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8-K - FROM 8-K - Howmet Aerospace Inc. | d487729d8k.htm |
EXHIBIT 99.1
Overview
On November 1, 2016, Arconic Inc. (the Company or Arconic), formerly known as Alcoa Inc., completed the previously-announced separation (the Separation) of its former Alumina and Primary Metals segments, its rolling mill at the Warrick, Indiana, operations and its 25.1% stake in the rolling mill at the joint venture in Saudi Arabia, into a separate publicly traded company, Alcoa Corporation (formerly known as Alcoa Upstream Corporation). Following the separation, Arconic retained the Global Rolled Products (other than the rolling mill at the Warrick, Indiana, operations and the 25.1% ownership stake in the Saudi Arabian rolling mill), Engineered Products and Solutions and Transportation and Construction Solutions segments.
The Company completed the Separation by means of a pro rata distribution of 80.1% of the outstanding shares of Alcoa Corporation common stock to the Companys shareholders. The Companys shareholders of record as of the close of business on October 20, 2016 (the Record Date) received one share of Alcoa Corporation common stock for every three shares of the Companys common stock held as of the Record Date. The Company retained 19.9% of the outstanding common stock of Alcoa Corporation.
The Companys common stock is listed under the symbol ARNC on the New York Stock Exchange (NYSE). Alcoa Corporation is listed under the symbol AA on the New York Stock Exchange.
In connection with the Separation, a series of internal reorganization transactions were undertaken to transfer the necessary assets and liabilities to Alcoa Corporation.
Basis of Preparation
The following Unaudited Pro Forma Condensed Consolidated Financial Statements of Arconic are presented to illustrate the estimated effects of the Separation of Alcoa Corporation from the historical combined company, and have been derived from the historical consolidated financial statements of the Company, prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The following Unaudited Pro Forma Condensed Statements of Consolidated Operations for the six months ended June 30, 2016, and for each of the three years in the period ended December 31, 2015, assume that the Separation occurred on January 1, 2015. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2016 assumes that the Separation occurred on that date.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements have been prepared using certain assumptions, as described in the accompanying notes, which management believes are reasonable based on the information currently available. The Unaudited Pro Forma Condensed Consolidated Financial Statements give effect to the following:
| the contribution by the Company to Alcoa Corporation, pursuant to the Separation, of all the assets and liabilities that comprised the Alumina and Primary Metals segments, as well as the rolling mill at the Warrick, Indiana, operations and the 25.1% stake in the rolling mill at the joint venture in Saudi Arabia, of the historical combined company; |
| the payment to Arconic by Alcoa Corporation of a portion of the cash proceeds generated from Alcoa Corporations borrowings; |
| the retention by Arconic of 19.9% ownership of Alcoa Corporations outstanding common stock; |
| non-recurring costs incurred in connection with the Separation, as appropriate; |
| the impact of the separation and distribution, tax matters, transition services, employee matters and other agreements entered into by Arconic and Alcoa Corporation as a result of the Separation, and the provisions contained therein. |
1
The Company believes that the adjustments included within the Separation of Alcoa Corporation column of the Unaudited Pro Forma Condensed Consolidated Financial Statements are consistent with the guidance for discontinued operations under GAAP. The Companys current estimates on a discontinued operations basis are preliminary and could change as the Company finalizes discontinued operations accounting to be reported in the Companys Annual Report on Form 10-K for the year ending December 31, 2016.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements are not necessarily indicative of what Arconics results of operations or financial condition would have been had the Separation been completed on the dates assumed. In addition, they are not necessarily indicative of Arconics future results of operations or financial condition. Beginning in the fourth quarter of 2016, Alcoa Corporations historical financial results for periods prior to the Separation will be reflected in Arconics consolidated financial statements as discontinued operations.
The Unaudited Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the Companys historical consolidated financial statements and accompanying notes and the Companys historical Managements Discussion and Analysis of Financial Condition and Results of Operations which are available at the Securities and Exchange Commissions website at www.sec.gov and Arconics web site at www.arconic.com. Information contained on the Companys website does not constitute part of, and is not incorporated into, this document.
2
Arconic Inc.
Unaudited Pro Forma Condensed Statement of Consolidated Operations
For the six months ended June 30, 2016
(in millions, except per share amounts)
Historical | Separation of Alcoa Corporation (1) |
Pro forma Adjustments |
Pro forma for the Separation |
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Sales |
$ | 10,242 | $ | (3,953 | ) | $ | | $ | 6,289 | |||||||
Cost of goods sold (exclusive of expenses below) |
8,257 | (3,318 | ) | | 4,939 | |||||||||||
Selling, general administrative, and other expenses |
546 | (98 | ) | (63 | )(2) | 385 | ||||||||||
Research and development expenses |
81 | (28 | ) | | 53 | |||||||||||
Provision for depreciation, depletion and amortization |
618 | (352 | ) | | 266 | |||||||||||
Restructuring and other charges |
116 | (86 | ) | | 30 | |||||||||||
Interest expense |
256 | (11 | ) | | 245 | |||||||||||
Other expenses (income), net |
(3 | ) | (25 | ) | | (28 | ) | |||||||||
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Total costs and expenses |
9,871 | (3,918 | ) | (63 | ) | 5,890 | ||||||||||
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Income (loss) before income taxes |
371 | (35 | ) | 63 | 399 | |||||||||||
Provision for income taxes |
182 | 12 | 8 | (3) | 202 | |||||||||||
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Net (loss) income |
189 | (47 | ) | 55 | 197 | |||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
38 | (38 | ) | | (0 | ) | ||||||||||
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Net (Loss) Income Attributable to Arconic |
$ | 151 | $ | (9 | ) | $ | 55 | $ | 197 | |||||||
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Amounts Attributable to Arconic Common Shareholders: |
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Net (loss) income |
$ | 116 | $ | 162 | ||||||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.27 | $ | 0.37 | ||||||||||||
Diluted |
$ | 0.26 | $ | 0.37 | ||||||||||||
Average number of shares: |
||||||||||||||||
Basic |
438.1 | 438.1 | ||||||||||||||
Diluted |
442.1 | 442.1 |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
3
Arconic Inc.
Unaudited Pro Forma Condensed Statement of Consolidated Operations
For the year ended December 31, 2015
(in millions, except per share amounts)
Historical | Separation of Alcoa Corporation (1) |
Pro forma Adjustments |
Pro forma for the Separation |
|||||||||||||
Sales |
$ | 22,534 | $ | (10,121 | ) | $ | | $ | 12,413 | |||||||
Cost of goods sold (exclusive of expenses below) |
18,069 | (7,972 | ) | | 10,097 | |||||||||||
Selling, general administrative, and other expenses |
979 | (207 | ) | (24 | )(2) | 748 | ||||||||||
Research and development expenses |
238 | (69 | ) | | 169 | |||||||||||
Provision for depreciation, depletion and amortization |
1,280 | (772 | ) | | 508 | |||||||||||
Impairment of goodwill |
25 | | | 25 | ||||||||||||
Restructuring and other charges |
1,195 | (981 | ) | | 214 | |||||||||||
Interest expense |
498 | (25 | ) | | 473 | |||||||||||
Other expenses (income), net |
2 | (30 | ) | | (28 | ) | ||||||||||
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Total costs and expenses |
22,286 | (10,056 | ) | (24 | ) | 12,206 | ||||||||||
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Income (loss) before income taxes |
248 | (65 | ) | 24 | 207 | |||||||||||
Provision for income taxes |
445 | (106 | ) | | 339 | |||||||||||
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Net (loss) income |
(197 | ) | 41 | 24 | (132 | ) | ||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
125 | (124 | ) | | 1 | |||||||||||
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Net (Loss) Income Attributable to Arconic |
$ | (322 | ) | $ | 165 | $ | 24 | $ | (133 | ) | ||||||
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Amounts Attributable to Arconic Common Shareholders: |
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Net (loss) income |
$ | (391 | ) | $ | (202 | ) | ||||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | (0.93 | ) | $ | (0.48 | ) | ||||||||||
Diluted |
$ | (0.93 | ) | $ | (0.48 | ) | ||||||||||
Average number of shares: |
||||||||||||||||
Basic |
419.6 | 419.6 | ||||||||||||||
Diluted |
419.6 | 419.6 |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
4
Arconic Inc.
Unaudited Pro Forma Condensed Statement of Consolidated Operations
For the year ended December 31, 2014
(in millions, except per share amounts)
Historical | Separation of Alcoa Corporation (1) |
Pro forma Adjustments |
Pro forma for the Separation |
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Sales |
$ | 23,906 | $ | (11,364 | ) | $ | | $ | 12,542 | |||||||
Cost of goods sold (exclusive of expenses below) |
19,137 | (8,788 | ) | | 10,349 | |||||||||||
Selling, general administrative, and other expenses |
995 | (225 | ) | | 770 | |||||||||||
Research and development expenses |
218 | (95 | ) | | 123 | |||||||||||
Provision for depreciation, depletion and amortization |
1,371 | (935 | ) | | 436 | |||||||||||
Restructuring and other charges |
1,168 | (854 | ) | | 314 | |||||||||||
Interest expense |
473 | (31 | ) | | 442 | |||||||||||
Other expenses (income), net |
47 | (52 | ) | | (5 | ) | ||||||||||
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Total costs and expenses |
23,409 | (10,980 | ) | | 12,429 | |||||||||||
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Income (loss) before income taxes |
497 | (384 | ) | | 113 | |||||||||||
Provision for income taxes |
320 | (146 | ) | | 174 | |||||||||||
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Net (loss) income |
177 | (238 | ) | | (61 | ) | ||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
(91 | ) | 91 | | 0 | |||||||||||
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Net (Loss) Income Attributable to Arconic |
$ | 268 | $ | (329 | ) | $ | | $ | (61 | ) | ||||||
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Amounts Attributable to Arconic Common Shareholders: |
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Net (loss) income |
$ | 247 | $ | (82 | ) | |||||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.64 | $ | (0.21 | ) | |||||||||||
Diluted |
$ | 0.63 | $ | (0.21 | ) | |||||||||||
Average number of shares: |
||||||||||||||||
Basic |
387.2 | 387.2 | ||||||||||||||
Diluted |
393.4 | 387.2 |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
5
Arconic Inc.
Unaudited Pro Forma Condensed Statement of Consolidated Operations
For the year ended December 31, 2013
(in millions, except per share amounts)
Historical | Separation of Alcoa Corporation (1) |
Pro forma Adjustments |
Pro forma for the Separation |
|||||||||||||
Sales |
$ | 23,032 | $ | (11,035 | ) | $ | | $ | 11,997 | |||||||
Cost of goods sold (exclusive of expenses below) |
19,286 | (9,504 | ) | | 9,782 | |||||||||||
Selling, general administrative, and other expenses |
1,008 | (252 | ) | | 756 | |||||||||||
Research and development expenses |
192 | (86 | ) | | 106 | |||||||||||
Provision for depreciation, depletion and amortization |
1,421 | (1,005 | ) | | 416 | |||||||||||
Impairment of goodwill |
1,731 | (1,731 | ) | | | |||||||||||
Restructuring and other charges |
782 | (696 | ) | | 86 | |||||||||||
Interest expense |
453 | (33 | ) | | 420 | |||||||||||
Other expenses (income), net |
(25 | ) | (15 | ) | | (40 | ) | |||||||||
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Total costs and expenses |
24,848 | (13,322 | ) | | 11,526 | |||||||||||
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Income (loss) before income taxes |
(1,816 | ) | 2,287 | | 471 | |||||||||||
Provision for income taxes |
428 | 103 | | 531 | ||||||||||||
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Net (loss) income |
(2,244 | ) | 2,184 | | (60 | ) | ||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
41 | (38 | ) | | 3 | |||||||||||
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Net (Loss) Income Attributable to Arconic |
$ | (2,285 | ) | $ | 2,222 | $ | | $ | (63 | ) | ||||||
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Amounts Attributable to Arconic Common Shareholders: |
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Net (loss) income |
$ | (2,287 | ) | $ | (65 | ) | ||||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | (6.41 | ) | $ | (0.18 | ) | ||||||||||
Diluted |
$ | (6.41 | ) | $ | (0.18 | ) | ||||||||||
Average number of shares: |
||||||||||||||||
Basic |
356.5 | 356.5 | ||||||||||||||
Diluted |
356.5 | 356.5 |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
6
Arconic Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2016
(in millions)
Separation of | Pro forma | Pro forma for | ||||||||||||||
Historical | Alcoa Corporation (1) | Adjustments | the Separation | |||||||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 1,929 | $ | (332 | ) | $ | 1,100 | (4) | $ | 2,697 | ||||||
Receivables from customers, less allowances |
1,595 | (426 | ) | | 1,169 | |||||||||||
Other receivables |
494 | (185 | ) | | 309 | |||||||||||
Inventories |
3,438 | (1,149 | ) | | 2,289 | |||||||||||
Prepaid expenses and other current assets |
637 | (281 | ) | | 356 | |||||||||||
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Total current assets |
8,093 | (2,373 | ) | 1,100 | 6,820 | |||||||||||
Properties, plants and equipment, net |
15,017 | (9,569 | ) | | 5,448 | |||||||||||
Goodwill |
5,396 | (155 | ) | | 5,241 | |||||||||||
Investments |
1,466 | (1,376 | ) | 840 | (5) | 930 | ||||||||||
Deferred income taxes |
2,752 | (1,399 | ) | (96 | )(6) | 1,257 | ||||||||||
Other noncurrent assets |
3,415 | (2,199 | ) | | 1,216 | |||||||||||
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Total assets |
$ | 36,139 | $ | (17,071 | ) | $ | 1,844 | $ | 20,912 | |||||||
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LIABILITIES |
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Current liabilities: |
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Short-term borrowings |
$ | 33 | $ | 0 | $ | | $ | 33 | ||||||||
Accounts payable, trade |
2,665 | (1,276 | ) | | 1,389 | |||||||||||
Accrued compensation and retirement costs |
810 | (427 | ) | | 383 | |||||||||||
Taxes, including income taxes |
206 | (64 | ) | | 142 | |||||||||||
Other current liabilities |
1,000 | (484 | ) | 110 | (7) | 626 | ||||||||||
Long-term debt due within one year |
774 | (21 | ) | | 753 | |||||||||||
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Total current liabilities |
5,488 | (2,272 | ) | 110 | 3,326 | |||||||||||
Long-term debt, less amount due within one year |
8,278 | (233 | ) | | 8,045 | |||||||||||
Accrued pension benefits |
3,122 | (1,261 | ) | 342 | (8) | 2,203 | ||||||||||
Accrued other postretirement benefits |
2,070 | (1,159 | ) | 56 | (8) | 967 | ||||||||||
Other noncurrent liabilities and deferred credits |
2,652 | (1,741 | ) | | 911 | |||||||||||
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Total liabilities |
21,610 | (6,666 | ) | 508 | 15,452 | |||||||||||
EQUITY |
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Total Arconic shareholders equity |
12,335 | (8,225 | ) | 1,336 | 5,446 | |||||||||||
Noncontrolling interests |
2,194 | (2,180 | ) | | 14 | |||||||||||
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Total equity |
14,529 | (10,405 | ) | 1,336 | 5,460 | |||||||||||
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Total liabilities and equity |
$ | 36,139 | $ | (17,071 | ) | $ | 1,844 | $ | 20,912 | |||||||
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See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
7
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) | Reflects amounts representing the revenues, expenses, assets, liabilities and equity attributable to Alcoa Corporation, which were included in the Companys historical financial statements. In addition to amounts included in the Companys Alumina and Primary Products segments, its rolling mill at the Warrick, Indiana, operations and its 25.1% stake in the rolling mill at the joint venture in Saudi Arabia (collectively, the Alcoa Corporation businesses), the Separation of Alcoa Corporation amounts include certain assets and liabilities related to Alcoa Corporation that were previously reported in the Companys unallocated corporate amounts, including the transfer of certain defined benefit pension and other postretirement benefit plan liabilities that have been assumed by Alcoa Corporation in connection with the Separation. Corporate expenses that were not specifically related to Alcoa Corporation businesses have been excluded, as such general corporate expenses do not meet the requirements to be presented in discontinued operations. |
2) | Reflects the removal of non-recurring costs of $63 and $24 recorded in Selling, general administrative and other expenses for the six months ended June 30, 2016, and for the year ended December 31, 2015, respectively, related to the Separation. These costs primarily related to financial advisory, legal, tax, accounting and other professional services. |
3) | Represents an increase in the income tax provision associated with the tax effects of the pro forma adjustment described in item 2) above. |
4) | Reflects the cash distribution by Alcoa Corporation to Arconic of approximately $1,100 in connection with the Separation. On September 27, 2016, a subsidiary of Alcoa Corporation completed an offering of $750 aggregate principal amount of 6.75% senior notes due 2024 and $500 aggregate principal amount of 7.00% senior notes due 2026 (together the Notes). The net proceeds from the issuance of the Notes totaled $1,228, which Alcoa Corporation used to make a payment to Arconic on October 31, 2016, relating to the Separation, and for its general corporate purposes. The Notes are guaranteed on a senior unsecured basis by Alcoa Corporation and are not an obligation of Arconic post-Separation. |
The pro forma adjustment also reflects the establishment of the target cash amount of Alcoa Corporation as contemplated by the Separation and Distribution Agreement.
5) | Reflects the retention by Arconic of 19.9% of the outstanding common stock of Alcoa Corporation, recorded at its estimated fair value as of the date of the Separation. |
6) | As a direct result of the Separation, Arconic anticipates recording a valuation allowance associated with certain of its deferred tax assets. In addition, the re-measurement of liabilities associated with certain of Arconics defined benefit pension and other postretirement benefit plans, described in item 8) below, resulted in approximately $140 of additional deferred tax assets. |
7) | Subsequent to June 30, 2016, Arconic incurred additional one-time separation costs of approximately $110 through the Separation date. These costs primarily related to non-recurring professional fees associated with regulatory filings and separation activities within finance, legal and information systems functions. |
8) | Reflects the re-measurement of liabilities associated with certain of Arconics defined benefit pension and other postretirement benefit plans that were separated as of August 1, 2016, in connection with the Separation. |
8