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| January 8, 2003
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
PITTSBURGH--(BUSINESS WIRE)--Jan. 8, 2003--Alcoa Inc. (NYSE:AA)
today announced actions designed to accelerate its cost reduction
initiatives and further focus its business portfolio to increase
long-term earnings power. These fourth quarter actions include
significant restructuring 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 share, according to
Generally Accepted Accounting Principles.
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, and lingering weaknesses in key end markets.
Excluding one-time charges, income from continuing operations was
$133 million, or $0.16 per diluted share in the quarter (see attached
schedule). Included within income from continuing operations was
approximately $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 site
in New York. Through its Alcoa Business System, the company also
recorded a $40 million after-tax LIFO benefit by continuing to reduce
inventories and capturing the resulting savings.
"Global manufacturing weakness has persisted longer than we
anticipated," said Alain Belda, Alcoa Chairman and CEO. "In
particular, aerospace, industrial gas turbine and telecommunication
markets remained soft, reinforcing 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 system. The restructuring includes operations that
have experienced negligible growth, particularly in Europe and South
America. The after-tax charge includes costs for employee severance
and asset rationalization, 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 for aluminum and non-aluminum businesses, including the
ability to grow in excess of GDP or deliver superior returns in
sectors where Alcoa has a sustainable competitive advantage. As a
result of this review, Alcoa intends to divest 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, specialty packaging equipment,
architectural products in North America, commodity automotive
fasteners, certain fabricated operations in South America, a minority
equity stake in Latasa, and foil facilities in St. Louis, Missouri and
Russellville, Arkansas. 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.
"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 sectors, and grow in core markets," said
Belda. "These initiatives, in conjunction 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 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 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 pension obligation
exceeded the fair value of plan assets at year-end, 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 Fasteners with
approximately 8,000 employees. The company completed the year with
127,000 employees.
Quarterly Analyst Meeting
Alcoa's quarterly analyst meeting will be at 4:00 p.m. EDST on
Thursday, January 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, 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: 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 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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