Company Quick10K Filing
Quick10K
Alcoa
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$24.81 185 $4,600
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
8-K 2019-05-08 Shareholder Vote
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-01-16 Earnings, Regulation FD, Exhibits
8-K 2018-11-21 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-10-11 Earnings, Officers, Other Events, Exhibits
8-K 2018-09-11 Regulation FD, Exhibits
8-K 2018-08-08 Other Events, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-06-18 Other Events, Exhibits
8-K 2018-05-17 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-05-14 Regulation FD, Exhibits
8-K 2018-05-09 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-04-03 Other Events, Exhibits
8-K 2018-01-17 Earnings, Regulation FD, Other Events, Exhibits
IEX IDEX 11,580
HTHT Huazhu Group 11,050
COG Cabot Oil & Gas 10,980
ARCO Arcos Dorados Holdings 1,390
VCRA Vocera Communications 1,090
IRMD Iradimed 262
ASPN Aspen Aerogels 114
FRD Friedman Industries 53
XDIV Metaurus Equity Component Trust 0
XSNX Xsunx 0
AA 2019-03-31
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1.Legal Proceedings.
Item 4. Mine Safety Disclosures.
Item 6. Exhibits.
EX-18.1 aa-ex181_118.htm
EX-31.1 aa-ex311_8.htm
EX-31.2 aa-ex312_239.htm
EX-32.1 aa-ex321_6.htm
EX-32.2 aa-ex322_240.htm
EX-95.1 aa-ex951_7.htm

Alcoa Earnings 2019-03-31

AA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 aa-10q_20190331.htm 10-Q aa-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-37816

 

ALCOA CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

81-1789115

(I.R.S. Employer

Identification No.)

 

 

 

201 Isabella Street, Suite 500,

Pittsburgh, Pennsylvania

(Address of principal executive offices)

 

 

15212-5858

(Zip Code)

412-315-2900

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   Yes     No  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

AA

 

New York Stock Exchange

As of May 3, 2019, 185,534,704 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

 


 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

1

 

 

 

 

Item 1.

Financial Statements

 

1

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

33

 

 

 

 

Item 4.

Controls and Procedures

 

33

 

 

 

 

PART II – OTHER INFORMATION

 

34

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

 

 

 

Item 4.

Mine Safety Disclosures

 

34

 

 

 

 

Item 6.

Exhibits

 

35

 

 

 

 

SIGNATURES

 

36

Forward-Looking Statements

This report 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,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future financial results or operating performance; statements about strategies, outlook, and business and financial prospects; and statements about return of capital. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation 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) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (b) deterioration in global economic and financial market conditions generally and which may also affect Alcoa Corporation’s ability to obtain credit or financing under acceptable terms; (c) unfavorable changes in the markets served by Alcoa Corporation; (d) the impact of changes in foreign currency exchange and tax rates on costs and results; (e) increases in energy costs or uncertainty of energy supply; (f) declines in the discount rates used to measure pension liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; (g) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, or strengthening of competitiveness and operations anticipated from operational and productivity improvements, cash sustainability, technology advancements, and other initiatives; (h) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, restarts, expansions, or joint ventures; (i) political, economic, trade, legal, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (j) labor disputes and work stoppages; (k) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation; (l) the impact of cyberattacks and potential information technology or data security breaches; and (m) the other risk factors described in Part I Item 1A of Alcoa Corporation’s Form 10-K for the year ended December 31, 2018 and in other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission, including those described in this report. Alcoa Corporation 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 described above and other risks in the market.

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Alcoa Corporation and Subsidiaries

Statement of Consolidated Operations (unaudited)

(in millions, except per-share amounts)

 

 

 

First quarter ended

March 31,

 

 

 

2019

 

 

2018

 

Sales (D)

 

$

2,719

 

 

$

3,090

 

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

 

 

2,180

 

 

 

2,302

 

Selling, general administrative, and other expenses

 

 

84

 

 

 

67

 

Research and development expenses

 

 

7

 

 

 

8

 

Provision for depreciation, depletion, and amortization

 

 

172

 

 

 

194

 

Restructuring and other charges, net (C)

 

 

113

 

 

 

(19

)

Interest expense

 

 

30

 

 

 

26

 

Other expenses, net (N)

 

 

41

 

 

 

21

 

Total costs and expenses

 

 

2,627

 

 

 

2,599

 

Income before income taxes

 

 

92

 

 

 

491

 

Provision for income taxes

 

 

150

 

 

 

151

 

Net (loss) income

 

 

(58

)

 

 

340

 

Less: Net income attributable to noncontrolling interest

 

 

141

 

 

 

145

 

NET (LOSS) INCOME ATTRIBUTABLE TO ALCOA

   CORPORATION

 

$

(199

)

 

$

195

 

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA

   CORPORATION COMMON SHAREHOLDERS (E):

 

 

 

 

 

 

 

 

Basic

 

$

(1.07

)

 

$

1.05

 

Diluted

 

$

(1.07

)

 

$

1.04

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

1


Alcoa Corporation and Subsidiaries

Statement of Consolidated Comprehensive Income (unaudited)

(in millions)

 

 

 

Alcoa Corporation

 

 

Noncontrolling

interest

 

 

Total

 

 

 

First quarter ended

March 31,

 

 

First quarter ended

March 31,

 

 

First quarter ended

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net (loss) income (H)

 

$

(199

)

 

$

195

 

 

$

141

 

 

$

145

 

 

$

(58

)

 

$

340

 

Other comprehensive (loss) income, net of tax (F):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrecognized net actuarial loss and

   prior service cost/benefit related to pension

   and other postretirement benefits

 

 

41

 

 

 

101

 

 

 

1

 

 

 

1

 

 

 

42

 

 

 

102

 

Foreign currency translation adjustments

 

 

(22

)

 

 

1

 

 

 

2

 

 

 

(14

)

 

 

(20

)

 

 

(13

)

Net change in unrecognized gains/losses on cash

   flow hedges

 

 

(288

)

 

 

550

 

 

 

6

 

 

 

(20

)

 

 

(282

)

 

 

530

 

Total Other comprehensive (loss) income, net of tax

 

 

(269

)

 

 

652

 

 

 

9

 

 

 

(33

)

 

 

(260

)

 

 

619

 

Comprehensive (loss) income

 

$

(468

)

 

$

847

 

 

$

150

 

 

$

112

 

 

$

(318

)

 

$

959

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2


Alcoa Corporation and Subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)

 

 

 

March 31,

2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (J)

 

$

1,017

 

 

$

1,113

 

Receivables from customers

 

 

758

 

 

 

830

 

Other receivables

 

 

184

 

 

 

173

 

Inventories (H)

 

 

1,799

 

 

 

1,819

 

Fair value of derivative instruments (J)

 

 

71

 

 

 

73

 

Prepaid expenses and other current assets (H)

 

 

285

 

 

 

320

 

Total current assets

 

 

4,114

 

 

 

4,328

 

Properties, plants, and equipment

 

 

22,015

 

 

 

21,807

 

Less: accumulated depreciation, depletion, and amortization

 

 

13,687

 

 

 

13,480

 

Properties, plants, and equipment, net

 

 

8,328

 

 

 

8,327

 

Investments (G & M)

 

 

1,362

 

 

 

1,360

 

Deferred income taxes

 

 

604

 

 

 

560

 

Fair value of derivative instruments (J)

 

 

68

 

 

 

82

 

Other noncurrent assets

 

 

1,480

 

 

 

1,475

 

Total assets

 

$

15,956

 

 

$

16,132

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

1,503

 

 

$

1,663

 

Accrued compensation and retirement costs

 

 

383

 

 

 

400

 

Taxes, including income taxes

 

 

395

 

 

 

426

 

Fair value of derivative instruments (J)

 

 

84

 

 

 

82

 

Other current liabilities

 

 

437

 

 

 

347

 

Long-term debt due within one year (J)

 

 

1

 

 

 

1

 

Total current liabilities

 

 

2,803

 

 

 

2,919

 

Long-term debt, less amount due within one year (J)

 

 

1,802

 

 

 

1,801

 

Accrued pension benefits (I)

 

 

1,387

 

 

 

1,407

 

Accrued other postretirement benefits (I)

 

 

851

 

 

 

868

 

Asset retirement obligations

 

 

543

 

 

 

529

 

Environmental remediation (M)

 

 

243

 

 

 

236

 

Fair value of derivative instruments (J)

 

 

580

 

 

 

261

 

Noncurrent income taxes

 

 

300

 

 

 

301

 

Other noncurrent liabilities and deferred credits

 

 

364

 

 

 

222

 

Total liabilities

 

 

8,873

 

 

 

8,544

 

CONTINGENCIES AND COMMITMENTS (M)

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Alcoa Corporation shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

2

 

 

 

2

 

Additional capital

 

 

9,618

 

 

 

9,611

 

Retained earnings (H)

 

 

371

 

 

 

570

 

Accumulated other comprehensive loss (F)

 

 

(4,834

)

 

 

(4,565

)

Total Alcoa Corporation shareholders’ equity

 

 

5,157

 

 

 

5,618

 

Noncontrolling interest (H)

 

 

1,926

 

 

 

1,970

 

Total equity

 

 

7,083

 

 

 

7,588

 

Total liabilities and equity

 

$

15,956

 

 

$

16,132

 

 

The accompanying notes are an integral part of the consolidated financial statements.

3


Alcoa Corporation and Subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

CASH FROM OPERATIONS

 

 

 

 

 

 

 

 

Net (loss) income (H)

 

$

(58

)

 

$

340

 

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

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

 

172

 

 

 

194

 

Deferred income taxes (H)

 

 

33

 

 

 

2

 

Equity earnings, net of dividends

 

 

(3

)

 

 

(6

)

Restructuring and other charges, net (C)

 

 

113

 

 

 

(19

)

Net gain from investing activities – asset sales (N)

 

 

(8

)

 

 

(5

)

Net periodic pension benefit cost (I)

 

 

30

 

 

 

40

 

Stock-based compensation

 

 

10

 

 

 

10

 

Provision for bad debt expense

 

 

20

 

 

 

 

Other

 

 

23

 

 

 

(14

)

Changes in assets and liabilities, excluding effects of foreign currency

   translation adjustments:

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

42

 

 

 

43

 

Decrease (Increase) in inventories (H)

 

 

17

 

 

 

(248

)

Decrease in prepaid expenses and other current assets

 

 

13

 

 

 

2

 

(Decrease) in accounts payable, trade

 

 

(159

)

 

 

(106

)

(Decrease) in accrued expenses

 

 

(18

)

 

 

(186

)

(Decrease) Increase in taxes, including income taxes

 

 

(43

)

 

 

84

 

Pension contributions (I)

 

 

(7

)

 

 

(40

)

(Increase) in noncurrent assets

 

 

(10

)

 

 

(13

)

Increase (Decrease) in noncurrent liabilities

 

 

1

 

 

 

(23

)

CASH PROVIDED FROM OPERATIONS

 

 

168

 

 

 

55

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to debt (original maturities greater than three months)

 

 

 

 

 

61

 

Payments on debt (original maturities greater than three months)

 

 

 

 

 

(4

)

Proceeds from the exercise of employee stock options

 

 

1

 

 

 

15

 

Contributions from noncontrolling interest

 

 

20

 

 

 

53

 

Distributions to noncontrolling interest

 

 

(214

)

 

 

(267

)

Other

 

 

(6

)

 

 

(5

)

CASH USED FOR FINANCING ACTIVITIES

 

 

(199

)

 

 

(147

)

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(69

)

 

 

(74

)

Proceeds from the sale of assets

 

 

11

 

 

 

 

Additions to investments

 

 

(1

)

 

 

 

CASH USED FOR INVESTING ACTIVITIES

 

 

(59

)

 

 

(74

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH

   EQUIVALENTS AND RESTRICTED CASH

 

 

(6

)

 

 

4

 

Net change in cash and cash equivalents and restricted cash

 

 

(96

)

 

 

(162

)

Cash and cash equivalents and restricted cash at beginning of year

 

 

1,116

 

 

 

1,365

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT

   END OF PERIOD

 

$

1,020

 

 

$

1,203

 

 

The accompanying notes are an integral part of the consolidated financial statements.

4


 Alcoa Corporation and Subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

(in millions)

 

 

 

Alcoa Corporation shareholders

 

 

 

 

 

 

 

 

 

 

 

Common

stock

 

 

Additional

capital

 

 

Retained

earnings

 

 

Accumulated

other

comprehensive

loss

 

 

Non-

controlling

interest

 

 

Total

equity

 

Balance at December 31, 2017

 

$

2

 

 

$

9,590

 

 

$

318

 

 

$

(5,182

)

 

$

2,240

 

 

$

6,968

 

Net income

 

 

 

 

 

 

 

 

195

 

 

 

 

 

 

145

 

 

 

340

 

Other comprehensive income (loss) (F)

 

 

 

 

 

 

 

 

 

 

 

652

 

 

 

(33

)

 

 

619

 

Stock-based compensation

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Common stock issued: compensation

   plans

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

53

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(267

)

 

 

(267

)

Other

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

(3

)

 

 

15

 

Balance at March 31, 2018

 

$

2

 

 

$

9,633

 

 

$

513

 

 

$

(4,530

)

 

$

2,135

 

 

$

7,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

2

 

 

$

9,611

 

 

$

570

 

 

$

(4,565

)

 

$

1,970

 

 

$

7,588

 

Net (loss) income

 

 

 

 

 

 

 

 

(199

)

 

 

 

 

 

141

 

 

 

(58

)

Other comprehensive (loss) income (F)

 

 

 

 

 

 

 

 

 

 

 

(269

)

 

 

9

 

 

 

(260

)

Stock-based compensation

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Common stock issued: compensation

   plans

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

20

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(214

)

 

 

(214

)

Other

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

(4

)

Balance at March 31, 2019

 

$

2

 

 

$

9,618

 

 

$

371

 

 

$

(4,834

)

 

$

1,926

 

 

$

7,083

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5


Alcoa Corporation and Subsidiaries

Notes to the Consolidated Financial Statements (unaudited)

(dollars in millions, except per-share amounts; metric tons in thousands (kmt))

A. Basis of Presentation – The interim Consolidated Financial Statements of Alcoa Corporation and its subsidiaries (Alcoa Corporation or the Company) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 2018 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which includes all disclosures required by GAAP.

References in these Notes to ParentCo refer to Alcoa Inc., a Pennsylvania corporation, and its consolidated subsidiaries (through October 31, 2016, at which time it was renamed Arconic Inc. (Arconic)). On November 1, 2016 (the Separation Date), ParentCo separated into two standalone, publicly-traded companies, Alcoa Corporation and Arconic (the Separation Transaction). In connection with the Separation Transaction, as of October 31, 2016, the Company and Arconic entered into several agreements to effect the Separation Transaction, including a Separation and Distribution Agreement and a Tax Matters Agreement. See Note A to the Consolidated Financial Statements in Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from last-in, first-out (LIFO) to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Note H for more information regarding the change in inventory accounting method.

Principles of Consolidation. The Consolidated Financial Statements of Alcoa Corporation include the accounts of Alcoa Corporation and companies in which Alcoa Corporation has a controlling interest, including those that comprise the Alcoa World Alumina & Chemicals (AWAC) joint venture (see below). Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which Alcoa Corporation has significant influence but does not have effective control. Investments in affiliates in which Alcoa Corporation cannot exercise significant influence are accounted for on the cost method.

AWAC is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited and consists of several affiliated operating entities, which own, or have an interest in, or operate the bauxite mines and alumina refineries within Alcoa Corporation’s Bauxite and Alumina segments (except for the Poços de Caldas mine and refinery and a portion of the São Luís refinery, all in Brazil) and the Portland smelter in Australia within Alcoa Corporation’s Aluminum segment. Alcoa Corporation owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated by the Company for financial reporting purposes and include Alcoa of Australia Limited, Alcoa World Alumina LLC (AWA), and Alcoa World Alumina Brasil Ltda. (AWAB). Alumina Limited’s interest in the equity of such entities is reflected as Noncontrolling interest on the accompanying Consolidated Balance Sheet.

B. Recently Adopted and Recently Issued Accounting Guidance

Adopted

 

On January 1, 2019 Alcoa Corporation adopted Accounting Standards Update (ASU) No. 2016-02, Leases, issued by the Financial Accounting Standards Board (FASB) regarding the accounting for leases, using the modified retrospective approach.  This ASU requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for operating and finance leases with a term of 12 months or more.  Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. A right-of-use asset represents an entity’s right to use the underlying asset for the lease term, and a lease liability represents an entity’s obligation to make lease payments. The Company has made a policy election not to record any non-lease components in the lease liability.  Previously, an asset and liability were only recorded for leases classified as capital leases (financing leases). The measurement, recognition, and presentation of expenses and cash flows arising from leases by a lessee remains the same. Additionally, in July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements, to provide for an alternative transition method to the new lease guidance, whereby an entity can choose to not reflect the impact of the new lease guidance in the prior periods included in its financial statements. The Company elected this alternative transition method upon adoption on January 1, 2019.  Management also elected the practical expedient related to land easements, allowing the Company to carry forward the current treatment on existing arrangements.

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As a result of the adoption, management recorded a right-of-use asset and lease liability, each in the amount of $201, on Alcoa Corporation’s Consolidated Balance Sheet as of January 1, 2019 for several types of operating leases, including land and buildings, alumina refinery process control technology, plant equipment, vehicles, and computer equipment. See Note L for additional information related to the adoption of this standard.

      

Alcoa Corporation’s adoption of the following accounting guidance in 2019 did not have a material impact on the Company’s consolidated financial statements:

 

Accounting Standards Update

2018-01 Leases: Land Easement Practical Expedient for Transition

2018-02Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

2018-07Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting

Issued

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General.  This ASU makes changes to the disclosures of fair value measurements and defined benefit plans through several removals, modifications, additions, and/or clarifications of the existing requirements.  Certain disclosures associated with accumulated other comprehensive income, valuation of Level 3 assets, and sensitivities in assumed health care trend rates and interest rates have been eliminated.  New disclosures have been added to explain significant gains and losses related to changes in benefit obligations, changes included in other comprehensive income for recurring Level 3 fair value measurements, and information on significant unobservable inputs used to develop Level 3 fair value measurements. These changes become effective for Alcoa Corporation for its fiscal year ending December 31, 2020 and for interim periods therein with early adoption permitted and retrospective presentation for all periods presented required.  Other than updating the applicable disclosures, the adoption of this guidance will not have an impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software. This ASU aligns the accounting for cloud computing implementation costs with that of costs to develop or obtain internal-use software, meaning such costs that are part of the application development stage are capitalized as an asset and amortized over the term of the arrangement, otherwise, such costs are expensed as incurred. It also clarifies the classification of amounts related to capitalized implementation costs in the financial statements.  This guidance becomes effective for Alcoa Corporation on January 1, 2020, with early adoption permitted. Management is currently evaluating the potential impact of this guidance on the Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. This ASU added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. These changes become effective for Alcoa Corporation on January 1, 2020. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

 

C. Restructuring and Other Charges, Net – In the first quarter of 2019, Alcoa Corporation recorded Restructuring and other charges, net of $113, which were comprised of the following components: $103 for exit costs related to the curtailment of the Avilés and La Coruña smelters in Spain (see below); $7 for closure costs related to a coal mine; and a $3 net charge for various items.

On January 22, 2019, the workforce at the Company’s Avilés and La Coruña aluminum facilities in Spain ratified an agreement between Alcoa Corporation and the workers’ representatives related to the Company’s initiation of a collective dismissal process in October 2018. As part of the agreement, the two facilities’ smelters, with a combined remaining operating capacity of 124 kmt, were curtailed in February 2019 and are being maintained in restart condition through June 30, 2019, in the event that third parties have interest in acquiring the facilities. The casthouse at each facility and the paste plant at La Coruña remain in operation. Restructuring charges recorded in the first quarter related to this process included asset impairments of $80, employee-related costs of $15 and contract termination costs of $8. Additional charges recorded in the first quarter included a $15 write down of remaining inventories to their net realizable value, which was recorded in Cost of goods sold, and $2 in miscellaneous charges recorded in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations.

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Alcoa Corporation expects to incur additional charges to fulfill the agreement’s social plan, which includes severance plans, early retirement benefits, and potential employee relocation to the Company’s San Ciprián (Spain) facility, or to execute a third-party acquisition of the facilities.  Such charges are expected to be recorded in the second quarter of 2019 and are estimated to range from $70 to $125 (pre- and after-tax), depending on the outcome of the collective dismissal process.  Approximately 75 percent would be cash outlays in 2019.  

In the first quarter of 2018, Alcoa Corporation recorded a net benefit of $19 in Restructuring and other charges, net, which was comprised of a $23 net gain related to the curtailment of certain pension and other postretirement employee benefits and a $4 charge for additional contract costs related to the curtailed Wenatchee (Washington) smelter.

Alcoa Corporation does not include Restructuring and other charges, net in the results of its reportable segments. The impact of allocating such charges to segment results would have been as follows:

 

 

 

First quarter ended

March 31,

 

 

 

2019

 

 

2018

 

Bauxite

 

$

1

 

 

$

 

Alumina

 

 

1

 

 

 

(1

)

Aluminum

 

 

107

 

 

 

5

 

Segment total

 

 

109

 

 

 

4

 

Corporate

 

 

4

 

 

 

(23

)

Total Restructuring and other charges, net

 

$

113

 

 

$

(19

)

 

The activity related to layoff costs and other costs included within the restructuring reserve balances is as follows:

 

 

 

Layoff

costs

 

 

Other

costs

 

 

Total

 

Balance at December 31, 2017

 

$

11

 

 

$

34

 

 

$

45

 

Cash payments

 

 

(7

)

 

 

(95

)

 

 

(102

)

Restructuring and other charges, net

 

 

2

 

 

 

117

 

 

 

119

 

Other(1)

 

 

(1

)

 

 

(14

)

 

 

(15

)

Balance at December 31, 2018

 

 

5

 

 

 

42

 

 

 

47

 

Cash payments

 

 

(3

)

 

 

(11

)

 

 

(14

)

Restructuring and other charges, net

 

 

2

 

 

 

28

 

 

 

30

 

Other(1)

 

 

 

 

 

(2

)

 

 

(2

)

Balance at March 31, 2019

 

$

4

 

 

$

57

 

 

$

61

 

 

(1)

Other includes reversals of previously recorded restructuring charges, the effects of foreign currency translation, and reclassifications to other reserves, primarily asset retirement obligations and environmental remediation obligations.

The noncurrent portion of the reserve at March 31, 2019 is $11, of which $8 is expected to be paid in 2020 related to the Portovesme smelter.

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D. Segment Information – The operating results of Alcoa Corporation’s reportable segments were as follows (differences between segment totals and consolidated amounts are in Corporate):

 

 

 

Bauxite

 

 

Alumina

 

 

Aluminum

 

 

Total

 

First quarter ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third-party sales

 

$

65

 

 

$

897

 

 

$

1,735

 

 

$

2,697

 

Intersegment sales

 

 

236

 

 

 

417

 

 

 

3

 

 

 

656

 

Total sales

 

$

301

 

 

$

1,314

 

 

$

1,738

 

 

$

3,353

 

Segment Adjusted EBITDA

 

$

126

 

 

$

372

 

 

$

(96

)

 

$

402

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

$

28

 

 

$

48

 

 

$

89

 

 

$

165

 

Equity income (loss)

 

$

 

 

$

12

 

 

$

(22

)

 

$

(10

)

First quarter ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third-party sales

 

$

47

 

 

$

914

 

 

$

2,111

 

 

$

3,072

 

Intersegment sales

 

 

249

 

 

 

454

 

 

 

4

 

 

 

707

 

Total sales

 

$

296

 

 

$

1,368

 

 

$

2,115

 

 

$

3,779

 

Segment Adjusted EBITDA

 

$

110

 

 

$

392

 

 

$

187

 

 

$

689

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

$

29

 

 

$

53

 

 

$

106

 

 

$

188

 

Equity loss

 

$

 

 

$

(1

)

 

$

 

 

$

(1

)

 

 

The following table reconciles total Segment Adjusted EBITDA to consolidated net (loss) income attributable to Alcoa Corporation:

 

 

 

First quarter ended

March 31,

 

 

 

2019

 

 

2018

 

Total Segment Adjusted EBITDA(1)

 

$

402

 

 

$

689

 

Unallocated amounts:

 

 

 

 

 

 

 

 

Transformation(2)

 

 

2

 

 

 

(2

)

Intersegment eliminations(1),(3)

 

 

86

 

 

 

76

 

Corporate expenses(4)

 

 

(24

)

 

 

(27

)

Provision for depreciation, depletion, and

   amortization

 

 

(172

)

 

 

(194

)

Restructuring and other charges, net (C)

 

 

(113

)

 

 

19

 

Interest expense

 

 

(30

)

 

 

(26

)

Other expenses, net (N)

 

 

(41

)

 

 

(21

)

Other(5)

 

 

(18

)

 

 

(23

)

Consolidated income before income taxes

 

 

92

 

 

 

491

 

Provision for income taxes

 

 

(150

)

 

 

(151

)

Net income attributable to noncontrolling

   interest

 

 

(141

)

 

 

(145

)

Consolidated net (loss) income attributable to

   Alcoa Corporation

 

$

(199

)

 

$

195

 

 

(1) 

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. As a result, Total Segment Adjusted EBITDA increased $34 and Intersegment eliminations increased $45 for the first quarter ended March 31, 2018.