Q4 2011 Earnings Call
January 09, 2012 5:00 pm ET
Klaus Kleinfeld - Chairman, Chief Executive Officer, Chairman of Executive Committee and Chairman of International Committee
Charles D. McLane - Chief Financial Officer and Executive Vice President
Kelly Pasterick - Director of Investor Relations
Brian Yu - Citigroup Inc, Research Division
Paretosh Misra - Morgan Stanley, Research Division
Kuni M. Chen - CRT Capital Group LLC, Research Division
Sal Tharani - Goldman Sachs Group Inc., Research Division
Timna Tanners - BofA Merrill Lynch, Research Division
David Lipschitz - Credit Agricole Securities (USA) Inc., Research Division
David Gagliano - Barclays Capital, Research Division
Previous Statements by AA
» Alcoa, Inc. - Analyst/Investor Day
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Thank you, good afternoon, and welcome to Alcoa's fourth quarter [indiscernible]. I'm joined by Klaus Kleinfeld, Chairman and CEO; and Chuck McLane, Executive Vice President and CFO. After comments by Chuck and Klaus, we will take your questions.
Before we begin, I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's press release and presentation, and in most recent SEC filings.
In addition, we have included some non-GAAP financial measures in our discussions. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release in the appendix of today's presentation and on our website at www.alcoa.com, under the Invest section. Any reference in our discussion today to EBITDA means adjusted EBITDA, for which we have provided calculations and reconciliations in the appendix.
And with that, I'd like to turn over -- turn this over to Chuck McLane.
Charles D. McLane
Thanks, Kelly, and we really appreciate everyone taking the time to join us today. As we start to review the financials, we've got several objectives we'd like to accomplish. The first of all is the clear understanding of our recent actions, along with the associated charges; next to provide you with some insight on our operational cash performance in the quarter; and lastly, to provide commentary on our 2012 cash sustainability targets.
With that being said, let's turn to the fourth quarter. Our loss from continuing operations in the quarter was $193 million or $0.18 per share. Restructuring and other special items totaled a negative $159 million, which brings us to a loss of $0.03 per share. In just a second, I'll detail the restructuring special items for you.
A 13% drop in the LME, combined with continued European weakness, contributed to the decrease in revenues on a sequential basis. On a year-over-year basis, sales increased 6% despite an 11% drop in LME as the aerospace, automotive, and commercial transportation markets all showed greater than 20% increases in revenue.
Free cash flow in the quarter was $656 million, bringing the cash generated this year to $906 million. We achieved the lowest day’s working capital in our history at 27 days, or 3 days lower than our previous record set in 2010, roughly equivalent to $200 million in cash. Remember, this is on top of the 13-day improvement achieved in the previous 2 years.
Our debt-to-capital ratio stood at 35%, or flat with the fourth quarter of 2010, despite a 1 percentage point increase related to pension plan discount rates. During the quarter, we reduced our net debt by $547 million, and liquidity remains strong with cash on hand of $1.9 billion. Lastly, we achieved all of our 2011 cash sustainability targets, as we continue to improve liquidity and strengthen our balance sheet.
Now let's move to the income statement. The loss for the quarter of $0.18 per share was primarily driven by restructuring and other charges which I will detail in the next slide. The COGS and SG&A percent of sales increases were essentially driven by a decline in revenue, which was a function of the falling metal prices. Our factored tax rate in the quarter was 31% or 36% excluding discrete items. This brings our year-to-date operational tax rate to 24%. With increasing uncertainty across our markets, we will continue to experience swings in the rate as profit drivers with each taxing jurisdiction remain volatile. With 2012, we expect our ETR run rate to be approximately 27%.
Let's now move on to a review of the special items in the fourth quarter. Restructuring and special items in the fourth quarter totaled an unfavorable $159 million. As announced last week, we've taken decisive action to close or curtail 531,000 metric tons of smelting capacity. These closures and curtailments represent $141 million of the total restructuring charges. The remaining restructuring relates to headcount reductions in other businesses and an asset write-off in Australia.
The other special items in the quarter were favorable non-cash mark-to-market adjustments on energy contracts and a gain on the sale of land in Australia. These 2 were completely offset by discrete tax items associated with legislative actions in various jurisdictions and uninsured losses primarily due to flooding at our Bloomsburg, Pennsylvania facility.
Now let's move on to the sequential earnings bridge. The negative net impact of LME and currency for the quarter was $125 million, driven primarily by a sequential drop in metal prices of 13%. Ongoing productivity improvements across our businesses were insufficient to overcome slowing market conditions and prevailing cost headwinds. However, we were able to maintain our rate of productivity improvements on a sequential basis and capture $221 million of improved productivity compared with the fourth quarter of last year.
To get a clearer understanding of these significant movements, let's move on to the segment bridges, and we'll start off with Alumina. While our Alumina business is experiencing significant pressure due to falling market prices, our performance actions have more than offset raw material and cost increases. Alumina production increased this quarter by 1% sequentially, achieving a new quarterly production record driven by Point Comfort in Australia. Market effects for the quarter were almost entirely driven by changes in LME, and they lowered profitability by $94 million. Higher index pricing and our focus on productivity drove a $53 million increase in performance.