Arconic Reports Fourth Quarter 2022 and Full Year 2022 Results

Sales

Cost of goods sold (exclusive of expenses below)⁽¹⁾

Selling, general administrative, and other expenses⁽¹⁾

Research and development expenses

Provision for depreciation and amortization

Impairment of goodwill⁽²⁾

Restructuring and other charges⁽³⁾

Operating (loss) income

Interest expense

Other expenses, net⁽⁴⁾

Loss before income taxes

(Benefit) Provision for income taxes

Net loss

Less: Net income attributable to noncontrolling interest

NET LOSS ATTRIBUTABLE TO ARCONIC

CORPORATION

EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC

CORPORATION COMMON STOCKHOLDERS:

Basic:

Net loss

Weighted-average number of shares

Diluted:

Net loss

Weighted-average number of shares⁽⁵⁾

COMMON STOCK OUTSTANDING AT THE END OF THE

PERIOD

In the quarter ended December 31, 2022, Arconic recorded both a $61 charge and a $53 benefit in Cost of goods sold to establish a liability for a potential settlement and a receivable for an anticipated insurance reimbursement, respectively, related to a litigation matter. Additionally, in the quarter ended December 31, 2022, the Company recognized a $12 benefit in Selling, general administrative, and other expenses to establish a receivable for an expected insurance reimbursement of legal fees related to a litigation matter. See footnote 2 to the Consolidated Balance Sheet included in this release.

In the quarter ended December 31, 2021, Arconic completed its annual review of goodwill for impairment for each of its three reporting units: Rolled Products, Building and Construction Systems, and Extrusions. The results of this review indicated that the carrying value of the Extrusions reporting unit’s goodwill was fully impaired. Accordingly, in the quarter ended December 31, 2021, the Company recognized an impairment charge of $65. This impairment was primarily driven by a combination of market-based factors, including delays in aerospace market improvement and significant cost inflation, resulting in increasingly limited margin expansion. The Company had not previously identified any triggering events during 2021 prior to the annual review.

On November 15, 2022, Arconic completed the sale of 100% of its operations in Russia to Promishlennie Investitsii LLC, the majority owner of VSMPO-AVISMA Corporation, for cash proceeds of $230. The transaction closed after the Company received all required approvals, resulting in the receipt of the cash consideration in exchange for all of Arconic’s net assets in Russia. These net assets included $203 of cash held in Russia that was not available for distribution to the parent company because of injunctions imposed as a result of litigation initiated in March 2020 by the Federal Antimonopoly Service of The Russian Federation (“FAS”). The Company recorded a loss of $306 ($304 after-tax) in connection with this transaction. At a hearing on December 22, 2022, the Samara Court dismissed the litigation.

In the quarter ended September 30, 2022, the Company updated its five-year strategic plan, the results of which indicated that there was a decline in the forecasted financial performance for the Extrusions segment (and asset group). As such, management evaluated the recoverability of the long-lived assets of the Extrusions asset group and, ultimately, determined that such assets were impaired. Accordingly, in the quarter ended September 30, 2022, the Company recorded an impairment charge of $92, composed of $90 for Properties, plants, and equipment and $2 for intangible assets.

Also, in the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021, Restructuring and other charges includes $31, $15, and $11, respectively, related to the settlement of a portion of the Company’s U.S. defined benefit pension plan obligations as a result of elections by certain plan participants to receive lump-sum benefit payments.

In the quarter ended September 30, 2022, Other expenses, net includes an $11 loss for the remeasurement of monetary balances, primarily cash, related to the Company’s former operations in Russia (see Note 3) from rubles to the U.S. dollar. This loss was the result of a significant weakening of the Russian ruble against the U.S. dollar in the period.

For periods in which the Company generates net income, the diluted weighted-average number of shares include common share equivalents associated with outstanding employee stock awards. For periods in which the Company generates a net loss, the diluted weighted-average number of shares does not include any common share equivalents as their effect is anti-dilutive.

Sales

Cost of goods sold (exclusive of expenses below)⁽¹⁾

Selling, general administrative, and other expenses⁽¹⁾

Research and development expenses

Provision for depreciation and amortization

Impairment of goodwill⁽²⁾

Restructuring and other charges⁽³⁾

Operating loss

Interest expense

Other expenses, net⁽⁴⁾

Loss before income taxes

Benefit for income taxes

Net loss

Less: Net income attributable to noncontrolling interest

NET LOSS ATTRIBUTABLE TO ARCONIC CORPORATION

EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC

CORPORATION COMMON SHAREHOLDERS:

Basic:

Net loss

Weighted-average number of shares

Diluted:

Net loss

Weighted-average number of shares⁽⁵⁾

COMMON STOCK OUTSTANDING AT THE END OF THE PERIOD

In the quarter ended December 31, 2022, Arconic recorded both a $61 charge and a $53 benefit in Cost of goods sold to establish a liability for a potential settlement and a receivable for an anticipated insurance reimbursement, respectively, related to a litigation matter. Additionally, in the quarter ended December 31, 2022, the Company recognized a $12 benefit in Selling, general administrative, and other expenses to establish a receivable for an expected insurance reimbursement of legal fees related to a litigation matter. See footnote 2 to the Consolidated Balance Sheet included in this release.

In the quarter ended December 31, 2021, Arconic completed its annual review of goodwill for impairment for each of its three reporting units: Rolled Products, Building and Construction Systems, and Extrusions. The results of this review indicated that the carrying value of the Extrusions reporting unit’s goodwill was fully impaired. Accordingly, in the quarter ended December 31, 2021, the Company recognized an impairment charge of $65. This impairment was primarily driven by a combination of market-based factors, including delays in aerospace market improvement and significant cost inflation, resulting in increasingly limited margin expansion. The Company had not previously identified any triggering events during 2021 prior to the annual review.

In the year ended December 31, 2022, Restructuring and other charges includes a loss of $306 ($304 after-tax) related to the sale of the Company’s operations in Russia and an impairment charge of $92 related to a business review of Arconic’s Extrusions segment (see footnote 3 to the Statement of Consolidated Operations for the quarters ended December 31, 2022 and September 30, 2022 included in this release), as well as a charge of $46 related to the settlement of a portion of the Company’s U.S. defined benefit pension plan obligations as a result of elections by certain plan participants to receive lump-sum benefit payments. In the year ended December 31, 2021, Restructuring and other charges includes $584 related to the settlement of a portion of the Company’s U.S. defined benefit pension plan obligations as a result of the purchase of a group annuity contract ($549) and elections by certain plan participants to receive lump-sum benefit payments ($35).

In the year ended December 31, 2022, Other expenses, net includes a $39 gain for the remeasurement of monetary balances, primarily cash, related to the Company’s former operations in Russia (see Note 3) from rubles to the U.S. dollar. This gain was the result of a significant strengthening of the Russian ruble against the U.S. dollar in the period.

For periods in which the Company generates net income, the diluted weighted-average number of shares include common share equivalents associated with outstanding employee stock awards. For periods in which the Company generates a net loss, the diluted weighted-average number of shares does not include any common share equivalents as their effect is anti-dilutive.

ASSETS

Current assets:

Cash and cash equivalents

Receivables from customers, less allowances of

$1 in both 2022 and 2021

Other receivables

Inventories

Fair value of hedging instruments and derivatives

Prepaid expenses and other current assets⁽²⁾

Total current assets

Properties, plants, and equipment

Less: accumulated depreciation and amortization

Properties, plants, and equipment, net⁽³⁾

Operating lease right-of-use-assets

Deferred income taxes

Other noncurrent assets

Total assets

LIABILITIES

Current liabilities:

Accounts payable, trade

Accrued compensation and retirement costs

Taxes, including income taxes

Environmental remediation

Operating lease liabilities

Fair value of hedging instruments and derivatives

Other current liabilities⁽²⁾

Total current liabilities

Long-term debt

Accrued pension benefits

Accrued other postretirement benefits

Environmental remediation

Operating lease liabilities

Deferred income taxes

Other noncurrent liabilities

Total liabilities

EQUITY

Arconic Corporation stockholders’ equity:

Common stock

Additional capital

Accumulated deficit

Treasury stock⁽⁴⁾

Accumulated other comprehensive loss

Total Arconic Corporation stockholders’ equity

Noncontrolling interest

Total equity

Total liabilities and equity

OPERATING ACTIVITIES

Net loss

Adjustments to reconcile net loss to cash provided from operations:

Depreciation and amortization

Impairment of goodwill⁽¹⁾

Deferred income taxes

Restructuring and other charges⁽²⁾

Net periodic pension benefit cost

Stock-based compensation

Amortization of debt issuance costs

Other

Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:

(Increase) Decrease in receivables⁽³⁾

Decrease (Increase) in inventories

(Increase) Decrease in prepaid expenses and other current assets

Increase (Decrease) in accounts payable, trade

Increase (Decrease) in accrued expenses

(Decrease) Increase in taxes, including income taxes

Pension contributions

(Increase) Decrease in noncurrent assets

Increase in noncurrent liabilities

CASH PROVIDED FROM OPERATIONS

FINANCING ACTIVITIES

Net change in short term borrowings (original maturities of three months or less)⁽⁴⁾

Repurchases of common stock⁽⁵⁾

Other

CASH (USED FOR) PROVIDED FROM FINANCING ACTIVITIES

INVESTING ACTIVITIES

Capital expenditures

Proceeds from the sale of assets and businesses⁽⁶⁾

Other

CASH USED FOR INVESTING ACTIVITIES

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Net change in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period⁽⁷⁾

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD⁽⁷⁾

See footnote 2 to the Statement of Consolidated Operations for the quarter ended December 31, 2021 included in this release.

See footnote 3 to the Statement of Consolidated Operations for the quarterly periods presented included in this release.

In January 2022, the Company entered into a one-year arrangement with a financial institution to sell certain customer receivables outright without recourse on a continuous basis. All such sales are at Arconic's discretion. Under this arrangement, the Company serves in an administrative capacity, including collection of the receivables from the respective customers and remittance of these cash collections to the financial institution. Accordingly, upon the sale of customer receivables to the financial institution, Arconic removes the underlying trade receivables from the Consolidated Balance Sheet and includes the reduction as a positive amount in the (Increase) Decrease in receivables line item within Operating Activities on the Statement of Consolidated Cash Flows. In the quarters ended December 31, 2022 and September 30, 2022, the Company sold customer receivables of $156 and $413, respectively, and remitted cash to the financial institution of $314 and $380, respectively.

Arconic maintains a five-year credit agreement, dated May 13, 2020, with a syndicate of lenders named therein and Deutsche Bank AG New York Branch as administrative agent (the “ABL Credit Agreement”). The ABL Credit Agreement provides for a senior secured asset-based revolving credit facility (the “ABL Credit Facility”) to be used, generally, for working capital or other general corporate purposes. On February 16, 2022, the ABL Credit Agreement was amended to increase the revolving commitments under the ABL Credit Facility to $1,200 from $800. In the quarters ended December 31, 2022 and September 30, 2022, the Company borrowed $25 and $150, respectively, and repaid $175 and $50, respectively, under the ABL Credit Facility.

In the quarter ended December 31, 2022, the Company repurchased 2,071,835 shares of its common stock under a $200 program. In the quarters ended September 30, 2022 and December 31, 2021, the Company repurchased 3,033,663 and 1,803,800, respectively, shares of its common stock under a $300 program. See footnote 4 to the Consolidated Balance Sheet included in this release.

In the quarter ended December 31, 2022, the Company received $230 in cash proceeds related to the sale of its operations in Russia less $203 in cash held by its operations in Russia that was not available for distribution to the parent company because of injunctions imposed as a result of litigation initiated in March 2020. See footnote 3 to the Statement of Consolidated Operations for the quarter ended December 31, 2022 included in this release.

Cash and cash equivalents and restricted cash at beginning of period for all periods presented and Cash and cash equivalents and restricted cash at end of period for all periods presented includes Restricted cash of less than $0.03.

Total Segment Adjusted EBITDA⁽¹⁾

Unallocated amounts:

Corporate expenses⁽²⁾

Stock-based compensation expense

Metal price lag⁽³⁾

Unrealized losses on mark-to-market hedging instruments and derivatives

Provision for depreciation and amortization

Impairment of goodwill⁽⁴⁾

Restructuring and other charges⁽⁵⁾

Operating (loss) income

Interest expense

Other expenses, net⁽⁷⁾

Benefit (Provision) for income taxes

Adjusted EBITDA

Net loss attributable to Arconic Corporation

Add:

Net income attributable to noncontrolling interest

(Benefit) Provision for income taxes

Other expenses, net⁽¹⁾

Interest expense

Restructuring and other charges⁽²⁾

Impairment of goodwill⁽³⁾

Provision for depreciation and amortization

Stock-based compensation

Metal price lag⁽⁴⁾

Unrealized losses (gains) on mark-to-market hedging instruments and derivatives

Other special items⁽⁵⁾

Adjusted EBITDA

Sales

Adjusted EBITDA Margin

Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for the following items: Provision for depreciation and amortization; Stock-based compensation; Metal price lag (see footnote 4); Unrealized (gains) losses on mark-to-market hedging instruments and derivatives (see below); and Other special items. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Special items are composed of restructuring and other charges, discrete income tax items, and other items as deemed appropriate by management. There can be no assurances that additional special items will not occur in future periods. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Arconic’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Effective in the first quarter of 2022, management modified the Company’s definition of Adjusted EBITDA to exclude the impact of unrealized gains and losses on mark-to-market hedging instruments and derivatives. This modification was deemed appropriate as Arconic is considering entering into additional hedging instruments in future reporting periods if favorable conditions exist to mitigate cost inflation. Certain of these instruments may not qualify for hedge accounting resulting in unrealized gains and losses being recorded directly to Sales or Cost of goods sold, as appropriate (i.e., mark-to-market). Additionally, this change was also applied to derivatives that do not qualify for hedge accounting for consistency purposes. The Company does not have a regular practice of entering into contracts that are treated as derivatives for accounting purposes. Ultimately, this change was made to maintain the transparency and visibility of the underlying operating performance of Arconic. Prior to this change, the Company had a limited number of hedging instruments and derivatives that did not qualify for hedge accounting, the unrealized impact of which was not material to Arconic’s Adjusted EBITDA. Accordingly, periods prior to the effective date of this change were not recast to reflect this change.

Adjusted EBITDA

excluding Russia⁽¹⁾

Net (loss) income attributable to Arconic Corporation

Add:

Net income attributable to noncontrolling interest

(Benefit) Provision for income taxes

Other expenses (income), net

Interest expense

Impairment of goodwill⁽³⁾

Provision for depreciation and amortization

Stock-based compensation

Metal price lag⁽⁴⁾

Unrealized losses on mark-to-market hedging instruments and derivatives

Other special items⁽⁵⁾

Adjusted EBITDA

Sales

Adjusted EBITDA Margin

Adjusted EBITDA

excluding Russia⁽¹⁾

Net (loss) income attributable to Arconic Corporation

Add:

Net income attributable to noncontrolling interest

(Benefit) Provision for income taxes

Other expenses (income), net⁽⁶⁾

Interest expense

Restructuring and other charges⁽²⁾

Impairment of goodwill⁽³⁾

Provision for depreciation and amortization

Stock-based compensation

Metal price lag⁽⁴⁾

Unrealized gains on mark-to-market hedging instruments and derivatives

Other special items⁽⁵⁾

Adjusted EBITDA

Sales

Adjusted EBITDA Margin

Adjusted EBITDA⁽¹⁾

Change in working capital⁽²⁾

Cash payments for:

Environmental remediation

Pension contributions

Other postretirement benefits

Restructuring actions

Interest

Income taxes

Capital expenditures

Other⁽³⁾

Free Cash Flow⁽⁴⁾

Organic revenue is a non-GAAP financial measure. Management believes this measure is meaningful to investors as it presents revenue on a comparable basis for all periods presented due to the impact of divestitures, changes in aluminum prices and foreign currency fluctuations relative to the prior year period.