Alcoa (NYSE:AA) today announced that its Board of Directors has authorized: the repurchase of up to 10 percent of the company’s outstanding common stock, or approximately 87 million shares; a more than 13 percent increase in the company’s dividend on its common stock from $0.60 per share to $0.68 per share annually; and steps to manage its debt maturity schedule and modify and strengthen its capital structure, including extending maturities.
The share repurchase program and the increased common stock dividend – along with the company’s numerous growth project programs – will be funded through Alcoa’s strong cash generation and the company’s commitment to maintaining its previous stated target of a conservative debt-to-capital ratio of between 30 to 35 percent. In 2006, Alcoa’s cash from operations was $2.6 billion, a more than 50 percent increase in cash from operations from 2005. That includes the impact of discretionary pension contributions of $200 million. The company’s debt-to-capital ratio at the end of the year stood at 30.6 percent.
“We have a successful, solid platform of profitability to build upon,” said Alcoa Chairman and CEO Alain Belda. “With growth projects beginning to add to that strong base — and additional projects finishing construction and coming on-stream this year – we can take action to increase shareowner returns and build for the future.
“Driven by strong fundamentals in both our upstream and downstream markets, our improving performance on cash generation can fund our growth capital program this year. At the same time, we can take these actions to increase shareholder returns and keep our debt-to-capital ratio within our targeted range,” said Belda.
The new share repurchase program – Alcoa’s first since July 2001 – calls for repurchasing approximately 10 percent of the Company’s approximately 875 million shares outstanding over the next three years.
The increased dividend is the first since 2001. As part of its actions, the Board approved a quarterly common stock dividend of 17 cents per share payable on February 25, 2007 to shareholders of record at the close of business on February 2, 2007. The Board also approved a quarterly dividend of 93.75 cents per share on Alcoa’s $3.75 cumulative preferred stock payable April 1, 2007 to shareholders of record at the close of business on March 9, 2007. Alcoa has paid a quarterly dividend on its common stock for more than 60 years.
“Our dividend yield rate was already strong,” said Belda. “And with this increase we are making it even stronger for our shareowners.”
Separately, Alcoa today approved steps to manage its debt maturity schedule and modify and strengthen its capital structure. These changes will help ensure a balance between flexibility, cost and maximizing shareholder value.
The actions approved by the Board will be taken as soon as practicable and include the following:
- a proposed public offering under Alcoa’s shelf registration statement of up to $2.0 billion in the aggregate of new Alcoa senior notes.;
- a proposed cash tender offer for any or all of Alcoa’s outstanding 4.25 percent Notes due August 15, 2007 (approximately $790 million currently outstanding); and
- a proposed liability management transaction extending a portion of Alcoa’s notes into discrete longer term maturities.
The net proceeds from the proposed public offering will be used by Alcoa to reduce its outstanding balance of commercial paper, to fund amounts payable in connection with its cash tender offer for its outstanding 4.25% Notes due August 15, 2007, and for general corporate purposes.