Exhibit 99.1
Noranda Aluminum Holding Corporation Reports Third Quarter 2008 Results
FRANKLIN, Tenn.--(BUSINESS WIRE)--November 12, 2008--Noranda Aluminum Holding Corporation (“Noranda” or the “Company”) announced its financial results for the third quarter of 2008.
Key highlights include:
- Revenues of $357.4 million, operating income of $32.1 million, and net losses of $19.3 million for the third quarter
- Revenues of $1.0 billion, operating income of $109.0 million, and net income of $1.4 million year-to-date
- Adjusted EBITDA of $60.6 million for the third quarter and $225.6 million year-to-date
- Generated $111.7 million in cash provided by operating activities year-to-date
- Cash and available borrowings totaled $263.0 million at September 30, 2008
- Achieved record production at our New Madrid smelter for the third quarter and nine months 2008
- Maintained aluminum hedging program at approximately 50% of forecasted aluminum shipments through 2012
- Continued implementation of our energy risk management program by hedging approximately 35% of our natural gas requirements through 2012
- Elected to pay the interest payments due on May 15, 2009, for the $220 million Senior Floating Rate Notes due 2014 and the $510 million Senior Floating Rate Notes due 2015, entirely in kind (“PIK Interest”)
- Appointed Kyle Lorentzen, who had been serving as the Company’s Chief Operating Officer, interim Chief Financial Officer
Third Quarter Results
Layle K. “Kip” Smith, the Company’s President and Chief Executive Officer stated, “Noranda enjoyed another solid quarter, achieving Adjusted EBITDA of $60.6 million while generating cash from operations of $11.0 million. During the quarter Noranda also positioned itself for the changing business environment by securing access to liquidity, continuing to implement its strategy through the CORE productivity initiative, expanding its risk management programs and progressing on its growth projects.”
Third party sales for the third quarter of 2008 were $357.4 million, down 5.3% from sales of $377.6 million reported for the third quarter of 2007. The favorable impact of higher Midwest primary aluminum prices for the third quarter of 2008 was more than offset by lower volumes of shipments to our external customers and the absence of brokered metal sales from our downstream business.
Sales to external customers in the upstream business for the three months ended September 30, 2008, increased 2.9% to $182.5 million from the $177.3 million reported for the same period last year. The increase in sales resulted from an increase in the average Midwest primary aluminum price to $1.34 per pound from the $1.22 price per pound in the third quarter of 2007. This increase in sales was partially offset by volume decreases in external sales in the upstream business due to sales declines in the value-added segment.
Total upstream metal shipments for the third quarter of 2008 were 148.4 million pounds, up 6.7 million pounds from the 141.7 million pounds shipped during the third quarter last year. Of the total amount shipped during the third quarter of 2008, 127.7 million pounds were shipped to external customers, while the remaining 20.7 million pounds were intersegment shipments to our downstream business. External shipments were down 9.3 million pounds because of a decline in demand for value-added products, including those utilized in the housing and construction industry. This decline was more than offset by a 16.0 million pound increase in shipments to our downstream operation. Our integrated operations continued to provide us the flexibility to shift a portion of our upstream production to our downstream business and reduce our overall external purchase commitments and to better manage working capital.
Sales in the downstream business were $174.9 million, down 12.7% from the $200.3 million reported for the third quarter of 2007. The decrease in downstream sales was impacted by a 9.4 million pound decline in sales volume mainly related to HVAC and the housing and construction industry, as well as $20.7 million in brokered metal sales during the third quarter of 2007 compared to no brokered metal sales during the third quarter of 2008.
Operating income for the third quarter of 2008 was $32.1 million, compared to $29.9 million for the third quarter last year, reflecting an increase of 7.4%. Quarter-over-quarter gross margin (sales less cost of sales) improvements of $4.3 million primarily were the result of increased production volumes and higher aluminum prices, but were partially offset by higher cost. These costs reflected higher raw material costs from the joint venture caused from the effects of hurricane Gustav and higher energy costs. The impact of the hurricane resulted in higher energy costs and lower production volumes during the third quarter. These costs also include a $2.1 million increase in selling, general and administrative expenses resulting from higher consulting fees related to the Company’s recent SEC filings and increases in the cost of providing certain employee benefits.
The Company reported a loss of $39.8 million related to derivative instruments and hedging activities for the three months ended September 30, 2008, compared to a gain of $6.7 million reported for the three months ended September 30, 2007. The 2008 loss relates primarily to mark-to-market adjustments for natural gas hedges entered into during the quarter, as well as net cash settlements of fixed-price and variable-priced aluminum swaps. The gain in 2007 primarily was related to changes in the fair value of a portion of our fixed-price aluminum swaps, which in 2007 did not qualify for hedge accounting. Cash settlement payments for aluminum hedges for the third quarter of 2008 were $11 million, compared to $2 million in cash settlement receipts for the prior year quarter.
Net losses reported for the third quarter of 2008 were $19.3 million compared to the $6.3 million net income reported for the third quarter of 2007. This decrease was primarily a result of the cash and non-cash losses on derivative instruments, which were partially offset by lower interest expense and an income tax benefit of $9.9 million.
Adjusted EBITDA totaled $60.6 million for the third quarter of 2008, compared to the $73.4 million reported for the same period last year.
Year-to-Date Results
Third party sales for the first nine months of 2008 were $1,004.9 million, down 8.3% from sales of $1,095.9 million reported for the first nine months of 2007. This decrease primarily resulted from reduced upstream and downstream shipments to external customers, increased intersegment shipments, and the absence of brokered metal sales from our downstream business in 2008.
Sales to external customers in the upstream business for the nine months ended September 30, 2008, decreased 4.4% to $522.8 million from the $546.7 million reported for the same period last year. The decrease in sales resulted from lower valued-added sales and from volume that shifted from external commodity sow sales to intersegment shipments to our downstream business.
Total upstream metal shipments for the first nine months of 2008 were 435.7 million pounds, up 16.4 million pounds from the 419.3 million pounds shipped during the first nine months of last year. Of the total amount shipped in 2008, 374.5 million pounds were shipped to external customers, while the remaining 61.2 million pounds were intersegment shipments to our downstream business. External shipments were down 26.6 million pounds as a result of a decline in demand for value-added products, including those utilized in the housing and construction industry. This decline was more than offset by a 43.0 million pound increase in shipments to our downstream operation.
Sales in the downstream business were $482.1 million, down 12.2% from the $549.2 million reported for the first nine months of 2007. The decrease in downstream sales was impacted by a 5.4% decline in volume and $36.9 million in brokered metal sales during the first nine months of 2007 compared to no brokered metal sales during the first nine months of 2008.
Operating income for the first nine months of 2008 was $109.0 million compared to $129.4 million reported for the same period last year, a decrease of $20.4 million. This decrease was the result of higher 2008 raw material costs, particularly at the joint ventures, as well as increased selling, general and administrative costs including higher consulting and other fees, some of which related to costs associated with the recent SEC filings.
The Company reported a loss of $44.8 million related to derivative instruments and hedging activities for the nine months ended September 30, 2008, compared to a loss of $49.6 million reported for the nine months ended September 30, 2007. The 2008 loss relates primarily to mark-to-market adjustments for natural gas hedges entered into during the quarter, as well as net cash settlements of fixed-price and variable-priced aluminum swaps. The 2007 loss primarily related to changes in the fair value of a portion of our fixed-price aluminum swaps, which in 2007 did not qualify for hedge accounting. Cash settlement payments for aluminum hedges for the year-to-date were $19 million, compared to $2 million in cash settlement receipts for the prior year.
Net income reported for the first nine months of the year was $1.4 million, compared to net income of $20.9 million reported for the nine months of 2007, a decrease that primarily resulted from reduced operating income, which was partially offset by lower interest expense and income taxes.
Adjusted EBITDA totaled $225.6 million for the first nine months of 2008, compared to $246.7 million reported for the same period last year
Liquidity
Net cash provided by operating activities totaled $111.7 million for the first nine months ended September 30, 2008, compared to $192.1 million for the first nine months ended September 30, 2007. In 2007, the Company liquidated excess inventories in its downstream business as part of its cash management program, which contributed to the higher cash provided from operations for the same period last year. Cash and cash equivalents at third quarter-end 2008 were $245.0 million, compared with $75.6 million at December 31, 2007. Cash and available borrowings totaled $263.0 million at September 30, 2008.
Management believes cash flows from operating activities, together with cash and cash equivalents will be sufficient to meet the Company’s short-term liquidity needs.
In light of general market concerns about the ability of financial institutions to honor credit commitments, in late September 2008 the Company borrowed $225 million under the revolving portion of its senior credit facility and invested the proceeds in highly liquid cash equivalents, including U.S. Government T-bills and money market funds holding only U.S. Treasury securities. At September 30, 2008, the Company had remaining borrowing capacity of $18.0 million under the revolving portion of the senior credit facility. Total debt at the end of the third quarter of 2008 was $1.3 billion. At September 30, 2008, the Company’s Adjusted EBITDA to fixed charge ratio was 3.2x to 1 at the Noranda Aluminum Holding Corporation and all of its subsidiaries (“Holdco”) level and 4.2x to 1 at the Noranda Aluminum Acquisition Corporation (“AcquisitionCo”) level, while AcquisitionCo’s net debt to Adjusted EBITDA ratio for its senior secured credit facilities was 1.3x to 1. The Company has no maintenance covenants on any borrowings.
The Company has made a permitted election under the indentures governing its $220 million Senior Floating Rate Notes due 2014 and its $510 million Senior Floating Rate Notes due 2015, to pay all interest under the Notes that is due on May 15, 2009, for the interest period beginning on November 15, 2008, and ending on May 15, 2009, entirely in kind.
The Company has entered into fixed price aluminum, interest rate, and natural gas swaps for the primary purpose of hedging its exposure to price risk and earnings volatility.
- As part of a hedging strategy for approximately 50% of forecasted shipments through December 2012, the Company has outstanding aluminum swap contracts to hedge aluminum shipments totaling approximately 72,000 pounds for the fourth quarter of 2008 and 289,000 pounds in 2009 at average prices of $1.18 and $1.09 per/lb of primary aluminum, respectively.
- As part of a hedging strategy for approximately 35% of the Company’s estimated natural gas exposure through 2012, the Company has outstanding swap contracts to purchase approximately 61% of its requirements for the fourth quarter of 2008 and 55% of its requirements in 2009 at average prices of $9.02 and $9.29 per mmbtu, respectively.
Capital expenditures for the nine months were $37.5 million, including $9.4 million invested in the $48.0 million New Madrid expansion project.
Mr. Smith stated, “We are confronted with an extraordinary global economic environment that is challenging our industry and our Company. During this time of uncertainty in the U.S. and global environment, primary aluminum pricing and demand have declined. Noranda is well-positioned to meet the challenges of this uncertain period. We believe our integrated North American business strategy combined with our liquidity position and hedging strategy supports our ability to respond quickly to changing business conditions. Noranda continues to implement its strategy to improve productivity, manage capital spending and reduce working capital while continuing to support our highest value growth projects.”
“We have managed our business to give us the flexibility to quickly make the adjustments needed during this period of volatility in the business cycle.” Mr. Smith continued, “We are aggressively evaluating every aspect of our business to reduce costs while operating to achieve optimal results. Through the continued implementation of our CORE (Cost-Out, Reliability and Effectiveness) program, we will seek to reduce our costs and improve our productivity to build the foundation for sustainable results.”
Conference Call Information
Noranda has scheduled an information conference call on November 12, 2008, at 2:00 PM EST. The call is accessible to the media and general public. To listen to the conference call, dial the appropriate number at least 10 minutes prior to the scheduled start of the call.
U.S. participants: 1-888-562-3356
International participants: 1-973-582-2700
Conference ID #: 72527181
The earnings conference call also will be webcast at http://w.on24.com/clients/norandair/126510. Plan to begin the registration process at least 15 minutes before the live call is scheduled to start.
A replay of the conference call will be available two hours after the completion of the call on November 12 until midnight EST on November 30, 2008. U.S. listeners should dial 1-800-642-1687. International callers should dial 1-706-645-9291. The Conference ID # for the replay is 72527181.
A replay of the webcast also will be available two hours after the completion of the call on November 12 until midnight EST on January 31, 2009. The URL for the replay is http://w.on24.com/clients/norandair/126510.
About the Company
Noranda Aluminum Holding Corporation is a leading North American integrated producer of value-added primary aluminum products, as well as high quality rolled aluminum coils. The Company has two businesses, an upstream and downstream business. The primary metals, or upstream business, produce approximately 259,000 metric tons of primary aluminum annually. The rolling mills, or downstream business, are one of the largest foil producers in North America and a major producer of light gauge sheet products. Noranda Aluminum Holding Corporation is a private company owned by affiliates of Apollo Management, L.P. The information contained in this release is limited and management encourages interested parties to read the Company’s financial reports and other information available on the Company’s website at www.norandaaluminum.com.
NORANDA ALUMINUM HOLDING CORPORATION | ||||||||
December 31, 2007 | September 30, 2008 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 75,630 | 245,037 | ||||||
Accounts receivable, net | 97,169 | 123,601 | ||||||
Inventories | 180,250 | 162,363 | ||||||
Derivative assets | 21,163 | 374 | ||||||
Other current assets | 13,173 | 42,202 | ||||||
Total current assets | 387,385 | 573,577 | ||||||
Investments in affiliates | 198,874 | 202,737 | ||||||
Property, plant and equipment, net | 657,811 | 614,485 | ||||||
Goodwill | 256,122 | 271,235 | ||||||
Other intangible assets, net | 70,136 | 67,312 | ||||||
Other assets | 80,216 | 71,337 | ||||||
Total assets | 1,650,544 | 1,800,683 | ||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | ||||||||
Trade | 32,505 | 70,401 | ||||||
Affiliates | 27,571 | 31,639 | ||||||
Accrued liabilities | 31,742 | 37,026 | ||||||
Accrued interest | 12,182 | 22,826 | ||||||
Deferred revenue | 14,181 | 8,193 | ||||||
Derivative liabilities | 5,077 | 16,800 | ||||||
Deferred tax liabilities | 22,355 | 24,088 | ||||||
Current portion of long-term debt due to third party | 30,300 | ─ | ||||||
Total current liabilities | 175,913 | 210,973 | ||||||
Long-term debt | 1,121,372 | 1,346,546 | ||||||
Long-term derivative liabilities | 65,998 | 78,309 | ||||||
Pension and other long-term liabilities | 75,916 | 66,352 | ||||||
Deferred tax liabilities | 211,421 | 208,417 | ||||||
Common stock subject to redemption | — | 2,000 | ||||||
Shareholders’ deficiency: | ||||||||
Common stock | 216 | 216 | ||||||
Capital in excess of par value | 11,767 | 13,499 | ||||||
Accumulated deficit | — | (100,867 | ) | |||||
Accumulated other comprehensive loss | (12,059 | ) | (24,762 | ) | ||||
Total shareholders’ deficiency | (76 | ) | (111,914 | ) | ||||
Total liabilities and shareholders’ deficiency | 1,650,544 | 1,800,683 |
NORANDA ALUMINUM HOLDING CORPORATION Condensed Consolidated Statement of Operations Data (dollars expressed in thousands, except per share amounts) (unaudited) | ||||||
Successor | Successor | |||||
For the | For the | |||||
Statement of Operations Data: | ||||||
Sales | 357,410 | 377,589 | ||||
Operating costs and expenses | ||||||
Cost of sales | 312,906 | 337,354 | ||||
Selling, general and administrative expenses and other | 12,414 | 10,243 | ||||
Other expenses | ─ | 43 | ||||
325,320 | 347,640 | |||||
Operating income | 32,090 | 29,949 | ||||
Other expenses (income) | ||||||
Interest expense, net | 19,816 | 27,417 | ||||
Loss (gain) on derivative instruments and hedging activities, net | 39,796 | (6,765 | ) | |||
Equity in net income (loss) of investments in affiliates | 1,652 | (1,055 | ) | |||
Total other expenses | 61,264 | 19,597 | ||||
Income before income (loss) taxes | (29,174 | ) | 10,352 | |||
Income tax expense (benefit) | (9,845 | ) | 4,020 | |||
Net income (loss) for the period | (19,329 | ) | 6,332 | |||
Sales by segment | ||||||
Upstream | 182,548 | 177,305 | ||||
Downstream | 174,862 | 200,284 | ||||
Total | 357,410 | 377,589 | ||||
Operating income | ||||||
Upstream | 29,695 | 25,655 | ||||
Downstream | 2,395 | 4,294 | ||||
Total | 32,090 | 29,949 | ||||
Weighted-average shares outstanding | ||||||
Basic | 21,750 | 21,613 | ||||
Diluted | 21,750 | 21,613 | ||||
Financial and other data: | ||||||
EBITDA | 15,360 | 67,033 | ||||
Adjusted EBITDA | 60,569 | 73,352 | ||||
Average Midwest transaction price | 1.34 | 1.22 | ||||
Net cash cost for primary aluminum (per pound shipped) | 0.95 | 0.84 | ||||
Shipments (pounds in millions) | ||||||
Upstream: | ||||||
External customers | 127.7 | 137.0 | ||||
Intersegment | 20.7 | 4.7 | ||||
Total Upstream | 148.4 | 141.7 | ||||
Downstream | 94.9 | 104.3 |
NORANDA ALUMINUM HOLDING CORPORATION Condensed Consolidated Statement of Operations Data (dollars expressed in thousands, except per share amounts) (unaudited) | ||||||||||||||||
Successor | Predecessor | Successor | Successor | |||||||||||||
For the nine | Period from | Period from | For the nine | |||||||||||||
Statement of Operations Data: | ||||||||||||||||
Sales | $ | 1,004,906 | $ | 527,666 | $ | 568,224 | $ | 1,095,890 | ||||||||
Operating costs and expenses | ||||||||||||||||
Cost of sales | 846,823 | 424,505 | 506,355 | 930,860 | ||||||||||||
Selling, general and administrative expenses and other | 49,100 | 16,816 | 18,804 | 35,620 | ||||||||||||
895,923 | 441,321 | 525,159 | 966,480 | |||||||||||||
Operating income | 108,983 | 86,345 | 43,065 | 129,410 | ||||||||||||
Other expenses (income): | ||||||||||||||||
Interest expense, net | 66,245 | 6,235 | 41,730 | 47,965 | ||||||||||||
Loss (gain) on derivative instruments and hedging activities | 44,797 | 56,467 | (6,882 | ) | 49,585 | |||||||||||
Equity in net income of investments in affiliates | (3,862 | ) | (4,269 | ) | (2,703 | ) | (6,972 | ) | ||||||||
Total other expenses | 107,180 | 58,433 | 32,145 | 90,578 | ||||||||||||
Income before income taxes | 1,803 | 27,912 | 10,920 | 38,832 | ||||||||||||
Income tax expense | 447 | 13,655 | 4,239 | 17,894 | ||||||||||||
Net income for the period | 1,356 | 14,257 | 6,681 | 20,938 | ||||||||||||
Sales per Segment | ||||||||||||||||
Upstream | 522,823 | 275,157 | 271,549 | 546,706 | ||||||||||||
Downstream | 482,083 | 252,509 | 296,675 | 549,184 | ||||||||||||
Total | 1,004,906 | 527,666 | 568,224 | 1,095,890 | ||||||||||||
Operating income | ||||||||||||||||
Upstream | 107,973 | 78,194 | 41,286 | 119,480 | ||||||||||||
Downstream | 1,010 | 8,151 | 1,779 | 9,930 | ||||||||||||
Total | 108,983 | 86,345 | 43,065 | 129,410 | ||||||||||||
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Financial and other data: | ||||||||||||||||
EBITDA | 142,097 | 158,628 | ||||||||||||||
Adjusted EBITDA | 225,638 | 246,731 | ||||||||||||||
Average Midwest transaction price | 1.31 | 1.27 | ||||||||||||||
Net cash cost for primary aluminum (per pound shipped) | 0.83 | 0.78 | ||||||||||||||
Shipments (pounds in millions) | ||||||||||||||||
Upstream: | ||||||||||||||||
External customers | 374.5 | 198.3 | 202.8 | 401.1 | ||||||||||||
Intersegment | 61.2 | 12.1 | 6.1 | 18.2 | ||||||||||||
Total Upstream | 435.7 | 210.4 | 208.9 | 419.3 | ||||||||||||
Downstream | 273.3 | 135.6 | 153.4 | 288.9 |
NORANDA ALUMINUM HOLDING CORPORATION Condensed Consolidated Statement of Cash Flows (dollars expressed in thousands) | ||||||||||||
Successor | Successor | Predecessor | ||||||||||
For the | Period from | Period from | ||||||||||
$ | $ | $ | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | 1,356 | 6,681 | 14,257 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 74,049 | 42,194 | 29,637 | |||||||||
Non-cash interest | 5,019 | 2,745 | 2,200 | |||||||||
Loss (gain) on disposal of property, plant and equipment | 2,404 | 166 | (160 | ) | ||||||||
Loss (gain) on derivative activities, net of cash settlements | 25,811 | (4,621 | ) | 56,467 | ||||||||
Equity in net income of investments in affiliates | (3,862 | ) | (2,703 | ) | (4,269 | ) | ||||||
Deferred income taxes | (7,226 | ) | 1,257 | (14,828 | ) | |||||||
Stock option expense | 1,507 | — | — | |||||||||
Changes in deferred charges and other assets | 4,034 | (1,403 | ) | 124 | ||||||||
Changes in pension and other liabilities | (9,564 | ) | (8,044 | ) | (4,925 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (26,432 | ) | (13,483 | ) | (8,239 | ) | ||||||
Inventories | 17,887 | 63,470 | (18,069 | ) | ||||||||
Other current assets | 1,622 | 1,038 | 16,956 | |||||||||
Accounts payable | 19,443 | 30,261 | (239 | ) | ||||||||
Accrued liabilities | 5,637 | 33,326 | (27,743 | ) | ||||||||
Cash provided by operating activities | 111,685 | 150,884 | 41,169 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Capital expenditures | (37,464 | ) | (18,353 | ) | (5,768 | ) | ||||||
Net increase in advances due from parent | — | — | 10,925 | |||||||||
Payment for the Apollo acquisition, net of cash acquired | — | (1,161,519 | ) | — | ||||||||
Proceeds from sale of property, plant and equipment | 484 | — | — | |||||||||
Cash (used in) provided by investing activities | (36,980 | ) | (1,179,872 | ) | 5,157 | |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of shares | 2,225 | 216,130 | — | |||||||||
Distributions to shareholders | (102,223 | ) | (216,130 | ) | — | |||||||
Capital contributions from parents | — | — | 101,256 | |||||||||
Distributions to parents | — | — | (25,000 | ) | ||||||||
Deferred financing costs | — | (39,020 | ) | — | ||||||||
Borrowings on long-term debt | — | 1,227,800 | — | |||||||||
Repayments on long-term debt | (30,300 | ) | (76,250 | ) | (160,000 | ) | ||||||
Borrowings on revolving credit facility | 250,500 | — | — | |||||||||
Repayments on revolving credit facility | (25,500 | ) | — | — | ||||||||
Cash provided by (used in) financing activities | 94,702 | 1,112,530 | (83,744 | ) | ||||||||
Change in cash and cash equivalents | 169,407 | 83,542 | (37,418 | ) | ||||||||
Cash and cash equivalents, beginning of period | 75,630 | ─ | 40,549 | |||||||||
Cash and cash equivalents, end of period | 245,037 | 83,542 | 3,131 |
Covenant Compliance
Certain covenants contained in the credit agreement governing our senior secured credit facilities and the indentures governing our notes restrict our ability to take certain actions (including incurring additional secured or unsecured debt, expanding borrowings under existing term loan facilities, paying dividends, engaging in mergers, acquisitions and certain other investments, and retaining proceeds from asset sales) if we are unable to meet defined Adjusted EBITDA to fixed charges and net senior secured debt to Adjusted EBITDA ratios. Further, the interest rates we pay under our senior secured credit facilities are determined in part by the ratio of our net senior secured debt to Adjusted EBITDA. Furthermore, our ability to take certain actions, including paying dividends and making acquisitions and certain other investments, depends on the amounts available for such actions under the covenants, which amounts accumulate with reference to our Adjusted EBITDA on a quarterly basis. With respect to the ratios with which we must comply, Adjusted EBITDA is computed on a trailing four quarter basis and the minimum or maximum amounts generally required by those covenants and our performance against those minimum or maximum levels are summarized below:
Requirement | Actual | |||||
December 31, 2007 | September 30, 2008 | |||||
Adjusted EBITDA to fixed charges: | ||||||
HoldCo: | ||||||
Senior Floating Rate Notes(1)(2) | 1.75 to 1.0 | 2.8 to 1 | 3.2 to 1 | |||
AcquisitionCo: | ||||||
Senior Floating Rate Notes(1)(2) | 2.0 to 1.0 | 3.7 to 1 | 4.2 to 1 | |||
Net Senior Secured Debt to Adjusted EBITDA: | ||||||
AcquisitionCo: | ||||||
Senior Secured Credit Facilities(3)(4) | 2.75 to 1.0 (5) | 1.1 to 1 | 1.3 to 1 |
(1) | Fixed charges, in accordance with our debt agreements, is the sum of consolidated interest expense and all cash dividend payments with respect to preferred and certain other types of our capital stock. For the purpose of calculating these ratios, pro forma effect is given to any repayment and issuance of Senior debt (excluding the Revolver), as if such transaction occurred at the beginning of the trailing four-quarter period. | ||
(2) | Covenants for the Holdco notes and AcquisitionCo notes are generally based on a minimum ratio of Adjusted EBITDA to fixed charges; however, certain provisions also require compliance with the net senior secured debt to Adjusted EBITDA ratio. | ||
(3) | Covenants for our senior secured credit facilities are generally based on a maximum ratio of net senior secured debt to Adjusted EBITDA; however, certain provisions also require compliance with a net senior debt to Adjusted EBITDA ratio. | ||
(4) | The senior secured credit facilities net debt covenant is calculated based on net debt outstanding under that facility. | ||
(5) | Maximum ratio changes to 3.0 to 1.0 at January 1, 2009. | ||
The following tables reconcile net income to EBITDA and Adjusted EBITDA for the periods presented, as defined in our credit documents and the indentures governing our notes:
(in thousands) | For the nine | For the nine | Last twelve | Twelve months | Three months | Three months | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Net income | 1,356 | 20,938 | 2,842 | 22,424 | (19,329 | ) | 6,332 | |||||||||||||||||
Income taxes | 447 | 17,894 | 1,345 | 18,792 | (9,845 | ) | 4,020 | |||||||||||||||||
Interest expense, net | 66,245 | 47,965 | 91,758 | 73,478 | 19,816 | 27,417 | ||||||||||||||||||
Depreciation and amortization | 74,049 | 71,831 | 101,564 | 99,346 | 24,718 | 29,264 | ||||||||||||||||||
EBITDA | 142,097 | 158,628 | 197,509 | 214,040 | 15,360 | 67,033 | ||||||||||||||||||
Joint venture EBITDA (a) | 9,414 | 11,899 | 12,849 | 15,334 | 4,021 | 4,194 | ||||||||||||||||||
LIFO expense (b) | 31,186 | 5,437 | 20,183 | (5,566 | ) | (432 | ) | (2,849 | ) | |||||||||||||||
LCM adjustment (c) | (7,627 | ) | 11,913 | (5,217 | ) | 14,323 | 6,696 | 7,850 | ||||||||||||||||
Non-cash derivative gains and losses (d) | 30,716 | 51,846 | 32,832 | 53,962 | 29,612 | (4,504 | ) | |||||||||||||||||
Incremental stand-alone costs (e) | ─ | (2,700 | ) | ─ | (2,700 | ) | ─ | ─ | ||||||||||||||||
Employee compensation items (f) | 4,848 | 7,112 | 8,097 | 10,361 | 599 | 567 | ||||||||||||||||||
Other items, net (g) | 15,004 | 2,596 | 21,998 | 9,590 | 4,713 | 1,061 | ||||||||||||||||||
Adjusted EBITDA | 225,638 | 246,731 | 288,251 | 309,344 | 60,569 | 73,352 | ||||||||||||||||||
(a) | Our upstream business is fully integrated from bauxite mined by St. Ann to alumina produced by Gramercy to primary aluminum metal manufactured by our aluminum smelter in New Madrid, Missouri. Our reported Adjusted EBITDA includes 50% of the net income of Gramercy and St. Ann, based on transfer prices that are generally in excess of the actual costs incurred by the joint venture operations. To reflect the underlying economics of the vertically integrated upstream business, this adjustment eliminates certain components of equity income, such as depreciation and amortization, tax expense, and interest income to reflect 50% of the EBITDA of the joint ventures. | ||
(b) | We use the LIFO method of inventory accounting for financial reporting and tax purposes. To achieve better matching of revenues and expenses, particularly in the downstream business where customer LME pricing terms generally correspond to the timing of primary aluminum purchases, this adjustment restates net income to the FIFO method of inventory accounting by eliminating the LIFO expenses related to inventory held at the smelter and downstream facilities. The adjustment also includes non-cash charges relating to inventories that have been revalued at fair value at the date of the Xstrata Acquisition and Apollo Acquisition and recorded in cost of sales during the periods presented resulting from the sales of inventories. | ||
(c) | Reflects adjustments to reduce inventory to the lower of cost, adjusted for purchase accounting, to market value. | ||
(d) | We use derivative financial instruments to mitigate effects of fluctuations in aluminum and natural gas prices. We do not enter into derivative financial instruments for trading purposes. This adjustment eliminates the non-cash gains and losses (excluding cash settlements) resulting from fair market value changes of aluminum swaps. | ||
(e) | Reflects (i) the incremental insurance, audit and other administrative costs on a stand-alone basis, net of certain corporate overheads allocated by the former parent that we no longer expect to incur on a go-forward basis and (ii) the elimination of income from administrative and treasury services provided to Noranda Aluminum, Inc.’s former parent and its affiliates that are no longer provided. | ||
(f) | Represents stock compensation expense, re-pricing of stock options and bonus payments. | ||
(g) | Other items, net, consist primarily of non-recurring consulting fees, sponsor fees, the non-cash portion of pension expense and asset disposals. Additionally, certain business optimization charges related to our downstream business are included in other, net in the three and nine months ended September 30, 2008. |
CONTACT:
Noranda Aluminum Holding Corporation
Kyle Lorentzen, Chief Financial Officer, 615-771-5752
kyle.lorentzen@noralinc.com