TK Aluminum Ltd. Announces Completion of Refinancing Package and Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2005
CARMAGNOLA, Italy, May 2, 2006 --
- Teksid Aluminum net revenues in 2005 increased 11.5% as compared to the prior year. In addition, Adjusted EBITDA in 2005 increased slightly as compared to 2004 pro-forma Adjusted EBITDA as a result of the positive impact of increased volumes and restructuring savings, offset by the significant increases in aluminum costs and by launch issues in our North American operations.
TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg S.a.r.l., S.C.A., today announced that it has completed a refinancing package that includes a new second secured credit facility and amendments to its existing senior credit facility and reported its consolidated financial results for the fourth quarter and for the year ended December 31, 2005.
"Teksid Aluminum had an improved performance during 2005 with respect to volumes and net revenues" reported Jake Hirsch, CEO of Teksid Aluminum. "In 2005, tons sold increased by 7.5%, Adjusted EBITDA grew by 2.3% and headcount was reduced by over 500 personnel, primarily in our high labor costs countries in Italy, France, and North America. During the past year, we have implemented organizational restructuring and cost savings plans and have made a strategic decision to focus on cash management. Our results of operations were adversely affected, however during Q4 by the time lag in the pass through to our customers of rapidly rising aluminum costs, a non-cash charge for the impairment of long-lived assets, and launch issues in North American operations."
"We are also pleased to announce the completion of the refinancing in accordance with our strategic plan. The new financing will strengthen our capital structure and provide additional liquidity to further implement our reorganization and operational restructuring", commented Dominick Schiano, interim CFO of Teksid Aluminum.
Refinancing Package
On April 28th 2006, the Company successfully completed a refinancing process through a new EUR90 million Second Lien Facility, expiring on September 30th 2010 and the amendment of existing First Lien Facility. This refinancing was done in order to provide adequate headroom under the new financial covenants, which were based on the recently updated business plan. This refinancing process will increase operating and financial flexibility for the company. The proceeds of the new Second Lien Facility were used to prepay the Term Loans outstanding under the First Lien Facility of EUR41.8 million and to repay certain amounts under the First Lien Facility Revolver, which remains in place. Excluding the EUR240 million of Senior Notes, after the refinancing the Company has the following facilities in place:
- EUR60 million of First Lien Revolver, mostly undrawn at the date of refinancing;
- EUR90 million of Second Lien Facility, fully drawn;
- EUR58 million of capitalized leases, fully drawn;
- EUR11 million of other credit lines, including governmental loan programs for EUR6.9 million; and
- EUR146 million of factoring programs, predominantly non-recourse, which were drawn EUR123 million at December 31st, 2005.
Consolidated financial results for the fourth quarter and year ended December 31, 2005
The table below contains certain financial information of the Company for the three-month periods ended and years ended December 31, 2005 and December 31, 2004. All amounts included herein for the current and prior periods have been adjusted to reflect the previous restatement of certain financial information discussed in more detail below. All pro-forma information presented herein is pro-forma to give effect to the change in accounting treatment of the synthetic lease arrangement in respect of the company's Alabama facility due to revised FASB Interpretation No. 46 (FIN 46R), Consolidation of Variable Interest Entities Revised, which requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable entity does not have sufficient risk to finance its activities without additional subordinated financial support from other parties. Consistent with FIN 46R, the Company adopted FIN 46R January 1, 2005.
(Euro in Three-Month Period Ended Full Year Ended December 31
millions) December 31
2005 2004 2004 2005 2004 2004
(Pro-Forma (Pro-Forma
for FIN for FIN
46R)(a) 46R) (a)
(b)
K/Tons 50.4 47.6 47.6 211.9 197.1 197.1
Net Revenues EUR247.8 EUR221.9 EUR221.9 EUR1,001.1 EUR897.4 EUR897.4
EBITDA (a) EUR(55.3) EUR6.2 EUR5.0 EUR15.3 EUR50.5 EUR45.7
Adjusted EUR19.3 EUR20.2 EUR16.5 EUR78.5 EUR76.7 EUR69.4
EBITDA (a)
Net Loss EUR77.6 EUR22.5 EUR22.5 EUR97.4 EUR54.2 EUR54.2
Capex EUR15.3 EUR11.7 EUR11.7 EUR56.2 EUR47.7 EUR47.7
Net Debt (b) N/A N/A N/A EUR313.1 EUR275.2 EUR227.8
(a) EBITDA and Adjusted EBITDA were affected by the change in the accounting treatment of the synthetic lease arrangement in respect of our Alabama facility due to FIN 46R. FIN 46R treatment had the effect of increasing EBITDA (and thereby Adjusted EBITDA) by EUR1.6 million and EUR5.9 million for the three-months and year ended December 31, 2005, respectively. Accordingly, we have also presented the 2004 information on a pro-forma basis to give effect to FIN 46R in order to facilitate comparison between the 2004 and 2005 periods. The impact of the change in accounting treatment due to FIN 46R to Adjusted EBITDA for the three-months and year ended December 31, 2004 was an increase of EUR1.2 million and EUR4.8 million, respectively. Adjusted EBITDA for the three-months ended December 31, 2005 was EUR19.3 million compared to pro-forma Adjusted EBITDA of EUR20.2 million for the same period in 2004, and for the year ended December 31, 2005 was EUR78.5 million compared to pro-forma Adjusted EBITDA of EUR76.7 million in the previous year.
(b) Net Debt at December 31, 2005 was EUR313.1 million compared to pro-forma Net Debt at December 31, 2004 of EUR275.2 million. Net Debt at December 31, 2005 was affected by a change in the accounting treatment of the synthetic lease arrangement on our Alabama facility (FIN 46R). FIN 46R treatment increased Net Debt by EUR54.8 million at December 31, 2005 and pro-forma Net Debt at December 31, 2004 by EUR47.4 million.
Net Revenues increase as a result of a successful growth strategy
Net Revenues in the fourth quarter of 2005 increased by 11.7% compared to the same period in 2004, primarily due to exchange rate fluctuations. Assuming constant exchange rates, Net Revenues in the fourth quarter of 2005 were relatively flat as compared to the same period in 2004. Net Revenues in the period were primarily affected by volume and aluminum price increases, offset by negative product mix and price give backs.
Net Revenues for the full year 2005 increased by 11.5% compared to the same period in 2004. Assuming constant exchange rate, net revenues for 2005 increased 7.8% as compared to the prior year. The increase in net revenues, assuming constant exchange rates, was primarily due to our global footprint, particularly in South America and Poland, and our product ramp up and customer launches in our North American operations.
Adjusted EBITDA in 2005 was positively impacted by higher volumes and restructuring savings. Margin in 2005, however, was negatively impacted by an increase in aluminum costs and excess cost associated with product launches in North America
Adjusted EBITDA for the fourth quarter of 2005 was 7.8% of Net Revenues compared to pro-forma Adjusted EBITDA for the same period in 2004, which was 9.1% of Net Revenues, down 4.5% from prior year.
Adjusted EBITDA for full year 2005 was 7.8% of Net Revenues in 2005 compared to pro-forma Adjusted EBITDA in 2004, which was 8.5% of Net Revenues, up 2.3% from prior year.
Adjusted EBITDA for the full year 2005 was positively impacted by approximately EUR13.5 million due to increased volumes, by approximately EUR13.5 million due to cost saving initiatives net of inflation on materials and by approximately EUR6.0 million as a result of our operational restructuring program. This improvement was offset by the negative impact of approximately EUR3.7 million due to OEM contractual price give-backs, approximately EUR8.1 million due to decreased tooling profit, approximately EUR6.0 million due to aluminum price increases and the time lag in the pass through of such increases to customers, approximately EUR5.1 million due to operating inefficiencies primarily in Alabama, approximately EUR3.7 million due to negative foreign exchange effects and approximately EUR4.6 million for other miscellaneous items.
For a definition and reconciliation of EBITDA to Adjusted EBITDA see enclosed attachment 1.
Net Loss, excluding asset impairment, decreased primarily due to improvements in operating profit and to a significant unrealized gain on foreign exchange
Net Loss for the fourth quarter of 2005 was EUR77.6 million representing an increase of 244.9% compared to same period in 2004. As discussed below, the company recorded a pre tax impairment charge of EUR66.9 million (EUR61.8 million after-tax) relating to long-lived assets in the fourth quarter of 2005. Net loss, excluding the charge relating to the impairment of long-lived assets, would have been EUR15.8 million, representing an improvement of 29.8% compared to the results in the same period in 2004.
Net Loss for the full year 2005 was EUR97.4 million representing an increase of 79.7% compared to same period in 2004. Net loss, excluding the charge relating to the impairment of long-lived assets, would have been EUR35.6 million, representing an improvement of 34.3% compared to same period in 2004 primarily due to improved operating performance and significant unrealized gain on foreign exchange.
Capital expenditures mainly driven by new program award and product launches
Capital expenditures for the fourth quarter of 2005 were EUR15.3 million compared to EUR11.7 million during the same period of 2004.
Capital expenditures for the full year 2005 increased by EUR8.5 million to EUR56.2 million compared to EUR47.7 million in the corresponding period of 2004. 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 business growth and as a result of reduced utilization of factoring
Net Debt, which includes EUR104.4 million in cash, at December 31, 2005, increased by EUR37.9 million to EUR313.1 million from pro-forma Net Debt of EUR275.2 million at December 31, 2004, which includes the EUR54.8 million effect of the change in the accounting treatment of the synthetic lease arrangement as if it were in effect at December 31, 2004. The increase in Net Debt was primarily due to increased working capital and other reserves of EUR34.6 million, approximately EUR17.9 million of which related to the switch from non-recourse to full recourse factoring which are treated as debt, and to EUR50.2 million of investing activities. Approximately EUR30.9 million of cash was generated by funds from operations and EUR20 million of cash was from a new equity infusion. Net debt was also adversely affected by a EUR4.0 million negative impact of foreign exchange.
Aluminum
Aluminum prices significantly increased during the last half of 2005. Aluminum prices increased by 22.9% in the fourth quarter of 2005 and overall by 23.6% in the year ended 2005 as compared to such prices at the beginning of such periods. Aluminum prices continued to increase through Q1 of 2006. To minimize the effect of aluminum price fluctuations on our results, we are currently negotiating 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, three customers, including the customers with the largest impact in 2005, have agreed to the proposed amendments. In addition, we are continuing to negotiate with our other customers.
Long-Lived Asset Impairment
During the fourth quarter of 2005 and in connection with actions taken with our refinancing and modified business plan, we noted changes in the business climate affecting the operations of certain locations that were indicative of a potential impairment. As a result, the net book value of long-lived assets of all of the entities was evaluated and a pre tax impairment charge of EUR66.9 million (EUR61.8 million after-tax) was recorded. Specifically, the impairment charges were related to selected operations in Italy and France.
Operational Restructuring
Executive management has developed a detailed restructuring plan to reduce operating costs. The plan is to be completed by year-end 2007 and has been funded by a shareholder equity injection amounting to EUR20 million in April 2005. Phase One has been implemented and has led to a headcount reduction of approximately 500 employees with related savings amounting to EUR6 million for the year. Additionally, executive management has undertaken initiatives to improve operations and reduce spending in order to offset increased cost of materials and to offset contractual price give-backs on products.
Organizational Realignment
We continue to further realign our senior management. Mr. Mark Flynn has been appointed as the new Vice President of Global Human Resources, Mr. David Montri has been appointed as the new Vice President of Global Purchasing and Mr. David Gadra has been appointed Chief Information Officer. In addition, Mr. Dominick Schiano, Managing Director of Questor Management Company, LLC, manager of our majority shareholder, will transition his responsibilities to Jon Smith, who most recently has been the Chief Accounting Officer of the Company. Mr. Smith will serve as interim Chief Financial Officer while a search is being conducted for a permanent replacement.
Restatement of Prior Financial Information
As previously announced, in July 2005, as result of, in part, new internal controls recently implemented the Company identified certain accounting matters at one its subsidiaries, Teksid Aluminio do Brasil Ltda. On August 29, 2005, the Company restated certain financial information related to customer invoicing prior to the physical shipment of product. Additionally, on November 29, 2005, the Company restated certain financial information related to the overstatement of inventory. Such restatement impacted net loss for the three and six-month periods ended June 30, 2005. The Company also adjusted for the cumulative translation adjustment with respect to the foreign currency changes for the six-month periods ended June 30, 2005 and 2004. All amounts included herein for the current and prior periods have been adjusted to reflect the restatement.
Covenants Compliance
The Company was in full compliance with the financial covenants of its Senior Credit Agreement with respect to the period ended December 31, 2005. In addition, the Company was also in full compliance with respect to all restated prior periods.
Results for the year ended 2005 included herein are audited and have been presented in accordance with U.S. GAAP.
Further comments on 2005 earnings will be delivered by Messrs. Jake Hirsch and Dominick Schiano during the bondholders and analyst conference call to be held on May 2nd, 2005, at 16:00 pm, Central European Time, 15:00 pm London Time, 10:00 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 include 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.
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:
2005 2004 2004
as as restated
restated
and pro
forma FIN
(in millions of euro) 46
Net loss (97,4) (54,2) (54,2)
Depreciation and amortization 61,6 57,2 57,2
Interest expense, including debt 48,7 41,4 41,4
issuance costs, net
Income tax expense 2,4 1,3 1,3
Change in accounting principle of - 4,8 -
synthetic lease
EBITDA 15,3 50,5 45,7
Foreign exchange (gains)/losses, net (23,9) 7,0 7,0
Net losses of affiliated companies 0,8 - -
Impairment of long-lived assets 66,9 - -
Other (income)/expense, net 1,1 (4,1) (4,1)
Adjustments to EBITDA:
Restructuring/ Severance/ Early 9,1 10,2 10,2
retirement expenses (a)
Other expenses and non recurring items 0,7 5,8 5,8
(b)
Specific customer claims expense (c) 2,1 4,8 4,8
SEC Filing, SOA and Exchange Offer fees 3,7 - -
(d)
Fees payables to affiliates of the 2,5 2,5 -
investors (e)
Adjusted EBITDA (f) (g) 78,5 76,7 69,4
Reversal of change of accounting (5,9) (4,8) -
principle of synthetic lease
Adjusted EBITDA for covenants compliance 72,6 71,9 69,4
(f) (g)
(a) Adjustment to eliminate expenses associated with the operational restructuring, severance, and early retirement programs commenced in Italy, North America and France. In 2004, early retirement programs in France were partially subsidized by the French government.
(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 developments in negotiations with customers regarding quality related issues.
(d) Adjustment to eliminate the impact of non-recurring expenses incurred by the Company in connection with its SEC registration process, expired private exchange offer and consent solicitation.
(e) Adjustment to eliminate the impact of fees payable 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 specific adjustment as provided by the amendment of the Senior Credit Facility as executed on April 26, 2005.
(f) EBITDA and Adjusted EBITDA were affected by the change in the accounting treatment of the synthetic lease arrangement in respect of our Alabama facility due to FIN 46R. FIN 46R treatment had the effect of increasing EBITDA (and thereby Adjusted EBITDA) by EUR1.6 million and EUR5.9 million for the three-months and year ended December 31, 2005, respectively. Accordingly, we have also presented the 2004 information on a pro-forma basis to give effect to FIN 46R in order to facilitate comparison between the 2004 and 2005 periods. The impact of the change in accounting treatment due to FIN 46R to Adjusted EBITDA for the three-months and year ended December 31, 2004 was an increase of EUR1.2 million and EUR4.8 million, respectively. Adjusted EBITDA for the three-months ended December 31, 2005 was EUR19.3 million compared to pro-forma Adjusted EBITDA of EUR20.2 million for the same period in 2004, and for the year ended December 31, 2005 was EUR78.5 million compared to pro-forma Adjusted EBITDA of EUR76.7 million in the previous year.
(g) "EBITDA" represents earnings before interest, taxes and depreciation and amortization. "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 U.S. 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 U.S. 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 U.S. 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 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 our statements of cash flows; and other companies in our industry may calculate such measurements 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.
Under our senior credit agreement, certain financial covenant tests are measured against Adjusted EBITDA as presented above except that for covenants compliance purposes according to section 22.5 (c) of our senior credit agreement, the Company is required to 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 measures utilized for covenants compliance calculations in the year ended December 31, 2005 were impacted as follows:
- "Adjusted EBITDA" is higher than under the senior credit facility by an aggregate of EUR5.9 million;
- "Consolidated Total Net Debt" is higher than under the senior credit facility by EUR54.8 million;
- "Consolidated Net Interest Payables" is higher than under the senior credit facility by EUR2.4 million.
For further information please call Massimiliano Chiara, Finance Director, at +39-011-979-4889