To drive lower costs and sustainable
profitability, Company announces review of smelting, refining
capacity and potential asset sales
- Net loss of $221 million, or $1.19 per share
- Excluding special items, adjusted net loss of $82 million, or
$0.44 per share
- $388 million of adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) excluding special items
- Revenue of $2.6 billion
- $174 million cash from operations; free cash flow of $87
million
- $841 million cash balance and $1.8 billion of debt, for net
debt of $965 million, as of September 30, 2019
- Record quarterly Alcoa bauxite and alumina production since
Company’s 2016 launch
- Global aluminum market remains in deficit; demand growth
slowing
- Launched review of 1.5 million metric tons of smelting capacity
and 4 million metric tons of refining capacity
- Announced non-core asset sales expected to generate an
estimated $500 million to $1 billion
- Refined strategic priorities to address strengthening Alcoa
sustainably
Alcoa Corporation (NYSE: AA), a global leader in bauxite,
alumina, and aluminum products, today announced third quarter 2019
results, as well as a multi-year portfolio review aimed at driving
lower costs and sustainable profitability with refined strategic
priorities.
M, except per share amounts
3Q181
2Q19
3Q19
Revenue
$
3,390
$
2,711
$
2,567
Loss attributable to Alcoa Corporation
$
(6
)
$
(402
)
$
(221
)
Loss per share attributable to Alcoa
Corporation
$
(0.03
)
$
(2.17
)
$
(1.19
)
Adjusted net income (loss)
$
154
$
(2
)
$
(82
)
Adjusted earnings (loss) per share
$
0.82
$
(0.01
)
$
(0.44
)
Adjusted EBITDA excluding special
items
$
844
$
455
$
388
1
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from last-in, first-out (LIFO) to average cost. The
effects of the change in accounting principle have been
retrospectively applied to all prior periods presented. See Exhibit
99.2 to the Company’s Form 8-K filed with the Securities and
Exchange Commission (SEC) on April 17, 2019, which illustrates the
effects of the change in accounting principle to 2018 interim and
full year financial information.
“Our third quarter showed continued strong operational
performance and stability across our aluminum value chain,” said
President and Chief Executive Officer Roy Harvey. “Our Bauxite and
Alumina segments reached new quarterly production records since our
launch in 2016, and our aluminum business continued to rebound.
While market and pricing challenges persisted through the quarter,
our cash balance remained steady.”
Alcoa reported a net loss of $221 million, or $1.19 per share,
for the third quarter 2019, compared with a net loss of $402
million, or $2.17 per share, in the second quarter of 2019.
The results include $139 million of special items, including
$134 million in charges associated with the divestiture of the
Avilés and La Coruña facilities in Spain, and a $37 million
restructuring charge for severance costs related to implementing a
new operating model, both as previously announced. The charges
related to those two items were partially offset by a net benefit
of $32 million in other special items.
The Company anticipates the majority of the restructuring costs
associated with the new operating model will be paid in cash in the
fourth quarter 2019 with the remainder in the first quarter 2020.
The new operating model is expected to result in annual savings of
approximately $60 million in operating costs beginning in the
second quarter of 2020.
The new model, which goes into effect on November 1, 2019, will
result in a leaner corporate structure, with operations more
closely connected to leadership, through elimination of the
Company’s business unit structure and consolidation of sales,
procurement and other commercial capabilities at an enterprise
level.
Excluding the impact of special items, third quarter 2019
adjusted net loss was $82 million, or $0.44 per share, compared
with a second quarter 2019 adjusted net loss of $2 million, or
$0.01 per share.
In the third quarter, Alcoa reported adjusted EBITDA excluding
special items of $388 million, down $67 million from the prior
quarter, primarily due to lower alumina pricing that was partially
offset by higher alumina sales volume and lower production
costs.
Alcoa reported third quarter revenue of $2.6 billion, down 5
percent sequentially due primarily to lower alumina prices.
Alcoa ended the quarter with cash on hand of $841 million and
debt of $1.8 billion, for net debt of $965 million.
In the third quarter, cash from operations was $174 million.
Cash used for financing and investing activities were $81 million
and $76 million, respectively. Free cash flow was $87 million.
The Company reported approximately 30 days working capital,
which is a decrease of one day both sequentially and
year-over-year.
Alcoa Announces Portfolio Review
In addition to reporting quarterly results, Alcoa today
announced a multi-year portfolio review to drive lower costs and
sustainable profitability.
“Since our inception as a public company in 2016, we have
relentlessly focused on strengthening our Company through portfolio
and balance sheet actions,” Harvey said. “Just last month, we
introduced a new operating model to create a leaner, more
operator-centric organization, and today we are announcing a
significant review of our portfolio that demonstrates a drive for
continued improvement.”
Planned initiatives include:
- Over the next 12 to 18 months, Alcoa intends to pursue non-core
asset sales expected to generate an estimated $500 million to $1
billion in net proceeds. Based on annualized 2019 year-to-date
results, the Company estimates approximately $50 million to $100
million in reduced adjusted EBITDA due to such asset sales.
- Over the next five years, Alcoa plans to realign its operating
portfolio, and has placed under review 1.5 million metric tons of
smelting capacity and 4 million metric tons of alumina refining
capacity. The review will consider opportunities for significant
improvement, potential curtailments, closures or divestitures.
After the portfolio transformation, the Company expects to be
the lowest emitter of carbon dioxide among all global aluminum
companies, per ton of emissions in both smelting and refining, and
aims to move its aluminum portfolio to a first quartile cost
position. In addition, Alcoa anticipates that up to 85 percent of
its smelting portfolio will be powered by renewable energy,
building upon the Company’s existing sustainability profile.
Alcoa Refines Strategic Priorities
Shortly after launching as an independent Company in 2016, Alcoa
introduced three strategic priorities: Reduce Complexity, Drive
Returns and Strengthen the Balance Sheet. To reflect Alcoa’s
increasing focus on becoming a stronger, more sustainable company,
it has updated Strengthen the Balance Sheet to Advance
Sustainably.
This priority encompasses both financial sustainability through
balance sheet improvements and portfolio transformation, as well as
achieving high economic, social and environmental standards to
deliver value for Alcoa’s stockholders.
“We believe our updated strategic priority aligns well with
increased demand for sustainably-sourced materials and provides a
path towards meaningful differentiation that is both profitable and
responsible,” explained Harvey. “As we look to the future, two
trends in the aluminum industry are apparent. First, the inherently
eco-friendly qualities of aluminum will continue to drive global
demand growth. Second, our ability to produce responsibly-sourced
aluminum will be valued by customers and the marketplace.”
Harvey continued: “We intend to win in our marketplace by
strengthening our Company with a comprehensive view of
sustainability and by building upon our strong capabilities and
globally recognized reputation.”
Alcoa is the industry’s acknowledged leader in sustainability,
including having the lowest carbon footprint of any refining system
in the world and ranking as one of the best performers among major
aluminum producers in controlling carbon dioxide emissions. Since
its inception, Alcoa has been listed on the Dow Jones
Sustainability Indices and in September of 2019 was named the
Aluminum Industry Leader in the 2019 Dow Jones Sustainability
Indices. Further demonstrating its commitment to sustainability,
Alcoa has achieved Aluminium Stewardship Initiative certification
at locations representing bauxite, alumina and aluminum assets.
2019 Outlook
The Company’s 2019 shipment outlook for Bauxite, Alumina and
Aluminum remains unchanged from the prior full-year estimates.
Total annual bauxite shipments are expected to range between 47.0
and 48.0 million dry metric tons. Total alumina shipments are
projected between 13.6 and 13.7 million metric tons with
anticipated operational improvements and higher year-on-year
production. Aluminum shipments are expected to be between 2.8 and
2.9 million metric tons.
In the fourth quarter of 2019, Alcoa expects continued strong
results in the Bauxite segment. In the Alumina segment, aside from
market price impacts, the Company expects benefits from higher
volumes and lower costs for raw materials and maintenance. In the
Aluminum segment, the Company expects improvements primarily from
lower alumina costs.
Market Update
For full-year 2019, Alcoa continues to project a global aluminum
deficit, ranging between 800 thousand and 1.2 million metric tons,
down slightly from the previous quarter’s estimate of a deficit
between 1.0 million and 1.4 million metric tons.
Global aluminum demand for full-year 2019 is now estimated to be
lower year-over-year, ranging between negative 0.6 percent and 0.4
percent, compared to the previous quarter’s full-year estimate of
global demand growth between 1.25 percent and 2.25 percent. The
change is driven by weakening macroeconomic conditions, trade
tensions between the US and China, and contracting manufacturing
activity, especially in the global automotive sector.
In the alumina market, Alcoa projects a global surplus for 2019,
ranging between 1 million and 1.8 million metric tons, up from last
quarter’s estimate of 500 thousand metric tons to 1.3 million
metric tons. The change is driven by faster restarts and expansions
in the world ex-China as well as by lower alumina demand due to
disruptions at several aluminum smelters in China.
The third-party, seaborne bauxite market is expected to have a
larger surplus in 2019 ranging between 15 million and 19 million
metric tons, an increase from the previous quarter’s full-year
estimate of 13 million to 17 million metric tons. The increase is
due to higher supply from Guinea, which is partially offset by
stronger demand from Chinese inland refineries.
Conference Call
Alcoa will hold its quarterly conference call at 5 p.m. Eastern
Daylight Time (EDT) on Wednesday, October 16, 2019, to present
third quarter financial results and discuss the business 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 16, 2019. 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 more than 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 and which may also affect Alcoa Corporation’s ability to
obtain credit or financing upon acceptable terms; (c) unfavorable
changes in the markets served by Alcoa Corporation; (d) the impact
of changes in foreign currency exchange and tax rates on costs and
results; (e) increases in energy costs or uncertainty of energy
supply; (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, legal, and regulatory risks in the countries in which Alcoa
Corporation operates or sells products; (j) labor disputes and/or
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 discussed in Item 1A of Alcoa Corporation’s
Form 10-K for the fiscal year ended December 31, 2018 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 estimated reduced adjusted
EBITDA for the Company related to potential future asset sales.
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 estimated 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,
2018
June 30,
2019
September 30,
2019
Sales
$
3,390
$
2,711
$
2,567
Cost of goods sold (exclusive of expenses
below)(1)
2,485
2,189
2,120
Selling, general administrative, and other
expenses
58
68
66
Research and development expenses
7
7
7
Provision for depreciation, depletion, and
amortization
173
174
184
Restructuring and other charges, net
177
370
185
Interest expense
33
30
30
Other expenses, net
2
50
27
Total costs and expenses
2,935
2,888
2,619
Income (loss) before income taxes
455
(177
)
(52
)
Provision for income taxes(1)
260
116
95
Net income (loss)(1)
195
(293
)
(147
)
Less: Net income attributable to
noncontrolling interest(1)
201
109
74
NET LOSS ATTRIBUTABLE TO ALCOA
CORPORATION(1)
$
(6
)
$
(402
)
$
(221
)
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
CORPORATION COMMON SHAREHOLDERS:
Basic:
Net loss
$
(0.03
)
$
(2.17
)
$
(1.19
)
Average number of shares
186,479,038
185,533,936
185,566,202
Diluted:
Net loss
$
(0.03
)
$
(2.17
)
$
(1.19
)
Average number of shares
186,479,038
185,533,936
185,566,202
(1)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to all prior
periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
Alcoa Corporation and
subsidiaries
Statement of Consolidated Operations
(unaudited), continued
(dollars in millions, except per-share
amounts)
Nine months ended
September 30,
2018
September 30,
2019
Sales
$
10,059
$
7,997
Cost of goods sold (exclusive of expenses
below)(1)
7,540
6,489
Selling, general administrative, and other
expenses
189
218
Research and development expenses
24
21
Provision for depreciation,
depletion, and amortization
559
530
Restructuring and other charges, net
389
668
Interest expense
91
90
Other expenses, net
32
118
Total costs and expenses
8,824
8,134
Income (loss) before income taxes
1,235
(137
)
Provision for income taxes(1)
569
361
Net income (loss)(1)
666
(498
)
Less: Net income attributable to
noncontrolling interest(1)
467
324
NET INCOME (LOSS) ATTRIBUTABLE TO ALCOA
CORPORATION(1)
$
199
$
(822
)
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
CORPORATION COMMON SHAREHOLDERS:
Basic:
Net income (loss)
$
1.07
$
(4.43
)
Average number of shares
186,259,129
185,463,438
Diluted:
Net income (loss)
$
1.06
$
(4.43
)
Average number of shares
188,655,070
185,463,438
Common stock outstanding at the end of the
period
186,490,966
185,572,917
(1)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to all prior
periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
Alcoa Corporation and
subsidiaries
Consolidated Balance Sheet
(unaudited)
(in millions)
December 31,
2018
September 30,
2019
ASSETS
Current assets:
Cash and cash equivalents
$
1,113
$
841
Receivables from customers
830
596
Other receivables
173
228
Inventories(1)
1,819
1,649
Fair value of derivative instruments
73
84
Prepaid expenses and other current
assets(1),(2)
320
245
Total current assets
4,328
3,643
Properties, plants, and equipment
21,807
21,456
Less: accumulated depreciation, depletion,
and amortization
13,480
13,527
Properties, plants, and equipment, net
8,327
7,929
Investments
1,360
1,114
Deferred income taxes
560
560
Fair value of derivative instruments
82
47
Other noncurrent assets
1,475
1,377
Total assets
$
16,132
$
14,670
LIABILITIES
Current liabilities:
Accounts payable, trade
$
1,663
$
1,418
Accrued compensation and retirement
costs
400
404
Taxes, including income taxes
426
81
Fair value of derivative instruments
82
67
Other current liabilities
347
484
Long-term debt due within one year
1
1
Total current liabilities
2,919
2,455
Long-term debt, less amount due within one
year
1,801
1,805
Accrued pension benefits
1,407
1,389
Accrued other postretirement benefits
868
820
Asset retirement obligations
529
491
Environmental remediation
236
238
Fair value of derivative instruments
261
425
Noncurrent income taxes
301
299
Other noncurrent liabilities and deferred
credits
222
338
Total liabilities
8,544
8,260
EQUITY
Alcoa Corporation shareholders’
equity:
Common stock
2
2
Additional capital
9,611
9,638
Retained earnings (deficit)(1)
570
(252
)
Accumulated other comprehensive loss
(4,565
)
(4,849
)
Total Alcoa Corporation shareholders’
equity
5,618
4,539
Noncontrolling interest(1)
1,970
1,871
Total equity
7,588
6,410
Total liabilities and equity
$
16,132
$
14,670
(1)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to the prior
period presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
(2)
This line item includes $3 of
restricted cash as of both December 31, 2018 and September 30,
2019.
Alcoa Corporation and
subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in millions)
Nine Months Ended
September 30,
2018
2019
CASH FROM OPERATIONS
Net income (loss)(1)
$
666
$
(498
)
Adjustments to reconcile net income (loss)
to cash from operations:
Depreciation, depletion, and
amortization
559
530
Deferred income taxes(1)
(16
)
59
Equity earnings, net of dividends
(11
)
12
Restructuring and other charges, net
389
668
Net gain from investing activities – asset
sales
—
(6
)
Net periodic pension benefit cost
115
90
Stock-based compensation
29
29
Provision for bad debt expense
—
21
Other
(64
)
19
Changes in assets and liabilities,
excluding effects of divestitures and foreign currency translation
adjustments:
(Increase) Decrease in receivables
(209
)
127
(Increase) Decrease in inventories(1)
(286
)
111
Decrease in prepaid expenses and other
current assets
3
70
(Decrease) in accounts payable, trade
(135
)
(199
)
(Decrease) in accrued expenses
(288
)
(147
)
Increase (Decrease) in taxes, including
income taxes
248
(344
)
Pension contributions(2)
(940
)
(67
)
(Increase) in noncurrent assets
(89
)
(24
)
(Decrease) in noncurrent liabilities
(58
)
(27
)
CASH (USED FOR) PROVIDED FROM
OPERATIONS
(87
)
424
FINANCING ACTIVITIES
Additions to debt (original maturities
greater than three months)(2)
553
—
Payments on debt (original maturities
greater than three months)
(105
)
—
Proceeds from the exercise of employee
stock options
23
2
Contributions from noncontrolling
interest
109
41
Distributions to noncontrolling
interest
(566
)
(388
)
Other
(8
)
(6
)
CASH PROVIDED FROM (USED FOR) FINANCING
ACTIVITIES
6
(351
)
INVESTING ACTIVITIES
Capital expenditures
(251
)
(245
)
Proceeds from the sale of assets
—
23
Additions to investments
(6
)
(112
)
CASH USED FOR INVESTING ACTIVITIES
(257
)
(334
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH
(1
)
(11
)
Net change in cash and cash equivalents
and restricted cash
(339
)
(272
)
Cash and cash equivalents and restricted
cash at beginning of year
1,365
1,116
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD
$
1,026
$
844
(1)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to the prior
period presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
(2)
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).
Alcoa Corporation and
subsidiaries
Segment Information (unaudited)
(dollars in millions, except realized
prices; dry metric tons in millions (mdmt); metric tons in
thousands (kmt))
1Q18
2Q18
3Q18
4Q18
2018
1Q19
2Q19
3Q19
Bauxite:
Production(1) (mdmt)
11.2
11.3
11.5
11.8
45.8
11.9
11.3
12.1
Third-party shipments (mdmt)
1.1
1.6
1.4
1.6
5.7
1.2
1.5
2.0
Intersegment shipments (mdmt)
10.4
10.0
10.1
10.7
41.2
10.2
10.3
10.6
Third-party sales
$
47
$
77
$
67
$
80
$
271
$
65
$
67
$
100
Intersegment sales
$
249
$
226
$
224
$
245
$
944
$
236
$
246
$
251
Segment adjusted EBITDA(2)
$
110
$
100
$
106
$
110
$
426
$
126
$
112
$
134
Depreciation, depletion, and
amortization
$
29
$
27
$
27
$
28
$
111
$
28
$
27
$
35
Alumina:
Production (kmt)
3,173
3,227
3,160
3,297
12,857
3,240
3,309
3,380
Third-party shipments (kmt)
2,376
2,285
2,233
2,365
9,259
2,329
2,299
2,381
Intersegment shipments (kmt)
1,097
1,031
1,083
1,115
4,326
972
1,070
1,049
Average realized third-party price per
metric ton of alumina
$
385
$
467
$
493
$
479
$
455
$
385
$
376
$
324
Third-party sales
$
914
$
1,068
$
1,101
$
1,132
$
4,215
$
897
$
864
$
771
Intersegment sales
$
454
$
536
$
544
$
567
$
2,101
$
417
$
445
$
369
Segment adjusted EBITDA(2)
$
392
$
638
$
660
$
683
$
2,373
$
372
$
369
$
223
Depreciation and amortization
$
53
$
49
$
48
$
47
$
197
$
48
$
55
$
54
Equity (loss) income
$
(1
)
$
14
$
10
$
9
$
32
$
12
$
3
$
—
Aluminum:
Primary aluminum production (kmt)
554
565
567
573
2,259
537
533
530
Third-party aluminum shipments(3)
(kmt)
794
853
806
815
3,268
709
724
708
Average realized third-party price per
metric ton of primary aluminum
$
2,483
$
2,623
$
2,465
$
2,358
$
2,484
$
2,219
$
2,167
$
2,138
Third-party sales
$
2,111
$
2,413
$
2,198
$
2,107
$
8,829
$
1,735
$
1,757
$
1,677
Intersegment sales
$
4
$
4
$
6
$
4
$
18
$
3
$
4
$
4
Segment adjusted EBITDA(2),(4)
$
187
$
230
$
84
$
(50
)
$
451
$
(96
)
$
3
$
43
Depreciation and amortization
$
106
$
108
$
91
$
89
$
394
$
89
$
85
$
88
Equity loss
$
—
$
(8
)
$
(5
)
$
(25
)
$
(38
)
$
(22
)
$
(17
)
$
(5
)
Reconciliation of total segment
Adjusted EBITDA to consolidated net income (loss) attributable to
Alcoa Corporation:
Total segment Adjusted EBITDA(2),(4)
$
689
$
968
$
850
$
743
$
3,250
$
402
$
484
$
400
Unallocated amounts:
Transformation(5)
(2
)
(1
)
1
(1
)
(3
)
2
3
(6
)
Intersegment eliminations(4),(6)
76
(152
)
21
47
(8
)
86
(1
)
25
Corporate expenses(7)
(27
)
(26
)
(22
)
(21
)
(96
)
(24
)
(28
)
(27
)
Provision for depreciation, depletion, and
amortization
(194
)
(192
)
(173
)
(174
)
(733
)
(172
)
(174
)
(184
)
Restructuring and other charges, net
19
(231
)
(177
)
(138
)
(527
)
(113
)
(370
)
(185
)
Interest expense
(26
)
(32
)
(33
)
(31
)
(122
)
(30
)
(30
)
(30
)
Other expenses, net
(21
)
(9
)
(2
)
(32
)
(64
)
(41
)
(50
)
(27
)
Other(8)
(23
)
(36
)
(10
)
(3
)
(72
)
(18
)
(11
)
(18
)
Consolidated income (loss) before income
taxes(4)
491
289
455
390
1,625
92
(177
)
(52
)
Provision for income taxes(4)
(151
)
(158
)
(260
)
(163
)
(732
)
(150
)
(116
)
(95
)
Net income attributable to noncontrolling
interest(4)
(145
)
(121
)
(201
)
(176
)
(643
)
(141
)
(109
)
(74
)
Consolidated net income (loss)
attributable to Alcoa Corporation(4)
$
195
$
10
$
(6
)
$
51
$
250
$
(199
)
$
(402
)
$
(221
)
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)
The Aluminum segment’s
third-party aluminum shipments are composed of both primary
aluminum and flat-rolled aluminum.
(4)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to all prior
periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
(5)
Transformation includes, among
other items, the Adjusted EBITDA of previously closed
operations.
(6)
Concurrent with the change in
inventory accounting method as of January 1, 2019, 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. Corporate
inventory accounting previously included the impact of LIFO, metal
price lag and intersegment eliminations. The impact of LIFO has
been eliminated with the change in inventory method. Metal price
lag attributable to the Company’s rolled operations business is now
netted within the Aluminum segment to simplify presentation of an
impact that nets to zero in consolidation. Only Intersegment
eliminations remain as a reconciling line item and are labeled as
such.
(7)
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.
(8)
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 3 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(5)
Quarter ended
Quarter ended
September 30,
2018
June 30,
2019
September 30,
2019
September 30,
2018
June 30,
2019
September 30,
2019
Net loss attributable to Alcoa
Corporation(1)
$
(6
)
$
(402
)
$
(221
)
$
(0.03
)
$
(2.17
)
$
(1.19
)
Special items:
Restructuring and other charges, net
177
370
185
Other special items(2)
(4
)
8
7
Discrete tax items and interim tax
impacts(3)
(12
)
32
(32
)
Tax impact on special items(4)
(1
)
(10
)
(12
)
Noncontrolling interest impact(4)
—
—
(9
)
Subtotal
160
400
139
Net income (loss) attributable to Alcoa
Corporation – as adjusted
$
154
$
(2
)
$
(82
)
$
0.82
$
(0.01
)
$
(0.44
)
Net income (loss) attributable to Alcoa Corporation – as adjusted
is a non-GAAP financial measure. Management believes this measure
is meaningful to investors because management reviews the operating
results of Alcoa Corporation excluding the impacts of restructuring
and other charges, various 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 it is
appropriate to consider both Net income (loss) attributable to
Alcoa Corporation determined under GAAP as well as Net income
(loss) attributable to Alcoa Corporation – as adjusted.
(1)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to the prior
period presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
(2)
Other special items include the
following:
•
for the quarter ended September
30, 2018, a net favorable change in certain mark-to-market energy
derivative instruments ($8) and charges for other special items
($4);
•
for the quarter ended June 30,
2019, costs related to union negotiations in the U.S. ($5) and
charges for other special items ($3); and
•
for the quarter ended September
30, 2019, costs related to the restart process at the Bécancour,
Canada smelter ($12), a gain on the sale of excess land ($7), and
charges for other special items ($2).
(3)
Discrete tax items and interim
tax impacts are the result of discrete transactions and interim
period tax impacts based on full-year assumptions and include the
following:
•
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), a net benefit of interim tax impacts ($38), and a net
benefit of several other items ($4);
•
for the quarter ended June 30,
2019, a net charge for interim tax impacts ($31) and a net charge
of several other items ($1); and,
•
for the quarter ended September
30, 2019, a net benefit of interim tax impacts ($40) and a net
charge of several other items ($8).
(4)
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.
(5)
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 (loss) attributable to
Alcoa Corporation common shareholders – as adjusted due to a larger
and/or positive numerator. Specifically:
•
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; and,
•
for the quarters ended June 30,
2019 and September 30, 2019, the average number of share
equivalents applicable to diluted EPS had an anti-dilutive effect,
and therefore, are excluded from the diluted EPS calculation.
Alcoa Corporation and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in millions)
Adjusted EBITDA
Quarter ended
September 30,
2018
June 30,
2019
September 30,
2019
Net loss attributable to Alcoa
Corporation(1)
$
(6
)
$
(402
)
$
(221
)
Add:
Net income attributable to noncontrolling
interest(1)
201
109
74
Provision for income taxes(1)
260
116
95
Other expenses, net
2
50
27
Interest expense
33
30
30
Restructuring and other charges, net
177
370
185
Provision for depreciation, depletion, and
amortization
173
174
184
Adjusted EBITDA
840
447
374
Special items(2)
4
8
14
Adjusted EBITDA, excluding special
items
$
844
$
455
$
388
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 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)
As of January 1, 2019, the
Company changed its accounting method for valuing certain
inventories from LIFO to average cost. The effects of the change in
accounting principle have been retrospectively applied to the prior
period presented. See Exhibit 99.2 to the Company’s Form 8-K filed
with the SEC on April 17, 2019, which illustrates the effects of
the change in accounting principle to 2018 interim and full year
financial information.
(2)
Special items include the
following (see reconciliation of Adjusted Income above for
additional information):
•
for the quarter ended September
30, 2018, charges for several minor special items ($4);
•
for the quarter ended June 30,
2019, costs related to union negotiations in the U.S. ($5) and
charges for other special items ($3); and
•
for the quarter ended September
30, 2019, costs related to the restart process at the Bécancour,
Canada smelter ($12) and charges for other special items ($2).
Alcoa Corporation and
subsidiaries
Calculation of Financial Measures
(unaudited), continued
(in millions)
Free Cash Flow
Quarter ended
September 30,
2018
June 30,
2019
September 30,
2019
Cash from operations
$
288
$
82
$
174
Capital expenditures
(82
)
(89
)
(87
)
Free cash flow
$
206
$
(7
)
$
87
Free Cash Flow is a non-GAAP financial
measure. Management believes 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
December 31,
2018
September 30,
2019
Short-term borrowings
$
—
$
—
Long-term debt due within one year
1
1
Long-term debt, less amount due within one
year
1,801
1,805
Total debt
1,802
1,806
Less: Cash and cash equivalents
1,113
841
Net debt
$
689
$
965
Net debt is a non-GAAP financial measure.
Management believes 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/20191016005872/en/
Investor Contact: James Dwyer +1 412 992 5450
James.Dwyer@alcoa.com
Media Contact: Monica Orbe +1 412 315 2896
Monica.Orbe@alcoa.com
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