SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE
REQUIRED) FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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 152191850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number--area code 412
Investor Relations------------553-3042
Office of the Secretary-------553-4707
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, New York Stock Exchange
par value $1.00
Securities registered pursuant to Section 12(g) of the Act:
None
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 .
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / x /
As of March 7, 1995 there were 178,894,715 shares of
common stock, par value $1.00, of the Registrant outstanding.
The aggregate market value of such shares, other than shares
held by persons who may be deemed affiliates of the Regis-
trant, was approximately $6,655 million.
Documents incorporated by reference.
Parts I and II of this Form 10-K incorporate by reference
certain information from the registrant's 1994 Annual Report
to Shareholders. Part III of this Form 10-K incorporates by
reference the registrant's Proxy Statement dated March 14,
1995, except for the performance graph and Compensation
Committee Report.
1
ALUMINUM COMPANY OF AMERICA
Unless the context otherwise requires, Alcoa or the
Company means Aluminum Company of America and all subsi-
diaries consolidated for the purposes of its financial
statements.
PART I
Item 1. Business.
Alcoa is the world's largest integrated aluminum
company, engaged in the production and sale of primary
aluminum and semifabricated and finished aluminum products.
It was formed in 1888 under the laws of the Commonwealth of
Pennsylvania. Alcoa produces and sells alumina and alumina
based chemicals, a variety of other finished products, and
components and systems for a multitude of applications.
These products are used primarily by packaging, transporta-
tion (including aerospace, automotive, rail and shipping),
building and industrial customers worldwide. Alcoa has
operating and sales locations in 26 countries.
Discussion of Alcoa's operations and properties by its
three business segments follows.
The Alumina and Chemicals segment includes the
production and sale of bauxite, alumina and alumina-based
chemicals, and related transportation services.
The Aluminum Processing segment includes the production
and sale of molten metal, ingot, and aluminum products that
are flatrolled, engineered or finished. Also included are
power, transportation and other services.
The Non-Aluminum Products segment includes the produc-
tion and sale of electrical, ceramic, plastic, vinyl, and
composite materials products, manufacturing equipment, gold,
magnesium and steel and titanium forgings.
Most aluminum facilities located in the United States
(U.S.) are owned by the parent company. Alcoa of Australia
Limited (AofA) and Alcoa Aluminio S.A. (Aluminio) in Brazil
are the two largest operating subsidiaries.
Alcoa serves a variety of customers in a number of
markets. Consolidated revenues from these markets are:
(dollars in millions)
Revenues by Market 1994 1993 1992
- ------------------ ---- ---- ----
Packaging 2,830 $2,606 $2,803
Alumina and Chemicals 1,494 1,437 1,422
Transportation 1,671 1,397 1,526
Building and Construction 1,391 1,299 1,190
Distributor and Other 1,570 1,274 1,215
Aluminum Ingot 948 1,042 1,336
------ ------ ------
Total Sales and Operating
Revenues $9,904 $9,055 $9,492
====== ====== ======
Segment and geographic area financial information are
presented in Note P to the Financial Statements.
2
In December 1994 and January 1995, Alcoa and Western
Mining Corporation Holdings Limited (WMC) entered into a
multistep transaction to restructure and combine the owner
ship of their respective world-wide bauxite, alumina and
alumina-based chemicals businesses and investments into a
group of companies (Enterprise) owned 60% by Alcoa and 40%
by WMC, except that WMC's ownership interest in AofA
equals 39.25%. WMC is a mining company headquartered
in Melbourne, Australia, and is generally involved in
mining nickel, gold, copper and uranium.
In connection with the establishment of the Enterprise,
WMC sold to Alcoa 9% of its interests in AofA (thereby
bringing Alcoa's ownership in AofA to 60% and reducing WMC's
ownership to 39.25%) and made a net payment of $312.9 million
that is subject to final upward and downward adjustments in
certain circumstances. The payment is net of a $121.8
million loan to WMC in January 1995 by one of the entities of
the Enterprise. The conclusion of the restructuring and
combination of certain businesses and investments in Brazil
between Alcoa, WMC and third party investors in Aluminio is
expected to occur late in the first quarter of 1995.
The Enterprise is a series of affiliated operating
entities and assets comprised of the following bauxite,
alumina and alumina-based chemicals interests and other
necessary but ancillary facilities that will be run as
part of an integrated operation at certain locations
included within the Enterprise:
1. 99.25% ownership interest in AofA, including
its aluminum smelting and fabricating operations;
2. All of Alcoa's interests in bauxite mining,
alumina refining and aluminum smelting operations at
Point Comfort, Texas (refining only); Halco Mining,
Inc. in Guinea (mining only); Jamaica (mining and
refining); and Suriname (mining, refining and
smelting);
3. All of Alcoa's bauxite and alumina shipping
operations;
4. All of Alcoa's alumina-based chemicals businesses
in the U.S., Australia, Japan, the Netherlands, Germany,
Singapore and India; and
5. 35% of Aluminio's interest in the Alumar alumina
refinery at Sao Luis, Brazil (Alumar Refinery) and in
Mineracao Rio do Norte S.A. (MRN) (mining only).
A five-member Strategic Council, three members of
which are appointed by Alcoa and two by WMC, will provide
counsel and direction to the Enterprise. Alcoa will
provide operating management for all of the affiliated
operating entities. Alcoa and WMC will both have the
right to be represented on the Board of Directors of each
Enterprise entity, but there have been no changes made to
the Board, the management or the structure of AofA.
Competition
The markets for most aluminum products are highly
competitive. Price, quality and service are the principal
compe titive factors in most of these markets. Where
aluminum products compete with other materials, the diverse
characteristics of aluminum are also a significant factor,
particularly its light weight and recyclability. The compe-
titive conditions are discussed later for each of the
Company's major product classes.
The Company continues to examine all aspects of its
operations and activities and redesign them where necessary
to enhance effectiveness and achieve cost reductions. Alcoa
believes that its competitive position is enhanced by its
improved processes, extensive facilities and willingness and
ability to commit capital where necessary to meet growth in
important markets, and by the capability of its employees.
Research and development, and an increased emphasis on full
utilization of technology,
3
have led to improved product quality and production tech-
niques, new product development and cost control.
The dissolution of the Soviet Union and the lack of a
mechanism to successfully integrate its economy with market
economies significantly contributed to a global oversupply
of aluminum in recent years. Prior to 1991 former Soviet
aluminum producers primarily served internal markets which
weakened substantially after the collapse of the Soviet
Union, and aluminum produced at former Soviet smelters
began to be exported. These exports caused an imbalance
in demand and supply and resulted in severe downward pressure
on aluminum prices.
In late 1993, discussions among the governments of
six major primary aluminum-producing nations were initiated
to address the global aluminum supply situation. A multi-
government accord was reached among Australia, Canada, the
European Union (EU), Norway, Russia and the U.S. in January
1994 under which the Russian industry would reduce its annual
aluminum exports for up to two years, the EU would refrain
from renewing import quotas on Russian ingot when the quotas
expired at the end of February 1994, and certain of the
participating governments would create a fund to assist in
the modernization of the Russian industry.
In response to market conditions, in 1994 Alcoa
reduced primary aluminum production by 100,000 mt per
year at the Company's smelters at Rockdale, Texas and
Wenatchee, Washington. These reductions were in
addition to Alcoa's indefinite curtailments during 1993
of 310,000 mt of U.S. smelting production. AofA also
reduced production in 1994 by 25,000 mt at its Point
Henry smelter in Geelong, Australia. The joint venture
smelter in Portland, State of Victoria, in which AofA
owns a 45% interest, completed a reduction of 26,000 mt.
Also in 1994 the Company's subsidiary in Suriname
(Suralco) completed a reduction of 3,000 mt.
Other Risk Factors
In addition to the risks inherent in the Company's
worldwide business and operations, the Company is
exposed generally to market, financial, political and
economic risks.
Commodity Risks
Alcoa is a leading global producer of aluminum ingot
and aluminum fabricated products. Aluminum ingot is an
interna tionally 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 1993, when world metal prices reached an all-time
low, Alcoa temporarily idled 310,000 mt of its primary
aluminum production. Further reductions in early 1994
brought Alcoa's total worldwide idled capacity to
450,000 mt. See "Competition" above.
For purposes of risk assessment, Alcoa divides its
operations into four regions: U.S., Pacific, Other
Americas and Europe. The Pacific, principally
Australia, and the Other Americas, principally Brazil,
are in net long metal positions and, from time to time,
may sell production forward. Europe has no smelting
operations controlled by Alcoa and, accordingly, is net
short and may purchase forward positions from time to
time. At the present time, forward purchase activity
within these three regions is not material.
In 1994 the Company had entered into longer-term
contracts with a variety of customers in the U.S. for
the supply of approximately 1,500,000 mt of aluminum
products over the next several years.
As a hedge against the economic risk of higher prices
for metal needs associated with these contracts, Alcoa
entered into long positions using principally futures
and option contracts. At December
4
31, 1994, these contracts totaled approximately 1,400,000 mt.
The contracts limit the unfavorable effect of price
increases on metal purchases and likewise limit the
favorable effect from price declines. The futures and
option 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.
For financial accounting purposes, the gains and
losses on the hedging contracts are reflected in
earnings concurrent with the hedged costs. The cash
flows from these contracts are classified in a manner
consistent with the underlying nature of the
transactions.
The volatility of aluminum market prices can produce
significant fluctuations in the periodic mark-to-market
measurement of the futures and option contracts.
Focusing only on that valuation is meaningless because
the effect of price changes on future hedged metal
purchases will approximately equal and offset the mark-
to-market valuation of the contract position. Alcoa
intends to close out the hedging contracts at the time
it purchases the metal from third parties, thus creating
the right economic match both in time and price. The
deferred gains on the hedging contracts at December 31,
1994 are expected to offset the increase in the price of
the purchased metal.
The expiration dates of the call options and the
delivery dates of the futures contracts do not always
coincide exactly with the dates on which Alcoa is
required to purchase metal in order to perform under its
customer agreements. Accordingly, the Company
anticipates rolling forward some of its futures and
option positions. This may result in significant cash
inflows if the hedging contracts are "in-the-money" at
the time they are rolled forward. Conversely, there
could be significant cash outflows if metal prices fall
below the price of contracts being rolled forward.
In late 1994 Alcoa implemented a program to protect
the unrealized gains that result from the increase in metal
prices. Approximately 10% of its hedge position was
protected at the end of 1994 through the purchase of
options from highly rated financial institutions. The
maximum risk on the option contracts is the premiums
paid.
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. Accounting convention requires that these
contracts be marked-to-market.
Alcoa also purchases other commodities, such as
natural gas and copper, for its operations and enters
into contracts to eliminate volatility in the prices of
such products. None of these contracts are material.
Financial Risk
Alcoa is subject to exposure to fluctuations in
foreign currencies. As a matter of policy, Alcoa enters
into foreign currency exchange contracts, including
forwards and options, to manage its transactional
exposure to changes in currency exchange rates.
To keep financing costs as low as possible, Alcoa uses
interest rate swaps to maintain a balance between
fixed and floating rate debt.
Risk Management
All of the aluminum and other commodity contracts,
as well as the various types of financial instruments,
are straightforward. They are primarily entered into
for the purpose of removing uncertainty and volatility,
and principally cover underlying exposures. Alcoa's
commodity and derivative activities are subject to the
management, direction and control of its Strategic Risk
Management Committee. The committee is composed of the
Chief Executive Officer, the Chief Financial Officer and
other officers and
5
employees that the Chief Executive Officer may select from
time to time. The committee reports to the Board of
Directors at each meeting on the scope of Alcoa's activities
and programs.
In 1994 Alcoa tested its policies regarding its
derivatives and commodities trading activities against the
recom mendations of the "Group of 30." A clarified
policy was approved by the Board. The "Group of 30"
was a global derivatives study group formed to
help dealers and users better manage risks and issues
associated with derivative activities. It was composed of
worldwide industry representatives, bankers, central
bankers and academics whose recommendations included
issues related to the role of senior management (including
the board of directors), authorization, control and
disclosure of derivatives. For additional information on
financial instruments, see Note R to the Financial
Statements.
Major Interests Outside the United States
Alcoa International Holdings Company (AIHC), a subsi-
diary, holds most of the Company's investments in Australia,
Hungary and Norway, nonEnterprise investments in Japan and
the Netherlands, and several wholly owned subsidiaries that
act as sales representatives and distributors outside the
U.S. for products produced by various Alcoa operations
not included within the Enterprise. In 1988 AIHC issued
$250 million of voting preferred stock, $50 million of
which was redeemed in 1994.
AofA, owned 60% by AIHC since the establishment of
the Enterprise, operates integrated aluminum facilities
in Australia, including mining, refining, smelting and
fabricating facilities. More than half of AofA's 1994
revenues were derived from alumina, and the balance was
derived principally from primary aluminum, rigid
container sheet (RCS) and gold.
Alcoa Brazil Holdings Company (ABHC) holds Alcoa's
59% interest in Aluminio, an integrated aluminum
producer in Brazil. Aluminio operates mining, refining,
smelting and fabricating facilities at various locations
in Brazil. Approximately 21% of Aluminio's 1994 revenues
were derived from primary aluminum, and exports accounted
for approximately one fourth of its revenues.
In connection with the establishment of the
Enterprise, during the first quarter of 1995, Abalco
S.A. (Abalco) in Brazil, 60% owned by ABHC and 40% owned
by WMC, will acquire 35% of Aluminio's 54% and 13.2%
interests in the Alumar Refinery and MRN, respectively,
thus obtaining effective ownership of 18.9% in the
Alumar Refinery and 4.6% in MRN.
Alcoa Alumina & Chemicals, L.L.C. (owned 60% by
Alcoa and 40% by WMC) holds all of the Company's
bauxite, alumina and industrial chemicals investments in
Guinea, India, Japan, Singapore and the U.S. and, with
Alcoa Caribbean Alumina Holdings, L.L.C. (also owned 60%
by Alcoa and 40% by WMC), holds all of the Company's
bauxite and alumina operations in Jamaica and the bauxite,
alumina and smelting operations in Suriname.
Alumina and Chemicals Segment
Bauxite, aluminum's principal raw material, is
refined into alumina through a chemical process and is
then smelted into primary aluminum. Approximately one
half of the Company's alumina production in 1994 was
sold to third parties. The Company sells alumina-based
chemicals to customers in a broad spectrum of industries
for use in refractories, ceramics, abrasives, chemicals
processing and other specialty applications.
Bauxite
Most of the bauxite mined and alumina produced by
the Company, except by AofA, is further processed into
aluminum. All of the Company's bauxite interests are now
included in the Enterprise with
6
the exception of Alcoa's bauxite mines in Arkansas, and
Aluminio's 8.6% interest in MRN and its bauxite mines in
Pocos de Caldas, Brazil.
The Company has long-term contracts to purchase bauxite
mined by a partially-owned entity in the Republic of Guinea
which is now included among the investments of the Enter-
prise. Alcoa negotiated new agreements in 1994 to replace
the contracts scheduled to expire in 1995. The new agree-
ments expire after 2011. This bauxite services most of the
requirements of the Point Comfort, Texas alumina refinery.
Suralco mines bauxite in Suriname under rights which expire
after the year 2000. Suralco also holds a 26% minority
interest in a bauxite mining joint venture managed by the
majority owner, a Billiton affiliate formerly of the Royal
Dutch/Shell Group which was acquired in 1994 by Gencor
Limited of South Africa (Gencor). Bauxite from both mining
operations serves Suralco's share of the refinery in Suriname
referred to below.
AofA's bauxite mineral leases expire in 2003. Renewal
options allow AofA to extend the leases until 2045. The
natural gas requirements of the refineries are supplied
primarily under a contract with the parties comprising the
North West Shelf Gas Joint Venture. The contract expires in
2005 and imposes minimum purchase requirements.
Bauxite mining rights in Jamaica expire after the year
2020. These rights are owned by the joint venture with the
government of Jamaica referred to in the next section.
Alumina
Alumina, a commodity, is sold principally from
operations in Australia, Jamaica and Suriname. Most of the
alumina supply contracts are negotiated on the basis of
agreed volumes over a multi-year time period to assure a
continuous supply of alumina to the smelters which receive
the alumina. Most alumina is sold under contracts where
prices are negotiated periodically or are based on formulas
related to aluminum ingot market prices or to production
costs. An imbalance of alumina demand and supply has
resulted in declining alumina prices.
AofA is the world's largest and one of the lowest-cost
producers of alumina. Its three alumina plants, located in
Kwinana, Pinjarra and Wagerup in Western Australia, have in
the aggregate an annual rated capacity of approximately
6.4 million mt. Most of AofA's alumina is sold under supply
contracts to a number of customers worldwide.
Suralco owns 55% of the 1.6 million mt per year alumina
refinery in Paranam, Suriname and operates the plant. An
affiliate of Gencor holds the remaining 45%.
An Alcoa subsidiary and a corporation owned by the
government of Jamaica are equal participants in a joint
venture, managed by the subsidiary, that owns an alumina
refinery in Clarendon Parish, Jamaica. Annual alumina
capacity at the Clarendon refinery will be increased
from 800,000 to approximately 1,000,000 mt in the next
several years.
Aluminio is the operator of the Alumar Consortium
(Alumar), a costsharing and production-sharing venture
which owns a large refining and smelting project near the
northern coastal city of Sao Luis, Brazil. The Alumar
Refinery has an annual capacity of approximately
1,000,000 mt, and is owned 35.1% by Aluminio, 36% by an
affiliate of Gencor, 18.9% by Abalco and 10% by an
affiliate of Alcan Aluminium Limited (Alcan). A majority
of the alumina production is consumed at the smelter.
Aluminio holds an 8.6% interest and Abalco holds a
4.6% interest in MRN, a mining company which is jointly
owned by affiliates of Alcan, Companhia Brasileira de
Aluminio, Companhia Vale do Rio Doce, Gencor, Norsk Hydro
and Reynolds Metals Company. Aluminio purchases bauxite
from MRN under a long-term supply contract.
7
At Pocos de Caldas, Brazil, Aluminio mines bauxite
and operates a refinery which produces alumina, primarily
for its nearby smelter.
Industrial Chemicals
Alcoa sells industrial chemicals to customers in a
broad spectrum of markets for use in refractories, ceramics,
abrasive chemicals processing and other specialty applica-
tions. A variety of industrial chemicals, principally
alumina based chemicals, are produced or processed at plants
located in Mobile, Alabama; Bauxite, Arkansas; Ft. Meade,
Florida; Dalton, Georgia; Lake Charles and Vidalia,
Louisiana; Leetsdale, Pennsylvania; Nashville, Tennessee;
Point Comfort, Texas; Kwinana, Australia; Pocos de Caldas and
Salto, Brazil; Ludwigshafen, Germany; Iwakuni and Naoetsu,
Japan; and Moerdijk and Rotterdam, the Netherlands.
Aluminum fluoride, used in aluminum smelting, is produced
from fluorspar or fluosilicic acid at Point Comfort and
Ft. Meade. With the exception of the plants located in
Pocos de Caldas and Salto, all of these facilities are now
part of the Enterprise.
In 1993 the Company and The Associated Cement Companies
Ltd. of Bombay, India formed a joint venture to import,
process and market tabular alumina and alumina-based chemi-
cals for the refractory and ceramic industries in India.
The venture expects to complete construction of its
processing plant in Falta, India in 1995.
In September 1994, Aluminio acquired the assets of a
fused alumina plant in Salto, Brazil from Carborundum.
Aluminum Processing Segment
Revenues and shipments for the principal classes of
products in the aluminum processing segment are as follows:
(dollars in millions)
1994 1993 1992
---- ---- ----
Revenues:
Aluminum ingot $ 920 $1,042 $1,336
Flat-rolled products 3,201 2,974 3,189
Engineered products 1,882 1,528 1,527
Other aluminum products 473 430 465
------ ------ -----
Total $6,476 $5,974 $6,517
====== ====== ======
(mt in thousands)
Shipments:
Aluminum ingot 655 841 1,023
Flat-rolled products 1,381 1,271 1,323
Engineered products 433 379 353
Other aluminum products 82 89 98
----- ----- -----
Total 2,551 2,580 2,797
===== ===== =====
Aluminum Ingot
The Company smelts primary aluminum from alumina
obtained principally from the alumina refineries discussed
earlier. Smelters are located at Warrick, Indiana; Massena,
New York; Badin, North Carolina; Alcoa, Tennessee; Rockdale,
Texas; Wenatchee, Washington; Point Henry and Portland,
Australia; Pocos de Caldas and Sao Luis, Brazil; and Paranam,
Suriname. The Company's smelting operations in Australia and
Paranam, Suriname have been included in the Enterprise.
Alcoa's consolidated annual rated primary aluminum capacity
is approximately 1.9 million mt. When operating
8
at capacity, the Company's smelters more than satisfy the
primary aluminum requirements of the Company's fabricating
operations. Purchases of aluminum scrap (principally used
beverage cans), supplemented by purchases of ingot when
necessary, satisfy any additional aluminum requirements.
Most of the Company's primary aluminum production in 1994
was delivered to other Alcoa operations for alloying
and/or further fabricating.
The joint venture smelter at Portland, Victoria, with
an annual rated capacity of 320,000 mt, is owned 45% by AofA,
25% by the State of Victoria, 10% by the First National
Resource Trust, 10% by the China International Trust and
Investment Corporation, and 10% by Marubeni Aluminium
Australia Pty., Ltd. (Portland Smelter Participants). A
subsidiary of AofA operates the smelter. Each Portland
Smelter Participant is required to contribute to the cost of
operations and construction in proportion to its interests in
the venture and is entitled to its proportionate share of the
output. Alumina is supplied by AofA. The Portland site can
accommodate additional smelting capacity.
The Alumar Consortium aluminum smelter at Sao Luis,
Brazil has an annual rated capacity of 328,000 mt. Aluminio
receives about 54% of the primary aluminum production.
The Company utilizes electric power, natural gas and
other forms of energy in its refining, smelting and
processing operations. Aluminum is produced from alumina by
an electrolytic process requiring large amounts of electric
power. Electric power accounts over time for approximately
25% of the Company's primary aluminum costs. The Company
generates approximately 40% of the power used at its smelters
worldwide. Most firm power purchase contracts tie prices to
aluminum prices or to prices based on various indices.
Over 40% of the power for the Point Henry smelter is
generated by AofA using its extensive brown coal deposits.
The balance of the power, and power for the Portland,
Victoria smelter, is available under contracts with the State
Electricity Commission of Victoria. Power prices are tied by
formula to aluminum prices. The State Government of Victoria
has announced its desire to renegotiate the power contract
for the Point Henry and Portland smelters, but, after
discussions, confirmed that the existing base contracts will
be honored. Discussions are continuing on other aspects of
power supply to the smelters, such as the terms on which
additional power may be made available.
Electric power for Alumar's Sao Luis smelter is
purchased from the government-controlled power grid in Brazil
at a small discount from the applicable industrial tariff
price and is protected by a cap based on the LME price of
aluminum. Aluminio's Pocos de Caldas smelter purchases firm
and interruptible power from the government controlled
electric utility. Aluminio has prepaid all of the Pocos de
Caldas facility's electricity requirements through January 1,
1996.
Over 50% of the power requirements for Alcoa's U.S.
smelters is generated by the Company and the remainder is
purchased from others under long-term contracts. Less than
10% of the self-generated power results from the Company's
entitlement to a fixed percentage of the output from a hydro
electric power facility located in the northwestern United
States.
The Company generates substantially all of the power
used at its Warrick smelter using coal reserves near the
smelter that should satisfy requirements through the late
1990s. Lignite is used to generate power for the Rockdale,
Texas smelter. Company-owned generating units supply about
half of the total requirements and the balance is purchased
from a dedicated power plant under a contract which expires
not earlier than 2013. See "Environmental" below.
In connection with the electric power generated for the
aluminum smelters at Alcoa, Tennessee and Badin, North
Carolina, two subsidiaries of the Company own and operate
hydroelectric facilities subject to Federal Energy Regulatory
Commission licenses effective until 2005 and 2008,
respectively. For the Tennessee plant, the Company also
purchases firm and interruptible power from the Tennessee
Valley Authority under a contract which expires in 2000. For
the Badin plant, the Company purchases
9
additional power under an evergreen contract providing for
specified periods of notice before termination by either
party.
The purchased power contract for the Massena smelter
expires not earlier than 2003 but may be terminated by the
Company with one year's notice.
Alcoa has two principal power contracts for its
Wenatchee smelter. The contract from the power output
entitlement referred to above expires in 2011. The contract
with Bonneville Power Administration expires in 2001 and
includes 25% interruptible power. Power restrictions may
occur when precipitation is below normal. Beginning in 1995,
a portion of the power supplied under the entitlement
contract will be replaced by power purchased from the local
public utility district. Additional power also may be
purchased from the district.
Although not included in the revenues by market or
revenues and shipments tables above or in the rated primary
aluminum capacity figure above, the Company reports equity
earnings from its interest in two primary aluminum smelters
in Norway. Elkem Aluminium ANS, 50% owned by Norsk Alcoa
A/S, a subsidiary, is a partnership that owns and operates
the smelters.
Flat-Rolled Products
The Company's flat-rolled products serve three principal
markets: light gauge sheet products serve principally the
packaging market, and sheet and plate products serve
principally the transportation and building and construction
markets.
Alcoa employs its own sales force for most products
sold in the packaging market. Most of the packaging revenues
in 1994 were derived from RCS sold to can companies to make
beverage and food cans, and can ends. The number of RCS
customers in the U.S. is relatively small, in part because
the number of can companies has been shrinking. Use of
aluminum beverage cans continues to increase, particularly
in Asia, Europe and South America, where per capita consump-
tion remains relatively low. Aluminum foil and non-RCS
packaging sheet are sold principally in the packaging
markets.
Aluminum's diverse characteristics, particularly its
light weight and recyclability, are significant factors in
packaging markets where alternatives such as steel, plastic
and glass are competitive materials. Leadership in the
packaging markets is maintained by improving processes and
facilities, as well as by providing research and technical
support to customers.
Light gauge aluminum sheet and foil products are manu-
factured at several locations. RCS is produced at Warrick,
Indiana; Alcoa, Tennessee; Point Henry, Australia; Moka,
Japan (a joint venture facility); and Swansea, Wales. Light
gauge sheet and foil are produced at Lebanon, Pennsylvania
and foil also is produced at Davenport, Iowa. Light gauge
sheet, foil products and laminated evaporator panels are
manufactured by Aluminio at Recife, Brazil.
In early 1995 the Company and Shanghai Aluminum Fabri-
cation Plant (SAFP) agreed to form a joint venture company
to acquire and operate SAFP's existing aluminum foil and
foil laminate production facility in Shanghai, China. The
joint venture company will be owned 60% by Alcoa and 40% by
SAFP. The facilities currently produce approximately
8,500 mt of aluminum foil per year. The joint venture is
expected to commence operations at the end of March 1995,
following receipt of all necessary Chinese government
approvals.
Used aluminum beverage cans are an important source
of metal for RCS. The cost of used beverage cans declined
in 1993 and in early 1994 as primary aluminum prices dropped
but rebounded thereafter. Recycling aluminum conserves raw
materials, reduces litter and saves energy about 95% of the
energy needed to produce aluminum from bauxite. Also,
recycling capacity costs much less than
10
new primary aluminum capacity. Can recycling or remelt
facilities are located at or near Alcoa's Indiana and
Tennessee plants.
The Company has a joint venture with Kobe Steel, Ltd.
(Kobe) in Japan. The venture, KSL Alcoa Aluminum Company,
Ltd. (KAAL), began commercial operations from its newly
constructed cold rolling mill at Moka, Japan in 1993. It
manufactures and sells RCS in Japan and other Asian
countries. AIHC holds a 50% interest in KAAL. Alcoa
supplies aluminum to the joint venture.
Sheet and plate products principally serve aerospace,
automotive, lithographic, railroad, ship building, building
and construction, defense and other industrial and consumer
markets. The Company maintains its own sales forces for most
of these products. Differentiation of material properties,
price and service are significant competitive factors.
Aluminum's diverse characteristics are important in these
markets, where competitive materials include steel and
plastics for automotive and building applications; magnesium,
titanium, composites and plastics for aerospace and defense
applications; and wood and vinyl in building and construction
applications.
The Company's largest sheet and plate plant is located
at Davenport, Iowa. It produces products requiring special
alloying, heat treating and other processing, some of which
are unique or proprietary. The Company serves European
sheet and plate markets through a distribution center opened
in Paal, Belgium during late 1993.
Alcoa continues to develop alloys and products for
aerospace applications, such as new aluminum alloys for
application in the Boeing 777 aircraft. A research and
development effort also has resulted in the commercial
development of a series of aluminum and aluminum-lithium
alloys which offer significant weight savings over
traditional materials for aerospace and defense applications.
The Company and Kobe also have two joint venture
companies, one in the U.S. and one in Japan, to serve the
transportation industry. The initial emphasis of these
companies is on expanding the use of aluminum sheet
products in passenger cars and light trucks.
In late 1992 AIHC acquired a 50.1% interest in Kofem
Kft., a subsidiary of the government-owned Hungarian Alumi-
nium Industrial Corporation (Hungalu). The venture, Alcoa
Kofem Kft. (A-K), produces common alloy flat and coiled
sheet, soft alloy extrusions and end products for the
building, construction, food and agricultural markets in
central and western Europe. A-K will invest up to $146
million, including part of AIHC's initial investment, over a
period of five years for product quality and environmental
and safety upgrades at the A-K facility. Alcoa is providing
technological and operational expertise to A-K.
Engineered Products
Engineered products principally include extrusion and
tube, wire, rod and bar, forgings, castings, aluminum
building products, aluminum memory disk blanks and other
products which are sold in a wide range of markets, but
principally in the transportation market.
Aluminum extrusions and tube are produced principally
at five U.S. locations. The Chandler, Arizona plant produces
hard alloy extrusions and tube; the Lafayette, Indiana plant
produces a broad range of common and hard alloy extrusions
and tube; the Baltimore, Maryland plant produces large press
extrusions; and plants at Tifton, Georgia and Delhi,
Louisiana produce common alloy extrusions. In 1994, the
Company announced the shutdown of the hard alloy extrusion
and tube and forgings facilities at its Vernon, California
plant following rejection of its proposal for union contract
concessions, however, it continues to produce cast aluminum
plate at the plant.
In late 1993 Alcoa and VAW Aluminium AG (VAW) formed a
joint venture to produce and market high-strength aluminum
extrusions, tube and rod to serve principally European
transportation and
11
defense markets. An Alcoa subsidiary owns 60% and VAW owns
40% of the venture which is called Alcoa VAW Hannover
Presswerk GmbH & Co. KG and is located in Hannover, Germany.
Alcoa's Delhi facility is supplying Toyota Motor Company
(Toyota) with extruded aluminum front and rear bumpers for
the 1995 Toyota Avalon to be assembled at Georgetown,
Kentucky. The bumpers were jointly designed by Alcoa and
Toyota.
The Company also produces extrusions in the Netherlands.
See "Other Aluminum Products" below. A 50-50 limited
partnership formed with Kobe in 1991 to manufacture and
market aluminum tube for photoreceptors for North American
markets ceased manufacturing operations in early 1994 and was
dissolved in late 1994.
Alcoa Construction Products produces and markets resi-
dential aluminum siding and other aluminum building products.
These products are sold principally to distributors and
jobbers.
Aluminum forgings are produced at Cleveland, Ohio; and
Bologne, France. Forgings are sold principally in the
aerospace, defense and transportation markets. Forged
aluminum wheels for truck, bus and automotive markets are
produced at Cleveland, Ohio.
During the first quarter of 1995 the Company formed a
joint venture with a subsidiary of CMI International, Inc.
to produce cast aluminum automotive parts. The Company
holds a 50% interest in the venture called A-CMI.
Mechanical-grade redraw rod, wire and cold-finished
rod and bar are produced at Massena, New York and are sold
to distributors and customers for a variety of applications
in the building and transportation markets.
Aluminum extruded products are manufactured by a sub-
sidiary of Aluminio in Argentina and at several Aluminio
locations in Brazil. Aluminio also produces aluminum
electrical cables at its Pocos de Caldas plant.
Other Aluminum Products
Alcoa Automotive Structures GmbH was formed in 1991
to produce aluminum components and sub-assemblies for
aluminum automotive spaceframes. Aluminum spaceframes
represent a significant departure from the traditional
method and material used to manufacture primary auto
body structures. In 1993 Alcoa completed construction
and began operating a unique multi-million dollar plant
in Soest, Germany to supply aluminum spaceframe products
to its first customer, Audi AG. In 1994 Audi began
marketing its new A8 luxury sedan, the first automobile
to utilize a complete aluminum spaceframe body structure.
The aluminum body structure of the A8 is a result of a
cooperation between Alcoa and Audi that began in 1981, and
is constructed from components and subassemblies that are
or will be produced by Alcoa. Alcoa continues to cooperate
with several automobile manufacturers in Europe, North
America and Japan to develop new automotive applications for
aluminum products.
In February 1995 Alcoa announced plans to build a plant
in Northwood, Ohio, near Toledo, to manufacture aluminum
structural assemblies for the automotive industry.
Aluminio produces aluminum truck and van bodies in Sao
Paulo, Brazil.
Alcoa produces aluminum closures for bottles at
Richmond, Indiana; Worms, Germany; Nogi and Ichikawa, Japan;
and near Barcelona, Spain.
12
The Company sells aluminum scrap and produces and
markets aluminum paste, particles, flakes and atomized
powder.
Subsidiaries of Alcoa Nederland Holding B.V. (ANH)
produce extrusions, common alloy sheet products and a
variety of finished products for the building industry,
such as aluminum windows, doors and aluminum ceiling
systems, as well as products for the agricultural
industry such as automated greenhouse systems.
Alutodo de Mexico, S.A. de C.V., a subsidiary, buys
and sells aluminum and aluminum products through distribution
centers at several locations in Mexico.
Non Aluminum Products Segment
Alcoa produces plastic closures for bottles at Craw-
fordsville, Indiana; Olive Branch, Mississippi; Buenos
Aires, Argentina; Sao Paulo, Brazil; Santiago, Chile;
Tianjin, China; Bogota, Colombia; Tellig, Germany;
Szekesfehervar, Hungary; Nogi and Ichikawa, Japan;
Saltillo, Mexico; and near Barcelona, Spain. The Company
operates a plastic closures decorating facility at Lima,
Peru and expects to start up plastic closures and PET
injection and blow molding facilities at Lima in 1995.
Aluminio developed technology for and now produces PET
preforms and finished PET bottles at several plant and
customer sites in Brazil and Argentina. Pre-forms and
bottles are also made at Saltillo, Mexico.
In 1994 the Company and Zepf Technologies USA Inc.
formed Alcoa Zepf, L.L.C, a joint venture company 60%
controlled by the Company, which manufactures rapid
change over and quick-change bottle control parts for the
beverage industry. Alcoa also participates in a joint
venture with Al Zayani Investments W.L.L. of Bahrain,
known as Gulf Closures W.L.L., that manufactures plastic
beverage container closures for markets in the Middle East.
Alcoa's worldwide closure businesses are coordinated from
Indianapolis, Indiana. The use of plastic closures has
surpassed that of aluminum closures for beverage containers
in the U.S. and is gaining momentum in other countries.
The Company manufactures packaging equipment and
machinery, principally for producing and decorating metal
cans and can ends. In addition, the Company manufactures
a line of equipment for applying plastic or aluminum
closures to beverage containers. Alcoa also owns a
minority interest in a company which sells food packaging
machinery that fills and seals metal and multi-layered
polymer and paper containers.
Alcoa Fujikura Ltd. (AFL), owned 51% by Alcoa and
49% by Fujikura Ltd. of Japan, produces and markets
automotive electrical distribution systems (EDS), as well
as fiber optic products and systems for selected electric
utilities and telecommunications markets. AFL is a Q-1
supplier and recently received the Ford Motor Company TQE
Award. AFL is now supplying EDS to Subaru of America, Inc.
(in the U.S.), Auto Alliance, Inc. (Mazda-Ford joint venture)
and PACCAR Inc. In 1994 AFL acquired a 90% interest in
Michels GmbH & Co. KG, a manufacturer of EDS for automobiles,
appliances and farm equipment with three plants in Germany
and five plants in Hungary. AFL's Stribel group of companies
are European manufacturers of electromechanical and
electronic components for the European automotive market.
Alcoa Construction Product's principal product for
building and construction markets is vinyl siding. Other
non-aluminum building products include vinyl windows,
window lineal systems, shutters and building accessories,
and wood windows and patio doors.
Norcold and Stolle Products Divisions manufacture
recreational vehicle refrigerators, auto parts and appliance
control panels.
A subsidiary, Alcoa Electronic Packaging, Inc. (AEP),
produces ceramic packages used to hold integrated circuits
for electronic equipment. During 1994 AEP increased ship-
ments of several parts to a
13
key customer and added two additional customers. AEP
currently is working with several potential customers to
broaden its market base in 1995. Production capacity is
being increased to respond to these opportunities.
Alcoa Composites, Inc., a subsidiary, principally
designs and manufactures composite parts and structures for
aerospace and transportation applications.
Facilities to recover gold from AofA's mining leases
in Western Australia were constructed, and mined gold first
poured, in 1988. Production has been declining since 1990,
and the gold deposit is expected to be depleted by 1997.
Magnesium is produced by Northwest Alloys, Inc., a
wholly-owned subsidiary in Addy, Washington (NWA), from
minerals in the area owned by NWA. Alcoa uses magnesium
for certain aluminum alloys. Recycling is also a source
of aluminum-magnesium alloys. Responding to world magnesium
market conditions NWA increased magnesium production during
1994. Third party sales of magnesium are continuing.
Titanium and steel forgings are produced at Cleveland,
Ohio and Bologne, France and are sold principally in aero-
space markets.
Aluminio produces copper electrical cables at its
Pocos de Caldas and Guarulhos, Brazil plants. It also owns
and operates a chain of retail construction materials
outlets in Brazil.
Alcoa's wholly owned subsidiaries own and develop
luxury residential/resort communities in South Carolina
and Florida; the remaining properties are being actively
marketed.
Research and Development
The Company, a technological leader in the aluminum
industry, engages in research and development (R&D) programs
which include basic and applied research and process and
product development. The research activities are princi-
pally conducted at Alcoa Technical Center (ATC), near
Pittsburgh, Pennsylvania. Several subsidiaries and divisions
conduct their own R&D programs, as do many plants. Expendi-
tures for such activities were $126 million in 1994, $130
million in 1993 and $212 million in 1992. Most of the
decrease in R&D expenditures since 1992 is related to program
reductions at ATC. Substantially all R&D activities are
funded by the Company and its various units. The Company's
strategy has been to focus its R&D expenditures on specific
programs related to existing businesses, which will lead to
lower R&D expenditures in 1995.
Environmental
Alcoa's Environmental Policy confirms its commitment
to operate worldwide in a manner which protects the
environment and the health of employees and of the citizens
of the communities where the Company has an impact.
The Company engages in a continuing effort to develop
and implement modern technology and policies to meet environ-
mental objectives. Approximately $45 million was spent
during 1994 for new or expanded facilities for environmental
control. Capital expenditures for such facilities will
approximate $60 million in 1995. The costs of operating
these facilities are not included in these figures.
Remediation expenses being incurred by the Company are
increasing at many of its facilities and at certain sites
involved in proceedings under the Comprehensive Environ-
mental Response, Compensation and Liability Act of 1980
(CERCLA or Superfund) and other sites. See Environmental
Matters on page 23 in the Annual Report to Shareholders,
and Item 3 - "Legal Proceedings" below.
14
Alcoa's operations, like those of others in
manufacturing industries, have in recent years become
subject to increasingly stringent legislation and
regulations to protect human health and the environment.
This trend is expected to continue. Compliance with new
laws, regulations or policies could require substantial
expenditures by the Company in addition to those
referenced above.
Environmental requirements also may affect the
marketing of certain products manufactured by the
Company. For example, legislation imposing deposits on
beverage containers including aluminum cans has been
passed in a number of states and is being considered
elsewhere. Federal and state regulations, such as U.S.
Food and Drug Adminis tration regulations and California
Proposition 65, affect the manufacture of materials to
be used in food and beverage containers. The Coalition
of Northeastern Governors (CONEG) model law (as enacted
by several states) governing the use or presence of
certain materials has been passed in some states and
may impact the manufacture of certain packages or
packaging components for foods and beverages. A proposed
directive similar to the CONEG legislation is under
consideration by the Commission of the European Union.
Environmental laws and regulations are important
both to the Company and to the communities where it
operates. The Company supports the use of sound
scientific research and realistic risk criteria to
analyze environmental and human health effects and to
develop effective laws and regu lations in all countries
where it operates. Alcoa recognizes that recycling and
waste reduction offer real solutions to the solid waste
problem and it continues vigorously to pursue efforts in
these areas.
Employees
During 1994 the Company employed an average of
approximately 61,700 people worldwide. Three-year
labor agreements ratified in 1993 cover the majority of
the Company's U.S. production workers.
Wages for employees in Australia are covered by
agreements which are negotiated under guidelines
established by a national industrial relations
authority.
Wages for both hourly and salaried employees in
Brazil are negotiated annually in compliance with
government guidelines. Each Aluminio location,
however, has established a separate compensation
package for its employees which includes real wage
increases and certain employee welfare plans.
Item 2. Properties.
See "Item 1 - Business." Alcoa believes that its
facilities, substantially all of which are owned, are
suitable and adequate for its operations.
Item 3. Legal Proceedings.
In the ordinary course of its business, Alcoa is
involved in a number of lawsuits and claims, both actual
and potential, including some which it has asserted
against others. While the amounts claimed may be
substantial, the ultimate liability cannot now be
determined because of the considerable uncertainties
that exist. It is possible that results of operations
or liquidity in a particular period could be materially
affected by certain contingencies. Management believes,
however, that the disposition of matters that are
pending or asserted will not have a material adverse
effect on the financial position of the Company.
Environmental Matters
Alcoa is involved in proceedings under the
Superfund or analogous state provisions regarding the
usage, disposal, storage or treatment of hazardous
substances at a number of sites in the U.S.
15
The Company has committed to participate, or is engaged in
negotiations with Federal or state authorities relative
to its alleged liability for participation, in clean-up
efforts at several such sites.
In response to a unilateral order issued under
Section 106 of CERCLA by the U.S. Environmental
Protection Agency (EPA) Region II regarding releases of
hazardous substances, including polychlorinated biphenyls
(PCBs) into the Grasse River near its Massena, New York
facility, Alcoa proposed during 1993 to EPA that it engage
in certain remedial activities in the Grasse River for the
removal and appropriate disposal of certain river sediments.
The remedial activities proposed for implementation in 1994
did not occur because of delays in securing necessary
governmental approvals for the work plan for conduct of the
work and disposal of the removed sediments. The Company
continues to pursue this action and anticipates that the
necessary approvals will occur to permit the sediment removal
activity during 1995.
Representatives of various Federal and state agencies
and a Native American tribe, acting in their capacities as
trustees for natural resources, have asserted that Alcoa
may be liable for loss or damage to such resources under
Federal and state law based on Alcoa's operations at its
Massena, New York facility. While formal proceedings have
not been instituted, the Company is actively investigating
these claims.
In March 1994 the EPA included the "Alcoa (Point
Comfort)/Lavaca Bay" site on the National Priorities
List (NPL). The site includes portions of Alcoa's Point
Comfort, Texas bauxite refining operations and portions
of Lavaca Bay, Texas, adjacent to the plant. On March 31,
1994, Alcoa and Region VI of the EPA entered into an
administrative order on consent, EPA Docket No. 6-11-94,
concerning the Alcoa (Point Comfort)/Lavaca Bay site.
The administrative order requires the Company to conduct
a remedial investiga tion and feasibility study at the
site overseen by the EPA. Work under the administrative
order is proceeding. Certain federal and state natural
resource trustees previously served Alcoa with notice of
their intent to file suit to recover damages for alleged
loss, injury or destruction of natural resources in
Lavaca Bay and to recover the costs for performing the
assessment of such alleged damages.
The Stolle Corporation (Stolle), a subsidiary, had
advised the Ohio EPA of certain hazardous waste management
practices that may not have met applicable regulatory
requirements and that Stolle had been contacted by the
Ohio Attorney General's Office concerning the matter.
In February 1995, this matter was settled and Stolle agreed
to pay a fine of $138,000 and administrative costs to the
State of Ohio. Stolle also agreed to institute a Pollution
Prevention program pursuant to Ohio EPA guidelines.
Other Matters
Alcoa was named as one of several defendants in a
number of lawsuits filed as a result of the Sioux City,
Iowa DC-10 plane crash in 1989. The plaintiffs claim
that Alcoa fabricated the titanium fan disk involved in
the alleged engine failure of the plane from a titanium
forging supplied by a third party. Twenty-two of the
117 cases are still pending; the other 95 have been
settled without participation by Alcoa. While Alcoa is
covered by the releases given by the plaintiffs in the
settled cases, Alcoa remains subject to claims for
contribution from the defendants who have actually paid
the settlements. In some of the cases, punitive damages
of $5 million are sought from each defendant.
Alcoa and a subsidiary were notified in September 1991
by the Department of Justice (DOJ) of its investigation
regarding criminal violations of antitrust laws in the
small press, hard alloy extrusion industry. On March 5,
1993, Alcoa and the subsidiary received an antitrust
grand jury investigation subpoena requiring production
of documents relating to pricing of small press, hard
alloy extrusions. Alcoa and its subsidiary have provided
the documentation requested. The investigation is
continuing.
In October 1992 Alcoa Composites, Inc. was served
with a subpoena requiring the production of certain
documentary material to the U.S. government in
connection with an investigation to determine
16
whether criminal violations of federal defense procurement
laws or regulations occurred with respect to the subsidiary's
subcontract to manufacture helicopter blades for the U.S.
Army. The government has closed the criminal investigation
in this matter but continues to evaluate possible adminis-
trative adjustment to the subcontract price.
In December 1992 Alcoa initiated a lawsuit against
nearly one hundred different insurance carriers that
provided Alcoa with insurance coverage for various
periods between the years 1956 and 1985. The suit asks
the court to declare that these insurance companies are
required, under the terms of the policies issued, to
reimburse monies spent by Alcoa in the past or future
for environmental liabilities that have arisen in recent
years.
On December 21, 1992, Alcoa was named as a defendant
in KML Leasing v. Rockwell Standard Corporation filed in
the U.S. District Court for the District of Oklahoma on
behalf of 7,317 Aero Commander, Rockwell Commander and
Gulfstream Commander aircraft owners. The complaint
alleges defects in certain wingspars manufactured by
Alcoa. Alcoa's aircraft builders products liability
insurance carrier has assumed defense of the matter. In
May 1993, Alcoa received a reservation of rights letter
from its insurance carrier which purports to reserve
its rights with respect to a majority of the types of
damages claimed. Alcoa continues to challenge the
reservation.
In December 1993 Alcoa was served with a subpoena from
the Antitrust Division of the DOJ to produce documents
to a Federal grand jury sitting in Philadelphia. The
grand jury investigated pricing practices in the used
beverage container and aluminum scrap markets. The matter
was terminated in September 1994.
Alcoa and Alcoa Specialty Chemicals, Inc., a
subsidiary, are defendants in a case filed by Aluminum
Chemicals, Inc., et al., in the District Court of Harris
County, Texas. Plaintiffs allege claims for breach of
fiduciary duty, fraud, interference with contractual
and business relations, breach of contract, conversion,
misappropriation of trade secrets, deceptive trade
practices and civil conspiracy in connection with a
former partnership, Alcoa-Coastal Chemicals. The
plaintiffs are seeking lost profits and other
compensatory damages in excess of $100 million, and
punitive damages.
As part of an ongoing investigation, Alcoa Fujikura
Ltd. (AFL), a subsidiary, received formal notice in
March 1994 that the United States Customs Service (USCS)
was contemplating issuance of a claim for monetary
penalties and marking duties against AFL for allegedly
fraudulent importations from Mexico of automotive wiring
harnesses into the United States from July 1986 through
December 1991. AFL cooperated with the USCS in an audit
of the customs duties AFL paid on automotive wiring
harness imports from Mexico in the 1986-1993 period. On
February 2, 1995, this matter was settled and the
investigation and audit were terminated.
In December 1993 the European Union Competition
Office and German Cartel Office began an investigation
of the competitive practices of Alcoa Chemie, GmbH, a
subsidiary, in the tabular alumina business in Germany.
The subsidiary cooperated with the investigation and is
awaiting response from the authorities.
In August 1994 the DOJ issued a Civil Investigative
Demand (CID) to Alcoa regarding activities undertaken by
Alcoa in response to a multinational Memorandum of Under-
standing negotiated by the U.S. government and other
sovereign nations. Alcoa complied with the request in
November 1994.
17
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's
security holders during the fourth quarter of 1994.
Item 4A. Executive Officers of the Registrant.
The names, ages, positions and areas of responsibility
of the executive officers of the Registrant as of March 1,
1995 are listed below.
Paul H. O'Neill, 59, Chairman of the Board and Chief
Executive Officer. Mr. O'Neill became a director of Alcoa
in 1986 and was elected Chairman of the Board and Chief
Executive Officer effective in June 1987. Before joining
Alcoa, Mr. O'Neill had been an officer since 1977 and
President and a director since 1985 of International Paper
Company.
Alain J. P. Belda, 51, Executive Vice President.
Mr. Belda was elected Executive Vice President in
March 1994. He was President of Alcoa Aluminio S.A. in
Brazil from 1979 to March 1994. Mr. Belda was elected
Vice President of Alcoa in 1982 and, in 1989, was
given responsibility for all of Alcoa's interests in
Latin America (other than Suriname). In August 1991
he was named President - Latin America for the
Company. In his current assignment Mr. Belda works
with 10 Alcoa business unit presidents.
George E. Bergeron, 53, Vice President and
President Rigid Packaging Division. Mr. Bergeron was
named President - Alcoa Closure Systems International
in 1982 and was elected Vice President and General
Manager - Rigid Packaging Division in July 1990. He
assumed his current responsibilities in 1991.
Peter R. Bridenbaugh, 54, Executive Vice President
and Chief Technical Officer. Dr. Bridenbaugh became
Director, Alcoa Laboratories in 1983. He was elected
Vice President Research and Development in 1984. He
assumed his current responsibilities in 1991.
John L. Diederich, 58, Executive Vice President
Chairman's Counsel. Mr. Diederich was elected
Managing Director of Alcoa of Australia Limited and
Vice President of Alcoa in 1982. He was named Vice
President - Metals and Chemicals in July 1986 and
was elected a Group Vice President in October 1986.
He assumed his current responsibilities in 1991.
Richard L. Fischer, 58, Executive Vice President
Chairman's Counsel. Mr. Fischer was elected Vice
President and General Counsel in 1983 and became a
Senior Vice President in 1984. From 1985 through
1989 he also had responsibility for Government and
Public Affairs. He was given additional responsibilities
in 1986 for Corporate Development and in 1989 for the
Company's expansion activities in Europe and Asia. He
assumed his current responsibilities in 1991.
Ronald R. Hoffman, 60, Executive Vice President -
Human Resources, Quality, and Communications. Mr. Hoffman,
an officer since 1975, was named Vice President Flat Rolled
Products in 1979. He was elected a Group Vice President in
1984 and was given responsibility for the Company's
Packaging Systems group in 1986. He assumed his current
responsibilities in 1991.
Jan H. M. Hommen, 51, Executive Vice President and
Chief Financial Officer. Mr. Hommen was Financial
Director of Alcoa Nederland until 1979 when he was
elected Assistant Treasurer - Corporate Finance of
Alcoa. He was elected Treasurer in August 1986 and
Vice President and Treasurer in December 1986. He was
elected to his current position in 1991.
Frank P. Jones, Jr., 65, Vice President - Government
Affairs. Mr. Jones was named Manager - Government
Affairs in 1967 and General Manager in 1970. He was
elected to his current position in 1971.
18
Richard B. Kelson, 48, Executive Vice President
Environment, Health and Safety, and General Counsel.
Mr. Kelson was appointed Assistant Secretary and
Managing General Attorney in 1984 and Assistant General
Counsel in 1989. He was elected Senior Vice
President Environment, Health and Safety in 1991 and
Executive Vice President and General Counsel in May
1994.
L. Richard Milner, 48, Vice President - Corporate
Development. Mr. Milner was named General Manager
Castings Division in 1984 and General Manager -
Primary Products, Marketing in 1986. In 1987 he
assumed responsibility as Director - Corporate
Development. He was elected to his current position
in 1991.
Robert F. Slagle, 54, Vice President and Managing
Director - Alcoa of Australia Limited. Mr. Slagle was
elected Treasurer in 1982 and Vice President in 1984.
In 1986, he was named Vice President Industrial
Chemicals and, in 1987, was named Vice President
Industrial Chemicals and U.S. Alumina Operations.
Mr. Slagle was named Vice President - Raw Materials,
Alumina and Industrial Chemicals in 1989 and Managing
Director - Alcoa of Australia Limited in 1991.
G. Keith Turnbull, 59, Executive Vice President
Strategic Analysis/Planning and Information. Dr. Turnbull
was appointed Assistant Director of Alcoa Laboratories in
1980. He was named Director Technology Planning in 1982
and Vice President Technology Planning in 1986. In 1991
he was elected to his current position.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.
Dividend per share data, high and low prices per
share and the principal exchanges on which the Company's
common stock is traded are set forth on pages 46 through
47 of the 1994 Annual Report to Shareholders (the Annual
Report) and are incorporated herein by reference.
At March 7, 1995 (the record date for the Company's
1995 annual shareholders meeting) there were approximately
55,200 Alcoa shareholders, including both record holders
and an estimate of the number of individual participants
in security position listings.
Item 6. Selected Financial Data.
The comparative columnar table showing selected finan-
cial data for the Company is set forth on page 18 of the
Annual Report and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Management's review and comments on the consolidated
financial statements are set forth on pages 18 through 24
of the Annual Report and are incorporated herein by
reference.
19
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements, the
notes thereto and the report of the independent public
accountants are set forth on pages 25 through 37 of
the Annual Report and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the
Registrant.
The information regarding Directors is contained under
the caption "Board of Directors" on pages 4 through 8
of the Registrant's definitive Proxy Statement dated
March 14, 1995 (the Proxy Statement) and is
incorporated herein by reference.
The information regarding executive officers is set
forth in Part I, Item 4A under "Executive Officers of
the Registrant."
Item 11. Executive Compensation.
This information is contained under the caption
"Compensation of executive officers" on pages 9
through 14 of the Proxy Statement. The performance graph and
Compensation Committee Report shall not be deemed to
be "filed."
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
This information is contained under the caption
"Security ownership" on page 9 of the Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
This information is contained under the caption
"Certain relationships and related transactions" on page 8 of
the Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8K.
(a) The Company's consolidated financial statements,
the notes thereto and the report of the independent public
accountants are set forth on pages 25 through 37 of the
Annual Report and are incorporated herein by reference.
With the exception of the aforementioned information
and the information incorporated by reference in Part II
hereof, the Annual Report is not to be deemed filed as part
of this report.
20
The following report and additional financial data
should be read in conjunction with the Company's consoli-
dated financial statements in the Annual Report:
Independent Accountant's Report of Coopers &
Lybrand dated January 11, 1995 on the
Company's consolidated financial statement
schedule filed as a part hereof for the fiscal
years ended December 31, 1994, 1993 and 1992
and related consent dated March 14, 1995.
Schedule II - Valuation and Qualifying Accounts for
the fiscal years ended December 31, 1994, 1993 and 1992.
(b) Reports filed on Form 8-K. The Company filed a
Report on Form 8-K, dated November 11, 1994, with the
Securities and Exchange Commission consisting of a
press release concerning a two-for-one split of the
Company's common stock, increase in common stock dividend
and resumption of common stock repurchase program.
(c) Exhibits.
Exhibit
Number Description*
- ------ -----------
3(a). Articles of the Registrant as amended,
incorporated by reference to exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
3(b). By-Laws of the Registrant, incorporated by
reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1991.
10(a). Long Term Stock Incentive Plan, effective
January 1, 1992, incorporated by reference
to exhibit 10(a) to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1991.
10(a)(1). Amendments to Long Term Stock Incentive
Plan, effective January 1, 1995 (subject to
shareholder approval) (filed herewith).
10(b). Employees' Excess Benefit Plan, Plan A,
incorporated by reference to exhibit 10(b) to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1980.
10(c). Incentive Compensation Plan, as amended
effective January 1, 1993, incorporated by
reference to exhibit 10(c) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1992.
10(d). Employees' Excess Benefit Plan, Plan C, as
amended and restated in 1994, effective
January 1, 1989 (filed herewith).
10(e). Employees' Excess Benefit Plan, Plan D, as
amended effective October 30, 1992,
incorporated by reference to exhibit 10(e)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
10(e)(1). Amendment to Employees' Excess Benefit
Plan, Plan D, effective October 30, 1992
(filed herewith).
10(f). Employment Agreement of Paul H. O'Neill,
as amended through February 25, 1993,
incorporated by reference to exhibit 10(h)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987,
exhibit 10(g) to the Company's Annual Report
on Form 10-K for the year ended December 31,
1990, and exhibit 10(f)(2) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1992.
21
10(g). Deferred Fee Plan for Directors, as amended
effective November 1, 1992, incorporated
by reference to exhibit 10(h) to the
Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
10(h). Restricted Stock Plan for Non-Employee
Directors, as amended effective March 10,
1995 (filed herewith).
10(i). Fee Continuation Plan for Non-Employee
Directors, incorporated by reference to
exhibit 10(k) to the Company's Annual Report
on Form 10-K for the year ended December 31,
1989.
10(j). Deferred Compensation Plan, as amended
effective October 30, 1992, incorporated
by reference to exhibit 10(k) to the
Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
10(j)(1). Amendments to Deferred Compensation Plan,
effective January 1, 1993, February 1,
1994 and January 1, 1995 (filed herewith).
10(k). Summary of the Executive Split Dollar
Life Insurance Plan, dated November 1990,
incorporated by reference to exhibit
10(m) to the Company's Annual Report on
Form 10-K for the year ended December 31,
1990.
10(l). Form of Indemnity Agreement between the
Company and individual directors or officers,
incorporated by reference to exhibit 10(j)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
11. Computation of Earnings per Common Share.
12. Computation of Ratio of Earnings to Fixed
Charges.
13. Portions of Alcoa's 1994 Annual Report to
Shareholders.
18. Letter regarding changes in accounting
principles.
21. Subsidiaries and Equity Entities of the
Registrant.
23. Consent of Independent Certified Public
Accountants.
24. Power of Attorney for certain directors.
27. Financial data schedule.
* Exhibit Nos. 10(a) through 10(k) are management
contracts or compensatory plans required to be filed
as Exhibits to this Form 10-K.
Amendments and modifications to other Exhibits
previously filed have been omitted when in the opinion
of the Registrant such Exhibits as amended or modified
are no longer material or, in certain instances, are no
longer required to be filed as Exhibits.
No other instruments defining the rights of holders
of long-term debt of the Registrant or its subsidiaries
have been filed as exhibits because no such instruments
met the threshold materiality requirements under
Regulation S-K. The Registrant agrees, however, to
furnish a copy of any such instruments to the Commission
upon request.
(d) Financial Statement Schedule.
22
To the Shareholders and Board of Directors
Aluminum Company of America
Our report on the consolidated financial statements
of Aluminum Company of America has been incorporated by
reference in this Form 10-K from page 25 of the 1994
Annual Report to Shareholders of Aluminum Company of America.
In connection with our audits of such financial statements,
we have also audited the related financial statement schedule
listed under Item 14 of this Form 10K.
In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in
all material respects, the information required to be
included therein.
/S/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
January 11, 1995
23
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS FOR THE YEARS ENDED DECEMBER 31
(in millions)
Col. A Col. B Col. C Col. D Col. E
- ------ ------ ------ ------ ------
Additions
--------------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of period expenses accounts (A) Deductions (B) end of period
- ----------- --------- -------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1994 $ 33.2 $13.4 $(2.0)(A) $ 7.2(B) $ 37.4
1993 17.7 $19.2 $(0.2)(A) $ 3.5(B) $ 33.2
1992 $ 17.3 $ 6.8 $(3.1)(A) $ 3.3(B) $ 17.7
Income tax valuation allowance:
1994 $171.4 $19.9 - $21.3(D) $170.0
1993 $157.3 $52.7 - $38.6(D) $171.4
1992 $156.1(C) $ 1.2 - - $157.3
<FN>
Notes: (A) Collections on accounts previously written off, acquisition of subsidiaries and
foreign currency translation adjustments.
(B) Uncollectible accounts written off.
(C) Represents the implementation of SFAS 109 effective January 1, 1992.
(D) Related primarily to utilization of tax loss carryforwards.
</TABLE>
25
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the under-
signed, thereunto duly authorized.
ALUMINUM COMPANY OF AMERICA
March 22, 1995 By /s/ Earnest J. Edwards
Earnest J. Edwards
Vice President and Controller
(Also signing as Principal
Accounting Officer)
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Paul H. O'Neill Chairman of the Board March 22, 1995
Paul H. O'Neill and Chief Executive
Officer (Principal
Executive Officer and
Director)
/s/ Jan H. M. Hommen Executive Vice President March 22, 1995
Jan H. M. Hommen and Chief Financial
Officer (Principal
Financial Officer)
Kenneth W. Dam, John P. Diesel, Joseph T. Gorman, Judith
M. Gueron, Sir Ronald C. Hampel, John P. Mulroney, Sir
Arvi Parbo, Henry B. Schacht, Forrest N. Shumway,
Franklin A. Thomas and Marina v.N. Whitman, each as a
Director, on March 22, 1995, by Barbara S. Jeremiah, their
Attorney-in-Fact.*
*By /s/ Barbara S. Jeremiah
Barbara S. Jeremiah Attorney-in-Fact
26
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3(a). Articles of the Registrant as amended,
incorporated by reference to exhibit 3(a)
to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
3(b). By-Laws of the Registrant, incorporated by
reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1991.
10(a). Long Term Stock Incentive Plan, effective
January 1, 1992, incorporated by reference to
exhibit 10(a) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.
10(a)(1). Amendments to Long Term Stock Incentive Plan,
effective January 1, 1995 (subject to shareholder
approval) (filed herewith).
10(b). Employees' Excess Benefit Plan, Plan A, incorpo-
rated by reference to exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1980.
10(c). Incentive Compensation Plan, as amended effective
January 1, 1993, incorporated by reference to
exhibit 10(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
10(d). Employees' Excess Benefit Plan, Plan C, as
amended and restated in 1994, effective
January 1, 1989 (filed herewith).
10(e). Employees' Excess Benefit Plan, Plan D, as
amended effective October 30, 1992, incorporated
by reference to exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1992.
10(e)(1). Amendment to Employees' Excess Benefit Plan,
Plan D, effective October 30, 1992 (filed
herewith).
10(f). Employment Agreement of Paul H. O'Neill,
as amended through February 25, 1993,
incorporated by reference to exhibit 10(h) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1987, exhibit 10(g) to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and
exhibit 10(f)(2) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
10(g). Deferred Fee Plan for Directors, as amended
effective November 1, 1992, incorporated by reference
to exhibit 10(h) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
10(h). Restricted Stock Plan for Non-Employee Directors,
as amended effective March 10, 1995 (filed herewith).
10(i). Fee Continuation Plan for Non-Employee Directors,
incorporated by reference to exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1989.
10(j). Deferred Compensation Plan, as amended effective
October 30, 1992, incorporated by reference to
exhibit 10(k) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
10(j)(1). Amendments to Deferred Compensation Plan, effec-
tive January 1, 1993, February 1, 1994 and
January 1, 1995 (filed herewith).
10(k). Summary of the Executive Split Dollar Life
Insurance Plan, dated November 1990, incorporated
by reference to exhibit 10(m) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1990.
10(l). Form of Indemnity Agreement between the Company
and individual directors or officers, incorporated
by reference to exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1987.
11. Computation of Earnings per Common Share.
12. Computation of Ratio of Earnings to Fixed
Charges.
13. Portions of Alcoa's 1994 Annual Report to
Shareholders.
18. Letter regarding changes in accounting principles.
21. Subsidiaries and Equity Entities of the
Registrant.
23. Consent of Independent Certified Public
Accountants.
24. Power of Attorney for certain directors.
27. Financial data schedule.
Exhibit 10(a)(1)
Long Term Stock Incentive Plan
Amendment - Effective January 1, 1995
1. The definition of "Fair Market Value" in Article I of
the Plan shall be amended to read in its entirety as
follows:
FAIR MARKET VALUE means, with respect to Company Stock,
(1) the mean of the high and low sales prices of such stock
(a) as reported on the composite tape (or other appropriate
reporting vehicle as determined by the Committee) for a
specified date or, if no such report of such price shall be
available for such date, as reported for the New York Stock
Exchange for such date or (b) if the New York Stock Exchange
is closed on such date, the mean of the high and low sales
prices of such stock as reported in accordance with (a) above
for the next preceding day on which such stock was traded on
the New York Stock Exchange, or (2) at the option of and as
determined by the Committee, the average of the mean of the
high and low sales prices of such stock as reported in
accordance with (1) above for a period of up to ten
consecutive business days.
2. Article II, Section 3 of the Plan shall be amended to
read in its entirety as follows:
Limitation on Optioned Shares. In no event may any stock
option be granted to any Employee who owns stock possessing
more than five percent of the total combined voting power or
value of all classes of stock of the Company. The maximum
number of shares subject to options awarded to any one
individual in any calendar year may not exceed 500,000 shares.
3. Article IV, Section 1 of the Plan shall be amended by
revising the first sentence thereof to read as follows:
Number of Shares. The shares of Company Stock that may be
issued under the Plan, out of authorized but heretofore
unissued Company Stock, or out of Company Stock held as
treasury stock, or partly out of each, shall not exceed 4.4
million shares plus an additional number of shares equal to
the number of shares which at January 1, 1995 were reserved
for issuance under the Plan as then in effect.
(Note: SHARE NUMBERS IN THIS AMENDMENT DO NOT REFLECT THE
TWO-FOR-ONE COMMON STOCK SPLIT OF FEBRUARY 1995.)
1
Exhibit 10(d)
AMENDED AND RESTATED
EMPLOYEES' EXCESS BENEFITS PLAN C
ADOPTED BY
ALUMINUM COMPANY OF AMERICA
Pursuant to due authorization by the Board of Directors,
Aluminum Company of America has adopted the following
Employees' Excess Benefits Plan C, as amended and restated
effective January 1, 1989, for the exclusive benefit of
selected management and highly compensated employees, whose
pension benefits calculated under certain qualified and non-
qualified plans does not take into account certain deferred
compensation amounts.
ARTICLE I - DEFINITIONS
1.1 The following terms have the specified meanings.
A. "Additional Compensation" means any amount which
the Participant has irrevocably elected to defer under one
or more of the following: (1) the Incentive Compensation
Plan of the Company, not including any gain or loss
thereon, (2) Employees' Excess Benefit Plan D, of the
Company ("Excess D"), not including any gain or loss
thereon, (3) the Alcoa Deferred Compensation Plan, not
including any gain or loss thereon, or (4) the Performance
Pay Plan of the Company, not including any gain or loss
thereon.
B. "Annual Compensation" means the total payments
made by the Company and by any Subsidiaries during a
calendar year for services rendered as an employee, except
as otherwise provided by contractual agreement, other than
living and similar allowances and premium pay and payments
made for specific purposes as determined under supplemental
rules adopted by the Company. Annual Compensation shall
include any amounts by which the Participant has elected to
reduce his or her salary under the Alcoa Savings Plan for
Non-Bargaining Employees or under any cash or deferred
arrangement established under Section 401(k) of Internal
Revenue Code of 1986 as amended, and shall include any
Additional Compensation.
C. "Average Final Compensation" means the average
Annual Compensation received during the five highest years
within the ten calendar years preceding the date such
compensation was discontinued (including the calendar year
in which such compensation was discontinued if this would
increase Average Final Compensation) affording the highest
such average.
D. "Board of Directors" means the Board of Directors
of the Company.
E. "Company" means Aluminum Company of America.
F. "Excess Plan" means the amended and restated
Employees' Excess Benefit Plan C, adopted by the Company
as described herein or as from time to time hereafter amended.
G. "Other Plans" means Plan I, any defined benefit
retirement plan of any Subsidiary, Employees' Excess
Benefits Plan A of the Company ("Excess A") and Employees'
Excess Benefits Plan B of the Company ("Excess B"), as such
1
plans presently exist or as from time to time hereafter
amended.
H. "Participant" means any employee of the Company
or any Subsidiary who meets one or more of the following
requirements:
(1) retires or dies while covered under Excess B,
or
(2) has Additional Compensation, or
(3) on or after January 1, 1989, retires, dies or
terminates while covered under Plan I, and immediately
prior to retirement, death or termination is in a job
grade of 19 or above, or an equivalent of such job
grades as determined by the Company.
I. "Pension Service" means the service used to
calculate the Participant's monthly retirement benefit under
Excess B, or if such Plan is inapplicable, the service used
to calculate such benefit under Plan I.
J. "Plan I" means Employees' Retirement Plan of
Aluminum Company of America, Plan I.
K. "Reduced Average Final Compensation" means Average
Final Compensation which is calculated by reducing each
year's Annual Compensation used by one-half of the amount,
if any, received by a Participant from the Incentive
Compensation Plan and the Performance Pay Plan of the Company.
L. "Retirement Board" means the Retirement Board
created pursuant to Plan I.
M. "Subsidiary" means a corporation at least 5O% of
whose outstanding voting stock is owned or controlled by
the Company and/or one or more other Subsidiaries, and any
non-corporate business entity in which the Company and/or
one or more other Subsidiaries have at least a 50% interest
in capital or profits.
N. "Surviving Spouse" means a deceased Participant's
spouse who is entitled to receive surviving spouse benefits
under Plan I or Excess B.
ARTICLE II - BENEFITS
2.1 A benefit payable under this Excess Plan to a Partici-
pant who retires or terminates with at least 5 years of
Pension Service shall be the greater of the following:
A. FORMULA 1 - for participants who retire on or after
January 1, 1989 and are eligible under Plan I - Rules IC, ID,
IE, IF, IG, IH or IJ, or Excess B, the portion of pension
benefits in pay status that would have been payable for that
month to a Participant under Plan I at the time Pension
Service terminates, had Plan I used Annual Compensation in
determining the pension benefit; however, Annual
Compensation is subject to the limits provided for in
Section 401(a)(17) of the Internal Revenue Code of 1986,
as amended, through 1993, and $250,000 thereafter, or
B. FORMULA 2 - for participants who retire on or after
January 1, 1989 and are eligible under Plan I, IC Rules or
Excess B, the amount of pension benefits which would have
2
been payable to the Participant using the formula contained
in Plan I, IC Rules effective December 31, 1988, had Plan I,
IC Rules used Annual Compensation in determining the pension
benefit, or
C. FORMULA 3 - for participants who retire on or after
January 1, 1989 under Plan I, IC Rules, or Excess B, one-
twelfth of the following:
(1) a. 1.7% of Reduced Average Final
Compensation for each year of Pension Service
up to 30 years, plus
b. 1.3% of Reduced Average Final
Compensation for each year of Pension Service
in excess of 30, less
c. the projected earnings Social
Security offset as defined in Plan I, IC Rules
as of December 31, 1988,
less the amount determined in the following para-
graph (2) a. and b, or (3) a. and b., as applicable.
(2) a. for Participants who retire prior to
attaining age 62 on any type of pension provided
under Plan I, IC Rules or pension equivalent
under Excess B (other than a 55/10 pension or
deferred vested pension), a reduction which equals
one percent (1%) for each year, and prorated
monthly for a partial year, said retirement
precedes age 62, times the amount calculated in
the foregoing paragraph (1), plus
b. any and all applicable reductions and
offsets in accordance with the provisions of
Plan I, IC Rules and/or of Excess B, (i.e.,
actuarial reductions and any other percentage
reduction made in order to create a joint and
survivor annuity).
(3) a. for Participants who retire prior to
attaining age 62 on a 55/10 pension or deferred
vested pension, the Plan I, IC Rules actuarial
reduction to provide for payment prior to age 62,
times the amount calculated in the foregoing
paragraph (1), plus
b. any and all applicable reductions and
offsets in accordance with the provisions of
Plan I, IC Rules and/or Excess B (i.e., actuarial
reductions and any other percentage reduction
made in order to create a joint and survivor
annuity).
D. The pension otherwise payable under Formulae 1,
2 or 3 shall be subject to offsets for payments made from
Other Plans.
2.2 A benefit payable under this Excess Plan to the Surviving
Spouse:
A. of a deceased retiree, shall be 50% of the pension
payable to the retiree on the retiree's date of death,
subject to offset for payments made from Other Plans.
3
B. of an employee who dies while accruing Pension
Service, shall be 50% of the greater of: Formula 1,
Formula 2 or Formula 3 (excluding paragraphs 2.1 C. (2),
as applicable, on the employee's date of death, subject to
the offset for payments made under Other Plans.
C. of an employee who terminates with only rights to a
deferred vested pension, shall be 50% of the greater of
Formula 1, Formula 2 or Formula 3, as applicable, on the date
that the employee's Pension Service is terminated, subject to
the offset of payments made under Other Plans.
2.3 Where the benefits under the Other Plans are not payable
solely in the form of monthly pension benefits over the same
time period, the Retirement Board shall if necessary adjust
the benefits payable under this Excess Plan so that the
Participant or Surviving Spouse is neither advantaged or
disadvantaged for pension purposes.
2.4 Benefits payable to a Participant who retires or to a
Surviving Spouse under this Excess Plan in conjunction with
benefits payable under any specific Other Plans shall commence
concurrently with benefits payable to said Participant or
Surviving Spouse under such Other Plans. Upon the
cessation of payment of benefits to a Participant or
Surviving Spouse under any Other Plans, benefits payable
under this Excess Plan in conjunction with benefits payable
under said Other Plans shall concurrently cease.
2.5 This Excess Plan shall not be construed as conferring
any rights upon any Participant for continuation of employ-
ment with the Company or any Subsidiary, nor shall it
interfere with the rights of the Company or Subsidiary to
terminate the employment of any Participant and/or to take
any personnel action affecting any Participant without
regard to the effect which such action might have upon such
Participant as a prospective recipient of benefits under
this Excess Plan.
2.6 No benefit under this Excess Plan may be assigned,
transferred, pledged or encumbered or be subject in any
manner to alienation or anticipation.
ARTICLE III - CONTRIBUTIONS
3.1 Benefits payable hereunder shall be payable out of
general assets of the Company, and no segregation of assets
for such benefits shall be made. The right of a
Participant or a Surviving Spouse to receive benefits under
this Excess Plan shall be an unsecured claim against said
assets.
ARTICLE IV - ADMINISTRATION OF EXCESS PLAN
4.1 The general administration of this Excess Plan shall
be by the Retirement Board. The Retirement Board has the
discretionary authority to interpret this Excess Plan. The
Retirement Board's resolution of any matter concerning this
Excess Plan shall be final binding upon the Company, any
Participant and/or beneficiary affected hereby.
ARTICLE V - AMENDMENT AND TERMINATION
5.1 This Excess Plan may be amended, suspended or terminated
at any time by the Board of Directors or any other entity
approved by said Board, provided, however, that no amendment,
4
suspension or termination shall reduce or in any manner
adversely affect any Participant's rights with respect to
benefits that are payable or may become payable under
Article II hereof based upon said Participant's Additional
Compensation as of the date of such amendment, suspension
termination.
ARTICLE VI - CONSTRUCTION
16.1 This Excess Plan shall be construed, regulated and
administered under the laws of the Commonwealth of
Pennsylvania.
5
Exhibit 10(e)(1)
AMENDMENT TO
EMPLOYEES' EXCESS BENEFITS PLAN D
1. Effective October 30, 1992, Employees' Excess Benefits
Plan D is revised to delete Section 7.3 in its entirety and
replace it with the following:
7.3 Prior to his or her retirement date, a Participant
may elect that the value of his or her account be
distributed either in a lump sum at retirement or in annual
installments of any number designated by the Participant up
to, but not more than ten (10) following his or her
retirement, commencing the January 31 of the first calendar
year following such retirement and each January 31
thereafter until he or she has received all installments.
A Participant's election to receive installments must be
made at least one year prior to his or her retirement date.
The Participant's election to receive either a lump sum or
annual installments shall become irrevocable one year prior
to the Participant's retirement date. In the event the
Participant fails to make such an election, all amounts in
his or her account shall be distributed as a lump sum
distribution as soon as administratively practical after
his or her retirement.
1
Exhibit 10(h)
ALUMINUM COMPANY OF AMERICA
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
(Revised March 10, 1995)
1. Purpose
The purpose of this Restricted Stock Plan for Non-Employee
Directors (the "Plan") of Aluminum Company of America (the
"Company") is to increase the ownership interest in the
Company of non-employee Directors whose services are con-
sidered essential to the Company's continued growth and
progress and to provide a further incentive to serve as a
Director of the Company. The Plan is a continuation of the
Stock Plan for Non-Employee Directors which originally became
effective November 17, 1989.
2. Administration
The Plan shall be administered by a Committee consisting of
Directors who are employees of the Company and thus not
eligible to participate in the Plan (presently, the Inside
Director Committee). Subject to the provisions of the Plan,
the Committee shall have authority to adopt rules and regu-
lations for carrying out the Plan and to interpret, construe
and administer its provisions. The decisions of the Com-
mittee shall be final and binding upon all parties.
3. Eligibility
Directors of the Company who are not employees of the Company
or any subsidiary or affiliate of the Company shall be
eligible to participate in the Plan. Any Director who is a
director or chairman of the board of directors of a subsi-
1
diary or affiliate of the Company shall not, by virtue
thereof, be deemed to be an employee of the Company or such
subsidiary or affiliate for purposes of such eligibility.
4. Awards of Restricted Shares
On the date of the Company's annual shareholders meeting in
each year, each eligible Director elected at such meeting or
whose term of office continues beyond the time of such
meeting shall be granted 500 Restricted Shares. "Restricted
Shares" means shares of the Company's common stock, par value
$1.00 ("Company Stock"), which are subject to the terms and
conditions of Section 5 of this Plan. Only shares of Company
Stock which previously have been issued and reacquired by the
Company ("treasury shares") shall be utilized for awards of
Restricted Shares under this Plan.
5. Terms and Conditions of Restrictions
(a) Shares issued to a non-employee Director as an award
of Restricted Shares shall be subject to the following terms
and conditions:
(i) None of the Restricted Shares may be sold, assigned,
transferred, pledged or otherwise encumbered during the
Restriction Period; and
(ii) All Restricted Shares shall be forfeited and shall
be returned to the Company and all rights of the non-
employee Director to such Restricted Shares shall termi-
nate without any payment of consideration by the Company
if a non-employee Director's service with the Board
terminates prior to the end of the Restriction Period.
2
Each eligible non-employee Director, as a condition to
receipt of the first award of Restricted Shares, shall
execute and deliver to the Company a stock power in blank
with respect to all Restricted Shares that may be awarded
to such Director in the future. Such stock power shall be
held in custody by the secretary of the Company and shall
be used only to effect a transfer of Restricted Shares to
the Company in connection with a forfeiture of Restricted
Shares by such Director.
(b) During the Restriction Period, except following a
forfeiture as set forth in paragraph (a)(ii) above, the non-
employee Director shall beneficially own the Restricted
Shares and shall have all of the rights of a shareholder of
Company Stock (other than the right to transfer, sell,
assign, pledge or otherwise encumber the shares), including
but not limited to the right to receive all cash dividends
paid on such Restricted Shares and the right to vote such
Restricted Shares. All shares of Company Stock or other
securities paid on Restricted Shares (whether as a dividend
or other distribution) shall be held in accordance with
Section 6 of this Plan and shall be subject to the same
restrictions as the Restricted Shares to which they relate.
6. Uncertificated Shares; Legended Certificates
(a) All Restricted Shares shall be and remain uncerti-
ficated during the Restriction Period. Restricted Shares
shall be held in accounts established by the Company for
each non-employee Director with First Chicago Trust Company
of New York or such other financial institution which may
act as Transfer Agent for Company Stock from time to time
(in such capacity, the "Agent"). The Company shall cause
3
the Agent to issue one or more certificates for shares held
in a non-employee Director's account promptly after expira-
tion of the Restriction Period. In the event of a for-
feiture of Restricted Shares, all Restricted Shares standing
in the account of such Director shall be delivered and shall
belong to the Company.
(b) Notwithstanding the foregoing, in the event any
certificate for Restricted Shares is delivered to a non-
employee Director prior to the expiration of the Restriction
Period, the Company shall cause the following legend to be
set forth thereon:
"The transferability of this certificate and the
shares of stock represented hereby is subject to
the restrictions, terms and conditions (including
forfeiture and restrictions on transfer, sale or
pledge) contained in the Aluminum Company of
America Restricted Stock Plan for Non-Employee
Directors. A copy of that Plan is on file in the
office of the secretary of Aluminum Company of
America, 425 Sixth Avenue, Alcoa Building, Pitts-
burgh, Pennsylvania 15219-1850."
Such legend shall not be removed from any such stock certi-
ficate until the expiration of the Restriction Period.
(c) "Restriction Period" means, with respect to an award
of Restricted Shares, the period from the date of such award
to the date the restrictions on the Restricted Shares so
awarded lapse as provided in Section 7 (a) of this Plan. The
foregoing notwithstanding, the Restriction Period for an
award of Restricted Shares shall not lapse for any reason
until at least six months following such award date.
7. Lapse of Restrictions; Expiration of Restriction Period
(a) The restrictions set forth in Section 5 shall lapse
4
with respect to any award of Restricted Shares and the
Restriction Period shall terminate with respect thereto upon
the occurrence of the earliest of the following events:
(i) the death of the Director;
(ii) the disability of the Director requiring discon-
tinuance of service on the Board;
(iii) termination of Board service in order to enter
government service;
(iv) resignation of the Director from the Board after
furnishing an opinion of counsel reasonably satis-
factory to a majority of the Board (other than the
affected Director) to the effect that continued
membership on the Board will result in the Director
having a conflict of interest or suffering some
other significant legal liability;
(v) a determination by a majority of the Board (other
than the affected Director) that such Director has
an Immediate and Severe Financial Hardship which
cannot be met through any other means, limited to
the number of Restricted Shares necessary to meet
that hardship;
(vi) the failure of the Director to be re-elected after
being duly nominated;
(vii) the failure of the Director to be nominated for
Board service other than due to the Director's
refusal or failure to stand for such renomination;
or
5
(viii) termination of Board service after having reached
retirement age under the Board's then current tenure
policy for directors.
(b) "Immediate and Severe Financial Hardship" shall mean
an immediate and severe financial hardship resulting from a
sudden and unexpected illness or accident of a Director or
such Director's spouse or dependents, or from a loss of such
Director's property due to casualty or other similar
extraordinary and unforseeable circumstances arising as a
result of events beyond the control of such Director.
8. Regulatory Limitations
The Company reserves the right to take such actions with
respect to this Plan and to any Restricted Shares awarded
hereunder which in its judgment are necessary or desirable
to assure compliance with applicable securities laws and
stock exchange rules.
9. Adjustment upon Changes in Company Stock
In the event there shall be any change in Company Stock
through merger, consolidation, reorganization, recapitaliza-
tion, stock dividend, stock split, exchange of stock or other
change in the corporate structure or shares of the Company,
appropriate adjustments shall be made in the number and kind
of shares or other securities or property subject to subse-
quent awards hereunder to reflect such changes.
10. Amendment and Termination of Plan
The Board of Directors may from time to time amend, modify,
suspend or terminate this Plan, provided however that the
provisions of the Plan regarding eligibility, timing of
awards and the number of shares included in any award may
not be amended or revised more than once every six months
other than to comport with changes in the Internal Revenue
6
Code of 1986, as amended, or the rules and regulations
thereunder.
11. Withholding Taxes
The Company shall have the right to require, prior to the
delivery or release of any share certificate, payment of
any taxes required by law to be withheld with respect to
the shares. A Director may satisfy his or her obligation
to pay any United States' Federal, state or local withholding
taxes by having the Company withhold from the shares of
Company Stock to be so delivered or released or by directing
the Agent to pay over to the Company from the account of such
Director with such Agent that number of shares whose Fair
Market Value on the date taxes are determined equals the
withholding amount to be paid. "Fair Market Value" is the
mean between the high and low trading prices.
12. Miscellaneous
This Plan shall not be construed as conferring any rights
upon any Director to continue as a Director for any period
of time, or at any particular rate of compensation.
Restricted Shares awarded hereunder shall constitute com-
pensation for services as a Director.
This Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania, excluding
any choice of law provisions which may indicate the applica-
tion of the laws of another jurisdiction.
7
Exhibit 10(j)(1)
AMENDMENTS TO
ALCOA DEFERRED COMPENSATION PLAN
1. Effective January 1, 1993, the Alcoa Deferred
Compensation Plan is revised to delete paragraph Section
7.1(e) in its entirety.
2. Effective October 30, 1992, the Alcoa Deferred
Compensation Plan is revised to delete Section 8.3 in its
entirety and replace it with the following:
8.3 Prior to his or her retirement date, a
Participant may elect that the value of his or her account
be distributed either in a lump sum at retirement or in
annual installments of any number designated by the
Participant up to, but not more than ten (10) following his
or her retirement, commencing the January 31 of the first
calendar year following such retirement and each January 31
thereafter until he or she has received all installments.
A Participant's election to receive installments must be
made at least one year prior to his or her retirement date.
The Participant's election to receive either a lump sum or
annual installments shall become irrevocable one year prior
to the Participant's retirement date, or at such other time
as may be approved by the Committee. In the event the
Participant fails to make such an election, all amounts in
his or her account shall be distributed as a lump sum
distribution as soon as administratively practical after
his or her retirement.
3. Effective February 1, 1994, the Alcoa Deferred
Compensation Plan is revised to add a new section 3.5 as
follows:
3.5 A Participant who is authorized by the Inside
Director Committee and who by proper election has deferred
the receipt of any "special payments" (as determined by the
Company), shall have his or her account credited in an
amount equal to the amount of such deferral. Such special
payment credits shall be treated as Incentive Compensation
Deferral Credits.
4. Effective January 1, 1995, the Alcoa Deferred
Compensation Plan is amended by deleting the definition of
"Savings Plan" in its entirety, and replacing it with the
following:
"Savings Plan" means the Alcoa Savings Plan for Non-
Bargaining Employees and/or the Alcoa Savings Plan for
Stolle Employees, as they are now in existence or as
hereafter amended.
1
Exhibit 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE YEARS ENDED DECEMBER 31
(In millions, except share and per share amounts)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
1. Income applicable to common
stock before extraordinary loss $441.0 $2.7 $20.3
and accounting changes*
2. Net income (loss) aplicable
to common stock* $373.1 $2.7 ($1,141.3)
3. Average number of common
shares outstanding at the
beginning of the year and the end
of each month during the year 177,881,428 175,346,282 170,948,178
4. Primary earnings per common
share before extraordinary loss
and accounting changes (1 divided
by 3) $ 2.48 $.02 $.12
5. Primary earnings (loss) per
common share (shares for accounting
changes and extraordinary
items = 177,247,646 in 1994
and 170,164,638 in 1992) $ 2.10 $.02 ($6.70)
6. Interest on 6-1/4%
convertible subordinated
debentures and amortization of
related debt discount and
expenses, net of taxes - - $6.3
7. Fully diluted earnings
before extraordinary loss and
accounting changes (1 + 6) $441.0 $2.7 $26.6
8. Fully diluted earnings
(loss) (2 + 6) $373.1 $2.7 ($1,135.0)
9. Shares issuable upon full
conversion of convertible
subordinated debentures - - 4,806,452
10. Shares issuable under stock
incentive plans (treasury stock
method) 22,930 17,350 82,882
11. Shares issuable upon
exercise of dilutive outstanding
stock options (treasury stock
method) 1,232,914 405,062 726,532
12. Fully diluted shares (3 + 9
+ 10 + 11) 179,137,272 175,768,694 176,564,044 4
13. Fully diluted earnings per
common share before extraordinary
loss and accounting changes (7
divided by 12) $2.46 $.02 $.15
14. Fully diluted earnings
(loss) per common share (shares
for extraordinary items and
accounting change calculations =
177,908,286 in 1994 and
176,184,486 in 1992) $2.08 $.02 ($6.44)
<FN>
* After preferred dividend requirement
</TABLE>
27
Exhibit 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31
(in millions, except ratios)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income before taxes on income, and before
extraordinary loss and accounting
changes $822.5 $191.1 $298.6 $411.5 $1,057.4
Minority interests' share of earnings of
majority-owned subsidiaries
without fixed charges - (5.9) (5.7) (7.7) -
Less equity (earnings) losses (.3) 13.0 12.2 5.2 3.0
Fixed charges added to net income 138.4 110.1 133.5 193.1 217.8
Proportionate share of income (loss)
of 50% owned persons 1.9 (11.5) (11.2) (.5) (7.4)
Distributed income of less than 50%
owned persons - - - 4.6 -
Amortization of capitalized interest:
Consolidated 25.5 20.6 20.0 19.6 18.5
Proportionate share of 50% owned persons 1.2 .8 1.0 .4 .9
------ ------ ----- ------ --------
Total earnings $989.2 $318.2 $448.4 $626.2 $1,290.2
===== ===== ===== ===== =======
Fixed charges:
Interest expense:
Consolidated $106.7 $ 87.8 $105.4 $153.2 $ 184.7
Proportionate share of 50% owned persons 7.4 5.5 7.0 17.8 9.7
------ ------ ------ ------ --------
114.1 93.3 112.4 171.0 194.4
------ ------ ------ ------ --------
Amount representative of the interest
factor in rents:
Consolidated 23.9 16.4 20.7 21.3 23.1
Proportionate share of 50% owned persons .4 .4 .4 .8 .3
------ ------ ------ ------ --------
24.3 16.8 21.1 22.1 23.4
------ ------ ------ ------ --------
Fixed charges added to earnings 138.4 110.1 133.5 193.1 217.8
------ ------ ------ ------ --------
Interest capitalized:
Consolidated 1.5 3.5 11.1 12.7 20.5
Proportionate share of 50% owned persons - - - - -
------ ------ ------ ------ --------
1.5 3.5 11.1 12.7 20.5
------ ------ ------ ------ --------
Preferred stock dividend requirements
of majority-owned subsidiaries 13.1 29.6 62.4 69.0 65.1
------ ------ ------ ------ --------
Total fixed charges $153.0 $143.2 $207.0 $274.8 $ 303.4
====== ====== ====== ====== ========
Ratio of earnings to fixed charges 6.47 2.22 2.17 2.28 4.25
====== ====== ====== ====== ========
</TABLE>
28
Exhibit 13
<TABLE>
<CAPTION>
FINANCIAL REVIEW
(dollars in millions, except share amounts and ingot prices)
FIVE-YEAR SELECTED FINANCIAL DATA 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and operating revenues $ 9,904.3 $ 9,055.9 $ 9,491.5 $ 9,884.1 $ 10,710.2
Income before extraordinary loss and
accounting changes* 443.1 4.8 22.4 62.7 295.2
Extraordinary loss and accounting changes (67.9) - (1,161.6) - -
Net income (loss)* 375.2 4.8 (1,139.2) 62.7 295.2
Per common share^
Before extraordinary loss and accounting
changes 2.48 .02 .12 .36 1.70
Net income 2.10 .02 (6.70) .36 1.70
- --------------------------------------------------------------------------------------------------------------------------------
Alcoa's average realized price per pound for
aluminum ingot .64 .56 .59 .67 .75
Average U.S. market price per pound for
aluminum ingot (Metals Week) .71 .53 .58 .59 .74
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share^ .80 .80 .80 .89 1.53
Total assets 12,353.2 11,596.9 11,023.1 11,178.4 11,413.2
Long-term debt (noncurrent) 1,029.8 1,432.5 855.3 1,130.8 1,295.3
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Includes net charges of $50.0, or 28 cents per common share, in 1994; $74.5,
or 43 cents per share, in 1993; $173.9, or $1.02 per share, in 1992; $217.0,
or $1.28 per share, in 1991; and $275.0, or $1.60 per share, in 1990. Also
included in 1994 is a gain of $300.2, or $1.69 per share.
^ All per share amounts have been restated to reflect the two-for-one stock
split in February 1995.
</TABLE>
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Earnings for the year, before unusual items, were $193 compared
with $79 in 1993. Total revenues of $9,904 were $848 higher than
those for the previous year. Most of the revenue increase was from
a higher-value aluminum product mix and higher shipments of
nonaluminum products, partially offset by lower prices for a
number of products.
Gross margin (sales and operating revenues less cost of goods
sold) was up $190 from 1993. The increase was helped by the higher
revenues and improved cost performance. Margin was unfavorably
affected by higher purchased metal and other raw material costs.
The following table summarizes Alcoa's results adjusted for
unusual items described later in this discussion.
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 375.2 $ 4.8 $ (1,139.2)
Significant unusual items:
Gain from Alcoa/ WMC
transaction (300.2) - -
Special charges, net 50.0 74.5 173.9
Extraordinary loss 67.9 - 50.2
Accounting changes, net - - 1,111.4
- ------------------------------------------------------------------------------
Adjusted net income $ 192.9 $ 79.3 $ 196.3
- ------------------------------------------------------------------------------
</TABLE>
The year-to-year comparisons in the discussion that follows on
geographic and segment information also exclude the unusual items.
GEOGRAPHIC AND SEGMENT INFORMATION
Operating profit in 1994 was $513 compared with $351 in 1993 and
$533 in 1992. Operating profit, for geographic and segment
purposes, consists of sales and operating revenues less operating
expenses--except interest expense, nonoperating income, income
taxes and minority interests. See Note P to the financial
statements for additional geographic and segment information.
OPERATIONS BY GEOGRAPHIC AREA
USA--Revenues of $5,574 were up 6% from 1993 after a decline of
7% in 1993 from 1992. Most of the recovery in revenues was due
to higher fabricated products shipments. Prices for these
products continued to be weak. Revenues were also negatively
affected by lower shipments of aluminum ingot due to the idling
of 410,000 metric tons (mt) of U.S. smelting capacity that began
in 1993. Although the average ingot price rose 13% from 1993,
lower ingot shipments more than offset that benefit and ingot
revenues fell 23%.
U.S. operations had an operating loss in 1994 of $65 compared
with a loss of $193 in 1993 and a profit of $55 in 1992. The
improvement from 1993 is principally reflected in building
products, forged products and commercial rolled products.
PACIFIC--Revenues of $1,670 in 1994 were down 5% from 1993. The
Pacific area principally reflects the activities of Alcoa of
Australia (AofA). The decline in revenues was mainly due to a
10% drop in prices for alumina, and lower shipments of aluminum
ingot resulting from production cutbacks at AofA smelters.
Operating profit in 1994 was $291 compared with $399 in 1993 and
$298 in 1992. The lower profit reflects the effects of the
decline in alumina prices.
OTHER AMERICAS--Revenues of $1,362 in 1994 jumped 44% from 1993.
Alcoa Aluminio (Aluminio) in Brazil benefited from higher
shipments and prices in virtually all of its product lines.
Shipments and prices of closures, particularly in the Mexican
operations, also improved. With these benefits plus improved
performance, operating profit reached $239 in 1994 compared with
$139 in 1993 and $91 in 1992.
18
EUROPE--Revenues of $1,298 in 1994 improved by 21% over those in
1993. Operating profit in 1994 reached $48 compared with $6 in
1993 and $90 in 1992. The most significant improvements in both
revenues and profits came from Alcoa's operations in Hungary and
in the Netherlands. Alcoa-Kofem, located in Hungary, benefited
from higher fabricated products sales and significantly greater
plant utilization.
OPERATIONS BY SEGMENT
Alcoa's integrated operations consist of three segments: Alumina
and Chemicals, Aluminum Processing, and Non-Aluminum Products.
I. ALUMINA AND CHEMICALS SEGMENT
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,508 $ 1,437 $ 1,422
Operating profit 277 373 278
- ------------------------------------------------------------------------------
</TABLE>
Approximately two-thirds of the revenues from this segment are
from sales of alumina. An oversupply of alumina that began in
1992 continued into 1994. With this overhang and smelter
cutbacks worldwide, prices for alumina fell 16% in 1992, dropped
slightly in 1993, and declined 12% in 1994.
Alumina shipments rose 12% from 1993, following an 8% increase
from 1992 to 1993. Part of the increase was due to full
utilization of AofA's Wagerup refinery expansion. Revenues, on
the other hand, were flat, as the additional volume just about
offset lower prices. Revenues in 1993 were up 8% from 1992
because of higher volume.
Revenues from alumina-based chemical products were 13%
higher than in 1993. Higher volumes in the U.S. and Brazilian
markets more than offset continued pressure on prices in the
European market. Revenues in 1993 fell 10% from 1992 due
primarily to lower demand and prices in the U.S. and Europe.
Operating profit of $277 for this segment was down $96 from
1993. The chemicals businesses showed about an 8% improvement.
However, the alumina businesses were unfavorably affected by
lower prices that more than offset lower unit production costs.
II. ALUMINUM PROCESSING SEGMENT
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total aluminum shipments (000
mt) 2,551 2,580 2,797
Revenues $ 6,477 $ 5,974 $ 6,517
Operating profit (loss) 145 (21) 289
- ------------------------------------------------------------------------------
</TABLE>
Total aluminum shipments in 1994 were down slightly from 1993
after falling 8% from 1992 to 1993. The declines were mostly
from aluminum ingot, which reflects the shutdown of 24% of the
company's smelting capacity.
Total revenues from this segment rose 8% from 1993 on higher
sales of engineered and flat-rolled products. This segment had
an operating profit of $145 in 1994 after sustaining a loss of
$21 in 1993. Factors contributing to the improvement include a
higher-value product mix, cost reductions--including lower
smelting costs--and the higher revenues. These were partially
offset by lower prices for rigid container sheet (RCS) for
beverage cans and higher cost of purchased metal. The loss in
1993 was mainly in packaging and aerospace markets, and from
aluminum ingot operations. This segment's shipments and
revenues are made up of the following product classes:
<TABLE>
<CAPTION>
PRODUCT CLASSES 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments (000 metric tons)
Flat-rolled products 1,381 1,271 1,323
Engineered products 433 379 353
Aluminum ingot 655 841 1,023
Other aluminum products 82 89 98
- ------------------------------------------------------------------------------
Total shipments 2,551 2,580 2,797
- ------------------------------------------------------------------------------
Revenues
Flat-rolled products $ 3,201 $ 2,974 $ 3,189
Engineered products 1,882 1,528 1,527
Aluminum ingot 920 1,042 1,336
Other aluminum products 473 430 465
- ------------------------------------------------------------------------------
Total revenues $ 6,476 $ 5,974 $ 6,517
- ------------------------------------------------------------------------------
</TABLE>
19
FLAT-ROLLED PRODUCTS--A significant portion of the shipments and
revenues in this product class comes from the sale of RCS. In
1993, Alcoa experienced severe competition for RCS market share.
As a result, RCS prices fell 9% from their 1992 level and
declined 2% in 1994. Higher demand for RCS in 1994 resulted in
a 2% increase in shipments from the year earlier. Revenues,
however, stayed about even.
Sheet and plate shipments, serving the aerospace and commer-
cial products markets, were up 31% over 1993 despite continuing
weakness in the aerospace sector. In both 1994 and 1993,
shipments to aerospace customers were down but were more than
offset by higher commercial products sales. Revenues for sheet
and plate were up 21% from 1993, due mostly to the higher volume
of commercial products.
ENGINEERED PRODUCTS--The products in this class include extru-
sions used principally in the transportation and construction
markets, forgings and wheels, wire, rod and bar, and automobile
bumpers. Total shipments of engineered products were up 14% from
1993 and revenues rose 23%. This compares with a 7% rise in
shipments in 1993 from 1992 while revenues were about the same.
Shipments of extrusions were 17% higher than in 1993 and
revenues rose 22%. Approximately one-half of 1994 revenues for
this product came from Europe and Brazil. In 1993, shipments
of extrusions were down 12% from 1992 while revenues fell 19%,
reflecting the weak aerospace market and declining prices.
Shipments of forged wheels for the transportation market
climbed 39% in 1994 with a similar increase in revenues. These
dramatic increases followed a 27% increase in shipments from
1992 to 1993 and a 31% increase in revenues.
Shipments of aluminum products for the U.S. building and
construction market rose 27% in 1994; revenues were up 24%.
ALUMINUM INGOT--Alcoa's smelters operated at approximately 80%
of worldwide rated capacity during 1994 as 450,000 mt of
capacity was idled due to the oversupply of aluminum ingot on
world markets during the last several years. As a result,
ingot shipments in 1994 were 22% lower than in 1993. Shipments
in 1993 fell 18% from 1992. The average U.S. market price for
ingot, which was 58 cents per pound in 1992, fell to 53 cents
in 1993. As world inventories declined during 1994, ingot
prices began to recover and the average U.S. price rose to 71
cents per pound. The price in early 1995 has further risen to
the high 80 cent range.
Alcoa's average realized price for ingot in 1994 was 64 cents
compared with 56 cents in 1993. Ingot revenues in 1994 were
down 12% from 1993 after falling 22% in 1993 from 1992.
Partially offsetting lower volumes and prices in the U.S. and
Australia during 1994 were higher ingot shipments and prices at
Aluminio.
OTHER ALUMINUM PRODUCTS--Shipments of these products, which are
principally scrap and aluminum closures, were down 8% from 1993,
mostly due to lower scrap sales. Revenues, however, rose 10% on
the strength of higher prices for scrap. In 1993, shipments of
other aluminum products were down 9% from 1992 while revenues
declined 8%.
III. NON-ALUMINUM PRODUCTS SEGMENT
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,919 $ 1,646 $ 1,553
Operating profit (loss) 91 5 (31)
- ------------------------------------------------------------------------------
</TABLE>
Revenues from this segment were up 17% in 1994 following a 6%
increase in 1993. Operating profit of $91 rose $86 from 1993.
Revenues from packaging, retail and copper conductor products
for Aluminio were up 66%. Alcoa Fujikura benefited from strong
automobile sales in 1994; its revenues rose 17%, principally
from automobile wire harness sales. Alcoa Electronic Packaging
increased its revenues by over 200% from 1993 with greater plant
utilization and higher demand for electronic components. Plastic
closures revenues in Latin American markets jumped 27%. Alcoa is
a leading supplier worldwide of both plastic and aluminum
closures. Nonaluminum building products revenues rose 14%.
GAIN FROM ALCOA/WMC Transaction
In December 1994, Alcoa recorded a gain of $400.2 ($300.2 after-
tax) from the acquisition by Western Mining Corporation Holdings
Limited (WMC), located in Melbourne, Australia, of a 40%
interest in Alcoa's worldwide bauxite, alumina and inorganic
chemicals businesses. As part of the agreement, Alcoa acquired
an additional 9% interest in AofA, bringing its total interest
in that company to 60%. An additional cash payment may be made
by WMC in the year 2000 if certain financial performance
targets of the alumina chemicals businesses are met. See
Note C for additional information about this transaction.
SPECIAL ITEMS
Included in income from operations in 1994 is a charge of $79.7
($50.0 after-tax) from closing a forgings and extrusion plant
in Vernon, California. The charge included $32.8 for asset
write-offs and $46.9 related primarily to severance costs.
Special charges of $150.8 in 1993 ($98.0 after-tax) included
$134.1 for severance costs associated with permanent reductions
of hourly paid and salaried employees, mainly in the company's
U.S. aluminum operations. The remaining $16.7 was associated
with closing certain businesses at several plants, including the
manufacture of aluminum rod at Rockdale, Texas. There was also a
credit of $35.4 related to tax rate reductions, partially offset
by an $11.9 charge for new three-year labor agreements.
The 1992 special charges of $251.6 ($173.9 after-tax)
consisted of $95.7 for redundancies and $155.9 for asset dispo-
sitions. The dispositions included the shutdown of a facility in
South Bend, Indiana and impairment of Alcoa Composites, Inc.
20
EXTRAORDINARY LOSSES
The extraordinary losses in 1994 and 1992 of $67.9 and $50.2,
respectively, were from the early retirements of 7% discount
debentures that carried effective interest rates through
maturities in 2011 and 1996 of 14.7%. The losses were the
unamortized portions of the original discounts that would have
been paid at the time the debt matured.
COSTS AND OTHER INCOME
COST OF GOODS SOLD--Cost of goods sold in 1994 rose $659, or
9% from 1993. The major contributors were:
- -A higher-cost product mix $350
- -Higher volume 265
- -Higher prices for purchased
metal and other raw materials 215
These were partially offset by:
- -Operating performance
and efficiencies 160
Cost of goods sold in 1993 was $152 lower than in 1992
principally because of lower volume--$275; operating perfor-
mance--$110; and lower purchased metal costs--$57. These were
partially offset by costs associated with new subsidiaries of
$181 and inventory profits in 1992 of $76.
SELLING AND GENERAL ADMINISTRATIVE EXPENSES--These expenses
rose 5% during 1994 and primarily reflect higher commissions
and compensation costs. Selling and administrative expenses
as a percent of sales was 6.4% in 1994, 6.7% in 1993 and 6.2%
in 1992.
INTEREST EXPENSE--Interest expense was up $19 from 1993
primarily because of higher borrowings by Aluminio, higher
short-term interest rates and higher average commercial paper
outstanding during most of the year. These were partially
offset by the favorable effects of early redemption in 1994 of
high-cost debentures. At the end of 1994, there were no U.S.
commercial paper borrowings outstanding. Comparing 1993 with
1992, an $18 decline in interest costs reflects lower rates and
the payment in 1992 of high-cost discount debentures.
INCOME TAXES--Taxes on income in 1994 were $219, for an
effective tax rate for the year of 26.7%. The difference
between this rate and the U.S. statutory rate of 35% is mostly
due to a portion of the gain on the Alcoa/WMC transaction being
nontaxable.
The provision for income taxes in 1993 resulted in a tax
benefit of $10 compared with a tax cost of $132 in 1992. Besides
the effect of a lower level of pretax income in 1993, the
difference included the effects of a change in Australia's tax
rate from 39% to 33% in 1993. This resulted in a $65 reduction
to AofA's taxes. In addition, the U.S. tax rate increased from
34% to 35% in 1993. Although the rate increased, Alcoa
benefited by a one-time credit of $10 because of its net
deferred tax assets in the U.S.
OTHER INCOME/FOREIGN CURRENCY--Included in other income are
translation and exchange gains (losses) of $(10.3) in 1994,
$14.6 in 1993 and $(25.5) in 1992. In 1994 there were
unfavorable variances at operations in Germany and Australia;
and in Mexico, the peso was devalued in December. The favorable
change in 1993 from 1992 was mainly at AofA where the exchange
rate moved from 78 cents to 68 cents, and at Suralco, which was
affected by a significant devaluation of the Suriname guilder
late in 1993. At the time of the devaluation, Suralco was in a
net monetary liability position.
The effect on net income from translation and exchange gains
(losses), after taxes and minority interests, was $(9.6) in
1994, $9.0 in 1993 and $(11.1) in 1992.
21
RISK FACTORS
In addition to the risks inherent in Alcoa's worldwide business
and operations, the company is exposed generally to market,
financial, political, and economic risks.
COMMODITY RISKS--Alcoa is a leading global producer of aluminum
ingot and aluminum 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 1993, when world metal prices reached an all-time low,
Alcoa temporarily idled 310,000 mt of its primary aluminum
production. Further reductions in early 1994 brought Alcoa's
total worldwide idled capacity to 450,000 mt.
For purposes of risk assessment, Alcoa divides its operations
into four regions: U.S., Pacific, Other Americas and Europe.
The Pacific, principally Australia, and the Other Americas,
principally Brazil, are in net long metal positions, and from
time to time, may sell production forward. Europe has no
smelting operations controlled by Alcoa, and accordingly, is
net short and may purchase forward positions from time to time.
At the present time, forward purchases activity within the
latter three regions is not material.
In 1994 the company had entered into longer-term contracts
with a variety of customers in the U.S. for the supply of
approximately 1,500,000 mt of aluminum products over the next
several years. As a hedge against the economic risk of higher
prices for metal needs associated with these contracts, Alcoa
entered into long positions using principally futures and
option contracts. At December 31, 1994, these contracts totaled
approximately 1,400,000 mt. The contracts limit the unfavorable
effect of price increases on metal purchases and likewise limit
the favorable effect from price declines. The futures and option
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.
For financial accounting purposes, the gains and losses on
the hedging contracts are reflected in earnings concurrent with
the hedged costs. The cash flows from these contracts are
classified in a manner consistent with the underlying nature of
the transactions.
The volatility of aluminum market prices can produce signifi-
cant fluctuations in the periodic mark-to-market measurement of
the futures and option contracts. Focusing only on that
valuation is meaningless because the effect of price changes on
future hedged metal purchases will approximately equal and
offset the mark-to-market valuation of the contract position.
Alcoa intends to close out the hedging contracts at the time
it purchases the metal from third parties, thus creating the
right economic match both in time and price. The deferred gains
on the hedging contracts at December 31, 1994 are expected to
offset the increase in the price of the purchased metal.
The expiration dates of the call options and the delivery
dates of the futures contracts do not always coincide exactly
with the dates on which Alcoa is required to purchase metal in
order to perform under its customer agreements.
Accordingly, the company anticipates rolling forward some of
its futures and option positions. This may result in signifi-
cant cash inflows if the hedging contracts are "in-the-money"
at the time they are rolled forward. Conversely, there could be
significant cash outflows if metal prices fall below the price
of contracts being rolled forward.
In late 1994 Alcoa implemented a program to protect the
unrealized gains that result from the increase in metal prices.
Approximately 10% of its hedge position was protected at the
end of 1994 through the purchase of options from highly rated
financial institutions. The maximum risk on the option contracts
is the premiums paid.
In addition, Alcoa had 14,000 mt of LME contracts outstanding
at year-end 1994 that cover fixed-price commitments to supply
customers with metal from internal sources. 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 contracts to
eliminate volatility in the prices of such products. None of
these contracts are material.
FINANCIAL RISK--Alcoa is subject to exposure to fluctuations
in foreign currencies. As a matter of policy, Alcoa enters into
foreign currency exchange contracts, including forwards and
options, to manage its transactional exposure to changes in
currency exchange rates.
To keep financing costs as low as possible, Alcoa uses
interest rate swaps to maintain a balance between fixed and
floating rate debt.
22
RISK MANAGEMENT--All of the aluminum and other commodity
contracts, as well as the various types of financial instru-
ments, are straightforward. They are primarily entered into
for the purpose of removing uncertainty and volatility, and
principally cover underlying exposures. Alcoa's commodity and
derivative activities are subject to the management, direction
and control of its Strategic Risk Management Committee. The
committee is composed of the Chief Executive Officer, the Chief
Financial Officer and other officers and employees that the
Chief Executive Officer may select from time to time. The
committee reports to the Board of Directors at each meeting on
the scope of Alcoa's activities and programs.
In 1994 Alcoa tested its policies regarding its derivatives
and commodities trading activities against the recommendations
of the "Group of 30." A clarified policy was approved by the
Board. The "Group of 30" was a global derivatives study group
formed to help dealers and users better manage risks and issues
associated with derivative activities. It was composed of
worldwide industry representatives, bankers, central bankers
and academics whose recommendations included issues related
to the role of senior management (including the board of
directors), authorization, control and disclosure of deriva-
tives. For additional information on financial instruments,
see Note R.
ENVIRONMENTAL MATTERS
Alcoa participates in environmental assessments and cleanups at
a number of locations, including operating facilities and
adjoining property, at previously owned or operated facilities
and at Superfund and other waste sites. Alcoa records a
liability for environmental remediation costs or damages when a
cleanup program becomes probable and the costs or damages can
be reasonably estimated. See Note A for additional information.
As assessments and cleanups proceed, the liability is adjusted
based on progress in determining the extent of remedial actions
and related costs and damages. The liability can change substan-
tially due to factors such as the nature and extent of conta-
mination, changes in remedial requirements and technological
changes.
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 1994 was
$329 and reflects the most probable costs to remediate identi-
fied environmental conditions for which costs can be reasonably
estimated. About 28% of this balance relates to Alcoa's Massena,
New York plant site. Remediation costs charged to the reserve
were $79 in 1994, $71 in 1993 and $102 in 1992. They include
expenditures currently mandated as well as those not required by
any regulatory authority or third parties.
Included in annual operating expenses are the recurring costs
of managing hazardous substances and pollution. Such costs are
estimated to be about 2% of cost of goods sold in 1994 and
1 1/2% in 1993 and 1992.
23
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATIONS
Cash from operations was $1,394 in 1994 compared with $535 in
1993. Among the factors that accounted for the increase in 1994
over 1993 was a higher level of operating income in 1994.
Additionally, working capital provided cash in 1994 by
reductions in inventories and other current assets and an
increase in accounts payable. These were partially offset by
higher accounts receivable. In 1993 just the opposite occurred.
Cash outlays for the 1992-1994 special items related to
severance costs consist of salary continuation payments for up
to two years, and pension and medical costs to be paid over the
lives of the employees. The latter represents about 45% of the
total severance costs.
FINANCING ACTIVITIES
Financing activities resulted in a net cash outflow of $825 in
1994. In 1993 there was a cash inflow of $386. In 1994 the
company paid off early its 7% discount debentures due 2011 that
had a face value of $225 and an effective interest rate of
14.7%. The unamortized discount was $108 at the time of
redemption. Proceeds from issuance in February 1994 of $250 of
5.75% notes due 2001 were used to redeem the 7% debentures.
Alcoa's U.S. commercial paper borrowings, which had an
outstanding balance at the end of 1993 of $337, were also
liquidated in 1994. AofA also significantly reduced its
outstanding commercial paper balance in 1994. Short-term debt
was reduced by $105 in 1994 compared with an increase of $68 in
1993.
Debt as a percent of invested capital was 15% at the end of
1994 compared with 22% and 15% at the end of 1993 and 1992,
respectively.
In July 1994, Alcoa entered into a one billion dollar, five-
year revolving credit facility with a group of international
banks, replacing the previous $750 facility. The new arrangement
will be used to back the issuance of commercial paper.
Dividends paid to shareholders were $144 in 1994 compared with
$142 in 1993 and $139 in 1992. In November 1994, Alcoa's Board
declared a two-for-one stock split distributable on February 25,
1995. The Board also approved two changes in the company's
common stock dividend policy: an increase in the base quarterly
dividend and a change in the payment schedule for the extra
dividend above the base dividend. The base quarterly dividend
was increased from 20 cents to 22.5 cents per common share. The
extra dividend payment of 30% of Alcoa's annual earnings in
excess of $3.00 per share will be paid in the following year in
equal quarterly installments with the base quarterly dividend
instead of in a single payment.
Dividends paid to minority interests of $148 in 1994 included
$86 paid by AofA and $19 paid by Aluminio. In 1993, such
dividends totaled $159, including $126 and $18 paid by AofA and
Aluminio, respectively.
INVESTING ACTIVITIES
Cash used for investing activities in 1994 amounted to $375
compared with $1,050 in 1993. In both years, the most signifi-
cant outlay was for capital expenditures. Spending for capital
projects in 1994 was $612, down $145 from 1993 and reflects
continued focus on improving manufacturing processes with a
minimum of capital spending. More than one-half of the expendi-
tures were for sustaining activities.
Capital expenditures for new and expanded facilities for
environmental control in ongoing operations were $45 in 1994,
$76 in 1993 and $75 in 1992.
Cash inflows from investing activities in 1994 consisted
mainly of liquidating short-term investments, primarily at
AofA. AofA used the proceeds to pay down its commercial paper
borrowings. Additionally, Alcoa received a partial payment from
the Alcoa/WMC transaction of $68. Additional net proceeds of
$367 related to this transaction were received in early January
1995.
24
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors Aluminum Company
of America (Alcoa)
We have audited the accompanying consolidated balance sheet of
Alcoa as of December 31, 1994 and 1993, and the related state-
ments of consolidated income, shareholders' equity and
consolidated cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are
the responsibility of Alcoa's management. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement presen-
tation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Alcoa at December 31, 1994 and 1993, and
the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting
principles.
As discussed in Notes S and V to the consolidated financial
statements, Alcoa changed its methods of accounting for income
taxes and postretirement benefits other than pensions in 1992.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
600 Grant St., Pittsburgh, Pa.
January 11, 1995
25
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME
Alcoa and subsidiaries
For the year ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------
(in millions, except share amounts)
<S> <C> <C> <C>
REVENUES
Sales and operating revenues (P) $ 9,904.3 $ 9,055.9 $ 9,491.5
Gain from Alcoa/WMC transaction (C) 400.2 - -
Other income, principally interest 87.0 93.0 96.9
- ------------------------------------------------------------------------------
10,391.5 9,148.9 9,588.4
- ------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold and operating
expenses 7,845.7 7,187.0 7,339.1
Selling, general administrative and
other expenses 632.7 603.6 586.8
Research and development expenses 125.8 130.4 212.2
Provision for depreciation, depletion
and amortization 671.3 692.6 682.4
Interest expense (N) 106.7 87.8 105.4
Taxes other than payroll and severance
taxes 107.1 105.6 112.3
Special items (D) 79.7 150.8 251.6
- ------------------------------------------------------------------------------
9,569.0 8,957.8 9,289.8
- ------------------------------------------------------------------------------
EARNINGS
Income before taxes on income 822.5 191.1 298.6
Provision (credit) for taxes on income
(S) 219.2 (10.3) 132.3
- ------------------------------------------------------------------------------
Income from operations 603.3 201.4 166.3
Minority interests (K) (160.2) (196.6) (143.9)
- ------------------------------------------------------------------------------
Income before extraordinary loss and
accounting changes 443.1 4.8 22.4
Extraordinary loss on debt prepayments,
net of tax benefits of $40.4 in 1994
and $25.8 in 1992 (D) (67.9) - (50.2)
Cumulative effect of accounting changes
for:
Postretirement benefits, net of $667.2
tax benefit (V) - - (1,166.4)
Income taxes (S) - - 55.0
- ------------------------------------------------------------------------------
NET INCOME (LOSS) $ 375.2 $ 4.8 $ (1,139.2)
- ------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE:
(B and L)
Before extraordinary loss and
accounting changes $ 2.48 $ .02 $ .12
Extraordinary loss (.38) - (.30)
Accounting changes:
Postretirement benefits - - (6.85)
Income taxes - - .33
- ------------------------------------------------------------------------------
Earnings (Loss) per common share $ 2.10 $ .02 $ (6.70)
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
26
CONSOLIDATED BALANCE SHEET
Alcoa and subsidiaries
December 31 1994 1993
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (includes cash
of $177.5 in 1994 and $58.0 in 1993) (R
and T) $ 619.2 $ 411.7
Short-term investments (R) 5.5 243.6
Receivables from customers, less
allowances: 1994-$37.4; 1993-$33.2 1,440.6 1,218.7
Receivable from WMC, net (C) 366.9 -
Other receivables 182.5 211.3
Inventories (E) 1,144.2 1,227.2
Deferred income taxes 235.6 103.2
Prepaid expenses and other current assets 158.7 286.8
- ------------------------------------------------------------------------------
Total current assets 4,153.2 3,702.5
Properties, plants and equipment (F) 6,689.4 6,506.8
Other assets (G) 1,510.6 1,387.6
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 12,353.2 $ 11,596.9
- ------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Short-term borrowings (weighted average
rate 7.9% in 1994 and 5.8% in 1993) (R) $ 261.9 $ 362.5
Accounts payable, trade 739.3 596.3
Accrued compensation and retirement costs 363.9 288.0
Taxes, including taxes on income 393.0 364.3
Provision for layoffs and impairments (D) 84.4 128.8
Other current liabilities 557.0 302.2
Long-term debt due within one year 154.0 50.8
- ------------------------------------------------------------------------------
Total current liabilities 2,553.5 2,092.9
Long-term debt, less amount due within one
year (H and R) 1,029.8 1,432.5
Accrued postretirement benefits (V) 1,850.5 1,845.2
Other noncurrent liabilities and deferred
credits (I) 1,011.8 1,022.2
Deferred income taxes 220.6 231.1
- ------------------------------------------------------------------------------
Total liabilities 6,666.2 6,623.9
- ------------------------------------------------------------------------------
MINORITY INTERESTS (A, C and K) 1,687.8 1,389.2
- ------------------------------------------------------------------------------
Contingent liabilities (O) - -
SHAREHOLDERS' EQUITY
Preferred stock (M) 55.8 55.8
Common stock (B and M) 178.7 88.8
Additional capital (B) 663.5 715.9
Translation adjustment (A) (68.6) (188.5)
Retained earnings 3,173.9 2,946.1
Unfunded pension obligation (4.0) (7.0)
Treasury stock, at cost (.1) (27.3)
- ------------------------------------------------------------------------------
Total shareholders' equity 3,999.2 3,583.8
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 12,353.2 $ 11,596.9
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
27
STATEMENT OF CONSOLIDATED CASH FLOWS
Alcoa and subsidiaries
For the year ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
CASH FROM OPERATIONS
Net income (loss) $ 375.2 $ 4.8 $ (1,139.2)
Adjustments to reconcile net income
(loss) to cash from operations:
Depreciation, depletion and
amortization 688.8 711.1 710.1
Gain from Alcoa/WMC transaction (400.2) - -
Reduction of assets to net realizable
value 32.8 16.7 144.3
Reduction in deferred income taxes (55.6) (124.5) (88.0)
Equity earnings before additional
taxes, net of dividends 5.1 11.7 14.8
Provision for special items 46.9 134.1 107.4
Gains from investing activities (10.3) (1.3) (7.2)
Book value of asset disposals 47.4 20.8 15.3
Accounting changes - - 1,111.4
Extraordinary loss 67.9 - 50.2
Minority interests 160.2 196.6 143.9
Other (1.9) (11.4) 53.9
(Increase) reduction in receivables (155.0) 15.6 84.5
(Increase) reduction in inventories 115.8 (130.2) 166.7
(Increase) reduction in prepaid
expenses and other current assets 129.4 (152.2) 70.8
Increase (reduction) in accounts
payable and accrued expenses 336.6 (202.8) (248.7)
Increase (reduction) in taxes,
including taxes on income (6.8) (6.0) (.6)
Payment of amortized interest on deep
discount debt (8.6) - (63.8)
Net change in noncurrent assets and
liabilities 25.9 52.0 82.3
- ------------------------------------------------------------------------------
CASH FROM OPERATIONS 1,393.6 535.0 1,208.1
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net additions (reduction) to short-term
borrowings (104.9) 67.5 244.0
Common stock issued and treasury stock
sold 61.7 17.7 36.2
Dividends paid to shareholders (144.4) (142.3) (138.9)
Dividends paid to minority interests (148.1) (159.3) (140.9)
Additions to long-term debt 494.9 748.0 338.4
Payments on long-term debt (934.4) (145.8) (687.1)
Redemption of subsidiary preferred stock (50.0) - -
- ------------------------------------------------------------------------------
CASH FROM (USED FOR) FINANCING
ACTIVITIES (825.2) 385.8 (348.3)
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (611.7) (757.0) (788.8)
Acquisitions, net of cash acquired (9.6) (16.3) (7.7)
Sales of subsidiaries - - 12.6
Additions to investments (21.2) (5.9) (127.1)
Sales of investments - .3 50.5
Reductions in minority interests (44.7) (14.2) (18.4)
Proceeds from Alcoa/WMC transaction 67.8 - -
Short-term investments 250.8 (243.6) -
Other receipts 14.9 5.8 7.6
Other payments (21.2) (19.5) (21.4)
- ------------------------------------------------------------------------------
CASH (USED FOR) INVESTING ACTIVITIES (374.9) (1,050.4) (892.7)
- ------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 14.0 (6.9) (44.7)
- ------------------------------------------------------------------------------
Net change in cash and cash equivalents 207.5 (136.5) (77.6)
Cash and cash equivalents at beginning
of year 411.7 548.2 625.8
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR-
END $ 619.2 $ 411.7 $ 548.2
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
28
STATEMENT OF SHAREHOLDERS' EQUITY
Alcoa and subsidiaries
Unfunded
Preferred Common Additional Translation Retained pension Treasury Shareholders'
December 31 stock stock capital adjustment earnings obligation stock equity
- -----------------------------------------------------------------------------------------------------------------------------------
(in millions, except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT END OF 1991 $ 55.8 $ 88.8 $ 713.8 $ (55.8) $ 4,378.1 - $ (243.3) $ 4,937.4
Net loss-1992 (1,139.2) (1,139.2)
Cash dividends:
Preferred @ $3.75 per
share (2.1) (2.1)
Common @ $.80 per share (136.8) (136.8)
Stock issued: compensation
plans 1.2 (10.7) 45.7 36.2
Stock issued: debt
conversions 1.0 1.0
Translation adjustments (92.2) (92.2)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1992 55.8 88.8 715.0 (148.0) 3,089.3 - (196.6) 3,604.3
Net income-1993 4.8 4.8
Cash dividends:
Preferred @ $3.75 per
share (2.1) (2.1)
Common @ $.80 per share (140.2) (140.2)
Stock issued: compensation
plans .9 (3.0) 19.8 17.7
Stock issued: debt
conversions (2.7) 149.5 146.8
Minimum pension liability
adjustments $ (7.0) (7.0)
Translation adjustments (40.5) (40.5)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1993 55.8 88.8 715.9 (188.5) 2,946.1 (7.0) (27.3) 3,583.8
Net income-1994 375.2 375.2
Cash dividends:
Preferred @ $3.75 per
share (2.1) (2.1)
Common @ $.80 per share (142.3) (142.3)
Two-for-one stock split 89.3 (89.3) -
Stock issued: compensation
plans .6 36.9 (3.0) 27.2 61.7
Minimum pension liability
adjustments 3.0 3.0
Translation adjustments 119.9 119.9
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1994 $ 55.8 $ 178.7 $ 663.5 $ (68.6) $ 3,173.9 $ (4.0) $ (.1) $ 3,999.2
- -----------------------------------------------------------------------------------------------------------------------------------
SHARE ACTIVITY (B) Common Stock
----------------------------------------------------------------
Preferred stock Issued Treasury Net outstanding
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1991 557,649 177,608,440 (7,443,802) 170,164,638
Stock issued: compensation plans 1,262,274 1,262,274
Stock issued: debt conversions 32,256 32,256
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1992 557,649 177,608,440 (6,149,272) 171,459,168
Stock issued: compensation plans 610,452 610,452
Stock issued: debt conversions 4,652,936 4,652,936
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1993 557,649 177,608,440 (885,884) 176,722,556
Stock issued: compensation plans 1,106,538 883,382 1,989,920
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1994 557,649 178,714,978 (2,502) 178,712,476
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial state-
ments include the accounts of Alcoa and companies more than
50% owned. Also included are joint ventures in which Alcoa has
an undivided interest. Investments in other entities are
accounted for principally on an equity basis.
Inventory Valuation. Inventories are carried at the lower of
cost or market, with cost for a substantial portion of U.S.
inventories determined under the last-in, first-out (LIFO)
method. The cost of other inventories is principally
determined under the average cost method.
Depreciation, Depletion and Amortization. Depreciation is
recorded principally on the straight-line method at rates based
on the estimated useful lives of the assets. The book value of
obsolete assets is charged to depreciation expense when they are
scrapped. Profits or losses from the sale of assets are included
in other income. Repairs and maintenance are charged to expense
as incurred.
Depletion is taken over the periods the estimated mineral
reserves are extracted.
Environmental Expenditures. Expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expen-
ditures that relate to an existing condition caused by past
operations, and which do not contribute to future revenues, are
expensed. Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably estimated. The
liability for remediation expenditures may include, as appro-
priate, elements of costs such as site investigations, consul-
tants' fees, feasibility studies, outside contractor expenses
and monitoring expenses. Estimates are not discounted, nor are
claims for recovery recognized. The estimates also include costs
apportioned to other potentially responsible parties to the
extent that Alcoa has reason to believe such parties will not
fully pay their proportionate share. The liability is periodi-
cally reviewed and adjusted to reflect current remediation
progress, prospective estimate of required activity, and other
factors that may be relevant, including changes in technology
or regulations.
Interest Costs. Interest related to construction of qualifying
assets is capitalized as part of construction costs.
Futures Contracts. Alcoa enters into forward and futures
contracts to cover exposures for foreign exchange, interest
rates and commodities that are primarily accounted for as hedges
of its committed and, in some cases, anticipated revenues and
costs. The gains and losses on these contracts are reflected in
earnings concurrently with the hedged revenues or costs. The
cash flows from these contracts are classified in a manner
consistent with the underlying nature of the transactions.
Intangibles. The excess of purchase price over net tangible
assets of businesses acquired is included in other assets in
the consolidated balance sheets. It is Alcoa's policy to
amortize intangibles on a straight-line basis over not more
than forty years. The carrying value of intangibles is
evaluated periodically in relation to the operating perfor-
mance and future undiscounted cash flows of the underlying
businesses. Adjustments are made if the sum of expected future
net cash flows is less than book value.
Foreign Currency. The local currency is the functional currency
for Alcoa's significant operations outside the U.S., except in
Brazil.
Reclassification. Certain amounts in previously issued
financial statements were reclassified to conform to 1994
presentations.
B. COMMON STOCK SPLIT
On November 11, 1994, the Board of Directors declared a two-
for-one common stock split distributable on February 25, 1995 to
shareholders of record at the close of business on February 3,
1995. In this report, all per share amounts and numbers of
shares have been restated to reflect the stock split. In
addition, an amount equal to the one dollar par value of the
shares outstanding at December 31, 1994 has been transferred
from additional capital to common stock.
C. GAIN FROM ALCOA/WMC Transaction
In December 1994, Alcoa recorded a gain of $400.2 ($300.2
after-tax) from the acquisition by Western Mining Corporation
Holdings Limited (WMC), located in Melbourne, Australia, of a
40% interest in Alcoa's worldwide bauxite, alumina and
inorganic chemicals businesses. As part of the agreement, Alcoa
acquired an additional 9% interest in Alcoa of Australia,
bringing its total interest in that company to 60%. An addi-
tional cash payment may be made by WMC in the year 2000 if
certain financial performance targets of the chemicals
businesses are met. Alcoa has indemnified WMC for certain
preformation environmental and other liabilities.
The significant effects of the transaction on the year-end
balance sheet were increases of $68 in cash, $367 in net
receivables and $202 in goodwill; offset by an increase in
minority interests of $230. The net receivable was collected in
early January 1995. If this transaction had occurred at the
beginning of 1994, net income for the year would not have been
materially different.
D. SPECIAL AND EXTRAORDINARY ITEMS
Special items in 1994 consisted of a charge of $79.7 ($50.0
after-tax) from closing a forgings and extrusion plant in
Vernon, California. The charge included $32.8 for asset write-
offs and $46.9 primarily related to severance costs.
Special items of $150.8 in 1993 ($98.0 after-tax and minority
interests) included $134.1 for severance costs associated with
permanent reductions of hourly paid and salaried employees,
30
mainly in the company's U.S. aluminum operations. The remaining
$16.7 was associated with closing certain businesses at several
plants, including the manufacture of aluminum rod at the Rockdale,
Texas plant.
Special items in 1992 totaling $251.6 ($173.9 after-tax and
minority interests) consisted of $95.7 for redundancies and
$155.9 for asset dispositions. The dispositions included the
shutdown of a facility in South Bend, Ind. and impairment of
Alcoa Composites, Inc.
The extraordinary losses in 1994 and 1992 were from early
redemption of 7% debentures due 2011 and 1996, respectively,
that carried effective interest rates of 14.7%.
E. INVENTORIES
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 249.6 $ 317.3
Work in process 456.1 415.7
Bauxite and alumina 195.2 165.9
Purchased raw materials 131.0 188.2
Operating supplies 112.3 140.1
- ---------------------------------------------------------------------------
$ 1,144.2 $ 1,227.2
- ---------------------------------------------------------------------------
</TABLE>
Approximately 55% of total inventories at December 31, 1994
were valued on a LIFO basis. If valued on an average cost
basis, total inventories would have been $691.9 and $623.9
higher at the end of 1994 and 1993, respectively. During 1992
certain LIFO inventory quantities were reduced and flowed
through cost of goods sold at prior years' lower costs rather
than at current costs. The effect of this reduction increased
pretax income from operations by $49.9.
F. PROPERTIES, PLANTS AND EQUIPMENT, AT COST
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Land and land rights, including
mines $ 238.0 $ 229.0
Structures 3,860.0 3,603.4
Machinery and equipment 10,003.7 9,317.7
- ---------------------------------------------------------------------------
14,101.7 13,150.1
Less, accumulated depreciation
and depletion 7,812.9 7,093.9
- ---------------------------------------------------------------------------
6,288.8 6,056.2
Construction work in progress 400.6 450.6
- ---------------------------------------------------------------------------
$ 6,689.4 $ 6,506.8
- ---------------------------------------------------------------------------
</TABLE>
G. OTHER ASSETS
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Investments, principally equity
investments $ 355.9 $ 322.2
Intangibles, net of accumulated
amortization of $208.5 in 1994
and $189.8 in 1993 396.6 179.2
Noncurrent receivables 67.6 218.9
Deferred income taxes 364.6 431.5
Deferred charges and other 325.9 235.8
- ---------------------------------------------------------------------------
$ 1,510.6 $ 1,387.6
- ---------------------------------------------------------------------------
</TABLE>
H. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S.
4.625% Notes payable, due 1996 $ 175.0 $ 175.0
5.75% Notes payable, due 2001 247.8 -
Bank loans 7.5 billion yen, due
1999, (4.4% fixed rate) 74.4 -
Discount debentures 7%, $225
face amount, due 2011 (14.7%
effective yield) - 117.3
Commercial paper (3.6% average
rate) - 337.3
Tax-exempt revenue bonds
ranging from 3.7% to 7.5% due
2000-2012 132.7 133.5
Alcoa Aluminio
Variable rate note due 1995-
2001 (8.2% and 5.8% average
rates) 322.6 328.7
Alcoa of Australia
Euro-commercial paper, variable
rate, due 1997 (3.9% and 3.4%
average rates) 150.0 302.0
Other subsidiaries 81.3 89.5
- ---------------------------------------------------------------------------
1,183.8 1,483.3
Less, amount due within one year 154.0 50.8
- ---------------------------------------------------------------------------
$ 1,029.8 $ 1,432.5
- ---------------------------------------------------------------------------
</TABLE>
The amount of long-term debt maturing in each of the next five
years is $154.0 in 1995, $276.8 in 1996, $222.7 in 1997, $47.0
in 1998 and $86.9 in 1999.
Alcoa's Revolving Credit Agreement of $1,000 with a group of
international banks matures in July 1999. Under the agreement,
certain levels of consolidated net worth and working capital
must be maintained while commercial paper balances are
outstanding.
The commercial paper issued by Alcoa and the Euro-commercial
paper issued by Alcoa of Australia are classified as long-term
debt since they are backed by long-term revolving credit
agreements.
I. OTHER NONCURRENT LIABILITIES AND DEFERRED CREDITS
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
On-site environmental remediation $ 282.7 $ 348.0
Other noncurrent liabilities 511.3 437.1
Deferred credits 217.8 237.1
- ---------------------------------------------------------------------------
$ 1,011.8 $ 1,022.2
- ---------------------------------------------------------------------------
</TABLE>
31
J. LEASE EXPENSE
Certain equipment, warehousing and office space, and ocean-
going vessels are under operating lease agreements. Total
expense for all leases was $71.6 in 1994, $73.7 in 1993 and
$74.8 in 1992. Under long-term operating leases, minimum annual
rentals are $32.3 in 1995, $28.2 in 1996, $22.5 in 1997, $15.3
in 1998, $10.8 in 1999, and a total of $30.2 for 2000 and
thereafter.
K. MINORITY INTERESTS
The following table summarizes the minority shareholders'
interests in the equity of consolidated subsidiaries.
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Alcoa of Australia $ 588.1 $ 616.1
Alcoa International Holdings
Company (AIHC) 200.0 250.0
Alcoa Aluminio 340.7 164.9
Alcoa Brazil Holdings Company
(ABHC) - 102.1
Alcoa Alumina and Chemicals 327.9 -
Other majority-owned companies 231.1 256.1
- ---------------------------------------------------------------------------
$ 1,687.8 $ 1,389.2
- ---------------------------------------------------------------------------
</TABLE>
AIHC's minority interests consist of three series of preferred
stock with a weighted average annual dividend rate of 4.2% for
1994, 5.1% for 1993 and 6.7% for 1992.
During 1994, the minority shareholder of ABHC exchanged its
interest in ABHC for common shares of Alcoa Aluminio. Addi-
tionally, Alcoa Aluminio's minority shareholder converted
$214.7 of preferred stock to common stock.
Alcoa Alumina and Chemicals represents the primary entity
formed by the Alcoa/WMC transaction.
L. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by subtracting
annual preferred dividend requirements from net income, and
dividing that amount by the weighted average number of common
shares outstanding during each year. The average number of
shares used to compute primary earnings per common share was
177,881,428 in 1994, 175,346,282 in 1993 and 170,948,178 in
1992. Fully diluted earnings per common share are not stated
since the dilution is not material.
M. PREFERRED AND COMMON STOCK
Preferred Stock. Alcoa has two classes of preferred stock.
Serial preferred stock has 557,740 shares authorized, with a
par value per share of $100 and an annual $3.75 cumulative
dividend preference per share. Class B serial preferred stock
has 10 million shares authorized (none issued) and a par value
of $1 per share.
Common Stock. There are 300 million shares authorized at a
par value of $1 per share. As of December 31, 1994, shares of
common stock reserved for issuance were:
Number of shares
- ----------------------------------------------------------
Long-term stock incentive plan 9,659,040
Employees' savings plans 4,097,532
Incentive compensation plan 169,228
- ----------------------------------------------------------
13,925,800
- ----------------------------------------------------------
Stock options under the long-term stock incentive plan have
been and may be granted, generally at not less than market
prices on the dates of grant, except for the $.50 per share
options issued as a payout of earned performance share awards.
At December 31, 1994, options for 4,242,636 shares were
exercisable.
The transactions for shares under option were:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of
year:
Number 8,032,852 6,572,104 6,028,062
Price $.50-40.07 $.50-40.07 $.50-38.44
Granted:
Number 5,050,798 2,963,458 3,168,004
Price $35.88-44.72 $.50-38.57 $.50-40.07
Exercised:
Number (5,125,962) (1,353,092) (2,600,162)
Price $.50-40.25 $.50-36.57 $.50-40.07
Expired or canceled (57,598) (149,618) (23,800)
- ------------------------------------------------------------------------------
Outstanding, end of year:
Number 7,900,090 8,032,852 6,572,104
Price $.50-44.72 $.50-40.07 $.50-40.07
- ------------------------------------------------------------------------------
Shares reserved for future
options at end of year 1,758,950 5,006,192 7,359,240
- ------------------------------------------------------------------------------
</TABLE>
N. INTEREST COST COMPONENTS
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount charged to expense $ 106.7 $ 87.8 $ 105.4
Amount capitalized 1.5 3.5 11.1
- ------------------------------------------------------------------------------
$ 108.2 $ 91.3 $ 116.5
- ------------------------------------------------------------------------------
</TABLE>
O. CONTINGENT LIABILITIES
Various lawsuits and claims and proceedings have been or may be
instituted or asserted against Alcoa, including those pertaining
to environmental, product liability, and safety and health
matters. While the amounts claimed may be substantial, the
ultimate liability cannot now be determined because of the
considerable uncertainties that exist. Therefore, it is possible
that results of operations or liquidity in a particular period
could be materially affected by certain contingencies. However,
based on currently available facts, management believes that
the disposition of matters that are pending or asserted will
not have a materially adverse effect on the financial position
of the company.
Under a power contract that expires no earlier than 2011,
Alcoa is entitled to a fixed percentage of the annual output
from a Northwest U.S. hydroelectric facility. Alcoa makes
minimum annual payments of $8 whether or not it receives power.
Alcoa could be required to increase its participation if other
parties to the contract default. If all other parties had
defaulted as of December 31, 1994, Alcoa's maximum liability
would have been about $190. There is no reason to believe the
other parties will default or that power will not be provided.
32
P. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Alcoa is primarily an integrated producer of aluminum products.
Alcoa's operations consist of three segments: Alumina and
Chemicals, Aluminum Processing, and Non-Aluminum Products.
The Alumina and Chemicals segment includes the production and
sale of bauxite, alumina, alumina chemicals and transportation
services.
The Aluminum Processing segment comprises the production and
sale of molten metal, ingot, and aluminum products that are
flat-rolled, engineered or finished. Also included are power,
transportation and other services.
The Non-Aluminum Products segment includes the production and
sale of electrical, ceramic, plastic and composite materials
products, manufacturing equipment, gold, magnesium products, and
steel and titanium forgings.
<TABLE>
<CAPTION>
Segment information 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to customers:
Alumina and chemicals $ 1,508.4 $ 1,436.5 $ 1,421.6
Aluminum processing 6,476.5 5,973.6 6,516.9
Non-aluminum products 1,919.4 1,645.8 1,553.0
Intersegment sales: (1)
Alumina and chemicals 496.0 649.3 671.8
Aluminum processing 3.0 13.6 22.0
Non-aluminum products 74.8 72.9 61.5
Eliminations (573.8) (735.8) (755.3)
- ------------------------------------------------------------------------------
Total sales and operating
revenues $ 9,904.3 $ 9,055.9 $ 9,491.5
- ------------------------------------------------------------------------------
Operating profit (loss)
before special items:
Alumina and chemicals $ 277.3 $ 372.7 $ 278.2
Aluminum processing 144.7 (21.2) 288.5
Non-aluminum products 91.2 5.0 (31.0)
Unallocated - (5.1) (2.5)
- ------------------------------------------------------------------------------
Total $ 513.2 $ 351.4 $ 533.2
- ------------------------------------------------------------------------------
Operating profit (loss) after
special items:
Alumina and chemicals $ 277.3 $ 365.6 $ 273.5
Aluminum processing 65.0 (155.0) 181.9
Non-aluminum products 91.2 (4.9) (171.3)
Unallocated - (5.1) (2.5)
- ------------------------------------------------------------------------------
Total operating profit 433.5 200.6 281.6
Gain from Alcoa/WMC
transaction 400.2 - -
Other income 87.0 93.0 96.9
Add (deduct) other income in
operating profits 8.5 (14.7) 25.5
Interest expense 106.7 87.8 105.4
- ------------------------------------------------------------------------------
Income before taxes on
income $ 822.5 $ 191.1 $ 298.6
- ------------------------------------------------------------------------------
Identifiable assets:
Alumina and chemicals $ 3,013.2 $ 2,854.3 $ 2,685.5
Aluminum processing 6,693.0 6,929.1 6,640.1
Non-aluminum products 1,607.1 1,483.7 1,313.6
- ------------------------------------------------------------------------------
Total identifiable assets 11,313.3 11,267.1 10,639.2
Investments 355.9 322.2 368.9
Corporate assets (2) 684.0 7.6 15.0
- ------------------------------------------------------------------------------
Total assets $ 12,353.2 $ 11,596.9 $ 11,023.1
- ------------------------------------------------------------------------------
Depreciation and depletion:
Alumina and chemicals $ 139.1 $ 144.5 $ 137.6
Aluminum processing 455.3 475.3 483.0
Non-aluminum products 94.0 85.1 84.8
- ------------------------------------------------------------------------------
Total depreciation and
depletion (3) $ 688.4 $ 704.9 $ 705.4
- ------------------------------------------------------------------------------
Capital expenditures:
Alumina and chemicals $ 159.2 $ 232.6 $ 234.5
Aluminum processing 323.2 423.7 462.1
Non-aluminum products 129.3 100.7 92.2
- ------------------------------------------------------------------------------
Total capital
expenditures $ 611.7 $ 757.0 $ 788.8
- ------------------------------------------------------------------------------
Geographic area information 1994 1993 1992
- ------------------------------------------------------------------------------
Sales to customers:
USA $ 5,574.0 $ 5,279.4 $ 5,658.6
Other Americas 1,362.4 948.2 1,055.9
Pacific 1,670.1 1,752.5 1,710.2
Europe 1,297.8 1,075.8 1,066.8
Transfers between geographic
areas: (1)
USA 765.0 832.9 1,001.6
Other Americas 291.4 342.6 253.6
Pacific 17.2 36.1 54.3
Europe 13.4 28.3 65.1
Eliminations (1,087.0) (1,239.9) (1,374.6)
- ------------------------------------------------------------------------------
Total sales and operating
revenues $ 9,904.3 $ 9,055.9 $ 9,491.5
- ------------------------------------------------------------------------------
Operating profit (loss)
before special items:
USA $ (65.2) $ (193.1) $ 55.0
Other Americas 239.0 139.5 90.9
Pacific 291.1 399.2 297.6
Europe 48.3 5.8 89.7
- ------------------------------------------------------------------------------
Total $ 513.2 $ 351.4 $ 533.2
- ------------------------------------------------------------------------------
Operating profit (loss) after
special items:
USA $ (144.9) $ (340.7) $ (176.5)
Other Americas 239.0 139.5 87.0
Pacific 291.1 399.2 297.6
Europe 48.3 2.6 73.5
- ------------------------------------------------------------------------------
Total operating profit $ 433.5 $ 200.6 $ 281.6
- ------------------------------------------------------------------------------
Identifiable assets:
USA $ 5,750.4 $ 6,270.9 $ 6,092.3
Other Americas 1,792.5 1,691.4 1,441.9
Pacific 2,646.1 2,384.2 2,345.6
Europe 1,124.3 920.6 759.4
- ------------------------------------------------------------------------------
Total identifiable assets 11,313.3 11,267.1 10,639.2
- ------------------------------------------------------------------------------
Capital expenditures:
USA $ 272.9 $ 405.0 $ 457.6
Other Americas 131.4 105.0 75.1
Pacific 131.6 162.7 184.5
Europe 75.8 84.3 71.6
- ------------------------------------------------------------------------------
Total capital
expenditures $ 611.7 $ 757.0 $ 788.8
- ------------------------------------------------------------------------------
<FN>
(1) Transfers between segments and geographic areas are based on generally
prevailing market prices.
(2) Corporate assets in 1994 include cash of $68 and a net receivable of $367
related to the Alcoa/WMC transaction.
(3) Includes depreciation of $17.1 in 1994, $12.3 in 1993 and $23 in 1992
reported as research and development expenses in the income statement
</TABLE>
Total exports from the U.S. in 1994 were $988 compared with
$896 in 1993 and $993 in 1992.
33
Q. MAJORITY-OWNED SUBSIDIARIES
The condensed financial statements of Alcoa's principal
majority-owned subsidiaries follow.
Alcoa Aluminio S.A.--a 59%-owned Brazilian subsidiary:
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 34.5 $ 160.2
Other current assets 376.4 283.7
Properties, plants and equipment,
net 929.0 870.8
Other assets 161.8 207.8
- ---------------------------------------------------------------------------
Total assets 1,501.7 1,522.5
- ---------------------------------------------------------------------------
Current liabilities 415.2 372.7
Long-term debt* 222.2 322.5
Other liabilities 33.3 35.9
- ---------------------------------------------------------------------------
Total liabilities 670.7 731.1
- ---------------------------------------------------------------------------
Net assets $ 831.0 $ 791.4
- ---------------------------------------------------------------------------
<FN>
*Held by Alcoa Brazil Holdings Company-$22.5
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues* $ 915.1 $ 685.8 $ 659.0
Costs and expenses (808.9) (625.3) (634.8)
Translation and exchange
adjustments (3.0) (10.7) (9.2)
Income tax expense (19.7) (.6) 5.6
- ------------------------------------------------------------------------------
Net income $ 83.5 $ 49.2 $ 20.6
- ------------------------------------------------------------------------------
<FN>
*Revenues from Alcoa were $54 in 1994. The terms of the transactions were
established by negotiation between the parties.
</TABLE>
Alcoa of Australia Limited--a 51%-owned subsidiary of Alcoa
International Holdings Company (60% at December 31, 1994):
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 88.2 $ 350.3
Other current assets 484.9 425.7
Properties, plants and equipment,
net 1,645.3 1,430.1
Other assets 102.5 85.7
- ---------------------------------------------------------------------------
Total assets 2,320.9 2,291.8
- ---------------------------------------------------------------------------
Current liabilities 317.9 399.7
Long-term debt 150.2 302.0
Other liabilities 382.6 332.7
- ---------------------------------------------------------------------------
Total liabilities 850.7 1,034.4
- ---------------------------------------------------------------------------
Net assets $ 1,470.2 $ 1,257.4
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues* $ 1,519.2 $ 1,660.9 $ 1,661.7
Costs and expenses (1,236.5) (1,264.6) (1,297.7)
Translation and exchange
adjustments .6 5.2 (13.8)
Income tax expense (80.7) (88.1) (132.0)
Accounting changes^ - - 33.6
- ------------------------------------------------------------------------------
Net income $ 202.6 $ 313.4 $ 251.8
- ------------------------------------------------------------------------------
<FN>
* Revenues from Alcoa were $28.5 in 1994, $50.3 in 1993 and $60.6 in 1992. The
terms of the transactions were established by negotiation between the
parties.
^ Consists of $37 for income taxes and $(3.4) for postretirement benefits
</TABLE>
R. FINANCIAL INSTRUMENTS
The carrying values and fair values of Alcoa's financial
instruments at December 31 follow.
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
Carrying Fair Carrying Fair
value value value value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 619.2 $ 619.2 $ 411.7 $ 411.7
Short-term investments 5.5 5.5 243.6 243.6
Noncurrent receivables 67.6 67.6 218.9 218.9
Short-term debt 415.9 415.9 413.3 413.3
Long-term debt 1,029.8 1,002.3 1,432.5 1,545.0
- ------------------------------------------------------------------------------
</TABLE>
The methods used to estimate the fair value of certain finan-
cial instruments follow.
Cash and Cash Equivalents, Short-Term Investments and Short-
Term Debt. The carrying amount approximates fair value because
of the short maturity of the instruments. All investments
purchased with a maturity of three months or less are
considered cash equivalents.
Noncurrent Receivables. The fair value of noncurrent
receivables is based on anticipated cash flows and approximates
carrying value.
Long-Term Debt. The fair value is based on interest rates that
are currently available to Alcoa for issuance of debt with
similar terms and remaining maturities.
Alcoa holds or purchases derivative financial instruments
principally for purposes other than trading. Financial instru-
ments held for trading purposes are insignificant. Details of
the significant instruments follow.
Foreign Exchange Contracts. The company enters into foreign
exchange contracts to hedge most of its firm and anticipated
purchase and sale commitments denominated in foreign currencies
for periods commensurate with its known or expected exposures.
These contracts are part of a worldwide program to minimize the
volatility due to foreign exchange exposures. The market risk
exposure is essentially limited to risk related to currency rate
movements. The forward exchange contracts and options in the
following table are made up of contracts to hedge firm purchase
and sale commitments and anticipated sales expected to be
denominated in foreign currencies at December 31. The contracts
generally mature within 12 months and are principally unsecured
forward exchange contracts with carefully selected banks. Gains
or losses arising from these contracts are reflected in other
income when the transactions are completed. Unrealized gains
(losses) at December 31, 1994 and 1993 were $47.8 and $(1.5),
respectively.
34
The table below reflects the various types of foreign
exchange contracts Alcoa uses to manage its foreign exchange
risk.
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
Notional Market Notional Market
amount value amount value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forwards $ 1,578.7 $ 1,637.4 $ 1,776.6 $ 1,766.1
Options purchased 422.3 19.8 138.1 3.1
Options written 162.0 (9.9) 69.2 .1
- ------------------------------------------------------------------------------
</TABLE>
The notional amounts of options summarized above do not
represent amounts exchanged by the parties and thus are not a
measure of the company's exposure to options. The amounts
exchanged are based on the terms of the options which relate
primarily to exchange rates and expiration dates.
The table below summarizes by major currency the contractual
amounts of Alcoa's forward exchange and option contracts in
U.S. dollars translated at December 31 rates. The "buy" amounts
represent the U.S. dollar equivalent of commitments to purchase
foreign currencies and the "sell" amounts represent the U.S.
dollar equivalent of commitments to sell foreign currencies.
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
Buy Sell Buy Sell
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian dollar $ 1,197.8 $ 268.3 $ 928.0 $ 332.6
Dutch guilder 138.2 44.2 74.6 28.2
Deutsche mark 79.0 167.1 81.6 173.3
Pound sterling 41.9 89.6 10.5 115.7
Other 77.0 166.9 115.9 124.5
- ------------------------------------------------------------------------------
Total $ 1,533.9 $ 736.1 $ 1,210.6 $ 774.3
- ------------------------------------------------------------------------------
</TABLE>
Interest Rate Swaps. Alcoa's debt portfolio is managed by using
interest rate swaps and options to achieve an overall desired
position of fixed and floating rates. At December 31, 1994,
Alcoa had outstanding four interest rate swap contracts to
convert a fixed rate obligation to floating rates on a notional
amount of $175. The contracts mature in 2001. The company also
bought $100 notional amount of interest rate caps on the first
1995 swap payment. Alcoa Aluminio also had an outstanding
interest rate swap to convert a floating rate obligation to a
series of fixed rates on a notional amount of $109 at year-end
1994.
Credit and market risk exposures are limited to the net
interest differentials. The net payments or receipts from
interest rate swaps are recorded as part of interest expense
and are not material. The effect of interest rate swaps on
Alcoa's composite interest rate on long-term debt was not
material at the end of 1994.
Alcoa is exposed to credit loss in the event of nonperfor-
mance by counterparties on the above instruments, but does not
anticipate nonperformance by any of the counterparties.
For further information on Alcoa's hedging and derivatives
activities, see Risk Factors in the Financial Review section of
this annual report.
S. INCOME TAXES
Alcoa implemented SFAS 109 as of January 1, 1992 and the cumu-
lative effect of this change is reported in 1992 earnings. The
components of income before taxes on income were:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 203.6 $(359.4) $ (241.5)
Foreign 618.9 550.5 540.1
- ------------------------------------------------------------------------------
$ 822.5 $ 191.1 $ 298.6
- ------------------------------------------------------------------------------
</TABLE>
The provision for taxes on income consisted of:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <c) <C>
Current:
U.S. federal* $ 114.0 $ (53.6) $ 46.9
Foreign 151.1 163.0 174.1
State and local 9.7 4.8 (.7)
- ------------------------------------------------------------------------------
274.8 114.2 220.3
- ------------------------------------------------------------------------------
Deferred:
U.S. federal* (51.3) (80.2) (71.2)
Foreign 5.8 (47.2) (11.7)
State and local (10.1) 2.9 (5.1)
- ------------------------------------------------------------------------------
(55.6) (124.5) (88.0)
- ------------------------------------------------------------------------------
Total $ 219.2 $ (10.3) $ 132.3
- ------------------------------------------------------------------------------
<FN>
*Includes U.S. taxes related to foreign income
</TABLE>
Deferred taxes in 1993 included credits of $130.4 for a U.S.
tax loss carryforward and for statutory tax rate changes of
$9.9 in the U.S. and $41.6 in Australia.
Reconciliation of the effective tax rate to the U.S. statu-
tory rate follows.
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate
(%) 35.0 35.0 34.0
Taxes on foreign income (1.1) (9.2) 10.0
State taxes net of federal
benefit (.1) 2.1 (1.3)
Tax rate changes - (26.9) -
Adjustments to prior years'
accruals (1.8) (3.0) (1.5)
Nontaxable portion of Alcoa/
WMC transaction gain (4.9) - -
Other (.4) (3.4) 3.1
- ------------------------------------------------------------------------------
Effective tax rate (%) 26.7 (5.4) 44.3
- ------------------------------------------------------------------------------
</TABLE>
The components of net deferred tax assets and liabilities
follow.
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------
Deferred tax Deferred tax Deferred tax Deferred tax
December 31 assets liabilities assets liabilities
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation - $ 938.8 - $ 864.4
Employee benefits $ 822.0 - $ 781.5 -
Loss provisions 243.9 - 264.9 -
Deferred income 112.4 48.4 38.4 84.1
Tax loss carryforwards 212.9 - 291.2 -
Tax credit carryforwards 86.4 - 20.1 -
Other 56.0 18.2 41.0 21.2
- ------------------------------------------------------------------------------
1,533.6 1,005.4 1,437.1 969.7
Valuation allowance (170.0) - (171.4) -
- ------------------------------------------------------------------------------
$ 1,363.6 $ 1,005.4 $ 1,265.7 $ 969.7
- ------------------------------------------------------------------------------
</TABLE>
35
Of the total tax loss carryforwards, $13.1 expires over the
next 10 years, $65.8 expires over the next 15 years and $134.0
is unlimited. A substantial portion of the valuation allowance
is for these carryforwards because the ability to utilize a
portion of them is uncertain. There is no limit on utilization
of the tax credit carryforwards.
The cumulative amount of Alcoa's share of undistributed
earnings for which no deferred taxes have been provided was
$1,575.8 at December 31, 1994. Management has no plans to
distribute such earnings in the foreseeable future. It is not
practicable to determine the deferred tax liability on these
earnings.
T. CASH FLOW INFORMATION
Alcoa considers all investments purchased with a maturity of
three months or less to be cash equivalents.
Cash payments for interest and income taxes follow.
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest* $ 107.3 $101.2 $ 193.9
Income taxes 238.4 193.6 264.4
- ------------------------------------------------------------------------------
<FN>
*Includes $8.6 in 1994 and $63.8 in 1992 of amortized interest on the
debentures retired early
</TABLE>
In a noncash transaction early in 1993, $149 of 6 1/4 Conver-
tible Subordinated Debentures due 2002 were converted to common
stock by issuing 4.6 million shares of treasury stock.
U. PENSION PLANS
Alcoa maintains pension plans covering most U.S. employees and
certain other employees. Pension benefits generally depend upon
length of service, job grade and remuneration. Substantially
all benefits are paid through pension trusts that are suffi-
ciently funded to ensure that all plans can pay benefits to
retirees as they become due.
Pension costs include the following components that were
calculated as of January 1 of each year.
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned $ 90.6 $ 102.4 $ 92.2
Interest accrued on projected
benefit obligation 261.2 253.9 250.7
Net amortization 46.5 59.8 29.7
- ------------------------------------------------------------------------------
398.3 416.1 372.6
Less: expected return on plan
assets* 281.4 268.1 259.2
- ------------------------------------------------------------------------------
$ 116.9 $ 148.0 $ 113.4
- ------------------------------------------------------------------------------
<FN>
*The actual returns were higher (lower) than the expected returns by $(282.7)
in 1994, $324.2 in 1993 and $82.4 in 1992 and were deferred as actuarial
gains (losses).
</TABLE>
The status of the pension plans follows.
<TABLE>
<CAPTION>
Assets exceed Accumulated benefit
accumulated obligation
benefit obligation exceeds assets
---------------------------------------------------
December 31 1994 1993 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets, primarily
stocks and bonds at
market $ 3,337.7 $ 3,688.4 $ 231.4 $ 90.6
- ------------------------------------------------------------------------------
Present value of
obligation:
Vested 2,721.2 3,154.8 335.2 197.1
Nonvested 237.3 310.9 4.9 17.3
- ------------------------------------------------------------------------------
Accumulated benefit
obligation 2,958.5 3,465.7 340.1 214.4
Effect of assumed salary
increases 236.1 328.1 32.9 20.0
- ------------------------------------------------------------------------------
Projected benefit
obligation $ 3,194.6 $ 3,793.8 $ 373.0 $ 234.4
- ------------------------------------------------------------------------------
Plan assets greater (less
than) projected benefit
obligation $ 143.1 $ (105.4) $ (141.6) $ (143.8)
Unrecognized:
Transition (assets)
obligations 21.8 7.7 (8.9) 10.8
Prior service costs 45.9 138.6 32.2 53.8
Actuarial (gains) losses,
net (415.9) (113.3) 34.0 (4.1)
Minimum liability
adjustment - - (23.2) (43.4)
- ------------------------------------------------------------------------------
Accrued pension cost $ (205.1) $ (72.4) $ (107.5) $ (126.7)
- ------------------------------------------------------------------------------
</TABLE>
Assumptions used to determine plan liabilities and expenses follow.
<TABLE>
<CAPTION>
December 31 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Settlement discount rate 8.25% 6.75% 6.75%
Long-term rate for
compensation increases 5.5 5.5 5.5
Long-term rate of return on
plan assets 9.0 9.0 9.0
- ------------------------------------------------------------------------------
</TABLE>
Supplemental information related only to Alcoa's U.S. pension
plans partially insured by the Pension Benefit Guarantee
Corporation follow.
<TABLE>
<CAPTION>
Assets exceed Accumulated benefit
accumulated obligation
benefit obligation exceeds assets
---------------------------------------------------
December 31 1994 1993 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair market
value $ 3,079.1 $ 3,270.5 - $ 21.7
Accumulated benefit
obligation (2,813.2) (3,115.6) - (23.9)
- ------------------------------------------------------------------------------
$ 265.9 $ 154.9 - $ (2.2)
- ------------------------------------------------------------------------------
</TABLE>
Alcoa also sponsors a number of defined contribution pension
plans. Expenses were $32.9 in 1994, $34.5 in 1993 and $23.9 in
1992.
36
V. POSTRETIREMENT BENEFITS
Alcoa implemented SFAS 106 as of January 1, 1992 and the cumu-
lative effect of this change was reported in 1992 earnings.
Alcoa maintains health care and life insurance benefit plans
covering most eligible U.S. retired employees and certain other
retirees. Generally, the medical plans pay a stated percentage
of medical expenses reduced by deductibles and other coverages.
These plans are generally unfunded, except for certain
benefits funded through a trust. Life benefits are generally
provided by insurance contracts. Alcoa retains the right,
subject to existing agreements, to change or eliminate these
benefits.
Changes made in 1993 to certain medical plans may require
contributions by future retirees to help offset medical cost
increases. The changes reduced Alcoa's benefit expense and
prior service costs.
The components of postretirement benefit expense follow.
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits
earned $ 20.2 $ 29.9 $ 42.9
Interest cost on liability 104.4 110.2 135.9
Net amortization (50.0) (32.4) -
Return on plan assets (4.8) (5.2) (3.7)
- ------------------------------------------------------------------------------
Postretirement benefit costs $ 69.8 $ 102.5 $ 175.1
- ------------------------------------------------------------------------------
</TABLE>
The status of the postretirement benefit plans was:
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 1,040.3 $ 1,070.4
Fully eligible active plan
participants 112.5 142.9
Other active participants 307.8 378.6
- ---------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 1,460.6 1,591.9
Plan assets, primarily stocks and
bonds at market 53.3 53.4
- ---------------------------------------------------------------------------
APBO in excess of plan assets 1,407.3 1,538.5
Unrecognized net:
Reduction in prior service
costs 420.1 469.4
Actuarial gains (losses) 103.3 (78.8)
- ---------------------------------------------------------------------------
Accrued postretirement benefit
liability $ 1,930.7 $ 1,929.1
- ---------------------------------------------------------------------------
</TABLE>
For measuring the liability and expense, a 10% annual rate of
increase in the per capita claims cost was assumed for 1995,
declining gradually to 5.5% by the year 2003 and thereafter.
Other assumptions used to measure the liability and expense
follow.
<TABLE>
<CAPTION>
December 31 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Settlement discount rate 8.25% 6.75% 6.75%
Long-term rate for
compensation increases 5.5 5.5 5.5
Long-term rate of return on
plan assets 9.0 9.0 9.0
- ------------------------------------------------------------------------------
</TABLE>
For 1994 a 1% increase in the trend rate for health care
costs would have increased the APBO by 8% and service and
interest costs by 9%.
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY DATA (UNAUDITED)
(dollars in millions, except share amounts)
<TABLE>
<CAPTION>
1994 First Second Third Fourth Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and operating
revenues $ 2,221.6 $ 2,479.4 $ 2,561.5 $ 2,641.8 $ 9,904.3
Income from operations 1.5 78.7 121.3 401.8 603.3
Net income (loss)* (108.3) 45.4 70.1 368.0 375.2
Per common share (.61) .25 .39 2.07 2.10
- ------------------------------------------------------------------------------
<FN>
*After a special charge of $50.0, or 28 cents per share, and an extraordinary
loss of $67.9, or 38 cents per share, in the first quarter and a gain of
$300.2, or $1.69 per share, in the fourth quarter
</TABLE>
<TABLE>
<CAPTION>
1993 First Second Third Fourth Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and operating
revenues $ 2,109.6 $ 2,405.3 $ 2,230.2 $ 2,310.8 $ 9,055.9
Income from operations 64.5 109.6 73.4 (46.1) 201.4
Net income (loss)*^ 27.6 35.3 28.8 (86.9) 4.8
Per common share .16 .20 .16 (.50) .02
- ------------------------------------------------------------------------------
<FN>
* After special items of $23.8, or 14 cents per share, in the second quarter,
$4.0, or two cents per share, in the third quarter and $70.2, or 43 cents
per share, in the fourth quarter
^ Net income for the second quarter includes a credit of $26.3 from a
reduction in Australia's corporate tax rate from 39% to 33% and a $9.1
credit in the third quarter from the change in the U.S. tax rate.
</TABLE>
37
GRAPHICS APPENDIX LIST
<TABLE>
<CAPTION>
Aluminum Product Shipments - page 19.
(thousands of metric tons)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fabricated products 1,545 1,657 1,774 1,739 1,896
Ingot 1,179 1,179 1,023 841 655
----- ----- ----- ----- -----
Total 2,724 2,836 2,797 2,580 2,551
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Alcoa's Average Realized Ingot Price - page 21.
(cents per pound)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
$.75 $.67 $.59 $.56 $.64
</TABLE>
<TABLE>
<CAPTION>
Percent Return on Shareholders' Equity - page 23.
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Before unusual items 10.9 5.5 4.6 2.2 5.2
After unusual items 5.7 1.2 * 0.1 9.9
<FN>
* The return on reported earnings was a negative 26.7%
</TABLE>
<TABLE>
<CAPTION>
Average Number of Employees - page 23.
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Outside U.S. 27,100 29,300 29,400 31,700 31,400
U.S. 36,600 36,300 34,200 31,700 30,300
------ ------ ------ ------ ------
Total 63,700 65,600 63,600 63,400 61,700
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Cash From Operations - page 24.
(millions of dollars)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
1,558 1,426 1,208 535 1,394
</TABLE>
<TABLE>
<CAPTION>
Capital Expenditures and Depreciation - page 24.
(millions of dollars)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Capital Expenditures 851 850 789 757 612
Depreciation 690 698 682 693 671
</TABLE>
Exhibit 18
March 10, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re:Aluminum Company of America
1995 Proxy Soliciting Materials
Ladies and Gentlemen:
In accordance with the request set forth in the part D-
(3) of the instructions to Form 10-K, I wish to inform
you that the financial statements in the Annual Report do
not reflect a change from the preceding year in any
accounting principles or practices or in the method of
applying any such principles or practices (except for the
implementation of FAS 106 and 109 effective January 1,
1992 and described in footnotes S. Income Taxes and
V. Postretirement Benefits of the Annual Report).
Very truly yours,
/s/Earnest J. Edwards
Earnest J. Edwards
Vice President and Controller
Attachment
cc: Corporate Savings Division
New York Stock Exchange, Inc.
20 Broad Street
New York, NY 10005
Attn: David F. Dolan
American Stock Exchange
86 Trinity Place
New York, NY 10006
1
Exhibit 21
SUBSIDIARIES AND EQUITY ENTITIES OF THE REGISTRANT
(As of December 31, 1994)
State or
country of
Name organization
---- ------------
Alcoa Alumina & Chemicals, L.L.C.* Delaware
Alcoa ACC Industrial Chemicals Ltd. India
Alcoa Kasei Limited Japan
Alcoa Minerals of Jamaica, Inc., L.L.C. Delaware
Alcoa Steamship Company, Inc. New York
Halco (Mining) Inc. Delaware
Compagnie des Bauxites de Guinee Delaware
Lib-Ore Steamship Company, Inc. Liberia
Moralco Limited Japan
Suriname Aluminum Company, L.L.C. Delaware
Alcoa Brazil Holdings Company Delaware
Alcoa Aluminio S.A. Brazil
Alcoa Composites, Inc.** Delaware
Alcoa Generating Corporation Indiana
Alcoa International Holdings Company Delaware
Alcoa Inter-America, Inc. Delaware
Alcoa International Finance Company Delaware
Alcoa Japan Limited Japan
Alcoa-Kofem Kft. Hungary
Alcoa Nederland Holding B.V. Netherlands
Alcoa International, S.A. Switzerland
Alcoa Nederland B.V. Netherlands
Norsk Alcoa A/S Norway
Alcoa of Australia Limited Australia
A.F.P. Pty. Limited Australia
Hedges Gold Pty. Ltd. Australia
Alcoa of Australia (Asia) Limited Hong Kong
Alcoa Russia, Inc. Delaware
Asian-American Packaging Systems Co., Ltd. China
Kobe Alcoa Transportation Products, Ltd. Japan
Unified Accord SDN. BHD. Malaysia
Alcoa Laudel, Inc. Delaware
Alcoa Manufacturing (G.B.) Limited England
* Registered to do business in California, Florida, Georgia,
Louisiana, North Carolina, Pennsylvania and Texas under the
name of Alcoa Industrial Chemicals.
** Registered to do business in Utah under the names of Fiber
Technology and Fibertek and in California under the names of
CSD, Alcoa Composites and Composite Structures Division.
29
Alcoa Properties, Inc. Delaware
Alcoa South Carolina, Inc. Delaware
Jonathan's Landing, Inc. Delaware
Alcoa Recycling Company, Inc. Delaware
Alcoa Securities Corporation Delaware
Alcoa Brite Products, Inc. Delaware
Alcoa Electronic Packaging, Inc. Delaware
Alcoa Fujikura Ltd. Delaware
Stribel GmbH Germany
Michels GmbH Germany
Alcoa Kobe Transportation Products, Inc. Delaware
Alcoa Nederland Finance B.V. Netherlands
Alcoa Automotive Structures GmbH Germany
Alcoa Chemie GmbH Germany
Alcoa Deutschland GmbH Germany
Alcoa VAW Hannover Presswerk GmbH & Co. KG Germany
Alcoa Chemie Nederland B.V. Netherlands
Alcoa Moerdijk B.V. Netherlands
Alcoa Packaging Machinery, Inc. Delaware
Alutodo, S.A. de C.V. Mexico
H-C Industries de Mexico, S.A. de C.V. Mexico
ASC Alumina, Inc. Delaware
B & C Research, Inc. Ohio
Forges de Bologne S.A. France
Halethorpe Extrusions, Inc. Delaware
Northwest Alloys, Inc. Delaware
Pimalco, Inc. Arizona
Three Rivers Insurance Company Vermont
Tifton Aluminum Company, Inc. Delaware
Capsulas Metalicas, S.A. Spain
Gulf Closures W.L.L. Bahrain
H-C Industries, Inc. Delaware
Shibazaki Seisakusho Limited Japan
The Stolle Corporation*** Ohio
Tapoco, Inc. Tennessee
Yadkin, Inc. North Carolina
The names of certain subsidiaries and equity entities which,
considered in the aggregate, would not constitute a significant
subsidiary, have been omitted from the above list.
*** Registered to do business in Nevada under the name of Alcoa
Building Products, Inc. Also registered to do business in
California under the name of Stolle-Norcold Company.
30
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Aluminum Company of America on
Form S-8 (Registration Nos. 33-22346, 33-24846 and 33-49109)
and Form S-3 (Registration Nos. 33-877 and 33-49997) of our
reports dated January 11, 1995 on our audits of the
consolidated financial statements and financial statement
schedule of Aluminum Company of America and consolidated
subsidiaries as of December 31, 1994 and 1993 and for each
of the three years in the period ended December 31, 1994,
which reports are incorporated by reference or included in
this Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
March 14, 1995
31
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned Directors of Aluminum Company of America (the
"Company") hereby constitute and appoint JAN H. M. HOMMEN,
HOWARD W. BURDETT, EARNEST J. EDWARDS and BARBARA S.
JEREMIAH, or any of them, their true and lawful attorneys
and agents to do any and all acts and things and execute any
and all instruments which said attorneys and agents, or any
of them, may deem necessary or advisable or may be required
to enable the Company to comply with the Securities Exchange
Act of 1934, as amended, and any rules, regulations or
requirements of the Securities and Exchange Commission in
respect thereof, in connection with the registration under
said Act of the Company's Annual Report on Form 10-K for
1994, including specifically, but without limiting the
generality of the foregoing, power and authority to sign the
name of the undersigned Directors of the Company to the
Company's Annual Report on Form 10-K for 1994 to be filed
with the Securities and Exchange Commission and to any
instruments or documents filed as part of or in connection
with any such Form 10-K; and the undersigned hereby ratify
and confirm all that said attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed
these presents on the date set opposite their names below.
/s/KENNETH W. DAM January 13, 1995
Kenneth W. Dam
/s/JOHN P. DIESEL January 13, 1995
John P. Diesel
/s/JOSEPH T. GORMAN January 13, 1995
Joseph T. Gorman
/s/JUDITH M. GUERON January 13, 1995
Judith M. Gueron
/s/RONNIE C. HAMPEL January 13, 1995
Ronnie C. Hampel
/s/JOHN P. MULRONEY January 13, 1995
John P. Mulroney
/s/SIR ARVI PARBO January 13, 1995
Sir Arvi Parbo
/s/HENRY B. SCHACHT January 13, 1995
Henry B. Schacht
/s/FORREST N. SHUMWAY January 13, 1995
Forrest N. Shumway
/s/FRANKLIN A. THOMAS January 13, 1995
Franklin A. Thomas
/s/MARINA v.N. WHITMAN January 13, 1995
Marina v.N. Whitman
1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 619,200
<SECURITIES> 5,500
<RECEIVABLES> 1,505,800
<ALLOWANCES> 37,400
<INVENTORY> 1,144,200
<CURRENT-ASSETS> 4,153,200
<PP&E> 14,502,300
<DEPRECIATION> 7,812,900
<TOTAL-ASSETS> 12,353,200
<CURRENT-LIABILITIES> 2,553,500
<BONDS> 1,183,800
<COMMON> 178,700
0
55,800
<OTHER-SE> 3,764,700
<TOTAL-LIABILITY-AND-EQUITY> 12,353,200
<SALES> 9,904,300
<TOTAL-REVENUES> 10,391,500
<CGS> 7,845,700
<TOTAL-COSTS> 7,845,700
<OTHER-EXPENSES> 671,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,700
<INCOME-PRETAX> 822,500
<INCOME-TAX> 219,200
<INCOME-CONTINUING> 443,100
<DISCONTINUED> 0
<EXTRAORDINARY> (67,900)
<CHANGES> 0
<NET-INCOME> 375,200
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.08
</TABLE>
