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October 9, 2007

Alcoa Reports Third Quarter 2007 Income from Continuing Operations of $0.64 Per Share

Board Increases Share Buyback Program to 25% of Outstanding Shares

NEW YORK--Alcoa (NYSE:AA):

Highlights:
  • Income from continuing operations of $558 million, or $0.64 per share, a three percent increase from a year ago.
  • Revenues of $7.4 billion.
  • Board increases authorization to repurchase shares to 25 percent of outstanding shares, up from previously authorized 10 percent.
  • Chalco sale and upcoming packaging and automotive castings sales to provide cash and flexibility to enhance shareholder value.
  • Debt-to-capital stands at 29 percent.
  • Trailing 12-month ROC stands at 11.8 percent including significant growth investments; excluding investments in growth, ROC is 14.6 percent.
  • Quarterly results impacted by Chalco gain, restructuring and impairment charges, currency, seasonality, metal prices, higher energy costs and softening markets.


Alcoa (NYSE:AA) today reported third quarter income from continuing operations of $558 million, or $0.64 per diluted share. Third quarter income from continuing operations increased three percent from $540 million, or $0.62, in the third quarter of 2006. Income from continuing operations was $716 million, or $0.81, in the second quarter of 2007.

As a result of the Company’s strong capital structure and healthy cash flows, Alcoa’s Board of Directors has authorized the repurchase of up to 25 percent of the company’s outstanding common stock, or approximately 217 million shares. Under the earlier repurchase program, 43 million shares, or approximately five percent, had already been repurchased by the end of the third quarter, leaving the company with authorization to buy back approximately 174 million shares.

“The Chalco sale, combined with proceeds from the upcoming sales of our packaging and auto castings businesses, give us a strong balance sheet, increased flexibility to ramp-up share repurchases, and deliver greater shareholder value,” said Alcoa Chairman and CEO Alain Belda.

Net income for the third quarter of 2007 was $555 million, or $0.63, compared to $537 million, or $0.61, in the third quarter of 2006 and $715 million, or $0.81, in the 2007 second quarter. Third quarter results were impacted by the Chalco sale, charges associated with planned asset sales and restructuring, higher petroleum and energy costs, seasonality, lower metal prices and softness in the North American economy.

In the first nine months of 2007, net income was $1.93 billion, or $2.20, compared with $1.89 billion, or $2.16, in 2006. Year-to-date income from continuing operations was $1.95 billion compared with $1.90 billion in 2006.

Revenues for the quarter were $7.4 billion, compared with $7.6 billion in 2006 and $8.1 billion in the 2007 second quarter. This quarter’s results were primarily impacted by the exclusion of the company’s soft alloy extrusion business as a result of forming a joint venture with Sapa in June, lower metal prices, seasonality and softness in the North American markets.

“Macroeconomic drivers such as the weakening US dollar, higher petroleum costs, and market softness in North America impacted the quarter,” said Belda. “Despite these challenges, we have established all-time records for revenue, net income, earnings per share and cash from operations in the first nine months of the year,” added Belda.

Cash from operations for the quarter was $592 million, including the impact of approximately $200 million in contributions to the company’s pension plans. Year-to-date, cash from operations was $2.47 billion, including pension contributions.

Capital expenditures for the quarter were $941 million, with 66 percent dedicated to growth projects. Year-to-date, the company has invested $1.74 billion in growth projects, or 67 percent of capital expenditures.

The company’s debt-to-capital ratio at the end of the third quarter of 2007 stood at 29 percent, the lowest since 1999.

The Company’s trailing 12-month return on capital (ROC) stands at 11.8 percent including significant investments in growth projects and construction work in progress; excluding investments in growth and construction work in progress, ROC is 14.6 percent.

Segment and Other Results

Alumina – After tax operating income (ATOI) was $215 million, a decrease of $61 million, or 22 percent, from the prior quarter. System production decreased by a net of 24 kmt as production increases throughout the system offset much of the loss in Jamaica due to Hurricane Dean. Higher energy costs, the weakening US dollar and hurricane damages also impacted the quarter.

Primary Metals – ATOI was $283 million, down $179 million, or 39 percent, compared to the prior quarter. The ATOI decrease resulted from lower LME prices and premiums, unfavorable energy and currency, Iceland start-up costs and continued curtailment costs at Rockdale and Tennessee. Third-party realized metal prices decreased $145 per metric ton, or 5 percent, to $2,734 per ton. Primary metal production for the quarter increased 33 kmt to 934 kmt. The Company purchased approximately 58 kmt of primary metal for internal use as part of its strategy to sell value-added products.

Flat-Rolled Products – ATOI was $61 million, down $32 million, or 34 percent, from the prior quarter and up $13 million, or 27 percent, from the year ago quarter. The decrease in ATOI from the prior quarter was primarily due to seasonally lower volumes and unfavorable product mix.

Extruded and End Products – ATOI was $13 million, down $33 million from the prior quarter and down $3 million from the year ago quarter. The decrease from the prior quarter is primarily related to the soft alloy extrusion businesses for which no depreciation was recorded in the second quarter while the assets were held for sale. Additionally, these businesses were impacted by normal seasonality. The majority of the Company’s soft alloy extrusions business became part of the Sapa joint venture on June 1, 2007. The global hard alloy extrusions and building and construction systems business remained strong.

Engineered Solutions – ATOI was $60 million, down $45 million, or 43 percent, from the prior quarter and down $15 million, or 20 percent, from the year ago quarter. The 2007 third quarter results were impacted by normal seasonality and increased weakness in the automotive industry. In addition, a one-time inventory charge as part of restructuring our automotive business and a German tax rate change impacted the segment.

Packaging and Consumer – ATOI was $36 million, up $12 million, or 50 percent, from the year ago quarter and down one million, or three percent, from the prior quarter. On a sequential basis, productivity improvements offset most of the expected seasonal decline. The significant improvement over the prior year quarter was due to productivity gains across all businesses.

Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on October 9th 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."

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 including flat-rolled products, hard alloy extrusions, and forgings, Alcoa also markets Alcoa® wheels, fastening systems, precision and investment castings, structures and building systems. The company has 116,000 employees in 44 countries and has been named one of the top most 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, uncertainties and other factors that may cause actual results, performance or achievements of Alcoa to be different from those expressed or implied in the forward-looking statements. Alcoa disclaims any intention or obligation, other than as required by law, to update or revise any 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 global economic or aluminum industry conditions generally, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices for primary aluminum and other products; (b) material adverse changes in the markets served by Alcoa, including the packaging, transportation, distribution, building and construction, aerospace, industrial gas turbine and other markets; (c) Alcoa’s inability to implement successfully its strategy for growth or its productivity, cost-reduction or capital structure enhancement initiatives; (d) Alcoa’s inability to realize the full extent of the expected savings or benefits from its restructuring activities, to complete such activities in accordance with its planned timetable, or to assure that subsequent developments do not cause the actual charges to exceed the estimated charges; (e) changes in laws, governmental regulations or policies, currency exchange rates or competitive factors in the countries in which Alcoa operates; (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, 2006, Forms 10-Q for the quarters ended March 31, 2007 and June 30, 2007, 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,
  2006     2007     2007  
Sales $ 7,631 $ 8,066 $ 7,387
 
Cost of goods sold (exclusive of expenses below) 6,015 6,178 5,910
Selling, general administrative, and other expenses 326 367 365
Research and development expenses 53 55 64
Provision for depreciation, depletion, and amortization 325 317 338
Goodwill impairment charge 133
Restructuring and other charges (3 ) (57 ) 444
Interest expense 101 86 151
Other income, net   (48 )   (60 )   (1,731 )
Total costs and expenses 6,769 6,886 5,674
 
Income from continuing operations before taxes on income 862 1,180 1,713
Provision for taxes on income   213     354     1,079  
Income from continuing operations before minority interests’ share 649 826 634
Less: Minority interests’ share   109     110     76  
 
Income from continuing operations 540 716 558
 
Loss from discontinued operations   (3 )   (1 )   (3 )
 
NET INCOME $537   $715   $555  
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ .62 $ .82 $ .64
Loss from discontinued operations            
Net income $.62   $.82   $.64  
Diluted:
Income from continuing operations $ .62 $ .81 $ .64
Loss from discontinued operations   (.01)       (.01)
Net income $.61   $.81   $.63  
 
Average number of shares used to compute:

Basic earnings per
 common share

867,589,707 872,978,729 867,664,875

Diluted earnings per
 common share

873,494,404 882,742,445 877,700,035
 
Shipments of aluminum products (metric tons) 1,396,000 1,364,000 1,328,000
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited), continued
(in millions, except per-share, share, and metric ton amounts)
 
Nine months ended
September 30,
  2006     2007  
Sales $ 22,539 $ 23,361
 
Cost of goods sold (exclusive of expenses below) 17,186 18,095
Selling, general administrative, and other expenses 1,035 1,089
Research and development expenses 150 171
Provision for depreciation, depletion, and amortization 955 959
Goodwill impairment charge 133
Restructuring and other charges (11 ) 413
Interest expense 291 320
Other income, net   (144 )   (1,835 )
Total costs and expenses 19,462 19,345
 
Income from continuing operations before taxes on income 3,077 4,016
Provision for taxes on income   836     1,768  
Income from continuing operations before minority interests’ share 2,241 2,248
Less: Minority interests’ share   338     301  
 
Income from continuing operations 1,903 1,947
 
Loss from discontinued operations   (14 )   (15 )
 
NET INCOME $1,889   $1,932  
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ 2.19 $ 2.24
Loss from discontinued operations   (.02 )   (.02 )
Net income $2.17   $2.22  
Diluted:
Income from continuing operations $ 2.17 $ 2.22
Loss from discontinued operations   (.01 )   (.02 )
Net income $2.16   $2.20  
 
Average number of shares used to compute:
Basic earnings per common share 869,241,174 869,245,090
Diluted earnings per common share 875,472,002 877,964,737
 
Common stock outstanding at the end of the period 867,077,839 852,046,355
 
Shipments of aluminum products (metric tons) 4,146,000 4,057,000

Alcoa and subsidiaries

Condensed Consolidated Balance Sheet (unaudited)

(in millions)

 

 

December 31,
2006 (a)

September 30,

2007

ASSETS
Current assets:
Cash and cash equivalents $ 506 $ 1,314

Receivables from customers, less allowances of $68 in 2006 and $72 in 2007

2,788 2,976
Other receivables 301 364
Inventories 3,380 3,311
Fair value of derivative contracts 295 140
Prepaid expenses and other current assets   1,083     1,289  
Total current assets   8,353     9,394  
 
Properties, plants, and equipment 27,689 30,660
Less: accumulated depreciation, depletion, and amortization   13,682     14,527  
Properties, plants, and equipment, net   14,007     16,133  
Goodwill 4,885 4,793
Investments 1,718 1,981
Other assets 3,939 3,853
Assets held for sale   4,281     3,044  
Total assets $37,183   $39,198  
 
LIABILITIES
Current liabilities:
Short-term borrowings $ 462 $ 575
Commercial paper 340 356
Accounts payable, trade 2,407 2,649
Accrued compensation and retirement costs 949 977
Taxes, including taxes on income 851 1,524
Other current liabilities 1,360 1,268
Long-term debt due within one year   510     198  
Total current liabilities   6,879     7,547  
Commercial paper 1,132
Long-term debt, less amount due within one year 4,777 6,332
Accrued pension benefits 1,566 1,311
Accrued postretirement benefits 2,956 2,840
Other noncurrent liabilities and deferred credits 2,002 1,959
Deferred income taxes 762 534
Liabilities of operations held for sale   678     437  
Total liabilities   20,752     20,960  
 
MINORITY INTERESTS   1,800     2,324  
 
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 5,817 5,760
Retained earnings 11,066 12,405
Treasury stock, at cost (1,999 ) (2,510 )
Accumulated other comprehensive loss   (1,233 )   (721 )
Total shareholders' equity   14,631     15,914  
Total liabilities and equity $37,183   $39,198  
 

(a) The Condensed Consolidated Balance Sheet as of December 31,
    2006 has been reclassified to reflect the movement of the
    automotive castings and packaging and consumer businesses to
    held for sale in the third quarter of 2007.

Alcoa and subsidiaries

Condensed Statement of Consolidated Cash Flows (unaudited)

(in millions)

 

Nine months ended
September 30,

  2006 (b)     2007  
CASH FROM OPERATIONS
Net income $ 1,889 $ 1,932
Adjustments to reconcile net income to cash from operations:
Depreciation, depletion, and amortization 955 959
Deferred income taxes (78 ) 518
Equity income, net of dividends (65 ) (79 )
Goodwill impairment charge 133
Restructuring and other charges (11 ) 413
Gains from investing activities – asset sales (11 ) (1,772 )
Provision for doubtful accounts 16 13
Loss from discontinued operations 14 15
Minority interests 338 301
Stock-based compensation 57 83
Excess tax benefits from stock-based payment arrangements (16 ) (77 )
Other (c) (181 ) (33 )
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) decrease in receivables (287 ) 224
(Increase) decrease in inventories (518 ) 184
(Increase) in prepaid expenses and other current assets (200 ) (100 )
(Decrease) in accounts payable and accrued expenses (460 ) (145 )
Increase in taxes, including taxes on income (c) 270 341
Cash received on long-term aluminum supply contract 93
Pension contributions (344 ) (297 )
Net change in noncurrent assets and liabilities (28 ) (188 )
(Increase) in net assets held for sale   (106 )   (49 )
CASH PROVIDED FROM CONTINUING OPERATIONS 1,234 2,469
CASH USED FOR DISCONTINUED OPERATIONS       (1 )
CASH PROVIDED FROM OPERATIONS   1,234     2,468  
 
FINANCING ACTIVITIES
Net change in short-term borrowings 86 102
Net change in commercial paper 1,281 (1,116 )
Additions to long-term debt 20 2,049
Debt issuance costs (126 )
Payments on long-term debt (32 ) (848 )
Common stock issued for stock compensation plans 141 819
Excess tax benefits from stock-based payment arrangements 16 77
Repurchase of common stock (290 ) (1,548 )
Dividends paid to shareholders (392 ) (447 )
Dividends paid to minority interests (281 ) (310 )
Contributions from minority interests   64     369  
CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES   613     (979 )
 
INVESTING ACTIVITIES
Capital expenditures (2,054 ) (2,615 )
Capital expenditures of discontinued operations (4 )
Proceeds from the sale of assets 19 87
Additions to investments (52 ) (123 )
Sales of investments 7 1,981
Net change in short-term investments and restricted cash (3 ) (23 )
Other   15     (13 )
CASH USED FOR INVESTING ACTIVITIES   (2,072 )   (706 )
 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

25

   

25

 
Net change in cash and cash equivalents (200 ) 808
Cash and cash equivalents at beginning of year   762     506  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $562   $1,314  
 

(b) The Condensed Statement of Consolidated Cash Flows for the nine
    months ended September 30, 2006 has been reclassified to
    reflect the movement of the soft alloy extrusions business to
    held for sale in the fourth quarter of 2006, and the automotive
    castings and packaging and consumer businesses to held for sale
    in the third quarter of 2007.

 

(c) A reclassification of $53 related to income taxes was made in
    the September 30, 2006 period to conform to the current period
    presentation.

Alcoa and subsidiaries
Segment Information (unaudited)
(dollars in millions, except realized prices; production and shipments in thousands of metric tons (kmt))
 
1Q062Q063Q064Q06   2006   1Q072Q073Q07
Alumina:
Alumina production (kmt) 3,702 3,746 3,890 3,790 15,128 3,655 3,799 3,775
Third-party alumina shipments (kmt) 2,023 2,108 2,205 2,084 8,420 1,877 1,990 1,937
Third-party sales $ 628 $ 713 $ 733 $ 711 $ 2,785 $ 645 $ 712 $ 664
Intersegment sales $ 555 $ 515 $ 524 $ 550 $ 2,144 $ 579 $ 587 $ 631
Equity (loss) income $ (1 ) $ $ (2 ) $ 1 $ (2 ) $ 1 $ $ (1 )
Depreciation, depletion, and amortization $ 43 $ 46 $ 47 $ 56 $ 192 $ 56 $ 62 $ 76
Income taxes $ 93 $ 112 $ 108 $ 115 $ 428 $ 100 $ 102 $ 89
After-tax operating income (ATOI) $ 242   $ 278   $ 271   $ 259   $ 1,050   $ 260 $ 276 $ 215  
 
Primary Metals:
Aluminum production (kmt) 867 882 895 908 3,552 899 901 934
Third-party aluminum shipments (kmt) 488 508 535 556 2,087 518 565 584
Alcoa’s average realized price per metric ton of aluminum

$

2,534

$

2,728

$

2,620

$

2,766

$

2,665

$

2,902

$

2,879

$

2,734

Third-party sales $ 1,408 $ 1,589 $ 1,476 $ 1,698 $ 6,171 $ 1,633 $ 1,746 $ 1,600
Intersegment sales $ 1,521 $ 1,696 $ 1,467 $ 1,524 $ 6,208 $ 1,477 $ 1,283 $ 1,171
Equity income $ 20 $ 28 $ 16 $ 18 $ 82 $ 22 $ 18 $ 11
Depreciation, depletion, and amortization $ 96 $ 102 $ 100 $ 97 $ 395 $ 95 $ 102 $ 102
Income taxes $ 197 $ 209 $ 140 $ 180 $ 726 $ 214 $ 196 $ 80
ATOI $ 445   $ 489   $ 346   $ 480   $ 1,760   $ 504 $ 462 $ 283  
 
Flat-Rolled Products:
Third-party aluminum shipments (kmt) 562 579 568 564 2,273 568 583 602
Third-party sales $ 1,940 $ 2,115 $ 2,115 $ 2,127 $ 8,297 $ 2,275 $ 2,344 $ 2,309
Intersegment sales $ 49 $ 66 $ 65 $ 66 $ 246 $ 60 $ 63 $ 59
Equity loss $ $ (1 ) $ $ (1 ) $ (2 ) $ $ $
Depreciation, depletion, and amortization $ 50 $ 57 $ 57 $ 55 $ 219 $ 55 $ 55 $ 58
Income taxes $ 26 $ 25 $ 19 $ (2 ) $ 68 $ 26 $ 33 $ 31
ATOI $ 66   $ 79   $ 48   $ 62   $ 255   $ 62 $ 93 $ 61  
 
Extruded and End Products:
Third-party aluminum shipments (kmt) 223 231 220 203 877 213 146 78
Third-party sales $ 1,038 $ 1,165 $ 1,146 $ 1,070 $ 4,419 $ 1,175 $ 965 $ 563
Intersegment sales $ 23 $ 31 $ 20 $ 25 $ 99 $ 42 $ 26 $ 13
Equity income (loss) $ $ $ $ $ $ $ 9 $ (2 )
Depreciation, depletion, and amortization $ 28 $ 30 $ 29 $ 31 $ 118 $ 9 $ 10 $ 11
Income taxes $ 1 $ 8 $ 7 $ 2 $ 18 $ 11 $ 29 $ 5
ATOI $   $ 17   $ 16   $ 27   $ 60   $ 34 $ 46 $ 13  
 
Engineered Solutions:
Third-party aluminum shipments (kmt) 37 38 34 30 139 31 30 27
Third-party sales $ 1,360 $ 1,405 $ 1,345 $ 1,346 $ 5,456 $ 1,449 $ 1,478 $ 1,407
Equity income (loss) $ $ $ 1 $ (5 ) $ (4 ) $ $ $
Depreciation, depletion, and amortization $ 40 $ 42 $ 43 $ 44 $ 169 $ 41 $ 42 $ 46
Income taxes $ 37 $ 44 $ 35 $ (15 ) $ 101 $ 44 $ 47 $ 38
ATOI $ 83   $ 100   $ 75   $ 73   $ 331   $ 93 $ 105 $ 60  
 
Packaging and Consumer:
Third-party aluminum shipments (kmt) 40 44 39 46 169 35 40 37
Third-party sales $ 749 $ 834 $ 815 $ 837 $ 3,235 $ 736 $ 837 $ 828
Equity income $ $ $ $ 1 $ 1 $ $ $
Depreciation, depletion, and amortization $ 31 $ 31 $ 30 $ 32 $ 124 $ 30 $ 30 $ 29
Income taxes $ 5 $ 9 $ 8 $ 11 $ 33 $ 7 $ 17 $ 17
ATOI $ 8   $ 37   $ 24   $ 26   $ 95   $ 19 $ 37 $ 36  
Alcoa and subsidiaries
Segment Information (unaudited), continued
(in millions)
 
Reconciliation of ATOI to consolidated net income:1Q062Q063Q064Q06   2006   1Q072Q073Q07
Total segment ATOI $ 844 $ 1,000 $ 780 $ 927 $ 3,551 $ 972 $ 1,019 $ 668
Unallocated amounts (net of tax):

Impact of LIFO(1)

(36 ) (49 ) (19 ) (66 ) (170 ) (27 ) (16 ) 10
Interest income 11 10 23 14 58 11 9 10
Interest expense (60 ) (63 ) (66 ) (61 ) (250 ) (54 ) (56 ) (98 )
Minority interests (105 ) (124 ) (109 ) (98 ) (436 ) (115 ) (110 ) (76 )
Corporate expense (89 ) (82 ) (64 ) (82 ) (317 ) (86 ) (101 ) (101 )
Restructuring and other charges (1 ) 6 2 (386 ) (379 ) (18 ) 21 (311 )
Discontinued operations (6 ) (5 ) (3 ) 101 87 (11 ) (1 ) (3 )
Other   50     51     (7 )   10     104     (10 )   (50 )   456  
Consolidated net income $ 608   $ 744   $ 537   $ 359   $ 2,248   $ 662   $ 715   $ 555  
 
 

(1) Certain amounts for the first and second quarter of 2006 have
    been reclassified to Other so that this line reflects only the
    impact of LIFO. Presenting the Impact of LIFO as a separate
    line in the Reconciliation of ATOI started in the third quarter
    of 2006.

 

Certain amounts for the first and second quarter of 2006 included
in the Extruded and End Products segment and the Reconciliation of
ATOI have been reclassified to reflect the movement of the home
exteriors business to discontinued operations in the third quarter
of 2006.

 

The difference between certain segment financial information totals
and consolidated financial information is in Corporate.

Alcoa and subsidiaries

Calculation of Financial Measures (unaudited)

(in millions)

 

Bloomberg Return on Capital(1)

 

Bloomberg Return on Capital,

Excluding Growth Investments(1)

 
Twelve months endedTwelve months ended
September 30,September 30,
2006200720062007
 
Net income $ 2,113 $ 2,291 Net income $ 2,113 $ 2,291
 

Minority
 interests

418 399

Minority
 interests

418 399
 

Interest
 expense

Interest
 expense

 (after tax)

  272     246  

 (after tax)

  272     246  
 

Numerator

$2,803   $2,936   Numerator 2,803 2,936
 

Net losses of
 growth
 investments(2)

  85     57  
 
Adjusted numerator$2,888   $2,993  
 

Average
 Balances

Average
 Balances

Short-term
 borrowings

$ 349 $ 497

Short-term
 borrowings

$ 349 $ 497

Short-term
 debt

449 525

Short-term
 debt

449 525

Commercial
 paper

1,678 1,275

Commercial
 paper

1,678 1,275

Long-term
 debt

4,915 5,390

Long-term
 debt

4,915 5,390

Preferred
 stock

55 55

Preferred
 stock

55 55

Minority
 interests

1,416 1,927

Minority
 interests

1,416 1,927

Common
 equity(3)

  14,120     15,255  

Common
 equity(3)

  14,120     15,255  
 
Denominator $22,982   $24,924   Denominator 22,982 24,924
 

Capital
 projects in
 progress and
 capital base
 of growth
 investments(2)

  (2,540 )   (4,430 )
 

Adjusted
 denominator

$20,442   $20,494  
 

Return on capital

12.2

%

11.8

%

Return on
 capital,
 excluding
 growth
 investments

14.1

%

14.6

%

 
 

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 the trailing
    four quarters. Average balances are calculated as (September
    2007 ending balance + September 2006 ending balance) divided by
    2 for the twelve-month period ending September 30, 2007, and
    (September 2006 ending balance + September 2005 ending balance)
    divided by 2 for the twelve-month period ending September 30,
    2006.

(2) For all periods presented, growth investments include Russia
    and Bohai. Kunshan is also included as a growth investment for
    the twelve-month period ending September 30, 2007.

(3) 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,

2006 (a)

  June 30,

2007 (a)

  September 30,

2007

 
Receivables from customers, less allowances $ 2,802 $ 2,991 $ 2,976
Add: Inventories 3,363 3,216 3,311
Less: Accounts payable, trade   2,209   2,388   2,649
Working Capital $ 3,956 $ 3,819 $ 3,638
 
Sales $ 7,631 $ 8,066 $ 7,387
 
Days of Working Capital 47.7 43.1 45.3
 

Days of Working Capital = Working Capital divided by (Sales/number
of days in the quarter)

 

(a) Certain financial information for the quarters ended
    September 30, 2006 and June 30, 2007 has been reclassified to
    reflect the movement of the automotive castings and packaging
    and consumer businesses to held for sale in the third quarter
    of 2007. Also, certain financial information for the quarter
    ended September 30, 2006 has been reclassified to reflect the
    movement of the soft alloy extrusions business to held for sale
    in the fourth quarter of 2006.