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Alcoa results battered by special item charges

By Joe Whitworth , 10-Oct-2012

Alcoa has reported a Q3 loss of $143m relating to a settlement of a civil lawsuit and a payout to clean a river polluted by one of its aluminium plants.

The aluminium producer announced yesterday that it had reached a settlement with Aluminium Bahrain B.S.C. (Alba) resolving a civil lawsuit pending since 2008.

Alcoa agreed to make a cash payment of $85m in two instalments and have entered into an Alumina Price Index-based supply agreement with Alba.

In the firm’s Q3 earnings call, Charles D. McLane, executive vice president and chief financial officer, said: “One half was paid today, the other half will be paid one year from now.

“We’ve…recorded $40m charge this quarter in addition to the $45m charge we’ve recorded in the second quarter. We believe this settlement represents the best possible outcome and avoids the time and expense of complex litigation.”

River clean-up

The charge of the river clean-up relates to the US Environmental Protection Agency (EPA) Proposed Remedial Action Plan (PRAP) for the Grasse River in New York.

Alcoa owns and operates an aluminium product manufacturing facility at the site and in connection with past activity at the site, it released hazardous substances into the river, according to the EPA.

The issue relates to elevated levels of polychlorinated biphenyls (PCBs) in fish in the river and Alcoa said the charge is expected to be around $85m.

The EPA is accepting comments on this plan, which proposes its preferred remedy and other options for the site clean-up, until 15 November.

Excluding the above special items, income was $32m for the period ending 30 September, compared to a net loss of $2m in Q2 2012 and net income of $172m in Q3 2011.

Revenue was down 9% to $5.8m compared with Q3 2011 due to a 17% decline in metal prices year-on-year.  

Beverage growth

The Global Rolled Products segment continued to deliver strong profitability despite European weakness, said the firm.

Klaus Kleinfeld, chairman and chief executive officer, added: “So next segment is Beverage Can Packaging, we don’t want to revise our growth expectations for Europe and China, but global growth basically stays at the same 2% to 3% and that’s possible given the relative size of these other markets compared to North America, and North America is actually pretty good and actually looked a little better than what we originally expected.”

Adjusted EBITDA for Q3 was $282m, down 45% from Q2 2012 due to lower realized prices and special items.

McLane added: “As we look to the fourth quarter…we will see a seasonal demand decrease in packaging. European and North American industrial markets have been weakening, and we have had a corresponding pricing and demand pressure as a result of that.”

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