10-QPeriod: Q3 FY2010

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 22, 2010For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), operating as Alcoa Inc. in this filing, reported a significant turnaround in its financial performance for the nine months ended September 30, 2010, compared to the same period in 2009. While the prior year saw a substantial net loss of $874 million, the company achieved a net income of $100 million for the first nine months of 2010. This improvement is largely driven by a 18% increase in sales, reaching $15.4 billion, largely attributed to higher realized prices for alumina and aluminum due to increased London Metal Exchange (LME) prices, alongside improved volumes in alumina and downstream segments. Operationally, the company saw improvements across most segments, with Alumina and Primary Metals showing strong revenue growth. Despite increased energy costs and unfavorable foreign currency movements, Alcoa implemented cost-saving initiatives and productivity improvements. However, significant restructuring and other charges, particularly in the 2010 nine-month period totaling $219 million, impacted profitability. These charges were largely related to asset impairments, employee layoffs, and exit costs associated with permanent shutdowns of certain U.S. facilities. The company also managed its debt effectively, issuing new notes while retiring older ones, and maintained a solid cash flow from operations, which increased substantially year-over-year.

Financial Highlights

55 data points
Beta

Revenue

$5.29B

16.5% Gross Margin

Net Income

$61.00M

1.2% Net Margin

EPS (Diluted)

$0.06

Total Assets

$38.37B

Cash & Equivalents

$843.00M

Free Cash Flow

$174.00M

Financial Statements
Beta
Revenue$5.29B
Cost of Revenue$4.41B
Gross Profit$874.00M
R&D Expenses$40.00M
SG&A Expenses$232.00M
Operating Income$61.00M
Interest Expense$139.00M
Net Income$61.00M
EPS (Basic)$0.06
EPS (Diluted)$0.06
Shares Outstanding (Basic)1.02B
Shares Outstanding (Diluted)1.03B

Key Highlights

  • 1Net income attributable to Alcoa was $100 million for the nine months ended September 30, 2010, a significant improvement from a net loss of $874 million in the same period of 2009.
  • 2Total sales increased by 18% to $15.4 billion for the nine months ended September 30, 2010, driven by higher realized prices for alumina and aluminum and increased volumes.
  • 3Restructuring and other charges totaled $219 million for the nine months ended September 30, 2010, primarily related to asset impairments, employee layoffs, and facility shutdowns.
  • 4Cash provided from operations significantly increased to $891 million for the nine months ended September 30, 2010, from $241 million in the prior year.
  • 5The company issued $1 billion in new 6.150% Notes due 2020 and used the proceeds for debt retirement and other purposes.
  • 6Average realized price per metric ton of aluminum increased by 32% to $2,300 for the nine months ended September 30, 2010, compared to $1,735 in the prior year.
  • 7The Alumina segment saw improved profitability driven by higher realized prices and cost savings initiatives, despite higher energy costs and foreign currency headwinds.

Frequently Asked Questions

In the third quarter of 2010, Alcoa reported net income attributable to Alcoa of $61 million ($0.06 per diluted share), an improvement from $77 million ($0.08 per diluted share) in the third quarter of 2009. This was primarily due to higher realized prices for alumina and aluminum, cost savings, and productivity improvements, partially offset by higher energy costs and unfavorable foreign currency movements.

The 18% increase in sales to $15.4 billion for the nine months ended September 30, 2010, was mainly driven by a significant rise in realized prices for alumina and aluminum, resulting from higher London Metal Exchange (LME) prices. Additionally, stronger volumes in alumina and most downstream segments contributed to the sales growth. The acquisition of Norwegian smelters also positively impacted sales in the nine-month period.

Alcoa incurred substantial restructuring and other charges, totaling $219 million for the nine months ended September 30, 2010. These charges included $128 million for asset impairments and $46 million for other exit costs related to the permanent shutdown and demolition of five U.S. facilities. Additionally, employee layoffs and charges related to divested businesses contributed to these costs. The company also noted a $79 million discrete income tax charge in the first quarter of 2010 related to changes in the tax treatment of federal subsidies for retiree health benefits.

Alcoa improved its cash flow from operations significantly, rising to $891 million for the nine months ended September 30, 2010, compared to $241 million in the same period of 2009. The company also managed its debt by issuing $1 billion in new 6.150% Notes due 2020 and using proceeds for early retirement of older debt, including $825 million in notes. This proactive debt management, coupled with strong operational cash generation, indicates a focus on financial stability.