Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Arconic — Proxy Contest (March 2017)
93 slides from Howmet Aerospace's proxy contest presentation, Mar 27, 2017
Slide 1: Driving Value Through Focused Execution and Innovation
Driving Value Through Focused Execution and Innovation March 27, 2017
Slide 2: Important Information: Forward-Looking Statements
Important Information Forward-Looking Statements This presentation 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
Slide 3: Important Information (continued): Non-GAAP Financial Measures
Important Information (continued) Non-GAAP Financial Measures Some of the information included in this presentation is derived from Arconic’s consolidated financial information but is not presented in Arconic’s financial statements prepared in accordance with accounting principles generally accepted
Slide 4: Table of Contents
Table of Contents Executive Summary Chapter 1:Recently Reconstituted and Active Board of Directors Chapter 2:Strategic Transformation – Positioning Alcoa Corp. and Arconic for Success Chapter 3:Future of Arconic – Delivering Shareholder Value Chapter 4:Elliott Misrepresents and Misunderstands the Ar
Slide 5: Executive Summary
Executive Summary SD ARCONIC
Slide 6: The Right Board, Right Leadership and Right Strategy are in Place
The Right Board, Right Leadership and Right Strategy are in Place Arconic is a new company, with a new Board: majority of directors joined in the last 15 months Management has a track record of successfully executing on a transformative vision and consistently improving business performance amid a c
Slide 7: Arconic is a Leading Provider of Advanced, Multi-Material Solutions
Arconic is a Leading Provider of Advanced, Multi-Material Solutions Arconic is a global leader in lightweight metals and engineering Arconic’s operations consist of three worldwide reportable segments: Engineered Products and Solutions (EPS): Develops and manufacturers high performance products for
Slide 8: Arconic's Board Combines Institutional Knowledge with New Perspectives
Arconic’s Board Combines Institutional Knowledge with New Perspectives Arconic’s Board Experience (Previous Alcoa Inc.) Elliott Input (Feb-16) New Perspectives (Since Nov-16) Sean O. Mahoney Former Partner, Goldman, Sachs & Co. John C. Plant Former Chairman, President, & CEO, TRW Automotive Ulrich R
Slide 9: Management Executed Complex Transformation to Strengthen Businesses
Management Executed Complex Transformation to Strengthen Businesses Alcoa Inc. strategic transformation Executed separation 2015-Nov 1, 2016 Transformed the company 2010-2015 Saved the company 2008-2009 Increased cost competitiveness Lessened impact of commodity cycles Created highly profitable ener
Slide 10: Total Shareholder Return Since Separation
Source: Arconic, Arconic analysis of Capital IQ data (as of Mar 1, 2017) 1) Calculated based on closing prices. 2) Package value to Alcoa Inc. shareholders includes Alcoa Inc. total shareholder return through Oct 31, 2016. From Nov 1, 2016 through Mar 1, 2017, package value to the Alcoa Inc. shareho
Slide 11: Elliott Has Previously Recognized Our Focus on Shareholder Value Creation
“Elliott would like to commend the Board and management team for the significant steps taken to build a better Alcoa and maximize value for shareholders.” Elliott Has Previously Recognized Our Focus on Shareholder Value Creation Elliott’s prior position ― Elliott Presentation to Alcoa, Nov 9, 2015 S
Slide 12: Innovation and Share Gains Will Continue To Deliver Substantial Value
Innovation and Share Gains Will Continue To Deliver Substantial Value Three-year strategic plan Deliver Profitable Growth Optimize Returns Focused on creating long-term sustainable value for shareholders through innovation, execution discipline and operational excellence 1 2 Grow revenue above marke
Slide 13: The Board is Unanimous in Supporting Arconic's Strategy and Leadership
The Board is Unanimous in Supporting Arconic’s Strategy and Leadership Strategic review process and conclusions The Board unanimously concludes that Arconic has the right… Long-term strategy focused on high growth markets driven by innovation Financial plan focused on top- and bottom- line growth, p
Slide 14: Customers Endorse Arconic's Leadership and Strategic Direction
“What I particularly value is Klaus' deep understanding of the critical levers to support [Airbus’] goals. As CEO of Airbus, I fully support his continued leadership of Arconic.“ Customers Endorse Arconic’s Leadership and Strategic Direction Endorsements from valued Arconic customers(1) ― Tom Ender
Slide 15: Recently Reconstituted and Active Board of Directors
Chapter 1 Recently Reconstituted and Active Board of Directors
Slide 16: Arconic's Board Combines Institutional Knowledge with New Perspectives
Arconic’s Board Combines Institutional Knowledge with New Perspectives Arconic’s Board Experience (Previous Alcoa Inc.) Elliott Input (Feb-16) New Perspectives (Since Nov-16) Sean O. Mahoney Former Partner, Goldman, Sachs & Co. John C. Plant Former Chairman, President, & CEO, TRW Automotive Ulrich R
Slide 17: Board's Longer-Serving Directors Have Been Change Agents
Board’s Longer-Serving Directors Have Been Change Agents Track record of Board action Arthur D. Collins, Jr. E. Stanley O'Neal L. Rafael Reif Ratan N. Tata Patricia F. Russo Former CEO, Alcatel-Lucent Active Board Seats: Former Chairman and CEO, Merrill Lynch & Co. Active Board Seats: Platform Speci
Slide 18: Board Has Already Appointed Directors Nominated by Elliott in February 2016
Board Has Already Appointed Directors Nominated by Elliott in February 2016 Directors Previously Added at Elliott’s Suggestion John C. Plant Sean O. Mahoney Ulrich R. Schmidt Former Chairman, President, and CEO, TRW Automotive Active Board Seats: Masco Corporation Jabil Circuit Corporation Former Pa
Slide 19: Board Additions Include Directors with Relevant Experiences and Perspectives
Board Additions Include Directors with Relevant Experiences and Perspectives New Directors added since November 2016 Former SVP and CTO, SAIC Active Board Seats: Fannie Mae Former President, Pratt & Whitney Selected Prior Experience: EVP and CCO of United Technologies President of Hamilton Sundstran
Slide 20: The Board is Unanimous in Supporting Arconic's Strategy and Leadership
The Board is Unanimous in Supporting Arconic’s Strategy and Leadership Strategic review process and conclusions Review Process Conclusion The Board unanimously concludes that Arconic has the right… Long-term strategy focused on high growth markets driven by innovation Financial plan focused on top-
Slide 21: External Recognition of Board's Commitment to Good Governance
External Recognition of Board’s Commitment to Good Governance Endorsement from Corporate Governance Expert Professor Joseph A. Grundfest ― Joseph A. Grundfest, Professor of Law and Business at Stanford Law School, March 2017 "The Arconic Board has repeatedly demonstrated a clear commitment to good g
Slide 22: Strategic Transformation – Positioning Alcoa Corp. and Arconic for Success
Chapter 2 Strategic Transformation – Positioning Alcoa Corp. and Arconic for Success
Slide 23: Executed Complex Multi-Year Transformation to Strengthen Businesses
Executed Complex Multi-Year Transformation to Strengthen Businesses Alcoa Inc. strategic transformation Executed Separation 2015-Nov 1, 2016 Transformed the Company 2010-2015 Saved the Company 2008-2010 Increased cost competitiveness Lessened impact of commodity cycles Created highly profitable ener
Slide 24: Strengthened the Balance Sheet and Restored Liquidity
Strengthened the Balance Sheet and Restored Liquidity Launched a Comprehensive Cash Sustainability Program(4) Management and Board Took Decisive Actions to Survive the Financial Crisis in 2009 Alcoa Inc. and the global financial crisis – key facts and actions 2008 to 2009 Significant Financial Distr
Slide 25: Created Leading Upstream Business with Low-Cost, World-Class Assets
Created Leading Upstream Business with Low-Cost, World-Class Assets Results from Upstream transformation Sold, curtailed or closed 43% of smelting and 35% of refining high cost operating capacity Created new alumina global pricing mechanism Created highly profitable energy business Established third
Slide 26: Repositioned Downstream Business in High Growth and High Margin Markets
Repositioned Downstream Business in High Growth and High Margin Markets Results from Downstream transformation Downstream(1) Revenue Mix Transformed Aerospace and Defense Transportation Packaging Building & Construction Industrial & Other Products 6.9%(2) 16.6% Combined Segment EBITDA Margin Source:
Slide 27: Built EPS into a Leading Airframe and Aerospace Engine Component Supplier
Leadership Position Established Actions Taken Built EPS into a Leading Airframe and Aerospace Engine Component Supplier EPS results, EBITDA margin expansion and key actions ü Able to supply >90% of structural and rotating aero engine components ü ~70% of revenue from products with #1 or #2 market po
Slide 28: Converted GRP from Commodity to a High Margin Aero/Auto Supplier
Leadership Position Established Actions Taken Converted GRP from Commodity to a High Margin Aero/Auto Supplier GRP results, EBITDA margin expansion and key actions ü Differentiated position in sheet and plate ü ~85% of revenue from products with #1 or #2 market position(1) ü Signed $4B+ in aerospace
Slide 29: Constructed TCS with Best-in-Class Profitability Based on Innovative Products
Leadership Position Established Actions Taken Constructed TCS with Best-in-Class Profitability Based on Innovative Products TCS results, EBITDA margin expansion and key actions Top-of-mind brands including Alcoa® wheels(2), Kawneer® Architectural Systems, Reynobond®, Reynolux® Architectural Products
Slide 30: Continued Leadership in Safety and Commitment to Sustainability
DART(1) rate significantly below industry average, and reduced by 59% from 2008 to 2015 Safety integrated into Arconic’s values and day-to-day operations Continued Leadership in Safety and Commitment to Sustainability Safety and sustainability statistics Focus on Safety Alcoa Inc. Greenhouse Gas Emi
Slide 31: Management is Dedicated to Employee Engagement and Talent Development
Management is Dedicated to Employee Engagement and Talent Development Employee engagement, talent development and key awards Our Employees are Key to Our Success Alcoa Inc. Global Voices Survey(1) % Overall Employee Engagement Company ranked #1 “Most Admired Metals Company” for the past 6 years Fort
Slide 32: Management Executed a Highly Complex Separation On Time and On Budget
Management Executed a Highly Complex Separation On Time and On Budget Cornerstones of the separation Established Prudent Capital Structure Created prudent capital structures for both entities to optimize financing opportunities Carried substantially more debt initially at Arconic given constrained d
Slide 33: Separation is Driving Initial Shareholder Returns
Separation launched two strong companies Established demanding new 3-year targets Delivered operating and financial results All segments increased margins in FY16 Generated ~$890M of cash from partial monetization of Alcoa Corp. shares Decoupling share price from aluminum price Correlation between A
Slide 34: Future of Arconic – Delivering Shareholder Value
Chapter 3 Future of Arconic – Delivering Shareholder Value
Slide 35: Arconic's Strategic Plan Creates Value for Shareholders
Arconic’s Strategic Plan Creates Value for Shareholders Key strategic advantages Management built Arconic’s world-class portfolio over eight years – has critical knowledge of business and customers Management’s track record of execution has positioned Arconic for future outperformance – team grew EB
Slide 36: Arconic has a World-Class Portfolio Positioned for Profitable Growth
Arconic has a World-Class Portfolio Positioned for Profitable Growth Overview of Arconic’s three segments Focus on high growth, innovation-intensive markets Significant revenue from products with #1 or #2 market position(1) Proven ability to execute EBITDA margin growth(2) Engineered Products and So
Slide 37: Innovation and Share Gains Will Continue To Deliver Substantial Value
Innovation and Share Gains Will Continue To Deliver Substantial Value Three-year strategic plan Deliver Profitable Growth Optimize Returns Focused on creating long-term sustainable value for shareholders through innovation, execution discipline and operational excellence 1 2 Grow revenue above marke
Slide 38: Arconic is Focused on Attractive Markets With Multi-Year Tailwinds
Arconic is Focused on Attractive Markets With Multi-Year Tailwinds Arconic 2016 revenue by end-market(1) 1 Commercial Aero Engines Commercial Airframes Defense Aero (2) Commercial Transportation Industrial & Other Products Building and Construction Packaging Source: Arconic 2016 third party revenue
Slide 39: Our Content Flies from Nose to Tail on All Major Aero Platforms
Our Content Flies from Nose to Tail on All Major Aero Platforms Participation and achievements in commercial airframes 1 Achievements / Outlook 39% of sales Source: Arconic 1) CFRP is Carbon Fiber Reinforced Polymer. 2) Revenue figures for 2016. 3) Based on Arconic assessed shipset values for 2016.
Slide 40: We Can Supply Over 90% of Engine Structural and Rotating Components
We Can Supply Over 90% of Engine Structural and Rotating Components Participation and achievements in aerospace engines 1 15% of sales Achievements / Outlook Arconic Participation Source: Arconic Based on Arconic assessed shipset values for 2016. 2008 Engine Content Current Engine Content Current Ar
Slide 41: We are Enabling the Aluminization of the Automotive Industry
We are Enabling the Aluminization of the Automotive Industry Participation and achievements in automotive parts 1 11% of sales Achievements / Outlook Arconic Participation +77 +63 Aluminum pounds per vehicle(1) Arconic Auto Sheet Revenue ($M) 26% CAGR 2018E 2010 2015 Next Generation Alloys Current c
Slide 42: We have an Unmatched Market Position in Commercial Transportation
We have an Unmatched Market Position in Commercial Transportation Participation and achievements in commercial transportation parts 1 10% of sales Achievements / Outlook Next Generation Alloys Current content Wheels: ~95% of revenue(1) driven by proprietary products; ~45% of revenue(1) from products
Slide 43: Unparalleled Expertise in Innovation will Drive Our Growth in Aerospace
~60% of EPS revenue(3) from single or dual source products - critical for success in aerospace and a direct result of ability to provide advanced technologies at scale Unparalleled Expertise in Innovation will Drive Our Growth in Aerospace… Overview of key Arconic investments in innovation 1 EEQ (En
Slide 44: …and Our Growth in Automotive and Commercial Transportation
…and Our Growth in Automotive and Commercial Transportation Overview of key Arconic investments in innovation 1 MicroMillTM (Auto) 2x more formable and 30% lighter than high strength steel Brazing (Auto) Multi-layer solutions for sheet-based heat exchangers with better corrosion protection and longe
Slide 45: We have a Robust Execution System and Proven Record of Reducing Costs
We have a Robust Execution System and Proven Record of Reducing Costs… Overview of gross productivity and net savings 1 Three Productivity Focus Areas Alcoa Inc: 2009 – Separation (Nov. 2016) Process Savings Procurement Savings Overhead Reduction $3B $6B $1B $10B Total Productivity ~30% Flow to Net
Slide 46: …that we will Build on to Deliver Future Margin Expansion
…that we will Build on to Deliver Future Margin Expansion Planned 2017 net savings impact 1 0.5% to 1.5% Price/Mix/Volume -0.5% to -1.5% ~2% -2.5% to -3.5% +4.5% to +5.5% Source: Arconic Assumes constant LME and FX. ~40% Flow to Net Savings (Gross Productivity less Cost Headwinds). Targeting Net Sav
Slide 47: Overhead Expenses Carefully Managed; Further Reduction of ~$45M in 2017
Overhead Expenses Carefully Managed; Further Reduction of ~$45M in 2017 Arconic SG&A benchmark; Arconic corporate overhead reduction target 1 Focused on Driving Corporate Overhead Expenses Lower Arconic Carefully Manages Costs Arconic’s SG&A(1)(2) is significantly below relevant industry benchmarks(
Slide 48: Driving Returns Through Operating Performance and Focus on Capital Efficiency
Driving Returns Through Operating Performance and Focus on Capital Efficiency Return on Net Assets (RONA): 2016 Actual, 2017 and 2019 Targets 2 Source: Arconic Excludes impact of higher debt burden related to the separation by reflecting 2016 allocation of interest expense to Alcoa Corp. based on hi
Slide 49: The Path Forward: Determined to Drive Shareholder Value
The Path Forward: Determined to Drive Shareholder Value Arconic’s key value drivers and financial targets 2016 2017(1) 2019(2) Revenue $12.4B $11.8B - $12.4B(3) 7% - 8% CAGR(4) Combined Segment EBITDA % 16.6% ~17% ~19% EBITDA %, excl. separation costs 13.7% ~15% ~17% RONA %(5) 7.1% ~9% 11% - 12% Gro
Slide 50: Executive Compensation Structure Aligned to Shareholder Value Creation
Executive Compensation Structure Aligned to Shareholder Value Creation Executive Compensation Structure(1) (CEO and NEOs(2)) EBIT $ Free Cash Flow Non-Financial Metrics Safety Diversity RONA EBITDA Margin Revenue Growth Annual Base + Incentive Compensation(3) Long-term Incentive Compensation(3) Rela
Slide 51: Industry Partners Endorse Strategic Direction and Leadership
Industry Partners Endorse Strategic Direction and Leadership Endorsements from selected valued Arconic partners Tom Enders Chief Executive Officer, Airbus Group “At Airbus, we continually seek to drive increased fuel efficiency across our platforms. For us to succeed, supply chain advancements in me
Slide 52: Elliott Misrepresents and Misunderstands the Arconic Opportunity
Chapter 4 Elliott Misrepresents and Misunderstands the Arconic Opportunity
Slide 53: Elliott Claims vs. Facts: Shareholder Returns, PCC Margin Gap, Firth Rixson
Elliott Claim Facts Conclusion Poor Total Shareholder Return Elliott uses inappropriate time periods and peer set to judge historical TSR Current leadership has delivered positive shareholder returns since the financial crisis Alcoa Inc. has outperformed industry benchmarks in recent periods Arconic
Slide 54: Elliott Claims vs. Facts: Returns on Capital, 2019 Guidance, Turnover
Elliott Claim Facts Conclusion History of Low Returns on Capital Historical returns were impacted by legacy (pre-2008) capital commitments in the upstream business combined with low commodity price environment Substantial increase in RONA was achieved in the downstream businesses Significant RONA Im
Slide 55: Elliott Previously Attributed Alcoa Inc.'s Performance to Other Factors
The Facts: Elliott Previously Attributed Alcoa Inc.’s Performance to Other Factors Elliott’s prior explanations for Alcoa Inc.’s valuation Before Elliott devised its thesis about management performance, it had a myriad of other explanations for Alcoa Inc.’s stock price performance “Poor analyst cove
Slide 56: Management has Delivered Meaningful Shareholder Return Since the Financial Crisis
Management has Delivered Meaningful Shareholder Return Since the Financial Crisis Elliott’s Shareholder Return Measurement Dates are Misleading The Facts: Current Leadership Has Delivered Positive Returns to Shareholders Alcoa Inc. absolute Total Shareholder Return (TSR) Source: Arconic, Arconic ana
Slide 57: Alcoa Inc.'s TSR Has Outperformed Industry Benchmarks Since 2009
The Facts: Alcoa Inc.’s TSR Has Outperformed Industry Benchmarks Since 2009 Alcoa Inc. package value absolute Total Shareholder Return (TSR) versus industry benchmarks Elliott’s Relative TSR Assessment is Not Credible Alcoa Inc. Shareholder Return has Outperformed since the Financial Crisis Alcoa In
Slide 58: Source notes: TSR and index comparisons
Source: Arconic, Arconic analysis of Capital IQ data (as of Mar 1, 2017) 1) Calculated based on closing prices. 2) Index comprises those companies included in the S&P 500 that are classified as members of the GICS industrials sector. Comprised of 68 constituents as of Mar 1, 2017, including Arconic
Slide 59: ~75% of Arconic's EPS business is structurally comparable with only 40% of PCC
~75% of Arconic’s EPS business is structurally comparable with only 40% of PCC Investments in key technologies and expansion of key facilities (e.g. La Porte) to compete in additional high margin segments Source: Arconic, Company filings Note: Structural differences are defined as businesses in whic
Slide 60: Arconic EPS is Working to Narrow the Margin Gap
The Facts: Arconic EPS is Working to Narrow the Margin Gap Source: Arconic Reflects Arconic’s attempt to reconcile Elliott analysis to public filings; result was an increase of 50bps to Elliot’s baseline representation of margin differential between PCC and EPS. Key Initiatives at Arconic to Expand
Slide 61: Elliott's Varied Attempts at GRP Cost Analysis
The Facts: Elliott’s Varied Attempts at GRP Cost Analysis Suggest Limited Fundamental Knowledge Source: Elliott website, Jan 31, 2017 to Feb 4, 2016 Total range of ~$150-750 million. Version of Elliott slide titled “GRP: Massive Room to Improve” Posted on 01/31 Posted on 02/01 Posted on 02/03 AM Pos
Slide 62: CRU Data Suggests Little to No Cost Opportunity
GRP’s cost structure is already in-line or better than the weighted average cost structure of the 10 largest producers in relevant segments Management has a strategy in place to further improve the cost and margin structure; is expected to add ~200bps or ~$100M(5) adjusted EBITDA by 2019 The Facts:
Slide 63: Capex allocation and RONA for upstream and downstream businesses
Capex allocation and return on net assests (RONA) for upstream and downstream businesses Source: Arconic Note: RONA is adjusted net income divided by net PP&E plus net working capital. Internal allocation methodology used to determine 2009-2015 Upstream RONA and Downstream RONA because Alcoa Inc. wa
Slide 64: 2019 Margin and Revenue Targets are Higher than 2016
() () () () The Facts: 2019 Margin and Revenue Targets are Higher than 2016 Source: Arconic Metal price consisting of LME and Midwest premium; 2016 initial view of $2,187 taken as targets were being set; 2016 actual was $1,773. Includes differences in market growth rates projected in 2013 versus the
Slide 65: Arconic Has a Healthy Senior Executive Continuity and Turnover
The Facts: Arconic Has a Healthy Senior Executive Continuity and Turnover C-Suite turnover history at Alcoa Inc. and Arconic TCS not a standalone segment until 2015 Of the 28 executives identified by Elliott, 19 are still with Arconic or Alcoa Corp. or have retired Elliott’s attempt to show unusual
Slide 66: Arconic's Board Values Strong Corporate Governance
12 of 13 Number of Independent Directors 63 Average Age of Directors 19 Full Board Meetings Held in 2015 and 2016 < 4 Average Tenure of Independent Directors (in years) 67% Independent Directors Added in the Last Three Years 93% Average Board Attendance in 2016 ü Ongoing Efforts to Declassify Board
Slide 67: Arconic Executive Compensation is Tied to Performance
The Facts: Arconic Executive Compensation is Tied to Performance Construction of 2016 Target CEO Pay Compensation Approved by Shareholders and Third Parties Principles for Setting Executive Compensation Policy is to set the CEO’s target compensation at the median level of the compensation peer group
Slide 68: Elliott Nominees vs. Board Skills and Contributions
Name Unique Contribution Would Board Lose Critical Skills? A. Alving Multi-sector technology leader Cyber-security YES D. Hess Strong relationships with key customers Former executive at world-class aeronautics manufacturer YES K. Kleinfeld Operating experience with Arconic’s assets Strategic vision
Slide 69: Arconic's Stated Strategy is the Best Path to Creating Shareholder Value
The Facts: Arconic’s Stated Strategy is the Best Path to Creating Shareholder Value Key differences between the Board Strategy and Elliott’s “Plan” Arconic’s Stated Strategy Elliott’s Proposed “Plan” Focus on long-term profitable growth in attractive markets Deliver value to customers through unique
Slide 70: Elliott Changed Its Views, Published Flawed Analyses and Hid Key Facts
The Facts: Elliott Changed Its Views, Published Flawed Analyses and Hid Key Facts Elliott has not been accurate or transparent with shareholders Elliott Has Changed its Views Elliott’s Analysis is Flawed Elliott Has Not Been Forthcoming Elliott previously praised management and the Board for value c
Slide 71: Conclusion
Chapter 5 Conclusion SD ARCONIC
Slide 72: The Board vs. Elliott
Category The Board Elliott Duty Has fiduciary obligations to all shareholders Has no fiduciary obligation to Arconic shareholders Analysis Has studied Arconic’s business and opportunities with outside independent advisors and the benefit of non-public information Has repeatedly made analytical mista
Slide 73: The Choice is Clear – The Right Board, Leadership and Strategy are in Place
The Choice is Clear – The Right Board, Leadership and Strategy are in Place Arconic is a new company, with a new Board: majority of directors joined in the last 15 months Management has a track record of successfully executing on a transformative vision and consistently improving business performanc
Slide 74: The Board Recommends that You Vote on the WHITE Proxy Card
The Board of Directors Recommends that You Vote on the WHITE Proxy Card as Follows: Item 1 Election of Five Director Nominees to Serve for a Three Year Term Expiring in 2020 (or until the 2018 annual meeting, if Item 8 is approved, as described in the proxy statement) ü FOR Each nominee recommended
Slide 75: Appendix: Reconciliations
Appendix Reconciliations SD ARCONIC
Slide 76: Adjusted EBITDA definition
S101 Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other
Slide 77: Combined Segment Adjusted EBITDA reconciliation 2015-2016
S101 ($ in millions) 2015 2016 Net loss attributable to Arconic $(322) $(941) Discontinued operations(1) 165 (121) Unallocated Amounts (net of tax): Impact of LIFO (66) 11 Metal price lag 115 (21) Interest expense 307 324 Noncontrolling interests 1 - Corporate expense 252 306 Impairment of goodwill
Slide 78: Combined Segment Adjusted EBITDA 2008-2016
($ in millions) 2008 2013 2015 2016 Combined segment After-tax operating income (ATOI) $532 $977 $986 $1,087 Add: Depreciation and amortization 361 368 479 504 Income taxes 275 448 430 472 Other 6 (2) (2) – Adjusted EBITDA $1,174 $1,791 $1,893 $2,063 Add: Wire harness and electrical distribution adj
Slide 79: Alcoa Inc. Adjusted EBITDA
S101 Arconic’s definition of Alcoa Inc. Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative
Slide 80: EPS Adjusted EBITDA reconciliation
S101 ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 2016 After-tax operating income (ATOI) $465 $321 $355 $436 $484 $569 $579 $595 $642 Add: Depreciation and amortization 118 118 114 120 122 124 137 233 255 Income taxes 225 159 182 224 248 286 298 282 298 Other 2 2 – – – – – – – Adjusted EB
Slide 81: GRP Adjusted EBITDA reconciliation
S101 ($ in millions, except per metric ton amounts) 2008 2009 2010 2011 2012 2013 2014 2015 2016 After-tax operating income (ATOI) $(15) $(108) $192 $222 $302 $241 $224 $225 $269 Add: Depreciation and amortization 190 201 212 212 205 202 211 203 201 Income taxes 50 21 80 83 137 95 67 85 107 Other 4
Slide 82: TCS Adjusted EBITDA reconciliation
S101 ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 2016 After-tax operating income (ATOI) $82 $5 $73 $109 $126 $167 $180 $166 $176 Add: Depreciation and amortization 53 65 48 45 42 42 42 43 48 Equity loss (income) – (2) (2) (1) – – – – – Income taxes – (21) 18 38 49 67 69 63 67 Other – – –
Slide 83: SG&A excluding separation costs
S101 ($ in millions) 2016(1) Sales $12,394 SG&A expenses 942 SG&A expenses % of sales 7.6% Separation costs 193 SG&A expenses excluding separation costs 749 SG&A expenses excluding separation costs % of sales 6.0% Adjusted Selling, general administrative, and other expenses (SG&A) excluding separati
Slide 84: Free Cash Flow reconciliation
S101 ($ in millions) Year ended December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016 Cash from operations $1,234 $1,365 $2,261 $2,193 $1,497 $1,578 $1,674 $1,582 $870 Capital expenditures (3,
Slide 85: Net debt reconciliation
S101 ($ in millions) December 31, 2015 2016 Short-term borrowings $38 $36 Commercial paper – – Long-term debt due within one year 3 4 Long-term debt, less amount due within one year 8,786 8,044 Total debt 8,827 8,084 Less: Cash and cash equivalents 1,362 1,863 Net debt $7,465 $6,221 Net debt is a no
Slide 86: Return on Net Assets reconciliation
($ in millions) 2009 2010 2011 2012 2013 2014 2015 2016 Net (loss) income attributable to Arconic ($1,151) $254 $611 $191 ($2,285) $268 ($322) ($941) Add: Loss (income) from discontinued operations 166 8 3 – – – – (121) Restructuring and other charges 152 130 181 106 585 703 836 155 Discrete tax ite
Slide 87: Return on net assets definition
Return on net assets is a non-GAAP financial measure and is calculated as Net (loss) income attributable to Arconic – as adjusted divided by Net assets, which is the summation of Working capital and Properties, plants, and equipment, net. Management believes that this measure is meaningful to invest
Slide 88: Other special items (continued)
S101 (3)Other special items include the following (continued): for the year ended December 31, 2016, costs associated with the planned separation of Alcoa ($205), unfavorable tax costs associated with the redemption of company-owned life insurance policies ($100), a favorable adjustment to the conti
Slide 89: Upstream and Downstream allocation methodology
S101 For internal analysis and historical comparison purposes, Net (loss) income attributable to Arconic – as adjusted and Net assets are allocated to the Upstream and Downstream businesses based on (i) the underlying After-tax operating income (ATOI) and Net assets of the respective segments plus (
Slide 90: RONA excluding acquisitions in year of acquisition
($ in millions) 2014 2015 Net income allocated to Downstream $763 $583 Net loss allocated related to Firth Rixson acquisition 25 – Net loss allocated related to RTI acquisition – 24 Net income allocated to Downstream excluding acquisitions in the year of acquisition $788 $607 Net assets allocated to
Slide 91: 2015 RONA reconciliation
($ in millions) 2015 Net (loss) income attributable to Arconic ($322) Add: Loss (income) from discontinued operations – Restructuring and other charges 836 Discrete tax items(2) 186 Other special items(3) 87 Net (loss) income attributable to Arconic – as adjusted $787 Net (loss) income allocated to
Slide 92: RONA definition and notes
Return on net assets (RONA) is a non-GAAP financial measure and is calculated as Net (loss) income attributable to Arconic – as adjusted divided by Net Assets, which is the summation of Working Capital and Properties, plants, and equipment, net. Management believes that this measure is meaningful to
Slide 93: ARCONIC Innovation, engineered.
ARCONIC Innovation, engineered.