Alcoa Acts to Lower Costs, Focus its Portfolio and Increase Long-Term Earnings Power; Announces 4th Quarter Loss Due to One-time Restructuring, Divestiture and Goodwill Charges.Business Editors PITTSBURGH--(BUSINESS WIRE)--Jan. 8, 2003 Alcoa Alcoa U.S. company, the world's largest producer of aluminum. Established in Pittsburgh, Pa., in 1888, it adopted the name Aluminum Co. of America in 1907. Alcoa introduced aluminum foil in 1910 and found uses for aluminum in the emerging aviation and automobile industries. Inc. (NYSE NYSE See: New York Stock Exchange :AA) today announced actions designed to accelerate its cost reduction initiatives and further focus its business portfolio to increase long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. earnings power. These fourth quarter actions include significant restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). efforts, particularly the sale of certain non-core businesses. For the fourth quarter 2002, Alcoa announced a net loss of $223 million, or $0.27 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . Sales for the fourth quarter were $5.06 billion compared to $5.10 billion in the fourth quarter of 2001. Sales for the year were $20.26 billion compared to $22.50 billion for 2001. The loss for the fourth quarter of $0.27 per diluted share compared to earnings of $0.23 in the third quarter of 2002, and a loss of $0.17 in the fourth quarter of 2001. Net income for the year 2002 was $0.49 per diluted share compared to $1.05 in 2001. The 2002 results were negatively impacted by significantly lower realized prices for primary aluminum and alumina alumina (əl  `mĭnə) or aluminum oxide, Al2O3, chemical compound with m.p. about 2,000°C; and sp. gr. about 4.0. ,
and lingering lin·ger v. lin·gered, lin·ger·ing, lin·gers v.intr. 1. To be slow in leaving, especially out of reluctance; tarry. See Synonyms at stay1. 2. weaknesses in key end markets. Excluding one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charges, income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $133 million, or $0.16 per diluted share in the quarter (see attached schedule). Included within income from continuing operations was approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $40 million ($0.05 per diluted share) in various non-recurring after tax charges, the largest of which is an increase to its environmental reserves, principally for the Grasse River The Grasse River is a river in northern New York, in the United States. Some sources, usually older, refer to it as the Grass River. The river mainly flows northeast from the foothills of the Adirondack Mountains into the St. site in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . Through its Alcoa Business System, the company also recorded a $40 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. LIFO (Last In-First Out) A queueing method in which the next item to be retrieved is the item most recently placed in the queue. Contrast with FIFO. LIFO - stack benefit by continuing to reduce inventories and capturing the resulting savings. "Global manufacturing weakness has persisted longer than we anticipated," said Alain Alain: see Chartier, Émile Auguste. Belda, Alcoa Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "In particular, aerospace, industrial gas turbine turbine, rotary engine that uses a continuous stream of fluid (gas or liquid) to turn a shaft that can drive machinery. A water, or hydraulic, turbine is used to drive electric generators in hydroelectric power stations. and telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. markets remained soft, reinforcing re·in·force also re-en·force or re·en·force tr.v. re·in·forced, re·in·forc·ing, re·in·forc·es 1. To give more force or effectiveness to; strengthen: The news reinforced her hopes. the need to increase the scope of our cost savings and restructuring initiatives. These initiatives will give us increased flexibility for future profitable growth opportunities in our core activities." Alcoa recorded a special after-tax charge of $95 million in the fourth quarter of 2002 to restructure operations of businesses serving the aerospace, automotive and industrial gas turbine markets, and in the U.S. smelting smelting, in metallurgy, any process of melting or fusion, especially to extract a metal from its ore. Smelting processes vary in detail depending on the nature of the ore and the metal involved, but they are typified in the use of the blast furnace. system. The restructuring includes operations that have experienced negligible  This article or section is written like a personal reflection or and may require .Please [ improve this article] by rewriting this article or section in an . growth, particularly in Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). and South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. .
The after-tax charge includes costs for employee severance The act of dividing, or the state of being divided.The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and asset rationalization rationalization, in psychology: see defense mechanism. , and will affect approximately 8,000 employees at over 70 locations. While these restructuring actions will take place in 2003, the majority of the economic benefits will be realized in 2004. Alcoa also announced that it has conducted a portfolio review of its businesses and the markets they serve. It has established ongoing criteria criteria (krītēr´ē  ),n. for aluminum and non-aluminum businesses, including the ability to grow in excess of GDP GDP (guanosine diphosphate): see guanine. or deliver superior returns in sectors where Alcoa has a sustainable competitive advantage. As a result of this review, Alcoa intends to divest To deprive or take away. Divest is usually used in reference to the relinquishment of authority, power, property, or title. If, for example, an individual is disinherited, he or she is divested of the right to inherit money. certain businesses that do not meet these criteria in sectors such as alumina and chemicals, packaging, building and construction, automotive and general industrial and distribution. Certain of the businesses to be divested include specialty chemicals A Specialty chemical is a chemical produced for a specialized use. They are produced in lower volume than bulk chemicals, of which petrochemicals, made from oil feedstocks, are the most common. However, both are produced in a chemical plant. , specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. packaging equipment, architectural products in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , commodity automotive fasteners fasteners In construction, connectors between structural members. Bolted connections are used when it is necessary to fasten two elements tightly together, especially to resist shear and bending, as in column and beam connections. , certain fabricated fab·ri·cate tr.v. fab·ri·cat·ed, fab·ri·cat·ing, fab·ri·cates 1. To make; create. 2. To construct by combining or assembling diverse, typically standardized parts: operations in South America, a minority equity stake in Latasa, and foil facilities in St. Louis Louis, titular duke of Burgundy Louis, 1682–1712, titular duke of Burgundy; grandson of King Louis XIV of France. He became heir to the throne on the death (1711) of his father, Louis the Great Dauphin. , Missouri Missouri, state, United States Missouri (mĭz r`ē, –ə), one of the midwestern states of the United States. and Russellville, Arkansas Russellville is a city in Pope County, Arkansas, United States. According to 2006 Census Bureau estimates, the population of the city is 25,520, ranking it as the state's 16th largest city, behind Benton.[1] The ZIP codes are 72802 and 72801. . These
businesses generated approximately $1.3 billion in total revenues in
2002. Proceeds from the sales will be deployed primarily to reduce debt,
increasing the company's flexibility for future growth
opportunities in its core businesses. The company recorded an after tax
charge of $221 million in the fourth quarter of 2002 on the
divestitures, $78 million of which related to discontinued operations Discontinued operationsDivisions of a business that have been sold or written off and that no longer are maintained by the business. . "The actions announced today further Alcoa's drive to improve our cost position in ongoing operations around the world, focus on customers in key downstream From the provider to the customer. Downloading files and Web pages from the Internet is the downstream side. The upstream is from the customer to the provider (requesting a Web page, sending e-mail, etc.). sectors, and grow in core markets," said Belda. "These initiatives, in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with our continued focus on the application of the Alcoa Business System, will ensure that we will exceed our cost savings targets for 2003." At the end of the 2002 fourth quarter, Alcoa had achieved $600 million in annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. cost savings toward its $1.0 billion 2003 goal. The run rate at the end of the fourth quarter was $150 million, compared with $140 million in the prior quarter. As part of its annual review of goodwill, Alcoa also recorded a $20 million impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. associated with assets serving the telecommunication market. For the year 2002, net income was $420 million, or $.49 per share. Excluding one-time charges, income from continuing operations was $779 million, or $.92 per share. Excluding one-time charges, the effective tax rate for 2002 was 30%. As previously announced, Alcoa's accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. pension obligation exceeded the fair value of plan assets at year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. , which resulted in an $820 million charge to equity. Cash contributions to the major pension plans in 2003 are not projected to be materially different than in 2002. Alcoa began 2002 with 129,000 employees throughout the world. During the year it completed a number of key acquisitions in core markets including Ivex Packaging and Fairchild Companies named Fairchild include:
Quarterly Analyst Meeting Alcoa's quarterly analyst meeting will be at 4:00 p.m. EDST EDST Eastern Daylight Savings Time EDST Extended Daylight Saving Time EDST Enterprise Desktop Support Technician EDST Edge-Disjoint Spanning Tree EDST Engineering Design System Technology (San Jose, California) on Thursday Thursday: see week. , January January: see month. 23, 2003. The meeting will be webcast via www.alcoa.com Alcoa is the world's leading producer of primary aluminum, fabricated aluminum and alumina, and is active in all major aspects of the industry. Alcoa serves the aerospace, automotive, packaging, building and construction, commercial transportation and industrial markets, bringing design, engineering, production and other capabilities of Alcoa's businesses to customers. In addition to aluminum products and components, Alcoa also markets consumer brands including Reynolds Wrap(R) foils and plastic wraps, Alcoa(R) wheels, and Baco(R) household wraps. Among its other businesses are vinyl siding Wikipedia is not the place for advertisement or self-advertising. Vinyl siding, first introduced to the exterior cladding market in the late 1950s, is an alternative to aluminum siding, fiber cement siding, and timber siding. , closures, precision castings, and electrical distribution systems for cars and trucks. The company has 127,000 employees in 38 countries. More information can be found at www.alcoa.com Editor's Note Editor's Note (foaled in 1993 in Kentucky) is an American thoroughbred Stallion racehorse. He was sired by 1992 U.S. Champion 2 YO Colt Forty Niner, who in turn was a son of Champion sire Mr. Prospector and out of the mare, Beware Of The Cat. Trained by D. : The Alcoa Business System is an integrated set of systems, tools and language organized to encourage unencumbered Unencumbered Property that is not subject to any creditor claims or liens. Notes: For example, if a house is owned free and clear (meaning the owner owes no mortgage to anyone), it is unencumbered. transfer of knowledge across businesses and borders. It focuses on serving customer demand by emphasizing the elimination of all waste and making what the customer wants, when the customer wants it. Forward Looking Statement Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. involving known and unknown risks and uncertainties that may cause actual results, performance or achievements of Alcoa to be different from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the company's inability to achieve the level of cost savings or productivity improvements anticipated by management, including possible increases in the cost of doing business resulting from war or terrorist activities; and other risk factors summarized in Alcoa's SEC reports.
Financial Report
Alcoa and Subsidiaries
Supplemental Net Income and EPS Information
(in millions, except for per share amounts)
Net Income Diluted EPS
4Q02 3Q02 4Q01 4Q02 3Q02 4Q01
---- ---- ---- ---- ---- ----
Net (loss) income $(223) $193 $(142) $(0.27) $0.23 $(0.17)
One-time charges:
Goodwill impairment 20 - -
Special items -
restructurings 95 23 241
Special items - loss
on divestitures 143 - -
Discontinued operations
- operating loss 20 9 4
Discontinued operations
- loss on
divestitures 78 - -
Goodwill amortization - - 43
---------------------
Income from continuing
operations excluding
one-time charges $ 133 $225 $ 146 $ 0.16 $0.27 $ 0.17
=====================
Average diluted shares outstanding 844 847 849
Net Income Diluted EPS
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 420 $908 $ 0.49 $1.05
One-time charges:
Goodwill impairment 20 -
Special items
- restructurings 118 355
Special items - loss
on divestiture 143 -
Discontinued operations
- operating loss
(income) 34 (1)
Discontinued operations
- loss on
divestitures 78 -
Cumulative effect of
accounting change (34) -
Goodwill amortization - 171
------------
Income from continuing
operations excluding
one-time charges $ 779 $1,433 $ 0.92 $1.65
============
Average diluted shares
outstanding 850 867
FINANCIAL REPORT
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Twelve months ended
December 31
-----------
2002 2001
--------- ---------
Sales $ 20,263 $ 22,497
Cost of goods sold 16,247 17,539
Selling, general administrative and
other expenses 1,147 1,256
Research and development expenses 214 203
Provision for depreciation, depletion and
amortization 1,108 1,234
Impairment of goodwill 44 -
Special items 407 565
Interest expense 350 371
Other income, net (179) (308)
--------- ---------
19,338 20,860
Income from continuing operations before
taxes on income 925 1,637
Provision for taxes on income 292 522
--------- ---------
Income from continuing operations before
minority interests' share 633 1,115
Less: Minority interests' share 135 208
--------- ---------
Income from continuing operations 498 907
(Loss) Income from discontinued operations,
net of tax benefit of $50 in 2002 (112) 1
Cumulative effect of accounting change
for goodwill 34 -
--------- ---------
NET INCOME $ 420 $ 908
========= =========
Earnings per common share:
Basic:
Income from continuing operations $ 0.59 $ 1.06
Loss from discontinued operations (0.13) -
Cumulative effect of accounting change 0.04 -
Net income $ 0.50 $ 1.06
Diluted:
Income from continuing operations $ 0.58 $ 1.05
Loss from discontinued operations (0.13) -
Cumulative effect of accounting change 0.04 -
Net income $ 0.49 $ 1.05
Average number of shares used to compute:
Basic earnings per common share 845,438,913 857,990,395
Diluted earnings per common share 849,848,984 866,561,053
Common stock outstanding at the end of
the period 844,819,462 847,581,876
Currency translation adjustments included
in net income $ (4) $ 12
Shipments of aluminum products
(metric tons) 5,208,000 4,960,000
Return on average shareholders' equity 3.9% 8.3%
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Fourth quarter ended
December 31
-----------
2002 2001
--------- ---------
Sales $ 5,061 $ 5,100
Cost of goods sold 4,088 4,233
Selling, general administrative and
other expenses 339 349
Research and development expenses 58 52
Provision for depreciation, depletion and
amortization 297 310
Impairment of goodwill 44 -
Special items 368 353
Interest expense 97 78
Other income, net (67) (112)
--------- ---------
5,224 5,263
Loss from continuing operations before
taxes on income (163) (163)
Benefit for taxes on loss 36 53
--------- ---------
Loss from continuing operations
before minority interests' share (127) (110)
Less: Minority interests' share (2) 28
--------- ---------
Loss from continuing operations (125) (138)
Loss from discontinued operations,
net of tax benefit of $42 in 2002 (98) (4)
--------- ---------
NET LOSS $ (223) $ (142)
========= =========
Loss per common share:
Basic:
Loss from continuing operations $ (0.15) $ (0.17)
Loss from discontinued operations (0.12) -
Net loss $ (0.27) $ (0.17)
Diluted:
Loss from continuing operations $ (0.15) $ (0.17)
Loss from discontinued operations (0.12) -
Net loss $ (0.27) $ (0.17)
Average number of shares used to compute:
Basic earnings per common share 844,456,673 848,675,958
Diluted earnings per common share 844,456,673 848,675,958
Currency translation adjustments included
in net income $ 2 $ 8
Shipments of aluminum products
(metric tons) 1,320,000 1,162,000
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)
Consolidated Third-
Party Revenues 4Q01 2001 1Q02 2Q02 3Q02 4Q02 2002
-------------------------------------------------
Alumina and Chemicals 417 1,908 425 419 469 430 1,743
Primary Metals 685 3,432 764 788 792 830 3,174
Flat-Rolled Products 1,182 4,999 1,156 1,192 1,162 1,130 4,640
Engineered Products 1,333 5,765 1,319 1,330 1,238 1,131 5,018
Packaging and
Consumer 697 2,691 618 672 752 840 2,882
Other 786 3,702 618 757 731 700 2,806
-------------------------------------------------
Total 5,100 22,497 4,900 5,158 5,144 5,061 20,263
Consolidated
Intersegment
Revenues 4Q01 2001 1Q02 2Q02 3Q02 4Q02 2002
-------------------------------------------------
Alumina and Chemicals 217 1,021 229 233 235 258 955
Primary Metals 707 3,300 878 1,001 888 849 3,616
Flat-Rolled Products 13 64 15 18 21 14 68
Engineered Products 9 35 8 10 8 8 34
Packaging and
Consumer 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0
-------------------------------------------------
Total 946 4,420 1,130 1,262 1,152 1,129 4,673
Consolidated Third-
Party Shipments
(KMT's) 4Q01 2001 1Q02 2Q02 3Q02 4Q02 2002
-------------------------------------------------
Alumina and Chemicals 1,667 7,217 1,825 1,796 1,939 1,926 7,486
Primary Metals 455 1,873 503 507 517 546 2,073
Flat-Rolled Products 456 1,818 439 456 446 433 1,774
Engineered Products 197 900 221 244 223 203 891
Packaging and
Consumer 26 141 30 31 46 55 162
Other 28 228 58 87 80 83 308
-------------------------------------------------
Total Aluminum 1,162 4,960 1,251 1,325 1,312 1,320 5,208
Average realized
price
-Primary 0.65 0.72 0.66 0.67 0.66 0.66 0.66
After-Tax Operating
Income (1) 4Q01 2001 1Q02 2Q02 3Q02 4Q02 2002
-------------------------------------------------
Alumina and Chemicals 60 471 65 73 93 84 315
Primary Metals 131 905 143 175 175 157 650
Flat-Rolled Products 64 262 61 66 46 47 220
Engineered Products 13 170 58 44 33 (28) 107
Packaging and
Consumer 49 184 28 55 51 64 198
Other (52) 47 7 19 8 (43) (9)
-------------------------------------------------
Total 265 2,039 362 432 406 281 1,481
Reconciliation of
after-tax operating
income (ATOI) to
consolidated net
income 4Q01 2001 1Q02 2Q02 3Q02 4Q02 2002
-------------------------------------------------
Total ATOI 265 2,039 362 432 406 281 1,481
Impact of
intersegment profit
eliminations (2) (20) (3) (1) (5) 3 (6)
Unallocated amounts
(net of tax):
Interest income 10 40 10 9 7 5 31
Interest expense (51) (242) (49) (54) (62) (62) (227)
Minority interests (28) (208) (41) (47) (49) 2 (135)
Corporate expense (84) (261) (58) (53) (40) (83) (234)
Special items (249) (397) - - (25) (261) (286)
Discontinued
operations (4) 1 - (5) (9) (98) (112)
Accounting change - - 34 - - - 34
Other 1 (44) (37) (49) (30) (10) (126)
-------------------------------------------------
Consolidated net
income (142) 908 218 232 193 (223) 420
(1) Under the provisions of SFAS No. 142, effective January 1, 2002,
goodwill is no longer amortized. This resulted in a positive
impact to segment ATOI results in the 2002 fourth quarter as
follows: Primary $6, Flat-Rolled Products ($1), Engineered
Products $16, Packaging and Consumer $4, and Other $7. $11 was
recorded in corporate.
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet
(in millions)
(unaudited)
December 31 December 31
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $344 $512
Short-term investments 69 15
Receivables from customers, less allowances:
$120 in 2002 and $121 in 2001 2,378 2,386
Other receivables 174 286
Inventories 2,441 2,385
Deferred income taxes 468 409
Prepaid expenses and other current assets 439 456
------------ ------------
Total current assets 6,313 6,449
Properties, plants and equipment, at cost 23,120 21,874
Less: accumulated depreciation, depletion and
amortization 11,009 10,344
------------ ------------
Net properties, plants and equipment 12,111 11,530
------------ ------------
Goodwill 6,365 5,597
Other assets 4,816 3,828
Assets held for sale 575 951
------------ ------------
Total assets $30,180 $28,355
============ ============
LIABILITIES
Current liabilities:
Short-term borrowings $37 $162
Accounts payable, trade 1,618 1,539
Accrued compensation and retirement costs 933 871
Taxes, including taxes on income 818 904
Other current liabilities 970 1,307
Long-term debt due within one year 85 102
------------ ------------
Total current liabilities 4,461 4,885
------------ ------------
Long-term debt, less amount due within one
year 8,365 6,384
Accrued postretirement benefits 2,858 2,513
Other noncurrent liabilities and deferred
credits 2,710 1,968
Deferred income taxes 502 556
Liabilities of operations held for sale 64 122
------------ ------------
Total liabilities 18,960 16,428
------------ ------------
MINORITY INTERESTS 1,293 1,313
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 56
Common stock 925 925
Additional capital 6,101 6,114
Retained earnings 7,428 7,517
Treasury stock, at cost (2,828) (2,706)
Accumulated other comprehensive loss (1,754) (1,292)
------------ ------------
Total shareholders' equity 9,927 10,614
------------ ------------
Total liabilities and equity $30,180 $28,355
============ ============
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