Filing identity and reporting period
Important mismatch: The request identifies Howmet Aerospace Inc., but the supplied Form 10-Q is for Alcoa Inc. for the quarter ended September 30, 2013. The figures below summarize the supplied Alcoa filing and should not be attributed to Howmet without verification.
The filing reports unaudited third-quarter and nine-month results for 2013, compared with the same periods in 2012. The interim financial statements received an independent accountant’s review, not an audit.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Sales | $5.765 billion | $5.833 billion | $17.447 billion | $17.802 billion |
| Net income (loss) attributable to Alcoa | $24 million | ($143 million) | $54 million | ($51 million) |
| Diluted EPS | $0.02 | ($0.13) | $0.05 | ($0.05) |
| Cash provided from operations | Not presented for quarter | Not presented for quarter | $658 million | $564 million |
- Cost of goods sold was 83.2% of sales in Q3 and 83.6% for the nine months, versus 90.3% and 87.2%, respectively, in 2012.
- Q3 total segment after-tax operating income (ATOI) increased to $338 million from $224 million. Nine-month ATOI rose to $993 million from $783 million.
- Q3 segment ATOI: Alumina $67 million; Primary Metals $8 million; Global Rolled Products $71 million; Engineered Products and Solutions $192 million.
- At September 30, cash and cash equivalents were $1.017 billion, down from $1.861 billion at year-end 2012. Current assets were $7.049 billion and current liabilities $6.040 billion.
- Total debt was $8.344 billion: $655 million due within one year and $7.630 billion long-term, plus $59 million in short-term borrowings. The company also reported $4.815 billion of available revolving credit capacity, including its $3.750 billion five-year facility and $1.065 billion of short-term facilities.
- Capital expenditures were $771 million and cash used for investing activities was $865 million for the first nine months. Cash used for financing was $614 million. Common dividends paid were $99 million; dividends were $0.03 per share in Q3 and $0.09 per share for the nine-month period.
Changes versus prior comparable periods
- Sales declined 1% in Q3 and 2% for the nine-month period. Alcoa cited lower primary aluminum volumes and prices, including lower LME prices, partly offset by higher alumina and midstream/downstream volumes.
- Alcoa returned to positive attributable net income in both comparisons. Management attributed the improvement mainly to productivity, favorable currency movements, higher midstream and downstream volumes, and the absence of prior-year environmental and civil-litigation charges. Shutdown-related restructuring, lower aluminum prices, and higher input costs partly offset those benefits.
- Restructuring and other charges increased to $151 million in Q3 and $402 million for the nine months, compared with $2 million and $27 million in 2012. Charges included smelter exit costs and, for the nine-month period, a $103 million legal charge.
- Operating cash flow increased $94 million year over year for the nine-month period, but cash declined by $844 million from the beginning of the year. The filing cites working-capital movements and other balance-sheet changes among the offsets to improved operating results.
- Total liabilities declined to $22.365 billion from $23.656 billion at year-end 2012; total equity declined to $15.864 billion from $16.523 billion.
Outlook, commentary, and risks
- The filing provides no consolidated numerical earnings or revenue guidance. Segment commentary anticipates continued alumina index and spot pricing, productivity improvements, and higher mining and natural-gas costs; lower Primary Metals production as curtailments take effect; and mixed end-market trends across rolled and engineered products.
- Alcoa permanently shut down potlines at Baie Comeau, Quebec, and Massena East, New York, and permanently closed the previously idled Fusina, Italy smelter. The actions removed 150,000 metric tons per year of capacity; demolition and remediation were scheduled to extend through 2017. The company also temporarily curtailed 128,000 metric tons per year at two Brazilian smelters.
- After the quarter, Alcoa reported that one of two potlines at the Ma’aden-Alcoa joint-venture smelter temporarily halted production following pot instability; the venture was working to restore it.
- Key legal uncertainties include ongoing DOJ and SEC investigations related to the Alba matter. Alcoa had recorded a $103 million DOJ-related charge, noted a possible additional DOJ charge of up to approximately $200 million, and said an SEC resolution could be material. No settlements had been reached by quarter-end.
- Other exposures include an Italian power-tariff recovery dispute with a reasonably possible loss range of $0–$97 million; environmental remediation liabilities of $515 million; and a Brazilian tax-credit dispute with possible exposure described in separate ranges for export-related credits and fixed assets.
- Moody’s downgraded Alcoa below investment grade in May 2013; S&P and Fitch retained BBB- ratings but moved their outlooks to negative. The filing warns that further downgrades could increase collateral requirements, borrowing costs, or constrain financing access. A downgrade by at least two specified agencies could also trigger credit support requirements tied to Saudi joint-venture financing.
- Management identified aluminum prices and discount rates as potential adverse factors in the forthcoming annual goodwill impairment analysis for Alumina and Primary Metals reporting units.
Most important facts for investors to verify
- Confirm that the intended issuer is Alcoa Inc., not Howmet Aerospace Inc.; the supplied filing and requested company do not match.
- Review the scale, timing, and final costs of the DOJ/SEC investigations and related Alba settlement cost allocation.
- Track the Italian power-tariff and environmental matters, including whether recorded reserves remain adequate as proceedings advance.
- Assess liquidity and refinancing needs, especially the $575 million of 5.25% convertible notes due March 2014, credit-rating sensitivity, and collateral demands.
- Verify realized aluminum pricing, smelter curtailment and restart impacts, and whether productivity gains offset higher input costs and weaker pricing.