Alcoa 2006 Annual Report Download - page 76

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Supplemental Financial Information (unaudited)
Reconciliation of Return on Capital
(dollars in millions)
2006 2005 2004 2003
Net income $ 2,248 $ 1,233 $ 1,310 $ 938
Minority interests 436 259 245 238
Interest expense (after-tax) 291 261 203 239
Numerator $ 2,975 $ 1,753 $ 1,758 $ 1,415
Average Balances (1)
Short-term borrowings $ 386 $ 279 $ 164 $ 57
Short-term debt 284 58 290 303
Commercial paper 1,192 771 315 332
Long-term debt 5,028 5,309 6,016 7,185
Preferred stock 55 55 55 55
Minority interests 1,583 1,391 1,378 1,317
Common equity (2) 13,947 13,282 12,633 10,946
Denominator $22,475 $21,145 $20,851 $20,195
Return on capital 13.2% 8.3% 8.4% 7.0%
Return on capital (ROC) is presented based on the Bloomberg Methodology which calculates ROC based on a trailing four quarters.
(1) Calculated as (ending balance current year + ending balance prior year) divided by 2
(2) Calculated as total shareholders’ equity, less preferred stock
Reconciliation of Adjusted Return on Capital
(dollars in millions)
2006 2005 2004 2003
Numerator, per above Reconciliation of ROC $ 2,975 $ 1,753 $ 1,758 $ 1,415
Russia and Bohai net loss 74 71 — —
Adjusted numerator $ 3,049 $ 1,824 $ 1,758 $ 1,415
Denominator, per above Reconciliation of ROC $22,475 $21,145 $20,851 $20,195
Capital projects in progress and Russia and Bohai capital
base (3,655) (1,913) (1,140) (1,132)
Adjusted denominator $18,820 $19,232 $19,711 $19,063
Return on capital, excluding growth investments 16.2% 9.5% 8.9% 7.4%
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, manage-
ment believes that a return on capital measure excluding these growth investments is more representative of current operating performance.
Reconciliation of Adjusted Income from Continuing Operations
(dollars in millions)
2006 2005
Income from continuing operations $2,161 $1,257
Restructuring and other charges 379 197
Income from continuing operations, excluding restructuring and other charges $2,540 $1,454
Income from continuing operations, excluding restructuring and other charges, is a non-GAAP financial measure. Management believes that
this measure is meaningful to investors because management reviews the operating results of Alcoa excluding the impacts of restructuring
and other charges. There can be no assurance that additional restructuring and other charges will not occur in future periods. To compen-
sate 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 other charges.
74