Alcoa Inc
Alcoa Fourth Quarter Income from Continuing Operations at $0.39; Up $486 Million
from Year-Ago Quarter; Full-Year Up 117 Percent Over 2002
Highlights:
-- $340 million of income from continuing operations for the fourth quarter
up from a loss of $146 million in the same quarter 2002
-- $1.034 billion, or $1.20 per diluted share, in income from continuing
operations for the full year - up 117 percent over 2002
-- $1.2 billion of debt reduction in 2003 with the company's
debt-to-capital ratio declining from 43.1 to 35.1 percent
-- The company surpasses its goal of $1 billion in annual cost savings
-- Every segment showed improved profitability over 2002
Alcoa (NYSE:AA) today reported fourth quarter income from continuing operations
of $340 million, or $0.39 per diluted share, up 21 percent from the previous
quarter's $282 million, $0.33 per share. The results were a substantial
improvement over the loss from continuing operations of $146 million, $0.17 per
share, in the fourth quarter of last year.
Net income in the fourth quarter was $291 million, up 4 percent from $280
million in the third quarter of 2003, and significantly improved from a loss of
$223 million in the fourth quarter of 2002.
The difference between net income and income from continuing operations in the
fourth quarter of 2003 is due primarily to an adjustment to the anticipated
proceeds from the sale of discontinued operations. Both measures are recognized
by Generally Accepted Accounting Principles.
For the full year, income from continuing operations was $1.034 billion, $1.20
per diluted share, the highest in three years. Net income was $938 million,
$1.08 per diluted share, a 123 percent improvement over 2002.
"Over the year, we improved productivity, managed capital, and worked every
lever in our control to offset cost increases for raw materials, energy,
benefits, and the impact of a weakened dollar," said Alain Belda, Chairman and
CEO of Alcoa. "The result was consistently improving profitability, a
considerably stronger balance sheet, and a company that is well positioned for
future growth as world markets continue to strengthen. That is what we promised
last year, and our team delivered."
Market Overview
For the full year, revenues increased 6 percent to $21.5 billion after
integration of newly acquired packaging and fastener businesses. "As global
demand for alumina and aluminum continues to increase, we expect to realize the
benefits of the improved market," said Belda.
In the fourth quarter of 2003, sales were $5.5 billion, increasing 9 percent
over 2002 and 4 percent over the third quarter. Sequentially, strong alumina
shipments and higher aluminum prices overcame slightly lower volumes in markets
that typically experience weakness in the fourth quarter: closures, can sheet,
and building and construction.
Solid Improvement of the Balance Sheet
"Aggressive capital controls, management of working capital, and the initial
benefits of a well-designed divestiture plan helped us retire more than $1.2
billion in debt over the year," said Belda. The company cut its debt-to-capital
ratio in 2003 from 43.1 to 35.1 percent, an improvement of 370 basis points from
the third quarter. In 2003, capital expenditures were $867 million, 32 percent
below last year's level of $1.27 billion.
The balance sheet will improve further in the first half of 2004 as the
divestiture program outlined last January is completed. To date, the company has
shed its Latin American PET business and an equity interest in Latasa, a South
American can producer. In the first quarter, the company expects to close on the
sale of its specialty chemicals, automotive fasteners, and packaging equipment
businesses. The total proceeds of the divestiture program should be in line with
the company's earlier estimates -- $750 million to $1 billion.
In addition, a strong return of 19.75 percent on the company's pension
investments essentially offset the impact of a 50 basis point decline in
discount rates. As a result, the company did not record a material charge for
minimum pension liability to its balance sheet in 2003.
Cost Savings and Management Actions
In the fourth quarter, the company surpassed its three-year $1 billion cost
savings goal, marking the second time in six years that the company has achieved
more than $1 billion in sustainable savings. That intense focus on profitability
was critical as the company faced considerably higher costs for energy, raw
materials, and benefits, as well as the impact of a weaker dollar on
manufacturing operations outside the U.S. this year.
In the fourth quarter alone, those costs increased by more than $150 million
before tax over the last quarter of 2002. Management actions that offset the
higher costs included:
-- Drove $12 million of new cost savings in the fourth quarter;
-- Reduced the company's fourth-quarter effective tax rate to 21 percent by
recognizing benefits from foreign net operating losses, offsetting
higher taxes from the Latasa sale;
-- Recognizing $105 million in pre-tax gains from insurance settlements of
a series of historical environmental matters in the U.S.; and
-- Achieved higher gross margins of 20.3 percent in 2003, up from 19.8 in
2002.
Together with higher metal prices, these management actions more than
compensated for higher costs in the quarter.
The company will announce a new set of long-term cost challenges at the 4th
quarter analyst workshop on January 22, 2004.
Positioning the Company for Future Growth
Despite tight capital restraint, Alcoa continued to make long-term investments
to improve its world-class position in alumina refining and smelting, and expand
other high-growth businesses. Through Alcoa World Alumina and Chemicals (AWAC),
Alcoa's global alliance with Alumina Ltd., the company moved forward this year
on its plan to add 1.1 million metric tons of annual capacity at its alumina
refineries in Jamaica, Suriname, and Western Australia.
Final approvals were granted for the company's new aluminum smelter in Iceland,
and the company signed an MOU for a stake in the low-cost Alba facility in
Bahrain. The company scaled back higher-cost production at its smelters in
Massena and Intalco, where higher energy costs had made the plants less
competitive.
Providing Solutions to Customers
Through disciplined deployment of the Alcoa Business System, Alcoa intensified
its focus on its customers in 2003. The company's Market Sector Lead Teams
developed a more coordinated approach to customers in all of Alcoa's major
markets. As a result, Alcoa was awarded significant new aerospace contracts,
working with Airbus toward launch of its landmark new A380; and continued its
expansion of new products such as Dura-Bright(R) wheels for the commercial
transportation market, new customized siding for the home construction market,
and Reynolds Wrap(R) Release(R) non-stick foil for the consumer.
In the automotive market, Alcoa collaborated with GM on its Cadillac 16 concept
car, with Ford on its new F-150 truck and Jaguar XJ, with Toyota on a
lightweight engine cradle for the Lexus RX330, with Ferrari on the 612
Scaglietti, and with Audi on its second-generation A8 sedan. The company also
announced plans to create a single automotive customer center in Detroit.
In the fourth quarter, Alcoa's AFL Automotive group announced that it is working
with Pacific Insights on a new contract to design and supply a hi-tech component
for new PACCAR and Peterbilt trucks. Alcoa Closure Systems International (CSI)
business developed a new closure for the dairy market that is easy to open and
offers improved tamper-proof capability.
Quarterly Analyst Workshop
Alcoa's quarterly analyst workshop will be at 4:00 p.m. EST on Thursday, January
22, 2004. The meeting will be web cast via alcoa.com. Call information and
related information will be available at www.alcoa.com under "Invest."
About Alcoa
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, closures, fastening systems,
precision castings, and electrical distribution systems for cars and trucks. The
company has 120,000 employees in 41 countries. More information can be found at
www.alcoa.com
Alcoa Business System
The Alcoa Business System is an integrated set of systems, tools and language
organized to encourage 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 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 in the forward-looking
statements. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include (a) the
company's inability to complete or to complete in the anticipated timeframe
pending divestitures, acquisitions or expansion projects or to realize the
projected amount of proceeds from divestitures, (b) the company's inability to
achieve the level of cost savings or productivity improvements anticipated by
management, (c) unexpected changes in global economic, business, competitive,
market and regulatory factors, and (d) the other risk factors summarized in
Alcoa's 2002 Form 10-K Report and other SEC reports.
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Quarter ended
December 31 December 31 September 30
2003 2002 (a) 2003 (a)
------------ ------------ ------------
Sales $ 5,532 $ 5,096 $ 5,335
Cost of goods sold 4,435 4,121 4,226
Selling, general
administrative and other
expenses 346 343 305
Research and development
expenses 47 59 47
Provision for depreciation,
depletion and amortization 312 297 295
Impairment of goodwill - 44 -
Special items (26) 386 1
Interest expense 71 97 75
Other income, net (139) (67) (42)
------------ ------------ ------------
5,046 5,280 4,907
Income (loss) from
continuing operations
before taxes on income 486 (184) 428
Provision (benefit) for
taxes on income 103 (36) 92
------------ ------------ ------------
Income (loss)from continuing
operations before minority
interests' share 383 (148) 336
Less: Minority interests'
share 43 (2) 54
------------ ------------ ------------
Income (loss) from
continuing operations 340 (146) 282
Loss from discontinued
operations (49) (77) (2)
Cumulative effect of
accounting change - - -
------------ ------------ ------------
NET INCOME (LOSS) $ 291 $ (223) $ 280
============ ============ ============
Earnings (loss) per common
share:
Basic:
Income (loss) from
continuing operations $ .39 $ (.17) $ .33
Loss from discontinued
operations (.06) (.09) -
Cumulative effect of
accounting change - - -
------------ ------------ ------------
Net income (loss) $ .33 $ (.26) $ .33
============ ============ ============
Diluted:
Income (loss) from
continuing operations $ .39 $ (.17) $ .33
Loss from discontinued
operations (.06) (.09) -
Cumulative effect of
accounting change - - -
------------ ------------ ------------
Net income (loss) $ .33 $ (.26) $ .33
============ ============ ============
Average number of shares
used to compute:
Basic earnings per common
share 866,243,592 844,456,673 855,477,116
Diluted earnings per
common share 871,969,592 844,456,673 859,375,461
Shipments of aluminum
products (metric tons) 1,320,000 1,325,000 1,262,000
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)
Twelve months ended
December 31 December 31
2003 2002 (a)
---------------- ----------------
Sales $ 21,504 $ 20,351
Cost of goods sold 17,138 16,327
Selling, general administrative
and other expenses 1,295 1,157
Research and development expenses 194 214
Provision for depreciation,
depletion and amortization 1,194 1,111
Impairment of goodwill - 44
Special items (26) 425
Interest expense 314 350
Other income, net (274) (179)
---------------- ----------------
19,835 19,449
Income from continuing operations
before taxes on income 1,669 902
Provision for taxes on income 404 291
---------------- ----------------
Income from continuing operations
before minority interests' share 1,265 611
Less: Minority interests' share 231 135
---------------- ----------------
Income from continuing operations 1,034 476
Loss from discontinued operations (49) (90)
Cumulative effect of accounting
change (47) 34
---------------- ----------------
NET INCOME $ 938 $ 420
================ ================
Earnings (loss) per common share:
Basic:
Income from continuing
operations $ 1.21 $ .56
Loss from discontinued
operations (.06) (.11)
Cumulative effect of
accounting change (.06) .04
---------------- ----------------
Net income $ 1.09 $ .49
================ ================
Diluted:
Income from continuing
operations $ 1.20 $ .56
Loss from discontinued
operations (.06) (.11)
Cumulative effect of
accounting change (.06) .04
---------------- ----------------
Net income $ 1.08 $ .49
================ ================
Average number of shares used to
compute:
Basic earnings per common share 853,352,313 845,438,913
Diluted earnings per common
share 856,586,189 849,848,984
Common stock outstanding at the
end of the period 868,490,686 844,819,462
Shipments of aluminum products
(metric tons) 5,047,000 5,236,000
(a) Prior periods have been adjusted to reflect the reclassification
of certain businesses between discontinued operations and continuing
operations in the third and fourth quarters of 2003.
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)
December 31 December 31
2003 2002(b)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 576 $ 344
Receivables from customers, less allowances:
$105 in 2003 and $124 in 2002 2,521 2,361
Other receivables 350 171
Inventories 2,524 2,414
Deferred income taxes 267 469
Prepaid expenses and other current assets 502 506
---------- ----------
Total current assets 6,740 6,265
---------- ----------
Properties, plants and equipment, at cost 24,797 22,818
Less: accumulated depreciation,
depletion and amortization 12,240 10,708
---------- ----------
Net properties, plants and equipment 12,557 12,110
---------- ----------
Goodwill 6,549 6,379
Other assets 5,316 4,438
Assets held for sale 549 618
---------- ----------
Total assets $ 31,711 $ 29,810
========== ==========
LIABILITIES
Current liabilities:
Short-term borrowings $ 56 $ 39
Accounts payable, trade 1,976 1,621
Accrued compensation and retirement costs 948 936
Taxes, including taxes on income 703 814
Other current liabilities 878 966
Long-term debt due within one year 523 83
---------- ----------
Total current liabilities 5,084 4,459
---------- ----------
Long-term debt,
less amount due within one year 6,692 8,366
Accrued postretirement benefits 2,220 2,319
Other noncurrent liabilities
and deferred credits 3,389 2,867
Deferred income taxes 804 520
Liabilities of operations held for sale 107 59
---------- ----------
Total liabilities 18,296 18,590
---------- ----------
MINORITY INTERESTS 1,340 1,293
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 55 55
Common stock 925 925
Additional capital 5,831 6,101
Retained earnings 7,850 7,428
Treasury stock, at cost (2,017) (2,828)
Accumulated other comprehensive loss (569) (1,754)
---------- ----------
Total shareholders' equity 12,075 9,927
---------- ----------
Total liabilities and equity $ 31,711 $ 29,810
========== ==========
(b) The prior period has been adjusted to reflect the reclassification
of certain businesses between discontinued operations and continuing
operations in the third and fourth quarters of 2003.
Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)
Consolidated
Third-Party
Revenues: 4Q02 2002 1Q03 2Q03 3Q03 4Q03 2003
------- ------- ------- ------ ------ ------ -------
Alumina and
Chemicals 430 1,743 449 491 526 536 2,002
Primary Metals 830 3,174 732 805 816 876 3,229
Flat-Rolled
Products 1,130 4,640 1,152 1,200 1,176 1,287 4,815
Engineered
Products (c) 1,161 5,150 1,390 1,455 1,369 1,375 5,589
Packaging and
Consumer (c) 845 2,838 749 836 812 818 3,215
Other 700 2,806 668 710 636 640 2,654
----------------- ------- ------- ------- ------ ------ ------ -------
Total 5,096 20,351 5,140 5,497 5,335 5,532 21,504
================= ======= ======= ======= ====== ====== ====== =======
Consolidated
Intersegment
Revenues: 4Q02 2002 1Q03 2Q03 3Q03 4Q03 2003
------- ------- ------- ------ ------ ------ -------
Alumina and
Chemicals 258 955 240 248 258 275 1,021
Primary Metals 619 2,655 840 690 740 828 3,098
Flat-Rolled
Products 14 68 20 15 17 14 66
Engineered
Products 8 34 9 5 5 5 24
Packaging and
Consumer - - - - - - -
Other - - - - - - -
----------------- ------- ------- ------- ------ ------ ------ -------
Total 899 3,712 1,109 958 1,020 1,122 4,209
================= ======= ======= ======= ====== ====== ====== =======
Consolidated
Third-Party
Shipments
(KMT's): 4Q02 2002 1Q03 2Q03 3Q03 4Q03 2003
------- ------- ------- ------ ------ ------ -------
Alumina and
Chemicals 1,926 7,486 1,794 1,939 1,982 1,956 7,671
Primary Metals 546 2,073 453 495 488 516 1,952
Flat-Rolled
Products 433 1,774 434 453 450 482 1,819
Engineered
Products (c) 208 919 223 221 222 213 879
Packaging and
Consumer 55 162 36 42 40 49 167
Other 83 308 52 56 62 60 230
----------------- ------- ------- ------- ------ ------ ------ -------
Total
Aluminum 1,325 5,236 1,198 1,267 1,262 1,320 5,047
================= ======= ======= ======= ====== ====== ====== =======
Average realized
price - Primary 0.66 0.66 0.69 0.68 0.71 0.73 0.70
================= ======= ======= ======= ====== ====== ====== =======
After-Tax
Operating Income
(ATOI): 4Q02 2002 1Q03 2Q03 3Q03 4Q03 2003
------- ------- ------- ------ ------ ------ -------
Alumina and
Chemicals 84 315 91 89 113 122 415
Primary Metals 157 650 166 162 163 166 657
Flat-Rolled
Products 47 220 53 56 59 53 221
Engineered
Products (c) (30) 105 29 46 47 33 155
Packaging and
Consumer (c) 64 197 53 57 52 52 214
Other (43) (9) 9 17 8 17 51
----------------- ------- ------- ------- ------ ------ ------ -------
Total 279 1,478 401 427 442 443 1,713
================= ======= ======= ======= ====== ====== ====== =======
Reconciliation of
ATOI to
consolidated net
income: (c) 4Q02 2002 1Q03 2Q03 3Q03 4Q03 2003
------- ------- ------- ------ ------ ------ -------
Total ATOI 279 1,478 401 427 442 443 1,713
Impact of
intersegment
profit
eliminations 3 (6) 7 (4) 2 4 9
Unallocated
amounts
(net of tax):
Interest
income 5 31 5 6 7 6 24
Interest
expense (62) (227) (57) (52) (49) (46) (204)
Minority
interests 2 (135) (59) (75) (54) (43) (231)
Corporate
expense (83) (234) (57) (81) (65) (84) (287)
Special items (279) (304) 4 (2) (1) 25 26
Discontinued
operations (77) (90) 3 (1) (2) (49) (49)
Accounting
change - 34 (47) - - - (47)
Other (11) (127) (49) (2) - 35 (16)
----------------- ------- ------- ------- ------ ------ ------ -------
Consolidated
net income (223) 420 151 216 280 291 938
================= ======= ======= ======= ====== ====== ====== =======
(c) Prior periods have been adjusted to reflect the reclassification
of certain businesses between discontinued operations and
continuing operations in the third and fourth quarters of 2003.
SUPPLEMENTAL FINANCIAL INFORMATION
Alcoa and subsidiaries
Net Income and EPS Information (unaudited)
(in millions, except per-share amounts)
Net Income Diluted EPS
--------------------- ----------------------
4Q03 3Q03 4Q02 4Q03 3Q03 4Q02
----------------------------------------------- ----------------------
GAAP Net income (loss) $ 291 $ 280 $(223) $0.33 $0.33 $(0.26)
Discontinued operations
- operating loss 4 2 18 - - -
Discontinued operations
- loss on divestitures 45 - 59 - - -
----------------------------------------------------------------------
GAAP Income (loss) from
continuing operations $ 340 $ 282 $(146) $0.39 $0.33 $(0.17)
----------------------------------------------------------------------
Special items (2):
Restructurings (4) 1 95 - - -
(Gain)loss on
divestitures (21) - 161 - - -
Goodwill impairment - - 20 - - -
----------------------------------------------------------------------
Income from continuing
operations excluding
charges for
restructurings
and divestitures and
goodwill impairment (1) $ 315 $ 283 $ 130 $0.36 $0.33 $0.16
======================================================================
Average diluted
shares outstanding 872 859 844
Net Income Diluted EPS
--------------------- ----------------------
2003 2002 2003 2002
----------------------------------------------- ----------------------
GAAP Net income $ 938 $ 420 $1.08 $0.49
Cumulative effect of
accounting change 47 (34) - -
Discontinued operations
- operating loss 4 31 - -
Discontinued operations
- loss on divestitures 45 59 - -
----------------------------------------------------------------------
GAAP Income from
continuing operations $1,034 $ 476 $1.20 $0.56
----------------------------------------------------------------------
Special items (2):
Restructurings (4) 118 - -
(Gain)loss on divestitures (21) 161 - -
Goodwill impairment - 20 - -
----------------------------------------------------------------------
Income from continuing
operations excluding
charges for
restructurings
and divestitures and
goodwill impairment (1) $1,009 $ 775 $1.17 $0.91
======================================================================
Average diluted shares
outstanding 857 850
(1) Alcoa believes that income from continuing operations excluding
charges for restructurings and divestitures and goodwill impairment is
a measure that should be presented in addition to income from
continuing operations determined in accordance with GAAP. The
following matters should be considered when evaluating this non-GAAP
financial measure:
-- Alcoa reviews the operating results of its businesses
excluding the impacts of restructurings and divestitures and
goodwill impairment. Excluding the impacts of these charges
can provide an additional basis of comparison. Management
believes that these charges are unusual in nature, and would
not be indicative of ongoing operating results. As a result,
management believes these charges should be considered in
order to compare past, current, and future periods.
-- The economic impacts of the restructuring and divestiture
charges are described in the footnotes to Alcoa's financial
statements. Generally speaking, charges associated with
restructurings include cash and non-cash charges and are the
result of employee layoff, plant consolidation of assets, or
plant closure costs. These actions are taken in order to
achieve a lower cost base for future operating results.
-- Charges associated with divestitures principally represent
adjustments to the carrying value of certain assets and
liabilities and do not typically require a cash payment. These
actions are taken primarily for strategic reasons as the
company has decided not to participate in this portion of the
portfolio of businesses.
-- Alcoa's growth over the last five years, and the onset of the
manufacturing recession led to the aforementioned charges in
2001 and 2002. Before the start of the recent manufacturing
recession, Alcoa last recorded charges associated with
restructuring and divestitures in 1997.
-- Restructuring and divestiture charges are typically material
and are considered to be outside the normal operations of a
business. Corporate management is responsible for making
decisions about restructurings and divestitures.
-- There can be no assurance that additional restructurings and
divestitures and goodwill impairment will not occur in future
periods. To compensate for this limitation, management
believes that it is appropriate to consider both income from
continuing operations determined under GAAP as well as income
from continuing operations excluding restructuring and
divestiture charges and goodwill impairment.
(2) Special items totaled $26 of income for the fourth quarter and
full year of 2003 before taxes and minority interests. The amount
principally represents net gains from assets held for sale including
the reversal of previously established reserves for businesses that
Alcoa decided to retain, and a realized gain on the sale of a
business, partially offset by adjustments to estimated proceeds for
ongoing sale activities. After taxes and minority interests, special
items amounted to income of $25 in the fourth quarter and full year of
2003.
CONTACT: Alcoa
Investor Contact: William F. Oplinger, 212-836-2674
Media Contact: Kevin G. Lowery, 412-553-1424
www.alcoa.com