01—Abstract
Summary
Summary of the 10-K filed February 27, 2004. Cited figures are marked; the original filing is the authoritative source.
Alcoa Inc., now Howmet Aerospace, reported 2003 sales of $21.50 billiona, up from $20.35 billion in 2002, and income from continuing operations of $1,034 million ($1.20 per diluted share), up from $476 million ($0.56 per share).
Net income was $938 millionb ($1.08 per diluted share), after a $47 million charge for the cumulative effect of adopting SFAS No. 143 and a $49 million loss from discontinued operations. Management attributed the improvement to higher realized alumina and aluminum prices, achievement of a three-year $1 billion cost savings goal, and a $105 million gain from insurance settlements of environmental matters. Total debt fell from $8.45 billion to $7.22 billion, and the debt-to-capital ratio improved from 43.1% to 35.1%.
Management set a new three-year goal of eliminating an additional $1.2 billionc in costs by the end of 2006, and expects to complete divestitures by mid-2004 with anticipated proceeds of $750 million to $850 million, to be used to repay debt. Capital expenditures were $867 million in 2003, with total capital expenditures anticipated at about $1.4 billion in 2004. Significant expansion projects, with total anticipated costs of about $4 billion through 2010, include alumina refinery expansions, a new smelter in Iceland, and projects in Bahrain, China, Canada and Brazil.
The filing also describes ongoing environmental and legal exposures, most notably the Grasse River PCB remediation at Massena, New York, where the reserve is $30 milliond against an alternative range of $2 million to $525 million. Other matters include the Hurricane Georges red dust class action in St. Croix and a Texas trichloroethylene groundwater suit. Total worldwide employment at year-end 2003 was 120,000.
02—Key points
Key Highlights
- Sales rose to $21.50 billion in 2003 from $20.35 billion in 2002, an increase of $1.15 billion, with acquisitions contributing $1.02 billion of the increase.
- Income from continuing operations was $1,034 million ($1.20 per diluted share), compared with $476 million ($0.56 per share) in 2002.
- Net income was $938 million ($1.08 per diluted share), including a $47 million charge from the cumulative effect of an accounting change and a $49 million loss from discontinued operations.
- Cash from operations was $2.43 billion, up 32%, helped by a $440 million advance payment on a long-term aluminum supply contract.
- Debt was reduced by more than $1 billion, lowering the debt-to-capital ratio from 43.1% to 35.1%; long-term debt was $6.69 billion at year-end.
- A new three-year cost savings goal targets an additional $1.2 billion in reductions by the end of 2006, and the divestiture plan is expected to be completed by mid-2004 with proceeds of $750 million to $850 million.
- Alcoa acquired the remaining 40.9% of Alcoa Aluminio from the Camargo Group in August 2003, issuing 17.8 million shares valued at about $410 million.
03—Questions
Frequently Asked Questions
What drove the improvement in earnings in 2003?
Income from continuing operations rose to $1,034 million from $476 million, as all segments increased profitability. The filing cites higher realized prices for alumina and aluminum, achievement of the three-year $1 billion cost savings goal, a $105 million gain from insurance settlements of historical U.S. environmental matters, and a lower effective tax rate of 24.2%. Partially offsetting these were higher energy, raw material and employee benefit costs and a weaker U.S. dollar.
How is the company managing its balance sheet and debt?
Alcoa repaid more than $1 billion of debt in 2003 and reduced its debt-to-capital ratio to 35.1% from 43.1%. Total debt was $7.22 billion at year-end. The company's long-term target is a 25% to 35% debt-to-capital ratio. Standard and Poor's lowered the company's long-term rating to A- from A during 2003, citing unfunded postretirement benefit obligations, while Moody's rated long-term debt A2.
What are the company's major capital spending plans?
Capital expenditures were $867 million in 2003 and are anticipated at about $1.4 billion in 2004. The company has announced expansion projects with total anticipated costs of about $4 billion through 2010, including alumina refinery expansions in Australia, Suriname and Jamaica, a 322,000 metric ton smelter in Iceland with production expected in 2007, and projects in Bahrain, China, Canada, Brazil and Rockdale, Texas.
What are the main environmental and legal risks disclosed?
The most significant environmental matter is the Grasse River PCB contamination at Massena, New York, where the remedial alternatives under consideration range from $2 million to $525 million, and the reserve is $30 million, representing the low end of the range. The company's total remediation reserve was $395 million at year-end 2003. Other pending matters include a class action in the U.S. Virgin Islands over red dust from Hurricane Georges and Texas groundwater litigation involving trichloroethylene. The filing states that management believes these matters will not have a materially adverse effect on the company's financial position.
04—Continue