Second Quarter 2021 Highlights
- Sales of $1.8 billion, up 52% year over year, and up 8% from
prior quarter
- Net loss of $427 million, or $3.89 per share, compared with net
loss of $96 million, or $0.88 per share, in second quarter 2020.
Second quarter 2021 includes an after-tax charge of $423 million
related to a partial annuitization of U.S. pension obligations
- Adjusted EBITDA of $187 million, up 89% year over year, and up
4% from prior quarter. Adjusted EBITDA margin of 10.4%
- Repurchased nearly 250,000 shares for approximately $9
million
- Completed $1 billion partial annuitization of U.S. pension
obligations
- Strong financial profile creating a range of return-generating
capital allocation opportunities
Arconic Corporation (NYSE: ARNC) (“Arconic” or “the Company”)
today reported second quarter 2021 results. Revenue was $1.8
billion, up 8% from the prior quarter, primarily due to higher
aluminum prices and growth in the industrial and packaging end
markets partially offset by weakness in ground transportation. The
Company reported a net loss of $427 million, or $3.89 per share,
compared with a net loss of $96 million, or $0.88 per share, in
second quarter 2020. The second quarter 2021 net loss includes an
after-tax non-cash pension settlement charge of $423 million
related to the partial annuitization of U.S. pension obligations
completed in quarter.
Second quarter 2021 Adjusted EBITDA was $187 million, an
increase of 89% year over year and 4% sequentially, driven
primarily by continued strong operating performance and growth in
industrial end markets and international packaging sales. Adjusted
EBITDA margin was 10.4% in second quarter 2021. Cash used for
operations was $167 million, reflecting $250 million of U.S.
pension contributions made in April 2021 related to the partial
U.S. pension annuitization. Capital expenditures were $44 million.
At quarter-end, the cash balance was $540 million with total
available liquidity of approximately $1.3 billion, and debt was
$1.6 billion.
Tim Myers, Chief Executive Officer, said, “The broad-based
strength of our product portfolio and our decision to pivot
capacity served us well in the second quarter, enabling us to
increase Adjusted EBITDA 4% sequentially. During the quarter, we
shifted capacity from automotive to industrial to nearly offset
semiconductor challenges affecting ground transportation. All other
markets grew during the quarter benefiting from sustained
tailwinds, and we expect ongoing growth across all of our end
markets, setting the stage for Arconic to deliver meaningful
Adjusted EBITDA growth over the next several years. Additionally,
we have dramatically reduced our annual legacy cash obligations,
which will lead to increased free cash flow generation and open the
door to a range of return-generating capital allocation
opportunities.”
Second Quarter Segment
Performance
Revenue by Segment ($M)
Quarter ended
June 30, 2021
June 30, 2020
Rolled Products
$
1,474
$
880
Building and Construction Systems
257
230
Extrusions
70
81
Adjusted EBITDA ($M)
Quarter ended
June 30, 2021
June 30, 2020
Rolled Products
$
173
$
85
Building and Construction Systems
35
37
Extrusions
(8
)
(14
)
Subtotal
200
108
Corporate
(13
)
(9
)
Adjusted EBITDA
$
187
$
99
Outlook
The Company is updating its full-year 2021 outlook in light of
the effects of increased metal price on revenue and working
capital. Arconic now expects full-year 2021 revenue to be in a
range of $7.3 billion to $7.6 billion, compared with the prior
outlook of $7.1 billion to $7.4 billion. This assumes an average
annual LME aluminum price of $2,330/mt and Midwest Premium of
$540/mt for the full year, versus prior assumptions for LME of
$2,200/mt and Midwest Premium of $430/mt. Adjusted EBITDA
expectations for full-year 2021 remain in a range of $710 million
to $750 million. Adjusted free cash flow outlook for full-year 2021
is now expected to be approximately $250 million compared to the
prior outlook of $300 million to $400 million. Adjusted free cash
flow outlook excludes a $250 million contribution to U.S. pension
plans in April in connection with the $1 billion annuitization, and
approximately $350 million in other funding of legacy pension,
OPEB, and environmental liabilities.
Share Repurchase Program
The Company repurchased approximately 250,000 shares in second
quarter 2021 at an average price of $34.68 for a total of
approximately $9 million of the previously announced $300 million
two-year authorization. From July 1, 2021 through July 30, 2021,
the Company has bought back more than twice the amount of shares
repurchased in second quarter 2021.
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
made an aggregate contribution of $250 million to its U.S. pension
plans to maintain the funding level of the remaining plan
obligations. As a result of the transaction, the Company recognized
a non-cash pension settlement charge of $549 million ($423 million
after tax), in the second quarter of 2021.
Arconic will hold its quarterly conference call at 10:00 AM
Eastern Time on August 3, 2021, to present second 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, or trends or developments in, 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; any future share repurchases; 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; the timing and levels of potential recovery
from the COVID-19 pandemic within our end markets; and the impact
of actions to mitigate the impact of the COVID-19 pandemic. 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 U.S. packaging market or to realize
the expected benefits of other strategic initiatives or projects;
(m) the inability to identify or successfully respond to changing
trends in our end markets; (n) the impact of potential cyber
attacks and information technology or data security breaches; (o)
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; (p) the
outcome of contingencies, including legal proceedings, government
or regulatory investigations, and environmental remediation and
compliance matters; and (q) 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
(SEC). The above list of factors is not exhaustive or necessarily
in order of importance. Market projections are subject to the risks
discussed above and in this release, 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, free cash flow, and adjusted 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
June 30,
March 31,
June 30,
2021
2021
2020
Sales
$
1,801
$
1,675
$
1,187
Cost of goods sold (exclusive of expenses
below)(1)
1,567
1,431
1,051
Selling, general administrative, and other
expenses
61
59
55
Research and development expenses
9
8
8
Provision for depreciation and
amortization
62
63
68
Restructuring and other charges(2)
597
1
77
Operating (loss) income(1)
(495
)
113
(72
)
Interest expense(3)
25
23
40
Other expenses, net
15
22
16
(Loss) Income before income taxes(1)
(535
)
68
(128
)
(Benefit) Provision for income
taxes(1)
(108
)
16
(32
)
Net (loss) income(1)
(427
)
52
(96
)
Less: Net income attributable to
noncontrolling interest
–
–
–
NET (LOSS) INCOME ATTRIBUTABLE TO
ARCONIC
CORPORATION(1)
$
(427
)
$
52
$
(96
)
EARNINGS PER SHARE ATTRIBUTABLE TO
ARCONIC
CORPORATION COMMON STOCKHOLDERS:
Basic:
Net (loss) income(1)
$
(3.89
)
$
0.48
$
(0.88
)
Weighted-average number of shares
110,035,026
109,835,195
109,046,332
Diluted:
Net (loss) income(1)
$
(3.89
)
$
0.46
$
(0.88
)
Weighted-average number of shares(4)
110,035,026
113,249,380
109,046,332
COMMON STOCK OUTSTANDING AT THE END OF
THE
PERIOD
110,024,144
110,024,144
109,058,691
(1)
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 June 30, 2020.
Accordingly, Net loss attributable to Arconic Corporation increased
$4 (comprised of a $5 increase to Cost of goods sold and a $1
increase to Benefit for income taxes), or $0.04 per share, from the
amount previously reported in the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2020 (filed on August 4,
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.
(2)
In the quarter ended June 30, 2021,
Restructuring and other charges includes $568 related to the
settlement of a portion of the Company’s U.S. defined benefit
pension plan obligations as a result of the purchase of a group
annuity contract and elections by certain plan participants to
receive lump-sum benefit payments (see footnote 4 to the
Consolidated Balance Sheet included in this release). In the
quarter ended June 30, 2020, Restructuring and other charges
includes $55 related to the settlement of a portion of the
Company’s U.K. defined benefit pension plan obligation as a result
of the purchase of a group annuity contract.
(3)
In the quarter ended June 30, 2020,
Interest expense includes $19 related to the write-off and
immediate expensing of certain debt issuance costs associated with
a debt refinancing executed in May 2020.
(4)
For periods in which the Company generates
net income, the diluted weighted-average number of shares include
common share equivalents associated with outstanding employee stock
awards. For periods in which the Company generates a net loss, the
diluted weighted-average number of shares does not include any
common share equivalents as their effect is anti-dilutive.
Arconic Corporation and
subsidiaries
Consolidated Balance Sheet
(unaudited)
(dollars in millions)
June 30,
December 31,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
$
540
$
787
Receivables from customers, less
allowances of
$1 in both 2021 and 2020
828
631
Other receivables
190
128
Inventories
1,397
1,043
Prepaid expenses and other current
assets
63
53
Total current assets
3,018
2,642
Properties, plants, and equipment
7,432
7,409
Less: accumulated depreciation and
amortization
4,802
4,697
Properties, plants, and equipment, net
2,630
2,712
Goodwill
391
390
Operating lease right-of-use-assets
136
144
Deferred income taxes
273
329
Other noncurrent assets
95
97
Total assets
$
6,543
$
6,314
LIABILITIES
Current liabilities:
Accounts payable, trade
$
1,427
$
1,106
Accrued compensation and retirement
costs
127
118
Taxes, including income taxes
42
33
Environmental remediation
75
90
Operating lease liabilities
36
36
Other current liabilities
143
90
Total current liabilities
1,850
1,473
Long-term debt(1)
1,593
1,278
Accrued pension benefits(2)
737
1,343
Accrued other postretirement benefits
459
479
Environmental remediation
60
66
Operating lease liabilities
103
111
Deferred income taxes
14
15
Other noncurrent liabilities and deferred
credits
99
102
Total liabilities
4,915
4,867
EQUITY
Arconic Corporation stockholders’
equity:
Common stock
1
1
Additional capital
3,351
3,348
Accumulated deficit
(530
)
(155
)
Treasury stock(3)
(9
)
–
Accumulated other comprehensive
loss(4)
(1,199
)
(1,761
)
Total Arconic Corporation stockholders’
equity
1,614
1,433
Noncontrolling interest
14
14
Total equity
1,628
1,447
Total liabilities and equity
$
6,543
$
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 (see footnote
2).
(2)
The decrease of $606 in Accrued pension
benefits was mostly due to cash contributions and the purchase of a
group annuity contract associated with the Company’s two funded
U.S. defined benefit pension plans. In January 2021, the Company
contributed a total of $200 to these two plans, comprised of the
estimated minimum required funding for 2021 of $183 and an
additional $17. In April 2021, the Company purchased a group
annuity contract to transfer the obligation to pay the remaining
retirement benefits of approximately 8,400 participants to an
insurance company. On a combined basis, this transaction resulted
in the settlement of $995 in plan obligations and the transfer of
$1,007 in plan assets. In connection with this transaction, the
Company contributed a total of $250 to these two plans to maintain
the funding level of the remaining plan obligations not
transferred. This contribution was funded with the net proceeds
from a recent debt offering (see footnote 1). This transaction
represents a significant settlement event, and, as a result, the
Company was required to complete a remeasurement of these two
plans, including an interim actuarial valuation of the plan
obligations. Accordingly, the weighted average discount rate used
in calculating the plan obligations increased to 3.10% as of April
30, 2021 from 2.54% as of December 31, 2020. This increase drove a
decrease in the Company’s liability of $152.
(3)
In May 2021, Arconic announced that its
Board of Directors approved a share repurchase program authorizing
the Company to repurchase shares of its outstanding common stock up
to an aggregate transactional value of $300 over a two-year period
expiring April 28, 2023. In the quarter ended June 30, 2021, the
Company repurchased 246,011 shares of its common stock under this
program.
(4)
The decrease of $562 in Accumulated other
comprehensive loss was mostly due to a reduction in the existing
combined net actuarial loss associated with the Company’s two
funded U.S. defined benefit pension plans. In the quarter ended
June 30, 2021, the Company accelerated the amortization of a
portion of this net actuarial loss due to the settlement of a
portion of the Company’s pension plan obligations as a result of
the purchase of a group annuity contract (see footnote 2) and
elections by certain plan participants to receive lump-sum benefit
payments. The impact of this activity on Accumulated other
comprehensive loss was $437 ($568 before tax impact). The Company
recognized the $568 in Restructuring and other charges on its
Statement of Consolidated Operations (see footnote 2 to the
Statement of Consolidated Operations included in this release).
Additionally, as a result of an increase in the discount rate used
in calculating the Company’s obligations related to these two plans
as of April 30, 2021 (see footnote 2), Accumulated other
comprehensive loss was reduced by $117 ($152 before tax
impact).
Arconic Corporation and
subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in millions)
Quarter ended
June 30,
March 31,
June 30,
2021
2021
2020
OPERATING ACTIVITIES
Net (loss) income(1)
$
(427
)
$
52
$
(96
)
Adjustments to reconcile net (loss) income
to cash (used for) provided from operations:
Depreciation and amortization
62
63
68
Deferred income taxes(1)
(117
)
4
28
Restructuring and other charges(2)
597
1
77
Net periodic pension benefit cost
18
22
18
Stock-based compensation
5
2
5
Amortization of debt issuance costs
1
2
21
Other
1
12
2
Changes in assets and liabilities,
excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments:
(Increase) Decrease in receivables
(61
)
(186
)
125
(Increase) Decrease in inventories(1)
(196
)
(161
)
171
(Increase) Decrease in prepaid expenses
and other current assets
(13
)
3
(8
)
Increase (Decrease) in accounts payable,
trade(3)
206
117
(295
)
(Decrease) in accrued expenses
(1
)
(33
)
(39
)
Increase (Decrease) in taxes, including
income taxes
5
9
(48
)
Pension contributions(4)
(252
)
(201
)
(12
)
(Increase) Decrease in noncurrent
assets
(4
)
–
11
Increase in noncurrent liabilities
9
–
10
CASH (USED FOR) PROVIDED FROM
OPERATIONS
(167
)
(294
)
38
FINANCING ACTIVITIES
Separation payment to former parent
company(5)
–
–
(728
)
Additions to debt (original maturities
greater than three months)(5)
–
319
1,200
Debt issuance costs
(1
)
(4
)
(15
)
Payments on debt (original maturities
greater than three months)(5)
–
–
(1,100
)
Repurchases of common stock(6)
(9
)
–
–
Other
1
(18
)
–
CASH (USED FOR) PROVIDED FROM FINANCING
ACTIVITIES
(9
)
297
(643
)
INVESTING ACTIVITIES
Capital expenditures(3)
(44
)
(28
)
(29
)
Proceeds from the sale of assets and
businesses
(3
)
1
1
CASH USED FOR INVESTING ACTIVITIES
(47
)
(27
)
(28
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH
–
–
–
Net change in cash and cash equivalents
and restricted cash
(223
)
(24
)
(633
)
Cash and cash equivalents and restricted
cash at beginning of period(7)
763
787
1,228
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD(7)
$
540
$
763
$
595
(1)
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 June 30, 2020. Accordingly, Net
loss increased $4, Deferred income taxes decreased $1, and Decrease
in inventories positively changed by $5 from the amounts reported
on August 4, 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.
(2)
See footnote 2 to the Statement of
Consolidated Operations included in this release.
(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
reported on August 4, 2020 for the quarter ended June 30, 2020 was
overstated by $8 and the amount of Capital expenditures reported on
August 4, 2020 for the quarter ended June 30, 2020 was understated
by $8. Accordingly, for the quarter ended June 30, 2020, management
has corrected both (Decrease) in accounts payable, trade and
Capital expenditures from the amounts reported on August 4, 2020 to
remove the respective effect of this $8.
(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. In April 2021, the Company contributed
a total of $250 to its two funded U.S. defined benefit pension
plans to maintain the funding level of the remaining plan
obligations not transferred under a group annuity contract (see
footnote 2 to the Consolidated Balance Sheet included in this
release).
(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 (see footnote
4).
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 7). 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.
On April 2, 2020, Arconic incurred an
additional $500 of indebtedness as a proactive measure taken by the
Company to bolster its liquidity and preserve financial flexibility
in light of uncertainties resulting from the COVID-19 pandemic. On
May 13, 2020, in order to provide improved financial flexibility,
Arconic executed a refinancing of a portion of its outstanding
indebtedness by securing $700 in new third-party indebtedness. The
Company used the net proceeds from the new indebtedness, together
with cash on hand, to repay $1,100 of outstanding indebtedness.
(6)
In May 2021, Arconic announced that its
Board of Directors approved a share repurchase program authorizing
the Company to repurchase shares of its outstanding common stock up
to an aggregate transactional value of $300 over a two-year period
expiring April 28, 2023. In the quarter ended June 30, 2021, the
Company repurchased 246,011 shares of its common stock under this
program.
(7)
Cash and cash equivalents and restricted
cash at beginning of period for the quarters ended June 30, 2021
and March 31, 2021 and Cash and cash equivalents and restricted
cash at end of period for all periods presented includes Restricted
cash of less than $0.03. For the quarter ended June 30, 2020, Cash
and cash equivalents and restricted cash at beginning of period
includes Restricted cash of $593 (see footnote 5).
Arconic Corporation and
subsidiaries
Segment Adjusted EBITDA Reconciliation
(unaudited)
(in millions)
Quarter ended
June 30,
March 31,
June 30,
2021
2021
2020
Total Segment Adjusted EBITDA(1),(2)
$
200
$
189
$
108
Unallocated amounts:
Corporate expenses(3)
(10
)
(9
)
(7
)
Stock-based compensation expense
(5
)
(2
)
(5
)
Metal price lag(4)
(11
)
5
(10
)
Provision for depreciation and
amortization
(62
)
(63
)
(68
)
Restructuring and other charges(5)
(597
)
(1
)
(77
)
Other(6)
(10
)
(6
)
(13
)
Operating (loss) income(2)
(495
)
113
(72
)
Interest expense
(25
)
(23
)
(40
)
Other expenses, net
(15
)
(22
)
(16
)
Benefit (Provision) for income
taxes(2)
108
(16
)
32
Net income attributable to noncontrolling
interest
–
–
–
Consolidated net (loss) income
attributable to Arconic Corporation(2)
$
(427
)
$
52
$
(96
)
(1)
Arconic’s profit or loss measure for its
reportable segments is Segment Adjusted EBITDA (Earnings before
interest, taxes, depreciation, and amortization). 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 4). 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. The Company 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. 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 June 30, 2020. See footnote 2 for
additional information.
Segment Adjusted EBITDA for the quarter
ended June 30, 2020 was recast to reflect the updated 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 (loss) income.
(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 June 30, 2020. Accordingly, Net
loss attributable to Arconic Corporation increased $4 (comprised of
a $5 increase to Cost of goods sold and a $1 increase to Benefit
for income taxes) from the amount previously reported in the
Company’s Quarterly Report on Form 10-Q for the period ended June
30, 2020 (filed on August 4, 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)
Corporate expenses are composed of general
administrative and other expenses of operating the corporate
headquarters and other global administrative facilities.
(4)
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.
(5)
See footnote 2 to the Statement of
Consolidated Operations included in this release.
(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)
Adjusted EBITDA
Quarter ended
June 30,
March 31,
June 30,
2021
2021
2020
Net (loss) income attributable to Arconic
Corporation(1)
$
(427
)
$
52
$
(96
)
Add:
Net income attributable to noncontrolling
interest
–
–
–
(Benefit) Provision for income
taxes(1)
(108
)
16
(32
)
Other expenses, net
15
22
16
Interest expense
25
23
40
Restructuring and other charges(2)
597
1
77
Provision for depreciation and
amortization
62
63
68
Stock-based compensation
5
2
5
Metal price lag(3)
11
(5
)
10
Other special items(4)
7
5
11
Adjusted EBITDA(1)
$
187
$
179
$
99
Sales
$
1,801
$
1,675
$
1,187
Adjusted EBITDA Margin
10.4
%
10.7
%
8.3
%
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 June 30, 2020. See
footnote 1 for additional information. Adjusted EBITDA for the
quarter ended June 30, 2020 was recast to reflect both these
changes.
(1)
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 June 30, 2020. Accordingly, Net
loss attributable to Arconic Corporation increased $4 (comprised of
a $5 increase to Cost of goods sold and a $1 increase to Benefit
for income taxes) from the amount previously reported in the
Company’s Quarterly Report on Form 10-Q for the period ended June
30, 2020 (filed on August 4, 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.
(2)
See footnote 2 to the Statement of
Consolidated Operations included in this release.
(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 June 30, 2021, a write-down of inventory
related to the idling of both the remaining operations at the
Chandler (Arizona) extrusions facility and the casthouse operations
at the Lafayette (Indiana) extrusions facility ($4) and costs
related to several legal matters ($3);
-
for the quarter ended March 31, 2021, costs related to several
legal matters, including Grenfell Tower ($4) and other ($1);
and
-
for the quarter ended June 30, 2020, costs related to several
legal matters, including a customer settlement ($5), Grenfell Tower
($3), and other ($3).
Net Debt
June 30,
2021
Long-term debt
$
1,593
Short-term borrowings
1
Total debt
$
1,594
Less: Cash and cash equivalents
540
Net debt
$
1,054
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 $18 of unamortized debt premium less $25 of
unamortized debt issuance costs.
Adjusted EBITDA to
Free Cash Flow Bridge
Quarter ended
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Adjusted EBITDA(1)
$187
$179
$151
$165
$99
Change in working capital(2),(4)
(51
)
(230
)
130
185
1
Cash payments for:
Environmental remediation
(4
)
(17
)
(28
)
(33
)
(4
)
Pension contributions(3)
(252
)
(201
)
(227
)
–
(12
)
Other postretirement benefits
(10
)
(10
)
(14
)
(14
)
(13
)
Restructuring actions
(4
)
(5
)
(9
)
(5
)
(9
)
Interest
(22
)
(18
)
(21
)
(19
)
(5
)
Income taxes
(6
)
(6
)
(11
)
(3
)
(7
)
Capital expenditures(4)
(44
)
(28
)
(37
)
(39
)
(29
)
Other
(5
)
14
17
(36
)
(12
)
Free Cash Flow(5)
$(211
)
$(322
)
$(49
)
$201
$9
Add-back cash payments for:
Environmental remediation
4
17
28
33
4
Pension benefits(6)
254
203
229
2
14
Other postretirement benefits
10
10
14
14
13
Adjusted Free Cash Flow(7)
$57
$(92
)
$222
$250
$40
(1)
Adjusted EBITDA is a non-GAAP financial
measure. See the reconciliation of Adjusted EBITDA included in this
release for (i) Arconic’s definition of Adjusted EBITDA, (ii)
management’s rationale for the presentation of this non-GAAP
measure, and (iii) a reconciliation of this non-GAAP measure to the
most directly comparable GAAP measure.
(2)
Arconic’s definition of working capital is
Receivables plus Inventories less Accounts payable, trade.
(3)
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. In April 2021, the Company contributed
a total of $250 to its two funded U.S. defined benefit pension
plans to maintain the funding level of the remaining plan
obligations not transferred under a group annuity contract.
(4)
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
(included in Change in working capital) reported on August 4, 2020
for the quarter ended June 30, 2020 was overstated by $8 and the
amount of Capital expenditures reported on August 4, 2020 for the
quarter ended June 30, 2020 was understated by $8. Accordingly, for
the quarter ended June 30, 2020, management has corrected both
(Decrease) in accounts payable, trade and Capital expenditures from
the amounts reported on August 4, 2020 to remove the respective
effect of this $8.
(5)
Arconic’s definition of Free Cash Flow is
Cash from operations less capital expenditures. 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, which are both necessary to maintain and expand the
Company’s asset base and 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.
2Q 2021: Cash used for operations of
$(167) less capital expenditures of $44 = free cash flow of
$(211)
1Q 2021: Cash used for operations of
$(294) less capital expenditures of $28 = free cash flow of
$(322)
4Q 2020: Cash used for operations of $(12)
less capital expenditures of $37 = free cash flow of $(49)
3Q 2020: Cash provided from operations of
$240 less capital expenditures of $39 = free cash flow of $201
2Q 2020: Cash provided from operations of
$38 less capital expenditures of $29 = free cash flow of $9
(6)
Pension benefits are comprised of
contributions to funded defined benefit plans and benefit payments
to participants in unfunded defined benefit plans.
(7)
Adjusted Free Cash Flow is a non-GAAP
financial measure. Management believes that this measure is
meaningful to investors because Adjusted Free Cash Flow provides an
incremental view of the Company’s cash performance by excluding
payments related to legacy liabilities.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210803005282/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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