Alcoa Announces Full-Year Income from Continuing Operations of $1.4 Billion, or $1.60 per share; Highest Annual Revenue and Second Highest Profitability in the Company's History
Highlights:
-- Income from continuing operations of $1.4 billion, or $1.60 per diluted share, for full year 2004, up 33% from 2003; second straight year of double-digit earnings growth;
-- 2004 revenue of $23.5 billion, the highest level in the company's history, and 11% higher than 2003;
-- Second straight year with debt reduction of over $1.1 billion; debt-to-capital ratio declined to 29.3%, the lowest level in five years;
-- Fourth quarter income from continuing operations of $345 million, or $0.39;
-- Fourth quarter revenue of $6.0 billion, up 12% from the same period last year;
-- Progress on major growth projects in Australia, Brazil, China, Iceland, Jamaica, Suriname and Russia;
-- Restarting more than 200,000 metric tons of primary metal capacity in North America in 2005.
Alcoa announced today that its full-year 2004 income from continuing operations was $1.402 billion, or $1.60, up 33 percent from $1.055 billion, or $1.22, per diluted share, in the previous year.
"This year, we achieved the highest revenue in Alcoa's history and the second highest profitability," said Alcoa Chairman and CEO Alain Belda. "Strong cash flows allowed us to reduce debt by more than $1 billion and invest in the company's future. While we are benefiting from strong aluminum fundamentals and improving end use markets, U.S. dollar weakness and higher input costs continue to pressure margins. We will continue to attack costs, streamline our organization, and take advantage of the strong market environment," said Belda.
In the fourth quarter, income from continuing operations was $345 million, or $0.39, up 15 percent from $299 million, or $0.34, in the third quarter and up slightly from $342 million, or $0.39, in the same period last year.
Fourth quarter net income of $268 million, or $0.30, was negatively affected by the previously disclosed $77 million after-tax charge reflecting the planned divestiture of certain non-core businesses, principally the company's telecommunications businesses. Net income was $283 million, or $0.32, in the 2004 third quarter, and $291 million, or $0.33, in the fourth quarter of 2003.
Results Overview
For the full year, revenue increased by 11 percent and profitability increased by 33 percent over 2003. Higher metal prices accounted for 60 percent of the increase in sales with the rest driven by the company's drive for organic growth, its strategy of selling higher value-added products, and the impact of currency on non-US sales. A substantial part of the increase in revenue was offset by significantly higher energy and other input costs, and the negative impact of a weaker dollar on non-US manufacturing operations.
Sales in the fourth quarter rose to $6.041 billion, up 3 percent over the third quarter and 12 percent over last year. On a sequential quarter basis, higher primary prices as well as strength in the consumer products business were partially offset by seasonal declines in can sheet, building products and closures. Higher input costs, particularly for energy, petroleum-based products, and freight, coupled with the impact of the weaker US dollar, negatively affected several businesses in the quarter.
In each of the third and fourth quarters, the strike at the Becancour ("ABI") smelter, now resolved, negatively affected earnings by $0.03 per share.
As previously announced, Alcoa agreed with Alumina Ltd. to develop its Brazilian Juruti bauxite reserves within their joint venture, resulting in a gain of $37 million, or $0.04. This transaction, combined with a $21 million reversal of a valuation reserve for foreign net operating losses, resulted in an effective tax rate for the quarter of 14 percent. The full year tax rate was 25 percent, in line with the previous year's rate.
The company's return on capital for 2004 stood at 8.5 percent, up 150 basis points from the previous year.
Update on Primary Metal Restarts
To take advantage of historically high aluminum prices, the company made significant progress toward restarting several of its smelters. When complete, restarts will add 220,000 metric tons of production in 2005, leaving the company with idle capacity of 361,000 metric tonnes. Progress was made at:
-- the ABI facility in Canada, where full production is expected to be reached in April 2005. Restart costs will total $10 million before taxes with the bulk of that spending in the first quarter. ABI will produce approximately 100,000 additional metric tons in 2005. Alcoa owns 75 percent of ABI.
-- the Wenatchee smelter in Washington, USA, after the successful resolution of an issue regarding health care cost sharing. Wenatchee should reach full production of its two restarted lines in February 2005, and is expected to produce approximately 85,000 metric tons this year.
-- the Massena East and West smelters in New York, USA, where an additional 60,000 metric tons will be produced in 2005.
Restart costs for Wenatchee and Massena were minimal in the fourth quarter of 2004.
Review of Transactions
The company continued its portfolio review to better focus on its core businesses, while making progress on acquisitions that will enhance its competitive position.
Alcoa received final approvals from the Government of the Russian Federation to proceed with its purchase of Rusal's controlling interests in two fabricating facilities in Samara and Belaya Kalitva in the Russian Federation. The addition of the two Russian fabricating facilities to Alcoa's leading flat rolled products business will allow the company to serve both the growing Russian market and global customers in Europe, Asia, and the Americas.
Alcoa reached an agreement with Fujikura, Ltd. that paves the way for Alcoa to obtain full ownership of the Alcoa Fujikura ("AFL") automotive business. In return, Fujikura will obtain complete ownership of the AFL telecommunications business. The loss on this transaction is included in discontinued operations for the fourth quarter.
Earlier this quarter, Alcoa and its partner completed the sale of Integris Metals to Ryerson Tull for $410 million in cash plus the assumption of debt, resulting in no material gain. Alcoa owned 50 percent of Integris Metals.
Management Actions
To improve profitability and better serve its customers, the company re-organized the business structure to create six global businesses and appointed three new group leaders in the packaging, global extrusions and flat rolled products businesses. The new organization, the completion of the Russian transaction, and the company's continuing cost reduction efforts may provide an opportunity for improved production efficiencies that could result in restructuring charges this year.
Balance Sheet and Growth Projects
For the second year in a row, the company reduced its debt by more than $1.1 billion, strengthening its balance sheet while executing its capital-intensive growth plan. Alcoa's debt-to-capital ratio improved to 29.3 percent at the end of the year, down from 35.1 percent at the end of 2003, and within the company's targeted range of 25 to 35 percent.
In the quarter, capital expenditures were $475 million, bringing full year capital spending to $1.1 billion, or 95 percent of depreciation. Approximately one-third of the spending in 2004 was growth-oriented. The company expects to spend approximately $2.5 billion on capital projects in 2005, with $1.6 billion dedicated to growth projects.
Growth capital is aimed largely at the upstream businesses. In 2004, Alcoa finished a refinery expansion in Jamaica, and will complete brownfield projects this year at refineries in Suriname and Pinjarra, West Australia. In 2004, the company broke ground at its new Iceland smelter and for an expansion at the Alumar smelter in northern Brazil. In 2005, the company will invest in a new anode plant in Norway, modernization of a Spanish smelter, and improvements at the newly acquired fabricating facilities in Russia.
Segment and Other Results
(all comparisons on a sequential quarter basis, unless noted)
Alumina and Chemicals - Segment profitability increased by $8 million (5 percent), with the Juruti transaction contributing $37 million in ATOI. The third quarter benefited from a $25 million profit on the winding down of an alumina tolling contract. On an operational basis, higher alumina volumes were offset by the impact on costs of the strengthening Australian dollar. Alumina production for the quarter was 3,623 thousand metric tons ("kmt"), compared to 3,546 kmt in the third quarter.
Primary Metals - Segment profitability increased $10 million (5 percent) largely due to higher metal prices. Costs associated with the strike at ABI had a negative impact in both the third and fourth quarters. In addition, the weaker dollar increased costs at non-US facilities. Primary metal production for the quarter was 824 kmt in line with the third quarter. The company purchased roughly 133 kmt of primary metal for internal use as part of its strategy to sell value-added products.
Flat Rolled Products - Segment profitability decreased $3 million to $59 million, down 5 percent from the third quarter. While aerospace and distribution markets continued to be strong, lower can sheet shipments drove the decline in profitability.
Engineered Products - Segment profitability fell by $10 million, to $50 million. Howmet, Alcoa Fastening Systems and the Forgings business continued to improve, but a weak environment in the European soft alloy extrusions market drove lower shipments and profitability.
Packaging and Consumer - Segment ATOI of $38 million was down slightly from the third quarter as typical seasonal strength in the consumer packaging business was offset by seasonal decline in the closure business. Higher resin costs continued to negatively affect the segment.
Other - Profitability decreased $19 million primarily driven by seasonally lower volumes and higher input costs at the Home Exteriors business. The segment has been restated to reflect the reclassification of the telecommunications business to discontinued operations.
ATOI to Net Income Reconciliation
The largest variances in reconciling items were in the "minority interest," "corporate expense," "discontinued operations," and "other" line items. "Minority Interest" expense declined based on lower earnings in the AWAC and AFL joint ventures. "Corporate expenses" increased, largely because of the regular mark-to-market calculation of deferred compensation liability. "Discontinued Operations" includes a charge associated with reduction of the fair value of the assets moved to discontinued operations. "Other" includes the tax benefit associated with the reversal of a valuation reserve for foreign net operating losses.
Quarterly Conference Call
Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on January 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 119,000 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, 2003, Forms 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 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
December 31 September 30 December 31
2003(a) 2004(a) 2004
------------ ----------- -----------
Sales $5,417 $5,878 $6,041
Cost of goods sold 4,333 4,702 4,879
Selling, general administrative,
and other expenses 335 306 336
Research and development expenses 46 43 53
Provision for depreciation,
depletion, and amortization 308 297 311
Restructuring and other charges (27) 4 1
Interest expense 71 67 70
Other income, net (140) (54) (67)
------------ ----------- -----------
Total costs and expenses 4,926 5,365 5,583
Income from continuing operations
before taxes on income 491 513 458
Provision for taxes on income 105 142 65
------------ ----------- -----------
Income from continuing operations
before minority interests' share 386 371 393
Less: Minority interests' share 44 72 48
------------ ----------- -----------
Income from continuing operations 342 299 345
Loss from discontinued operations (51) (16) (77)
------------ ----------- -----------
NET INCOME $291 $283 $268
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common share:
Basic:
Income from continuing
operations $.39 $.34 $.40
Loss from discontinued
operations (.06) (.02) (.09)
------------ ----------- -----------
Net income $.33 $.32 $.31
------------ ----------- -----------
------------ ----------- -----------
Diluted:
Income from continuing
operations $.39 $.34 $.39
Loss from discontinued
operations (.06) (.02) (.09)
------------ ----------- -----------
Net income $.33 $.32 $.30
------------ ----------- -----------
------------ ----------- -----------
Average number of shares used to
compute:
Basic earnings per common share 866,243,592 869,953,918 870,608,606
Diluted earnings per common
share 871,969,592 876,526,090 877,423,613
Shipments of aluminum products
(metric tons) 1,280,000 1,274,000 1,260,000
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share, and metric ton amounts)
Twelve months ended
December 31 December 31
2003(a) 2004
------------ -----------
Sales $21,092 $23,478
Cost of goods sold 16,754 18,623
Selling, general administrative, and other
expenses 1,250 1,284
Research and development expenses 190 182
Provision for depreciation, depletion, and
amortization 1,175 1,204
Restructuring and other charges (27) (21)
Interest expense 314 270
Other income, net (274) (268)
------------ -----------
Total costs and expenses 19,382 21,274
Income from continuing operations before
taxes on income 1,710 2,204
Provision for taxes on income 417 557
------------ -----------
Income from continuing operations before
minority interests' share 1,293 1,647
Less: Minority interests' share 238 245
------------ -----------
Income from continuing operations 1,055 1,402
Loss from discontinued operations (70) (92)
Cumulative effect of accounting change (47) -
------------ -----------
NET INCOME $938 $1,310
------------ -----------
------------ -----------
Earnings (loss) per common share:
Basic:
Income from continuing operations $1.23 $1.61
Loss from discontinued operations (.08) (.11)
Cumulative effect of accounting
change (.06) -
------------ -----------
Net income $1.09 $1.50
------------ -----------
------------ -----------
Diluted:
Income from continuing operations $1.22 $1.60
Loss from discontinued operations (.08) (.11)
Cumulative effect of accounting
change (.06) -
------------ -----------
Net income $1.08 $1.49
------------ -----------
------------ -----------
Average number of shares used to compute:
Basic earnings per common share 853,352,313 869,906,895
Diluted earnings per common share 856,586,189 877,449,161
Common stock outstanding at the end of the
period 868,490,686 870,980,083
Shipments of aluminum products (metric
tons) 4,904,000 5,093,000
(a) Prior periods have been adjusted to reflect the reclassification
of the protective packaging business, AFL Telecommunications, and
a small casting business from continuing operations to
discontinued operations in 2004.
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
ASSETS December 31 September 30 December 31
2003(b) 2004(b) 2004
----------- ------------ -----------
Current assets:
Cash and cash equivalents $576 $561 $457
Receivables from customers, less
allowances:
$102 in 2003, $94 in 3Q 2004,
and $87 in 2004 2,492 2,924 2,738
Other receivables 351 223 261
Inventories 2,505 2,948 2,968
Deferred income taxes 266 224 279
Prepaid expenses and other
current assets 493 778 790
----------- ------------ -----------
Total current assets 6,683 7,658 7,493
----------- ------------ -----------
Properties, plants and
equipment, at cost 24,775 25,026 25,865
Less: accumulated depreciation,
depletion and amortization 12,275 12,810 13,273
----------- ------------ -----------
Net properties, plants and
equipment 12,500 12,216 12,592
----------- ------------ -----------
Goodwill 6,443 6,469 6,541
Investments 2,005 2,029 2,066
Other assets 3,288 3,585 3,707
Assets held for sale 792 351 210
----------- ------------ -----------
Total assets $31,711 $32,308 $32,609
----------- ------------ -----------
----------- ------------ -----------
LIABILITIES
Current liabilities:
Short-term borrowings $50 $37 $51
Accounts payable, trade 1,958 2,391 2,442
Accrued compensation and
retirement costs 948 1,034 1,021
Taxes, including taxes on income 737 952 1,019
Other current liabilities 866 1,062 1,078
Long-term debt due within
one year 523 497 57
----------- ------------ -----------
Total current liabilities 5,082 5,973 5,668
----------- ------------ -----------
Long-term debt, less amount due
within one year 6,693 6,108 5,976
Accrued pension benefits 1,568 1,529 1,513
Accrued postretirement benefits 2,220 2,178 2,150
Other noncurrent liabilities and
deferred credits 1,820 1,745 1,727
Deferred income taxes 815 789 790
Liabilities of operations held
for sale 98 69 69
----------- ------------ -----------
Total liabilities 18,296 18,391 17,893
----------- ------------ -----------
MINORITY INTERESTS 1,340 1,362 1,416
----------- ------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55 55
Common stock 925 925 925
Additional capital 5,831 5,788 5,775
Retained earnings 7,850 8,367 8,636
Treasury stock, at cost (2,017) (1,956) (1,926)
Accumulated other
comprehensive loss (569) (624) (165)
----------- ------------ -----------
Total shareholders' equity 12,075 12,555 13,300
----------- ------------ -----------
Total liabilities and equity $31,711 $32,308 $32,609
----------- ------------ -----------
----------- ------------ -----------
(b) Prior periods have been adjusted to reflect the reclassification
of certain architectural products businesses in North America from
assets held for sale to assets held and used, and the
reclassification of the protective packaging business, AFL
Telecommunications, and a small casting business from continuing
operations to discontinued operations in 2004.
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except metric ton amounts and realized prices)
Consolidated
Third-Party
Revenues: 4Q03 2003 1Q04 2Q04 3Q04 4Q04 2004
------ ------ ------ ------ ------ ------ ------
Alumina and
Chemicals $536 $2,002 $463 $486 $490 $536 $1,975
Primary Metals 876 3,229 878 959 930 1,039 3,806
Flat-Rolled
Products 1,287 4,815 1,450 1,490 1,520 1,502 5,962
Engineered
Products 1,375 5,589 1,523 1,598 1,583 1,596 6,300
Packaging and
Consumer (3) 788 3,113 721 821 797 827 3,166
Other (3) 555 2,344 553 617 558 541 2,269
----------------------------------------------------------------------
Total $5,417 $21,092 $5,588 $5,971 $5,878 $6,041 $23,478
======================================================================
Consolidated
Intersegment
Revenues: 4Q03 2003 1Q04 2Q04 3Q04 4Q04 2004
------ ------ ------ ------ ------ ------ ------
Alumina and
Chemicals $275 $1,021 $338 $349 $341 $390 $1,418
Primary Metals 828 3,098 1,038 1,129 1,039 1,129 4,335
Flat-Rolled
Products 14 66 23 23 25 18 89
Engineered
Products 5 24 4 5 4 2 15
Packaging and
Consumer - - - - - - -
Other - - - - - - -
----------------------------------------------------------------------
Total $1,122 $4,209 $1,403 $1,506 $1,409 $1,539 $5,857
======================================================================
Consolidated
Third-Party
Shipments (Kmt): 4Q03 2003 1Q04 2Q04 3Q04 4Q04 2004
------ ------ ------ ------ ------ ------ ------
Alumina and
Chemicals 1,956 7,671 1,718 1,796 1,833 2,027 7,374
Primary Metals 516 1,952 469 472 459 482 1,882
Flat-Rolled
Products 482 1,819 515 517 521 493 2,046
Engineered
Products 213 879 234 239 234 222 929
Packaging and
Consumer 49 167 38 41 39 46 164
Other (1) 20 87 16 18 21 17 72
----------------------------------------------------------------------
Total Aluminum
(1) 1,280 4,904 1,272 1,287 1,274 1,260 5,093
======================================================================
Alcoa's average
realized price-
Primary (2) $0.73 $0.70 $0.81 $0.85 $0.85 $0.88 $0.85
======================================================================
After-Tax
Operating Income
(ATOI): 4Q03 2003 1Q04 2Q04 3Q04 4Q04 2004
------ ------ ------ ------ ------ ------ ------
Alumina and
Chemicals $122 $415 $127 $159 $169 177 632
Primary Metals 166 657 192 230 188 198 808
Flat-Rolled
Products 53 221 66 59 62 59 246
Engineered
Products 33 155 62 78 60 50 250
Packaging and
Consumer (3) 51 214 35 54 41 38 168
Other (3) 19 78 22 32 15 (4) 65
----------------------------------------------------------------------
Total $444 $1,740 $504 $612 $535 $518 $2,169
======================================================================
Reconciliation of
ATOI to
consolidated
net income (3): 4Q03 2003 1Q04 2Q04 3Q04 4Q04 2004
------ ------ ------ ------ ------ ------ ------
Total ATOI $444 $1,740 $504 $612 $535 $518 $2,169
Impact of
intersegment
profit
adjustments 4 9 23 8 3 18 52
Unallocated
amounts (net
of tax):
Interest
income 6 24 7 5 8 6 26
Interest
expense (46) (204) (41) (45) (44) (46) (176)
Minority
interests (44) (238) (51) (74) (72) (48) (245)
Corporate
expense (84) (287) (74) (63) (68) (78) (283)
Restructuring
and other
charges 25 26 31 (4) (3) (1) 23
Discontinued
operations (51) (70) 2 (1) (16) (77) (92)
Accounting
change - (47) - - - - -
Other 37 (15) (46) (34) (60) (24) (164)
----------------------------------------------------------------------
Consolidated
net income $291 $938 $355 $404 $283 $268 $1,310
======================================================================
(1) Third party aluminum shipments for periods prior to 2Q04 have been
properly adjusted to reflect international selling company
activity.
(2) Alcoa's average realized price for 1Q04 has been adjusted from the
previously reported amount to reflect the elimination of certain
previously misclassified intercompany activity.
(3) Prior periods have been adjusted to reflect the reclassification
of the protective packaging business, AFL Telecommunications, and
a small casting business from continuing operations to
discontinued operations in 2004.
