Filing summary
Entity and period: The supplied filing is Alcoa Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014—not a filing identified as Howmet Aerospace Inc. The financial and operating information below pertains to Alcoa. Dollar amounts are in millions unless otherwise noted.
Business context and results
Alcoa reported four segments: Alumina, Primary Metals, Global Rolled Products, and Engineered Products and Solutions. First-quarter revenue was $5,454, down 6% from $5,833 a year earlier. Alcoa attributed the decline mainly to lower primary-metal volumes and prices, including lower LME aluminum prices, and unfavorable midstream pricing and mix.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Sales | $5,454 | $5,833 |
| Cost of goods sold / sales | 82.4% | 83.1% |
| Net income (loss) attributable to Alcoa | $(178) | $149 |
| Diluted EPS | $(0.16) | $0.13 |
| Cash used for operations | $(551) | $(70) |
| Capital expenditures | $209 | $235 |
Net loss included $461 of restructuring and other charges, versus $7 in Q1 2013. The filing says the earnings decline also reflected lower realized aluminum prices; productivity improvements and favorable currency movements partly offset these factors. Segment after-tax operating income (ATOI) was $92 for Alumina (up from $58), $(15) for Primary Metals (down from $39), $59 for Global Rolled Products (down from $81), and $189 for Engineered Products and Solutions (up from $173). Total segment ATOI was $325, versus $351.
Financial position, liquidity, and debt
At March 31, cash and cash equivalents were $665, compared with $1,437 at year-end 2013. Current assets were $6,765 and current liabilities $5,267 (current ratio approximately 1.28). Total debt was $7,747: $53 short-term borrowings, $85 due within one year, and $7,609 long-term debt. Alcoa reported total assets of $35,605 and total liabilities of $21,231.
Operating cash use increased to $551 from $70, principally due to working-capital outflows. Inventory rose to $3,067 from $2,705. Financing activities provided $10; investing activities used $240. The quarter’s $575 convertible notes were converted into 89 million common shares, a noncash financing transaction. Alcoa reported $4,990 of revolving borrowing capacity, including its $3,750 facility and eleven other facilities.
Material changes, outlook, and unusual items
- Capacity actions: Alcoa permanently shut the remaining 84,000-ton annual capacity at Massena East and approved closure of the 190,000-ton Point Henry smelter and two Australian rolling mills with combined annual can-sheet capacity of 200,000 tons. It also began temporary curtailments totaling 147,000 tons annually at two Brazilian smelters. Management expected the Point Henry closure and rolling-mill closures to be completed by August and year-end 2014, respectively, and the Brazilian curtailments by the end of May.
- Restructuring costs: The $461 charge included exit costs, curtailment charges, impairments, and layoffs. Approximately $220 of additional charges related to Australian shutdown actions were expected during 2014. The company also reported inventory write-downs associated with closures.
- Near-term commentary: For Q2, management anticipated lower aluminum shipments from closures and curtailments, reduced alumina production at Poços de Caldas, continued productivity improvements, strong aerospace demand, and continued pricing pressure in packaging and industrial markets. No consolidated full-year earnings or revenue guidance is provided in the supplied filing text.
- Labor: A collective bargaining agreement covering approximately 6,100 U.S. employees expired May 15, 2014. Negotiations were underway; management said business-continuity preparations would weigh on Q2 results.
- Credit ratings: Moody’s had downgraded Alcoa below investment grade in 2013; Fitch lowered its rating to below investment grade on April 11, 2014. Alcoa said it did not expect the Fitch action to significantly affect financing, but warned further downgrades could raise costs, restrict market access, or require additional collateral.
- Contingencies: Environmental remediation reserves were $565 at quarter-end. Other disclosed matters included an Italian power-tariff recovery dispute with a reasonably possible loss range of $0–$97; Spanish tax assessments totaling $333; and Brazilian tax disputes. Management said outcomes of several matters could not be reasonably predicted. The Supreme Court declined to hear the retiree-benefits case, ending its substantive litigation, though fee petitions remained.
Important facts for investors to verify
- Confirm the issuer: this filing names Alcoa Inc., while the request names Howmet Aerospace Inc.
- Reconcile the $461 restructuring charge, expected additional 2014 charges, and timing and execution of the announced closures and curtailments.
- Assess liquidity and working-capital trends, especially the $551 operating cash outflow, lower cash balance, and inventory build.
- Review exposure to aluminum prices, credit-rating actions, the U.S. labor negotiations, and environmental and tax contingencies.
- Note that the interim financial statements were reviewed, not audited; the filing states quarterly results may not indicate full-year results.