Highlights
- Revenue of $3.2 billion, up 3% year
over year; organic revenue1 up 5% year over year
- Net income attributable to Arconic of
$119 million, or $0.22 per share, versus $166 million in the third
quarter of 2016
- Excluding special items, adjusted
income of $132 million, or $0.25 per share, versus $137 million in
the third quarter of 2016
- Consolidated adjusted EBITDA2 of $430
million, up 14% year over year
- Excluding special items, consolidated
adjusted EBITDA of $437 million, up 2% year over year
- Results include, in Corporate, a $49
million year-over-year pre-tax negative impact of last-in-first-out
(LIFO) accounting and metal lag and, in the segments, an $11
million year-over-year pre-tax negative impact of higher aluminum
prices
- Excluding special items, consolidated
adjusted EBITDA margin of 13.5%, down 20 basis points year over
year, reflecting a 240 basis point year-over-year negative impact
of higher aluminum prices, LIFO and metal lag
- Net cost savings of 1.5% of
revenues
- Cash balance of $1.8 billion
- Reaffirming full year Arconic earnings
guidance
Arconic Inc. (NYSE: ARNC) today reported results for the third
quarter of 2017, for which the Company reported revenues of $3.2
billion, up 3% year over year, driven by higher volumes across all
business segments as well as higher aluminum prices. Organic
revenue1 was up 5% year over year.
Net income attributable to Arconic in the third quarter of 2017
was $119 million, or $0.22 per share. The results included a LIFO-
and metal lag-related $30 million charge ($46 million pre-tax) and
$13 million in special items, primarily charges related to
restructuring.
Excluding special items, third quarter 2017 adjusted income was
$132 million, or $0.25 per share. Annualized return on net assets
(RONA) was 8.1%, based on year-to-date results.
Arconic continued its focus on cost reduction; in the third
quarter, the Company delivered net cost savings of 1.5% of revenue
and improved its full year selling, general and administrative
expenses (SG&A) guidance by approximately $25 million versus
the original 2017 target. Arconic is on track to deliver an
improvement of approximately $100 million year over year in
SG&A, with additional run-rate savings expected in 2018.
Third quarter 2017 Consolidated adjusted EBITDA was $430
million, up 14% year over year. Consolidated adjusted EBITDA
excluding special items was $437 million, up 2% year over year.
Consolidated adjusted EBITDA margin excluding special items was
13.5%, down 20 basis points year over year, as rising aluminum
prices had the dual impact of increasing revenue and a larger LIFO
charge.
“Arconic delivered its third consecutive quarter of
year-over-year revenue and EBITDA growth. We are demonstrating
consistent improvements in operating performance on the back of
healthy organic revenue growth, coupled with better-than-planned
progress on streamlining, restructuring and net cost reduction.
Uniquely this quarter, our results were negatively impacted by a
sharply higher, non-cash LIFO charge, resulting from a spike in
aluminum prices. We remain focused on a strong finish to
2017, and reaffirm the Arconic full-year earnings guidance,” said
Arconic Interim Chief Executive Officer David Hess.
Third Quarter 2017 Segment Performance
Engineered Products and Solutions
(EP&S)
EP&S reported revenue of $1.5 billion, up 5% year over year,
and Adjusted EBITDA of $312 million, up $16 million year over year.
Increased aerospace volume and continued net cost savings were
partially offset by unfavorable price and mix. Engine ramp costs
were higher than expected. Adjusted EBITDA margin was 21.1%, flat
year over year.
Global Rolled Products (GRP)
GRP reported revenue of $1.2 billion, a decrease of 4% year over
year. Organic revenue1 was up 1%. Adjusted EBITDA was $140 million,
down $3 million year over year, driven by reduced aerospace
wide-body build rates, airframe destocking and pricing pressure in
regional specialties, partially offset by net cost savings of 1.6%
of revenue. Adjusted EBITDA margin was 11.3%, up 20 basis points
year over year, including a 170 basis point negative impact of
higher aluminum prices.
Transportation and Construction Solutions
(TCS)
TCS delivered revenue of $517 million, an increase of 15% year
over year, and Adjusted EBITDA of $83 million, up $7 million year
over year. Higher volume and cost reductions more than offset
headwinds, including unfavorable price and mix and higher aluminum
prices. Adjusted EBITDA margin was 16.1%, down 80 basis points year
over year, including a 120 basis point negative impact of higher
aluminum prices.
Balance Sheet
Arconic ended the third quarter of 2017 with cash on hand of
$1.8 billion. Cash from operations was $172 million, and free cash
flow was $41 million. Cash used for financing activities was $15
million and cash used for investing activities was $128
million.
Reincorporation in Delaware
Arconic will hold a special meeting of shareholders on November
30, 2017 to approve the change of the Company’s jurisdiction of
incorporation from Pennsylvania to Delaware (the
“Reincorporation”). Holders of record of Arconic common stock at
the close of business on October 5, 2017 are entitled to vote at
the special meeting. If approved, Arconic currently expects the
Reincorporation to occur on or about December 31, 2017. The
Company’s post-Reincorporation Certificate of Incorporation and
Bylaws will not contain any supermajority voting requirements, will
provide that the Board of Directors be completely declassified and
that all directors be elected annually.
Full Year 2017 Guidance*
Arconic is adjusting its full year 2017 revenue, capital
expenditures and RONA guidance.
2Q 2017 Updated 3Q 2017
Revenue $12.3-$12.7 billion
$12.6-$12.8 billion
Consolidated adjusted EBITDA, excluding
special items $1.81-$1.86 billion
Unchanged
Adjusted earnings per share
$1.15-$1.20 Unchanged
Capital expenditures
Up to $650 million ~$600 million
Return on Net Assets (RONA) ~9%
~8-8.5%
* Arconic has not provided a reconciliation of the
forward-looking financial measures of adjusted EBITDA, adjusted
earnings per share, and RONA to the most directly comparable
financial measures prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP) because Arconic is unable to quantify certain amounts that
would be required to be included in the GAAP measures without
unreasonable efforts, and Arconic believes such reconciliations
would imply a degree of precision that would be confusing or
misleading to investors. In particular, reconciliations of the
forward-looking non-GAAP financial measures to the most directly
comparable GAAP measures are not available without unreasonable
efforts due to the variability and complexity with respect to the
charges and other components excluded from the non-GAAP measures,
such as the effects of foreign currency movements, equity income,
gains or losses on sales of assets, taxes and any future
restructuring or impairment charges. These reconciling items are in
addition to the inherent variability already included in the GAAP
measures, which includes, but is not limited to, price/mix and
volume.
Arconic will hold its quarterly conference call at 10:00 AM
Eastern Time on October 23, 2017 to present third quarter 2017
results. The meeting will be webcast via
www.arconic.com. Call information and related details are
available at www.arconic.com under “Investors;”
presentation materials will be available at approximately 8:00 AM
ET on October 23, 2017.
About Arconic
Arconic (NYSE: ARNC) creates breakthrough products that shape
industries. Working in close partnership with our customers, we
solve complex engineering challenges to transform the way we fly,
drive, build and power. Through the ingenuity of our people and
cutting-edge advanced manufacturing techniques, we deliver these
products at a quality and efficiency that ensure customer success
and shareholder value. For more information: www.arconic.com.
Follow @arconic: Twitter, Instagram, Facebook, LinkedIn and
YouTube.
Dissemination of Company Information
Arconic intends to make future announcements regarding Company
developments and financial performance through its website
on 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 aerospace,
automotive, commercial transportation and other end markets;
statements and guidance regarding future financial results or
operating performance; statements about Arconic's strategies,
outlook, business and financial prospects; and statements regarding
potential share gains. 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 management believes are appropriate in the
circumstances. Forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties, and
changes in circumstances that are difficult to predict. Although
Arconic 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) deterioration in global economic and
financial market conditions generally; (b) unfavorable changes in
the markets served by Arconic; (c) 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; (d)
changes in discount rates or investment returns on pension assets;
(e) 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; (f) the impact of cyber attacks and potential information
technology or data security breaches; (g) any manufacturing
difficulties or other issues that impact product performance,
quality or safety; (h) political, economic, and regulatory risks in
the countries in which Arconic operates or sells products; (i)
material adverse changes in aluminum industry conditions, including
fluctuations in London Metal Exchange-based aluminum prices; (j)
the impact of changes in foreign currency exchange rates on costs
and results; (k) the outcome of contingencies, including legal
proceedings, government or regulatory investigations, and
environmental remediation, which can expose Arconic to substantial
costs and liabilities; and (l) the other risk factors summarized in
Arconic’s Form 10-K for the year ended December 31, 2016, Arconic’s
Form 10-Q for the quarter ended June 30, 2017 and other reports
filed with the U.S. Securities and Exchange Commission (SEC).
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. Market projections are subject to the risks
discussed above and other risks in the market.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
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 data 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 the GAAP measure. 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 and on our
website at www.arconic.com under the “Investors” section.
________________________________
1
Organic revenue is U.S. GAAP revenue
adjusted for the Tennessee packaging (due to its planned
phase-down), divestitures, and changes in aluminum prices and
foreign currency fluctuations relative to prior year period.
2
Arconic’s definition of Adjusted EBITDA
(earnings before interest, taxes, depreciation, and amortization)
is net margin plus an add-back for depreciation 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
and amortization. The Adjusted EBITDA presented may not be
comparable to similarly titled measures of other companies.
Arconic and subsidiaries
Statement of Consolidated Operations
(unaudited)
(in millions, except per-share and
share amounts)
Quarter ended September 30,
June 30, September 30,
2016
(1)
2017
2017
Sales $ 3,138 $ 3,261 $ 3,236 Cost of goods sold
(exclusive of expenses below) 2,503 2,583 2,626 Selling, general
administrative, and other expenses 229 204 155 Research and
development expenses 30 30 25 Provision for depreciation and
amortization 136 137 140 Restructuring and other charges
3 26
19 Operating income 237 281 271 Interest
expense(2) 126 183 100 Other income, net(3)
(11
) (171 )
(1 ) Income from continuing operations before income
taxes 122 269 172 Provision for income taxes
56
57 53
Income from continuing operations after income taxes 66 212
119 Income from discontinued operations after income
taxes
(1) 120
- - Net
income 186 212 119 Less: Net income from discontinued
operations attributable to noncontrolling interests
(1)
20 -
- NET INCOME ATTRIBUTABLE TO ARCONIC
$ 166 $
212 $ 119
EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC COMMON
SHAREHOLDERS(4): Basic(5)(6): Continuing operations $ 0.11 $ 0.44 $
0.23 Discontinued operations
0.23
- - Net Income $
0.34 $ 0.44 $ 0.23 Average number of shares(4)(6)
438,445,001 440,865,477 441,512,709 Diluted(5)(6):
Continuing operations $ 0.11 $ 0.43 $ 0.22 Discontinued operations
0.22 -
- Net Income $ 0.33 $ 0.43 $ 0.22
Average number of shares(4)(6) 453,152,896 461,826,510 462,055,864
(1)
On November 1, 2016, the former Alcoa Inc. was separated
into two standalone, publicly-traded companies, Arconic and Alcoa
Corporation, by means of a pro rata distribution of 80.1 percent of
the outstanding common stock of Alcoa Corporation to Alcoa Inc.
shareholders. Accordingly, the results of operations of Alcoa
Corporation have been reflected as discontinued operations for the
quarter ended September 30, 2016.
(2)
Interest expense for the quarter ended June 30, 2017 includes $76
related to the early redemption of the Company’s outstanding 6.500%
Senior Notes due 2018 and 6.750% Senior Notes due 2018
(collectively, the “2018 Senior Notes”) and a portion of the
Company’s outstanding 5.720% Senior Notes due 2019.
(3)
Other income, net, for the quarter ended June 30, 2017 included a
$167 gain on the exchange of Arconic’s remaining investment in
Alcoa Corporation common stock for a portion of the Company’s 2018
Senior Notes.
(4)
At a special meeting of Arconic common shareholders held on October
5, 2016, shareholders approved a 1-for-3 reverse stock split of
Arconic’s outstanding and authorized shares of common stock which
became effective on October 6, 2016. All share and per share data
presented for all periods herein have been updated to reflect the
reverse stock split.
(5)
In order to calculate both basic and diluted earnings per share,
preferred stock dividends of $17 for the quarters ended September
30, 2016 and June 30, 2017 and $18 for the quarter ended September
30, 2017, need to be subtracted from Net income attributable to
Arconic.
(6)
The difference between the respective diluted average number of
shares and the respective basic average number of shares for all
periods presented relates to share equivalents on the outstanding
employee stock options and awards and shares underlying outstanding
convertible debt (acquired through the acquisition of RTI
International Metals, Inc. (“RTI”)).
Arconic and subsidiaries
Statement of Consolidated Operations
(unaudited)
(in millions, except per-share and
share amounts)
Nine months ended September 30,
September 30,
2016
(1)
2017
Sales $ 9,427 $ 9,689 Cost of goods sold (exclusive
of expenses below) 7,436 7,701 Selling, general administrative, and
other expenses 673 580 Research and development expenses 93 83
Provision for depreciation and amortization 402 410 Restructuring
and other charges
33
118 Operating income 790 797 Interest
expense(2) 371 398 Other income, net(3)
(40
) (526 )
Income from continuing operations before income taxes 459 925
Provision for income taxes
230
272 Income from continuing operations
after income taxes 229 653 Income from discontinued operations
after income taxes
(1) 146
- Net income 375 653 Less: Net
income from discontinued operations attributable to noncontrolling
interests
(1) 58
- NET INCOME ATTRIBUTABLE TO ARCONIC
$ 317 $
653 EARNINGS PER SHARE ATTRIBUTABLE TO
ARCONIC COMMON SHAREHOLDERS(4): Basic(5)(6): Continuing operations
$ 0.40 $ 1.36 Discontinued operations
0.20
- Net Income $ 0.60 $ 1.36
Average number of shares(4)(6) 438,209,953 440,751,958
Diluted(5)(6): Continuing operations $ 0.40 $ 1.31 Discontinued
operations
0.20 -
Net Income $ 0.60 $ 1.31 Average number of
shares(4)(6) 442,616,439 500,534,603 Common stock
outstanding at the end of the period(4) 438,471,245 442,080,224
(1) On November 1, 2016, the former Alcoa Inc. was separated
into two standalone, publicly-traded companies, Arconic and Alcoa
Corporation, by means of a pro rata distribution of 80.1 percent of
the outstanding common stock of Alcoa Corporation to Alcoa Inc.
shareholders. Accordingly, the results of operations of Alcoa
Corporation have been reflected as discontinued operations for the
nine months ended September 30, 2016. (2) Interest expense
for the nine months ended September 30, 2017 includes $76 related
to the early redemption of the Company’s outstanding 6.500% Senior
Notes due 2018 and 6.750% Senior Notes due 2018 (collectively, the
“2018 Senior Notes”) and a portion of the Company’s outstanding
5.720% Senior Notes due 2019. (3) Other income, net for the
nine months ended September 30, 2017, includes:
•
a $351 gain on the sale of a portion of
Arconic’s investment in Alcoa Corporation common stock; and
•
a $167 gain on the exchange of Arconic’s
remaining investment in Alcoa Corporation common stock for a
portion of the Company’s outstanding 2018 Senior Notes.
(4) At a special meeting of Arconic common shareholders held
on October 5, 2016, shareholders approved a 1-for-3 reverse stock
split of Arconic’s outstanding and authorized shares of common
stock which became effective on October 6, 2016. All share and per
share data presented for all periods herein have been updated to
reflect the reverse stock split. (5) In order to calculate
both basic and diluted earnings per share for the nine months ended
September 30, 2016 and September 30, 2017, preferred stock
dividends declared of $52 in each period need to be subtracted from
Net income attributable to Arconic. (6) The difference
between the respective diluted average number of shares and the
respective basic average number of shares relates to the following:
•
For the nine months ended September 30,
2016, share equivalents related to outstanding employee stock
options and awards; and
•
For the nine months ended September 30,
2017, share equivalents related to outstanding employee stock
options and awards, shares underlying outstanding convertible debt
(acquired through the acquisition of RTI), and shares underlying
mandatory convertible preferred stock.
Arconic and subsidiaries
Consolidated Balance Sheet
(unaudited)
(in millions)
December 31,
2016
September 30,
2017
ASSETS Current assets: Cash and cash equivalents $ 1,863 $ 1,815
Receivables from customers, less allowances of $13 in 2016 and $7
in 2017 974 1,150 Other receivables 477 373 Inventories 2,253 2,453
Prepaid expenses and other current assets
325
357 Total current assets
5,892 6,148
Properties, plants, and equipment 11,572 11,791 Less: accumulated
depreciation and amortization
6,073
6,265 Properties, plants, and equipment,
net
5,499 5,526
Goodwill 5,148 5,246 Deferred income taxes 1,234 1,024
Investment in common stock of Alcoa Corporation 1,020 - Other
noncurrent assets
1,245
1,293 Total assets
$
20,038 $ 19,237
LIABILITIES Current liabilities: Short-term
borrowings $ 36 $ 54 Accounts payable, trade 1,744 1,656 Accrued
compensation and retirement costs 398 379 Taxes, including income
taxes 85 74 Accrued interest payable 153 101 Other current
liabilities 329 412 Long-term debt due within one year
4 1 Total current
liabilities
2,749
2,677 Long-term debt, less amount due within
one year 8,044 6,802 Accrued pension benefits 2,345 2,110 Accrued
other postretirement benefits 889 811 Other noncurrent liabilities
and deferred credits
870
876 Total liabilities
14,897 13,276
EQUITY Arconic shareholders’ equity: Preferred stock 55 55
Mandatory convertible preferred stock 3 3 Common stock 438 442
Additional capital 8,214 8,294 Accumulated deficit (1,027 ) (519 )
Accumulated other comprehensive loss
(2,568
) (2,327 ) Total
Arconic shareholders' equity 5,115 5,948 Noncontrolling interests
26 13 Total
equity
5,141 5,961
Total liabilities and equity
$
20,038 $ 19,237
Arconic and subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in millions)
Nine months ended
September
30,
2016(1)
2017
CASH FROM OPERATIONS Net income $ 375 $ 653 Adjustments to
reconcile net income to cash from operations: Depreciation,
depletion, and amortization 938 410 Deferred income taxes (67 ) 24
Equity income, net of dividends 32 - Restructuring and other
charges 134 118 Net gain from investing activities – asset sales(2)
(152 ) (514 ) Net periodic pension benefit cost 246 163 Stock-based
compensation 73 59 Other 67 60 Changes in assets and liabilities,
excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments: (Increase) in receivables (226 )
(278 ) Decrease (increase) in inventories 7 (168 ) (Increase)
decrease in prepaid expenses and other current assets (10 ) 6
(Decrease) in accounts payable, trade (196 ) (94 ) (Decrease) in
accrued expenses (417 ) (138 ) Increase in taxes, including income
taxes 63 144 Pension contributions (227 ) (257 ) (Increase) in
noncurrent assets (284 ) (37 ) (Decrease) in noncurrent liabilities
(148 ) (62
) CASH PROVIDED FROM OPERATIONS
208 89
FINANCING ACTIVITIES Net change in short-term borrowings (original
maturities of three months or less) (6 ) 15 Additions to debt
(original maturities greater than three months) 1,313 664 Payments
on debt (original maturities greater than three months) (1,324 )
(1,484 ) Proceeds from exercise of employee stock options 3 48
Dividends paid to shareholders (171 ) (132 ) Distributions to
noncontrolling interests (176 ) (14 ) Other
11
(15 ) CASH USED FOR
FINANCING ACTIVITIES
(350 )
(918 ) INVESTING ACTIVITIES
Capital expenditures (814 ) (360 ) Proceeds from the sale of assets
and businesses 683 (9 ) Additions to investments (23 ) (2 ) Sales
of investments(2) 280 890 Net change in restricted cash (72 ) 11
Other(3)
25 246
CASH PROVIDED FROM INVESTING ACTIVITIES
79 776 EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 7
5 Net change in cash and cash equivalents (56
) (48 ) Cash and cash equivalents at beginning of year
1,919 1,863 CASH AND
CASH EQUIVALENTS AT END OF PERIOD
$ 1,863
$ 1,815 (1)
On November 1, 2016, the former Alcoa Inc. separated into two
standalone, publicly-traded companies, Arconic and Alcoa
Corporation, by means of a pro rata distribution of 80.1 percent of
the outstanding common stock of Alcoa Corporation to Alcoa Inc.
shareholders. Cash flow information has not been restated for
discontinued operations and therefore the nine months ended
September 30, 2016 includes the result of operations for Arconic
and the results of operations for Alcoa Corporation. (2) On
February 14, 2017, Arconic sold 23,353,000 of its shares of Alcoa
Corporation common stock at $38.03 per share which resulted in $888
in cash proceeds. (3) Other investing activities for the
nine months ended September 30, 2017 included $243 of proceeds
received from Alcoa Corporation’s sale of the Yadkin Hydroelectric
Project.
Arconic and subsidiaries
Segment Information (unaudited)
(dollars in millions, shipments in
thousands of metric tons [kmt])
1Q16
2Q16
3Q16
4Q16
2016
1Q17
2Q17
3Q17
Engineered Products and Solutions: Third-party sales
$ 1,449 $ 1,465 $ 1,406 $ 1,408 $ 5,728 $ 1,485 $ 1,484 $ 1,476
Depreciation and amortization $ 65 $ 62 $ 63 $ 65 $ 255 $ 64 $ 66 $
68 Adjusted EBITDA $ 305 $ 329 $
296 $ 265 $ 1,195 $ 306 $ 310 $
312
Global Rolled Products (1):
Third-party aluminum shipments (kmt) 331 376 356 276 1,339 310 307
297 Third-party sales $ 1,184 $ 1,316 $ 1,285 $ 1,079 $ 4,864 $
1,249 $ 1,268 $ 1,234 Intersegment sales $ 29 $ 29 $ 30 $ 30 $ 118
$ 34 $ 37 $ 36 Depreciation and amortization $ 50 $ 50 $ 52 $ 49 $
201 $ 50 $ 51 $ 52 Adjusted EBITDA $ 155
$ 163 $ 143 $ 116 $ 577 $ 171
$ 164 $ 140
Transportation and
Construction Solutions: Third-party sales $ 429 $ 467 $ 450 $
456 $ 1,802 $ 449 $ 501 $ 517 Depreciation and amortization $ 11 $
12 $ 12 $ 13 $ 48 $ 12 $ 12 $ 13 Adjusted EBITDA
$ 64 $ 76 $ 76 $ 75 $ 291
$ 72 $ 82 $ 83
Reconciliation of
combined segment adjusted EBITDA to consolidated net income (loss)
attributable to Arconic: Combined segment adjusted EBITDA(2) $
524 $ 568 $ 515 $ 456 $ 2,063 $ 549 $ 556 $ 535 Unallocated
amounts: Depreciation and amortization (133 ) (133 ) (136 ) (133 )
(535 ) (133 ) (137 ) (140 ) Restructuring and other charges (16 )
(14 ) (3 ) (122 ) (155 ) (73 ) (26 ) (19 ) Impact of LIFO (12 ) (13
) (1 ) 8 (18 ) (19 ) (11 ) (48 ) Metal price lag
-
6 4 17 27 22 19 2 Corporate expense (76 ) (115 ) (113 ) (150 ) (454
) (91 ) (91 ) (42 ) Other (17 )
(16 ) (29 ) (47 ) (109 ) (10 )
(29 ) (17 ) Operating income $ 270 $ 283 $ 237 $ 29 $ 819 $
245 $ 281 $ 271 Other income, net(3) 12 17 11 54 94 354 171 1
Interest expense(4) (121 ) (124 ) (126 ) (128 ) (499 ) (115 ) (183
) (100 ) Income taxes (51 ) (123 ) (56 ) (1,246 ) (1,476 ) (162 )
(57 ) (53 ) Discontinued operations(5)
(94 ) 82 100 33
121 - - -
Consolidated net income (loss) attributable to Arconic
$
16
$
135
$ 166 $ (1,258 )
$
(941
)
$
322
$
212
$
119
Arconic’s definition of Combined segment adjusted
EBITDA (Earnings before interest, taxes, depreciation and
amortization) is net margin plus an add-back for depreciation 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 and amortization. The Combined segment adjusted
EBITDA presented may not be comparable to similarly titled measures
of other companies.
The difference between certain segment
totals and consolidated amounts is Corporate.
(1)
On November 1, 2016, the former Alcoa Inc. completed its separation
into two standalone, publicly-traded companies. Arconic includes
the former Alcoa Inc. segments: Engineered Products and Solutions,
Transportation and Construction Solutions, and Global Rolled
Products, except for the Warrick, IN rolling operations and the
equity interest in the rolling mill at the joint venture in Saudi
Arabia, both of which became part of Alcoa Corporation. The Global
Rolled Products segment information has been updated to exclude the
Warrick, IN rolling operations and the equity interest in the
rolling mill at the joint venture in Saudi Arabia.
(2)
Combined segment adjusted EBITDA is the summation of the respective
Adjusted EBITDA of Arconic’s three reportable segments.
(3)
Other income, net included:
•
For the quarter ended March 31, 2017, a
$351 gain on the sale of a portion of Arconic’s investment in Alcoa
Corporation common stock; and
•
For the quarter ended June 30, 2017, a
$167 gain on the exchange of Arconic’s remaining investment in
Alcoa Corporation common stock for a portion of the Company’s
outstanding senior notes due 2018.
(4)
Interest expense for the quarter ended June 30, 2017 includes $76
related to the early redemption of the Company’s outstanding 6.500%
Senior Notes due 2018 and 6.750% Senior Notes due 2018
(collectively, the “2018 Senior Notes”) and a portion of the
Company’s outstanding 5.720% Senior Notes due 2019.
(5)
The reconciliation of Combined segment adjusted EBITDA to
Consolidated net income (loss) attributable to Arconic has been
updated for all periods presented to exclude the results of
operations for Alcoa Corporation, which have been reflected as
discontinued operations for all periods presented.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited)
(in millions, except per-share
amounts)
Adjusted income
Quarter ended Nine months ended
September 30,
2016
June 30,
2017
September 30,
2017
September 30,
2016
September 30,
2017
Net income attributable
to Arconic
$ 166 $ 212 $ 119 $ 317 $ 653 Discontinued operations(1)
(100 ) - - (88 ) - Special items: Restructuring and other
charges 3 26
19
33
118
Discrete tax items(2) 7 - 2 10 3 Other special
items(3) 73 (23 ) - 192 (348 ) Tax impact(4)
(12 ) (50
) (8 )
(30 ) 40
Net income attributable to Arconic – as adjusted
$
137
$
165
$ 132
$
434
$
466
Diluted EPS(5):
Net income attributable to Arconic common
shareholders
$
0.33
$
0.43
$ 0.22 $ 0.60 $ 1.31
Net income attributable to Arconic common
shareholders – as adjusted
$
0.27
$
0.32
$
0.25
$
0.86
$
0.91
Net income attributable to Arconic – as adjusted is a
non-GAAP financial measure. Management believes that this measure
is meaningful to investors because management reviews the operating
results of Arconic 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 attributable to Arconic determined under
GAAP as well as Net income attributable to Arconic – as adjusted.
(1) On November 1, 2016, the former Alcoa Inc. was separated
into two standalone, publicly-traded companies, Arconic and Alcoa
Corporation, by means of a pro rata distribution of 80.1 percent of
the outstanding common stock of Alcoa Corporation to Alcoa Inc.
shareholders. Accordingly, the results of operations of Alcoa
Corporation have been reflected as discontinued operations for the
quarter and nine months ended September 30, 2016. (2)
Discrete tax items for each period included a net charge related to
a number of small items. (3) Other special items included
the following:
•
for the quarter ended September 30, 2016,
an unfavorable tax impact resulting from the difference between
Arconic’s consolidated estimated annual effective tax rate and the
statutory rate applicable to special items ($68), costs associated
with the separation of Alcoa Inc. ($55), a favorable tax impact
related to the interim period treatment of operational income in
certain foreign jurisdictions for which no tax expense was
recognized ($30), and a favorable post-closing adjustment related
to the November 2014 acquisition of Firth Rixson ($20);
•
for the quarter ended June 30, 2017, a
gain on the exchange of the remaining portion of Arconic’s
investment in Alcoa Corporation common stock ($167), costs
associated with the Company’s early redemption of $1,250 of
outstanding senior notes ($76), proxy, advisory and
governance-related costs ($42), an unfavorable tax impact resulting
from the difference between Arconic’s consolidated estimated annual
effective tax rate and the statutory rate applicable to special
items ($30), and a favorable tax impact related to the interim
period treatment of operational losses in certain foreign
jurisdictions for which no tax benefit was recognized ($4);
•
for the quarter ended September 30, 2017,
legal and other advisory costs related to Grenfell Tower ($7) and a
favorable tax impact resulting from the difference between
Arconic’s consolidated estimated annual effective tax rate and the
statutory rate applicable to special items ($7);
•
for the nine months ended September 30,
2016, an unfavorable tax impact resulting from the difference
between Arconic’s consolidated estimated annual effective tax rate
and the statutory rate applicable to special items ($131), costs
associated with the separation of Alcoa Inc. ($118), a favorable
tax impact related to the interim period treatment of operational
losses in certain foreign jurisdictions for which no tax benefit
was recognized ($37); and a favorable post-closing adjustment
related to the November 2014 acquisition of Firth Rixson ($20);
and
•
for the nine months ended September 30,
2017, a gain on the sale of a portion of Arconic’s investment in
Alcoa Corporation common stock ($351), and a gain on the exchange
of the remaining portion of Arconic’s investment in Alcoa
Corporation common stock ($167), costs associated with the
Company’s early redemption of $1,250 of outstanding senior notes
($76), proxy, advisory, and governance-related costs ($58), costs
associated with the separation of Alcoa Inc. ($18), legal and other
advisory costs related to Grenfell Tower ($7), an unfavorable tax
impact resulting from the difference between Arconic’s consolidated
estimated annual effective tax rate and the statutory rate
applicable to special items ($6) and an unfavorable tax impact
related to the interim period treatment of operational losses in
certain foreign jurisdictions for which no tax benefit was
recognized ($5).
(4) The tax impact on special items is based on the
applicable statutory rates whereby the difference between such
rates and Arconic’s consolidated estimated annual effective tax
rate is itself a special item (see Note 3 above). (5) At a
special meeting of Arconic common shareholders held on October 5,
2016, shareholders approved a 1-for-3 reverse stock split of
Arconic’s outstanding and authorized shares of common stock which
became effective on October 6, 2016. All share and per share data
for all periods presented have been updated to reflect the reverse
stock split. The average number of shares applicable to
diluted EPS for Net income attributable to Arconic - as adjusted,
includes certain share equivalents as their effect was dilutive.
Specifically:
•
for the quarter ended September 30, 2016,
share equivalents associated with outstanding employee stock
options and awards and shares underlying outstanding convertible
debt (acquired through the acquisition of RTI) were dilutive based
on Net income attributable to Arconic common shareholders – as
adjusted, resulting in a diluted average number of shares of
453,152,896;
•
for the quarter ended June 30, 2017, share
equivalents associated with outstanding employee stock options and
awards and shares underlying outstanding convertible debt (acquired
through the acquisition of RTI) were dilutive based on Net income
attributable to Arconic common shareholders – as adjusted,
resulting in a diluted average number of shares of 461,826,510;
•
for the quarter ended September 30, 2017,
share equivalents associated with outstanding employee stock
options and awards and shares underlying outstanding convertible
debt (acquired through the acquisition of RTI) were dilutive based
on Net income attributable to Arconic common shareholders – as
adjusted, resulting in a diluted average number of shares of
462,055,864;
•
for the nine months ended September 30,
2016, share equivalents associated with outstanding employee stock
options and awards and shares underlying outstanding convertible
debt (acquired through the acquisition of RTI) were dilutive based
on Net income attributable to Arconic common shareholders – as
adjusted, resulting in a diluted average number of shares of
452,062,290; and
•
for the nine months ended September 30,
2017, share equivalents associated with outstanding employee stock
options and awards and shares underlying outstanding convertible
debt (acquired through the acquisition of RTI) were dilutive based
on Net income attributable to Arconic common shareholders – as
adjusted, resulting in a diluted average number of shares of
461,287,601.
Operational Tax
Rate Quarter ended
September 30, 2017
Nine months ended
September 30, 2017
As reported
Special
items(1)
As
adjusted
As
reported
Special
items(1)
As
adjusted
Income from continuing operations before income taxes $ 172
$ 26 $ 198 $ 925 $ (241 ) $ 684 Provision for income taxes $
53 $ 13 $ 66 $ 272 $ (54 ) $ 218 Tax rate 30.8 % 33.3
% 29.4 % 31.9 %
Operational tax rate is a non-GAAP
financial measure. Management believes that this measure is
meaningful to investors because management reviews the operating
results of Arconic 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 the Effective tax rate determined under GAAP as well
as the Operational tax rate.
(1) See Adjusted Income reconciliation above for a
description of special items.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
Consolidated Adjusted EBITDA
Quarter ended Nine months ended
September 30,
2016
June 30,
2017
September 30,
2017
September 30,
2016
September 30,
2017
Net income attributable to Arconic $ 166 $ 212 $ 119 $ 317 $
653 Discontinued operations(1)
(100
) - -
(88 ) -
Income from continuing operations after income taxes
and noncontrolling interests 66 212 119 229 653 Add:
Provision for income taxes 56 57 53 230 272 Other income, net (11 )
(171 ) (1 ) (40 ) (526 ) Interest expense 126 183 100 371 398
Restructuring and other charges 3 26 19 33 118 Provision for
depreciation and amortization
136
137 140
402 410
Consolidated adjusted EBITDA
$ 376
$ 444 $
430 $ 1,225
$ 1,325 Add: Separation
costs 54 - - 117 18 Proxy, advisory and governance-related costs -
42 - - 58 Legal and other advisory costs related to Grenfell Tower
- -
7 -
7 Consolidated adjusted EBITDA,
excluding special items
$ 430
$ 486 $
437 $ 1,342
$ 1,408 Sales $ 3,138 $
3,261 $ 3,236 $ 9,427 $ 9,689 Adjusted EBITDA margin 12.0 % 13.6 %
13.3 % 13.0 % 13.7 % Adjusted EBITDA margin, excluding special
items 13.7 % 14.9 % 13.5 % 14.2 % 14.5 % Arconic’s
definition of Adjusted EBITDA (Earnings before interest, taxes,
depreciation and amortization) is net margin plus an add-back for
depreciation 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 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 Arconic’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. Additionally,
Adjusted EBITDA, excluding special items is a non-GAAP financial
measure. Management believes that this measure is meaningful to
investors because management reviews the operating results of
Arconic excluding the impacts of special items, such as costs
associated with the separation of Alcoa Inc and proxy, advisory and
governance-related costs and legal and other advisory costs related
to Grenfell Tower (collectively “special items”). This measure
provides additional information with respect to Arconic’s operating
performance and the Company’s ability to meet its financial
obligations excluding such costs.
(1) On November 1, 2016, the former Alcoa Inc. was separated
into two standalone, publicly-traded companies, Arconic and Alcoa
Corporation, by means of a pro rata distribution of 80.1 percent of
the outstanding common stock of Alcoa Corporation to Alcoa Inc.
shareholders. Accordingly, the results of operations of Alcoa
Corporation have been reflected as discontinued operations for all
periods presented.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions, except per metric
ton amounts)
Segment Measures Engineered Products
and Solutions Quarter ended Nine
months ended
September 30,
2016
June 30,
2017
September 30,
2017
September 30,
2016
September 30,
2017
Adjusted EBITDA $ 296 $ 310 $ 312 $ 930 $ 928
Third-party sales $ 1,406 $ 1,484 $ 1,476 $ 4,320 $ 4,445
Adjusted EBITDA Margin 21.1 % 20.9 % 21.1 % 21.5 % 20.9 %
Global Rolled Products(1) Quarter ended
Nine months ended
September 30,
2016
June 30,
2017
September 30,
2017
September 30,
2016
September 30,
2017
Adjusted EBITDA $ 143 $ 164 $ 140 $ 461 $ 475 Total
shipments(2) (thousand metric tons) (kmt) 422 405 387 1,236 1,206
Adjusted EBITDA / Total shipments ($ per metric ton) $ 339 $
405 $ 362 $ 373 $ 394 Third-party sales $ 1,285 $ 1,268 $
1,234 $ 3,785 $ 3,751 Adjusted EBITDA Margin 11.1 % 12.9 %
11.3 % 12.2 % 12.7 %
Transportation and Construction
Solutions Quarter ended Nine months ended
September 30,
2016
June 30,
2017
September 30,
2017
September 30,
2016
September 30,
2017
Adjusted EBITDA $ 76 $ 82 $ 83 $ 216 $ 237
Third-party sales $ 450 $ 501 $ 517 $ 1,346 $ 1,467 Adjusted
EBITDA Margin 16.9 % 16.4 % 16.1 % 16.0 % 16.2 %
Arconic
Combined Segments Quarter ended Nine months ended
September 30,
2016
June 30,
2017
September 30,
2017
September 30,
2016
September 30,
2017
Combined segment adjusted EBITDA $ 515 $ 556 $ 535 $ 1,607 $
1,640 Combined segment third-party sales $ 3,141 $ 3,253 $
3,227 $ 9,451 $ 9,663 Combined segment adjusted EBITDA
margin 16.4 % 17.1 % 16.6 % 17.0 % 17.0 % Arconic’s
definition of Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) is net margin plus an add-back for
depreciation 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 and amortization. The
Adjusted EBITDA presented may not be comparable to similarly titled
measures of other companies. (1) Excludes the
Warrick, IN rolling operations and the equity interest in the
rolling mill at the joint venture in Saudi Arabia, both of which
were previously part of the Global Rolled Products segment but
became part of Alcoa Corporation effective November 1, 2016.
(2) Includes 65 thousand metric tons (kmt) and 72 kmt for the
quarters ended September 30, 2017 and June 30, 2017, respectively,
and 213 kmt for the nine months ended September 30, 2017 for the
Tennessee packaging business. These amounts represent the volume at
Arconic’s Tennessee operations associated with the toll processing
and services agreement that Arconic and Alcoa Corporation entered
into in connection with the separation of the companies. Pursuant
to this agreement, this amount is not reported in Arconic’s
shipments but has been included in the calculation of Adjusted
EBITDA / Total shipments for historical comparative purposes.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
Organic Revenue
Quarter ended Nine months ended
September 30,
2016
September 30,
2017
September 30,
2016
September 30,
2017
Arconic
Sales – Arconic $ 3,138 $ 3,236 $ 9,427 $ 9,689 Less: Sales
– Tennessee packaging 176 45 515 150 Sales – Fusina rolling mill 39
- 128 54 Sales – Remmele Medical - - 23 - Aluminum price impact n/a
115 n/a 283 Foreign currency impact
n/a
17 n/a (10
) Arconic Organic revenue
$
2,923 $ 3,059 $
8,761 $ 9,212
Global Rolled
Products Segment (GRP)(1)
Sales – GRP $ 1,285 $ 1,234 $ 3,785 $ 3,751 Less: Sales –
Tennessee packaging 176 45 515 150 Sales – Fusina rolling mill 39 -
128 54 Aluminum price impact n/a 102 n/a 259 Foreign currency
impact
n/a 5
n/a 11 GRP Organic
revenue
$ 1,070 $
1,082 $ 3,142 $
3,277 Organic revenue is a non-GAAP
financial measure. Management believes this measure is meaningful
to investors as it presents revenue on a comparable basis for all
periods presented due to the impact of the ramp-down and Toll
Processing and Services Agreement with Alcoa Corporation at the
North America packaging business at its Tennessee operations, the
sale of the Fusina, Italy rolling mill, the sale of the Remmele
Medical business, and the impact of changes in aluminum prices and
foreign currency fluctuations relative to the prior year periods.
(1) Excludes the Warrick, IN rolling operations and
the equity interest in the rolling mill at the joint venture in
Saudi Arabia, both of which were previously part of the Global
Rolled Products segment but became part of Alcoa Corporation
effective November 1, 2016.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
Free Cash Flow
(1) Quarter ended Nine months ended
September 30,
2016
June 30,
2017
September 30, 2017
September 30,
2016
September 30,
2017
Cash from operations $ 306 $ 217 $ 172 $ 208 $ 89
Capital expenditures
(286 )
(126 ) (131
) (814 )
(360 ) Free cash flow
$ 20 $
91 $ 41
$ (606 ) $
(271 ) 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 due to the fact that these expenditures are considered
necessary to maintain and expand Arconic’s asset base and are
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. (1)
On November 1, 2016, the former Alcoa Inc. was separated
into two standalone, publicly-traded companies, Arconic and Alcoa
Corporation, by means of a pro rata distribution of 80.1 percent of
the outstanding common stock of Alcoa Corporation to Alcoa Inc.
shareholders. Cash from operations and Capital expenditures for
Alcoa Corporation have not been segregated and are included in this
table for all periods prior to November 1, 2016.
Net Debt
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Short-term borrowings $ 36 $ 47 $ 48 $ 54 Long-term debt due
within one year 4 - - 1 Long-term debt, less amount due within one
year
8,044 8,046
6,796 6,802 Total debt $ 8,084 $
8,093 $ 6,844 $ 6,857 Less: Cash and cash equivalents
1,863 2,553
1,785 1,815 Net debt
$ 6,221 $ 5,540
$ 5,059 $ 5,042
Net debt is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
management assesses Arconic’s leverage position after factoring in
available cash that could be used to repay outstanding debt.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
Return on Net Assets (RONA)
Nine months ended September 30, 2017
Net income attributable to Arconic $ 653 Special items(1)
(187 ) Net income attributable to Arconic – as adjusted $ 466
Annualized net income attributable to Arconic - as adjusted
$ 621 Net Assets:
September 30,
2017
Add: Receivables from customers, less allowances $ 1,150 Add:
Deferred purchase program(2) 238 Add: Inventories 2,453 Less:
Accounts payable, trade 1,656 Working capital 2,185
Properties, plants, and equipment, net 5,526 Net
assets – total $ 7,711 RONA 8.1 % RONA is a non-GAAP
financial measure. RONA is calculated as adjusted net income
divided by working capital and net PP&E. Management believes
that this measure is meaningful to investors as RONA helps
management and investors determine the percentage of net income the
company is generating from its assets. This ratio tells how
effectively and efficiently the company is using its assets to
generate earnings. (1) See Reconciliation of Adjusted
Income for a description of special items. (2) The Deferred
purchase program relates to an arrangement to sell certain customer
receivables to several financial institutions on a recurring basis.
Arconic is adding back the receivable for the purposes of the
Working capital calculation.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171023005675/en/
Arconic Inc.Investors:Patricia Figueroa ,
212-836-2758Patricia.Figueroa@arconic.comorMedia:Shona Sabnis,
212-836-2626Shona.Sabnis@arconic.com
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