10-QPeriod: Q2 FY2012

Howmet Aerospace Inc. Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 26, 2012For Securities:HWM

Summary

Howmet Aerospace Inc. (HWM), formerly Alcoa Inc., reported a net loss of $2 million for the second quarter of 2012, a significant decrease from a net income of $322 million in the same period of the prior year. This downturn was primarily driven by lower realized prices for aluminum and alumina, coupled with increased input costs and charges related to litigation and environmental remediation. Sales also declined year-over-year, impacted by lower commodity prices and unfavorable foreign currency movements. The company's balance sheet shows total assets of $39.5 billion and total liabilities of $22.6 billion as of June 30, 2012. Cash and cash equivalents stood at $1.7 billion, down from $1.9 billion at the end of 2011. Cash flow from operations for the first six months of 2012 was $301 million, a decrease from $562 million in the prior year, largely due to lower operating results and increased pension contributions.

Financial Statements
Beta
Revenue$5.96B
Cost of Revenue$5.15B
Gross Profit$809.00M
R&D Expenses$47.00M
SG&A Expenses$245.00M
Operating Expenses$5.97B
Operating Income-$2.00M
Interest Expense$123.00M
Net Income-$2.00M
EPS (Diluted)$-0.01
Shares Outstanding (Basic)1.07B
Shares Outstanding (Diluted)1.07B

Key Highlights

  • 1Howmet Aerospace (Alcoa) reported a net loss of $2 million for Q2 2012, a significant decline from a $322 million profit in Q2 2011.
  • 2Sales decreased by 9% year-over-year for the quarter, reaching $5.96 billion, primarily due to lower aluminum and alumina prices.
  • 3Cost of goods sold as a percentage of sales increased from 79.7% in Q2 2011 to 86.4% in Q2 2012, indicating pressure on margins.
  • 4The company recorded restructuring and other charges of $15 million in the quarter, primarily related to employee layoffs and lease termination costs.
  • 5A significant legal charge of $45 million was recorded for a proposed settlement in the Aluminium Bahrain (Alba) lawsuit, with an additional reasonably possible charge of up to $75 million.
  • 6Cash provided from operations for the first six months of 2012 decreased to $301 million from $562 million in the prior year.
  • 7The company's long-term debt remained substantial at approximately $8.55 billion as of June 30, 2012, although short-term borrowings increased significantly.

Frequently Asked Questions

The primary reasons for the decline in net income were lower realized prices for aluminum and alumina, higher input costs, and charges related to litigation and environmental remediation. The company also experienced a net unfavorable change in mark-to-market derivative contracts.

Cash provided from operations decreased significantly to $301 million in the first six months of 2012 from $562 million in the same period of 2011. This was mainly due to lower operating results and higher pension contributions. Cash and cash equivalents decreased to $1.7 billion from $1.9 billion at the end of 2011.

Two major legal matters are highlighted: the ongoing civil litigation brought by Aluminium Bahrain (Alba) which led to a $45 million charge for a proposed settlement, and the European Commission's decision regarding Italian electricity tariffs, for which the company is in discussions for a net payment request of $310 million. The company also faces a shareholder derivative suit related to the Alba litigation.

The Alumina segment saw a significant decline in After-Tax Operating Income (ATOI) due to lower realized prices and higher input costs. The Primary Metals segment also experienced a substantial drop in ATOI, primarily driven by lower realized prices and higher input costs. Global Rolled Products showed a slight decrease in ATOI for the quarter but an improvement for the six-month period, driven by productivity gains. Engineered Products and Solutions showed improvement in both sales and ATOI, benefiting from higher volumes and productivity.