10-Q 1 d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 333-173180

 

 

Aleris International, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-1539680

(State or other jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

25825 Science Park Drive, Suite 400,

Beachwood, OH

  44122-7392
(Address of principal executive offices)   (Zip Code)

(216) 910-3400

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 100 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of June 30, 2011.

 

 

 


Table of Contents

ALERIS INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

JUNE 30, 2011

TABLE OF CONTENTS

 

         Page No.  

PART I – FINANCIAL INFORMATION

  
Item 1.   Financial Statements:   
 

Consolidated Balance Sheet (Unaudited) as of June 30, 2011 (Successor) and December  31, 2010 (Successor)

     3   
 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2011 (Successor), the One Month Ended June 30, 2010 (Successor), the Two Months Ended May 31, 2010 (Predecessor), the Six Months Ended June 30, 2011 (Successor), the One Month Ended June 30, 2010 (Successor) and the Five Months Ended May 31, 2010 (Predecessor)

     4   
 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2011 (Successor), the One Month Ended June 30, 2010 (Successor) and the Five Months Ended May 31, 2010 (Predecessor)

     5   
 

Consolidated Statement of Changes in Stockholder’s Equity for the Six Months Ended June 30, 2011 (Successor)

     6   
 

Notes to Consolidated Financial Statements (Unaudited)

     7   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      26   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      53   
Item 4.   Controls and Procedures      55   
PART II – OTHER INFORMATION   
Item 1.   Legal Proceedings      55   
Item 1A.   Risk Factors      55   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      55   
Item 3.   Defaults Upon Senior Securities      55   
Item 4.   (Removed and Reserved)      56   
Item 5.   Other Information      56   
Item 6.   Exhibits      56   
Signatures      59   

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

Aleris International, Inc.

Consolidated Balance Sheet

(Unaudited)

(in millions, except share and per share data)

 

     (Successor)  
     June 30, 2011      December 31, 2010  
ASSETS      

Current Assets

     

Cash and cash equivalents

   $ 187.6       $ 113.5   

Accounts receivable (net of allowances of $9.6 and $8.7 at June 30, 2011 and December 31, 2010, respectively)

     577.7         393.4   

Inventories

     704.5         613.6   

Deferred income taxes

     1.6         1.6   

Current derivative financial instruments

     24.7         17.4   

Prepaid expenses and other current assets

     28.3         23.8   
  

 

 

    

 

 

 

Total Current Assets

     1,524.4         1,163.3   

Property, plant and equipment, net

     551.4         510.0   

Intangible assets, net

     48.7         49.7   

Long-term derivative financial instruments

     9.4         9.3   

Deferred income taxes

     13.8         13.9   

Other long-term assets

     37.9         33.5   
  

 

 

    

 

 

 

Total Assets

   $ 2,185.6       $ 1,779.7   
  

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDER’S EQUITY      

Current Liabilities

     

Accounts payable

   $ 374.0       $ 283.6   

Accrued liabilities

     224.2         165.2   

Deferred income taxes

     13.8         13.8   

Current portion of long-term debt

     7.8         5.3   
  

 

 

    

 

 

 

Total Current Liabilities

     619.8         467.9   

Long-term debt

     541.2         45.1   

Deferred income taxes

     9.6         8.7   

Accrued pension benefits

     193.4         184.5   

Accrued postretirement benefits

     47.6         48.5   

Other long-term liabilities

     79.9         83.2   
  

 

 

    

 

 

 

Total Long-Term Liabilities

     871.7         370.0   

Redeemable preferred stock; par value $.01; 5,000 shares authorized and issued

     5.4         5.2   

Stockholder’s Equity

     

Common stock; par value $.01; 5,000 shares authorized and 100 shares issued

     —           —     

Additional paid-in capital

     628.0         838.7   

Retained earnings

     —           71.2   

Accumulated other comprehensive income

     56.7         26.7   
  

 

 

    

 

 

 

Total Aleris International, Inc. Equity

     684.7         936.6   

Noncontrolling interest

     4.0         —     
  

 

 

    

 

 

 

Total Equity

     688.7         936.6   
  

 

 

    

 

 

 

Total Liabilities and Equity

   $ 2,185.6       $ 1,779.7   
  

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements.

 

3


Table of Contents

Aleris International, Inc.

Consolidated Statements of Operations

(Unaudited)

(in millions)

 

     (Successor)          (Predecessor)  
     For the three
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the two
months ended
May 31, 2010
 

Revenues

   $ 1,328.3      $ 357.9         $ 681.1   

Cost of sales

     1,193.7        352.4           607.0   
  

 

 

   

 

 

      

 

 

 

Gross profit

     134.6        5.5           74.1   

Selling, general and administrative expenses

     68.4        16.6           34.6   

Restructuring and impairment charges

     1.7        0.5           0.9   

(Gains) losses on derivative financial instruments

     (4.2     9.1           36.3   

Other operating (income) expense, net

     (0.2     —             0.5   
  

 

 

   

 

 

      

 

 

 

Operating income (loss)

     68.9        (20.7        1.8   

Interest expense, net

     14.0        1.0           29.2   

Reorganization items, net

     (2.2     1.9           (2,232.0

Other (income) expense, net

     (3.8     0.2           20.1   
  

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

     60.9        (23.8        2,184.5   

Provision for (benefit from) income taxes

     4.2        0.3           (10.0
  

 

 

   

 

 

      

 

 

 

Net income (loss)

     56.7        (24.1        2,194.5   
  

 

 

   

 

 

      

 

 

 

Net income attributable to noncontrolling interest

     0.2        —             —     
  

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to Aleris International, Inc.

   $ 56.5      $ (24.1      $ 2,194.5   
  

 

 

   

 

 

      

 

 

 

 

     (Successor)          (Predecessor)  
     For the six
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the five
months ended
May 31, 2010
 

Revenues

   $ 2,519.6      $ 357.9         $ 1,643.0   

Cost of sales

     2,256.4        352.4           1,455.8   
  

 

 

   

 

 

      

 

 

 

Gross profit

     263.2        5.5           187.2   

Selling, general and administrative expenses

     130.1        16.6           84.2   

Restructuring and impairment charges (gains)

     1.8        0.5           (0.4

(Gains) losses on derivative financial instruments

     (4.2     9.1           28.6   

Other operating (income) expense, net

     (3.9     —             0.4   
  

 

 

   

 

 

      

 

 

 

Operating income (loss)

     139.4        (20.7        74.4   

Interest expense, net

     22.4        1.0           73.6   

Reorganization items, net

     (1.6     1.9           (2,227.3

Other (income) expense, net

     (5.3     0.2           32.7   
  

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

     123.9        (23.8        2,195.4   

Provision for (benefit from) income taxes

     9.9        0.3           (8.7
  

 

 

   

 

 

      

 

 

 

Net income (loss)

     114.0        (24.1        2,204.1   
  

 

 

   

 

 

      

 

 

 

Net income attributable to noncontrolling interest

     0.2        —             —     
  

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to Aleris International, Inc.

   $ 113.8      $ (24.1      $ 2,204.1   
  

 

 

   

 

 

      

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

Aleris International, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in millions)

 

     (Successor)          (Predecessor)  
     For the six
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the five
months ended
May 31, 2010
 

Operating activities

         

Net income (loss)

   $ 114.0      $ (24.1      $ 2,204.1   

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

         

Depreciation and amortization

     33.9        5.3           20.2   

Provision for (benefit from) deferred income taxes

     0.8        —             (11.4

Reorganization items:

         

(Gains) charges

     (1.6     1.9           (2,227.3

Payments, net of cash received

     (0.1     (6.1        (31.2

Restructuring and impairment charges (gains):

         

Charges (gains)

     1.8        0.5           (0.4

Payments

     (1.8     (0.6        (5.5

Stock-based compensation expense

     4.5        0.6           1.3   

Unrealized (gains) losses on derivative financial instruments

     (8.9     8.7           39.2   

Currency exchange (gains) losses on debt

     (6.3     0.1           25.5   

Amortization of debt issuance costs

     3.0        0.4           27.8   

Other non-cash (gains) charges, net

     (6.4     1.4           18.3   

Changes in operating assets and liabilities:

         

Change in accounts receivable

     (160.7     3.4           (181.5

Change in inventories

     (62.0     31.4           (138.7

Change in other assets

     (7.8     (1.9        (15.2

Change in accounts payable

     72.0        1.3           67.4   

Change in accrued liabilities

     50.2        3.0           33.4   
  

 

 

   

 

 

      

 

 

 

Net cash provided (used) by operating activities

     24.6        25.3           (174.0

Investing activities

         

Payments for property, plant and equipment

     (61.7     (6.6        (16.0

Proceeds from the sale of property, plant and equipment

     7.5        —             0.3   

Other

     (0.2     0.2           —     
  

 

 

   

 

 

      

 

 

 

Net cash used by investing activities

     (54.4     (6.4        (15.7

Financing activities

         

Proceeds from ABL Facility

     —          57.0           80.0   

Payments on ABL Facility

     —          (106.4        —     

Proceeds from issuance of Senior Notes, net of discount of $10.0

     490.0        —             —     

Proceeds from China Loan Facility

     5.7        —             —     

Net proceeds from (payments on) other long-term debt

     3.0        (0.3        (1.3

Proceeds from issuance of common stock, net of issuance costs of $22.5

     —          —             541.1   

Proceeds from issuance of Preferred Stock

     —          —             5.0   

Proceeds from Exchangeable Notes, net of issuance costs of $1.2

     —          —             43.8   

Proceeds from DIP ABL Facility

     —          —             895.3   

Payments on DIP ABL Facility

     —          —             (1,112.5

Proceeds from DIP Term Facility

     —          —             34.8   

Payments on DIP Term Facility

     —          —             (244.7

Debt and equity issuance costs

     (6.8     (0.3        (54.2

Contributions from noncontrolling interests

     4.1        —             —     

Dividends paid to Aleris Corporation

     (400.0     —             —     

Other

     2.2        (0.3        0.2   
  

 

 

   

 

 

      

 

 

 

Net cash provided (used) by financing activities

     98.2        (50.3        187.5   

Effect of exchange rate differences on cash and cash equivalents

     5.7        —             (7.8
  

 

 

   

 

 

      

 

 

 

Net increase (decrease) in cash and cash equivalents

     74.1        (31.4        (10.0

Cash and cash equivalents at beginning of period

     113.5        98.9           108.9   
  

 

 

   

 

 

      

 

 

 

Cash and cash equivalents at end of period

   $ 187.6      $ 67.5         $ 98.9   
  

 

 

   

 

 

      

 

 

 

The accompanying notes are an integral part of these financial statements.

 

5


Table of Contents

Aleris International, Inc.

Consolidated Statement of Changes in Stockholder’s Equity

(Unaudited)

(in millions)

 

     Common
Stock
     Additional
paid-in
capital
    Retained
earnings
    Accumulated
other
comprehensive
income
     Total Aleris
International,
Inc. equity
    Noncontrolling
interest
    Total equity  

Balance at January 1, 2011

   $ —         $ 838.7      $ 71.2      $ 26.7       $ 936.6      $ —        $ 936.6   

Comprehensive income:

                

Net income

     —           —          113.8        —           113.8        0.2        114.0   

Other comprehensive income:

                

Currency translation adjustments

     —           —          —          30.0         30.0        —          30.0   
            

 

 

   

 

 

   

 

 

 

Comprehensive income

               143.8        0.2        144.0   

Contributions from noncontrolling interests

     —           —          —          —           —          4.1        4.1   

Distribution to noncontrolling interests

     —           —          —          —           —          (0.3     (0.3

Stock-based compensation expense

     —           4.5        —          —           4.5        —          4.5   

Dividends paid to Aleris Corporation

     —           (215.1     (184.9     —           (400.0     —          (400.0

Other

     —           (0.1     (0.1     —           (0.2     —          (0.2
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ —         $ 628.0      $ —        $ 56.7       $ 684.7      $ 4.0      $ 688.7   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

6


Table of Contents

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amounts in millions, except share and per share data)

1. BASIS OF PRESENTATION

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for interim periods contained herein are not necessarily indicative of the results that may be expected for any other interim period or for the full year. Subsequent events have been evaluated through August 8, 2011, which represents the date the Consolidated Financial Statements were available to be issued. The accompanying Consolidated Financial Statements include the accounts of Aleris International, Inc. and all of its subsidiaries (collectively, except where the context otherwise requires, referred to as “we,” “us,” “our,” “Company” or similar terms). Aleris International, Inc. is a wholly-owned subsidiary of Aleris Corporation (our parent company), a holding company whose assets, liabilities and operations consist solely of those of Aleris International, Inc., except as disclosed in Note 11, “Related Party Transactions.”

On June 1, 2010 (the “Effective Date”), the entity formerly known as Aleris International, Inc. (the “Predecessor”) and most of its wholly-owned U.S. subsidiaries and Aleris Deutschland Holding GmbH, a wholly-owned German subsidiary, emerged from bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code. Pursuant to the First Amended Joint Plan of Reorganization as modified (the “Plan”), the Predecessor transferred all of its assets to subsidiaries of Intermediate Co., a newly formed entity that was subsequently renamed Aleris International, Inc. (the “Successor”). In exchange for the acquired assets, the Successor contributed shares of Aleris Corporation common stock and the Exchangeable Notes (defined in Note 3, “Debt”) to the Predecessor. These instruments were then distributed or sold pursuant to the Plan. The Predecessor then changed its name to “Old AII, Inc.” and was dissolved.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations,” we applied fresh-start accounting upon emergence from our Chapter 11 bankruptcy cases and became a new entity for financial reporting purposes as of June 1, 2010. As a result, the Consolidated Financial Statements of the Successor subsequent to emergence from Chapter 11 are not comparable to the Consolidated Financial Statements of the Predecessor for the reporting entity prior to emergence from Chapter 11.

In addition, ASC 852 requires that financial statements, for periods including and subsequent to a Chapter 11 bankruptcy filing, distinguish between transactions and events that are directly associated with the reorganization proceedings and the ongoing operations of the business, as well as additional disclosures. The “Company,” “Aleris International, Inc.,” “we,” “our” or similar terms when used in reference to the period subsequent to the emergence from Chapter 11 bankruptcy proceedings, refers to the Successor, and when used in reference to periods prior to the emergence from Chapter 11, refers to the Predecessor.

Professional advisory fees and other costs directly associated with our reorganization are reported as reorganization items pursuant to ASC 852. Reorganization items also include provisions and adjustments to record the carrying value of certain prepetition liabilities at their estimated allowable claim amounts as well as the impact of the liquidation of Aleris Aluminum Canada S.E.C./Aleris Aluminum Canada, L.P. (“Canada LP”) in 2009.

The “Reorganization items, net” in the Consolidated Statements of Operations consisted of the following items:

 

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Table of Contents
     (Successor)          (Predeccessor)     (Successor)          (Predeccessor)  
     For the three
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the two
months ended
May 31, 2010
    For the six
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the five
months ended
May 31, 2010
 

Gain on settlement of liabilities subject to compromise

   $ —        $ —           $ (2,204.0   $ —        $ —           $ (2,204.0

Fresh-start accounting

     —          —             (61.6     —          —             (61.6

Professional fees and expenses

     0.3        1.3           24.9        1.2        1.3           34.3   

Write-off of debt issuance costs

     —          —             7.6        —          —             7.6   

U.S. Trustee fees

     —          —             0.3        —          —             0.6   

Liquidation of Canada LP

     (2.4     —             —          (2.4     —             (5.1

Other

     (0.1     0.6           0.8        (0.4     0.6           0.9   
  

 

 

   

 

 

      

 

 

   

 

 

   

 

 

      

 

 

 

Total Reorganization items, net

   $ (2.2   $ 1.9         $ (2,232.0   $ (1.6   $ 1.9         $ (2,227.3
  

 

 

   

 

 

      

 

 

   

 

 

   

 

 

      

 

 

 

2. INVENTORIES

The components of our “Inventories” are as follows:

 

     (Successor)  
     June 30, 2011      December 31, 2010  

Finished goods

   $ 205.3       $ 183.3   

Raw materials

     240.0         227.2   

Work in process

     238.3         184.1   

Supplies

     20.9         19.0   
  

 

 

    

 

 

 

Total Inventories

   $ 704.5       $ 613.6   
  

 

 

    

 

 

 

3. DEBT

Our debt is summarized as follows:

 

     (Successor)  
     June 30, 2011      December 31, 2010  

ABL Facility

   $ —         $ —     

Senior Notes, net of discount of $9.5

     490.5         —     

Exchangeable Notes, net of discount of $0.9

     44.1         44.1   

China Loan Facility, net of discount of $0.9

     4.9         —     

Other

     9.5         6.3   
  

 

 

    

 

 

 

Total debt

     549.0         50.4   

Less: Current portion of long-term debt

     7.8         5.3   
  

 

 

    

 

 

 

Long-term debt

   $ 541.2       $ 45.1   
  

 

 

    

 

 

 

ABL Facility

In connection with our emergence from bankruptcy, we entered into an asset backed multi-currency revolving credit facility (the “ABL Facility”). On June 30, 2011 we amended and restated the ABL Facility. The amended and restated ABL Facility is a $600.0 revolving credit facility which permits multi-currency borrowings up to $600.0 by our U.S. subsidiaries, up to $240.0 by Aleris Switzerland GmbH (a wholly-owned Swiss subsidiary), and $15.0 by Aleris Specification Alloy Products Canada Company (a wholly-owned Canadian subsidiary). We and certain of our U.S. and international subsidiaries are borrowers under this ABL Facility. The availability of funds to the borrowers located in each jurisdiction is subject to a borrowing base for that jurisdiction, and the jurisdictions in which certain subsidiaries of such borrowers are located, calculated on the basis of a predetermined percentage of the value of selected accounts receivable and U.S., Canadian and certain European inventory, less certain ineligible accounts receivable and inventory. The level of our borrowing base and availability under the ABL Facility fluctuates with the underlying London Metal Exchange (“LME”) price of aluminum which impacts both accounts receivables and inventory values included in our borrowing base. Non-U.S. borrowers also have the ability to borrow under this ABL Facility based on excess availability under the borrowing base applicable to the U.S. borrowers, subject to certain sublimits. The ABL Facility provides for the issuance of up to $75.0 of letters of credit as well

 

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as borrowings on same-day notice, referred to as swingline loans that are available in U.S. dollars, Canadian dollars, Euros, and certain other currencies. As of June 30, 2011, we estimate that our borrowing base would have supported borrowings up to $592.0. After giving effect to outstanding letters of credit of $38.8, we had $553.2 available for borrowing as of June 30, 2011.

Borrowings under the ABL Facility bear interest at a rate equal to the following, plus an applicable margin ranging from 0.75% to 2.50%:

 

   

in the case of borrowings in U.S. dollars, a LIBOR rate or a base rate determined by reference to the higher of (1) Bank of America’s prime lending rate, (2) the overnight federal funds rate plus 0.5% or (3) a Eurodollar rate determined by Bank of America plus 1.0%;

 

   

in the case of borrowings in Euros, a euro LIBOR rate determined by Bank of America; and

 

   

in the case of borrowings in Canadian dollars, a Canadian prime rate.

As of June 30, 2011, we had no amounts outstanding under the ABL Facility.

In addition to paying interest on any outstanding principal under the ABL Facility, we are required to pay a commitment fee in respect of unutilized commitments of 0.50% if the average utilization is less than 33% for any applicable period, 0.375% if the average utilization is between 33% and 67% for any applicable period, and 0.25% if the average utilization is greater than 67% for any applicable period. We must also pay customary letters of credit fees and agency fees.

The ABL Facility is subject to mandatory prepayment with (i) 100% of the net cash proceeds of certain asset sales, subject to certain reinvestment rights; (ii) 100% of the net cash proceeds from issuance of debt, other than debt permitted under the ABL Facility; and (iii) 100% of net cash proceeds from certain insurance and condemnation payments, subject to certain reinvestment rights.

In addition, if at any time outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Facility exceed the applicable borrowing base in effect at such time, the Company is required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If the amount available under the ABL Facility is less than the greater of (x) $50.0 and (y) 15.0% of the lesser of the total commitments or the borrowing base under the ABL Facility or an event of default is continuing, we are required to repay outstanding loans with the cash we are required to deposit in collection accounts maintained with the agent under the ABL Facility.

We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time upon three business days prior written notice without premium or penalty other than customary “breakage” costs with respect to Eurodollar, euro LIBOR and EURIBOR loans.

There is no scheduled amortization under the ABL Facility. The principal amount outstanding will be due and payable in full at maturity, on June 29, 2016 unless extended pursuant to the credit agreement.

The ABL Facility is secured, subject to certain exceptions (including appropriate limitations in light of U.S. federal income tax considerations on guaranties and pledges of assets by foreign subsidiaries, and certain pledges of such foreign subsidiaries’ stock, in each case to support loans to us or our domestic subsidiaries), by a first-priority security interest in substantially all of our current assets and related intangible assets located in the U.S., substantially all of the current assets and related intangible assets of substantially all of our wholly-owned domestic subsidiaries located in the U.S., substantially all of the current assets and related intangible assets of the Canadian Borrower located in Canada and substantially all of the current assets (other than inventory located outside the United Kingdom) and related intangibles of Aleris Recycling (Swansea) Ltd. and Aleris Switzerland GmbH and certain of its subsidiaries. The borrowers’ obligations under the ABL Facility are guaranteed by certain of our existing and future direct and indirect subsidiaries.

The ABL Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability and the ability of our subsidiaries to:

 

   

incur additional indebtedness;

 

   

pay dividends on our common stock and make other restricted payments;

 

   

make investments and acquisitions;

 

   

engage in transactions with our affiliates;

 

   

sell assets;

 

   

merge; and

 

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create liens.

Although the credit agreement governing the ABL Facility generally does not require us to comply with any financial ratio maintenance covenants, if the amount available under the ABL Facility is less than the greater of (x) $45.0 or (y) 12.5% of the lesser of (i) the total commitments or (ii) the borrowing base under the ABL Facility at any time, a minimum fixed charge coverage ratio (as defined in the credit agreement) of at least 1.0 to 1.0 will apply. The credit agreement also contains certain customary affirmative covenants and events of default. We were in compliance with all of the covenants set forth in the credit agreement as of June 30, 2011.

Exchangeable Notes

On the Effective Date, we issued $45.0 aggregate principal amount of 6.0% Senior Subordinated Exchangeable Notes (the “Exchangeable Notes”). The Exchangeable Notes are scheduled to mature on June 1, 2020. The Exchangeable Notes have exchange rights at the holder’s option, after June 1, 2013, and are exchangeable for Aleris Corporation common stock at a rate equivalent to 44.06 shares of Aleris Corporation common stock per $1,000 principal amount of Exchangeable Notes (after adjustment for the payment of the February Stockholders Dividend and the June Stockholders Dividend, each as defined below), subject to further adjustment. The Exchangeable Notes may be redeemed at the Company’s option at specified redemption prices on or after June 1, 2013 or upon a fundamental change of Aleris Corporation.

The Exchangeable Notes are our unsecured, senior subordinated obligations and rank (i) junior to all of our existing and future senior indebtedness, including the ABL Facility; (ii) equally to all of our existing and future senior subordinated indebtedness; and (iii) senior to all of our existing and future subordinated indebtedness.

Senior Notes

On February 9, 2011, we issued $500.0 aggregate original principal amount of Senior Notes (the “Senior Notes”) under an indenture (the “Indenture”) with U.S. Bank National Association, as trustee. Interest on the Senior Notes will be payable in cash semi-annually in arrears on February 15 and August 15 of each year. The Senior Notes mature on February 15, 2018.

The Senior Notes are jointly and severally, irrevocably and unconditionally guaranteed on a senior unsecured basis, by each direct and indirect restricted subsidiary that is a domestic subsidiary and that guarantees our obligations under the ABL Facility, as primary obligor and not merely as surety. The Senior Notes and the guarantees thereof are our unsecured senior obligations and will rank (i) equally in right of payment to all of our existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Senior Notes; (ii) be effectively subordinated in right of payment to all of our existing and future secured debt (including any borrowings under our ABL Facility), to the extent of the value of the assets securing such debt; (iii) be structurally subordinated to all existing and future debt and other obligations, including trade payables, of each of our subsidiaries that is not a guarantor of the Senior Notes; and (iv) rank senior in right of payment to our existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Notes, including our Exchangeable Notes.

We are not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes other than as set forth in the Indenture relating to certain tax matters, but under certain circumstances, we may be required to offer to purchase Senior Notes as described below. We may from time to time acquire Senior Notes by means other than redemption, whether by tender offer, in open market purchases, through negotiated transactions or otherwise, in accordance with applicable securities laws.

From and after February 15, 2014, we may redeem the Senior Notes, in whole or in part, upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to 105.7% of the principal amount, declining annually to 100.0% of the principal amount on February 15, 2017, plus accrued and unpaid interest, and Additional Interest (as defined in the Indenture), if any, thereon to the applicable redemption date.

Prior to February 15, 2013, we may, at our option, subject to certain conditions, redeem up to 35% of the original aggregate principal amount of the Senior Notes at a redemption price of 107.6% of the aggregate principal amount thereof, plus accrued and unpaid interest, and Additional Interest, if any, thereon to the redemption date, (plus the aggregate principal amount of any additional notes issued after the issue date) with the net cash proceeds of one or more equity offerings of ours or any direct or indirect parent of ours to the extent such proceeds are contributed to us provided that at least 65% of the sum of the aggregate principal amount of Senior Notes originally issued under the Indenture and the aggregate principal amount of any additional notes issued under the Indenture after the issue date remain outstanding immediately after the occurrence of each such redemption and each such redemption occurs within 180 days of the date of closing of each equity offering. Prior to February 15, 2013, we also may, but not more than one time during each twelve month period, redeem, in the aggregate, up to 10% of the sum of the original principal amount of the Senior Notes (and the original principal amount of any additional notes) issued under the Indenture at a redemption price equal to 103% of the aggregate principal amount thereof,

 

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plus accrued and unpaid interest, and Additional Interest, if any, thereon to the applicable redemption date. At any time prior to February 15, 2014, we may redeem all or a part of the Senior Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of Senior Notes redeemed plus an applicable premium, as provided in the Indenture, as of, and accrued and unpaid interest and Additional Interest, if any, to the redemption date.

Upon the occurrence of a change in control (as defined in the Indenture), each holder of the Senior Notes has the right to require us to repurchase some or all of such holder’s Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to the purchase date.

If we or our restricted subsidiaries engage in an asset sale (as defined in the Indenture), we generally must either invest the net cash proceeds from such sales in our business within a specified period of time, permanently reduce senior debt, permanently reduce senior subordinated debt, permanently reduce debt of a restricted subsidiary that is not a subsidiary guarantor or make an offer to purchase a principal amount of the notes equal to the net cash proceeds, subject to certain exceptions. The purchase price of the notes will be 100% of their principal amount, plus accrued and unpaid interest.

The Indenture contains covenants that limit our ability and certain of our subsidiaries’ ability to:

 

   

incur additional debt;

 

   

pay dividends or distributions on our capital stock or redeem, repurchase or retire our capital stock or subordinated debt;

 

   

issue preferred stock of restricted subsidiaries;

 

   

make certain investments;

 

   

create liens on our or our subsidiary guarantors’ assets to secure debt;

 

   

enter into sale and leaseback transactions;

 

   

create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that are not guarantors of the notes;

 

   

enter into transactions with affiliates;

 

   

merge or consolidate with another company; and

 

   

sell assets, including capital stock of our subsidiaries.

These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all outstanding Senior Notes to be due and payable immediately.

We used a portion of the net proceeds from the sale of the Senior Notes to pay a cash dividend of approximately $300.0 to Aleris Corporation on February 28, 2011 (the “February Stockholders Dividend”) and approximately $100.0 to Aleris Corporation on June 30, 2011 (the “June Stockholders Dividend”), each of which was then paid as a dividend, pro rata, to the stockholders of Aleris Corporation.

China Loan Facility

During the first quarter of 2011, we formed a joint venture with Zhenjiang Dingsheng Aluminum Industries Joint-Stock Co., Ltd. We are an 81% owner in the joint venture, Aleris Dingsheng Aluminum (Zhenjiang) Co., Ltd. (the “China Joint Venture”). On March 29, 2011, our China Joint Venture entered into the China Loan Facility, a non-recourse multi-currency secured revolving and term loan facility with the Bank of China Limited, Zhenjiang Jingkou Sub-Branch, consisting of a $100.0 term loan facility, a ¥532.0 term loan facility and a combined USD/RMB revolving credit facility up to an aggregate amount equivalent to $35.0 (or equivalent to approximately ¥232.8). The revolving loan facility will be used for operating expenses and the term loan facility will be used to finance a portion of the construction and infrastructure and the purchase of equipment. The interest rate on the term USD facility is six month USD LIBOR plus 2.9% and three month USD LIBOR plus 2.6% for any USD revolving loan. The interest rate on the term RMB facility and RMB loans under the revolving credit facility is ninety percent (90%) of the base rate applicable to any loan denominated in RMB of the same tenor, as announced by the People’s Bank of China. The term loan is subject to semiannual scheduled principal repayments beginning one year after the completion of the construction (or January 1, 2016, if earlier) and the final maturity date for all borrowings under the China Loan Facility is May 24, 2021. Our China Joint Venture is an unrestricted subsidiary under the Indenture governing the Senior Notes. The China Loan Facility contains certain customary affirmative covenants and events of default. We were in compliance with all of the covenants set forth in the agreement as of June 30, 2011.

 

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4. COMMITMENTS AND CONTINGENCIES

Environmental Proceedings

Our operations are subject to environmental laws and regulations governing air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances and wastes and employee health and safety. These laws can impose joint and several liabilities for releases or threatened releases of hazardous substances upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. Given the changing nature of environmental legal requirements, we may be required, from time to time, to take environmental control measures at some of our facilities to meet future requirements.

We have been named as a potentially responsible party in certain proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act and similar stated statutes and may be named a potentially responsible party in other similar proceedings in the future. It is not anticipated that the costs incurred in connection with the presently pending proceedings will, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.

We are performing operations and maintenance at two Superfund sites for matters arising out of past waste disposal activity associated with closed facilities. We are also under orders by agencies in four states for environmental remediation at five sites, two of which are located at our operating facilities. We are also under orders to perform environmental remediation by agencies in four states and one non-U.S. country at seven sites.

Our reserves for environmental remediation liabilities totaled $36.5 and $36.2 at June 30, 2011 and December 31, 2010, respectively, and have been classified as “Other long-term liabilities” and “Accrued liabilities”. Of the environmental liabilities recorded at June 30, 2011 and December 31, 2010, $6.8 is indemnified by Corus Group plc.

In addition to environmental liabilities, we have recorded asset retirement obligations associated with legal requirements related primarily to the normal operation of our landfills and the retirement of the related assets. At June 30, 2011 and December 31, 2010, our total asset retirement obligations were $13.2 and $12.9, respectively. The amounts represent the most probable costs of remedial actions. We estimate the costs related to currently identified remedial actions will be paid out primarily over the next ten years.

5. COMPREHENSIVE INCOME (LOSS)

The following tables present the components of comprehensive income (loss):

 

     (Successor)  
     For the three months ended
June 30, 2011
    For the six months ended
June 30, 2011
 
     Total     Aleris
International,
Inc.
    Non-
controlling
interest
    Total     Aleris
International,
Inc.
    Non-
controlling
interest
 

Net income

   $ 56.7      $ 56.5      $ 0.2      $ 114.0      $ 113.8      $ 0.2   

Changes in other comprehensive income, net of tax:

            

Currency translation adjustments

     9.1        9.1        —          30.0        30.0        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Changes in other comprehensive income, net of tax

     9.1        9.1        —          30.0        30.0        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 65.8      $ 65.6      $ 0.2      $ 144.0      $ 143.8      $ 0.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     (Successor)          (Predecessor)          (Successor)          (Predecessor)  
     For the one
month ended
June 30, 2010
         For the two
months ended
May 31, 2010
         For the one
month ended
June 30, 2010
         For the five
months ended
May 31, 2010
 

Net (loss) income

   $ (24.1      $ 2,194.5         $ (24.1      $ 2,204.1   

Changes in other comprehensive (loss) income, net of tax:

                 

Currency translation adjustments

     (0.8        25.7           (0.8        44.2   

Pension and other postretirement liability adjustment

     —             (1.8        —             (2.3

Amortization of actuarial net loss and prior service cost

     —             0.3           —             0.5   
  

 

 

      

 

 

      

 

 

      

 

 

 

Changes in other comprehensive (loss) income, net of tax

     (0.8        24.2           (0.8        42.4   
  

 

 

      

 

 

      

 

 

      

 

 

 

Comprehensive (loss) income

   $ (24.9      $ 2,218.7         $ (24.9      $ 2,246.5   
  

 

 

      

 

 

      

 

 

      

 

 

 

 

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6. SEGMENT INFORMATION

We have three reportable segments: (i) Rolled Products North America (ii) Recycling and Specification Alloys Americas and (iii) Europe. A segment is a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Measurement of Segment Profit or Loss and Segment Assets

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Consolidated Financial Statements for the year ended December 31, 2010. Our measure of the profitability of our operating segments is referred to as segment income. Segment income excludes provisions for income taxes, restructuring and impairment charges (gains), certain other (income) expense, interest, unrealized and certain realized gains (losses) on derivative financial instruments, currency exchange gains on debt, losses on intercompany receivables and corporate general and administrative costs, including depreciation of corporate assets and reorganization items, net. Intersegment sales and transfers are recorded at market value. Consolidated cash, long-term debt, net capitalized debt costs, deferred tax assets and assets related to our headquarters office are not allocated to the reportable segments.

Reportable Segment Information

The following table shows our revenues and segment income (loss):

 

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     (Successor)          (Predecessor)  
     For the three
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the two
months ended
May 31, 2010
 

Revenues:

         

Rolled Products North America

   $ 378.5      $ 106.1         $ 212.2   

Recycling and Specification Alloys Americas

     255.6        77.6           156.4   

Europe

     696.6        175.0           315.0   

Intersegment revenues

     (2.4     (0.8        (2.5
  

 

 

   

 

 

      

 

 

 

Total revenues

   $ 1,328.3      $ 357.9         $ 681.1   
  

 

 

   

 

 

      

 

 

 
 

Segment income (loss):

         

Rolled Products North America

   $ 20.1      $ (2.6      $ 16.0   

Recycling and Specification Alloys Americas

     22.1        2.7           11.0   

Europe

     42.8        (8.8        23.7   
  

 

 

   

 

 

      

 

 

 

Total segment income (loss)

   $ 85.0      $ (8.7      $ 50.7   
  

 

 

   

 

 

      

 

 

 
 

Unallocated amounts:

         

Corporate general and administrative expenses

   $ (15.5   $ (2.9      $ (5.1

Restructuring and impairment charges

     (1.7     (0.5        (0.9

Interest expense, net

     (14.0     (1.0        (29.2

Unallocated gains (losses) on derivative financial instruments

     3.8        (8.8        (39.8

Reorganization items, net

     2.2        (1.9        2,232.0   

Unallocated currency translation gains (losses)

     1.5        0.2           (23.4

Other (expense) income, net

     (0.4     (0.2        0.2   
  

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

   $ 60.9      $ (23.8      $ 2,184.5   
  

 

 

   

 

 

      

 

 

 

 

     (Successor)          (Predecessor)  
     For the six
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
         For the five
months ended
May 31, 2010
 

Revenues:

         

Rolled Products North America

   $ 689.1      $ 106.1         $ 507.2   

Recycling and Specification Alloys Americas

     503.2        77.6           373.7   

Europe

     1,331.5        175.0           769.1   

Intersegment revenues

     (4.2     (0.8        (7.0
  

 

 

   

 

 

      

 

 

 

Total revenues

   $ 2,519.6      $ 357.9         $ 1,643.0   
  

 

 

   

 

 

      

 

 

 
 

Segment income (loss):

         

Rolled Products North America

   $ 34.5      $ (2.6      $ 38.1   

Recycling and Specification Alloys Americas

     36.9        2.7           26.4   

Europe

     89.2        (8.8        60.2   
  

 

 

   

 

 

      

 

 

 

Total segment income (loss)

   $ 160.6      $ (8.7      $ 124.7   
  

 

 

   

 

 

      

 

 

 
 

Unallocated amounts:

         

Corporate general and administrative expenses

   $ (28.0   $ (2.9      $ (12.2

Restructuring and impairment (charges) gains

     (1.8     (0.5        0.4   

Interest expense, net

     (22.4     (1.0        (73.6

Unallocated gains (losses) on derivative financial instruments

     8.7        (8.8        (38.8

Reorganization items, net

     1.6        (1.9        2,227.3   

Unallocated currency translation gains (losses)

     6.0        0.2           (32.0

Other expense, net

     (0.8     (0.2        (0.4
  

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

   $ 123.9      $ (23.8      $ 2,195.4   
  

 

 

   

 

 

      

 

 

 

The following table shows our reportable segment assets as of June 30, 2011 and December 31, 2010:

 

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     (Successor)  
     June 30, 2011      December 31, 2010  

Assets

     

Rolled Products North America

   $ 594.1       $ 535.4   

Recycling and Specification Alloys Americas

     272.7         223.9   

Europe

     1,037.2         860.6   

Unallocated assets

     281.6         159.8   
  

 

 

    

 

 

 

Total consolidated assets

   $ 2,185.6       $ 1,779.7   
  

 

 

    

 

 

 

7. STOCK-BASED COMPENSATION

On June 1, 2010 the Board of Directors of Aleris Corporation approved the 2010 Equity Incentive Plan (the “2010 Equity Plan”). All stock options have a ten-year life and vest quarterly over four years. The restricted stock units and restricted shares also vest quarterly over four years. A portion of the stock options, as well as a portion of the restricted stock units and restricted shares, may vest upon a change in control event.

On February 28, 2011 and June 30, 2011, the Board of Directors of Aleris Corporation paid a $9.60 and a $3.20 dividend per share to Aleris Corporation stockholders as of February 17, 2011 and June 21, 2011, respectively. As provided in the 2010 Equity Plan, the Board approved the necessary actions to effectuate an option adjustment to (i) increase the number of shares underlying each option outstanding as of February 17, 2011 and June 21, 2011, and (ii) proportionately decrease the exercise price of each option to reflect the dilutive impact of the dividends paid.

During the six months ended June 30, 2011, Aleris Corporation granted an additional 75,985 stock options and 13,000 restricted stock units, respectively, to certain members of senior management of the Company and other nonemployee directors.

During the three and six months ended June 30, 2011, we recorded $2.1 and $4.5 of compensation expense, respectively, associated with these options, restricted stock units and restricted shares under the push down accounting provisions of ASC 718. At June 30, 2011, there was $27.6 of compensation expense that is expected to be recorded over the next four years pertaining to the stock options, restricted stock units and restricted shares.

8. INCOME TAXES

Our effective tax rate was 6.9% and 8.0% for the three and six months ended June 30, 2011; (1.3)% for the one month ended June 30, 2010; and (0.5)% and (0.4)% for the two and five months ended May 31, 2010, respectively. The effective tax rate for the three and six months ended June 30, 2011, one month ended June 30, 2010 and two and five months ended May 31, 2010 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions and valuation allowances.

We and the Predecessor have valuation allowances recorded to reduce certain deferred tax assets to amounts that are more likely than not to be realized. The valuation allowances relate to the potential inability to realize our deferred tax assets associated with certain U.S. long-term liabilities and to utilize certain foreign net operating loss carry forwards and, for the Predecessor only, U.S. federal and state net operating loss and tax credit carry forwards. We intend to maintain our valuation allowances until sufficient positive evidence exists (such as cumulative positive earnings and estimated future taxable income) to support their reversal.

Other than those in Germany, most of the tax attributes generated by the Predecessor’s non-filing foreign subsidiaries (net operating loss carryforwards) survived the Chapter 11 proceedings. We expect to use these tax attributes to reduce future tax liabilities. We will assess the ability to utilize these carryforwards on an ongoing basis.

As of June 30, 2011, we have $13.7 of unrecognized tax benefits. We recognize interest and penalties related to uncertain tax positions within the “Provision for (benefit from) income taxes” in the Consolidated Statement of Operations. As of June 30, 2011, we had approximately $1.0 of accrued interest related to uncertain tax positions.

The 2003 through 2010 tax years remain open to examination. We have continuing responsibility for the open tax years for the Predecessor’s non-filing foreign subsidiaries. A non-U.S. taxing jurisdiction commenced an examination in the first quarter of 2009 that is anticipated to be completed within three months of June 30, 2011. We presented an adjustment to our transfer pricing tax position that will result in a decrease in the reserve of $1.3. Another non-U.S. taxing jurisdiction commenced an examination in the fourth quarter of 2009 that is anticipated to be completed within six months of June 30, 2011.

 

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9. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

The components of the net periodic benefit expense are as follows:

 

     U.S. pension benefits  
     (Successor)           (Predecessor)     (Successor)           (Predecessor)  
     For the three
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
          For the two
months ended
May 31, 2010
    For the six
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
          For the five
months ended
May 31, 2010
 

Service cost

   $ 0.6      $ 0.2           $ 0.4      $ 1.3      $ 0.2           $ 0.9   

Interest cost

     1.9        0.7             1.3        3.7        0.7             3.3   

Amortization of net loss

     —          —               0.4        —          —               0.9   

Expected return on plan assets

     (2.0     (0.6          (1.2     (4.0     (0.6          (3.0
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

        

 

 

 

Net periodic benefit expense

   $ 0.5      $ 0.3           $ 0.9      $ 1.0      $ 0.3           $ 2.1   
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

        

 

 

 
     European pension benefits  
     (Successor)           (Predecessor)     (Successor)           (Predecessor)  
     For the three
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
          For the two
months ended
May 31, 2010
    For the six
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
          For the five
months ended
May 31, 2010
 

Service cost

   $ 0.6      $ 0.2           $ 0.4      $ 1.2      $ 0.2           $ 0.9   

Interest cost

     1.8        0.6             1.3        3.7        0.6             3.2   

Amortization of net loss

     —          —               (0.2     —          —               (0.6

Expected return on plan assets

     —          —               —          (0.1     —               —     

Amortization of prior service cost

     —          —               —          —          —               0.1   
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

        

 

 

 

Net periodic benefit expense

   $ 2.4      $ 0.8           $ 1.5      $ 4.8      $ 0.8           $ 3.6   
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

        

 

 

 

Other Postretirement Benefit Plans

The components of net postretirement benefit expense (gains) are as follows:

 

     (Successor)           (Predecessor)      (Successor)           (Predecessor)  
     For the three
months ended
June 30, 2011
     For the one
month ended
June 30, 2010
          For the two
months ended
May 31,2010
     For the six
months ended
June 30, 2011
     For the one
month ended
June 30, 2010
          For the five
months ended
May 31,2010
 

Service cost

   $ —         $ —             $ —         $ 0.1       $ —             $ 0.1   

Interest cost

     0.7         0.2             0.5         1.3         0.2             1.2   

Amortization of prior service cost

     —           —               —           —           —               (0.1

Amortization of net loss

     —           —               0.1         —           —               0.2   

Plan amendments

     —           —               —           —           —               (2.1
  

 

 

    

 

 

        

 

 

    

 

 

    

 

 

        

 

 

 

Net postretirement benefit expense (gains)

   $ 0.7       $ 0.2           $ 0.6       $ 1.4       $ 0.2           $ (0.7
  

 

 

    

 

 

        

 

 

    

 

 

    

 

 

        

 

 

 

10. DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS

We use forward contracts and options, as well as contractual price escalators, to reduce the risks associated with our aluminum, natural gas and other supply requirements and certain currency exposures. Generally, we enter into master netting arrangements with our counterparties and offset net derivative positions with the same counterparties against amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements in our Consolidated Balance Sheet. For classification purposes, we record the net fair value of all the positions expected to settle in less than one year with these counterparties as a net current asset or liability and all long-term positions as a net long-term asset or liability. At June 30, 2011 and December 31, 2010, we had posted cash collateral totaling approximately $3.0 and $3.6, respectively, which was recorded within “Prepaid expenses and other current assets” on the Consolidated Balance

 

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Sheet. The amounts shown in the table below represent the fair value of individual contracts, regardless of the net position presented in the Consolidated Balance Sheet:

 

     (Successor)  
     Fair Value of Derivatives as of  
     June 30, 2011     December 31, 2010  

Derivatives by type

   Asset     Liability     Asset     Liability  

Metal

   $ 48.0      $ (16.3   $ 44.1      $ (23.3

Natural gas

     0.1        (1.0     0.9        (0.6

Currency

     2.3        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     50.4        (17.3     45.0        (23.9

Effect of counterparty netting

     (16.3     16.3        (18.3     18.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net derivatives as classified in the balance sheet

   $ 34.1      $ (1.0   $ 26.7      $ (5.6
  

 

 

   

 

 

   

 

 

   

 

 

 

The fair value of our derivative financial instruments at June 30, 2011 and December 31, 2010 was recorded on the Consolidated Balance Sheet as follows:

 

          (Successor)  

Asset Derivatives

  

Balance Sheet Location

   June 30, 2011     December 31, 2010  

Metal

  

Current derivative financial instruments

   $ 24.0      $ 17.2   
  

Long-term derivative financial instruments

     8.7        9.4   

Natural gas

  

Current derivative financial instruments

     (0.7     0.2   
  

Long-term derivative financial instruments

     (0.2     (0.1

Currency

  

Current derivative financial instruments

     1.4        —     
  

Long-term derivative financial instruments

     0.9        —     
     

 

 

   

 

 

 

Total

      $ 34.1      $ 26.7   
     

 

 

   

 

 

 
          (Successor)  

Liability Derivatives

  

Balance Sheet Location

   June 30, 2011     December 31, 2010  

Metal

  

Accrued liabilities

   $ 1.0      $ 5.8   

Natural gas

  

Accrued liabilities

     —          (0.2
     

 

 

   

 

 

 

Total

      $ 1.0      $ 5.6   
     

 

 

   

 

 

 

Derivative contracts are recorded at fair value under ASC 820, “Fair Value Measurements and Disclosures,” using quoted market prices and significant other observable and unobservable inputs. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3—Inputs that are both significant to the fair value measurement and unobservable.

We endeavor to utilize the best available information in measuring fair value. To estimate fair value, we apply an industry standard valuation model, which is based on the market approach. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence and unobservable inputs. Financial assets and liabilities are classified in their entirety based on the

 

17


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lowest level of input that is significant to the fair value measurement. The following table sets forth our financial assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2011 and the level in the fair value hierarchy:

 

     Fair value measurements at June 30, 2011 using:  

Description

   Total carrying value
in the Consolidated
Balance Sheet
    Quoted prices in
active markets for
identical assets
(Level 1)
     Significant
other observable
inputs (Level 2)
    Significant
unobservable
inputs

(Level 3)
 

Derivative assets

   $ 50.4      $ —         $ 50.4      $ —     

Derivative liabilities

     (17.3     —           (17.3     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Net derivative assets

   $ 33.1      $ —         $ 33.1      $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Both realized and unrealized gains and losses on those derivative financial instruments are included within “(Gains) losses on derivative financial instruments” in the Consolidated Statements of Operations. Realized (gains) and losses on derivative financial instruments totaled the following:

 

     (Successor)           (Predecessor)     (Successor)           (Predecessor)  
     For the three
months ended
June 30, 2011
    For the one
month ended
June 30, 2010
          For the two
months ended
May 31, 2010
    For the six
months ended
June 30, 2011
     For the one
month ended
June 30, 2010
          For the five
months ended
May 31, 2010
 

Natural gas

   $ —        $ (0.2        $ 0.5      $ 0.8       $ (0.2        $ 1.2   

Metal

     (0.3     0.6             (3.7     3.9         0.6             (11.8

Metal Hedging

The selling prices of the majority of the orders for our rolled and extruded products are established at the time of order entry or, for certain customers, under long-term contracts. As the related raw materials used to produce these orders can be purchased several months or years after the selling prices are fixed, margins are subject to the risk of changes in the purchase price of the raw materials used for these fixed price sales. In order to manage this transactional exposure, LME aluminum future or forward purchase contracts are purchased at the time the selling prices are fixed. We can also use call option contracts and put option contracts for managing metal price exposures. Upon settlement of call option contracts, we receive cash and recognize a related gain if the LME aluminum closing price exceeds the strike price of the call option. If the call option strike price exceeds the LME aluminum closing price, no amount is received and the option expires. Put options function in a similar but inverse manner. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. As of June 30, 2011 and December 31, 2010, we had 0.2 and 0.2 metric tons of aluminum buy and sell forward contracts, respectively.

Natural Gas Hedging

To manage the price exposure for natural gas purchases, we can fix the future price of a portion or all of our natural gas requirements by entering into financial hedge contracts. Under these contracts, payments are made or received based on the differential between the monthly closing price on the New York Mercantile Exchange (“NYMEX”) and the contractual hedge contract price. We can also enter into call option contracts to manage the exposure to increasing natural gas prices while maintaining the benefit from declining prices. Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers, which limits exposure to natural gas price risk. As of June 30, 2011 and December 31, 2010, we had 5.2 trillion and 7.7 trillion British thermal unit forward buy contracts, respectively.

Currency Exchange Hedging

The construction of an aluminum rolling mill in China has increased our joint venture’s exposure to fluctuations in the euro as certain of the contracts to purchase equipment are denominated in euros while the joint venture’s source of funding is the U.S. dollar and Renminbi denominated China Loan Facility. The joint venture has entered into euro call option contracts to manage this exposure if the U.S. dollar weakens while maintaining the benefit if the dollar strengthens. As with all of our other derivative financial instruments, these option contracts are not accounted for as hedges, and as a result, the changes in fair value are recorded immediately in the consolidated statements of operations. These contracts cover periods consistent with known or expected exposures through 2011 and 2012. As of June 30, 2011, we had euro call option contracts covering a notional amount of $59.9.

 

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Table of Contents

Credit Risk

We are exposed to losses in the event of non-performance by the counterparties to the derivative financial instruments discussed above; however, we do not anticipate any non-performance by the counterparties. The counterparties are evaluated for creditworthiness and risk assessment prior to initiating trading activities with the brokers.

Other Financial Instruments

The carrying amount and fair value of our other financial instruments at June 30, 2011 and December 31, 2010 are as follows:

 

     (Successor)  
     June 30, 2011      December 31, 2010  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Cash and cash equivalents

   $ 187.6       $ 187.6       $ 113.5       $ 113.5   

ABL Facility

     —           —           —           —     

Exchangeable Notes

     44.1         110.4         44.1         75.2   

Senior Notes

     490.5         498.8         —           —     

China Loan Facility

     4.9         5.8         —           —     

The fair value of our Exchangeable Notes was estimated using a binomial lattice pricing model based on the fair value of Aleris Corporation common stock, a risk-free interest rate of 3.0% and expected equity volatility of 50%. Expected equity volatility was determined based on historical stock prices of our peer companies. The fair value of our Senior Notes was estimated using market quotations. The fair value of our accounts receivable, accounts payable and accrued liabilities approximate carrying value. The fair value of our ABL Facility and China Loan Facility approximate the aggregate principal balance outstanding.

11. RELATED PARTY TRANSACTIONS

As discussed in Note 7, “Stock-Based Compensation,” we recorded $2.1 and $4.5 of compensation expense for the three and six months ended June 30, 2011, respectively, associated with the 2010 Equity Plan, the beneficiaries of which are members of our senior management and our nonemployee directors.

During the six months ended June 30, 2011, certain members of our senior management received 3,842 shares of Aleris Corporation common stock valued at $0.2, which has been recorded as a payable to Aleris Corporation as of June 30, 2011.

12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Certain of our subsidiaries (the “Guarantors”) are guarantors of the indebtedness under our Senior Notes. Each of the Guarantors has fully and unconditionally guaranteed, on a joint and several basis, to pay principal and interest related to the Senior Notes and each of the Guarantors are directly or indirectly wholly-owned subsidiaries of the Company. For purposes of complying with the reporting requirements of the Guarantor Subsidiaries, presented below are condensed consolidating financial statements of Aleris International, Inc., the Guarantor Subsidiaries, and those subsidiaries of Aleris International, Inc. that are not guaranteeing the indebtedness under the Senior Notes (the “Non-Guarantors”). The condensed consolidating balance sheet is presented as of June 30, 2011 (Successor) and December 31, 2010 (Successor). The condensed consolidating statements of operations are presented for the three and six months ended June 30, 2011 (Successor), the one month ended June 30, 2010 (Successor) and the two and five months ended May 31, 2010 (Predecessor). The condensed consolidating statements of cash flows are presented for the six months ended June 30, 2011 (Successor), the one month ended June 30, 2010 (Successor) and the five months ended May 31, 2010 (Predecessor).

 

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Table of Contents
     As of June 30, 2011 (Successor)  
     Aleris
International,
Inc. (Parent)
     Guarantors      Non-
Guarantors
    Eliminations     Consolidated  

ASSETS

            

Current Assets

            

Cash and cash equivalents

   $ 66.5       $ —         $ 121.1      $ —        $ 187.6   

Accounts receivable, net

     1.3         216.4         360.0        —          577.7   

Inventories

     —           274.2         430.3        —          704.5   

Deferred income taxes

     —           —           1.6        —          1.6   

Current derivative financial instruments

     —           —           24.7        —          24.7   

Prepaid expenses and other current assets

     0.5         12.6         15.2        —          28.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Assets

     68.3         503.2         952.9        —          1,524.4   

Property, plant and equipment, net

     —           269.4         282.0        —          551.4   

Intangible assets, net

     —           32.8         15.9        —          48.7   

Long-term derivative financial instruments

     —           —           9.4        —          9.4   

Deferred income taxes

     —           —           13.8        —          13.8   

Other long-term assets

     16.1         3.6         18.2        —          37.9   

Investments in subsidiaries/ intercompany receivables (payables), net

     1,145.3         277.5         (76.1     (1,346.7     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,229.7       $ 1,086.5       $ 1,216.1      $ (1,346.7   $ 2,185.6   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current Liabilities

            

Accounts payable

   $ 3.5       $ 121.1       $ 249.4      $ —        $ 374.0   

Accrued liabilities

     —           85.2         139.0        —          224.2   

Deferred income taxes

     —           —           13.8        —          13.8   

Current maturities of debt

     —           —           7.8        —          7.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     3.5         206.3         410.0        —          619.8   

Long-term debt

     534.6         —           6.6        —          541.2   

Deferred income taxes

     0.4         0.2         9.0        —          9.6   

Accrued pension benefits

     —           49.7         143.7        —          193.4   

Accrued postretirement benefits

     —           47.6         —          —          47.6   

Other long-term liabilities

     1.1         30.7         48.1        —          79.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Long-Term Liabilities

     536.1         128.2         207.4        —          871.7   

Redeemable preferred stock

     5.4         —           —          —          5.4   

Aleris International, Inc. equity

     684.7         752.0         594.7        (1,346.7     684.7   

Noncontrolling interest

     —           —           4.0        —          4.0   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,229.7       $ 1,086.5       $ 1,216.1      $ (1,346.7   $ 2,185.6   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

20


Table of Contents
     As of December 31, 2010 (Successor)  
     Aleris
International,
Inc. (Parent)
     Guarantors      Non-
Guarantors
    Eliminations     Consolidated  

ASSETS

            

Current Assets

            

Cash and cash equivalents

   $ 37.9       $ —         $ 75.6      $ —        $ 113.5   

Accounts receivable, net

     1.3         140.7         251.4        —          393.4   

Inventories

     —           249.6         364.0        —          613.6   

Deferred income taxes

     —           —           1.6        —          1.6   

Current derivative financial instruments

     —           —           17.4        —          17.4   

Prepaid expenses and other current assets

     0.4         8.3         15.1        —          23.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Assets

     39.6         398.6         725.1        —          1,163.3   

Property, plant and equipment, net

     —           273.1         236.9        —          510.0   

Intangible assets, net

     —           33.8         15.9        —          49.7   

Long-term derivative financial instruments

     —           —           9.3        —          9.3   

Deferred income taxes

     —           —           13.9        —          13.9   

Other long-term assets

     10.6         4.3         18.6        —          33.5   

Investments in subsidiaries/ intercompany receivables (payables), net

     947.3         269.0         (64.1     (1,152.2     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Assets

   $ 997.5       $ 978.8       $ 955.6      $ (1,152.2   $ 1,779.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current Liabilities

            

Accounts payable

   $ 3.2       $ 88.9       $ 191.5      $ —        $ 283.6   

Accrued liabilities

     6.9         48.5         109.8        —          165.2   

Deferred income taxes

     —           —           13.8        —          13.8   

Current maturities of debt

     —           —           5.3        —          5.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     10.1         137.4         320.4        —          467.9   

Long-term debt

     44.1         —           1.0        —          45.1   

Deferred income taxes

     0.3         0.2         8.2        —          8.7   

Accrued pension benefits

     —           52.9         131.6        —          184.5   

Accrued postretirement benefits

     —           48.5         —          —          48.5   

Other long-term liabilities

     1.2         30.3         51.7        —          83.2   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Long-Term Liabilities

     45.6         131.9         192.5        —          370.0   

Redeemable preferred stock

     5.2         —           —          —          5.2   

Aleris International, Inc. equity

     936.6         709.5         442.7        (1,152.2     936.6   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 997.5       $ 978.8       $ 955.6      $ (1,152.2   $ 1,779.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

21


Table of Contents
     For the three months ended June 30, 2011 (Successor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues

   $ —        $ 579.5      $ 752.1      $ (3.3   $ 1,328.3   

Cost of sales

     —          526.5        670.5        (3.3     1,193.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          53.0        81.6        —          134.6   

Selling, general and administrative expenses

     —          27.0        41.4        —          68.4   

Restructuring and other charges

     —          0.2        1.5        —          1.7   

Gains on derivative financial instruments

     —          (3.5     (0.7     —          (4.2

Other operating expense (income), net

     —          0.4        (0.6     —          (0.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —          28.9        40.0        —          68.9   

Interest expense, net

     —          11.5        2.5        —          14.0   

Reorganization items, net

     —          (2.2     —          —          (2.2

Other income, net

     —          (3.0     (0.8     —          (3.8

Equity in net earnings of affiliates

     (56.9     (2.7     —          59.6        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     56.9        25.3        38.3        (59.6     60.9   

Provision for income taxes

     0.2        —          4.0        —          4.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     56.7        25.3        34.3        (59.6     56.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interest

     —          —          0.2        —          0.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Aleris International, Inc.

   $ 56.7      $ 25.3      $ 34.1      $ (59.6   $ 56.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the six months ended June 30, 2011 (Successor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues

   $ —        $ 1,086.1      $ 1,439.6      $ (6.1   $ 2,519.6   

Cost of sales

     —          987.1        1,275.4        (6.1     2,256.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          99.0        164.2        —          263.2   

Selling, general and administrative expenses

     0.1        52.5        77.5        —          130.1   

Restructuring and other charges

     —          0.3        1.5        —          1.8   

Losses (gains) on derivative financial instruments

     —          1.4        (5.6     —          (4.2

Other operating expense (income), net

     —          0.8        (4.7       (3.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (0.1     44.0        95.5        —          139.4   

Interest expense, net

     —          18.5        3.9        —          22.4   

Reorganization items, net

     (0.2     (1.4     —          —          (1.6

Other income, net

     —          (3.7     (1.6     —          (5.3

Equity in net earnings of affiliates

     (114.5     (3.7     —          118.2        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     114.6        34.3        93.2        (118.2     123.9   

Provision for income taxes

     0.6        —          9.3        —          9.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     114.0        34.3        83.9        (118.2     114.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interest

     —          —          0.2        —          0.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Aleris International, Inc.

   $ 114.0      $ 34.3      $ 83.7      $ (118.2   $ 113.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents
     For the one month ended June 30, 2010 (Successor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues

   $ —        $ 162.0      $ 196.4      $ (0.5   $ 357.9   

Cost of sales

     —          158.9        194.0        (0.5     352.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          3.1        2.4        —          5.5   

Selling, general and administrative expenses

     —          6.8        9.8        —          16.6   

Restructuring and other charges

     —          —          0.5        —          0.5   

Losses on derivative financial instruments

     —          1.7        7.4        —          9.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     —          (5.4     (15.3     —          (20.7

Interest expense, net

     —          0.6        0.4        —          1.0   

Reorganization items, net

     1.1        0.7        0.1        —          1.9   

Other expense, net

     —          —          0.2        —          0.2   

Equity in net loss (earnings) of affiliates

     23.0        (2.3     —          (20.7     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (24.1     (4.4     (16.0     20.7        (23.8

Provision for income taxes

     —          —          0.3        —          0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (24.1   $ (4.4   $ (16.3   $ 20.7      $ (24.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the two months ended May 31, 2010 (Predecessor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues

   $ —        $ 318.9      $ 363.3      $ (1.1   $ 681.1   

Cost of sales

     —          284.8        323.3        (1.1     607.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          34.1        40.0        —          74.1   

Selling, general and administrative expenses

     —          13.9        20.7        —          34.6   

Restructuring and other charges (gains)

     —          1.2        (0.3     —          0.9   

Losses on derivative financial instruments

     —          7.6        28.7        —          36.3   

Other operating expense, net

     —          0.5        —          —          0.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —          10.9        (9.1     —          1.8   

Interest expense, net

     —          21.9        7.3        —          29.2   

Reorganization items, net

     772.7        (1,471.7     (1,533.0     —          (2,232.0

Other (income) expense, net

     (19.2     (1.7     41.0        —          20.1   

Equity in net (earnings) loss of affiliates

     (2,946.6     39.9        —          2,906.7        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     2,193.1        1,422.5        1,475.6        (2,906.7     2,184.5   

(Benefit from) provision for income taxes

     (1.4     (11.7     3.1        —          (10.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 2,194.5      $ 1,434.2      $ 1,472.5      $ (2,906.7   $ 2,194.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents
     For the five months ended May 31, 2010 (Predecessor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues

   $ —        $ 766.3      $ 879.9      $ (3.2   $ 1,643.0   

Cost of sales

     —          686.8        772.2        (3.2     1,455.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          79.5        107.7        —          187.2   

Selling, general and administrative expenses

     —          32.1        52.1        —          84.2   

Restructuring and other (gains) charges

     —          (0.6     0.2        —          (0.4

Losses on derivative financial instruments

     —          8.7        19.9        —          28.6   

Other operating expense, net

     —          0.4        —          —          0.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —          38.9        35.5        —          74.4   

Interest expense, net

     —          53.7        19.9        —          73.6   

Reorganization items, net

     777.5        (1,471.4     (1,533.4     —          (2,227.3

Other (income) expense, net

     (32.0     (1.7     66.4        —          32.7   

Equity in net (earnings) loss of affiliates

     (2,948.4     38.0        —          2,910.4        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     2,202.9        1,420.3        1,482.6        (2,910.4     2,195.4   

(Benefit from) provision for income taxes

     (1.2     (11.7     4.2        —          (8.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 2,204.1      $ 1,432.0      $ 1,478.4      $ (2,910.4   $ 2,204.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the six months ended June 30, 2011 (Successor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations      Consolidated  

Net cash (used) provided by operating activities

   $ (4.8   $ 27.1      $ 2.3      $ —         $ 24.6   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities

           

Payments for property, plant and equipment

     —          (27.1     (34.6     —           (61.7

Proceeds from the sale of property, plant and equipment

     —          —          7.5        —           7.5   

Net invesment in subsidiaries

     (50.0     —          50.0        —           —     

Other

     —          —          (0.2     —           (0.2
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash (used) provided by investing activities

     (50.0     (27.1     22.7        —           (54.4
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities

           

Proceeds from issuance of Senior Notes, net of discount of $10.0

     490.0        —          —          —           490.0   

Proceeds from China Loan Facility

     —          —          5.7        —           5.7   

Net proceeds from other long-term debt

     —          —          3.0        —           3.0   

Debt and equity issuance costs

     (6.6     —          (0.2     —           (6.8

Contributions from noncontrolling interests

     —          —          4.1        —           4.1   

Dividends paid to Aleris Corporation

     (400.0     —          —          —           (400.0

Other

     —          —          2.2        —           2.2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by financing activities

     83.4        —          14.8        —           98.2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate differences on cash and cash equivalents

     —          —          5.7        —           5.7   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase in cash and cash equivalents

     28.6        —          45.5        —           74.1   

Cash and cash equivalents at beginning of period

     37.9        —          75.6        —           113.5   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 66.5      $ —        $ 121.1      $ —         $ 187.6   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

24


Table of Contents
     For the five months ended May 31, 2010 (Predecessor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations      Consolidated  

Net cash (used) provided by operating activities

   $ (360.1   $ 35.9      $ 150.2      $ —         $ (174.0
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities

           

Payments for property, plant and equipment

     —          (11.6     (4.4     —           (16.0

Proceeds from the sale of property, plant and equipment

     —          0.2        0.1        —           0.3   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used by investing activities

     —          (11.4     (4.3     —           (15.7
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities

           

Proceeds from issuance of common stock, net of issuance costs of $22.5

     541.1        —          —          —           541.1   

Proceeds from issuance of Preferred Stock

     5.0        —          —          —           5.0   

Proceeds from ABL Facility

     80.0        —          —          —           80.0   

Proceeds from Exchangeable Notes, net of issuance costs of $1.2

     43.8        —          —          —           43.8   

Proceeds from DIP Facilities

     854.2        —          75.9        —           930.1   

Payments on DIP Facilities

     (1,131.8     —          (225.4     —           (1,357.2

Net payments on other long-term debt

     (0.3     —          (1.0     —           (1.3

Debt issuance costs

     (47.7     —          (6.5     —           (54.2

Other

     0.2        —          —          —           0.2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided (used) by financing activities

     344.5        —          (157.0     —           187.5   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate differences on cash and cash equivalents

     —          —          (7.8     —           (7.8
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net (decrease) increase in cash and cash equivalents

     (15.6     24.5        (18.9     —           (10.0

Cash and cash equivalents at beginning of period

     15.6        0.1        93.2        —           108.9   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ —        $ 24.6      $ 74.3      $ —         $ 98.9   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     For the one month ended June 30, 2010 (Successor)  
     Aleris
International,
Inc. (Parent)
    Guarantors     Non-
Guarantors
    Eliminations      Consolidated  

Net cash provided (used) by operating activities

   $ 80.3      $ (21.6   $ (33.4      $ 25.3   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities

           

Payments for property, plant and equipment

     —          (3.0     (3.6        (6.6

Other

     —          —          0.2           0.2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used by investing activities

     —          (3.0     (3.4     —           (6.4
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities

           

Proceeds from ABL Facility

     20.3        —          36.7           57.0   

Payments on ABL Facility

     (100.3     —          (6.1        (106.4

Net payments on other long-term debt

     —          —          (0.3        (0.3

Debt issuance costs

     (0.3     —          —             (0.3

Other

     —          —          (0.3        (0.3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash (used) provided by financing activities

     (80.3     —          30.0