Alcoa Net Income Rises 135 Percent Over Year-Ago Quarter; Revenue Highest Since 2001
NEW YORK--April 6, 2004--AlcoaHighlights:
-- Net income was $355 million, up 135% from first quarter of 2003.
-- Income from continuing operations was $350 million, up 79% from 2003.
-- $108 million in new annual savings toward third-straight $1 billion-plus cost challenge; 230 basis point decline in cost of goods to 77.9% of sales.
-- Debt to capital ratio at 34.9%, within the company's targeted range.
-- Five of six segments showed double-digit increases in profitability year over year; engineered products up 88% and flat rolled products up 25%.
-- Substantial completion of divestiture program with sale of specialty chemicals and other businesses.
Alcoa today reported first quarter net income of $355 million, or $0.41 per diluted share, more than double the $151 million, or $0.17, in the first quarter of 2003, and up 22 percent from $291 million, or $0.33, in the previous quarter.
Income from continuing operations was $350 million, or $0.40, up 79 percent from the $195 million, or $0.23, in the first quarter of 2003, and higher than the $340 million, or $0.39, in the previous quarter. The previous quarter's results included $105 million in pre-tax gains from insurance settlements and a lower effective tax rate. The first quarter benefits from a $58 million after-tax gain on the sale of the chemicals business, half of which was offset by higher costs from a customer bankruptcy, litigation settlements, and restructuring.
"In the quarter, our downstream aluminum businesses strengthened as end markets in Europe and the U.S. expanded," said Alain Belda, Chairman and CEO of Alcoa. "Demand for aluminum fabricated products was the highest in three years, driving prices higher. In a stronger market, we achieved earnings growth by keeping our focus on both growth and costs, laying the groundwork for further improvements in profitability."
Market Overview
Revenue in the quarter was $5.7 billion, the highest in almost three years, and up 11 percent year over year and 3 percent on a sequential basis. Higher aluminum prices and stronger shipments of engineered and flat-rolled products offset the seasonal decline in consumer packaging and lower third-party alumina sales as more alumina was dedicated to internal demand. The strong fabricated aluminum shipments were driven by double-digit increases in sales to the commercial vehicle, automotive, and aerospace markets.
"Looking forward, we expect that the recent, rapid increase in aluminum prices will have a greater impact in the second quarter and contribute to improved profitability," said Belda. On a year-over-year basis, the alumina, aluminum, and flat-rolled products segments all benefited from more robust pricing.
Costs, Savings, and Management Actions
In the quarter, the company achieved $27 million in new sustainable savings -- $108 million on an annualized basis -- toward its $1.2 billion cost challenge. Those savings overcame higher employee benefit costs, and contributed to a 230 basis-point reduction in cost of goods sold to 77.9 percent of sales. In addition, energy costs were $40 million higher than in the fourth quarter.
On the sale of its specialty chemicals business, the company earned $58 million after-tax, half of which was offset in the quarter by costs associated with litigation settlements in the U.S., debt allowances for a bankrupt customer, and ongoing restructuring to reduce costs. The reduction of the effective tax rate was driven by the chemicals sale and is included in the $58 million gain figure.
Stronger Balance Sheet
The company's debt-to-capital ratio declined to 34.9 percent, putting it within the company's targeted range. The company has reduced its debt by approximately $1.5 billion in the past 12 months, lowering its debt-to-capital ratio by 850 basis points. In addition to the sale of the chemicals business, the company substantially completed its divestiture program by selling two foil mills, and the automotive fasteners and packaging equipment businesses.
The company continued to manage capital effectively as days of working capital decreased in the quarter. In the quarter, capital expenditures were $192 million, 69 percent of depreciation.
Positioning the Company for Future Growth
Alcoa continues to make long-term investments to improve its world-class refining position. Alcoa World Alumina and Chemicals, Alcoa's global alliance with Alumina Ltd., received approval for an upgrade at its Pinjarra refinery. Along with a newly completed expansion at its Jamaica refinery and on-going expansion at its Suriname facility, that project will add 1.1 million metric tons per year to alumina capacity. The company is in varying stages of planning and designing alumina expansions in Brazil, Jamaica, and Australia. Final decisions on those projects are expected in the second half of the year.
Discussions on Brazilian and Canadian smelter projects continue, and infrastructure construction for the new smelter in Iceland is proceeding on schedule. The company also announced plans to build a new low-cost extrusion plant in Romania to serve the building and construction market in Europe.
Providing Solutions to Customers
The company leveraged its technology and manufacturing excellence to provide innovative solutions for customers in transportation markets. In the automotive market, Alcoa worked in partnership with General Motors to commercialize GM's new forming process for aluminum body and closure panels featured on the lift gate for the 2004 Chevrolet Malibu Maxx. This advance will help extend luxury, aluminum styling to higher-volume vehicles, accelerating the deployment of aluminum in automotive applications.
Alcoa Fastening Systems signed new three-year agreements with Mitsubishi and Kawasaki to supply the Japanese manufacturers with over 350 different fasteners for various commercial aircraft programs.
Alcoa Wheels and Forged Products signed a 3-year contract with Heil Trailer, makers of tankers and trailers, to supply 12,000 to 15,000 wheels per year to its factories in the U.S., U.K., Argentina and Thailand. In the Australian and New Zealand markets, AFL Automotive was named the full service electrical distribution supplier for Sterling Trucks.
Quarterly Analyst Workshop
Alcoa's quarterly analyst workshop will be at 4:00 p.m. EDT on Thursday, April 22, 2004. The meeting will be web cast via alcoa.com. Call information and related details 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. Alcoa serves the aerospace, automotive, packaging, building and construction, commercial transportation and industrial markets, bringing its expertise in design, engineering, and production to customers. 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. Alcoa has been a member of the Dow Jones Industrial Average for 45 years and the Dow Jones Sustainability Indices since 2001. The company has 120,000 employees in 41 countries. More information can be found at www.alcoa.com
Alcoa Business System
The Alcoa Business System, or ABS, is an integrated set of principles and tools used to manage Alcoa businesses, based on three principles: make to use; eliminate waste; and people linchpin the system. ABS begins with an understanding of customers' requirements, identifies what is needed to meet them, and then empowers employees to eliminate waste and solve problems through continuous improvements in costs, quality and speed.
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 2003 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
March 31 March 31 December 31
2004 2003 2003
------------ ------------ ------------
Sales $5,696 $5,140 $5,532
Cost of goods sold 4,438 4,098 4,435
Selling, general administrative,
and other expenses 344 297 346
Research and development expenses 45 50 47
Provision for depreciation,
depletion, and amortization 303 285 312
Restructuring and other charges (31) (4) (26)
Interest expense 64 88 71
Other income, net (22) (36) (139)
------------ ------------ ------------
5,141 4,778 5,046
Income from continuing operations
before taxes on income 555 362 486
Provision for taxes on income 155 108 103
------------ ------------ ------------
Income from continuing
operations before minority
interests' share 400 254 383
Less: Minority interests' share 50 59 43
------------ ------------ ------------
Income from continuing
operations 350 195 340
Income (loss) from discontinued
operations 5 3 (49)
Cumulative effect of accounting
change - (47) -
------------ ------------ ------------
NET INCOME $355 $151 $291
============ ============ ============
Earnings (loss) per common
share:
Basic:
Income from continuing
operations $.40 $.23 $.39
Income (loss) from
discontinued operations .01 - (.06)
Cumulative effect of
accounting change - (.06) -
------------ ------------ ------------
Net income $.41 $.17 $.33
============ ============ ============
Diluted:
Income from continuing
operations $.40 $.23 $.39
Income (loss) from
discontinued operations .01 - (.06)
Cumulative effect of
accounting change - (.06) -
------------ ------------ ------------
Net income $.41 $.17 $.33
============ ============ ============
Average number of shares used
to compute:
Basic earnings per common
share 869,402,685 845,065,093 866,243,592
Diluted earnings per common
share 878,755,125 846,328,622 871,969,592
Common stock outstanding at the
end of the period 869,356,569 845,157,381 868,490,686
Shipments of aluminum products
(metric tons) 1,312,000 1,198,000 1,320,000
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
March 31 December 31
2004 2003
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $459 $576
Receivables from customers, less allowances:
$116 in 2004 and $105 in 2003 2,854 2,521
Other receivables 275 350
Inventories 2,816 2,524
Deferred income taxes 240 267
Prepaid expenses and other current assets 656 502
--------- -----------
Total current assets 7,300 6,740
--------- -----------
Properties, plants, and equipment, at cost 24,930 24,797
Less: accumulated depreciation, depletion, and
amortization 12,459 12,240
--------- -----------
Net properties, plants, and equipment 12,471 12,557
--------- -----------
Goodwill 6,567 6,549
Other assets 5,563 5,316
Assets held for sale 198 549
--------- -----------
Total assets $32,099 $31,711
========= ===========
LIABILITIES
Current liabilities:
Short-term borrowings $38 $56
Accounts payable, trade 2,230 1,976
Accrued compensation and retirement costs 953 948
Taxes, including taxes on income 680 703
Other current liabilities 923 878
Long-term debt due within one year 490 523
--------- -----------
Total current liabilities 5,314 5,084
--------- -----------
Long-term debt, less amount due within one year 6,782 6,692
Accrued postretirement benefits 2,213 2,220
Other noncurrent liabilities and deferred credits 3,249 3,389
Deferred income taxes 851 804
Liabilities of operations held for sale 39 107
--------- -----------
Total liabilities 18,448 18,296
--------- -----------
MINORITY INTERESTS 1,357 1,340
--------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 5,792 5,831
Retained earnings 8,074 7,850
Treasury stock, at cost (1,986) (2,017)
Accumulated other comprehensive loss (566) (569)
--------- -----------
Total shareholders' equity 12,294 12,075
--------- -----------
Total liabilities and equity $32,099 $31,711
========= ===========
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except metric ton amounts and realized prices)
Consolidated Third-Party
Revenues: 1Q03 2Q03 3Q03 4Q03 2003 1Q04
--------------------------------------------
Alumina and Chemicals $449 $491 $526 $536 $2,002 $463
Primary Metals 732 805 816 876 3,229 878
Flat-Rolled Products 1,152 1,200 1,176 1,287 4,815 1,450
Engineered Products 1,390 1,455 1,369 1,375 5,589 1,523
Packaging and Consumer 749 836 812 818 3,215 744
Other 668 710 636 640 2,654 638
----------------------------------------------------------------------
Total $5,140 $5,497 $5,335 $5,532 $21,504 $5,696
======================================================================
Consolidated Intersegment
Revenues: 1Q03 2Q03 3Q03 4Q03 2003 1Q04
--------------------------------------------
Alumina and Chemicals $240 $248 $258 $275 $1,021 $338
Primary Metals 840 690 740 828 3,098 1,038
Flat-Rolled Products 20 15 17 14 66 23
Engineered Products 9 5 5 5 24 4
Packaging and Consumer - - - - - -
Other - - - - - -
----------------------------------------------------------------------
Total $1,109 $958 $1,020 $1,122 $4,209 $1,403
======================================================================
Consolidated Third-Party
Shipments (Kmt): 1Q03 2Q03 3Q03 4Q03 2003 1Q04
--------------------------------------------
Alumina and Chemicals 1,794 1,939 1,982 1,956 7,671 1,718
Primary Metals 453 495 488 516 1,952 469
Flat-Rolled Products 434 453 450 482 1,819 515
Engineered Products 223 221 222 213 879 234
Packaging and Consumer 36 42 40 49 167 38
Other 52 56 62 60 230 56
----------------------------------------------------------------------
Total Aluminum 1,198 1,267 1,262 1,320 5,047 1,312
======================================================================
Alcoa's average realized
price-Primary $0.69 $0.68 $0.71 $0.73 $0.70 $0.79
======================================================================
After-Tax Operating Income
(ATOI): 1Q03 2Q03 3Q03 4Q03 2003 1Q04
--------------------------------------------
Alumina and Chemicals $91 $89 $113 $122 $415 127
Primary Metals 166 162 163 166 657 192
Flat-Rolled Products 53 56 59 53 221 66
Engineered Products 29 46 47 33 155 62
Packaging and Consumer 53 57 52 52 214 35
Other 9 17 8 17 51 18
----------------------------------------------------------------------
Total $401 $427 $442 $443 $1,713 $500
======================================================================
Reconciliation of ATOI to
consolidated net income: 1Q03 2Q03 3Q03 4Q03 2003 1Q04
--------------------------------------------
Total ATOI $401 $427 $442 $443 $1,713 $500
Impact of intersegment
profit adjustments 7 (4) 2 4 9 23
Unallocated amounts
(net of tax):
Interest income 5 6 7 6 24 7
Interest expense (57) (52) (49) (46) (204) (41)
Minority interests (59) (75) (54) (43) (231) (50)
Corporate expense (57) (81) (65) (84) (287) (74)
Restructuring and
other charges 4 (2) (1) 25 26 31
Discontinued
operations 3 (1) (2) (49) (49) 5
Accounting change (47) - - - (47) -
Other (49) (2) - 35 (16) (46)
----------------------------------------------------------------------
Consolidated net
income $151 $216 $280 $291 $938 $355
======================================================================
SUPPLEMENTAL FINANCIAL INFORMATION
Alcoa and subsidiaries
Net Income and EPS Information (unaudited)
(in millions, except per-share amounts)
Net Income Diluted EPS
--------------------- ---------------------
1Q04 4Q03 1Q03 1Q04 4Q03 1Q03
----------------------------------------------------------------------
GAAP Net income $355 $291 $151 $.41 $.33 $.17
Discontinued operations
- operating loss (income) - 4 (3)
Discontinued operations
- (gain) loss on
divestitures (5) 45 -
Cumulative effect of
accounting change - - 47
----------------------------------------------------------------------
GAAP income from continuing
operations $350 $340 $195 $.40 $.39 $.23
----------------------------------------------------------------------
Restructuring and other
charges (2):
Restructurings 8 (4) (3)
Gain on divestitures (58) (21) -
----------------------------------------------------------------------
Income from continuing
operations excluding
restructuring and other
charges (1) $300 $315 $192 $.34 $.36 $.23
----------------------------------------------------------------------
Average diluted shares
outstanding 879 872 846
----------------------------------------------------------------------
(1) Alcoa believes that income from continuing operations excluding
restructuring and other charges 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 recent 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 other charges.
(2) Restructuring and other charges totaled $31 of income for the
first quarter of 2004 before taxes and minority interests. The amount
principally represents a realized gain on the sale of the specialty
chemicals business, partially offset by layoff charges. After taxes
and minority interests, restructuring and other charges amounted to
income of $50 in the first quarter of 2004.