cash Ravenswood settlement-related gain.
- Operating cash flow increased $13.6 million, but higher raw-material costs and receivables contributed to increased working-capital use. Inventory rose to $317.5 million from $233.6 million.
Outlook, commentary, risks and unusual items
- Management estimated 2018 capital spending of approximately $30 million, mainly for maintenance and smelter investment projects. It stated that cash from operations and financing activities should cover operations and business needs over the next 12 months. The filing provides no specific earnings or revenue guidance.
- Hawesville operated at about 40% of capacity following a 2015 curtailment; Mt. Holly operated at about 50% because of uncompetitive power costs. Mt. Holly’s power arrangements expired at the end of 2018. The company’s antitrust case against Santee Cooper was dismissed in 2017 and appealed.
- Aluminum prices improved, but management noted uncertainty about the duration and enforcement of Chinese production reforms. Alumina, coke and pitch costs rose sharply in 2017; the alumina index averaged about $354 per tonne versus $254 in 2016.
- Customer concentration remains significant: Glencore accounted for approximately 75% of 2017 sales, versus 89% in 2016. Glencore owned 42.9% of common stock and all outstanding Series A convertible preferred stock. Sales agreements cover substantial U.S. and Icelandic production through 2018 and 2019, respectively.
- Debt includes $250 million of 7.5% senior secured notes due June 2021 and $7.8 million of industrial revenue bonds classified as current because they are remarketed weekly. The company reported compliance with credit-facility covenants at year-end.
- Other exposures include energy and raw-material price volatility, power-supply interruption, take-or-pay commitments, pension and retiree-benefit obligations, environmental and legal contingencies, and potential restrictions on use of substantial tax-loss carryforwards. The U.S. tax-law change was provisionally assessed; management said it did not expect a significant financial-statement or operational impact.
- The company is pursuing an exit from its 40% BHH investment, with no assurance of a sale on acceptable terms. Helguvik construction remains curtailed; the project was impaired in 2016 after an arbitration ruling found a power agreement no longer in force.
Important facts for investors to verify
- Whether aluminum price gains persist and continue to exceed increases in alumina, carbon and power costs.
- Progress toward competitive long-term power for Mt. Holly, the appeal outcome, and the plant’s operating status after its 2018 power-contract expiration.
- Glencore sales-contract terms, customer concentration and related-party pricing and transactions.
- Liquidity availability under borrowing-base facilities, covenant headroom, and the company’s ability to meet debt and contractual commitments.
- Actual 2018 capital expenditures versus the approximately $30 million estimate, and the timing or terms of any BHH divestiture.
- Developments in pension and retiree-benefit funding, environmental matters, litigation and realization of deferred tax assets.