NEW YORK--(BUSINESS WIRE)--Arconic Inc. (NYSE: ARNC) today reported fourth quarter and full-year 2017 results.
The Company recorded fourth quarter 2017 revenue of $3.3 billion, up 10% year over year, driven by higher volumes across all segments and higher aluminum prices. Fourth quarter 2017 organic revenue was up 6% year over year. For full year 2017, revenue was $13.0 billion, up 5% year over year, driven by higher volumes across all segments and higher aluminum prices, partially offset by the impact of the planned ramp-down of the Company’s Tennessee Packaging operations and unfavorable product pricing and mix. Full year 2017 organic revenue was up 5% year over year.
Net loss attributable to Arconic in the fourth quarter was $727 million, or $1.51 per share. These results include $879 million in special items, principally due to impairments of goodwill in the forgings and extrusions business and assets in the Latin America extrusions business, the impact of U.S. tax reform, and reduction of liabilities for a contingent earn-out and a separation-related guarantee. For the full year 2017, the Company reported 2017 net loss attributable to Arconic of $74 million, or $0.28 per share.
Excluding special items, fourth quarter 2017 adjusted income was $152 million, or $0.31 per share, driven by net cost savings and higher volumes, which were partially offset by unfavorable product pricing and mix. Excluding the impact of special items, full year 2017 adjusted income was $618 million, or $1.22 per share.
Fourth quarter 2017 Consolidated adjusted EBITDA was $436 million, up 54% year over year. Consolidated adjusted EBITDA excluding special items was $446 million, up 24% year over year. Consolidated adjusted EBITDA margin excluding special items was 13.6%, up 150 basis points year over year, including a 190 basis point negative impact of higher aluminum prices, last-in-first-out (LIFO) and metal lag.
Full year 2017 Consolidated adjusted EBITDA was $1.8 billion, up 17% year over year. Consolidated adjusted EBITDA excluding special items was $1.9 billion, up 9% year over year. Consolidated adjusted EBITDA margin excluding special items was 14.3%, up 60 basis points year over year, including a 110 basis point year-over-year negative impact of higher aluminum prices, LIFO and metal lag.
Arconic continued its progress on cost reduction; in the fourth quarter, the Company delivered net cost savings of $68 million or 2.1% of revenue, and for the full year 2017, net cost savings of $232 million or 1.8% of revenue. Arconic delivered an improvement of $111 million year over year in selling, general and administrative expenses (SG&A) excluding special items.
Arconic Chief Executive Officer Chip Blankenship said, “In 2017, Arconic made progress on growing revenue and profits and taking out cost. However, a significant opportunity for improvement remains. Our challenge is to reinforce strengths, close gaps and identify new opportunities. My goal is to ensure that all of our businesses execute consistently and deliver outstanding returns for our shareholders.”
Blankenship continued, “Arconic has foundational strengths and incredible potential. I am convinced that if we stay focused on four priorities – customers, people, operational excellence and technology – we will deliver on Arconic’s potential.”
In the fourth quarter 2017, cash from operations was $612 million; cash used for financing activities totaled $45 million; and cash used for investing activities was $236 million. Free Cash Flow for the quarter was $376 million. In 2017, Arconic redeemed $1.25 billion of debt, ending the year with debt of $6.8 billion and cash on hand of $2.15 billion. Cash from operations in 2017 was $701 million. Free Cash Flow for the year was $105 million.
Fourth Quarter 2017 Segment Performance
Engineered Products and Solutions (EP&S)
EP&S reported revenue of $1.5 billion, an increase of 6% year over year, and Adjusted EBITDA of $296 million, up $31 million year over year. Increased aerospace volume in both engines and airframes coupled with strong net cost savings more than offset unfavorable price and mix. Adjusted EBITDA margin was 19.9%, up 110 basis points year over year.
Continuing Arconic’s efforts to lower its cost profile, EP&S consolidated its organizational structure, collapsing four business units into three and reducing layers. These changes are expected to save approximately $15 million in 2018 and create a streamlined organization to accelerate progress and deliver for customers and shareholders.
Global Rolled Products (GRP)
GRP reported revenue of $1.2 billion, an increase of 15% year over year. Organic revenue was up 7%. Adjusted EBITDA was $124 million, up $8 million year over year, driven by strong automotive volume and net cost savings, partially offset by reduced aerospace wide-body build rates, airframe destocking, pricing pressure in regional specialties, and the planned Tennessee Packaging ramp down. Adjusted EBITDA margin was 10.0%, down 80 basis points year over year, driven by a 160 basis point negative impact of higher aluminum prices.
Transportation and Construction Solutions (TCS)
TCS delivered revenue of $518 million, an increase of 14% year over year. Organic revenue was up 8%. Adjusted EBITDA was $84 million, up $9 million year over year, as higher volume and cost reductions more than offset headwinds, including unfavorable price and mix and higher aluminum prices. Adjusted EBITDA margin was 16.2%, down 20 basis points year over year, including a 170 basis point negative impact of higher aluminum prices.
Full Year 2017 Segment Performance
Segment performance in 2017 included the following:
- EP&S revenue of $5.9 billion, up 4% year over year, Adjusted EBITDA of $1.2 billion, up 2% year over year, and an Adjusted EBITDA margin of 20.6%, down 30 basis points year over year
- GRP revenue of $5.0 billion, up 3% year over year, organic revenue up 5% year over year, Adjusted EBITDA of $599 million, up 4% year over year, and an Adjusted EBITDA margin of 12.0%, up 10 basis points year over year, including a 140 basis point negative impact of higher aluminum prices
- TCS revenue of $2.0 billion, up 10% year over year, organic revenue up 7% year over year, Adjusted EBITDA of $321 million, up 10% year over year, and an Adjusted EBITDA margin of 16.2%, up 10 basis points year over year, including a 120 basis point negative impact of higher aluminum prices
Share Repurchase Program and Early Debt Reduction
To further enhance the Company’s financial position and return capital to shareholders, Arconic’s Board of Directors has authorized a share repurchase program of up to $500 million of its outstanding common stock and a $500 million early debt reduction. Under the share repurchase program, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate. Repurchases will be subject to market conditions, legal requirements and other considerations. The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the share repurchase program may be suspended, modified or terminated at any time without prior notice. The Company currently has approximately 483 million shares of common stock outstanding.
In addition, Arconic intends to redeem in March 2018 all of its outstanding 5.72% Notes due in 2019 in accordance with the terms of the notes and the Indenture, dated as of September 30, 1993, between Arconic and The Bank of New York Mellon Trust Company, N.A. as trustee. As of February 5, 2018, the aggregate outstanding principal amount of the Notes is $500 million.
Strategy and Portfolio Review
Chip Blankenship, who officially joined the Company on January 15, has initiated a review of Arconic’s strategy and portfolio. The Company expects to complete this review by the end of the year.
Global Headquarters Relocation
As part of the Company’s continued drive to reduce corporate overhead, Arconic announced that it will relocate its global headquarters in 2018 out of New York City to a more cost-effective location. The Company expects to complete the move by the end of 2018.
Full Year 2018 Guidance*
Arconic is providing the following 2018 guidance:
| Full Year 2018 | ||||||||||||||||||||
| Revenue | $13.4-$13.7 billion | |||||||||||||||||||
| Adjusted Earnings Per Share | $1.45-$1.55 | |||||||||||||||||||
| Free Cash Flow | ~$500 million |
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* Arconic has not provided a reconciliation of the forward-looking financial measures of adjusted earnings per share and free cash flow 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 February 5, 2018 to present quarterly and full year 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 Eastern Time on February 5.
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 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, 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.
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1 Organic revenue is U.S. GAAP revenue adjusted for Tennessee Packaging (due to its planned phase-down), divestitures, and changes in aluminum prices and foreign currency exchange rates 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 | ||||||||||||
| December 31, | September 30, | December 31, | ||||||||||
| 2017 | 2017 |
2016 (1) |
||||||||||
| Sales | $ | 3,271 | $ | 3,236 | $ | 2,967 | ||||||
| Cost of goods sold (exclusive of expenses below) | 2,656 | 2,626 | 2,375 | |||||||||
| Selling, general administrative, and other expenses | 151 | 155 | 269 | |||||||||
| Research and development expenses | 28 | 25 | 39 | |||||||||
| Provision for depreciation and amortization | 141 | 140 | 133 | |||||||||
| Impairment of goodwill | 719 | - | - | |||||||||
| Restructuring and other charges | 47 | 19 | 122 | |||||||||
| Operating (loss) income | (471 | ) | 271 | 29 | ||||||||
| Interest expense | 98 | 100 | 128 | |||||||||
| Other income, net (2) | (114 | ) | (1 | ) | (54 | ) | ||||||
| (Loss) income from continuing operations before income taxes | (455 | ) | 172 | (45 | ) | |||||||
| Provision for income taxes | 272 | 53 | 1,246 | |||||||||
| (Loss) income from continuing operations after income taxes | (727 | ) | 119 | (1,291 | ) | |||||||
| Income from discontinued operations after income taxes(1) | - | - | 38 | |||||||||
| Net (loss) income | (727 | ) | 119 | (1,253 | ) | |||||||
| Less: Net income from discontinued operations attributable to noncontrolling interests(1) | - | - | 5 | |||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO ARCONIC | $ | (727 | ) | $ | 119 | $ | (1,258 | ) | ||||
|
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO |
||||||||||||
| Basic(4)(5): | ||||||||||||
| Continuing operations | $ | (1.51 | ) | $ | 0.23 | $ | (2.98 | ) | ||||
| Discontinued operations | - | - | 0.07 | |||||||||
| Net (loss) income | $ | (1.51 | ) | $ | 0.23 | $ | (2.91 | ) | ||||
| Average number of shares(3)(5) | 481,339,090 | 441,512,709 | 438,486,935 | |||||||||
| Diluted(4)(5): | ||||||||||||
| Continuing operations | $ | (1.51 | ) | $ | 0.22 | $ | (2.98 | ) | ||||
| Discontinued operations | - | - | 0.07 | |||||||||
| Net (loss) income | $ | (1.51 | ) | $ | 0.22 | $ | (2.91 | ) | ||||
| Average number of shares(3)(5) | 481,339,090 | 462,055,864 | 438,486,935 | |||||||||
|
(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 December 31, 2016. | |
|
(2) |
Other income, net for the quarter ended December 31, 2017 included an adjustment of $81 to the contingent earn-out liability related to the 2014 acquisition of Firth Rixson (Firth Rixson earn-out) and an adjustment of $25 to a separation-related guarantee liability. Other income, net for the quarter ended December 31, 2016 included an adjustment of $56 to the Firth Rixson earn-out. | |
|
(3) |
In the fourth quarter of 2017, all outstanding depositary shares (each depositary share representing a 1/10 interest in a share of the mandatory convertible preferred stock) were converted into 39 million common shares. As a result, the basic and diluted average number of shares for the quarter ended December 31, 2017 includes the 39 million common shares. | |
|
(4) |
In order to calculate both basic and diluted (loss) earnings per share, preferred stock dividends of $18 and $17 for the quarters ended September 30, 2017 and December 31, 2016, respectively, need to be subtracted from Net (loss) income attributable to Arconic. |
|
|
(5) |
In the quarters ended December 31, 2017 and December 31, 2016, the diluted average number of shares does not include any share equivalents (21 million and 18 million, respectively) related to outstanding employee stock options and awards and shares underlying outstanding convertible debt (acquired through the acquisition of RTI International Metals, Inc (“RTI”)) as their effect was anti-dilutive. In the quarter ended September 30, 2017, the difference between the respective diluted average number of shares and the respective basic average number of shares relates to share equivalents (20 million) on outstanding employee stock options and awards and shares underlying outstanding convertible debt (acquired through the acquisition of RTI). | |
| Arconic and subsidiaries | ||||||||
| Statement of Consolidated Operations (unaudited) | ||||||||
| (in millions, except per-share and share amounts) | ||||||||
| Year ended | ||||||||
| December 31, | December 31, | |||||||
| 2017 |
2016 (1) |
|||||||
| Sales | $ | 12,960 | $ | 12,394 | ||||
| Cost of goods sold (exclusive of expenses below) | 10,357 | 9,811 | ||||||
| Selling, general administrative, and other expenses | 731 | 942 | ||||||
| Research and development expenses | 111 | 132 | ||||||
| Provision for depreciation and amortization | 551 | 535 | ||||||
| Impairment of goodwill | 719 | - | ||||||
| Restructuring and other charges | 165 | 155 | ||||||
| Operating income | 326 | 819 | ||||||
| Interest expense(2) | 496 | 499 | ||||||
| Other income, net(3) | (640 | ) | (94 | ) | ||||
| Income from continuing operations before income taxes | 470 | 414 | ||||||
| Provision for income taxes | 544 | 1,476 | ||||||
| Loss from continuing operations after income taxes | (74 | ) | (1,062 | ) | ||||
|
Income from discontinued operations after income taxes(1) |
- | 184 | ||||||
| Net loss | (74 | ) | (878 | ) | ||||
|
Less: Net income from discontinued operations attributable to noncontrolling interests(1) |
- | 63 | ||||||
| NET LOSS ATTRIBUTABLE TO ARCONIC | $ | (74 | ) | $ | (941 | ) | ||
| LOSS PER SHARE ATTRIBUTABLE TO ARCONIC COMMON SHAREHOLDERS: | ||||||||
| Basic(5): | ||||||||
| Continuing operations | $ | (0.28 | ) | $ | (2.58 | ) | ||
| Discontinued operations | - | 0.27 | ||||||
| Net loss | $ | (0.28 | ) | $ | (2.31 | ) | ||
| Average number of shares(4)(6) | 450,875,943 | 438,275,079 | ||||||
| Diluted(5): | ||||||||
| Continuing operations | $ | (0.28 | ) | $ | (2.58 | ) | ||
| Discontinued operations | - | 0.27 | ||||||
| Net loss | $ | (0.28 | ) | $ | (2.31 | ) | ||
| Average number of shares(4)(6) | 450,875,943 | 438,275,079 | ||||||
| Common stock outstanding at the end of the period(4) | 481,416,537 | 438,519,780 | ||||||
|
(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 year ended December 31, 2016. | |
| (2) | Interest expense for year ended December 31, 2017 included $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 year ended December 31, 2017 included: | |
|
• a $351 gain on the sale of a portion of Arconic’s investment in Alcoa Corporation common stock; |
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|
• 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; |
||
|
• an adjustment of $81 to the Firth Rixson earn-out; and |
||
|
• an adjustment of $25 to a separation-related guarantee liability. |
||
| Other income, net for the year ended December 31, 2016 included: | ||
|
• an adjustment of $56 to the Firth Rixson earn-out; and |
||
|
• a post-closing adjustment of $20 related to the Firth Rixson acquisition. |
||
| (4) | In the fourth quarter of 2017, all outstanding depositary shares (each depositary share representing a 1/10 interest in a share of the mandatory convertible preferred stock) were converted into 39 million common shares. As a result, the basic and diluted average number of shares for the year ended December 31, 2017 includes 10 million shares representing the weighted average number of shares for the length of time the 39 million shares were outstanding during 2017. | |
| (5) | In order to calculate both basic and diluted loss per share for the years ended December 31, 2017 and December 31, 2016, preferred stock dividends declared of $52 and $69, respectively, in each period need to be subtracted from Net loss attributable to Arconic. | |
| (6) | In the years ended December 31, 2017 and December 31, 2016, the diluted average number of shares does not include any share equivalents (20 million and 15 million, respectively) related to outstanding employee stock options and awards and shares underlying outstanding convertible debt (acquired through the acquisition of RTI) as their effect was anti-dilutive. | |
| Arconic and subsidiaries | ||||||||||
| Consolidated Balance Sheet (unaudited) | ||||||||||
| (in millions) | ||||||||||
| December 31, | December 31, | |||||||||
| 2017 | 2016 | |||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 2,150 | $ | 1,863 | ||||||
|
Receivables from customers, less allowances of |
1,035 | 974 | ||||||||
| Other receivables | 339 | 477 | ||||||||
| Inventories | 2,480 | 2,253 | ||||||||
| Prepaid expenses and other current assets | 374 | 325 | ||||||||
| Total current assets | 6,378 | 5,892 | ||||||||
| Properties, plants, and equipment | 11,986 | 11,572 | ||||||||
| Less: accumulated depreciation and amortization | 6,392 | 6,073 | ||||||||
| Properties, plants, and equipment, net | 5,594 | 5,499 | ||||||||
| Goodwill | 4,535 | 5,148 | ||||||||
| Deferred income taxes | 743 | 1,234 | ||||||||
| Investment in common stock of Alcoa Corporation | - | 1,020 | ||||||||
| Intangibles, net | 987 | 988 | ||||||||
| Other noncurrent assets | 481 | 257 | ||||||||
| Total assets | $ | 18,718 | $ | 20,038 | ||||||
| LIABILITIES | ||||||||||
| Current liabilities: | ||||||||||
| Short-term borrowings | $ | 37 | $ | 36 | ||||||
| Accounts payable, trade | 1,839 | 1,744 | ||||||||
| Accrued compensation and retirement costs | 399 | 398 | ||||||||
| Taxes, including income taxes | 75 | 85 | ||||||||
| Accrued interest payable | 124 | 153 | ||||||||
| Other current liabilities | 349 | 329 | ||||||||
| Long-term debt due within one year | 1 | 4 | ||||||||
| Total current liabilities | 2,824 | 2,749 | ||||||||
| Long-term debt, less amount due within one year | 6,806 | 8,044 | ||||||||
| Accrued pension benefits | 2,564 | 2,345 | ||||||||
| Accrued other postretirement benefits | 841 | 889 | ||||||||
| Other noncurrent liabilities and deferred credits | 759 | 870 | ||||||||
| Total liabilities | 13,794 | 14,897 | ||||||||
| EQUITY | ||||||||||
| Arconic shareholders’ equity: | ||||||||||
| Preferred stock | 55 | 55 | ||||||||
| Mandatory convertible preferred stock | - | 3 | ||||||||
| Common stock | 481 | 438 | ||||||||
| Additional capital | 8,266 | 8,214 | ||||||||
| Accumulated deficit | (1,248 | ) | (1,027 | ) | ||||||
| Accumulated other comprehensive loss | (2,644 | ) | (2,568 | ) | ||||||
| Total Arconic shareholders' equity | 4,910 | 5,115 | ||||||||
| Noncontrolling interests | 14 | 26 | ||||||||
| Total equity | 4,924 | 5,141 | ||||||||
| Total liabilities and equity | $ | 18,718 | $ | 20,038 | ||||||
| Arconic and subsidiaries | ||||||||||
| Statement of Consolidated Cash Flows (unaudited) | ||||||||||
| (in millions) | ||||||||||
| Year ended | ||||||||||
| December 31, | ||||||||||
| 2017 |
2016(1) |
|||||||||
| CASH FROM OPERATIONS | ||||||||||
| Net loss | $ | (74 | ) | $ | (878 | ) | ||||
| Adjustments to reconcile net loss to cash from operations: | ||||||||||
| Depreciation, depletion, and amortization | 551 | 1,132 | ||||||||
| Deferred income taxes | 434 | 1,125 | ||||||||
| Equity income, net of dividends | - | 42 | ||||||||
| Impairment of goodwill | 719 | - | ||||||||
| Restructuring and other charges | 165 | 257 | ||||||||
| Net gain from investing activities – asset sales(2) | (513 | ) | (156 | ) | ||||||
| Net periodic pension benefit cost | 217 | 304 | ||||||||
| Stock-based compensation | 67 | 86 | ||||||||
| Other | 61 | 60 | ||||||||
| Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: | ||||||||||
| (Increase) in receivables | (124 | ) | (238 | ) | ||||||
| (Increase) in inventories | (192 | ) | (29 | ) | ||||||
| Decrease (increase) in prepaid expenses and other current assets | 11 | (76 | ) | |||||||
| Increase in accounts payable, trade | 62 | 232 | ||||||||
| (Decrease) in accrued expenses | (116 | ) | (394 | ) | ||||||
| (Decrease) increase in taxes, including income taxes | (23 | ) | 93 | |||||||
| Pension contributions | (310 | ) | (290 | ) | ||||||
| (Increase) in noncurrent assets | (41 | ) | (152 | ) | ||||||
| (Decrease) in noncurrent liabilities | (193 | ) | (248 | ) | ||||||
| CASH PROVIDED FROM OPERATIONS | 701 | 870 | ||||||||
| FINANCING ACTIVITIES | ||||||||||
| Net change in short-term borrowings (original maturities of three months or less) | (2 | ) | (3 | ) | ||||||
| Additions to debt (original maturities greater than three months) | 816 | 1,962 | ||||||||
| Payments on debt (original maturities greater than three months) | (1,634 | ) | (2,734 | ) | ||||||
| Proceeds from exercise of employee stock options | 50 | 4 | ||||||||
| Dividends paid to shareholders | (162 | ) | (228 | ) | ||||||
| Distributions to noncontrolling interests | (14 | ) | (226 | ) | ||||||
| Contributions from noncontrolling interests | - | 51 | ||||||||
| Net cash transferred from Alcoa Corporation at separation | - | 421 | ||||||||
| Other | (17 | ) | (1 | ) | ||||||
| CASH USED FOR FINANCING ACTIVITIES | (963 | ) | (754 | ) | ||||||
| INVESTING ACTIVITIES | ||||||||||
| Capital expenditures | (596 | ) | (1,125 | ) | ||||||
| Acquisitions, net of cash acquired | - | 10 | ||||||||
| Proceeds from the sale of assets and businesses | (9 | ) | 692 | |||||||
| Additions to investments | (2 | ) | (52 | ) | ||||||
| Sales of investments(2) | 890 | 280 | ||||||||
| Net change in restricted cash | 12 | 14 | ||||||||
| Other(3) | 245 | 16 | ||||||||
| CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES | 540 | (165 | ) | |||||||
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
9 |
(7 |
) |
|||||||
| Net change in cash and cash equivalents | 287 | (56 | ) | |||||||
| Cash and cash equivalents at beginning of year | 1,863 | 1,919 | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 2,150 | $ | 1,863 | ||||||
| (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 year ended December 31, 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 year ended December 31, 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]) | ||||||||||||||||||||||||||||
| 4Q16 | 2016 | 1Q17 | 2Q17 | 3Q17 | 4Q17 | 2017 | ||||||||||||||||||||||
|
Engineered Products and Solutions: |
||||||||||||||||||||||||||||
| Third-party sales | $ | 1,408 | $ | 5,728 | $ | 1,485 | $ | 1,484 | $ | 1,476 | $ | 1,490 | $ | 5,935 | ||||||||||||||
| Depreciation and amortization | $ | 65 | $ | 255 | $ | 64 | $ | 66 | $ | 68 | $ | 70 | $ | 268 | ||||||||||||||
| Adjusted EBITDA | $ | 265 | $ | 1,195 | $ | 306 | $ | 310 | $ | 312 | $ | 296 | $ | 1,224 | ||||||||||||||
|
Global Rolled Products (1): |
||||||||||||||||||||||||||||
| Third-party aluminum shipments (kmt) | 276 | 1,339 | 310 | 307 | 297 | 283 | 1,197 | |||||||||||||||||||||
| Third-party sales | $ | 1,079 | $ | 4,864 | $ | 1,249 | $ | 1,268 | $ | 1,234 | $ | 1,241 | $ | 4,992 | ||||||||||||||
| Intersegment sales | $ | 30 | $ | 118 | $ | 34 | $ | 37 | $ | 36 | $ | 41 | $ | 148 | ||||||||||||||
| Depreciation and amortization | $ | 49 | $ | 201 | $ | 50 | $ | 51 | $ | 52 | $ | 52 | $ | 205 | ||||||||||||||
| Adjusted EBITDA | $ | 116 | $ | 577 | $ | 171 | $ | 164 | $ | 140 | $ | 124 | $ | 599 | ||||||||||||||
|
Transportation and Construction Solutions: |
||||||||||||||||||||||||||||
| Third-party sales | $ | 456 | $ | 1,802 | $ | 449 | $ | 501 | $ | 517 | $ | 518 | $ | 1,985 | ||||||||||||||
| Depreciation and amortization | $ | 13 | $ | 48 | $ | 12 | $ | 12 | $ | 13 | $ | 13 | $ | 50 | ||||||||||||||
| Adjusted EBITDA | $ | 75 | $ | 291 | $ | 72 | $ | 82 | $ | 83 | $ | 84 | $ | 321 | ||||||||||||||
| Reconciliation of combined segment adjusted EBITDA to consolidated net income (loss) attributable to Arconic: | ||||||||||||||||||||||||||||
| Combined segment adjusted EBITDA(2) | $ | 456 | $ | 2,063 | $ | 549 | $ | 556 | $ | 535 | $ | 504 | $ | 2,144 | ||||||||||||||
| Unallocated amounts: | ||||||||||||||||||||||||||||
| Depreciation and amortization | (133 | ) | (535 | ) | (133 | ) | (137 | ) | (140 | ) | (141 | ) | (551 | ) | ||||||||||||||
| Restructuring and other charges | (122 | ) | (155 | ) | (73 | ) | (26 | ) | (19 | ) | (47 | ) | (165 | ) | ||||||||||||||
|
Impairment of goodwill |
- |
- |
- |
- |
- |
(719 |
) |
(719 |
) |
|||||||||||||||||||
| Impact of LIFO | 8 | (18 | ) | (19 | ) | (11 | ) | (48 | ) | (32 | ) | (110 | ) | |||||||||||||||
| Metal price lag | 17 | 27 | 22 | 19 | 2 | 29 | 72 | |||||||||||||||||||||
| Corporate expense | (150 | ) | (454 | ) | (91 | ) | (91 | ) | (42 | ) | (50 | ) | (274 | ) | ||||||||||||||
| Other | (47 | ) | (109 | ) | (10 | ) | (29 | ) | (17 | ) | (15 | ) | (71 | ) | ||||||||||||||
| Operating income (loss) | $ | 29 | $ | 819 | $ | 245 | $ | 281 | $ | 271 | $ | (471 | ) | $ | 326 | |||||||||||||
| Other income, net(3) | 54 | 94 | 354 | 171 | 1 | 114 | 640 | |||||||||||||||||||||
| Interest expense(4) | (128 | ) | (499 | ) | (115 | ) | (183 | ) | (100 | ) | (98 | ) | (496 | ) | ||||||||||||||
| Income taxes | (1,246 | ) | (1,476 | ) | (162 | ) | (57 | ) | (53 | ) | (272 | ) | (544 | ) | ||||||||||||||
| Discontinued operations(5) | 33 | 121 | - | - | - | - | - | |||||||||||||||||||||
| Consolidated net income (loss) attributable to Arconic | $ | (1,258 | ) | $ | (941 | ) | $ | 322 | $ | 212 | $ | 119 | $ | (727 | ) | $ | (74 | ) | ||||||||||
| 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 December 31, 2016, an adjustment of $56 to the Firth Rixson earn-out; | |
|
• |
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; | |
|
• |
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 2018 Senior Notes; and | |
|
• |
For the quarter ended December 31, 2017, an adjustment of $81 to the Firth Rixson earn-out and an adjustment of $25 to a separation-related guarantee liability. | |
|
(4) |
Interest expense for the quarter ended June 30, 2017 includes $76 related to the early redemption of the Company’s outstanding 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 | Year ended | |||||||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||||||||
| Net (loss) income attributable to Arconic | $ | (727 | ) | $ | 119 | $ | (1,258 | ) | $ | (74 | ) | $ | (941 | ) | |||||||
| Discontinued operations(1) | - | - | (33 | ) | - | (121 | ) | ||||||||||||||
| Special items: | |||||||||||||||||||||
| Restructuring and other charges | 47 | 19 |
122 |
165 |
155 |
||||||||||||||||
| Discrete tax items(2) | 220 | 2 | 1,280 | 223 | 1,290 | ||||||||||||||||
| Other special items(3) | 612 | - | 4 | 264 | 196 | ||||||||||||||||
| Tax impact(4) | - | (8 | ) | (44 | ) | 40 | (74 | ) | |||||||||||||
| Net income attributable to Arconic – as adjusted |
$ |
152 |
$ |
132 |
$ | 71 |
$ |
618 |
$ |
505 |
|||||||||||
| Diluted EPS: | |||||||||||||||||||||
| Net (loss) income attributable to Arconic common shareholders |
$ |
(1.51 |
) |
$ |
0.22 |
$ |
(2.91 |
) |
$ |
(0.28 |
) |
$ |
(2.31 |
) |
|||||||
| Net income attributable to Arconic common shareholders – as adjusted |
$ |
0.31 |
$ |
0.25 |
$ |
0.12 |
$ |
1.22 |
$ |
0.98 |
|||||||||||
| 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 (loss) 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 year ended December 31, 2016. | ||
| (2) | Discrete tax items for each period included the following: | ||
|
• |
for the quarter ended December 31, 2017, a charge resulting from the enactment of the US Tax Cuts and Jobs Acts of 2017 that principally relates to the revaluation of US deferred tax assets and liabilities from 35% to 21% ($272), charge for a reserve against a foreign attribute resulting from the Company’s Delaware reincorporation ($23), partially offset by a benefit for the reversal of state valuation allowances ($69) and a number of small items ($6); | ||
|
• |
for the quarter ended September 30, 2017, a number of small items; | ||
|
• |
for the quarter ended December 31, 2016, a charge for valuation allowances related to the November 1, 2016 separation (see Note 1 above) ($1,267), a net charge for the remeasurement of certain deferred tax assets due to tax rate and tax law changes ($51), a net benefit for valuation allowances not associated with the separation ($29), and a net benefit for a number of small items ($9); | ||
|
• |
for the year ended December 31, 2017, a charge resulting from the enactment of the US Tax Cuts and Jobs Acts of 2017 that principally relates to the revaluation of US deferred tax assets and liabilities from 35% to 21% ($272), charge for a reserve against a foreign attribute resulting from the Company’s Delaware reincorporation ($23), partially offset by a benefit for the reversal of state valuation allowances ($69) and a number of small items ($3); and | ||
|
• |
for the year ended December 31, 2016, a charge for valuation allowances related to the November 1, 2016 separation (see Note 1 above) ($1,267), a net charge for the remeasurement of certain deferred tax assets due to tax rate and tax law changes ($51), a net benefit for valuation allowances not associated with the separation ($18), and a net benefit for a number of small items ($10). | ||
| (3) | Other special items included the following: | ||
|
• |
for the quarter ended December 31, 2017, an impairment of goodwill related to the forgings and extrusions business ($719), a favorable adjustment to the Firth Rixson earn-out ($81), a favorable adjustment to a separation-related guarantee liability ($25), legal and other advisory costs related to Grenfell Tower ($7), costs associated with the Company’s Delaware reincorporation ($3), 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 ($6), a favorable tax impact related to the interim period treatment of operational income in certain foreign jurisdictions for which no tax expense was recognized ($5); | ||
|
• |
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 quarter ended December 31, 2016, costs associated with the separation of Alcoa Inc. ($87), a favorable adjustment to the Firth Rixson earn-out ($56), a favorable tax benefit related to the currency impacts of a distribution of previously taxed income ($38), an unfavorable 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 tax impact resulting from the difference between Arconic’s consolidated estimated annual effective tax rate and the statutory rates applicable to special items ($26); | ||
|
• |
for the year ended December 31, 2017, an impairment of goodwill related to the forgings and extrusions business ($719), 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), a favorable adjustment to the Firth Rixson earn-out ($81), costs associated with the Company’s early redemption of $1,250 of outstanding senior notes ($76), proxy, advisory, and governance-related costs ($58), a favorable adjustment to a separation-related guarantee liability ($25), costs associated with the separation of Alcoa Inc. ($18), legal and other advisory costs related to Grenfell Tower ($14), and costs associated with the Company’s Delaware reincorporation ($3); and | ||
|
• |
for the year ended December 31, 2016, costs associated with the separation of Alcoa Inc. ($205), unfavorable tax costs associated with the redemption of company-owned life insurance policies ($100), a favorable adjustment to the contingent earn-out liability and a post-closing adjustment both of which related to the 2014 acquisition of Firth Rixson ($76), a favorable tax benefit related to the currency impacts of a distribution of previously taxed income ($49), and unfavorable tax costs associated with the sale of a US subsidiary with book goodwill ($16). | ||
| (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). | ||
| 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 December 31, 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 502,109,950; | ||
|
• |
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 quarter ended December 31, 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 443,779,820; | ||
|
• |
for the year ended December 31, 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 471,472,729; and | ||
|
• |
for the year ended December 31, 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 453,118,372. | ||
| Operational Tax Rate |
Quarter ended |
Year ended |
||||||||||||||||
|
As
reported |
Special
items(1) |
As
adjusted |
As
reported |
Special
items(1) |
As
adjusted |
|||||||||||||
| (Loss) income from continuing operations before income taxes | $ | (455) | $ | 671 | $ | 216 | $ | 470 | $ | 430 | $ | 900 | ||||||
| Provision for income taxes | $ | 272 | $ | (208) | $ | 64 | $ | 544 | $ | (262) | $ | 282 | ||||||
| Tax rate | N/A | 29.6% | 115.7% | 31.3% | ||||||||||||||
| 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 | Year ended | |||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Net (loss) income attributable to | |||||||||||||||
| Arconic | $ | (727) | $ | 119 | $ | (1,258) | $ | (74) | $ | (941) | |||||
| Discontinued operations(1) | - | - | (33) | - | (121) | ||||||||||
|
(Loss) income from continuing |
(727) | 119 | (1,291) | (74) | (1,062) | ||||||||||
| Add: | |||||||||||||||
| Provision for income taxes | 272 | 53 | 1,246 | 544 | 1,476 | ||||||||||
| Other income, net | (114) | (1) | (54) | (640) | (94) | ||||||||||
| Interest expense | 98 | 100 | 128 | 496 | 499 | ||||||||||
| Restructuring and other charges | 47 | 19 | 122 | 165 | 155 | ||||||||||
| Impairment of goodwill | 719 | - | - | 719 | - | ||||||||||
| Provision for depreciation and | |||||||||||||||
| amortization | 141 | 140 | 133 | 551 | 535 | ||||||||||
| Consolidated adjusted EBITDA | $ | 436 | $ | 430 | $ | 284 | $ | 1,761 | $ | 1,509 | |||||
| Add: | |||||||||||||||
| Separation costs | - | - | 76 | 18 | 193 | ||||||||||
| Proxy, advisory and | |||||||||||||||
| governance-related costs | - | - | - | 58 | - | ||||||||||
| Delaware reincorporation costs | 3 | - | - | 3 | - | ||||||||||
| Legal and other advisory costs related to Grenfell Tower | 7 | 7 | - | 14 | - | ||||||||||
| Consolidated adjusted EBITDA, | |||||||||||||||
| excluding special items | $ | 446 | $ | 437 | $ | 360 | $ | 1,854 | $ | 1,702 | |||||
| Sales | $ | 3,271 | $ | 3,236 | $ | 2,967 | $ | 12,960 | $ | 12,394 | |||||
| Adjusted EBITDA margin | 13.3% | 13.3% | 9.6% | 13.6% | 12.2% | ||||||||||
| Adjusted EBITDA margin, | |||||||||||||||
| excluding special items | 13.6% | 13.5% | 12.1% | 14.3% | 13.7% | ||||||||||
| 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 | Year ended | ||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Adjusted EBITDA | $ | 296 | $ | 312 | $ | 265 | $ | 1,224 | $ | 1,195 | |||||
| Third-party sales | $ | 1,490 | $ | 1,476 | $ | 1,408 | $ | 5,935 | $ | 5,728 | |||||
| Adjusted EBITDA Margin | 19.9% | 21.1% | 18.8% | 20.6% | 20.9% | ||||||||||
| Global Rolled Products(1) | |||||||||||||||
| Quarter ended | Year ended | ||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Adjusted EBITDA | $ | 124 | $ | 140 | $ | 116 | $ | 599 | $ | 577 | |||||
| Total shipments(2) (thousand metric tons) (kmt) | 360 | 387 | 353 | 1,566 | 1,587 | ||||||||||
| Adjusted EBITDA / Total shipments ($ per metric ton) | $ | 344 | $ | 362 | $ | 329 | $ | 383 | $ | 364 | |||||
| Third-party sales | $ | 1,241 | $ | 1,234 | $ | 1,079 | $ | 4,992 | $ | 4,864 | |||||
| Adjusted EBITDA Margin | 10.0% | 11.3% | 10.8% | 12.0% | 11.9% | ||||||||||
| Transportation and Construction Solutions | |||||||||||||||
| Quarter ended | Year ended | ||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Adjusted EBITDA | $ | 84 | $ | 83 | $ | 75 | $ | 321 | $ | 291 | |||||
| Third-party sales | $ | 518 | $ | 517 | $ | 456 | $ | 1,985 | $ | 1,802 | |||||
| Adjusted EBITDA Margin | 16.2% | 16.1% | 16.4% | 16.2% | 16.1% | ||||||||||
| Arconic Combined Segments | |||||||||||||||
| Quarter ended | Year ended | ||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Combined segment adjusted EBITDA | $ | 504 | $ | 535 | $ | 456 | $ | 2,144 | $ | 2,063 | |||||
| Combined segment third-party sales | $ | 3,249 | $ | 3,227 | $ | 2,943 | $ | 12,912 | $ | 12,394 | |||||
| Combined segment adjusted EBITDA margin | 15.5% | 16.6% | 15.5% | 16.6% | 16.6% | ||||||||||
| 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 54 thousand metric tons (kmt), 65 kmt, and 54 kmt for the quarters ended December 31, 2017, September 30, 2017, and December 31, 2016, respectively, and 267 kmt and 54 kmt for the years ended December 31, 2017 and December 31, 2016, respectively, 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 | Quarter ended | Year ended | |||||||||||||||
|
December 31, |
December 31, |
September 30, |
September 30, |
December 31, |
December 31, |
|||||||||||||
|
Arconic |
||||||||||||||||||
| Sales – Arconic | $ | 3,271 | $ | 2,967 | $ | 3,236 | $ | 3,138 | $ | 12,960 | $ | 12,394 | ||||||
| Less: | ||||||||||||||||||
| Sales – Tennessee packaging | 40 | 37 | 45 | 176 | 190 | 552 | ||||||||||||
| Sales – Fusina rolling mill | - | 37 | - | 39 | 54 | 165 | ||||||||||||
| Sales – Remmele Medical | - | - | - | - | - | 23 | ||||||||||||
| Aluminum price impact | 124 | n/a | 115 | n/a | 407 | n/a | ||||||||||||
| Foreign currency impact | 40 | n/a | 17 | n/a | 30 | n/a | ||||||||||||
| Arconic Organic revenue | $ | 3,067 | $ | 2,893 | $ | 3,059 | $ | 2,923 | $ | 12,279 | $ | 11,654 | ||||||
|
Global Rolled Products Segment (GRP)(1) |
||||||||||||||||||
| Sales – GRP | $ | 1,241 | $ | 1,079 | $ | 1,234 | $ | 1,285 | $ | 4,992 | $ | 4,864 | ||||||
| Less: | ||||||||||||||||||
| Sales – Tennessee packaging | 40 | 37 | 45 | 176 | 190 | 552 | ||||||||||||
| Sales – Fusina rolling mill | - | 37 | - | 39 | 54 | 165 | ||||||||||||
| Aluminum price impact | 113 | n/a | 102 | n/a | 372 | n/a | ||||||||||||
| Foreign currency impact | 10 | n/a | 5 | n/a | 21 | n/a | ||||||||||||
| GRP Organic revenue | $ | 1,078 | $ | 1,005 | $ | 1,082 | $ | 1,070 | $ | 4,355 | $ | 4,147 | ||||||
|
Transportation and Construction Solutions (TCS) |
||||||||||||||||||
| Sales – TCS | $ | 518 | $ | 456 | $ | 517 | $ | 450 | $ | 1,985 | $ | 1,802 | ||||||
| Less: | ||||||||||||||||||
| Aluminum price impact | 11 | n/a | 13 | n/a | 35 | n/a | ||||||||||||
| Foreign currency impact | 15 | n/a | 8 | n/a | 15 | n/a | ||||||||||||
| TCS Organic revenue | $ | 492 | $ | 456 | $ | 496 | $ | 450 | $ | 1,935 | $ | 1,802 | ||||||
| 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) | |||||||||||||||
|
Reconciliation of Adjusted |
Quarter ended | Year ended | |||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Sales | $ | 3,271 | $ | 3,236 | $ | 2,967 | $ | 12,960 | $ | 12,394 | |||||
|
Selling, general administrative, |
151 | 155 | 269 | 731 | 942 | ||||||||||
| SG&A % of sales | 4.6% | 4.8% | 9.1% | 5.6% | 7.6% | ||||||||||
| Special items: | |||||||||||||||
| Separation costs | - | - | 76 | 18 | 193 | ||||||||||
| Proxy, advisory and governance-related costs | - | - | - | 58 | - | ||||||||||
| Delaware reincorporation costs | 3 | - | - | 3 | - | ||||||||||
|
Legal and other advisory costs |
7 | 7 | - | 14 | - | ||||||||||
| Adjusted SG&A excluding special items | $ | 141 | $ | 148 | $ | 193 | $ | 638 | $ | 749 | |||||
|
Adjusted SG&A excluding |
4.3% | 4.6% | 6.5% | 4.9% | 6.1% | ||||||||||
| Adjusted SG&A excluding special items is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted SG&A excluding special items is more reflective of historical SG&A cost performance. | ||
|
(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) | ||||||||||||||||||||
| Free Cash Flow (1) | Quarter ended | Year ended | ||||||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||||||||||||
| Cash from operations | $ | 612 | $ | 172 | $ | 662 | $ | 701 | $ | 870 | ||||||||||
| Capital expenditures | (236 | ) | (131 | ) | (311 | ) | (596 | ) | (1,125 | ) | ||||||||||
| Free cash flow | $ | 376 | $ | 41 | $ | 351 | $ | 105 | $ | (255 | ) | |||||||||
|
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, |
September 30, |
June 30, |
March 31, |
December 31, |
||||||||||
| Short-term borrowings | $ | 37 | $ | 54 | $ | 48 | $ | 47 | $ | 36 | |||||
| Long-term debt due within one year | 1 | 1 | - | - | 4 | ||||||||||
| Long-term debt, less amount due within one year | 6,806 | 6,802 | 6,796 | 8,046 | 8,044 | ||||||||||
| Total debt | $ | 6,844 | $ | 6,857 | $ | 6,844 | $ | 8,093 | $ | 8,084 | |||||
| Less: Cash and cash equivalents | 2,150 | 1,815 | 1,785 | 2,553 | 1,863 | ||||||||||
| Net debt | $ | 4,694 | $ | 5,042 | $ | 5,059 | $ | 5,540 | $ | 6,221 | |||||
| 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) | Year ended | |||||
| December 31, 2017 | ||||||
| Net loss attributable to Arconic | $ | (74 | ) | |||
| Special items(1) | 692 | |||||
| Net income attributable to Arconic – as adjusted | $ | 618 | ||||
| Net Assets: | December 31, 2017 | |||||
| Add: Receivables from customers, less allowances | $ | 1,035 | ||||
| Add: Deferred purchase program(2) | 187 | |||||
| Add: Inventories | 2,480 | |||||
| Less: Accounts payable, trade | 1,839 | |||||
| Working capital | 1,863 | |||||
| Properties, plants, and equipment, net | 5,594 | |||||
| Net assets - total | $ | 7,457 | ||||
| RONA | 8.3 | % | ||||
| 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. |
