Alcoa 2003 Annual Report Download - page 29

classified as assets heldforsale. The 2003 activity on assets held for
sale of $33, including income of $53 and losses of $20, is primarily
comprised of:
●Reversal of estimated loss and recognition of a gain in the second
and fourth quarters of 2003 on the sale of the Latin America PET
business; and
●Recognition of losses in the second and fourth quarters of 2003
related to reductions in the estimated fair values ofbusinesses
included in assets held for sale.
The Statement of Consolidated Income in 2002 reflects charges
of $232 in Special Items related to businesses classified as assets
held for sale and charges of $59 (after tax) included in discontinued
operations related to unfavorable adjustments to the estimated fair
values on businesses to be divested.
Sales —Salesfor2003were$21,504compared with sales of
$20,351 in 2002, an increase of $1,153, or 6%. Acquisitions accounted
for$1,015 of the increase in sales in 2003. Sales in 2003 included
the full-year results of Fairchild Fasteners (acquired in December
2002) and Ivex (acquired in July 2002), and three months of activity
for KAALAustralia (acquired in October 2003). Excluding the
impact of acquisitions, sales increased in 2003 primarily in the
upstream businesses, as realized prices for alumina rose 17% and
realized prices for aluminum rose 6% from 2002. Partly offsetting
the increases in the upstream businesses were the dispositions of
distribution facilities in Europe and the Latin America
PET business,
as well as lower volumes in the downstream businesses, which
continue to be impacted by weak markets forindustrial gas turbines,
telecommunications, and commercial building and construction.
Sales in 2002 were $20,351 compared with sales of $22,576
in 2001, a decrease of $2,225, or 10%. The decline in sales was
primarily due to lower volumes in downstream businesses serving
the aerospace, commercial building and construction, telecommuni-
cations, and industrial gas turbine markets; lower realized prices for
alumina and aluminum; significant power sales recognized in 2001;
the divestiture of Thiokol Propulsion (Thiokol) in 2001; and the
contributionofthe netassetsofReynolds’ metals distribution
business
(RASCO) in 2001 toajointventure, Integris Metals, Inc.
(Integris), in which Alcoa retained a 50% equity interest. These
decreases were somewhat offset by increased volumes in businesses
serving the automotive and commercial transportation markets,
increased volumes in the alumina and primary metals businesses,
and the acquisitions of Ivex and several smaller businesses.
Cost of Goods Sold —
COGS asapercentage of sales was 79.7%
in 2003 compared with 80.2% in 2002. Cost reductions as a result
of procurement savings, productivity improvements, and headcount
reductions from prior restructuring programs, as wellashigher
realized prices for alumina and aluminum, more than offset lower
volumes, higher costs for energy, purchased raw materials and
employeebenefits, a weakened U.S. dollar against other currencies,
andabenefit realized in 2002 as a result of a favorable
LIFO
adjustment.
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categories as income from continuing operations. The segment
results include the results of businesses classified as assets held for
sale for all periods presented. Management expects that Alcoa will
have continuing involvement with these businesses following the
sale,primarily in the form of ongoing aluminum or other significant
supply contracts. At the end of 2003, businesses classified as assets
held for sale included Alcoa’s specialty chemicals business, certain
architectural products businesses in North America, an extrusion
facility in Europe, certain extrusion facilities in Latin America, and
foil facilities in St. Louis, MO and Russellville, AR. These businesses
areexpected to be sold by mid-2004.
During 2003, there were a number ofchangesinthe classification
of businesses to be divested:
●In the third quarter of 2003, the protective packaging business,
apartoftheIvexPackaging Corporation (Ivex) acquisition, was
reclassified from discontinued operations to assets held and used as
management discontinuedtheplanof sale due to market conditions.
The results of operations of the protective packaging business
have been reclassifiedand areincluded in income from continuing
operations and in the Packaging and Consumer segment results
beginning in July 2002 (date of the Ivex acquisition).
●In the fourth quarter of 2003, the Magnolia, AR and Plant City,
FL fabricating businesses were reclassified from discontinued opera-
tions toassetsheld and used as management discontinued the plan
of sale due to market conditions. The results of operations and
$18 of losses (reflected in Special Items) in 2002 associated with
adjustments to estimated fair values were reclassified to income
from continuing operations. The results of operations, excluding
theadjustments reflectedinSpecial Items, are included in the
Engineered Products segment.
●In the fourth quarter of 2003, Alcoa’s packaging equipment
business was reclassified from assets heldandusedto discontinued
operations. The sale of this business was completed in January of
2004. The results of operations of this business are reported as
discontinued operationsintheStatement of Consolidated Income
for all periods presented. Packaging and Consumer segment
results do not include the results of operations of the packaging
equipment business.
●In the fourth quarter of 2003, the specialty chemicals business
was reclassified from assets heldandusedto assets held for sale.
Thesaleofthe specialty chemicals business is expected to close
in the first quarter of 2004. The change in classification did not
impact the Statement of Consolidated Income, and theresults
of the specialty chemicals business are included in the Alumina
and Chemicals segment results.
The Statement of ConsolidatedIncome in 2003 reflects a charge of
$45 (after tax) in discontinued operations related to a reduction in
the estimated fair value of the automotive fasteners business and $33
of net favorable adjustments in Special Items related to businesses