Alcoa Reports Third Quarter 2008 Results; Taking Action to Preserve Profitability, Liquidity Through the Downturn
Highlights:
— Net income of $268 million, or $0.33 per share, includes $29 million or $0.04 per share for restructuring.
— The sequential impact of currency translation was a negative $52 million or $0.06 per share.
— Revenues of $7.2 billion, up from $6.5 billion in 3rd quarter of 2007, excluding divested businesses.
— Alumina segment improved ATOI over 2nd quarter, and Engineered Products segment had strongest 3rd quarter profitability in history.
— Segment ATOI of $633 million, with two of four segments higher than 3rd quarter of 2007.
— Completed purchase of two percent of shares in the quarter, bringing total share buy-back to 12 percent, or roughly half of the authorized levels.
— Cash on hand at $831 million and debt-to-capital stands at 36.3 percent.
— Trailing 12-month ROC stands at 11.5 percent excluding investments in growth.
— Taking action to preserve and enhance strong balance sheet during unprecedented volatility in financial markets.
— Curtailing non-critical capital programs, suspending share repurchases.
Alcoa
Investor Contact
Greg T. Aschman, 212-836-2674
or
Media Contact
Kevin G. Lowery, 412-553-1424
Mobile 724-422-7844
Logo: http://www.alcoa.com
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.
TABLE
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
TABLE
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
TABLE
Alcoa and subsidiaries
Consolidated Balance Sheet (unaudited)
(in millions)
______________________________ December 31, 2007 September 30, 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
TABLE
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
TABLE
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__ 1Q08__ 2Q08__ 3Q08
Alumina:
Alumina production (kmt)__ 3,655__ 3,799__ 3,775__ 3,855__ 15,084__ 3,870__ 3,820__ 3,790
Third-party alumina shipments (kmt)__ 1,877__ 1,990__ 1,937__ 2,030__ 7,834__ 1,995__ 1,913__ 2,010
Third-party sales__ $645__ $712__ $664__ $688__ $2,709__ $680__ $717__ $805
Intersegment sales__ $579__ $587__ $631__ $651__ $2,448__ $667__ $766__ $730
Equity income (loss)__ $1__ $-__ $(1__ )__ $1__ $1__ $2__ $2__ $2
Depreciation, depletion, and amortization__ $56__ $62__ $76__ $73__ $267__ $74__ $67__ $68
Income taxes__ $100__ $102__ $89__ $49__ $340__ $57__ $67__ $91
After-tax operating income (ATOI)__ $260__ $276__ $215__ $205__ $956__ $169__ $190__ $206
Primary Metals:
Aluminum production (kmt)__ 899__ 901__ 934__ 959__ 3,693__ 995__ 1,030__ 1,011
Third-party aluminum shipments (kmt)__ 518__ 565__ 584__ 624__ 2,291__ 665__ 750__ 704
Alcoa’s average realized price per metric ton of aluminum__ $2,902__ $2,879__ $2,734__ $2,646__ $2,784__ $2,801__ $3,058__ $2,945
Third-party sales__ $1,633__ $1,746__ $1,600__ $1,597__ $6,576__ $1,877__ $2,437__ $2,127
Intersegment sales__ $1,477__ $1,283__ $1,171__ $1,063__ $4,994__ $1,105__ $1,108__ $1,078
Equity income__ $22__ $18__ $11__ $6__ $57__ $9__ $10__ $1
Depreciation, depletion, and amortization__ $95__ $102__ $102__ $111__ $410__ $124__ $128__ $131
Income taxes__ $214__ $196__ $80__ $52__ $542__ $116__ $131__ $29
ATOI__ $504__ $462__ $283__ $196__ $1,445__ $307__ $428__ $297
Flat-Rolled Products:
Third-party aluminum shipments (kmt)__ 597__ 612__ 632__ 600__ 2,441__ 610__ 591__ 580
Third-party sales__ $2,467__ $2,535__ $2,494__ $2,436__ $9,932__ $2,492__ $2,525__ $2,488
Intersegment sales__ $65__ $77__ $70__ $71__ $283__ $77__ $77__ $58
Depreciation, depletion, and amortization__ $60__ $61__ $64__ $59__ $244__ $60__ $63__ $54
Income taxes__ $31__ $37__ $32__ $7__ $107__ $22__ $23__ $21
ATOI__ $60__ $97__ $62__ $(15__ )__ $204__ $41__ $55__ $29
Engineered Products and Solutions:
Third-party aluminum shipments (kmt)__ 55__ 52__ 51__ 49__ 207__ 48__ 49__ 45
Third-party sales__ $1,676__ $1,715__ $1,662__ $1,666__ $6,719__ $1,772__ $1,873__ $1,716
Depreciation, depletion, and amortization__ $41__ $41__ $44__ $45__ $171__ $42__ $42__ $42
Income taxes__ $49__ $52__ $46__ $17__ $164__ $56__ $70__ $42
ATOI__ $105__ $119__ $82__ $76__ $382__ $138__ $157__ $101
Packaging and Consumer (2):
Third-party aluminum shipments (kmt)__ 35__ 40__ 37__ 45__ 157__ 19__ -__ –
Third-party sales__ $736__ $837__ $828__ $887__ $3,288__ $497__ $19__ $-
Depreciation, depletion, and amortization__ $30__ $30__ $29__ $- __ $89__ $-__ $-__ $-
Income taxes__ $7__ $17__ $17__ $27__ $68__ $10__ $-__ $-
ATOI__ $19__ $37__ $36__ $56__ $148__ $11__ $-__ $-
TABLE
Alcoa and subsidiaries Segment Information (unaudited), continued (in millions)
Reconciliation of ATOI to consolidated net income:__ 1Q07__ 2Q07__ 3Q07__ 4Q07__ 2007__ 1Q08__ 2Q08__ 3Q08
Total segment ATOI__ $948__ $991__ $678__ $518__ $3,135__ $666__ $830__ $633
Unallocated amounts (net of tax):
Impact of LIFO__ (27__ )__ (16__ )__ 10__ 9__ (24__ )__ (31__ )__ (44__ )__ (5__ )
Interest income__ 11__ 9__ 10__ 10__ 40__ 9__ 12__ 10
Interest expense__ (54__ )__ (56__ )__ (98__ )__ (53__ )__ (261__ )__ (64__ )__ (57__ )__ (63__ )
Minority interests__ (115__ )__ (110__ )__ (76__ )__ (64__ )__ (365__ )__ (67__ )__ (70__ )__ (84__ )
Corporate expense__ (86__ )__ (101__ )__ (101__ )__ (100__ )__ (388__ )__ (82__ )__ (91__ )__ (77__ )
Restructuring and other charges__ (18__ )__ 21__ (311__ )__ 1__ (307__ )__ (30__ )__ (2__ )__ (29__ )
Discontinued operations__ (11__ )__ (1__ )__ (3__ )__ 8__ (7__ )__ -__ -__ (1__ )
Other__ 14__ (22__ )__ 446__ 303__ 741__ (98__ )__ (32__ )__ (116__ )
Consolidated net income__ $662__ $715__ $555__ $632__ $2,564__ $303__ $546__ $268
TABLE
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.
TABLE
Alcoa and subsidiaries Calculation of Financial Measures (unaudited) (in millions)
Bloomberg Return on Capital (1)__ Bloomberg Return on Capital, 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 interests__ 399__ 285__ Minority interests__ 399__ 285
Interest expense__ Interest 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 Balances__ Average Balances
Short-term borrowings__ $497__ $537__ Short-term borrowings__ $497__ $537
Short-term debt__ 525__ 126__ Short-term debt__ 525__ 126
Commercial paper__ 1,275__ 782__ Commercial paper__ 1,275__ 782
Long-term debt__ 5,390__ 7,351__ Long-term debt__ 5,390__ 7,351
Preferred stock__ 55__ 55__ Preferred stock__ 55__ 55
Minority interests__ 1,927__ 2,532__ Minority interests__ 1,927__ 2,532
Common equity (2)__ 15,255__ 15,435__ Common 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__ 11.8__ %__ 8.7__ %__ Return on capital, excluding growth investments__ 14.6__ %__ 11.5__ %
TABLE
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.
TABLE
Alcoa and subsidiaries
Calculation of Financial Measures (unaudited), continued
(in millions)
Third-party Sales
Quarter ended
September 30, 2007__ September 30, 2008
Alcoa__ $7,387__ $7,234
Divested businesses (a)__ 885__ –
Alcoa, excluding divested businesses__ $6,502__ $7,234
TABLE
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.
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