Aleris Reports Third Quarter Results

BEACHWOOD, Ohio, Nov. 9, 2010 /PRNewswire/ -- Aleris International, Inc. today reported results for the quarter ended September 30, 2010.

Summary

• Volumes increased 22% in the third quarter of 2010 compared to the third quarter of 2009 and revenues were $1.1 billion versus $816 million in 2009.

• Net income for third quarter of 2010 was $54 million compared to a loss of $23 million for the third quarter of 2009. Third quarter net income totaled $46 million excluding the net of tax impacts of metal price lag, reorganization items, unrealized gains on derivative financial instruments, the impact of recording assets at fair value through fresh-start accounting, and restructuring, impairment and other charges.

• Adjusted EBITDA for the third quarter of 2010 was $72 million compared to $45 million for the third quarter of 2009. Adjusted EBITDA for the twelve months ended September 30, 2010 was $230 million.

• Cash from operating activities was $80 million in the third quarter of 2010 compared to a $23 million use of cash of in the third quarter of 2009.

• We had $520 million of liquidity at September 30, 2010, which consisted of $425 million of availability under the revolving credit facility plus $95 million of cash.

Aleris emerged from Chapter 11 bankruptcy protection on June 1, 2010. This resulted in the emerged Company being considered a new entity for financial reporting purposes. As a result, our financial statements for periods after June 1, 2010 (references to the Company and the related financial statements for such periods, the "Successor") are not comparable to the financial statements for periods prior to that date (references to the Company and the related financial statements for such periods, the "Predecessor"). However, we have adjusted for the most significant of these differences in our presentation of Adjusted EBITDA.

For the third quarter of 2010, Aleris reported revenues of $1.1 billion compared to $816 million in the third quarter of 2009. For the third quarter of 2010, net income totaled $54 million compared to a net loss of $23 million in the third quarter of 2009. Third quarter 2010 net income totaled $46 million after excluding the net of tax impacts of $13 million of metal price lag, $4 million of reorganization items, $21 million of unrealized gains on derivative financial instruments, $1 million of gains from the impact of recording assets at fair value through fresh-start accounting and $1 million of restructuring, impairment and other charges. For the third quarter of 2009, net income totaled $9 million excluding the net of tax impacts of metal price lag, reorganization items, gains from the impact of recording assets at fair value through fresh-start accounting, unrealized gains on derivative financial instruments, restructuring, impairment and other charges, and interest expense.

Adjusted EBITDA totaled $72 million in the third quarter of 2010 compared to $45 million in the third quarter of 2009. Adjusted EBITDA for the twelve months ended September 30, 2010 totaled $230 million.

For the third quarter of 2010, operating results reflected a 22% increase in demand as all of our industry segments benefited from improved economic conditions as compared to the third quarter of 2009. In addition to higher volumes, our operating results benefited from lower cash conversion costs per unit in Europe, primarily due to our significant restructuring of those operations and our continuing efforts to reduce operating costs.

At September 30, 2010, our long-term indebtedness consisted primarily of $45 million of exchangeable notes. We had $520 million of liquidity at September 30, 2010, which consisted of $425 million of availability under our revolving credit facility plus $95 million of cash.

Steven J. Demetriou, Aleris chairman and chief executive officer, said, "We are pleased with our third quarter results that show the benefits of our global restructuring and productivity work along with higher volumes and earnings momentum in Europe. We are on track with our growth strategy.  This quarter, we announced the expansion of our extrusions capacity at our Tianjin facility as well as an agreement to form a Chinese joint venture, subject to normal approvals for the construction of a state-of-the-art aluminum plate rolling mill."

Rolled Products North America

Rolled Products North America's segment income for the third quarter of 2010 decreased by $9 million to $18 million compared to the third quarter of 2009 while segment Adjusted EBITDA increased $2 million to $24 million. Segment Adjusted EBITDA benefited from higher demand in distribution, transportation, and most other industries served by our North American operations. The benefits from improved shipment volumes as well as improved pricing and productivity initiatives were partially offset by tighter scrap spreads and higher conversion costs resulting from inflation and costs associated with the production ramp up at our Lewisport and Richmond rolling mills.

Recycling and Specification Alloys Americas

Recycling and Specification Alloys Americas' segment income for the third quarter of 2010 increased by $7 million to $10 million compared to the prior year period and segment Adjusted EBITDA increased by $1 million to $12 million.  This increase is due primarily to volume increases resulting from the higher North American auto build rates benefiting our Specification Alloy business and generally higher recycling activities associated with increased industrial production.  The benefits from improved shipment volumes were partially offset by tighter scrap flows which negatively impacted margins.

Europe

Europe segment income for the third quarter of 2010 increased by $18 million to $27 million compared to the third quarter of 2009 while segment Adjusted EBITDA increased by $26 million to $44 million. The increase in segment Adjusted EBITDA was due to an 18% increase in shipment levels as robust automotive volumes continued and general economic activity increased. In addition, benefits from our restructuring and productivity initiatives drove lower per unit conversion costs and better EBITDA performance.

Forward-Looking Statements

This press release contains forward-looking statements.  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 2010 operating performance; anticipated effective tax rates; expected cost savings; the anticipated economic environment in 2010; and future benefits from acquisitions and new products.  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; 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; the difficult conditions in the capital, credit, commodities, automobile and housing segments and in the current economy; and other risks listed in Aleris's filings with the  United States Bankruptcy Court, including but not limited to Aleris's First Amended Plan of Reorganization and related Disclosure Statement, particularly the section entitled "Risk Factors" contained therein.

Non-GAAP Financial Measures

In addition to the results reported in accordance with GAAP, this press release includes information regarding "Adjusted EBITDA." In this press release, Adjusted EBITDA, also referred to as Adjusted EBITDA (Underlying), removes the impacts of metal price lag, among other non-recurring or non-cash items, and has historically been described by the Company as "Underlying EBITDA."  Adjusted EBITDA is defined as net income (loss) before interest income and expense, taxes, depreciation and amortization ("EBITDA"), metal price lag, reorganization items, net, unrealized gains and losses on derivative financial instruments, restructuring, impairment and other 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, and certain other non-cash gains and losses.  

Adjusted EBITDA is a non-GAAP measure and the Company's computation 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, Aleris's measures of financial performance prepared in accordance with GAAP, including pre-tax income (loss) and net income (loss).  Investors are encouraged to review the accompanying tables reconciling Adjusted EBITDA to comparable GAAP amounts.   Management uses Adjusted EBITDA as a performance metric and believes the measure provides additional information commonly used by parties to Aleris's revolving credit facility in understanding its 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 financial covenants required under the revolving credit facility.

About Aleris

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.  

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Aleris 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 it sole discretion.  Aleris may also determine not to publicly disclose any information, in its sole discretion, notwithstanding prior disclosures or any pattern of prior disclosures.

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.

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SOURCE Aleris International, Inc.