Alcoa 1999 Annual Report Download - page 35

per pound, primarily due to the addition of the Alumax extrusion
businesses in the 1998 third quarter. These businesses produce
primarily soft alloy extrusions, which have a lower value-added,
resulting in a reduction in average realized prices.
Extruded product sales were up 26% from 1998 as shipments rose
43%. In 1998, sales rose 65% on a 91% increase in shipments. The
Alumax acquisition was a significant factor in the increase in ship-
ments. Partially offsetting higher shipments were lower soft alloy
prices and a 23% drop in shipments of hard alloy products. Forged
wheel sales increased 33% and 32% in 1999 and 1998, respectively,
from the prior year. Continued strong demand for forged wheels
used in sport utility vehicles and light trucks was a major factor in
the higher shipment levels.
Engineered Products 1999
ATOI fell 2% from 1998 to $180. The
1998 sale of Alcotec resulted in an $18 decrease in 1999 segment
ATOI relative to 1998. Additionally, declines in the extrusion business
in Latin America and in the architectural extrusion business in the
U.S. were nearly offset by improved results in Europe and from forged
products. The decline in Latin America was due to lower volumes
and prices, while the drop in returns from the architectural extrusion
business was due to lower volumes and higher production costs.
Europe benefited from acquisitions, increased market share and
productivity improvements. Forged products
ATOI rose 39%, as
higher prices and continued growth in the wheel market offset a
shift to a lower value-added mix.
ATOI in1998forthissegmentrose84%overthecomparable
1997 period. The increase was due to acquired companies, the
above-mentioned gain on the sale of Alcoa’s interest in Alcotec and
improved operating results from European extrusion facilities. Also
contributing to the increase were higher shipments of forged wheels.
V. O t h e r
1999 1998 1997
Third-party aluminum shipments (mt) 65 66 106
Third-party sales $3,393 $3,362 $3,457
After-tax operating income $ 186 $ 165 $ 177
This category includes Alcoa Fujikura Ltd. (AFL) , which produces
electrical components for the automotive industry along with tele-
communications products. In addition, Alcoa’s aluminum and plastic
closures operations, residential building products operations and
aluminum automotive engineering and parts businesses are included
in this group. Third-party sales from this group were up 1% from
1998, as higher sales of automotive electrical components, the acqui-
sition of the remaining 50% of
A-CMI in the 1999 third quarter and
increased sales from closures were nearly offset by declines from
packaging operations in Brazil. This segment’s third-party sales in
1998 were down 3% from 1997, as higher sales of automotive electri-
cal components were more than offset by the loss of revenues from
the sale of Alcoa Aluminio’s cable business in late 1997.
Third-party sales at
AFL increased 5% in 1999 and 7% in 1998,
relative to the prior year, as higher volumes were partly offset
by declining prices. Closures revenue for 1999 rose 7% from 1998,
as higher volumes were somewhat offset by lower prices. In 1998,
closures revenues fell 1% compared with 1997.
This group incurred a special item gain of $71 in 1997. The gain
was the result of the sale of various businesses, a majority interest
in Alcoa’s Brazilian cable business and land in Japan.
ATOI for this group rose 13% from 1998, as improvements in
closures and aluminum automotive parts were partly offset by a
decline from packaging operations in Brazil. The improvement in
closures
ATOI was a result of higher volumes and $6 of cost improve-
ments, offset in part by lower prices. Aluminum automotive parts
benefited from higher volumes and selling prices, lower administra-
tive costs and $12 of improved productivity. Cost improvements of
$22 somewhat offset the impact of a 23% decline in revenues from
packaging operations in Brazil. In 1998,
ATOI fell 7% from 1997,
as improved results at
AFL , along with a gain from the sale of Alcoa’s
Australian gold operations, were more than offset by special item
gains in 1997 versus no special items in 1998.
Reconciliation of ATOI to Consolidated Net Income
The following reconciles segment ATOI to Alcoa’s consolidated net
income and explains each line item in the reconciliation:
1999 1998 1997
Total after-tax operating income $1,489 $1,344 $1,247
Elimination of intersegment (profit) loss (24) (16) 12
Unallocated amounts (net of tax):
Interest income 26 64 67
Interest expense (126) (129) (92)
Minority interest (242) (238) (268)
Corporate expense (171) (197) (172)
Other 102 25 11
Consolidated net income $1,054 $ 853 $ 805
Items required to reconcile ATOI to consolidated net income include:
⬎Corporate adjustments to eliminate any remaining profit or loss
between segments;
⬎The after-tax impact of interest income and expense at the
statutory rate;
⬎Minority interest;
⬎Corporate expense, comprised of general administrative and
selling expenses of operating the corporate headquarters and
other global administrative facilities along with depreciation
on corporate owned assets; and
⬎Other, which includes the impact of
LIFO , differences between
estimated tax rates used in each segment and the corporate
effective tax rate and other nonoperating items such as foreign
exchange.
The variance in Other from 1999 to 1998 was due to
LIFO adjust-
ments that occurred in 1999 and adjustments to deferred taxes that
resulted from a change in the Australian corporate income tax rate.
Special Items
There were no special items recorded in 1999 or 1998. Special items
in 1997 resulted in a net gain of $96 ($44 after tax and minority
interests, or 13 cents per basic share). The fourth quarter sale of a
majority interest in Alcoa’s Brazilian cable business and land in Japan
generated gains of $86. In addition, the sale of equity securities
resulted in a gain of $38, while the divestiture of noncore businesses
provided $25. These gains were partially offset by charges of $53,
related to environmental and impairment matters.