FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1995 Commission File Number 1-3610
ALUMINUM COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0317820
(State of incorporation) (I.R.S. Employer Identification No.)
425 Sixth Avenue - Alcoa Building,
Pittsburgh, Pennsylvania 15219-1850
(Address of principal executive offices)(Zip Code)
Office of Investor Relations 412-553-3042
Office of the Secretary 412-553-4707
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of August 7, 1995, 178,494,892 shares of common
stock, par value $1.00, of the Registrant were outstanding.
-1-
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Alcoa and subsidiaries
Consolidated Balance Sheet
(in millions)
(unaudited)
June 30, December 31
ASSETS 1995 1994
---------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (includes cash of $88.2 in
1995 and $177.5 in 1994) $ 700.6 $ 619.2
Short-term investments 6.5 5.5
Accounts receivable from customers, less allowances:
1995-$42.4; 1994-$37.4 1,638.1 1,440.6
Receivable from Western Mining Corporation (WMC), net - 366.9
Other receivables 275.3 182.5
Inventories (b) 1,499.1 1,144.2
Deferred income taxes 386.0 235.6
Prepaid expenses and other current assets 189.4 158.7
--------- ---------
Total current assets 4,695.0 4,153.2
Properties, plants and equipment, at cost 14,658.8 14,502.3
Less, accumulated depreciation, depletion and
amortization 8,045.9 7,812.9
--------- ---------
Net properties, plants and equipment 6,612.9 6,689.4
--------- ---------
Other assets 1,569.1 1,510.6
--------- ---------
Total assets $12,877.0 $12,353.2
========= =========
LIABILITIES
Current liabilities:
Short-term borrowings $ 304.4 $ 261.9
Accounts payable, trade 758.7 739.3
Accrued compensation and retirement costs 354.6 363.9
Taxes, including taxes on income 355.4 393.0
Provision for layoffs and impairments 57.8 84.4
Other current liabilities 330.3 557.0
Long-term debt due within one year 120.9 154.0
--------- ---------
Total current liabilities 2,282.1 2,553.5
--------- ---------
Long-term debt, less amount due within one year 1,043.6 1,029.8
Accrued postretirement benefits 1,839.6 1,850.5
Other noncurrent liabilities and deferred credits 1,595.1 1,011.8
Deferred income taxes 269.4 220.6
--------- ---------
Total liabilities 7,029.8 6,666.2
--------- ---------
MINORITY INTERESTS 1,581.8 1,687.8
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock 55.8 55.8
Common stock 178.9 178.7
Additional capital 673.1 663.5
Translation adjustment (91.2) (68.6)
Retained earnings 3,493.8 3,173.9
Unfunded pension obligation (3.6) (4.0)
Treasury stock, at cost (41.4) (.1)
--------- ---------
Total shareholders' equity 4,265.4 3,999.2
--------- ---------
Total liabilities and shareholders' equity $12,877.0 $12,353.2
========= =========
(see accompanying notes)
</TABLE>
-2-
<TABLE>
<CAPTION>
Alcoa and subsidiaries
Statement of Consolidated Income (unaudited)
(in millions, except per share amounts)
Second quarter Six months
ended ended
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $3,117.3 $2,479.3 $6,127.1 $4,700.9
Other income 37.9 11.3 57.6 18.8
------- ------- ------- -------
3,155.2 2,490.6 6,184.7 4,719.7
------- ------- ------- -------
COSTS AND EXPENSES
Cost of goods sold and operating expenses 2,312.9 1,977.3 4,491.7 3,725.2
Selling, general administrative and other
expenses 169.5 157.5 337.3 297.7
Research and development expenses 32.1 29.4 64.1 61.1
Provision for depreciation, depletion and
amortization 172.9 159.5 343.6 332.9
Interest expense 26.0 27.5 50.9 53.0
Taxes other than payroll and severance
taxes 33.1 22.0 66.1 50.4
Special items (c) - - - 79.7
------- ------- ------- -------
2,746.5 2,373.2 5,353.7 4,600.0
------- ------- ------- -------
EARNINGS
Income before taxes on income 408.7 117.4 831.0 119.7
Provision for taxes on income (d) 126.3 38.7 269.6 39.5
------- ------- ------- -------
Income from operations 282.4 78.7 561.4 80.2
Less: Minority interests' share (63.0) (33.3) (148.2) (75.2)
------- ------- ------- -------
Income before extraordinary loss 219.4 45.4 413.2 5.0
Extraordinary loss on debt prepayment,
net of $40.4 tax benefit (e) - - - (67.9)
------- ------- ------- -------
NET INCOME (LOSS) $ 219.4 $ 45.4 $ 413.2 $ (62.9)
======= ======= ======= =======
Earnings per common share: (f)
Before extraordinary loss $ 1.23 $ .25 $ 2.31 $ .02
Extraordinary loss - - - (.38)
------- ------- ------- -------
Earnings per common share $ 1.23 $ .25 $ 2.31 $ (.36)
Dividends paid per common share $ .225 $ .20 $ .45 $ .40
======= ======= ======= =======
(see accompanying notes)
</TABLE>
-3-
<TABLE>
<CAPTION>
Alcoa and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
Six months ended
June 30
-------
1995 1994
--------- ---------
<S> <C> <C>
CASH FROM OPERATIONS
Net income (loss) $ 413.4 $ (62.9)
Adjustments to reconcile net income (loss) to cash from
operations:
Depreciation, depletion and amortization 352.2 340.9
Reduction of assets to net realizable value - 32.8
Change in deferred income taxes (35.6) (127.3)
Equity income before additional taxes, net of dividends (18.4) (5.8)
Provision for special items - 46.9
Gains from financing and investing activities (1.5) (1.9)
Book value of asset disposals 7.6 6.6
Extraordinary loss - 67.9
Minority interests 148.2 75.2
Other 12.6 21.6
Increase in receivables (188.5) (153.8)
(Increase) reduction in inventories (376.6) 54.6
(Increase) reduction in prepaid expenses and other (33.1) 103.3
current assets
Increase (reduction) in accounts payable and accrued (229.0) 50.2
expenses
Reduction in taxes, including taxes on income (28.9) (6.1)
Payment of amortized interest on deep discount bonds - (8.6)
Net change in noncurrent assets and liabilities 491.6 32.5
------- -------
CASH FROM OPERATIONS 514.0 466.1
------- -------
FINANCING ACTIVITIES
Net changes in short-term borrowings 44.0 (75.0)
Common stock issued and treasury stock sold 30.5 29.2
Repurchase of common stock (74.0) -
Dividends paid to shareholders (81.4) (71.5)
Dividends paid to minority interests (55.2) (68.9)
Additions to long-term debt 75.5 414.2
Payments on long-term debt (95.5) (637.7)
------- -------
CASH USED FOR FINANCING ACTIVITIES (156.1) (409.7)
------- -------
INVESTING ACTIVITIES
Capital expenditures (340.3) (257.8)
Additions to investments (7.1) (1.3)
Net change in short-term investments (1.0) 153.0
Changes in minority interests (151.3) (91.3)
Loan to WMC (121.8) -
Net proceeds from Alcoa/WMC transaction 366.9 -
Other - receipts 3.9 3.0
- payments (18.3) (16.6)
------- -------
CASH USED FOR INVESTING ACTIVITIES (269.0) (211.0)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7.5) 14.4
------- -------
CHANGES IN CASH
Net change in cash and cash equivalents 81.4 (140.2)
Cash and cash equivalents at beginning of year 619.2 411.7
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 700.6 $ 271.5
======= =======
(see accompanying notes)
</TABLE>
-4-
Notes to Consolidated Financial Statements
(in millions, except share amounts)
Notes:
(a) Summarized consolidated financial data for Alcoa
Aluminio S.A. (Aluminio) and Alcoa of Australia
Limited (AofA) begin on page 14.
(b) Inventories consisted of:
June 30 December 31
1995 1994
----------- -------------
Finished goods $ 328.6 $ 249.6
Work in process 584.8 456.1
Bauxite and alumina 242.8 195.2
Purchased raw materials 226.0 131.0
Operating supplies 116.9 112.3
------- -------
$1,499.1 $1,144.2
Approximately 54.4% of total inventories at June 30,
1995 was valued on a LIFO basis. If valued on an
average cost basis, total inventories would have been
$757.5 and $691.9 higher at June 30, 1995 and
December 31, 1994, respectively.
(c) The special charge of $79.7 in the 1994 six-month period
was for closing part of a forgings and extrusion plant
in Vernon, California. The charge included $32.8 for
asset write-offs and $46.9 related mostly to severance
costs.
(d) The income tax provision for the period is based on the
effective tax rate expected to be applicable for the
full year. The difference between the 1995 estimated
effective tax rate of 32.5% and the U.S. statutory rate
of 35% is primarily due to lower taxes on income earned
outside the U.S.
(e) The extraordinary loss in the 1994 six-month period of
$67.9, or 38 cents per common share, resulted from the
early redemption of $225 face value of 7% deep discount
debentures due 2011.
(f) The following formula is used to compute primary
earnings per common share (EPS):
EPS = Net income - preferred dividend requirements
--------------------------------------------
Weighted average number of common shares
outstanding for the period
The average number of shares used to compute primary
earnings per common share was 178,424,528 in 1995 and
177,414,490 in 1994. Fully diluted earnings per
common share are not stated since the dilution is not
material.
Per share amounts for 1994 have been restated to
reflect the two-for-one stock split which occurred
in February, 1995.
-5-
------------------------
In the opinion of the company, the financial statements
and summarized financial data in this Form 10-Q report
include all adjustments, including those of a normal
recurring nature, necessary to fairly state the results
for the periods. This Form 10-Q report should be read
in conjunction with the company's annual report on Form
10-K for the year ended December 31, 1994.
The financial data required in this Form 10-Q by Rule
10-01 of Regulation S-X have been reviewed by Coopers &
Lybrand L.L.P., the company's independent certified
public accountants, as described in their report on
page 7.
-6-
Independent Auditor's Review Report
To the Shareholders and Board of Directors
Aluminum Company of America (Alcoa)
We have reviewed the unaudited consolidated balance
sheet of Alcoa and subsidiaries as of June 30, 1995, the
unaudited statements of consolidated income for the three-
month and six-month periods ended June 30, 1995 and 1994,
and consolidated cash flows for the six-month periods
ended June 30, 1995 and 1994, which are included in
Alcoa's Form 10-Q for the period ended June 30, 1995.
These financial statements are the responsibility of
Alcoa's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of Alcoa and subsidiaries as of December 31,
1994, and the related statements of consolidated income,
shareholders' equity, and cash flows for the year then
ended (not presented herein). In our report dated
January 11, 1995, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1994 is
fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been
derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
July 7, 1995
-7-
<TABLE>
<CAPTION>
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
(dollars in millions, except share amounts)
Results of Operations
Principal income and operating data follow.
Second quarter ended Six months ended
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and operating revenues $3,117.3 $2,479.3 $6,127.1 $4,700.9
Income before extraordinary loss 219.4 45.4 413.2 5.0
Net income (loss) 219.4 45.4 413.2 (62.9)
Earnings (loss) per common share
Before extraordinary loss 1.23 .25 2.31 .02
Net income (loss) 1.23 .25 2.31 (.36)
Shipments of aluminum products (1) 627 661 1,281 1,261
__________________________
<FN>
(1) in thousands of metric tons (mt)
</TABLE>
Overview
Alcoa earned $219.4, or $1.23 per common share, for the
second quarter of 1995. For the comparable 1994 quarter,
earnings were $45.4, or 25 cents per share. For the first
half of 1995, earnings were $413.2 million, or $2.31 per
share, compared with $55.0 million or 30 cents per share
before after-tax charges for the 1994 period. After the
charges, the company reported a loss of $62.9 million or
36 cents per share for the 1994 period.
The two charges included in the 1994 first half were: a
special charge of $50.0 ($79.7 pretax), or 28 cents per
share, for closing part of a forgings and extrusion plant
in Vernon, California; and an extraordinary loss of $67.9,
or 38 cents per share, for the early redemption of 7%
debentures due 2011 that carried an effective interest rate
of 14.7%.
AofA's pretax income from operations for the 1995 second
quarter and year-to-date periods increased $27.6 and $62.3,
respectively, from the comparable 1994 periods. The increase
was primarily due to higher shipments and prices for ingot
and flat-rolled products along with higher prices for alumina
and higher shipments of chemical products.
In Brazil, Aluminio's second quarter 1995 pretax income from
operations was $42.6, an increase of $26.4 from the 1994
second quarter. Year-to-date, pretax income was $102.2, up
$74.8 from the 1994 period. Revenues grew 41% and 58%,
respectively, from the 1994 periods. This was largely due
to higher prices for ingot and fabricated products along with
continued strong growth in Aluminio's plastic closures
business.
-8-
Alumina and Chemicals Segment
Total revenues for the Alumina and Chemicals segment were
$410 in the 1995 second quarter, up 14% from the comparable
1994 quarter. Year-to-date, revenues increased 12% from the
1994 period to $809.
Alumina revenues for the 1995 second quarter and year-to-date
periods increased 4% and 3% from the comparable 1994 periods.
Alumina shipments for the 1995 quarter and six-month periods
were 7% and 8% lower than those for the respective 1994
periods. Alumina prices in the respective periods increased
approximately 12% from 1994 levels.
Chemicals revenues continued their strong recent performance,
posting a 34% and 32% increase from the 1994 quarter and
year-to-date periods. The increase is due to higher growth
in shipments, particularly in Europe.
In December 1994, Alcoa and Western Mining Corporation Limited
(WMC) entered into a transaction to combine ownership of their
respective worldwide bauxite, alumina and inorganic chemicals
businesses into a group of companies (the Enterprise) owned
60% by Alcoa and 40% by WMC. As part of the agreement, Alcoa
acquired an additional 9% interest in AofA, bringing its
total interest to 60%. During the 1995 second quarter, the
Enterprise produced 2,493 mt of alumina. Of this amount,
1,539 was shipped to third-party customers.
<TABLE>
<CAPTION>
Aluminum Processing Segment
Second quarter ended Six months ended
June 30 June 30
------- -------
Product classes 1995 1994 1995 1994
--------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Shipments (000 metric tons)
Flat-rolled products 356 354 730 675
Aluminum ingot 142 178 282 345
Engineered products 111 114 236 206
Other aluminum products 18 15 33 35
------ ------ ------ ------
Total 627 661 1,281 1,261
Revenues
Flat-rolled products $1,129 $ 815 $2,209 $1,539
Aluminum ingot 245 233 502 444
Engineered products 585 459 1,183 848
Other aluminum products 101 119 181 224
------ ------ ------ ------
Total $2,060 $1,626 $4,075 $3,055
</TABLE>
Flat-rolled products - The majority of revenues and shipments
for flat-rolled products are derived from rigid container
sheet (RCS). Shipments of RCS in the 1995 quarter were flat
compared with the 1994 second quarter, as canmakers worked
off excess inventory. Year-to-date, shipments were up 10%.
Revenues from RCS increased 39% and 51%, respectively, from
the 1994 second quarter and six-month periods, reflecting a
38% increase in prices from the 1994 six-month period.
Sheet and plate shipments in the 1995 second quarter were
flat compared with the 1994 quarter, while year-to-date ship-
ments increased 9% from 1994 levels. Prices were up 29% and
21% from the 1994 quarter and year-to-date periods,
resulting in a 30% increase in revenues for both periods.
Revenues from other flat-rolled products, including sheet
and foil used in a variety of applications, were 6% higher
than the 1994 first half as prices rose 43%.
-9-
Aluminum ingot - Ingot shipments for the 1995 second quarter
and six-month periods fell 20% and 18%, respectively, from
those in the comparable 1994 periods. The declines reflect
the lower production levels brought about due to previously
idled capacity. Realized prices in 1995 increased 31% and
38%, respectively, from the 1994 second quarter and year-to-
date periods. These factors resulted in a 5% increase in
revenues from the 1994 second quarter and 13% from the 1994
year-to-date period.
Engineered products - These products include extrusions used
in the transportation and construction markets; aluminum
forgings and wheels; wire, rod and bar; and automobile
bumpers. Revenues from the sale of engineered products
increased 27% in the 1995 second quarter while shipments
declined 3%. Average prices rose by 31% from the 1994
quarter. Year-to-date, revenues and shipments were up 39%
and 15%, respectively.
Revenues for extruded products improved 44% and 56% from
the 1994 second quarter and six-month periods. Prices were
up approximately 28% in both periods while shipments
increased 12% and 24%, respectively. The increases reflect
strengthening in the hard-alloy market as the aerospace
industry begins to experience a turnaround.
Shipments of building products declined 19% from the 1994
second quarter but were up 9% from the 1994 six-month
period. Prices increased 13% and 8%, respectively, from
the 1994 second quarter and year-to-date periods. Revenues
for the 1995 second quarter were down 9% from the 1994
quarter but were up 17% from the 1994 six-month period.
The second quarter decline can be attributed to a generally
weak construction market, due in part to the effect of
higher interest rates in 1994 and early 1995.
Other aluminum products - Shipments of other aluminum
products during the 1995 six-month period were 6% less than
those in 1994. Lower aluminum closures volumes, partially
offset by higher scrap prices, resulted in a 19% decrease in
revenues for the six-month period.
Non-Aluminum Segment
Revenues for the Non-Aluminum segment were $647 in the 1995
second quarter, up 31% from the 1994 quarter. The increase
was due to higher sales at Alcoa Fujikura Ltd. (AFL), a
producer of automotive electrical system components. Also,
sales of plastic closures showed strong growth over the 1994
second quarter, particularly in Brazil. Year-to-date,
revenues for this segment were $1,243, a 35% increase from
the 1994 period.
Cost of Goods Sold
Cost of goods sold increased $335.6, or 17% from the 1994
second quarter. Year-to-date, the increase was $766.5, or
21%. The increases reflect higher costs for purchased metal
and raw materials and increased volume. These were partly
offset by improved cost performance. Cost of goods sold as
a percentage of revenues was 73.3% or 5.9 points lower than
in the 1994 period. The lower ratio is primarily due to
higher prices for all aluminum products.
Other Income & Expenses
Other income was up $26.6 and $38.8 from the year-ago quarter
and six-month periods. The primary causes were increased
equity and interest income partially offset by unfavorable
mark-to-market metal trading losses during the 1995 periods.
Equity income for the 1995 second quarter increased $17 from
the 1994 period due to continued strong results at Norsk
Alcoa. With more funds available for investment, interest
income increased $14 and $18 from the 1994 second quarter
and six-month periods. Losses from mark-to-market metal
trading activities increased $7 and $21 in the 1995 quarter
and year-to-date periods.
-10-
Selling, general and administrative expenses increased $12
and $40, from the year-ago quarter and six-month periods
due to higher salary and benefits expenses, particularly at
Aluminio. Higher sales commissions also contributed to the
increases.
Research and development expenses increased $2.7 and $3.0
from the year-ago quarter and six-month periods largely
because of increased research at AofA.
Interest expense was down $1.5 from the 1994 second quarter
and $2.1 year-to-date, primarily due to lower borrowings by
Aluminio and lower short-term interest rates.
The estimated effective tax rate for 1995 is 32.5%. The
difference between this rate and the U.S. statutory rate
of 35% is primarily due to taxes on income outside of the
U.S.
In May 1995, the Australian government passed legislation
to increase Australia's corporate income tax rate from 33%
to 36%, retroactive to the beginning of the year. The
legislation is expected to be enacted during the third
quarter. AofA's results, in the period in which the legis-
lation will be enacted, will be negatively affected by an
adjustment of approximately $22 to its deferred taxes and
to the extent its year-to-date taxes on earnings are
adjusted for the higher rate.
Minority interests' share of income from operations
increased 89% from the 1994 second quarter and 97% year-
to-date, primarily reflecting higher earnings by AofA,
Aluminio and Alcoa Kofem.
Commodity Risks
Alcoa is a leading global producer of aluminum ingot and
fabricated products. Aluminum ingot is an internationally
priced, sourced and traded commodity. The principal trading
market for ingot is the London Metal Exchange (LME). Alcoa
participates in this market by buying and selling forward
portions of its aluminum requirements and output.
In 1994, the company had entered into longer-term contracts
with a variety of customers in the U.S. for the supply of
approximately 1.5 million mt of aluminum products over the
next several years. As a hedge against the economic risk
associated with these contracts, Alcoa entered into long
positions using principally futures and options contracts.
At December 31, 1994 these contracts totaled approximately
1.4 million mt. At June 30, 1995, such contracts totaled
1.3 million mt. These contracts limit the unfavorable
effect of price increases on metal purchases and likewise
limit the favorable effect from price declines. The
futures and options contracts are with creditworthy
counterparties and are further supported by cash, treasury
bills, or irrevocable letters of credit issued by carefully
chosen banks, as appropriate.
In addition, Alcoa had 14,000 mt of LME contracts out-
standing at year-end 1994 that cover fixed-price commitments
to supply customers with metal from internal sources. At
June 30, 1995, such contracts totaled 112,000 mt.
Accounting convention requires that these contracts be
marked-to-market.
Alcoa purchases other commodities, such as natural gas and
copper, for its operations and enters into forward contracts
to eliminate volatility in the prices of such products.
None of these contracts are material.
-11-
Environmental Matters
Alcoa continues to participate in environmental assessments
and cleanups at a number of locations, including operating
facilities and their adjoining property; at previously owned
or operated facilities; and at Superfund and other waste
sites. Alcoa records a liability for environmental
remediation costs and/or damages when a cleanup program or
liability becomes probable and the costs/damages can be
reasonably estimated.
As assessments and cleanups proceed, these liabilities are
adjusted based on progress in determining the extent of
remedial actions and the related costs and damages. The
liability can change substantially due to factors such as the
nature or extent of contamination, changes in remedial
requirements and technological improvements.
For example, there are certain matters, including several
related to alleged natural resource damage or alleged off-
site contaminated sediments, where investigations are
ongoing. It is not possible to determine the outcomes or to
estimate with any degree of certainty the ranges of potential
costs for these matters.
Alcoa's remediation reserve balance at the end of the 1995
second quarter was $339 and reflects Alcoa's most probable
cost to remediate identified environmental conditions for
which costs can be reasonably estimated. About a third of
the reserve relates to Alcoa's Massena, N.Y. plant site.
Remediation expenditures charged to the reserve for the 1995
six-month period were $24. Expenditures include those
currently mandated as well as those not required by any
regulatory authority or third party.
Included in ongoing operating expenses are the recurring
costs of managing hazardous substances and pollution. Alcoa
estimates that these costs will be about 2% of cost of goods
sold in 1995.
Liquidity and Capital Resources
Cash from Operations
Cash from operations during the 1995 six-month period was
$514, $48 higher than in the 1994 period. The higher cash
was generated primarily by improved earnings, partly offset
by increases in working capital. Working capital was nega-
tively affected by increases in receivables and inventory
brought about by a higher level of operations, which was
partially offset by an increase in noncurrent liabilities.
The increase in noncurrent liabilities is partially due to
cash received from the settlement of metal trading activity.
The gains and losses associated with these metal contracts
are reflected in earnings concurrently with the hedged
revenues or costs.
Financing Activities
Financing activities used $156 of cash during the first six
months of 1995. This included $74 to repurchase 1,751,400
shares of the company's common stock. Stock purchases were
partially offset by $31 of common stock issued, primarily
for employee benefit plans.
Dividends paid to shareholders were $81 in the 1995 year-
to-date period, an increase of $10 from 1994 as Alcoa
increased its quarterly dividend from 20 cents to 22.5 cents
per share. Dividends paid to minority interests totaled $55.
Additional borrowings net of debt payments generated $24.
-12-
Investing Activities
Capital expenditures for the 1995 period were $340, up from
$258 in the 1994 period. Capital expenditures were mostly
for sustaining operations. Alcoa continues to focus on
improving its manufacturing processes with a minimum of
capital spending. As a result of the formation of a world-
wide bauxite, alumina and alumina-based chemicals business,
WMC paid Alcoa a net amount of $367 in January 1995. Alcoa
in turn loaned WMC $122 in January 1995. The loan is due on
demand and carries an interest rate of LIBOR plus 10 basis
points. The $151 reduction in minority interests relates
primarily to the redemption of all of the outstanding
preferred stock of Alcoa International Holdings Company.
Subsequent Event
On July 1, 1995, AFL acquired the operations of Electro-Wire
Products, Inc. AFL and Electro-Wire Products manufacture
electrical distribution systems (EDS) for autos, trucks and
farm equipment. Combining these two businesses will create a
worldwide enterprise that will have annual revenues of
approximately $1.35 billion, including equity companies, and
will be the largest supplier of EDS to Ford Motor Company's
worldwide operations. The combined enterprise will also be
the largest supplier of EDS to the heavy truck industry.
AFL, owned 51% by Alcoa and 49% by Fujikura Ltd, is based in
Brentwood, TN.
AFL financed the acquisition by entering into a $450 syndi-
cated bank facility comprised of a $300, seven year term
loan and a $150, seven year revolving credit facility. As
of July 3, 1995, AFL had borrowed $300 against the term loan
and $35 against the revolving credit facility. The funds
were used to finance the acquisition as well as refinance
existing debt. The term loan carries an initial interest
rate of 6.56%.
In July, Alcoa Alumina & Chemicals, L.L.C., owned 60 percent
by Alcoa and 40 percent by WMC, acquired substantially all
of the assets of the Virgin Islands Alumina Corporation
(Vialco), a subsidiary of Glencore International AG. The
assets consist of the alumina refinery located on St. Croix,
U.S. Virgin Islands. The refinery has an operating capacity
of 600,000 mt per year and has been idled since late 1994
due to economic conditions. Alcoa has formed a new subsi-
diary, St. Croix Alumina, L.L.C., to own the refinery.
-13-
Alcoa and subsidiaries
Summarized consolidated financial data for Aluminio, a
Brazilian subsidiary effectively owned 59% by Alcoa, follow.
<TABLE>
<CAPTION>
(unaudited)
June 30 December 31
------- -----------
1995 1994
---- ----
<S> <C> <C>
Cash and short-term investments $ 140.8 $ 34.5
Other current assets 328.0 376.4
Properties, plants and equipment, net (1) 807.4 929.0
Other assets 147.2 161.8
------- -------
Total assets 1,423.4 1,501.7
------- -------
Current liabilities 380.9 415.2
Long-term debt (2) 187.4 222.2
Other liabilities 32.6 33.3
------- -------
Total liabilities 600.9 670.7
------- -------
Net assets $ 822.5 $ 831.0
======= =======
(unaudited) (unaudited)
Second quarter ended Six months ended
June 30 June 30
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 280.3 $ 198.8 $ 593.5 $ 375.0
Costs and expenses (238.2) (173.9) (494.6) (332.3)
Translation and exchange adjustments .5 (8.7) 3.3 (15.3)
Income tax (expense) benefit (4.7) (1.5) (12.2) (2.5)
------ ------ ------ ------
Net income $ 37.9 $ 14.7 $ 90.0 $ 24.9
====== ====== ====== ======
Alcoa's share of net income $ 22.4 $ 8.7 $ 53.1 $ 14.7
====== ====== ====== ======
<FN>
(1) Effective January 1, 1995, the portion of Aluminio's operations included
in the WMC transaction were transferred to a new Alcoa subsidiary which is
not included in Aluminio's consolidated financials. Likewise, Aluminio's
closure operations outside of Brazil were transferred to another Alcoa
subsidiary effective March 1, 1995.
(2) Held by Alcoa Brazil Holdings Company - $22.5
</TABLE>
-14-
Alcoa and subsidiaries
Summarized consolidated financial data for AofA, an Australian
subsidiary, follow. At January 1, 1995, Alcoa's ownership
interest in AofA increased from 51% to 60%.
<TABLE>
<CAPTION>
(unaudited)
June 30 December 31
------- -----------
1995 1994
---- ----
<S> <C> <C>
Cash and short-term investments $ 52.9 $ 88.2
Other current assets 505.3 484.9
Properties, plants and equipment, net 1,497.7 1,645.3
Other assets 99.5 102.5
------- -------
Total assets 2,155.4 2,320.9
------- -------
Current liabilities 269.9 317.9
Long-term debt 168.9 150.2
Other liabilities 362.5 382.6
------- -------
Total liabilities 801.3 850.7
------- -------
Net assets $ 1,354.1 $ 1,470.2
======= =======
(unaudited) (unaudited)
Second quarter ended Six months ended
June 30 June 30
---------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (1) $ 403.7 $ 349.4 $ 832.5 $ 710.2
Costs and expenses (324.1) (298.5) (632.9) (574.9)
Translation and exchange adjustments - 1.1 - 2.0
Income tax (expense) benefit (25.5) (16.0) (63.9) (44.2)
------ ------ ------ ------
Net income $ 54.1 $ 36.0 $ 135.7 $ 93.1
====== ====== ====== ======
Alcoa's share of net income $ 32.5 $ 18.4 $ 81.4 $ 47.5
====== ====== ====== ======
<FN>
(1) Revenues from Alcoa and its subsidiaries, the terms of which were
established by negotiations between the parties, follow.
Second quarter ended June 30: 1995 - $15.1, 1994 - $5.7
Six months ended June 30: 1995 - $24.7, 1994 - $13.7
</TABLE>
-15-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported, on March 27, 1995, the United States
Department of Justice (DOJ) issued a Civil Investigative
Demand requesting information regarding pricing policies on
aluminum rigid container sheet in 1994 and 1995. Alcoa
complied with the document request and provided interroga-
tory answers on June 1, 1995.
On June 13, 1995, the company was served with a class action
complaint in the matter of John P. Cooper, et al. v. Aluminum
Company of America, Case Number 3-95-CV-10074, pending in the
United States District Court for the Southern District of
Iowa. The named plaintiffs allege violation of federal and
state civil rights laws prohibiting discrimination on the
basis of race and gender. Plaintiffs seek class action
status for five classes of employees or prospective employees
of Alcoa at its Davenport, Iowa facility. Plaintiffs seek a
permanent injunction against allegedly discrimnatory
practices, restitution of claimed benefits and income, and
unspecified compensatory and punitive damages, Alcoa has not
yet answered or otherwise responded to the allegations in
the Complaint; however, the company denies any alleged
violation of federal or state law and intends to defend
against plaintiffs'claims.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of Alcoa shareholders held on May 12,
1995, Sir Arvi Parbo, Henry B. Schacht, Forrest N. Shumway
and Franklin A. Thomas were reelected to serve for three-
year terms as directors of Alcoa. Sir Ronald Hampel was
elected to serve for a one-year term as a director. Votes
cast for Sir Arvi Parbo were 153,573,559 and votes withheld
were 768,515; votes cast for Mr. Schacht were 153,632,599
and votes withheld were 709,475; votes cast for Mr. Shumway
were 153,598,240 and votes withheld were 743,834; votes cast
for Mr. Thomas were 153,581,668 and votes withheld were
760,406; and votes cast for Sir Ronald Hampel were
153,625,520 and votes withheld were 716,554.
Also at that annual meeting, a proposal to approve amendments
to Alcoa's Long Term Stock Incentive Plan was adopted. Total
votes cast for the proposal were 135,905,964 and votes cast
against were 17,222,909. There were 1,213,201 abstentions.
Additionally, a proposal submitted by a shareholder regarding
certain charitable contributions by Alcoa was defeated.
Total votes cast for the shareholder proposal were 4,664,983
and votes cast against were 128,832,166. Abstentions and
broker nonvotes totaled 12,776,973 and 806,795, respectively.
Abstentions and broker nonvotes, however, are not counted for
voting purposes under Pennsylvania law, the jurisdiction of
Alcoa's incorporation.
The company's definitive proxy statement, dated March 14,
1995, and filed with the Securities and Exchange Commission
contains, on pages 17-18, a description of the proposal to
amend Alcoa's Long Term Stock Incentive Plan, and, on
page 18, a description of the proposal regarding certain
charitable contributions by Alcoa, which are incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11. Computation of Earnings per Common Share
12. Computation of Ratio of Earnings to Fixed Charges
15. Independent Accountants' letter regarding
unaudited financial information
27. Financial Data Schedule
(b) No reports on Form 8-K were filed by Alcoa during the
quarter covered by this report.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
ALUMINUM COMPANY OF AMERICA
August 7, 1995 By /s/ JAN H. M. HOMMEN
Date Jan H. M. Hommen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 7, 1995 By /s/ EARNEST J. EDWARDS
Date Earnest J. Edwards
Vice President and Controller
(Chief Accounting Officer)
-17-
EXHIBITS
Page
11. Computation of Earnings per Common Share 19
12. Computation of Ratio of Earnings to Fixed Charges 20
15. Independent Accountants' letter regarding unaudited 21
financial information
27. Financial Data Schedule
-18-
Alcoa and subsidiaries EXHIBIT 11
<TABLE>
<CAPTION>
Computation of Earnings (Loss) per Common Share
For the six months ended June 30
(in millions, except share amounts)
1995 1994
---------- ----------
<S> <C> <C>
1. Income (loss) applicable to common stock
before extraordinary loss * $412.2 $4.0
2. Weighted average number of common shares
outstanding during the period 178,424,528 177,414,490
3. Primary earnings (loss) per common share
before extraordinary loss (1 divided by 2) $2.31 $.02
4. Fully diluted earnings (loss) before
extraordinary loss (1) $412.2 $4.0
5. Shares issuable under compensation plans 24,046 87,576
6. Shares issuable upon exercise of dilutive
outstanding stock options (treasury stock
method) 1,194,010 485,308
7. Fully diluted shares (2 + 5 + 6) 179,642,584 177,987,374
8. Fully diluted earnings (loss) per common
share before extraordinary loss (4
divided by 7) $2.29 $.02
Per share amounts for 1994 have been restated to reflect the two-
for-one stock split which occurred in February, 1995.
<FN>
* After preferred dividend requirement
</TABLE>
Alcoa and subsidiaries EXHIBIT 12
<TABLE>
<CAPTION>
Computation of Ratio of Earnings to Fixed Charges
For the six months ended June 30, 1995
(in millions, except ratio)
1995
----
<S> <C>
Earnings:
Income before taxes on income $ 831.0
Minority interests' share of earnings of majority-
owned subsidiaries without fixed charges .1
Equity income (35.0)
Fixed charges 66.3
Proportionate share of income (loss) of 50%-owned
persons 34.9
Distributed income of less than 50%-owned persons -
Amortization of capitalized interest 12.1
------
Total earnings $ 909.4
Fixed Charges:
Interest expense:
Consolidated $ 50.9
Proportionate share of 50%-owned persons 3.8
------
54.7
------
Amount representative of the interest factor in rents:
Consolidated 11.5
Proportionate share of 50%-owned persons .1
------
11.6
------
Fixed charges added to earnings 66.3
------
Interest capitalized:
Consolidated .9
Proportionate share of 50%-owned persons -
------
.9
------
Preferred stock dividend requirements of
majority-owned subsidiaries 5.0
------
Total fixed charges $ 72.2
======
Ratio of earnings to fixed charges 12.6
======
</TABLE>
EXHIBIT 15
July 7, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Aluminum Company of America
1. Form S-8 (Registration No. 33-24846)
Alcoa Savings Plan for Salaried Employees
2. Form S-8 (Registration No. 33-60305)
Long Term Stock Incentive Plan
3. Form S-3 (Registration No. 33-49997) and
Form S-3 (Registration No. 33-60045)
Debt Securities and Warrants to Purchase Debt
Securities, Preferred Stock and Common Stock
We are aware that our report dated July 7, 1995,
accompanying interim financial information of Aluminum
Company of America (Alcoa) and subsidiaries for the three-
month period ended June 30, 1995, is incorporated by
reference in the registration statements referred to above.
Pursuant to Rule 436 (c) under the Securities Act of 1933,
this report should not be considered as part of a
registration statement prepared or certified by us within
the meaning of Sections 7 and 11 of that Act.
Very truly yours,
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 700,600
<SECURITIES> 6,500
<RECEIVABLES> 1,638,100
<ALLOWANCES> 42,400
<INVENTORY> 1,499,100
<CURRENT-ASSETS> 4,695,000
<PP&E> 14,658,800
<DEPRECIATION> 8,045,900
<TOTAL-ASSETS> 12,877,000
<CURRENT-LIABILITIES> 2,282,100
<BONDS> 1,164,500
<COMMON> 178,900
0
55,800
<OTHER-SE> 4,030,700
<TOTAL-LIABILITY-AND-EQUITY> 12,877,000
<SALES> 6,127,100
<TOTAL-REVENUES> 6,184,700
<CGS> 4,491,700
<TOTAL-COSTS> 4,491,700
<OTHER-EXPENSES> 343,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,900
<INCOME-PRETAX> 831,000
<INCOME-TAX> 269,600
<INCOME-CONTINUING> 413,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,200
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 2.29
</TABLE>
