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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

 

Commission File Number 1-37816

 

ALCOA CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

81-1789115

(I.R.S. Employer

Identification No.)

 

 

 

201 Isabella Street, Suite 500,

Pittsburgh, Pennsylvania

(Address of principal executive offices)

 

 

15212-5858

(Zip Code)

412-315-2900

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

AA

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   Yes     No  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No  

As of July 24, 2020, 185,924,291 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

 


TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

1

 

 

 

 

Item 1.

Financial Statements

 

1

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

Item 4.

Controls and Procedures

 

41

 

 

 

 

PART II – OTHER INFORMATION

 

42

 

 

 

 

Item 1A.

Risk Factors

 

42

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

Item 4.

Mine Safety Disclosures

 

43

 

 

 

 

Item 6.

Exhibits

 

44

 

 

 

 

SIGNATURES

 

45

Forward-Looking Statements

This report contains statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results or operating performance; statements about strategies, outlook, and business and financial prospects; and statements about return of capital.  These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances.  Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) current and potential future impacts of the coronavirus (COVID-19) pandemic on the global economy and our business, financial condition, results of operations, or cash flows and judgments and assumptions used in our estimates; (b) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (c) deterioration in global economic and financial market conditions generally and which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms or at all; (d) unfavorable changes in the markets served by Alcoa Corporation; (e) the impact of changes in foreign currency exchange and tax rates on costs and results; (f) increases in energy costs or uncertainty of energy supply; (g) declines in the discount rates used to measure pension liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; (h) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, or strengthening of competitiveness and operations anticipated from portfolio actions, operational and productivity improvements, cash sustainability, technology advancements, and other initiatives; (i) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, restructuring activities, facility closures, curtailments, restarts, expansions, or joint ventures; (j) political, economic, trade, legal, public health and safety, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (k) labor disputes and/or and work stoppages; (l) the outcome of contingencies, including legal and tax proceedings (including the Australian Taxation Office Matter), government or regulatory investigations, and environmental remediation; (m) the impact of cyberattacks and potential information technology or data security breaches; and (n) the other risk factors discussed in Item 1A of Alcoa Corporation’s Form 10-K for the fiscal year ended December 31, 2019, Form 10-Q for the quarter ended March 31, 2020, and this Quarterly Report on Form 10-Q, and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission (SEC). Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or


otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Alcoa Corporation and Subsidiaries

Statement of Consolidated Operations (unaudited)

(in millions, except per-share amounts)

 

 

 

Second quarter ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sales (E)

 

$

2,148

 

 

$

2,711

 

 

$

4,529

 

 

$

5,430

 

Cost of goods sold (exclusive of expenses below)

 

 

1,932

 

 

 

2,189

 

 

 

3,957

 

 

 

4,369

 

Selling, general administrative, and other expenses

 

 

44

 

 

 

68

 

 

 

104

 

 

 

152

 

Research and development expenses

 

 

5

 

 

 

7

 

 

 

12

 

 

 

14

 

Provision for depreciation, depletion, and amortization

 

 

152

 

 

 

174

 

 

 

322

 

 

 

346

 

Restructuring and other charges, net (D)

 

 

37

 

 

 

370

 

 

 

39

 

 

 

483

 

Interest expense

 

 

32

 

 

 

30

 

 

 

62

 

 

 

60

 

Other expenses (income), net (Q)

 

 

51

 

 

 

50

 

 

 

(81

)

 

 

91

 

Total costs and expenses

 

 

2,253

 

 

 

2,888

 

 

 

4,415

 

 

 

5,515

 

(Loss) income before income taxes

 

 

(105

)

 

 

(177

)

 

 

114

 

 

 

(85

)

Provision for income taxes

 

 

45

 

 

 

116

 

 

 

125

 

 

 

266

 

Net loss

 

 

(150

)

 

 

(293

)

 

 

(11

)

 

 

(351

)

Less: Net income attributable to noncontrolling interest

 

 

47

 

 

 

109

 

 

 

106

 

 

 

250

 

NET LOSS ATTRIBUTABLE TO ALCOA

   CORPORATION

 

$

(197

)

 

$

(402

)

 

$

(117

)

 

$

(601

)

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA

   CORPORATION COMMON SHAREHOLDERS (F):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.06

)

 

$

(2.17

)

 

$

(0.63

)

 

$

(3.24

)

Diluted

 

$

(1.06

)

 

$

(2.17

)

 

$

(0.63

)

 

$

(3.24

)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

1


Alcoa Corporation and Subsidiaries

Statement of Consolidated Comprehensive Income (unaudited)

(in millions)

 

 

 

Alcoa Corporation

 

 

Noncontrolling

interest

 

 

Total

 

 

 

Second quarter ended

June 30,

 

 

Second quarter ended

June 30,

 

 

Second quarter ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net (loss) income

 

$

(197

)

 

$

(402

)

 

$

47

 

 

$

109

 

 

$

(150

)

 

$

(293

)

Other comprehensive (loss) income, net of tax (G):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrecognized net actuarial loss and

   prior service cost/benefit related to pension

   and other postretirement benefits

 

 

(127

)

 

 

10

 

 

 

2

 

 

 

(2

)

 

 

(125

)

 

 

8

 

Foreign currency translation adjustments

 

 

135

 

 

 

40

 

 

 

94

 

 

 

4

 

 

 

229

 

 

 

44

 

Net change in unrecognized gains/losses on cash

   flow hedges

 

 

(390

)

 

 

79

 

 

 

(1

)

 

 

(1

)

 

 

(391

)

 

 

78

 

Total Other comprehensive (loss) income, net of tax

 

 

(382

)

 

 

129

 

 

 

95

 

 

 

1

 

 

 

(287

)

 

 

130

 

Comprehensive (loss) income

 

$

(579

)

 

$

(273

)

 

$

142

 

 

$

110

 

 

$

(437

)

 

$

(163

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alcoa Corporation

 

 

Noncontrolling

interest

 

 

Total

 

 

 

Six months ended

June 30,

 

 

Six months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net (loss) income

 

$

(117

)

 

$

(601

)

 

$

106

 

 

$

250

 

 

$

(11

)

 

$

(351

)

Other comprehensive (loss) income, net of tax (G):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrecognized net actuarial loss and

   prior service cost/benefit related to pension

   and other postretirement benefits

 

 

(89

)

 

 

51

 

 

 

2

 

 

 

(1

)

 

 

(87

)

 

 

50

 

Foreign currency translation adjustments

 

 

(528

)

 

 

18

 

 

 

(151

)

 

 

6

 

 

 

(679

)

 

 

24

 

Net change in unrecognized gains/losses on

   cash flow hedges

 

 

311

 

 

 

(209

)

 

 

(21

)

 

 

5

 

 

 

290

 

 

 

(204

)

Total Other comprehensive (loss) income, net of tax

 

 

(306

)

 

 

(140

)

 

 

(170

)

 

 

10

 

 

 

(476

)

 

 

(130

)

Comprehensive (loss) income

 

$

(423

)

 

$

(741

)

 

$

(64

)

 

$

260

 

 

$

(487

)

 

$

(481

)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2


Alcoa Corporation and Subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (M)

 

$

965

 

 

$

879

 

Receivables from customers (I)

 

 

402

 

 

 

546

 

Other receivables

 

 

105

 

 

 

114

 

Inventories (J)

 

 

1,419

 

 

 

1,644

 

Fair value of derivative instruments (M)

 

 

24

 

 

 

59

 

Prepaid expenses and other current assets

 

 

264

 

 

 

288

 

Total current assets

 

 

3,179

 

 

 

3,530

 

Properties, plants, and equipment

 

 

20,877

 

 

 

21,715

 

Less: accumulated depreciation, depletion, and amortization

 

 

13,588

 

 

 

13,799

 

Properties, plants, and equipment, net

 

 

7,289

 

 

 

7,916

 

Investments (H)

 

 

1,037

 

 

 

1,113

 

Deferred income taxes

 

 

482

 

 

 

642

 

Fair value of derivative instruments (M)

 

 

5

 

 

 

18

 

Other noncurrent assets

 

 

1,308

 

 

 

1,412

 

Total assets

 

$

13,300

 

 

$

14,631

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

1,253

 

 

$

1,484

 

Accrued compensation and retirement costs

 

 

393

 

 

 

413

 

Taxes, including income taxes

 

 

96

 

 

 

104

 

Fair value of derivative instruments (M)

 

 

47

 

 

 

67

 

Other current liabilities

 

 

451

 

 

 

494

 

Long-term debt due within one year (K & M)

 

 

1

 

 

 

1

 

Total current liabilities

 

 

2,241

 

 

 

2,563

 

Long-term debt, less amount due within one year (K & M)

 

 

1,800

 

 

 

1,799

 

Accrued pension benefits (L)

 

 

1,602

 

 

 

1,505

 

Accrued other postretirement benefits (L)

 

 

711

 

 

 

749

 

Asset retirement obligations

 

 

565

 

 

 

606

 

Environmental remediation (P)

 

 

277

 

 

 

296

 

Fair value of derivative instruments (M)

 

 

203

 

 

 

581

 

Noncurrent income taxes

 

 

245

 

 

 

276

 

Other noncurrent liabilities and deferred credits

 

 

332

 

 

 

370

 

Total liabilities

 

 

7,976

 

 

 

8,745

 

CONTINGENCIES AND COMMITMENTS (P)

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Alcoa Corporation shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

2

 

 

 

2

 

Additional capital

 

 

9,655

 

 

 

9,639

 

Accumulated deficit

 

 

(672

)

 

 

(555

)

Accumulated other comprehensive loss (G)

 

 

(5,280

)

 

 

(4,974

)

Total Alcoa Corporation shareholders’ equity

 

 

3,705

 

 

 

4,112

 

Noncontrolling interest

 

 

1,619

 

 

 

1,774

 

Total equity

 

 

5,324

 

 

 

5,886

 

Total liabilities and equity

 

$

13,300

 

 

$

14,631

 

 

The accompanying notes are an integral part of the consolidated financial statements.

3


Alcoa Corporation and Subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in millions)

 

 

 

Six months ended June 30,

 

 

 

2020

 

 

2019

 

CASH FROM OPERATIONS

 

 

 

 

 

 

 

 

Net loss

 

$

(11

)

 

$

(351

)

Adjustments to reconcile net loss to cash from operations:

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

 

322

 

 

 

346

 

Deferred income taxes

 

 

(6

)

 

 

64

 

Equity earnings, net of dividends

 

 

15

 

 

 

14

 

Restructuring and other charges, net (D)

 

 

39

 

 

 

483

 

Net gain from investing activities – asset sales (Q)

 

 

(176

)

 

 

(1

)

Net periodic pension benefit cost (L)

 

 

67

 

 

 

60

 

Stock-based compensation

 

 

17

 

 

 

21

 

Provision for bad debt expense

 

 

2

 

 

 

20

 

Other

 

 

5

 

 

 

24

 

Changes in assets and liabilities, excluding effects of divestitures and

   foreign currency translation adjustments:

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

124

 

 

 

94

 

Decrease in inventories

 

 

184

 

 

 

53

 

Decrease in prepaid expenses and other current assets

 

 

13

 

 

 

68

 

(Decrease) in accounts payable, trade

 

 

(183

)

 

 

(144

)

(Decrease) in accrued expenses

 

 

(120

)

 

 

(51

)

Increase (Decrease) in taxes, including income taxes

 

 

7

 

 

 

(342

)

Pension contributions (L)

 

 

(59

)

 

 

(55

)

Decrease (Increase) in noncurrent assets

 

 

19

 

 

 

(32

)

(Decrease) in noncurrent liabilities

 

 

(61

)

 

 

(21

)

CASH PROVIDED FROM OPERATIONS

 

 

198

 

 

 

250

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from the exercise of employee stock options

 

 

 

 

 

1

 

Financial contributions for the divestiture of businesses (D)

 

 

(24

)

 

 

 

Contributions from noncontrolling interest

 

 

16

 

 

 

21

 

Distributions to noncontrolling interest

 

 

(106

)

 

 

(286

)

Other

 

 

(1

)

 

 

(6

)

CASH USED FOR FINANCING ACTIVITIES

 

 

(115

)

 

 

(270

)

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(168

)

 

 

(158

)

Proceeds from the sale of assets

 

 

199

 

 

 

11

 

Additions to investments

 

 

(3

)

 

 

(111

)

CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES

 

 

28

 

 

 

(258

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH

   EQUIVALENTS AND RESTRICTED CASH

 

 

(26

)

 

 

(1

)

Net change in cash and cash equivalents and restricted cash

 

 

85

 

 

 

(279

)

Cash and cash equivalents and restricted cash at beginning of year

 

 

883

 

 

 

1,116

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT

   END OF PERIOD

 

$

968

 

 

$

837

 

 

The accompanying notes are an integral part of the consolidated financial statements.

4


Alcoa Corporation and Subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

(in millions)

 

 

 

Alcoa Corporation shareholders

 

 

 

 

 

 

 

 

 

Second quarter ended June 30, 2019

 

Common

stock

 

 

Additional

capital

 

 

Retained

earnings (deficit)

 

 

Accumulated

other

comprehensive

loss

 

 

Non-

controlling

interest

 

 

Total

equity

 

Balance at March 31, 2019

 

$

2

 

 

$

9,618

 

 

$

371

 

 

$

(4,834

)

 

$

1,926

 

 

$

7,083

 

Net (loss) income

 

 

 

 

 

 

 

 

(402

)

 

 

 

 

 

109

 

 

 

(293

)

Other comprehensive income (G)

 

 

 

 

 

 

 

 

 

 

 

129

 

 

 

1

 

 

 

130

 

Stock-based compensation

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72

)

 

 

(72

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at June 30, 2019

 

$

2

 

 

$

9,629

 

 

$

(31

)

 

$

(4,705

)

 

$

1,964

 

 

$

6,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second quarter ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

$

2

 

 

$

9,647

 

 

$

(476

)

 

$

(4,898

)

 

$

1,536

 

 

$

5,811

 

Net (loss) income

 

 

 

 

 

 

 

 

(197

)

 

 

 

 

 

47

 

 

 

(150

)

Other comprehensive (loss) income (G)

 

 

 

 

 

 

 

 

 

 

 

(382

)

 

 

95

 

 

 

(287

)

Stock-based compensation

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

16

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

(75

)

Other

 

 

 

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

$

2

 

 

$

9,655

 

 

$

(672

)

 

$

(5,280

)

 

$

1,619

 

 

$

5,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

2

 

 

$

9,611

 

 

$

570

 

 

$

(4,565

)

 

$

1,970

 

 

$

7,588

 

Net (loss) income

 

 

 

 

 

 

 

 

(601

)

 

 

 

 

 

250

 

 

 

(351

)

Other comprehensive (loss) income (G)

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

10

 

 

 

(130

)

Stock-based compensation

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

21

 

Common stock issued: compensation

   plans

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

21

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(286

)

 

 

(286

)

Other

 

 

 

 

 

(4

)