Alcoa 2004 Annual Report Download - page 28

and Consumer segment have been reclassified to reflect the
movement of this business into discontinued operations.
●In the fourth quarter of 2004, the telecommunicationsbusiness
and a small casting business in the U.K. were reclassified to
discontinued operations. Impairment charges of $63 (after tax
and minority interests) for the telecommunications business
and$10(aftertaxandminorityinterests)forthecasting
business were recorded to reflect the current estimated fair
values of these businesses. The results of the Other group have
been reclassified to reflect the movement of these businesses
into discontinued operations.
Thelossof$92indiscontinuedoperationsin2004was
comprised of impairment losses of $89 to reflect the current
estimated fair values on businesses to be divested as described
above, $8 of net operating losses of these businesses, and a
net gain of $5 on businesses sold in 2004. The loss of $70 in
discontinued operations in 2003 was comprised of an impair-
ment loss of $45 related to the reduction in the estimated fair
value of the automotive fasteners business and $25 of operating
losses. The loss of $132 in discontinued operations in 2002 was
comprised of an impairment loss of $59 to reduce the carrying
values of certain businesses to be divested to their estimated
fair values less costs to sell, $53 of operating losses, and $20
for the impairment of goodwill in the telecommunications
business.
Sales — Sales for 2004 were $23,478 compared with sales
of $21,092 in 2003, an increase of $2,386, or 11%. The 21%
increase in the realized price of aluminum and 23% increase
in the realized price of alumina contributed significantly to the
increase in sales over the prior year, as two-thirds of the increase
in sales was due to higher realized prices for alumina and
aluminum. Volume increased in downstream businesses serving
the commercial transportation, building and construction,
aerospace, and packaging markets. In addition, the acquisition
of the remaining 50% of KAAL Australia in October 2003
provided $370 in additional revenue in 2004. Partly offsetting
these increases were sales decreases due to divestitures of
Alcoa’s specialty chemicals business, the Russellville, AR
and St. Louis, MO foil facilities, the European and Brazilian
extrusion facilities that were sold in 2004, as well as the
Latin American PET business that was sold in 2003.
Sales in 2003 were $21,092 compared with sales of $19,934
in 2002, an increase of $1,158, or 6%. Acquisitions accounted
for $913 of the increase in sales in 2003. Sales in 2003 included
the full-year results of Ivex Packaging Corporation (Ivex),
acquired in July 2002, and Fairchild Fasteners (Fairchild),
acquired in December 2002, and three months of activity for
KAAL Australia, acquired in October 2003. In addition to the
acquisition activity, sales increased in 2003 primarily in the
upstream businesses, as realized prices for alumina rose 17%
and realized prices for aluminum rose 6% from 2002. Partly
offsetting the increases in the upstream businesses were
the dispositions of distribution facilities in Europe and the
Latin America PET business, as well as lower volumes in
the downstream businesses, which were impacted by weak
markets for industrial gas turbines and commercial building
and construction.
Cost of Goods Sold — COGS as a percentage of sales was
79.3% in 2004 compared with 79.4% in 2003. Increased realized
prices for alumina and aluminum, higher volumes, and cost
savings were mostly offset by higher costs associated with
energy and raw materials, the Be´cancour strike, an increase of
$42 in environmental reserves, and unfavorable foreign currency
exchange movements.
COGS as a percentage of sales was 79.4% in 2003, compared
with 79.9% in 2002. Cost reductions as a result of procurement
savings, productivity improvements, and headcount reductions
from prior restructuring programs, as well as higher realized
prices for alumina and aluminum, more than offset lower
volumes, higher costs for energy, purchased raw materials and
employee benefits, a weakened U.S. dollar against other curren-
cies, and a benefit realized in 2002 as a result of a favorable
last-in, first-out
(LIFO) adjustment.
Selling, General Administrative, and Other Expenses —
SG&A expenses were $1,284, or 5.5% of sales, in 2004
compared with $1,250, or 5.9% of sales, in 2003. Expenses
increased by $34 due to unfavorable foreign currency exchange
movements, increased bad debt expense, and stock awards
granted in 2004, somewhat offset by lower deferred compensa-
tion costs.
SG&A expenses were $1,250, or 5.9% of sales, in 2003
compared with $1,108, or 5.6% of sales, in 2002. The increase
of $142, or 0.3% as a percentage of sales, was primarily due
to the full-year results related to the acquisitions of Ivex and
Fairchild, which accounted for 60% of the change in 2003
compared with 2002. The remaining increase was primarily
due to increased deferred compensation costs in 2003.
Research and Development Expenses — R&D expenses were
$182 in 2004 compared with $190 in 2003 and $209 in 2002.
The decreases in 2004 and 2003 were principally driven by
Alcoa’s continued focus to reduce spending and control costs.
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