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

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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

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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.

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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.

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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