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| April 6, 2005
Alcoa Announces First Quarter 2005 Revenues of $6.3 Billion, Income From Continuing Operations of $273 Million, or $.31 a Share; Strong Results Despite Negative Impacts from Elkem Tax, Restructuring, and Russian Investments Totaling $0.09 per Share
NEW YORK--(BUSINESS WIRE)--April 6, 2005--Alcoa (NYSE:AA)
First Quarter 2005 Highlights:
-- Income from continuing operations of $273 million, or $0.31 per diluted share;
-- Solid operational results include $0.09 per share negative impact from restructuring charges, tax on Elkem, and integration and start-up costs of Russian facilities;
-- Sales increased by 13% over 1st quarter of 2004 to $6.3 billion, up 4% from the sequential quarter;
-- Four of six segments achieved double-digit improvements in profitability over the sequential quarter;
-- Smelting restarts at Wenatchee, ABI and Massena contributed 43,000 metric tons of production in the quarter.
Alcoa (NYSE:AA) announced today income from continuing operations for the first quarter 2005 of $273 million, or $0.31 per diluted share. Net income for the quarter was $260 million, or $0.30. Income from continuing operations for the first quarter 2004 was $0.41, or $0.39, in the fourth quarter 2004. For the first quarter 2004 net income was $0.41, or $0.30, in the fourth quarter 2004.
Both first quarter 2005 income measures include negative impacts totaling $0.09 per share for: the tax impact on Alcoa's sale of its Elkem investment ($39 million after tax); restructuring charges ($25 million after tax); and costs of integrating the recently acquired Russian business ($12 million after tax). The fourth quarter of 2004 included a gain of $37 million, or $0.04, on the Juruti transfer, while the first quarter of 2004 include a gain of $58 million, or $0.07, on the sale of specialty chemicals.
"Underlying business performance improved in the quarter as we captured the benefits of higher metal prices and a stronger economy in North America," said Alcoa Chairman and CEO Alain Belda. "We were able to regain traction on the cost initiative, overcoming cost inflation increases, to deliver savings to the bottom line.
"As we move forward, we will continue to tackle costs, to benefit from strong demand in end markets and the sustained high commodity prices," said Belda. "We are focused on delivering near-term results while we continue to build for the future."
Results Overview
Sales in the first quarter rose to $6.289 billion, up 13 percent over the first quarter of 2004, and the highest in four years. On a sequential quarter basis, revenue increased 4 percent, driven by higher primary metal and alumina prices as well as strength in the flat rolled products, extruded products, and engineered solutions segments.
Four of the company's six reporting segments achieved double-digit improvements in profitability over the fourth quarter of last year. Primary metals, flat-rolled products, extruded products, and engineered solutions all grew profits sharply with both higher volumes and favorable pricing. Strong end markets kept demand high in both upstream and downstream businesses. On an operational basis, the alumina segment also achieved double-digit profit improvement, excluding the Juruti gain in the fourth quarter 2004, as higher contract prices drove stronger profitability. The packaging segment was slowed by seasonal declines and increased costs.
The company's cost-savings initiatives offset cost inflation and achieved an additional $15 million of savings in the quarter, or $60 million annualized, toward the company's cost-savings goal. The company also announced a restructuring plan that will be completed over the next twelve months, resulting in an after-tax charge of $25 million and approximately $45 million in annualized savings when complete. The company is contemplating additional charges in the second quarter as further restructuring initiatives are finalized.
The company's trailing twelve month return on capital stood at 7.8 percent.
Update on Primary Metal Restarts
In order to take advantage of higher metal prices, the company continued to implement re-start initiatives at its North American smelters. Capacity restarts were completed ahead of schedule at the Wenatchee smelter in Washington, USA and the Massena East and West smelters in New York, USA. The restart at the ABI smelter in Quebec will be completed in April. Restarts at the three facilities contributed 43,000 additional metric tons in the first quarter with costs totaling $5 million after taxes. Following the restarts, Alcoa will have 343,000 metric tons idled of its total capacity of approximately 4 million metric tons.
Strategic Acquisitions and Divestitures
Alcoa completed the acquisition of Rusal's interests in Russian fabricating facilities in Samara and Belaya Kalitva, allowing Alcoa's leading flat-rolled products business to serve the growing Russian market and export to its global customers from a competitive cost base. The integration of these plants had a negative impact of $12 million after tax in the first quarter due to integration expenses and operating losses.
Alcoa tendered its 46.5 percent stake in Elkem ASA for $870 million in cash, and will record a $220 million gain after taxes on the transaction in the second quarter. In the first quarter, the company had a charge of $39 million related to the tax impact on previously undistributed equity earnings and related transaction costs. Alcoa continues to hold a 50 percent stake in two Norwegian aluminum smelters in Norway with combined capacity of 282,000 metric tons per year. Alcoa is also developing a new jointly owned anode plant that will serve the Norwegian smelters and Alcoa's greenfield Icelandic smelter.
Alcoa completed its agreement with Fujikura, Ltd. to acquire full ownership of the Alcoa Fujikura ("AFL") automotive business. In return, Fujikura has obtained complete ownership of the AFL telecommunications business and a cash balancing contribution of $176 million.
Earlier this quarter, Alcoa and its partner completed the sale of Integris Metals to Ryerson Tull for $410 million in cash. Alcoa had owned 50 percent of Integris Metals.
Balance Sheet and Growth Projects
In the quarter, capital expenditures were $347 million, 108 percent of depreciation. Full year capital spending is estimated to be approximately $2.5 billion, with approximately $1.6 billion dedicated to growth projects.
During the quarter, the company continued to invest in the upstream businesses, completing the Suriname alumina refinery expansion, and making significant progress on the expansion of the Pinjarra refinery in Australia. Work on the new smelter in Iceland and the expansion of the Alumar smelter in Brazil continues, and the company also signed an agreement with the Republic of Ghana to re-start the Valco smelter. Details of that restart are still being negotiated.
Debt to capital stood at 33.3% at the end of the first quarter, a 160 basis point improvement from the first quarter of 2004. Debt increased from the end of 2004 to fund acquisitions and working capital. The company has already received payment of $870 million in cash in the second quarter of 2005 for the Elkem transaction.
Segment and Other Results
Segment Changes
In conjunction with the global realignment of its organization structure, the composition of certain of Alcoa's segments has changed. The businesses within the former Engineered Products segment and the Other "group" have been realigned to form the new Extruded and End Products segment and the Engineered Solutions segment.
Extruded and End Products - This segment consists of extruded
products, some of which are further fabricated into a variety of
end products, and includes hard- and soft-alloy extrusions,
architectural extrusions, and vinyl siding. These products
primarily serve the building and construction, distribution and
transportation markets. These products are sold directly to
customers and through distributors.
Engineered Solutions - This segment includes titanium, aluminum and
super-alloy investment castings, forgings and fasteners; electrical
distribution systems; aluminum wheels; and integrated aluminum
structural systems used in the aerospace, automotive, commercial
transportation and power generation markets. These products are
sold directly to customers and through distributors
Prior period segment amounts have been restated to reflect these changes.
(All comparisons are on a sequential quarter basis, unless noted.)
Alumina - Segment profitability was $161 million, down from $177 million. The previous quarter's results included a $37 million gain associated with the Juruti transaction. Excluding that gain, segment profitability increased $21 million or 15% as higher prices offset lower shipments and caustic costs. Alumina production for the quarter was 3,583 thousand metric tons ("kmt"), compared to 3,623 kmt in the fourth quarter of 2004.
Primary Metals - Segment profitability increased by $27 million or 14 percent, largely due to higher metal prices and shipments. Restart costs at the three restarted facilities totaled $5 million after tax. Higher energy costs (up $16 million after taxes) partially offset the benefit of higher aluminum prices. Primary metal production for the quarter rose 27 kmt for the quarter to 851 kmt. The company purchased roughly 185 kmt of primary metal for internal use as part of its strategy to sell value-added products.
Flat Rolled Products - Segment profitability increased to $75 million, despite an $11 million loss associated with integration costs for the Russian rolling mills. Excluding this loss, improved segment performance was driven by favorable pricing and mix in both North America and Europe.
Extruded and End Products - Segment ATOI grew sharply to $15 million, due to stronger demand in Europe extrusions and seasonal strengthening of the home exteriors business.
Engineered Solutions - Segment profitability in the Engineered Solutions segment rose sharply to $59 million, due to stronger demand in the aerospace and commercial vehicle markets.
Packaging and Consumer - Segment ATOI fell to $22 million due to the seasonal decline in the consumer products business and increased raw material costs, primarily resin. Compared to the year ago quarter, cost inflation, particularly raw materials and freight drove profitability lower.
ATOI to Net Income Reconciliation
The largest variances in reconciling items were in the "minority interest," "discontinued operations," and "other" line items. "Minority Interest" expense increased due to strong earnings in the AWAC business. "Discontinued Operations" includes a charge associated with reduction of the fair value of the assets held for sale. "Other" includes the tax charge associated with the sale of the Elkem shares, compared to the tax benefits from the Juruti transaction and the reversal of a valuation reserve for foreign net operating losses recorded in the fourth quarter of 2004.
Quarterly Conference Call
Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on April 6th 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 131,000 employees in 43 countries and has been a member of the Dow Jones Industrial Average for 45 years and the Dow Jones Sustainability Indexes since 2001. More information can be found at www.alcoa.com
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) material adverse changes in economic or aluminum industry conditions generally, including global supply and demand conditions and prices for primary aluminum, alumina and other products; (b) material adverse changes in the markets served by Alcoa, including the transportation, building, construction, distribution, packaging, industrial gas turbine and other markets; (c) Alcoa's inability to achieve the level of cost savings, productivity improvements or earnings growth anticipated by management, whether due to significant increases in energy, raw materials or employee benefits costs, labor disputes or other factors; (d) changes in laws, governmental regulations or policies, currency exchange rates or competitive factors in the countries in which Alcoa operates; (e) a significant downturn in the business or financial condition of a key customer or customers supplied by Alcoa; (f) significant legal proceedings or investigations adverse to Alcoa, including environmental, product liability, safety and health and other claims; and (g) the other risk factors summarized in Alcoa's Form 10-K for the year ended December 31, 2004 and other reports filed with the Securities and Exchange Commission.
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
2004 2004 2005
------------- ------------- -------------
Sales $ 5,588 $ 6,041 $ 6,289
Cost of goods sold 4,343 4,879 4,981
Selling, general
administrative, and other
expenses 333 336 333
Research and development
expenses 44 53 46
Provision for depreciation,
depletion, and amortization 299 311 317
Restructuring and other
charges (31) 1 45
Interest expense 63 70 78
Other income, net (22) (67) (36)
------------- ------------- -------------
Total costs and expenses 5,029 5,583 5,764
Income from continuing
operations before taxes on
income 559 458 525
Provision for taxes on income 155 65 192
------------- ------------- -------------
Income from continuing
operations before minority
interests' share 404 393 333
Less: Minority interests'
share 51 48 60
------------- ------------- -------------
Income from continuing
operations 353 345 273
Income (loss) from
discontinued operations 2 (77) (13)
------------- ------------- -------------
NET INCOME $ 355 $ 268 $ 260
============= ============= =============
Earnings (loss) per common
share:
Basic:
Income from continuing
operations $ .41 $ .40 $ .31
Loss from discontinued
operations - (.09) (.01)
------------- ------------- -------------
Net income $ .41 $ .31 $ .30
============= ============= =============
Diluted:
Income from continuing
operations $ .41 $ .39 $ .31
Loss from discontinued
operations - (.09) (.01)
------------- ------------- -------------
Net income $ .41 $ .30 $ .30
============= ============= =============
Average number of shares used
to compute:
Basic earnings per common
share 869,402,685 870,608,606 871,534,867
Diluted earnings per
common share 878,755,125 877,423,613 878,883,569
Common stock outstanding at
the end of the period 869,356,569 870,980,083 872,011,266
Shipments of aluminum
products (metric tons) 1,285,000 1,266,000 1,290,000
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
December 31 March 31
2004 2005
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 457 $ 497
Receivables from customers, less allowances:
$87 in 2004, and $81 in 2005 2,738 3,159
Other receivables 261 263
Inventories 2,968 3,370
Deferred income taxes 279 191
Prepaid expenses and other current assets 790 944
----------- ------------
Total current assets 7,493 8,424
----------- ------------
Properties, plants and equipment, at cost 25,865 26,080
Less: accumulated depreciation, depletion and
amortization 13,273 13,345
----------- ------------
Net properties, plants and equipment 12,592 12,735
----------- ------------
Goodwill 6,541 6,574
Investments 2,066 1,897
Other assets 3,707 3,975
Assets held for sale 210 109
----------- ------------
Total assets $ 32,609 $ 33,714
=========== ============
LIABILITIES
Current liabilities:
Short-term borrowings $ 267 $ 330
Commercial paper 630 1,632
Accounts payable, trade 2,226 2,428
Accrued compensation and retirement costs 1,021 946
Taxes, including taxes on income 1,019 1,029
Other current liabilities 1,078 1,038
Long-term debt due within one year 57 47
----------- ------------
Total current liabilities 6,298 7,450
----------- ------------
Long-term debt, less amount due within one
year 5,346 5,267
Accrued pension benefits 1,513 1,546
Accrued postretirement benefits 2,150 2,141
Other noncurrent liabilities and deferred
credits 1,727 1,792
Deferred income taxes 790 886
Liabilities of operations held for sale 69 60
----------- ------------
Total liabilities 17,893 19,142
----------- ------------
MINORITY INTERESTS 1,416 1,169
----------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 5,775 5,762
Retained earnings 8,636 8,765
Treasury stock, at cost (1,926) (1,887)
Accumulated other comprehensive loss (165) (217)
----------- ------------
Total shareholders' equity 13,300 13,403
----------- ------------
Total liabilities and equity $ 32,609 $ 33,714
=========== ============
Alcoa and subsidiaries
Condensed Statement of Consolidated Cash Flows (unaudited)
(in millions)
Three months ended
March 31
2004 2005
---------- ---------
CASH FROM OPERATIONS
Net income $355 $260
Adjustments to reconcile net income to cash from
operations:
Depreciation, depletion, and amortization 301 320
Noncash restructuring and other charges (31) 45
Minority interests 51 60
Other (60) 31
Changes in assets and liabilities, excluding
effects of acquisitions and divestitures:
Increase in receivables (280) (501)
Increase in inventories (302) (370)
Increase in accounts payable and accrued
expenses 166 97
Cash paid on long-term aluminum supply
contract - (95)
Net change in noncurrent assets and
liabilities (118) (65)
Net change in net assets held for sale 31 -
Other (24) (4)
---------- ---------
CASH PROVIDED FROM (USED FOR) CONTINUING
OPERATIONS 89 (222)
CASH PROVIDED FROM (USED FOR) DISCONTINUED
OPERATIONS 1 (17)
---------- ---------
CASH PROVIDED FROM (USED FOR) OPERATIONS 90 (239)
---------- ---------
FINANCING ACTIVITIES
Net changes to short-term borrowings (33) 63
Dividends paid to shareholders (130) (131)
Dividends paid to minority interests (39) (72)
Net change in commercial paper - 1,002
Other (75) 7
---------- ---------
CASH (USED FOR) PROVIDED FROM FINANCING
ACTIVITIES (277) 869
---------- ---------
INVESTING ACTIVITIES
Capital expenditures (193) (347)
Acquisitions, net of cash acquired - (434)
Proceeds from the sale of assets 309 -
Sale of investments - 206
Other (46) (9)
---------- ---------
CASH PROVIDED FROM (USED FOR) INVESTING
ACTIVITIES 70 (584)
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (6)
---------- ---------
Net change in cash and cash equivalents (117) 40
Cash and cash equivalents at beginning of year 576 457
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $459 $497
========== =========
Alcoa and subsidiaries
Segment Information (unaudited) (1)
(in millions, except metric ton amounts and realized prices)
Consolidated Third-Party
Revenues: 1Q04 2Q04 3Q04 4Q04 2004 1Q05
-------------------------------------------
Alumina $ 463 $ 486 $ 490 $ 536 $ 1,975 $ 505
Primary Metals 878 959 930 1,039 3,806 1,089
Flat-Rolled Products 1,450 1,490 1,520 1,502 5,962 1,655
Extruded and End Products 943 1,027 1,028 976 3,974 1,037
Engineered Solutions 1,149 1,189 1,106 1,159 4,603 1,241
Packaging and Consumer 721 821 797 827 3,166 771
----------------------------------------------------------------------
Total (2) $5,604 $5,972 $5,871 $6,039 $23,486 $6,298
======================================================================
Consolidated Intersegment
Revenues: 1Q04 2Q04 3Q04 4Q04 2004 1Q05
-------------------------------------------
Alumina $ 338 $ 349 $ 341 $ 390 $ 1,418 $ 393
Primary Metals 1,038 1,129 1,039 1,129 4,335 1,303
Flat-Rolled Products 23 23 25 18 89 34
Extruded and End Products 15 12 14 13 54 14
Engineered Solutions - - - - - -
Packaging and Consumer - - - - - -
----------------------------------------------------------------------
Total $1,414 $1,513 $1,419 $1,550 $ 5,896 $1,744
======================================================================
Consolidated Third-Party
Shipments (Kmt): 1Q04 2Q04 3Q04 4Q04 2004 1Q05
-------------------------------------------
Alumina (3) 1,838 1,981 2,030 2,213 8,062 1,923
Primary Metals 469 472 459 482 1,882 487
Flat-Rolled Products 515 517 521 493 2,046 509
Extruded and End Products 225 235 225 210 895 221
Engineered Solutions 34 33 31 35 133 39
Packaging and Consumer 38 41 39 46 164 34
----------------------------------------------------------------------
Total Aluminum 1,281 1,298 1,275 1,266 5,120 1,290
======================================================================
Alcoa's average realized
price-Primary $ 0.81 $ 0.85 $ 0.85 $ 0.88 $ 0.85 $ 0.93
======================================================================
After-Tax Operating Income
(ATOI): 1Q04 2Q04 3Q04 4Q04 2004 1Q05
-------------------------------------------
Alumina $ 127 $ 159 $ 169 $ 177 $ 632 $ 161
Primary Metals 192 230 188 198 808 225
Flat-Rolled Products 66 59 62 59 246 75
Extruded and End Products 17 30 28 (2) 73 15
Engineered Solutions 62 69 39 41 211 59
Packaging and Consumer 35 54 41 38 168 22
----------------------------------------------------------------------
Total $ 499 $ 601 $ 527 $ 511 $ 2,138 $ 557
======================================================================
Reconciliation of ATOI to
consolidated
net income: 1Q04 2Q04 3Q04 4Q04 2004 1Q05
-------------------------------------------
Total ATOI $ 499 $ 601 $ 527 $ 511 $ 2,138 $ 557
Impact of intersegment
profit adjustments 23 8 3 18 52 17
Unallocated amounts (net
of tax):
Interest income 7 5 8 6 26 7
Interest expense (41) (45) (44) (46) (176) (51)
Minority interests (51) (74) (72) (48) (245) (60)
Corporate expense (74) (63) (68) (78) (283) (69)
Restructuring and
other charges 31 (4) (3) (1) 23 (30)
Discontinued
operations 2 (1) (16) (77) (92) (13)
Other (41) (23) (52) (17) (133) (98)
----------------------------------------------------------------------
Consolidated net income $ 355 $ 404 $ 283 $ 268 $ 1,310 $ 260
======================================================================
(1) Segment information for all prior periods has been restated to
reflect the change in segments due to a global realignment within
the company, effective January 2005.
(2) The difference between the segment total and consolidated
third-party revenues is in Corporate.
(3) Alumina third-party shipments have been restated to reflect total
alumina shipments rather than only smelter-grade alumina
shipments, as was previously disclosed.
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