Aluminum segment drives profit growth,
cash reaches $1.1 billion
Alcoa Corporation (NYSE: AA):
3Q 2017 Results1
- Net income of $113 million, or $0.60
per share
- Excluding special items, adjusted net
income of $135 million, or $0.72 per share
- $561 million of adjusted earnings
before interest, tax, depreciation and amortization (EBITDA)
excluding special items, up 16 percent sequentially, on improved
aluminum pricing and higher aluminum and bauxite shipments
- Revenue of $3.0 billion, up 4 percent
sequentially, driven primarily by improved aluminum pricing, higher
aluminum shipments and increased energy sales
- $1.1 billion cash balance and $1.4
billion of debt, for net debt of $0.3 billion, as of September 30,
2017
- Company raised its 2017 outlook for
adjusted EBITDA excluding special items to approximately $2.4
billion2
___________________________________________________________________
M, except per share amounts
3Q16
2Q17 3Q17 Revenue $2,329
$2,859 $2,964 Net (loss) income attributable to Alcoa
Corporation $(10) $75 $113 Earnings per share attributable to Alcoa
Corporation $(0.06) $0.40 $0.60 Adjusted net
(loss) income $(95) $116 $135 Adjusted earnings (loss) per share
$(0.52) $0.62 $0.72 Adjusted EBITDA excluding
special items $284 $483 $561
___________________________________________________________________
1 Alcoa Corporation became an independent, publicly-traded
company on November 1, 2016. Prior to November 1, 2016, Alcoa
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Alcoa Corporation’s former parent company’s
financial statements. Accordingly, the financial results of Alcoa
Corporation for the first ten months of 2016 (including the first
month of fourth quarter 2016) were prepared on such basis. The
carve-out financial statements of Alcoa Corporation are not
necessarily indicative of Alcoa Corporation’s consolidated results
of operations, financial position, and cash flows had it been a
standalone company during the referenced period. See the
Consolidated Financial Statements included in the Company’s Annual
Report on Form 10-K for the period ended December 31, 2016 filed
with the United States Securities and Exchange Commission on March
15, 2017 for additional information.
2 Based on actual results for 2017 YTD; outlook for unpriced
sales for 4Q17 at $2,100 LME, $470 API, and updated regional
premiums and foreign currencies.
___________________________________________________________________
Alcoa Corporation (NYSE: AA), a global leader in bauxite,
alumina and aluminum products, today reported a sequential increase
in third quarter 2017 revenue and earnings, driven primarily by
improved pricing in the aluminum business segment and higher
shipments of aluminum and bauxite. In addition, the Company’s cash
balance as of September 30, 2017 reached $1.1 billion.
Based on stronger alumina and aluminum prices, Alcoa has
increased its projection for full-year adjusted EBITDA to
approximately $2.4 billion2. This adjusted EBITDA forecast, up from
the second quarter projected range of $2.1 billion to $2.2 billion,
includes higher input costs to be reflected in net performance
reported with fourth quarter 2017 results.
“Alcoa continues to benefit from favorable commodity markets,
and we’ve raised our projections for profitability in 2017 and
global aluminum demand growth for the balance of the year,” said
Roy Harvey, President and Chief Executive Officer. “We continued to
execute on our three strategic priorities—our strong cash
generation aligns with our priority to strengthen the balance
sheet, while our recent Rockdale announcement advances our
priorities to reduce complexity and drive returns.”
Mr. Harvey continued: “As we approach our first anniversary as
an independent, publicly-traded company, we’ll continue to be
guided by our three strategic priorities to further strengthen our
Company and Alcoa’s foundation for the future.”
In third quarter 2017, Alcoa reported net income of $113
million, or $0.60 per share, up 51 percent, mostly due to an
improvement in the combined results of the Company’s business
segments. This compares to second quarter 2017 net income of $75
million, or $0.40 per share. The third and second quarters of 2017
include a negative impact for special items of $22 million and $41
million, respectively.
Third quarter 2017 special items were largely related to
restructuring charges associated with previous actions, a legacy
tax settlement in Brazil, unfavorable mark-to-market impact on
certain energy contracts, and a net benefit related to the partial
restart of the Warrick smelter in Indiana (reversal of previous
closure costs partially offset by restart costs).
Excluding the impact of special items, third quarter 2017
adjusted net income was $135 million, or $0.72 per share, up 16
percent sequentially from $116 million, or $0.62 per share.
In the third quarter 2017, Alcoa reported $561 million of
adjusted EBITDA excluding special items, up 16 percent from $483
million in second quarter 2017. The improvement was driven by
several positive factors, including higher energy sales in Brazil,
improved aluminum pricing and increased shipments for both aluminum
and bauxite, partially offset by unfavorable currency exchange
rates and raw material price inflation.
Alcoa reported third quarter 2017 revenue of $3.0 billion, up 4
percent sequentially, with higher energy sales in Brazil, higher
shipments in the Company’s aluminum and bauxite segments and
increased aluminum prices, somewhat offset by a decline in alumina
volume.
Cash from operations in third quarter 2017 was $384 million and
free cash flow was $288 million. Cash used for financing activities
and investing activities was $115 million and $100 million,
respectively, in the third quarter of 2017. Cash used for financing
in third quarter 2017 included the early repayment of a $41 million
loan from Brazil’s National Bank for Economic and Social
Development (BNDES).
Alcoa ended third quarter 2017 with cash on hand of $1.1 billion
with $1.4 billion of debt, for net debt of $0.3 billion. The
Company reported 17 days working capital, a one-day improvement
from second quarter 2017.
Earlier this month, Alcoa announced the October 1 termination of
a power contract tied to the curtailed Rockdale Operations in
Texas. The termination, which included a lump sum cash payment of
$237.5 million, is expected to result in an annual improvement to
net income and adjusted EBITDA of $60 million to $70 million,
beginning in the fourth quarter of 2017.
Market Update
Alcoa continues to see strong global aluminum demand growth and
increased its full-year 2017 estimate to a range of 5.0 to 5.5
percent, from 4.75 to 5.25 percent in the second quarter.
The Company expects the global aluminum market to be in relative
balance for full year 2017, a change from the second quarter
projection of a slight surplus. The improvement is mostly due to
planned and actual curtailments in Chinese smelting capacity as
well as increased Chinese demand.
Global markets for both bauxite and alumina are expected to
remain in relative balance for the year.
Conference Call
Alcoa will hold its quarterly conference call at 5:00 p.m.
Eastern Daylight Time (EDT) on Wednesday, October 18, 2017 to
present third quarter 2017 financial results, discuss the business,
and review market fundamentals.
The call will be webcast via the Company’s homepage on
www.alcoa.com. Presentation materials for the call will be
available for viewing at approximately 4:15 p.m. EDT on October
18th on the same website. Call information and related details are
available under the “Investors” section of www.alcoa.com
Dissemination of Company Information
Alcoa intends to make future announcements regarding Company
developments and financial performance through its website,
www.alcoa.com.
About Alcoa Corporation
Alcoa (NYSE: AA) is a global industry leader in bauxite, alumina
and aluminum products 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.
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,” “goal,” “intends,” “may,”
“outlook,” “plans,” “projects,” “seeks,” “sees,” “should,”
“targets,” “will,” “would,” or other words of similar meaning. All
statements by Alcoa Corporation that reflect expectations,
assumptions or projections about the future, other than statements
of historical fact, are forward-looking statements, including,
without limitation, forecasts concerning global demand growth for
bauxite, alumina, and aluminum, and supply/demand balances;
statements, projections or forecasts of future or targeted
financial results or operating performance; and statements about
strategies, outlook, business and financial prospects. These
statements reflect beliefs and assumptions that are based on Alcoa
Corporation’s perception of historical trends, current conditions
and expected future developments, as well as other factors that
management believes are appropriate in the circumstances.
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
Alcoa Corporation 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. Such risks and uncertainties include, but
are not limited to: (a) material adverse changes in aluminum
industry conditions, including global supply and demand conditions
and fluctuations in London Metal Exchange-based prices and
premiums, as applicable, for primary aluminum, alumina, and other
products, and fluctuations in indexed-based and spot prices for
alumina; (b) deterioration in global economic and financial market
conditions generally; (c) unfavorable changes in the markets served
by Alcoa Corporation; (d) the impact of changes in foreign currency
exchange rates on costs and results; (e) increases in energy costs;
(f) declines in the discount rates used to measure pension
liabilities or lower-than-expected investment returns on pension
assets, or unfavorable changes in laws or regulations that govern
pension plan funding; (g) the inability to achieve the level of
revenue growth, cash generation, cost savings, improvement in
profitability and margins, fiscal discipline, or strengthening of
competitiveness and operations anticipated from restructuring
programs and productivity improvement, cash sustainability,
technology advancements, and other initiatives; (h) the inability
to realize expected benefits, in each case as planned and by
targeted completion dates, from acquisitions, divestitures,
facility closures, curtailments, restarts, expansions, or joint
ventures; (i) political, economic, and regulatory risks in the
countries in which Alcoa Corporation operates or sells products;
(j) the outcome of contingencies, including legal proceedings,
government or regulatory investigations, and environmental
remediation; (k) the impact of cyberattacks and potential
information technology or data security breaches; and (l) the other
risk factors discussed in Item 1A of Alcoa Corporation’s Form 10-K
for the fiscal year ended December 31, 2016 and other reports filed
by Alcoa Corporation with the U.S. Securities and Exchange
Commission. Alcoa Corporation 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. Market projections are subject to the risks
discussed above and other risks in the market.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Alcoa’s consolidated financial information but is not presented in
Alcoa’s financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP). Certain of these data are considered “non-GAAP financial
measures” under SEC rules. Alcoa Corporation believes that the
presentation of non-GAAP financial measures is useful to investors
because such measures provide both additional information about the
operating performance of Alcoa Corporation and insight on the
ability of Alcoa Corporation to meet its financial obligations by
adjusting the most directly comparable GAAP financial measure for
the impact of, among others, “special items” as defined by the
Company, non-cash items in nature, and/or nonoperating expense or
income items. The presentation of non-GAAP financial measures is
not intended to be a substitute for, and should not be considered
in isolation from, the financial measures reported in accordance
with GAAP. Reconciliations to the most directly comparable GAAP
financial measures and management’s rationale for the use of the
non-GAAP financial measures can be found in the schedules to this
release. Alcoa Corporation has not provided a reconciliation of any
forward-looking non-GAAP financial measures to the most directly
comparable GAAP financial measures due primarily to the variability
and complexity in making accurate forecasts and projections, as not
all of the information for a quantitative reconciliation is
available to the company without unreasonable effort.
Alcoa Corporation and subsidiaries Statement of
Consolidated Operations (unaudited) (dollars in millions,
except per-share amounts) Quarter ended
September 30, June 30, September
30,
2016(2),(3)
2017 2017 Sales $ 2,329 $
2,859 $ 2,964 Cost of goods sold (exclusive of expenses
below) 1,968 2,309 2,361 Selling, general administrative, and other
expenses 92 72 70 Research and development expenses 8 8 8 Provision
for depreciation, depletion, and amortization 181 190 194
Restructuring and other charges 17 12 (10 ) Interest expense 67 25
26 Other (income) expenses, net
(106 )
6 27 Total costs and
expenses 2,227 2,622 2,676 Income before income taxes 102
237 288 Provision for income taxes
92
99 119 Net
income 10 138 169 Less: Net income attributable to
noncontrolling interest
20
63 56
NET (LOSS) INCOME ATTRIBUTABLE TO ALCOA
CORPORATION
$ (10 )
$ 75
$ 113
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
CORPORATION COMMON SHAREHOLDERS(1):
Basic: Net (loss) income $ (0.06 ) $ 0.41 $ 0.61 Average number of
shares 182,471,195 184,240,686 184,594,233 Diluted: Net
(loss) income $ (0.06 ) $ 0.40 $ 0.60 Average number of shares
182,471,195 186,385,250 187,155,231 (1) The basic and
diluted earnings per share for the quarter ended September 30, 2016
were calculated based on the 182,471,195 shares of Alcoa
Corporation common stock distributed on November 1, 2016 in
conjunction with the completion of Alcoa Corporation’s separation
from its former parent company and are considered pro forma in
nature. Prior to November 1, 2016, Alcoa Corporation did not have
any issued and outstanding publicly-traded common stock. (2)
Prior to November 1, 2016, Alcoa Corporation’s financial statements
were prepared on a carve-out basis, as the underlying operations of
the Company were previously consolidated as part of Alcoa
Corporation’s former parent company’s financial statements.
Accordingly, the results of operations of Alcoa Corporation for the
quarter ended September 30, 2016 were prepared on such basis. The
carve-out financial statements of Alcoa Corporation are not
necessarily indicative of Alcoa Corporation’s consolidated results
of operations had it been a standalone company during the
referenced period. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation’s Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively,
for additional information. (3) In preparing the Statement
of Consolidated Operations for the year ended December 31, 2016,
management discovered that the amount of Cost of goods sold
previously reported for the quarter ended September 30, 2016
included an immaterial error due to an under-allocation of LIFO
expense of $4. As a result, management has revised Cost of goods
sold from the $1,964 previously reported to $1,968 for the quarter
ended September 30, 2016.
Alcoa Corporation and
subsidiaries Statement of Consolidated Operations
(unaudited), continued (dollars in millions, except
per-share amounts) Nine months ended
September 30,
2016(2),(3)
2017 Sales $ 6,781 $ 8,478 Cost
of goods sold (exclusive of expenses below) 5,775 6,713 Selling,
general administrative, and other expenses 267 214 Research and
development expenses 26 23 Provision for depreciation, depletion,
and amortization 536 563 Restructuring and other charges 109 12
Interest expense 197 77 Other income, net
(90 )
(67 ) Total costs and expenses 6,820 7,535
(Loss) income before income taxes (39 ) 943 Provision for
income taxes
178 328
Net (loss) income (217 ) 615 Less: Net income
attributable to noncontrolling interest
58
202 NET (LOSS) INCOME
ATTRIBUTABLE TO ALCOA CORPORATION
$ (275
)
$ 413
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
CORPORATION COMMON SHAREHOLDERS(1):
Basic: Net (loss) income $ (1.51 ) $ 2.24 Average number of shares
182,471,195 184,212,161 Diluted: Net (loss) income $ (1.51 )
$ 2.21 Average number of shares 182,471,195 186,656,542
Common stock outstanding at the end of the period – 184,969,328 (1)
The basic and diluted earnings per share for the nine months
ended September 30, 2016 were calculated based on the 182,471,195
shares of Alcoa Corporation common stock distributed on November 1,
2016 in conjunction with the completion of Alcoa Corporation’s
separation from its former parent company and are considered pro
forma in nature. Prior to November 1, 2016, Alcoa Corporation did
not have any issued and outstanding publicly-traded common stock.
(2) Prior to November 1, 2016, Alcoa Corporation’s financial
statements were prepared on a carve-out basis, as the underlying
operations of the Company were previously consolidated as part of
Alcoa Corporation’s former parent company’s financial statements.
Accordingly, the results of operations of Alcoa Corporation for the
nine months ended September 30, 2016 were prepared on such basis.
The carve-out financial statements of Alcoa Corporation are not
necessarily indicative of Alcoa Corporation’s consolidated results
of operations had it been a standalone company during the
referenced period. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation’s Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively,
for additional information. (3) In preparing the Statement
of Consolidated Operations for the year ended December 31, 2016,
management discovered that the amount of Cost of goods sold
previously reported for the nine months ended September 30, 2016
included an immaterial error due to an under-allocation of LIFO
expense of $14. As a result, management has revised Cost of goods
sold from the $5,761 previously reported to $5,775 for the nine
months ended September 30, 2016.
Alcoa Corporation and subsidiaries Consolidated Balance
Sheet (unaudited) (in millions) December
31, September 30, 2016 2017 ASSETS Current
assets: Cash and cash equivalents $ 853 $ 1,119 Receivables from
customers 668 840 Other receivables 166 193 Inventories 1,160 1,323
Fair value of derivative contracts 51 112 Prepaid expenses and
other current assets
283
217 Total current assets
3,181 3,804
Properties, plants, and equipment 22,550 23,253 Less: accumulated
depreciation, depletion, and amortization
13,225 13,971
Properties, plants, and equipment, net
9,325
9,282 Investments 1,358 1,408
Deferred income taxes 741 862 Fair value of derivative contracts
468 153 Other noncurrent assets
1,668
1,745 Total assets
$
16,741 $ 17,254
LIABILITIES Current liabilities: Accounts payable,
trade $ 1,455 $ 1,618 Accrued compensation and retirement costs 456
450 Taxes, including income taxes 147 166 Fair value of derivative
contracts 35 139 Other current liabilities 707 376 Long-term debt
due within one year
21
17 Total current liabilities
2,821 2,766
Long-term debt, less amount due within one year 1,424 1,384 Accrued
pension benefits 1,851 1,703 Accrued other postretirement benefits
1,166 1,076 Asset retirement obligations 604 627 Environmental
remediation 264 270 Fair value of derivative contracts 234 689
Noncurrent income taxes 310 318 Other noncurrent liabilities and
deferred credits
370
303 Total liabilities
9,044
9,136 EQUITY Alcoa
Corporation shareholders’ equity: Common stock 2 2 Additional
capital 9,531 9,584 Retained (deficit) earnings (104 ) 309
Accumulated other comprehensive loss
(3,775 )
(4,033 ) Total Alcoa Corporation shareholders'
equity
5,654 5,862
Noncontrolling interest
2,043
2,256 Total equity
7,697 8,118 Total
liabilities and equity
$ 16,741
$ 17,254 Alcoa
Corporation and subsidiaries Statement of Consolidated Cash
Flows (unaudited) (in millions) Nine months
ended September 30,
2016(5)
2017 CASH FROM OPERATIONS Net
(loss) income $ (217 ) $ 615 Adjustments to reconcile net (loss)
income to cash from operations: Depreciation, depletion, and
amortization 536 564 Deferred income taxes 6 64 Equity income, net
of dividends 34 1 Restructuring and other charges 109 12 Net gain
from investing activities – asset sales (164 ) (115 ) Net periodic
pension benefit cost 43 83 Stock-based compensation 24 21 Other 12
31 Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency translation
adjustments: (Increase) in receivables (126 ) (112 ) Decrease
(Increase) in inventories 39 (102 ) (Increase) Decrease in prepaid
expenses and other current assets (22 ) 62 (Decrease) Increase in
accounts payable, trade (175 ) 109 (Decrease) in accrued expenses
(338 ) (320 ) (Decrease) Increase in taxes, including income taxes
(103 ) 15 Pension contributions (45 ) (82 ) (Increase) in
noncurrent assets(1) (188 ) (88 ) Increase in noncurrent
liabilities
25 11
CASH (USED FOR) PROVIDED FROM OPERATIONS
(550 )
769 FINANCING
ACTIVITIES Net transfers from Parent Company 407 – Cash paid to
Arconic related to separation(2) – (247 ) Net change in short-term
borrowings (original maturities of three months or less) – 2
Additions to debt (original maturities greater than three
months)(3) – 3 Payments on debt (original maturities greater than
three months) (16 ) (55 ) Proceeds from the exercise of employee
stock options – 38 Contributions from noncontrolling interest – 56
Distributions to noncontrolling interest (176 ) (244 ) Other
– (6 ) CASH PROVIDED FROM
(USED FOR) FINANCING ACTIVITIES
215
(453 ) INVESTING ACTIVITIES Capital
expenditures (258 ) (255 ) Proceeds from the sale of assets and
businesses(4) 112 243 Additions to investments (3 ) (44 ) Sales of
investments 146 – Net change in restricted cash(3)
(2 )
– CASH USED FOR
INVESTING ACTIVITIES
(5 )
(56 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
24
6
Net change in cash and cash equivalents (316 ) 266 Cash and
cash equivalents at beginning of year
557
853 CASH AND CASH EQUIVALENTS AT
END OF PERIOD
$ 241 $
1,119
(1)
The (Increase) in noncurrent assets line item for the nine
months ended September 30, 2016 includes a $200 prepayment related
to a natural gas supply agreement for three alumina refineries in
Western Australia, which are owned by Alcoa Corporation’s
majority-owned subsidiary, Alcoa of Australia Limited.
(2)
On November 1, 2016, Alcoa Corporation separated from its former
parent company (now named Arconic Inc.) into a standalone,
publicly-traded company. In accordance with the terms of the
related Separation and Distribution Agreement, Alcoa Corporation
paid to Arconic Inc. the net after-tax proceeds of $243 from the
sale of the Yadkin Hydroelectric Project.
(3)
In September 2016, Alcoa Nederland Holding B.V., a wholly-owned
subsidiary of Alcoa Corporation, issued $1,250 in new senior notes
in preparation for the separation of the Company from its former
parent company (completed on November 1, 2016). The net proceeds of
$1,228 from the debt issuance, along with $81 of cash on hand from
the former parent company, were required to be placed in escrow
contingent on completion of the separation transaction. As a
result, the $1,228 of escrowed cash was recorded as restricted cash
on Alcoa Corporation’s Combined Balance Sheet as of September 30,
2016. The issuance of the debt and the increase in restricted cash
both in the amount of $1,228 were not reflected in the Statement of
Consolidated Cash Flows for the nine months ended September 30,
2016 as these represent noncash financing and investing activities,
respectively.
(4)
Proceeds from the sale of assets and businesses for the nine months
ended September 30, 2016 includes a cash outflow for cash paid as a
result of a post-closing adjustment associated with the December
2014 divestiture of an ownership stake in a smelter in the United
States.
(5)
Prior to November 1, 2016, Alcoa
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Alcoa Corporation’s former parent company’s
financial statements. Accordingly, the cash flows of Alcoa
Corporation for the nine months ended September 30, 2016 were
prepared on such basis. The carve-out financial statements of Alcoa
Corporation are not necessarily indicative of Alcoa Corporation’s
consolidated cash flows had it been a standalone company during the
referenced period. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation’s Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively,
for additional information.
Alcoa Corporation and subsidiaries
Segment Information(1),(2)
(unaudited)
(dollars in millions; bauxite
production and shipments in millions of dry metric tons
(mdmt);
alumina and aluminum production and
shipments in thousands of metric tons (kmt))
1Q16 2Q16
3Q16 4Q16
2016 1Q17
2Q17 3Q17 Bauxite:
Production(3),(4) (mdmt) 10.7 11.1 11.4 11.8 45.0 11.1 11.0 11.6
Total shipments (mdmt) 11.2 11.8 11.7 12.2 46.9 11.6 11.5 12.3
Third-party sales $ 44 $ 87 $ 93 $ 91 $ 315 $ 70 $ 80 $ 104
Intersegment sales $ 175 $ 182 $ 192 $ 202 $ 751 $ 219 $ 208 $ 221
Adjusted EBITDA $ 77 $ 99 $ 97 $ 102 $ 375 $ 110 $ 98 $ 113
Depreciation, depletion, and amortization $ 17
$ 19 $ 21 $ 20 $ 77
$ 18 $ 19 $ 24
Alumina: Production (kmt) 3,330 3,316 3,310 3,295
13,251 3,211 3,249 3,305 Third-party shipments (kmt) 2,168 2,266
2,361 2,276 9,071 2,255 2,388 2,271 Intersegment shipments (kmt)
1,257 1,137 1,140 1,169 4,703 947 1,152 1,153 Third-party sales $
496 $ 601 $ 585 $ 618 $ 2,300 $ 734 $ 749 $ 713 Intersegment sales
$ 292 $ 321 $ 317 $ 377 $ 1,307 $ 361 $ 384 $ 398 Adjusted EBITDA $
15 $ 114 $ 78 $ 171 $ 378 $ 297 $ 227 $ 203 Depreciation and
amortization $ 45 $ 47 $ 47 $ 47 $ 186 $ 49 $ 53 $ 53 Equity (loss)
income $ (14 ) $ (7 ) $ (9 ) $ (10 )
$ (40 ) $ 1 $ (6 ) $ (5 )
Aluminum: Primary aluminum production (kmt) 600 595 586 587
2,368 559 575 596 Third-party aluminum shipments (kmt) 764 770 761
852 3,147 801 833 868 Third-party sales $ 1,552 $ 1,597 $ 1,600 $
1,782 $ 6,531 $ 1,806 $ 1,988 $ 2,090 Intersegment sales $ 34 $ 2 $
2 $ 4 $ 42 $ 4 $ 3 $ 9 Adjusted EBITDA $ 165 $ 180 $ 183 $ 152 $
680 $ 206 $ 221 $ 303 Depreciation and amortization $ 103 $ 104 $
103 $ 104 $ 414 $ 101 $ 108 $ 106 Equity (loss) income $ (7
) $ (10 ) $ (7 ) $ – $ (24 )
$ (7 ) $ 3 $ (7 )
Reconciliation of total segment Adjusted EBITDA to consolidated
net (loss) income attributable to Alcoa Corporation: Total
segment Adjusted EBITDA $ 257 $ 393 $ 358 $ 425 $ 1,433 $ 613 $ 546
$ 619 Unallocated amounts: Impact of LIFO 18 (1 ) 1 (28 ) (10 ) (14
) (8 ) (14 ) Metal price lag(5) 2 2 1 4 9 6 11 5 Corporate
expense(6) (36 ) (50 ) (47 ) (44 ) (177 ) (34 ) (36 ) (34 )
Provision for depreciation, depletion, and amortization
(177
)
(178
)
(181
)
(182
)
(718
)
(179
)
(190
)
(194
)
Restructuring and other charges (84 ) (8 ) (17 ) (209 ) (318 ) (10
) (12 ) 10 Interest expense (64 ) (66 ) (67 ) (46 ) (243 ) (26 )
(25 ) (26 ) Other (expenses) income, net (39 ) 23 106 (1 ) 89 100
(6 ) (27 ) Other(7) (74 ) (59 )
(52 ) (42 ) (227 )
(38 ) (43 ) (51 ) Consolidated (loss)
income before income taxes (197 ) 56 102 (123 ) (162 ) 418 237 288
Provision for income taxes (18 ) (68 ) (92 ) (6 ) (184 ) (110 ) (99
) (119 ) Net loss (income) attributable to noncontrolling interest
5
(43
)
(20
)
4
(54
)
(83
)
(63
)
(56
)
Consolidated net (loss) income attributable to Alcoa Corporation
$
(210
)
$
(55
)
$
(10
)
$
(125
)
$
(400
)
$
225
$
75
$
113
The difference between certain segment totals and
consolidated amounts is in Corporate.
(1)
Effective in the first quarter of 2017, management elected
to change the profit and loss measure of Alcoa Corporation’s
reportable segments from After-tax operating income (ATOI) to
Adjusted EBITDA (Earnings before interest, taxes, depreciation, and
amortization) for internal reporting and performance measurement
purposes. This change was made to enhance the transparency and
visibility of the underlying operating performance of each segment.
Alcoa Corporation calculates Adjusted EBITDA as Total sales
(third-party and intersegment) minus the following items: Cost of
goods sold; Selling, general administrative, and other expenses;
and Research and development expenses. Previously, Alcoa
Corporation calculated ATOI as Adjusted EBITDA minus (plus) the
following items: Provision for depreciation, depletion, and
amortization; Equity loss (income); Loss (gain) on certain asset
sales; and Income taxes. Alcoa Corporation’s Adjusted EBITDA may
not be comparable to similarly titled measures of other companies.
Also effective in the first quarter of 2017, management
combined Alcoa Corporation’s aluminum smelting, casting, and
rolling businesses, along with the majority of the energy business,
into a new Aluminum business unit. This new business unit is
managed as a single operating segment. Prior to this change, each
of these businesses were managed as individual operating segments
and comprised the Aluminum, Cast Products, Energy, and Rolled
Products segments. As a result, Alcoa Corporation’s operating and
reportable segments are Bauxite, Alumina, and Aluminum.
Segment information for all prior periods presented was revised to
reflect the new segment structure, as well as the new measure of
profit and loss. (2) Prior to November 1, 2016, Alcoa
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Alcoa Corporation’s former parent company’s
financial statements. Accordingly, the financial results of Alcoa
Corporation for all periods prior to fourth quarter 2016 were
prepared on such basis. Additionally, the financial results of
Alcoa Corporation for the first month of fourth quarter 2016 were
also prepared on a carve-out basis. The carve-out financial
statements of Alcoa Corporation are not necessarily indicative of
Alcoa Corporation’s consolidated results of operations, financial
position, and cash flows had it been a standalone company during
the referenced periods. See the Combined Financial Statements
included in Exhibit 99.1 to Alcoa Corporation’s Form 10
Registration Statement and the Consolidated Financial Statements
included in the Company’s Annual Report on Form 10-K for the period
ended December 31, 2016 filed with the United States Securities and
Exchange Commission on October 11, 2016 and March 15, 2017,
respectively, for additional information. (3) The production
amounts do not include additional bauxite (approximately 3 million
metric tons per annum) that Alcoa Corporation is entitled to
receive (i.e. an amount in excess of its equity ownership interest)
from certain other partners at the mine in Guinea. (4) In
the second quarter of 2017, Alcoa Corporation revised the
respective production amount for the 2016 first, second, and third
quarters to reflect refinements to individual mine data. As a
result, the production reflected in this table for the referenced
quarters were revised from prior period reports. Total bauxite
production for annual 2016 remains unchanged at 45.0 mdmt.
(5) Metal price lag describes the timing difference created when
the average price of metal sold differs from the average cost of
the metal when purchased by Alcoa Corporation’s rolled aluminum
operations. In general, when the price of metal increases, metal
price lag is favorable, and when the price of metal decreases,
metal price lag is unfavorable. (6) Corporate expense is
primarily composed of general administrative and other expenses of
operating the corporate headquarters and other global
administrative facilities. (7) Other includes, among other
items, the Adjusted EBITDA of previously closed operations as
applicable, pension and other postretirement benefit expenses
associated with closed and sold operations, and intersegment profit
elimination.
Alcoa Corporation and
subsidiaries Calculation of Financial Measures
(unaudited) (in millions, except per-share amounts)
Adjusted (Loss) Income (Loss) Income
Diluted EPS Quarter ended Quarter ended
September
30,2016(1)
June
30,2017
September
30,2017
September
30,2016(1),(2)
June
30,2017
September
30,2017
Net (loss) income attributable to Alcoa Corporation $ (10 )
$ 75 $ 113 $ (0.06 ) $ 0.40 $ 0.60 Special items:
Restructuring and other charges
17
12
(10
)
Discrete tax items(3)
6
–
13
Other special items(4)
(97
)
48
36
Tax impact(5) (6 ) (11 ) (11 ) Noncontrolling interest impact(5)
(5
)
(8
)
(6
)
Subtotal
(85 )
41
22
Net (loss) income attributable to Alcoa
Corporation – as adjusted
$
(95
)
$
116
$
135
(0.52
)
0.62
0.72
Net (loss) income attributable to Alcoa Corporation – as adjusted
is a non-GAAP financial measure. Management believes that this
measure is meaningful to investors because management reviews the
operating results of Alcoa Corporation excluding the impacts of
restructuring and other charges, discrete tax items, and other
special items (collectively, “special items”). There can be no
assurances that additional special items will not occur in future
periods. To compensate for this limitation, management believes
that it is appropriate to consider both Net (loss) income
attributable to Alcoa Corporation determined under GAAP as well as
Net (loss) income attributable to Alcoa Corporation – as adjusted.
(1) Prior to November 1, 2016, Alcoa Corporation’s
financial statements were prepared on a carve-out basis, as the
underlying operations of the Company were previously consolidated
as part of Alcoa Corporation’s former parent company’s financial
statements. Accordingly, the results of operations of Alcoa
Corporation for the quarter ended September 30, 2016 were prepared
on such basis. The carve-out financial statements of Alcoa
Corporation are not necessarily indicative of Alcoa Corporation’s
consolidated results of operations had it been a standalone company
during the referenced period. See the Combined Financial Statements
included in Exhibit 99.1 to Alcoa Corporation’s Form 10
Registration Statement and the Consolidated Financial Statements
included in the Company’s Annual Report on Form 10-K for the period
ended December 31, 2016 filed with the United States Securities and
Exchange Commission on October 11, 2016 and March 15, 2017,
respectively, for additional information. (2) Prior to
November 1, 2016, Alcoa Corporation did not have any issued and
outstanding publicly-traded common stock. As such, the respective
basic and diluted EPS related to both Net loss attributable to
Alcoa Corporation and Net loss attributable to Alcoa Corporation –
as adjusted for the quarter ended September 30, 2016 were
calculated based on the 182,471,195 shares of Alcoa Corporation
common stock distributed on November 1, 2016 in conjunction with
the completion of Alcoa Corporation’s separation from its former
parent company and are considered pro forma in nature. (3)
Discrete tax items for the quarters ended September 30, 2016 and
2017 each represent a net charge for several small items.
(4) Other special items include the following:
•
for the quarter ended September 30, 2016, a gain on the sale of
wharf property near the Intalco, Washington smelter ($118), costs
associated with the then-planned separation of Alcoa Corporation
from its former parent company ($23), and a net favorable change in
certain mark-to-market energy derivative contracts ($2);
•
for the quarter ended June 30, 2017, an unfavorable tax impact
related to the interim period treatment of operational losses in
certain jurisdictions for which no tax benefit was recognized
($28), a net unfavorable change in certain mark-to-market energy
derivative contracts ($17), an unfavorable impact due to the
near-term power market exposure as a result of renegotiating a
hedging contract related to forecasted future spot market power
purchases for the Portland smelter ($13), and a favorable tax
impact resulting from the difference between Alcoa’s consolidated
estimated annual effective tax rate and the statutory rates
applicable to special items ($10); and
•
for the quarter ended September 30, 2017, costs related to the
restart of the Warrick (Indiana) smelter ($17), settlement of
legacy tax matters in Brazil ($11), a net unfavorable change in
certain mark-to-market energy derivative contracts ($11), a
favorable tax impact related to the interim period treatment of
operational losses in certain jurisdictions for which no tax
benefit was recognized ($8), an unfavorable impact due to the
near-term power market exposure as a result of renegotiating a
hedging contract related to forecasted future spot market power
purchases for the Portland smelter ($8), and a favorable tax impact
resulting from the difference between Alcoa’s consolidated
estimated annual effective tax rate and the statutory rates
applicable to special items ($3). (5) The tax impact on
special items is based on the applicable statutory rates in the
jurisdictions where the special items occurred. The noncontrolling
interest impact on special items represents Alcoa’s partner’s share
of certain special items.
Alcoa Corporation and
subsidiaries Calculation of Financial Measures (unaudited),
continued (in millions) Adjusted EBITDA
Quarter ended
September 30,
2016(1)
June 30,
2017
September 30,
2017
Net (loss) income attributable to Alcoa Corporation $ (10 )
$ 75 $ 113 Add: Net income attributable to noncontrolling
interest
20
63
56
Provision for income taxes 92 99 119 Other (income) expenses, net
(106 ) 6 27 Interest expense 67 25 26 Restructuring and other
charges 17 12 (10 ) Provision for depreciation, depletion, and
amortization
181
190
194
Adjusted EBITDA
$ 261
$ 470 $
525 Special items(2)
23 13
36 Adjusted EBITDA, excluding special
items
$
284
$
483
$
561
Alcoa’s Corporation’s definition of Adjusted EBITDA
(Earnings before interest, taxes, depreciation, and amortization)
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.
(1) Prior to November 1, 2016, Alcoa Corporation’s financial
statements were prepared on a carve-out basis, as the underlying
operations of the Company were previously consolidated as part of
Alcoa Corporation’s former parent company’s financial statements.
Accordingly, the results of operations of Alcoa Corporation for the
quarter ended September 30, 2016 were prepared on such basis. The
carve-out financial statements of Alcoa Corporation are not
necessarily indicative of Alcoa Corporation’s consolidated results
of operations had it been a standalone company during the
referenced period. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation’s Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively,
for additional information. (2) Special items include the
following (see reconciliation of Adjusted (Loss) Income above for
additional information):
•
for the quarter ended September 30, 2016, costs associated with the
then-planned separation of Alcoa Corporation from its former parent
company;
•
for the quarter ended June 30, 2017, an unfavorable impact due to
the near-term power market exposure as a result of renegotiating a
hedging contract related to forecasted future spot market power
purchases for the Portland smelter; and
•
for the quarter ended September 30, 2017, costs related to the
restart of the Warrick (Indiana) smelter ($17), settlement of
legacy tax matters in Brazil ($11), and an unfavorable impact due
to the near-term power market exposure as a result of renegotiating
a hedging contract related to forecasted future spot market power
purchases for the Portland smelter ($8).
Alcoa
Corporation and subsidiaries Calculation of Financial
Measures (unaudited), continued (in millions)
Free Cash Flow Quarter ended
June 30,
2017
September 30,
2017
Cash from operations $ 311 $ 384 Capital expenditures
(88
)
(96
)
Free cash flow
$ 223
$ 288
Free Cash Flow is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
management reviews cash flows generated from operations after
taking into consideration capital expenditures, which are both
necessary to maintain and expand Alcoa Corporation’s asset base and
expected to generate future cash flows from operations. It is
important to note that Free Cash Flow does not represent the
residual cash flow available for discretionary expenditures since
other non-discretionary expenditures, such as mandatory debt
service requirements, are not deducted from the measure.
Net Debt
June 30,
2017
September 30,
2017
Short-term borrowings $ 4 $ 3 Long-term debt due within one
year 19 17 Long-term debt, less amount due within one year
1,418 1,384 Total debt $ 1,441 $
1,404 Less: Cash and cash equivalents
954 1,119 Net debt
$ 487 $ 285
Net debt is a non-GAAP financial measure. Management believes
that this measure is meaningful to investors because management
assesses Alcoa Corporation’s leverage position after considering
available cash that could be used to repay outstanding debt.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171018006389/en/
Alcoa CorporationInvestor Contact:James Dwyer, +1
412-315-2891James.Dwyer@alcoa.comorMedia Contact:Monica Orbe, +1
412-315-2896Monica.Orbe@alcoa.com
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