Alcoa Inc
Investor Contact:
William F. Oplinger, 212-836-2674
Media Contact:
Kevin Lowery, 412-553-1424
www.alcoa.com
Alcoa's Income From Continuing Operations Rises 40
Percent Over Previous Year's Result
Highlights of the quarter:
-- Income from continuing operations at $283 million, or $0.33 per
diluted share, is up 24 percent from the $229 million, or $0.27 per
share, in the previous quarter and up 40 percent from the $202
million, or $0.24 per share, in the year-ago quarter
-- Gross margin improves to 20.8 percent, strongest in two years;
administrative and sales expense down 12 percent from the previous
quarter to 5.7 percent of sales
-- Cost savings at $23 million in the quarter, bringing the company
within $9 million in quarterly cost savings toward its $1 billion goal
-- Significant progress on debt reduction with the company's total
debt-to-capitalization ratio falling 160 basis points from the
previous quarter to 38.8 percent
Alcoa today reported third quarter income from continuing operations
of $283 million, or $0.33 per diluted share, compared to $229 million,
or $0.27 per share, in the second quarter. This quarter's results were
a 40 percent improvement over income from continuing operations of
$202 million or $0.24 per share in the third quarter last year.
Net income in the third quarter was $280 million, or $0.33 per share,
up 30 percent from the $216 million, or $0.26 per share, in the second
quarter, and up from $193 million, or $0.23 per share, in the third
quarter of 2002. Both income from continuing operations and net income
are measures recognized by Generally Accepted Accounting Principles.
"We achieved a double-digit increase in profitability despite
traditional seasonal weakness in the automotive and European markets,"
said Alain Belda, Chairman and CEO of Alcoa. "Strength in the alumina
market and continued focus on productivity and cost control helped
deliver the most profitable quarter in two years. As business
conditions improve, we are well positioned to drive greater
profitability."
Market Overview
Sales were $5.3 billion, up 3 percent over the third quarter of 2002
and down 3 percent on a sequential basis. A robust alumina market
helped the company reach its highest level of third party alumina
shipments since the first quarter of 2001. Stronger aluminum prices
overcame weaker metal shipments, due in part to the disruption at the
Alumar smelter in Sao Luis, Brazil. The building and construction and
commercial transportation sectors both showed improvement, while
European industrial and North American automotive markets demonstrated
typical seasonal weakness.
Driving Cost Savings
The company's margins improved from the previous quarter to 20.8
percent, their strongest level in two years. Sales and administrative
expense fell 12 percent in the quarter with lower spending across the
board.
The company achieved $23 million in cost savings in the quarter and
has now achieved $964 million toward its $1 billion cost savings goal
set for the end of 2003. The company remains on track to meet that
challenge.
The third quarter tax rate of 22 percent includes tax benefits
associated with the expiration of a prior international audit period.
The tax rate for the fourth quarter is expected to be 30.5 percent.
Strengthening the Balance Sheet
The company has reduced its debt by nearly $1 billion in the past 6
months, cutting its debt-to-capital ratio by 460 basis points. The
debt-to-capital ratio now stands at 38.8 percent, 160 basis points
lower than the close of the second quarter.
The substantial improvement in the balance sheet was driven by
improved profitability, lower working capital, tight control on
capital expenditures, and the closing of a previously announced
acquisition in South American operations, primarily the facilities of
Alcoa Aluminio S.A. in Brazil. Capital expenditures were below last
year's level by approximately 33 percent and ran at 70 percent of
depreciation.
The fourth quarter will show additional improvement as asset sales are
completed. The recently completed sale of the company's Latin American
PET packaging business will be reflected in the fourth quarter, and
the company continues to pursue its previously announced divestiture
of non-core businesses. Proceeds from those sales will be used
primarily to pay down debt.
Expanding Low-Cost Facilities
In the quarter, Alcoa continued to seize opportunities to improve its
low cost position as a supplier of primary metals and alumina. The
company took steps forward on two low-cost greenfield smelter
projects, signing memoranda of understanding in both Bahrain and
Brunei. It is moving ahead with brownfield alumina expansions at its
facilities in Pinjarra, Australia and Suriname.
In addition, the company continued to drive costs down at its U.S.
smelters and approved the expansion of a mine operation at Rockdale,
Texas that will be a source of low-cost power for its smelter there.
Providing Solutions to Customers
Alcoa continued to strengthen its performance this quarter by
developing solutions that add value for its customers. During the
quarter, Alcoa's AFL Automotive business was named by Volkswagen of
Mexico as the design and development supplier for electrical
distribution systems on the 2005 model year Jetta/Bora programs. This
follows on the heels of Alcoa being awarded the contract to supply
aluminum for the hoods of Ford Motor Company's recently re-designed
F-150 pick-up truck. The 2004 F-150 is an all-new version of the
country's best-selling truck for the past 25 years and the
best-selling vehicle of any type for the past 20 years.
In the Commercial Transportation market, Alcoa's Dura-Bright(R) Wheel
Finish received RoadStar magazine's Most Valuable Product Award and
the Alcoa Wheels and Forged Products business expanded the
availability of Dura-Bright wheels into the wide base line and they
are now included in several truck and trailer data books.
And in its consumer products businesses Alcoa's Reynolds(R) consumer
products and Presto(R) products were named best in class by retailers
throughout North America and by readers of PLBuyer magazine.
Quarterly Analyst Workshop
Alcoa's quarterly analyst workshop will be at 4:00 p.m. EDT on
Thursday, October 23, 2003. The meeting will be web cast via
alcoa.com. Call information and related information will be available
at www.alcoa.com under "Invest."
About Alcoa
Alcoa is the world's leading producer of primary aluminum, fabricated
aluminum and alumina, and is active 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, Alcoa also markets consumer brands including Reynolds
Wrap(R) foils and plastic wraps, Alcoa(R) wheels, and Baco(R)
household wraps. Among its other businesses are vinyl siding,
closures, fastening systems, precision castings, and electrical
distribution systems for cars and trucks. The company has 127,000
employees in 40 countries. More information can be found at
www.alcoa.com
Alcoa Business System
The Alcoa Business System is an integrated set of systems, tools and
language organized to encourage unencumbered transfer of knowledge
across businesses and borders. It focuses on serving customer demand
by emphasizing the elimination of all waste and making what the
customer wants, when the customer wants it.
Forward Looking Statement
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.
Important factors that could cause actual results to differ materially
from those in the forward-looking statements include (a) the company's
inability to complete or to complete in the anticipated timeframe
pending divestitures, acquisitions or expansion projects or to realize
the projected amount of proceeds from divestitures, (b) the company's
inability to achieve the level of cost savings or productivity
improvements anticipated by management, (c) unexpected changes in
global economic, business, competitive, market and regulatory factors,
and (d) the other risk factors summarized in Alcoa's 2002 Form 10-K
Report and other SEC reports.
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Quarter ended
September 30 September 30 June 30
2003 2002 (a) 2003 (a)
--------------------------------------------
Sales $ 5,322 $ 5,160 $ 5,485
Cost of goods sold 4,213 4,095 4,368
Selling, general
administrative and
other
expenses 303 265 345
Research and
development
expenses 47 53 50
Provision for
depreciation,
depletion and
amortization 295 287 303
Special items 1 39 (15)
Interest expense 74 95 81
Other income, net (41) (23) (57)
------------ ------------ ------------
4,892 4,811 5,075
Income from
continuing
operations before
taxes on income 430 349 410
Provision for taxes
on income 93 98 106
------------ ------------ ------------
Income from
continuing
operations before
minority
interests' share 337 251 304
Less: Minority
interests' share 54 49 75
------------ ------------ ------------
Income from
continuing
operations 283 202 229
Loss from
discontinued
operations (3) (9) (13)
Cumulative effect of
accounting change - - -
------------ ------------ ------------
NET INCOME $ 280 $ 193 $ 216
============ ============ ============
Earnings (loss) per
common share:
Basic:
Income from
continuing
operations $ .33 $ .24 $ .27
Loss from
discontinued
operations - (.01) (.01)
Cumulative
effect of
accounting
change - - -
------------ ------------ ------------
Net income $ .33 $ .23 $ .26
============ ============ ============
Diluted:
Income from
continuing
operations $ .33 $ .24 $ .27
Loss from
discontinued
operations - (.01) (.01)
Cumulative
effect of
accounting
change - - -
------------ ------------ ------------
Net income $ .33 $ .23 $ .26
============ ============ ============
Average number of
shares used to
compute:
Basic earnings
per common share 855,477,116 844,272,163 845,601,440
Diluted earnings
per common share 859,375,461 847,289,635 847,468,083
Shipments of
aluminum products
(metric tons) 1,255,000 1,312,000 1,260,000
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Nine months ended
September 30 September 30
2003 2002 (a)
-----------------------------
Sales $ 15,941 $ 15,218
Cost of goods sold 12,672 12,171
Selling, general administrative and
other expenses 944 810
Research and development expenses 147 156
Provision for depreciation,
depletion and amortization 883 813
Special items (18) 39
Interest expense 243 253
Other income, net (135) (112)
------------ ------------
14,736 14,130
Income from continuing operations
before taxes on income 1,205 1,088
Provision for taxes on income 308 328
------------ ------------
Income from continuing operations
before
minority interests' share 897 760
Less: Minority interests' share 188 137
------------ ------------
Income from continuing operations 709 623
Loss from discontinued operations (15) (14)
Cumulative effect of accounting
change (47) 34
------------ ------------
NET INCOME $ 647 $ 643
============ ============
Earnings (loss) per common share:
Basic:
Income from continuing
operations $ .83 $ .74
Loss from discontinued
operations (.01) (.02)
Cumulative effect of accounting
change (.06) .04
------------ ------------
Net income $ .76 $ .76
============ ============
Diluted:
Income from continuing
operations $ .83 $ .73
Loss from discontinued
operations (.01) (.02)
Cumulative effect of accounting
change (.06) .04
------------ ------------
Net income $ .76 $ .75
============ ============
Average number of shares used to
compute:
Basic earnings per common share 849,336,567 845,712,344
Diluted earnings per common share 851,679,620 850,999,801
Common stock outstanding at the end
of the period 864,759,968 844,244,257
Shipments of aluminum products
(metric tons) 3,707,000 3,888,000
(a) Prior periods have been adjusted to reflect the reclassification
of the protective packaging business (acquired in the Ivex Packaging
Corporation acquisition in 2002) from discontinued operations to
continuing operations in the third quarter of 2003.
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
September 30 December 31
2003 2002 (b)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 393 $ 344
Receivables from customers, less
allowances:
$104 in 2003 and $120 in 2002 2,563 2,389
Other receivables 261 174
Inventories 2,534 2,450
Deferred income taxes 484 468
Prepaid expenses and other current assets 571 509
------- -------
Total current assets 6,806 6,334
------- -------
Properties, plants and equipment, at cost 24,490 23,167
Less: accumulated depreciation, depletion and
amortization 12,096 11,010
------- -------
Net properties, plants and equipment 12,394 12,157
------- -------
Goodwill 6,397 6,365
Other assets 4,819 4,450
Assets held for sale 573 504
------- -------
Total assets $30,989 $29,810
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings $ 34 $ 37
Accounts payable, trade 1,807 1,624
Accrued compensation and retirement costs 908 934
Taxes, including taxes on income 754 821
Other current liabilities 964 972
Long-term debt due within one year 164 85
------- -------
Total current liabilities 4,631 4,473
------- -------
Long-term debt, less amount due within one
year 7,657 8,365
Accrued postretirement benefits 2,256 2,320
Other noncurrent liabilities and deferred
credits 3,373 2,878
Deferred income taxes 567 502
Liabilities of operations held for sale 108 52
------- -------
Total liabilities 18,592 18,590
------- -------
MINORITY INTERESTS 1,280 1,293
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 5,879 6,101
Retained earnings 7,560 7,428
Treasury stock, at cost (2,156) (2,828)
Accumulated other comprehensive loss (1,146) (1,754)
------- -------
Total shareholders' equity 11,117 9,927
------- -------
Total liabilities and equity $30,989 $29,810
======= =======
(b) The prior period has been adjusted to reflect the reclassification
of the protective packaging business (acquired in the Ivex Packaging
Corporation acquisition in 2002) from discontinued operations to
continuing operations in the third quarter of 2003.
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)
Consolidated
Third-Party
Revenues: 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03 3Q03
------------------------------------------------------
Alumina and
Chemicals 425 419 469 430 1,743 449 491 526
Primary Metals 764 788 792 830 3,174 732 805 816
Flat-Rolled
Products 1,156 1,192 1,162 1,130 4,640 1,152 1,200 1,176
Engineered
Products 1,319 1,330 1,238 1,131 5,018 1,361 1,420 1,333
Packaging and
Consumer (c) 618 672 768 870 2,928 772 859 835
Other 618 757 731 700 2,806 668 710 636
----------------------------------------------------------------------
Total 4,900 5,158 5,160 5,091 20,309 5,134 5,485 5,322
======================================================================
Consolidated
Intersegment
Revenues: 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03 3Q03
------------------------------------------------------
Alumina and
Chemicals 229 233 235 258 955 240 248 258
Primary Metals 629 770 637 619 2,655 840 690 740
Flat-Rolled
Products 15 18 21 14 68 20 15 17
Engineered
Products 8 10 8 8 34 9 5 5
Packaging and
Consumer - - - - - - - -
Other - - - - - - - -
----------------------------------------------------------------------
Total 881 1,031 901 899 3,712 1,109 958 1,020
======================================================================
Consolidated
Third-Party
Shipments
(KMT's): 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03 3Q03
------------------------------------------------------
Alumina and
Chemicals 1,825 1,796 1,939 1,926 7,486 1,794 1,939 1,982
Primary Metals 503 507 517 546 2,073 453 495 488
Flat-Rolled
Products 439 456 446 433 1,774 434 453 450
Engineered
Products 221 244 223 203 891 217 214 215
Packaging and
Consumer 30 31 46 55 162 36 42 40
Other 58 87 80 83 308 52 56 62
----------------------------------------------------------------------
Total
Aluminum 1,251 1,325 1,312 1,320 5,208 1,192 1,260 1,255
======================================================================
Average realized
price
-Primary 0.66 0.67 0.66 0.66 0.66 0.69 0.68 0.71
======================================================================
After-Tax
Operating
Income (ATOI): 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03 3Q03
------------------------------------------------------
Alumina and
Chemicals 65 73 93 84 315 91 89 113
Primary Metals 143 175 175 157 650 166 162 163
Flat-Rolled
Products 61 66 46 47 220 53 56 59
Engineered
Products 58 44 33 (28) 107 29 44 46
Packaging and
Consumer (c) 28 55 51 66 200 55 59 54
Other 7 19 8 (43) (9) 9 17 8
----------------------------------------------------------------------
Total 362 432 406 283 1,483 403 427 443
======================================================================
Reconciliation
of ATOI to
consolidated
net income: (c) 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03 3Q03
------------------------------------------------------
Total ATOI 362 432 406 283 1,483 403 427 443
Impact of
intersegment
profit
eliminations (3) (1) (5) 3 (6) 7 (4) 2
Unallocated
amounts
(net of tax):
Interest
income 10 9 7 5 31 5 6 7
Interest
expense (49) (54) (62) (62) (227) (57) (52) (49)
Minority
interests (41) (47) (49) 2 (135) (59) (75) (54)
Corporate
expense (58) (53) (40) (83) (234) (57) (81) (65)
Special items - - (25) (261) (286) 4 10 (1)
Discontinued
operations - (5) (9) (100) (114) 1 (13) (3)
Accounting
change 34 - - - 34 (47) - -
Other (37) (49) (30) (10) (126) (49) (2) -
----------------------------------------------------------------------
Consolidated
net income 218 232 193 (223) 420 151 216 280
======================================================================
(c) Prior periods have been adjusted to reflect the reclassification
of the protective packaging business (acquired in the Ivex Packaging
Corporation acquisition in 2002) from discontinued operations to
continuing operations in the third quarter of 2003.
SUPPLEMENTAL FINANCIAL INFORMATION
Alcoa and subsidiaries
Net Income and EPS Information (unaudited)
(in millions, except per-share amounts)
Net Income Diluted EPS
--------------------- -----------------------
3Q03 2Q03 3Q02 3Q03 2Q03 3Q02
---------------------------------------------- -----------------------
GAAP Net income $ 280 $ 216 $ 193 $0.33 $0.26 $0.23
Cumulative effect of
accounting change - - - - - -
Discontinued operations
- operating (income)
loss 3 - 9 - - .01
Discontinued operations
- loss on divestitures - 13 - - .01 -
----------------------------------------------------------------------
GAAP Income from
continuing operations $ 283 $ 229 $ 202 $0.33 $0.27 $0.24
----------------------------------------------------------------------
Special items (2):
Restructurings 1 12 23 - .01 .03
(Gain)loss on
divestitures - (10) - - (.01) -
----------------------------------------------------------------------
Income from continuing
operations excluding
charges for
restructurings
and divestitures (1) $ 284 $ 231 $ 225 $0.33 $0.27 $0.27
======================================================================
Average diluted shares
outstanding 859 847 847
(1) Alcoa believes that income from continuing operations
excluding charges for restructurings and divestitures is a measure
that should be presented in addition to income from continuing
operations determined in accordance with GAAP. The following matters
should be considered when evaluating this non-GAAP financial measure:
-- Alcoa reviews the operating results of its businesses
excluding the impacts of restructurings and divestitures.
Excluding the impacts of these charges can provide an
additional basis of comparison. Management believes that these
charges are unusual in nature, and would not be indicative of
ongoing operating results. As a result, management believes
these charges should be considered in order to compare past,
current, and future periods.
-- The economic impacts of the restructuring and divestiture
charges are described in the footnotes to Alcoa's financial
statements. Generally speaking, charges associated with
restructurings include cash and non-cash charges and are the
result of employee layoff, plant consolidation of assets, or
plant closure costs. These actions are taken in order to
achieve a lower cost base for future operating results.
-- Charges associated with divestitures principally represent
adjustments to the carrying value of certain assets and
liabilities and do not typically require a cash payment. These
actions are taken primarily for strategic reasons as the
company has decided not to participate in this portion of the
portfolio of businesses.
-- Alcoa's growth over the last five years, and the onset of the
manufacturing recession led to the aforementioned charges in
2001 and 2002. Before the start of the current manufacturing
recession, Alcoa last recorded charges associated with
restructuring and divestitures in 1997.
-- Restructuring and divestiture charges are typically material
and are considered to be outside the normal operations of a
business. Corporate management is responsible for making
decisions about restructurings and divestitures.
-- There can be no assurance that additional restructurings and
divestitures will not occur in future periods. To compensate
for this limitation, management believes that it is
appropriate to consider both income from continuing operations
determined under GAAP as well as income from continuing
operations excluding restructuring and divestiture charges.
(2) Special items totaled $15 of income for the second quarter
before taxes and minority interests. The amount is comprised of
adjustments to the estimated proceeds on several businesses to be
divested that resulted in net gains, and was offset by additional
layoff charges primarily for businesses serving the aerospace and
primary metals markets. After tax and minority interests, special
items amounted to a loss of $2 in the quarter.