SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 8, 2003
ALCOA INC.
(Exact name of Registrant as specified in its charter)
| Pennsylvania | 1-3610 | 25-0317820 | ||
| (State or Other Jurisdiction | (Commission | (I.R.S. Employer | ||
| of Incorporation) | File Number) | Identification Number) | ||
| 201 Isabella Street, Pittsburgh, Pennsylvania | 15212-5858 | |||
| (Address of Principal Executive Offices) | (Zip Code) | |||
Office of Investor Relations 212-836-2674
Office of the Secretary 412-553-4707
(Registrant’s telephone number, including area code)
Item 9. Regulation FD Disclosure.
The following information is furnished under Item 12 of Form 8-K, “Results of Operations and Financial Condition”, and is included under this Item 9 in accordance with SEC Release Nos. 33-8216; 34-47583. The information in this report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
On July 8, 2003, Alcoa Inc. issued a press release announcing its earnings for the second quarter of 2003. A copy of the press release is attached hereto as Exhibit 99.1. A copy of Supplemental Financial Information that accompanied the press release is attached hereto as Exhibit 99.2
Exhibit:
| 99.1 | Press release, dated July 8, 2003, issued by Alcoa Inc. | |
| 99.2 | Supplemental Financial Information of Alcoa Inc. | |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ALCOA INC. | ||
| By: |
/s/ LAWRENCE R. PURTELL | |
| Lawrence R. Purtell | ||
| Executive Vice President and General Counsel | ||
Dated: July 9, 2003
3
INDEX TO EXHIBITS
| Exhibit No. |
Description | |
| 99.1 | Press release, dated July 8, 2003, issued by Alcoa Inc. | |
| 99.2 | Supplemental Financial Information of Alcoa Inc. | |
4
Exhibit 99.1
FOR IMMEDIATE RELEASE
| Investor Contact |
Media Contact | |
| William F. Oplinger |
Kevin Lowery | |
| (212) 836-2674 |
(412) 553-1424 |
Alcoa’s Income From Continuing Operations Up 16 Percent
Over Sequential Quarter, Revenues Climb 7 Percent
Highlights of the quarter:
| • | GAAP income from continuing operations was $227 million or $0.27 per diluted share, up 16 percent from $195 million, $0.23, in the first quarter |
| • | Revenue was $5.5 billion, the strongest quarterly performance since 2001 |
| • | Cost savings were $16 million in the quarter, bringing the company’s annual run rate on savings to $872 million |
| • | Downstream segments showed improved profitability over the first quarter |
| • | Debt reduced by $722 million in the quarter, biggest decline since 2001. |
New York, NY—July 8, 2003 – Alcoa today reported second quarter income from continuing operations of $227 million or $0.27 per diluted share, compared to $195 million, $0.23, in the first quarter. Income from continuing operations was $237 million, $0.28, in the second quarter of 2002.
Net income in the second quarter was $216 million, $0.26, up 43 percent from $151 million, $0.17, in the first quarter, and down from $232 million, $0.27, in the 2002 second quarter. Both income from continuing operations and net income are measures recognized by Generally Accepted Accounting Principles.
“We demonstrated an ability to improve profitability in what is still a challenging climate by any measure,” said Alain Belda, Chairman and CEO of Alcoa. “Improved performance by our downstream businesses and seasonal strength in packaging helped drive double-digit profit growth over the first quarter.”
Continued Top-Line Growth
Sales were $5.5 billion up 7 percent from $5.1 billion in the first quarter, and up 6 percent from $5.2 billion in the second quarter of 2002. Strong aluminum ingot shipments and a robust global alumina market drove the improvement. Both packaging and residential construction markets saw seasonal improvements, helping boost revenue to its highest level since the third quarter of 2001.
Automotive markets were flat in the quarter, and European demand for fabricated products showed weakness. Global markets in aerospace, industrial gas turbine and telecommunications remained soft.
“Given the uncertain climate, our continuing focus will be on productivity improvements and cash generation through the deployment of the Alcoa Business System,” said Belda. “While we have not seen signs of market improvements, we are well positioned to reap the benefits of any upturn.”
Driving Cost Savings
The company achieved $16 million in savings in the quarter. Second quarter energy and benefit costs were substantially higher than the previous year.
Despite higher energy, raw material, and benefit costs, the company’s margins held steady over the prior year at 20.4 percent. Alcoa has now achieved $872 million toward its $1 billion cost savings goal by the end of 2003 and remains solidly on track to meet that challenge. Energy costs are excluded from the cost challenge because of their volatility.
The second quarter tax rate of 26 percent includes a benefit for recently enacted international tax legislation. A substantial portion of that benefit is offset by an increase in minority interest. The company expects the full-year tax rate for 2003 to be lower than the rate in the first quarter.
Expanding Low-Cost Facilities
In the quarter, Alcoa continued to seize opportunities to consolidate and improve its low cost position as a supplier of primary metals and alumina. As previously announced, the company reached an agreement to acquire the 40.9 percent minority stake in its South American operations, primarily mining, refining, smelting and fabrication facilities of Alcoa Aluminio S.A. in Brazil. The company also has begun engineering for a 600,000 metric ton expansion of its low-cost refining facility in Pinjarra, Western Australia.
Strengthening the Balance Sheet
In the quarter, Alcoa reached an agreement to sell its PET business in Latin America, and continues to pursue the divestiture of
non-core businesses. Proceeds from those sales will primarily be used to pay down debt.
The balance sheet showed substantial improvement in the quarter due to improved profitability, lower working capital, a partial
pre-payment on a metal supply contract, and tight control on capital expenditures. Capital expenditures were below last year’s level by approximately 35 percent and ran at 70 percent of depreciation. The metal supply contract included a cash pre-payment of $440 million, and represents 7500 tons per month over 72 months at market rates.
The debt-to-capital ratio dropped 300 basis points to 40.4 percent. The $722 million decline in debt was the largest single quarterly decrease since the first quarter of 2001. The third quarter should show additional improvement as the purchase of the Latin American interests and additional asset sales are expected, along with continued restraint on capital expenditures.
Providing Solutions to Customers
Alcoa continued to strengthen its performance this quarter by developing solutions that add value for its customers. AFL Automotive, for example, recently received PACCAR’s preferred supplier award, the highest award PACCAR bestows upon its vendors; received Subaru’s President’s award for outstanding quality and delivery performance; and was named the full-service supplier of electrical distribution systems for the next generation Ford F-250 Super Duty Truck Program. It will design and manufacture both wire harnesses and electrical centers for the new F-250 program.
Alcoa Mill Products also was chosen to supply aluminum for the hoods of Ford’s recently re-designed F-150 pick-up truck as part of Alcoa’s automotive market team. The 2004 F-150 is an all-new version of the country’s best-selling truck for the past 25 years and the best-selling vehicle of any type for the past 20 years. It will feature the widest width aluminum closure produced in the North American automobile market.
In the aerospace market, Alcoa Howmet Castings was selected to supply two solutions – a hydraulic vessel and cover – for the Airbus A380, joining a broad array of Alcoa solutions on this airplane. Alcoa Howmet Castings also was named by Honeywell to supply seven components for the Joint Strike Fighter (JSF) aircraft, joining Howmet’s sole-source contracts with Pratt and Whitney Aircraft for all six of the turbine airfoils in the JSF main engine.
Quarterly Analyst Workshop
Alcoa’s quarterly analyst workshop will be at 4:00 p.m. EDT on Monday, July 28, 2003. The meeting will be web cast via alcoa.com. Call information and related information will be available at www.alcoa.com under “Invest.”
About Alcoa
Alcoa is the world’s leading producer of primary aluminum, fabricated aluminum and alumina, 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 vinyl siding, closures, precision castings, and electrical distribution systems for cars and trucks. The company has 127,000 employees in 40 countries. More information can be found at www.alcoa.com
Alcoa Business System
The Alcoa Business System is an integrated set of systems, tools and language organized to encourage unencumbered transfer of knowledge across businesses and borders. It focuses on serving customer demand by emphasizing the elimination of all waste and making what the customer wants, when the customer wants it.
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) the company’s inability to complete pending acquisitions or to realize the projected amount of proceeds from divestitures, (b) the company’s inability to achieve the level of cost savings or productivity improvements anticipated by management, (c) unexpected changes in global economic, business, competitive, market and regulatory factors, and (d) the other risk factors summarized in Alcoa’s 2002 Form 10-K Report and other SEC reports.
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
| Quarter ended |
||||||||||||
| June 30 2003 |
June 30 2002 |
March 31 2003 |
||||||||||
| Sales |
$ | 5,460 | $ | 5,158 | $ | 5,112 | ||||||
| Cost of goods sold |
4,347 | 4,108 | 4,073 | |||||||||
| Selling, general administrative and other Expenses |
343 | 272 | 294 | |||||||||
| Research and development expenses |
50 | 52 | 50 | |||||||||
| Provision for depreciation, depletion and Amortization |
303 | 267 | 285 | |||||||||
| Special items |
(15 | ) | — | (4 | ) | |||||||
| Interest expense |
81 | 83 | 88 | |||||||||
| Other income, net |
(57 | ) | (34 | ) | (37 | ) | ||||||
| 5,052 | 4,748 | 4,749 | ||||||||||
| Income from continuing operations before taxes on income |
408 | 410 | 363 | |||||||||
| Provision for taxes on income |
106 | 126 | 109 | |||||||||
| Income from continuing operations before minority interests’ share |
302 | 284 | 254 | |||||||||
| Less: Minority interests’ share |
75 | 47 | 59 | |||||||||
| Income from continuing operations |
227 | 237 | 195 | |||||||||
| (Loss) income from discontinued operations |
(11 | ) | (5 | ) | 3 | |||||||
| Cumulative effect of accounting change |
— | — | (47 | ) | ||||||||
| NET INCOME |
$ | 216 | $ | 232 | $ | 151 | ||||||
| Earnings (loss) per common share: |
||||||||||||
| Basic: |
||||||||||||
| Income from continuing operations |
$ | .27 | $ | .28 | $ | .23 | ||||||
| Loss from discontinued operations |
(.01 | ) | (.01 | ) | — | |||||||
| Cumulative effect of accounting change |
— | — | (.06 | ) | ||||||||
| Net income |
$ | .26 | $ | .27 | $ | .17 | ||||||
| Diluted: |
||||||||||||
| Income from continuing operations |
$ | .27 | $ | .28 | $ | .23 | ||||||
| Loss from discontinued operations |
(.01 | ) | (.01 | ) | — | |||||||
| Cumulative effect of accounting change |
— | — | (.06 | ) | ||||||||
| Net income |
$ | .26 | $ | .27 | $ | .17 | ||||||
| Average number of shares used to compute: |
||||||||||||
| Basic earnings per common share |
845,601,440 | 845,712,405 | 845,065,093 | |||||||||
| Diluted earnings per common share |
847,468,083 | 851,877,799 | 846,328,622 | |||||||||
| Shipments of aluminum products (metric tons) |
1,260,000 | 1,325,000 | 1,192,000 | |||||||||
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
| Six months ended |
||||||||
| June 30 2003 |
June 30 2002 |
|||||||
| Sales |
$ | 10,572 | $ | 10,058 | ||||
| Cost of goods sold |
8,420 | 8,076 | ||||||
| Selling, general administrative and other expenses |
637 | 545 | ||||||
| Research and development expenses |
100 | 103 | ||||||
| Provision for depreciation, depletion and amortization |
588 | 526 | ||||||
| Special items |
(19 | ) | — | |||||
| Interest expense |
169 | 158 | ||||||
| Other income, net |
(94 | ) | (89 | ) | ||||
| 9,801 | 9,319 | |||||||
| Income from continuing operations before taxes on income |
771 | 739 | ||||||
| Provision for taxes on income |
215 | 230 | ||||||
| Income from continuing operations before minority interests’ share |
556 | 509 | ||||||
| Less: Minority interests’ share |
134 | 88 | ||||||
| Income from continuing operations |
422 | 421 | ||||||
| Loss from discontinued operations |
(8 | ) | (5 | ) | ||||
| Cumulative effect of accounting change |
(47 | ) | 34 | |||||
| NET INCOME |
$ | 367 | $ | 450 | ||||
| Earnings (loss) per common share: |
||||||||
| Basic: |
||||||||
| Income from continuing operations |
$ | .50 | $ | .50 | ||||
| Loss from discontinued operations |
(.01 | ) | (.01 | ) | ||||
| Cumulative effect of accounting change |
(.06 | ) | .04 | |||||
| Net income |
$ | .43 | $ | .53 | ||||
| Diluted: |
||||||||
| Income from continuing operations |
$ | .50 | $ | .49 | ||||
| Loss from discontinued operations |
(.01 | ) | (.01 | ) | ||||
| Cumulative effect of accounting change |
(.06 | ) | .04 | |||||
| Net income |
$ | .43 | $ | .52 | ||||
| Average number of shares used to compute: |
||||||||
| Basic earnings per common share |
845,358,393 | 846,351,690 | ||||||
| Diluted earnings per common share |
846,971,975 | 852,870,259 | ||||||
| Common stock outstanding at the end of the period |
846,051,542 | 844,427,046 | ||||||
| Shipments of aluminum products (metric tons) |
2,452,000 | 2,576,000 | ||||||
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
| June 30 2003 |
December 31 2002 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 430 | $ | 344 | ||||
| Receivables from customers, less allowances: |
||||||||
| $111 in 2003 and $120 in 2002 |
2,590 | 2,378 | ||||||
| Other receivables |
254 | 174 | ||||||
| Inventories |
2,524 | 2,441 | ||||||
| Deferred income taxes |
454 | 468 | ||||||
| Prepaid expenses and other current assets |
471 | 508 | ||||||
| Total current assets |
6,723 | 6,313 | ||||||
| Properties, plants and equipment, at cost |
24,149 | 23,120 | ||||||
| Less: accumulated depreciation, depletion and Amortization |
11,862 | 11,009 | ||||||
| Net properties, plants and equipment |
12,287 | 12,111 | ||||||
| Goodwill |
6,383 | 6,365 | ||||||
| Other assets |
4,740 | 4,446 | ||||||
| Assets held for sale |
638 | 575 | ||||||
| Total assets |
$ | 30,771 | $ | 29,810 | ||||
| LIABILITIES |
||||||||
| Current liabilities: |
||||||||
| Short-term borrowings |
$ | 24 | $ | 37 | ||||
| Accounts payable, trade |
1,774 | 1,618 | ||||||
| Accrued compensation and retirement costs |
892 | 933 | ||||||
| Taxes, including taxes on income |
743 | 818 | ||||||
| Other current liabilities |
1,124 | 970 | ||||||
| Long-term debt due within one year |
88 | 85 | ||||||
| Total current liabilities |
4,645 | 4,461 | ||||||
| Long-term debt, less amount due within one year |
7,945 | 8,365 | ||||||
| Accrued postretirement benefits |
2,279 | 2,320 | ||||||
| Other noncurrent liabilities and deferred credits |
3,328 | 2,878 | ||||||
| Deferred income taxes |
552 | 502 | ||||||
| Liabilities of operations held for sale |
117 | 64 | ||||||
| Total liabilities |
18,866 | 18,590 | ||||||
| MINORITY INTERESTS |
1,516 | 1,293 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Preferred stock |
55 | 55 | ||||||
| Common stock |
925 | 925 | ||||||
| Additional capital |
6,088 | 6,101 | ||||||
| Retained earnings |
7,413 | 7,428 | ||||||
| Treasury stock, at cost |
(2,792 | ) | (2,828 | ) | ||||
| Accumulated other comprehensive loss |
(1,300 | ) | (1,754 | ) | ||||
| Total shareholders’ equity |
10,389 | 9,927 | ||||||
| Total liabilities and equity |
$ | 30,771 | $ | 29,810 | ||||
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)
| 1Q02 |
2Q02 |
3Q02 |
4Q02 |
2002 |
1Q03 |
2Q03 |
|||||||||||||||
| Consolidated Third-Party Revenues: |
|||||||||||||||||||||
| Alumina and Chemicals |
425 | 419 | 469 | 430 | 1,743 | 449 | 491 | ||||||||||||||
| Primary Metals |
764 | 788 | 792 | 830 | 3,174 | 732 | 805 | ||||||||||||||
| Flat-Rolled Products |
1,156 | 1,192 | 1,162 | 1,130 | 4,640 | 1,152 | 1,200 | ||||||||||||||
| Engineered Products |
1,319 | 1,330 | 1,238 | 1,131 | 5,018 | 1,361 | 1,420 | ||||||||||||||
| Packaging and Consumer |
618 | 672 | 752 | 840 | 2,882 | 750 | 834 | ||||||||||||||
| Other |
618 | 757 | 731 | 700 | 2,806 | 668 | 710 | ||||||||||||||
| Total |
4,900 | 5,158 | 5,144 | 5,061 | 20,263 | 5,112 | 5,460 | ||||||||||||||
| 1Q02 |
2Q02 |
3Q02 |
4Q02 |
2002 |
1Q03 |
2Q03 |
|||||||||||||||
| Consolidated Intersegment Revenues: |
|||||||||||||||||||||
| Alumina and Chemicals |
229 | 233 | 235 | 258 | 955 | 240 | 248 | ||||||||||||||
| Primary Metals |
629 | 770 | 637 | 619 | 2,655 | 840 | 690 | ||||||||||||||
| Flat-Rolled Products |
15 | 18 | 21 | 14 | 68 | 20 | 15 | ||||||||||||||
| Engineered Products |
8 | 10 | 8 | 8 | 34 | 9 | 5 | ||||||||||||||
| Packaging and Consumer |
— | — | — | — | — | — | — | ||||||||||||||
| Other |
— | — | — | — | — | — | — | ||||||||||||||
| Total |
881 | 1,031 | 901 | 899 | 3,712 | 1,109 | 958 | ||||||||||||||
| 1Q02 |
2Q02 |
3Q02 |
4Q02 |
2002 |
1Q03 |
2Q03 |
|||||||||||||||
| Consolidated Third-Party Shipments (KMT’s): |
|||||||||||||||||||||
| Alumina and Chemicals |
1,825 | 1,796 | 1,939 | 1,926 | 7,486 | 1,794 | 1,939 | ||||||||||||||
| Primary Metals |
503 | 507 | 517 | 546 | 2,073 | 453 | 495 | ||||||||||||||
| Flat-Rolled Products |
439 | 456 | 446 | 433 | 1,774 | 434 | 453 | ||||||||||||||
| Engineered Products |
221 | 244 | 223 | 203 | 891 | 217 | 214 | ||||||||||||||
| Packaging and Consumer |
30 | 31 | 46 | 55 | 162 | 36 | 42 | ||||||||||||||
| Other |
58 | 87 | 80 | 83 | 308 | 52 | 56 | ||||||||||||||
| Total Aluminum |
1,251 | 1,325 | 1,312 | 1,320 | 5,208 | 1,192 | 1,260 | ||||||||||||||
| Average realized price – Primary |
0.66 | 0.67 | 0.66 | 0.66 | 0.66 | 0.69 | 0.68 | ||||||||||||||
| 1Q02 |
2Q02 |
3Q02 |
4Q02 |
2002 |
1Q03 |
2Q03 |
|||||||||||||||
| After-Tax Operating Income (ATOI): |
|||||||||||||||||||||
| Alumina and Chemicals |
65 | 73 | 93 | 84 | 315 | 91 | 89 | ||||||||||||||
| Primary Metals |
143 | 175 | 175 | 157 | 650 | 166 | 162 | ||||||||||||||
| Flat-Rolled Products |
61 | 66 | 46 | 47 | 220 | 53 | 56 | ||||||||||||||
| Engineered Products |
58 | 44 | 33 | (28 | ) | 107 | 29 | 44 | |||||||||||||
| Packaging and Consumer |
28 | 55 | 51 | 64 | 198 | 53 | 57 | ||||||||||||||
| Other |
7 | 19 | 8 | (43 | ) | (9 | ) | 9 | 17 | ||||||||||||
| Total |
362 | 432 | 406 | 281 | 1,481 | 401 | 425 | ||||||||||||||
| 1Q02 |
2Q02 |
3Q02 |
4Q02 |
2002 |
1Q03 |
2Q03 |
|||||||||||||||
| Reconciliation of ATOI to consolidated net income: |
|||||||||||||||||||||
| Total ATOI |
362 | 432 | 406 | 281 | 1,481 | 401 | 425 | ||||||||||||||
| Impact of intersegment profit eliminations |
(3 | ) | (1 | ) | (5 | ) | 3 | (6 | ) | 7 | (4 | ) | |||||||||
| Unallocated amounts (net of tax): |
|||||||||||||||||||||
| Interest income |
10 | 9 | 7 | 5 | 31 | 5 | 6 | ||||||||||||||
| Interest expense |
(49 | ) | (54 | ) | (62 | ) | (62 | ) | (227 | ) | (57 | ) | (52 | ) | |||||||
| Minority interests |
(41 | ) | (47 | ) | (49 | ) | 2 | (135 | ) | (59 | ) | (75 | ) | ||||||||
| Corporate expense |
(58 | ) | (53 | ) | (40 | ) | (83 | ) | (234 | ) | (57 | ) | (81 | ) | |||||||
| Special items |
— | — | (25 | ) | (261 | ) | (286 | ) | 4 | 10 | |||||||||||
| Discontinued operations |
— | (5 | ) | (9 | ) | (98 | ) | (112 | ) | 3 | (11 | ) | |||||||||
| Accounting change |
34 | — | — | — | 34 | (47 | ) | — | |||||||||||||
| Other |
(37 | ) | (49 | ) | (30 | ) | (10 | ) | (126 | ) | (49 | ) | (2 | ) | |||||||
| Consolidated net income |
218 | 232 | 193 | (223 | ) | 420 | 151 | 216 | |||||||||||||
Exhibit 99.2
SUPPLEMENTAL FINANCIAL INFORMATION
Alcoa and subsidiaries
Net Income and EPS Information (unaudited)
(in millions, except per-share amounts)
| Net Income |
Diluted EPS | ||||||||||||||||||||
| 2Q03 |
1Q03 |
2Q02 |
2Q03 |
1Q03 |
2Q02 | ||||||||||||||||
| GAAP Net income |
$ | 216 | $ | 151 | $ | 232 | $ | 0.26 | $ | 0.17 | $ | 0.27 | |||||||||
| Cumulative effect of accounting change |
— | 47 | — | — | .06 | — | |||||||||||||||
| Discontinued operations—operating (income) loss |
— | (3 | ) | 5 | — | — | .01 | ||||||||||||||
| Discontinued operations—loss on divestitures |
11 | — | — | .01 | — | — | |||||||||||||||
| GAAP Income from continuing operations |
$ | 227 | $ | 195 | $ | 237 | $ | 0.27 | $ | 0.23 | $ | 0.28 | |||||||||
| Special items (2): |
|||||||||||||||||||||
| Restructurings |
12 | (3 | ) | — | 0.01 | — | — | ||||||||||||||
| (Gain)loss on divestitures |
(10 | ) | — | — | (0.01 | ) | — | — | |||||||||||||
| Income from continuing operations excluding charges for restructurings and divestitures (1) |
$ | 229 | $ | 192 | $ | 237 | $ | 0.27 | $ | 0.23 | $ | 0.28 | |||||||||
| Average diluted shares outstanding |
847 | 846 | 852 | ||||||||||||||||||
(1) Alcoa believes that income from continuing operations excluding charges for restructurings and divestitures is a measure that should be presented in addition to income from continuing operations determined in accordance with GAAP. The following matters should be considered when evaluating this non-GAAP financial measure:
| • | Alcoa reviews the operating results of its businesses excluding the impacts of restructurings and divestitures. Excluding the impacts of these charges can provide an additional basis of comparison. Management believes that these charges are unusual in nature, and would not be indicative of ongoing operating results. As a result, management believes these charges should be considered in order to compare past, current, and future periods. |
| • | The economic impacts of the restructuring and divestiture charges are described in the footnotes to Alcoa’s financial statements. Generally speaking, charges associated with restructurings include cash and non-cash charges and are the result of employee layoff, plant consolidation of assets, or plant closure costs. These actions are taken in order to achieve a lower cost base for future operating results. |
| • | Charges associated with divestitures principally represent adjustments to the carrying value of certain assets and liabilities and do not typically require a cash payment. These actions are taken primarily for strategic reasons as the company has decided not to participate in this portion of the portfolio of businesses. |
| • | Alcoa’s growth over the last five years, and the onset of the manufacturing recession led to the aforementioned charges in 2001 and 2002. Before the start of the current manufacturing recession, Alcoa last recorded charges associated with restructuring and divestitures in 1997. |
| • | Restructuring and divestiture charges are typically material and are considered to be outside the normal operations of a business. Corporate management is responsible for making decisions about restructurings and divestitures. |
| • | There can be no assurance that additional restructurings and divestitures will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both income from continuing operations determined under GAAP as well as income from continuing operations excluding restructuring and divestiture charges. |
(2) Special items totaled $15 of income for the second quarter before taxes and minority interests. The amount is comprised of adjustments to the estimated proceeds on several businesses to be divested that resulted in net gains, and was offset by additional layoff charges primarily for businesses serving the aerospace and primary metals markets. After tax and minority interests, special items amounted to a loss of $2 in the quarter.