Second Quarter 2020 Key Results
- Sales of $1.2 billion, down 38% year over year
- Net loss of $92 million, or $0.84 per share due primarily to
special items, compared to net income of $5 million, or $0.04 per
share in second quarter 2019
- Adjusted EBITDA of $94 million, down 55% year over year
- Quarter-end cash balance of $595 million, debt of $1.3 billion,
and net debt of $681 million
- Cash provided from operations of $30 million and capital
expenditures of $21 million
- Strengthened liquidity and capital structure by recapitalizing
debt structure
- Increased previously announced cash conservation actions by $50
million to $250 million
- Reduced gross pension obligations by approximately $250 million
by executing a U.K. pension annuitization strategy
Arconic Corporation (NYSE: ARNC) (“Arconic” or “the Company”)
today announced second quarter 2020 results, with reported revenue
of $1.2 billion, down 38% year over year on weaker volumes across
all segments and most end markets primarily due to the impact of
the COVID-19 pandemic. The Company reported a net loss of $92
million, or $0.84 per share, in second quarter 2020 compared with
net income of $5 million, or $0.04 per share, in second quarter
2019. The second quarter 2020 net loss included $76 million of
after-tax special items primarily related to a non-cash charge to
annuitize U.K. pension obligations, debt issuance costs, plant
closure costs, and the previously announced restructuring. Second
quarter 2020 Adjusted EBITDA was $94 million compared with $211
million in second quarter 2019 primarily as a result of lower
volumes due to the impact of the COVID-19 pandemic partly mitigated
by cost reduction actions.
Tim Myers, Chief Executive Officer, commented, “As we launched a
new company in the midst of a global pandemic, we quickly responded
to keep our employees safe and continue supply to our customers.
Additionally, we implemented strategic and financial actions to
conserve cash and maintain our strong position in the markets we
serve, which will enable us to benefit from strong secular growth
trends.”
Arconic began operating as a standalone company on April 1, when
sudden declines in critical end markets due to the COVID-19
pandemic shut down many of its customers’ production facilities
around the world. The Company announced $200 million of cash
conservation actions in early April to right-size its highly
variable cost structure for the swings in demand, which has since
been increased to $250 million.
In addition to implementing cash conservation actions, Arconic
restructured its balance sheet to be more flexible, increase
liquidity, and better mitigate impacts of the global pandemic.
Arconic also addressed a legacy pension obligation, reducing its
gross liability by approximately $250 million primarily through the
annuitization of a portion of the U.K. pension obligation.
Mr. Myers said, “I’m proud of the way the whole Arconic team has
continued to take all the right actions to position this Company
for growth, and I’d like to thank our employees for their
commitment in staying focused on these objectives. Going forward,
we will continue to:
- Grow organic volumes in attractive end
markets; - Drive cost savings, increase scrap utilization, and
capture network efficiencies across all our facilities; and -
Actively manage our legacy obligations.
These actions position Arconic to benefit from the global
megatrends driving growth: automotive light-weighting, demand for
alternatives to plastic packaging, and the focus on
energy-efficiency in building and construction.”
Arconic ended the second quarter of 2020 with cash on hand of
$595 million and total liquidity of approximately $1.3 billion.
Second Quarter Segment Performance
Revenue by Segment ($ in millions)(1)
Quarter ended
June 30, 2020
June 30, 2019
Rolled Products
$
880
$
1,486
Building and Construction Systems
230
292
Extrusions
81
145
(1)
The difference between segment totals and
consolidated amounts is in Corporate.
Adjusted EBITDA ($ in millions)
Quarter ended
June 30, 2020
June 30, 2019
Rolled Products
$
78
$
185
Building and Construction Systems
38
38
Extrusions
(13)
–
Subtotal
103
223
Corporate
(9)
(12)
Adjusted EBITDA
$
94
$
211
Updated Response to COVID-19 Pandemic
Arconic increased its previously announced cash conservation
actions to $250 million from $200 million in response to the
COVID-19 pandemic. Those actions now include $200 million related
to temporary salary reductions, 10% salaried headcount reduction,
and operational schedule optimization, and a $50 million reduction
in capital expenditures for FY2020. Of the $200 million in cost
actions, $100 million are structural in nature.
Recapitalization Transaction
On May 13, 2020, Arconic closed on its new capital structure
that better positions the Company to weather the swings in cash
needs as the end markets move through the cycle. The
recapitalization transaction was comprised of a newly issued $700
million first lien note due 2025 with a 6.0% interest rate. The
Company used the proceeds to repay the outstanding $600 million of
term loan B and added the remaining approximately $100 million in
cash to the balance sheet. The Company also replaced its cash flow
revolver with an undrawn $800 million asset-backed lending
facility.
United Kingdom Pension Annuitization
In second quarter 2020, the Company successfully reduced its
gross pension obligation by approximately $250 million primarily
through the purchase of a group annuity contract for certain
pensioners. This transaction mitigates future mortality, inflation
and yield curve risk. This action required approximately $10
million in funding during the quarter and resulted in a $55 million
non-cash settlement charge primarily related to the use of surplus
for the buyout premium and the acceleration of legacy pension
actuarial losses.
Arconic will hold its quarterly conference call at 10:00 AM
Eastern Daylight Time on August 4, 2020, to present second quarter
2020 financial results. The call will be webcast on the Arconic
website. Call information and related details are available at
www.arconic.com under “Investors.”
About Arconic
Arconic Corporation (NYSE: ARNC), headquartered in Pittsburgh,
Pennsylvania, is a leading provider of aluminum sheet, plate and
extrusions, as well as innovative architectural products, that
advance the ground transportation, aerospace, industrial, packaging
and building and construction markets. For more information:
www.arconic.com.
Dissemination of Company Information
Arconic intends to make future announcements regarding Company
developments and financial performance through its website at
www.arconic.com.
Forward-Looking Statements
This 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," "guidance," "intends,"
"may," "outlook," "plans," "projects," "seeks," "sees," "should,"
"targets," "will," "would," or other words of similar meaning. All
statements that reflect Arconic’s expectations, assumptions or
projections about the future, other than statements of historical
fact, are forward-looking statements, including, without
limitation, forecasts and expectations relating to the growth of
the aerospace, ground transportation, industrials, building and
construction and other end markets; statements and guidance
regarding future financial results, operating performance, working
capital, cash flows, liquidity and financial position; statements
about cost savings and restructuring programs; statements about
Arconic's strategies, outlook, business and financial prospects;
statements related to costs associated with pension and other
post-retirement benefit plans; statements regarding projected
sources of cash flow; statements regarding potential legal
liability; statements regarding the potential impact of the
COVID-19 pandemic; and statements regarding actions to mitigate the
impact of COVID-19. These statements reflect beliefs and
assumptions that are based on Arconic’s perception of historical
trends, current conditions and expected future developments, as
well as other factors Arconic believes are appropriate in the
circumstances. Forward-looking statements are not guarantees of
future performance. Although Arconic believes that the expectations
reflected in any forward-looking statements are based on reasonable
assumptions, these expectations may not 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, uncertainties and changes in circumstances, many of which
are beyond Arconic’s control. Such risks and uncertainties include,
but are not limited to: (a) existing and future adverse effects in
connection with COVID-19; (b) the expected benefits of the
separation, including the risk that dissynergy costs, costs of
restructuring transactions and other costs incurred in connection
with the separation, once fully realized, will exceed our
estimates; (c) the risk of operating our business as a standalone
company, which could result in additional demands on Arconic’s
resources, systems, procedures and controls, disruption of its
ongoing business, and diversion of management’s attention from
other business concerns; (d) deterioration in global economic and
financial market conditions generally; (e) unfavorable changes in
the markets served by Arconic; (f) 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 or targeted; (g)
competition from new product offerings, disruptive technologies,
industry consolidation or other developments; (h) political,
economic, and regulatory risks relating to Arconic’s global
operations, including compliance with U.S. and foreign trade and
tax laws, sanctions, embargoes and other regulations; (i)
manufacturing difficulties or other issues that impact product
performance, quality or safety; (j) the inability to meet demand
for our products successfully or to mitigate the impact of
cancellations of orders or reductions or delays caused by supply
chain disruption; (k) a material disruption of Arconic’s
operations, particularly at one or more of Arconic’s manufacturing
facilities; (l) the inability to develop innovative new products or
implement technology initiatives successfully; (m) challenges to or
infringements on Arconic’s intellectual property rights; (n)
Arconic’s inability to realize expected benefits, in each case as
planned and by targeted completion dates, from acquisitions,
divestitures, facility closures, curtailments, expansions, or joint
ventures; (o) the impact of potential cyber attacks and information
technology or data security breaches; (p) the loss of significant
customers or adverse changes in customers’ business or financial
condition; (q) a significant downturn in the business or financial
condition of a key supplier; (r) adverse changes in discount rates
or investment returns on pension assets; (s) our inability to
adequately mitigate the impact of changes in aluminum prices and
foreign currency exchange rates on costs and results; (t) the
outcome of contingencies, including legal proceedings, government
or regulatory investigations, and environmental remediation, which
can expose Arconic to substantial costs and liabilities; (u) a
determination by the IRS that the distribution or certain related
transactions should be treated as taxable transactions; (v) risks
associated with indebtedness, including potential restriction on
our operations and the impact of events of default; and (w) the
other risk factors summarized in Arconic’s Form 10-K for the year
ended December 31, 2019 and other reports filed with the U.S.
Securities and Exchange Commission (SEC). The above list of factors
is not exhaustive or necessarily in order of importance. Market
projections are subject to the risks discussed above and other
risks in the market. The statements in this release are made as of
the date of this release, even if subsequently made available by
Arconic on its website or otherwise. Arconic disclaims any
intention or obligation to update publicly any forward-looking
statements, whether in response to new information, future events,
or otherwise, except as required by applicable law.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Arconic’s consolidated financial information but is not presented
in Arconic’s financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP). Certain of these financial measures are considered
“non-GAAP financial measures” under SEC rules. These non-GAAP
financial measures supplement our GAAP disclosures and should not
be considered an alternative to any measure of performance or
financial condition as determined in accordance with GAAP, and
investors should consider Arconic’s performance and financial
condition as reported under GAAP and all other relevant information
when assessing the performance or financial condition of Arconic.
Non-GAAP financial measures have limitations as analytical tools,
and investors should not consider them in isolation or as a
substitute for analysis of the results or financial condition as
reported under GAAP. Non-GAAP financial measures presented by
Arconic may not be comparable to non-GAAP financial measures
presented by other companies. 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.
Arconic Corporation and
subsidiaries
Statement of Consolidated Operations
(unaudited)
(dollars in millions, except per-share
amounts)
Quarter ended
June
30,
2020
2019(1)
Sales
$
1,187
$
1,923
Cost of goods sold (exclusive of expenses
below)(2)
1,046
1,671
Selling, general administrative, and other
expenses(2)
55
87
Research and development expenses(2)
8
11
Provision for depreciation and
amortization
68
64
Restructuring and other charges
77
38
Operating (loss) income
(67)
52
Interest expense(3)
40
29
Other expenses, net(2)
16
10
(Loss) Income before income taxes
(123)
13
(Benefit) Provision for income taxes
(31)
8
Net (loss) income
(92)
5
Less: Net income attributable to
noncontrolling interest
–
–
NET (LOSS) INCOME ATTRIBUTABLE TO
ARCONIC CORPORATION
$
(92)
$
5
EARNINGS PER SHARE ATTRIBUTABLE TO
ARCONIC
CORPORATION COMMON SHAREHOLDERS:
Basic:
Net (loss) income
$
(0.84)
$
0.04
Weighted-average number of shares(4)
109,046,332
109,021,376
Diluted:
Net (loss) income
$
(0.84)
$
0.04
Weighted-average number of shares(4)
109,046,332
109,021,376
COMMON STOCK OUTSTANDING AT THE END OF THE
PERIOD
109,058,691
–
(1)
Prior to April 1, 2020, Arconic
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Arconic Corporation’s former parent
company’s financial statements. Accordingly, the Company’s results
of operations for the quarter ended June 30, 2019 were prepared on
such basis. The carve-out financial statements of Arconic
Corporation are not necessarily indicative of the Company’s
consolidated results of operations had it been a standalone company
during the referenced period. See the Combined Financial Statements
included in each of (i) Exhibit 99.1 to Arconic Corporation’s Form
10 Registration Statement (filed on February 7, 2020), (ii) the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019 (filed on March 30, 2020), and (iii) the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2020
(filed on May 18, 2020), for additional information.
(2)
In preparation for the separation
of Arconic Corporation from its former parent company, effective
January 1, 2020, certain U.S. defined benefit pension and other
postretirement plans previously sponsored by the former parent
company were separated into standalone plans for both Arconic
Corporation and the former parent company. Additionally, effective
April 1, 2020, Arconic Corporation assumed a portion of the
obligations associated with certain non-U.S. defined benefit
pension plans that included participants related to both Arconic
Corporation and its former parent company, as well as legacy
defined benefit pension plans assigned to the Company as a result
of the separation from the former parent company. As a result,
beginning in the first quarter of 2020 for these U.S. plans and in
the second quarter of 2020 for these non-U.S. plans, Arconic
Corporation applied defined benefit plan accounting resulting in
benefit plan expense being recorded in operating income (service
cost) and nonoperating income (nonservice cost). In all historical
periods prior to these respective timeframes, Arconic Corporation
was considered a participating employer in the former parent
company’s defined benefit plans and, therefore, applied
multiemployer plan accounting resulting in the Company’s share of
benefit plan expense being recorded entirely in operating income.
Also, Arconic Corporation is the plan sponsor of certain other
non-U.S. defined benefit plans that contain participants related
only to the underlying operations of the Company and, therefore,
the related benefit plan expense was recorded in accordance with
defined benefit plan accounting in all periods presented. The
following table presents the total benefit plan expense (excluding
settlements and curtailments) recorded by Arconic Corporation based
on the foregoing in each period presented:
Quarter ended
June
30,
2020
2019
Cost of goods sold (exclusive of expenses
below)
$
6
$
24
Selling, general administrative, and other
expenses
–
3
Research and development expenses
–
1
Other expenses, net
18
–
$
24
$
28
(3)
Interest expense for the quarter
ended June 30, 2020 includes $19 associated with the completion of
a debt refinancing in May 2020 that resulted in the combination of
a write-off of previously capitalized debt issuance costs and the
immediate expensing of certain new debt issuance costs.
(4)
In the quarter ended June 30,
2020, the diluted weighted-average number of shares does not
include any share equivalents associated with outstanding employee
stock awards as their effect was anti-dilutive since the Company
generated a net loss for the period. Prior to April 1, 2020, the
Company did not have any publicly-traded issued and outstanding
common stock or any common share equivalents. Accordingly, the
respective basic and diluted earnings per share for the quarter
ended June 30, 2019 were calculated based on the 109,021,376 shares
of Arconic Corporation common stock distributed on April 1, 2020 in
connection with the completion of Arconic Corporation’s separation
from its former parent company.
Arconic Corporation and subsidiaries
Consolidated Balance Sheet
(unaudited)
(in millions)
June 30,
2020
December 31,
2019(1)
ASSETS
Current assets:
Cash and cash equivalents
$
595
$
72
Receivables from customers, less
allowances of
$1 in 2020 and $2 in 2019(2)
573
384
Other receivables
110
136
Inventories
678
820
Prepaid expenses and other current
assets
54
28
Total current assets
2,010
1,440
Properties, plants, and equipment
7,282
7,210
Less: accumulated depreciation and
amortization
4,557
4,466
Properties, plants, and equipment, net
2,725
2,744
Goodwill
374
386
Operating lease right-of-use-assets
139
125
Deferred income taxes
381
14
Other noncurrent assets
104
32
Total assets
$
5,733
$
4,741
LIABILITIES
Current liabilities:
Accounts payable, trade
$
683
$
1,061
Accrued compensation and retirement
costs
126
80
Taxes, including income taxes
35
21
Environmental remediation
92
83
Operating lease liabilities
33
33
Other current liabilities
115
63
Total current liabilities
1,084
1,341
Long-term debt
1,276
250
Accrued pension benefits
1,364
63
Accrued other postretirement benefits
488
1
Environmental remediation
116
125
Operating lease liabilities
109
96
Deferred income taxes
19
87
Other noncurrent liabilities and deferred
credits
117
50
Total liabilities
4,573
2,013
EQUITY
Arconic Corporation shareholders’
equity:
Parent Company net investment
–
2,419
Common stock
1
–
Additional capital
3,085
–
Accumulated deficit
(92)
–
Accumulated other comprehensive (loss)
income
(1,848)
295
Total Arconic Corporation shareholders'
equity
1,146
2,714
Noncontrolling interest
14
14
Total equity
1,160
2,728
Total liabilities and equity
$
5,733
$
4,741
(1)
Prior to April 1, 2020, Arconic
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Arconic Corporation’s former parent
company’s financial statements. Accordingly, the Company’s
financial position as of December 31, 2019 was prepared on such
basis. The carve-out financial statements of Arconic Corporation
are not necessarily indicative of the Company’s financial position
had it been a standalone company during the referenced period. See
the Combined Financial Statements included in each of (i) Exhibit
99.1 to Arconic Corporation’s Form 10 Registration Statement (filed
on February 7, 2020), (ii) the Company’s Annual Report on Form 10-K
for the year ended December 31, 2019 (filed on March 30, 2020), and
(iii) the Company’s Quarterly Report on Form 10-Q for the period
ended March 31, 2020 (filed on May 18, 2020), for additional
information.
(2)
Prior to January 1, 2020, certain of
Arconic Corporation’s customer receivables were sold to its former
parent company, which had an arrangement with several financial
institutions to sell certain customer receivables without recourse
on a revolving basis. As of December 31, 2019, the amount of
Arconic Corporation’s outstanding customer receivables sold to its
former parent company was $281. In preparation for the separation
of Arconic Corporation from its former parent company, effective
January 2, 2020, the former parent company’s arrangement was
amended to no longer include customer receivables associated with
Arconic Corporation in this program.
Arconic Corporation and subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in millions)
Quarter ended
June
30,
2020
2019(1)
OPERATING ACTIVITIES
Net (loss) income
$
(92)
$
5
Adjustments to reconcile net (loss) income
to cash provided from operations:
Depreciation and amortization
68
64
Deferred income taxes
29
(5)
Restructuring and other charges
77
38
Net periodic pension benefit cost
18
2
Stock-based compensation
5
12
Amortization of debt issuance costs
21
–
Other
2
3
Changes in assets and liabilities,
excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments:
Decrease (Increase) in receivables
125
(28)
Decrease in inventories
166
–
(Increase) Decrease in prepaid expenses
and other current assets
(8)
2
(Decrease) in accounts payable, trade
(298)
(79)
(Decrease) in accrued expenses
(44)
(5)
(Decrease) Increase in taxes, including
income taxes
(48)
8
Pension contributions
(12)
–
Decrease (Increase) in noncurrent
assets
11
(2)
Increase in noncurrent liabilities
10
23
CASH PROVIDED FROM OPERATIONS
30
38
FINANCING ACTIVITIES
Net transfers to former parent company
–
(4)
Separation payment to former parent
company(2)
(728)
–
Additions to debt (original maturities
greater than three months)(2)
1,200
–
Debt issuance costs
(15)
–
Payments on debt (original maturities
greater than three months)(2)
(1,100)
–
CASH USED FOR FINANCING ACTIVITIES
(643)
(4)
INVESTING ACTIVITIES
Capital expenditures
(21)
(40)
Proceeds from the sale of assets and
businesses
1
7
CASH USED FOR INVESTING ACTIVITIES
(20)
(33)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH
–
(1)
Net change in cash and cash equivalents
and restricted cash
(633)
–
Cash and cash equivalents and restricted
cash at beginning of period(3)
1,228
46
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD(3)
$
595
$
46
(1)
Prior to April 1, 2020, Arconic
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Arconic Corporation’s former parent
company’s financial statements. Accordingly, the Company’s cash
flows for the quarter ended June 30, 2019 were prepared on such
basis. The carve-out financial statements of Arconic Corporation
are not necessarily indicative of the Company’s consolidated cash
flows had it been a standalone company during the referenced
period. See the Combined Financial Statements included in each of
(i) Exhibit 99.1 to Arconic Corporation’s Form 10 Registration
Statement (filed on February 7, 2020), (ii) the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019 (filed on
March 30, 2020), and (iii) the Company’s Quarterly Report on Form
10-Q for the period ended March 31, 2020 (filed on May 18, 2020),
for additional information.
(2)
On April 1, 2020, Arconic Inc. separated into two standalone,
publicly-traded companies, Arconic Corporation and Howmet Aerospace
Inc. (the “Separation”). In connection with the capital structure
to be established at the time of the Separation, Arconic
Corporation secured $1,200 in third-party indebtedness during the
first quarter of 2020. The net proceeds from a portion of this
indebtedness was held in escrow until the satisfaction of the
escrow release conditions, which included the substantially
concurrent completion of the Separation. Accordingly, the escrowed
cash was included in Restricted cash as of March 31, 2020 (see
footnote 3 below). The Company used a portion of the net proceeds
from the aggregate indebtedness to make a $728 payment to its
former parent company on April 1, 2020 to fund the transfer of
certain net assets from the former parent company to Arconic
Corporation in connection with the completion of the Separation. On
April 2, 2020, Arconic Corporation incurred an additional $500 of
indebtedness as a proactive measure taken by the Company to bolster
its liquidity and preserve financial flexibility in light of
uncertainties resulting from the COVID-19 outbreak. On May 13,
2020, in order to provide improved financial flexibility, Arconic
Corporation executed a refinancing of a portion of its outstanding
indebtedness by securing $700 in new third-party indebtedness. The
Company used the net proceeds from the new indebtedness, together
with cash on hand, to repay $1,100 of outstanding indebtedness.
(3)
For the quarters ended June 30, 2020 and
2019, the Restricted cash included in “Cash and cash equivalents
and restricted cash at beginning of period” was $593 and less than
$0.1, respectively. Additionally, the Restricted cash included in
“Cash and cash equivalents and restricted cash at end of period”
was less than $0.2 for both quarters ended June 30, 2020 and
2019.
Arconic Corporation and subsidiaries
Segment Adjusted EBITDA Reconciliation
(unaudited)
(in millions)
Quarter ended
June
30,
2020
2019(1)
Total Segment Adjusted EBITDA(2),(3)
$
103
$
223
Unallocated amounts:
Corporate expenses(3),(4)
(7)
(12)
Stock-based compensation expense
(5)
(12)
Provision for depreciation and
amortization
(68)
(64)
Restructuring and other charges
(77)
(38)
Other(3),(5)
(13)
(45)
Operating (loss) income
(67)
52
Interest expense
(40)
(29)
Other expenses, net(3)
(16)
(10)
Benefit (Provision) for income taxes
31
(8)
Net income attributable to noncontrolling
interest
–
–
Consolidated net (loss) income
attributable to Arconic Corporation
$
(92)
$
5
(1)
Prior to April 1, 2020, Arconic
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Arconic Corporation’s former parent
company’s financial statements. Accordingly, the Company’s results
of operations for the quarter ended June 30, 2019 were prepared on
such basis. The carve-out financial statements of Arconic
Corporation are not necessarily indicative of the Company’s
consolidated results of operations had it been a standalone company
during the referenced period. See the Combined Financial Statements
included in each of (i) Exhibit 99.1 to Arconic Corporation’s Form
10 Registration Statement (filed on February 7, 2020), (ii) the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019 (filed on March 30, 2020), and (iii) the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2020
(filed on May 18, 2020), for additional information.
(2)
Effective in the second quarter of 2020,
management elected to change the profit or loss measure of the
Company’s reportable segments from Segment operating profit to
Segment 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. Arconic Corporation calculates Segment
Adjusted EBITDA as Total sales (third-party and intersegment) minus
each of (i) Cost of goods sold, (ii) Selling, general
administrative, and other expenses, and (iii) and Research and
development expenses, plus Stock-based compensation expense.
Previously, the Company calculated Segment operating profit as
Segment Adjusted EBITDA minus both Stock-based compensation expense
and the Provision for depreciation and amortization. Arconic
Corporation’s Segment Adjusted EBITDA may not be comparable to
similarly titled measures of other companies’ reportable
segments.
Total Segment Adjusted EBITDA is the sum
of the respective Segment Adjusted EBITDA for each of the Company's
three reportable segments: Rolled Products, Building and
Construction Systems, and Extrusions. This amount is being
presented for the sole purpose of reconciling Segment Adjusted
EBITDA to the Company's Consolidated net income.
(3)
In preparation for the separation of
Arconic Corporation from its former parent company, effective
January 1, 2020, certain U.S. defined benefit pension and other
postretirement plans previously sponsored by the former parent
company were separated into standalone plans for both Arconic
Corporation and the former parent company. Additionally, effective
April 1, 2020, Arconic Corporation assumed a portion of the
obligations associated with certain non-U.S. defined benefit
pension plans that included participants related to both Arconic
Corporation and its former parent company, as well as legacy
defined benefit pension plans assigned to the Company as a result
of the separation from the former parent company. As a result,
beginning in the first quarter of 2020 for these U.S. plans and in
the second quarter of 2020 for these non-U.S. plans, Arconic
Corporation applied defined benefit plan accounting resulting in
benefit plan expense being recorded in operating income (service
cost) and nonoperating income (nonservice cost). In all historical
periods prior to these respective timeframes, Arconic Corporation
was considered a participating employer in the former parent
company’s defined benefit plans and, therefore, applied
multiemployer plan accounting resulting in the Company’s share of
benefit plan expense being recorded entirely in operating income.
Also, Arconic Corporation is the plan sponsor of certain other
non-U.S. defined benefit plans that contain participants related
only to the underlying operations of the Company and, therefore,
the related benefit plan expense was recorded in accordance with
defined benefit plan accounting in all periods presented. The
following table presents the total benefit plan expense (excluding
settlements and curtailments) recorded by Arconic Corporation based
on the foregoing in each period presented:
Quarter ended
June
30,
2020
2019
Total Segment Adjusted EBITDA
$
(6)
$
(22)
Unallocated amounts:
Corporate expenses
–
(4)
Other
–
(2)
Subtotal
–
(6)
Other expenses, net
(18)
–
Total
$
(24)
$
(28)
(4)
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. The amount presented for the quarter ended June 30, 2019
represents an allocation of Arconic Corporation’s former parent
company’s corporate expenses (see footnote 1 above).
(5)
Other includes certain items that impact
Cost of goods sold and Selling, general administrative, and other
expenses on the Company’s Statement of Consolidated Operations that
are not included in Segment Adjusted EBITDA, including those
described as “Other special items” (see footnote 3 to the
reconciliation of Adjusted EBITDA within Calculation of Non-GAAP
Financial Measures included in this release).
Arconic Corporation and subsidiaries
Calculation of Non-GAAP Financial
Measures (unaudited)
(in millions)
Adjusted EBITDA
Quarter ended
June 30,
2020
2019(1)
Net (loss) income attributable to Arconic
Corporation
$
(92)
$
5
Add:
Net income attributable to noncontrolling
interest
–
–
(Benefit) Provision for income taxes
(31)
8
Other expenses, net(2)
16
10
Interest expense
40
29
Restructuring and other charges
77
38
Provision for depreciation and
amortization
68
64
Stock-based compensation
5
12
Other special items(3)
11
45
Adjusted EBITDA(2)
$
94
$
211
Arconic Corporation’s definition of
Adjusted EBITDA (Earnings before interest, taxes, depreciation, and
amortization) is net margin plus an add-back for the following
items: Provision for depreciation and amortization; Stock-based
compensation; and Other special items. 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 and
amortization. Special items are composed of restructuring and other
charges, discrete income tax items, and other items as deemed
appropriate by management. There can be no assurances that
additional special items will not occur in future periods. 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 Arconic
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 April 1, 2020, Arconic
Corporation’s financial statements were prepared on a carve-out
basis, as the underlying operations of the Company were previously
consolidated as part of Arconic Corporation’s former parent
company’s financial statements. Accordingly, the Company’s results
of operations for the quarter ended June 30, 2019 were prepared on
such basis. The carve-out financial statements of Arconic
Corporation are not necessarily indicative of the Company’s
consolidated results of operations had it been a standalone company
during the referenced period. See the Combined Financial Statements
included in each of (i) Exhibit 99.1 to Arconic Corporation’s Form
10 Registration Statement (filed on February 7, 2020), (ii) the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019 (filed on March 30, 2020), and (iii) the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2020
(filed on May 18, 2020), for additional information.
(2)
In preparation for the separation of
Arconic Corporation from its former parent company, effective
January 1, 2020, certain U.S. defined benefit pension and other
postretirement plans previously sponsored by the former parent
company were separated into standalone plans for both Arconic
Corporation and the former parent company. Additionally, effective
April 1, 2020, Arconic Corporation assumed a portion of the
obligations associated with certain non-U.S. defined benefit
pension plans that included participants related to both Arconic
Corporation and its former parent company, as well as legacy
defined benefit pension plans assigned to the Company as a result
of the separation from the former parent company. As a result,
beginning in the first quarter of 2020 for these U.S. plans and in
the second quarter of 2020 for these non-U.S. plans, Arconic
Corporation applied defined benefit plan accounting resulting in
benefit plan expense being recorded in operating income (service
cost) and nonoperating income (nonservice cost). In all historical
periods prior to these respective timeframes, Arconic Corporation
was considered a participating employer in the former parent
company’s defined benefit plans and, therefore, applied
multiemployer plan accounting resulting in the Company’s share of
benefit plan expense being recorded entirely in operating income.
Also, Arconic Corporation is the plan sponsor of certain other
non-U.S. defined benefit plans that contain participants related
only to the underlying operations of the Company and, therefore,
the related benefit plan expense (excluding settlements and
curtailments) was recorded in accordance with defined benefit plan
accounting in all periods presented. See footnote 2 to the
Statement of Consolidated Operations included in this release for
additional information.
(3)
Other special items include the
following:
- for the quarter ended June 30, 2020, costs related to several
legal matters, including a customer settlement ($5), Grenfell Tower
($3), and other ($3); and
- for the quarter ended June 30, 2019, a charge for an ongoing
environmental remediation matter referred to as Grasse River ($25)
and an allocation of costs incurred by Arconic Corporation’s former
parent company associated with the following matters: the April 1,
2020 separation of Arconic Inc. into two standalone publicly-traded
companies ($9), negotiation of a collective bargaining agreement
with the United Steelworkers ($9), and a legal matter referred to
as Grenfell Tower ($2).
Net Debt
June 30,
2020
Long-term debt
$
1,276
Less: Cash and cash equivalents
595
Net debt
$
681
Net debt is a non-GAAP financial measure.
Management believes that this measure is meaningful to investors
because management assesses Arconic Corporation’s leverage position
after considering available cash that could be used to repay
outstanding debt. Long-term debt equals $1,300 principal of
outstanding indebtedness less $24 of unamortized debt issuance
costs.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200804005192/en/
Investors Jason Secore Shane Rourke (412) 315-2984
Investor.Relations@arconic.com Media Tracie Gliozzi (412)
992-2525 Tracie.Gliozzi@arconic.com
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