Arconic Aerospace Cowen and Company 38th Annual Aerospace/Defense & Industrials Conference February 8th, 2017 Exhibit 99.1
Important Information Forward–Looking Statements This presentation 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,” “guidance,” “goal,” “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, statements and guidance regarding future financial results or operating performance; statements about Arconic’s strategies, outlook, business and financial prospects; and forecasts and expectations relating to end markets. 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 Arconic 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) deterioration in global economic and financial market conditions generally; (b) unfavorable changes in the markets served by Arconic; (c) the inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated from restructuring programs and productivity improvement, cash sustainability, technology advancements, and other initiatives; (d) changes in discount rates or investment returns on pension assets; (e) 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; (f) the impact of cyber attacks and potential information technology or data security breaches; (g) political, economic, and regulatory risks in the countries in which Arconic operates or sells products; (h) the impact of the separation on the businesses of Arconic; (i) material adverse changes in aluminum industry conditions, including fluctuations in London Metal Exchange-based aluminum prices; (j) the impact of changes in foreign currency exchange rates on costs and results; (k) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation; and (l) the other risk factors discussed in Arconic’s Form 10-K for the year ended December 31, 2015, and other reports filed with the U.S. Securities and Exchange Commission (SEC). Arconic 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.
Important Information (continued) Non-GAAP Financial Measures Some of the information included in this presentation 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 Appendix to this presentation. Arconic has not provided a reconciliation of any forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures because Arconic is unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable efforts, and Arconic believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors. In particular, reconciliations of forward-looking non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, Return on Net Assets, adjusted net income, and Free Cash Flow to the most directly comparable GAAP measures are not available without unreasonable efforts due to the variability and complexity with respect to the charges and other components excluded from these 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. Any reference to historical EBITDA means adjusted EBITDA, for which we have provided calculations and reconciliations in the Appendix. Background and Other Information On November 1, 2016, Alcoa Inc. separated into two standalone companies – Arconic Inc. (the new name for Alcoa Inc.) and Alcoa Corporation. The pre-separation historical results for the businesses that now comprise Alcoa Corporation – the former Alcoa Inc. Alumina and Primary Metals segments along with the rolling mill operations in Warrick, Indiana and Saudi Arabia, which were previously part of the Global Rolled Products (GRP) segment – are presented as discontinued operations in Arconic’s financial results for all periods. References in this presentation to “combined segments” reflect the combined performance of Arconic’s three segments – Engineered Products and Solutions (EPS), GRP (which does not include the Warrick, IN and Saudi Arabia rolling mill operations, as noted above), and Transportation and Construction Solutions (TCS). Tennessee Packaging (or “Tenn pkg”) ramp down – Arconic expects to fully exit the North America packaging business at its Tennessee operations following the expiration of the toll processing and services agreement with Alcoa Corporation on December 31, 2018, unless sooner terminated by the parties.
Provider of Advanced, Multi-Material Solutions across Three Segments Arconic Segment Overview and 2016 Revenue Global Rolled Products Engineered Products and Solutions Transportation and Construction Solutions Aerospace and Automotive Brazing, Commercial Transportation and Industrial Micromill™ Products and Services Power and Propulsion Fastening Systems and Rings Forgings and Extrusions Titanium and Engineered Products Building and Construction Systems Wheel and Transportation Products Revenue from Aerospace $5.3B GRP Revenue: $4.9B Aerospace: 19% of revenue1 EPS Revenue: $5.7B Aerospace: ~75% of revenue Multi-material: ~70% non-aluminum (E.g. Ni, Ti) Based on total GRP revenue which included $552M from TN packaging business, which Arconic expects to fully exit. Includes Latin American Extrusions (not pictured) - total revenue $0.1B TCS Revenue: $1.8B2 $0.74B $1.87B $2.06B $1.06B $2.53B $2.33B $1.01B $0.69B Business unit revenue
Strongly Positioned in Aerospace Arconic 2016 Revenue by End-Market Arconic Aerospace 43% of total Arconic revenue ~85% aerospace revenues from #1/#2 leadership positions Driving customer value through unparalleled capabilities Multi-materials expertise Broad range of manufacturing processes Application engineering History of industry-shaping innovation >90% of all aluminum alloys that have flown have been invented by Arconic Commercial Transportation Building and Construction Commercial Airframes Commercial Aero Engines 15% Note: Arconic 2016 revenue = $12.4 billion. $5.3B, 43% Aerospace
Grew Aero Engine Components to Over 90% of Content Aero Engine Component Portfolio1 2008 2016 Organic e.g. Al-Li Enhanced Equiax Castings Inorganic e.g. :\ TiAl Isothermal Forgings Rings / disks Technology / Innovation Engine content over 90% refers to the structural and rotating components 2008 Arconic Components 2016 Arconic Components
Metallic or CFRP: Our Content Flies from Nose to Tail Participation in Airframe Parts Wing ribs (plate and extrusions) Wing tips Hydraulic vessels Fuel connectors Torque rods Seat frames Window and door frames Wheels, brakes and torque tubes Fuselage to wing connection Wing box fasteners Engine pylon structure and fasteners Wing spars (forgings and plate) Wing stringers Wing gear ribs, trunions and support fittings Upper wing skins Crown frames Auxiliary power unit exhaust ducts Vertical stabilizer fasteners Al Li Fuselage stringers Fuselage skins Seat tracks Landing gear, bay frames Lower wing skins Wing flap fasteners Metallic Airframe CFRP1-intensive Airframe Current content Future content Current content Future content CFRP Al-Li Seat Tracks Al-Li Floor Beams AL-Li Floor Stanchions Main gear wheels, brakes & torque tubes Seat Structures Hydraulic vessels Fuel connectors Heavy Duty Panel Fasteners Threaded Lockbolts Stabilizer Attach Frames Flite-Tite ® / Aerolite ® Sleeved Pins Titanium Nuts XPL ® Lockbolts & Pylon Bolts UAB Blind Bolts “B” Code Verilite® Pins Al-Li Cradle Frames Main Landing Gear Beam Trailer Link Nose Gear Supports Keel Beam & MLG Support Outboard Ribs Wing Attach Rib Al-Li Inboard Ribs Center Wing Box Ribs VTP Bolts Nose Wheels Back-up Spar Fitting Jack Screw Fitting Cockpit Fuselage Skins & Support Structure LGP ® HuckComp Flite-Tite ® Sleeved Lockbolts CFRP = Carbon Fiber Reinforced Polymer
Well-Positioned on Next Generation Aircraft and Aero Engines Indexed Arconic Revenue by Major Programs1: EPS and GRP Segments +82% +35% +72% +27% Platforms A320ceo / B737 NG A320neo / B737 MAX A320ceo A320neo A330ceo A330neo B767 B787 B777 B777X Aero Engines +27% +43% +21% +140% +16% Indexed to Current Generation Current generation New generation Aircraft Aero Engines ~$13B Aero contracts signed in 2015/16 EPS and GRP +103% Aircraft/ Aero engines shown represent ~88% of Large Commercial Aircraft (LCA)/ total engines for LCA in 2017 through 2020 on a unit basis. Note: Large Commercial Aircraft build rates account for a majority of Arconic aerospace revenue with the balance driven by aftermarket, defense, regional jets, business jets, etc.
Substantial Mid-Term Growth with Near-Term Market Challenges The volumes we hit on CFM56 took us 20 years… we have to do that in four years on Leap. - GE in Aviation Week, Nov 28, 2016 Years CFM56-5B LEAP-1A LEAP-1B CFM56-7B CFM vs. LEAP Production Ramp-Up Curves The medium term outlook for engine manufacturers is bright and shiny spearheaded by commercial aviation which is poised for steady growth through the mid-2030s. - 2016 Annual Strategy Guide, Noealt Corp. Services Ramp Up Example Source: Engine OEM announcements, Airline Monitor (June 2016) Tr XWB-97 [A350-XWB] GE9X [777-X] New Aero Engines 2010 2015 2020 2025 Tr 1000 [787] Tr 7000 [A330neo] PW 1100G [A320neo] PW 1500G [CSeries] LEAP 1A [A320neo] LEAP 1-B [737MAX] PW 1400G [MC-21] PW 1900G [E-2/190] PW 100G [E2-/175 GEnx-2B67 [777-X] GEnx-1B [777-X] LEAP 1C [C919] PW 1200G [MRJ] Every 15 years [airline passenger traffic] is doubling in size. - Airbus in Flight Global, Sept 22, 2016 CFM prepares for ‘scary’ production ramp-up on LEAP program - Aviation Week, Nov 11, 2016 Emerging Asia adds 100 million new passengers each year Airbus, Boeing raise 20-year deliveries outlook -MarketWatch, July 11, 2016 IATA Expecting Record Airline Industry Profits $39.4B projected for ‘16 ~3X versus 2014
EPS Revenue Growth Above Market Accelerates by 2018 Aero supply chain opportunities Non-Aero share gain Innovative products / Aero market share gain Illustrative, indexed to 2016 100% EPS Revenue and Market Growth 2016-2019 Revenue Headwinds Growth Drivers Market Profitability optimization, portfolio activities Aero supply chain risks Market mix effect and competitive pricing +2.4%1 +6.8%2 Growth Drivers Revenue Headwinds EPS Revenue Market growth rate 2016-17 Market growth CAGR 2017-19 EPS Segment Revenue Growth and Key Drivers
Additive Manufacturing: Our Comprehensive Approach Is Feeding Value Streams Paths to Value Creation in Additive Manufacturing New Material Discovery Rapid Prototyping & Tooling 2 1 E.g., 3D Printed Mid Turbine Frame Reduced time to market for investment castings by 50% (52 to 25 weeks) Lower development costs E.g., Proprietary Ti, Ni and Al powders Builds on >100 yrs of alloy development Optimized for 3D printed aerospace parts Enhanced properties (e.g. increased strength) achieved via process controls such as rapid solidification Direct & Hybrid Manufacturing 3 E.g., Arconic Ampliforge™ Enhanced properties of 3D printed parts Nearer-net forgings Improved fatigue and strength Reduced materials input Simplified production Nearer-net forgings
Arconic: Focused on Driving Shareholder Value with an Owner Mindset Arconic Shareholder Value Creation Model Shareholder Value Productivity / Overhead Cost Reduction O W N E R M I N D S E T Innovation Market Share / Growth Returning Cash to Shareholders Capital Efficiency De-Leveraging O W N E R M I N D S E T
2016 Results; Confirming 2017 and 2019 Targets Arconic 2016 and Targets/Outlook 1) Tennessee Packaging revenue in 2016 = $552M, due to ramp down of this business 2017 = ~$150M 2) Adjusted for special items 3) Compounded annual growth rate from Year End 2017 to Year End 2019 4) Excludes any impact from potential future monetization of stake in Alcoa Corp 5) Free Cash Flow = Cash from Operations – CapEx 6) 2017 assumptions: LME cash = $1,650/MT, 1.00 EUR = 1.11 USD, 1.00 GBP = 1.31 USD 7) 2019 assumptions: LME cash = $1,750/MT, 1.00 EUR = 1.11 USD, 1.00 GBP = 1.31 USD 8) Free Cash Flow including both Continuing and Discontinued Operations See Appendix for Reconciliations – 2016 EBITDA and RONA amounts based on net loss attributable to Arconic of $0.9B Arconic Financials: 2016 and Targets/Outlook 2016 20176 20197 Revenue $12.4B $11.8B - $12.4B1 7% - 8% CAGR3 Combined Segment EBITDA % 16.6% ~17% ~19% EBITDA %, excl. separation costs 13.7% ~15% ~17% RONA %2 7.1% ~9% 11% - 12% Gross Debt $8.1B $7.1B Net Debt / EBITDA4: 2.0x- 2.5x Cash $1.9B $1.2B AA Stake 19.9% Stake = ~$1.3B (as of 1/26/2017) Free Cash Flow5 -$252M8 $350M+ ~$700M
Focused on Driving Margin Improvements across All Segments Arconic Segments – 2016 Financial Highlights, 2017 Outlook, and 3-5 Year Earnings Potential EPS Earnings Potential 3 – 5 Years GRP TCS ~+400 bps ~+200 bps ~+250 bps EBITDA % 20.9% 11.9% 16.1% Revenues $5.7B $4.9B $1.8B 20161 EBITDA % Revenues Up low single digit Down high single digit Up low single digit 2017 +30 – 60 bps +30 – 80 bps + 0 – 20 bps 2016 ATOI: EPS = $642M; GRP = $269M; TCS = $176M See Appendix for Reconciliations EPS = Engineered Products and Solutions. GRP = Global Rolled Products. TCS = Transportation and Construction Solutions
400-500 Basis Point Improvement in RONA through 2019 Based on 2016 net loss attributable to Arconic of $0.9B; result is $505M as adjusted for special items and discontinued operations Potential future benefit from retained interest monetization not included See Appendix for Reconciliations Return on Net Assets (RONA): 2016 Actual, and 2017 + 2019 Targets 7.1%1 % 11% – 12% Actions Margin Expansion Working Capital Improvement Strict CapEx management Overhead reduction Targets2 RONA +400 – 500 bps
Presentation Summary Offering a Broad, Multi-Material Aerospace Portfolio Well-Positioned on Next Generation Airframes and Engines Demonstrating Leadership in Additive Manufacturing Summary Focused on Driving Shareholder Value with an Owner Mindset
Well-Positioned on Next Generation Aircraft and Engines Indexed Arconic Revenue by Major Programs1 : EPS and GRP Revenue per Aircraft (indexed to B737) Revenue per Aero Engine (indexed to CFM56) Engine Platforms A320 ceo / B737 NG A320 neo / B737 MAX A320 ceo A320 neo A330 ceo A330 neo B767 B787 B777 B747-8 B777X A350 136 306 93 700 149 214 644 5,001 847 3,605 Order book2 754 28 112 B767 (Metallic): ~$2.7M Rev content / shipset B787 (CFRP3): ~$6.5M Rev content / shipset GEnx 1B (B787): ~$740K Rev content / engine CF6 (B767): ~$430K Rev content / engine B737 B737 MAX A320 A320 neo A330 A330 neo B767 B787 B777 B777X CFM LeapX 56 V2500 PW 1100G Trent Trent 700 7000 CF6 GEnx 1B GE90 GE9x Trent GEnx XWB 2B A350 B747-8 A380 +16% +140% +21% +43% +27% +27% +72% +35% +82% +103% Current generation New generation Current generation New generation Aircraft shown represent ~95% of total Large Commercial Aircraft in 2017 through 2020 on a unit basis, and aero engines shown represent ~95% of total engines for Large Commercial Aircraft in 2017 through 2020 on a unit basis Source: Boeing and Airbus – as of December 31, 2016 CFRP = Carbon Fiber Reinforced Polymer
End Market Breakdown of 2016 Revenue 2016 Third Party Revenue by Market excludes Discontinued Operations Includes brazing and automotive sheet 20% 3% 3% 15% 4% (16%) 34% (14%) (13%) Year-over-Year Change 2016 Third Party Revenue1 2
Reconciliation of Adjusted Income S101 (in millions, except per-share amounts) Income Diluted EPS(6) Year ended Year ended December 31, December 31, December 31, December 31, 2015 2016 2015 2016 Net loss attributable to Arconic $(322) $(931) $(0.93) $(2.28) Discontinued operations(1) 165 (121) Special items(2): Restructuring and other charges 214 155 Discrete tax items(3) 216 1,280 Other special items(4) 39 196 Tax impact(5) (14) (74) Noncontrolling interests impact(5) - - Net income attributable to Arconic – as adjusted $298 $505 $0.54 $0.98 Net loss attributable to Arconic – as adjusted 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 restructuring and other charges, discrete tax items, and other special items (collectively, “special items”). There can be no assurances that additional special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Net loss attributable to Arconic determined under GAAP as well as Net income attributable to Arconic – as adjusted. (1)On November 1, 2016, the former Alcoa Inc. was separated into two standalone, publicly-traded companies, Arconic and Alcoa Corporation, by means of a pro rata distribution of 80.1 percent of the outstanding common stock of Alcoa Corporation to Alcoa Inc. shareholders. Accordingly, the results of operations of Alcoa Corporation have been reflected as discontinued operations for all periods presented.
Reconciliation of Adjusted Income, continued S101 (2) In the second quarter of 2016, management changed the manner in which special items are presented in Arconic’s reconciliation of Adjusted Income. This change resulted in special items being presented on a pretax basis and the related tax and noncontrolling interest’s impacts on special items being aggregated into separate respective line items. The special items for the year ended December 31, 2015 was updated to conform to the current period presentation. (3)Discrete tax items include the following: for the year ended December 31, 2015, a charge for valuation allowances related to certain deferred tax assets in the U.S. and Iceland ($190), a net charge for other valuation allowances and for a number of small items ($26); and for the year ended December 31, 2016, a charge for valuation allowances related to the November 1, 2016 separation (see Note 1 above)($1,267), a net charge for the remeasurement of certain deferred tax assets due to tax rate and tax law changes ($51), a net benefit for certain valuation allowances not associated with the separation ($18), and a net benefit for a number of small items ($20). (4)Other special items include the following: for the year ended December 31, 2015, costs associated with the acquisitions of RTI International Metals and Tital ($28), an impairment of goodwill related to the soft alloy extrusions business in Brazil ($25) costs associated with the planned separation of Alcoa ($24), a gain on the sale of land ($19), and a gain on the sale of an equity investment in a China rolling mill ($19); and for the year ended December 31, 2016, costs associated with the planned separation of Alcoa ($205), unfavorable tax costs associated with the redemption of Company-owned life insurance policies ($100), a favorable adjustment to the contingent earn-out liability and a post-closing adjustment which both related to the November 2014 acquisition of Firth Rixson ($76), a favorable tax benefit related to the currency impacts of a distribution of previously taxed income ($49), and unfavorable tax costs associated with the sale of a U.S. subsidiary with book goodwill ($16). (5)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 (see footnote 2 above). The noncontrolling interests impact on special items represents Arconic’s partners’ share of certain special items. (6)At a special meeting of Arconic common shareholders held on October 5, 2016, shareholders approved a 1-for-3 reverse stock split of Arconic’s outstanding and authorized shares of common stock which became effective on October 6, 2016. All share and per share data for all periods presented have been updated to reflect the reverse stock split. The average number of shares applicable to diluted EPS for Net income attributable to Arconic common shareholders excludes certain share equivalents as their effect was anti-dilutive. However, certain of these share equivalents may become dilutive in the EPS calculation applicable to Net income attributable to Arconic common shareholders – as adjusted due to a larger and/or positive numerator. Specifically: for the year ended December 31, 2015, share equivalents associated with employee stock options and awards were dilutive based on Net income attributable to Arconic common shareholders – as adjusted, resulting in a diluted average number of shares of 424,628,747; and for the year ended December 31, 2016, share equivalents associated with both outstanding employee stock options and awards and convertible notes related to the acquisition of RTI International Metals were dilutive based on Net income attributable to Arconic common shareholders-as adjusted, resulting in a diluted average number of shares of 453,118,372 (after-tax interest expense of $9 needs to be added back to the numerator since the convertible notes were dilutive).
Reconciliation of Engineered Products and Solutions Adjusted EBITDA S101 ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 2016 4Q15 3Q16 4Q16 After-tax operating income (ATOI) $465 $321 $355 $436 $484 $569 $579 $595 $642 $123 $162 $138 Add: Depreciation and amortization 118 118 114 120 122 124 137 233 255 67 63 65 Income taxes 225 159 182 224 248 286 298 282 298 54 71 62 Other 2 2 – – – – – – – – – – Adjusted EBITDA $810 $600 $651 $780 $854 $979 $1,014 $1,110 $1,195 $244 $296 $265 Third-party sales $4,215 $3,355 $3,225 $3,716 $3,863 $4,054 $4,217 $5,342 $5,728 $1,409 $1,406 $1,408 Adjusted EBITDA Margin 19.2% 17.9% 20.2% 21.0% 22.1% 24.1% 24.0% 20.8% 20.9% 17.3% 21.1% 18.8% Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Arconic’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
Reconciliation of Global Rolled Products Adjusted EBITDA (1) S101 ($ in millions, except per metric ton amounts) 2008 2009 2010 2011 2012 2013 2014 2015 2016 4Q15 3Q16 4Q16 After-tax operating income (ATOI) $(15) $(108) $192 $222 $302 $241 $224 $225 $269 $49 $69 $45 Add: Depreciation and amortization 190 201 212 212 205 202 211 203 201 52 52 49 Income taxes 50 21 80 83 137 95 67 85 107 15 22 22 Other 4 (2) 2 1 (3) – (1) (1) – – – – Adjusted EBITDA $229 $112 $486 $518 $641 $538 $501 $512 $577 $116 $143 $116 Total shipments (thousand metric tons) (kmt) 2,029 1,584 1,481 1,606 1,675 1,715 1,788 1,570 1,587(2) 379 422 353(2) Adjusted EBITDA / Total shipments ($ per metric ton) $113 $71 $328 $322 $383 $314 $280 $326 $364 $306 $339 $329 Third party sales $7,659 $4,978 $5,404 $6,602 $6,335 $6,065 $6,344 $5,253 $4,864 $1,184 $1,285 $1,079 EBITDA Margin 3.0% 2.2% 9.0% 7.8% 10.1% 8.9% 7.9% 9.7% 11.9% 9.8% 11.1% 10.8% Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Arconic’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. (1) Excludes the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia, both of which were previously part of the Global Rolled Products segment but became part of Alcoa Corporation effective November 1, 2016 (2) Includes 54 thousand metric tons (kmt) for the Tennessee packaging business, both for the 2016 fourth quarter and the year ended December 31, 2016. This amount represents the volume at Arconic’s Tennessee operations associated with the toll processing and services agreement that Arconic and Alcoa Corporation entered into in connection with the separation of the companies. Pursuant to this agreement, this amount is not reported in Arconic’s shipments but has been included in the calculation for adjusted EBITDA / Total shipments for historical comparative purposes.
Reconciliation of Transportation & Construction Solutions Adjusted EBITDA S101 ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 2016 4Q15 3Q16 4Q16 After-tax operating income (ATOI) $82 $5 $73 $109 $126 $167 $180 $166 $176 $40 $47 $44 Add: Depreciation and amortization 53 65 48 45 42 42 42 43 48 11 12 13 Equity loss (income) – (2) (2) (1) – – – – – – – – Income taxes – (21) 18 38 49 67 69 63 67 14 17 18 Other – – – (1) (9) (2) – (1) – – – – Adjusted EBITDA $135 $47 $137 $190 $208 $274 $291 $271 $291 $65 $76 $75 Third-party sales $2,270 $1,537 $1,656 $1,936 $1,914 $1,951 $2,021 $1,882 $1,802 $444 $450 $456 Adjusted EBITDA Margin 5.9% 3.1% 8.3% 9.8% 10.9% 14.0% 14.4% 14.4% 16.1% 14.6% 16.9% 16.4% Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Arconic’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
Reconciliation of Arconic Combined Segment Adjusted EBITDA(1) S101 ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 2016 4Q15 3Q16 4Q16 After-tax operating income (ATOI) $532 $218 $620 $767 $912 $977 $983 $986 $1,087 $212 $278 $227 Add: Depreciation and amortization 361 384 374 377 369 368 390 479 504 130 127 127 Equity (income) loss – (2) (2) (1) – – – – – – – – Income taxes 275 159 280 345 434 448 434 430 472 83 110 102 Other 6 – 2 – (12) (2) (1) (2) – – – – Adjusted EBITDA $1,174 $759 $1,274 $1,488 $1,703 $1,791 $1,806 $1,893 $2,063 $425 $515 $456 Third-party sales $14,144 $9,870 $10,285 $12,254 $12,112 $12,071 $12,582 $12,477 $12,394 $3,037 $3,141 $2,943 Adjusted EBITDA Margin 8.3% 7.7% 12.4% 12.1% 14.1% 14.8% 14.4% 15.2% 16.6% 14.0% 16.4% 15.5% Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation 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 and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating 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 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. (1) Excludes the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia, both of which were previously part of the Global Rolled Products segment but became part of Alcoa Corporation effective November 1, 2016.
Reconciliation of Net Income (Loss) Attributable to Arconic(1) to Combined Segment Adjusted EBITDA S101 (in millions) 2015 2016 4Q15 4Q16 Net (loss) income attributable to Arconic $(322) $(931) $(701) $(1,248) Discontinued operations(1) 165 (121) 508 (33) Unallocated Amounts (net of tax): Impact of LIFO (66) 11 (18) (6) Metal price lag 115 (21) 21 (12) Interest expense 307 324 79 82 Noncontrolling interests 1 - - - Corporate expense 252 306 64 101 Impairment of goodwill 25 - 25 - Restructuring and other charges 192 114 33 91 Other(2) 317 1,405 201 1,252 Combined segment ATOI $986 $1,087 $212 $227 Add combined segment: Depreciation and amortization 479 504 130 127 Income taxes 430 472 83 102 Other(3) (2) - - - Combined segment Adjusted EBITDA $1,893 $2,063 $425 $456
Reconciliation of Net Income (Loss) Attributable to Arconic(1) to Combined Segment Adjusted EBITDA S101 Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation 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 and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating 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 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. (1)On November 1, 2016, Alcoa Inc. completed its separation into two standalone, publicly-traded companies. Arconic includes the former Alcoa Inc. segments: Engineered Products and Solutions, Transportation and Construction Solutions, and Global Rolled Products, except for the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia which both became part of Alcoa Corporation. The Global Rolled Products segment information has been updated to exclude the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia. (2)Other, both for the quarter ended December 31, 2016 and for the year ended December 31, 2016, include a charge for valuation allowances related to the November 1, 2016 separation ($1,267) and a net charge for the remeasurement of certain deferred tax assets due to tax rate and tax law changes ($51).
Reconciliation of Arconic Adjusted EBITDA S101 ($ in millions) 2013 2014 2015 2016 4Q15 4Q16 Net income (loss) attributable to Arconic $(2,285) $268 $(322) $(931) $(701) $(1,248) Discontinued operations (1) 2,222 (329) 165 (121) 508 (33) (Loss) income from continuing operations after income taxes and noncontrolling interests (63) (61) (157) (1,052) (193) (1,281) Add: Net income (loss) attributable to noncontrolling interests 3 – 1 – – – Provision (benefit) for income taxes 531 174 339 1,465 175 1,236 Other (income) expenses, net (40) (5) (28) (93) (18) (54) Interest expense 420 442 473 499 122 128 Restructuring and other charges 86 314 214 155 50 122 Impairment of goodwill – – 25 – 25 – Provision for depreciation and amortization 416 436 508 535 137 133 Adjusted EBITDA $1,353 $1,300 $1,375 $1,509 $298 $284 Sales $11,997 $12,542 $12,413 $12,394 $2,991 $2,967 Adjusted EBITDA Margin 11.3% 10.4% 11.1% 12.2% 10.0% 9.6% Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation 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 and amortization. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to 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. (1)On November 1, 2016, the former Alcoa Inc. was separated into two standalone, publicly-traded companies, Arconic and Alcoa Corporation, by means of a pro rata distribution of 80.1 percent of the outstanding common stock of Alcoa Corporation to Alcoa Inc. shareholders. Accordingly, the results of operations of Alcoa Corporation have been reflected as discontinued operations for all periods presented.
Reconciliation of Free Cash Flow(1) S101 (in millions) Year ended Quarter ended December 31, 2012(1) December 31, 2013(1) December 31, 2014(1) December 31, 2015(1) December 31, 2016 December 31, 2015(1) September 30, 2016(1) December 31, 2016 Cash from operations $1,497 $1,578 $1,674 $1,582 $873 $865 $306 $665 Capital expenditures (1,261) (1,193) (1,219) (1,180) (1,125) (398) (286) (311) Free cash flow $236 $385 $455 $402 $(252) $467 $20 $354 Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered necessary to maintain and expand Arconic’s asset base and are expected to generate future cash flows from operations. It is important to note that Free Cash Flow does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. (1)On November 1, 2016, the former Alcoa Inc. was separated into two standalone, publicly-traded companies, Arconic and Alcoa Corporation, by means of a pro rata distribution of 80.1 percent of the outstanding common stock of Alcoa Corporation to Alcoa Inc. shareholders. Cash from operations and capital expenditures for Alcoa Corporation have not been segregated and are included in this table for all periods prior to November 1, 2016.
Reconciliation of Net Debt S101 (in millions) December 31, 2012(1)(2) 2013(1)(2) 2014(1)(2) 2015(1)(2) 2016 Short-term borrowings $53 $57 $54 $38 $36 Commercial paper – – – – – Long-term debt due within one year 431 618 – 3 4 Long-term debt, less amount due within one year 7,759 7,151 8,391 8,786 8,044 Total debt 8,243 7,826 8,445 8,827 8,084 Less: Cash and cash equivalents 1,714 1,225 1,611 1,362 1,863 Net debt $6,529 $6,601 $6,834 $7,465 $6,221 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 available cash that could be used to repay outstanding debt. (1)On November 1, 2016, the former Alcoa Inc. was separated into two standalone, publicly-traded companies, Arconic and Alcoa Corporation, by means of a pro rata distribution of 80.1 percent of the outstanding common stock of Alcoa Corporation to Alcoa Inc. shareholders. Accordingly, the assets and liabilities of Alcoa Corporation have been reflected as assets and liabilities of discontinued operations for all periods presented and therefore are not included in this table. (2)In the first quarter of 2016, Arconic adopted changes issued by the Financial Accounting Standards Board to the presentation of debt issuance costs, which require such costs to be classified as a direct deduction from the carrying value of the related debt liability on an entity’s balance sheet. As such, all debt issuance costs were classified as a contra liability in the Long-term debt, less amount due within one year line item in the 2016 period presented in the table above. These changes are required to be applied on a retrospective basis; therefore, all periods prior to 2016 presented in the table above were updated to conform to the presentation of the 2016 periods. As a result, $85, $73, $65, and $51 of debt issuance costs were reflected as deductions in the Long-term debt, less amount due within one year line item for 2012, 2013, 2014, and 2015, respectively.
Reconciliation of Adjusted EBITDA Excluding Separation Costs S101 (in millions) 4Q16(1) 2016(1) Sales $2,967 $12,394 Adjusted EBITDA(2) 284 1,509 9.6% 12.2% Separation costs 76 193 Adjusted SG&A excluding separation costs 360 1,702 Adjusted SG&A excluding separation costs % of sales 12.1% 13.7% Adjusted EBITDA excluding separation costs is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA, excluding separation costs, provides additional information with respect to Arconic’s operating performance and the Company’s ability to meet its financial obligations excluding the one time costs of separation. On November 1, 2016, the former Alcoa Inc. was separated into two standalone, publicly-traded companies, Arconic and Alcoa Corporation, by means of a pro rata distribution of 80.1% of the outstanding common stock of Alcoa Corporation to Alcoa Inc. shareholders. Accordingly, the results of operations of Alcoa Corporation have been reflected as discontinued operations in all periods presented. See Reconciliation of Arconic Adjusted EBITDA for the calculation of Adjusted EBITDA for the quarter and year ended December 31, 2016.
Reconciliation of Return on Net Assets (RONA) S101 (in millions) 4Q16(1) 2016(1) Net loss attributable to Arconic $(1,248) $(931) Discontinued operations(1) (33) (121) Special items(2) 1,352 1,557 Net income attributable to Arconic – as adjusted $71 $505 Annualized net income attributable to Arconic-as adjusted $284 Net Assets: Add: Receivables from customers, less allowances $974 $974 Add: Deferred purchase price receivable(3) 83 83 Add: Inventories 2,253 2,253 Less: Accounts payable, trade 1,726 1,726 Working Capital 1,584 1,584 Properties, plants, and equipment, net 5,494 5,494 Net assets - total $7,078 $7,078 RONA 4.0% 7.1% Return on Net Assets (RONA) is a non-GAAP financial measure. RONA is calculated as adjusted net income 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)On November 1, 2016, the former Alcoa Inc. was separated into two standalone, publicly-traded companies, Arconic and Alcoa Corporation, by means of a pro rata distribution of 80.1% of the outstanding common stock of Alcoa Corporation to Alcoa Inc. shareholders. Accordingly, the results of operations of Alcoa Corporation have been reflected as discontinued operations in all periods presented. (2) See Reconciliation of Adjusted Income for a description of special items for the quarter and year ended December 31, 2016. (3)The Deferred purchase price receivable 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.
Capital Structure: $6.2B in Net Debt Capital Structure: Excludes any impact from potential future monetization of stake in Alcoa Corp Capitalization at December 31, 2016 ($B) Amount Cash $1.9 Excludes 19.9% Retained Interest in Alcoa Corporation ~$1.3 (as of 1/26/2017) Bonds $7.85 Other debt $0.25 Total Debt $8.1 Net Debt (excluding retained interest) $6.2
