Fourth quarter 2019 sharp year-over-year improvement in earnings and operational cash flows
On track to execute separation on April 1, 2020
Fourth Quarter 2019 Highlights
- Revenue of $3.4 billion, down 2% year over year; organic revenue1 up 1% year over year
- Net income of $309 million, or $0.70 per share, versus net income of $218 million, or $0.44 per share, in the fourth quarter 2018
- Net income excluding special items of $234 million, or $0.53 per share, versus $162 million, or $0.33 per share, in the fourth quarter 2018
- Operating income of $416 million versus $323 million in the fourth quarter 2018
- Operating income excluding special items of $444 million, up 37% year over year
- Operating income margin excluding special items up 380 basis points year over year
- Cash balance2 of $1.7 billion
Full Year 2019 Highlights
- Revenue of $14.2 billion, up 1% year over year; organic revenue1 up 7% year over year
- Net income of $470 million, or $1.03 per share, versus net income of $642 million, or $1.30 per share, in the full year 2018
- Net income excluding special items of $971 million, or $2.11 per share, versus $676 million, or $1.36 per share, in the full year 2018
- For the full year, cash provided from operations of $406 million, cash used for financing activities of $1.6 billion, and cash provided from investing activities of $583 million
- Adjusted Free Cash Flow for the full year was $815 million, or $870 million excluding separation costs
2020 Guidance*
- Issued Full Year 2020 Guidance: Revenue $13.9-$14.2 billion, Earnings Per Share Excluding Special Items $2.22-$2.42, Adjusted Free Cash Flow $800-$900 million
- Issued First Quarter 2020 Guidance: Earnings Per Share Excluding Special Items $0.47-$0.53
Key Announcements
- Annual operating costs are projected to be reduced by approximately $300 million on a run-rate basis. The Company captured approximately $213 million of savings in 2019.
- Repurchased an additional $50 million of common stock in the fourth quarter 2019, for a total of $1.15 billion of common stock repurchased at a weighted average price of approximately $20.97 per share in full year 2019; $350 million remains authorized for share repurchases.
- Separation on track for April 1, 2020. Howmet Aerospace Inc. (Remain Co.) and Arconic Corporation (Spin Co.) to hold Investor Days on February 25, 2020. Timothy D. Myers appointed as Chief Executive Officer-Designate of Arconic Corporation effective upon its legal separation from the Company.
- Continued progress on divestitures, with transactions signed or closed in full year 2019 expected to generate approximately $190 million of net proceeds.
- Repaid in cash the aggregate outstanding principal amount of the 1.63% Convertible Senior Notes of approximately $403 million on October 15, 2019. As a result, the diluted share count ceased to include approximately 15 million of common stock previously attributable to the Notes. Total diluted shares as of the end of 2019 were approximately 440 million.
_______________________________
1Organic revenue is U.S. GAAP revenue adjusted for Tennessee Packaging (which completed its planned phase-down as of year-end 2018), divestitures, and changes in aluminum prices and foreign currency exchange rates relative to prior year period.
2 Includes restricted cash of approximately $55 million.
* Reconciliations of the forward-looking non-GAAP measures to the most directly comparable GAAP measures are not available without unreasonable efforts due to the variability and complexity of the charges and other components excluded from the non-GAAP measures – for further detail, see “2020 Guidance” below.
PITTSBURGH–(BUSINESS WIRE)–
Arconic Inc. (NYSE: ARNC) today reported fourth quarter 2019 and full year 2019 results. The Company reported fourth quarter revenues of $3.4 billion, down 2% year over year. Organic revenue1 was up 1% year over year on growth in the aerospace, packaging and industrial markets and favorable product pricing, largely offset by weakness in the automotive, commercial transportation, and building and construction markets.
Arconic reported net income of $309 million, or $0.70 per share, in the fourth quarter 2019 versus net income of $218 million, or $0.44 per share, in the fourth quarter 2018. Net income excluding special items was $234 million, or $0.53 per share, in the fourth quarter 2019, versus $162 million, or $0.33 per share, in the fourth quarter 2018. Net income in the fourth quarter 2019 included $75 million of income from Special items, including discrete and special tax items principally related to U.S. tax basis adjustments to foreign subsidiaries, partially offset by separation costs. Full year 2019 net income was $470 million, or $1.03 per share, versus net income of $642 million, or $1.30 per share, in the full year 2018. Full year 2019 net income excluding special items was $971 million, or $2.11 per share, versus $676 million, or $1.36 per share, in the full year 2018. Net income in the full year 2019 included $501 million of expenses from Special items, principally related to charges associated with non-cash asset impairments and separation costs, partially offset by discrete and special tax items principally related to U.S. tax basis adjustments to foreign subsidiaries.
Fourth quarter 2019 operating income was $416 million, versus operating income of $323 million in the fourth quarter 2018. Operating income excluding special items was $444 million, up 37% year over year, driven by net cost reductions, favorable product pricing, and favorable aluminum and raw material costs, partially offset by lower volumes in automotive and commercial transportation. Full year 2019 operating income was $1.0 billion versus $1.3 billion in the full year 2018. Operating income excluding special items for full year 2019 was $1.8 billion versus $1.4 billion in the full year 2018, driven by favorable product pricing; net cost reductions; volume growth in aerospace, packaging and commercial transportation markets; and favorable aluminum and raw material costs. These impacts were partially offset by unfavorable product mix.
Arconic Chairman and Chief Executive Officer John Plant said, “In 2019, the Arconic team delivered improved revenue, adjusted operating income, adjusted operating income margin, adjusted free cash flow and adjusted earnings per share. Arconic’s 2019 return on net assets improved by 450 basis points year over year to 13.7%.”
Arconic ended the year with a cash balance2 of $1.7 billion. For the full year 2019 and 2018: Cash provided from operations was $406 million and $217 million, respectively; cash used for financing activities totaled $1.6 billion and $649 million, respectively, as full year 2019 reflected the impact of the share repurchase programs totaling $1.15 billion; and cash provided from investing activities was $583 million and $565 million, respectively. Adjusted Free Cash Flow for the full year 2019 was $815 million, up 75% from full year 2018. Adjusted Free Cash Flow excluding separation costs for the full year 2019 was $870 million, up 87% from full year 2018.
Fourth Quarter 2019 Segment Performance
Engineered Products and Forgings (EP&F)
EP&F reported revenue of $1.7 billion, an increase of 1% year over year. Organic revenue1 was up 2%, driven by aerospace growth, partially offset by weakness in commercial transportation. Segment operating profit was $354 million, up $86 million or 32% year over year, driven by net cost reductions, favorable product pricing, lower raw material costs and volume increases, partially offset by mix. Segment operating profit margin was 20.4%, up 480 basis points year over year.
Global Rolled Products (GRP)
GRP reported revenue of $1.7 billion, down 5% year over year. Organic revenue1 was flat year over year. Segment operating profit was $150 million, up $57 million or 61% year over year, driven by net cost reductions, favorable aluminum prices, favorable pricing in industrial and commercial transportation, and the transition of Tennessee’s North American packaging business to more profitable industrial products. These impacts were partially offset by weakness in automotive, commercial transportation and building and construction markets. Segment operating profit margin was 9.0%, up 370 basis points year over year.
Full Year 2019 Segment Performance
Segment performance in 2019 included the following:
- EP&F revenue of $7.1 billion, up 5% year over year; organic revenue1 up 6% year over year; segment operating profit was $1.4 billion, up $285 million year over year; segment operating profit margin was 19.6%, up 330 basis points year over year.
- GRP revenue of $7.1 billion, down 2% year over year; organic revenue1 up 6% year over year; segment operating profit was $625 million, up $144 million year over year; segment operating profit margin was 8.8%, up 210 basis points year over year.
2020 Guidance*
Arconic is providing the following 2020 guidance:
|
|
Full Year 2020 |
|
Revenue |
$13.9-$14.2 billion |
|
Earnings Per Share Excluding Special Items* |
$2.22-$2.42 |
|
Adjusted Free Cash Flow* |
$800-$900 million |
Arconic expects first quarter 2020 Earnings Per Share Excluding Special Items to be in a range of $0.47-$0.53.
*
All guidance excludes separation impacts. Arconic has not provided reconciliations of the forward-looking non-GAAP financial measures, such as earnings per share excluding special items and adjusted free cash flow, to the most directly comparable GAAP financial measures. 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 foreign currency movements, equity income, 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.
Cost Reduction Commitment Update
The Company expects annual run rate operating costs to be reduced by approximately $300 million on a run-rate basis. The Company captured approximately $213 million of savings in full year 2019.
Executed Cumulative Share Buybacks Totaling $1.15 Billion; $350 Million Authorization Remains
During the fourth quarter 2019, the Company repurchased approximately 1.6 million shares of its common stock for $50 million. In total, Arconic repurchased approximately 54.9 million shares in full year 2019 at a weighted average price of approximately $20.97 per share. Three hundred fifty million dollars remains authorized for share repurchases. Total diluted shares as of the end of 2019 were approximately 440 million.
Targeting Separation Completion April 1, 2020
The Company expects the separation to be complete before the opening of the market on April 1, 2020. The separation remains subject to the satisfaction of certain conditions and may change if certain conditions are not satisfied by that date, as described in Arconic Corporation’s preliminary information statement filed with the Form 10.
Howmet Aerospace Inc. (Remain Co.) and Arconic Corporation (Spin Co.) will hold Investor Days on February 25, 2020, both of which will be available via webcast. The Engineered Products and Forgings businesses (engine products, fastening systems, engineered structures and forged wheels) will remain in the existing company (Remain Co.), which will be renamed Howmet Aerospace Inc. at separation and change its stock ticker from “ARNC” to “HWM.” The Global Rolled Products businesses (global rolled products, aluminum extrusions and building and construction systems) will comprise Spin Co. and will be named Arconic Corporation at separation and apply for authorization to list its common stock on the New York Stock Exchange under the symbol “ARNC.”
On January 13, 2020, the Company entered into an employment letter agreement with Timothy D. Myers providing for his appointment as the Chief Executive Officer of Arconic Corporation effective upon its legal separation from the Company. Until separation, Mr. Myers will continue to serve as Executive Vice President and Group President, Global Rolled Products, which includes Extrusions and Building and Construction Systems.
The separation does not trigger incremental pension cash contributions.
Progress on Divestitures
In the fourth quarter 2019, the Company completed the previously announced sale of its forgings business in the U.K. for net proceeds of $59 million in cash. The Company continues to expect to close the previously announced sale of its aluminum rolling mill in Itapissuma, Brazil in the first quarter 2020 for approximately $50 million in cash. The Company also expects to close the previously announced sale of its hard alloy extrusions plant in South Korea in the first quarter 2020 for approximately $61 million in cash. In 2019, the Company signed or closed divestitures expected to generate approximately $190 million in net proceeds.
Convertible Notes Matured on October 15, 2019
The Company repaid in cash the aggregate outstanding principal amount of the 1.63% Convertible Senior Notes of approximately $403 million, together with accrued and unpaid interest, on the maturity date, October 15, 2019. No shares of the Company’s common stock were issued in connection with the maturity or the final conversion of the Notes. As of October 15, 2019, the calculation of average diluted shares outstanding ceased to include the approximately 15 million shares of common stock previously attributable to the Notes. Total diluted shares as of the end of 2019 were approximately 440 million.
Arconic will hold its quarterly conference call at 10:00 AM Eastern Time on January 27, 2020, to present fourth quarter 2019 and full year 2019 financial results. The call will be webcast via www.arconic.com. Call information and related details are available at www.arconic.com under “Investors”; presentation materials will be available at approximately 8:00 AM Eastern Time on January 27.
About Arconic
Arconic (NYSE: ARNC) creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. For more information: www.arconic.com. Follow @arconic: Twitter, Instagram, Facebook, LinkedIn and YouTube.
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 or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts and expectations relating to the growth of the aerospace, defense, automotive, industrial, commercial transportation and other end markets; statements and guidance regarding future financial results or operating performance; statements regarding future strategic actions; and statements about Arconic’s strategies, outlook, business and financial prospects. 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 are subject to risks, uncertainties and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these statements. Such risks and uncertainties include, but are not limited to: (a) uncertainties regarding the planned separation, including whether it will be completed pursuant to the targeted timing, asset perimeters, and other anticipated terms, if at all; (b) the impact of the separation on the businesses of Arconic; (c) 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 Arconic’s resources, systems, procedures and controls, disruption of its ongoing business, and diversion of management’s attention from other business concerns; (d) deterioration in global economic and financial market conditions generally; (e) unfavorable changes in the markets served by Arconic; (f) the inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted; (g) competition from new product offerings, disruptive technologies or other developments; (h) political, economic, and regulatory risks relating to Arconic’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (i) manufacturing difficulties or other issues that impact product performance, quality or safety; (j) Arconic’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; (k) the impact of potential cyber attacks and information technology or data security breaches; (l) the loss of significant customers or adverse changes in customers’ business or financial conditions; (m) adverse changes in discount rates or investment returns on pension assets; (n) the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; (o) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Arconic to substantial costs and liabilities; and (p) the other risk factors summarized in Arconic’s Form 10-K for the year ended December 31, 2018 and other reports filed with the U.S. Securities and Exchange Commission (SEC). Market projections are subject to the risks discussed above and other risks in the market. The statements in this release are made as of the date of this release, even if subsequently made available by Arconic on its website or otherwise. Arconic disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.
Non-GAAP Financial Measures
Some of the information included in this release is derived from Arconic’s consolidated financial information but is not presented in Arconic’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these 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.
________________________
1 Organic revenue is U.S. GAAP revenue adjusted for Tennessee Packaging (due to its completed phase-down as of year-end 2018), divestitures, and changes in aluminum prices and foreign currency exchange rates relative to prior year period.
2 Includes restricted cash of approximately $55 million.
| Arconic and subsidiaries | |||||||||||
|
Statement of Consolidated Operations (unaudited) |
|||||||||||
|
(in millions, except per-share and share amounts) |
|||||||||||
|
|
Quarter ended |
||||||||||
|
|
December 31, |
|
September 30, |
|
December 31, |
||||||
|
Sales |
$ |
3,401 |
|
|
$ |
3,559 |
|
|
$ |
3,472 |
|
|
|
|
|
|
|
|
||||||
|
Cost of goods sold (exclusive of expenses below) |
2,670 |
|
|
2,800 |
|
|
2,845 |
|
|||
|
Selling, general administrative, and other expenses |
181 |
|
|
167 |
|
|
140 |
|
|||
|
Research and development expenses |
15 |
|
|
16 |
|
|
26 |
|
|||
|
Provision for depreciation and amortization |
129 |
|
|
131 |
|
|
149 |
|
|||
|
Restructuring and other charges(1) |
(10 |
) |
|
119 |
|
|
(11 |
) |
|||
|
Operating income |
416 |
|
|
326 |
|
|
323 |
|
|||
|
|
|
|
|
|
|
||||||
|
Interest expense |
82 |
|
|
86 |
|
|
87 |
|
|||
|
Other expense, net |
30 |
|
|
31 |
|
|
10 |
|
|||
|
|
|
|
|
|
|
||||||
|
Income before income taxes |
304 |
|
|
209 |
|
|
226 |
|
|||
|
(Benefit) provision for income taxes |
(5 |
) |
|
114 |
|
|
8 |
|
|||
|
|
|
|
|
|
|
||||||
|
Net income |
$ |
309 |
|
|
$ |
95 |
|
|
$ |
218 |
|
|
|
|
|
|
|
|
||||||
|
EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC COMMON SHAREHOLDERS: |
|
|
|
|
|
||||||
|
Basic(2)(3): |
|
|
|
|
|
||||||
|
Earnings per share |
$ |
0.71 |
|
|
$ |
0.22 |
|
|
$ |
0.45 |
|
|
Average number of shares(3)(4) |
432,802,445 |
|
|
436,364,035 |
|
|
483,239,287 |
|
|||
|
|
|
|
|
|
|
||||||
|
Diluted(2)(3): |
|
|
|
|
|
||||||
|
Earnings per share |
$ |
0.70 |
|
|
$ |
0.21 |
|
|
$ |
0.44 |
|
|
Average number of shares(3)(4) |
441,941,647 |
|
|
456,679,981 |
|
|
503,018,904 |
|
|||
|
(1) |
Restructuring and other charges for the quarter ended December 31, 2019 included contingent consideration received related to the 2018 sale of the Texarkana rolling mill of $20, partially offset by charges of $10 for asset impairments, accelerated depreciation, and other exit costs. Restructuring and other charges for the quarter ended September 30, 2019 included charges of $59 and $43 primarily related to non-cash impairments of the net book value of the Company’s aluminum rolling mill in Brazil and its forgings business in the U.K., respectively, associated with agreements reached during the quarter to sell these businesses. Other charges of $17 in the third quarter included asset impairments, accelerated depreciation, and pension plan settlements. Restructuring and other charges for the quarter ended December 31, 2018 primarily included a gain of $154 on the sale of the Texarkana rolling mill, offset by pension plan settlement charges of $92 associated with significant lump sum payments made to participants and a loss of $43 on the sale of the Eger, Hungary forgings business. |
|
|
(2) |
In order to calculate both basic and diluted earnings per share, preferred stock dividends declared of $1 for the quarters ended December 31, 2019, September 30, 2019, and December 31, 2018 need to be subtracted from Net income. |
|
|
(3) |
For the quarters ended December 31, 2019, September 30, 2019, and December 31, 2018, the difference between the respective diluted average number of shares and the respective basic average number of shares related to share equivalents (9 million, 20 million, and 20 million, respectively) associated with outstanding employee stock options and awards and shares underlying outstanding convertible debt (convertible debt matured and was repaid in October 2019). |
|
|
(4) |
Basic and diluted average number of shares for the quarters ended December 31, 2019 and September 30, 2019 reflect the impact of share repurchase programs of the Company’s common stock. |
|
Arconic and subsidiaries |
|||||||
|
Statement of Consolidated Operations (unaudited) |
|||||||
|
(in millions, except per-share and share amounts) |
|||||||
|
|
Year ended |
||||||
|
|
December 31, |
|
December 31, |
||||
|
Sales |
$ |
14,192 |
|
|
$ |
14,014 |
|
|
|
|
|
|
||||
|
Cost of goods sold (exclusive of expenses below) |
11,227 |
|
|
11,397 |
|
||
|
Selling, general administrative, and other expenses |
704 |
|
|
604 |
|
||
|
Research and development expenses |
70 |
|
|
103 |
|
||
|
Provision for depreciation and amortization |
536 |
|
|
576 |
|
||
|
Restructuring and other charges(1) |
620 |
|
|
9 |
|
||
|
Operating income |
1,035 |
|
|
1,325 |
|
||
|
|
|
|
|
||||
|
Interest expense(2) |
338 |
|
|
378 |
|
||
|
Other expense, net |
122 |
|
|
79 |
|
||
|
|
|
|
|
||||
|
Income before income taxes |
575 |
|
|
868 |
|
||
|
Provision for income taxes |
105 |
|
|
226 |
|
||
|
|
|
|
|
||||
|
Net income |
$ |
470 |
|
|
$ |
642 |
|
|
|
|
|
|
||||
|
EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC COMMON SHAREHOLDERS: |
|
|
|
||||
|
Basic(3)(4): |
|
|
|
||||
|
Earnings per share |
$ |
1.05 |
|
|
$ |
1.33 |
|
|
Average number of shares(4)(5) |
446,217,357 |
|
|
482,879,501 |
|
||
|
|
|
|
|
||||
|
Diluted(3)(4): |
|
|
|
||||
|
Earnings per share |
$ |
1.03 |
|
|
$ |
1.30 |
|
|
Average number of shares(4)(5) |
462,827,223 |
|
|
502,627,363 |
|
||
|
|
|
|
|
||||
|
Common stock outstanding at the end of the period(5) |
432,855,183 |
|
|
483,270,717 |
|
||
|
(1) |
Restructuring and other charges for the year ended December 31, 2019 included charges of $54 and $46 primarily related to non-cash impairments of the net book value of the Company’s aluminum rolling mill in Brazil and its forgings business in the U.K., respectively, associated with agreements reached to sell these businesses; an impairment of a long-lived asset group of $428; net layoff costs of $97, and asset impairment and other exit costs of $73, partially offset by a credit of $58 related to the elimination of life insurance benefits for U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries; and contingent consideration received related to the 2018 sale of the Texarkana rolling mill of $20. Restructuring and other charges for the year ended December 31, 2018 primarily included a gain of $154 on the sale of the Texarkana rolling mill, offset by pension plan settlement charges of $96 associated with significant lump sum payments made to participants and a loss of $43 on the sale of the Eger, Hungary forgings business. |
|
|
(2) |
Interest expense for the year ended December 31, 2018 included $19 related to the early redemption of the Company’s then outstanding 5.720% Senior Notes due 2019. |
|
|
(3) |
In order to calculate both basic and diluted earnings per share, preferred stock dividends declared of $2 for the years ended December 31, 2019 and 2018 need to be subtracted from Net income. |
|
|
(4) |
For the years ended December 31, 2019 and 2018, the difference between the respective diluted average number of shares and the respective basic average number of shares related to share equivalents (17 million and 20 million, respectively) associated with outstanding employee stock options and awards and shares underlying outstanding convertible debt (convertible debt matured and was repaid in October 2019). |
|
|
(5) |
Basic and diluted average number of shares and Common stock outstanding at the end of the period for the year ended December 31, 2019 reflects the impact of share repurchase programs of the Company’s common stock. |
|
Arconic and subsidiaries |
|||||||
|
Consolidated Balance Sheet (unaudited) |
|||||||
|
(in millions) |
|||||||
|
December 31, 2019 |
|
December 31, 2018 |
|||||
|
Assets |
|
|
|
||||
|
Current assets: |
|
|
|
||||
|
Cash and cash equivalents |
$ |
1,648 |
|
|
$ |
2,277 |
|
|
Receivables from customers, less allowances of $3 in 2019 and $4 in 2018 |
967 |
|
|
1,047 |
|
||
|
Other receivables |
484 |
|
|
451 |
|
||
|
Inventories |
2,429 |
|
|
2,492 |
|
||
|
Prepaid expenses and other current assets(1) |
314 |
|
|
314 |
|
||
|
Total current assets |
5,842 |
|
|
6,581 |
|
||
|
|
|
|
|
||||
|
Properties, plants, and equipment, net(2)(3) |
5,463 |
|
|
5,704 |
|
||
|
Goodwill |
4,493 |
|
|
4,500 |
|
||
|
Deferred income taxes |
608 |
|
|
573 |
|
||
|
Intangibles, net(3) |
658 |
|
|
919 |
|
||
|
Other noncurrent assets(2)(3) |
514 |
|
|
416 |
|
||
|
Total assets |
$ |
17,578 |
|
|
$ |
18,693 |
|
|
|
|
|
|
||||
|
Liabilities |
|
|
|
||||
|
Current liabilities: |
|
|
|
||||
|
Accounts payable, trade |
$ |
2,043 |
|
|
$ |
2,129 |
|
|
Accrued compensation and retirement costs |
432 |
|
|
370 |
|
||
|
Taxes, including income taxes |
87 |
|
|
118 |
|
||
|
Accrued interest payable |
112 |
|
|
113 |
|
||
|
Other current liabilities(2) |
418 |
|
|
356 |
|
||
|
Short-term debt |
1,034 |
|
|
434 |
|
||
|
Total current liabilities |
4,126 |
|
|
3,520 |
|
||
|
Long-term debt, less amount due within one year |
4,906 |
|
|
5,896 |
|
||
|
Accrued pension benefits |
2,460 |
|
|
2,230 |
|
||
|
Accrued other postretirement benefits |
714 |
|
|
723 |
|
||
|
Other noncurrent liabilities and deferred credits(2) |
751 |
|
|
739 |
|
||
|
Total liabilities |
12,957 |
|
|
13,108 |
|
||
|
|
|
|
|
||||
|
Equity |
|
|
|
||||
|
Arconic shareholders’ equity: |
|
|
|
||||
|
Preferred stock |
55 |
|
|
55 |
|
||
|
Common stock(4) |
433 |
|
|
483 |
|
||
|
Additional capital(4) |
7,319 |
|
|
8,319 |
|
||
|
Retained earnings (accumulated deficit)(2) |
129 |
|
|
(358 |
) |
||
|
Accumulated other comprehensive loss |
(3,329 |
) |
|
(2,926 |
) |
||
|
Total Arconic shareholders’ equity |
4,607 |
|
|
5,573 |
|
||
|
Noncontrolling interests |
14 |
|
|
12 |
|
||
|
Total equity |
4,621 |
|
|
5,585 |
|
||
|
Total liabilities and equity |
$ |
17,578 |
|
|
$ |
18,693 |
|
|
(1) |
Includes restricted cash of $55 and $6 at December 31, 2019 and 2018, respectively. |
|
|
(2) |
Effective January 1, 2019, Arconic adopted the new accounting standard for leases that resulted in the Company recording operating lease right-of-use assets and lease liabilities of approximately $320. Also, the Company reclassified cash proceeds of $119 from Other noncurrent liabilities and deferred credits, assets of $24 from Properties, plants, and equipment, net, and a deferred tax asset of $22 from Other noncurrent assets to Retained earnings (accumulated deficit) reflecting the cumulative effect of an accounting change related to the deferred gain resulting from the sale-leaseback of the Texarkana, Texas cast house in October of 2018. The adoption of the standard had no impact on the Statement of Consolidated Operations or Statement of Consolidated Cash Flows. |
|
|
(3) |
In the second quarter of 2019, the Company recorded an impairment charge of $428 related to a long-lived asset group. The impairment charge impacted properties, plant and equipment; intangible assets; and certain other noncurrent assets by $198, $197, and $33, respectively. |
|
|
(4) |
Reflects the impact of share repurchase programs of the Company’s common stock. |
|
Arconic and subsidiaries |
|||||||
|
Statement of Consolidated Cash Flows (unaudited) |
|||||||
|
(in millions, except as noted) |
|||||||
|
|
Year ended December 31, |
||||||
|
|
2019 |
|
2018 |
||||
|
Operating activities |
|
|
|
||||
|
Net income |
$ |
470 |
|
|
$ |
642 |
|
|
Adjustments to reconcile net income to cash provided from operations: |
|
|
|
||||
|
Depreciation and amortization |
536 |
|
|
576 |
|
||
|
Deferred income taxes |
(19 |
) |
|
31 |
|
||
|
Restructuring and other charges |
620 |
|
|
9 |
|
||
|
Net loss from investing activities—asset sales |
7 |
|
|
10 |
|
||
|
Net periodic pension benefit cost |
115 |
|
|
130 |
|
||
|
Stock-based compensation |
60 |
|
|
50 |
|
||
|
Other |
13 |
|
|
75 |
|
||
|
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: |
|
|
|
||||
|
(Increase) in receivables |
(977 |
) |
|
(1,142 |
) |
||
|
(Increase) in inventories |
(3 |
) |
|
(74 |
) |
||
|
Decrease (increase) in prepaid expenses and other current assets |
4 |
|
|
(1 |
) |
||
|
(Decrease) increase in accounts payable, trade |
(56 |
) |
|
339 |
|
||
|
(Decrease) in accrued expenses |
(42 |
) |
|
(190 |
) |
||
|
(Decrease) increase in taxes, including income taxes |
(2 |
) |
|
104 |
|
||
|
Pension contributions |
(268 |
) |
|
(298 |
) |
||
|
(Increase) in noncurrent assets |
(7 |
) |
|
(20 |
) |
||
|
(Decrease) in noncurrent liabilities |
(45 |
) |
|
(24 |
) |
||
|
Cash provided from operations |
406 |
|
|
217 |
|
||
|
|
|
|
|
||||
|
Financing Activities |
|
|
|
||||
|
Net change in short-term borrowings (original maturities of three months or less) |
2 |
|
|
(7 |
) |
||
|
Additions to debt (original maturities greater than three months) |
400 |
|
|
600 |
|
||
|
Payments on debt (original maturities greater than three months) |
(806 |
) |
|
(1,103 |
) |
||
|
Premiums paid on early redemption of debt |
— |
|
|
(17 |
) |
||
|
Proceeds from exercise of employee stock options |
56 |
|
|
16 |
|
||
|
Dividends paid to shareholders |
(57 |
) |
|
(119 |
) |
||
|
Repurchases of common stock(1) |
(1,150 |
) |
|
— |
|
||
|
Other |
(13 |
) |
|
(19 |
) |
||
|
Cash used for financing activities |
(1,568 |
) |
|
(649 |
) |
||
|
|
|
|
|
||||
|
Investing Activities |
|
|
|
||||
|
Capital expenditures |
(586 |
) |
|
(768 |
) |
||
|
Proceeds from the sale of assets and businesses |
103 |
|
|
309 |
|
||
|
Sales of investments |
73 |
|
|
9 |
|
||
|
Cash receipts from sold receivables |
995 |
|
|
1,016 |
|
||
|
Other |
(2 |
) |
|
(1 |
) |
||
|
Cash provided from investing activities |
583 |
|
|
565 |
|
||
|
|
|
|
|
||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
— |
|
|
(4 |
) |
||
|
Net change in cash, cash equivalents and restricted cash |
(579 |
) |
|
129 |
|
||
|
Cash, cash equivalents and restricted cash at beginning of year |
2,282 |
|
|
2,153 |
|
||
|
Cash, cash equivalents and restricted cash at end of year |
$ |
1,703 |
|
|
$ |
2,282 |
|
|
(1) |
For the year ended December 31, 2019, Arconic repurchased and retired 54,852,364 shares of its common stock for $1,150 through multiple agreements pursuant to share repurchase programs previously authorized by its Board of Directors. |
|
Arconic and subsidiaries |
|||||||||||||||||||||||||||
|
Segment Information (unaudited) |
|||||||||||||||||||||||||||
|
(in millions) |
|||||||||||||||||||||||||||
|
|
4Q18 |
|
2018 |
|
1Q19 |
|
2Q19 |
|
3Q19 |
|
4Q19 |
|
2019 |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Third-party sales |
$ |
1,715 |
|
|
$ |
6,798 |
|
|
$ |
1,756 |
|
|
$ |
1,822 |
|
|
$ |
1,794 |
|
|
$ |
1,733 |
|
|
$ |
7,105 |
|
|
Segment operating profit |
$ |
268 |
|
|
$ |
1,105 |
|
|
$ |
313 |
|
|
$ |
360 |
|
|
$ |
363 |
|
|
$ |
354 |
|
|
$ |
1,390 |
|
|
Segment operating profit margin |
15.6 |
% |
|
16.3 |
% |
|
17.8 |
% |
|
19.8 |
% |
|
20.2 |
% |
|
20.4 |
% |
|
19.6 |
% |
|||||||
|
Provision for depreciation and amortization |
$ |
72 |
|
|
$ |
289 |
|
|
$ |
71 |
|
|
$ |
70 |
|
|
$ |
65 |
|
|
$ |
63 |
|
|
$ |
269 |
|
|
Restructuring and other charges |
$ |
46 |
|
|
$ |
70 |
|
|
$ |
18 |
|
|
$ |
443 |
|
|
$ |
45 |
|
|
$ |
3 |
|
|
$ |
509 |
|
|
Capital expenditures |
$ |
135 |
|
|
$ |
407 |
|
|
$ |
117 |
|
|
$ |
88 |
|
|
$ |
62 |
|
|
$ |
77 |
|
|
$ |
344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Third-party sales |
$ |
1,755 |
|
|
$ |
7,223 |
|
|
$ |
1,784 |
|
|
$ |
1,868 |
|
|
$ |
1,763 |
|
|
$ |
1,667 |
|
|
$ |
7,082 |
|
|
Intersegment sales |
$ |
44 |
|
|
$ |
205 |
|
|
$ |
52 |
|
|
$ |
49 |
|
|
$ |
41 |
|
|
$ |
41 |
|
|
$ |
183 |
|
|
Segment operating profit(1) |
$ |
93 |
|
|
$ |
481 |
|
|
$ |
135 |
|
|
$ |
179 |
|
|
$ |
161 |
|
|
$ |
150 |
|
|
$ |
625 |
|
|
Segment operating profit margin |
5.3 |
% |
|
6.7 |
% |
|
7.6 |
% |
|
9.6 |
% |
|
9.1 |
% |
|
9.0 |
% |
|
8.8 |
% |
|||||||
|
Provision for depreciation and amortization |
$ |
68 |
|
|
$ |
253 |
|
|
$ |
59 |
|
|
$ |
59 |
|
|
$ |
57 |
|
|
$ |
58 |
|
|
$ |
233 |
|
|
Restructuring and other charges |
$ |
(160 |
) |
|
$ |
(157 |
) |
|
$ |
11 |
|
|
$ |
26 |
|
|
$ |
62 |
|
|
$ |
(18 |
) |
|
$ |
81 |
|
|
Third-party aluminum shipments (kmt) |
319 |
|
|
1,301 |
|
|
331 |
|
|
367 |
|
|
351 |
|
|
330 |
|
|
1,379 |
|
|||||||
|
Capital expenditures |
$ |
120 |
|
|
$ |
308 |
|
|
$ |
39 |
|
|
$ |
37 |
|
|
$ |
35 |
|
|
78 |
|
|
189 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Reconciliation of Total segment operating profit to Consolidated income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Total segment operating profit |
$ |
361 |
|
|
$ |
1,586 |
|
|
$ |
448 |
|
|
$ |
539 |
|
|
$ |
524 |
|
|
$ |
504 |
|
|
$ |
2,015 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Restructuring and other charges |
11 |
|
|
(9 |
) |
|
(12 |
) |
|
(499 |
) |
|
(119 |
) |
|
10 |
|
|
(620 |
) |
|||||||
|
Corporate expense(2) |
(49 |
) |
|
(252 |
) |
|
(62 |
) |
|
(121 |
) |
|
(79 |
) |
|
(98 |
) |
|
(360 |
) |
|||||||
|
Consolidated operating income (loss) |
323 |
|
|
1,325 |
|
|
374 |
|
|
(81 |
) |
|
326 |
|
|
416 |
|
|
1,035 |
|
|||||||
|
Interest expense(3) |
(87 |
) |
|
(378 |
) |
|
(85 |
) |
|
(85 |
) |
|
(86 |
) |
|
(82 |
) |
|
(338 |
) |
|||||||
|
Other expense, net |
(10 |
) |
|
(79 |
) |
|
(32 |
) |
|
(29 |
) |
|
(31 |
) |
|
(30 |
) |
|
(122 |
) |
|||||||
|
Consolidated income (loss) before income taxes |
$ |
226 |
|
|
$ |
868 |
|
|
$ |
257 |
|
|
$ |
(195 |
) |
|
$ |
209 |
|
|
$ |
304 |
|
|
$ |
575 |
|
In the third quarter of 2019, the Company realigned its operations by eliminating its Transportation and Construction Solutions (TCS) segment and transferring the Forged Wheels business to its Engineered Products and Forgings segment (formerly named the Engineered Products and Solutions segment) and the Building and Construction Systems business to its Global Rolled Products segment. The Latin American extrusions business, which was formerly part of the Company’s TCS segment until its sale in April of 2018, was moved to Corporate. In the first quarter of 2019, the Company transferred its Aluminum Extrusions operations from the Engineered Products and Forgings segment to the Global Rolled Products segment. Prior period financial information has been recast to conform to current year presentation.
Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. Arconic’s definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and other charges. Segment operating profit includes the impact of LIFO inventory accounting, metal price lag, intersegment profit eliminations, and derivative activities. Differences between certain segment totals and consolidated Arconic are in Corporate.
|
(1) |
For the year ended December 31, 2018, Segment operating profit for the Global Rolled Product segment included the impact of a $23 charge related to a physical inventory adjustment at one plant. |
|
|
(2) |
For the year ended December 31, 2018, Corporate expense included $38 of costs related to settlements of certain customer claims primarily related to product introductions. For the quarter ended June 30, 2019, Corporate expense included $25 of costs associated with ongoing environmental remediation; $16 of costs associated with the planned separation of Arconic; $9 of costs associated with negotiation of the collective bargaining agreement with the United Steelworkers (USW); $9 impairment of assets of the energy business; and $4 of costs related to a fire at a fasteners plant. For the quarter ended September 30, 2019, Corporate expense included $25 of costs associated with the planned separation of Arconic and $4 of costs related to a fire at a fasteners plant. For the quarter ended December 31, 2019, Corporate expense included $34 of costs associated with the planned separation of Arconic and $1 of net costs related to a fire at a fasteners plant (net of insurance reimbursements). |
|
|
(3) |
For the year ended December 31, 2018, Interest expense included $19 related to the early redemption of the Company’s then outstanding 5.720% Senior Notes due 2019. |
|
Arconic and subsidiaries |
||||||||||||||||||||
|
Calculation of Financial Measures (unaudited) |
||||||||||||||||||||
|
(in millions, except per-share amounts) |
||||||||||||||||||||
|
Net income excluding Special items |
Quarter ended |
|
Year ended |
|||||||||||||||||
|
December 31, |
|
September 30, |
|
December 31, |
|
December 31, |
|
December 31, |
||||||||||||
|
Net income |
$ |
309 |
|
|
$ |
95 |
|
|
$ |
218 |
|
|
$ |
470 |
|
|
$ |
642 |
|
|
|
Diluted earnings per share (EPS) |
$ |
0.70 |
|
|
$ |
0.21 |
|
|
$ |
0.44 |
|
|
$ |
1.03 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Special items: |
|
|
|
|
|
|
|
|
|
|||||||||||
|
Restructuring and other charges |
(10 |
) |
|
119 |
|
|
(11 |
) |
|
620 |
|
|
9 |
|
||||||
|
Discrete tax items(1) |
(142 |
) |
|
10 |
|
|
(64 |
) |
|
(167 |
) |
|
(15 |
) |
||||||
|
Other special items(2) |
92 |
|
|
43 |
|
|
16 |
|
|
188 |
|
|
59 |
|
||||||
|
Tax impact(3) |
(15 |
) |
|
(7 |
) |
|
3 |
|
|
(140 |
) |
|
(19 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income excluding Special items |
$ |
234 |
|
|
$ |
260 |
|
|
$ |
162 |
|
|
$ |
971 |
|
|
$ |
676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Diluted EPS excluding Special items |
$ |
0.53 |
|
|
$ |
0.58 |
|
|
$ |
0.33 |
|
|
$ |
2.11 |
|
|
$ |
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Average number of shares – diluted EPS excluding Special items |
441,941,647 |
|
|
456,679,981 |
|
|
503,018,904 |
|
|
462,827,223 |
|
|
502,627,363 |
|
||||||
Net income excluding Special items and Diluted EPS excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful to investors because management reviews the operating results of Arconic excluding the impacts of Restructuring and other charges, Discrete tax items, and Other special items (collectively, “Special items”). There can be no assurances that additional special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Net income determined under GAAP as well as Net income excluding Special items.
|
(1) |
Discrete tax items for each period included the following: |
|
|
||
|
(2) |
Other special items for each period included the following: |
|
|
||
|
(3) |
The tax impact on Special items is based on the applicable statutory rates whereby the difference between such rates and Arconic’s consolidated estimated annual effective tax rate is itself a Special item. |
|
Operational Tax Rate |
Quarter ended December 31, 2019 |
|
Year ended December 31, 2019 |
||||||||||||||||||||
|
As reported |
|
Special |
|
As adjusted |
|
As reported |
|
Special |
|
As adjusted |
|||||||||||||
|
Income before income taxes |
$ |
304 |
|
|
$ |
29 |
|
|
$ |
333 |
|
|
$ |
575 |
|
|
$ |
766 |
|
|
$ |
1,341 |
|
|
(Benefit) provision for income taxes |
(5 |
) |
|
104 |
|
|
99 |
|
|
105 |
|
|
265 |
|
|
370 |
|
||||||
|
Operational tax rate |
(1.6 |
)% |
|
|
|
29.7 |
% |
|
18.3 |
% |
|
|
|
27.6 |
% |
||||||||
Operational tax rate is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of Arconic excluding the impacts of Special items. There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both the Effective tax rate determined under GAAP as well as the Operational tax rate.
| (1) |
See Net income excluding Special items reconciliation above for a description of Special items. |
|
Arconic and subsidiaries |
|||||||||||||||||||||||
|
Calculation of Financial Measures (unaudited), continued |
|||||||||||||||||||||||
|
(dollars in millions) |
|||||||||||||||||||||||
|
Organic Revenue |
Quarter ended December 31, |
|
Quarter ended September 30, |
|
Year ended December 31, |
||||||||||||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||||||
|
Arconic |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales |
$ |
3,401 |
|
|
$ |
3,472 |
|
|
$ |
3,559 |
|
|
$ |
3,524 |
|
|
$ |
14,192 |
|
|
$ |
14,014 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales – Eger forgings |
— |
|
|
6 |
|
|
— |
|
|
7 |
|
|
— |
|
|
32 |
|
||||||
|
Sales – UK forgings |
21 |
|
|
32 |
|
|
— |
|
|
— |
|
|
116 |
|
|
131 |
|
||||||
|
Sales – Latin America extrusions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
25 |
|
||||||
|
Sales – Tennessee packaging |
— |
|
|
18 |
|
|
— |
|
|
37 |
|
|
— |
|
|
144 |
|
||||||
|
Aluminum price impact |
(60 |
) |
|
n/a |
|
(115 |
) |
|
n/a |
|
(370 |
) |
|
n/a |
|||||||||
|
Foreign currency impact |
(14 |
) |
|
n/a |
|
(26 |
) |
|
n/a |
|
(130 |
) |
|
n/a |
|||||||||
|
Arconic Organic revenue |
$ |
3,454 |
|
|
$ |
3,416 |
|
|
$ |
3,700 |
|
|
$ |
3,480 |
|
|
$ |
14,576 |
|
|
$ |
13,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Engineered Products and Forgings |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales |
$ |
1,733 |
|
|
$ |
1,715 |
|
|
$ |
1,794 |
|
|
$ |
1,683 |
|
|
$ |
7,105 |
|
|
$ |
6,798 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales – Eger forgings |
— |
|
|
6 |
|
|
— |
|
|
7 |
|
|
— |
|
|
32 |
|
||||||
|
Sales – UK forgings |
21 |
|
|
32 |
|
|
— |
|
|
— |
|
|
116 |
|
|
131 |
|
||||||
|
Aluminum price impact |
— |
|
|
n/a |
|
(6 |
) |
|
n/a |
|
(19 |
) |
|
n/a |
|||||||||
|
Foreign currency impact |
(2 |
) |
|
n/a |
|
(12 |
) |
|
n/a |
|
(53 |
) |
|
n/a |
|||||||||
|
Engineered Products and Forgings Organic revenue |
$ |
1,714 |
|
|
$ |
1,677 |
|
|
$ |
1,812 |
|
|
$ |
1,676 |
|
|
$ |
7,061 |
|
|
$ |
6,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Global Rolled Products |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales |
$ |
1,667 |
|
|
$ |
1,755 |
|
|
$ |
1,763 |
|
|
$ |
1,839 |
|
|
$ |
7,082 |
|
|
$ |
7,223 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales – Tennessee packaging |
— |
|
|
18 |
|
|
— |
|
|
37 |
|
|
— |
|
|
144 |
|
||||||
|
Aluminum price impact |
(60 |
) |
|
n/a |
|
(109 |
) |
|
n/a |
|
(351 |
) |
|
n/a |
|||||||||
|
Foreign currency impact |
(12 |
) |
|
n/a |
|
(14 |
) |
|
n/a |
|
(77 |
) |
|
n/a |
|||||||||
|
Global Rolled Products Organic revenue |
$ |
1,739 |
|
|
$ |
1,737 |
|
|
$ |
1,886 |
|
|
$ |
1,802 |
|
|
$ |
7,510 |
|
|
$ |
7,079 |
|
Organic revenue is a non-GAAP financial measure. Management believes this measure is meaningful to investors as it presents revenue on a comparable basis for all periods presented due to the impact of the sale of the forgings businesses in Eger, Hungary (divested in December 2018) and the United Kingdom (divested in December 2019), the sale of Latin America extrusions (divested in April 2018), the ramp-down of Arconic’s North American packaging business at its Tennessee operations (completed in December 2018), and the impact of changes in aluminum prices and foreign currency fluctuations relative to the prior year periods. The revenue from a small manufacturing facility that was divested in the second quarter of 2019 and the small energy business that was divested in the third quarter of 2019 was not material and therefore is included in Organic revenue.
|
Arconic and subsidiaries |
|||||||||||||||||||
|
Calculation of Financial Measures (unaudited), continued |
|||||||||||||||||||
|
(dollars in millions) |
|||||||||||||||||||
|
Adjusted free cash flow |
Quarter ended |
|
Year ended |
||||||||||||||||
|
December 31, |
|
September 30, |
|
December 31, |
|
December 31, |
|
December 31, |
|||||||||||
|
Cash provided from operations |
$ |
506 |
|
|
$ |
52 |
|
|
$ |
426 |
|
|
$ |
406 |
|
|
$ |
217 |
|
|
Cash receipts from sold receivables |
365 |
|
|
213 |
|
|
323 |
|
|
995 |
|
|
1,016 |
|
|||||
|
Capital expenditures |
(171 |
) |
|
(111 |
) |
|
(271 |
) |
|
(586 |
) |
|
(768 |
) |
|||||
|
Adjusted free cash flow |
700 |
|
|
154 |
|
|
478 |
|
|
815 |
|
|
465 |
|
|||||
|
Costs associated with planned separation |
28 |
|
|
21 |
|
|
— |
|
|
55 |
|
|
— |
|
|||||
|
Adjusted free cash flow, excluding costs associated with planned separation |
$ |
728 |
|
|
$ |
175 |
|
|
$ |
478 |
|
|
$ |
870 |
|
|
$ |
465 |
|
There has been no change in the net cash funding in the sale of accounts receivable program in the fourth quarter of 2019. It remains at $350.
Adjusted free cash flow and Adjusted free cash flow, excluding costs associated with planned separation are non-GAAP financial measures. Management believes that these measures are meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures (due to the fact that these expenditures are considered necessary to maintain and expand Arconic’s asset base and are expected to generate future cash flows from operations), cash receipts from net sales of beneficial interest in sold receivables, as well as costs associated with the planned separation. It is important to note that Adjusted free cash flow and Adjusted free cash flow, excluding costs associated with planned separation do 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.
|
Net Debt |
December 31, |
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
||||||||||
|
Short-term debt |
$ |
1,034 |
|
|
$ |
1,434 |
|
|
$ |
434 |
|
|
$ |
435 |
|
|
$ |
434 |
|
|
Long-term debt, less amount due within one year |
4,906 |
|
|
4,905 |
|
|
5,901 |
|
|
5,899 |
|
|
5,896 |
|
|||||
|
Total debt |
$ |
5,940 |
|
|
$ |
6,339 |
|
|
$ |
6,335 |
|
|
$ |
6,334 |
|
|
$ |
6,330 |
|
|
Less: Cash, cash equivalents, and restricted cash |
1,703 |
|
|
1,324 |
|
|
1,360 |
|
|
1,326 |
|
|
2,283 |
|
|||||
|
Net debt |
$ |
4,237 |
|
|
$ |
5,015 |
|
|
$ |
4,975 |
|
|
$ |
5,008 |
|
|
$ |
4,047 |
|
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 factoring in cash that could be used to repay outstanding debt.
|
Arconic and subsidiaries |
|||||||||||||||||||||
|
Calculation of Financial Measures (unaudited), continued |
|||||||||||||||||||||
|
(dollars in millions) |
|||||||||||||||||||||
|
Operating income excluding Special items
|
Quarter ended |
|
Year ended |
||||||||||||||||||
|
December 31, |
|
September 30, |
|
December 31, |
|
December 31, |
|
December 31, |
|||||||||||||
|
Operating income |
$ |
416 |
|
|
$ |
326 |
|
|
$ |
323 |
|
|
$ |
1,035 |
|
|
$ |
1,325 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Special items: |
|
|
|
|
|
|
|
|
|
||||||||||||
|
Restructuring and other charges |
(10 |
) |
|
119 |
|
|
(11 |
) |
|
620 |
|
|
9 |
|
|||||||
|
Costs associated with planned separation |
34 |
|
|
25 |
|
|
— |
|
|
78 |
|
|
— |
|
|||||||
|
Environmental remediation |
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|||||||
|
Collective bargaining agreement negotiation |
— |
|
|
— |
|
|
— |
|
|
9 |
|
|
— |
|
|||||||
|
Impairment of energy business assets |
1 |
|
|
— |
|
|
— |
|
|
10 |
|
|
— |
|
|||||||
|
Legal and other advisory costs related to Grenfell Tower |
2 |
|
|
1 |
|
|
4 |
|
|
8 |
|
|
18 |
|
|||||||
|
Strategy and portfolio review costs |
— |
|
|
— |
|
|
7 |
|
|
6 |
|
|
7 |
|
|||||||
|
Fasteners plant fire costs |
1 |
|
|
4 |
|
|
— |
|
|
9 |
|
|
— |
|
|||||||
|
Settlements of certain customer claims primarily related to product introductions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
38 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Operating income excluding Special items |
$ |
444 |
|
|
$ |
475 |
|
|
$ |
323 |
|
|
$ |
1,800 |
|
|
$ |
1,397 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sales |
$ |
3,401 |
|
|
$ |
3,559 |
|
|
$ |
3,472 |
|
|
$ |
14,192 |
|
|
$ |
14,014 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Operating income margin, excluding Special items |
13.1 |
% |
|
13.3 |
% |
|
9.3 |
% |
|
12.7 |
% |
|
10.0 |
% |
|||||||
Operating income excluding Special items and Operating income margin, excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful to investors because management reviews the operating results of Arconic excluding the impacts of Special items. There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Operating income determined under GAAP as well as Operating income excluding Special items.
|
Arconic and subsidiaries |
|||||||
|
Calculation of Financial Measures (unaudited), continued |
|||||||
|
(dollars in millions) |
|||||||
|
Return on Net Assets (RONA) |
Year ended |
||||||
|
December 31, |
|||||||
|
2019 |
|
2018 |
|||||
|
Net income |
$ |
470 |
|
|
$ |
642 |
|
|
Special items(1) |
501 |
|
|
34 |
|
||
|
Net income excluding Special items |
971 |
|
|
676 |
|
||
|
|
|
|
|
||||
|
Net Assets: |
December 31, 2019 |
|
December 31, 2018 |
||||
|
Add: Receivables from customers, less allowances |
$ |
967 |
|
|
$ |
1,047 |
|
|
Add: Deferred purchase program(2) |
246 |
|
|
234 |
|
||
|
Add: Inventories |
2,429 |
|
|
2,492 |
|
||
|
Less: Accounts payable, trade |
2,043 |
|
|
2,129 |
|
||
|
Working capital |
1,599 |
|
|
1,644 |
|
||
|
Properties, plants, and equipment, net (PP&E) |
5,463 |
|
|
5,704 |
|
||
|
Net assets – total |
$ |
7,062 |
|
|
$ |
7,348 |
|
|
|
|
|
|
||||
|
RONA |
13.7 |
% |
|
9.2 |
% |
||
RONA is a non-GAAP financial measure. RONA is calculated as Net income excluding Special items divided by working capital and net PP&E. Management believes that this measure is meaningful to investors as RONA helps management and investors determine the percentage of net income the company is generating from its assets. This ratio tells how effectively and efficiently the company is using its assets to generate earnings.
| (1) |
See Reconciliation of Net income excluding Special items for a description of Special items. |
|
| (2) |
The Deferred purchase program relates to an arrangement to sell certain customer receivables to several financial institutions on a recurring basis. Arconic is adding back the receivable for the purposes of the Working capital calculation. |
View source version on businesswire.com:
https://www.businesswire.com/news/home/20200127005300/en/
Investor
Paul T. Luther
(412) 553-1950
Paul.Luther@arconic.com
Media
Esra Ozer
(412) 553-2666
Esra.Ozer@arconic.com
Source: Arconic