Cost Control, Strategic Acquisitions Highlight Alcoa Third Quarter
PITTSBURGH--Oct. 4, 2002--Alcoa today reported earnings for the 2002 third quarter of $216 million, or 26 cents per diluted share, excluding a special after-tax charge of $23 million, or three cents per share, principally related to the previously announced curtailment of production in the company's primary smelting operations (http://www.alcoa.com/july31news). Including the special charge, net income was $193 million, or 23 cents per share, compared with net income of $232 million, or 27 cents per share, in the second quarter of 2002."Despite lower aluminum prices and idle capacity, our alumina and primary metals businesses performed well. These upstream businesses partially offset continued weakness in the aerospace, industrial gas turbine and telecommunications markets. We are looking beyond the challenging global economy, and are focused on managing those things that are in our control," said Chairman and CEO Alain Belda.
"In the short term, our restructuring activities and deployment of the Alcoa Business System (ABS) are helping to lessen the impact of continuing weak economic conditions. In the long term, they will position us to capture opportunities and efficiencies as conditions improve."
The three-month LME price for primary aluminum fell two cents a pound, or 3.5%, from the second quarter of 2002. Compared with the third quarter of 2001, the LME three-month average price declined three cents a pound, or 5.3%.
At the end of the 2002 third quarter, Alcoa had achieved $560 million in annualized cost savings and remains confident it will achieve its $1.0 billion 2003 goal. The run rate at the end of the third quarter was $140 million, compared with $123 million in the prior quarter.
In this quarter, Alcoa continued its strategic growth initiative on several fronts: completed purchase of Ivex Packaging, a specialty packaging company; announced acquisition of Fairchild Fasteners, a high-tech aerospace supplier; and increased its stake in Elkem to 46.2%. Ivex's operations are being integrated and its contribution to Alcoa's margins will begin in the fourth quarter. The company has already achieved $8 million of the anticipated $75 million in annual cost synergies as it integrates Ivex. These savings are in addition to the $1.0 billion 2003 cost savings goal.
Alcoa has approximately 438,000 metric tons (mt) of aluminum production idled on a base capacity of 3,948,000 mtpy.
Quarterly Analyst Meeting; Facility Tour
Alcoa's quarterly analyst meeting will be at 4:00 p.m. EDST on Monday, October 21, 2002. The meeting will be webcast via www.alcoa.com
On November 7 and 8, analysts and media will tour the Alcoa Technical Center. At that time, presentations will be posted on alcoa.com.
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) products, Alcoa(R) wheels, and Baco(R) household wraps. Among its other businesses are vinyl siding, closures, precision castings, and electrical distribution systems for cars and trucks. The company has 129,000 employees in 38 countries.
Editor's Note: 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.
Alcoa
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 the company's inability to achieve the level of cost savings or productivity improvements anticipated by management, including possible increases in the cost of doing business resulting from war or terrorist activities; and other risk factors summarized in Alcoa's SEC reports.
FINANCIAL REPORT
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Nine months ended
September 30
------------
2002 2001
---- ----
Sales $ 15,450 $ 17,678
Cost of goods sold 12,405 13,548
Selling, general administrative
and other expenses 823 922
Research and development expenses 156 151
Provision for depreciation,
depletion and amortization 820 939
Special items 39 212
Interest expense 253 293
Other income, net (112) (196)
------------- -------------
14,384 15,869
Income before taxes on income 1,066 1,809
Provision for taxes on income 320 579
------------- -------------
Income from operations 746 1,230
Less: Minority interests' share 137 180
------------- -------------
Income before accounting change 609 1,050
Cumulative effect of accounting
change for goodwill 34 -
------------- -------------
NET INCOME $ 643 $ 1,050
------------- -------------
------------- -------------
Earnings per common share:
Basic (before cumulative effect) $ 0.72 $ 1.22
Basic (after cumulative effect) $ 0.76 $ 1.22
Diluted (before cumulative effect) $ 0.71 $ 1.21
Diluted (after cumulative effect) $ 0.75 $ 1.21
Average number of shares used to compute:
Basic earnings per common share 845,712,344 860,901,124
Diluted earnings per common share 850,999,801 870,105,171
Common stock outstanding at the
end of the period 844,244,257 849,839,940
Currency translation adjustments
included in net income $ (6) $ 4
Shipments of aluminum products
(metric tons) 3,913,000 3,824,000
Return on average shareholders' equity 7.9% 12.6%
The effects of adopting SFAS No. 142 on net income and diluted
earnings per share for the nine-month periods ended September 30, 2002
and 2001 follow.
Net Income Diluted EPS
---------- -----------
2002 2001 2002 2001
---- ---- ---- ----
Net Income $ 643 $1,050 $ .75 $ 1.21
Less: cumulative effect
income from accounting
change for goodwill (34) - (.04) -
--------- -------- -------- --------
Income excluding cumulative
effect 609 1,050 .71 1.21
Add: goodwill amortization - 128 - .15
--------- -------- -------- --------
Income excluding cumulative
effect in 2002 and goodwill
amortization in 2001 $ 609 $1,178 $ .71 $ 1.36
--------- -------- -------- --------
--------- -------- -------- --------
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Third quarter ended
September 30
------------
2002 2001
---- ----
Sales $ 5,222 $ 5,511
Cost of goods sold 4,165 4,228
Selling, general administrative
and other expenses 268 273
Research and development expenses 53 47
Provision for depreciation,
depletion and amortization 290 309
Special items 39 -
Interest expense 95 85
Other income, net (23) 3
------------ ------------
4,887 4,945
Income before taxes on income 335 566
Provision for taxes on income 93 175
------------ ------------
Income from operations 242 391
Less: Minority interests' share 49 52
------------ ------------
Income before accounting change 193 339
Cumulative effect of accounting
change for goodwill - -
------------ ------------
NET INCOME $ 193 $ 339
------------ ------------
------------ ------------
Earnings per common share:
Basic (before cumulative effect) $ 0.23 $ 0.40
Basic (after cumulative effect) $ 0.23 $ 0.40
Diluted (before cumulative effect) $ 0.23 $ 0.39
Diluted (after cumulative effect) $ 0.23 $ 0.39
Average number of shares used to compute:
Basic earnings per common share 844,272,163 855,782,046
Diluted earnings per common share 847,289,635 864,386,294
Currency translation adjustments
included in net income $ (6) $ (20)
Shipments of aluminum products
(metric tons) 1,321,000 1,212,000
The effects of adopting SFAS No. 142 on net income and diluted
earnings per share for the three-month periods ended September 30,
2002 and 2001 follow.
Net Income Diluted EPS
---------- -----------
2002 2001 2002 2001
---- ---- ---- ----
Net Income $193 $339 $ .23 $ .39
Less: cumulative effect
income from accounting
change for goodwill - - - -
--------- -------- -------- --------
Income excluding cumulative
effect 193 339 .23 .39
Add: goodwill amortization - 41 - .05
--------- -------- -------- --------
Income excluding cumulative
effect in 2002 and goodwill
amortization in 2001 $193 $380 $ .23 $ .44
--------- -------- -------- --------
--------- -------- -------- --------
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet
(in millions)
(unaudited)
September December
30 31
2002 2001
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $463 $512
Short-term investments 74 15
Receivables from customers, less allowances:
$119 in 2002 and $129 in 2001 2,662 2,577
Other receivables 259 288
Inventories 2,388 2,531
Deferred income taxes 382 410
Prepaid expenses and other current assets 538 459
----------- ----------
Total current assets 6,766 6,792
Properties, plants and equipment, at cost 23,000 22,536
Less: accumulated depreciation, depletion and
amortization 10,787 10,554
----------- ----------
Net properties, plants and equipment 12,213 11,982
----------- ----------
Goodwill 6,314 5,733
Other assets 3,882 3,848
----------- ----------
Total assets $29,175 $28,355
----------- ----------
----------- ----------
LIABILITIES
Current liabilities:
Short-term borrowings $98 $142
Accounts payable, trade 1,591 1,630
Accrued compensation and retirement costs 860 889
Taxes, including taxes on income 621 903
Other current liabilities 1,146 1,336
Long-term debt due within one year 96 103
----------- ----------
Total current liabilities 4,412 5,003
----------- ----------
Long-term debt, less amount due within one year 7,938 6,388
Accrued postretirement benefits 2,408 2,513
Other noncurrent liabilities and deferred
credits 1,817 1,968
Deferred income taxes 588 556
----------- ----------
Total liabilities 17,163 16,428
----------- ----------
MINORITY INTERESTS 1,284 1,313
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 56
Common stock 925 925
Additional capital 6,096 6,114
Retained earnings 7,651 7,517
Treasury stock, at cost (2,845) (2,706)
Accumulated other comprehensive loss (1,154) (1,292)
----------- ----------
Total shareholders' equity 10,728 10,614
----------- ----------
Total liabilities and equity $29,175 $28,355
----------- ----------
----------- ----------
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)
Consolidated
Third-Party 1Q01 2Q01 3Q01 4Q01 2001 1Q02 2Q02 3Q02
Revenues
----- ----- ----- ----- ----- ----- ----- -----
Alumina and
Chemicals 547 490 454 417 1,908 425 419 469
Primary Metals 967 972 808 685 3,432 764 788 792
Flat-Rolled
Products 1,343 1,255 1,219 1,182 4,999 1,156 1,192 1,162
Engineered
Products 1,593 1,582 1,514 1,409 6,098 1,396 1,411 1,311
Packaging and
Consumer 646 701 671 702 2,720 624 678 757
Other 1,080 991 845 786 3,702 618 757 731
----- ----- ----- ----- ----- ----- ----- -----
Total 6,176 5,991 5,511 5,181 22,859 4,983 5,245 5,222
Consolidated
Intersegment 1Q01 2Q01 3Q01 4Q01 2001 1Q02 2Q02 3Q02
Revenues
----- ----- ----- ----- ----- ----- ----- -----
Alumina and
Chemicals 283 275 246 217 1,021 229 233 235
Primary Metals 867 887 839 707 3,300 878 1,001 888
Flat-Rolled
Products 16 15 20 13 64 15 18 21
Engineered
Products 9 8 9 9 35 8 10 8
Packaging and
Consumer 0 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0 0
----- ----- ----- ----- ----- ----- ----- -----
Total 1,175 1,185 1,114 946 4,420 1,130 1,262 1,152
Consolidated
Third-Party 1Q01 2Q01 3Q01 4Q01 2001 1Q02 2Q02 3Q02
Shipments
(KMT's)
----- ----- ----- ----- ----- ----- ----- -----
Alumina and
Chemicals 2,031 1,730 1,789 1,667 7,217 1,825 1,796 1,939
Primary Metals 476 494 448 455 1,873 503 507 517
Flat-Rolled
Products 470 450 442 456 1,818 439 456 446
Engineered
Products 254 242 232 204 932 228 252 231
Packaging and
Consumer 42 41 33 27 143 31 31 47
Other 78 65 57 28 228 58 87 80
----- ----- ----- ----- ----- ----- ----- -----
Total Aluminum 1,320 1,292 1,212 1,170 4,994 1,259 1,333 1,321
Average
realized
price
-Primary 0.77 0.73 0.71 0.65 0.72 0.66 0.67 0.66
After-Tax
Operating 1Q01 2Q01 3Q01 4Q01 2001 1Q02 2Q02 3Q02
Income (1)
----- ----- ----- ----- ----- ----- ----- -----
Alumina and
Chemicals 166 130 115 60 471 65 73 93
Primary Metals 294 264 216 131 905 143 175 175
Flat-Rolled
Products 65 74 59 64 262 61 66 46
Engineered
Products 40 60 62 11 173 51 45 25
Packaging and
Consumer 43 47 47 48 185 28 55 51
Other 50 45 4 (52) 47 7 19 8
----- ----- ----- ----- ----- ----- ----- -----
Total 658 620 503 262 2,043 355 433 398
Reconciliation
of after-tax
operating
income (ATOI)
to 1Q01 2Q01 3Q01 4Q01 2001 1Q02 2Q02 3Q02
consolidated
net income
----- ----- ----- ----- ----- ----- ----- -----
Total ATOI 658 620 503 262 2,043 355 433 398
Impact of
intersegment
profit
eliminations 4 (8) (14) (2) (20) (3) (1) (5)
Unallocated
amounts (net
of tax):
Interest
income 8 12 10 10 40 10 9 7
Interest
expense (75) (61) (55) (51) (242) (49) (54) (62)
Minority
interests (96) (32) (52) (28) (208) (41) (47) (49)
Corporate
expense (66) (66) (45) (84) (261) (58) (53) (40)
Special items - (148) - (249) (397) - - (25)
Accounting
change - - - - - 34 - -
Other (29) (10) (8) - (47) (30) (55) (31)
----- ----- ----- ----- ----- ----- ----- -----
Consolidated
net income 404 307 339 (142) 908 218 232 193
(1) Under the provisions of SFAS No. 142, effective January 1, 2002,
goodwill is no longer amortized. This resulted in a positive impact to
segment ATOI results in the 2002 third quarter as follows: Primary $6,
Flat-Rolled Products ($2), Engineered Products $15, Packaging and
Consumer $4, and Other $7. $11 was recorded in corporate.