Alcoa 2006 Annual Report Download - page 3

In 2006, our top and bottom-line
performance was the best in your
Company’s history. We did this while
continuing to invest in modernizing
our existing plants and building new
operations that will enable us to deliver
strong results for years to come. We
are delivering results now and investing
in our future.
Key financial results for 2006 include:
• Income from continuing operations rose 72 percent
to $2.2 billion; $2.5 billion excluding restructuring
and impairment charges;
• Revenues up 19 percent to an all-time record of
$30.4 billion;
• Cash from operations increased 53 percent to more
than $2.5 billion, the second-best
performance in Company history;
• Return on capital rose to 13.2 percent,
up 490 basis points from 2005;
• Debt-to-capital ratio within target range
at 30.6 percent; and
• Four of six segments had ATOI gains of
50 percent or more.
Our management team took full
advantage of the opportunities the market
offered, driving revenue, mitigating costs,
bringing new products and innovation
to the market, expanding our global foot-
print and growing our customer base. We
benefited from strong metal prices, but
through our actions we drove nearly
100 percent of the LME price increases to
the bottom line. We were able to offset
approximately 90 percent of the cost infla-
tion, energy cost increases and currency
impact through: improved mix, higher vol-
umes and improved productivity.
As a result of our actions, our Alumina,
Primary Metals, Engineered Solutions, and Extruded
and End Products segments showed higher full-year
margins, which is what profitable growth is all
about. Our Flat-Rolled Products segment performed
well enough to absorb the costs of growth in Russia
and Asia.
Cash from operations for the year
was more than $2.5 billion, a 53 percent
improvement from 2005 and the second
strongest performance in Company
history. This strong performance helped
lower our debt-to-capital ratio to 30.6
percent at year-end, within our stated
target range.
We are a capital-intensive Company, so return on
capital (ROC) is one of the most important indicators
of how we are performing. Alcoa ROC at the end of
2006 increased to 13.2 percent from 8.3 percent for
2005. After excluding investments in growth projects
and construction work in progress, the Company’s
ROC was 16.2 percent.
We continued to look at businesses within our
portfolio, examining them for industry
fit, positive trends, long-term contribution,
ability to deliver above cost-of-capital
returns and overall synergies. In 2006,
we sold our home exteriors business for
$305 million. We also are creating a
joint venture of our soft alloy extrusion
business and Sapa’s aluminum profiles
business. By combining these two
operations, we can improve profitability
and create a broader global manufactur-
ing system.
In sum, we improved performance by
boosting productivity, innovating continu-
ally, serving our markets, controlling
costs, and managing our portfolio. Strong
results and conservative cash management
have allowed us to:
• Institute a new repurchase program to
buy back up to 10 percent of our out-
standing common stock, or approxi-
mately 87 million shares, over the next
three years;
• Increase the dividend on our common stock by more
than 13 percent to $0.68 per share annually; and
• Continue to invest in new primary plants, acquisi-
tion of new plants and modernization of our
existing plants…our highest capital investment
in more than 20 years.
1
Fellow
Shareowner:
Alain Belda, Chairman and
Chief Executive Officer
Bloomberg Methodology
calculates ROC based on the
trailing 4 quarters.
* Adjusted for Growth Projects
† Reconciliation on page 74
Return on Capital
percent
03 04 05 06
*† *†
16.2%
0
3
6
12
9
15
18