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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, 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 April 29, 2022, 184,448,686 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

 

23

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

Item 4.

Controls and Procedures

 

37

 

 

 

 

PART II – OTHER INFORMATION

 

38

 

 

 

 

Item 1.

Legal Proceedings

 

38

 

 

 

 

Item 1A.

Risk Factors

 

38

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

Item 6.

Exhibits

 

40

 

 

 

 

SIGNATURES

 

41

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 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)

 

 

 

First quarter ended

March 31,

 

 

 

2022

 

 

2021

 

Sales (E)

 

$

3,293

 

 

$

2,870

 

Cost of goods sold (exclusive of expenses below)

 

 

2,181

 

 

 

2,292

 

Selling, general administrative, and other expenses

 

 

44

 

 

 

52

 

Research and development expenses

 

 

9

 

 

 

7

 

Provision for depreciation, depletion, and amortization

 

 

160

 

 

 

182

 

Restructuring and other charges, net (D)

 

 

125

 

 

 

7

 

Interest expense

 

 

25

 

 

 

42

 

Other income, net (P)

 

 

(14

)

 

 

(24

)

Total costs and expenses

 

 

2,530

 

 

 

2,558

 

Income before income taxes

 

 

763

 

 

 

312

 

Provision for income taxes

 

 

210

 

 

 

93

 

Net income

 

 

553

 

 

 

219

 

Less: Net income attributable to noncontrolling interest

 

 

84

 

 

 

44

 

NET INCOME ATTRIBUTABLE TO ALCOA

   CORPORATION

 

$

469

 

 

$

175

 

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA

   CORPORATION COMMON SHAREHOLDERS (F):

 

 

 

 

 

 

 

 

Basic

 

$

2.54

 

 

$

0.94

 

Diluted

 

$

2.49

 

 

$

0.93

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

469

 

 

$

175

 

 

$

84

 

 

$

44

 

 

$

553

 

 

$

219

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrecognized net actuarial loss and

   prior service cost/benefit related to pension

   and other postretirement benefits

 

 

22

 

 

 

131

 

 

 

1

 

 

 

1

 

 

 

23

 

 

 

132

 

Foreign currency translation adjustments

 

 

326

 

 

 

(176

)

 

 

98

 

 

 

(60

)

 

 

424

 

 

 

(236

)

Net change in unrecognized gains/losses on cash

   flow hedges

 

 

(830

)

 

 

(204

)

 

 

1

 

 

 

(3

)

 

 

(829

)

 

 

(207

)

Total Other comprehensive (loss) income, net of tax

 

 

(482

)

 

 

(249

)

 

 

100

 

 

 

(62

)

 

 

(382

)

 

 

(311

)

Comprehensive (loss) income

 

$

(13

)

 

$

(74

)

 

$

184

 

 

$

(18

)

 

$

171

 

 

$

(92

)

 

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,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (L)

 

$

1,554

 

 

$

1,814

 

Receivables from customers

 

 

952

 

 

 

757

 

Other receivables

 

 

98

 

 

 

127

 

Inventories (I)

 

 

2,495

 

 

 

1,956

 

Fair value of derivative instruments (L)

 

 

64

 

 

 

14

 

Prepaid expenses and other current assets

 

 

435

 

 

 

358

 

Total current assets

 

 

5,598

 

 

 

5,026

 

Properties, plants, and equipment

 

 

20,445

 

 

 

19,753

 

Less: accumulated depreciation, depletion, and amortization

 

 

13,621

 

 

 

13,130

 

Properties, plants, and equipment, net

 

 

6,824

 

 

 

6,623

 

Investments (H)

 

 

1,224

 

 

 

1,199

 

Deferred income taxes

 

 

667

 

 

 

506

 

Fair value of derivative instruments (L)

 

 

20

 

 

 

7

 

Other noncurrent assets

 

 

1,655

 

 

 

1,664

 

Total assets

 

$

15,988

 

 

$

15,025

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

1,645

 

 

$

1,674

 

Accrued compensation and retirement costs

 

 

357

 

 

 

383

 

Taxes, including income taxes

 

 

358

 

 

 

374

 

Fair value of derivative instruments (L)

 

 

514

 

 

 

274

 

Other current liabilities

 

 

591

 

 

 

517

 

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

 

 

1

 

 

 

1

 

Total current liabilities

 

 

3,466

 

 

 

3,223

 

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

 

 

1,727

 

 

 

1,726

 

Accrued pension benefits (K)

 

 

407

 

 

 

417

 

Accrued other postretirement benefits (K)

 

 

642

 

 

 

650

 

Asset retirement obligations

 

 

637

 

 

 

622

 

Environmental remediation (O)

 

 

264

 

 

 

265

 

Fair value of derivative instruments (L)

 

 

1,795

 

 

 

1,048

 

Noncurrent income taxes

 

 

192

 

 

 

191

 

Other noncurrent liabilities and deferred credits

 

 

601

 

 

 

599

 

Total liabilities

 

 

9,731

 

 

 

8,741

 

CONTINGENCIES AND COMMITMENTS (O)

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Alcoa Corporation shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

2

 

 

 

2

 

Additional capital

 

 

9,537

 

 

 

9,577

 

Retained earnings (deficit)

 

 

114

 

 

 

(315

)

Accumulated other comprehensive loss (G)

 

 

(5,074

)

 

 

(4,592

)

Total Alcoa Corporation shareholders’ equity

 

 

4,579

 

 

 

4,672

 

Noncontrolling interest

 

 

1,678

 

 

 

1,612

 

Total equity

 

 

6,257

 

 

 

6,284

 

Total liabilities and equity

 

$

15,988

 

 

$

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)

 

 

 

Three months ended March 31,

 

 

 

2022

 

 

2021

 

CASH FROM OPERATIONS

 

 

 

 

 

 

 

 

Net income

 

$

553

 

 

$

219

 

Adjustments to reconcile net income to cash from operations:

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

 

160

 

 

 

182

 

Deferred income taxes

 

 

(4

)

 

 

18

 

Equity earnings, net of dividends

 

 

(25

)

 

 

(11

)

Restructuring and other charges, net (D)

 

 

125

 

 

 

7

 

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

 

 

1

 

 

 

(27

)

Net periodic pension benefit cost (K)

 

 

14

 

 

 

12

 

Stock-based compensation

 

 

9

 

 

 

8

 

Other

 

 

22

 

 

 

(1

)

Changes in assets and liabilities, excluding effects of divestitures and

   foreign currency translation adjustments:

 

 

 

 

 

 

 

 

(Increase) in receivables

 

 

(120

)

 

 

(212

)

(Increase) in inventories

 

 

(479

)

 

 

(68

)

(Increase) Decrease in prepaid expenses and other current assets

 

 

(15

)

 

 

57

 

(Decrease) in accounts payable, trade

 

 

(81

)

 

 

(64

)

(Decrease) Increase in accrued expenses

 

 

(72

)

 

 

3

 

(Decrease) in taxes, including income taxes

 

 

(42

)

 

 

(1

)

Pension contributions (K)

 

 

(4

)

 

 

(63

)

Decrease (Increase) in noncurrent assets

 

 

29

 

 

 

(22

)

(Decrease) in noncurrent liabilities

 

 

(37

)

 

 

(31

)

CASH PROVIDED FROM OPERATIONS

 

 

34

 

 

 

6

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to debt (original maturities greater than three months)

 

 

 

 

 

495

 

Proceeds from the exercise of employee stock options

 

 

21

 

 

 

4

 

Repurchase of common stock

 

 

(75

)

 

 

 

Dividends paid on Alcoa common stock

 

 

(18

)

 

 

 

Payments related to tax withholding on stock-based compensation awards

 

 

(19

)

 

 

(1

)

Financial contributions for the divestiture of businesses (D)

 

 

(3

)

 

 

(6

)

Contributions from noncontrolling interest

 

 

46

 

 

 

 

Distributions to noncontrolling interest

 

 

(162

)

 

 

(62

)

Other

 

 

1

 

 

 

(2

)

CASH (USED FOR) PROVIDED FROM FINANCING ACTIVITIES

 

 

(209

)

 

 

428

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(74

)

 

 

(75

)

Proceeds from the sale of assets

 

 

2

 

 

 

591

 

Additions to investments

 

 

(21

)

 

 

(2

)

CASH (USED FOR) PROVIDED FROM INVESTING ACTIVITIES

 

 

(93

)

 

 

514

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH

   EQUIVALENTS AND RESTRICTED CASH

 

 

9

 

 

 

(11

)

Net change in cash and cash equivalents and restricted cash

 

 

(259

)

 

 

937

 

Cash and cash equivalents and restricted cash at beginning of year

 

 

1,924

 

 

 

1,610

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT

   END OF PERIOD

 

$

1,665

 

 

$

2,547

 

 

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

(deficit)

 

 

Accumulated

other

comprehensive

loss

 

 

Non-

controlling

interest

 

 

Total

equity

 

Balance at January 1, 2021

 

$

2

 

 

$

9,663

 

 

$

(725

)

 

$

(5,629

)

 

$

1,705

 

 

$

5,016

 

Net income

 

 

 

 

 

 

 

 

175

 

 

 

 

 

 

44

 

 

 

219

 

Other comprehensive loss (G)

 

 

 

 

 

 

 

 

 

 

 

(249

)

 

 

(62

)

 

 

(311

)

Stock-based compensation

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Common stock issued: compensation

   plans

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62

)

 

 

(62

)

Other

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Balance at March 31, 2021

 

$

2

 

 

$

9,674

 

 

$

(550

)

 

$

(5,878

)

 

$

1,625

 

 

$

4,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

$

2

 

 

$

9,577

 

 

$

(315

)

 

$

(4,592

)

 

$

1,612

 

 

$

6,284

 

Net income

 

 

 

 

 

 

 

 

469

 

 

 

 

 

 

84

 

 

 

553

 

Other comprehensive (loss) income (G)

 

 

 

 

 

 

 

 

 

 

 

(482

)

 

 

100

 

 

 

(382

)

Stock-based compensation

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Common stock issued: compensation

   plans

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Repurchase of common stock

 

 

 

 

 

(54

)

 

 

(21

)

 

 

 

 

 

 

 

 

(75

)

Dividends paid on Alcoa common stock ($0.10 per share)

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

(19

)

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46

 

 

 

46

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

(162

)

Other

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

(2

)

 

 

1

 

Balance at March 31, 2022

 

$

2

 

 

$

9,537

 

 

$

114

 

 

$

(5,074

)

 

$

1,678

 

 

$

6,257

 

 

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, Alcoa, 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 2021 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, 2021, which includes disclosures required by GAAP.

In accordance with GAAP, certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Management uses historical experience and all available information to make these estimates. Management regularly evaluates the judgments and assumptions used in its estimates, and results could differ from those estimates upon future events and their effects or new information.

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 using 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, portions of the São Luís refinery, and investment in Mineração Rio do Norte S.A (MRN), all in Brazil) and the Portland smelter in Australia within Alcoa Corporation’s Aluminum segment. Alcoa Corporation and Alumina Limited ultimately own 60% and 40%, respectively, of the AWAC individual entities, which are consolidated by the Company for financial reporting purposes and include Alcoa of Australia Limited (AofA), 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

Management considers the applicability and impact of all Accounting Standards Updates (ASUs). Management assessed ASUs not disclosed and determined that they were either not applicable or are not expected to have a material impact on the Company's Consolidated Financial Statements.

Issued

In March 2020 and January 2021, the Financial Accounting Standards Board issued ASU No. 2020-04 and ASU No. 2021-01, respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company is working to transition from LIBOR to alternative reference rates. Management has identified a total company inventory of affected financial instruments and contracts, has taken action to transition certain legacy contracts linked to LIBOR to alternative reference rates, and intends to utilize alternative reference rates for new contracts in 2022. The transition from LIBOR is not expected to have a material impact on Alcoa.

6


 

C. Divestitures

Warrick Rolling Mill

On March 31, 2021, Alcoa completed the sale of its rolling mill located at Warrick Operations (Warrick Rolling Mill), an integrated aluminum manufacturing site near Evansville, Indiana (Warrick Operations), to Kaiser Aluminum Corporation (Kaiser) for total consideration of approximately $670, which included the assumption of $69 in other postretirement benefit liabilities. The Company recorded a net gain of $30 in Other income, net (pre- and after-tax, see Note P) on the Statement of Consolidated Operations, $27 of which was recorded in the first quarter of 2021. Upon the closing of the transaction, the Company recorded estimated liabilities for future site separation commitments and remaining transaction costs associated with the sales agreement. At December 31, 2021, the remaining reserve was approximately $70. Over half of the expected cash outlay is to be spent in 2022, with the remainder to be spent through 2023. In the first quarter of 2022, the Company spent $2 against the reserve.

In connection with the transaction, Alcoa and Kaiser entered into a market-based metal supply agreement and a ground lease agreement for the Warrick Rolling Mill property, which Alcoa continues to own. Approximately 1,150 employees at Warrick Rolling Mill, which includes the casthouse, hot mill, cold mills, and coating and slitting lines, became employees of Kaiser as a result of the transaction. Alcoa continues to own and operate the site’s 269,000 metric ton per year aluminum smelter and the power plant, which together employ approximately 670 people. The remaining Warrick Operations site results are included within the Aluminum segment.

D. Restructuring and Other Charges, Net – In the first quarter of 2022, Alcoa Corporation recorded Restructuring and other charges, net, of $125 which were comprised of:

 

A charge of $77 for the offer made to the workers of the divested Avilés and La Coruña facilities to settle various legal disputes related to the 2019 divestiture (see Note O);

 

A charge of $58 for an asset impairment related to the sale of the Company’s interest in MRN (see Note H); and

 

A net reversal of $9 for changes in estimated take-or-pay contract costs at the closed Wenatchee (Washington) smelter and the curtailed Intalco (Washington) smelter.

In the first quarter of 2021, Alcoa Corporation recorded Restructuring and other charges, net, of $7 which were comprised of:

 

A net charge of $9 related to the settlement and curtailment of certain other postretirement benefits resulting from the sale of the Warrick Rolling Mill;

 

A charge of $6 for additional take-or-pay contract costs related to the curtailed Wenatchee and Intalco smelters;

 

A reversal of $12 due to lower costs for demolition and remediation related to previously established reserves (see Note O); and,

 

A net charge of $4 for several other insignificant items.

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,

 

 

 

2022

 

 

2021

 

Bauxite

 

$

58

 

 

$

 

Alumina

 

 

 

 

 

 

Aluminum

 

 

68

 

 

 

15

 

Segment total

 

 

126

 

 

 

15

 

Corporate

 

 

(1

)

 

 

(8

)

Total Restructuring and other charges, net

 

$

125

 

 

$

7

 

7


 

Activity and reserve balances for restructuring charges were as follows:

 

 

 

Severance

and

employee

termination

costs

 

 

Other

costs

 

 

Total

 

Balance at December 31, 2020

 

$

6

 

 

$

57

 

 

$

63

 

Restructuring and other charges, net

 

 

1

 

 

 

80

 

 

 

81

 

Cash payments

 

 

(4

)

 

 

(25

)

 

 

(29

)

Reversals and other

 

 

 

 

 

(22

)

 

 

(22

)

Balance at December 31, 2021

 

 

3

 

 

 

90

 

 

 

93

 

Restructuring and other charges, net

 

 

 

 

 

68

 

 

 

68

 

Cash payments

 

 

(1

)

 

 

(4

)

 

 

(5

)

Balance at March 31, 2022

 

$

2

 

 

$

154

 

 

$

156

 

The activity and reserve balances include only Restructuring and other charges, net that impact the reserves for Severance and employee termination costs and Other costs. Restructuring and other charges, net that affected other liability accounts such as environmental obligations (see Note O) and Investments (see Note H) are excluded from the above activity and balances. Reversals and other includes reversals of previously recorded liabilities and foreign currency translation impacts.

The noncurrent portion of the reserve was $36 and $43 at March 31, 2022 and December 31, 2021, respectively.

E. Segment Information – Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company has three operating and reportable segments, which are organized by product on a global basis: Bauxite, Alumina, and Aluminum. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) of each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses. Alcoa Corporation believes that the presentation of Adjusted EBITDA is useful to investors because such measure provides both additional information about the operating performance of Alcoa Corporation and insight on the ability of Alcoa Corporation to meet its financial obligations. The presentation of Adjusted EBITDA is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP. Alcoa Corporation’s Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The chief operating decision maker function regularly reviews the financial information, including Sales and Adjusted EBITDA, of these three operating segments to assess performance and allocate resources.

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, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third-party sales

 

$

43

 

 

$

855

 

 

$

2,388

 

 

$

3,286

 

Intersegment sales

 

 

170

 

 

 

418

 

 

 

7

 

 

 

595

 

Total sales

 

$

213

 

 

$

1,273

 

 

$

2,395

 

 

$

3,881

 

Segment Adjusted EBITDA

 

$

38

 

 

$

262

 

 

$

713

 

 

$

1,013

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

$

35

 

 

$

50

 

 

$

69

 

 

$

154

 

Equity income

 

$

 

 

$

1

 

 

$

39

 

 

$

40

 

First quarter ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third-party sales

 

$

58

 

 

$

760

 

 

$

2,047

 

 

$

2,865

 

Intersegment sales

 

 

185

 

 

 

364

 

 

 

2

 

 

$

551

 

Total sales

 

$

243

 

 

$

1,124

 

 

$

2,049

 

 

$

3,416

 

Segment Adjusted EBITDA

 

$

59

 

 

$

227

 

 

$

283