Market Overview

Alcoa Corporation Reports First Quarter 2017 Results

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Alcoa Corporation (NYSE:AA):

1Q 2017 Results1

  • Net income of $225 million, or $1.21 per share
  • Excluding special items, adjusted net income of $117 million, or $0.63
    per share
  • Adjusted earnings before interest, tax, depreciation, and amortization
    (EBITDA), excluding special items of $533 million, up 59 percent
    sequentially driven by higher alumina and aluminum pricing
  • Revenue of $2.7 billion, up 5 percent sequentially, reflecting
    increased alumina and aluminum pricing
  • $804 million cash balance and $1.45 billion of debt, for net debt of
    $0.65 billion, as of March 31, 2017
  • Company continues to expect full-year 2017 adjusted EBITDA, excluding
    special items, between $2.1 billion and $2.3 billion2
             
$M, except per share amounts   1Q16   4Q16   1Q17
Revenue   $ 2,129   $ 2,537   $ 2,655
Net (loss) income attributable to Alcoa Corporation $ (210 ) $ (125 ) $ 225
Earnings per share attributable to Alcoa Corporation   $ (1.15 )   $ (0.68 )   $ 1.21
Adjusted (loss) income $ (114 ) $ 26 $ 117
Adjusted earnings per share   $ (0.62 )   $ 0.14     $ 0.63
Adjusted EBITDA excluding special items   $ 179     $ 335     $ 533

______________________________________________________________________

1 Prior to November 1, 2016, Alcoa Corporation's
financial statements were prepared on a carve-out basis, as the
underlying operations of the Company were previously consolidated as
part of Alcoa Corporation's former parent company's financial
statements. Accordingly, the financial results of Alcoa Corporation for
the quarter ended March 31, 2016 and for the month of October 2016
included in the quarter ended December 31, 2016 were also prepared on a
carve-out basis. The carve-out financial statements of Alcoa Corporation
are not necessarily indicative of Alcoa Corporation's combined results
of operations, financial position, and cash flows had it been a
standalone company during the referenced periods. See the Consolidated
Financial Statements included in the Company's Form 10-K for the period
ended December 31, 2016 filed with the United States Securities and
Exchange Commission on March 15, 2017 for additional information.

2 Based on actual results for 1Q17, outlook for
2Q17 – 4Q17 at $1,900 LME, $305 API, and updated regional premiums and
foreign currencies.

______________________________________________________________________

Alcoa Corporation (NYSE:AA), a global leader in bauxite, alumina, and
aluminum products, today reported that first quarter 2017 profits grew
sequentially on stronger alumina and aluminum pricing and that it
maintained a solid cash position.

In addition, the Company reiterated its expectations of full-year 2017
adjusted EBITDA, excluding special items, between $2.1 billion and $2.3
billion, based on April 2017 market assumptions, and net performance of
$50 million for the year.

"Alcoa is off to a strong start with our first full quarter as an
independent company," said Roy Harvey, Chief Executive Officer of Alcoa.
"In our Bauxite segment, our third-party business remained strong and we
continued to grow profits, while our Alumina and Aluminum segments
captured the benefits of improved market pricing to increase earnings
substantially."

Harvey continued: "Over the last few months, we also remained focused on
our strategic priorities. To reduce complexity, we consolidated our
business units and administrative locations; we began to put our return
seeking capital to work across our businesses to drive returns, and we
continued to strengthen the balance sheet by maintaining a healthy level
of cash on hand. As we look forward to the rest of 2017, we are well
positioned to deliver value to our stockholders."

In first quarter 2017, Alcoa reported net income of $225 million, or
$1.21 per share. Results include $108 million of special items largely
due to gains from the sale of the Yadkin Hydroelectric Project. First
quarter 2017 results compare to a net loss of $125 million, or $(0.68)
per share, in fourth quarter 2016, which included costs to streamline
the portfolio.

Excluding the impact of special items, first quarter 2017 adjusted net
income was $117 million, or $0.63 per share. In fourth quarter 2016,
Alcoa's adjusted net income was $26 million, or $0.14 per share,
excluding special items.

Alcoa reported first quarter 2017 adjusted EBITDA excluding special
items of $533 million, up 59 percent from $335 million in fourth quarter
2016. In first quarter 2017, Alcoa reported revenue of $2.7 billion, up
5 percent sequentially. Both revenue and adjusted EBITDA excluding
special items increased on higher alumina and aluminum pricing.

In the first quarter, the Company's cash from operations was $74 million
and free cash flow was $3 million. Alcoa ended the first quarter of 2017
with cash on hand of $804 million after transferring the net proceeds
received from the Yadkin sale to former parent Arconic Inc. according to
terms of the separation agreement. The Company reported 19 days working
capital.

In an ongoing effort to reduce complexity, in the first quarter Alcoa streamlined
its business segments
into three, focused on bauxite, alumina and
aluminum. Earlier this month, the Company also announced a consolidation
of its administrative locations
.

Market Update

For 2017, Alcoa is projecting 2017 global aluminum demand growth of 4.5
to 5 percent over 2016. The Company continues to project relatively
balanced global bauxite and alumina markets and a modest global aluminum
surplus of 300 thousand to 700 thousand metric tons.

Conference Call

Alcoa will hold its quarterly conference call at 5:00 PM Eastern
Daylight Time (EDT) on Monday, April 24, 2017 to present first quarter
2017 results and discuss its business and markets.

The call will be webcast via the Company's homepage on www.alcoa.com.
Presentation materials for the call will be available for viewing at
approximately 4:15 PM EDT on April 24, 2017 on the same website. Call
information and related details are available under the "Investors"
section at
www.alcoa.com.

Dissemination of Company Information

Alcoa intends to make future announcements regarding Company
developments and financial performance through its website at www.alcoa.com.

About Alcoa Corporation

Alcoa (NYSE:AA) is a global industry leader in bauxite, alumina, and
aluminum products, with a strong portfolio of value-added cast and
rolled products and substantial energy assets. Alcoa is built on a
foundation of strong values and operating excellence dating back nearly
130 years to the world-changing discovery that made aluminum an
affordable and vital part of modern life. Since inventing the aluminum
industry, and throughout our history, our talented Alcoans have followed
on with breakthrough innovations and best practices that have led to
efficiency, safety, sustainability, and stronger communities wherever we
operate. Visit us online on www.alcoa.com,
follow @Alcoa on Twitter and on Facebook at www.facebook.com/Alcoa.

We have included the above website addresses only as inactive textual
references and do not intend these to be active links to such websites.
Information contained on such websites or that can be accessed through
such websites does not constitute a part of this press release.

Forward-Looking Statements

This press 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," "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; and statements about strategies, outlook,
business and financial prospects. 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) 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, alumina, and other products, and fluctuations in indexed-based
and spot prices for alumina; (b) deterioration in global economic and
financial market conditions generally; (c) unfavorable changes in the
markets served by Alcoa Corporation; (d) the impact of changes in
foreign currency exchange rates on costs and results; (e) increases in
energy costs; (f) changes in discount rates or investment returns on
pension assets; (g) the inability to achieve the level of revenue
growth, cash generation, cost savings, improvement in profitability and
margins, fiscal discipline, or strengthening of competitiveness and
operations anticipated from restructuring programs and productivity
improvement, cash sustainability, technology advancements, and other
initiatives; (h) the inability to realize expected benefits, in each
case as planned and by targeted completion dates, from acquisitions,
divestitures, facility closures, curtailments, restarts, expansions, or
joint ventures; (i) political, economic, and regulatory risks in the
countries in which Alcoa Corporation operates or sells products; (j) the
outcome of contingencies, including legal proceedings, government or
regulatory investigations, and environmental remediation; (k) the impact
of cyberattacks and potential information technology or data security
breaches; and (l) the other risk factors discussed in Item 1A of Alcoa
Corporation's Form 10-K for the fiscal year ended December 31, 2016 and
other reports filed by Alcoa Corporation with the U.S. Securities and
Exchange Commission. 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 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 in isolation from, or as 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.

 
Alcoa Corporation and subsidiaries
Statement of Consolidated Operations (unaudited)
(dollars in millions, except per-share amounts)
 
Quarter ended
March 31,  

December 31,

  March 31,

2016(2)(3)

2016(2)

2017
Sales $ 2,129 $ 2,537 $ 2,655
 
Cost of goods sold (exclusive of expenses below) 1,866 2,123 2,043
Selling, general administrative, and other expenses 85 92 72
Research and development expenses 11 7 7
Provision for depreciation, depletion, and amortization 177 182 179
Restructuring and other charges 84 209 10
Interest expense 64 46 26
Other expenses (income), net   39     1     (100 )
Total costs and expenses 2,326 2,660 2,237
 
(Loss) income before income taxes (197 ) (123 ) 418
Provision for income taxes   18     6     110  
 
Net (loss) income (215 ) (129 ) 308
 
Less: Net (loss) income attributable to noncontrolling interest   (5 )   (4 )   83  
 

NET (LOSS) INCOME ATTRIBUTABLE TO ALCOA CORPORATION

$ (210 ) $ (125 ) $ 225  
 

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA CORPORATION COMMON
SHAREHOLDERS(1):

Basic:
Net (loss) income $ (1.15 ) $ (0.68 ) $ 1.23
Average number of shares 182,471,195 182,688,806 183,816,083
 
Diluted:
Net (loss) income $ (1.15 ) $ (0.68 ) $ 1.21
Average number of shares 182,471,195 182,688,806 186,303,547
 
 
Shipments of aluminum products (metric tons) 764,000 852,000

801,000

(1)   The respective basic and diluted earnings per share for the quarter
ended March 31, 2016 was calculated based on the 182,471,195 shares
of Alcoa Corporation common stock distributed on November 1, 2016 in
conjunction with the completion of Alcoa Corporation's separation
from its former parent company and are considered pro forma in
nature. Prior to November 1, 2016, Alcoa Corporation did not have
any issued and outstanding common stock.
 
(2)

Prior to November 1, 2016, Alcoa Corporation's financial
statements were prepared on a carve-out basis, as the underlying
operations of the Company were previously consolidated as part of
Alcoa Corporation's former parent company's financial statements.
Accordingly, the results of operations of Alcoa Corporation for
the quarter ended March 31, 2016 and for the month of October 2016
included in the quarter ended December 31, 2016 were prepared on
such basis. The carve-out financial statements of Alcoa
Corporation are not necessarily indicative of Alcoa Corporation's
combined results of operations had it been a standalone company
during the referenced periods. See the Consolidated Financial
Statements included in Alcoa Corporation's Annual Report on Form
10-K for the period ended December 31, 2016 filed with the United
States Securities and Exchange Commission on March 15, 2017 for
additional information.

 
(3) In preparing the Statement of Consolidated Operations for the year
ended December 31, 2016, management discovered that the amount of
Cost of goods sold previously reported for the quarter ended March
31, 2016 included an immaterial error due to an under-allocation of
LIFO expense of $7. As a result, management has revised Cost of
goods sold from the $1,859 previously reported to $1,866 and Net
loss attributable to Alcoa Corporation from the $(203) previously
reported to $(210).
 

     
Alcoa Corporation and subsidiaries
Consolidated Balance Sheet (unaudited)
(in millions)
 
December 31, March 31,
2016 2017
ASSETS
Current assets:
Cash and cash equivalents $ 853 $ 804
Receivables from customers 668 708
Other receivables 166 174
Inventories 1,160 1,294
Prepaid expenses and other current assets   334     424  
Total current assets   3,181     3,404  
 
Properties, plants, and equipment 22,550 23,070
Less: accumulated depreciation, depletion, and amortization   13,225     13,642  
Properties, plants, and equipment, net   9,325     9,428  
Investments 1,358 1,393
Deferred income taxes 741 814
Fair value of derivative contracts 468 357
Other noncurrent assets   1,668     1,680  
Total assets $ 16,741   $ 17,076  
 
LIABILITIES
Current liabilities:
Accounts payable, trade $ 1,455 $ 1,434
Accrued compensation and retirement costs 456 425
Taxes, including income taxes 147 176
Other current liabilities 742 568
Long-term debt due within one year   21     20  
Total current liabilities   2,821     2,623  
Long-term debt, less amount due within one year 1,424 1,431
Accrued pension benefits 1,851 1,813
Accrued other postretirement benefits 1,166 1,154
Asset retirement obligations 604 635
Environmental remediation 264 263
Noncurrent income taxes 310 352
Other noncurrent liabilities and deferred credits   604     642  
Total liabilities   9,044     8,913  
 
EQUITY
Alcoa Corporation shareholders' equity:
Common stock 2 2
Additional capital 9,531 9,553
Retained (deficit) earnings (104 ) 121
Accumulated other comprehensive loss   (3,775 )   (3,800 )
Total Alcoa Corporation shareholders' equity   5,654     5,876  
Noncontrolling interest   2,043     2,287  
Total equity   7,697     8,163  
Total liabilities and equity $ 16,741   $ 17,076  
 

 
Alcoa Corporation and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
 
Three months ended
March 31,

2016(3)

  2017
CASH FROM OPERATIONS
Net (loss) income $ (215 ) $ 308

Adjustments to reconcile net (loss) income to cash from operations:

Depreciation, depletion, and amortization 177 179
Deferred income taxes - 23
Equity income, net of dividends 4 (1 )
Restructuring and other charges 84 10
Net gain (loss) from investing activities – asset sales 2 (120 )
Net periodic pension benefit cost 11 28
Stock-based compensation 8

7

Other 6

9

Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency translation
adjustments:
(Increase) decrease in receivables (23 ) 7
Decrease (increase) in inventories 8 (102 )
Decrease in prepaid expenses and other current assets -

13

(Decrease) in accounts payable, trade (152 ) (45 )
(Decrease) in accrued expenses (205 ) (181 )
(Decrease) in taxes, including income taxes (60 ) (17 )
Pension contributions (14 ) (21 )
Decrease (increase) in noncurrent assets 14 (3 )
(Decrease) in noncurrent liabilities   (4 )   (20 )
CASH (USED FOR) PROVIDED FROM OPERATIONS   (359 )   74  
 
FINANCING ACTIVITIES
Net transfers from Parent Company 302 -
Cash paid to Arconic related to separation(1) - (238 )
Net change in short-term borrowings (original maturities of three
months or less)
(1 ) 2

Additions to debt (original maturities greater than three months)

-

2

Payments on debt (original maturities greater than three months) (4 ) (5 )

Proceeds from the exercise of employee stock options

-

18

Contributions from noncontrolling interest - 24
Distributions to noncontrolling interest (50 ) (57 )
Other   -    

(6

)
CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES   247     (260 )
 
INVESTING ACTIVITIES
Capital expenditures (86 ) (71 )

Proceeds from the sale of assets and businesses(2)

(13 ) 238
Additions to investments (3 ) (25 )
Net change in restricted cash   (1 )   (11 )
CASH (USED FOR) PROVIDED FROM INVESTING ACTIVITIES   (103 )   131  
 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

17

   

6

 
Net change in cash and cash equivalents (198 ) (49 )
Cash and cash equivalents at beginning of year   557     853  

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 359   $ 804  

(1)

 

On November 1, 2016, Alcoa Corporation separated from its former
parent company (now named Arconic Inc.) into a standalone,
publicly-traded company.  In accordance with the terms of the
related Separation and Distribution Agreement, Alcoa Corporation
paid to Arconic Inc. the net after-tax proceeds of $238 from the
sale of the Yadkin Hydroelectric Project.

 

(2)

Proceeds from the sale of assets and businesses for the three
months ended March 31, 2016 includes a cash outflow for cash paid
as a result of a post-closing adjustment associated with the
December 2014 divestiture of an ownership stake in a smelter in
the United States.

 

(3)

Prior to November 1, 2016, Alcoa Corporation's financial
statements were prepared on a carve-out basis, as the underlying
operations of the Company were previously consolidated as part of
Alcoa Corporation's former parent company's financial
statements.  Accordingly, the cash flows of Alcoa Corporation for
the three months ended March 31, 2016 were prepared on such
basis.  The carve-out financial statements of Alcoa Corporation
are not necessarily indicative of Alcoa Corporation's consolidated
cash flows had it been a standalone company during the referenced
periods.  See the Combined Financial Statements included in
Exhibit 99.1 to Alcoa Corporation's Form 10 Registration Statement
and the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively,
for additional information.

 

           
Alcoa Corporation and subsidiaries

Segment Information(1),(2) (unaudited)

(dollars in millions; alumina and aluminum production and
shipments in thousands of metric tons [kmt])
 
1Q16 2Q16 3Q16 4Q16 2016 1Q17
Bauxite:

Production(3) (million dry metric tons)

11.3 10.8 11.1 11.8 45.0 11.1

Total shipments (million dry metric tons)

11.2 11.8 11.7 12.2 46.9 11.6
Third-party sales $ 44 $ 87 $ 93 $ 91 $ 315 $ 70
Intersegment sales $ 175 $ 182 $ 192 $ 202 $ 751 $ 219
Adjusted EBITDA $ 77 $ 99 $ 97 $ 102 $ 375 $ 110
Depreciation, depletion, and amortization   $ 17     $ 19     $ 21     $ 20     $ 77     $ 18  
 
Alumina:
Production (kmt) 3,330 3,316 3,310 3,295 13,251 3,211
Third-party shipments (kmt) 2,168 2,266 2,361 2,276 9,071 2,255
Intersegment shipments (kmt) 1,257 1,137 1,140 1,169 4,703 947
Third-party sales $ 496 $ 601 $ 585 $ 618 $ 2,300 $ 734
Intersegment sales $ 292 $ 321 $ 317 $ 377 $ 1,307 $ 361
Adjusted EBITDA $ 15 $ 114 $ 78 $ 171 $ 378 $ 297
Depreciation and amortization $ 45 $ 47 $ 47 $ 47 $ 186 $ 49
Equity (loss) income   $ (14 )   $ (7 )   $ (9 )   $ (10 )   $ (40 )   $ 1  
 
Aluminum:
Primary aluminum production (kmt) 600 595 586 587 2,368 559
Third-party aluminum shipments (kmt) 764 770 761 852 3,147 801
Third-party sales $ 1,552 $ 1,597 $ 1,600 $ 1,782 $ 6,531 $ 1,806
Intersegment sales $ 34 $ 2 $ 2 $ 4 $ 42 $ 4
Adjusted EBITDA $ 165 $ 180 $ 183 $ 152 $ 680 $ 206
Depreciation and amortization $ 103 $ 104 $ 103 $ 104 $ 414 $ 101
Equity loss   $ (7 )   $ (10 )   $ (7 )   $     $ (24 )   $ (7 )
 
Reconciliation of total segment Adjusted EBITDA to consolidated
net (loss) income attributable to Alcoa Corporation:
Total segment Adjusted EBITDA $ 257 $ 393 $ 358 $ 425 $ 1,433 $ 613
Unallocated amounts:
Impact of LIFO 18 (1 ) 1 (28 ) (10 ) (14 )
Metal price lag 2 2 1 4 9 6
Corporate expense (36 ) (50 ) (47 ) (44 ) (177 ) (33 )
Provision for depreciation, depletion, and amortization

(177

)

(178

)

(181

)

(182

)

(718

)

(179

)

Restructuring and other charges (84 ) (8 ) (17 ) (209 ) (318 ) (10 )
Interest expense (64 ) (66 ) (67 ) (46 ) (243 ) (26 )
Other (expenses) income, net (39 ) 23 106 (1 ) 89 100
Other     (74 )     (59 )     (52 )     (42 )     (227 )     (39 )
Consolidated (loss) income before income taxes (197 ) 56 102 (123 ) (162 ) 418
Provision for income taxes (18 ) (68 ) (92 ) (6 ) (184 ) (110 )
Net loss (income) attributable to noncontrolling interest    

5

     

(43

)

   

(20

)

   

4

     

(54

)

   

(83

)

Consolidated net (loss) income attributable to Alcoa Corporation  

$

(210

)

 

$

(55

)

 

$

(10

)

 

$

(125

)

 

$

(400

)

 

$

225

 
The difference between certain segment totals and consolidated
amounts is in Corporate.
 

(1)

Effective in the first quarter of 2017, management elected to change
the profit and loss measure of Alcoa Corporation's reportable
segments from After-tax operating income (ATOI) to 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. Alcoa Corporation
calculates Adjusted EBITDA as Total sales (third-party and
intersegment) minus the following items: Cost of goods sold;
Selling, general administrative, and other expenses; and Research
and development expenses. Previously, Alcoa Corporation calculated
ATOI as Adjusted EBITDA minus (plus) the following items: Provision
for depreciation, depletion, and amortization; Equity loss (income);
Loss (gain) on certain asset sales; and Income taxes. Alcoa
Corporation's Adjusted EBITDA may not be comparable to similarly
titled measures of other companies.
 
Also effective in the first quarter of 2017, management combined
Alcoa Corporation's aluminum smelting, casting, and rolling
businesses, along with the majority of the energy business, into a
new Aluminum business unit. This new business unit is managed as a
single operating segment. Prior to this change, each of these
businesses were managed separately and comprised the Aluminum, Cast
Products, Energy, and Rolled Products segments. As a result, Alcoa
Corporation's operating and reportable segments are Bauxite,
Alumina, and Aluminum.
 
Segment information for all prior periods presented was revised to
reflect the new segment structure, as well as the new measure of
profit and loss.
 
(2) Prior to November 1, 2016, Alcoa Corporation's financial statements
were prepared on a carve-out basis, as the underlying operations of
the Company were previously consolidated as part of Alcoa
Corporation's former parent company's financial statements.
Accordingly, the financial results of Alcoa Corporation for all
periods prior to fourth quarter 2016 were prepared on such basis.
Additionally, the financial results of Alcoa Corporation for the
first month of fourth quarter 2016 were also prepared on a carve-out
basis. The carve-out financial statements of Alcoa Corporation are
not necessarily indicative of Alcoa Corporation's consolidated
results of operations, financial position, and cash flows had it
been a standalone company during the referenced periods. See the
Combined Financial Statements included in Exhibit 99.1 to Alcoa
Corporation's Form 10 Registration Statement and the Consolidated
Financial Statements included in the Company's Annual Report on Form
10-K for the period ended December 31, 2016 filed with the United
States Securities and Exchange Commission on October 11, 2016 and
March 15, 2017, respectively, for additional information.
 

(3)

The production amounts do not include additional bauxite that
Alcoa is entitled to receive (i.e. an amount in excess of its
equity ownership interest) from certain other partners at the mine
in Guinea.

     
Alcoa Corporation and subsidiaries
Calculation of Financial Measures (unaudited)
(in millions, except per-share amounts)
 

Adjusted (Loss) Income

(Loss) Income Diluted EPS(2)
Quarter ended Quarter ended

March 31,
2016(1)

 

December 31,
2016(1)

 

March 31,
2017

March 31,
2016(1)

 

December 31,
2016(1)

 

March 31,
2017

 
Net (loss) income attributable to Alcoa Corporation $

(210

) $ (125 ) $ 225 $ (1.15 ) $ (0.68 ) $ 1.21
 
Special items:
Restructuring and other charges

84

209

10

Discrete tax items(3)

5

(11

)

(2

)

Other special items(4)

12

30

(124

)

Tax impact(5)

(5

) (22 ) 5
Noncontrolling interest impact(5)  

   

(55

)

 

3

 
Subtotal  

96

    151     (108 )
 
Net (loss) income attributable to Alcoa Corporation – as adjusted

$

(114

)

$

26

 

$

117

 

(0.62

)

0.14

0.63

Net (loss) income attributable to Alcoa Corporation – 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 Corporation excluding the impacts of restructuring
and other charges, discrete tax items, and other special items
(collectively, "special items"). There can be no assurances that
additional special items will not occur in future periods. To
compensate for this limitation, management believes that it is
appropriate to consider both Net (loss) income attributable to Alcoa
Corporation determined under GAAP as well as Net (loss) income
attributable to Alcoa Corporation – as adjusted.
 
(1) Prior to November 1, 2016, Alcoa Corporation's financial statements
were prepared on a carve-out basis, as the underlying operations of
the Company were previously consolidated as part of Alcoa
Corporation's former parent company's financial statements.
Accordingly, the results of operations of Alcoa Corporation for the
quarter ended March 31, 2016 and for the month of October 2016
included in the quarter ended December 31, 2016 were prepared on
such basis. The carve-out financial statements of Alcoa Corporation
are not necessarily indicative of Alcoa Corporation's consolidated
results of operations had it been a standalone company during the
referenced periods. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation's Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively, for
additional information.
 
(2) In any given period, the average number of shares applicable to
diluted EPS for Net (loss) income attributable to Alcoa Corporation
common shareholders may exclude certain share equivalents as their
effect is anti-dilutive. However, certain of these share equivalents
may become dilutive in the EPS calculation applicable to Net (loss)
income attributable to Alcoa Corporation common shareholders – as
adjusted due to a larger and/or positive numerator.
 
Specifically, for the quarter ended December 31, 2016, share
equivalents associated with outstanding employee stock options and
awards were dilutive based on Net income attributable to Alcoa
Corporation common shareholders – as adjusted, resulting in a
diluted average number of shares of 184,448,353, and for the quarter
ended March 31, 2017, no additional share equivalents were dilutive
based on Net income attributable to Alcoa common shareholders – as
adjusted, resulting in a diluted average number of shares of
186,303,547.
 
Prior to November 1, 2016, Alcoa Corporation did not have any issued
and outstanding common stock. As such, the respective basic and
diluted EPS related to both Net loss attributable to Alcoa
Corporation and Net loss attributable to Alcoa Corporation – as
adjusted for the quarter ended March 31, 2016 were calculated based
on the 182,471,195 shares of Alcoa Corporation common stock
distributed on November 1, 2016 in conjunction with the completion
of Alcoa Corporation's separation from its former parent company and
are considered pro forma in nature.
 
(3) Discrete tax items include the following:

for the quarter ended March 31, 2016, a net charge for a number of
small items;

for the quarter ended December 31, 2016, a benefit for the
remeasurement of certain deferred tax assets of a subsidiary in
Brazil due to a tax rate change; and

for the quarter ended March 31, 2017, a net benefit for a number
of small items.

 
(4) Other special items include the following:

for the quarter ended March 31, 2016, costs associated with the
then-planned separation of Alcoa Corporation from its former
parent company ($9) and a write-down of inventory related to the
permanent closure of a smelter in the United States ($3);

for the quarter ended December 31, 2016, costs associated with the
separation of Alcoa Corporation from its former parent company
($19), interest expense incurred in October 2016 related to debt
that was issued in September 2016 in preparation for the
separation of Alcoa Corporation from its former parent company
(completed on November 1, 2016) ($8), a net unfavorable change in
certain mark-to-market energy derivative contracts ($2), and an
inventory adjustment at a curtailed refinery in the United States
($1); and

for the quarter ended March 31, 2017, a gain on the sale of the
Yadkin Hydroelectric Project in the United States ($120) and a net
favorable change in certain mark-to-market energy derivative
contracts ($4).

 
(5) The tax impact on special items is based on the applicable statutory
rates in the jurisdictions where the special items occurred. The
noncontrolling interest impact on special items represents Alcoa's
partners' share of certain special items.
 

 
Alcoa Corporation and subsidiaries
Calculation of Financial Measures (unaudited), continued
(in millions)
 
Adjusted EBITDA

Quarter ended

March 31,
2016(1)

 

December 31,
2016(1)

 

March 31,
2017

 

Net (loss) income attributable to Alcoa Corporation

$

(210

) $ (125 ) $ 225
 
Add:
Net (loss) income attributable to noncontrolling interest

(5

)

(4

)

83

Provision for income taxes

18

6 110
Other expenses (income), net

39

1 (100 )
Interest expense

64

46 26
Restructuring and other charges

84

209 10
Provision for depreciation, depletion, and amortization  

177

   

182

   

179

 
 
Adjusted EBITDA $

167

  $ 315   $ 533  
 
Special items(2)  

12

    20      
 
Adjusted EBITDA, excluding special items

$

179

 

$

335

 

$

533

 
Alcoa's Corporation'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 Corporation'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) Prior to November 1, 2016, Alcoa Corporation's financial statements
were prepared on a carve-out basis, as the underlying operations of
the Company were previously consolidated as part of Alcoa
Corporation's former parent company's financial statements.
Accordingly, the results of operations of Alcoa Corporation for the
quarter ended March 31, 2016 and for the month of October 2016
included in the quarter ended December 31, 2016 were prepared on
such basis. The carve-out financial statements of Alcoa Corporation
are not necessarily indicative of Alcoa Corporation's consolidated
results of operations had it been a standalone company during the
referenced periods. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation's Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively, for
additional information.
 
(2) Special items include the following (see reconciliation of Adjusted
(Loss) Income above for additional information):

for the quarter ended March 31, 2016, costs associated with the
then-planned separation of Alcoa Corporation from its former parent
company ($9) and a write-down of inventory related to the permanent
closure of a smelter in the United States ($3); and

for the quarter ended December 31, 2016, costs associated with the
separation of Alcoa Corporation from its former parent company ($19)
and an inventory adjustment at a curtailed refinery in the United
States ($1).
 

   

Alcoa Corporation and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in millions)

 
Free Cash Flow Quarter ended

December 31,
2016(1)

   

March 31,
2017

 
Cash from operations

$

239

$ 74
 
Capital expenditures  

(146

)

 

(71

)

 
 
Free cash flow

$

93

  $ 3  
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
Corporation's asset base and are expected to generate future cash
flows from operations. It is important to note that Free Cash Flow
does not represent the residual cash flow available for
discretionary expenditures since other non-discretionary
expenditures, such as mandatory debt service requirements, are not
deducted from the measure.
 
(1) Prior to November 1, 2016, Alcoa Corporation's financial statements
were prepared on a carve-out basis, as the underlying operations of
the Company were previously consolidated as part of Alcoa
Corporation's former parent company's financial statements.
Accordingly, the cash flows of Alcoa Corporation for the month of
October 2016 included in the quarter ended December 31, 2016 were
prepared on such basis. The carve-out financial statements of Alcoa
Corporation are not necessarily indicative of Alcoa Corporation's
consolidated cash flows had it been a standalone company during the
referenced periods. See the Combined Financial Statements included
in Exhibit 99.1 to Alcoa Corporation's Form 10 Registration
Statement and the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the period ended December
31, 2016 filed with the United States Securities and Exchange
Commission on October 11, 2016 and March 15, 2017, respectively, for
additional information.
 
       
Net Debt December 31, March 31,
2016 2017
 
Short-term borrowings $ 1 $ 3
Long-term debt due within one year 21 20
Long-term debt, less amount due within one year   1,424   1,431
Total debt $ 1,446 $ 1,454
 
Less: Cash and cash equivalents   853   804
 
Net debt $ 593 $ 650
Net debt is a non-GAAP financial measure. Management believes that
this measure is meaningful to investors because management assesses
Alcoa Corporation's leverage position after factoring in available
cash that could be used to repay outstanding debt.

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