Noranda Aluminum Reports 1Q 2009 Results

May 12, 2009 (Close-Up Media via COMTEX) -- NRD | Quote | Chart | News | PowerRating -- Noranda Aluminum Holding Corp. has announced financial results for the first quarter of 2009. In a release on May 6, the company noted that important metrics and events for the quarter include: - First quarter 2009 revenues were $164.3 million, operating loss was $85.2 million and net income was $44.3 million. - Operating activities provided $75.2 million of cash flow in the first quarter, including $50.4 million from hedge terminations and working capital improvements of $14.6 million. - Adjusted EBITDA was $7.6 million for the first quarter, which included an unfavorable $6.9 million impact from the New Madrid power outage, net of recorded insurance recoveries. - The New Madrid smelter is currently operating above 50 percent capacity and has received $15.0 million in insurance proceeds. - During the first three months ended 2009, the Company acquired $205.7 million of its outstanding debt for an aggregate purchase price of $51.4 million. - Cash totaled $200.4 million at March 31. "The first quarter environment demonstrated further deterioration as the aluminum market saw continued declines in demand, higher inventory levels and lower LME aluminum prices," said Layle K. "Kip" Smith, the Company's President and Chief Executive Officer. "Although market conditions continued to decline, Noranda's cash balances, hedge positions and financial structure provided support and flexibility as we navigated through the difficult economic environment. Our strategic focus remains the same; we are investing our time and resources in those areas that allow us to manage through the downturn while creating a better foundation for long-term sustainability. Our four top priorities also remain the same. First, we are optimizing the recovery from the power outage at our New Madrid smelter. Second, we strive to provide best-in-class customer support. Third, we are driving CORE productivity, and finally, we are optimizing our financial structure." First Quarter 2009 Results Consolidated sales in first quarter 2009 were $164.3 million, down 45.3 percent from $300.3 million in first quarter 2008. First quarter 2009 upstream revenue of $67.1 million declined 57.9 percent from first quarter 2008 upstream revenue of $159.3 million, driven primarily by the continued quarterly decline in the LME aluminum price and lower volume due in part to the smelter outage. For first quarter 2009, the upstream average realized sow price declined to $0.70 per pound compared to $1.22 per pound in first quarter 2008, primarily reflecting the decline in LME aluminum price, which ended the quarter at $0.66 per pound. In the downstream business, first quarter 2009 revenue of $97.2 million was down 31.1 percent from revenue of $141.0 million in the first quarter of 2008, due to lower volume and LME aluminum price in 2009. First quarter 2009 downstream volume of 71.7 million pounds was 16.4 percent below first quarter in the prior year. This lower volume was driven primarily by lower end-market demand in the building and construction markets. Total upstream shipments for the first quarter of 2009 were 88.9 million pounds and included 76.7 million pounds of external shipments. Shipments of value-added products totaled 71.7 million pounds in first quarter 2009 and represented a 37 percent decrease compared to the 2008 first quarter. This lower volume was driven by lower end-market demand in the transportation and building markets. The power outage at the New Madrid smelter had minimal impact on these value-added volume declines, as the Company sourced third party metal to offset the hot metal production outage. The re-melt capability and value-added processing capacity within the New Madrid facility were sufficient to serve the Company's customers' demands for products such as billet and rod. Noranda's smelter is currently operating above 50 percent of capacity. Although the Company has the capability to restart all lines by year-end, management continues to assess damage to the potlines and is managing the restart timeline to optimize the effective return to capacity. During the quarter, the Company received $4.5 million in advance funding from its insurance carriers and received an additional $10.5 million subsequent to the end of the quarter. Discussions with the Company's insurance carriers have progressed well. Management believes that insurance will cover a significant portion of the cost of restoring capacity; however, the Company is still working through the process and there can be no assurance that the full amount of the claim submitted by Noranda will be reimbursed. In first quarter 2009, the Company reported an $85.2 million operating loss compared to $41.8 million of operating income for first quarter 2008. In the upstream business, first quarter 2009 operating loss was $44.5 million compared to a $39.1 million first quarter 2008 operating income. The first quarter 2009 upstream operating loss was primarily attributable to a decline in external shipments of 45.8 million pounds and 50 percent lower average LME aluminum price. Additionally, costs related to the power outage impacted operating income by $4.2 million from estimated claim deductibles and timing differences between incurring costs and accruing for expected recoveries. These factors were partially offset by $4.5 million of savings from the Company's CORE program, specifically the major headcount reduction initiative implemented in December 2008. In the downstream business, first quarter 2009 operating loss was $40.7 million, compared to a $2.7 million first quarter 2008 operating income. The first quarter 2009 downstream operating loss was primarily affected by a $43.0 million goodwill and intangible asset write-down recorded during the first quarter of 2009 as well as a decline in external shipments, offset by approximately $4.8 million of savings from CORE. As was the case during the fourth quarter of 2008, the cost of alumina purchased from the Company's joint venture in Gramercy exceeded the spot prices of alumina available from other sources. The Company continues to evaluate options to reduce the purchase cost of alumina including evaluating with its joint venture partner the curtailment of Gramercy's operation. As part of that evaluation process and because of the reduced need for alumina caused by the smelter outage, during the first quarter Gramercy reduced its annual production rate of smelter grade alumina production from 1.0 million metric tonnes to 0.5 million metric tonnes and implemented other cost saving activities. The Company and its joint venture partner have arranged for similar reductions at the bauxite production facility in Jamaica. These production changes led the Company to evaluate its investment in these joint ventures for impairment, which resulted in a $45.3 million write down. First quarter 2009 net income was $44.3 million, compared to $17.2 million in first quarter 2008. First quarter 2009 results included a $152.2 million gain from the repurchase of debt as well as a $45.1 million gain on derivatives and hedging activities. First quarter 2009 results also included a $45.3 million impairment loss to adjust the Company's 50 percent interest in the Gramercy and St. Ann joint ventures to fair value. Interest expense for the 2009 first quarter was $15.9 million compared to $24.2 million for the first quarter of 2008, and $22.9 million for the fourth quarter of 2008. Decreased interest expense is related to lower LIBOR interest rates as well as lower average debt outstanding on the term B loan and the AcquisitionCo Notes and HoldCo Notes (due to the $205.7 million of aggregate principal amount of debt repurchases). These reductions in principal balance were partially offset by the increased revolver balance of $225.0 million; however, the revolver maintains a lower interest rate than the HoldCo and AcquisitionCo Notes. First quarter 2009 results reflect an effective tax rate of 15.1 percent on pre-tax income, which included a non-deductible goodwill impairment loss of $40.2 million. Excluding this item, the Company's expected operational tax rate for 2009 is 31.4 percent. Appointment of Chief Financial Officer The Company announced that Robert B. Mahoney has been appointed Chief Financial Officer, effective May 11. Mahoney, age 55, was most recently Chief Executive Officer of Hi-P International Limited in Shanghai China, a publicly traded (SGX) supplier of plastic inspection components and stamped parts. From 1995 to 2007 Mahoney was employed by Molex Inc in a number of operating and financial positions. He was Chief Financial Officer of Molex from 1996 through 2003. Mahoney received a BA in Economics and History from the University of Virginia and an MBA from the Graduate School of Business Administration at the University of Michigan. Kyle Lorentzen, who has been in the role of interim Chief Financial Officer, will return to his previous position as the Company's Chief Operating Officer effective May 11. Noranda Aluminum Holding Corp. is a North American integrated producer of value-added primary aluminum products, as well as high quality rolled aluminum coils.