First Quarter 2021 Highlights
- Sales of $1.7 billion, up 4% year over year, and up 15% from
prior quarter
- Net income of $52 million, or $0.46 per share, compared with
$46 million, or $0.42 per share, in first quarter 2020
- Adjusted EBITDA of $179 million, down 12% year over year, up
19% from prior quarter, and Adjusted EBITDA margin of 10.7%
- Significant contract wins:
- Secured long-term contracts representing more than $2 billion
in aerospace revenue
- Negotiated agreements representing approximately $1.5 billion
in North American packaging revenue from 2022-2024
Post-Quarter Highlights
- Completed $1 billion U.S. pension partial annuitization
- Board authorized $300 million share repurchase program
Arconic Corporation (NYSE: ARNC) (“Arconic” or “the Company”)
today reported first quarter 2021 results. Revenue was $1.7
billion, up 15% from the prior quarter primarily because of higher
aluminum prices. Net income was $52 million, or $0.46 per share,
compared with $46 million, or $0.42 per share, in first quarter
2020.
First quarter 2021 Adjusted EBITDA was $179 million and Adjusted
EBITDA margin was 10.7%. Adjusted EBITDA declined 12% year over
year, but increased $28 million, or 19%, sequentially primarily
because of strong operating performance and continued growth in
international packaging volumes and strength in industrial markets.
Cash used for operations was $294 million, reflecting $200 million
of accelerated U.S. pension contributions made in January 2021, and
capital expenditures were $28 million. At quarter-end, the cash
balance was $763 million with total available liquidity of
approximately $1.6 billion, and debt was $1.6 billion.
Tim Myers, Chief Executive Officer, said, “Arconic continued to
see increasing customer demand in most of the markets we serve
during the first quarter. We captured growth in international
packaging due to better than expected regional strength and
industrial end markets improved as the trade litigation came to a
final positive ruling at the end of March. Ground transportation
sales also grew, largely driven by commercial transportation, but
were constrained by weather impacts and the semiconductor shortage.
Growth in those three end markets and strong operating performance
fully offset continued weakness in aerospace sales. Given our
strong first quarter performance and improved outlook in both the
industrial and packaging markets, we are increasing our full year
2021 revenue and Adjusted EBITDA outlook.”
Mr. Myers continued, “With the continued reduction of our legacy
pension and environmental obligations, and the completion of a $1
billion partial U.S. pension annuitization in April, we believe we
are well positioned to focus more fully on future growth
opportunities. Our new share repurchase program is recognition of
our belief in the long-term prospects of our Company.”
First Quarter Segment Performance
Revenue by Segment ($M)
Quarter ended
March 31, 2021
March 31, 2020
Rolled Products
$
1,364
$
1,222
Building and Construction Systems
236
256
Extrusions
75
133
Adjusted EBITDA ($M)
Quarter ended
March 31, 2021
March 31, 2020
Rolled Products
$
165
$
165
Building and Construction Systems
28
30
Extrusions
(4
)
8
Subtotal
189
203
Corporate
(10
)
1
Adjusted EBITDA
$
179
$
204
Outlook
The Company is updating its full-year 2021 outlook in light of
strength in the industrial and international packaging markets, the
final trade case ruling on common alloy aluminum sheet in March,
and an expected improvement in the semiconductor chip shortage in
the second half of this year. Arconic now expects full-year 2021
revenue to be in a range of $7.1 billion to $7.4 billion compared
with the prior outlook of $6.6 billion to $6.9 billion. This
assumes an LME aluminum price of $2,200/mt and Midwest Premium of
$430/mt for the full year versus prior assumptions for LME of
$2,030/mt and Midwest Premium of $320/mt. Adjusted EBITDA for
full-year 2021 is now expected to be in a range of $710 million to
$750 million compared with prior outlook of $675 million to $725
million. Adjusted free cash flow for full-year 2021, which excludes
a $250 million contribution to U.S. pension plans in connection
with the $1 billion annuitization in April as well as approximately
$350 million in other funding of legacy pension, OPEB, and
environmental liabilities, is expected to be in the range of $300
million to $400 million.
Share Repurchase Program
Today, the Company also announced that its board of directors
has approved a new share repurchase program authorizing the
repurchase of up to $300 million of common stock over a two-year
period. Repurchases under the program may be made from time to
time, as the Company deems appropriate, solely through open market
repurchases effected through a broker dealer, based on a variety of
factors such as price, capital position, liquidity, financial
performance, alternative uses of capital and overall market
conditions. There can be no assurance as to the number of shares
the Company will purchase, if any. The share repurchase program may
be increased or otherwise modified, renewed, suspended or
terminated by the Company at any time, without prior notice.
Pension Annuitization
As previously announced, the Company completed an approximately
$1 billion partial annuitization of its U.S. pension obligations.
To effect this transaction, Arconic transferred certain plan assets
to the insurance company providing the group annuity contract and
also made a $250 million contribution to its U.S. pension plans to
maintain the funding level of the remaining plan obligations. This
contribution was funded with proceeds from the previously announced
debt offering, which closed on March 3, 2021, of $300 million
aggregate principal amount of the Company’s 6.125% Senior Secured
Second-Lien Notes due 2028. As a result of the transaction, the
Company expects to recognize a non-cash pension settlement charge
of approximately $575 million ($450 million after tax), subject to
finalization of actuarial assumptions and other applicable
adjustments, in the second quarter of 2021.
Arconic will hold its quarterly conference call at 10:00 AM
Eastern Time on May 4, 2021, to present first quarter financial
results. The call will be webcast on the Arconic website. Call
information and related details are available at www.arconic.com
under “Investors.”
About Arconic
Arconic Corporation (NYSE: ARNC), headquartered in Pittsburgh,
Pennsylvania, is a leading provider of aluminum sheet, plate, and
extrusions, as well as innovative architectural products, that
advance the ground transportation, aerospace, building and
construction, industrial and packaging end markets.
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,
projections, beliefs or opinions about the future, other than
statements of historical fact, are forward-looking statements,
including, without limitation, statements, relating to the
condition of the ground transportation, aerospace, building and
construction, industrial, packaging and other end markets;
Arconic’s future financial results, operating performance, working
capital, cash flows, liquidity and financial position; cost savings
and restructuring programs; Arconic's strategies, outlook, business
and financial prospects; costs associated with pension and other
post-retirement benefit plans; projected sources of cash flow;
potential legal liability; the potential impact of the COVID-19
pandemic; and actions to mitigate the impact of COVID-19. These
statements reflect beliefs and assumptions that are based on
Arconic’s perception of historical trends, current conditions and
expected future developments, as well as other factors Arconic
believes are appropriate in the circumstances. Forward-looking
statements are not guarantees of future performance, and actual
results may differ materially from those indicated by these
forward-looking statements due to a variety of risks, uncertainties
and changes in circumstances, many of which are beyond Arconic’s
control. Such risks and uncertainties include, but are not limited
to: (a) continuing uncertainty regarding the duration and impact of
the COVID-19 pandemic on our business and the businesses of our
customers and suppliers; (b) deterioration in global economic and
financial market conditions generally; (c) unfavorable changes in
the end markets we serve; (d) the inability to achieve the level of
revenue growth, cash generation, cost savings, benefits of our
management of legacy liabilities, improvement in profitability and
margins, fiscal discipline, or strengthening of competitiveness and
operations anticipated or targeted; (e) adverse changes in discount
rates or investment returns on pension assets; (f) competition from
new product offerings, disruptive technologies, industry
consolidation or other developments; (g) the loss of significant
customers or adverse changes in customers’ business or financial
condition; (h) manufacturing difficulties or other issues that
impact product performance, quality or safety; (i) the impact of
pricing volatility in raw materials; (j) a significant downturn in
the business or financial condition of a key supplier or other
supply chain disruptions; (k) challenges to or infringements on our
intellectual property rights; (l) the inability to successfully
implement our re-entry into the packaging market or to realize the
expected benefits of other strategic initiatives or projects; (m)
the impact of potential cyber attacks and information technology or
data security breaches; (n) geopolitical, economic, and regulatory
risks relating to our global operations, including compliance with
U.S. and foreign trade and tax laws, sanctions, embargoes and other
regulations; (o) the outcome of contingencies, including legal
proceedings, government or regulatory investigations, and
environmental remediation and compliance matters; and (p) the other
risk factors summarized in Arconic’s Form 10-K for the year ended
December 31, 2020 and other reports filed with the U.S. Securities
and Exchange Commission. The above list of factors is not
exhaustive or necessarily in order of importance. Market
projections are subject to the risks discussed above and other
risks in the market. The statements in this release are made as of
the date of this release, even if subsequently made available by
Arconic on its website or otherwise. Arconic disclaims any
intention or obligation to update publicly any forward-looking
statements, whether in response to new information, future events,
or otherwise, except as required by applicable law.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Arconic’s consolidated financial information but is not presented
in Arconic’s financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP). Certain of these financial measures are considered
“non-GAAP financial measures” under SEC rules. These non-GAAP
financial measures supplement our GAAP disclosures and should not
be considered an alternative to any measure of performance or
financial condition as determined in accordance with GAAP, and
investors should consider Arconic’s performance and financial
condition as reported under GAAP and all other relevant information
when assessing the performance or financial condition of Arconic.
Non-GAAP financial measures have limitations as analytical tools,
and investors should not consider them in isolation or as a
substitute for analysis of the results or financial condition as
reported under GAAP. Non-GAAP financial measures presented by
Arconic may not be comparable to non-GAAP financial measures
presented by other companies. Reconciliations to the most directly
comparable GAAP financial measures and management’s rationale for
the use of the non-GAAP financial measures can be found in the
schedules to this release. Arconic has not provided reconciliations
of any forward-looking non-GAAP financial measures, such as
adjusted EBITDA and free cash flow, to the most directly comparable
GAAP financial measures because such reconciliations 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 metal
price lag, foreign currency movements, 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 believes such
reconciliations would imply a degree of precision that would be
confusing or misleading to investors.
Arconic Corporation and
subsidiaries
Statement of Consolidated Operations
(unaudited)
(dollars in millions, except per-share
amounts)
Quarter ended
March 31,
December 31,
March 31,
2021
2020
2020(1)
Sales
$
1,675
$
1,462
$
1,611
Cost of goods sold (exclusive of expenses
below)(2)
1,431
1,248
1,345
Selling, general administrative, and other
expenses
59
64
80
Research and development expenses
8
9
11
Provision for depreciation and
amortization
63
60
60
Restructuring and other charges(3)
1
127
(19
)
Operating income (loss)(2)
113
(46
)
134
Interest expense
23
21
35
Other expenses, net(4)
22
1
26
Income (Loss) before income taxes(2)
68
(68
)
73
Provision (Benefit) for income
taxes(2)
16
(4
)
27
Net income (loss)(2)
52
(64
)
46
Less: Net income attributable to
noncontrolling interest
–
–
–
NET INCOME (LOSS) ATTRIBUTABLE TO ARCONIC
CORPORATION(2)
$
52
$
(64
)
$
46
EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC
CORPORATION COMMON STOCKHOLDERS:
Basic:
Net income (loss)(2)
$
0.48
$
(0.59
)
$
0.42
Weighted-average number of shares(5)
109,835,195
109,152,402
109,021,376
Diluted:
Net income (loss)(2)
$
0.46
$
(0.59
)
$
0.42
Weighted-average number of shares(5)
113,249,380
109,152,402
109,021,376
COMMON STOCK OUTSTANDING AT THE END OF THE
PERIOD
110,024,144
109,205,226
-
(1)
Prior to April 1, 2020, Arconic’s
financial statements were prepared on a carve-out basis, as the
underlying operations of the Company were previously consolidated
as part of Arconic’s former parent company’s financial statements.
Accordingly, the Company’s results of operations for the quarter
ended March 31, 2020 were prepared on such basis. The carve-out
financial statements of Arconic are not necessarily indicative of
the Company’s consolidated results of operations had it been a
standalone company during the referenced period. See the Combined
Financial Statements included in each of (i) Exhibit 99.1 to the
Company’s Form 10 Registration Statement (filed on February 7,
2020), (ii) the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019 (filed on March 30, 2020), and (iii) the
Company’s Quarterly Report on Form 10-Q for the period ended March
31, 2020 (filed on May 18, 2020), for additional information.
(2)
Effective July 1, 2020, the
Company changed its inventory cost method to average cost for all
U.S. inventories previously carried at last-in, first-out (LIFO)
cost. Management believes the average cost method more closely
reflects the physical flow of inventories, improves comparability
of the Company’s operating results with its industry peers, and
provides an increased level of consistency in the measurement of
inventories in the Company’s consolidated financial statements. The
effects of the change in accounting principle from LIFO to average
cost have been retrospectively applied to the Company’s Statement
of Consolidated Operations for the quarter ended March 31, 2020.
Accordingly, Net income attributable to Arconic Corporation
decreased $14 (comprised of an $18 increase to Cost of goods sold
and a $4 decrease to Provision for income taxes), or $0.13 per
share, from the amount previously reported in the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2020
(filed on May 18, 2020). See the Consolidated Financial Statements
included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2020 (filed on February 23, 2021) for additional
information.
(3)
In the quarter ended December 31,
2020, Restructuring and other charges includes a $140 settlement
charge related to the annuitization of a portion of the Company’s
U.S. defined benefit pension plan obligation and a $25 benefit for
contingent consideration received related to the October 2018 sale
of the Texarkana (Texas) rolling mill. In the quarter ended March
31, 2020, Restructuring and other charges includes a $31 gain on
the sale of an extrusions plant in South Korea.
(4)
In the quarter ended December 31,
2020, Other expenses, net includes a $20 benefit for the reversal
of a liability previously established on April 1, 2020 related to a
potential indemnification to Howmet Aerospace by Arconic for an
outstanding income tax matter in Spain. In November 2020, Howmet
Aerospace received a favorable ruling from Spain’s Supreme Court
bringing a final conclusion to this matter as this decision may not
be appealed any further. As no further income tax payment was
required of Howmet Aerospace likewise Arconic no longer has a
requirement to perform under the indemnification.
(5)
In the quarter ended March 31,
2021, the difference between the diluted weighted-average number of
shares and the basic weighted-average number of shares relates to
common share equivalents associated with outstanding employee stock
awards. In the quarter ended December 31, 2020, the diluted
weighted-average number of shares does not include any common share
equivalents associated with outstanding employee stock awards as
their effect was anti-dilutive since the Company generated a net
loss for the period. Prior to April 1, 2020, the Company did not
have any publicly-traded issued and outstanding common stock or any
common share equivalents. Accordingly, the respective basic and
diluted earnings per share for the quarter ended March 31, 2020
were calculated based on the 109,021,376 shares of Arconic common
stock distributed on April 1, 2020 in connection with the
completion of Arconic’s separation from its former parent
company.
Arconic Corporation and subsidiaries
Consolidated Balance Sheet
(unaudited)
(in millions)
March 31,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents
$
763
$
787
Receivables from customers, less
allowances of $1 in both 2021 and 2020
803
631
Other receivables
148
128
Inventories
1,199
1,043
Prepaid expenses and other current
assets
45
53
Total current assets
2,958
2,642
Properties, plants, and equipment
7,381
7,409
Less: accumulated depreciation and
amortization
4,709
4,697
Properties, plants, and equipment, net
2,672
2,712
Goodwill
389
390
Operating lease right-of-use-assets
139
144
Deferred income taxes
320
329
Other noncurrent assets
95
97
Total assets
$
6,573
$
6,314
LIABILITIES
Current liabilities:
Accounts payable, trade
$
1,216
$
1,106
Accrued compensation and retirement
costs
126
118
Taxes, including income taxes
39
33
Environmental remediation
79
90
Operating lease liabilities
37
36
Other current liabilities
115
90
Total current liabilities
1,612
1,473
Long-term debt(1)
1,592
1,278
Accrued pension benefits
1,128
1,343
Accrued other postretirement benefits
473
479
Environmental remediation
59
66
Operating lease liabilities
105
111
Deferred income taxes
14
15
Other noncurrent liabilities and deferred
credits
100
102
Total liabilities
5,083
4,867
EQUITY
Arconic Corporation stockholders’
equity:
Common stock
1
1
Additional capital
3,343
3,348
Accumulated deficit
(103
)
(155
)
Accumulated other comprehensive loss
(1,765
)
(1,761
)
Total Arconic Corporation stockholders’
equity
1,476
1,433
Noncontrolling interest
14
14
Total equity
1,490
1,447
Total liabilities and equity
$
6,573
$
6,314
(1)
In March 2021, Arconic issued
$300 aggregate principal amount of 6.125% Senior Secured
Second-Lien Notes due 2028 at 106.25% of par. In April 2021, the
Company used a portion of the net proceeds of this issuance to
contribute a total of $250 to its two funded U.S. defined benefit
plans to maintain the funding level of the remaining plan
obligations not transferred under a group annuity contract.
Arconic Corporation and subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in millions)
Quarter ended
March 31,
December 31,
March 31,
2021
2020
2020(1)
OPERATING ACTIVITIES
Net income (loss)(2)
$
52
$
(64
)
$
46
Adjustments to reconcile net income (loss)
to cash used for operations:
Depreciation and amortization
63
60
60
Deferred income taxes(2)
4
(44
)
22
Restructuring and other charges
1
127
(19
)
Net periodic pension benefit cost
22
21
21
Stock-based compensation
2
5
7
Other
14
3
–
Changes in assets and liabilities,
excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments:
(Increase) Decrease in receivables
(186
)
15
(309
)
(Increase) in inventories(2)
(161
)
(132
)
(56
)
Decrease (Increase) in prepaid expenses
and other current assets
3
8
(17
)
Increase (Decrease) in accounts payable,
trade(3)
117
247
(39
)
(Decrease) in accrued expenses
(33
)
(64
)
(53
)
Increase in taxes, including income
taxes
9
24
102
Pension contributions(4)
(201
)
(227
)
(32
)
Decrease in noncurrent assets
–
7
10
Increase (Decrease) in noncurrent
liabilities
–
2
(3
)
CASH USED FOR OPERATIONS
(294
)
(12
)
(260
)
FINANCING ACTIVITIES
Net transfers from former parent
company
–
–
216
Additions to debt (original maturities
greater than three months)(5)
319
–
1,200
Debt issuance costs
(4
)
–
(42
)
Other
(18
)
9
–
CASH PROVIDED FROM FINANCING
ACTIVITIES
297
9
1,374
INVESTING ACTIVITIES
Capital expenditures(3)
(28
)
(37
)
(58
)
Proceeds from the sale of assets and
businesses
1
23
101
CASH (USED FOR) PROVIDED FROM INVESTING
ACTIVITIES
(27
)
(14
)
43
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH
–
2
(1
)
Net change in cash and cash equivalents
and restricted cash
(24
)
(15
)
1,156
Cash and cash equivalents and restricted
cash at beginning of period(6)
787
802
72
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD(6)
$
763
$
787
$
1,228
(1)
Prior to April 1, 2020, Arconic’s
financial statements were prepared on a carve-out basis, as the
underlying operations of the Company were previously consolidated
as part of Arconic’s former parent company’s financial statements.
Accordingly, the Company’s cash flows for the quarter ended March
31, 2020 were prepared on such basis. The carve-out financial
statements of Arconic are not necessarily indicative of the
Company’s consolidated cash flows had it been a standalone company
during the referenced period. See the Combined Financial Statements
included in each of (i) Exhibit 99.1 to the Company’s Form 10
Registration Statement (filed on February 7, 2020), (ii) the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019 (filed on March 30, 2020), and (iii) the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2020
(filed on May 18, 2020), for additional information.
(2)
Effective July 1, 2020, the
Company changed its inventory cost method to average cost for all
U.S. inventories previously carried at last-in, first-out (LIFO)
cost. Management believes the average cost method more closely
reflects the physical flow of inventories, improves comparability
of the Company’s operating results with its industry peers, and
provides an increased level of consistency in the measurement of
inventories in the Company’s consolidated financial results. The
effects of the change in accounting principle from LIFO to average
cost have been retrospectively applied to the Company’s Statement
of Consolidated Cash Flows for the quarter ended March 31, 2020.
Accordingly, Net income decreased $14, Deferred income taxes
decreased $4, and (Increase) in inventories positively changed by
$18 from the amounts previously reported in the Company’s Quarterly
Report on Form 10-Q for the period ended March 31, 2020 (filed on
May 18, 2020). See the Consolidated Financial Statements included
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2020 (filed on February 23, 2021) for additional
information.
(3)
In preparing the Statement of
Consolidated Cash Flows for the nine months ended September 30,
2020, management identified a misclassification related to the
non-cash portion of properties, plants, and equipment additions.
This non-cash portion is the result of the timing difference that
exists between when the Company records such additions as assets on
its Consolidated Balance Sheet and when such additions have been
paid in cash. As a result, the amount of (Decrease) in accounts
payable, trade previously reported for the quarter ended March 31,
2020 was overstated by $35 and the amount of Capital expenditures
previously reported for the quarter ended March 31, 2020 was
understated by $35. Accordingly, for the quarter ended March 31,
2020, management has corrected both (Decrease) in accounts payable,
trade and Capital expenditures from previously reported amounts to
remove the respective effect of this $35.
(4)
In January 2021, the Company
contributed a total of $200 to its two funded U.S. defined benefit
pension plans, comprised of the estimated minimum required funding
for 2021 of $183 and an additional $17.
(5)
In March 2021, Arconic issued
$300 aggregate principal amount of 6.125% Senior Secured
Second-Lien Notes due 2028 at 106.25% of par. In April 2021, the
Company used a portion of the net proceeds of this issuance to
contribute a total of $250 to its two funded U.S. defined benefit
plans to maintain the funding level of the remaining plan
obligations not transferred under a group annuity contract.
On April 1, 2020, Arconic Inc.
separated into two standalone, publicly-traded companies, Arconic
Corporation and Howmet Aerospace Inc. (the “Separation”). In
connection with the capital structure to be established at the time
of the Separation, Arconic secured $1,200 in third-party
indebtedness in the quarter ended March 31, 2020. The net proceeds
from a portion of this indebtedness was held in escrow until the
satisfaction of the escrow release conditions, which included the
substantially concurrent completion of the Separation. Accordingly,
the escrowed cash was included in Restricted cash as of March 31,
2020 (see footnote 6). The Company used a portion of the net
proceeds from the aggregate indebtedness to make a $728 payment to
its former parent company on April 1, 2020 to fund the transfer of
certain net assets from the former parent company to Arconic in
connection with the completion of the Separation.
(6)
Cash and cash equivalents and
restricted cash at beginning of period for all periods presented
and Cash and cash equivalents and restricted cash at end of period
for the quarters ended March 31, 2021 and December 31, 2020
includes Restricted cash of less than $0.04. For the quarter ended
March 31, 2020, Cash and cash equivalents and restricted cash at
end of period includes Restricted cash of $593 (see footnote
5).
Arconic Corporation and subsidiaries
Segment Adjusted EBITDA Reconciliation
(unaudited)
(in millions)
Quarter ended
March
31,
2021
2020(1)
Total Segment Adjusted EBITDA(2),(3)
$
189
$
203
Unallocated amounts:
Corporate expenses(4)
(9
)
(2
)
Stock-based compensation expense
(2
)
(7
)
Metal price lag(5)
5
(4
)
Provision for depreciation and
amortization
(63
)
(60
)
Restructuring and other charges
(1
)
19
Other(6)
(6
)
(15
)
Operating income(3)
113
134
Interest expense
(23
)
(35
)
Other expenses, net
(22
)
(26
)
Provision for income taxes(3)
(16
)
(27
)
Net income attributable to noncontrolling
interest
–
–
Consolidated net income attributable to
Arconic Corporation(3)
$
52
$
46
(1)
Prior to April 1, 2020, Arconic’s
financial statements were prepared on a carve-out basis, as the
underlying operations of the Company were previously consolidated
as part of Arconic’s former parent company’s financial statements.
Accordingly, the Company’s results of operations for the quarter
ended March 31, 2020 were prepared on such basis. The carve-out
financial statements of Arconic are not necessarily indicative of
the Company’s consolidated results of operations had it been a
standalone company during the referenced period. See the Combined
Financial Statements included in each of (i) Exhibit 99.1 to the
Company’s Form 10 Registration Statement (filed on February 7,
2020), (ii) the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019 (filed on March 30, 2020), and (iii) the
Company’s Quarterly Report on Form 10-Q for the period ended March
31, 2020 (filed on May 18, 2020), for additional information.
(2)
Effective in the second quarter
of 2020, management elected to change the profit or loss measure of
the Company’s reportable segments from Segment operating profit to
Segment Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) for internal reporting and
performance measurement purposes. This change was made to enhance
the transparency and visibility of the underlying operating
performance of each segment. Effective in the third quarter of
2020, management refined the Company’s Segment Adjusted EBITDA
measure to remove the impact of metal price lag (see footnote 5).
This change was made to further enhance the transparency and
visibility of the underlying operating performance of each segment
by removing the volatility associated with metal prices.
Arconic calculates Segment
Adjusted EBITDA as Total sales (third-party and intersegment) minus
each of (i) Cost of goods sold, (ii) Selling, general
administrative, and other expenses, and (iii) Research and
development expenses, plus Stock-based compensation expense and
Metal price lag. Previously, the Company calculated Segment
operating profit as Segment Adjusted EBITDA minus each of (i) the
Provision for depreciation and amortization, (ii) Stock-based
compensation expense, and (iii) Metal price lag. Arconic’s Segment
Adjusted EBITDA may not be comparable to similarly titled measures
of other companies’ reportable segments.
Also, effective July 1, 2020, the
Company changed its inventory cost method to average cost for all
U.S. inventories previously carried at last-in, first-out (LIFO)
cost. The effects of the change in accounting principle have been
retrospectively applied to the Company’s Statement of Consolidated
Operations for the quarter ended March 31, 2020. See footnote 3 for
additional information.
Segment Adjusted EBITDA for the
quarter ended March 31, 2020 was recast to reflect the new measure
of segment profit or loss and the change in inventory cost
method.
Total Segment Adjusted EBITDA is
the sum of the respective Segment Adjusted EBITDA for each of the
Company’s three reportable segments: Rolled Products, Building and
Construction Systems, and Extrusions. This amount is being
presented for the sole purpose of reconciling Segment Adjusted
EBITDA to the Company’s Consolidated net income.
(3)
Effective July 1, 2020, the
Company changed its inventory cost method to average cost for all
U.S. inventories previously carried at LIFO cost. Management
believes the average cost method more closely reflects the physical
flow of inventories, improves comparability of the Company’s
operating results with its industry peers, and provides an
increased level of consistency in the measurement of inventories in
the Company’s consolidated financial statements. The effects of the
change in accounting principle from LIFO to average cost have been
retrospectively applied to the Company’s Statement of Consolidated
Operations for the quarter ended March 31, 2020. Accordingly, Net
income attributable to Arconic Corporation decreased $14 (comprised
of an $18 increase to Cost of goods sold and a $4 decrease to
Provision for income taxes) from the amount previously reported in
the Company’s Quarterly Report on Form 10-Q for the period ended
March 31, 2020 (filed on May 18, 2020). See the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2020 (filed on February
23, 2021) for additional information.
(4)
Corporate expenses are composed
of general administrative and other expenses of operating the
corporate headquarters and other global administrative facilities,
as well as research and development expenses of the corporate
technical center. The amount presented for the quarter ended March
31, 2020 represents an allocation of Arconic’s former parent
company’s corporate expenses (see footnote 1).
(5)
Metal price lag represents the
financial impact of the timing difference between when aluminum
prices included in Sales are recognized and when aluminum purchase
prices included in Cost of goods sold are realized. This adjustment
aims to remove the effect of the volatility in metal prices and the
calculation of this impact considers applicable metal hedging
transactions.
(6)
Other includes certain items that
impact Cost of goods sold and Selling, general administrative, and
other expenses on the Company’s Statement of Consolidated
Operations that are not included in Segment Adjusted EBITDA,
including those described as “Other special items” (see footnote 4
to the reconciliation of Adjusted EBITDA within Calculation of
Non-GAAP Financial Measures included in this release).
Arconic Corporation and subsidiaries
Calculation of Non-GAAP Financial
Measures (unaudited)
(in millions)
Quarter ended
March 31,
December 31,
March 31,
2021
2020
2020(1)
Net income (loss) attributable to Arconic
Corporation(2)
$
52
$
(64
)
$
46
Add:
Net income attributable to noncontrolling
interest
–
–
–
Provision (Benefit) for income
taxes(2)
16
(4
)
27
Other expenses, net
22
1
26
Interest expense
23
21
35
Restructuring and other charges
1
127
(19
)
Provision for depreciation and
amortization
63
60
60
Stock-based compensation
2
5
7
Metal price lag(3)
(5
)
(3
)
4
Other special items(4)
5
8
18
Adjusted EBITDA(2)
$
179
$
151
$
204
Sales
$
1,675
$
1,462
$
1,611
Adjusted EBITDA Margin
10.7
%
10.3
%
12.7
%
Arconic’s definition of Adjusted
EBITDA (Earnings before interest, taxes, depreciation, and
amortization) is net margin plus an add-back for the following
items: Provision for depreciation and amortization; Stock-based
compensation; Metal price lag (see below); and Other special items.
Net margin is equivalent to Sales minus the following items: Cost
of goods sold; Selling, general administrative, and other expenses;
Research and development expenses; and Provision for depreciation
and amortization. Special items are composed of restructuring and
other charges, discrete income tax items, and other items as deemed
appropriate by management. There can be no assurances that
additional special items will not occur in future periods. Adjusted
EBITDA is a non-GAAP financial measure. Management believes that
this measure is meaningful to investors because Adjusted EBITDA
provides additional information with respect to Arconic’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.
Effective in the third quarter of
2020, management refined the Company’s Adjusted EBITDA measure to
remove the impact of metal price lag (see footnote 3). This change
was made to further enhance the transparency and visibility of the
underlying operating performance of the Company by removing the
volatility associated with metal prices. Also, effective July 1,
2020, the Company changed its inventory cost method to average cost
for all U.S. inventories previously carried at last-in, first-out
(LIFO) cost. The effects of the change in accounting principle have
been retrospectively applied to the Company’s Statement of
Consolidated Operations for the quarter ended March 31, 2020. See
footnote 2 for additional information. Adjusted EBITDA for the
quarter ended March 31, 2020 was recast to reflect both these
changes.
(1)
Prior to April 1, 2020, Arconic’s
financial statements were prepared on a carve-out basis, as the
underlying operations of the Company were previously consolidated
as part of Arconic’s former parent company’s financial statements.
Accordingly, the Company’s results of operations for the quarter
ended March 31, 2020 were prepared on such basis. The carve-out
financial statements of Arconic are not necessarily indicative of
the Company’s consolidated results of operations had it been a
standalone company during the referenced period. See the Combined
Financial Statements included in each of (i) Exhibit 99.1 to the
Company’s Form 10 Registration Statement (filed on February 7,
2020), (ii) the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019 (filed on March 30, 2020), and (iii) the
Company’s Quarterly Report on Form 10-Q for the period ended March
31, 2020 (filed on May 18, 2020), for additional information.
(2)
Effective July 1, 2020, the
Company changed its inventory cost method to average cost for all
U.S. inventories previously carried at LIFO cost. Management
believes the average cost method more closely reflects the physical
flow of inventories, improves comparability of the Company’s
operating results with its industry peers, and provides an
increased level of consistency in the measurement of inventories in
the Company’s consolidated financial statements. The effects of the
change in accounting principle from LIFO to average cost have been
retrospectively applied to the Company’s Statement of Consolidated
Operations for the quarter ended March 31, 2020. Accordingly, Net
income attributable to Arconic Corporation decreased $14 (comprised
of an $18 increase to Cost of goods sold and a $4 decrease to
Provision for income taxes) from the amount previously reported in
the Company’s Quarterly Report on Form 10-Q for the period ended
March 31, 2020 (filed on May 18, 2020). See the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2020 (filed on February
23, 2021) for additional information.
(3)
Metal price lag represents the
financial impact of the timing difference between when aluminum
prices included in Sales are recognized and when aluminum purchase
prices included in Cost of goods sold are realized. This adjustment
aims to remove the effect of the volatility in metal prices and the
calculation of this impact considers applicable metal hedging
transactions.
(4)
Other special items include the
following:
•
for the quarter ended March 31,
2021, costs related to several legal matters, including Grenfell
Tower ($4) and other ($1);
•
for the quarter ended December
31, 2020, costs related to several legal matters ($5) and other
items ($3); and
•
for the quarter ended March 31,
2020, an allocation of costs incurred by Arconic’s former parent
company associated with the April 1, 2020 separation of Arconic
Inc. into two standalone publicly-traded companies.
Net Debt
March 31,
2021
Long-term debt
$
1,592
Short-term borrowings
4
Total debt
$
1,596
Less: Cash and cash equivalents
763
Net debt
$
833
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 considering available cash that could be used to repay
outstanding debt. Long-term debt equals $1,600 principal of
outstanding indebtedness plus $19 of unamortized debt premium less
$27 of unamortized debt issuance costs.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210504005192/en/
Investor Contact Shane Rourke (412) 315-2984
Investor.Relations@arconic.com
Media Contact Tracie Gliozzi (412) 992-2525
Tracie.Gliozzi@arconic.com
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