Company Announces $200 million Stock Repurchase
Program
Alcoa Corporation (NYSE: AA):
- Net loss of $41 million, or $0.22 per
share, includes previously announced actions on pension and other
postemployment benefits (OPEB)
- Excluding special items, adjusted net
income of $119 million, or $0.63 per share
- $795 million of adjusted earnings
before interest, tax, depreciation, and amortization (EBITDA)
excluding special items
- Revenue of $3.4 billion
- $1.0 billion cash balance and $1.8
billion of debt, for net debt of $0.8 billion, as of September 30,
2018
- Continuing to reduce complexity, drive
returns, and strengthen the balance sheet; used $194 million in
available cash in third-quarter to reduce net pension liability and
debt; pension and OPEB obligations now at $2.2 billion, down from
$3.5 billion at year-end 2017
- Tightened the range for full-year 2018
projection of adjusted EBITDA excluding special items to between
$3.1 billion and $3.2 billion, from the prior quarter’s estimate of
$3.0 billion to $3.2 billion
- Projecting full-year global deficits
for both alumina and aluminum in 2018; surplus for bauxite
- Launched formal consultation process
for collective dismissals of employees at two Spanish smelters
- Strengthening organization to support
operator-centric approach
M, except per share amounts
3Q17 2Q18
3Q18 Revenue $ 2,964
$ 3,579
$
3,390 Net income (loss) attributable to Alcoa Corporation $
113 $ 75
$ (41 ) Earnings per share
attributable to Alcoa Corporation $ 0.60
$ 0.39
$
(0.22 ) Adjusted net income $ 135 $ 286
$
119 Adjusted earnings per share $ 0.72
$ 1.52
$
0.63 Adjusted EBITDA excluding special items2
$ 582 $ 904
$ 795
1
Based on actual YTD 2018 results; outlook
for unpriced sales at $2,000 LME, $500 API, $0.20 Midwest premium
and updated regional premiums, and currencies.
2
On January 1, 2018, Alcoa Corporation
adopted guidance issued by the Financial Accounting Standards Board
to the presentation of net periodic benefit cost related to pension
and other postretirement benefit plans. This guidance requires the
non-service cost components of net periodic benefit cost to be
reported separately from the service cost component in an entity’s
income statement. Additionally, this guidance is required to be
applied retrospectively. Accordingly, previously reported amounts
for Cost of goods sold, Selling, general administrative, and other
expenses, and Other expenses (income), net on Alcoa Corporation’s
consolidated income statement have been recast to reflect these
changes. As a result, previously reported amounts for Adjusted
EBITDA on both a consolidated basis and for each of the Company’s
three segments have been updated to reflect these changes. See the
financial schedules to this release for additional information.
Alcoa Corporation (NYSE: AA), a global leader in bauxite,
alumina, and aluminum products, today reported third quarter 2018
results and announced a $200 million common stock repurchase
program as part of the Company’s 2018 capital allocation
framework.
In the third quarter of 2018, Alcoa also used $194 million in
available cash to further reduce its net pension liability and debt
and finished the quarter with a cash balance of $1.0 billion on
September 30, 2018. This year, the Company has reduced its net
pension and OPEB liability to $2.2 billion as of September 30, down
from $3.5 billion at year-end 2017.
“Today’s stock buyback announcement, our smaller net pension and
OPEB liability, and our results since launching Alcoa Corporation
nearly two years ago all point to the success of our strategic
priorities,” said President and Chief Executive Officer Roy
Harvey.
“By reducing complexity, driving returns, and strengthening the
balance sheet, we’ve made Alcoa a much stronger company even as
commodity markets remain volatile,” Harvey said. “We’re pleased to
announce a program to return cash to stockholders, and we look
forward to improving our Company further as 2018 comes to an
end.”
Alcoa tightened the Company’s projection for full-year adjusted
EBITDA excluding special items to range between $3.1 billion and
$3.2 billion.1 The low end of the forecast is $100 million higher
than the prior quarter’s estimate. The updated outlook reflects
recent market prices, including regional premiums, costs of raw
materials, energy, and expected operational performance.
In third quarter 2018, Alcoa reported a net loss of $41 million,
or $0.22 per share, compared to net income of $75 million, or $0.39
per share, in second quarter 2018. The third quarter results
include a negative impact of $160 million for special items, due
primarily to a $174 million net settlement charge (non-cash) from
additional actions on U.S. pension and OPEB obligations.
Excluding the impact of special items, third quarter 2018
adjusted net income was $119 million, or $0.63 per share, down 58
percent sequentially from $286 million, or $1.52 per share.
In third quarter 2018, Alcoa reported $795 million of adjusted
EBITDA excluding special items, down 12 percent from $904 million
in second quarter 2018, primarily due to lower aluminum prices.
Alcoa reported third quarter 2018 revenue of $3.4 billion, down
5 percent sequentially, primarily due to lower realized aluminum
prices and decreased aluminum product shipments, somewhat offset by
higher realized alumina prices and favorable pricing for energy
sales.
Cash from operations was $288 million and free cash flow was
$206 million; both reflect $100 million in additional contributions
made to certain U.S. defined benefit pension plans in the quarter.
Also in the third quarter of 2018, cash used for financing
activities was $280 million, which includes $94 million for the
early repayment of the majority of the remaining outstanding loans
from Brazil’s National Bank for Economic and Social Development,
and cash used for investing activities was $83 million.
Alcoa ended the quarter on September 30 with cash on hand of
$1.0 billion and debt of $1.8 billion, for net debt of $0.8
billion. The Company reported 26 days working capital, a 9-day
increase from third quarter 2017, reflecting higher raw material
costs in inventory and lower days payable outstanding.
Common Stock Repurchase Program
The Company today announced that its Board of Directors
authorized a common stock repurchase program under which Alcoa may
purchase up to $200 million of its outstanding common stock,
depending on cash flow availability, market conditions, and other
factors. This program does not have a predetermined expiration
date.
The Company intends to retire the repurchased shares of common
stock. As of September 30, 2018, the Company had 186,490,966 issued
and outstanding shares of common stock.
Market Update
The Company continues to project a full-year 2018 global deficit
for both aluminum and alumina and a surplus for bauxite.
In aluminum, the Company expects a global deficit ranging
between 1.0 million and 1.4 million metric tons, down from last
quarter’s estimate of between 1.1 million and 1.5 million metric
tons. Global aluminum demand growth is projected to be between 3.75
and 4.75 percent in 2018, down from the second quarter estimate of
between 4.25 and 5.25 percent, driven by China.
In alumina, Alcoa is projecting a higher global deficit of
between 400 thousand and 1.2 million metric tons, compared to last
quarter’s deficit expectation of between 200 thousand and 1.0
million metric tons.
The global market for bauxite is expected to be in a surplus for
full year 2018 with increased stockpile growth despite higher
demand from China.
Spain Collective Dismissal Process
Alcoa today announced its intention to begin a formal
consultation process for collective dismissals that would affect
all employees at its Avilés and La Coruña aluminum plants in Spain,
which are the least productive within the Alcoa system due to their
inherent structural issues. Avilés employs 317 employees and La
Coruña 369. Per Spanish law, Alcoa will initiate a mandatory 30-day
consultation period with the workers’ representatives to achieve
the best possible outcome for the Company and its workforce.
An analysis of Alcoa’s operations in Spain found that
organizational improvements could be achieved if the Company ceased
production at its Avilés and La Coruña facilities and reorganized
production at a single plant in San Ciprián, which produces both
alumina and aluminum.
Organizational Changes
To further support Alcoa’s operations and the Company’s
operator-centric approach, Alcoa announces that, effective November
1, 2018, the presidents of its Bauxite, Alumina, and Aluminum
segments will report to Harvey.
As of the same date, Tómas Sigurðsson will assume the role of
Senior Vice President, Strategic Alliances. Sigurðsson, who will
continue to report to Harvey, will have primary responsibility for
managing and developing the Company’s key strategic relationships.
Sigurðsson will no longer serve as the Company’s Chief Operating
Officer, and the role will be eliminated.
Conference Call
Alcoa will hold its quarterly conference call at 5:00 p.m.
Eastern Daylight Time (EDT) on Wednesday, October 17, to present
third quarter 2018 financial results and discuss the business, the
capital allocation program and market conditions.
The call will be webcast via the Company’s homepage on
www.alcoa.com. Presentation materials for the call will be
available for viewing on the same website at approximately 4:15
p.m. EDT on October 17. 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, and 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 developing 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; statements about
strategies, outlook, and business and financial prospects; and
statements about return of capital. 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 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 improvement in profitability
and margins, cost savings, cash generation, revenue growth, fiscal
discipline, or strengthening of competitiveness and operations
anticipated from operational and productivity improvements, 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, trade, and regulatory risks in
the countries in which Alcoa Corporation operates or sells
products; (j) labor disputes and work stoppages; (k) the outcome of
contingencies, including legal proceedings, government or
regulatory investigations, and environmental remediation; (l) the
impact of cyberattacks and potential information technology or data
security breaches; and (m) the other risk factors described in Item
1A of Alcoa Corporation’s Form 10-K for the fiscal year ended
December 31, 2017 and other reports filed by Alcoa Corporation with
the U.S. Securities and Exchange Commission (SEC). 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 described above and
other risks in the market.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Alcoa Corporation’s consolidated financial information but is not
presented in Alcoa Corporation’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 regulations.
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.
This release includes a range of forecasted 2018 Adjusted EBITDA
for the Company. Alcoa Corporation has not provided a
reconciliation of this forward-looking non-GAAP financial measure
to the most directly comparable GAAP financial measure for the
following reasons. The Company’s financial results are heavily
dependent on market-driven factors, such as LME-based prices for
aluminum, index- and spot-based prices for alumina, and foreign
currency exchange rates. As such, the Company may experience
significant volatility on a daily basis related to its forecasted
Adjusted EBITDA. Management applies estimated sensitivities, such
as those relating to aluminum and alumina prices and foreign
currency exchange rates, to the components that comprise Adjusted
EBITDA. However, a similar analysis cannot be performed relating to
the components necessary to reconcile Adjusted EBITDA to the most
directly comparable GAAP financial measure without unreasonable
effort due to the additional variability and complexity associated
with forecasting such items. Consequently, management believes such
reconciliation would imply a degree of precision that would be
confusing and/or potentially misleading to investors.
Alcoa Corporation and subsidiaries Statement of
Consolidated Operations (unaudited) (dollars in millions,
except per-share amounts) Quarter ended
September 30, June 30, September
30, 2017 2018
2018 Sales $ 2,964 $ 3,579 $ 3,390 Cost
of goods sold (exclusive of expenses below)(1) 2,340 2,632 2,534
Selling, general administrative, and other expenses(1) 70 64 58
Research and development expenses 8 9 7 Provision for depreciation,
depletion, and amortization 194 192 173 Restructuring and other
charges (10 ) 231 177 Interest expense 26 32 33 Other expenses,
net(1)
48 9
2 Total costs and expenses 2,676 3,169 2,984
Income before income taxes 288 410 406 Provision for income
taxes
119 180
251 Net income 169 230 155 Less:
Net income attributable to noncontrolling interest
56 155
196
NET INCOME (LOSS) ATTRIBUTABLE TO ALCOA
CORPORATION
$ 113 $
75 $ (41 )
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
CORPORATION COMMON SHAREHOLDERS:
Basic: Net income (loss) $ 0.61 $ 0.40 $ (0.22 ) Average number of
shares 184,594,233 186,398,784 186,479,038 Diluted: Net
income (loss) $ 0.60 $ 0.39 $ (0.22 ) Average number of shares
187,155,231 188,708,013 186,479,038 (1) On January 1,
2018, Alcoa Corporation adopted guidance issued by the Financial
Accounting Standards Board to the presentation of net periodic
benefit cost related to pension and other postretirement benefit
plans. This guidance requires that an entity report the service
cost component of net periodic benefit cost in the same line
item(s) on its income statement as other compensation costs arising
from services rendered by the pertinent employees during a
reporting period. The other components of net periodic benefit cost
(see Note N to the Consolidated Financial Statements included in
Part II Item 8 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2017) are required to be reported
separately from the service cost component. In other words, these
other components may be aggregated and presented as a separate line
item or they may be reported in existing line items on the income
statement other than such line items that include the service cost
component. Previously, Alcoa Corporation reported all components of
net periodic benefit cost, except for certain settlements,
curtailments, and special termination benefits, in Cost of goods
sold (business employees) and Selling, general administrative, and
other expenses (corporate employees) consistent with the location
of other compensation costs related to the respective employees.
The non-service cost components noted as exceptions are reported in
Restructuring and other charges, as applicable. Upon adoption of
this guidance, management began reporting the non-service cost
components of net periodic benefit cost, except for certain
settlements, curtailments, and special termination benefits that
will continue to be reported in Restructuring and other charges, in
Other expenses, net on the Company’s Statement of Consolidated
Operations. For the quarters ended September 30, 2018 and June 30,
2018, the non-service cost components reported in Other expenses,
net was $32 and $39, respectively. Additionally, the Statement of
Consolidated Operations for the quarter ended September 30, 2017
was recast to reflect the reclassification of the non-service cost
components of net periodic benefit cost to Other expenses, net from
both Cost of goods sold and Selling, general administrative, and
other expenses. As a result, for the quarter ended September 30,
2017, Cost of goods sold decreased by $21 and Other expenses, net
changed by $21 from previously reported amounts (the decrease to
Selling, general administrative, and other expenses was not
material).
Alcoa Corporation and subsidiaries
Statement of Consolidated Operations (unaudited), continued
(dollars in millions, except per-share amounts)
Nine months ended September 30,
2017 2018 Sales $
8,478 $ 10,059 Cost of goods sold (exclusive of expenses
below)(1) 6,652 7,547 Selling, general administrative, and other
expenses(1) 211 189 Research and development expenses 23 24
Provision for depreciation, depletion, and amortization 563 559
Restructuring and other charges 12 389 Interest expense 77 91 Other
(income) expenses, net(1)
(3 )
32 Total costs and expenses 7,535 8,831 Income
before income taxes 943 1,228 Provision for income taxes
328 569 Net income
615 659 Less: Net income attributable to noncontrolling
interest
202 475
NET INCOME ATTRIBUTABLE TO ALCOA CORPORATION
$
413 $ 184
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
CORPORATION COMMON SHAREHOLDERS:
Basic: Net income $ 2.24 $ 0.99 Average number of shares
184,212,161 186,259,129 Diluted: Net income $ 2.21 $ 0.97
Average number of shares 186,656,542 188,655,070
Common stock outstanding at the end of the period 184,969,328
186,490,966 (1) On January 1, 2018, Alcoa Corporation
adopted guidance issued by the Financial Accounting Standards Board
to the presentation of net periodic benefit cost related to pension
and other postretirement benefit plans. This guidance requires that
an entity report the service cost component of net periodic benefit
cost in the same line item(s) on its income statement as other
compensation costs arising from services rendered by the pertinent
employees during a reporting period. The other components of net
periodic benefit cost (see Note N to the Consolidated Financial
Statements included in Part II Item 8 of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2017) are
required to be reported separately from the service cost component.
In other words, these other components may be aggregated and
presented as a separate line item or they may be reported in
existing line items on the income statement other than such line
items that include the service cost component. Previously, Alcoa
Corporation reported all components of net periodic benefit cost,
except for certain settlements, curtailments, and special
termination benefits, in Cost of goods sold (business employees)
and Selling, general administrative, and other expenses (corporate
employees) consistent with the location of other compensation costs
related to the respective employees. The non-service cost
components noted as exceptions are reported in Restructuring and
other charges, as applicable. Upon adoption of this guidance,
management began reporting the non-service cost components of net
periodic benefit cost, except for certain settlements,
curtailments, and special termination benefits that will continue
to be reported in Restructuring and other charges, in Other
(income) expenses, net on the Company’s Statement of Consolidated
Operations. For the nine months ended September 30, 2018, the
non-service cost components reported in Other expenses, net was
$109. Additionally, the Statement of Consolidated Operations for
the nine months ended September 30, 2017 was recast to reflect the
reclassification of the non-service cost components of net periodic
benefit cost to Other (income), net from both Cost of goods sold
and Selling, general administrative, and other expenses. As a
result, for the nine months ended September 30, 2017, Cost of goods
sold decreased by $61, Selling, general administrative, and other
expenses decreased by $3, and Other (income), net changed by $64
from previously reported amounts.
Alcoa Corporation and subsidiaries
Consolidated Balance Sheet (unaudited) (in millions)
December 31, September 30,
2017 2018 ASSETS Current assets: Cash and cash
equivalents $ 1,358 $ 1,022 Receivables from customers 811 1,017
Other receivables 232 176 Inventories 1,453 1,666 Fair value of
derivative instruments 113 57 Prepaid expenses and other current
assets(1)
271 255
Total current assets
4,238
4,193 Properties, plants, and equipment
23,046 21,839 Less: accumulated depreciation, depletion, and
amortization
13,908
13,484 Properties, plants, and equipment, net
9,138 8,355
Investments 1,410 1,381 Deferred income taxes 814 599 Fair value of
derivative instruments 128 42 Other noncurrent assets
1,719 1,615 Total
assets
$ 17,447 $
16,185 LIABILITIES Current liabilities:
Accounts payable, trade $ 1,898 $ 1,711 Accrued compensation and
retirement costs 459 420 Taxes, including income taxes 282 417 Fair
value of derivative instruments 185 133 Other current liabilities
412 319 Long-term debt due within one year
16
4 Total current liabilities
3,252 3,004
Long-term debt, less amount due within one year 1,388 1,820 Accrued
pension benefits 2,341 1,210 Accrued other postretirement benefits
1,100 926 Asset retirement obligations 617 528 Environmental
remediation 258 248 Fair value of derivative instruments 1,105 630
Noncurrent income taxes 309 297 Other noncurrent liabilities and
deferred credits
279
237 Total liabilities
10,649 8,900
EQUITY Alcoa Corporation shareholders’ equity: Common stock 2 2
Additional capital 9,590 9,656 Retained earnings 113 298
Accumulated other comprehensive loss
(5,182 )
(4,740 ) Total Alcoa Corporation shareholders'
equity
4,523 5,216
Noncontrolling interest
2,275
2,069 Total equity
6,798 7,285 Total
liabilities and equity
$ 17,447
$ 16,185 (1) This
line item includes $7 and $4 of restricted cash as of December 31,
2017 and September 30, 2018, respectively.
Alcoa
Corporation and subsidiaries Statement of Consolidated Cash
Flows (unaudited) (in millions) Nine months
ended September 30, 2017
2018 CASH FROM OPERATIONS Net income $
615 $ 659 Adjustments to reconcile net income to cash from
operations: Depreciation, depletion, and amortization 564 559
Deferred income taxes 64 (16 ) Equity earnings, net of dividends 1
(11 ) Restructuring and other charges 12 389 Net gain from
investing activities – asset sales (115 ) – Net periodic pension
benefit cost 83 115 Stock-based compensation 21 29 Other 31 (64 )
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency translation
adjustments: (Increase) in receivables (112 ) (209 ) (Increase) in
inventories (102 ) (279 ) Decrease in prepaid expenses and other
current assets 62 3 Increase (Decrease) in accounts payable, trade
109 (135 ) (Decrease) in accrued expenses (320 ) (288 ) Increase in
taxes, including income taxes 15 248 Pension contributions(1) (82 )
(940 ) (Increase) in noncurrent assets (88 ) (89 ) Increase
(Decrease) in noncurrent liabilities
11
(58 ) CASH PROVIDED FROM (USED FOR) OPERATIONS
769 (87 )
FINANCING ACTIVITIES Cash paid to former parent company 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)(1) 3 553 Payments
on debt (original maturities greater than three months) (55 ) (105
) Proceeds from the exercise of employee stock options 38 23
Contributions from noncontrolling interest 56 109 Distributions to
noncontrolling interest (244 ) (566 ) Other
(6
)
(8 ) CASH (USED FOR) PROVIDED FROM FINANCING
ACTIVITIES
(453 )
6
INVESTING ACTIVITIES Capital expenditures (255 ) (251 )
Proceeds from the sale of assets and businesses 243 – Additions to
investments
(44 )
(6 ) CASH
USED FOR INVESTING ACTIVITIES(3)
(56 )
(257 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH(3)
8
(1
)
Net change in cash and cash equivalents and restricted cash(3) 268
(339 ) Cash and cash equivalents and restricted cash at beginning
of year(3)
859 1,365
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD(3)
$
1,127
$
1,026
(1) On May 17, 2018, Alcoa Nederland Holding
B.V., a wholly-owned subsidiary of Alcoa Corporation, issued $500
in 6.125% senior notes due 2028. The gross proceeds from the debt
issuance were used to make discretionary contributions to three of
Alcoa Corporation’s U.S. defined benefit pension plans.
Accordingly, for the nine months ended September 30, 2018, the
Pension contributions line item includes a cash outflow of $500 and
the Additions to debt line item includes a cash inflow of $492 (net
of an $8 initial purchasers discount). (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) On January 1, 2018, Alcoa
Corporation adopted guidance issued by the Financial Accounting
Standards Board to the presentation of restricted cash in the
statement of cash flows. This guidance requires that restricted
cash be aggregated with cash and cash equivalents in both the
beginning-of-period and end-of-period line items at the bottom of
the statement of cash flows. Previously, the change in restricted
cash between the beginning-of-period and end-of period was
reflected as either an investing, financing, operating, or non-cash
activity based on the underlying nature of the transaction.
Accordingly, for the Company’s Statement of Consolidated Cash Flows
for the nine months ended September 30, 2018, the Cash and cash
equivalents and restricted cash at beginning of year and Cash and
cash equivalents and restricted cash at end of period line items
include restricted cash of $7 and $4, respectively. Additionally,
the Company’s Statement of Consolidated Cash Flows for the nine
months ended September 30, 2017 was recast to reflect this change
in presentation. As a result, the Cash and cash equivalents and
restricted cash at beginning of year and Cash and cash equivalents
and restricted cash at end of period line items include restricted
cash of $6 and $8, respectively. The change of $2 is reflected in
the Effect of exchange rate changes on cash and cash equivalents
and restricted cash line item.
Alcoa Corporation and
subsidiaries Segment Information (unaudited) (dollars
in millions, except realized prices; dry metric tons in millions
(mdmt); metric tons in thousands (kmt))
1Q17 2Q17
3Q17 4Q17
2017 1Q18
2Q18 3Q18 Bauxite:
Production(1) (mdmt) 11.1 11.0 11.6 12.1 45.8 11.2 11.3 11.5
Third-party shipments (mdmt) 1.4 1.6 2.1 1.5 6.6 1.1 1.6 1.4
Intersegment shipments (mdmt) 10.2 9.9 10.2 10.8 41.1 10.4 10.0
10.1 Third-party sales $ 70 $ 80 $ 104 $ 79 $ 333 $ 47 $ 77 $ 67
Intersegment sales $ 219 $ 208 $ 221 $ 227 $ 875 $ 249 $ 226 $ 224
Adjusted EBITDA(2),(3) $ 110 $ 97 $ 112 $ 105 $ 424 $ 110 $ 100 $
106 Depreciation, depletion, and amortization $ 18
$ 19 $ 24 $ 21 $
82 $ 29 $ 27 $ 27
Alumina: Production (kmt) 3,211 3,249 3,305 3,331
13,096 3,173 3,227 3,160 Third-party shipments (kmt) 2,255 2,388
2,271 2,306 9,220 2,376 2,285 2,233 Intersegment shipments (kmt)
947 1,152 1,153 1,223 4,475 1,097 1,031 1,083 Average realized
third-party price per metric ton of alumina
$
325
$
314
$
314
$
406
$
340
$
385
$
467
$
493
Third-party sales $ 734 $ 749 $ 713 $ 937 $ 3,133 $ 914 $ 1,068 $
1,101 Intersegment sales $ 361 $ 384 $ 398 $ 580 $ 1,723 $ 454 $
536 $ 544 Adjusted EBITDA(2),(3) $ 297 $ 227 $ 203 $ 562 $ 1,289 $
392 $ 638 $ 660 Depreciation and amortization $ 49 $ 53 $ 53 $ 52 $
207 $ 53 $ 49 $ 48 Equity income (loss) $ 1 $
(6 ) $ (5 ) $ 5 $ (5 ) $ (1 )
$ 14 $ 10
Aluminum:
Primary aluminum production (kmt) 559 575 596 598 2,328 554 565 567
Third-party aluminum shipments(4) (kmt) 801 833 868 854 3,356 794
853 806 Average realized third-party price per metric ton of
primary aluminum
$
2,080
$
2,199
$
2,237
$
2,365
$
2,224
$
2,483
$
2,623
$
2,465
Third-party sales $ 1,806 $ 1,988 $ 2,090 $ 2,143 $ 8,027 $ 2,111 $
2,413 $ 2,198 Intersegment sales $ 4 $ 3 $ 9 $ 5 $ 21 $ 4 $ 4 $ 6
Adjusted EBITDA(2),(3) $ 217 $ 234 $ 315 $ 246 $ 1,012 $ 153 $ 231
$ 73 Depreciation and amortization $ 101 $ 108 $ 106 $ 104 $ 419 $
106 $ 108 $ 91 Equity (loss) income $ (7 ) $ 3
$ (7 ) $ (8 ) $ (19 ) $ –
$ (8 ) $ (5 )
Reconciliation of total segment
Adjusted EBITDA to consolidated net income (loss) attributable to
Alcoa Corporation: Total segment Adjusted EBITDA(2) $ 624 $ 558
$ 630 $ 913 $ 2,725 $ 655 $ 969 $ 839 Unallocated amounts:
Transformation(5),(6) (20 ) (28 ) (11 ) 10 (49 ) (2 ) (1 ) 1
Corporate inventory accounting(5),(7) (17 ) 14 (9 ) (95 ) (107 ) 31
(32 ) (17 ) Corporate expenses(3),(8) (33 ) (34 ) (33 ) (31 ) (131
) (27 ) (26 ) (22 ) Provision for depreciation, depletion, and
amortization
(179
)
(190
)
(194
)
(187
)
(750
)
(194
)
(192
)
(173
)
Restructuring and other charges (10 ) (12 ) 10 (297 ) (309 ) 19
(231 ) (177 ) Interest expense (26 ) (25 ) (26 ) (27 ) (104 ) (26 )
(32 ) (33 ) Other income (expenses), net(3) 79 (28 ) (48 ) (30 )
(27 ) (21 ) (9 ) (2 ) Other(3),(5),(9) –
(18 ) (31 ) (40 )
(89 ) (23 ) (36 )
(10 ) Consolidated income before income taxes 418 237 288 216 1,159
412 410 406 Provision for income taxes (110 ) (99 ) (119 ) (272 )
(600 ) (138 ) (180 ) (251 ) Net income attributable to
noncontrolling interest (83 ) (63 )
(56 ) (140 ) (342 )
(124 ) (155 ) (196 )
Consolidated net income (loss) attributable to Alcoa Corporation
$
225
$
75
$
113
$
(196
)
$
217
$
150
$
75
$
(41
)
The difference between segment totals and consolidated
amounts is in Corporate. (1) The production amounts
do not include additional bauxite (approximately 3 mdmt per annum)
that Alcoa World Alumina and Chemicals is entitled to receive (i.e.
an amount in excess of its equity ownership interest) from certain
other partners at the mine in Guinea. (2) Alcoa
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. The Adjusted EBITDA presented may not
be comparable to similarly titled measures of other companies.
(3) On January 1, 2018, Alcoa Corporation adopted guidance
issued by the Financial Accounting Standards Board to the
presentation of net periodic benefit cost related to pension and
other postretirement benefit plans. This guidance requires the
non-service cost components of net periodic benefit cost to be
reported separately from the service cost component in an entity’s
income statement. Additionally, this guidance is required to be
applied retrospectively. Accordingly, previously reported amounts
for Cost of goods sold, Selling, general administrative, and other
expenses, and Other expenses (income), net on Alcoa Corporation’s
Statement of Consolidated Operations have been recast to reflect
these changes. As a result, previously reported amounts for
Adjusted EBITDA on both a consolidated basis and for each of the
Company’s three segments have been updated to reflect these
changes. See footnote 1 to the Statement of Consolidated Operations
included in this release for additional information. (4) The
Aluminum segment’s third-party aluminum shipments are composed of
both primary aluminum and flat-rolled aluminum. (5)
Effective in the first quarter of 2018, management elected to
change the presentation of certain line items in the reconciliation
of total segment Adjusted EBITDA to consolidated net income (loss)
attributable to Alcoa Corporation to provide additional
transparency to the nature of these reconciling items. Accordingly,
Transformation (see footnote 6), which was previously reported
within Other, is presented as a separate line item. Additionally,
Impact of LIFO (last in, first out) and Metal price lag, which were
previously reported as separate line items, are now combined and
reported in a new line item labeled Corporate inventory accounting
(see footnote 7). Also, the impact of intersegment profit
eliminations, which was previously reported within Other, is
reported in the new Corporate inventory accounting line item. The
applicable information for all prior periods presented was recast
to reflect these changes. (6) Transformation includes, among
other items, the Adjusted EBITDA of previously closed operations.
(7) Corporate inventory accounting is composed of the
impacts of LIFO inventory accounting, metal price lag, and
intersegment profit eliminations. 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.
(8) Corporate expenses are composed of general
administrative and other expenses of operating the corporate
headquarters and other global administrative facilities, as well as
research and development expenses of the corporate technical
center. (9) Other includes certain items that impact Cost of
goods sold and Selling, general administrative, and other expenses
on Alcoa Corporation’s Statement of Consolidated Operations that
are not included in the Adjusted EBITDA of the reportable segments,
including those described as “Other special items” (see footnote 2
to the reconciliation of Adjusted Income within Calculation of
Financial Measures included in this release).
Alcoa Corporation and subsidiaries Calculation of
Financial Measures (unaudited) (in millions, except
per-share amounts) Adjusted Income Income
(Loss) Diluted EPS(4) Quarter ended
Quarter ended
September
30,2017
June
30,2018
September
30,2018
September
30,2017
June
30,2018
September
30,2018
Net income (loss) attributable to Alcoa Corporation
$
113
$ 75 $ (41 )
$
0.60
$ 0.39 $ (0.22 ) Special items: Restructuring and other
charges
(10
)
231
177
Discrete tax items(1)
13
2
26
Other special items(2)
36
34
(42
)
Tax impact(3)
(11
)
(43 ) (1 ) Noncontrolling interest impact(3)
(6
)
(13
)
–
Subtotal
22
211 160
Net income attributable to Alcoa Corporation – as
adjusted
$
135
$
286
$
119
0.72
1.52
0.63
Net 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 income (loss)
attributable to Alcoa Corporation determined under GAAP as well as
Net income attributable to Alcoa Corporation – as adjusted.
(1)
Discrete tax items include the following:
•
for the quarter ended September 30, 2017, a net charge for several
small items;
•
for the quarter ended June 30, 2018, a net charge for several small
items; and
•
for the quarter ended September 30, 2018, a charge to establish a
reserve related to an outstanding income tax dispute involving a
former Spanish consolidated tax group previously owned by Alcoa
Corporation’s former parent company ($30) and a net benefit for
several small items ($4).
(2)
Other special items include the following:
•
for the quarter ended September 30, 2017, costs related to the
partial 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 instruments ($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);
•
for the quarter ended June 30, 2018, a loss on a contractor
arbitration matter ($29), a net unfavorable change in certain
mark-to-market energy derivative instruments ($6), a favorable tax
impact related to the interim period treatment of operational
losses in certain jurisdictions for which no tax benefit was
recognized ($5), costs related to the partial restart of the
Warrick (Indiana) smelter ($2), and costs, primarily contractor
services, related to a work stoppage at a non-U.S. smelter ($2);
and
•
for the quarter ended September 30, 2018, 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 ($47), an unfavorable tax impact
related to the interim period treatment of operational losses in
certain jurisdictions for which no tax benefit was recognized ($9),
a net favorable change in certain mark-to-market energy derivative
instruments ($8), costs, primarily contractor services, related to
a work stoppage at a non-U.S. smelter ($3), and costs related to
the partial restart of the Warrick (Indiana) smelter ($1).
(3)
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.
(4)
In any given period, the average number of shares applicable to
diluted EPS for Net income (loss) attributable to Alcoa Corporation
common shareholders may exclude certain share equivalents as their
effect is anti-dilutive. However, certain of these share
equivalents may become dilutive in the EPS calculation applicable
to Net income attributable to Alcoa Corporation common shareholders
– as adjusted due to a larger and/or positive numerator.
Specifically:
•
for the quarter ended September 30, 2017, no additional share
equivalents were dilutive based on Net income attributable to Alcoa
Corporation common shareholders – as adjusted, resulting in a
diluted average number of shares of 187,155,231;
•
for the quarter ended June 30, 2018, no additional share
equivalents were dilutive based on Net income attributable to Alcoa
Corporation common shareholders – as adjusted, resulting in a
diluted average number of shares of 188,708,013; and
•
for the quarter ended September 30, 2018, share equivalents
associated with outstanding employee stock options and awards were
dilutive based on Net income attributable to Alcoa Corporation
common shareholders – as adjusted, resulting in a diluted average
number of shares of 188,726,446.
Alcoa Corporation
and subsidiaries Calculation of Financial Measures
(unaudited), continued (in millions) Adjusted
EBITDA
Quarter ended
September 30,
2017
June 30,
2018
September 30,
2018
Net income (loss) attributable to Alcoa Corporation $ 113 $
75 $ (41 ) Add: Net income attributable to noncontrolling
interest
56
155
196
Provision for income taxes 119 180 251 Other expenses, net(1) 48 9
2 Interest expense 26 32 33 Restructuring and other charges (10 )
231 177 Provision for depreciation, depletion, and amortization
194
192
173
Adjusted EBITDA(1)
$ 546
$ 874 $
791 Special items(2)
36 30 4
Adjusted EBITDA, excluding special items(1)
$
582
$
904
$
795
Alcoa 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)
On January 1, 2018, Alcoa Corporation adopted guidance
issued by the Financial Accounting Standards Board to the
presentation of net periodic benefit cost related to pension and
other postretirement benefit plans. This guidance requires the
non-service cost components of net periodic benefit cost to be
reported separately from the service cost component in an entity’s
income statement. Additionally, this guidance is required to be
applied retrospectively. Accordingly, previously reported amounts
for Cost of goods sold, Selling, general administrative, and other
expenses, and Other expenses (income), net on Alcoa Corporation’s
Statement of Consolidated Operations have been recast to reflect
these changes. As a result, for the quarter ended September 30,
2017, Other expenses, net changed by $21. Moreover, previously
reported amounts for Adjusted EBITDA and Adjusted EBITDA, excluding
special items have been updated to reflect these changes. See
footnote 1 to the Statement of Consolidated Operations included in
this release for additional information.
(2)
Special items include the following (see reconciliation of Adjusted
Income above for additional information):
•
for the quarter ended September 30, 2017, costs related to the
partial 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);
•
for the quarter ended June 30, 2018, a loss on a contractor
arbitration matter ($26), costs related to the partial restart of
the Warrick (Indiana) smelter ($2), and costs, primarily contractor
services, related to a work stoppage at a non-U.S. smelter ($2);
and
•
for the quarter ended September 30, 2018, costs, primarily
contractor services, related to a work stoppage at a non-U.S.
smelter ($3) and costs related to the partial restart of the
Warrick (Indiana) smelter ($1).
Alcoa Corporation and subsidiaries Calculation of
Financial Measures (unaudited), continued (in millions)
Free Cash Flow Quarter ended
September
30,2017
June 30,
2018*
September 30,
2018
Cash from operations $ 384 $ (430) $ 288 Capital
expenditures
(96)
(95)
(82)
Free cash flow
$ 288 $
(525)
$ 206 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.
*
Cash from operations for the quarter ended
June 30, 2018 includes a $500 cash outflow for discretionary
contributions made to three of Alcoa Corporation’s U.S. defined
benefit pension plans. The $500 was funded with the gross proceeds
of 6.125% senior notes due 2028 issued in May 2018.
Net Debt
June 30,
2018
September 30,
2018
Long-term debt due within one year $ 13 $ 4 Long-term debt,
less amount due within one year
1,916
1,820 Total debt $ 1,929 $ 1,824 Less: Cash and
cash equivalents
1,089 1,022 Net
debt
$ 840 $ 802 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: https://www.businesswire.com/news/home/20181017005800/en/
Alcoa CorporationInvestor Contact:James Dwyer,
+1-412-992-5450James.Dwyer@alcoa.comorMedia Contact:Monica Orbe,
+1-412-315-2896Monica.Orbe@alcoa.com
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