Howmet Aerospace Inc. — filing identity and reporting period
Important identity discrepancy: The supplied filing is Alcoa Inc.’s Form 10-K for the fiscal year ended December 31, 2009, filed February 18, 2010. It is not a Howmet Aerospace Inc. filing. Howmet is discussed as an Alcoa subsidiary/business in the filing. The figures below describe Alcoa on a consolidated basis, not a standalone Howmet entity.
Alcoa operated across bauxite mining, alumina refining, primary aluminum, rolled products, and engineered products. Aluminum and alumina represented more than three-quarters of revenue; the company operated in 31 countries. The filing reports full-year 2009 results and supplementary quarterly data, including the fourth quarter.
Financial performance and position
| Metric | 2009 | 2008 |
|---|---|---|
| Sales | $18.439 billion | $26.901 billion |
| Loss from continuing operations attributable to Alcoa common shareholders | $985 million; diluted loss per share $1.06 | Income of $229 million; diluted EPS $0.27 |
| Net loss attributable to Alcoa common shareholders | $1.151 billion; diluted loss per share $1.23 | $74 million loss; diluted loss per share $0.10 |
| Cash from operations | $1.365 billion | $1.234 billion |
| Capital expenditures | $1.622 billion in MD&A (cash-flow statement reports $1.617 billion, including discontinued operations) | $3.438 billion in MD&A |
| Cash and cash equivalents at year-end | $1.481 billion | $762 million |
| Total debt, including short-term borrowings and commercial paper | $9.819 billion | $10.578 billion |
| Debt-to-capital ratio | 38.7% | 42.5% (380-basis-point improvement reported) |
| Common dividend declared per share | $0.26 | $0.68 |
Cost of goods sold was 91.7% of sales, versus 82.4% in 2008. The implied gross margin was about 8.3%, down from 17.6%. The 2009 continuing-operations pretax loss was $1.498 billion; the reported income-tax benefit was $574 million. The effective tax rate was 38.3% on the loss.
Fourth-quarter 2009 sales were $5.433 billion, with a $266 million loss from continuing operations and a $277 million net loss attributable to common shareholders. Fourth-quarter 2008 sales were $5.688 billion, with a $929 million continuing-operations loss and a $1.191 billion net loss.
At December 31, 2009, current assets were $7.022 billion and current liabilities were $5.414 billion. Long-term debt, including amounts due within one year, was $9.643 billion; short-term borrowings were $176 million and commercial paper was zero. Alcoa reported no borrowings under its $3.25 billion revolving credit facility at year-end.
Material changes versus the prior comparable period
- Sales fell 31%, primarily due to lower realized aluminum and alumina prices, weaker downstream volumes, unfavorable currency movements, and the absence of divested businesses.
- Average realized aluminum price declined to $1,856 per metric ton from $2,714. Aluminum production fell to 3.564 million metric tons from 4.007 million; year-end idle smelting capacity was about 1.234 million metric tons per year.
- Segment after-tax operating income (ATOI) fell to a $234 million loss from $2.199 billion income. Primary Metals’ ATOI swung to a $612 million loss from $931 million income; Alumina fell to $112 million from $727 million. Engineered Products and Solutions remained profitable at $315 million, down from $533 million.
- Cash from operations rose by $131 million despite the loss, supported chiefly by working-capital inflows and lower pension contributions. Inventory reductions were a major source of cash; year-end inventory declined to $2.328 billion from $3.238 billion.
- Alcoa raised $876 million net from issuing 172.5 million common shares and $562 million net from $575 million of 5.25% convertible notes, using proceeds in part to repay $1.3 billion drawn under a short-term revolving facility.
Outlook, management commentary, risks and unusual items
- Management anticipated improvement in some 2010 end markets, notably automotive and commercial transportation, and increased primary aluminum consumption, particularly in China. Aerospace, building and construction, and industrial gas turbines were expected to weaken; energy costs and currency movements remained challenges. No consolidated revenue or earnings guidance was provided.
- Management targeted continued procurement, overhead, and working-capital savings; further debt reduction using operating cash flow; and positioning upstream and downstream businesses for improved conditions. Expected 2010 capital expenditures were approximately $1.0 billion; the anticipated effective tax rate was approximately 35%.
- A $250 million charge was recorded following the European Commission’s decision that part of Italy’s electricity-tariff extension constituted unlawful state aid. Alcoa estimated a 2010 repayment of $300–$500 million, including interest, and planned to appeal. A separate Spanish tariff investigation had an estimated potential pretax impact of about $12 million.
- 2009 restructuring and other charges were $237 million, including layoffs affecting about 6,600 employees; approximately 4,400 had been terminated by year-end. Worldwide headcount was reduced by about 28,000 during 2009, including divestitures.
- A $361 million pretax LIFO inventory benefit ($235 million after tax) supported 2009 results. Management did not expect comparable LIFO income in 2010 at planned inventory levels.
- The Saudi Ma’aden project was expected to require about $900 million of Alcoa-related investment over four years, subject to project conditions; first smelter and rolling-mill production was anticipated in 2013 and mine/refinery production in 2014. Total project investment was estimated at approximately $10.8 billion. Moody’s placed Alcoa’s ratings under review in December 2009, citing the project investment and a slower-than-expected earnings and balance-sheet recovery.
- Principal risks included aluminum-price volatility, weak global demand and overcapacity, energy availability and cost, currency and interest-rate movements, credit-rating and financing access, execution and funding of major projects, and legal, environmental, pension, labor, and political contingencies. The filing also describes the Alba civil suit and DOJ investigation, for which Alcoa said it could not estimate a reasonably possible loss; and an unresolved retiree-benefits case with estimated maximum exposure of about $300 million in additional liability plus roughly $40 million annual expense for an average of 11 years if unfavorable.
Most important facts for investors to verify
- Confirm the intended issuer: this source is Alcoa’s 2009 10-K, not a standalone Howmet Aerospace filing.
- Reconcile the $300–$500 million expected Italian tariff recovery, the recorded $250 million charge, and the status and outcome of Alcoa’s appeal.
- Assess whether operating cash generation can support debt reduction, capital spending, pension contributions, and project commitments without relying on temporary working-capital releases or equity financing.
- Evaluate the sensitivity of earnings and cash flow to aluminum prices, smelter curtailments, energy contracts, and the nonrecurring LIFO benefit.
- Track the Saudi project’s financing, feasibility and environmental approvals, milestone obligations, and Alcoa’s actual investment exposure.
- Review the status of material litigation and environmental matters, including the Alba investigation, retiree-benefits litigation, and significant remediation estimates.