TK Aluminum Ltd. Reports Financial Results for the Second Quarter Ended June 30, 2006 and for the First Six-Months Period of 2006
Carmagnola, Italy (ots/PRNewswire)
For the first half of 2006, Teksid Aluminum reports net revenues of EUR556.4 million and Adjusted EBITDA of EUR24.4 million. Sales were up 7.3%, as compared to the prior year, due to aluminum price increases and foreign exchange movements. Adjusted EBITDA, down 36.8%, was materially impacted by raw material price increases, cost inflation and operational inefficiencies
TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg S.à r.l., S.C.A., today reported its consolidated financial results for the second quarter ended June 30, 2006 and for the first six-months period of 2006.
"Despite a challenging automotive environment, Teksid Aluminum's revenues continue to grow due to aluminum price increases," reported Jake Hirsch, CEO. "Compared to 2005 net revenues for the first half of 2006 grew by 7.3% while Adjusted EBITDA decreased by 36.8%. We have, nonetheless, increased second quarter Adjusted EBITDA to EUR17.4 million approximately EUR10 million more than Q1. Our operating results have benefited from continued operational restructuring and cost saving plans, which were off set by aluminum hysterisis, reduced tooling profits and unsatisfactory efficiency improvements from selected plants."
Consolidated financial results for the second quarter ended June 30, 2006 and for the first six-months period of 2006
The table below contains certain financial information of the Company for the second quarter ended June 30, and the six-months period of 2006 and 2005, respectively. All amounts included herein for the prior year periods have been adjusted to reflect the previous restatement of certain financial information related to the Brazilian investigation reported in the prior year.
EUR m Three-Months Period Ended June 30 Six-Months Period Ended June 30
(except
tons) 2006 2005 (as 2006 2005 (as
restated) restated)
K/Tons 55.0 57.1 111.2 112.5
Net EUR281.8 EUR269.0 EUR556.4 EUR518.4
Revenues
EBITDA EUR5.2 EUR31.8 EUR9.1 EUR52.6
Adjusted EUR17.4 EUR22.3 EUR24.4 EUR38.6
EBITDA
Net Loss EUR24.8 EUR2.4 EUR43.8 EUR10.7
Capex EUR11.0 EUR9.9 EUR17.8 EUR29.8
Net Debt EUR345.4 EUR320.3 EUR345.4 EUR320.3
(a)(a) Net Debt at December 31, 2005 was EUR313.1 m
Net Revenues increased as a result of an increase in the price of aluminum and a positive foreign exchange impact
Net Revenues for the second quarter of 2006 were EUR281.8 million, an increase of 4.8% compared to the same period in 2005. Assuming constant exchange rates, Net Revenues in the second quarter of 2006 were 2.9% higher as compared to the same period in 2005.
Net Revenues for the first six-months period of 2006 were EUR556.4 million, an increase of 7.3% compared to the same period in 2005. Assuming constant exchange rates, Net Revenues in the first six-months period of 2006 were 2.4% higher as compared to the same period in 2005. Net Revenues in the current period were primarily affected by aluminum price increases partially offset by reduced tooling sales and contractual price give backs.
Adjusted EBITDA was positively impacted by operational restructuring and cost savings offset by a rapid increase in aluminum costs and operating inefficiencies
Adjusted EBITDA for the second quarter of 2006 was EUR17.4 million or 6.2% of Net Revenues compared to Adjusted EBITDA for the same period in 2005 of EUR22.3 million, which was 8.3% of Net Revenues.
Adjusted EBITDA for the first six-months period of 2006 was EUR24.4 million or 4.4% of Net Revenues compared to Adjusted EBITDA for the same period in 2005, which was EUR38.6 million or 7.4% of Net Revenues. Adjusted EBITDA in the reported period was positively impacted by cost saving initiatives of EUR12.6 million, by savings of EUR4.3 million on our restructuring program, by EUR6.1 million of other miscellaneous items and by EUR0.7 million of foreign exchange effect. This improvement was offset by (i) the negative impact of continued aluminum price increases and the time lag in the pass through of such increases to customers, including the negative effect of spot-buy vs. contractual purchases that particularly occurred in the second quarter, in the aggregate, of EUR10.9 million, (ii) inflation costs of EUR9.2 million, (iii) cost inefficiencies in North America and France of approximately EUR9.1 million, (iv) decreased tooling profit of EUR4.7 million as a result of the completion of the ramp up of certain commercial programs and (v) OEM contractual price give backs and less favourable product mix of approximately EUR4.0 million.
For a definition and reconciliation of Net Loss to Adjusted EBITDA see enclosed attachment.
Net Loss increased primarily due to lower operating performance, higher interest costs and negative foreign exchange impact
Net Loss for the second quarter of 2006 was EUR24.8 million compared to same period in 2005 when net loss was EUR2.4 million.
Net Loss for the first six-months period of 2006 was EUR43.8 million compared to same period in 2005 when net loss was EUR10.7 million, primarily as a result of aluminum price fluctuations, operational inefficiencies at certain North American and French operations, higher interest costs in the current period and negative foreign exchange impact.
Capital expenditures
Capital expenditures for the second quarter of 2006 were EUR11.0 million compared to EUR9.9 million during the same period of 2005.
Capital expenditures for the first half of 2006 were EUR17.8 million compared to EUR29.8 million during the same period of 2005. Such capital expenditures primarily relate to purchases of machinery and equipment by the Company's subsidiaries in the United States, Mexico and Europe.
Net Debt increased primarily to support working capital requirements and as a result of reduced operating performance
Net Debt at June 30, 2006, which includes EUR70.9 million in cash, increased by EUR32.3 million to EUR345.4 million from Net Debt of EUR313.1 million at December 31, 2005. The increase in Net Debt was primarily due to cash used to fund operations of EUR12.2 million, a negative working capital change of EUR4.5 million, cash used to fund the capital expenditure program for EUR17.4 million and debt issuance cost paid for EUR3.8 million, partially offset by a positive foreign exchange impact on Net Debt of EUR5.6 million.
Aluminum
Aluminum prices have continued to increase since December 2005. To minimize the effect of aluminum price fluctuations on our results, we are continuing to negotiate with our customers to amend existing sales contracts to shorten the time lag between the change in our cost of aluminum and the change in the price our customers pay to us for aluminum. To date, the majority of our customers have agreed to the proposed amendments. We are continuing to negotiate with two other customers to further decrease the time lag. Aluminum results have also been impacted by the negative spot-buy vs. contractual conditions, which has affected the first part of the quarter, pending the completion and the execution of the refinancing package previously announced.
China
On April 26, 2006, the Company signed an agreement to increase its
investment in Nanjing Teksid Aluminum Foundry Co, Ltd. ("NTAF"),
which operates an aluminum foundry based in Nanjing, China. Local
government approved the investment in July 2006. Based on the
agreement, the Company will invest an additional US$3,094 thousand in
NTAF registered capital. This investment will increase the Company's
equity rights to approximately 51%. Simultaneously, Simest, an
Italian state owned agency that provides specific financial support
for direct investment abroad to Italian companies, will invest an
additional US$2,800 thousand, which represents a 19% equity share.
As part of the agreement, Simest will provide the Company with the
related voting rights, which will increase the Company's total voting
rights in NTAF to approximately 70%.FIAT indemnification
On July 11, 2006, the Company concluded its on-going negotiations and signed a settlement agreement with Teksid S.p.A., which is controlled by FIAT, with respect to outstanding claims pursuant to the original purchase agreement dated August 2, 2002. The settlement agreement stipulates that Teksid S.p.A. will pay the Company up to EUR30.0 million in multiple installments. As of August 29, 2006, Teksid S.p.A. had paid the Company EUR9.5 million. Pursuant to the terms of the settlement agreement, the Company is entitled to receive an additional EUR1.0 million on December 31, 2006, a payment of EUR1.5 million on December 31, 2007 (subject to substantial completion of certain improvements to machinery and certain plants) and a payment of EUR18.0 million upon release of FIAT S.p.A. from its guaranty provided in favor of a subsidiary of the Company.
Factoring
On August 25, 2006, the Company entered into an Account Purchase
Agreement ("APA") pursuant to which a third-party may purchase
selected receivables from one of the Company's U.S. subsidiaries,
which may factor on a recourse and non-recourse basis. The aggregate
limit under the APA is US$20 million.Covenants Compliance
The Company was in full compliance with the financial covenants of its Senior Credit Agreement and with its Second Lien Agreement with respect to the period ended June 30, 2006.
Results for the six-months period ended June 30th 2006 and 2005, included herein, are unaudited and have been presented in accordance with U.S. GAAP.
Further comments on the second quarter and first half of 2006 earnings will be delivered by Messrs. Jake Hirsch and Jon Smith during the bondholders and analyst conference call to be held on August 31st, 2006, at 15:00 pm, Central European Time, 14:00 pm London Time, 9:00 am Eastern Time. Registration of the Conference Call will be available on September 1st, 2006 at 15:00 pm, Central European Time, 14:30 pm London Time, 9:30 am Eastern Time.
Any interested person may join the conference call by using the dial-in numbers set forth below.
Dial-in +39-071-2861848
About Teksid Aluminum
Teksid Aluminum is a leading independent manufacturer of aluminum engine castings for the automotive industry. Our principal products are cylinder heads, engine blocks, transmission housings 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 aluminum 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.
For further information please call
Massimiliano Chiara, Finance Director, at +39-011-979-4889
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 U.S. GAAP. Furthermore, Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with U.S. GAAP, or to cash flows from operating activities as a measure of liquidity.
The following is a reconciliation of Net Loss to EBITDA and to Adjusted EBITDA:
(in thousands of Three-months ended June 30 Six-months ended June 30
euro) 2006 2005 2006 2005
as restated as restated
Net loss (24.487) (2.263) (43.770) (10.746)
Depreciation and 14.274 15.926 13.922 31.594
amortization
Income tax (benefit) 737 5.602 (2.952) 7.401
expense
Interest expense 15.041 12.621 11.880 24.318
(income), net
EBITDA 5.205 31.786 3.927 52.567
Equity in (earnings) 144 54 70 250
loss of affiliated
companies, net
Foreign exchanges 8.233 (15.140) 9.208 (19.770)
losses (gains), net
Other expense (386) 1.192 (513) 431
(income), net
Adjustments to
EBITDA:
Restructuring / 3.342 2.050 4.774 3.226
Severance / Early
retirement expenses
SEC Filing, SOA and 125 2.402 299 2.593
Exchange Offer fees
Other expenses and - 730 - 730
non-recurring items
Fees payable to 625 625 1250 1250
affiliates of the
investors
Change in accounting - (1.402) - (2.683)
treatment of
synthetic lease (a)
Change in accounting 65 - 188 -
principle of
Stock-based
compensation (SFAS
123R) (b)
Adjusted EBITDA 17.353 22.297 24.408 38.594(a) As part of the amendments in connection with the Company's refinancing package, the change in accounting principle related to the synthetic lease no longer applies as an adjustment to EBITDA.
(b) In association with changed accounting treatment of stock-based compensation expense (SFAS 123R adopted January 1, 2006), for covenant compliance purposes, the Company should apply, to the relevant financial measures, the same accounting principles existing at the closing date, September 30th, 2002.
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 its 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, the Company's results of operations as reported under U.S. GAAP. Some of these limitations are: such measurements do not reflect the Company's cash expenditures or future requirements for capital expenditures or contractual commitments; such measurements do not reflect changes in, or cash requirements for, the Company's working capital needs; such measurements do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized 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 the Company's statements of cash flows; and other companies in the Company's industry may calculate such measurements differently than the Company, 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 the Company to invest in the growth of its business.
Contact:
For further information please call Massimiliano Chiara, Finance
Director, at +39-011-979-4889