Alcoa 2003 Annual Report Download - page 32

Management anticipates that the tax rate in 2004 will be similar to
the tax rate for 2003 excluding the impact ofthediscrete tax items
mentionedabove.
MinorityInterests —Minority interests’ share of income from
operations was $231 in 2003 compared with $135 in 2002 and $208
in 2001. The increase of $96, or 71%, in 2003 was primarily due
to higher earnings at Alcoa World Alumina and Chemicals
(AWAC) ,
due to higher realized prices and higher volumes, and higher earnings
at Alcoa Fujikura Ltd.
(AFL) due to cost savings in 2003 and the
impact of a goodwill impairment charge recognized in 2002. Some-
what offsetting these factors was lower minority interests’ share
of income at Alcoa Aluminio resulting from Alcoa’s acquisition
of theremaining 40.9% shareholding from Camargo Correa Group
in August of 2003.
Minority interests’ share of income from operations was $135 in
2002 compared with $208 in 2001. The decrease of $73, or 35%,
in 2002 compared with 2001 was due to lower earningsatAlcoa
Aluminio,
AWAC ,and AFL .Thegoodwill impairment charge of $44
(pretax) contributed to the earnings decline of AFL in 2002.
Loss From Discontinued Operations —Lossfromdiscontinued
operations was $49 in 2003 compared with a loss of $90 in 2002
and income from discontinued operations of $4 in 2001. The loss
of $49 in 2003 was comprised of anadjustment of $45 related
to a reduction in the estimated fair value of the automotive fasteners
business and $4 ofoperating losses. The loss of $90 recognized
in 2002 was comprised of $31 of operating losses of businesses
to be divested, as well as losses of $59 to reduce the carrying values
of certain businesses to their estimated fair values less costs to sell.
See Note B to the Consolidated Financial Statements for further
information.
Cumulative Effect of Accounting Change —Thecumulative
effect of accounting changes resulted in a charge of $47 in 2003
compared with income of $34 recognized in 2002. The adoption of
SFAS No. 143, ‘‘AccountingforAssetRetirement Obligations’’ in
2003 resulted in a cumulative effect adjustment of $47, consisting
primarily of costs to establish assets and liabilities related to spent
pot lining disposal for pots currently in operation. The adoption
of
SFAS No. 141, ‘‘Business Combinations’’ and SFAS No. 142,
‘‘Goodwill and Other Intangibles’’ in 2002 resulted in a cumulative
effect adjustment of $34, consisting of income from the write-off
of negative goodwill from prior acquisitions of $49,offset by a $15
write-off for the impairment of goodwill in the automotive business
resulting from a change in measurement criteria for impairments.
See Notes A, C, and E to the Consolidated Financial Statements for
further information.
30
SegmentInformation
Alcoa’s operations consist of five worldwide segments: Alumina
and Chemicals, Primary Metals, Flat-Rolled Products, Engineered
Products, and Packaging and Consumer. Alcoa businesses that are
not reported to management as part of one of these five segments
are aggregated and reported as ‘‘Other.’’Alcoa’s management
reporting systemmeasures the after-tax operating income
(ATOI)
of each segment. Nonoperating items, such as interest income,
interest expense, foreign currency translation gains/losses, the
effects of last-in, first-out
(LIFO) inventory accounting, minority
interests, special items, discontinued operations, and accounting
changesare excluded from segment
ATOI .Inaddition, certain
expenses, such as corporate general administrative expenses, and
depreciation and amortization on corporate assets, are not included
in segment
ATOI .Segment assets exclude cash, cash equivalents,
short-term investments, and all deferred taxes. Segment assets also
exclude items such as corporate fixed assets,
LIFO reserves, goodwill
allocated to corporate, assets held for sale, and other amounts.
ATOI for all segments totaled $1,713 in 2003, $1,478 in 2002, and
$2,039 in 2001. See Note P to the Consolidated Financial Statements
for additional information. The following discussion provides
shipment, sales, and
ATOI data for each segment for each of the
three years in the period ended December 31, 2003. The financial
information and data on shipments of all prior periods have been
adjusted to remove the results of discontinued operations.
Alumina and Chemicals
2003 2002 2001
Alumina production (mt) 13,841 13,027 12,527
Third-party alumina shipments (mt) 7,671 7,486 7,217
Third-party sales $2,002 $1,743 $1,908
Intersegment sales 1,021 955 1,021
To t a l s ales $3,023 $2,698 $2,929
ATOI $ 415 $ 315 $ 471
This segment consists of Alcoa’s worldwide alumina and chemicals
system that includes the mining of bauxite, which is then refined
into alumina. Alumina is sold directly to internal and external
smelter customers worldwide or is processed into industrial chemical
products. The industrial chemical products are sold to a broad
spectrum of markets including refractories, ceramics, abrasives,
chemicals processing, and other specialty applications. Alcoa’s
aluminaoperations in Australia are a significant component of this
segment. Slightly more than half of Alcoa’s alumina production is
sold under supply contracts to third parties worldwide, while the
remainder is used internally. Alumina comprises over three-quarters
of this segment’s third-party sales. The saleofAlcoa’s specialty
chemicalsbusinessisexpected to close in the first quarter of 2004.
Third-party sales for the Alumina and Chemicals segment
increased 15% in 2003 compared with 2002 primarily due to an
increase in realized prices of 17% influenced by higher
LME prices
and a tightening of the world alumina market, as well as increased
shipments due to higher production at the Point Comfort, TX
refinery. In 2002, third-party salesofaluminadecreased 9% compared
with 2001,primarily due to an 11% decline in realized prices, which