Alcoa 2003 Annual Report Download - page 55

Aluminio’s export notes are collateralized by receivables due
under an export contract. Certain financial ratios must be
maintained, including the maintenance of a minimum debt service
ratio, as well as a certain level of tangible net worth of Aluminio
and its subsidiaries. During 2002, the notes were amended to
exclude the effects of foreign currency changes fromthetangible
net worth calculation.
The fair value adjustments result from changes in the carrying
amounts of certain fixed-rate borrowings that have been designated
as being hedged. Of the$104in2003,$(75)relatestooutstanding
hedges and $179 relates to hedges on outstanding debt that were
settled early. Of the $244 in 2002, $80 related to outstanding hedges
and $164 related to hedges on outstanding debt that were settled
early. These adjustments will be recognized as reductions of interest
expense over the remaining maturity of the related hedged debt
(through 2013). Foradditional information on interest rate swaps,
see Note W.
L. Minority Interests
Thefollowing table summarizes the minority shareholders’ interests
in the equity of consolidated subsidiaries.
December 31 2003 2002
Alcoa of Australia $ 676 $ 510
Alcoa Aluminio —124
Alcoa World Alumina LLC 208 208
Alcoa Fujikura Ltd. 297 269
Other majority-owned companies 159 182
$1,340 $1,293
In 2003, Alcoa acquired the remaining 40.9% interest in Alcoa
Aluminio from the Camargo Group. See Note F for further
information.
M. Commitments and Contingencies
Various lawsuits, claims, and proceedings havebeenormaybe
instituted or asserted against Alcoa, including those pertaining
to environmental, product liability, and safety and health matters.
While the amounts claimed may be substantial, the ultimate liability
cannot now be determined because of the considerable uncertainties
that exist. Therefore, it is possible that results of operations or
liquidity inaparticular periodcouldbematerially affected by
certain contingencies. However, based on facts currently available,
management believes that the disposition of matters that are
pending or asserted will not have a materially adverse effect on
the financial position of the company.
Aluminio isaparticipant in several hydroelectric power
construction projects in Brazil for purposes of increasing its energy
self-sufficiency and providing a long-term, low-cost source of
power for its facilities.
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K. Debt
December 31 2003 2002
Commercial paper, variable rate,
(1.4% average rate) $— $ 665
9% Bonds, due 2003 —21
Floating-rate notes, due 2004
(1.5% and 2.1% average rates) 467 500
6.125% Bonds, due 2005 200 200
7. 2 5 % N o t e s ,due2005 500 500
5.875 % N o t e s , d u e 20 06 500 500
4.25% Notes,due2007 800 800
6.625% Notes, due 2008 150 150
7. 3 7 5 % N o t e s, due2010 1,000 1,000
6.5% Notes, due 2011 1,000 1,000
6% Notes, due 2012 1,000 1,000
5.375% No t e s , d u e 2013 600 600
6.5% Bonds, due 2018 250 250
6.75% Bonds, due 2028 300 300
Ta x- e x e m pt revenue bonds ranging from
5.7 % t o 8.3% , d ue 2004–2031 49 323
Medium-term notes, due 2004–2013
(7.6% and 7.9% average rates) 176 212
Alcoa Aluminio
7. 5 % E x p o rt notes, due 2008 89 144
Fair value adjustments 104 244
Other 30 40
7,215 8,449
Less: amount due within one year 523 83
$6,692 $8,366
The amount of long-term debt maturing in each of the next five
years is $523in2004,$798 in 2005, $584 in 2006, $871 in 2007,
and $207in2008.
During 2003, Standard and Poor’s R ating Services lowered its
long-term debt rating of Alcoa to A⫺from A and its short-term
rating to A-2 from A-1 due to, among other things, unfunded post-
retirement benefit obligations. Moody’s Investors Service long-term
debt rating of Alcoa and its rated subsidiaries is A2 and its short-
term debt rating of Alcoa is Prime⫺1.
In April 2003, Alcoa refinanced its $2,000 revolving-credit
agreement that expired in April 2003 into a $2,000 revolving-credit
agreement that expires in April 2004. Additionally, Alcoa refinanced
its $1,000 revolving-credit agreement that expired in August 2003
into a $1,000 revolving-credit agreement that expires in April 2008.
Alcoa also has a $1,000 revolving-credit facility that expires in April
2005. Under these agreements, a certain ratio of indebtedness to
consolidated networth must be maintained. Commercial paper of
$665 at December 31, 2002 was classified as long-term debt because
it was backed by the revolving-credit facility. There were no amounts
outstanding under the revolving-credit facilities at December 31, 2003.
The interest rate on these facilities, if drawn upon, is Libor plus
19 b a s i s p oints, which is subjecttoadjustment if Alcoa’s credit rating
changes, to a maximum interest rate of Libor plus 40 basis points.
In August 2002, Alcoa issued $1,400 of notes. Of these notes,
$800 mature in 2007 and carry a coupon rate of 4.25%, and $600
mature in 2013 and carry a coupon rate of 5.375%. The proceeds
from these borrowings were used to fund the acquisition of Ivex
and to refinance commercial paper.