CENX

Century Aluminum Company - Q1 2005 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2005. Century Aluminum Company is a producer of primary aluminum products with operations in the U.S. (Hawesville, Mt. Holly, Ravenswood) and Iceland (Nordural). The company is currently executing a major expansion of its Nordural facility in Iceland, increasing capacity from 90,000 to 212,000 metric tons per year.

Key Financial Metrics

Note: Total Debt includes current portion of long-term debt, convertible notes, industrial revenue bonds, senior unsecured notes, and Nordural debt.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 23% ($53.3 million) driven by higher LME aluminum prices, Midwest premiums, and the inclusion of Nordural toll revenues ($33.7 million).
• Profitability: Net income increased 132% ($6.3 million). Gross profit rose 37% due to improved price realizations and increased shipment volume from Nordural.
• Forward Contract Losses: The company reported a net loss on forward contracts of $23.5 million, compared to $12.8 million in Q1 2004. This was primarily due to mark-to-market losses on long-term financial sales contracts not qualifying for cash flow hedge accounting.
• Joint Venture Earnings: Equity in earnings of joint ventures (Gramercy Alumina and St. Ann Bauxite) contributed $5.3 million in Q1 2005, whereas there was no contribution in Q1 2004.
• Capital Expenditures: Investing cash outflows surged to $51.5 million (from $1.8 million) due to $49.0 million spent on the Nordural expansion.

Guidance, Outlook, and Risks

• Expansion Outlook: The Nordural expansion is projected to cost approximately $454 million and be completed by mid-2006. The company plans to finance this via cash flow and a new $365 million non-recourse term loan facility.
• Liquidity: As of March 31, 2005, the company had $93.6 million available under its revolving credit facility and $260.0 million remaining availability under the Nordural term loan.
• Market Risks:
  • Commodity Prices: The company is exposed to aluminum price volatility. Approximately 49% of 2005 production is hedged via alumina contracts, tolling agreements, or financial instruments.
  • Foreign Currency: The Nordural expansion costs are heavily denominated in Euros and Icelandic Krona (64% of costs), creating exchange rate risk. No hedges were in place as of March 31, 2005.
  • Interest Rates: The company has $118.8 million in variable-rate debt. A 1% rate increase would increase annual interest expense by $1.2 million.
• Contingencies: The company is under IRS audit for tax years through 2002 but does not expect a material impact. Environmental liabilities are currently accrued at $651,000, with management believing future costs will not be material.

Investor Verification Checklist

• Nordural Expansion Progress: Verify the timeline and cost management of the $454 million expansion project, specifically regarding foreign currency exposure.
• Forward Contract Valuation: Review the impact of the $23.5 million unrealized loss on forward contracts and the company's hedging strategy for future quarters.
• Debt Covenants: Confirm compliance with financial covenants on the new Nordural term loan facility, particularly interest coverage and debt service coverage ratios starting December 31, 2006.
• Joint Venture Performance: Monitor the contribution of the Gramercy Alumina and St. Ann Bauxite joint ventures to future earnings.
• Power Supply Contracts: Verify the status of power agreements for the Ravenswood facility (expiring Dec 2005) and the new agreements for Nordural expansion.