Aleris Reports First Quarter Results
14/05/2008 14:58
PR Newswire
BEACHWOOD, Ohio, May 14 /PRNewswire/ --
Aleris International, Inc. today reported results for the quarter ended
March 31, 2008.
First Quarter Highlights
-- Sequential adjusted EBITDA from continuing operations, excluding
special items, improved to US$79 million in the first quarter of 2008
from US$49 million in the fourth quarter of 2007 despite continued
softening in the underlying economy
-- Successful capacity ramp-up of 160 inch hotmill in Koblenz, Germany;
continues our strategic expansion into high value-added aerospace and
other end-uses
-- Completed sale of Zinc Business for US$295 million allowing greater
focus on aluminum business
-- Announced five plant closings or idlings to drive operating cost
reductions, improved productivity and to respond to North American
demand declines
-- Productivity savings and acquisition synergies totaled US$27 million
in the quarter which more than offset continued commodity and general
inflation
-- Strengthened management team with the addition of Roeland Baan as
President, Aleris Europe
-- Pro forma adjusted EBITDA from continuing operations, including
synergies, was US$392 million for the twelve months ended March 31,
2008
-- Expanded Aleris Board of Directors with the addition of J. Steven
Whisler, former Chairman and CEO of Phelps Dodge Corporation
Aleris International, Inc.
For the
three months ended
March 31
2008 2007
(unaudited)
(US Dollars and pounds in millions)
Pounds shipped:
Global rolled and extruded products 517.0 556.2
Global recycling 866.7 757.7
Revenue $1,560.5 $1,456.5
Income (loss) from continuing operations 0.6 (44.4)
Net income (loss) 4.3 (53.1)
EBITDA from continuing operations,
excluding special items (1) 79.4 106.5
Cash flow used by operating activities from
continuing operations (175.8) (0.6)
Free cash flow from continuing operations(1) (213.2) 52.5
(1) This press release refers to various non-GAAP (generally accepted
accounting principles) financial measures including EBITDA from
continuing operations, EBITDA from continuing operations, excluding
special items, and free cash flow from continuing operations. The
methods used to compute these measures are likely to differ from the
methods used by other companies. These non-GAAP measures have
limitations as analytical tools and should be considered in addition
to, not in isolation or as a substitute for, or superior to,
Aleris's measures of financial performance prepared in accordance
with GAAP. Investors are encouraged to review the accompanying
tables reconciling the non-GAAP financial measures to comparable
GAAP amounts.
"EBITDA from continuing operations," as used in this press release,
is defined as income (loss) from continuing operations before
interest income and expense, taxes, depreciation and amortization
and minority interests. "EBITDA from continuing operations,
excluding special items," as used in this press release, is defined
as EBITDA from continuing operations excluding restructuring and
other charges, unrealized gains and losses on derivative financial
instruments, the impact of the write-up of inventory and other items
through purchase accounting, non-cash stock-based compensation
expense, sponsor management fees, and the gain on the early
extinguishment of debt. "Free cash flow from continuing
operations," as used in this press release, is defined as EBITDA
from continuing operations, excluding special items, less or plus
changes in accounts receivable, inventory and accounts payable
(excluding working capital acquired in business combinations) and
less capital expenditures. In determining changes in inventory, the
change in the reported balance sheet amounts due to the impact of
the write-up of inventory through purchase accounting has been
excluded. Management uses EBITDA from continuing operations,
EBITDA from continuing operations, excluding special items, and free
cash flow from continuing operations as performance metrics and
believes these measures provide additional information commonly used
by our noteholders and lenders with respect to the performance of
our fundamental business objectives, as well as our ability to meet
future debt service, capital expenditures and working capital needs.
Management believes EBITDA from continuing operations, excluding
special items, is useful to our stakeholders in understanding our
operating results and the ongoing performance of our underlying
businesses without the impact of these special items.
Sale of Zinc Business
The Company completed the sale of its Zinc business on January 11, 2008
for US$295 million, subject to working capital adjustment. The Zinc business
has been reported as a discontinued operation in this press release and in
our unaudited quarterly financial statements. All discussion and data will
exclude the Zinc business unless otherwise noted.
First Quarter Operating Results
Aleris reported first quarter 2008 revenues of US$1.6 billion and income
from continuing operations of US$0.6 million. Income from continuing
operations includes US$55.6 million of unrealized gains on derivative
financial instruments, a US$0.6 million gain from the early extinguishment of
debt, US$9.5 million in restructuring and other charges, US$6.2 million of
purchase accounting items, US$2.3 million of sponsor management fees, and
US$1.0 million of charges for non-cash stock-based compensation. EBITDA from
continuing operations, excluding special items, was US$79.4 million in the
first quarter of 2008.
For the first quarter of 2007, Aleris reported revenues of US$1.5 billion
and a loss from continuing operations of US$44.4 million. The loss from
continuing operations includes US$64.1 million of special charges, including
US$55.7 million from purchase accounting, US$7.2 million in restructuring and
other charges, US$2.3 million of sponsor management fees, US$0.7 million of
non-cash stock-based compensation and US$2.0 million of unrealized gains on
derivative financial instruments. EBITDA from continuing operations,
excluding special items, was US$106.5 million in the first quarter of 2007.
EBITDA from continuing operations, excluding special items, declined to
US$79.4 million in the first quarter of 2008 from US$106.5 million in the
first quarter of 2007. The decline in performance is due to lower year over
year volumes resulting from declining demand from the North American building
and construction and automotive industries and destocking within certain
European industries as well as reduced benefits from metal price lag, and
continued commodity cost inflation. The negative factors were partially
offset by productivity gains and stronger margins in Europe associated with
an improving product mix and higher pricing.
As a result of the reduced demand, the Company has announced the closure
or temporary idling of production at three of its North American rolled
products facilities and two specification alloy facilities.
Sequentially, EBITDA from continuing operations, excluding special items,
improved by US$30.0 million from US$49.4 million in the fourth quarter of
2007 to US$79.4 million in first quarter of 2008. This improvement is due to
the normal seasonal profile of our volume demand despite a continued
softening in the underlying economy.
Steven J. Demetriou, Chairman and Chief Executive Officer of Aleris,
said, "Volume in both of our global business segments continues to suffer
from the recessionary conditions prevalent in the United States as well as
customer destocking in certain European end use industries. In response to
the reduced North American demand, we have taken aggressive actions to
reposition our asset base with the consolidation of facilities to drive costs
down, while still being able to meet our customers' demand. Although we have
been implementing these cost reduction initiatives with the expectation of a
prolonged downturn, we believe that these efforts will result in
significantly lower costs and higher profitability when demand strengthens."
Global Rolled and Extruded Products
Global Rolled and Extruded Products recorded segment income of US$14.2
million in the first quarter of 2008 and US$17.2 million in the first quarter
of 2007. Excluding the impacts of purchase accounting adjustments, segment
EBITDA totaled US$64.0 million in the first quarter of 2008 versus US$101.8
million in the first quarter of 2007. The decrease in performance was driven
by a 10% reduction in shipments versus the prior year quarter, excluding the
impact of the acquired operations of EKCO Products, resulting from weak North
American building and construction and transportation demand combined with
destocking from certain European end use industries.
In addition, while the impact of rising LME prices led to increased
segment income in 2007's first quarter, our current hedging practices have
substantially reduced our overall exposure to changes in LME prices and, as a
result, current year segment income did not benefit significantly in spite of
a rising LME during the first quarter of 2008.
Global Recycling
Segment income was US$19.2 million in the first quarter of 2008 compared
to US$15.7 million in the first quarter of 2007. Segment EBITDA, excluding
purchase accounting adjustments, was US$31.3 million in the first quarter of
2008 compared to US$25.8 million in the first quarter of 2007. The increase
is attributable to acquired operations of Wabash Alloys which more than
offset reduced demand from the automotive related specification alloy
business.
Corporate Expense
Corporate expense primarily includes corporate general and administrative
expense and certain functions that are performed for the business units,
other income and expense, certain realized gains and losses on derivative
financial instruments resulting from the centralization of our risk
management functions and interest expense. In addition, in order to simplify
understanding of ongoing segment operations, corporate expense includes all
restructuring and other charges as well as non-cash adjustments associated
with mark-to-market accounting for derivative financial instruments.
General and administrative expenses increased US$1.9 million in the first
quarter of 2008 as compared to the first quarter of 2007 primarily due to the
translation effect of the stronger euro.
During the first quarter, the Company recorded US$9.5 million of
restructuring and other charges associated with the permanent closure of two
rolled products facilities and one recycling facility. The expense consists
primarily of severance costs as well as non-cash asset impairment charges.
The Company also recorded US$55.6 million of unrealized gains on
derivative financial instruments as a result of the strengthening of the euro
against the U.S. dollar as well as the increasing LME price of aluminum.
These gains are not allocated to the business units until the derivative
financial instruments are settled and cash is received. As market positions
change daily, these unrealized gains may not represent the actual realized
cash gains the Company will receive upon settlement. However, as the fair
value of the derivative instruments changes so will the price the Company
will pay for the underlying hedged item.
Free cash flow in the first quarter of 2008 was US$(213.2) million versus
US$52.5 million in the prior year quarter. Free cash flow was impacted by
lower EBITDA and the seasonal build of working capital. Changes in working
capital were driven by a US$96.0 million increase in revenues in March 2008
as compared to December 2007 and the impact of a 12% increase in the average
LME price of aluminum in the first quarter of 2008 as compared to the fourth
quarter of 2007. In addition, free cash flow's working capital component was
also negatively impacted by the stronger euro which appreciated 8% against
the U.S. dollar in the first quarter of 2008 resulting in higher translated
U.S. dollar working capital balances. Capital expenditures of US$44.1 million
in the first quarter of 2008 were comparable to US$42.8 million spent in the
first quarter of 2007. Working capital productivity continued to improve with
last twelve months working capital as a percentage of sales of 16.5% at March
31, 2008 decreasing from 16.8% at December 31, 2007.
We ended the quarter with US$2.7 billion of net debt and US$409 million
of liquidity. Pro forma EBITDA from continuing operations, excluding special
items and including the 2007 acquisitions of Wabash Alloys and EKCO Products,
was US$392.3 million for the twelve months ended March 31, 2008.
Conference Call and Webcast Information
Aleris will hold a conference call May 14, 2008 at 9:00 a.m. Eastern
time. Steven J. Demetriou, Chairman and Chief Executive Officer, and Sean M.
Stack, Executive Vice President and Chief Financial Officer, will host the
call to discuss results.
The call can be accessed by dialing +1-866-770-7051 or +1-617-213-8064
and referencing passcode 62219506 at least 10 minutes prior to the
presentation, which will begin promptly at 9 a.m. Eastern time. In addition,
the conference call will be broadcast live over the Internet at
www.aleris.com.
A replay of the conference call will be posted on the Company's Web site
at www.aleris.com. A taped replay of the call will also be available by
dialing +1-888-286-8010 or +1-617-801-6888 and referencing passcode
20181190
beginning at 1:00 p.m. Eastern time, May 14, 2008 until 11:59 p.m. Eastern
time, May 21, 2008.
About Aleris
Aleris International,
Inc. is a global leader in aluminum rolled products
and extrusions, aluminum recycling and specification alloy production.
Headquartered in Beachwood, Ohio, a suburb of Cleveland, the Company operates
47 production facilities in North America, Europe, South America and Asia,
and has approximately 8,800 employees. For more information about Aleris,
please visit our Web site at www.aleris.com.
SAFE HARBOR REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements made in this news release are made pursuant to
the safe harbor provision of the Private Securities Litigation Reform Act of
1995. These include statements that contain words such as "believe,"
"expect," "anticipate," "intend," "estimate," "should" and similar
expressions intended to connote future events and circumstances, and include
statements regarding future actual and adjusted earnings; future improvements
in margins, processing volumes and pricing; overall 2008 operating
performance; anticipated effective tax rates; expected cost savings; success
in integrating Aleris's recent acquisitions, including the acquisition of the
downstream aluminum businesses of Corus Group plc; its future growth; the
anticipated economic environment in 2008; future benefits from acquisitions
and new products; expected benefits from changes in the industry landscape;
and anticipated synergies resulting from the acquisition of the downstream
aluminum businesses of Corus Group plc and other acquisitions. Investors are
cautioned that all forward-looking statements involve risks and
uncertainties, and that actual results could differ materially from those
described in the forward-looking statements. These risks and uncertainties
would include, without limitation, Aleris's levels of indebtedness and debt
service obligations; its ability to effectively integrate the business and
operations of its acquisitions; further slowdowns in automotive production in
the U.S. and Europe; the financial condition of Aleris's customers and future
bankruptcies and defaults by major customers; the availability at favorable
cost of aluminum scrap and other metal supplies that Aleris processes; the
ability of Aleris to enter into effective metals, natural gas and other
commodity derivatives; continued increases in natural gas and other fuel
costs of Aleris; a weakening in industrial demand resulting from a decline in
U.S. or world economic conditions, including any decline caused by terrorist
activities or other unanticipated events; future utilized capacity of
Aleris's various facilities; a continuation of building and construction
customers and distribution customers reducing their inventory levels and
reducing the volume of Aleris's shipments; restrictions on and future levels
and timing of capital expenditures; retention of Aleris's major customers;
the timing and amounts of collections; currency exchange fluctuations; future
write-downs or impairment charges which may be required because of the
occurrence of some of the uncertainties listed above; and other risks listed
in Aleris's filings with the Securities and Exchange Commission (the "SEC"),
including but not limited to Aleris's annual report on Form 10-K for the
fiscal year ended December 31, 2007, particularly the section entitled "Risk
Factors" contained therein.
Contacts: Sean M. Stack Joseph M. Mallak
Aleris International, Inc. Aleris International, Inc.
Phone +1-216-910-3504 Phone +1-216-910-3455
(All amounts in US$)
Aleris International, Inc.
Consolidated Statement of Operations
(in millions)
For three
months ended
March 31
2008 2007
(unaudited)
Revenues $1,560.5 $1,456.5
Cost of sales 1,457.1 1,386.3
Gross profit 103.4 70.2
Selling, general and administrative expense 76.6 65.8
Restructuring and other charges 9.5 7.2
Gains on derivative financial instruments (39.3) (6.7)
Operating income 56.6 3.9
Interest expense 57.6 50.5
Interest income (0.8) (0.7)
Other (income) expense, net (3.0) 0.9
Income (loss) from continuing operations before
provision for income taxes and minority interests 2.8 (46.8)
Provision for (benefit from) income taxes 2.0 (2.6)
Income (loss) from continuing operations before
minority interests 0.8 (44.2)
Minority interests, net of provision for income
taxes 0.2 0.2
Income (loss) from continuing operations 0.6 (44.4)
Income (loss) from discontinued operations, net of
tax 3.7 (8.7)
Net income (loss) $4.3 $(53.1)
Aleris International, Inc.
Operating and Segment Information
(in millions)
For the three
months ended
March 31
2008 2007
(unaudited)
Supplemental information:
Depreciation and amortization $57.0 $39.6
Capital expenditures 44.1 42.8
Segment reporting:
Shipments (pounds)
Global rolled and extruded products 517.0 556.2
Global recycling 866.7 757.7
1,383.7 1,313.9
Revenues:
Global rolled and extruded products $1,001.8 1,063.6
Global recycling 586.6 424.1
Intersegment eliminations (27.9) (31.2)
$1,560.5 $1,456.5
Segment income:
Global rolled and extruded products $14.2 $17.2
Global recycling 19.2 15.7
33.4 32.9
Corporate general and administrative expense (27.1) (25.2)
Restructuring and other charges (9.5) (7.2)
Unallocated gains from derivative
financial instruments 56.6 2.0
Interest expense (57.6) (50.5)
Interest and other income (expense), net 7.0 1.2
Income (loss) from continuing operations
before income taxes and minority interests $2.8 $(46.8)
Aleris International, Inc.
Condensed Consolidated Balance Sheet
(in millions)
March 31, December 31,
2008 2007
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $88.6 $109.9
Accounts receivable, net 791.0 668.0
Inventories 941.4 839.7
Deferred income taxes 40.4 41.6
Derivative financial instruments 59.9 30.6
Prepaid expenses and other current assets 52.9 40.6
Assets of discontinued operations
- current -- 254.1
Total Current Assets 1,974.2 1,984.5
Property, plant and equipment, net 1,502.9 1,423.5
Goodwill 1,223.5 1,219.1
Intangible assets, net 326.0 329.9
Other assets 190.4 163.5
TOTAL ASSETS $5,217.0 $5,120.5
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $666.3 $687.4
Accrued liabilities 329.8 226.0
Deferred income taxes 27.5 25.2
Current maturities of long-term debt 21.3 20.6
Liabilities of discontinued operations
- current -- 67.5
Total Current Liabilities 1,044.9 1,026.7
Deferred income taxes 179.7 177.3
Long-term debt 2,760.6 2,743.7
Other long-term liabilities 338.8 322.1
Stockholder's equity 893.0 850.7
TOTAL LIABILITIES AND EQUITY $5,217.0 $5,120.5
Aleris International, Inc.
Reconciliation of Income (Loss) from Continuing Operations to
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) and EBITDA, Excluding Special Items (1)
(unaudited)
(in millions)
For the three For the three
months ended months ended
March 31 December 31
2008 2007 2007
Income (loss) from continuing
operations $0.6 ($44.4) ($68.7)
Interest expense, net 56.8 49.8 51.5
Income taxes 2.0 (2.6) (38.3)
Minority interests 0.2 0.2 (0.9)
Depreciation and amortization 57.0 39.6 54.6
EBITDA from continuing operations 116.6 42.6 (1.8)
Unrealized (gains) losses on derivative
financial instruments (55.6) (2.0) 11.2
Restructuring and other charges 9.5 7.2 21.6
Impact of recording acquired assets at
fair value 6.2 55.7 15.1
Sponsor management fee 2.3 2.3 2.3
Stock-based compensation expense 1.0 0.7 1.0
Gain on early extinguishment of debt (0.6) -- --
EBITDA from continuing operations,
excluding special items $79.4 $106.5 $49.4
(1) See note 1 on page 2.
Aleris International, Inc.
Reconciliation of Free Cash Flow to Cash Flow from Operating
Activities of Continuing Operations
(unaudited)
(in millions)
For the three
months ended
March 31
2008 2007
Free cash flow ($213.2) $52.5
Net working capital increase 248.5 11.2
Capital expenditures 44.1 42.8
EBITDA from continuing operations, excluding
special items 79.4 106.5
Unrealized gains on derivative financial instruments 55.6 2.0
Gain on early extinguishment of debt 0.6 --
Restructuring and other charges (9.5) (7.2)
Impact of recording acquired assets at fair value (6.2) (55.7)
Sponsor management fee (2.3) (2.3)
Stock-based compensation expense (1.0) (0.7)
EBITDA from continuing operations 116.6 42.6
Interest expense, net (56.8) (49.8)
(Provision for) benefit from income taxes (2.0) 2.6
Depreciation and amortization (57.0) (39.6)
Minority interest, net of provision for income
taxes (0.2) (0.2)
Income (loss) from continuing operations 0.6 (44.4)
Depreciation and amortization 57.0 39.6
Provision for (benefit from) deferred income taxes 3.1 (0.7)
Restructuring and other charges:
Charges 9.5 7.2
Payments (4.2) (6.1)
Stock-based compensation expense 1.0 0.7
Unrealized losses (gains) on derivative financial
instruments (55.6) (2.0)
Non-cash charges related to step-up in carrying
value of inventory 0.3 55.2
Other non-cash charges 2.8 3.0
Net change in operating assets and liabilities (190.3) (53.1)
Cash used by operating activities from continuing
operations ($175.8) ($0.6)
Reconciliation of Segment Income to Segment Income, Excluding
Special Items and Segment EBITDA, Excluding Special Items
(unaudited)
(in millions)
For the three months ended
March 31
2008 2007
Global Rolled and Extruded Products
Segment income $14.2 $17.2
Purchase accounting adjustments 6.7 52.2
Segment income, excluding
special items $20.9 $69.4
Depreciation and amortization 43.1 32.4
Segment EBITDA, excluding special items $64.0 $101.8
Global Recycling
Segment income $19.2 $15.7
Purchase accounting adjustments (0.6) 3.5
Segment income, excluding special items $18.6 $19.2
Depreciation and amortization 12.7 6.6
Segment EBITDA, excluding special items $31.3 $25.8
Reconciliation of Pro Forma Loss from Continuing Operations to
Pro Forma EBITDA from Continuing Operations and
Pro Forma Adjusted EBITDA from Continuing Operations (1)(2)
(in millions)
For the twelve months
ended March 31, 2008
Pro forma loss from continuing operations(3) ($52.7)
Interest expense, net 218.8
Income taxes (83.7)
Minority interests 0.1
Depreciation and amortization 224.7
Pro forma EBITDA from continuing operations $307.2
Unrealized losses on derivative financial instruments (57.4)
Restructuring and other charges 35.1
Impact of recording acquired assets at fair value 54.6
Sponsor management fee 9.1
Stock-based compensation expense 4.3
Gain on early extinguishment of debt (0.6)
Estimated synergies - Corus Aluminum 14.0
Estimated synergies - Wabash Alloys
20.0
Estimated synergies - EKCO Products 2.0
Estimated synergies - AE/HT 4.0
Pro forma adjusted EBITDA from continuing operations $392.3
1. See note 1 on page 2.
2. Represents unaudited pro forma financial information for the twelve
months ended March 31, 2008 and presents the Company's combined
results of operations as if the acquisitions of Wabash Alloys and
EKCO Products had occurred on January 1, 2007. Pro forma adjusted
EBITDA from continuing operations includes the expected synergy
savings from the Corus Aluminum, Wabash Alloys, EKCO Products, AE
Products and HT Aluminum acquisitions as permitted by the Company's
Term Loan Agreement. The unaudited pro forma information is not
necessarily indicative of the consolidated results of operations that
would have occurred had the acquisitions of Wabash Alloys and EKCO
Products been made at the beginning of the period presented or the
future results of combined operations.
3. Pro forma loss from continuing operations of US$52.7 million
consists of Aleris's historical loss from continuing operations of
US$47.9 million, Wabash Alloys' historical net income of US$2.8
million and pro forma adjustments of (US$7.6) million. The net
income of Wabash Alloys is an estimate and is based on estimated
financial information provided by the management of that entity.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050504/CLW056LOGO )
Web site: http://aleris.com
Sean M. Stack, +1-216-910-3504, or Joseph M. Mallak,
+1-216-910-3455, both of Aleris International, Inc. ; Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20050504/CLW056LOGO, AP Archive: http://photoarchive.ap.org, PRN Photo Desk, photodesk@prnewswire.com
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