10-QPeriod: Q1 FY2010

Howmet Aerospace Inc. Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 22, 2010For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), formerly Alcoa Inc. as of this filing, reported a net loss of $201 million ($0.20 per diluted share) for the first quarter of 2010, an improvement from a net loss of $497 million ($0.61 per diluted share) in the same period of 2009. This narrowing of losses was primarily driven by a significant increase in sales, up 18% to $4.89 billion, fueled by higher realized prices for alumina and aluminum due to improved London Metal Exchange (LME) prices. The company also benefited from ongoing cost savings and productivity improvements across its business segments. Despite the improved top-line performance and reduced net loss, the company incurred substantial restructuring and other charges totaling $187 million in the first quarter of 2010, primarily related to the permanent shutdown and planned demolition of five U.S. facilities. Additionally, the company faces ongoing legal and environmental contingencies, including significant potential liabilities related to European Commission state aid investigations in Italy, which could impact future financial performance. Investors should note the company's continued focus on cost management and operational efficiency in a challenging market environment.

Financial Highlights

53 data points
Beta

Revenue

$4.89B

17.9% Gross Margin

Net Income

-$201.00M

-4.1% Net Margin

EPS (Diluted)

$-0.20

Total Assets

$37.84B

Cash & Equivalents

$1.29B

Free Cash Flow

-$29.00M

Financial Statements
Beta
Revenue$4.89B
Cost of Revenue$4.01B
Gross Profit$874.00M
R&D Expenses$39.00M
SG&A Expenses$239.00M
Operating Income-$194.00M
Interest Expense$118.00M
Net Income-$201.00M
EPS (Basic)$-0.20
EPS (Diluted)$-0.20
Shares Outstanding (Basic)1.01B
Shares Outstanding (Diluted)1.01B

Key Highlights

  • 1Net loss improved to $201 million in Q1 2010 from $497 million in Q1 2009, reflecting operational recovery and cost controls.
  • 2Sales increased by 18% to $4.89 billion, driven by significantly higher realized prices for alumina and aluminum due to improved LME prices.
  • 3Significant restructuring and other charges of $187 million were recorded, primarily for permanent facility shutdowns and associated impairments.
  • 4Alcoa World Alumina and Chemicals (AWAC) earnings improved, boosting net income attributable to noncontrolling interests.
  • 5Capital expenditures in Q1 2010 were $221 million, with 60% allocated to growth projects.
  • 6The company is actively managing market risks through various derivative contracts for aluminum, energy, interest rates, and foreign exchange.
  • 7Significant legal and environmental matters, including the European Commission's state aid investigation in Italy, present ongoing financial risks.

Frequently Asked Questions

The primary driver for the improved financial results was a significant increase in sales, up 18% to $4.89 billion. This was mainly attributed to a substantial rise in realized prices for alumina and aluminum, which was a direct result of higher London Metal Exchange (LME) prices during the period. The company also benefited from ongoing cost savings and productivity improvements across its various business segments.

Howmet Aerospace incurred significant restructuring and other charges totaling $187 million in the first quarter of 2010. These charges were primarily comprised of $129 million in asset impairments and $46 million in other exit costs related to the permanent shutdown and planned demolition of five U.S. facilities. Additionally, $12 million in net charges were related to other restructuring activities, including the layoff of approximately 220 employees.

Key risks and uncertainties include ongoing legal proceedings, such as the lawsuit filed by Aluminium Bahrain B.S.C. and a class action related to retiree health benefits. Additionally, the company faces significant potential liabilities from European Commission investigations into state aid, particularly concerning electricity tariffs in Italy, which could require substantial payments. Environmental remediation liabilities at various sites also present ongoing financial risks. Market volatility in aluminum prices and global economic conditions also continue to be critical factors.

The company actively managed market risks through various derivative instruments. These included aluminum, energy, interest rate, and foreign exchange contracts designed to mitigate uncertainty and volatility. The fair values of these derivative contracts, recorded as assets and liabilities, were disclosed, with the majority designated as hedging instruments to protect against price fluctuations in commodities and interest rates.