Alcoa Corporation Reports Fourth Quarter and Full-Year 2019 Results

M, except per share amounts

4Q18¹

3Q19

4Q19

FY18¹

FY19

Revenue

$3,344

$2,567

$2,436

$13,403

$10,433

Net income (loss) attributable to Alcoa Corp.

$51

$(221)

$(303)

$250

$(1,125)

Earnings (loss) per share attributable to Alcoa Corp.

$0.27

$(1.19)

$(1.63)

$1.33

$(6.07)

Adjusted net income (loss)

$133

$(82)

$(57)

$698

$(184)

Adjusted earnings (loss) per share

$0.70

$(0.44)

$(0.31)

$3.70

$(0.99)

Adjusted EBITDA excluding special items

$770

$388

$346

$3,129

$1,656

¹

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from last-in, first-out (LIFO) to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission (SEC) on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

Statement of Consolidated Operations (unaudited)

(dollars in millions, except per-share amounts)

Quarter Ended

December 31,
2018

September 30,
2019

December 31,
2019

Sales

$

3,344

$

2,567

$

2,436

Cost of goods sold (exclusive of expenses below)⁽¹⁾

2,513

2,120

2,048

Selling, general administrative, and other expenses

59

66

62

Research and development expenses

7

7

6

Provision for depreciation, depletion, and amortization

174

184

183

Restructuring and other charges, net

138

185

363

Interest expense

31

30

31

Other expenses, net

32

27

44

Total costs and expenses

2,954

2,619

2,737

Income (loss) before income taxes

390

(52

)

(301

)

Provision for income taxes⁽¹⁾

163

95

54

Net income (loss)⁽¹⁾

227

(147

)

(355

)

Less: Net income (loss) attributable to noncontrolling interest⁽¹⁾

176

74

(52

)

NET INCOME (LOSS) ATTRIBUTABLE TO Alcoa Corp.⁽¹⁾

$

51

$

(221

)

$

(303

)

EARNINGS PER SHARE ATTRIBUTABLE TO Alcoa Corp. COMMON SHAREHOLDERS:

Basic:

Net income (loss)

$

0.27

$

(1.19

)

$

(1.63

)

Average number of shares⁽²⁾

186,166,234

185,566,202

185,575,479

Diluted:

Net income (loss)

$

0.27

$

(1.19

)

$

(1.63

)

Average number of shares⁽²⁾

188,219,224

185,566,202

185,575,479

⁽¹⁾

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

⁽²⁾

In December 2018, Alcoa Corp. repurchased and retired 1,723,800 shares of outstanding common stock in accordance with its previously announced common stock repurchase program. Both the basic and diluted average number of shares for the quarter ended December 31, 2018 includes 1,396,755 representing the weighted average number of shares for the length of time the 1,723,800 shares were outstanding during the fourth quarter of 2018.

Statement of Consolidated Operations (unaudited), continued

(dollars in millions, except per-share amounts)

Year ended

December 31,
2018

December 31,
2019

Sales

$

13,403

$

10,433

Cost of goods sold (exclusive of expenses below)⁽¹⁾

10,053

8,537

Selling, general administrative, and other expenses

248

280

Research and development expenses

31

27

Provision for depreciation, depletion, and amortization

733

713

Restructuring and other charges, net

527

1,031

Interest expense

122

121

Other expenses, net

64

162

Total costs and expenses

11,778

10,871

Income (loss) before income taxes

1,625

(438

)

Provision for income taxes⁽¹⁾

732

415

Net income (loss)⁽¹⁾

893

(853

)

Less: Net income attributable to noncontrolling interest⁽¹⁾

643

272

NET INCOME (LOSS) ATTRIBUTABLE TO Alcoa Corp.⁽¹⁾

$

250

$

(1,125

)

EARNINGS PER SHARE ATTRIBUTABLE TO Alcoa Corp. COMMON SHAREHOLDERS:

Basic:

Net income (loss)

$

1.34

$

(6.07

)

Average number of shares⁽²⁾

186,230,908

185,489,491

Diluted:

Net income (loss)

$

1.33

$

(6.07

)

Average number of shares⁽²⁾

188,534,139

185,489,491

Common stock outstanding at the end of the period

184,770,249

185,580,166

⁽¹⁾

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

⁽²⁾

In December 2018, Alcoa Corp. repurchased and retired 1,723,800 shares of outstanding common stock in accordance with its common stock repurchase program. Both the basic and diluted average number of shares for the year ended December 31, 2018 includes 1,641,367 representing the weighted average number of shares for the length of time the 1,723,800 shares were outstanding during 2018.

Consolidated Balance Sheet (unaudited)

(in millions)

December 31,
2018

December 31,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

1,113

$

879

Receivables from customers

830

546

Other receivables

173

114

Inventories⁽¹⁾

1,819

1,644

Fair value of derivative instruments

73

59

Prepaid expenses and other current assets^(1),(2)

320

288

Total current assets

4,328

3,530

Properties, plants, and equipment

21,807

21,706

Less: accumulated depreciation, depletion, and amortization

13,480

13,790

Properties, plants, and equipment, net

8,327

7,916

Investments

1,360

1,113

Deferred income taxes

560

649

Fair value of derivative instruments

82

18

Other noncurrent assets

1,475

1,414

Total assets

$

16,132

$

14,640

LIABILITIES

Current liabilities:

Accounts payable, trade

$

1,663

$

1,484

Accrued compensation and retirement costs

400

413

Taxes, including income taxes

426

104

Fair value of derivative instruments

82

67

Other current liabilities

347

494

Long-term debt due within one year

1

1

Total current liabilities

2,919

2,563

Long-term debt, less amount due within one year

1,801

1,799

Accrued pension benefits

1,407

1,544

Accrued other postretirement benefits

868

748

Asset retirement obligations

529

606

Environmental remediation

236

296

Fair value of derivative instruments

261

581

Noncurrent income taxes

301

276

Other noncurrent liabilities and deferred credits

222

371

Total liabilities

8,544

8,784

EQUITY

Alcoa Corp. shareholders’ equity:

Common stock

2

2

Additional capital

9,611

9,639

Retained earnings (deficit)⁽¹⁾

570

(555

)

Accumulated other comprehensive loss

(4,565

)

(5,004

)

Total Alcoa Corp. shareholders’ equity

5,618

4,082

Noncontrolling interest⁽¹⁾

1,970

1,774

Total equity

7,588

5,856

Total liabilities and equity

$

16,132

$

14,640

⁽¹⁾

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to the prior period presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

⁽²⁾

This line item includes $3 and $4 of restricted cash as of December 31, 2018 and 2019, respectively.

Statement of Consolidated Cash Flows (unaudited)

(in millions)

Year Ended December 31,

2018

2019

CASH FROM OPERATIONS

Net income (loss)⁽¹⁾

$

893

$

(853

)

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

Depreciation, depletion, and amortization

733

713

Deferred income taxes⁽¹⁾

(30

)

15

Equity earnings, net of dividends

17

21

Restructuring and other charges, net

527

1,031

Net gain from investing activities – asset sales

—

(3

)

Net periodic pension benefit cost

146

119

Stock-based compensation

35

30

Provision for bad debt expense

—

21

Other

(59

)

30

Changes in assets and liabilities, excluding effects of divestitures and foreign currency translation adjustments:

(Increase) Decrease in receivables

(43

)

283

(Increase) Decrease in inventories⁽¹⁾

(306

)

137

(Increase) Decrease in prepaid expenses and other current assets

(32

)

27

(Decrease) in accounts payable, trade

(165

)

(153

)

(Decrease) in accrued expenses

(319

)

(175

)

Increase (Decrease) in taxes, including income taxes

241

(330

)

Pension contributions⁽²⁾

(992

)

(173

)

(Increase) in noncurrent assets

(101

)

(24

)

(Decrease) in noncurrent liabilities

(97

)

(30

)

CASH PROVIDED FROM OPERATIONS

448

686

FINANCING ACTIVITIES

Additions to debt (original maturities greater than three months)⁽²⁾

560

—

Payments on debt (original maturities greater than three months)

(135

)

(7

)

Proceeds from the exercise of employee stock options

23

2

Repurchase of common stock⁽³⁾

(50

)

—

Financial contributions for the divestiture of businesses

—

(12

)

Contributions from noncontrolling interest

149

51

Distributions to noncontrolling interest

(827

)

(472

)

Other

(8

)

(6

)

CASH USED FOR FINANCING ACTIVITIES

(288

)

(444

)

INVESTING ACTIVITIES

Capital expenditures

(399

)

(379

)

Proceeds from the sale of assets

1

23

Additions to investments

(7

)

(112

)

CASH USED FOR INVESTING ACTIVITIES

(405

)

(468

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

(4

)

(7

)

Net change in cash and cash equivalents and restricted cash

(249

)

(233

)

Cash and cash equivalents and restricted cash at beginning of year

1,365

1,116

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

1,116

$

883

⁽¹⁾

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to the prior period presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

⁽²⁾

On May 17, 2018, Alcoa Nederland Holding B.V., a wholly-owned subsidiary of Alcoa Corp., issued $500 in 6.125% senior notes due 2028. The gross proceeds from the debt issuance were used to make discretionary contributions to three of Alcoa Corp.’s U.S. defined benefit pension plans. Accordingly, for the year ended December 31, 2018, the Pension contributions line item includes a cash outflow of $500 and the Additions to debt line item includes a cash inflow of $492 (net of an $8 initial purchasers discount).

⁽³⁾

In December 2018, Alcoa Corp. repurchased and retired 1,723,800 shares of outstanding common stock in accordance with its common stock repurchase program.

Segment Information (unaudited)

(dollars in millions, except realized prices; dry metric tons in millions (mdmt); metric tons in thousands (kmt))

4Q18

2018

1Q19

2Q19

3Q19

4Q19

2019

Bauxite:

Production⁽¹⁾ (mdmt)

11.8

45.8

11.9

11.3

12.1

12.1

47.4

Third-party shipments (mdmt)

1.6

5.7

1.2

1.5

2.0

1.5

6.2

Intersegment shipments (mdmt)

10.7

41.2

10.2

10.3

10.6

10.3

41.4

Third-party sales

$

80

$

271

$

65

$

67

$

100

$

65

$

297

Intersegment sales

$

245

$

944

$

236

$

246

$

251

$

246

$

979

Segment Adjusted EBITDA⁽²⁾

$

110

$

426

$

126

$

112

$

134

$

132

$

504

Depreciation, depletion, and amortization

$

28

$

111

$

28

$

27

$

35

$

30

$

120

Alumina:

Production (kmt)

3,297

12,857

3,240

3,309

3,380

3,373

13,302

Third-party shipments (kmt)

2,365

9,259

2,329

2,299

2,381

2,464

9,473

Intersegment shipments (kmt)

1,115

4,326

972

1,070

1,049

981

4,072

Average realized third-party price per metric ton of alumina

$

479

$

455

$

385

$

376

$

324

$

291

$

343

Third-party sales

$

1,132

$

4,215

$

897

$

864

$

771

$

718

$

3,250

Intersegment sales

$

567

$

2,101

$

417

$

445

$

369

$

330

$

1,561

Segment Adjusted EBITDA⁽²⁾

$

683

$

2,373

$

372

$

369

$

223

$

133

$

1,097

Depreciation and amortization

$

47

$

197

$

48

$

55

$

54

$

57

$

214

Equity income (loss)

$

9

$

32

$

12

$

3

$

—

$

(9

)

$

6

Aluminum:

Primary aluminum production (kmt)

573

2,259

537

533

530

535

2,135

Third-party aluminum shipments⁽³⁾ (kmt)

815

3,268

709

724

708

718

2,859

Average realized third-party price per metric ton of primary aluminum

$

2,358

$

2,484

$

2,219

$

2,167

$

2,138

$

2,042

$

2,141

Third-party sales

$

2,107

$

8,829

$

1,735

$

1,757

$

1,677

$

1,634

$

6,803

Intersegment sales

$

4

$

18

$

3

$

4

$

4

$

6

$

17

Segment Adjusted EBITDA^(2),(4)

$

(50

)

$

451

$

(96

)

$

3

$

43

$

75

$

25

Depreciation and amortization

$

89

$

394

$

89

$

85

$

88

$

84

$

346

Equity loss

$

(25

)

$

(38

)

$

(22

)

$

(17

)

$

(5

)

$

(5

)

$

(49

)

Reconciliation of total segment Adjusted EBITDA to consolidated net income (loss) attributable to Alcoa Corp.:

Total segment Adjusted EBITDA^(2),(4)

$

743

$

3,250

$

402

$

484

$

400

$

340

$

1,626

Unallocated amounts:

Transformation⁽⁵⁾

(1

)

(3

)

2

3

(6

)

(6

)

(7

)

Intersegment eliminations^(4),(6)

47

(8

)

86

(1

)

25

40

150

Corporate expenses⁽⁷⁾

(21

)

(96

)

(24

)

(28

)

(27

)

(22

)

(101

)

Provision for depreciation, depletion, and amortization

(174

)

(733

)

(172

)

(174

)

(184

)

(183

)

(713

)

Restructuring and other charges, net

(138

)

(527

)

(113

)

(370

)

(185

)

(363

)

(1,031

)

Interest expense

(31

)

(122

)

(30

)

(30

)

(30

)

(31

)

(121

)

Other expenses, net

(32

)

(64

)

(41

)

(50

)

(27

)

(44

)

(162

)

Other⁽⁸⁾

(3

)

(72

)

(18

)

(11

)

(18

)

(32

)

(79

)

Consolidated income (loss) before income taxes⁽⁴⁾

390

1,625

92

(177

)

(52

)

(301

)

(438

)

Provision for income taxes⁽⁴⁾

(163

)

(732

)

(150

)

(116

)

(95

)

(54

)

(415

)

Net (income) loss attributable to noncontrolling interest⁽⁴⁾

(176

)

(643

)

(141

)

(109

)

(74

)

52

(272

)

Consolidated net income (loss) attributable to Alcoa Corp.⁽⁴⁾

$

51

$

250

$

(199

)

$

(402

)

$

(221

)

$

(303

)

$

(1,125

)

⁽¹⁾

The production amounts do not include additional bauxite (approximately 3 mdmt per annum) that Alcoa World Alumina and Chemicals is entitled to receive (i.e. an amount in excess of its equity ownership interest) from certain other partners at the mine in Guinea.

⁽²⁾

Alcoa Corp.’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

⁽³⁾

The Aluminum segment’s third-party aluminum shipments are composed of both primary aluminum and flat-rolled aluminum.

⁽⁴⁾

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

⁽⁵⁾

Transformation includes, among other items, the Adjusted EBITDA of previously closed operations.

⁽⁶⁾

Concurrent with the change in inventory accounting method as of January 1, 2019, management elected to change the presentation of certain line items in the reconciliation of total segment Adjusted EBITDA to Consolidated net income (loss) attributable to Alcoa Corp.. Corporate inventory accounting previously included the impact of LIFO, metal price lag and intersegment eliminations. The impact of LIFO has been eliminated with the change in inventory method. Metal price lag attributable to the Company’s rolled operations business is now netted within the Aluminum segment to simplify presentation of an impact that nets to zero in consolidation. Only Intersegment eliminations remain as a reconciling line item and are labeled as such.

⁽⁷⁾

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.

⁽⁸⁾

Other includes certain items that impact Cost of goods sold and Selling, general administrative, and other expenses on Alcoa Corp.’s Statement of Consolidated Operations that are not included in the Adjusted EBITDA of the reportable segments, including those described as “Other special items” (see footnote 2 to the reconciliation of Adjusted Income within Calculation of Financial Measures included in this release).

Calculation of Financial Measures (unaudited)

(in millions, except per-share amounts)

Adjusted Income

Income (Loss)

Income (Loss)

Quarter ended

Year ended

December 31,
2018

September 30,
2019

December 31,
2019

December 31,
2018

December 31,
2019

Net income (loss) attributable to Alcoa Corp.⁽¹⁾

$

51

$

(221

)

$

(303

)

$

250

$

(1,125

)

Special items:

Restructuring and other charges, net

138

185

363

527

1,031

Other special items⁽²⁾

2

7

25

39

50

Discrete tax items and interim tax impacts⁽³⁾

3

(32

)

(23

)

2

11

Tax impact on special items⁽⁴⁾

(43

)

(12

)

(9

)

(89

)

(32

)

Noncontrolling interest impact⁽⁴⁾

(18

)

(9

)

(110

)

(31

)

(119

)

Subtotal

82

139

246

448

941

Net income (loss) attributable to Alcoa Corp. – as adjusted

$

133

$

(82

)

$

(57

)

$

698

$

(184

)

Diluted EPS⁽⁵⁾:

Net income (loss) attributable to Alcoa Corp. common shareholders

$

0.27

$

(1.19

)

$

(1.63

)

$

1.33

$

(6.07

)

Net income (loss) attributable to Alcoa Corp. common shareholders - as adjusted

$

0.70

$

(0.44

)

$

(0.31

)

$

3.70

$

(0.99

)

⁽¹⁾

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to the prior period presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

⁽²⁾

Other special items include the following:

•

for the quarter ended December 31, 2018, a net favorable change in certain mark-to-market energy derivative instruments ($3) and charges for other special items ($5);

•

for the quarter ended September 30, 2019, costs related to the restart process at the Bécancour, Canada smelter ($12), a gain on the sale of excess land ($7), and charges for other special items ($2);

•

for the quarter ended December 31, 2019, costs related to the restart process at the Bécancour, Canada smelter ($23) and a net charge for other special items ($2);

•

for the year ended December 31, 2018, a loss on a contractor arbitration matter, including interest, ($29), a net favorable change in certain mark-to-market energy derivative instruments ($22), costs related to the partial restart of the Warrick (Indiana) smelter ($20), costs related to a work stoppage at the Bécancour (Canada) smelter ($11 (primarily contractor services)), and other charges for special items ($1); and,

•

for the year ended December 31, 2019, costs related to the restart process at the Bécancour, Canada smelter ($39), costs related to a collective employee dismissal process in Spain at the Avilés and La Coruña facilities ($16), gains on the sale of excess land ($16), costs related to union negotiations in the U.S. ($7), and a net charge for several other special items ($4).

⁽³⁾

Discrete tax items and interim tax impacts are the result of discrete transactions and interim period tax impacts based on full-year assumptions and include the following:

•

for the quarter ended December 31, 2018, a net charge of interim tax impacts ($27) and a net benefit of several other items ($24);

•

for the quarter ended September 30, 2019, a net benefit of interim tax impacts ($40) and a net charge of several other items ($8);

•

for the quarter ended December 31, 2019, a net benefit of interim tax impacts ($25) and a net charge of several other items ($2);

•

for the year ended December 31, 2018, a charge to establish a reserve related to an outstanding income tax dispute involving a former Spanish consolidated tax group previously owned by Alcoa Corp.’s former parent company ($30) and a net benefit for several other items ($28); and,

•

for the year ended December 31, 2019, a net charge of several items ($11).

⁽⁴⁾

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 partner’s share of certain special items.

⁽⁵⁾

In any given period, the average number of shares applicable to diluted EPS for Net income (loss) attributable to Alcoa Corp. 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 income (loss) attributable to Alcoa Corp. common shareholders – as adjusted due to a larger and/or positive numerator. Specifically:

•

for the quarter and year ended December 31, 2018, share equivalents associated with outstanding employee stock options and awards were dilutive based on both Net income attributable to Alcoa Corp. common shareholders and Net income attributable to Alcoa Corp. common shareholders – as adjusted, resulting in the same diluted average number of shares;

•

and, for the quarters ended September 30, 2019 and December 31, 2019 and the year ended December 31, 2019, the average number of share equivalents applicable to diluted EPS had an anti-dilutive effect, and therefore, are excluded from the diluted EPS calculation.

Calculation of Financial Measures (unaudited), continued

(in millions)

Adjusted EBITDA

Quarter ended

Year ended

December 31,
2018

September 30,
2019

December 31,
2019

December 31,
2018

December 31,
2019

Net income (loss) attributable to Alcoa Corp.⁽¹⁾

$

51

$

(221

)

$

(303