Alcoa 1999 Annual Report Download - page 40

increase in common stock issued in connection with employee stock
option plans. Specifically, in 1999 Alcoa used $838 of cash to repur-
chase 15,605,522 shares of the company’s common stock at an average
price of $53.70 per share. In 1998, Alcoa used $365 to repurchase
9,774,600 shares of common stock. Stock purchases in 1999 and 1998
were partially offset by $609 and $87, respectively, of stock issued
for employee stock option plans.
Net payments on long-term debt in 1999 totaled $428, versus $561
of net additions in 1998. In 1998, Alcoa issued $1,100 of commercial
paper, $250 of term debt due in 2018, $200 of term debt due in 2005
and $300 of thirty-year bonds due in 2028. Partially offsetting these
borrowings were net payments of $350 on commercial paper and
the repayment of $950 of Alumax debt. In the 1998 third quarter,
Alcoa entered into a new $2,000 revolving-credit facility. The facility
is comprised of a 364-day $1,000 facility and a five-year $1,000
facility. The revolving-credit facilities are used to support the Alcoa
and AofA commercial paper programs.
Dividends paid to shareholders were $298 in 1999, an increase of
$33 from 1998. The difference was due to a higher total dividend in
1999,withatotalpayoutof80.5centspershareversus75centsper
share in 1998. In 1998, dividends to shareholders rose $94 from 1997
to $265, as the total payout of 75 cents per share was significantly
above the 1997 payout of 48.8 cents per share. In early January 2000,
Alcoa’s board of directors increased the base dividend by 33%, to
$1.00 per share, and increased the threshold for payment of the
variable dividend to $3.00 per share. This will result in a quarterly
dividend of 25 cents per share for 2000, a 24% increase from the
1999 quarterly dividend of 20.125 cents per share. Alcoa’s variable
dividend program provides for the distribution, in the following year,
of 30% of Alcoa’s annual earnings in excess of $3.00 per basic share.
Dividends paid and return of capital to minority interests totaled
$122 in 1999, a decline of $100 from the prior year. The decline was
due to a lack of dividends paid at Aluminio and at entities comprising
Alcoa World Alumina and Chemicals
(AWAC) . In 1998, dividends
paid and return of capital to minority interests fell $120 from 1997
to $222. The decrease is a result of AWAC and AofA returning funds
to their investors in 1997. Of the $342 cash outflow in 1997, $206
relates to payments made by AofA, while a payment of $96 was made
by
AWAC .
Debt as a percentage of invested capital was 28.3% at the end of
1999, compared with 31.7% for 1998 and 25.0% for 1997.
Investing Activities
Cash used for investing activities in 1999 totaled $1,167, down $1,210
from 1998. Capital expenditures totaled $920, compared with $932 in
1998 and $913 in 1997. Of the total expenditures in 1999, 27% related
to capacity expansion, including alumina production in Australia
and automotive sheet production in the U.S. Also included are costs
of new and expanded facilities for environmental control in ongoing
operations totaling $91 in 1999, $105 in 1998 and $94 in 1997.
Alcoaused$1,463in1998foracquisitions,notablytheAlumax
and Inespal transactions. During the 1999 period, Alcoa spent
$122 to acquire a number of businesses, including the bright products
business of Pechiney’s Rhenalu rolling plant located near Toulouse,
France and Reynolds’ aluminum extrusion plant in Irurzun, Spain.
In 1999, Alcoa also acquired the remaining 50% interest in its
A-CMI partnership from Hayes Lemmerz. A-CMI was a joint venture
between Alcoa and
CMI International formed to produce cast
aluminum products for the automotive industry. In the 1999 fourth
quarter, Alcoa acquired Golden Aluminum’s closed rolling facility
in San Antonio, Texas.
Alcoa added $96 and $126 to its investments in 1999 and 1998,
respectively, primarily to acquire a stake in the Norwegian metals
producer, Elkem. In 1998, Alcoa received $55 from the sale of its
specialty chemical, Alcotec wire, Vernon cast plate and Australian
gold operations. Asset sales in 1997 generated $265 and included the
Caradco, Arctek, Alcoa Composites, Norcold, Dayton Technologies
and Richmond, Indiana facilities. Also included was the sale of a
majority interest in Alcoa’s Brazilian cable business.
Year 2000 Issue
Alcoa, like other businesses, made substantial preparations for the
Year 2000 issue. The Year 2000 issue arose from the past practice of
using two digits (as opposed to four) to represent the year in some
computer programs and software. If uncorrected, this could have
resulted in computational errors as dates are compared across the
century boundary. The vast majority of the products produced and
sold by Alcoa are unaffected by Year 2000 issues in use or operation
since they contain no microprocessors.
Based on information available to date, Alcoa has not experienced
any significant events attributable to Year 2000 issues. The company
will continue to monitor for potential issues at Alcoa, its customers
and suppliers, in order to permit a rapid response should any issues
arise. Alcoa believes that if any Year 2000 issues were to arise, they
would not have a significant impact on its operations and would most
likely be isolated, short-term events.
Alcoa’sYear2000programprovidedafocusedeffortacrossallof
the company’s locations that:
⬎identified, assessed, remediated and tested 26,232 Alcoa systems
and components;
⬎formally assessed 3,399 critical and important suppliers;
⬎conducted 202 formal on-site program verification reviews;
⬎provided Year 2000 readiness information to 2,802 separate
customers; and
⬎updated and completed 1,890 contingency plans.
In 1999 and 1998, Alcoa incurred $38 each year of direct costs in
connection with its Year 2000 program. These costs include external
consultingcostsandthecostofhardwareandsoftwarereplacedas
a result of Year 2000 issues. Alcoa does not expect to incur significant
direct costs related to the Year 2000 issue during the current year.
Subsequent Event
On February 11, 2000, the shareholders of Reynolds Metals Company,
by majority vote, approved the proposed merger transaction between
AlcoaandReynolds.Themergertransactionremainssubjecttothe
approval of various governmental authorities.