BEACHWOOD, Ohio, May 9 /PRNewswire-FirstCall/ -- Aleris International,
Inc. (NYSE: ARS) today reported financial results for the first quarter of
2006.
Summary
- Operating income increased to a record $59.5 million in the first
quarter of 2006 from last year's record of $43.1 million, an increase
of 38%.
- First quarter net income of $28.2 million or $0.89 per share (*) at an
estimated 2006 tax rate of 36.8% compares with earnings per share of
$0.94 in last year's first quarter utilizing the estimated 2005 tax
rate of 11.6%. Last year's reported first quarter earnings per share
would have been $0.67 at the 2006 estimated tax rate.
- Adjusted earnings per share were $0.93 in the first quarter of 2006 at
the estimated tax rate of 36.8% compared with $1.29 per share in the
first quarter last year utilizing the estimated 2005 tax rate of 11.6%.
However, adjusted to the estimated 2006 tax rate, last year's adjusted
earnings per share would have been $0.92 per share, resulting in the
2006 quarter exceeding the strongest quarter of the previous year.
- As planned, production ceased at the Carson, California rolling mill
effective March 31, 2006. A restructuring and asset impairment charge
of $24 million was previously recorded in the fourth quarter 2005.
- Net debt decreased approximately $25 million during the first quarter
2006 as a result of continued strong cash generation, despite higher
working capital levels that were driven by record high aluminum and
zinc prices. Net debt to EBITDA excluding special items on a last
twelve month basis was 2.6x at March 31, 2006 compared with 2.8x at
year-end 2005.
- Merger-related synergies from the Commonwealth acquisition, companywide
productivity initiatives and synergies related to the 2005 acquisitions
totaled approximately $16 million in the first quarter 2006 compared
with the first quarter of 2005 and are off to a fast start.
- The Company expects second quarter 2006 adjusted earnings per share in
the range of $1.20 to $1.25 as volumes are expected to improve,
operational improvements continue to take hold and merger and
acquisition synergies and productivity benefits accelerate. Aleris's
second quarter 2005 adjusted earnings per share utilizing a 36.8% tax
rate were $0.65.
Aleris International, Inc
For the three months ended March 31,
(unaudited)
($ and lbs. in millions, except per share amounts)
2006 2005
Volume:
Recycling lbs processed 874 832
Rolled products lbs shipped 275 259
Revenue $847.5 $645.0
Operating income $59.5 $43.1
Net income $28.2 $29.1
Earnings per share * $0.89 $0.94 (2)
Adjusted earnings per share * $0.93 $1.29 (3)
EBITDA(1) $74.7 $56.5
EBITDA excluding special items(1) $76.7 $68.5
* - all per share data is presented on a fully diluted basis, unless
otherwise noted.
(1) In this press release, we refer to various non-GAAP (generally
accepted accounting principles) financial measures including (i) EBITDA,
(ii) EBITDA excluding special items and (iii) 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'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, is defined as EBITDA excluding restructuring and other charges,
mark-to-market FAS 133 metal hedge 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 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
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.
(2) Represents $0.67 per share at the estimated 2006 tax rate of 36.8%
(3) Represents $0.92 per share at the estimated 2006 tax rate of 36.8%.
Aleris resulted from the December 9, 2004 merger of IMCO Recycling Inc.
and Commonwealth Industries, Inc. During the last half of 2005, the Company
made several acquisitions including Tomra Latasa Reciclagem which closed in
August, ALSCO Holdings, Inc. which closed in October, and Alumitech, Inc.
and the acquisition of selected assets of Ormet Corporation which closed in
December. Our reported results for 2006 include these acquisitions, but
2005 has not been recast on a comparable basis and represents 2005 results
as reported.
First Quarter 2006 Operating Results
In the first quarter of 2006, Aleris reported revenues of $847.5
million and net income of $28.2 million or $0.89 per share. These results
include $0.04 per share negative impact from special items including $0.9
million of non-cash mark-to-market FAS 133 metal hedge losses and $1.1
million related primarily to the non-cash cost of sales impact of the
write-up of rolled products assets to fair value at date of purchase. 2006
results were reported using a 36.8% estimated tax rate. For the first
quarter of 2005, the Company reported revenues of $645.0 million and net
income of $29.1 million or $0.94 per share which included $5.6 million of
expense related primarily to the non- cash cost of sales impact of the
write-up of rolled products assets to fair value at date of purchase, $3.7
million non-cash mark-to-market FAS 133 metal hedge losses and $2.8 million
of restructuring and severance costs related to the Commonwealth merger.
2005 results were reported using an estimated tax rate of 11.6% due to the
reversal of certain valuation allowances. 2005 earnings would have been
$0.67 per share utilizing the 2006 estimated tax rate of 36.8%.
First quarter 2006 adjusted earnings per share were $0.93 compared with
$1.29 per share in the first quarter of 2005. However, on a tax rate basis
comparable to that used in 2006, first quarter 2005 adjusted earnings per
share would have been $0.92, making the first quarter 2006 slightly more
profitable than last year's unusually strong first quarter.
Operating income increased to a record $59.5 million in the first
quarter of 2006 from last year's record of $43.1 million, an increase of
38%. EBITDA excluding special items totaled $76.7 million in the first
quarter of 2006, an increase of 12% compared with $68.5 million in the
first quarter of 2005. As anticipated, improved results in the aluminum
recycling and zinc business units in the first quarter, the impact of
acquisitions, and the benefits of merger and acquisition synergies and
productivity initiatives, offset lower rolled products volumes, excluding
acquisitions, compared with the extremely robust prior-year first quarter.
Steven J. Demetriou, Chairman and Chief Executive Officer of Aleris,
said, "We are very pleased that we were able to improve upon the unusually
strong operating results achieved in last year's first quarter with EBITDA
excluding special items increasing 12% from the prior year. The Company's
performance is an indication of the momentum we are gaining and a
reflection of the underlying operational improvements that we have made in
recent quarters. As anticipated, rolled products results were lower than
the unseasonably high performance during last year's first quarter when the
sheet industry was restocking inventory. We are extremely pleased that the
aluminum recycling segment exceeded our expectations indicating early-on
success in implementation of our turnaround strategy. We are also excited
with the surge in zinc profitability driven by the impact of rising prices
on the London Metal Exchange (LME). Expected Commonwealth merger-related
synergies, companywide productivity initiatives and synergies from our 2005
acquisitions are on track and resulted in benefits of approximately $16
million in the first quarter of 2006. The proposed acquisition of Corus
Group's downstream aluminum operations, which was announced in March,
continues to proceed as planned with the intent to enter into a binding
agreement following Corus's consultations with the appropriate European
employee works councils and trade unions. Subject to those consultations
and customary regulatory reviews, the closing is expected to occur in the
third quarter."
Net debt decreased approximately $25 million during the first quarter
2006 as a result of continued strong cash generation, despite normal
seasonal working capital increases coupled with record high aluminum and
zinc prices which caused working capital levels to rise. Net debt to EBITDA
excluding special items on a last twelve month basis declined slightly to
2.6x at March 31, 2006 from 2.8x at year-end 2005.
Rolled Products
Rolled product shipments totaled 275 million pounds in the first
quarter of 2006, including approximately 61 million pounds from
acquisitions, compared with shipments of 259 million pounds in the same
period of 2005. Excluding acquisitions, rolled products shipments were down
approximately 18% compared with the record first quarter of 2005 as
customers continued to delay orders due to high LME prices, and as the
Company continued to focus on profitability rather than volume. Rolled
products segment income was $43.5 million in the first quarter of 2006,
excluding charges of $1.1 million related to adjustments for purchase
accounting, compared with segment income of $55.1 million in the comparable
2005 period on the same basis. Reduced income was driven primarily by lower
volume, partially offset by favorable scrap spreads, the favorable FIFO
impact of the rising LME, improved productivity, and the acquisition of
ALSCO and certain assets of Ormet.
Excluding acquisitions, material margins in the first quarter of 2006
improved to $0.533 per pound from $0.487 per pound in the year-earlier
period due primarily to continually improving scrap spreads and the
favorable FIFO impact of the rising LME. Excluding acquisitions, cash
conversion costs increased to $0.221 per pound in the first quarter of 2006
from $0.206 per pound in the prior-year period due to approximately 9%
lower production volume in the current period compared with the very strong
comparable 2005 period as well as 18% higher energy costs in the first
quarter of 2006. Including acquisitions, material margins were $0.536 per
pound in the first quarter of 2006 while cash conversion costs were $0.249
per pound in the first quarter 2006 as ALSCO products have higher material
margins and cash conversion costs than the underlying rolled products
business.
Aluminum Recycling
Aluminum recycling segment income significantly improved to $15.8
million in the first quarter of 2006 from $4.2 million in the comparable
quarter of 2005. First quarter processing volume of 502 million pounds for
the aluminum recycling segment was essentially flat compared with 508
million pounds in the prior-year period. Increased volume related to the
acquisition of Alumitech and certain assets of Ormet was offset by lower
volume due to the shift of management responsibility for certain recycling
facilities to rolled products beginning in 2006. The more than threefold
increase in profitability was due to higher selling prices, operational
improvements implemented in recent quarters, productivity benefits and the
impact of the Alumitech acquisition.
International
Processing volume of 314 million pounds for the international segment
in the first quarter of 2006 was 18% higher than the 267 million pounds
processed in the first quarter of 2005. The increase was attributable to
increased volume in Europe due to the start-up of the Stuttgart plant and
the 2005 acquisition of Tomra Latasa in Brazil. First quarter 2006 segment
income of $2.4 million was lower than the $4.5 million reported in the
comparable 2005 quarter as a result of higher scrap costs and resulting
lower margins in Germany, along with start-up costs associated with the
Stuttgart facility. These negative factors more than offset improvements in
Brazil where the Tomra Latasa acquisition generated higher profits.
Zinc
Segment income of $15.1 million nearly tripled last year's first
quarter income of $5.3 million. The increase was principally the result of
the significant rise in the LME price of zinc which averaged $1.02 per
pound in the first quarter of 2006, 70% higher than the first quarter of
2005.
Corporate Expense
Corporate expense includes primarily corporate G&A and interest
expense. In addition, in order to simplify understanding of ongoing segment
operations, corporate expense includes all restructuring and asset
impairment charges as well as non-cash adjustments associated with
mark-to-market FAS 133 accounting for metal hedging activity. In the first
quarter of 2006, Aleris recorded $0.9 million of non-cash mark-to-market
FAS 133 unrealized metal hedge losses. In the first quarter of 2005, Aleris
recorded non-cash mark-to-market FAS 133 unrealized metal hedge losses of
$3.7 million and $2.8 million of restructuring and severance costs related
primarily to the Commonwealth merger.
Corporate G&A expense was $15.3 million in the first quarter of 2006
and was $1.2 million higher than in the comparable 2005 period due
primarily to higher accruals for incentive and stock-based compensation.
Interest expense in the first quarter of 2006 was $13.9 million compared
with $10.3 million in the first quarter of 2005. The increase was due to
higher borrowings outstanding on the Company's revolver, mainly used to
fund acquisitions as well as higher interest rates on the outstanding
balances.
Outlook
Mr. Demetriou said, "We continue to anticipate a favorable economic
environment in 2006 and expect Aleris top-line results to benefit from 2005
acquisitions and related new products along with higher LME prices. Reduced
costs from the Commonwealth merger and 2005 acquisition synergies,
favorable scrap spreads in rolled products, continued improvement in our
recycling operations and the results from our Six Sigma effort should
underpin 2006 results and drive earnings acceleration in the second
quarter. For the second quarter 2006, we are expecting further volume
increases in rolled products and continued operational improvements in our
aluminum recycling businesses globally, as well as the favorable impact of
continued strength in the zinc LME on our zinc business. As a result, we
anticipate adjusted earnings per share in the second quarter of 2006 to
nearly double to between $1.20 and $1.25 from $0.65 per share in the second
quarter of 2005 on a comparable 2006 tax rate basis. Second half 2006
results should significantly exceed second half 2005 results on a
comparable 2006 tax rate basis excluding the potential effect of the
acquisition of the downstream aluminum operations of Corus Group plc."
Conference Call and Webcast Information
Aleris will host a conference call Tuesday, May 9, 2006 at 11:00 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 866-314-5232 or 617-213-8052 and
referencing passcode #92554152 at least 10 minutes prior to the
presentation. 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 #44778165
beginning at 1:00 p.m. Eastern time, May 9 until 11:59 p.m. Eastern time,
May 23, 2006.
About Aleris
Aleris International, Inc. is a major North American manufacturer of
rolled aluminum products and is a global leader in aluminum recycling and
the production of specification alloy. We are 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 42 production facilities in the United States, Brazil, Germany,
Mexico and Wales, and employs approximately 4,200 employees. For more
information about Aleris, please visit our 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 actual and adjusted earnings and
earnings per share; future improvements in margins, processing volumes and
pricing; overall 2006 operating performance; anticipated higher adjusted
effective tax rates; expected cost savings; success in integrating Aleris's
recent acquisitions; its future growth; an anticipated favorable economic
environment in 2006; future benefits from acquisitions and new products;
expected benefits from industry consolidation and post-hurricane
reconstruction; and anticipated synergies resulting from the merger with
Commonwealth 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
acquisition; 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 the Company processes;
the ability of the Company to enter into effective metals, natural gas and
other commodity derivatives; continued increases in 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; a continuation of building and construction
customers and distribution customers reducing their inventory levels and
reducing the volume of the Company's shipments; restrictions on and future
levels and timing of capital expenditures; retention of the Company'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 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, 2005, and
quarterly report on Form 10-Q for the quarter ended March 31, 2006,
particularly the sections entitled "Risk Factors" contained therein.
Aleris International, Inc.
Consolidated Statement of Income
(unaudited)
(in thousands, except per share data)
For the Three Months Ended
March 31,
2006 2005
Revenues $847,533 $644,981
Cost of sales 760,419 572,845
Gross profit 87,114 72,136
Selling, general and administrative expense 26,740 22,542
Restructuring and other charges - 2,791
Unrealized losses on derivative
financial instruments 856 3,654
Operating income 59,518 43,149
Interest expense 13,927 10,332
Interest income (191) (202)
Other expense (income), net 526 (91)
Equity in net loss of affiliates - 134
Income before provision for income
taxes and minority interests 45,256 32,976
Provision for income taxes 16,846 3,828
Income before minority interests 28,410 29,148
Minority interests, net of provision
for income taxes 219 60
Net income $28,191 $29,088
Earnings per common share:
Basic $0.92 $0.97
Diluted $0.89 $0.94
Weighted average shares outstanding:
Basic 30,777 29,862
Diluted 31,631 30,817
Aleris International, Inc.
(unaudited)
(in thousands, except percentages)
For the Three Months Ended
March 31,
2006 2005
Supplementary Information:
Depreciation and amortization $ 15,751 $ 13,370
Capital spending $ 10,993 $8,872
Segment Reporting:
Volume (pounds):
Aluminum recycling 502,230 508,147
International 314,480 266,818
Zinc 57,267 57,099
873,977 832,064
Percent tolled 53% 50%
Shipped pounds - Rolled products 274,939 259,172
Revenues:
Rolled products $412,350 $350,247
Aluminum recycling 178,948 144,576
International 166,731 102,619
Zinc 96,912 54,979
Intersegment eliminations (7,408) (7,440)
$847,533 $644,981
Segment Income:
Rolled products $ 42,367 $ 49,539
Aluminum recycling 15,764 4,201
International 2,441 4,480
Zinc 15,072 5,288
$ 75,644 $ 63,508
Corporate general & administrative expense $(15,280) $ (14,048)
Restructuring & other charges - ( 2,791)
Interest expense (13,927) (10,332)
Unrealized losses from derivative
financial instruments (856) (3,654)
Interest & other (expense) income net (325) 293
Income before income taxes &
minority interests $ 45,256 $ 32,976
Aleris International, Inc.
Consolidated Balance Sheet
(in thousands)
March 31, 2006 December 31, 2005
(unaudited)
ASSETS
Current Assets:
Cash $ 8,254 $ 6,822
Accounts receivable, net 401,528 325,111
Inventories 401,365 404,780
Derivative financial instruments 13,179 27,958
Other current assets 48,716 46,137
Total Current Assets 873,042 810,808
PP&E, net 535,356 537,797
Goodwill 154,939 152,845
Restricted cash 6,203 6,183
Other assets 42,267 46,497
TOTAL ASSETS $1,611,807 $1,554,130
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 244,912 $ 200,773
Accrued liabilities 145,834 135,448
Current maturities of
long-term debt 28,331 20,813
Total Current Liabilities 419,077 357,034
Deferred income taxes 51,166 51,837
Long-term debt 599,824 631,024
Other long-term liabilities 121,674 120,466
Stockholders' equity 420,066 393,769
TOTAL LIABILITIES AND EQUITY $ 1,611,807 $1,554,130
Aleris International, Inc.
Reconciliation of Net Income to
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) and EBITDA Excluding Special Items
(unaudited)
(in thousands)
For the Three Months Ended
March 31,
2006 2005
Net Income $ 28,191 $ 29,088
Interest expense(net) 13,736 10,130
Income taxes 16,846 3,828
Minority interests 219 60
Depreciation and amortization 15,751 13,370
EBITDA $ 74,743 $ 56,476
Mark-to-market FAS 133 aluminum
hedge loss 856 3,654
Restructuring and other charges --- 2,791
Non-cash cost of sales impact of
recording acquired assets at
fair value 1,092 5,558
EBITDA, excluding special items $ 76,691 $ 68,479
Aleris International, Inc.
Reconciliation of Earnings per Diluted Share to
Adjusted Earnings per Diluted Share(1)
(unaudited)
For the Three Months Ended
March 31,
2006 2005
Earnings per Share as reported $ 0.89 $ 0.94
Purchase accounting adjustments 0.03 0.18
Ineffective metal hedging 0.03 0.12
Restructuring and other charges 0.00 0.09
Tax impact (0.02) (0.04)
Earnings per Share as adjusted $ 0.93 $ 1.29
(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 metal hedge
gains and losses, and the impact of restructuring and other charges. For
the three months ended March 31, 2006, the "tax impact" represents the
impact of applying an incremental tax rate of 38% to the adjustments.
For the three months ended March 31, 2005, the "tax impact" represents
the impact of applying an 11.6% effective tax rate to the adjustments.
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's measures of financial performance prepared
in accordance with GAAP. Investors are encouraged to review the tables
contained herein 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 better
understanding our operating results from period to period and the ongoing
performance of our underlying businesses without the impact of these
special items.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050504/CLW056LOGO )
SOURCE Aleris International, Inc.
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CONTACT:
Michael D. Friday of Aleris International,
Inc., +1-216-910-3503
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