Aleris Reports Second Quarter 2011 Results
Aug 8, 2011
BEACHWOOD, Ohio - August 8, 2011 - Aleris today reported results for the quarter ended June 30, 2011.
- Volume increased 10 percent in the second quarter of 2011 compared to the second quarter of 2010, adjusting for the sale of the Company's Brazilian recycling operations. This increase, coupled with higher London Metal Exchange (LME) prices and improved rolling margins, resulted in second quarter revenue of $1.3 billion, a 28 percent increase over the second quarter of 2010.
- Net income attributable to Aleris International, Inc. for the second quarter of 2011 was $56 million compared to $2.2 billion for the second quarter of 2010. Excluding $2.2 billion of gains related to the Company's emergence from bankruptcy, the Company recorded a net loss of $60 million in the second quarter of 2010.
- Adjusted EBITDA for the second quarter of 2011 was $95 million compared to $73 million for the second quarter of 2010, a 30 percent increase. Adjusted EBITDA for the 12 months ended June 30, 2011 totaled $309 million.
- Cash provided by operating activities was $81 million in the second quarter of 2011 compared to a $46 million use of cash in second quarter of 2010.
- Liquidity at June 30, 2011 was $741 million, which consisted of $553 million of availability under the Company's revolving credit facility plus $188 million of cash, after the payment of a $100 million dividend.
- The Company amended its revolving credit facility to increase maximum availability by $100 million to $600 million and extend the term to June 2016.
- Aleris signed a new five-year contract with Airbus to provide aluminum plate and sheet in a range of alloys for Airbus' global programs.
- Capital spending increased in the second quarter, in conjunction with construction of a new plate facility in China.
Aleris reported revenues of $1.3 billion for the second quarter of 2011 compared to $1.0 billion in the same period of 2010, driven by higher shipment levels, rolling margins and aluminum prices. For the second quarter of 2011, net income attributable to Aleris International, Inc. totaled $56 million compared to a net loss of $60 million in the second quarter of 2010, excluding $2.2 billion of gains associated with the Company's emergence from bankruptcy. Second quarter 2010 net income was negatively impacted by $29 million of losses from the impact of recording inventory and other items at fair value through fresh-start and purchase accounting, as well as higher interest expense and currency exchange losses associated with the Company's pre-emergence capital structure.
Adjusted EBITDA totaled $95 million in the second quarter of 2011 compared to $73 million in the second quarter of 2010. Operating results were positively impacted by a 10 percent increase in volume, after adjusting for the sale of the Brazilian recycling facilities in December 2010, and a more profitable selling mix driven by substantially higher aircraft, automotive and transportation volumes. Adjusted EBITDA also benefited from margin improvements as higher rolling margins and better scrap spreads more than offset inflationary and other cost pressure.
At June 30, 2011, the Company's long-term indebtedness consisted primarily of $500 million of 7 5/8% senior notes, $45 million of exchangeable notes, and $6 million of non-recourse term-loan debt held by Aleris's China joint venture. After payment of a $100 million dividend, Aleris had $741 million of liquidity at June 30, 2011, which consisted of $553 million of availability under the Company's revolving credit facility plus $188 million of cash.
Rolled Products North America
Rolled Products North America's segment income for the second quarter of 2011 increased by $7 million to $20 million compared to the second quarter of 2010. Segment Adjusted EBITDA increased by 11 percent, or $3 million, to $30 million. The improved operating results were due to higher volumes, better year-over-year pricing and an improved flow of scrap, which provided a higher percent of scrap used as well as improved scrap spreads. Volumes were higher in the second quarter of 2011 versus 2010 primarily driven by a substantial increase in demand in the Company's transportation and other general industrial segments. Distributor volumes were modestly higher and our volumes to building and construction-related customers continued to be soft due to the continued weakness in residential construction. Pricing initiatives led to continued year-over-year improvement in rolling margins and enabled the segment to more than offset inflationary pressure on commodity cost. However, higher outside processing costs associated with Aleris's current mix have impacted unit-cost productivity and partially impacted the volume, pricing and scrap benefits discussed above.
Recycling and Specification Alloys Americas
Recycling and Specification Alloys Americas' segment income increased by $8 million, from $14 million in the second quarter of 2010 to $22 million in the second quarter of 2011. Segment Adjusted EBITDA increased by 35 percent, or $6 million, from $17 million in the second quarter of 2010 to $23 million in the second quarter of 2011. Operating performance was positively impacted by improved demand from the North American automotive industry and recycling volumes. Excluding the effects of the sale of the Brazilian facilities, second quarter 2011 shipment volumes improved 14 percent from the prior year period. Segment results in the quarter were negatively impacted by tighter metal spreads. However, this impact was offset by the impact of higher LME prices, which increased the selling prices of certain recycled products. Productivity gains associated with the Aleris Operating System (AOS) further impacted quarterly performance, continuing to offset inflation and resulting in continued record low cash conversion costs. Segment results in the second quarter of 2011 also include $4 million of gains associated with the recovery of previously written-off accounts receivable and insurance proceeds.
Europe's segment income for the second quarter of 2011 increased by $28 million to $43 million compared to the second quarter of 2010. Segment Adjusted EBITDA increased 47 percent, or $16 million, to $51 million, compared to the prior period. Improved operating performance was driven by higher volumes across the segment, with strong double-digit increases in the most profitable product categories within rolled products, including aerospace plate and sheet, other heat treat plate and automotive sheet. European recycling operations continued to benefit from robust automotive demand. In addition, the segment continued to benefit from improved rolling margins resulting from previously implemented pricing increases, which, along with continued benefits from productivity and AOS, more than offset inflationary pressure. The increase in segment income in the second quarter of 2011 as compared to the prior year period is also attributable to $24 million of cost of sales recorded in the second quarter 2010 associated with the write-up of inventories to fair value as a result of the adoption of purchase accounting. This was partially offset by a $10 million unfavorable variance in metal price lag. Neither fresh-start accounting nor metal price lag impact Adjusted EBITDA.
For the six months ended June 30, 2011, Aleris reported revenues of $2.5 billion compared to $2.0 billion for the six months ended June 30, 2010. Net income attributable to Aleris International, Inc. for the six months ended June 30, 2011 totaled $114 million compared to $2.2 billion for the prior year period. Excluding a $2.2 billion gain related to the Company's reorganization and emergence from bankruptcy, the Company reported a net loss of $45 million in the six months ended June 30, 2010.
Adjusted EBITDA for the six months ended June 30, 2011 totaled $173 million, a 35 percent increase compared to the six months ended June 30, 2010. Additionally, for the twelve month period ended June 30, 2011 Adjusted EBITDA totaled $309 million.
Conference Call and Webcast Information
Aleris will hold a conference call August 8, 2011 at 11:00 a.m. Eastern Standard 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 1-877-398-9483 or 1-760-298-5072 (for international callers) and referencing ID # 85955601 - or through the Company's website, www.aleris.com. A replay of the call will be posted on the Company's website in the Investor Relations section.
Certain statements in this press release are "forward-looking statements" within the meaning of the federal securities laws. Statements about our beliefs and expectations and statements containing the words "may," "could," "would," "should," "will," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "look forward to," "intend" and similar expressions intended to connote future events and circumstances constitute forward-looking statements. Forward-looking statements include statements about future costs and prices of commodities, production volumes, industry trends, demand for our products and services, anticipated cost savings, anticipated benefits from new products or facilities, and projected results of operations. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in or implied by any forward-looking statement. Important factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following: (1) our ability to successfully implement our business strategy; (2) the cyclical nature of the aluminum industry, our end-use segments and our customers' industries; (3) our ability to fulfill substantial capital investment requirements; (4) variability in general economic conditions on a global or regional basis; (5) our ability to enter into effective aluminum, natural gas and other commodity derivatives or arrangements with customers to effectively manage our exposure to commodity price fluctuations and changes in the pricing of metals; (6) increases in the cost of raw materials and energy; (7) the loss of order volumes from or the retention of our major customers; (8) our ability to generate sufficient cash flows to fund capital expenditure requirements and debt service obligations; (9) competitor pricing activity, competition of aluminum with alternative materials and the general impact of competition in our industry segments; (10) risks of investing in and conducting operations on a global basis, including political, social, economic, currency and regulatory factors; (11) liabilities under and costs of compliance with environmental, labor, health and safety laws; and (12) other factors discussed in our filings with the Securities and Exchange Commission, including the sections entitled "Risk Factors" contained therein. Investors, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether in response to new information, futures events or otherwise, except as otherwise required by law.
Non-GAAP Financial Measures
In addition to the results reported in accordance with GAAP, this press release includes information regarding "Adjusted EBITDA" and "segment Adjusted EBITDA." These non-GAAP financial measures exclude interest income and expense, income taxes, depreciation and amortization, metal price lag, reorganization items, net, unrealized gains and losses on derivative financial instruments, restructuring and impairment charges, the impact of the recording assets at fair value through fresh-start and purchase accounting, currency gains and losses on the translation of indebtedness, stock-based compensation expense, start-up expenses and certain other gains and losses. Metal price lag represents the financial impact of the timing difference between when aluminum prices included within our revenues are established and when aluminum purchase prices included in our cost of sales are established. This lag will, generally, increase our earnings and EBITDA in times of rising primary aluminum prices and decrease our earnings and EBITDA in times of declining primary aluminum prices. We now seek to reduce this impact through the use of derivative financial instruments. Metal price lag is net of the realized gains and losses from our derivative financial instruments. We exclude metal price lag from our determination of Adjusted EBITDA because it is not an indicator of the performance of our underlying operations.
Our computation of these non-GAAP measures is likely to differ from the methods used by other companies in computing similarly titled or defined terms. 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, our measures of financial performance prepared in accordance with GAAP, including pre-tax income (loss) and net income (loss) attributable to Aleris International, Inc. Investors are encouraged to review the accompanying tables reconciling Adjusted EBITDA and segment Adjusted EBITDA to comparable GAAP amounts. Management uses Adjusted EBITDA and segment Adjusted EBITDA as a performance metric and believes the measure provides additional information commonly used by parties to our revolving credit facility and holders of our 7 5/8% senior notes in understanding the Company's operating results and the ongoing performance of our underlying businesses. In addition, Adjusted EBITDA, including the impacts of metal price lag, is a component of certain covenants under the revolving credit facility and EBITDA, with certain adjustments, is a component of certain covenants under the indenture governing our 7 5/8% senior notes.
Aleris is a privately-held, global leader in aluminum rolled products and extrusions, aluminum recycling and specification alloy production. Headquartered in Beachwood, Ohio, the company operates more than 40 production facilities in the Americas, Europe and Asia. For more information, visit www.aleris.com.
While Aleris will in the future be required to file periodic and current reports with the SEC under the indenture governing the 7 5/8% senior notes, Aleris currently has no obligation under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or other laws to publicly disclose financial or other information regarding its business. Aleris may publicly disclose certain information from time to time, in its sole discretion.
The information disclosed in this press release is believed by Aleris to be accurate as of the date hereof. Aleris expressly disclaims any duty to update the information contained in this press release. Persons engaging in any transactions with Aleris or in Aleris's securities are cautioned that there may exist other material information regarding Aleris that is not publicly available.
Sean M. Stack