Strong productivity, solid value-add
profitability, and Alumina strength
3Q 2015 Highlights
- Net income of $44 million, or $0.02 per
share;excluding special items, net income of $109 million, or $0.07
per share
- $5.6 billion revenue down approximately
11 percent year-over-year, reflecting a 21 percent decline from
divestitures, closures and market headwinds, partially offset by a
10 percent revenue increase from aerospace and automotive organic
growth, acquisitions and Alumina sales
- $3.4 billion revenue, after-tax
operating income of $257 million, and adjusted EBITDA of $508
million for combined Value-Add businesses
- Engineered Products and Solutions
record revenue of $1.4 billion;aerospace revenue up 39 percent
year-over-year
- Global Rolled Products automotive
revenue up 133 percent year-over-year
- $2.2 billion revenue, after-tax
operating income of $153 million, and adjusted EBITDA of $379
million for combined Upstream businesses
- Best Alumina profitability year-to-date
since 2007, offset by Primary Metals as Midwest transaction price
declined $641 per metric ton, or 27.2 percent, year-to-date
- $287 million year-over-year
productivity gains; year-to-date productivity gains of $849
million, as compared to annual 2015 target of $900 million
- $420 million cash from operations and
free cash flow of $152 million; $1.7 billion cash on hand
3Q 2015 Portfolio Transformation Highlights
- Announced that Alcoa’s Board of
Directors unanimously approved plan to create two independent,
public companies—a Value-Add Company and an Upstream Company—
resulting from successful multi-year transformation
- Completed RTI International Metals
acquisition growing titanium offerings and advanced manufacturing
technologies; signed approximately $1.1 billion Lockheed Martin
contract that draws on new titanium capabilities gained through
RTI
- Signed an approximately $1 billion
contract with Airbus for high-tech, multi-material fastening
systems
- Announced $60 million Alcoa Technical
Center investment to deepen additive manufacturing capabilities for
aerospace and other high growth markets
- Reached joint development agreement
with Ford Motor Company to collaborate on next-generation aluminum
alloys using Alcoa MicromillTM technology; Alcoa Micromill®
material to debut on 2016 Ford F-150; signed letter of intent with
Danieli Group to commercialize Micromill technology in worldwide
licensing deal
- Began shipments from newly expanded
Alcoa, Tennessee automotive facility and announced plan to restart
Texarkana, Texas casthouse to meet higher aluminum demand from
automotive industry
- Received approval from Government of
Western Australia to export trial bauxite shipments from Willowdale
and Huntly mines, targeting early 2016
- Saudi Arabia Ma’aden-Alcoa joint
venture mine completed; smelter on track to produce nameplate
capacity of 740,000 metric tons of aluminum, and refinery projected
to produce 1 million metric tons of alumina, both in 2015
- Announced curtailment of remaining
capacity at Suralco refinery in Suriname; permanently closed
Anglesea coal mine and power station in Australia
Lightweight metals leader Alcoa (NYSE:AA) today reported a third
quarter profit as its value-add and upstream portfolios delivered
solid results in the face of strong market and currency headwinds.
Alcoa has been transforming by building its value-add portfolio for
profitable growth and creating a globally competitive upstream
business. The Company’s successful multi-year transformation will
culminate with the launch of two Fortune 500 companies, one
value-add focused and the other upstream focused, expected in the
second half of 2016.
Alcoa reported third quarter 2015 net income of $44 million, or
$0.02 per share, including $65 million in net unfavorable special
items. Special items included restructuring-related costs to
optimize the upstream portfolio and transaction costs, partially
offset by gains on asset sales. Third quarter 2015 results compare
to net income of $149 million, or $0.12 per share, in third quarter
2014.
Excluding special items, third quarter 2015 net income was $109
million, or $0.07 per share, led by strong productivity gains and
solid midstream and downstream profitability, offset by lower metal
prices. The Midwest transaction price was down $641 per metric ton,
or 27.2 percent, year-to-date through September 30, 2015. Third
quarter 2015 results, excluding special items, compare to net
income of $370 million, or $0.31 per share, in third quarter
2014.
Third quarter 2015 revenue totaled $5.6 billion, down
approximately 11 percent year-over-year. Divesting and closing
lower-margin businesses and market headwinds caused third quarter
revenue to fall 21 percent. This decrease was partially offset by a
10 percent third quarter revenue increase from organic growth in
aerospace, automotive and alumina, combined with acquisitions.
“The third quarter brought economic headwinds and significant
volatility in some of our markets,” said Klaus Kleinfeld, Chairman
and Chief Executive Officer. “We continue to be laser focused on
the things we can control. We have successfully made our Upstream
businesses less vulnerable to commodity downswings. We have
intensified innovation and growth in the Value-Add businesses,
and it shows through the solid underlying performance despite
currency movements and market fluctuations. Our productivity
performance was strong combined with good cash generation. While we
cannot control external factors, we do remain focused on what we
can control—making our businesses more resilient.”
2015 End Market Forecasts
In its global end markets, Alcoa maintained 2015 estimates for
global aerospace sales growth of 8 to 9 percent. In industrial gas
turbines, Alcoa increased its 2015 forecast for global airfoil
market growth of 3 to 4 percent, up from 1 to 3 percent.
In North America, Alcoa tightened 2015 estimates for automotive
production to up 2 to 4 percent, from up 1 to 4 percent; maintained
its 2015 estimate for heavy duty truck and trailer production
growth of 9 to 11 percent; held steady its 2015 projection for
commercial building and construction sales growth at 4 to 5
percent; and kept its 2015 packaging estimate unchanged at down 1
to 2 percent.
In Europe, the Company updated its projection for 2015
automotive production growth to up 1 to 3 percent, from down 1 to
up 3 percent; raised its 2015 heavy duty truck and trailer
production forecast to up 1 to 3 percent, from down 2 percent to
flat; maintained its 2015 commercial building and construction
sales growth estimate at down 2 to 3 percent; and kept its 2015
packaging estimate unchanged at up 1 to 2 percent.
In China, Alcoa lowered its estimate for 2015 automotive
production growth to up 1 to 2 percent, from up 5 to 8 percent;
reduced its projection for 2015 heavy duty truck and trailer
production growth to down 22 to 24 percent, from down 14 to 16
percent; reduced its 2015 commercial building and construction
sales growth to up 4 to 6 percent from up 6 to 8 percent; and kept
its 2015 packaging estimate unchanged at up 8 to 12 percent.
In addition, Alcoa reaffirmed its projections that global
aluminum demand is expected to increase 6.5 percent in 2015 and
double between 2010 and 2020; so far this decade, global demand
growth is tracking ahead of this projection. Alcoa is also
projecting a global aluminum deficit for 2016.
Value-Add Portfolio Transformation
After the separation, the innovation and technology-driven
Value-Add Company will include Global Rolled Products, Engineered
Products and Solutions, and Transportation and Construction
Solutions. In the third quarter, these combined business segments
reported revenue of $3.4 billion, after-tax operating income (ATOI)
of $257 million, and adjusted EBITDA of $508 million.
In the third quarter, the Company acquired RTI International
Metals. Earlier this month, Alcoa announced an approximately $1.1
billion contract with Lockheed Martin that draws on new titanium
capabilities gained through RTI. Under the contract, Alcoa becomes
the titanium supplier for airframe structures for all three
variants of the F-35 Joint Strike Fighter over nine years, from
2016 to 2024. RTI is expected to contribute $1.2 billion in revenue
and its profitability is expected to reach 25 percent EBITDA
margin, both in 2019. Separately, Alcoa announced an approximately
$1 billion contract with Airbus for high-tech, multi-material
fastening systems, Alcoa’s largest-ever fastener deal with the
aircraft manufacturer. Under the contract, Alcoa will supply
primarily titanium, steel and nickel-based superalloy fastening
systems for every Airbus platform.
The Company announced a $60 million expansion at the Alcoa
Technical Center to accelerate advanced 3D-printing materials and
processes. Alcoa is building a multi-metals powder facility to make
the critical input material for metallic 3D-printed parts. In
addition, Alcoa has developed the patented Ampliforge™ process.
With this process, the Company can design and 3D-print a near
complete part, and then treat it using a traditional manufacturing
process, such as forging, to enhance metallurgical properties,
including toughness and strength.
In automotive, Alcoa continued to make significant headway with
both its breakthrough Micromill technology and material, and
rolling mill investments to meet growing demand for aluminum
intensive vehicles. Alcoa’s automotive revenues are expected to
increase 2.4 times from 2014 to $1.8 billion in 2018.
In the third quarter:
- Ford and Alcoa announced a joint
development agreement to collaborate on advanced automotive
aluminum alloys using Micromill technology. Ford also said it will
debut Micromill material on its 2016 Ford F-150 truck, making it
the first automaker to use the advanced automotive aluminum
commercially. To date, the Company has Micromill qualification
agreements in place with nine major automotive customers on three
continents, including Ford.
- Alcoa signed a letter of intent with
the Danieli Group to work toward an agreement to license the
breakthrough Micromill technology to customers around the
world.
- A new midstream business unit,
Micromill Products and Services, was established to drive revenue
from licensing Alcoa’s intellectual property and technology
associated with manufacturing advanced Micromill products. The
business unit will provide services like training and technical
support as well as generate product sales from San Antonio Works
starting with automotive sheet in North America and expanding into
other market sectors and regions.
- In Tennessee, a $300 million automotive
plant expansion backed by customer contracts opened and began
shipments four months ahead of schedule. Alcoa also announced plans
to restart its Texarkana, Texas casthouse. It is expected to ramp
up production in the first half of 2016 and produce aluminum slab
for the North American automotive market.
The Company also realigned its value-add portfolio to drive
further profitable growth.
- In the third quarter, Alcoa created a
new downstream business segment, Transportation and Construction
Solutions (TCS), comprising Alcoa Wheel and Transportation Products
and Alcoa Building and Construction. The segment will expand into
emerging regional markets, in addition to capturing continued
growth in existing markets.
- Global Rolled Products is also
strengthening its ability to capture profitable growth
opportunities in attractive market sectors and regions. The segment
will now consist of four business units comprising Aerospace and
Automotive Products; Brazing, Commercial Transportation and
Industrial; Global Packaging; and Micromill Products and
Services.
Upstream Portfolio Transformation
After the separation, the Upstream Company will comprise five
strong business units that today make up Global Primary Products -
Bauxite, Alumina, Aluminum, Casting and Energy. In the third
quarter, the combined upstream businesses reported revenue of $2.2
billion, ATOI of $153 million, and adjusted EBITDA of $379
million.
Alcoa made progress in building its third-party bauxite
business. In the third quarter, the Company received approval from
the Government of Western Australia to export trial bauxite
shipments from its Willowdale and Huntly mines, targeted for early
2016. Alcoa has the world’s largest bauxite mining portfolio with a
low 19th percentile position on the global bauxite cost curve.
Since 2007, the Company has divested, closed or curtailed 1.4
million metric tons, or 33 percent, of total smelting operating
capacity. In addition, Alcoa’s review of 500,000 metric tons of
smelting capacity and 2.8 million metric tons of refining capacity
for possible curtailment or divestiture remains active.
In the third quarter, Alcoa:
- Announced the curtailment of the
remaining 887,000 metric-tons-per-year of Suralco’s alumina
refining capacity in Suriname. The refinery is scheduled to be
idled by November 30, 2015.
- Permanently closed the Anglesea coal
mine and power station in Australia on August 31, 2015.
- Completed the mine at the Ma’aden-Alcoa
joint venture in Saudi Arabia, the lowest cost aluminum complex in
the world. The joint venture’s smelter is on track to produce
nameplate capacity of 740,000 metric tons of aluminum and the
refinery is projected to produce 1 million metric tons of alumina,
both in 2015.
In addition, Alcoa has launched an improvement plan in its
Primary Metals segment to increase productivity between $110
million to $130 million in 2016.
As a result of strategic actions, Alcoa has dropped eight points
on the global aluminum cost curve since 2010 to the 43rd percentile
and is targeting the 38th percentile by 2016. On the global alumina
cost curve, Alcoa has dropped five points since 2010 to the 25th
percentile and is targeting the 21st percentile by 2016.
The Company also continued growing its value-add casthouse
products, which are projected to represent approximately 70 percent
of 2015 smelter shipments. From 2010 to 2014, growth of total
value-add product shipments from its smelters delivered $1.3
billion in total incremental margin. In Alumina, Alcoa estimates
approximately 75 percent of its total third-party smelter-grade
alumina shipments will be based on Alumina Price Index/spot market
pricing this year.
Financial Performance
Alcoa continues to drive strong performance across all
businesses, delivering $287 million in third quarter year-over-year
productivity gains and $849 million year-to-date against a $900
million 2015 annual target. Productivity gains have been driven by
process improvements and procurement savings across all segments.
Alcoa invested return-seeking capital of $389 million, compared to
a $750 million 2015 annual target. Approximately 80 percent of
year-to-date return seeking capital was invested in the value-add
businesses. Alcoa controlled sustaining capital expenditures of
$408 million against a $725 million 2015 annual plan.
Cash provided from operations was $420 million in the quarter
and free cash flow was $152 million. Alcoa ended the quarter with
cash on hand of $1.7 billion.
The Company achieved an average of 40 days working capital for
the quarter, 8 days higher than third quarter 2014 due to the
impact of the Firth Rixson, TITAL and RTI acquisitions. Excluding
the impact of the acquisitions, average days of working capital
decreased 1 day from 32 to 31. Alcoa’s debt-to-adjusted EBITDA
ratio on a trailing twelve months basis was 2.44.
Segment Performance
Engineered Products and Solutions
This segment reported record revenue of $1.4 billion, up 35
percent year-over-year, driven by acquisitions and share gains,
somewhat offset by unfavorable price/mix and currency. ATOI in the
third quarter was $151 million, down $4 million, year-over-year
from $155 million, including $16 million of after-tax expenses
attributable to purchase accounting adjustments and other costs in
connection with the acquisition of RTI. As a result, adjusted
EBITDA margin was 20.3 percent in third quarter 2015 compared to
25.7 percent in the year-ago quarter. Year-over-year, productivity
improvements and the positive contribution from the Firth Rixson
acquisition were offset by cost headwinds, investments for ramping
up growth projects and unfavorable price/mix.
Transportation and Construction Solutions
ATOI in the third quarter was $44 million, down $6 million
year-over-year. The decline was driven by cost headwinds and the
unfavorable impact from currency, which were offset by strong
productivity gains. This segment delivered an adjusted EBITDA
margin of 15.2 percent, compared to 15.5 percent for the same
quarter last year.
Global Rolled Products
ATOI in the third quarter was $62 million, down $7 million
year-over-year. Strong productivity and the benefit of automotive
sales growth of 133 percent, were more than offset by cost
increases, investments for ramping up growth projects (e.g.
Tennessee automotive expansion and Micromill), currency, portfolio
actions and unfavorable price/mix. As a result of this
segment’s transformation initiatives, including divestitures and
upgrading the product mix, adjusted EBITDA per metric ton was $330
in third quarter 2015, up 6 percent, or $18 per metric ton, from
$312 in the year-ago quarter.
Alumina
This segment reported ATOI of $212 million, its best
year-to-date profitability since 2007. Third quarter ATOI was down
$3 million sequentially from $215 million, and up $150 million
year-over-year from $62 million. Lower pricing drove the decline in
sequential ATOI, but was nearly offset by favorable foreign
currency movements, cost control and productivity improvements,
higher shipments based on Alumina Price Index/spot pricing, and
higher volume. Adjusted EBITDA per metric ton decreased $3 from
second quarter 2015 to $95 per metric ton in third quarter 2015 and
increased $49 per metric ton year-over-year.
Primary Metals
ATOI in the third quarter was a negative $59 million, down $126
million sequentially from $67 million, and down $304 million
year-over-year from $245 million. Sequential earnings declined due
to lower London Metal Exchange aluminum pricing, lower regional
premiums and unfavorable energy costs in Spain and the United
States. These impacts were somewhat offset by lower input costs,
strong productivity and favorable currency. Third-party realized
price in third quarter 2015 was $1,901 per metric ton, down 13
percent sequentially and down 25 percent year-over-year. Adjusted
EBITDA per metric ton in third quarter 2015 was $4, a sequential
decrease of $263 per metric ton.
Alcoa will hold its quarterly conference call at 5:00 PM
Eastern Daylight Time on October 8, 2015 to present quarterly
results. The meeting will be webcast via alcoa.com. Call
information and related details are available
at www.alcoa.com under
“Invest.” Presentation materials will be available for viewing
at www.alcoa.com.
About Alcoa
A global leader in lightweight metals technology, engineering
and manufacturing, Alcoa innovates multi-material solutions that
advance our world. Our technologies enhance transportation, from
automotive and commercial transport to air and space travel, and
improve industrial and consumer electronics products. We enable
smart buildings, sustainable food and beverage packaging, high
performance defense vehicles across air, land and sea, deeper oil
and gas drilling and more efficient power generation. We pioneered
the aluminum industry over 125 years ago, and today, our more than
60,000 people in 30 countries deliver value-add products made of
titanium, nickel and aluminum, and produce best-in-class bauxite,
alumina and primary aluminum products. For more information,
visit www.alcoa.com, follow @Alcoa on Twitter at
www.twitter.com/Alcoa and follow us on Facebook at
www.facebook.com/Alcoa.
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,” “intends,” “may,” “outlook,” “plans,”
“projects,” “seeks,” “sees,” “should,” “targets,”
“will,” “would,” or other words of similar meaning. All
statements that reflect Alcoa’s expectations, assumptions or
projections about the future other than statements of historical
fact are forward-looking statements, including, without limitation,
forecasts concerning global demand growth for aluminum,
supply/demand balances, and growth of the aerospace, automotive,
and other end markets; statements regarding targeted financial
results or operating performance; statements about Alcoa’s
strategies, outlook, business and financial prospects, and the
acceleration of Alcoa’s portfolio transformation; and statements
regarding the separation transaction, including the future
performance of Value-Add Company and Upstream Company if the
separation is completed, the expected benefits of the separation,
the expected timing of completion of the separation, and the
expected qualification of the separation as a tax-free transaction.
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 Alcoa
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) uncertainties as to the timing of the
separation and whether it will be completed; (b) the
possibility that various closing conditions for the separation may
not be satisfied; (c) failure of the separation to qualify for
the expected tax treatment; (d) the possibility that any
third-party consents required in connection with the separation
will not be received; (e) the impact of the separation on the
businesses of Alcoa; (f) the risk that the businesses will not
be separated successfully or such separation may be more difficult,
time-consuming or costly than expected, which could result in
additional demands on Alcoa’s resources, systems, procedures and
controls, disruption of its ongoing business and diversion of
management’s attention from other business concerns; (g)
material adverse changes in aluminum industry conditions;
(h) deterioration in global economic and financial market
conditions generally; (i) unfavorable changes in the markets
served by Alcoa; (j) the impact of changes in foreign currency
exchange rates on costs and results; (k) increases in energy
costs; (l) 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 (including moving the Upstream Company’s alumina
refining and aluminum smelting businesses down on the industry cost
curves and increasing revenues and improving margins in the
Value-Add Company’s businesses) anticipated from restructuring
programs and productivity improvement, cash sustainability,
technology advancements (including, without limitation, advanced
aluminum alloys, Alcoa Micromill, and other materials and
processes), and other initiatives; (m) Alcoa’s inability to
realize expected benefits, in each case as planned and by targeted
completion dates, from acquisitions, divestitures, facility
closures, curtailments, or expansions, or international joint
ventures; (n) political, economic, and regulatory risks in the
countries in which Alcoa operates or sells products; (o) the
outcome of contingencies, including legal proceedings, government
or regulatory investigations, and environmental remediation;
(p) the impact of cyber attacks and potential information
technology or data security breaches; (q) the potential
failure to retain key employees while the separation transaction is
pending or after it is completed; (r) the risk that increased
debt levels, deterioration in debt protection metrics, contraction
in liquidity, or other factors could adversely affect the targeted
credit ratings for Value-Add Company or Upstream Company; and
(s) the other risk factors discussed in Alcoa’s Form 10-K for
the year ended December 31, 2014, and other reports filed with
the U.S. Securities and Exchange Commission (SEC). Alcoa disclaims
any obligation to update publicly any forward-looking statements,
whether in response to new information, future events or otherwise,
except as required by applicable law. Market projections are
subject to the risks discussed above and other risks in the
market.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Alcoa’s consolidated financial information but is not presented in
Alcoa’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.alcoa.com under the “Invest” section.
Alcoa has not provided a reconciliation of any forward-looking
non-GAAP financial measures to the most directly comparable GAAP
financial measures, due primarily to variability and difficulty in
making accurate forecasts and projections, as not all of the
information necessary for a quantitative reconciliation is
available to the Company without unreasonable effort.
Alcoa and subsidiaries Statement of Consolidated
Operations (unaudited) (in millions, except per-share,
share, and metric ton amounts) Quarter ended
September 30, June 30, September
30, 2014 2015
2015 Sales $ 6,239 $ 5,897 $ 5,573 Cost
of goods sold (exclusive of expenses below) 4,904 4,663 4,559
Selling, general administrative, and other expenses 243 224 261
Research and development expenses 57 68 55 Provision for
depreciation, depletion, and amortization 347 319 318 Restructuring
and other charges 209 217 66 Interest expense 126 124 123 Other
expenses (income), net
23
– (15 ) Total costs and expenses
5,909 5,615 5,367 Income before income taxes 330 282 206
Provision for income taxes
199
75 100 Net income
131 207 106 Less: Net (loss) income attributable to
noncontrolling interests
(18 )
67 62 NET INCOME
ATTRIBUTABLE TO ALCOA
$ 149
$ 140 $ 44
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
COMMON SHAREHOLDERS:
Basic: Net income(1) $ 0.13 $ 0.10 $ 0.02 Average number of
shares(2) 1,176,560,799 1,222,413,890 1,280,536,623 Diluted:
Net income(1) $ 0.12 $ 0.10 $ 0.02 Average number of shares(3)
1,204,581,680 1,236,918,280 1,294,392,945 Shipments
of aluminum products (metric tons) 1,225,000 1,165,000 1,137,000
(1) In order to calculate both basic and diluted earnings
per share for the quarters ended June 30, 2015 and September 30,
2015, preferred stock dividends declared of $17 and $18,
respectively, need to be subtracted from Net income attributable to
Alcoa. (2) In the fourth quarter of 2014, Alcoa issued 37
million shares of its common stock as part of the consideration
paid to acquire Firth Rixson. As a result, the respective basic
average number of shares for the quarters ended June 30, 2015 and
September 30, 2015 includes all 37 million shares. Additionally, in
the third quarter of 2015, Alcoa issued 87 million shares of its
common stock to acquire RTI International Metals. As a result, the
basic average number of shares for the quarter ended September 30,
2015 includes 58 million representing the weighted average number
of shares for the length of time the 87 million shares were
outstanding during the third quarter of 2015. (3) In the
quarter ended September 30, 2014, the difference between the
diluted average number of shares and the basic average number of
shares relates to share equivalents associated with employee stock
options and awards (20 million) and mandatory convertible preferred
stock (8 million). In the quarters ended June 30, 2015 and
September 30, 2015, the difference between the respective diluted
average number of shares and the respective basic average number of
shares relates to share equivalents associated with outstanding
employee stock options and awards. The respective diluted average
number of shares for the quarters ended June 30, 2015 and September
30, 2015 does not include any share equivalents related to the
mandatory convertible preferred stock as their effect was
anti-dilutive. Additionally, the diluted average number of shares
for the quarter ended September 30, 2015 does not include any share
equivalents related to convertible debt (acquired through RTI
International Metals) as their effect was anti-dilutive.
Alcoa and subsidiaries Statement of Consolidated
Operations (unaudited), continued (in millions, except
per-share, share, and metric ton amounts) Nine months
ended September 30,
2014 2015
Sales $ 17,529 $ 17,289 Cost of goods sold (exclusive of
expenses below) 14,164 13,665 Selling, general administrative, and
other expenses 724 717 Research and development expenses 158 178
Provision for depreciation, depletion, and amortization 1,036 958
Restructuring and other charges 780 460 Interest expense 351 369
Other expenses (income), net
53
(27 ) Total costs and expenses 17,266 16,320
Income before income taxes 263 969 Provision for income taxes
200 401
Net income 63 568 Less: Net (loss) income
attributable to noncontrolling interests
(46 )
189 NET INCOME ATTRIBUTABLE TO
ALCOA
$ 109 $
379
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA
COMMON SHAREHOLDERS:
Basic: Net income(1) $ 0.09 $ 0.26 Average number of shares(2)
1,150,142,608 1,241,376,202 Diluted: Net income(1) $ 0.09 $
0.26 Average number of shares(3) 1,170,219,426 1,256,809,085
Common stock outstanding at the end of the period 1,177,672,033
1,310,024,012 Shipments of aluminum products (metric
tons) 3,598,000 3,393,000 (1) In order to calculate both
basic and diluted earnings per share for the nine months ended
September 30, 2014 and 2015, preferred stock dividends declared of
$2 and $52, respectively, need to be subtracted from Net income
attributable to Alcoa. (2) In the first quarter of 2014,
holders of $575 principal amount of Alcoa’s 5.25% Convertible Notes
due March 15, 2014 (the “Notes”) exercised their option to convert
the Notes into 89 million shares of Alcoa common stock. As a
result, the basic average number of shares for the nine months
ended September 30, 2014 includes 67 million representing the
weighted average number of shares for the length of time the 89
million shares were outstanding during the nine-month period of
2014, and the basic average number of shares for the nine months
ended September 30, 2015 includes all 89 million shares.
Additionally, in the fourth quarter of 2014, Alcoa issued 37
million shares of its common stock as part of the consideration
paid to acquire Firth Rixson. As a result, the basic average number
of shares for the nine months ended September 30, 2015 includes all
37 million shares. Furthermore, in the third quarter of
2015, Alcoa issued 87 million shares of its common stock to acquire
RTI International Metals. As a result, the basic average number of
shares for the nine months ended September 30, 2015 includes 20
million representing the weighted average number of shares for the
length of time the 87 million shares were outstanding during the
nine-month period of 2015. (3)
In the nine months ended September 30,
2014, the difference between the diluted average number of shares
and the basic average number of shares relates to share equivalents
associated with outstanding employee stock options and awards (17
million) and mandatory convertible preferred stock (3 million). The
diluted average number of shares for the nine months ended
September 30, 2014 does not include any share equivalents related
to the Notes as their effect was anti-dilutive. In the nine months
ended September 30, 2015, the difference between the diluted
average number of shares and the basic average number of shares
relates to share equivalents associated with outstanding employee
stock options and awards. The diluted average number of shares for
the nine months ended September 30, 2015 does not include any share
equivalents related to convertible debt (acquired through RTI
International Metals) or the mandatory convertible preferred stock
as their effect was anti-dilutive.
Alcoa and subsidiaries
Consolidated Balance Sheet (unaudited) (in millions)
December 31, September 30,
2014(1)
2015(1),(2)
ASSETS Current assets: Cash and cash equivalents $ 1,877 $ 1,739
Receivables from customers, less
allowances of $14 and $12 in 2014 and 2015, respectively
1,395 1,525 Other receivables 733 669 Inventories 3,082 3,559
Prepaid expenses and other current assets
1,182
1,100 Total current assets
8,269 8,592
Properties, plants, and equipment 35,517 33,237 Less: accumulated
depreciation, depletion, and amortization
19,091 18,485
Properties, plants, and equipment, net
16,426
14,752 Goodwill 5,247 5,443
Investments 1,944 1,647 Deferred income taxes 2,754 2,265 Other
noncurrent assets
2,759
3,888 Total assets
$
37,399 $ 36,587
LIABILITIES Current liabilities: Short-term
borrowings $ 54 $ 50 Accounts payable, trade 3,152 2,734 Accrued
compensation and retirement costs 937 825 Taxes, including income
taxes 348 421 Other current liabilities 1,021 981 Long-term debt
due within one year
29
136 Total current liabilities
5,541 5,147
Long-term debt, less amount due within one year 8,769 9,091 Accrued
pension benefits 3,291 2,968 Accrued other postretirement benefits
2,155 2,110 Other noncurrent liabilities and deferred credits
2,849 2,580
Total liabilities
22,605
21,896 EQUITY Alcoa shareholders’
equity: Preferred stock 55 55 Mandatory convertible preferred stock
3 3 Common stock 1,304 1,391 Additional capital 9,284 9,954
Retained earnings 9,379 9,553 Treasury stock, at cost (3,042 )
(2,830 ) Accumulated other comprehensive loss
(4,677 )
(5,532 ) Total Alcoa
shareholders' equity
12,306
12,594 Noncontrolling interests
2,488 2,097 Total
equity
14,794 14,691
Total liabilities and equity
$
37,399 $ 36,587
(1) On November 19, 2014, Alcoa completed the
acquisition of Firth Rixson. As a result, Alcoa’s Consolidated
Balance Sheet as of December 31, 2014 included an estimate of the
beginning balance sheet of Firth Rixson. This estimate resulted in
the allocation of $1,227 of the $3,125 purchase price (includes
$130 of contingent consideration) to various assets, primarily
Properties, plants, and equipment, and liabilities with the
difference included in Goodwill. In the 2015 nine-month period, an
adjustment of $94 was recorded to increase the estimated beginning
balance of certain assets acquired and to decrease the initial
amount recorded as Goodwill. This adjustment was based on currently
available information from a third-party valuation of the acquired
business, which was completed in the third quarter of 2015.
(2) The Consolidated Balance Sheet as of September 30, 2015
includes amounts related to the acquisition of RTI International
Metals. These amounts are composed of an estimate of the beginning
balance sheet of RTI International Metals on the acquisition date,
July 23, 2015, and the changes in these balances from July 23, 2015
through September 30, 2015. The estimate of the beginning balance
sheet is the result of allocating $661 of the $870 purchase price
to various assets, primarily Properties, plants, and equipment, and
liabilities with the difference included in Goodwill. The final
allocation of the purchase price will be based on a third-party
valuation of the acquired business, which will be completed in
2016.
Alcoa and subsidiaries Statement of
Consolidated Cash Flows (unaudited) (in millions)
Nine months ended September 30,
2014 2015
CASH FROM OPERATIONS Net income $ 63 $ 568 Adjustments to reconcile
net income to cash from operations: Depreciation, depletion, and
amortization 1,036 959 Deferred income taxes 2 (18 ) Equity income,
net of dividends 88 137 Restructuring and other charges 780 460 Net
gain from investing activities – asset sales (44 ) (69 ) Net
periodic pension benefit cost(1) 321 365 Stock-based compensation
71 78 Excess tax benefits from stock-based payment arrangements (7
) (9 ) Other 67 (65 ) Changes in assets and liabilities, excluding
effects of acquisitions, divestitures, and foreign currency
translation adjustments: (Increase) in receivables (665 ) (97 )
(Increase) in inventories (485 ) (176 ) (Increase) decrease in
prepaid expenses and other current assets (28 ) 31 Increase
(decrease) in accounts payable, trade 83 (240 ) (Decrease) in
accrued expenses (456 ) (424 ) (Decrease) increase in taxes,
including income taxes (51 ) 135 Pension contributions (446 ) (363
) Decrease (increase) in noncurrent assets(1),(2) 5 (348 )
(Decrease) in noncurrent liabilities(1)
(118 )
(207 ) CASH PROVIDED FROM OPERATIONS
216 717
FINANCING ACTIVITIES Net change in short-term borrowings (original
maturities of three months or less) – (6 ) Net change in commercial
paper 99 – Additions to debt (original maturities greater than
three months) 2,881 1,534 Debt issuance costs (16 ) (2 ) Payments
on debt (original maturities greater than three months)(3) (1,717 )
(1,551 ) Proceeds from exercise of employee stock options 128 26
Excess tax benefits from stock-based payment arrangements 7 9
Issuance of mandatory convertible preferred stock 1,213 – Dividends
paid to shareholders (105 ) (149 ) Distributions to noncontrolling
interests (75 ) (72 ) Contributions from noncontrolling interests
44 – Acquisitions of noncontrolling interests
(28 )
– CASH PROVIDED FROM
(USED FOR) FINANCING ACTIVITIES
2,431
(211 ) INVESTING ACTIVITIES Capital
expenditures (750 ) (782 ) Acquisitions, net of cash acquired(4) –
97 Proceeds from the sale of assets and businesses(5) 6 112
Additions to investments (137 ) (86 ) Sales of investments 49 40
Net change in restricted cash – (7 ) Other
25
23 CASH USED FOR INVESTING
ACTIVITIES
(807 )
(603 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
(5
)
(41
)
Net change in cash and cash equivalents 1,835 (138 ) Cash and cash
equivalents at beginning of year
1,437
1,877 CASH AND CASH EQUIVALENTS AT END
OF PERIOD
$ 3,272 $
1,739 (1) In the first quarter of 2015,
management decided to reflect the net periodic benefit cost related
to Alcoa-sponsored defined benefit pension plans as a separate line
item in the Statement of Consolidated Cash Flows. In prior periods,
a portion of this amount was reported in both the Decrease
(increase) in noncurrent assets (overfunded plans) and the
(Decrease) in noncurrent liabilities (underfunded plans) line
items. As a result, the Statement of Consolidated Cash Flows for
the nine months ended September 30, 2014 was revised to conform to
the current period presentation. (2) The Decrease (increase)
in noncurrent assets line item for the nine months ended September
30, 2015 includes a $300 prepayment related to a natural gas supply
agreement for three alumina refineries in Western Australia, which
are owned by Alcoa’s majority-owned subsidiary, Alcoa of Australia
Limited. (3) In the first quarter of 2014, holders of $575
principal amount of Alcoa’s 5.25% Convertible Notes due March 15,
2014 (the “Notes”) exercised their option to convert the Notes into
89 million shares of Alcoa common stock. This transaction was not
reflected in the Statement of Consolidated Cash Flows for the nine
months ended September 30, 2014 as it represents a noncash
financing activity. (4) In the third quarter of 2015, Alcoa
issued 87 million shares of its common stock valued at $870 to
acquire RTI International Metals. The issuance of common stock was
not reflected in the Statement of Consolidated Cash Flows for the
nine months ended September 30, 2015 as it represents a noncash
investing activity. However, through this acquisition, Alcoa
acquired $302 in cash, which was reflected as a cash inflow in the
Acquisitions, net of cash acquired line item on the Statement of
Consolidated Cash Flows for the nine months ended September 30,
2015. (5) Proceeds from the sale of assets and businesses
for the nine months ended September 30, 2015 includes a cash
outflow for cash paid as a result of post-closing adjustments
associated with the December 2014 divestiture of three rolling
mills in Spain and France.
Alcoa and subsidiaries
Segment Information (unaudited) (dollars in millions,
except realized prices; production and shipments in thousands of
metric tons [kmt]) 1Q14
2Q14 3Q14
4Q14 2014
1Q15 2Q15
3Q15 Alumina: Alumina production (kmt)
4,172 4,077 4,196 4,161 16,606 3,933 3,977 3,954 Third-party
alumina shipments (kmt) 2,649 2,361 2,714 2,928 10,652 2,538 2,706
2,798 Third-party sales $ 845 $ 761 $ 886 $ 1,017 $ 3,509 $ 887 $
924 $ 912 Intersegment sales $ 510 $ 480 $ 482 $ 469 $ 1,941 $ 501
$ 431 $ 391 Equity loss $ (5 ) $ (7 ) $ (7 ) $ (10 ) $ (29 ) $ (7 )
$ (11 ) $ (9 ) Depreciation, depletion, and amortization $ 97 $ 100
$ 100 $ 90 $ 387 $ 80 $ 77 $ 71 Income taxes $ 40 $ 12 $ 26 $ 75 $
153 $ 92 $ 87 $ 85 After-tax operating income (ATOI) $ 92
$ 38 $ 62 $ 178
$ 370 $ 221 $ 215
$ 212
Primary Metals: Aluminum production
(kmt) 839 795 760 731 3,125 711 701 700 Third-party aluminum
shipments (kmt) 617 638 642 637 2,534 589 630 615 Alcoa’s average
realized price per metric ton of aluminum
$
2,205
$
2,291
$
2,538
$
2,578
$
2,405
$
2,420
$
2,180
$
1,901
Third-party sales $ 1,424 $ 1,659 $ 1,865 $ 1,852 $ 6,800 $ 1,572 $
1,534 $ 1,249 Intersegment sales $ 734 $ 718 $ 730 $ 749 $ 2,931 $
692 $ 562 $ 479 Equity (loss) income $ (28 ) $ (17 ) $ – $ 11 $ (34
) $ (3 ) $ (5 ) $ (7 ) Depreciation, depletion, and amortization $
124 $ 129 $ 124 $ 117 $ 494 $ 109 $ 109 $ 106 Income taxes $ (11 )
$ 30 $ 95 $ 89 $ 203 $ 57 $ 6 $ (49 ) ATOI $ (15 ) $
97 $ 245 $ 267 $ 594
$ 187 $ 67 $ (59 )
Global Rolled Products: Third-party aluminum shipments (kmt)
467 504 506 487 1,964 432 462 449 Third-party sales $ 1,677 $ 1,860
$ 1,926 $ 1,888 $ 7,351 $ 1,621 $ 1,668 $ 1,527 Intersegment sales
$ 43 $ 44 $ 52 $ 46 $ 185 $ 36 $ 34 $ 29 Equity loss $ (5 ) $ (6 )
$ (8 ) $ (8 ) $ (27 ) $ (9 ) $ (7 ) $ (8 ) Depreciation, depletion,
and amortization $ 58 $ 58 $ 62 $ 57 $ 235 $ 56 $ 56 $ 56 Income
taxes(1) $ 29 $ 18 $ 26 $ 16 $ 89 $ 36 $ 25 $ 28 ATOI(1) $
54 $ 70 $ 69 $ 52
$ 245 $ 54 $ 76 $
62
Engineered Products and
Solutions(2): Third-party sales $ 1,025 $ 1,044 $
1,034 $ 1,114 $ 4,217 $ 1,257 $ 1,279 $ 1,397 Depreciation,
depletion, and amortization $ 31 $ 32 $ 32 $ 42 $ 137 $ 51 $ 54 $
61 Income taxes(1) $ 75 $ 81 $ 78 $ 64 $ 298 $ 76 $ 81 $ 71 ATOI(1)
$ 147 $ 153 $ 155
$ 124 $ 579 $ 156 $ 165
$ 151
Transportation and
Construction Solutions(2): Third-party sales $
482 $ 516 $ 523 $ 500 $ 2,021 $ 471 $ 492 $ 475 Depreciation,
depletion, and amortization $ 10 $ 11 $ 10 $ 11 $ 42 $ 10 $ 11 $ 11
Income taxes(1) $ 16 $ 19 $ 20 $ 14 $ 69 $ 14 $ 17 $ 18 ATOI(1)
$ 42 $ 50 $ 50 $
38 $ 180 $ 38 $ 44
$ 44
Reconciliation of total segment ATOI
to consolidated net (loss) income attributable to
Alcoa(2): Total segment ATOI(1) $ 320 $ 408 $ 581
$ 659 $ 1,968 $ 656 $ 567 $ 410 Unallocated amounts (net of tax):
Impact of LIFO (7 ) (8 ) (18 ) (21 ) (54 ) 7 36 50 Metal price
lag(1) 7 11 38 22 78 (23 ) (39 ) (48 ) Interest expense (78 ) (69 )
(81 ) (80 ) (308 ) (80 ) (80 ) (80 ) Noncontrolling interests 19 9
18 45 91 (60 ) (67 ) (62 ) Corporate expense (65 ) (67 ) (72 ) (80
) (284 ) (62 ) (65 ) (72 ) Restructuring and other charges (321 )
(77 ) (189 ) (307 ) (894 ) (161 ) (159 ) (48 ) Other
(53 ) (69 ) (128 ) (79 )
(329 ) (82 ) (53 )
(106 ) Consolidated net (loss) income attributable to Alcoa
$
(178
)
$
138
$
149
$
159
$
268
$
195
$
140
$
44
The difference between certain segment totals and
consolidated amounts is in Corporate. (1) Effective in the
second quarter of 2015, management removed the impact of metal
price lag from the results of the Global Rolled Products and
Engineered Products and Solutions (now Engineered Products and
Solutions and Transportation and Construction Solutions – see
footnote 2 below) segments in order to enhance the visibility of
the underlying operating performance of these businesses. Metal
price lag describes the timing difference created when the average
price of metal sold differs from the average cost of the metal when
purchased by the respective segment. The impact of metal price lag
is now reported as a separate line item in Alcoa’s reconciliation
of total segment ATOI to consolidated net (loss) income
attributable to Alcoa. As a result, this change does not impact the
consolidated results of Alcoa. Segment information for all prior
periods presented was updated to reflect this change. (2) In
the third quarter of 2015, management approved a realignment of
Alcoa’s Engineered Products and Solutions segment due to the
expansion of this part of Alcoa’s business portfolio through both
organic and inorganic growth. This realignment consisted of moving
both the Alcoa Wheels and Transportation Products and Building and
Constructions Systems business units to a new reportable segment
named Transportation and Construction Solutions. Additionally, the
Latin American extrusions business previously included in Corporate
was moved into the new Transportation and Construction Solutions
segment. The remaining Engineered Products and Solutions segment
consists of the Alcoa Fastening Systems and Rings (renamed to
include portions of the Firth Rixson business acquired in November
2014), Alcoa Power and Propulsion (includes the TITAL business
acquired in March 2015), Alcoa Forgings and Extrusions (includes
the other portions of Firth Rixson), and Alcoa Titanium and
Engineered Products (a new business unit that represents the RTI
International Metals business acquired in July 2015) business
units. Segment information for all prior periods presented was
revised to reflect the new segment structure.
Alcoa and subsidiaries Calculation of Financial
Measures (unaudited) (in millions, except per-share
amounts) Adjusted Income Income Diluted
EPS Quarter ended Quarter ended
September
30,2014
June
30,2015
September
30,2015
September
30,2014
June
30,2015
September
30,2015
Net income attributable to Alcoa $ 149 $ 140 $ 44 $ 0.12 $
0.10 $ 0.02 Restructuring and other charges
175
141
30
Discrete tax items(1)
25
(5
)
4
Other special items(2)
21
(26
)
31
Net income attributable to Alcoa – as adjusted
$
370
$
250
$
109
0.31
0.19
0.07
Net income attributable to Alcoa – as adjusted is a non-GAAP
financial measure. Management believes that this measure is
meaningful to investors because management reviews the operating
results of Alcoa 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 Alcoa determined under
GAAP as well as Net income attributable to Alcoa – as adjusted.
(1) Discrete tax items include the following:
- for the quarter ended September 30,
2015, a net charge for a number of small items;
- for the quarter ended June 30, 2015, a
net benefit for a number of small items; and
- for the quarter ended September 30,
2014, a charge for the remeasurement of certain deferred tax assets
of a subsidiary in Brazil due to a tax rate change ($34) and a net
benefit for a number of small items ($9).
(2) Other special items include the following:
- for the quarter ended September 30,
2015, an unfavorable tax impact resulting from the difference
between Alcoa’s consolidated estimated annual effective tax rate
and the statutory rates applicable to special items ($27), a gain
on the sale of both land and an equity investment in a China
rolling mill ($25), costs associated with the planned separation of
Alcoa and the acquisition of RTI International Metals ($22), a
favorable tax impact related to the interim period treatment of
operational losses in certain foreign jurisdictions for which no
tax benefit was recognized ($16), a write-down of inventory related
to a refinery in Suriname ($13), and a net unfavorable change in
certain mark-to-market energy derivative contracts ($10);
- for the quarter ended June 30, 2015, a
favorable tax impact related to the interim period treatment of
operational losses in certain foreign jurisdictions for which no
tax benefit was recognized ($21), a gain on the sale of land ($19),
costs associated with the then-planned acquisition of RTI
International Metals ($5), an unfavorable tax impact resulting from
the difference between Alcoa’s consolidated estimated annual
effective tax rate and the statutory rates applicable to special
items ($4), a net unfavorable change in certain mark-to-market
energy derivative contracts ($3), and a write-down of inventory
related to the permanent closures of a smelter in Brazil and a
power station in Australia ($2); and
- for the quarter ended September 30,
2014, a favorable tax impact resulting from the difference between
Alcoa’s consolidated estimated annual effective tax rate and the
statutory rates applicable to special items ($33), a write-down of
inventory related to the permanent closure of smelters in Italy and
Australia ($27), costs associated with the then-planned acquisition
of Firth Rixson ($14), a net unfavorable change in certain
mark-to-market energy derivative contracts ($14), a gain on the
sale of an equity investment in a China rolling mill ($9), 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 ($8).
Alcoa and subsidiaries Calculation of
Financial Measures (unaudited), continued (dollars in
millions) Adjusted EBITDA
Quarter ended
Trailing twelvemonths
September 30,
2014
June 30,
2015
September 30,
2015
September 30,
2015
Net income attributable to Alcoa $ 149 $ 140 $ 44 $ 538
Add: Net (loss) income attributable to noncontrolling
interests
(18
)
67
62
144
Provision for income taxes 199 75 100 521 Other expenses (income),
net 23 – (15 ) (33 ) Interest expense 126 124 123 491 Restructuring
and other charges 209 217 66 848 Provision for depreciation,
depletion, and amortization
347
319
318
1,293
Adjusted EBITDA
$ 1,035
$ 942 $
698 $ 3,802
Adjusted EBITDA Measures: Sales $ 6,239 $
5,897 $ 5,573 Adjusted EBITDA Margin 16.6 % 16.0 % 12.5 %
Total Debt $ 9,277 Debt-to-Adjusted EBITDA Ratio 2.44
Alcoa’s definition of Adjusted EBITDA (Earnings before interest,
taxes, depreciation, and amortization) is net margin plus an
add-back for depreciation, depletion, and amortization. Net margin
is equivalent to Sales minus the following items: Cost of goods
sold; Selling, general administrative, and other expenses; Research
and development expenses; and Provision for depreciation,
depletion, and amortization. Adjusted EBITDA is a non-GAAP
financial measure. Management believes that this measure is
meaningful to investors because Adjusted EBITDA provides additional
information with respect to Alcoa’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.
Alcoa and subsidiaries Calculation
of Financial Measures (unaudited), continued (dollars in
millions, except per metric ton amounts) Segment
Measures Alumina Primary Metals Adjusted
EBITDA Quarter ended
September
30,2014
June
30,2015
September
30,2015
September
30,2014
June
30,2015
September
30,2015
After-tax operating income (ATOI) $ 62 $ 215 $ 212 $ 245 $
67 $ (59) Add: Depreciation, depletion, and amortization
100
77
71
124
109
106
Equity loss 7 11 9 – 5 7 Income taxes 26 87 85 95 6 (49) Other
(2)
– (1)
1
– (2) Adjusted EBITDA
$ 193
$ 390
$ 376
$ 465
$ 187
$ 3
Production (thousand metric tons) (kmt)
4,196
3,977
3,954
760
701
700
Adjusted EBITDA / Production ($ per metric ton)
$ 46
$ 98
$ 95
$ 612
$ 267
$ 4
Alcoa’s definition of Adjusted EBITDA (Earnings before interest,
taxes, depreciation, and amortization) is net margin plus an
add-back for depreciation, depletion, and amortization. Net margin
is equivalent to Sales minus the following items: Cost of goods
sold; Selling, general administrative, and other expenses; Research
and development expenses; and Provision for depreciation,
depletion, and amortization. The Other line in the table above
includes gains/losses on asset sales and other nonoperating items.
Adjusted EBITDA is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
Adjusted EBITDA provides additional information with respect to
Alcoa’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.
Alcoa and subsidiaries Calculation of Financial
Measures (unaudited), continued (dollars in millions, except
per metric ton amounts) Segment Measures
Global Rolled Products(1) Adjusted EBITDA
Quarter ended
September
30,2014
June
30,2015
September
30,2015
After-tax operating income (ATOI) $ 69 $ 76 $ 62 Add:
Depreciation, depletion, and amortization
62
56
56
Equity loss 8 7 8 Income taxes 26 25 28 Other
(1 )
– (1 )
Adjusted EBITDA
$
164
$
164
$
153
Total shipments (thousand metric tons) (kmt)
526
479
464
Adjusted EBITDA / Total shipments ($ per metric ton)
$
312
$
342
$
330
Alcoa’s definition of Adjusted EBITDA (Earnings before interest,
taxes, depreciation, and amortization) is net margin plus an
add-back for depreciation, depletion, and amortization. Net margin
is equivalent to Sales minus the following items: Cost of goods
sold; Selling, general administrative, and other expenses; Research
and development expenses; and Provision for depreciation,
depletion, and amortization. The Other line in the table above
includes gains/losses on asset sales and other nonoperating items.
Adjusted EBITDA is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
Adjusted EBITDA provides additional information with respect to
Alcoa’s operating performance and the Company’s ability to meet its
financial obligations. The Adjusted EBITDA presented may not be
comparable to similarly titled measures of other companies.
(1) Effective in the second quarter of 2015, management
removed the impact of metal price lag from the results of the
Global Rolled Products segment in order to enhance the visibility
of the underlying operating performance of this business. Metal
price lag describes the timing difference created when the average
price of metal sold differs from the average cost of the metal when
purchased by this segment. The impact of metal price lag is now
reported as a separate line item in Alcoa’s reconciliation of total
segment ATOI to consolidated net (loss) income attributable to
Alcoa. As a result, this change does not impact the consolidated
results of Alcoa. Segment information for all prior periods
presented was updated to reflect this change. See Segment
Information above for additional information.
Alcoa and subsidiaries Calculation of Financial
Measures (unaudited), continued (dollars in millions)
Segment Measures Engineered Products and
Solutions(1),(2) Transportation and Construction
Solutions(1),(2) Adjusted EBITDA Quarter
ended
September
30,2014
June
30,2015
September
30,2015
September
30,2014
June
30,2015
September
30,2015
After-tax operating income (ATOI) $ 155 $ 165 $ 151 $ 50 $
44 $ 44 Add: Depreciation, depletion, and amortization
32
54
61
10
11
11
Income taxes 78 81 71 20 17 18 Other
1
1 –
1 (1 )
(1 ) Adjusted EBITDA
$
266
$
301
$
283
$
81
$
71
$
72
Third-party sales
$
1,034
$
1,279
$
1,397
$
523
$
492
$
475
Adjusted EBITDA Margin
25.7
%
23.5
%
20.3
%
15.5
%
14.4
%
15.2
%
Alcoa’s definition of Adjusted EBITDA (Earnings before interest,
taxes, depreciation, and amortization) is net margin plus an
add-back for depreciation, depletion, and amortization. Net margin
is equivalent to Sales minus the following items: Cost of goods
sold; Selling, general administrative, and other expenses; Research
and development expenses; and Provision for depreciation,
depletion, and amortization. The Other line in the table above
includes gains/losses on asset sales and other nonoperating items.
Adjusted EBITDA is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because
Adjusted EBITDA provides additional information with respect to
Alcoa’s operating performance and the Company’s ability to meet its
financial obligations. The Adjusted EBITDA presented may not be
comparable to similarly titled measures of other companies.
(1) Effective in the second quarter of 2015, management
removed the impact of metal price lag from the results of the
Engineered Products and Solutions (now Engineered Products and
Solutions and Transportation and Construction Solutions – see
footnote 2 below) segment in order to enhance the visibility of the
underlying operating performance of this business. Metal price lag
describes the timing difference created when the average price of
metal sold differs from the average cost of the metal when
purchased by this segment. The impact of metal price lag is now
reported as a separate line item in Alcoa’s reconciliation of total
segment ATOI to consolidated net (loss) income attributable to
Alcoa. As a result, this change does not impact the consolidated
results of Alcoa. Segment information for all prior periods
presented was updated to reflect this change. See Segment
Information above for additional information. (2) In the
third quarter of 2015, management approved a realignment of Alcoa’s
Engineered Products and Solutions segment due to the expansion of
this part of Alcoa’s business portfolio through both organic and
inorganic growth. This realignment consisted of moving both the
Alcoa Wheels and Transportation Products and Building and
Constructions Systems business units to a new reportable segment
named Transportation and Construction Solutions. Additionally, the
Latin American extrusions business previously included in Corporate
was moved into the new Transportation and Construction Solutions
segment. The remaining Engineered Products and Solutions segment
consists of the Alcoa Fastening Systems and Rings (renamed to
include portions of the Firth Rixson business acquired in November
2014), Alcoa Power and Propulsion (includes the TITAL business
acquired in March 2015), Alcoa Forgings and Extrusions (includes
the other portions of Firth Rixson), and Alcoa Titanium and
Engineered Products (a new business unit that represents the RTI
International Metals business acquired in July 2015) business
units. Segment information for all prior periods presented was
revised to reflect the new segment structure.
Alcoa and subsidiaries Calculation of Financial Measures
(unaudited), continued (dollars in millions)
Free Cash Flow Quarter ended
September 30,
2014
June 30,
2015
September 30,
2015
Cash from operations $ 249 $ 472 $ 420 Capital
expenditures
(283
)
(267
)
(268
)
Free cash flow
$ (34 )
$ 205 $
152
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
Alcoa’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.
Days Working Capital Quarter ended
September
30,2014
June 30
2015(3)
September 30,
2015(3)
Receivables from customers, less allowances $ 1,526 $ 1,548
$ 1,489 Add: Deferred purchase price receivable(1)
438 421 382
Receivables from customers, less allowances, as adjusted
1,964
1,969
1,871
Add: Inventories 3,194 3,230 3,443 Less: Accounts payable, trade
3,016 2,978
2,871 Working Capital(2)
$
2,142 $ 2,221 $
2,443 Sales $ 6,239 $ 5,897 $ 5,573 Days
Working Capital 32 34 40
Days Working Capital = Working Capital divided by (Sales/number
of days in the quarter).
(1) The deferred purchase price receivable relates to an
arrangement to sell certain customer receivables to several
financial institutions on a recurring basis. Alcoa is adding back
this receivable for the purposes of the Days Working Capital
calculation. (2) The Working Capital for each period
presented represents an average quarter Working Capital, which
reflects the capital tied up during a given quarter. As such, the
components of Working Capital for each period presented represent
the average of the ending balances in each of the three months
during the respective quarter. (3) In the quarters ended
June 30, 2015 and September 30, 2015, Working Capital and Sales
include $315 and $268, respectively, and $708 and $387
respectively, related to three acquisitions, Firth Rixson (November
2014), TITAL (March 2015), and RTI International Metals (July
2015). Excluding these amounts, Days Working Capital was 31 for
both the quarters ended June 30, 2015 and September 30, 2015.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151008006306/en/
AlcoaInvestor Contact:Nahla Azmy,
212-836-2674Nahla.Azmy@alcoa.comorMedia ContactMonica Orbe, 212-
836-2632Monica.Orbe@alcoa.com
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