Alcoa Announces 1st Quarter 2006 Income
NEW YORK--April 10, 2006--Alcoa :Highlights:
-- Highest quarterly income in company history.
-- Highest quarterly revenues in company history.
-- Five of six business segments achieved higher volumes vs. a year ago.
-- Alumina and Primary Metals segments achieved record quarterly ATOI, up 32 and 84 percent, respectively.
-- Engineered Solutions segment achieved highest quarterly ATOI, up 77 percent from the previous quarter.
-- Debt-to-capital ratio at 32.4 percent, within target range while continuing significant investment in strategic growth projects.
-- Cost of goods sold as a percent of sales improved 640 basis points from prior quarter.
Alcoa today announced first quarter 2006 income from continuing operations of $615 million, or $0.70 per diluted share, the highest quarterly profit in the company's history.
Income from continuing operations of $615 million, or $0.70, was 190 percent higher than $212 million, or $0.24, in the previous quarter, and 129 percent better than $268 million, or $0.31, in the first quarter of 2005.
Net income for the quarter was a record $608 million, or $0.69, a 171 percent increase from the sequential quarter and 134 percent higher than the first quarter of 2005.
Revenues for the quarter increased 9 percent sequentially to $7.24 billion, the highest quarterly revenues in the Company's history. Compared to the year ago quarter, sales have grown 16 percent, as five of the company's six business segments achieved higher volumes.
"We had excellent top and bottom line results, driven by strong demand, favorable metal prices, and productivity programs implemented through the Alcoa Business System," said Alain Belda, Alcoa Chairman and CEO. "Our upstream alumina and primary metals businesses, as well as our downstream engineered solutions -- led by truck wheels, investment castings, forged products, and fasteners -- all turned in record performances this quarter.
"While we are still fighting inflationary pressures, cost increases have slowed from last year, and our restructuring and efficiency initiatives have helped strengthen profitability," said Belda.
"Our aerospace and commercial transportation markets are particularly robust this year, and we expect overall market conditions to remain strong," Belda added.
Cost of goods sold as a percent of sales improved 640 basis points this quarter compared to the fourth quarter of 2005.
Included in the quarter's results are costs for stock-based compensation of $20 million, or $0.02 per share. Stock re-purchases offset any dilution related to stock compensation in the quarter.
Balance Sheet and Growth Projects
With global aluminum consumption projected to double by 2020, Alcoa is pursuing growth projects in its upstream and downstream businesses to seize this opportunity. In the quarter, capital expenditures were $592 million, 63 percent of which, or approximately $370 million, was devoted to growth projects. Two capital projects were essentially completed in the quarter -- the 657,000 metric ton per year (mtpy) efficiency upgrade to the Pinjarra alumina refinery in Australia and the 63,000 mtpy expansion of the Alumar smelter in Sao Luis, Brazil - and will contribute to the second quarter. Growth capital continued to be deployed at the 341,000 mtpy Alcoa Fjardaal smelter in Iceland and the Mosjoen anode plant in Norway. Those projects are on-schedule and are approximately 50 percent complete.
Days of working capital improved three days in the quarter compared to the first quarter of last year. Working capital dollars increased from the previous quarter due to improved market conditions, higher prices, and the building of targeted, strategic inventories in the event of a work stoppage. The potential work stoppage relates to the negotiations of the master contract agreement involving approximately 9,000 of the more than 45,000 U.S. employees. The contract expires May 31, 2006st and the key issue is health care. The debt-to-capital ratio stood at 32.4 percent at the end of the quarter, within the Company's target range.
The Company's annualized first quarter 2006 ROC stood at 14.2 percent when including growth investments. On a trailing four quarters basis return on capital for the first quarter 2006 was 11.2 percent after excluding investments on growth.
As part of its growth strategy, the Company also began first phase feasibility studies for a 341,000 mtpy greenfield smelter in Trinidad, began feasibility studies on a second 250,000 mtpy greenfield smelter in Iceland, and increased its stake in the Estreito hydropower facility in Brazil during the quarter.
Sustainability and Innovation/New Products
During the quarter, Alcoa was cited again as one of the most sustainable companies in the world at the World Economic Forum in Davos, Switzerland. The Company was also named by CERES, a national coalition of investors, environmental and public interest organizations, as one of the leaders in climate change and governance.
The Alcoa Foundation launched the $8.6 million Alcoa Conservation and Sustainability Fellowship program during the first quarter. The program will fund the study of global conservation and sustainability research by 30 Academic and 60 non-governmental organization fellows from around the world over the next six years.
Alcoa continued its leadership position in applying technologies to generate innovation on behalf of customers. Examples this quarter included: the introduction of four new product concepts to the fast growing commercial transportation market including Alcoa Dura-Bright(R) Fuel Tanks, aluminum landing gear, an aluminum fifth wheel, and Alcoa Aluplate(TM) aluminum composite panels for trailers; the use of Alcoa Mill Products' Translite exterior clear-coated, polished aluminum side skin as an option on trailers; the selection by Ferrari to use an Alcoa spaceframe made in Modena, Italy for the new Ferrari 599 GTB Fiorano, introduced at the Geneva Auto Show; the supplying of cast aluminum components using vacuum riser-less technology to Hyundai for the 2007 Santa Fe automobile; and selection of Alcoa Wheel Products for new production model vehicles including the Nissan Altima SE-R, Chrysler 300C SRT8, Dodge Charger SRT8, Dodge Ram 2500, Dodge Magnum SRT8, Dodge Viper and Jeep Grand Cherokee SRT8.
Segment and Other Results
Alumina - After-tax operating income ("ATOI") was $242 million, up 32% over the prior quarter. Higher pricing and improved productivity was partially offset by $16 million of energy cost increases. Alumina production for the quarter was 3,702 thousand metric tons (kmt), on par with the prior quarter despite two less days in the first quarter. On a tons per day basis, both the Atlantic and Australia systems achieved production records for the quarter.
Primary Metals - Segment ATOI increased by $203 million, or 84%, to $445 million. The ATOI increase was driven by higher LME prices, premiums, and productivity gains, partially offset by higher energy costs. Third party realized metal prices increased $357 per ton, or 16 percent, to $2,534 per ton. Primary metal production for the quarter declined 33 kmt to 867 kmt, as production from the Alumar, Brazil expansion was offset by the Eastalco, Maryland smelter's December 2005 curtailment and the Portland, Australia smelter outage. The company purchased roughly 157 kmt of primary metal for internal use as part of its strategy to sell value-added products.
Flat-Rolled Products - ATOI for the segment increased $4 million to $66 million in the quarter. Higher volumes associated with continued strong aerospace and industrial products demand were offset by energy and other input cost inflation.
Extruded and End Products - ATOI improved $3 million in the quarter. Improved volumes and profitability in building and construction and extrusions were partially offset by higher losses in Russia.
Engineered Solutions - ATOI for the segment rose 77 percent from the previous quarter to an all-time high of $83 million. This result follows a robust fourth quarter where ATOI had risen by 38 percent sequentially. Strong productivity gains, market growth, new product introductions and a favorable mix drove results in the quarter. Additionally, the investment in 2005 to restructure the portfolio resulted in significant improvement, particularly in the automotive business.
Packaging and Consumer - Segment ATOI was $8 million, a decline of $12 million as a result of normal seasonally weaker volume and mix. Benefits of higher volumes at Closure Systems and improved performance of our Flexible Packaging business were more than offset by the seasonal declines.
Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on April 10th 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's leading producer and manager of primary aluminum, fabricated aluminum and alumina facilities, 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 129,000 employees in 42 countries and has been named one of the top sustainable corporations in the world at the World Economic Forum in Davos, Switzerland. More information can be found at www.alcoa.com
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share, and metric ton amounts)
Quarter ended
March 31 December 31 March 31
2005 (a) 2005 (a) 2006
--------- -------------- --------
Sales $6,221 $6,666 $7,244
Cost of goods sold 4,933 5,453 5,459
Selling, general administrative,
and other expenses 325 362 369
Research and development expenses 46 50 48
Provision for depreciation,
depletion, and amortization 312 316 308
Restructuring and other charges 45 26 1
Interest expense 78 78 92
Other income, net (36) (5) (35)
------------ ------ -------
Total costs and expenses 5,703 6,280 6,242
Income from continuing operations
before taxes on income 518 386 1,002
Provision for taxes on income 190 94 282
------------ ------ -------
Income from continuing operations
before minority interests' share 328 292 720
Less: Minority interests' share 60 80 105
------------ ------ -------
Income from continuing operations 268 212 615
(Loss) income from discontinued
operations (8) 14 (7)
Cumulative effect of accounting
change - (2) -
------------ ------ -------
NET INCOME $260 $224 $608
============ ====== =======
Earnings (loss) per common share:
Basic:
Income from continuing
operations $.31 $.24 $.71
(Loss) income from
discontinued operations (.01) .02 (.01)
Cumulative effect of
accounting change - - -
------------ ------ -------
Net income $.30 $.26 $.70
============ ====== =======
Diluted:
Income from continuing
operations $.31 $.24 $.70
(Loss) income from
discontinued operations (.01) .02 (.01)
Cumulative effect of
accounting change - - -
------------ ------ -------
Net income $.30 $.26 $.69
============ ====== =======
Average number of shares used to
compute:
Basic earnings per common share 871,534,867 871,135,611 870,560,769
Diluted earnings per common
share 878,883,569 874,617,798 875,971,920
Common stock outstanding at the
end of the period 872,011,266 870,268,513 870,119,484
Shipments of aluminum products
(metric tons) 1,289,000 1,387,000 1,359,000
(a) Prior periods financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility in
discontinued operations in 2006.
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
December 31 March 31
2005 (b) 2006
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $762 $459
Receivables from customers, less allowances:
$80 in 2005 and $81 in 2006 2,914 3,380
Other receivables 427 411
Inventories 3,446 3,778
Fair value of derivative contracts 520 465
Prepaid expenses and other current assets 713 889
----------- ---------
Total current assets 8,782 9,382
----------- ---------
Properties, plants and equipment, at cost 26,944 27,507
Less: accumulated depreciation, depletion and
amortization 13,787 14,016
----------- ---------
Net properties, plants and equipment 13,157 13,491
----------- ---------
Goodwill 6,249 6,262
Investments 1,370 1,644
Other assets 4,090 4,115
Assets held for sale 48 35
----------- ---------
Total assets $33,696 $34,929
=========== =========
LIABILITIES
Current liabilities:
Short-term borrowings $300 $370
Commercial paper 912 1,672
Accounts payable, trade 2,659 2,691
Accrued compensation and retirement costs 1,102 946
Taxes, including taxes on income 874 867
Other current liabilities 1,460 1,325
Long-term debt due within one year 58 59
----------- ---------
Total current liabilities 7,365 7,930
----------- ---------
Long-term debt, less amount due within one year 5,279 5,226
Accrued pension benefits 1,500 1,533
Accrued postretirement benefits 2,105 2,090
Other noncurrent liabilities and deferred credits 1,823 1,919
Deferred income taxes 875 907
Liabilities of operations held for sale 11 4
----------- ---------
Total liabilities 18,958 19,609
----------- ---------
MINORITY INTERESTS 1,365 1,391
----------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 5,720 5,810
Retained earnings 9,345 9,818
Treasury stock, at cost (1,899) (1,933)
Accumulated other comprehensive loss (773) (746)
----------- ---------
Total shareholders' equity 13,373 13,929
----------- ---------
Total liabilities and equity $33,696 $34,929
=========== =========
(b) Prior periods financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility in
discontinued operations in 2006.
Alcoa and subsidiaries
Condensed Statement of Consolidated Cash Flows (unaudited)
(in millions)
Three months ended
March 31
2005 (c) 2006
--------- ---------
CASH FROM OPERATIONS
Net income $260 $608
Adjustments to reconcile net income to cash from
operations:
Depreciation, depletion, and amortization 315 309
Change in deferred income taxes 36 (4)
Equity income, net of dividends (11) (9)
Restructuring and other charges 45 1
Provision for doubtful accounts 4 3
Loss from discontinued operations 8 7
Minority interests 60 105
Stock-based compensation 5 28
Other (13) 1
Changes in assets and liabilities, excluding
effects of acquisitions and divestitures:
Increase in receivables (499) (412)
Increase in inventories (371) (323)
Increase in prepaid expenses and other current
assets (53) (86)
Increase (decrease) in accounts payable and
accrued expenses 101 (295)
Increase (decrease) in taxes, including taxes on
income 50 (43)
Cash paid on long-term aluminum supply contract (93) -
Pension contributions (18) (77)
Net change in other noncurrent assets and
liabilities (54) (26)
--------- ---------
CASH USED FOR CONTINUING OPERATIONS (228) (213)
CASH USED FOR DISCONTINUED OPERATIONS (11) -
--------- ---------
CASH USED FOR OPERATIONS (239) (213)
--------- ---------
FINANCING ACTIVITIES
Net changes to short-term borrowings 63 69
Common stock issued for stock compensation plans 23 46
Repurchase of common stock - (60)
Dividends paid to shareholders (131) (131)
Dividends paid to minority interests (72) (115)
Net change in commercial paper 1,002 760
Additions to long-term debt 45 6
Payments on long-term debt (61) (5)
--------- ---------
CASH PROVIDED FROM FINANCING ACTIVITIES 869 570
--------- ---------
INVESTING ACTIVITIES
Capital expenditures (347) (592)
Acquisition of minority interests (176) (1)
Acquisitions, net of cash acquired (257) -
Sale of investments 206 -
Changes in short-term investments and restricted
cash (7) (59)
Additions to investments (5) (33)
Other 2 18
--------- ---------
CASH USED FOR INVESTING ACTIVITIES (584) (667)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6) 7
--------- ---------
Net change in cash and cash equivalents 40 (303)
Cash and cash equivalents at beginning of year 457 762
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $497 $459
========= =========
(c) Prior periods financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility in
discontinued operations in 2006.
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except metric ton amounts and realized prices)
1Q05 2Q05 3Q05 4Q05 2005 1Q06
---- ---- ---- ---- ---- ----
Alumina:
Third-party shipments
(Kmt) 1,923 1,951 2,017 1,966 7,857 2,023
Alumina production (Kmt) 3,583 3,621 3,688 3,706 14,598 3,702
Third-party sales $ 505 $ 533 $ 531 $ 561 $ 2,130 $ 628
Intersegment sales $ 393 $ 439 $ 424 $ 451 $ 1,707 $ 555
ATOI $ 161 $ 182 $ 156 $ 183 $ 682 $ 242
Depreciation, depletion
and amortization $ 41 $ 43 $ 44 $ 44 $ 172 $ 43
Income taxes $ 61 $ 66 $ 47 $ 72 $ 246 $ 93
Equity (loss) income $ (1)$ - $ - $ 1 $ - $ (1)
======================================================================
Primary Metals:
Third-party realized price
- aluminum $2,042 $1,977 $1,963 $2,177 $ 2,044 $2,534
Third-party shipments
(Kmt) 487 520 590 557 2,154 488
Aluminum production (Kmt) 851 899 904 900 3,554 867
Third-party sales $1,089 $1,124 $1,204 $1,281 $ 4,698 $1,408
Intersegment sales $1,303 $1,215 $1,108 $1,182 $ 4,808 $1,521
ATOI $ 225 $ 187 $ 168 $ 242 $ 822 $ 445
Depreciation, depletion
and amortization $ 90 $ 90 $ 93 $ 95 $ 368 $ 96
Income taxes $ 92 $ 75 $ 50 $ 90 $ 307 $ 197
Equity income (loss) $ 18 $ (76)$ 20 $ 26 $ (12)$ 20
======================================================================
Flat-Rolled Products:
Third-party shipments
(Kmt) 509 560 543 544 2,156 562
Third-party sales $1,655 $1,763 $1,679 $1,739 $ 6,836 $1,940
Intersegment sales $ 34 $ 36 $ 29 $ 29 $ 128 $ 49
ATOI $ 75 $ 70 $ 81 $ 62 $ 288 $ 66
Depreciation, depletion
and amortization $ 52 $ 54 $ 57 $ 54 $ 217 $ 50
Income taxes $ 24 $ 27 $ 30 $ 30 $ 111 $ 26
======================================================================
Extruded and End Products:
Third-party shipments
(Kmt) 221 237 224 212 894 232
Third-party sales $1,037 $1,153 $1,092 $1,022 $ 4,304 $1,170
Intersegment sales $ 14 $ 19 $ 14 $ 17 $ 64 $ 23
ATOI $ 10 $ 20 $ 23 $ (3)$ 50 $ -
Depreciation, depletion
and amortization (1) $ 31 $ 32 $ 31 $ 32 $ 126 $ 30
Income taxes $ (2)$ 18 $ 10 $ 2 $ 28 $ 2
======================================================================
Engineered Solutions:
Third-party shipments
(Kmt) 38 37 36 34 145 37
Third-party sales $1,237 $1,282 $1,242 $1,271 $ 5,032 $1,360
ATOI $ 61 $ 61 $ 34 $ 47 $ 203 $ 83
Depreciation, depletion
and amortization $ 47 $ 45 $ 42 $ 42 $ 176 $ 40
Income taxes $ 26 $ 30 $ 23 $ 10 $ 89 $ 37
Equity income $ 1 $ - $ - $ - $ 1 $ -
======================================================================
Packaging and Consumer:
Third-party shipments
(Kmt) 34 46 31 40 151 40
Third-party sales $ 708 $ 827 $ 806 $ 798 $ 3,139 $ 749
ATOI $ 16 $ 41 $ 28 $ 20 $ 105 $ 8
Depreciation, depletion
and amortization (1) $ 32 $ 31 $ 31 $ 32 $ 126 $ 31
Income taxes $ 10 $ 18 $ 14 $ 8 $ 50 $ 5
Equity income $ 1 $ - $ - $ - $ 1 $ -
======================================================================
(1) Segment depreciation, depletion and amortization has been adjusted
from the previously reported annual amounts to reflect the
movement of certain amounts to Corporate.
Reconciliation of ATOI to 1Q05 2Q05 3Q05 4Q05 2005 1Q06
consolidated net income: ---- ---- ---- ---- ---- ----
Total ATOI $548 $561 $490 $551 $2,150 $844
Impact of LIFO and
intersegment profit
adjustments (2) (2) (18) (23) (19) (62) 24
Unallocated amounts (net of
tax):
Interest income 7 9 12 14 42 11
Interest expense (51) (56) (62) (51) (220) (60)
Minority interests (60) (60) (59) (80) (259) (105)
Corporate expense (69) (73) (82) (88) (312) (89)
Restructuring and other
charges (30) (144) (5) (18) (197) (1)
Discontinued operations (8) (36) (3) 14 (33) (7)
Other (2) (75) 277 21 (99) 124 (9)
----------------------------------------------------------------------
Consolidated net income $260 $460 $289 $224 $1,233 $608
======================================================================
Prior periods segment information has been reclassified to reflect the
movement of the Hawesville, KY automotive casting facility to
discontinued operations in 2006.
The difference between total segment third-party sales and
consolidated third-party sales is in Corporate.
(2) Prior periods Corporate LIFO expense has been reclassified from
"Other" to combine the total impact of inventory related items.
Alcoa and subsidiaries
Calculation of Financial Measures (unaudited)
(in millions)
Return on Capital Return on Capital,
Excluding Growth
Investments
Bloomberg (1) Annualized (2)
------------- --------------
Net income $1,581 $2,432 Net income $1,581
Minority
interests 304 420 Minority interests 304
Interest
expense Interest expense
(after tax) 274 264 (after tax) 274
------------- -------------- ---------
Numerator (sum Numerator (sum
total) $2,159 $3,116 total) $2,159
Russia and Bohai
net loss 86
---------
Adjusted net
income $2,245
Average Balances Average Balances(1)
Short-term Short-term
borrowings $350 $335 borrowings $350
Short-term
debt 53 59 Short-term debt 53
Commercial
paper 1,652 1,292 Commercial paper 1,652
Long-term debt 5,246 5,253 Long-term debt 5,246
Preferred
stock 55 55 Preferred stock 55
Minority
interests 1,280 1,378 Minority interests 1,280
Common equity
(3) 13,611 13,596 Common equity (3) 13,611
------------- -------------- ---------
Denominator Denominator (sum
(sum total) $22,247 $21,968 total) $22,247
------------- -------------- ---------
Capital projects
in progress and
Russia and Bohai
capital base (2,139)
---------
Adjusted capital
base $20,108
Return on capital,
Return on excluding growth
Capital 9.7% 14.2% investments 11.2%
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 trailing four
quarters. Average balances are calculated as (March 2005 ending
balance + March 2006 ending balance) divided by 2
(2) The Annualized Methodology numerator amounts are calculated using
the first quarter 2006 balances and multiplying by 4. Average
balances are calculated as (March 2006 ending balance + December
2005 ending balance) divided by 2
(3) Calculated as total shareholders' equity, less preferred stock
Days of Working Capital
March 31 December 31 March 31
2005 2005 2006
Receivables from customers, less
allowances $3,110 $2,914 $3,380
Add: Inventories 3,365 3,446 3,778
Less: Accounts payable, trade 2,418 2,659 2,691
------------ ----------- ----------
Working Capital $4,057 $3,701 $4,467
Sales 6,221 6,666 7,244
Days of Working Capital 58.7 51.1 55.5
Days of Working Capital = Working Capital divided by (Sales/number of
days in the quarter)