Launching Two Strong Standalone Companies
Providing Shareholders with Two Distinct, Value-Creating Investment Opportunities
- Upstream Company to be a highly competitive global leader in bauxite, alumina and aluminum, with a unique portfolio of value-add casthouses, and substantial energy assets
- Value-Add Company to be a premier innovator of high performance multi-material products and solutions in attractive growth markets
- Transaction expected to be completed in second half of 2016
- Alcoa to host conference call today at 8:00 AM Eastern Daylight Time
Lightweight metals leader Alcoa (NYSE:AA) is today announcing that its
Board of Directors has unanimously approved a plan to separate into two
independent, publicly-traded companies, culminating Alcoa’s successful
multi-year transformation. The separation will launch two
industry-leading, Fortune 500 companies. The globally competitive
Upstream Company will comprise five strong business units that today
make up Global Primary Products – Bauxite, Alumina, Aluminum, Casting
and Energy. The innovation and technology-driven Value-Add Company will
include Global Rolled Products, Engineered Products and Solutions, and
Transportation and Construction Solutions. The transaction is expected
to be completed in the second half of 2016. At that point Alcoa
shareholders will own all of the outstanding shares of both the Upstream
and Value-Add Companies. The separation is intended to qualify as a
tax-free transaction to Alcoa shareholders for U.S. federal income tax
purposes.
Both independent companies will attract an investor base best suited to
their unique value proposition and operational and financial
characteristics. Both entities will be capitalized prudently, with the
Value-Add Company targeting an investment grade rating and the Upstream
Company a strong non-investment grade rating. After the separation, the
Upstream Company, with its strong history in the aluminum and alumina
markets, will operate under the Alcoa name. The Value-Add Company will
be named prior to closing.
“In the last few years, we have successfully transformed Alcoa to create
two strong value engines that are now ready to pursue their own
distinctive strategic directions,” said Klaus Kleinfeld, Chairman and
Chief Executive Officer. “After steering the Company through the deep
downturn of 2008, we immediately went to work reshaping the portfolio.
We have repositioned the upstream business; we have an enviable bauxite
position and are unrivalled in Alumina, we have optimized Aluminum,
flexed our energy assets, and turned our casthouses into a commercial
success story. The upstream business is now built to win throughout the
cycle. Our multi-material value-add business is a leader in attractive
growth markets. We have intensified innovation, made successful
acquisitions, shed businesses without product differentiation, invested
in smart organic growth, expanded our multi-materials profile and
brought key technologies to market; all while significantly increasing
profitability.”
Mr. Kleinfeld concluded, “Inventing and reinventing has defined our
Company throughout its 126-year history. With the unanimous support of
Alcoa’s Board we now take the next step; launching two leading-edge
companies, each with distinct and compelling opportunities, and each
ready to seize the future.”
Management Structure and Governance
Upon completion of the transaction, Klaus Kleinfeld will lead the
Value-Add Company as Chairman and Chief Executive Officer. He will also
serve as Chairman of the Upstream Company for the critical initial
phase, ensuring a smooth and effective transition. Each company will
have its own independent board of directors that will include members of
the current Alcoa Board. Full management teams and boards for both
companies will be named in the months leading up to the launch of the
two companies in the second half of 2016.
The Upstream Company
After the separation, the Upstream Company will be a cost-competitive
industry leader in bauxite mining, alumina refining and aluminum
production, positioned for success throughout the market cycle. The
company’s footprint will include 64 facilities worldwide, and
approximately 17,000 employees. Revenues for the 12 months through June
30, 2015 totaled $13.2 billion, with $2.8 billion in EBITDA. It will be
committed to disciplined capital allocation and prudent return of
capital to shareholders.
Global aluminum demand is expected to grow 6.5 percent in 2015 and
double between 2010 and 2020; so far this decade, global demand growth
is tracking ahead of this projection. The Upstream Company will be
well-positioned to meet this robust demand.
The Upstream Company’s world-class asset base will include the world’s
largest bauxite mining portfolio, with 46 million bone dry metric tons
of production in 2014. It has a low 19th percentile position
on the global bauxite cost curve. With proximity to owned refinery
operations, its mining reserves will provide a consistent supply of
low-cost bauxite. Alcoa has been building its third-party bauxite
business and is well-positioned to meet growing global demand.
The Upstream Company’s alumina refining system will be the world’s
largest, with operations well positioned to serve major adjacent growth
markets in Asia, the Middle East, and Latin America. It has a 25th
percentile, first quartile position on the global alumina cost curve,
with a target to reach the 21st percentile by 2016.
The company will be the world’s fourth largest aluminum producer with a
highly competitive second quartile cost curve portfolio. It will have an
unrivalled value-add casthouse network in close proximity to customers,
and a substantial portfolio of energy assets with power production
capacity of approximately 1,550 megawatts with operational flexibility
to profit from market cyclicality.
Alcoa has aggressively reshaped its Alumina and Primary Metals segments,
closing, divesting or curtailing 1.4 million metric tons, or 33 percent,
of total smelting operating capacity since 2007. As a result, Alcoa has
dropped eight points on the global aluminum cost curve since 2010 to the
43rd percentile, and is targeting the 38th
percentile by 2016. Additionally, Alcoa has secured approximately 75
percent of smelter power needs through 2022.
Alcoa has also steadily grown its offering of differentiated, value-add
aluminum products that are cast into specific shapes to meet the needs
of customers. The Company has grown total value-add product shipments
from its smelters from 57 percent in 2010 to 65 percent in 2014,
delivering $1.3 billion in total incremental margin. In 2015, value-add
products are projected to represent approximately 70 percent of smelter
shipments. Alcoa has also invested in the most advanced, low cost
integrated aluminum complex in the world in Saudi Arabia, with the
refinery and smelter now fully operational. Alcoa reformed pricing in
the alumina market in 2010 by introducing the Alumina Price Index (API)
to sell smelter-grade alumina based on alumina market fundamentals
rather than London Metal Exchange pricing. In 2014, 68 percent of
Alcoa’s total third-party smelter-grade alumina shipments were based on
API/spot market pricing. That is projected to grow to approximately 75
percent in 2015. Additionally, the Upstream business has achieved
productivity gains of approximately $3.9 billion between 2009 and 2014.
The Value-Add Company
After the separation, the Value-Add Company will be a premier provider
of high-performance multi-material products and solutions with 157
globally diverse operating locations and approximately 43,000 employees.
Pro-forma revenues for the Value-Add Company for the 12 months through
June 30, 2015 totaled $14.5 billion, with $2.2 billion in pro-forma
EBITDA.
As Alcoa has transformed, EBITDA margins for the value-add portfolio
have increased from 8 percent in 2008 to 15 percent in 2015 on a
pro-forma basis for the twelve months through June 30, 2015. The overall
contribution of the value-add portfolio to Alcoa’s after-tax operating
income has more than doubled from 25 percent in 2008 to 51 percent in
2014. EBITDA margins in the combined downstream segments (Engineered
Products and Solutions and Transportation and Construction Solutions)
have increased from 14.6 percent in 2008 to 20.9 percent in 2014, and in
the midstream (Global Rolled Products) from $108 per metric ton in 2008
to $289 per metric ton in 2014.
The Value-Add Company will be positioned for profitable growth by
increasing share in fast growing end markets and leveraging significant
customer synergies across the midstream and downstream portfolios. The
company will be a differentiated supplier to the high-growth aerospace
industry with leading positions on every major aircraft and jet engine
platform, underpinned by market leadership in jet engine and industrial
gas turbine airfoils, and aerospace fasteners. Approximately 40 percent
of the company’s pro-forma revenues for the 12 months through June 30,
2015 came from the aerospace market. The company will also be at the
forefront of capturing demand for aluminum intensive vehicles through
Alcoa’s recent rolling mill capacity expansions and the
commercialization of breakthrough technologies such as the Micromill.
Automotive revenues are expected to increase 2.4 times from 2014 to $1.8
billion in 2018. Additionally, the Value-Add Company will be an
unparalleled leader in aluminum commercial truck wheels and will hold
the number one market position in North American architectural systems.
Future profitable growth will be supported by a full pipeline of
innovative products and solutions, and the pursuit of investment
opportunities that provide a return above the cost of capital.
The Value-Add Company and Upstream Company will have distinct value
profiles with the ability to effectively allocate resources and deploy
capital in-line with individual growth priorities and cash-flow
profiles. As independent entities, each company will be positioned to
capture opportunities in increasingly competitive and rapidly evolving
markets. The separation will enable both the Value-Add Company and
Upstream Company to pursue their own independent strategies, pushing the
performance envelope within distinct operating environments.
Conditions and Timing to Close
Alcoa is currently targeting to complete the separation in the second
half of 2016. The transaction is subject to certain conditions,
including, among others, obtaining final approval by Alcoa’s Board of
Directors, receipt of a favorable opinion of legal counsel with respect
to the tax-free nature of the transaction for U.S. federal income tax
purposes, and effectiveness of a Form 10 registration statement to be
filed with the U.S. Securities and Exchange Commission. Alcoa may, at
any time and for any reason until the proposed transaction is complete,
abandon the separation or modify or change its terms.
Morgan Stanley and Greenhill & Co. are serving as financial advisors to
Alcoa, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel in
connection with the separation.
Conference Call and Investor Presentation
Alcoa will host a conference call for investors today at 8:00 AM Eastern
Daylight Time to review the planned separation and answer questions.
Investors may access the call by dialing (855) 252-9433. International
callers may dial + 1 (484) 487-2715. Please provide the operator with
pass code 47322664. The meeting will be webcast via www.alcoa.com.
Presentation materials used during this meeting will be available for
viewing at www.alcoa.com
under “Invest.”
Alcoa will hold its third quarter conference call as scheduled on
October 8, 2015 at 5:00 PM Eastern Daylight Time to present quarterly
results.
About Alcoa
A global leader in lightweight metals
technology, engineering and manufacturing, Alcoa innovates
multi-material solutions that advance our world. Our technologies
enhance transportation, from automotive and commercial transport to air
and space travel, and improve industrial and consumer electronics
products. We enable smart buildings, sustainable food and beverage
packaging, high-performance defense vehicles across air, land and sea,
deeper oil and gas drilling and more efficient power generation. We
pioneered the aluminum industry over 125 years ago, and today, our
approximately 60,000 people in 30 countries deliver value-add products
made of titanium, nickel and aluminum, and produce best-in-class
bauxite, alumina and primary aluminum products. For more information,
visit www.alcoa.com,
follow @Alcoa on Twitter at www.twitter.com/Alcoa
and follow us on Facebook at www.facebook.com/Alcoa.
Forward-Looking Statements
This communication 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,” “intends,” “may,”
“outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,”
“will,” “would,” or other words of similar meaning. All statements that
reflect Alcoa’s expectations, assumptions or projections about the
future other than statements of historical fact are forward-looking
statements, including, without limitation, statements regarding the
separation transaction; the future performance of Value-Add Company and
Upstream Company if the separation is completed; the expected benefits
of the separation; projections of improved profitability, enhanced
shareholder value, competitive position, market share, growth
opportunities, revenues, cash flow or other financial items of the
separated companies; the expected timing of completion of the
separation; the expected qualification of the separation as a tax-free
transaction; and projections regarding growth of the aerospace,
automotive, and other end markets. In making these statements, Alcoa has
made assumptions with respect to, among other things: the ability of
Value-Add Company and Upstream Company, as applicable, to predict and
adapt to changing customer requirements and preferences; supply/demand
fundamentals in the aluminum and alumina markets; future capital
expenditures, including the amount and nature thereof; trends and
developments in the aerospace, automotive, metals engineering (including
aluminum and titanium), advanced manufacturing, building and
construction, and other sectors of the economy that are related to these
sectors; business strategy and outlook; expansion and growth of business
and operations; credit risks and potential credit ratings; the ability
to obtain financing on acceptable terms or at all; future results being
similar to historical results; expectations related to future
macroeconomic and market conditions; and other matters, many of which
are beyond Alcoa’s control. Forward-looking statements are not
guarantees of future performance and are subject to risks,
uncertainties, and changes in circumstances that are difficult to
predict. Although Alcoa 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) uncertainties as to the timing of the separation and whether it
will be completed; (b) the possibility that various closing conditions
for the separation may not be satisfied; (c) failure of the separation
to qualify for the expected tax treatment; (d) the possibility that any
third-party consents required in connection with the separation will not
be received; (e) the impact of the separation on the businesses of
Alcoa; (f) the risk that the businesses will not be separated
successfully or such separation may be more difficult, time-consuming or
costly than expected, which could result in additional demands on
Alcoa’s resources, systems, procedures and controls, disruption of its
ongoing business and diversion of management’s attention from other
business concerns; (g) material adverse changes in aluminum industry
conditions; (h) deterioration in global economic and financial market
conditions generally; (i) unfavorable changes in the markets served by
Alcoa; (j) the impact of changes in foreign currency exchange rates on
costs and results; (k) increases in energy costs; (l) 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 (including moving the
Upstream Company’s alumina refining and aluminum smelting businesses
down on the industry cost curves and increasing revenues and improving
margins in the Value-Add Company’s businesses) anticipated from
restructuring programs and productivity improvement, cash
sustainability, technology advancements (including, without limitation,
advanced aluminum alloys, Alcoa Micromill, and other materials and
processes), and other initiatives; (m) Alcoa’s inability to realize
expected benefits, in each case as planned and by targeted completion
dates, from acquisitions, divestitures, facility closures, curtailments,
or expansions, or international joint ventures; (n) political, economic,
and regulatory risks in the countries in which Alcoa operates or sells
products; (o) the outcome of contingencies, including legal proceedings,
government or regulatory investigations, and environmental remediation;
(p) the impact of cyber attacks and potential information technology or
data security breaches; (q) the potential failure to retain key
employees while the separation transaction is pending or after it is
completed; (r) the risk that increased debt levels, deterioration in
debt protection metrics, contraction in liquidity, or other factors
could adversely affect the targeted credit ratings for Value-Add Company
or Upstream Company; and (s) the other risk factors discussed in Alcoa’s
Form 10-K for the year ended December 31, 2014, and other reports filed
with the U.S. Securities and Exchange Commission (SEC). Alcoa 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 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 and on our
website at www.alcoa.com under
the “Invest” section. Any reference to historical EBITDA means adjusted
EBITDA, for which we have provided calculations and reconciliations in
the schedules to this release.
Alcoa and subsidiaries
Calculation of Financial Measures
(unaudited)
(dollars in millions)
|
|
|||||||||||||||||||||||||||||
| Segment | Alumina | Primary | Upstream | Global Rolled |
Engineered |
Transportation | Pro-forma | Value-Add | |||||||||||||||||||||
| Measures | Metals | Company |
Products(1) |
Products and |
and |
Adjustments(3) |
Company | ||||||||||||||||||||||
|
Solutions(1),(2) |
Construction | ||||||||||||||||||||||||||||
|
Solutions(1),(2) |
|||||||||||||||||||||||||||||
| Adjusted EBITDA |
Last Twelve Months ended June 30, 2015 |
||||||||||||||||||||||||||||
|
After-tax operating income (ATOI) |
$ | 676 | $ | 766 | $ | 1,442 | $ | 251 | $ | 600 | $ | 170 | $ | 121 | $ | 1,142 | |||||||||||||
| Add: | |||||||||||||||||||||||||||||
|
Depreciation, depletion, and amortization |
347 |
459 |
806 |
231 |
179 |
42 |
56 |
508 |
|||||||||||||||||||||
| Equity loss (income) |
35 |
(3 |
) |
32 |
32 |
– |
– |
– |
32 |
||||||||||||||||||||
| Income taxes | 280 | 247 | 527 | 103 | 299 | 65 | 35 | 502 | |||||||||||||||||||||
| Other | – | (2 | ) | (2 | ) | (1 | ) | – | – | (2 | ) | (3 | ) | ||||||||||||||||
| Adjusted EBITDA |
$ |
1,338 |
$ |
1,467 |
$ |
2,805 |
$ |
616 |
$ |
1,078 |
$ |
277 |
$ |
210 |
$ |
2,181 |
|||||||||||||
Alcoa’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 Other
line in the table above includes gains/losses on asset sales and other
nonoperating items. 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’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) Effective in the second quarter of 2015, management removed the
impact of metal price lag from the results of the Global Rolled Products
and Engineered Products and Solutions (now Engineered Products and
Solutions and Transportation and Construction Solutions – see footnote 2
below) segments in order to enhance the visibility of the underlying
operating performance of these businesses. Metal price lag describes the
timing difference created when the average price of metal sold differs
from the average cost of the metal when purchased by the respective
segment. The impact of metal price lag is now reported as a separate
line item in Alcoa’s reconciliation of total segment ATOI to
consolidated net income (loss) attributable to Alcoa. As a result, this
change does not impact the consolidated results of Alcoa. Segment
information for all prior periods presented was updated to reflect this
change.
(2) In the third quarter of 2015, management approved a realignment
of Alcoa’s Engineered Products and Solutions segment due to the
expansion of this part of Alcoa’s business portfolio through both
organic and inorganic growth. This realignment consisted of moving both
the Alcoa Wheels and Transportation Products and Building and
Constructions Systems business units to a new reportable segment named
Transportation and Construction Solutions. Additionally, the Latin
American extrusions business previously included in Corporate was moved
into the new Transportation and Construction Solutions segment. The
remaining Engineered Products and Solutions segment consists of the
Alcoa Fastening Systems and Rings (renamed to include portions of the
Firth Rixson business acquired in November 2014), Alcoa Power and
Propulsion (includes the TITAL business acquired in March 2015), Alcoa
Forgings and Extrusions (includes the other portions of Firth Rixson),
and Alcoa Titanium and Engineered Products (a new business unit that
represents the RTI International Metals business acquired in July 2015)
business units. Segment information for all prior periods presented was
revised to reflect the new segment structure.
(3) Pro-forma Adjustments represent amounts related to portfolio
actions completed in the Global Rolled Products and Engineered Products
and Solutions segments as follows. In the Global Rolled Products
segment, six rolling mills (Australia, Spain, France, and Russia) were
closed or divested between December 2014 and March 2015. As such, the
Pro-forma Adjustments include the removal of amounts related to each
respective line item for these six rolling mills for the timeframe that
Alcoa operated these facilities during the twelve-month period ended
June 30, 2015. In the Engineered Products and Solutions segment, three
acquisitions were completed (see footnote 2 above) between November 2014
and July 2015. As such, the Pro-forma Adjustments include the addition
of amounts related to each respective line item for these three
businesses as if Alcoa had acquired all of them on July 1, 2014. For
these acquisitions, Alcoa estimated the ATOI, and therefore the Adjusted
EBITDA, using unaudited internal management financial statements. The
ATOI estimate and calculation of Adjusted EBITDA for these acquisitions
does not purport to be the manner in which the respective prior
management of the acquired companies would have calculated the acquired
companies’ respective ATOI and Adjusted EBITDA. Additionally, the
calculation of ATOI and Adjusted EBITDA is not intended to suggest that
the respective prior management of the acquired companies used ATOI or
Adjusted EBITDA as a measure of the acquired companies’ respective
profitability.
Alcoa and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions, except per
metric ton amounts)
| Segment |
Global Rolled Products(1) |
Engineered Products and | Transportation and | EPS and TCS | ||||||||||||||||||||||||
| Measures |
|
Solutions (EPS)(1),(2) |
Construction Solutions | Combined | ||||||||||||||||||||||||
|
|
(TCS)(1),(2) |
|||||||||||||||||||||||||||
|
Adjusted EBITDA |
Year ended December 31, | |||||||||||||||||||||||||||
|
2008 |
2014 |
2008 |
2014 |
2008 |
2014 |
2008 |
2014 |
|||||||||||||||||||||
| After-tax operating income (ATOI) | $ | (3 | ) | $ | 245 | $ | 465 | $ | 579 | $ | 82 | $ | 180 | $ | 547 | $ | 759 | |||||||||||
| Add: | ||||||||||||||||||||||||||||
| Depreciation, depletion, and amortization |
216 |
235 |
118 |
137 |
53 |
42 |
171 |
179 |
||||||||||||||||||||
| Equity loss | – | 27 | – | – | – | – | – | – | ||||||||||||||||||||
| Income taxes | 35 | 89 | 225 | 298 | – | 69 | 225 | 367 | ||||||||||||||||||||
| Other |
|
6 | (1 | ) | 2 | – | – | – | 2 | – | ||||||||||||||||||
| Adjusted EBITDA |
$ |
254 |
$ |
595 |
$ |
810 |
$ |
1,014 |
$ |
135 |
$ |
291 |
$ |
945 |
$ |
1,305 |
||||||||||||
| Total shipments (thousand metric tons) (kmt) |
2,361 |
2,056 |
||||||||||||||||||||||||||
| Adjusted EBITDA / Total shipments ($ per metric ton) |
$ |
108 |
$ |
289 |
||||||||||||||||||||||||
| Third-party sales |
$ |
4,215 |
$ |
4,217 |
$ |
2,270 |
$ |
2,021 |
$ |
6,485 |
$ |
6,238 |
||||||||||||||||
| Adjusted EBITDA Margin |
19.2 |
% |
24.0 |
% |
5.9 |
% |
14.4 |
% |
14.6 |
% |
20.9 |
% |
||||||||||||||||
Alcoa’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 Other
line in the table above includes gains/losses on asset sales and other
nonoperating items. 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’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) Effective in the second quarter of 2015, management removed the
impact of metal price lag from the results of the Global Rolled Products
and Engineered Products and Solutions (now Engineered Products and
Solutions and Transportation and Construction Solutions – see footnote 2
below) segments in order to enhance the visibility of the underlying
operating performance of these businesses. Metal price lag describes the
timing difference created when the average price of metal sold differs
from the average cost of the metal when purchased by the respective
segment. The impact of metal price lag is now reported as a separate
line item in Alcoa’s reconciliation of total segment ATOI to
consolidated net income (loss) attributable to Alcoa. As a result, this
change does not impact the consolidated results of Alcoa. Segment
information for all prior periods presented was updated to reflect this
change.
(2) In the third quarter of 2015, management approved a realignment
of Alcoa’s Engineered Products and Solutions segment due to the
expansion of this part of Alcoa’s business portfolio through both
organic and inorganic growth. This realignment consisted of moving both
the Alcoa Wheels and Transportation Products and Building and
Constructions Systems business units to a new reportable segment named
Transportation and Construction Solutions. Additionally, the Latin
American extrusions business previously included in Corporate was moved
into the new Transportation and Construction Solutions segment. The
remaining Engineered Products and Solutions segment consists of the
Alcoa Fastening Systems and Rings (renamed to include portions of the
Firth Rixson business acquired in November 2014), Alcoa Power and
Propulsion (includes the TITAL business acquired in March 2015), Alcoa
Forgings and Extrusions (includes the other portions of Firth Rixson),
and Alcoa Titanium and Engineered Products (a new business unit that
represents the RTI International Metals business acquired in July 2015)
business units. Segment information for all prior periods presented was
revised to reflect the new segment structure.
Alcoa and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
| Segment |
Global Rolled Products(1),(3) |
Engineered Products and |
Transportation and | Value-Add Company | |||||||||||||||||||||
| Measures |
|
Solutions (EPS)(1),(2),(3) |
Construction Solutions | ||||||||||||||||||||||
|
|
(TCS)(1),(2) |
||||||||||||||||||||||||
| Adjusted EBITDA | Twelve months ended | ||||||||||||||||||||||||
|
December 31, 2008 |
June 30, 2015 |
December 31, 2008 |
June 30, 2015 |
December 31, 2008 |
June 30, 2015 |
December 31, 2008 |
June 30, 2015 |
||||||||||||||||||
| After-tax operating income (ATOI) | $ | (3 | ) | $ | 247 | $ | 465 | $ | 725 | $ | 82 | $ | 170 | $ | 544 | $ | 1,142 | ||||||||
| Add: | |||||||||||||||||||||||||
| Depreciation, depletion, and amortization |
216 |
220 |
118 |
246 |
53 |
42 |
387 |
508 |
|||||||||||||||||
| Equity loss | – | 32 | – | – | – | – | – | 32 | |||||||||||||||||
| Income taxes | 35 | 104 | 225 | 333 | – | 65 | 260 | 502 | |||||||||||||||||
| Other | 6 | (1 | ) | 2 | (2 | ) | – | – | 8 | (3 | ) | ||||||||||||||
| Adjusted EBITDA |
$ |
254 |
$ |
602 |
$ |
810 |
$ |
1,302 |
$ |
135 |
$ |
277 |
$ |
1,199 |
$ |
2,181 |
|||||||||
| Third-party sales |
$ |
8,966 |
$ |
6,535 |
$ |
4,215 |
$ |
5,959 |
$ |
2,270 |
$ |
1,986 |
$ |
15,451 |
$ |
14,480 |
|||||||||
| Adjusted EBITDA Margin |
7.8 |
% |
15.1 |
% |
|||||||||||||||||||||
Alcoa’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 Other
line in the table above includes gains/losses on asset sales and other
nonoperating items. 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’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) Effective in the second quarter of 2015, management removed the
impact of metal price lag from the results of the Global Rolled Products
and Engineered Products and Solutions (now Engineered Products and
Solutions and Transportation and Construction Solutions – see footnote 2
below) segments in order to enhance the visibility of the underlying
operating performance of these businesses. Metal price lag describes the
timing difference created when the average price of metal sold differs
from the average cost of the metal when purchased by the respective
segment. The impact of metal price lag is now reported as a separate
line item in Alcoa’s reconciliation of total segment ATOI to
consolidated net income (loss) attributable to Alcoa. As a result, this
change does not impact the consolidated results of Alcoa. Segment
information for all prior periods presented was updated to reflect this
change.
(2) In the third quarter of 2015, management approved a realignment
of Alcoa’s Engineered Products and Solutions segment due to the
expansion of this part of Alcoa’s business portfolio through both
organic and inorganic growth. This realignment consisted of moving both
the Alcoa Wheels and Transportation Products and Building and
Constructions Systems business units to a new reportable segment named
Transportation and Construction Solutions. Additionally, the Latin
American extrusions business previously included in Corporate was moved
into the new Transportation and Construction Solutions segment. The
remaining Engineered Products and Solutions segment consists of the
Alcoa Fastening Systems and Rings (renamed to include portions of the
Firth Rixson business acquired in November 2014), Alcoa Power and
Propulsion (includes the TITAL business acquired in March 2015), Alcoa
Forgings and Extrusions (includes the other portions of Firth Rixson),
and Alcoa Titanium and Engineered Products (a new business unit that
represents the RTI International Metals business acquired in July 2015)
business units. Segment information for all prior periods presented was
revised to reflect the new segment structure.
(3) Amounts for the twelve months ended for the Global Rolled
Products and Engineered Products and Solutions segments have been recast
to reflect completed portfolio actions as follows. In the Global Rolled
Products segment, six rolling mills (Australia, Spain, France, and
Russia) were closed or divested between December 2014 and March 2015. As
such, the recast amounts reflect the removal of amounts related to each
respective line item for these six rolling mills for the timeframe that
Alcoa operated these facilities during the twelve-month period ended
June 30, 2015. In the Engineered Products and Solutions segment, three
acquisitions were completed (see footnote 2 above) between November 2014
and July 2015. As such, the recast amounts include the addition of
amounts related to each respective line item for these three businesses
as if Alcoa had acquired all of them on July 1, 2014. For these
acquisitions, Alcoa estimated the ATOI, and therefore the Adjusted
EBITDA, using unaudited internal management financial statements. The
ATOI estimate and calculation of Adjusted EBITDA for these acquisitions
does not purport to be the manner in which the respective prior
management of the acquired companies would have calculated the acquired
companies’ respective ATOI and Adjusted EBITDA. Additionally, the
calculation of ATOI and Adjusted EBITDA is not intended to suggest that
the respective prior management of the acquired companies used ATOI or
Adjusted EBITDA as a measure of the acquired companies’ respective
profitability.
Investor:
Nahla Azmy, 212-836-2674
Nahla.Azmy@alcoa.com
or
Media:
Monica Orbe, 212-836-2632
Monica.Orbe@alcoa.com