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2022-07-31 0001675149 us-gaap:SubsequentEventMember 2022-07-20

 

 

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 June 30, 2022

OR

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

For the transition period from ____ to _____

 

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)

 

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

 

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.

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

As of July 20, 2022, 179,925,180 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

 

26

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

Item 4.

Controls and Procedures

 

41

 

 

 

 

PART II – OTHER INFORMATION

 

42

 

 

 

 

Item 1.

Legal Proceedings

 

42

 

 

 

 

Item 1A.

Risk Factors

 

42

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

Item 6.

Exhibits

 

44

 

 

 

 

SIGNATURES

 

45

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 “aims,” “ambition,” “anticipates,” “believes,” “could,” “develop,” “endeavors,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “potential,” “plans,” “projects,” “reach,” “seeks,” “sees,” “should,” “strive,” “targets,” “will,” “working,” “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 or targeted financial results, or operating or sustainability performance (including our ability to execute on strategies related to environmental, social and governance matters); statements about strategies, outlook, and business and financial prospects; and statements about capital allocation and 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) current and potential future impacts to the global economy and our industry, business and financial condition caused by various worldwide or macroeconomic events, such as the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine, and related regulatory developments; (b) 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; (c) changes in global economic and financial market conditions generally, such as inflation and interest rate increases, and which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms or at all; (d) unfavorable changes in the markets served by Alcoa Corporation; (e) the impact of changes in foreign currency exchange and tax rates on costs and results; (f) increases in energy or raw material costs, or uncertainty of or disruption to energy or raw materials supply, and to the supply chain including logistics; (g) the inability to execute on strategies related to or achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, environmental- and social-related goals and targets (including due to delays in scientific and technological developments), or strengthening of competitiveness and operations anticipated from portfolio actions, operational and productivity improvements, 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, restructuring activities, facility closures, curtailments, restarts, expansions, or joint ventures; (i) political, economic, trade, legal, public health and safety, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (j) labor disputes and/or work stoppages and strikes; (k) the outcome of contingencies, including legal and tax proceedings, government or regulatory investigations, and environmental remediation; (l) the impact of cyberattacks and potential information technology or data security breaches; (m) risks associated with long-term debt obligations; (n) the timing and amount of future cash dividends and share repurchases; (o) declines in the discount rates used to measure pension and other postretirement benefit liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; and (p) the other risk factors discussed in Part I Item 1A of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission. 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)

 

 

 

Second quarter ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Sales (E)

 

$

3,644

 

 

$

2,833

 

 

$

6,937

 

 

$

5,703

 

Cost of goods sold (exclusive of expenses below)

 

 

2,767

 

 

 

2,156

 

 

 

4,948

 

 

 

4,448

 

Selling, general administrative, and other expenses

 

 

52

 

 

 

54

 

 

 

96

 

 

 

106

 

Research and development expenses

 

 

7

 

 

 

6

 

 

 

16

 

 

 

13

 

Provision for depreciation, depletion, and amortization

 

 

161

 

 

 

161

 

 

 

321

 

 

 

343

 

Restructuring and other charges, net (D)

 

 

(75

)

 

 

33

 

 

 

50

 

 

 

40

 

Interest expense

 

 

30

 

 

 

67

 

 

 

55

 

 

 

109

 

Other income, net (Q)

 

 

(206

)

 

 

(105

)

 

 

(220

)

 

 

(129

)

Total costs and expenses

 

 

2,736

 

 

 

2,372

 

 

 

5,266

 

 

 

4,930

 

Income before income taxes

 

 

908

 

 

 

461

 

 

 

1,671

 

 

 

773

 

Provision for income taxes

 

 

234

 

 

 

111

 

 

 

444

 

 

 

204

 

Net income

 

 

674

 

 

 

350

 

 

 

1,227

 

 

 

569

 

Less: Net income attributable to noncontrolling interest

 

 

125

 

 

 

41

 

 

 

209

 

 

 

85

 

NET INCOME ATTRIBUTABLE TO ALCOA

   CORPORATION

 

$

549

 

 

$

309

 

 

$

1,018

 

 

$

484

 

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA

   CORPORATION COMMON SHAREHOLDERS (F):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.01

 

 

$

1.66

 

 

$

5.55

 

 

$

2.60

 

Diluted

 

$

2.95

 

 

$

1.63

 

 

$

5.44

 

 

$

2.56

 

 

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

 

 

 

Second quarter ended

June 30,

 

 

Second quarter ended

June 30,

 

 

Second quarter ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

549

 

 

$

309

 

 

$

125

 

 

$

41

 

 

$

674

 

 

$

350

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrecognized net actuarial loss and

   prior service cost/benefit related to pension

   and other postretirement benefits

 

 

52

 

 

 

253

 

 

 

 

 

 

3

 

 

 

52

 

 

 

256

 

Foreign currency translation adjustments

 

 

(370

)

 

 

204

 

 

 

(132

)

 

 

51

 

 

 

(502

)

 

 

255

 

Net change in unrecognized gains/losses on cash

   flow hedges

 

 

1,137

 

 

 

(266

)

 

 

1

 

 

 

5

 

 

 

1,138

 

 

 

(261

)

Total Other comprehensive income (loss), net of tax

 

 

819

 

 

 

191

 

 

 

(131

)

 

 

59

 

 

 

688

 

 

 

250

 

Comprehensive income (loss)

 

$

1,368

 

 

$

500

 

 

$

(6

)

 

$

100

 

 

$

1,362

 

 

$

600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alcoa Corporation

 

 

Noncontrolling

interest

 

 

Total

 

 

 

Six months ended

June 30,

 

 

Six months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

1,018

 

 

$

484

 

 

$

209

 

 

$

85

 

 

$

1,227

 

 

$

569

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrecognized net actuarial loss and

   prior service cost/benefit related to pension

   and other postretirement benefits

 

 

74

 

 

 

384

 

 

 

1

 

 

 

4

 

 

 

75

 

 

 

388

 

Foreign currency translation adjustments

 

 

(44

)

 

 

28

 

 

 

(34

)

 

 

(9

)

 

 

(78

)

 

 

19

 

Net change in unrecognized gains/losses on

   cash flow hedges

 

 

307

 

 

 

(470

)

 

 

2

 

 

 

2

 

 

 

309

 

 

 

(468

)

Total Other comprehensive income (loss), net of tax

 

 

337

 

 

 

(58

)

 

 

(31

)

 

 

(3

)

 

 

306

 

 

 

(61

)

Comprehensive income

 

$

1,355

 

 

$

426

 

 

$

178

 

 

$

82

 

 

$

1,533

 

 

$

508

 

 

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

 

2


 

Alcoa Corporation and Subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (L)

 

$

1,638

 

 

$

1,814

 

Receivables from customers

 

 

898

 

 

 

757

 

Other receivables

 

 

124

 

 

 

127

 

Inventories (I)

 

 

2,556

 

 

 

1,956

 

Fair value of derivative instruments (L)

 

 

224

 

 

 

14

 

Prepaid expenses and other current assets

 

 

423

 

 

 

358

 

Total current assets

 

 

5,863

 

 

 

5,026

 

Properties, plants, and equipment

 

 

19,647

 

 

 

19,753

 

Less: accumulated depreciation, depletion, and amortization

 

 

13,190

 

 

 

13,130

 

Properties, plants, and equipment, net

 

 

6,457

 

 

 

6,623

 

Investments (H)

 

 

1,238

 

 

 

1,199

 

Deferred income taxes

 

 

445

 

 

 

506

 

Fair value of derivative instruments (L)

 

 

15

 

 

 

7

 

Other noncurrent assets

 

 

1,691

 

 

 

1,664

 

Total assets

 

$

15,709

 

 

$

15,025

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

1,752

 

 

$

1,674

 

Accrued compensation and retirement costs

 

 

341

 

 

 

383

 

Taxes, including income taxes

 

 

343

 

 

 

374

 

Fair value of derivative instruments (L)

 

 

232

 

 

 

274

 

Other current liabilities

 

 

567

 

 

 

517

 

Long-term debt due within one year (J & L)

 

 

1

 

 

 

1

 

Total current liabilities

 

 

3,236

 

 

 

3,223

 

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

 

 

1,725

 

 

 

1,726

 

Accrued pension benefits (K)

 

 

369

 

 

 

417

 

Accrued other postretirement benefits (K)

 

 

626

 

 

 

650

 

Asset retirement obligations (O)

 

 

634

 

 

 

622

 

Environmental remediation (P)

 

 

254

 

 

 

265

 

Fair value of derivative instruments (L)

 

 

867

 

 

 

1,048

 

Noncurrent income taxes

 

 

204

 

 

 

191

 

Other noncurrent liabilities and deferred credits

 

 

502

 

 

 

599

 

Total liabilities

 

 

8,417

 

 

 

8,741

 

CONTINGENCIES AND COMMITMENTS (P)

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Alcoa Corporation shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

2

 

 

 

2

 

Additional capital

 

 

9,313

 

 

 

9,577

 

Retained earnings (deficit)

 

 

606

 

 

 

(315

)

Accumulated other comprehensive loss (G)

 

 

(4,255

)

 

 

(4,592

)

Total Alcoa Corporation shareholders’ equity

 

 

5,666

 

 

 

4,672

 

Noncontrolling interest

 

 

1,626

 

 

 

1,612

 

Total equity

 

 

7,292

 

 

 

6,284

 

Total liabilities and equity

 

$

15,709

 

 

$

15,025

 

 

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)

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

CASH FROM OPERATIONS

 

 

 

 

 

 

 

 

Net income

 

$

1,227

 

 

$

569

 

Adjustments to reconcile net income to cash from operations:

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

 

321

 

 

 

343

 

Deferred income taxes

 

 

93

 

 

 

48

 

Equity earnings, net of dividends

 

 

(61

)

 

 

(46

)

Restructuring and other charges, net (D)

 

 

50

 

 

 

40

 

Net loss (gain) from investing activities – asset sales (Q)

 

 

5

 

 

 

(124

)

Net periodic pension benefit cost (K)

 

 

28

 

 

 

24

 

Stock-based compensation

 

 

20

 

 

 

18

 

Provision for bad debt expense

 

 

 

 

 

1

 

Premium paid on early redemption of debt

 

 

 

 

 

25

 

Gain on mark-to-market derivative financial contracts

 

 

(123

)

 

 

(5

)

Other

 

 

28

 

 

 

33

 

Changes in assets and liabilities, excluding effects of divestitures and

   foreign currency translation adjustments:

 

 

 

 

 

 

 

 

Increase in receivables

 

 

(153

)

 

 

(270

)

Increase in inventories

 

 

(657

)

 

 

(184

)

Decrease in prepaid expenses and other current assets

 

 

15

 

 

 

58

 

Increase in accounts payable, trade

 

 

98

 

 

 

32

 

Decrease in accrued expenses

 

 

(103

)

 

 

(20

)

(Decrease) Increase in taxes, including income taxes

 

 

(79

)

 

 

40

 

Pension contributions (K)

 

 

(9

)

 

 

(570

)

Increase in noncurrent assets

 

 

(71

)

 

 

(34

)

Decrease in noncurrent liabilities

 

 

(59

)

 

 

(58

)

CASH PROVIDED FROM (USED FOR) OPERATIONS

 

 

570

 

 

 

(80

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to debt (original maturities greater than three months)

 

 

 

 

 

495

 

Payments on debt (original maturities greater than three months)

 

 

 

 

 

(776

)

Proceeds from the exercise of employee stock options

 

 

22

 

 

 

14

 

Repurchase of common stock

 

 

(350

)

 

 

 

Dividends paid on Alcoa common stock

 

 

(37

)

 

 

 

Payments related to tax withholding on stock-based compensation awards

 

 

(19

)

 

 

(1

)

Financial contributions for the divestiture of businesses (D)

 

 

(9

)

 

 

(13

)

Contributions from noncontrolling interest

 

 

83

 

 

 

 

Distributions to noncontrolling interest

 

 

(245

)

 

 

(137

)

Other

 

 

(3

)

 

 

(3

)

CASH USED FOR FINANCING ACTIVITIES

 

 

(558