Noranda Aluminum Holding Corporation Reports Fourth Quarter 2009 Results

FRANKLIN, Tenn.--Noranda Aluminum Holding Corporation ("Noranda" or the "Company") announced its consolidated financial results for the fourth quarter and the full fiscal year of 2009.

    "The close of 2009 sees Noranda with less debt than we had at the beginning of the year, reduced production cost, and improved safety performance. 2010 will require as much effort as 2009, as the recent commodities cycle has intensified the competitive environment."

Important metrics and events include:

    * Fourth quarter 2009 revenues were $229.4 million, operating loss was $72.9 million and net income was $64.9 million.
    * Full year 2009 revenues were $769.9 million, operating loss was $150.1 million and net income was $101.4 million.
    * Adjusted EBITDA was $28.6 million for fourth quarter 2009 and $98.3 million for the year ended December 31, 2009.
    * Fourth quarter 2009 cash cost for primary aluminum production was $0.78 per pound compared to $0.88 per pound in fourth quarter 2008. For 2009, cash cost of primary aluminum production was $0.77 per pound, compared to $0.81 per pound in 2008.
    * During fourth quarter 2009, the Company repurchased $83.0 million aggregate principal amount of debt for an aggregate price of $64.2 million, plus fees.
    * The Company ended 2009 with total debt of $951.7 million and $167.2 million in cash. At December 31, 2009, the Company had $190.7 million of locked-in value from aluminum hedges.
    * Over 80% of the New Madrid smelter's pots were operating at the end of December 2009.
    * In December 2009, the Company and the Government of Jamaica reached an agreement setting the fiscal regime structure for Noranda's bauxite mining operations through 2014.

"In 2009, Noranda achieved financial success despite adverse market conditions," said Layle K. "Kip" Smith, Noranda's President and Chief Executive Officer. "The close of 2009 sees Noranda with less debt than we had at the beginning of the year, reduced production cost, and improved safety performance. 2010 will require as much effort as 2009, as the recent commodities cycle has intensified the competitive environment."

Fourth Quarter 2009 Results

For fourth quarter 2009, the Company reported revenues of $229.4 million, compared to $218.6 million in the third quarter 2009 and $261.5 million in fourth quarter of 2008. The Company also reported a $72.9 million operating loss, compared to a $4.4 million operating loss in third quarter 2009, and a $64.6 million operating loss in fourth quarter 2008.

    * Fourth quarter 2009 operating results reflect $15.9 million of improvements in sales margin (sales minus cost of sales) on a consolidated basis compared to third quarter 2009. This improvement resulted primarily from improved LME pricing, the benefits of owning 100% of the former joint venture entities at Gramercy and St Ann, and off-peak power rates at New Madrid, offset somewhat by the usual seasonality experienced in the last month of the fourth quarter.
          o Consolidated sales in fourth quarter 2009 were $229.4 million, 4.9% above third quarter 2009, and 12.3% below fourth quarter 2008.
          o Fourth quarter 2009 revenues include $51.7 million related to alumina and bauxite shipped from Gramercy and St. Ann to external customers, compared to $19.4 million in third quarter 2009. Fourth quarter 2009 reflects a full period of Gramercy and St. Ann operations, whereas the third quarter reflects the results of operations following the August 31, 2009 acquisition.
          o The cash cost of primary aluminum production was $0.78 per pound in fourth quarter 2009, compared to $0.76 per pound in third quarter 2009, and $0.88 per pound in fourth quarter 2008.
    * Selling, general and administrative costs increased $5.1 million in fourth quarter 2009 compared to third quarter 2009, due primarily to the full quarter effects of the operations of Gramercy and St. Ann, and slightly higher payroll related expenses in fourth quarter 2009.
    * Fourth quarter 2009 operating results include a $65.0 million impairment write down for downstream goodwill. Third quarter 2009 operating results included $14.3 million of insurance proceeds recognized in excess of claim expenses related to the January 2009 pot line freeze in New Madrid, whereas in the fourth quarter operating expenses were adversely affected by the start up of Line 3 in New Madrid.

Fourth quarter 2009 net income was $64.9 million, compared to $4.3 million of net income in third quarter 2009, and a $72.3 million net loss in fourth quarter 2008. Despite the operating loss factors discussed above, fourth quarter 2009 net income reflects the following:

    * In fourth quarter 2009, the Company recognized a $120.3 million gain as a result of becoming the sole owner of the Gramercy alumina business and the St. Ann bauxite mining business (the "Joint Venture Transaction"). During fourth quarter 2009, the Company finalized its valuation of the assets acquired and liabilities assumed, resulting in the aforementioned gain net of consideration.
    * In fourth quarter 2009, the Company repurchased $83.0 million aggregate principal amount of its indebtedness for an aggregate price of $64.2 million, plus fees. The Company recorded an $18.0 million gain on these debt repurchases.
    * The comparability of the Company's fourth quarter 2009 to fourth quarter 2008 income tax provision was affected by the 2009 accounting for the gain on business combination and the impairments of non-deductible goodwill. The effective tax rate for the fourth quarter stood at a 5.8% tax benefit compared to 73.8% in third quarter of 2009 and 29.8% in fourth quarter 2008.

Full Year 2009 Results

Revenues, operating loss and net income for 2009 reflect the unfavorable impact of the global economic contraction that began in the second half of 2008, as well as the January 2009 New Madrid pot line freeze.

For 2009, the Company reported a $150.1 million operating loss, compared to operating income of $44.4 million for 2008.

    * The significant reduction in aluminum pricing resulting from the global economic contraction, the reduction in primary aluminum production resulting from the power outage and pot line freeze in New Madrid on January 29, 2009 and the resulting cost inefficiencies created a $143.9 million unfavorable swing in operating income in the upstream business in 2009 compared to 2008. The upstream segment reported a $34.5 million operating loss in 2009 as opposed to operating income of $109.4 million in 2008.
    * During 2009, the Company recorded impairment charges totaling $108.0 million for goodwill and other intangible assets in the downstream segment. During 2008, the Company recorded similar downstream impairment charges totaling $25.5 million. During fourth quarter 2009, downstream goodwill was written down to zero.
    * The Company reached insurance settlements totaling $67.5 million for the pot line freeze claim relating to the January 2009 New Madrid smelter outage. Those proceeds were offset by $24.0 million of claim costs incurred through September 30, 2009, resulting in a $43.5 million residual recognized as "Excess insurance proceeds."

As a result of the Company's cost control efforts, the cash cost of primary aluminum production was $0.77 per pound in 2009, compared to $0.81 per pound in 2008.

For 2009, the Company reported $101.4 million of net income, opposed to a $74.1 million net loss in 2008. Compared to the adverse operating results discussed above, the Company benefitted from several major factors in 2009 as follows:

    * Interest expense was $34.4 million lower in 2009 than in 2008, reflecting lower average interest rates and lower average debt balances outstanding in 2009 due to debt repurchases.
    * In 2009, the Company reported $111.8 million of net derivative gains compared to $69.9 million of net derivative losses in 2008. For the year ended December 31, 2009, the Company reclassified $172.2 million of hedge gains from accumulated other comprehensive income to earnings, including $77.8 million reclassified into earnings as part of its discontinuation of hedge accounting following the smelter outage. In contrast, for the year ended December 31, 2008, the Company reclassified $24.2 million of hedge losses from accumulated other comprehensive income into earnings.
    * During 2009, the Company repurchased $403.8 million aggregate principal amount of debt for an aggregate price of $187.2 million, plus fees. For fiscal year 2009, the Company recorded a $211.2 million gain on these debt repurchases.
    * For 2009, net income reflects the impact of $80.3 million of impairment charges recorded in first and second quarter 2009 against the Company's investment in joint ventures, related primarily to the Company's investment in St. Ann. These impairment losses were offset in fourth quarter 2009 as the Company recognized a $120.3 million gain on business combination related to the Joint Venture Transaction.
    * The provision for income taxes resulted in a 36.6% effective tax rate in 2009 compared to a 30.8% effective tax rate in 2008.

Liquidity

For the year ended December 31, 2009, operating activities provided $220.4 million of cash flow compared to $65.5 million provided in 2008. Highlights include:

    * A significant source of cash was the early termination of hedges worth $120.8 million during the year. No such terminations occurred to during 2008.
    * Cash settlements related to hedging activities provided $25.6 million in 2009 compared to payments of $23.0 million in 2008. These cash settlements included payments of $11.9 million and $6.0 million related to interest rate swap settlements in 2009 and 2008, respectively.
    * Cash interest payments in 2009 were $17.3 million, compared to $87.2 million in 2008, due to the combined effects of exercising the paid-in-kind option on senior rate floating notes, lower average balances, and lower interest rates.
    * For the year, the Company's operating activities provided $21.2 million through working capital reductions.

For the year ended December 31, 2009, the Company significantly curtailed its capital expenditures due to both the economic environment and despite the need to rebuild or reline pots damaged or destroyed in the power outage. The Company used $187.2 million to buy back its debt as opposed to borrowing $225.0 million on its revolver in 2008. Overall the Company at December 31, 2009 had on hand $167.2 million in cash as opposed to the $184.7 million on hand at December 31, 2008.

The Company ended 2009 with total debt of $951.7 million, and cash and revolving credit facility borrowings available totaling $167.9 million. In 2010, through February 22, the Company used available cash balances to repay $150.0 million of revolving credit facility borrowings. As of January 31, 2009, the Company had cash and cash equivalent balances totaling $74.4 million and $150.7 million available for borrowing under its revolving credit facility.

At December 31, 2009, the Company had $190.7 million of locked-in value from offsetting fixed-price aluminum sales and purchase swaps. On January 4, 2010, the Company terminated a portion of these hedges to fund fourth quarter debt repurchases, recognizing proceeds of $58.7 million and reducing the locked-in value to $126.3 million.

Workforce Reduction

On February 26, 2010, the Company announced a workforce and business process restructuring in its U.S. operations that will reduce operating costs, improve operating efficiencies and conserve liquidity.

"Noranda remains committed to its strategy to improve productivity and grow its business," said Mr. Smith. "This restructuring is expected to generate approximately $8 million to $10 million annually through cost savings and operating efficiencies. It simplifies our organization to support faster decision making, setting priorities and managing risk."

The U.S. workforce restructuring plan involves a total staff reduction of 89 employees through a combination of voluntary retirement packages and involuntary terminations. Substantially all activities associated with this workforce reduction have been completed as of the time of the announcement. It is estimated that these actions will result in approximately $6 million to $8 million of pre-tax charges to be recorded in the first quarter of 2010, primarily due to one-time termination benefits and pension benefits. Substantially all of these charges will result in cash expenditures.