Alcoa 2003 Annual Report Download - page 31

Alcoa does not include special items in the segment results. The
pretax impact of allocating special items to the segment results
would havebeenasfollows:
December 31 2003 2002 2001
Alumina and Chemicals $(1) $3 $94
PrimaryMetals 464 157
Flat-Rolled Poducts 13 65 105
Engineered Products (4) 217 126
Packaging andConsumer (44) 46 —
Other (1) 28 63
Segment total (33) 423 545
Corporate expenses 7221
To t a l S pecial Items $(26) $425 $566
Interest Expense —Interest expense was $314 in 2003 compared
with $350 in 2002. The decrease of $36, or 10%, was primarily due
to lower average effective interest rates, somewhat offset by higher
average debt levels due to higher borrowings in 2002 tofund
acquisitions.
Interest expense was $350 in 2002 compared with $371 in 2001.
The decrease of $21, or6%,in2002wasprimarily due tolower
average effective interest rates, partially offset by higher borrowings
during the year.
Other Income —Otherincome was $274 in2003compared with
$179 in 2002. The increase of $95, or 53%, was primarily due to
a gain of $105 from insurance settlements of a series of historical
environmental matters in the U.S.; $66 of higher equity income,
primarily at Elkem; and an increaseinthecash surrender value
of employee life insurance; partially offset by the unfavorable impact
of foreign currency translation losses of $51, primarily due to the
impact of strengthening Australian and Canadian currencies; and
several favorable nonoperating gains recognized in 2002.
Other income was $179 in 2002 compared with $309 in 2001.
The decrease of $130, or 42%, was primarily due to $62 higher net
gains on asset sales in 2001 (relatedtothesalesofThiokol, Alcoa
Proppants, Inc., and Alcoa’s interest in a Latin American cable
business), and a decrease of $46 in equity income, driven by lower
earnings at Elkem. See Note N to the Consolidated Financial State-
ments for further information.
Income Ta x e s —Alcoa’s effective tax rate was 24.2% in 2003
compared with the statutory rate of35%andAlcoa’s effective tax
rates of 32.3% in 2002 and 31.9% in 2001. The effective tax rate in
2003 was reduced to reflect a number of discrete tax items that are
required to be excluded from management’s estimate of the annual
effective tax rate:
●Reversal of a valuation reserve on foreign net operating losses
resulted in a reduction of the rate by approximately 2.9%
●Expiration of a prior international audit period resulted in a
reduction of the rate by approximately 2.3%
●Recently enacted international tax legislation resulted in a
reduction of the rate by approximately 1.3%
●Partially offsetting some of the reductions above was a tax recog-
nized on the sale of Latasa which increased the effective tax rate
by 1.3%.
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During 2002, Alcoa recorded special charges of $425 ($280 after
tax and minority interests) for restructurings associated with the
curtailment of aluminum production at three smelters, as well as
restructuring operations for those businesses experiencing negligible
growth due to continued market declines and the decision to divest
certain businesses that failed to meet internal growth and return
measures. The 2002 charges were comprised of asset write-downs
of $296, consisting of $113 of goodwill on businessestobedivested,
as well as $183 for structures, machinery, and equipment; employee
termination and severance costs of $105 related to approximately
6,700 salaried and hourly employees at over 70 locations, primarily
in Mexico, Europe, and the U.S.; and exit costs, including environ-
mental, demolition, and lease termination costs, of $31. Additionally,
net reversals of $7 were recorded in Special Items in 2002 primarily
associated with adjustments to 2001 restructuring program reserves
due to changes in estimates of liabilities resulting from lower than
expected costs.
As part of the 2002 restructuring program, Alcoa temporarily
curtailed aluminum production at its Badin, NC plant and perma-
nently closed its Troutdale,ORplantaswell as approximately 25%
of the capacity at its Rockdale, TXfacility. Alcoa recognized a
restructuring charge of $39 associated with these curtailments. The
remaining carrying value and results of operations related to these
facilities were not material. The restructuring of operations of
businesses servingthe aerospace, automotive, and industrial gas
turbine markets, and in the U.S. smelting system resulted in a charge
of $154. The remaining$232ofspecial items was related to losses
recognized on assets held for sale described in the Divestiture Plan
section above.
As of December 31, 2003, approximately 6,400 of the 6,700
employees associated with the 2002 restructuring program were
terminated. Alcoa expects to complete substantiallyallactions
relative to the restructuring charges by the end of 2004. Cost savings
associated with lower employee and other costs are anticipated to
be approximately $150 to $175 in 2004.
During 2001, Alcoa recorded charges of $566 ($355 after tax and
minority interests) as a result of a restructuring plan based on a
strategic review of thecompany’s primary products and fabricating
businesses aimed at optimizing and aligning its manufacturing
systems with customer needs, while positioning the company for
stronger profitability. These charges consisted of costs associated
with the shutdown of 18 facilities in the U.S. and Europe and were
comprised of asset write-downs of $372, employee termination and
severance costs of $178 related to workforce reductions of approxi-
mately 10,400 employees, and otherexitcostsof$16related to the
shutdown of facilities.
As of December 31, 2003, the 2001 restructuring program was
substantially complete, with the exception of approximately $60
in reserves for ongoing site remediation work and employee layoff
costs thatconsist of monthly payments being madeoveran
extended period.