01—Abstract
Summary
Summary of the 10-K/A filed February 19, 2013. Cited figures are marked; the original filing is the authoritative source.
Important note on the source document: the filing provided is Alcoa Inc.'s (NYSE: AA) Form 10-K/A (Amendment No. 1) for fiscal year 2012, not a Howmet Aerospace (HWM) filing as the request states.
The amendment was filed solely to insert a conformed signature on the Exhibit 31 certifications; it does not change any financial information from the original 10-K filed February 15, 2013. The analysis below therefore reflects Alcoa's results. Alcoa reported 2012 sales of $23.7 billiona, down 5% from $24.95 billion in 2011, as lower LME-linked aluminum and alumina prices (LME averaged roughly 16% lower year over year) and a weaker euro offset higher volumes in the midstream and downstream segments.
Net income attributable to Alcoa fell to $191 millionb, or $0.18 per diluted share, from $611 million ($0.55) in 2011, with the 2012 result including a $320 million pretax gain on the sale of the Tapoco hydroelectric assets that was offset by large charges, including a $194 million environmental reserve adjustment, an $85 million civil litigation reserve, and a $129 million other environmental charge at the Grasse River site. The effective tax rate was 50%. The upstream businesses (Alumina and Primary Metals) weakened, with Alumina segment ATOI falling $517 million to $90 million, while the midstream (Global Rolled Products, ATOI up to $358 million) and downstream (Engineered Products and Solutions, ATOI $612 million) segments reached record profitability.
Management reports cash from operations of $1.497 billionc after $561 million of pension contributions, capex of $1.261 billion, cash of $1.861 billion, total debt reduced by $542 million, and a debt-to-capital ratio of 34.8%. Management's 2013 targets include generating operating cash flow above capital spending and keeping debt-to-capital between 30% and 35%.
Risk items for investors include the unresolved U.S. Department of Justice and SEC investigations into the Alba (Bahrain) bribery allegations, with the settlement amount potentially material; an Italian state-aid recovery payment of about $310 milliond being paid in installments; a Moody's review for possible downgrade, with Baa3 long-term debt and BBB- at S&P and Fitch; and a Saudi Arabia joint venture (25.1% Alcoa interest) that is moving into production, with first hot metal in December 2012 and mine/refinery start expected in 2014. CFO Charles McLane is retiring, and William Oplinger succeeds him effective April 1, 2013.
02—Key points
Key Highlights
- Sales of $23.7 billion (down 5% YoY); net income attributable to Alcoa of $191 million, or $0.18 per diluted share, versus $0.55 in 2011
- Downstream and midstream segments hit record profitability (Engineered Products and Solutions ATOI $612M; Global Rolled Products $358M), while upstream Alumina ATOI fell to $90M from $607M
- Cash from operations of $1.497B after $561M in pension contributions; capex of $1.261B (third straight year under $1.5B); cash on hand of $1.861B
- Debt reduced by $542M in 2012 and by $1.749B since 2008; debt-to-capital ratio improved to 34.8%
- Large 2012 charges: $194M environmental reserve adjustment, $85M litigation reserve, $45M plus $40M Alba settlement charges, and $129M of other environmental charges
- Unresolved DOJ and SEC investigations into the Alba matter and a $209M to $375M Italian state-aid exposure, with about $143M reserved at year-end
- Credit ratings under pressure: Moody's placed Baa3 on review for downgrade in December 2012, while S&P and Fitch remain at BBB- stable
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Howmet Aerospace Inc. kept $0.01.
- Revenue$23.70B100.0%
- Cost of revenue−$20.40B86.1%
- Gross profit$3.30B13.9%
- Operating costs−$3.11B13.1%
- Operating income$191.0M0.8%
- Interest, other & tax$-00.0%
- Net income$191.0M0.8%
Where FY2012 revenue went
$23.70B- Cost of revenue: $20.40B, 86% of revenue
- Net income: $191.0M, 0.8% of revenue
- R&D: $197.0M, 0.8% of revenue
- SG&A: $997.0M, 4.2% of revenue
- Other operating costs: $1.91B, 8.1% of revenue
Kept 0.8% as net incomeNet income $191.0M · 0.8%R&D $197.0M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2012filed February 19, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $23.70B$24.95B | −5.0% |
| Cost of Revenue | $20.40B$20.48B | −0.4% |
| Gross Profit | $3.30B$4.47B | −26.2% |
| R&D Expenses | $197.00M$184.00M | +7.1% |
| SG&A Expenses | $997.00M$1.03B | −2.9% |
| Operating Expenses | $23.38B$23.89B | −2.1% |
| Operating Income | $191.00M$614.00M | −68.9% |
| Interest Expense | $490.00M$524.00M | −6.5% |
| Net Income | $191.00M$611.00M | −68.7% |
| EPS (Basic) | $0.18$0.57 | −68.4% |
| EPS (Diluted) | $0.18$0.55 | −67.3% |
| Shares Outstanding (Basic) | 1.07B1.06B | +0.6% |
| Shares Outstanding (Diluted) | 1.08B1.16B | −7.3% |
05—Questions
Frequently Asked Questions
Is this filing from Howmet Aerospace (HWM), as the request states?
No. The document is Alcoa Inc.'s (AA) Form 10-K/A (Amendment No. 1) for fiscal 2012, filed February 19, 2013. Its sole purpose was to add a conformed signature to the Section 302 certifications in Exhibit 31; it does not change the financial results from the original 10-K filed February 15, 2013. Howmet Aerospace was Alcoa's engineered products business at the time, but it was not a separate registrant filing this 10-K.
Why did 2012 earnings decline so sharply despite record downstream profitability?
Upstream weakness drove the decline. LME aluminum prices fell about 16% year over year, Alumina segment ATOI dropped $517M, and input costs such as caustic soda, fuel oil, and labor rose. Net income was also reduced by about $300M in environmental, litigation, and restructuring charges, and by a 50% effective tax rate. These offsets were partly covered by the $320M gain on the Tapoco hydroelectric sale.
What are the largest legal and regulatory risks for investors?
The most significant are the DOJ and SEC investigations into alleged bribery connected with the Alba (Bahrain) alumina contract. Management says any settlement would be material, though it cannot estimate the range. Other exposures include Italian state-aid recovery (net payment request of about $310M, paid in installments), EU state-aid matters in Spain (potential impact of about $90M pretax), derivative suits by shareholders, and a Grasse River (Massena, NY) PCB remediation plan that the EPA proposed in October 2012 and that added $128M to reserves.
What is Alcoa's 2013 outlook and capital plan?
Management projects 7% growth in global primary aluminum demand and 9% growth for alumina, with China at 11% and India at 9%. Its 2013 goals are to generate operating cash flow that exceeds capital expenditures, maintain a debt-to-capital ratio of 30% to 35%, and deliver incremental procurement and overhead savings. Capex is expected to be about $1.55B in 2013. The effective tax rate is expected to be near 30%, and the Saudi Arabia joint venture, with a $1.1B equity commitment, is expected to begin mine and refinery production in 2014.
Are there leadership changes investors should know about?
Yes. CFO Charles McLane announced his retirement effective August 1, 2013, after 40 years with the company. William F. Oplinger, currently COO of Global Primary Products, will become CFO effective April 1, 2013.
06—Continue