Alcoa 1999 Annual Report Download - page 31

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Net Income
millions of dollars
791
515
805
853
1,054
9695 97 98 99
9695 97 98 99
Percent Return
on Shareholders’
Equity
18.5
11.6
18.1
16.3
17.2
Results of Operations
(dollars in millions, except share amounts and ingot prices;
shipments in thousands of metric tons [mt])
Earnings Summary
1999 was a milestone year for Alcoa, as net income exceeded
$1 billion for the first time in the company’s 111-year history.
Highlights from the year include:
⬎Net income of $1,054, a 24% increase from 1998;
⬎Aluminum shipments of 4,478 mt, up 13% from 1998;
⬎Revenues of $16,323, driven by higher volumes; and
⬎Return on average shareholders’ equity of 17.2%.
The improvement in Alcoa’s 1999 net income was the result of
higher aluminum revenues, operating improvements and a lower
effective tax rate. Revenues increased as a result of higher volumes,
partly offset by lower overall aluminum prices.
Alcoa’s financial results for 1998 also were strong, as summarized
below:
⬎Net income of $853, 6% above 1997;
⬎Aluminum shipments of 3,951 mt, up 34% from 1997;
⬎Revenues of $15,340, resulting from higher volumes; and
⬎Return on average shareholders’ equity of 16.3%.
Improved financial results for 1998 relative to 1997 were the
result of higher volumes, aided in part by the Alumax and Inespal
acquisitions, and good cost performance. Partially offsetting these
positive factors were lower overall aluminum and alumina prices
and the impact of higher debt levels.
Segment Information
Alcoa’s operations consist of four worldwide segments: Alumina and
Chemicals, Primary Metals, Flat-Rolled Products, and Engineered
Products. Alcoa businesses that are not reported to management as
part of one of these four segments are aggregated and reported as
‘‘Other.’’ Alcoa’s management reporting system measures the after-tax
operating income
(ATOI)
of each segment. Nonoperating items, such
as interest income, interest expense, foreign exchange gains/losses,
the effects of
LIFO
accounting and minority interest, are excluded
from segment profit. In addition, certain expenses, such as corporate
general administrative expenses, depreciation and amortization
on corporate assets, and certain special items, are not included in
segment results. Segment assets exclude cash, cash equivalents, short-
term investments and all deferred taxes. Segment assets also exclude
itemssuchascorporatefixedassets,
LIFO
reserve, goodwill allocated
to corporate and other amounts. In 1999, Alcoa changed its internal
reporting system to include the results of aluminum hedging in the
Primary Metals segment. Previously, these results were included as
reconciling items between segment
ATOI
and net income. Segment
results for 1998 and 1997 have been restated to reflect this change.
ATOI
for all segments totaled $1,489 in 1999, compared with
$1,344 in 1998 and $1,247 in 1997. See Note O to the financial state-
ments for additional information. The following discussion provides
shipment, revenue and
ATOI
data for each segment for the years 1997
through 1999.