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Aleris Reports First Quarter Results
BEACHWOOD, Ohio, May 14 /PRNewswire/ -- Aleris International, Inc.
today reported results for the quarter ended March 31, 2007.
Summary
-- Revenues in first quarter 2007 were $1.6 billion, compared with $848
million in first quarter 2006, an 89% increase, driven primarily by the
August 2006 acquisition of the downstream business of Corus Group plc
("Corus Aluminum").
-- Impacted heavily by special items, first quarter 2007 net loss was
$53.1 million compared with a reported net income of $28.2 million in
the first quarter of 2006. Special items recorded during the quarter
reduced net income by an aggregate amount of $76.0 million and included
$66.7 million for the impact of recording previously acquired assets at
fair value, $7.2 million of restructuring and other charges, $2.3
million of sponsor management fees, and $0.7 million of charges for
non-cash stock-based compensation, partially offset by $0.9 million of
unrealized gains on derivative financial instruments.
-- EBITDA excluding special items for first quarter 2007 was $117.7
million compared with $78.4 million for the comparable period last
year, a 50% increase, driven primarily by the Corus Aluminum
acquisition.
-- Productivity and synergy capture remains a top companywide priority
with savings of $25 million achieved in the first quarter of 2007. The
Company's Six Sigma initiative is rapidly accelerating and strongly
contributed to our continued productivity growth. The Company now
expects to achieve $45 million in total Corus Aluminum related
synergies, an increase from its previous estimate of $25 million.
-- Pro forma EBITDA excluding special items and including synergies as
permitted by our Revolving Credit Agreement, for the last 12 months
("LTM") was $534 million. Net debt was $2.5 billion at quarter end.
Pro forma net debt to EBITDA excluding special items and including
synergies was 4.7x.
Aleris International, Inc.
For the three months ended March 31
(unaudited)
(Dollars and pounds in millions)
2007 2006
(Successor)(1) (Predecessor)(1)
Shipments (pounds):
Global rolled and extruded
products 552.0 274.9
Global recycling 789.0 730.3
Global zinc 87.0 102.8
Revenue $1,599.1 $847.6
Net (loss) income (53.1) 28.2
EBITDA excluding special items(2) 117.7 78.4
Cash flows provided by operating
activities 2.8 35.4
Free cash flow(2) 55.2 38.5
(1) This press release refers to the period subsequent to the acquisition
of the Company by TPG as the "Successor Period" while the period prior
to the acquisition by TPG is referred to as the "Predecessor Period."
(2) This press release refers to various non-GAAP (generally accepted
accounting principles) financial measures including EBITDA, EBITDA
excluding special items and free cash flow. 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", as used in this press release, is defined as net income
before interest income and expense, taxes, depreciation and
amortization and minority interests. "EBITDA excluding special
items," as used in this press release and is defined as EBITDA
excluding restructuring and other charges, mark-to-market SFAS No. 133
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, and sponsor
management fees. "Free cash flow", as used in this press release, is
defined as EBITDA excluding special items less or plus changes in
accounts receivable, inventory and accounts payable 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 and free cash flow 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 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. Additionally, management uses EBITDA because the
Company's new senior secured asset-based revolving credit facility
uses EBITDA with additional adjustments to measure its compliance with
certain covenants.
First Quarter 2007 Operating Results
Aleris reported first quarter 2007 revenues of $1.6 billion and a net
loss of $53.1 million. These results include losses from special items
consisting of $66.7 million for the impact of recording previously acquired
assets at fair value, $7.2 million of restructuring and other charges, $2.3
million of sponsor management fees, and $0.7 million of charges for
non-cash stock-based compensation, partially offset by $0.9 million of
unrealized gains on derivative financial instruments.
For the first quarter of 2006, Aleris reported revenues of $847.6
million and net income of $28.2 million. These results include losses from
special items consisting of $1.1 million for the impact of recording
previously acquired assets at fair value and $0.8 million of unrealized
losses on derivative financial instruments.
EBITDA excluding special items totaled $117.7 million in the first
quarter of 2007, an increase of 50% compared with $78.4 million in the
first quarter of 2006. The improved results were driven primarily by the
Corus Aluminum acquisition and companywide productivity initiatives,
partially offset by reduced volumes in some of the Company's North American
based businesses.
Steven J. Demetriou, Chairman and Chief Executive Officer, said, "Our
plan to diversify our portfolio through acquisition has begun to pay off.
While the North American economy has slowed in early 2007, we've
experienced very strong results in Europe along with our continued
excellent execution related to the integration of our previous acquisitions
and companywide productivity initiatives. In light of some volume weakness
in the U.S., we are aggressively focusing on productivity improvements and
reduction of working capital to ensure optimization of earnings and cash
flow targets. We remain pleased with the stability of margins in the North
American Rolled Products business given the temporary reduced demand. We
also continue to make acquisitions and recently announced the purchase of
the assets of EKCO Products, based in Clayton, New Jersey. With this
property we add a talented management team as well as further
diversification of end-use applications."
Global Rolled and Extruded Products
Global Rolled and Extruded Products shipments totaled 552 million
pounds in the first quarter of 2007. This compared with shipments of 275
million pounds for the comparable period in 2006, with the increase driven
by the Corus Aluminum acquisition. Excluding the acquisition, shipments
were down approximately 12% compared with the 2006 first quarter, driven by
weakness in North America due to customer inventory de-stocking and the
steep decline in housing starts. Shipments for the former Corus Aluminum
were 311 million pounds for the first quarter of 2007 and benefited from
continued strength in shipments to aerospace customers, improved shipments
of both rolled and extruded products to automotive applications, and
general strengthening of the German and other European industrial
economies.
Global Rolled and Extruded Products segment income was $10.8 million in
the first quarter of 2007, compared with segment income of $42.4 million in
the prior-year period. Excluding the impact of $52.3 million of purchase
accounting adjustments (recording previously acquired assets at fair value)
which are recorded at the segment level, segment income in the first
quarter of 2007 was $63.1 million, compared with $43.5 million in the
prior-year first quarter, after adjusting for $1.1 million of purchase
accounting adjustments in 2006. The increase was primarily attributable to
the Corus Aluminum acquisition and U.S. productivity initiatives, offset
partially by reduced volumes in the U.S.
Material margins, on a pro forma basis including the Corus Aluminum
acquisition, improved to $0.69 per pound in the first quarter of 2007 from
$0.66 per pound in the first quarter 2006. During the first quarter of
2007, continued favorable scrap spreads in North America, global
productivity initiatives, favorable mix related to the Corus Aluminum
acquisition and translation gains related to the stronger euro more than
offset the less favorable FIFO impact related to a rising London Metal
Exchange ("LME"). Cash conversion costs were $0.39 per pound in first
quarter 2007 compared with $0.38 per pound in the prior-year period as
underlying productivity improvements were more than offset by the impact of
the stronger euro.
Global Recycling
Global Recycling segment income was $15.7 million in the first quarter
of 2007 compared with $18.1 million in the first quarter of 2006. Excluding
purchase accounting adjustments of $3.6 million, underlying segment income
was $19.3 million in the first quarter of 2007 and was $1.2 million higher
than the comparable 2006 quarter, driven by favorable volume and
productivity savings which more than offset less favorable scrap spreads in
North America. First quarter 2007 shipments of 789 million pounds were up
8% compared with the 730 million pounds shipped in the year-earlier first
quarter. The volume increase was principally driven by the strong European
economy.
Global Zinc
Global Zinc reported a segment loss of $0.6 million for the first
quarter of 2007 compared with $15.1 million of segment income for the first
quarter 2006. Adjusted for purchase accounting of $10.8 million, first
quarter 2007 segment income was $10.2 million. The decrease from the
prior-year period was due to lower volume and the FIFO impact of the
declining LME during the first quarter of 2007. First quarter 2007 volume
of 87 million pounds was 15% lower than in the first quarter of 2006,
driven primarily by lower demand by tire and rubber customers and the
Company's exit from some lower-margin business. LME zinc prices declined by
approximately 24% during the quarter; from $1.96 per pound in the fourth
quarter of 2006 to $1.49 per pound in the first quarter of 2007.
Corporate Expense
Corporate expense primarily includes corporate general and
administrative expense (G&A), other income/expense 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 SFAS No. 133 accounting
for derivative financial instruments. In the first quarter of 2007, Aleris
results included $7.2 million of restructuring and other charges (driven by
a potential acquisition not consummated), $2.3 million of sponsor
management fees, and $0.7 million of charges for non-cash stock-based
compensation, partially offset by $0.9 million of unrealized gains on
derivative financial instruments.
Corporate G&A increased to $18.1 million in first quarter 2007 from
$15.4 million in the first quarter of 2006, driven primarily by the
addition of sponsor management fees.
Interest expense for the first quarter of 2007 increased to $55.8
million from $14.0 million in the first quarter of 2006 due to higher
borrowings associated with the refinancing to fund the Corus Aluminum
acquisition and the refinancing to fund TPG's acquisition of Aleris.
Capital expenditures were $45 million for the first quarter of 2007,
compared with $11 million for the previous year's first quarter. The
increase is attributable to the Corus Aluminum acquisition which accounted
for $32 million of capital expenditures in the first quarter of 2007.
Conference Call and Webcast Information
Aleris will hold a conference call May 14, 2007 at 10 a.m. Eastern
time. Steven J. Demetriou, Chairman and Chief Executive Officer, and
Michael D. Friday, Executive Vice President and Chief Financial Officer,
will host the call to discuss results.
The call can be accessed by dialing 866-277-1182 or 617-597-5359 and
referencing passcode 69488119 at least 10 minutes prior to the
presentation, which will begin promptly at 10 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 888-286-8010 or 617-801-6888 and referencing passcode 21129480
beginning at noon Eastern time, May 14 until 11:59 p.m. Eastern time, May
21, 2007.
About Aleris
Aleris International, Inc. is a global leader in aluminum rolled
products and extrusions, aluminum recycling and specification alloy
production. The Company is also a recycler of zinc and a leading U.S.
manufacturer of zinc metal and value-added zinc products that include zinc
oxide and zinc dust. Headquartered in Beachwood, Ohio, a suburb of
Cleveland, the Company operates 50 production facilities in North America,
Europe, South America and Asia, and has approximately 8,500 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 and
earnings per share; future improvements in margins, processing volumes and
pricing; overall 2007 operating performance; anticipated higher adjusted
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; an anticipated favorable
economic environment in 2007; future benefits from acquisitions and new
products; expected benefits from changes in the industry landscape; and
anticipated synergies resulting from the merger with Commonwealth, 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, 2006,
particularly the section entitled "Risk Factors" contained therein.
Aleris International, Inc.
Consolidated Statement of Operations
(unaudited)
(in millions)
For the three months ended
March 31,
2007 2006
(Successor) (Predecessor)
Revenues $1,599.1 $847.6
Cost of sales 1,532.3 757.2
Gross profit 66.8 90.4
Selling, general and administrative expense 61.7 26.8
Restructuring and other charges 7.2 --
(Gains) losses on derivative financial
instruments (5.4) 4.1
Operating income 3.3 59.5
Interest expense 55.8 14.0
Interest income (1.4) (0.2)
Other expense, net 1.7 0.5
(Loss) income before provision for income
taxes and minority interests (52.8) 45.2
Provision for income taxes 0.1 16.8
(Loss)income before minority interests (52.9) 28.4
Minority interests, net of provision
for income taxes 0.2 0.2
Net (loss) income $ (53.1) $28.2
Aleris International, Inc.
(unaudited)
(in millions)
For the three months ended
March 31,
2007 2006
(Successor) (Predecessor)
Supplemental information:
Depreciation and amortization $40.1 $15.7
Capital spending $44.7 $11.0
Segment reporting:
Shipments (pounds)
Global rolled and extruded products 552.0 274.9
Global recycling 789.0 730.3
Global zinc 87.0 102.8
Revenues:
Global rolled and extruded products $1,063.6 $412.5
Global recycling 424.1 345.6
Global zinc 142.6 96.9
Intersegment eliminations (31.2) (7.4)
$1,599.1 $847.6
Segment income (loss):
Global rolled and extruded products $10.8 $42.4
Global recycling 15.7 18.1
Global zinc (0.6) 15.1
$25.9 $75.6
Corporate general and administrative
expense $(18.1) $(15.4)
Restructuring and other charges (7.2) -
Unrealized gains (losses) from
derivative financial instruments 0.9 (0.8)
Interest expense (55.8) (14.0)
Interest and other income (expense), net 1.5 (0.2)
(Loss) income before income taxes
and minority interests $(52.8) $45.2
Aleris International, Inc.
Condensed Consolidated Balance Sheet
(in millions)
March 31, 2007 December 31, 2006
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 85.9 $ 126.1
Accounts receivable, net 776.7 692.5
Inventories 972.6 1,023.6
Deferred income taxes 4.8 34.6
Derivative financial instruments 67.7 77.5
Other current assets 47.4 38.9
Total Current Assets 1,955.1 1,993.2
Property, plant and equipment, net 1,239.6 1,223.1
Goodwill 1,404.0 1,362.4
Intangible assets, net 81.6 84.1
Other assets 141.3 145.6
TOTAL ASSETS $ 4,821.6 $ 4,808.4
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 628.1 $ 554.3
Accrued liabilities 309.6 338.7
Deferred income taxes 37.7 37.7
Current maturities of long-term debt 19.0 20.5
Total Current Liabilities 994.4 951.2
Deferred income taxes 140.5 141.2
Long-term debt 2,581.4 2,567.5
Other long-term liabilities 303.9 303.1
Stockholder's equity 801.4 845.4
TOTAL LIABILITIES AND EQUITY $ 4,821.6 $ 4,808.4
Aleris International, Inc.
Reconciliation of Net (Loss) Income to
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) and EBITDA Excluding Special Items
(unaudited)
(in millions)
Three months Pro Forma
ended March 31,(1) LTM @ March 31, 2007(2)
2007 2006 Last twelve months
(Successor) (Predecessor)
Net (loss) income $ (53.1) $28.2 $(84.5)
Interest expense, net 54.4 13.8 218.6
Income taxes 0.1 16.8 (17.8)
Minority interests 0.2 0.2 0.1
Depreciation and
amortization 40.1 15.7 180.2
EBITDA $ 41.7 $ 74.7 $ 296.6
Unrealized (gains) losses
on derivative financial
instruments (0.9) 0.8 (5.3)
Restructuring and other
charges 7.2 --- 49.1
Impact of recording acquired
assets at fair value 66.7 1.1 111.1
Sponsor management fee 2.3 --- 9.0
Stock-based compensation
expense 0.7 1.8 9.6
Sale of Carson, CA property --- --- (13.8)
Loss on early extinguishment
of debt --- --- 54.4
Realized hedge gain -
Corus Aluminum --- --- (9.8)
Estimated synergies -
Corus Aluminum --- --- 33.0
EBITDA, excluding special
items $ 117.7 $ 78.4 $533.9
(1) See note 2 on page 2.
(2) Represents unaudited pro forma financial information for the 12 months
ended March 31, 2007 and presents the Company's combined results of
operations as if the Corus Aluminum acquisition and the Acquisition
had occurred on January 1, 2006. Pro forma EBITDA excluding special
items includes the expected synergy savings from the Corus Aluminum
acquisition, as well as reported one-time gains related to the sale of
the Carson, California rolling mill and hedges associated with the
purchase price paid for Corus Aluminum, and the reported loss on the
early extinguishment of debt. The unaudited pro forma information is
not necessarily indicative of the consolidated results of operations
that would have occurred had the Corus Aluminum acquisition and the
Acquisition been made at the beginning of the period presented or the
future results of combined operations.
Aleris International, Inc.
Reconciliation of Free Cash Flow to
Cash Flow Provided by Operating Activities
(unaudited)
(in millions)
Three months ended March 31,
2007 2006
(Successor) (Predecessor)
Free cash flow $55.2 $ 38.5
Increase in accounts receivable, net 84.2 76.4
Decrease in inventories (51.0) (3.4)
Impact of recording acquired inventory
at fair value at December 31, 2006 58.4 --
Increase in accounts payable (73.8) (44.1)
Capital spending 44.7 11.0
EBITDA, excluding special items $117.7 $78.4
Unrealized gains (losses) on
derivative financial instruments 0.9 (0.8)
Restructuring and other charges (7.2) --
Impact of recording acquired assets
at fair value (66.7) (1.1)
Sponsor management fee (2.3) --
Stock-based compensation expense (0.7) (1.8)
EBITDA $41.7 $74.7
Interest expense (55.8) (14.0)
Interest income 1.4 0.2
Provision for income taxes (0.1) (16.8)
Depreciation and amortization (40.1) (15.7)
Minority interest, net of provision
for income taxes (0.2) (0.2)
Net (loss) income $(53.1) $28.2
Depreciation and amortization 40.1 15.7
Benefit from) provision for deferred
income taxes (0.7) 5.4
Excess income tax benefits from
exercise of stock options -- (1.4)
Restructuring and other charges:
Charges 7.2 --
Payments (6.1) (0.3)
Stock-based compensation expense 0.7 1.8
Unrealized (gains) losses on
derivative financial instruments (0.9) 0.8
Non-cash charges related to step-up
in carrying value of inventory 55.2 --
Other non-cash charges 3.0 1.4
Net change in working capital (42.6) (16.2)
Cash provided by operating activities $2.8 $35.4
(Logo: http://www.newscom.com/cgi-bin/prnh/20050504/CLW056LOGO )
SOURCE Aleris International, Inc.