TK Aluminum Ltd. Reports Financial Results for the Second Quarter Ended June 30, 2005 and for the First Six-Month Period of 2005
Carmagnola, Italy (ots/PRNewswire)
- TK Aluminum Ltd Delivers 28.6% Improved Earnings on 11.7% Higher Revenues
TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg S.à.r.l., SCA, today reported its consolidated financial results for the second quarter ended June 30, 2005 and for the first six-month period of 2005
"Teksid Aluminum has had a very good first six months of 2005 and we are pleased with the results," reported Jake Hirsch, CEO of Teksid Aluminum. "The benefits of our market actions, cost reductions and restructuring initiatives that were launched in the first quarter are gaining traction and it shows in our financials."
- K/tons were 57.1 in the second quarter of 2005 against 53.8 in the corresponding period of 2004, up 6%. For the six-month period tons reached 112.5, against 103.8 in the same period of 2004, up 8.3%.
- Net Revenues were EUR 271.0 million in the second quarter of 2005, up 9.7% against EUR 247.0 million in the same period of 2004. For the six-month period net revenues were EUR 522.4 million against EUR467.7 million in 2004, up 11.7%.
- EBITDA was EUR 32.6 million in the second quarter of 2005 against EUR 15.7 million in the same period of 2004, up EUR16.9 million. For the six-month period EBITDA rose to EUR 54.0 million from EUR 26.7 million in 2004.
- Adjusted EBITDA was EUR 24.8 million in the second quarter of 2005, against EUR 21.0 million in the same period of 2004, up EUR 3.8 million or 18%. For the six-month period Adjusted EBITDA rose to EUR 42.7 million from EUR 33.2 million in 2004, up EUR9.5 million.
- Net Loss was EUR 1.3 million in the second quarter of 2005, compared with EUR 9.8 million in the same period of 2004. For the six-month period net loss decreased to EUR 9.3 million from EUR 21.6 million in 2004.
- Capex were EUR 9.9 million in the second quarter of 2005, against EUR 9.5 million in the same period of 2004. For the six-month period capex were EUR 29.8 million against EUR 25.0 million in 2004.
- Net Debt at June 30, 2005 was EUR 320.3 million against a pro-forma net debt at December 31, 2004 of EUR 277.2 million and at June 30, 2004 of EUR 308.4 million respectively. Net Debt of the previous periods has been adjusted to consider the effect of change in the accounting treatment of the synthetic lease arrangement on our Alabama facility (FIN 46R).
Net Revenues in the first six-month period of 2005 increased by 11.7% compared to same period in 2004 or 10.9% at constant exchange rate. This growth rate exceeded the overall automotive market growth of 2.6% due to successful market penetration on key new platform launched in the last twelve months.
EBITDA for the first six-month period of 2005 was 10.3% of Net Revenues, and 102.2% higher than in the corresponding period of 2004, when EBITDA was 5.7% of Net Revenues. This significant improvement in the EBITDA was driven by volume leverage, cost reduction and restructuring initiatives that were launched in the first quarter of 2005. Additionally, this result was benefiting from a mostly unrealised foreign exchange gain of EUR20 million related to our trade and financial intercompany structure, reversing accrued but not realised losses reported in the previous accounting periods.
Adjusted EBITDA for the first six-month period of 2005 was 8.2% of Net Revenues, and 28.6% higher than in the corresponding period of 2004, when Adjusted EBITDA was 7.1% of Net Revenues. For the six-month period ending June 30, 2005, Adjusted EBITDA was positively impacted by increased volumes/mix, cost saving initiatives and restructuring program for EUR9.3 million, EUR13.5 million and EUR1.7 million, respectively. This improvement was partially offset by negative price reductions for EUR2.6 million, aluminium price/spread for EUR3 million, inefficiencies, cost inflation and higher energy cost for EUR11.5 million and negative FX effect, mainly affecting our Polish operations, for EUR0.6 million. Change in the accounting treatment of the synthetic lease arrangement on our Alabama facility (FIN 46R), further improved the Adjusted EBITDA by EUR2.7 million.
For a definition and full reconciliation of Adjusted EBITDA see below.
Net Loss for the first six-month of 2005 decreased by 56.9% compared to same period in 2004.
Capital expenditures for the first six-month period of 2005 were EUR29.8 million compared to EUR25.0 million or EUR4.8 higher than in corresponding period of 2004, including EUR0.4 million of capital expenditures related to items for which the Company believes it is entitled to be reimbursed by Teksid S.p.A under the terms of the acquisition agreement relating to our acquisition from Teksid S.p.A in 2002.
Including EUR88.2 million of cash, Net Debt at June 30, 2005 amounted to EUR320.3 million, a EUR42.8 million increase from pro-forma net debt at December 31, 2004, including the effect of the change in the accounting treatment of the synthetic lease arrangement which accounted for EUR53.4 million. The change in net debt was primarily due to working capital usage for EUR55.5 million, and to cash used for investment of EUR29.7 million, partially offset by increased Funds from Operation of EUR25.1 million, a switch from w/o recourse to factoring with full recourse of EUR14.5 million, a net debt draw down of EUR9.1 million and EUR20 million of new equity injection.
On June 15, 2005, Teksid Aluminum Luxembourg S.à.r.l., S.C.A. launched an offer to exchange up to EUR240,000,000 aggregate principal amount of its 11 3/8 % Senior Notes due 2011 (the "Original Notes") for a like principal amount of its new 11 3/8% Senior Notes due 2011 and the related solicitation of consents to amend the original indenture governing the Original Notes and the registration rights agreement (the "Registration Rights Agreement") relating to the Original Notes. The exchange offer and consent solicitation expired on July 15, 2005. The exchange offer and consent solicitation was not completed because sufficient tenders were not received to meet the minimum tender conditions of the offer. In light of the fact that the exchange offer and consent solicitation was not completed, the Company intends to file a registration statement and complete an offer to exchange the Original Notes for notes registered under the US Securities Act of 1933, as amended, as soon as practicable and in accordance with the Registration Rights Agreement.
The Company identified at one of its subsidiaries, Teksid Aluminio do Brasil, the following potential accounting matters as a result of, in part, improved internal controls recently implemented: (i) customer invoicing prior to the physical shipment of product; (ii) overstatement of inventory for some 900 tons caused by the inflated records of production volumes and understatement of the amount of manufacturing scrap. Promptly thereafter, the Company's Audit Committee retained outside counsel to assist it in investigating these accounting issues and the reasons behind such issues, and the Company took prompt action to terminate the practices under investigation.
The Audit Committee and counsel review is continuing. The investigation to date has confirmed that the total magnitude of the accounting matters identified under (ii) above is EUR2.2 million, although the allocation to specific financial periods of the amounts relating to the overstatement of the inventory has not yet been completed. At this time, based on the investigation conducted to date, the Company is restating certain financial information related to customer invoicing prior to the physical shipment of product; such restatement only impacts the allocation of net revenues and related margins through the period presented. The allocation of EUR2.2 million to prior financial periods with respect to the overstatement of inventory is currently being investigated and will ultimately require additional restatement of prior financial information. The overstatement of inventory resulting in the additional restatement will negatively impact the financial results for the implicated periods, including the inventory value and the accumulated deficit for a corresponding amount.
The table set forth in the enclosed attachment 2 summarises the impact of certain adjustments required to the Company's balance sheet for the year end December 31, 2004 and its statements of operations for the three-month period and six-month period ended June 30, 2004 with respect to the issue of customer invoicing prior to the physical shipment of product.
The Company was in full compliance with the financial covenants of its Senior Credit Agreement in respect of the period ended June 30th, 2005.
Results included herein are unaudited and have been presented in accordance with US GAAP.
Further comments on Q2 earnings will be delivered by Jake Hirsch, CEO, and Demetrio Mauro, CFO, during the bondholders and analyst conference call to be held on August 31st, 2005, at 15:00 pm, Central European Time, 14:00 pm London Time.
Any interested person may join the conference call by dialling the numbers set forth below.
Dial in n +39-071-286-1848
About Teksid Aluminum
Teksid Aluminum is a leading independent manufacturer of aluminium engine castings for the automotive industry. Our principal products include cylinder heads, cylinder blocks, transmission cases and suspension components. We operate 15 manufacturing facilities in Europe, North America, South America and Asia. Information about Teksid Aluminum is available on our website at www.teksidaluminum.com.
Until September 2002, Teksid Aluminum was a division of Teksid S.p.A., which was owned by Fiat. Through a series of transactions completed between September 30, 2002 and November 22, 2002, Teksid S.p.A. sold its aluminium foundry business to a consortium of investment funds led by equity investors that include affiliates of each Questor Management Company, LLC, JPMorgan Partners, Private Equity Partners SGR SpA and AIG Global Investment Corp. As a result of the sale, Teksid Aluminum is owned by its equity investors through TK Aluminum Ltd., a Bermuda holding company.
On July 17, 2003, Teksid Aluminum Luxembourg S.a.r.l., SCA issued EUR 240 million aggregate principal amount of senior notes due in 2011. The notes were sold to qualified institutional buyers in the United States pursuant to Rule 144A of the US securities laws and to persons outside United States pursuant to Regulation S of the US securities laws. The proceeds of the sale were used to repay amounts borrowed to finance the acquisition of Teksid Aluminum and pay certain fees and expenses.
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with US GAAP. Furthermore, Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with US GAAP, or to cash flows from operating activities as a measure of liquidity.
The following is a reconciliation of income (loss) from operations to EBITDA and to Adjusted EBITDA:
Six-month period
ended June 30,
(in millions of euro) 2005 2004
Net loss (9,3) (21,6)
Depreciation and amortisation 31,6 28,5
Interest expenses, including debt 24,3 20,8
issuance costs, net
Income tax expense 7,4 (1,0)
EBITDA 54,0 26,7
Foreign exchange (gains)/losses (19,8) (0,9)
Net (earnings)/losses of affiliated 0,3 -
companies
Other (incomes)/expenses 0,4 1,6
Adjustments to EBITDA:
Restructuring and Early retirement 3,2 1,0
expenses (a)
Other expenses and non recurring 0,7 2,5
items (b)
Severance emplyees costs (c) - 2,3
Filing SEC and Exchange Offer fees 2,6
(d)
Fees payables to affiliates of the 1,3 -
investors (e)
Adjusted EBITDA (f) 42,7 33,2(a) Adjustment to eliminate expenses associated with the operational restructuring, early retirement programs activated in Italy, North America and France during 2005 and with early retirement program partially subsidised by the French government activated during 2004. The voluntary programs have been offered to eligible workers between the ages of 55 and 60. Between 2002 and 2005, we intend to replace workers who elect to participate in the program with lower-wage workers. Teksid S.p.A has agreed to reimburse us for the first EUR8.5 million of payments made by us under the programs. We expect that this will be sufficient to cover our costs under that plan.
(b) Adjustment to eliminate the impact of expenses that are reimbursed by Teksid S.p.A. under the purchase agreement and other non recurring items.
(c) Adjustment to eliminate the impact of expenses associated with severance expenses related to terminated employees in France and Italy
(d) Adjustment to eliminate the impact of non recurring expenses incurred by the Company in connection with its SEC registration process and expired private exchange offer and consent solicitation.
(e) Adjustment to eliminate the impact of fees payables to affiliates of the investors according to the financial and advisory services arrangement with affiliates of certain of the equity investors of the Company. Such item is a new adjustment as provided by the amendment of the Senior Credit Facility as executed on April 26, 2005.
(f) "EBITDA" represents earnings before interest, taxes and depreciation and amortisation. "Adjusted EBITDA" represents net income as adjusted for those items that are permitted or required to be excluded for purposes of calculating "Consolidated EBITDA" for purposes of the covenants under our senior credit facility. EBITDA and Adjusted EBITDA are supplemental measures of our performance that are not required by, or presented in accordance with US GAAP. Furthermore, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with US GAAP, or to cash flows from operating activities as a measure of liquidity. EBITDA and Adjusted EBITDA are measurement tools for evaluating the actual operating performance of the Company. Management uses Adjusted EBITDA, as its primary measurement tool for evaluating the actual operating performance of the Company as compared to budget and, consequently, in determining management and employee compensation, bonuses and other incentives.
Management believes Adjusted EBITDA, facilitates comparisons of operating performance from period to period and company to company by eliminating potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of tangible assets (affecting depreciation expense). The Company presents Adjusted EBITDA as it is the basis against which certain financial tests are measured under our senior credit facility. The Company also presents EBITDA because management believes it is frequently used by securities analysts, investors and other interested parties in evaluating similar companies, the vast majority of which present EBITDA when reporting their results. Nevertheless, both EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations as reported under US GAAP. Some of these limitations are: such measurements do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; such measurements do not reflect changes in, or cash requirements for, our working capital needs; such measurements do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised will often have to be replaced in the future, such measurements do not reflect any cash requirements for such replacements; such measurements are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; and other companies in our industry may calculate such measurements do differently than we do, limiting such measurements' usefulness as a comparative measure.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business.
In association with the change in accounting treatment of the synthetic lease arrangement, for covenants compliance purposes according to section 22.5 (c) of our senior credit agreement, the Company should apply, to the relevant financial measures, the same accounting treatment existing at the closing date (September 30, 2002).
Therefore, as a result of the change in the accounting treatment of the synthetic lease arrangement, the measure utilised for covenants compliance calculation in the six-month period ended June 30, 2005 are impacted as follows:
- "Adjusted EBITDA" is higher by an aggregate of EUR2.7 million;
- "Consolidated Total Net Debt" is higher by EUR53.4 million;
- "Consolidated Net Interest Payables" is higher by EUR1.0 million.
Impact of restatement of the Company's balance sheet for the year ended December 31, 2004 and its statement of operations for the three-month and six-month period ended June 30, 2004 with respect to the issue of customer invoicing prior to the physical shipment of product
The table set forth below summarises the impact of certain adjustments required to the Company's balance sheet for the year end December 31, 2004 and its statements of operations for the three-month period and six-month period ended June 30, 2004 with respect to the issue of customer invoicing prior to the physical shipment of product:
Dec. 31, Dec. 31,
2004, 2004,
previously
(Euro in thousands) reported Adjustments as restated
Trade accounts 81.585 (2.022) 79.563
receivables
Inventory 99.662 1.605 101.267
Prepaid expenses 50.868 142 51.010
Net Equity 106.120 (275) 105.845 Three-month Three-month
period ended period ended
(Euro in thousands) June 30, 2004, June 30,
2004,
(unaudited) previously Adjustments as restated
reported
Net Revenues 248.275 (1.300) 246.975
Cost of good sold (212.349) 1.063 (211.286)
Income from operations 2.013 (237) 1.776
Income (loss) before (9.403) (237) (9.640)
income taxes
Net loss (9.636) (156) (9.792) Six-month Six-month
period ended period ended
(Euro in thousands) June 30, 2004, June 30,
2004,
(unaudited) previously Adjustments as restated
reported
Net Revenues 469.645 (1.979) 467.666
Cost of good sold (403.922) 1.730 (402.192)
Income (loss) from (783) (249) (1.032)
operations
Income (loss) before (22.450) (249) (22.699)
income taxes
Net loss (21.484) (164) (21.648)In relation to the condensed consolidated statements of cash flow for the six-month period ended June 30, 2004, the restatement had no significant effect on the amounts of net cash provided by operating activities.
For further information please call
Demetrio Mauro,
Chief Financial Officer,
+39-011-979-4784 or
Domenico Orlandi,
Senior Vice President and General Counsel,
+39-011-979-4875
Massimiliano Chiara,
Finance Manager,
+39-011-979-4889Contact:
Demetrio Mauro, Chief Financial Officer, +39-011-979-4784; Domenico
Orlandi, Senior Vice President and General Counsel, +39-011-979-4875;
Massimiliano Chiara, Finance Manager, +39-011-979-4889