Alcoa 2004 Annual Report Download - page 27

The company also experienced volume declines in businesses
serving the commercial building and construction and industrial
gas turbine markets.
Net income for 2003 was $938, or $1.08 per diluted share,
compared with $420, or $.49 per share, in 2002. Net income
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.’’ Net income in 2003 also included a loss of $70
from discontinued operations, comprised of a $45 impairment
charge for the automotive fasteners business, as well as $25 of
net operating losses from businesses to be divested.
Divestiture Plan — Alcoa’s financial statements for all periods
presented were significantly impacted by activities relating
to the planned divestiture of a number of Alcoa’s businesses.
In 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. This plan
was substantially completed in 2004 with the divestitures of the
following businesses: specialty chemicals, automotive fasteners,
packaging equipment, South American flexible packaging, foil
facilities in Russellville, AR and St. Louis, MO, and extrusion
facilities in Europe and Brazil.
In the second quarter of 2004, certain architectural products
businesses in North America were reclassified from assets held
for sale to assets held and used as management discontinued
the plan of sale due to market conditions. The financial state-
ments for prior periods have been reclassified to reflect this
change. The reclassification did not impact the Statement of
Consolidated Income, and the results of operations of these
architectural products businesses continue to be presented in
the Engineered Products segment.
Also in 2004, Alcoa identified additional businesses to be
divested to better focus on its core capabilities. As a result,
the following businesses have been reclassified from assets
held and used to discontinued operations for all periods
presented. See Notes A and B to the Consolidated Financial
Statements for additional information on reclassifications
for discontinued operations.
●In the third quarter of 2004, the protective packaging
business was reclassified to discontinued operations. A $16
after-tax impairment charge was recorded to reflect the current
estimated fair value of the business. The results of the Packaging
or similar expressions. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors
that may cause actual results, performance, or achievements
of Alcoa to be different from those expressed or implied in the
forward-looking statements. For a discussion of some of the
specific factors that may cause such a difference, see Notes N
and Y to the Consolidated Financial Statements and the disclo-
sures included below under Segment Information and Market
Risks. For additional information on forward-looking statements
and risk factors, see Alcoa’s Form 10-K, Part I, Item 1.
Results of Operations
Earnings Summary
Alcoa’s income from continuing operations for 2004 was $1,402,
or $1.60 per diluted share, compared with $1,055, or $1.22 per
share, in 2003. The highlights for 2004 include: higher realized
prices for alumina due to a tightening of the world alumina
market, as well as higher realized prices for aluminum as LME
prices increased by 20% over 2003 levels; increased sales across
five of six segments; higher volumes in downstream businesses
serving the commercial transportation, building and construc-
tion, aerospace, and packaging markets; improved profitability
across four of six segments; a $38 gain related to the retirement
of debt and associated interest rate swap settlement; a $37 gain
on the sale of a portion of Alcoa’s interest in the Juruti bauxite
project to Alcoa World Alumina and Chemicals (AWAC) ;a$15
gain on the termination of an alumina tolling arrangement; and
continued focus on completion of divestitures, which included
a $61 gain on the sale of the specialty chemicals business.
Partially offsetting these positive contributions in 2004
were: significant cost increases for energy and raw materials;
the impact of a weakened U.S. dollar against other currencies,
primarily the Australian and Canadian dollars and the Euro;
the impact of a strike at the Be´cancour smelter; a $41 increase
in environmental and legal reserves, principally related to the
Grasse River site and El Campo; and the absence of $79 in
insurance settlements that occurred in 2003.
Net income for 2004 was $1,310, or $1.49 per diluted share,
compared with $938, or $1.08 per share, in 2003. Net income
of $1,310 in 2004 included a loss of $92 in discontinued
operations, comprised of $89 in impairment charges to reflect
the estimated fair values of the protective packaging business,
the telecommunications business, and a small casting business;
net operating losses of $8; slightly offset by a net gain of $5
on divested businesses. See details of the divestiture plan below.
Alcoa’s income from continuing operations for 2003 was
$1,055, or $1.22 per diluted share, compared with $518, or $.61
per share, in 2002. The increase in income from continuing
operations was primarily due to higher realized prices for alumina
and aluminum; improved profitability across all segments;
significant restructuring charges that were recognized in 2002;
higher equity income; recognition of insurance settlements
of a series of environmental matters in the U.S.; and a lower
effective tax rate. Partially offsetting these increases were higher
energy, employee benefits and raw materials costs, as well as the
unfavorable impact of the U.S. dollar against foreign currencies.
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