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October 10, 2006

Alcoa Announces 3rd Quarter 2006 Income from Continuing Operations of $540 Million, or $0.62 Per Share, up 89% from Year Ago

Highlights:
  • Income from continuing operations up 89% versus year-ago quarter.
  • Revenues 19% higher than year-ago quarter.
  • Cash from operations was $748 million including the impact of a discretionary $200 million pension contribution, 52% higher than the year-ago quarter and 94% higher year-to-date.
  • Debt-to-capital ratio at 32.8%, within target range despite major investments in strategic growth projects.
  • Year-to-date income from continuing operations $1.9 billion, or $2.17 per share, up 82% from year ago.
  • Year-to-date annualized return on capital of 14.3%, up from 8.7% in 2005.


NEW YORK--(BUSINESS WIRE)--Alcoa (NYSE:AA) today announced third quarter 2006 income from continuing operations of $540 million, or $0.62 per diluted share, an 89 percent increase from the third quarter of 2005. As expected, due to seasonal slow-downs and lower metal prices, income was lower on a sequential basis, down from $0.85 in the second quarter.

In the first nine months of 2006, Alcoa has generated more profits than in any full year in the company’s history. Year-to-date income from continuing operations was $1.9 billion, 82 percent higher than the same period in 2005.

Net income for the quarter was $537 million, or $0.61, an 85 percent increase from 2005’s $0.33 and 28 percent below the $0.85 in the second quarter.

Revenues for the quarter increased 19 percent from a year ago to $7.6 billion. Compared to the second quarter of 2006, sales decreased 2 percent primarily due to lower metal prices and seasonality. Prices for aluminum on the London Metal Exchange declined six percent this quarter.

“We continue to drive stronger performance than our results in 2005, with both the top and bottom line showing double-digit improvements over the third quarter of last year,” said Alain Belda, Alcoa Chairman and CEO. “2006 is already the strongest in Alcoa’s history, and we will continue to deliver in the fourth quarter.

“In July, we said the third quarter would be solid, but would reflect the traditional seasonal slow-down and lower metal prices. In fact, the quarter was the third best in company history even though metal prices on the LME declined six percent. While the North American automotive and the housing construction markets are softening, most of our downstream markets continue to be strong – especially aerospace and commercial transportation,” Belda added.

Cash from operations for the quarter was $748 million including the impact of a discretionary $200 million contribution to the company’s pension plans. Year-to-date, cash from operations is more than $1.2 billion, a 94 percent increase from a year ago.

Balance Sheet and Growth Projects

During the quarter, the company made strong progress on projects designed to seize growth as aluminum consumption is projected to double in the next 14 years. The Alcoa Fjardaal smelter in Iceland is now 75 percent complete and is expected to produce its first metal in the second quarter of 2007. In Brazil, the new Juruti bauxite mine and the expansion of the Sao Luis alumina refinery are underway. The refinery will produce an additional 2.1 million mtpy beginning in 2009. In North America, work continued on environmental upgrades at the company’s Warrick, Indiana smelter which will help secure its power generation self-sufficiency. At the Intalco smelter in Ferndale, Wash,, the company will be starting up a second potline which will produce an additional 7,500 metric tons per month beginning in the first half of 2007.

Capital expenditures for the quarter were $737 million, with 75 percent dedicated to growth projects. Year to-date, the company has invested $1.4 billion in growth projects, or approximately 67 percent of capital expenditures.

In the quarter, Alcoa also announced a definitive agreement to sell its Home Exteriors vinyl siding business. That sale, which will generate more than $300 million in cash to fund growth projects, is expected to be completed in the fourth quarter of 2006.

Days of working capital were relatively flat in the quarter compared to the third quarter of 2005. The Company’s debt-to-capital ratio stood at 32.8 percent at the end of the quarter, within the Company’s target range.

During the current quarter, the company’s effective tax rate was 24.7 percent. In the quarter, the Company recorded a discrete tax benefit of $18 million related to the cumulative correction of its deferred tax assets attributable to an international location.

The Company's year to date annualized return on capital was 14.3 percent, compared to 8.7 percent a year ago. On a trailing four quarters basis, return on capital for the third quarter 2006 was 14.1 percent after excluding investments on growth, and 12.2 percent including those investments.

Segment and Other Results

Alumina – After-tax operating income (“ATOI”) was $271 million, down $7 million from the previous quarter, but up 74 percent from the year-ago quarter. Unfavorable currency effects, energy prices, and mix offset higher sales volumes supported by record production levels of 3,890 KMT in the quarter.

Primary Metals – Segment ATOI was $346 million, down $143 million or 29 percent from the prior quarter and up 106 percent from the year-ago quarter. The ATOI decrease resulted from lower LME prices, higher raw material costs and unfavorable currency. Third-party realized metal prices declined $108 per ton, or four percent, to $2,620 per ton. The Company purchased roughly 130 kmt of primary metal for internal use as part of its strategy to sell value-added products.

Flat-Rolled Products – ATOI for the segment was $48 million, down 39 percent from the prior quarter and down 41 percent from the year-ago quarter. The decline was primarily due to seasonal shutdowns and mill outages in North America and Europe, and an increase in direct material and energy costs. These impacts were somewhat offset by a more favorable product mix. Included in the results were $13 million in continuing start-up costs for new facilities in Russia and China as part of the long-term growth strategy.

Extruded and End Products – ATOI declined $1 million from the prior quarter due to seasonally lower volumes, offset by a more favorable mix. Segment ATOI remained flat in comparison to the prior year quarter.

Engineered Solutions – Segment ATOI declined $25 million from the prior quarter due to scheduled summer shutdowns in the auto industry coupled with lower demand in the North American automotive market. However, ATOI rose $41 million, or 121 percent, above the prior year quarter. Strong demand in the aerospace and commercial vehicle markets, continued productivity gains and targeted price increases led to the improved results.

Packaging and Consumer – Segment ATOI was lower by $13 million versus the previous quarter and $4 million from the year-ago quarter primarily due to seasonal weakness in Food Packaging and Closures and higher resin costs, partially offset by continued strength in the Consumer business. It is anticipated that the lagged recovery of the third quarter raw material cost increases will benefit the fourth quarter.

Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on October 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® foils and plastic wraps, Alcoa® wheels, and Baco® household wraps. Among its other businesses are closures, fastening systems, precision castings, and electrical distribution systems for cars and trucks. The company has 129,000 employees in 44 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

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 mitigate impacts from increased energy and raw materials costs, or other cost inflation; (d) Alcoa’s inability to achieve the level of cost savings, productivity improvements or earnings or revenue growth anticipated by management; (e) Alcoa's inability to complete its growth projects and integration of acquired facilities as planned and by targeted completion dates; (f) unfavorable changes in laws, governmental regulations or policies, currency exchange rates or competitive factors in the countries in which Alcoa operates; (g) significant legal proceedings or investigations adverse to Alcoa, including environmental, product liability, safety and health and other claims; and (h) the other risk factors summarized in Alcoa's Form 10-K for the year ended December 31, 2005, Forms 10-Q for the quarters ended March 31, 2006 and June 30, 2006 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
September 30,June 30,September 30,
2005 (a)2006 (a)2006 
Sales $ 6,401  $ 7,797  $ 7,631 
 
Cost of goods sold 5,263  5,827  6,015 
Selling, general administrative, and other expenses 304  354  326 
Research and development expenses 51  50  53 
Provision for depreciation, depletion, and amortization 319  324  325 
Restructuring and other charges (9) (3)
Interest expense 96  98  101 
Other income, net (92) (61) (48)
Total costs and expenses 5,948  6,583  6,769 
 
Income from continuing operations before taxes on income 453  1,214  862 
Provision for taxes on income 109  341  213 
Income from continuing operations before minority interests’ share 344  873  649 
Less: Minority interests’ share 59  124  109 
 
Income from continuing operations 285  749  540 
 
Income (loss) from discontinued operations (5) (3)
 
NET INCOME $ 289  $ 744  $ 537 
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ .33  $ .86  $ .62 
Loss from discontinued operations (.01)
Net income $ .33  $ .85  $ .62 
 
Diluted:
Income from continuing operations $ .32  $ .85  $ .62 
Income (loss) from discontinued operations .01  (.01)
Net income $ .33  $ .85  $ .61 
 
Average number of shares used to compute:
Basic earnings per common share 872,515,797  869,811,164  867,589,707 
Diluted earnings per common share 876,583,063  877,005,617  873,494,404 
 
Shipments of aluminum products (metric tons) 1,412,000  1,400,000  1,396,000 
 
(a) Prior periods' financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility and the home
exteriors business in discontinued operations in 2006.

Alcoa and subsidiaries    

Condensed Statement of Consolidated Income (unaudited)

(in millions, except per-share, share, and metric ton amounts)

 
Nine months ended
September 30,
2005 (a)2006 
Sales $ 19,032  $ 22,539 
 
Cost of goods sold 15,366  17,186 
Selling, general administrative, and other expenses 947  1,035 
Research and development expenses 143  150 
Provision for depreciation, depletion, and amortization 941  955 
Restructuring and other charges 266  (11)
Interest expense 261  291 
Other income, net (475) (144)
Total costs and expenses 17,449  19,462 
 
Income from continuing operations before taxes on income 1,583  3,077 
Provision for taxes on income 360  836 
Income from continuing operations before minority interests’ share 1,223  2,241 
Less: Minority interests’ share 179  338 
 
Income from continuing operations 1,044  1,903 
 
Loss from discontinued operations (35) (14)
 
NET INCOME $ 1,009  $ 1,889 
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ 1.20  $ 2.19 
Loss from discontinued operations (.04) (.02)
Net income $ 1.16  $ 2.17 
 
Diluted:
Income from continuing operations $ 1.19  $ 2.17 
Loss from discontinued operations (.04) (.01)
Net income $ 1.15  $ 2.16 
 
Average number of shares used to compute:
Basic earnings per common share 872,054,221  869,241,174 
Diluted earnings per common share 877,743,271  875,472,002 
 
Common stock outstanding at the end of the period 872,706,561  867,077,839 
 
Shipments of aluminum products (metric tons) 4,080,000  4,146,000 
(a) Prior period financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility and the home
exteriors business in discontinued operations in 2006.

Alcoa and subsidiaries

Condensed Consolidated Balance Sheet (unaudited)

(in millions)

 

December 31,
2005 (b)

September 30,

2006

ASSETS
Current assets:
Cash and cash equivalents $ 762  $ 562 

Receivables from customers, less allowances:

   $75 in 2005 and $84 in 2006

2,860  3,523 
Other receivables 427  337 
Inventories 3,392  4,064 
Fair value of derivative contracts 520  241 
Prepaid expenses and other current assets 713  1,043 
Total current assets 8,674  9,770 
 
Properties, plants and equipment, at cost 26,769  29,025 
Less: accumulated depreciation, depletion and amortization 13,661  14,544 

 Net properties, plants and equipment

13,108  14,481 
Goodwill 6,212  6,286 
Investments 1,370  1,379 
Other assets 4,084  4,145 
Assets held for sale 248  243 
Total assets $ 33,696  $ 36,304 
 
LIABILITIES
Current liabilities:
Short-term borrowings $ 300  $ 441 
Commercial paper 912  2,193 
Accounts payable, trade 2,570  2,700 
Accrued compensation and retirement costs 1,096  1,040 
Taxes, including taxes on income 871  1,019 
Other current liabilities 1,445  1,166 
Long-term debt due within one year 58  855 
Total current liabilities 7,252  9,414 
Long-term debt, less amount due within one year 5,279  4,446 
Accrued pension benefits 1,477  1,248 
Accrued postretirement benefits 2,105  2,082 
Other noncurrent liabilities and deferred credits 1,821  1,931 
Deferred income taxes 875  795 
Liabilities of operations held for sale 149  154 
Total liabilities 18,958  20,070 
 
MINORITY INTERESTS 1,365  1,529 
 
SHAREHOLDERS' EQUITY
Preferred stock 55  55 
Common stock 925  925 
Additional capital 5,720  5,811 
Retained earnings 9,345  10,706 
Treasury stock, at cost (1,899) (2,022)
Accumulated other comprehensive loss (773) (770)
Total shareholders' equity 13,373  14,705 
Total liabilities and equity $ 33,696  $ 36,304 
(b) Prior period financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility and the home
exteriors business in discontinued operations in 2006.

Alcoa and subsidiaries

Condensed Statement of Consolidated Cash Flows (unaudited)

(in millions)

 
Nine months ended

September 30,

2005 (c)2006 
CASH FROM OPERATIONS
Net income $ 1,009  $ 1,889 
Adjustments to reconcile net income to cash from operations:
Depreciation, depletion, and amortization 944  955 
Deferred income taxes (116) (78)
Equity loss (income), net of dividends 48  (65)
Restructuring and other charges 266  (11)
Gains from investing activities – sale of assets (409) (11)
Provision for doubtful accounts 13  16 
Loss from discontinued operations 35  14 
Minority interests 179  338 
Stock-based compensation 18  57 
Excess tax benefits from share-based payment arrangements –  (16)
Other (28) (128)
Changes in assets and liabilities, excluding effects of acquisitions and divestitures:
Increase in receivables (531) (402)
Increase in inventories (491) (565)
Increase in prepaid expenses and other current assets (26) (201)
Increase (decrease) in accounts payable and accrued expenses 277  (404)
(Decrease) increase in taxes, including taxes on income (68) 202 
Cash paid on long-term aluminum supply contract (93) – 
Pension contributions (364) (344)
Net change in noncurrent assets and liabilities 17  (12)
CASH PROVIDED FROM CONTINUING OPERATIONS 680  1,234 
CASH USED FOR DISCONTINUED OPERATIONS (43) – 
CASH PROVIDED FROM OPERATIONS 637  1,234 
 
FINANCING ACTIVITIES
Net changes to short-term borrowings 86 
Common stock issued for stock compensation plans 27  141 
Repurchase of common stock (290)
Dividends paid to shareholders (393) (392)
Dividends paid to minority interests (74) (281)
Net change in commercial paper 532  1,281 
Additions to long-term debt 272  20 
Payments on long-term debt (249) (32)
Excess tax benefits from share-based payment arrangements –  16 
Other –  64 
CASH PROVIDED FROM FINANCING ACTIVITIES 119  613 
 
INVESTING ACTIVITIES
Capital expenditures (1,365) (2,054)
Capital expenditures of discontinued operations (11) (4)
Acquisition of minority interests (176) (1)
Acquisitions, net of cash acquired (257)
Proceeds from the sale of assets 90  19 
Sale of investments 1,081 
Change in short-term investments and restricted cash (17) (3)
Additions to investments (18) (52)
Other (8)
CASH USED FOR INVESTING ACTIVITIES (681) (2,072)
 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

– 

25 

Net change in cash and cash equivalents 75  (200)
Cash and cash equivalents at beginning of year 457  762 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 532  $ 562 
(c) Prior period financial statements have been reclassified to
reflect the Hawesville, KY automotive casting facility and the home
exteriors business in discontinued operations in 2006.

Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except metric ton amounts and realized prices)

 
1Q052Q053Q054Q052005  1Q062Q063Q06
Alumina:
Third-party shipments (Kmt) 1,923  1,951  2,017  1,966  7,857  2,023  2,108  2,205 
Alumina production (Kmt) 3,583  3,621  3,688  3,706  14,598  3,702  3,746  3,890 
Third-party sales $ 505  $ 533  $ 531  $ 561  $ 2,130  $ 628  $ 713  $ 733 
Intersegment sales $ 393  $ 439  $ 424  $ 451  $ 1,707  $ 555  $ 515  $ 524 
ATOI $ 161  $ 182  $ 156  $ 183  $ 682  $ 242  $ 278  $ 271 
Depreciation, depletion and amortization $ 41  $ 43  $ 44  $ 44  $ 172  $ 43  $ 46  $ 47 
Income taxes $ 61  $ 66  $ 47  $ 72  $ 246  $ 93  $ 112  $ 108 
Equity (loss) income $ (1)   $ –    $ –    $ 1    $ –    $ (1)   $ –    $ (2)
 
Primary Metals:
Third-party realized price – aluminum $ 2,042  $ 1,977  $ 1,963  $ 2,177  $ 2,044  $ 2,534  $ 2,728  $ 2,620 
Third-party shipments (Kmt) 487  520  590  557  2,154  488  508  535 
Aluminum production (Kmt) 851  899  904  900  3,554  867  882  895 
Third-party sales $ 1,089  $ 1,124  $ 1,204  $ 1,281  $ 4,698  $ 1,408  $ 1,589  $ 1,476 
Intersegment sales $ 1,303  $ 1,215  $ 1,108  $ 1,182  $ 4,808  $ 1,521  $ 1,696  $ 1,467 
ATOI $ 225  $ 187  $ 168  $ 242  $ 822  $ 445  $ 489  $ 346 
Depreciation, depletion and amortization $ 90  $ 90  $ 93  $ 95  $ 368  $ 96  $ 102  $ 100 
Income taxes $ 92  $ 75  $ 50  $ 90  $ 307  $ 197  $ 209  $ 140 
Equity income (loss) $ 18    $ (76)   $ 20    $ 26    $ (12)   $ 20    $ 28    $ 16 
 
Flat-Rolled Products:
Third-party shipments (Kmt) 509  560  543  544  2,156  562  579  568 
Third-party sales $ 1,655  $ 1,763  $ 1,679  $ 1,739  $ 6,836  $ 1,940  $ 2,115  $ 2,115 
Intersegment sales $ 34  $ 36  $ 29  $ 29  $ 128  $ 49  $ 66  $ 65 
ATOI $ 75  $ 70  $ 81  $ 62  $ 288  $ 66  $ 79  $ 48 
Depreciation, depletion and amortization $ 52  $ 54  $ 57  $ 54  $ 217  $ 50  $ 57  $ 57 
Income taxes $ 24  $ 27  $ 30  $ 30  $ 111  $ 26  $ 25  $ 19 
Equity loss $ –    $ –    $ –    $ –    $ –    $ –    $ (1)   $ – 
 
Extruded and End Products:
Third-party shipments (Kmt) 211  226  212  204  853  223  231  220 
Third-party sales $ 915  $ 992  $ 930  $ 892  $ 3,729  $ 1,038  $ 1,165  $ 1,146 
Intersegment sales $ 14  $ 19  $ 14  $ 17  $ 64  $ 23  $ 31  $ 20 
ATOI $ 11  $ 14  $ 16  $ (2) $ 39  $ –  $ 17  $ 16 
Depreciation, depletion and amortization (1) $ 29  $ 30  $ 30  $ 30  $ 119  $ 28  $ 30  $ 29 
Income taxes $ (2)   $ 13    $ 7    $ 2    $ 20    $ 1    $ 8    $ 7 
 
Engineered Solutions:
Third-party shipments (Kmt) 38  37  36  34  145  37  38  34 
Third-party sales $ 1,237  $ 1,282  $ 1,242  $ 1,271  $ 5,032  $ 1,360  $ 1,405  $ 1,345 
ATOI $ 61  $ 61  $ 34  $ 47  $ 203  $ 83  $ 100  $ 75 
Depreciation, depletion and amortization $ 47  $ 45  $ 42  $ 42  $ 176  $ 40  $ 42  $ 43 
Income taxes $ 26  $ 30  $ 23  $ 10  $ 89  $ 37  $ 44  $ 35 
Equity income $ 1    $ –    $ –    $ –    $ 1    $ –    $ –    $ 1 
 
Packaging and Consumer:
Third-party shipments (Kmt) 34  46  31  40  151  40  44  39 
Third-party sales $ 708  $ 827  $ 806  $ 798  $ 3,139  $ 749  $ 834  $ 815 
ATOI $ 16  $ 41  $ 28  $ 20  $ 105  $ 8  $ 37  $ 24 
Depreciation, depletion and amortization (1) $ 32  $ 31  $ 31  $ 32  $ 126  $ 31  $ 31  $ 30 
Income taxes $ 10  $ 18  $ 14  $ 8  $ 50  $ 5  $ 9  $ 8 
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.

Alcoa and subsidiaries
Segment Information (unaudited), continued
(in millions)

 
Reconciliation of ATOI to consolidated net income:1Q052Q053Q054Q05

2005 

1Q062Q063Q06
Total ATOI $ 549  $ 555  $ 483  $ 552  $ 2,139  $ 844  $ 1,000  $ 780 
Unallocated amounts (net of tax):
Impact of LIFO (2) (19) (2) (22) (56) (99) (36) (49) (19)
Interest income 12  14  42  11  10  23 
Interest expense (51) (56) (62) (51) (220) (60) (63) (66)
Minority interests (60) (60) (59) (80) (259) (105) (124) (109)
Corporate expense (69) (73) (82) (88) (312) (89) (82) (64)
Restructuring and other charges (30) (144) (5) (18) (197) (1)
Discontinued operations (9) (30) 13  (22) (6) (5) (3)
Other (2) (58)   261    20    (62)   161  50    51    (7)
Consolidated net income $ 260    $ 460    $ 289    $ 224    $ 1,233  $ 608    $ 744    $ 537 
(2)  Certain amounts have been reclassified to Other so that this line
reflects only the impact of LIFO.

Prior periods' segment information has been reclassified to reflect
the movement of the Hawesville, KY automotive casting facility and the
home exteriors business to discontinued operations in 2006.

The difference between total segment third-party sales and
consolidated third-party sales is in Corporate.

Alcoa and subsidiaries
Calculation of Financial Measures (unaudited)
(in millions)

 
2006 Return on Capital2006 Return on Capital,

Excluding Growth Investments

Bloomberg (1)Annualized (2)
 
Net income $ 2,113  $ 2,519  Net income $ 2,113 
 
Minority interests 418  451  Minority interests 418 
 

Interest expense
 (after tax)

Interest expense
 (after tax)

272 

283 

272 

 
Numerator (sum total) $ 2,803  $ 3,253  Numerator (sum total) $ 2,803 
 
Russia and Bohai net loss 85 
 
Adjusted net income$ 2,888 
 
Average BalancesAverage Balances (1)
 
Short-term borrowings $ 356  $ 371  Short-term borrowings $ 356 
Short-term debt 451  457  Short-term debt 451 
Commercial paper 1,678  1,553  Commercial paper 1,678 
Long-term debt 4,916  4,863  Long-term debt 4,916 
Preferred stock 55  55  Preferred stock 55 
Minority interests 1,416  1,447  Minority interests 1,416 

Common
 equity (3)

14,120  13,984 

Common
 equity (3)

14,120 
 
Denominator (sum total) $ 22,992  $ 22,730  Denominator (sum total) $ 22,992 
 
Capital projects in progress and Russia and Bohai capital base (2,540)
 
Adjusted capital base$ 20,452 
 

Return on capital

12.2%

14.3% Return on capital, excluding growth investments

14.1%

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 (September 2005
    ending balance + September 2006 ending balance) divided by 2.
(2) The Annualized Methodology numerator amounts are calculated using
    the first nine months of 2006 balances divided by 9 and
    multiplying that result by 12.  Average balances are calculated as
    (September 2006 ending balance + December 2005 ending balance)
    divided by 2.
(3) Calculated as total shareholders' equity, less preferred stock.

Alcoa and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in millions)

 
2005 Return on Capital2005 Return on Capital,

Excluding Growth Investments

Bloomberg (4)Annualized (5)
 
Net income $ 1,277  $ 1,345  Net income $ 1,277 
 
Minority interests 227  239  Minority interests 227 
 

Interest expense
 (after tax)

Interest expense
 (after tax)

263 

269 

263 

 
Numerator (sum total) $ 1,767  $ 1,853  Numerator (sum total) $ 1,767 
 
Russia and Bohai net loss 48 
 
Adjusted net income$ 1,815 
 
Average BalancesAverage Balances (4)
 
Short-term borrowings $ 154  $ 269  Short-term borrowings $ 154 
Short-term debt 272  52  Short-term debt 272 
Commercial paper 946  896  Commercial paper 946 
Long-term debt 5,382  5,366  Long-term debt 5,382 
Preferred stock 55  55  Preferred stock 55 
Minority interests 1,332  1,359  Minority interests 1,332 

Common
 equity (6)

13,045  13,418 

Common
 equity (6)

13,045 
 
Denominator (sum total) $ 21,186  $ 21,415  Denominator (sum total) $ 21,186 
 
Capital projects in progress and Russia and Bohai capital base (1,736)
 
Adjusted capital base$ 19,450 
 

Return on capital

8.3%

8.7% Return on capital, excluding growth investments

9.3%

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.

(4) The Bloomberg Methodology calculates ROC based on trailing four
    quarters.  Average balances are calculated as (September 2004
    ending balance + September 2005 ending balance) divided by 2.
(5) The Annualized Methodology numerator amounts are calculated using
    the first nine months of 2005 balances divided by 9 and
    multiplying that result by 12.  Average balances are calculated as
    (September 2005 ending balance + December 2004 ending balance)
    divided by 2.
(6) Calculated as total shareholders' equity, less preferred stock.

Alcoa and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in millions)

 
Days of Working CapitalQuarter ended
September 30,

2005

December 31,
2005

September 30,

2006

 
Receivables from customers, less allowances $ 2,997  $ 2,860  $ 3,523 
Add: Inventories 3,453  3,392  4,064 
Less: Accounts payable, trade 2,325  2,570  2,700 
Working Capital $ 4,125  $ 3,682  $ 4,887 
 
Sales $ 6,401  $ 6,536  $ 7,631 
 
Days of Working Capital 59.3  51.8  58.9 
Days of Working Capital = Working Capital divided by
(Sales/number of days in the quarter)