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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

December 31,

December 31, 2008 from $30.0 million in the year ended December 31, 2007. Approximately $4.5 million of this $8.7 million increase in all other SG&A was related to the inclusion of Graphit-Kropfmühl in the consolidated results. Restructuring and asset impairment expenses Restructuring and asset impairment charges were $56.9 million in the year ended December 31, 2008. An asset impairment charge of $46.0 million was recognized at Graphit-Kropfmühl. The impaired assets were primarily intangible assets and machinery and equipment. The machinery was assigned increased value in the purchase accounting. Asset impairment tests are required annually under IFRS and it was determined that the increase in asset values from purchase accounting could not be recovered. Additional asset impairment charges were incurred at Timminco, where loans made to Fundo Wheels were written off as it became apparent that the loans were uncollectable. Finally, restructuring charges were incurred at Timminco and at several Advanced Materials businesses. Timminco recorded its restructuring as part of its plan to close its Haley operation. The Advanced Materials businesses recorded severance accruals related to headcount reductions made at several facilities to adapt to slowing demand caused by the economic crisis. Other Income Other income for the year ended December 31, 2008 primarily consisted of government grant income of $4.4 million largely attributable to the Berlin facility. Additional other income included a contract cancellation fee of $1.8 million that was paid by an Engineering Systems division customer. Other income for the year ended December 31, 2007 was primarily related to the two acquisitions completed during the year: FNE and the Berlin facility. The FNE acquisition generated negative goodwill of $2.2 million while the Berlin acquisition generated government grant income of $5.1 million. Operating Income AMG’s operating income decreased to $75.2 million in the period ended December 31, 2008 from $84.2 million in the year ended December 31, 2007, an 11% decline. Overall, the operating performance of the Company improved for the year ended December 31, 2008, but operating profit also reflects the nonrecurring asset impairment and restructuring charges of $56.9 million. Operating income as a percentage of revenue declined to 5% in the year ended December 31, 2008 as compared to 7% in the year ended December 31, 2007. Adjusted for non-recurring restructuring expenses, operating income was $132.1 million or 9% of revenue. Finance expenses The table below sets forth AMG’s net finance expense for the periods ended December 31, 2008 and 2007. Interest expense declined as a result of the refinancing of debt that occurred in the third quarter of 2007 which lowered effective interest rates globally. The decline in effective interest rates was offset by increased debt due to the acquisition of Graphit- Kropfmühl and higher working capital levels within Advanced Materials and Timminco. Period ended December 31 (amounts in $ thousands) 2008 2007 Interest expense 21,590 28,023 Interest (income) (7,783) (6,954) Foreign exchange loss (gain) 6,331 (3,591) Loss on debt extinguishment – 34,668 Finance expense, net 20,138 52,146 72 Financial Review

Income taxes The provisions for income taxes increased to $41.9 million, or 94% of pre-tax income, for the year ended December 31, 2008 from $20.7 million, or 72% of pre-tax income, for the period ended December 31, 2007. The increase in income tax provision is primarily a result of the Company’s increased profit before taxes and the inability to deduct certain one-time charges. The effective tax rate for 2008 was significantly higher than the normalized statu tory tax rate of 38% because the Company was unable to recognize a full financial accounting tax benefit for the restructuring and asset impairment expenses of $56.9 million which were primarily recorded in Canada and Germany. This treatment was adopted because of the Company’s historical net operating loss position of the subsidiaries where the expenses were recorded. Net Profit The Company recorded net income attributable to share holders of $14.5 million in the year ended December 31, 2008 as compared with a net income attributable to shareholders of $11.7 million in the year ended December 31, 2007. This performance is a result of improved operating performance, offset by asset impairment and restructuring and a higher tax provision. Liquidity and Capital Resources Sources of Liquidity The Company’s sources of liquidity include cash and cash equivalents, cash from operations and amounts available under credit facilities. At December 31, 2008, the Company had $143.5 million in cash and cash equivalents and $103.1 million available on its revolving credit facility. Changes in the Company’s liquidity were due primarily to the acquisition of Graphit- Kropfmühl and a build in working capital within the Advanced Materials and Timminco divisions. 2008 2007 Non-current loans and borrowings 138,990 115,726 Current loans and borrowings 93,043 25,056 Total debt 232,033 140,782 Cash 143,473 172,558 Net debt 88,560 (31,776) The table below summarizes the Company’s net cash provided by or used in its operating activities, investing activities and financing activities for the years ended December 31, 2008 and 2007. 2008 2007 Net cash provided by (used in): Operating activities 123,353 74,500 Investing activities (220,690) (92,859) Financing activities 79,574 123,425 Cash Flows Net cash provided by operating activities increased to $123.4 million in the year ended December 31, 2008 from $74.5 million in the year ended December 31, 2007, a $48.9 million increase. The increase was primarily due to an increase in EBITDA, offset by an increase in working capital of $29.3 million, a decline in government grants and an increase in taxes paid. Net cash used in investing activities increased to $220.7 million in the year ended December 31, 2008 from $92.9 million in the year ended December 31, 2007, a $127.8 million increase. The net cash outflow on the Graphit- Kropfmühl acquisition was $66.9 million. The remaining increase was primarily caused by an increase in capital expenditures to $158.3 million in the year ended December 31, 2008 from Financial Review 73

PDF 3.89 MB - AMG Advanced Metallurgical Group NV
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