Alcoa's Income From Continuing Operations Up 16 Percent Over Sequential Quarter, Revenues Climb 7 Percent
NEW YORK--July 8, 2003--AlcoaHighlights of the quarter:
| -- | GAAP income from continuing operations was $227 million or $0.27 per diluted share, up 16 percent from $195 million, $0.23, in the first quarter |
| -- | Revenue was $5.5 billion, the strongest quarterly performance since 2001 |
| -- | Cost savings were $16 million in the quarter, bringing the company's annual run rate on savings to $872 million |
| -- | Downstream segments showed improved profitability over the first quarter |
| -- | Debt reduced by $722 million in the quarter, biggest decline since the first quarter of 2001 |
Alcoa today reported second quarter income from continuing operations of $227 million or $0.27 per diluted share, compared to $195 million, $0.23, in the first quarter. Income from continuing operations was $237 million, $0.28, in the second quarter of 2002.
Net income in the second quarter was $216 million, $0.26, up 43 percent from $151 million, $0.17, in the first quarter, and down from $232 million, $0.27, in the 2002 second quarter. Both income from continuing operations and net income are measures recognized by Generally Accepted Accounting Principles.
"We demonstrated an ability to improve profitability in what is still a challenging climate by any measure," said Alain Belda, Chairman and CEO of Alcoa. "Improved performance by our downstream businesses and seasonal strength in packaging helped drive double-digit profit growth over the first quarter."
Continued Top-Line Growth
Sales were $5.5 billion up 7 percent from $5.1 billion in the first quarter, and up 6 percent from $5.2 billion in the second quarter of 2002. Strong aluminum ingot shipments and a robust global alumina market drove the improvement. Both packaging and residential construction markets saw seasonal improvements, helping boost revenue to its highest level since the third quarter of 2001.
Automotive markets were flat in the quarter, and European demand for fabricated products showed weakness. Global markets in aerospace, industrial gas turbine and telecommunications remained soft.
"Given the uncertain climate, our continuing focus will be on productivity improvements and cash generation through the deployment of the Alcoa Business System," said Belda. "While we have not seen signs of market improvements, we are well positioned to reap the benefits of any upturn."
Driving Cost Savings
The company achieved $16 million in savings in the quarter. Second quarter energy and benefit costs were substantially higher than the previous year.
Despite higher energy, raw material, and benefit costs, the company's margins held steady over the prior year at 20.4 percent. Alcoa has now achieved $872 million toward its $1 billion cost savings goal by the end of 2003 and remains solidly on track to meet that challenge. Energy costs are excluded from the cost challenge because of their volatility.
The second quarter tax rate of 26 percent includes a benefit for recently enacted international tax legislation. A substantial portion of that benefit is offset by an increase in minority interest. The company expects the full-year tax rate for 2003 to be lower than the rate in the first quarter.
Expanding Low-Cost Facilities
In the quarter, Alcoa continued to seize opportunities to consolidate and improve its low cost position as a supplier of primary metals and alumina. As previously announced, the company reached an agreement to acquire the 40.9 percent minority stake in its South American operations, primarily mining, refining, smelting and fabrication facilities of Alcoa Aluminio S.A. in Brazil. The company also has begun engineering for a 600,000 metric ton expansion of its low-cost refining facility in Pinjarra, Western Australia.
Strengthening the Balance Sheet
In the quarter, Alcoa reached an agreement to sell its PET business in Latin America, and continues to pursue the divestiture of non-core businesses. Proceeds from those sales will primarily be used to pay down debt.
The balance sheet showed substantial improvement in the quarter due to improved profitability, lower working capital, a partial pre-payment on a metal supply contract, and tight control on capital expenditures. Capital expenditures were below last year's level by approximately 35 percent and ran at 70 percent of depreciation. The metal supply contract included a cash pre-payment of $440 million, and represents 7500 tons per month over 72 months at market rates.
The debt-to-capital ratio dropped 300 basis points to 40.4 percent. The $722 million decline in debt was the largest single quarterly decrease since the first quarter of 2001. The third quarter should show additional improvement as the purchase of the Latin American interests and additional asset sales are expected, along with continued restraint on capital expenditures.
Providing Solutions to Customers
Alcoa continued to strengthen its performance this quarter by developing solutions that add value for its customers. AFL Automotive, for example, recently received PACCAR's preferred supplier award, the highest award PACCAR bestows upon its vendors; received Subaru's President's award for outstanding quality and delivery performance; and was named the full-service supplier of electrical distribution systems for the next generation Ford F-250 Super Duty Truck Program. It will design and manufacture both wire harnesses and electrical centers for the new F-250 program.
Alcoa Mill Products also was chosen to supply aluminum for the hoods of Ford's recently re-designed F-150 pick-up truck as part of Alcoa's automotive market team. 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. It will feature the widest width aluminum closure produced in the North American automobile market.
In the aerospace market, Alcoa Howmet Castings was selected to supply two solutions -- a hydraulic vessel and cover - for the Airbus A380, joining a broad array of Alcoa solutions on this airplane. Alcoa Howmet Castings also was named by Honeywell to supply seven components for the Joint Strike Fighter (JSF) aircraft, joining Howmet's sole-source contracts with Pratt and Whitney Aircraft for all six of the turbine airfoils in the JSF main engine.
Quarterly Analyst Workshop
Alcoa's quarterly analyst workshop will be at 4:00 p.m. EDT on Monday, July 28, 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, 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
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Quarter ended
June 30 June 30 March 31
2003 2002 2003
------------ ------------ ------------
Sales $5,460 $5,158 $5,112
Cost of goods sold 4,347 4,108 4,073
Selling, general administrative
and other expenses 343 272 294
Research and development expenses 50 52 50
Provision for depreciation,
depletion and amortization 303 267 285
Special items (15) - (4)
Interest expense 81 83 88
Other income, net (57) (34) (37)
------------ ------------ ------------
5,052 4,748 4,749
Income from continuing
operations before taxes on
income 408 410 363
Provision for taxes on income 106 126 109
------------ ------------ ------------
Income from continuing
operations before
minority interests' share 302 284 254
Less: Minority interests'
share 75 47 59
------------ ------------ ------------
Income from continuing
operations 227 237 195
(Loss) income from
discontinued operations (11) (5) 3
Cumulative effect of
accounting change - - (47)
------------ ------------ ------------
NET INCOME $216 $232 $151
============ ============ ============
Earnings (loss) per common
share:
Basic:
Income from continuing
operations $.27 $.28 $.23
Loss from discontinued
operations (.01) (.01) -
Cumulative effect of
accounting change - - (.06)
------------ ------------ ------------
Net income $.26 $.27 $.17
============ ============ ============
Diluted:
Income from continuing
operations $.27 $.28 $.23
Loss from discontinued
operations (.01) (.01) -
Cumulative effect of
accounting change - - (.06)
------------ ------------ ------------
Net income $.26 $.27 $.17
============ ============ ============
Average number of shares used
to compute:
Basic earnings per common
share 845,601,440 845,712,405 845,065,093
Diluted earnings per common
share 847,468,083 851,877,799 846,328,622
Shipments of aluminum products
(metric tons) 1,260,000 1,325,000 1,192,000
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Six months ended
June 30 June 30
2003 2002
------------ ------------
Sales $10,572 $10,058
Cost of goods sold 8,420 8,076
Selling, general administrative and other
expenses 637 545
Research and development expenses 100 103
Provision for depreciation, depletion and
amortization 588 526
Special items (19) -
Interest expense 169 158
Other income, net (94) (89)
------------ ------------
9,801 9,319
Income from continuing operations before
taxes on income 771 739
Provision for taxes on income 215 230
------------ ------------
Income from continuing operations before
minority interests' share 556 509
Less: Minority interests' share 134 88
------------ ------------
Income from continuing operations 422 421
Loss from discontinued operations (8) (5)
Cumulative effect of accounting change ( 47) 34
------------ ------------
NET INCOME $367 $450
============ ============
Earnings (loss) per common share:
Basic:
Income from continuing operations $.50 $.50
Loss from discontinued operations (.01) (.01)
Cumulative effect of accounting change (.06) .04
------------ ------------
Net income $.43 $.53
============ ============
Diluted:
Income from continuing operations $.50 $.49
Loss from discontinued operations (.01) (.01)
Cumulative effect of accounting change (.06) .04
------------ ------------
Net income $.43 $.52
============ ============
Average number of shares used to compute:
Basic earnings per common share 845,358,393 846,351,690
Diluted earnings per common share 846,971,975 852,870,259
Common stock outstanding at the end of
the period 846,051,542 844,427,046
Shipments of aluminum products
(metric tons) 2,452,000 2,576,000
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
June 30 December 31
2003 2002
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $430 $344
Receivables from customers, less allowances:
$111 in 2003 and $120 in 2002 2,590 2,378
Other receivables 254 174
Inventories 2,524 2,441
Deferred income taxes 454 468
Prepaid expenses and other current assets 471 508
---------- -----------
Total current assets 6,723 6,313
---------- -----------
Properties, plants and equipment, at cost 24,149 23,120
Less: accumulated depreciation, depletion and
amortization 11,862 11,009
---------- -----------
Net properties, plants and equipment 12,287 12,111
---------- -----------
Goodwill 6,383 6,365
Other assets 4,740 4,446
Assets held for sale 638 575
---------- -----------
Total assets $30,771 $29,810
========== ===========
LIABILITIES
Current liabilities:
Short-term borrowings $24 $37
Accounts payable, trade 1,774 1,618
Accrued compensation and retirement costs 892 933
Taxes, including taxes on income 743 818
Other current liabilities 1,124 970
Long-term debt due within one year 88 85
---------- -----------
Total current liabilities 4,645 4,461
---------- -----------
Long-term debt, less amount due within
one year 7,945 8,365
Accrued postretirement benefits 2,279 2,320
Other noncurrent liabilities and deferred
credits 3,328 2,878
Deferred income taxes 552 502
Liabilities of operations held for sale 117 64
---------- -----------
Total liabilities 18,866 18,590
---------- -----------
MINORITY INTERESTS 1,516 1,293
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 6,088 6,101
Retained earnings 7,413 7,428
Treasury stock, at cost (2,792) (2,828)
Accumulated other comprehensive loss (1,300) (1,754)
---------- -----------
Total shareholders' equity 10,389 9,927
---------- -----------
Total liabilities and equity $30,771 $29,810
========== ===========
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)
Consolidated Third-
Party Revenues: 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03
------------------------------------------------
Alumina and
Chemicals 425 419 469 430 1,743 449 491
Primary Metals 764 788 792 830 3,174 732 805
Flat-Rolled Products 1,156 1,192 1,162 1,130 4,640 1,152 1,200
Engineered Products 1,319 1,330 1,238 1,131 5,018 1,361 1,420
Packaging and
Consumer 618 672 752 840 2,882 750 834
Other 618 757 731 700 2,806 668 710
----------------------------------------------------------------------
Total 4,900 5,158 5,144 5,061 20,263 5,112 5,460
======================================================================
Consolidated
Intersegment
Revenues: 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03
------------------------------------------------
Alumina and
Chemicals 229 233 235 258 955 240 248
Primary Metals 629 770 637 619 2,655 840 690
Flat-Rolled Products 15 18 21 14 68 20 15
Engineered Products 8 10 8 8 34 9 5
Packaging and Consumer - - - - - - -
Other - - - - - - -
----------------------------------------------------------------------
Total 881 1,031 901 899 3,712 1,109 958
======================================================================
Consolidated Third-
Party Shipments
(KMT's): 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03
------------------------------------------------
Alumina and
Chemicals 1,825 1,796 1,939 1,926 7,486 1,794 1,939
Primary Metals 503 507 517 546 2,073 453 495
Flat-Rolled Products 439 456 446 433 1,774 434 453
Engineered Products 221 244 223 203 891 217 214
Packaging and Consumer 30 31 46 55 162 36 42
Other 58 87 80 83 308 52 56
----------------------------------------------------------------------
Total Aluminum 1,251 1,325 1,312 1,320 5,208 1,192 1,260
======================================================================
Average realized price
-Primary 0.66 0.67 0.66 0.66 0.66 0.69 0.68
======================================================================
After-Tax Operating
Income (ATOI): 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03
------------------------------------------------
Alumina and
Chemicals 65 73 93 84 315 91 89
Primary Metals 143 175 175 157 650 166 162
Flat-Rolled Products 61 66 46 47 220 53 56
Engineered Products 58 44 33 (28) 107 29 44
Packaging and Consumer 28 55 51 64 198 53 57
Other 7 19 8 (43) (9) 9 17
----------------------------------------------------------------------
Total 362 432 406 281 1,481 401 425
======================================================================
Reconciliation of ATOI
to consolidated net
income: 1Q02 2Q02 3Q02 4Q02 2002 1Q03 2Q03
------------------------------------------------
Total ATOI 362 432 406 281 1,481 401 425
Impact of
intersegment profit
eliminations (3) (1) (5) 3 (6) 7 (4)
Unallocated amounts
(net of tax):
Interest income 10 9 7 5 31 5 6
Interest expense (49) (54) (62) (62) (227) (57) (52)
Minority interests (41) (47) (49) 2 (135) (59) (75)
Corporate expense (58) (53) (40) (83) (234) (57) (81)
Special items - - (25) (261) (286) 4 10
Discontinued
operations - (5) (9) (98) (112) 3 (11)
Accounting change 34 - - - 34 (47) -
Other (37) (49) (30) (10) (126) (49) (2)
----------------------------------------------------------------------
Consolidated net
income 218 232 193 (223) 420 151 216
======================================================================
SUPPLEMENTAL FINANCIAL INFORMATION
Alcoa and subsidiaries
Net Income and EPS Information (unaudited)
(in millions, except per-share amounts)
Net Income Diluted EPS
------------------- --------------------
2Q03 1Q03 2Q02 2Q03 1Q03 2Q02
------------------------------------------------- --------------------
GAAP Net income $216 $151 $232 $0.26 $0.17 $0.27
Cumulative effect of
accounting change - 47 - - .06 -
Discontinued operations
- operating (income) loss - (3) 5 - - .01
Discontinued operations
- loss on divestitures 11 - - .01 - -
----------------------------------------------------------------------
GAAP Income from
continuing operations $227 $195 $237 $0.27 $0.23 $0.28
----------------------------------------------------------------------
Special items (2):
Restructurings 12 (3) - 0.01 - -
(Gain)loss on divestitures (10) - - (0.01) - -
----------------------------------------------------------------------
Income from continuing
operations excluding
charges for restructurings
and divestitures (1) $229 $192 $237 $0.27 $0.23 $0.28
======================================================================
Average diluted shares
outstanding 847 846 852
(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.