BEACHWOOD, Ohio, May 5 /PRNewswire-FirstCall/ -- Aleris International,
Inc. (NYSE: ARS) today reported financial results for the first quarter of
2005.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050504/CLW056LOGO )
Summary
-- Net income totaled $29.1 million or $0.94 per diluted share compared
with reported net income of $2.7 million or $0.18 per diluted share in
first quarter 2004. Adjusted earnings per share were $1.28 in the
first quarter of 2005 compared to $0.25 on a pro forma basis in the
prior year first quarter.
-- First quarter net income includes approximately $12 million of special
items, of which $10.5 million were non-cash related.
-- Net debt of $373 million represented a decrease of approximately
$20 million from year-end 2004, and net debt to EBITDA excluding
special items on an LTM basis decreased to 2.2x compared to 3.0x.
-- Merger-related synergies and productivity benefits expected to deliver
savings beginning in second quarter 2005.
-- Second quarter 2005 adjusted earnings per share expected to be $0.90 -
$0.95 excluding anticipated non-cash losses of approximately $0.19 per
share. Second quarter 2004 pro forma adjusted earnings per share were
$0.19.
-- Second quarter forecast reflects expected lower rolled products
shipments as customers adjust inventory levels; second half shipment
outlook unchanged.
Aleris International, Inc.
($ and lbs. in millions) Quarter Ended
March 31,
-------------------------
2004
---------------------------------
2005 As Reported Pro Forma
------- ------------ -----------
Volume:
Recycling and alloys lbs.
processed 832 830 830
Rolled products lbs. shipped 259 -- 247
Revenue $645.0 $278.5 $524.0
Net income $29.1 $2.7 $11.0
Earnings per diluted share $0.94 $0.18 $0.39
Adjusted earnings per
share $1.28 $0.10 $0.25
EBITDA(1) $56.5 $18.2 $37.7
EBITDA, excluding special
items(1) $68.5 $16.3 $33.2
(1) In this press release, we refer to various non-GAAP (generally
accepted accounting principles) financial measures including EBITDA and
EBITDA, excluding special items and adjusted earnings per share. 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' 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, taxes,
depreciation and amortization. "EBITDA, excluding special items", as used
in this press release, is defined as EBITDA excluding restructuring and
impairment charges, mark-to-market FAS 133 derivative and hedge activity
unrealized gains and losses, and the non-cash cost of sales impact of the
write-up of inventory and other items through purchase accounting.
Adjusted earnings per share excludes the per share impact of these
special items. Management uses EBITDA as a performance metric and
believes this measure provides additional information commonly used by
our stockholders, noteholders and lenders with respect to the performance
of our fundamental business activities, as well as our ability to meet
our future debt service, capital expenditures and working capital needs.
Management believes EBITDA excluding special items and adjusted earnings
per share are 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 revolving credit agreement and indentures for its
outstanding senior notes use EBITDA with additional adjustments to
measure its compliance with covenants such as fixed charge coverage and
debt incurrence.
Aleris resulted from the December 9, 2004 merger of IMCO Recycling Inc.
with Commonwealth Industries, Inc. IMCO was the acquirer for financial
accounting purposes. The Company's "As Reported" financial results for the
first quarter of 2005 include the operations of both companies for 2005, but
the comparable period in 2004 includes only the results of the former IMCO
Recycling Inc. The "Pro Forma" results combine the operations of both
companies and are adjusted to exclude the results of Commonwealth's
discontinued Alflex division and inter-company sales and to include the change
to the average cost method of accounting for inventory for the rolled products
segment (formerly Commonwealth), the incremental depreciation expense related
to the write-up of the acquired fixed assets of rolled products to their
estimated fair value, as well as incremental interest expense associated with
the financing of the merger.
First Quarter Operating Results
In the first quarter of 2005, Aleris reported revenues of $645.0 million
and net income of $29.1 million or $0.94 per diluted share. These results
include $0.34 per share of special items including $5.6 million related
primarily to the non-cash cost of sales impact of the write-up of rolled
products inventory to fair value at date of purchase, $3.6 million of mark-to-
market FAS 133 hedge losses and $2.8 million of restructuring and asset
impairment charges related to the merger. The first quarter includes income
tax expense of $3.8 million representing an effective tax rate of 11.6%, a
decrease from the previously communicated 20% rate due to reversal of a
portion of the valuation allowance. For the first quarter of 2004, the Company
reported revenues of $278.5 million and net income of $2.7 million or $0.18
per share, including a $1.9 million mark-to-market FAS 133 hedge gain.
Reported revenues of $645.0 million and net income of $29.1 million or
$0.94 per share in the first quarter of 2005 compared favorably to pro forma
revenues of $524.0 million and net income of $11.0 million or $0.39 per share
in the first quarter of 2004. Results in 2004 included $4.5 million of
primarily mark-to-market FAS 133 hedge gains. First quarter 2005 adjusted
earnings per share of $1.28 compare to adjusted earnings per share of $0.25 on
a pro forma basis in the first quarter of 2004. EBITDA, excluding special
items, of $68.5 million in the first quarter of 2005 was up 106% compared with
$33.2 million on a pro forma basis in the comparable 2004 period. Results were
driven principally by continued improvements in rolled products material
margins and volumes.
Steven J. Demetriou, Chairman and Chief Executive Officer of Aleris, said,
"Results for the quarter exceeded our expectations as we reported adjusted
earnings per share about $0.30 higher than our guidance. Stronger than
expected performance in rolled products and to a lesser extent, the lower tax
rate, more than offset weaker performance in aluminum recycling. As expected,
we experienced much improved margins in rolled products as new annual customer
agreements became effective in January, while volume and scrap spreads were
better than forecast. Our aluminum recycling segment is not yet performing to
our expectations and has been impacted by lower metal recoveries and other
operational issues. Corrective action plans in this segment have been
identified and are being implemented. Aleris overall is well on its way
toward significantly improved operating performance in 2005."
Rolled Products
Rolled product shipments totaled 259 million pounds in the first quarter
of 2005 compared to pro forma shipments of 247 million in the same period of
2004 as the result of continued strong customer demand across all end-use
applications. Income in the rolled products segment was $49.5 million in the
first quarter of 2005, which included $5.6 million of purchase accounting
charges, compared with pro forma segment income of $20.7 million in the
comparable 2004 period, an improvement of 166% after adjustment for purchase
accounting. Improvement was driven by significantly higher rolled product
margins, favorable scrap spreads, higher volumes and improved productivity.
Material margins in the first quarter 2005 of $0.484 per pound improved
from $0.376 per pound in the fourth quarter of last year and from $0.344 per
pound in the first quarter last year on a pro forma basis. In addition,
cash conversion costs declined to $0.206 per pound in the first quarter of
2005 from $0.217 per pound in the pro forma year-earlier period due primarily
to higher volume and improved productivity. For comparative purposes, all
prior-year pro forma amounts have been restated utilizing the average cost
method of accounting for inventory compared to previous reporting on a LIFO
basis in accordance with the prior practice of the acquiring company as
required by acquisition accounting rules.
Aluminum Recycling
First quarter processing volume of 508 million pounds for the aluminum
recycling segment was down approximately 2% compared with 519 million pounds
in the prior-year period. Segment income declined to $4.2 million in the
first quarter of 2005 from $6.6 million in the first quarter of 2004 due
primarily to lower than anticipated metal recovery performance, higher natural
gas and freight costs and tighter spec alloy scrap spreads than in the prior
year.
International
Processing volume of 267 million pounds for the international segment was
5% higher in the first quarter of 2005 than in the comparable period of 2004.
The increase was due to improved capacity utilization in Germany and Brazil.
2005 first quarter segment income was $4.5 million compared with $5.0 million
in the comparable 2004 quarter as tighter scrap spreads offset higher volumes.
Zinc
First quarter 2005 processing volume of 57 million pounds for the zinc
segment was 2% above the level of the year-ago period. Segment income
increased to $5.3 million in the first quarter of 2005 from $3.9 million in
the prior-year period. Income improvement was due principally to higher
average selling prices of zinc and resulting better margins.
Corporate Expense
Corporate expense primarily includes corporate SG&A and interest expense.
In addition, for 2005, corporate expense will also include all merger-related
restructuring charges and asset impairment charges, and non-cash adjustments
associated with mark-to-market FAS 133 accounting for derivative and hedging
activity that were previously shown within the business segments, in order to
simplify understanding of ongoing segment operations. 2004 operations have
been recast on a comparable basis. In the first quarter of 2005, corporate
expense special items totaled $6.4 million and included $3.6 million of mark-
to-market FAS 133 hedge losses and $2.8 million of restructuring and asset
impairment charges related to the merger. Special items in the first quarter
of 2004 totaled $1.9 million and represented mark-to-market FAS 133 hedge
gains. Corporate SG&A expense and interest expense were significantly higher
in the first quarter of 2005 than in the comparable 2004 period due to the
merger with Commonwealth.
Special items increased corporate expense by $6.4 million in the first
quarter of 2005 and, on a pro forma basis, decreased corporate expense by $4.6
million in the comparable 2004 period, primarily due to mark-to-market hedge
gains. Corporate SG&A in the first quarter of 2005 declined 3% from the
comparable 2004 period on a pro forma basis, as corporate merger synergies
more than offset higher incentive compensation accruals as well as expenses
related to the completion of management's report on internal controls,
required by Section 404 of the Sarbanes-Oxley Act for 2004. Interest expense
on a pro forma basis was down slightly due primarily to lower interest rates
and debt levels.
Outlook
Demetriou continued, "We had a better than expected first quarter in
rolled products but are forecasting slightly lower volume than previously
expected for the second quarter. We believe volume shifted into the first
quarter from the second because customers secured volumes early in the rising
LME environment in the first quarter. Our forecast for volume for the second
half of the year remains unchanged. We expect higher volumes in the third
quarter compared with the second quarter as we see steady end-use demand. In
aluminum recycling, automotive volumes have been weak and remain uncertain,
but we believe our operational improvements in this segment will provide
better results in the second quarter compared with the first quarter.
"I am very pleased with the significant progress our employees have made
in integrating the two organizations and embracing our cultural change
initiatives. Our overall synergy and productivity initiatives are gathering
momentum and we expect succeeding quarters to deliver savings at least as
planned, contributing to a very strong first year for Aleris. For the second
quarter of 2005, we are currently forecasting adjusted earnings per share of
$0.90 - $0.95, which should result in first half adjusted earnings per share
of approximately $2.15 - $2.20 compared with $0.44 on a pro forma basis in the
prior-year six month period."
Conference Call and Webcast Information
Aleris will host a conference call today, May 5, 2005 at 11 a.m. Eastern
time. Steven J. Demetriou, Aleris International's Chairman and Chief
Executive Officer, and Michael D. Friday, the Company's Executive Vice
President and Chief Financial Officer, will host the call to discuss results.
The call can be accessed by dialing 800-901-5217 or 617-786-2964 and
referencing passcode #82501810 at least 10 minutes prior to the presentation,
which will begin promptly at 11 a.m. Eastern time. In addition, the
conference call will be broadcast live over the Internet at http://www.aleris.com .
A replay of the conference call will be posted to the Company's Web site
at http://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 #67763519,
beginning at 2 p.m. Eastern time, May 5 until 11:59 p.m. Eastern time, May 19,
2005.
About Aleris
Aleris International, Inc. is a global leader in aluminum recycling and
production of specification alloys and is a major North American manufacturer
of common alloy sheet. The Company is also a leading manufacturer of value-
added zinc products that include zinc oxide, zinc dust and zinc metal.
Headquartered in Beachwood, Ohio, a suburb of Cleveland, the Company operates
28 production facilities in the U. S., Brazil, Germany, Mexico and Wales, and
has approximately 3,200 employees. For more information about Aleris, please
visit the Company's Web site at http://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 earnings and earnings per share; future
improvements in margins, processing volumes and pricing; overall 2005
operating performance; anticipated strengthened automotive volumes; expected
cost savings; and anticipated synergies resulting from the merger. 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' ability to effectively integrate
the business and operations of Commonwealth; downturns in automotive
production in the U.S. and Europe, the financial condition of Aleris'
customers and future bankruptcies and defaults by major customers; the
availability at favorable cost of aluminum scrap and other metal supplies that
the Company processes; the ability of the Company to enter into effective
metals, natural gas and other commodity derivatives; future natural gas and
other fuel costs of the Company; a weakening in industrial demand resulting
from a decline in U.S. or world economic conditions caused by terrorist
activities or other unanticipated events; future utilized capacity of the
Company's various facilities; future decreases in recycling outsourcing by
primary producers; restrictions on and future levels and timing of capital
expenditures; retention of its major customers; the timing and amounts of
collections; the future mix of product sales vs. tolling business; 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 the Company's filings with the Securities and
Exchange Commission, including but not limited to the Company's annual report
on Form 10-K for the fiscal year ended December 31, 2004 particularly the
sections entitled "Risk Factors" contained therein.
Aleris International, Inc.
------------------------------------
Consolidated Statement of Income
(in thousands, except per share data)
(unaudited)
For the Three Months Ended
March 31,
---------------------------
2005 2004
REVENUES $644,981 $278,508
Cost of sales 572,845 257,305
------- -------
GROSS PROFIT 72,136 21,203
Selling, general and
administrative expense 22,542 11,931
Interest and other
expense (income) 3,495 (1,818)
Restructuring charge 2,791 --
Interest expense 10,332 6,444
------- -------
39,160 16,557
Earnings before provision
for income taxes, and
minority interests 32,976 4,646
Provision for
income taxes 3,828 1,908
------- -------
Earnings before
minority interests 29,148 2,738
Minority interests, net of
provision for income taxes 60 27
------- -------
Net earnings $ 29,088 $ 2,711
======= =======
Earnings Per Common Share:
--------------------------------
Basic $ 0.97 $ 0.19
Diluted $ 0.94 $ 0.18
Weighted Average Shares Outstanding:
-------------------------------------
Basic 29,862 14,501
Diluted 30,817 15,294
Aleris International, Inc.
--------------------------
Supplementary Information
(in thousands, unaudited)
For the Three Months Ended
March 31,
--------------------------
2005 2004
------- -------
Depreciation
and amortization $ 13,370 $ 7,115
Capital spending $ 8,872 $ 7,626
Segment Reporting:
------------------
Volume (pounds):
Aluminum recycling 508,147 518,577
International 266,818 255,094
Zinc 57,099 56,193
------- -------
832,064 829,864
Percent tolled: 50% 49% (1)
Shipped pounds - Rolled
products 259,172 247,029
Revenues:
Aluminum recycling $144,576 $137,679
International 102,619 90,673
Zinc 54,979 50,156
Rolled products 350,247 --
Intersegment eliminations (7,440) --
------- -------
$644,981 $278,508
Segment Income:
Aluminum recycling $ 4,201 $ 6,620
International 4,480 5,013
Zinc 5,288 3,893
Rolled products 49,539 --
------- -------
$ 63,508 $ 15,526
(1) recast to include former Commonwealth Industries sales as buy/sell
due to the acquisition.
Aleris International, Inc.
------------------------------------
Condensed Consolidated Balance Sheet
(in thousands)
March 31, 2005 December 31, 2004
-------------- -----------------
(unaudited)
ASSETS
Current Assets:
Cash $ 18,343 $ 17,828
Accounts Receivable, Net 286,839 229,018
Inventories 229,798 251,785
Other Current Assets 46,059 37,178
------- -------
Total Current Assets 581,039 535,809
PP&E, Net 419,688 432,779
Goodwill 63,708 63,940
Restricted Cash 6,254 16,007
Other Assets 21,938 22,189
------- -------
TOTAL ASSETS $ 1,092,627 $1,070,724
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 159,087 178,943
Accrued Liabilities 88,362 77,980
Current Maturities of long-term debt 54 61
------- -------
Total Current Liabilities 247,503 256,984
Deferred Income Taxes Payable 14,359 11,280
Long-Term Debt 390,866 412,338
Other Long-Term Liabilities 108,006 107,452
Stockholders' Equity 331,893 282,670
------- -------
TOTAL LIABILITIES AND EQUITY $ 1,092,627 $1,070,724
------- -------
Aleris International, Inc.
--------------------------------
Reconciliation of Net Income to
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) and EBITDA, Excluding Special Items
(in thousands)
(unaudited)
For the Three Months Ended
March 31,
----------------------------
2005 2004
------- -------
Net Income $ 29,088 $ 2,711
Interest expense (net) 10,130 6,444
Income taxes 3,828 1,908
Minority interests 60 27
Depreciation and
amortization 13,370 7,115
EBITDA $ 56,476 $ 18,205
Mark-to-market FAS 133
aluminum hedge
(gain) loss 3,654 (1,951)
Restructuring, merger
related and executive
separation charges 2,791 --
Non-cash cost of sales
impact of recording
acquired assets at
fair value 5,558 --
------- -------
EBITDA, excluding special
items $ 68,479 $16,254
======= ========
Reconciliation of Pro Forma Net Income to
Pro Forma Earnings Before Interest, Taxes, Depreciation and
Amortization and Pro Forma EBITDA, Excluding Special Items
(in thousands)
(unaudited)
For the Three Months Ended
March 31,
---------------------------
2005 2004
------- -------
Net Income (loss) $ 29,088 $ 10,963
Interest expense (net) 10,130 10,899
Income taxes 3,828 1,969
Minority interests 60 27
Depreciation and
amortization 13,370 13,883
EBITDA $ 56,476 $37,741
Mark-to-market FAS
133 aluminum hedge
(gain) loss 3,654 (4,962)
Restructuring, merger
related and executive
separation charges 2,791 394
Non-cash cost of sales
impact of recording
acquired assets at
fair value 5,558 --
------- --------
EBITDA, excluding special
items. $ 68,479 $ 33,173
======= =========
Aleris International, Inc.
Reconciliation of Earnings per Share to
Adjusted Earnings per Share(1)
(unaudited)
For the Three Months Ended
March 31,
---------------------------
2004
-----------------------------
2005 As Reported Pro Forma
------- ----------- -----------
Earnings per Share as reported $0.94 $0.18 $0.39
Purchase accounting adjustments 0.16 -- --
Ineffective metal hedging 0.10 (0.08) (0.15)
Restructuring costs 0.08 -- 0.01
------- ------- -------
Earnings per Share as adjusted $1.28 $0.10 $0.25
(1) This statement reconciles(i)earnings per share as reported,(ii) to
earnings per share as adjusted to exclude the impact of purchase
accounting adjustments, the impact of mark-to-market FAS 133 hedge gains
and losses, and the impact of restructuring costs associated with
management actions related to the recent merger of the Company with
Commonwealth Industries. All adjustments are presented on an after tax
basis. The methods used to compute these measures may differ from the
methods used by other companies. Earnings per share as adjusted is a non
GAAP measure. This non-GAAP measure has limitations as an analytical
tool and should be considered in addition to, not in isolation or as a
substitute for, or superior to, Aleris' measures of financial performance
prepared in accordance with GAAP. Investors are encouraged to review the
contained herein tables reconciling the non-GAAP financial measures to
comparable GAAP amounts. Management believes earnings per share as
adjusted to exclude special items is useful to our stakeholders in
understanding our operating results from period to period and the ongoing
performance of our underlying businesses without the impact of these
special items.
SOURCE Aleris International, Inc.
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CONTACT:
Michael D. Friday of Aleris International,
Inc., +1-216-910-3503
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