Alcoa Reports Third Quarter 2008 Results
Alcoa (NYSE: AA) today reported third quarter net income of $268 million, or $0.33 per diluted share. The results include a previously announced $31 million after-tax charge, or $0.04 per share, for the temporary curtailment of the Rockdale, TX aluminum smelter. The negative impact of currency translation on a sequential basis was $52 million, or $0.06 per share.
Net income in the third quarter of 2007 was $555 million, or $0.63 per share. Included in the third quarter 2007 results was the net benefit of $218 million, or $0.25 per share, for the gain on the sale of the company’s stake in Chalco, restructuring, and transaction costs. Net income in the second quarter of 2008 was $546 million, or $0.66 per share.
"Despite rising costs and sluggish end markets, combined profitability in the four business segments was in line with last year’s third quarter," said Klaus Kleinfeld, Alcoa President and Chief Executive Officer.
"Recently, aluminum prices have fallen steeply and demand has softened further, while input costs remain high," said Kleinfeld. "The resulting margin squeeze will have a greater impact going forward, but will be somewhat mitigated by the easing of energy prices and a stronger U.S. dollar. We will continue to manage our business to keep it competitive in a turbulent global environment.
"We have taken action to conserve cash and maximize profitability through very adverse economic conditions," said Kleinfeld. "Given the sharp decline in metal prices and increasingly soft demand in our key markets, we are stopping all non-critical capital projects, making targeted reductions to match market conditions, and are adjusting our manufacturing capacity to meet demand in rapidly changing upstream and downstream markets. We are halting production at our smelter in Rockdale, Texas, adjusting alumina capacity accordingly, and are continually reviewing under-performing assets throughout our portfolio. And, we are suspending our share buy-back program.
"While we face volatile and uncertain markets today, longer term trends will drive a rebound in global aluminum demand and the forward market reflects underlying optimism on medium term aluminum pricing," said Kleinfeld. "During difficult times, we will examine opportunities across the industry to improve our competitiveness, use every lever to improve profitability, and position the company to deliver stronger value when demand improves."
Revenues for the quarter were $7.2 billion, down slightly from $7.6 billion in the second quarter of 2008 due to lower metal prices, seasonal downturns in Europe, and weak end markets, particularly the automotive sector. Revenues in the third quarter 2007 were $6.5 billion after excluding the divested businesses.
In the first nine months of 2008, net income was $1.1 billion, or $1.36 per share, and revenues were $22.2 billion. Year-to-date, cash from operations was $626 million, which includes a discretionary $400 million pension contribution in the third quarter.
Capital expenditures for the quarter were $877 million, with 65 percent dedicated to growth projects. The Company’s debt-to-capital ratio stood at 36.3 percent at the end of the quarter. The 12-month trailing return on capital (ROC) stood at 11.5 percent at the end of the third quarter, excluding investments in growth.
Segment and Other Results
Alumina
After-tax operating income (ATOI) was $206 million, an increase of $16 million, or 8 percent, from the prior quarter. Overall production declined slightly in the quarter (30 kmt lower) because of the production loss from the Point Comfort refinery (60 kmt), which was closed during Hurricane Ike. Strong operating performance and a stronger U.S. dollar offset the lower production and higher input costs. Net of insurance recovery, the natural gas supply disruption in Western Australia lowered ATOI by $9 million on a sequential basis.
The company is on track to complete its expansion of the Sao Luis refinery and the new Juruti bauxite mine in Brazil. Those expansions are well under way and will begin to deliver positive cash flow to the company in 2009.
Primary Metals
ATOI was $297 million, a decrease of $131 million, or 31 percent, from the prior quarter. Third-party realized ingot price decreased sequentially from $3,058/mt to $2,945/mt due to lower LME pricing coupled with a less favorable product mix and lower regional pricing premiums. Meanwhile, escalating market prices for carbon products and energy continue to negatively impact earnings.
The company’s newest smelter (Fjardaal) produced at nameplate capacity for the second consecutive quarter and is currently the highest-quality metal in Alcoa’s global system.
Flat-Rolled Products
ATOI was $29 million, a decrease of $26 million, or 47 percent, from the prior quarter. This decline is slightly higher than the typical 35 percent seasonal decline that was forecasted during last quarter’s analysts’ call. The higher than expected decline is due to weaker than expected market conditions in North America and Europe as well as the impact of the machinists’ strike at Boeing. In addition, alloying materials such as manganese, silicon, and magnesium have experienced substantial price increases year-over-year.
Engineered Products and Solutions
ATOI was $101 million, a record third quarter. This was a decrease of $56 million, or 36 percent, from the prior quarter. This decline is slightly higher than the typical 25 to 30 percent seasonal decline that we forecasted during last quarter’s analysts’ call. The greater decline is primarily a result of weakening market conditions. Due to tighter credit conditions and high gas prices, annual automotive build rates are now projected to decline 14 percent in North America. Commercial transportation markets have also been weaker than expected. North America Class 8 truck builds dropped 13 percent quarter-over-quarter. Also, lower demand for spares in the aerospace after-market has been driven by little or no growth in global airline capacity.
ATOI to Net Income Reconciliation
The largest variance in reconciling items was in the "Other" line item which includes a $90 million unfavorable sequential change due to currency translation.
Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on Tuesday, October 7, 2008 to present the quarter’s results. The meeting will be webcast via alcoa.com. Call information and related details are available at www.alcoa.com under "Invest."
About Alcoa
Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum and alumina combined, through its active and growing participation in all major aspects of the industry. Alcoa serves the aerospace, automotive, packaging, building and construction, commercial transportation and industrial markets, bringing design, engineering, production and other capabilities of Alcoa’s businesses to customers. In addition to aluminum products and components including flat-rolled products, hard alloy extrusions, and forgings, Alcoa also markets Alcoa(R) wheels, fastening systems, precision and investment castings, and building systems. The Company has 97,000 employees in 34 countries and has been named one of the top most sustainable corporations in the world at the World Economic Forum in Davos, Switzerland. More information can be found at www.alcoa.com
Forward-Looking Statements
Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements involving known and unknown risks and uncertainties that may cause actual results, performance or achievements of Alcoa to be different from those expressed or implied in the forward-looking statements. Alcoa 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. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in economic or aluminum industry conditions generally, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices for primary aluminum and other products; (b) material adverse changes in the markets served by Alcoa, including the transportation, aerospace, building and construction, distribution, packaging, industrial gas turbine and other markets; (c) Alcoa’s inability to mitigate impacts from energy supply interruptions or from unfavorable currency fluctuations or from increased energy, transportation and raw materials costs or other cost inflation; (d) continued volatility and further deterioration in the financial markets, including severe disruptions in the commercial paper, capital and credit markets; (e) Alcoa’s inability to achieve the level of cash generation or conservation, return on capital improvement, cost reductions, or earnings or revenue growth anticipated by management; (f) Alcoa’s inability to complete its growth projects or achieve efficiency improvements at newly constructed or acquired facilities as planned and by targeted completion dates; (g) unfavorable changes in laws, governmental regulations or policies, foreign currency exchange rates or competitive factors in the countries in which Alcoa operates; (h) significant legal proceedings or investigations adverse to Alcoa, including environmental, product liability, safety and health and other claims; and (i) the other risk factors summarized in Alcoa’s Form 10-K for the year ended December 31, 2007, Forms 10-Q for the quarters ended March 31, 2008 and June 30, 2008, and other reports filed with the Securities and Exchange Commission.
Alcoa and subsidiaries Statement of Consolidated Income (unaudited) (in millions, except per-share, share, and metric ton amounts) Quarter ended ----------------------------------------- September 30, June 30, September 30, 2007 2008 2008 ------------- ------------- ------------- Sales $ 7,387 $ 7,620 $ 7,234 Cost of goods sold (exclusive of expenses below) 5,910 6,090 5,944 Selling, general administrative, and other expenses 365 306 283 Research and development expenses 64 64 64 Provision for depreciation, depletion, and amortization 338 321 316 Goodwill impairment charge 133 - - Restructuring and other charges 444 2 43 Interest expense 151 87 97 Other (income) expenses, net (1,731) (97) 17 ------------- ------------- ------------- Total costs and expenses 5,674 6,773 6,764 Income from continuing operations before taxes on income 1,713 847 470 Provision for taxes on income 1,079 231 117 ------------- ------------- ------------- Income from continuing operations before minority interests' share 634 616 353 Less: Minority interests' share 76 70 84 ------------- ------------- ------------- Income from continuing operations 558 546 269 Loss from discontinued operations (3) - (1) ------------- ------------- ------------- NET INCOME $ 555 $ 546 $ 268 ============= ============= ============= Earnings (loss) per common share: Basic: Income from continuing operations $ 0.64 $ 0.67 $ 0.33 Loss from discontinued operations - - - ------------- ------------- ------------- Net income $ 0.64 $ 0.67 $ 0.33 ============= ============= ============= Diluted: Income from continuing operations $ 0.64 $ 0.66 $ 0.33 Loss from discontinued operations (0.01) - - ------------- ------------- ------------- Net income $ 0.63 $ 0.66 $ 0.33 ============= ============= ============= Average number of shares used to compute: Basic earnings per common share 867,664,875 815,990,095 807,570,516 Diluted earnings per common share 877,700,035 825,387,079 815,207,909 Shipments of aluminum products (metric tons) 1,328,000 1,407,000 1,342,000
Alcoa and subsidiaries Statement of Consolidated Income (unaudited), continued (in millions, except per-share, share, and metric ton amounts) Nine months ended September 30, --------------------------- 2007 2008 ------------- ------------- Sales $ 23,361 $ 22,229 Cost of goods sold (exclusive of expenses below) 18,095 17,926 Selling, general administrative, and other expenses 1,089 917 Research and development expenses 171 194 Provision for depreciation, depletion, and amortization 959 956 Goodwill impairment charge 133 - Restructuring and other charges 413 83 Interest expense 320 283 Other income, net (1,835) (22) ------------- ------------- Total costs and expenses 19,345 20,337 Income from continuing operations before taxes on income 4,016 1,892 Provision for taxes on income 1,768 553 ------------- ------------- Income from continuing operations before minority interests' share 2,248 1,339 Less: Minority interests' share 301 221 ------------- ------------- Income from continuing operations 1,947 1,118 Loss from discontinued operations (15) (1) ------------- ------------- NET INCOME $ 1,932 $ 1,117 ============= ============= Earnings (loss) per common share: Basic: Income from continuing operations $ 2.24 $ 1.37 Loss from discontinued operations (0.02) - ------------- ------------- Net income $ 2.22 $ 1.37 ============= ============= Diluted: Income from continuing operations $ 2.22 $ 1.36 Loss from discontinued operations (0.02) - ------------- ------------- Net income $ 2.20 $ 1.36 ============= ============= Average number of shares used to compute: Basic earnings per common share 869,245,090 813,550,439 Diluted earnings per common share 877,964,737 821,471,192 Common stock outstanding at the end of the period 852,046,355 800,317,368 Shipments of aluminum products (metric tons) 4,057,000 4,106,000
Alcoa and subsidiaries Consolidated Balance Sheet (unaudited) (in millions) December 31, September 30, 2007 2008 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 483 $ 831 Receivables from customers, less allowances of $72 in 2007 and $57 in 2008 2,602 2,700 Other receivables 451 588 Inventories 3,326 3,844 Prepaid expenses and other current assets 1,224 1,309 ------------ ------------- Total current assets 8,086 9,272 ------------ ------------- Properties, plants, and equipment 31,601 32,877 Less: accumulated depreciation, depletion, and amortization 14,722 14,901 ------------ ------------- Properties, plants, and equipment, net 16,879 17,976 ------------ ------------- Goodwill 4,806 5,084 Investments 2,038 2,689 Other assets 4,046 4,014 Assets held for sale 2,948 3 ------------ ------------- Total assets $ 38,803 $ 39,038 ============ ============= LIABILITIES Current liabilities: Short-term borrowings $ 569 $ 498 Commercial paper 856 1,207 Accounts payable, trade 2,787 2,791 Accrued compensation and retirement costs 943 896 Taxes, including taxes on income 644 380 Other current liabilities 1,165 1,217 Long-term debt due within one year 202 54 ------------ ------------- Total current liabilities 7,166 7,043 ------------ ------------- Long-term debt, less amount due within one year 6,371 8,370 Accrued pension benefits 1,098 858 Accrued postretirement benefits 2,753 2,577 Other noncurrent liabilities and deferred credits 1,943 1,852 Deferred income taxes 545 532 Liabilities of operations held for sale 451 1 ------------ ------------- Total liabilities 20,327 21,233 ------------ ------------- MINORITY INTERESTS 2,460 2,740 ------------ ------------- SHAREHOLDERS' EQUITY Preferred stock 55 55 Common stock 925 925 Additional capital 5,774 5,842 Retained earnings 13,039 13,600 Treasury stock, at cost (3,440) (4,326) Accumulated other comprehensive loss (337) (1,031) ------------ ------------- Total shareholders' equity 16,016 15,065 ------------ ------------- Total liabilities and equity $ 38,803 $ 39,038 ============ =============
Alcoa and subsidiaries Statement of Consolidated Cash Flows (unaudited) (in millions) Nine months ended September 30, ----------------- 2007 2008 -------- -------- CASH FROM OPERATIONS Net income $ 1,932 $ 1,117 Adjustments to reconcile net income to cash from operations: Depreciation, depletion, and amortization 959 957 Deferred income taxes 518 (15) Equity income, net of dividends (79) (66) Goodwill impairment charge 133 - Restructuring and other charges 413 83 Gains from investing activities - asset sales (1,772) (30) Provision for doubtful accounts 13 8 Loss from discontinued operations 15 1 Minority interests 301 221 Stock-based compensation 83 85 Excess tax benefits from stock-based payment arrangements (77) (15) Other (33) (32) Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: Decrease (increase) in receivables 224 (213) Decrease (increase) in inventories 184 (595) (Increase) in prepaid expenses and other current assets (100) (73) Increase in accounts payable, trade 28 56 (Decrease) in accrued expenses (173) (369) Increase in taxes, including taxes on income 341 4 Cash received on long-term aluminum supply contract 93 - Pension contributions (297) (485) Net change in noncurrent assets and liabilities (188) (16) (Increase) decrease in net assets held for sale (49) 4 -------- -------- CASH PROVIDED FROM CONTINUING OPERATIONS 2,469 627 CASH USED FOR DISCONTINUED OPERATIONS (1) (1) -------- -------- CASH PROVIDED FROM OPERATIONS 2,468 626 -------- -------- FINANCING ACTIVITIES Net change in short-term borrowings 102 (76) Net change in commercial paper (1,116) 351 Additions to long-term debt 2,049 2,105 Debt issuance costs (126) (13) Payments on long-term debt (848) (192) Common stock issued for stock compensation plans 819 177 Excess tax benefits from stock-based payment arrangements 77 15 Repurchase of common stock (1,548) (1,082) Dividends paid to shareholders (447) (420) Dividends paid to minority interests (310) (193) Contributions from minority interests 369 429 -------- -------- CASH (USED FOR) PROVIDED FROM FINANCING ACTIVITIES (979) 1,101 -------- -------- INVESTING ACTIVITIES Capital expenditures (2,615) (2,421) Acquisitions, net of cash acquired (15) (276) Acquisitions of minority interests - (141) Proceeds from the sale of assets and businesses 87 2,684 Additions to investments (123) (1,276) Sales of investments 1,981 72 Net change in short-term investments and restricted cash (23) (2) Other 2 (27) -------- -------- CASH USED FOR INVESTING ACTIVITIES (706) (1,387) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 25 8 -------- -------- Net change in cash and cash equivalents 808 348 Cash and cash equivalents at beginning of year 506 483 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,314 $ 831 ======== ========
Alcoa and subsidiaries Segment Information (unaudited) (1) (dollars in millions, except realized prices; production and shipments in thousands of metric tons (kmt)) 1Q07 2Q07 3Q07 4Q07 2007 ------ ------ ------- ------- ------- Alumina: Alumina production (kmt) 3,655 3,799 3,775 3,855 15,084 Third-party alumina shipments (kmt) 1,877 1,990 1,937 2,030 7,834 Third-party sales $ 645 $ 712 $ 664 $ 688 $ 2,709 Intersegment sales $ 579 $ 587 $ 631 $ 651 $ 2,448 Equity income (loss) $ 1 $ - $ (1) $ 1 $ 1 Depreciation, depletion, and amortization $ 56 $ 62 $ 76 $ 73 $ 267 Income taxes $ 100 $ 102 $ 89 $ 49 $ 340 After-tax operating income (ATOI) $ 260 $ 276 $ 215 $ 205 $ 956 ====================================================================== Primary Metals: Aluminum production (kmt) 899 901 934 959 3,693 Third-party aluminum shipments (kmt) 518 565 584 624 2,291 Alcoa's average realized price per metric ton of aluminum $2,902 $2,879 $2,734 $2,646 $ 2,784 Third-party sales $1,633 $1,746 $1,600 $1,597 $ 6,576 Intersegment sales $1,477 $1,283 $1,171 $1,063 $ 4,994 Equity income $ 22 $ 18 $ 11 $ 6 $ 57 Depreciation, depletion, and amortization $ 95 $ 102 $ 102 $ 111 $ 410 Income taxes $ 214 $ 196 $ 80 $ 52 $ 542 ATOI $ 504 $ 462 $ 283 $ 196 $ 1,445 ====================================================================== Flat-Rolled Products: Third-party aluminum shipments (kmt) 597 612 632 600 2,441 Third-party sales $2,467 $2,535 $2,494 $2,436 $ 9,932 Intersegment sales $ 65 $ 77 $ 70 $ 71 $ 283 Depreciation, depletion, and amortization $ 60 $ 61 $ 64 $ 59 $ 244 Income taxes $ 31 $ 37 $ 32 $ 7 $ 107 ATOI $ 60 $ 97 $ 62 $ (15) $ 204 ====================================================================== Engineered Products and Solutions: Third-party aluminum shipments (kmt) 55 52 51 49 207 Third-party sales $1,676 $1,715 $1,662 $1,666 $ 6,719 Depreciation, depletion, and amortization $ 41 $ 41 $ 44 $ 45 $ 171 Income taxes $ 49 $ 52 $ 46 $ 17 $ 164 ATOI $ 105 $ 119 $ 82 $ 76 $ 382 ====================================================================== Packaging and Consumer (2): Third-party aluminum shipments (kmt) 35 40 37 45 157 Third-party sales $ 736 $ 837 $ 828 $ 887 $ 3,288 Depreciation, depletion, and amortization $ 30 $ 30 $ 29 $ - $ 89 Income taxes $ 7 $ 17 $ 17 $ 27 $ 68 ATOI $ 19 $ 37 $ 36 $ 56 $ 148 ====================================================================== Alcoa and subsidiaries Segment Information (unaudited) (1) (dollars in millions, except realized prices; production and shipments in thousands of metric tons (kmt)) 1Q08 2Q08 3Q08 ------- ------ ------ Alumina: Alumina production (kmt) 3,870 3,820 3,790 Third-party alumina shipments (kmt) 1,995 1,913 2,010 Third-party sales $ 680 $ 717 $ 805 Intersegment sales $ 667 $ 766 $ 730 Equity income (loss) $ 2 $ 2 $ 2 Depreciation, depletion, and amortization $ 74 $ 67 $ 68 Income taxes $ 57 $ 67 $ 91 After-tax operating income (ATOI) $ 169 $ 190 $ 206 ====================================================================== Primary Metals: Aluminum production (kmt) 995 1,030 1,011 Third-party aluminum shipments (kmt) 665 750 704 Alcoa's average realized price per metric ton of aluminum $2,801 $3,058 $2,945 Third-party sales $1,877 $2,437 $2,127 Intersegment sales $1,105 $1,108 $1,078 Equity income $ 9 $ 10 $ 1 Depreciation, depletion, and amortization $ 124 $ 128 $ 131 Income taxes $ 116 $ 131 $ 29 ATOI $ 307 $ 428 $ 297 ====================================================================== Flat-Rolled Products: Third-party aluminum shipments (kmt) 610 591 580 Third-party sales $2,492 $2,525 $2,488 Intersegment sales $ 77 $ 77 $ 58 Depreciation, depletion, and amortization $ 60 $ 63 $ 54 Income taxes $ 22 $ 23 $ 21 ATOI $ 41 $ 55 $ 29 ====================================================================== Engineered Products and Solutions: Third-party aluminum shipments (kmt) 48 49 45 Third-party sales $1,772 $1,873 $1,716 Depreciation, depletion, and amortization $ 42 $ 42 $ 42 Income taxes $ 56 $ 70 $ 42 ATOI $ 138 $ 157 $ 101 ====================================================================== Packaging and Consumer (2): Third-party aluminum shipments (kmt) 19 - - Third-party sales $ 497 $ 19 $ - Depreciation, depletion, and amortization $ - $ - $ - Income taxes $ 10 $ - $ - ATOI $ 11 $ - $ - ======================================================================
Alcoa and subsidiaries Segment Information (unaudited), continued (in millions) Reconciliation of ATOI to consolidated net income: 1Q07 2Q07 3Q07 4Q07 2007 ------ ------ ------ ------ ------- Total segment ATOI $ 948 $ 991 $ 678 $ 518 $3,135 Unallocated amounts (net of tax): Impact of LIFO (27) (16) 10 9 (24) Interest income 11 9 10 10 40 Interest expense (54) (56) (98) (53) (261) Minority interests (115) (110) (76) (64) (365) Corporate expense (86) (101) (101) (100) (388) Restructuring and other charges (18) 21 (311) 1 (307) Discontinued operations (11) (1) (3) 8 (7) Other 14 (22) 446 303 741 ---------------------------------------------------------------------- Consolidated net income $ 662 $ 715 $ 555 $ 632 $2,564 ====================================================================== Alcoa and subsidiaries Segment Information (unaudited), continued (in millions) Reconciliation of ATOI to consolidated net income: 1Q08 2Q08 3Q08 ------ ----- ------ Total segment ATOI $666 $830 $ 633 Unallocated amounts (net of tax): Impact of LIFO (31) (44) (5) Interest income 9 12 10 Interest expense (64) (57) (63) Minority interests (67) (70) (84) Corporate expense (82) (91) (77) Restructuring and other charges (30) (2) (29) Discontinued operations - - (1) Other (98) (32) (116) ---------------------------------------------------------------------- Consolidated net income $303 $546 $ 268 ======================================================================
The difference between certain segment totals and consolidated amounts is in Corporate. (1) In the first quarter of 2008, management approved a realignment of Alcoa's reportable segments to better reflect the core businesses in which Alcoa operates and how it is managed. This realignment consisted of eliminating the Extruded and End Products segment and realigning its component businesses as follows: the building and construction systems business is reported in the Engineered Products and Solutions segment; the hard alloy extrusions business and the Russian extrusions business are reported in the Flat- Rolled Products segment; and the remaining segment components, consisting primarily of the equity investment/income of Alcoa's interest in the Sapa AB joint venture, and the Latin American extrusions business, are reported in Corporate. Additionally, the Russian forgings business was moved from the Engineered Products and Solutions segment to the Flat-Rolled Products segment, where all Russian operations are now reported. Prior period amounts were reclassified to reflect the new segment structure. Also, the Engineered Solutions segment was renamed the Engineered Products and Solutions segment. (2) On February 29, 2008, Alcoa completed the sale of its packaging and consumer businesses to Rank Group Limited. In the 2008 second quarter, Alcoa received regulatory and other approvals for a small number of locations that did not close in the 2008 first quarter. Also, in the 2008 third quarter, one final remaining location was transferred to Rank. The Packaging and Consumer segment no longer contains any operations.
Alcoa and subsidiaries Calculation of Financial Measures (unaudited) (in millions) Bloomberg Return on Capital, Bloomberg Return on Capital (1) Excluding Growth Investments (1) Twelve months ended Twelve months ended September 30, September 30, ------------------- ------------------- 2007 2008 2007 2008 --------- --------- --------- --------- Net income $ 2,291 $ 1,749 Net income $ 2,291 $ 1,749 Minority Minority interests 399 285 interests 399 285 Interest Interest expense expense (after tax) 246 312 (after tax) 246 312 --------- --------- --------- --------- Numerator $ 2,936 $ 2,346 Numerator 2,936 2,346 --------- --------- Net losses of growth investments (3) 57 132 --------- --------- Adjusted numerator $ 2,993 $ 2,478 --------- --------- Average Average Balances Balances Short-term Short-term borrowings $ 497 $ 537 borrowings $ 497 $ 537 Short-term Short-term debt 525 126 debt 525 126 Commercial Commercial paper 1,275 782 paper 1,275 782 Long-term Long-term debt 5,390 7,351 debt 5,390 7,351 Preferred Preferred stock 55 55 stock 55 55 Minority Minority interests 1,927 2,532 interests 1,927 2,532 Common Common equity (2) 15,255 15,435 equity (2) 15,255 15,435 --------- --------- --------- --------- Denominator $ 24,924 $ 26,818 Denominator 24,924 26,818 --------- --------- Capital projects in progress and capital base of growth investments (3) (4,430) (5,244) --------- --------- Adjusted denominator $ 20,494 $ 21,574 --------- --------- Return on capital, excluding Return on growth capital 11.8% 8.7% investments 14.6% 11.5%
Return on capital, excluding growth investments is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because it provides greater insight with respect to the underlying operating performance of the company's productive assets. The company has significant growth investments underway in its upstream and downstream businesses, as previously noted, with expected completion dates over the next several years. As these investments generally require a period of time before they are productive, management believes that a return on capital measure excluding these growth investments is more representative of current operating performance. (1) The Bloomberg Methodology calculates ROC based on the trailing four quarters. Average balances are calculated as (September 2008 ending balance + September 2007 ending balance) divided by 2 for the twelve months ended September 30, 2008, and (September 2007 ending balance + September 2006 ending balance) divided by 2 for the twelve months ended September 30, 2007. (2) Calculated as total shareholders' equity less preferred stock. (3) For all periods presented, growth investments include Russia, Bohai, and Kunshan.
Alcoa and subsidiaries Calculation of Financial Measures (unaudited), continued (in millions) Third-party Sales Quarter ended --------------------------- September 30, September 30, 2007 2008 ------------- ------------- Alcoa $ 7,387 $ 7,234 Divested businesses (a) 885 - ------------- ------------- Alcoa, excluding divested businesses $ 6,502 $ 7,234 ============= =============
Third-party sales excluding divested businesses is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of Alcoa excluding divested businesses since they are no longer reflective of Alcoa's continuing operations. (a) Divested businesses include the businesses within the Packaging and Consumer segment, certain U.S. locations of the Soft Alloy Extrusions business that were not contributed to the Sapa AB joint venture, and the Automotive Castings business.