Alcoa Inc. (AA)
Q3 2012 Earnings Call
October 9, 2012 5:00 pm ET
Kelly Pasterick – Director-Investment Relations
Charles D. McLane Jr. – Executive Vice President and Chief Financial Officer
Klaus Kleinfeld – Chairman and Chief Executive Officer
David Gagliano – Barclays Capital
Paretosh Misra – Morgan Stanley
David Lipschitz – Credit Agricole Securities
Carly Mattson – Goldman Sachs
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As a reminder, today’s conference is being recorded for replay purposes. I would now like to turn the call over to your host, Ms. Kelly Pasterick, Director of Investor Relations. Please go ahead.
Thank you Diana. Good afternoon and welcome to Alcoa’s Third Quarter 2012 Earnings Conference Call. I’m joined by Klaus Kleinfeld, Chairman and Chief Executive Officer, and Chuck McLane, Executive Vice President and Chief Financial Officer. 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 in our most recent SEC filings. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s press release, in the appendix to 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 hand it over to Chuck McLane.
Charles D. McLane Jr.
Okay, thanks Kelly. Thanks to everyone. I appreciate you taking the time to join us today. Let’s start off with the financial overview for the quarter. Our loss from continuing operations was $143 million or $0.13 a share. And if you exclude the impact of restructuring and special items that gives us an income from continuing operations of $32 million or $0.03 per share.
Our revenue, EBITDA and ATOI all decreased sequentially primarily due to lower LME prices, but it’s important to note that even though the EBITDA fell to $282 million adding back the non-cash special items would place EBITDA at $496 million in the quarter.
So with that being said, taking a step back, how do we perform in the quarter? We had strong performance in all four of our segments. When we take a look at the upstream segments, Alumina and Primary, excluding the impact of LME and currency, the combined segments of Alumina and Primary generated $98 million of performance sequentially and both the Global Rolled Products segment and the Engineered Products and Solutions segment set records in the third quarter. Let me go through a few of those.
In GRP, we had record third quarter ATOI, we had record third quarter days working capital, we had record year-to-date ATOI and we had a record year-to-date EBITDA per metric ton. If you switch over to our Engineered Products and Solutions segment, we had record third quarter ATOI, record quarterly EBITDA margin, record year-to-date ATOI and record year-to-date EBITDA margins.
Obviously, our segments performed extremely well. Talking a look at our core in a consolidated basis, we had a record low days working capital for the third quarter at 33 days, five days better than a year ago. Debt-to-capital remained at 36.1% and our net debt-to-capital stood at 32.4%. Our liquidity remain strong with cash on hand at $1.4 billion and I will point out that that excludes $224 million of restricted cash.
We had a bond issuance during the quarter, a tax-exempt bond of 30 years issued and that cash is for the Davenport expansion and is going to stay restricted in order to pay for that expansion.
Okay. With that being said, let’s take a look at the income statement. Just going to cover three items on the income statement. First, revenue; revenue was down 2% sequentially driven by lower realized metal prices and weakness in commercial transportation and industrial markets for our global rolled products and non-residential building and construction and commercial transportation markets for engineered products and solutions. COGS as a percent of sales increased sequentially 390 basis points, driven primarily by the environmental and litigation reserves as well as a lower LME.
And lastly, on this sheet, our effective tax rate for the quarter was 15.9%. If you exclude discrete items, our operational year-to-date rate is 29%. We would expect our operational rate to remain at that level, however, we will continue to experience swings in the rate given the volatility of our profit drivers within each taxing jurisdiction. So our results for the quarter as I said, was $0.13 loss excluding – including special items. So let’s move on to those special items on the next slide.
Special items for the quarter totaled $175 million or $0.16 a share. Let’s start out with the environmental reserve; environmental reserves were increased for four sites in the third quarter to reflect our vast cost estimates of which Grasse Rive was the largest.