01—Abstract
Summary
Summary of the 10-K filed February 15, 2008. Cited figures are marked; the original filing is the authoritative source.
Alcoa Inc. reported record 2007 results in its Form 10-K for the year ended December 31, 2007.
Sales were $30,748 milliona, up from $30,379 million in 2006, and income from continuing operations was $2,571 million, or $2.95 per diluted share, the highest in company history. Net income was $2,564 million. Results were lifted by higher realized alumina and aluminum prices, strong aerospace and packaging demand, and a $1,754 million pretax gain on the sale of its Chalco investment, offset by sharply higher energy, raw material and freight costs, a weaker U.S. dollar, and restructuring and goodwill impairment charges tied to the Electrical and Electronic Solutions business.
Cash from operations reached a company-record $3,111 millionb, and the debt-to-capital ratio was 30.2%, even after share repurchases representing approximately 8% of outstanding shares. The company is repositioning its portfolio. It agreed in December 2007 to sell its Packaging and Consumer businesses to Rank Group Limited for $2.7 billion in cash, with closing expected by the end of the first quarter of 2008, and it completed the sale of its Automotive Castings business in November 2007.
The soft alloy extrusion business was contributed to a joint venture with Sapa in June 2007, in which Alcoa holds a 46% stake. Capital expenditures were $3,636 millionc in 2007, with 2008 guidance of $2,900 million to $3,100 million, and management is focused on growth projects in alumina, bauxite and smelting. After the fiscal year end, Alcoa joined with the Aluminum Corporation of China to acquire about 12% of Rio Tinto plc for approximately $14 billion, with Alcoa contributing $1.2 billion on February 6, 2008 through a special purpose vehicle.
The filing also lists material contingencies, including a potential $300 milliond postretirement benefit liability tied to the Curtis v. Alcoa ERISA retiree health care litigation, Grasse River PCB remediation costs ranging from $2 million to $525 million, and European Commission state aid investigations into Italian and Spanish electricity tariffs.
02—Key points
Key Highlights
- Record 2007 sales of $30,748 million (up from $30,379 million in 2006) and income from continuing operations of $2,571 million, or $2.95 per diluted share.
- Gain of $1,754 million (pretax) on the sale of the Chalco investment in September 2007 for $1,942 million in cash proceeds, a major driver of 2007 earnings.
- Cash from operations of $3,111 million, the highest in company history, against capital expenditures of $3,636 million.
- Agreement to sell the Packaging and Consumer businesses to Rank Group Limited for $2.7 billion in cash, expected to close by the end of Q1 2008.
- Restructuring and other charges of $399 million and a $133 million goodwill impairment related to the Electrical and Electronic Solutions business.
- Post-year-end investment of approximately $14 billion in Rio Tinto plc shares, with Alcoa contributing $1.2 billion on February 6, 2008 through Shining Prospect Pte. Ltd.
- Share repurchases of 68 million shares in 2007 under programs authorizing up to 25% of shares outstanding at December 31, 2006, with a 30.2% debt-to-capital ratio at year end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Howmet Aerospace Inc. kept $0.09.
- Revenue$29.28B100.0%
- Cost of revenue−$22.80B77.9%
- Gross profit$6.48B22.1%
- Operating costs−$3.66B12.5%
- Operating income$2.81B9.6%
- Interest, other & tax−$250.0M0.9%
- Net income$2.56B8.8%
Where FY2007 revenue went
$29.28B- Cost of revenue: $22.80B, 78% of revenue
- Net income: $2.56B, 8.8% of revenue
- R&D: $238.0M, 0.8% of revenue
- SG&A: $1.44B, 4.9% of revenue
- Other operating costs: $1.98B, 6.8% of revenue
- Interest, other & tax: $250.0M, 0.9% of revenue
Kept 8.8% as net incomeNet income $2.56B · 8.8%R&D $238.0M · 0.8%Interest, other & tax $250.0M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 15, 2008Financial Statements
05—Questions
Frequently Asked Questions
How did Alcoa's 2007 earnings compare with 2006, and what drove the change?
Income from continuing operations rose to $2,571 million, or $2.95 per diluted share, from $2,161 million, or $2.47 per share, in 2006. The increase was primarily due to higher realized prices for alumina and aluminum, strong demand in aerospace and packaging, and a $1,754 million pretax gain on the sale of the Chalco investment. These gains were partly offset by significant increases in energy, raw materials and other input costs, unfavorable currency movements from a weaker U.S. dollar, and restructuring and impairment charges.
What is the status of the planned sale of the Packaging and Consumer businesses?
In December 2007, Alcoa agreed to sell the Packaging and Consumer businesses to New Zealand's Rank Group Limited for $2.7 billion in cash, subject to post-closing adjustments. The transaction is expected to be completed by the end of the first quarter of 2008. The segment generated sales of $3,288 million in 2007 and has about 9,300 employees in 22 countries. Alcoa also entered into a metal supply agreement with Rank, and the segment's results remain in continuing operations until the sale closes.
What major investments and commitments did Alcoa disclose for 2008?
Alcoa disclosed 2008 capital expenditure guidance of $2,900 million to $3,100 million. Key projects include the São Luís refinery expansion in Brazil, the Juruti bauxite mine, expansion projects in Russia, Hungary and China, and the Iceland smelter, which was ramping up toward full production. The company also disclosed the Rio Tinto plc investment made through Shining Prospect Pte. Ltd. in February 2008, with Alcoa contributing $1.2 billion of the approximately $14 billion total.
What significant legal and environmental contingencies does the filing disclose?
The filing discloses a class action (Curtis v. Alcoa) by about 13,000 retired employees over retiree health care premiums and co-payments. If Alcoa loses, the maximum exposure is an additional postretirement benefit liability of about $300 million and about $40 million of annual expense for the next 11 years, with trial set for September 17, 2008. Environmental matters include the Grasse River PCB remediation at Massena, New York, where estimated remedial costs range from $2 million to $525 million and the reserve is $30 million plus a $35 million pilot study. The company also faces European Commission state aid investigations into electricity tariffs in Italy (potentially about $20 million per month pretax) and Spain (about $11 million pretax for 2005).
06—Continue