Alcoa Corporation Reaches Early Termination Agreement for Power Contract Tied to Curtailed Rockdale Smelter in Texas
October 13 2017 - 7:50AM
Business Wire
Action supports Company’s strategic priorities
to reduce complexity and drive returns
Alcoa Corporation (NYSE:AA), a global leader in bauxite, alumina
and aluminum products, today announced that the Company and power
provider Luminant Generation Company LLC have terminated the
electricity contract tied to Alcoa’s Rockdale Operations in Texas.
The smelter at Rockdale has been fully curtailed since the end of
2008.
The termination of the contract, which had been set to expire no
later than 2038, was effective as of October 1, 2017.
While the Company sold surplus electricity since the smelter’s
curtailment, Alcoa’s cost of power under the contract exceeded the
related revenue.
The Company expects an annual improvement to net income and
adjusted EBITDA (earnings before interest, tax, depreciation and
amortization) of $60 million to $70 million as a result of the
contract termination, beginning in the fourth quarter of 2017.
“Reaching a resolution on the Rockdale power contract aligns
with two of our strategic priorities – to reduce complexity and to
drive returns,” said William Oplinger, Executive Vice President and
Chief Financial Officer. “It eliminates a complex, long-term
contract tied to the Rockdale location, and positions Alcoa for
improved profitability and higher returns.”
In accordance with the early termination agreement, Alcoa made a
lump sum payment of $237.5 million on October 10, 2017 and
transferred approximately 2,200 acres of related land and other
assets to Luminant. The Company will record a charge of
approximately $250 million (pre- and after-tax) in the fourth
quarter of 2017 associated with the transaction.
In addition to the power contract, Alcoa and Luminant terminated
other related fuel and lease agreements effective as of the same
October 1 date.
As a result of the early termination, Alcoa has initiated a
strategic review of the remaining buildings and equipment
associated with the smelter, casthouse and the aluminum powder
plant. A decision on those assets is expected by the end of 2017.
Separately, the Company continues to own more than 30,000 acres of
land at the Rockdale site.
About Alcoa
Alcoa (NYSE: AA) is a global industry leader in bauxite, alumina
and aluminum products, with a strong portfolio of value-added cast
and rolled products and substantial energy assets. Alcoa is built
on a foundation of strong values and operating excellence dating
back nearly 130 years to the world-changing discovery that made
aluminum an affordable and vital part of modern life. Since
inventing the aluminum industry, and throughout our history, our
talented Alcoans have followed on with breakthrough innovations and
best practices that have led to efficiency, safety, sustainability
and stronger communities wherever we operate. Visit us online on
www.alcoa.com, follow @Alcoa on Twitter and on Facebook at
www.facebook.com/Alcoa.
Dissemination of Company Information
Alcoa Corporation intends to make future announcements regarding
company developments and financial performance through its website
at www.alcoa.com.
Forward-Looking Statements
This press release contains statements that relate to future
events and expectations and as such constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include those
containing such words as “anticipates,” “believes,” “could,”
“estimates,” “expects,” “forecasts,” “intends,” “may,” “outlook,”
“plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,”
“would,” or other words of similar meaning. All statements that
reflect the Company’s expectations, assumptions or projections
about the future, other than statements of historical fact, are
forward-looking statements. Forward-looking statements are not
guarantees of future performance and are subject to known and
unknown risks, uncertainties, and changes in circumstances that are
difficult to predict. Although the Company believes that the
expectations reflected in any forward-looking statements are based
on reasonable assumptions, it can give no assurance that these
expectations will be attained and it is possible that actual
results may differ materially from those indicated by these
forward-looking statements due to a variety of risks and
uncertainties. Additional information concerning factors that could
cause actual results to differ materially from those projected in
the forward-looking statements is contained in our filings with the
Securities and Exchange Commission. The Company disclaims any
obligation to update publicly any forward-looking statements,
whether in response to new information, future events or otherwise,
except as required by applicable law.
Non-GAAP Financial Measures
Alcoa Corporation’s definition of Adjusted EBITDA is net margin
plus an add-back for depreciation, depletion, and amortization. Net
margin is equivalent to Sales minus the following items: Cost of
goods sold; Selling, general administrative, and other expenses;
Research and development expenses; and Provision for depreciation,
depletion, and amortization. Adjusted EBITDA is a non-GAAP
financial measure. Management believes that this measure is
meaningful to investors because Adjusted EBITDA provides additional
information with respect to Alcoa Corporation’s operating
performance and the Company’s ability to meet its financial
obligations. The Adjusted EBITDA presented may not be comparable to
similarly titled measures of other companies. The Company has not
provided a quantitative reconciliation of the aforementioned
forward-looking non-GAAP financial measure to the most directly
comparable forward-looking GAAP financial measure due primarily to
the variability and complexity in making accurate forecasts and
projections, as management cannot reliably predict all of the
necessary components of such GAAP measure.
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Alcoa CorporationInvestor ContactJames Dwyer,
412-992-5450James.Dwyer@alcoa.comorMedia ContactJim Beck,
412-315-2909Jim.Beck@alcoa.com
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