Alcoa 1998 Annual Report Download - page 34

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from 1996, due to improved performance by AFL . Also contributing
to the turnaround were special items, which resulted in gains in
1997 versus a substantial loss in 1996.
Special Items
There were no special items recorded in 1998. Special items in 1997
resulted in a net gain of $96 ($44 after tax and minority interests,
or 13 cents per basic share). The fourth quarter sale of a majority
interest in Alcoa’s Brazilian cable business and land in Japan
generated gains of $86. In addition, the sale of equity securities
resulted in a gain of $38, while the divestiture of noncore businesses
provided $25. These gains were partially offset by charges of $53,
related to environmental and impairment matters.
Included in 1996 income from operations was a charge of $199
($122 after tax and minority interests, or 35 cents per basic share)
consisting of several items. A net severance charge of $96, which
included pension and
OPEB curtailment credits of $75, related
to incentive costs for employees who voluntarily left the company
and for permanent layoff costs. In addition, the shutdown of
AEP
resulted in a charge of $65, related primarily to asset write-downs.
Impairments at various manufacturing locations added another
$38 to special items in 1996.
Costs and Other Income
Cost of Goods Sold — Cost of goods sold rose $1,649, or 16%, to
$11,805 in 1998. This followed a 2% increase to $10,156 in 1997 from
1996.The1998increasewasprimarilyduetohighervolumesof
$1,800, which related primarily to acquired companies. Offsetting a
portion of the acquisition-driven increases were cost and operating
improvements approaching $200. The $190 increase in 1997, relative
to1996,wasdueto$175ofhighervolumespartiallyoffsetbythe
absence of costs associated with divested businesses. Additionally,
higher material costs of $155 were nearly offset by cost improve-
ments of $140.
Selling and General Administrative Expenses — S&GA expenses
increased 15% to $769 in 1998. However, as a percentage of revenue,
S&GA was unchanged from 1997 at 5%. The higher 1998 S&GA total
was a result of acquisitions, partially offset by cost reductions.
Theseexpensestotaled$671in1997,down$38or5%from1996.
The decrease was the result of lower salary compensation costs
resulting from a reduction in the number of employees at U.S.
aluminum operations. Additionally, lower costs resulting from
the divestiture of noncore businesses also had a positive impact.
Research and Development Expenses — R&D expenses of $128
in1998weredown10%from1997ontopofa13%declinein1997
from 1996. A reduction in R&D personnel was primarily responsible
for lower spending on research in the metals, castings, closures
and alumina businesses.
Interest Expense —Interestexpenserose$57to$198in1998from
1997. The increase was the result of 1998 borrowings of over $1,850,
the proceeds of which were used primarily to fund acquisitions.
for forged wheels continues to be strong. Also contributing to the
increase in shipments were higher sales of forged automotive wheels,
driven by strong demand for sport utility vehicles and light trucks.
Shipments in 1997 rose 21% from 1996, generating an 18% increase
in revenues.
Engineered products’ 1998
ATOI rose 84% over the comparable
1997 period. The increase was due to acquired companies, a gain
on the sale of Alcoa’s interest in Alcotec, a wire fabricator, and
improved operating results from European extrusion facilities.
Also contributing to the increase were higher shipments of forged
wheels. Results in 1997 more than doubled those recorded in 1996.
Higher revenues from extruded products and wire, rod and bar,
along with improved
ATOI from European operations, drove the
increase. Also adding to the rise in
ATOI was improved performance
related to forged aerospace products.
V. O the r
1998 1997 1996
Third-party aluminum shipments (mt) 66 106 50
Third-party sales $3,362 $3,458 $3,567
Intersegment sales ———
After-tax operating income 165 177 (.9)
This category includes Alcoa Fujikura Ltd. (AFL) , which produces
electrical components for the automotive industry along with tele-
communications products. In addition, Alcoa’s aluminum and plastic
closures operations and Alcoa’s residential building products opera-
tions are included in this group. Third-party sales from this segment
were down 3% from 1997, as higher sales of automotive electrical
components were more than offset by the loss of revenues from the
sale of Alcoa Aluminio’s cable business in late 1997. A similar drop
in third-party sales was experienced by this segment in 1997 versus
1996, as improved results from automotive electrical components
were more than offset by the loss of revenues from the sale of certain
noncore businesses.
Third-party sales at
AFL increased 7% in 1998, due to higher
volumes, while prices declined slightly. This came on top of an 18%
volume related revenue gain in 1997, compared with 1996. Closures
revenues for 1998 fell 1% when compared with 1997, partially
reversing a 15% increase in 1997 over 1996.
This segment incurred a special item gain of $71 in 1997. The
gain was the result of the sale of various businesses, a majority
interest in Alcoa’s Brazilian cable business, and land in Japan. In
1996, this segment had a special item charge of $104. The net charge
relates to the Alcoa Electronic Packaging
(AEP) shutdown, along
with severance costs for employees who voluntarily left the company
and for permanent layoff costs.
Segment
ATOI fell 7% from 1997, as improved results at AFL ,
along with a gain from the sale of Alcoa’s Australian gold operations,
were more than offset by special item gains in 1997 versus no special
items in 1998. After-tax operating income in 1997 increased $178