Alcoa 2003 Annual Report Download - page 28

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were benefits resulting from continued focus on cost savings and
restructuring initiatives; lower costs recognized in 2002 for contract
losses, customer claims, and bad debts; the favorable impact in
2002 of ceasing amortization of goodwill; lower restructuring
charges recognized in 2002 compared with 2001; and lower minority
interest expense.
Net income for 2002 was $420, or $0.49 per share, compared
with $908, or $1.05 per share, in2001.Netincome of $420 in 2002
included income of $34 representing the cumulative effect of the
accounting change for goodwill under
SFAS No. 142, ‘‘Goodwill
and Intangible Assets.’ ’Net income also included a loss of $90
for discontinued operations, which consisted of charges of $59
to reduce the carrying values of certain businesses to be divested
to their estimated fair values less costs to sell, as well as $31 of
operating losses.
Net Income
millions of dollars
99
1,054
00
1,484
01
908
02
420
03
938
Divestiture Plan —Alcoa’s financial statements in both 2003 and
2002 were significantly impacted by activities relating to the planned
divestitureofanumberofAlcoa’s bu s ine sses.
During the fourth quarter of 2002, Alcoa performed a portfolio
review of its businesses and the markets they serve. As a result of
this review, Alcoa committed to a plan to divest certain noncore
businesses that did not meet internal growth and return measures.
In accordance with the accounting requirements, these businesses
are classified as either discontinued operations or assets held for sale.
For businesses classified as discontinued operations, the balance
sheet amounts and income statement results are reclassified from
their historical presentation to assets and liabilities of operations
held for sale on the Consolidated Balance Sheet and to discontinued
operations in the Statement of Consolidated Income for all periods
presented. Additionally, segment information does not include
the results of businesses classified as discontinued operations.
Management does not expect any continuing involvement with
these businesses following the sales. At the end of 2003, businesses
classifiedasdiscontinuedoperations included Alcoa’s commodity
automotive fasteners business, a packagingbusiness in South
America, and Alcoa’s packaging equipment business, which are
expected to be sold by mid-2004.
For businesses classified as assets heldforsale,thebalance sheet
amounts are reclassified from their historical presentation to assets
andliabilities of operations held for sale. The income statement
results continue to be reported in the historical income statement
performance, or achievements of Alcoa to be different from
those expressed or implied in the forward-looking statements.
Foradiscussion of some of the specific factors that may cause such
adifference,seeNotesMandXtotheConsolidated Financial
Statements andthe disclosures included below under Segment
Information and Market Risks. For additional information on
forward-lookingstatements andriskfactors, see Alcoa’s Form 10-K,
Part I, Item 1.
Results of Operations
Earnings Summary
Alcoa’s income from continuing operations for 2003 was $1,034, or
$1.20 per diluted share,compared with $476, or $0.56 per share, in
2002.The highlights for 2003 include: intense focus on profitability
with ongoing cost reductions in 2003 that resulted in achievement
of thecompany’s three-year, $1 billion cost savings goal initiated in
2001; higher realized prices for alumina as demand increased due to
atightening of the world alumina market, as well as higher realized
prices for aluminum as
LME prices rose; significant restructuring
charges that were recognized in 2002; improved profitability across
all segments aided in part by cost savings and acquisitions; higher
equity income, primarily at Elkem; recognition of insurance settle-
ments of a series of environmental matters in the U.S.; and a lower
effective tax rate due toseveral discrete tax items.
Partially offsetting these positive contributions in 2003 were:
cost increasesfor energy,employeebenefits and raw materials; the
impact of a weakened U.S.dollaragainst other currencies, primarily
the Australian and Canadian dollars; higher minority interest
expense; andcontinuedvolume declines in businesses serving the
telecommunications, commercial building and construction, and
industrial gas turbine markets.
Net income for 2003 was $938, or $1.08 per share, compared
with $420, or $0.49 per share, in2002.Netincome of $938 in 2003
included a charge of $47 representing the cumulative effect of the
accounting change for asset retirement obligations upon adoption
of Statement of Financial Accounting Standards
(SFAS) No. 143,
‘‘Accounting for Asset Retirement Obligations.’’ Netincome also
included a loss of $49 from discontinued operations, comprised
of a $45 unfavorable adjustment to the estimated fair value of
the automotive fasteners business and$4ofnetoperating losses.
See details of the divestiture plan below.
Alcoa’s income from continuing operations for 2002 was $476,
or $0.56 per share, compared with $904, or $1.04 per share, in 2001.
Thedecline in income from continuing operations was primarily
due to lower realized prices for alumina and aluminum; lower
volumesinbusinessesservingthe aerospace, commercial building
and construction, telecommunications, and industrial gas turbine
markets; power sales that wererecognized in 2001;agoodwill
impairment charge in 2002; and lower gains on sales of assets and
lowerequityincome in 2002. Partially offsetting these declines