FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997 Commission File
Number 1-3610
ALUMINUM COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0317820
(State of incorporation) (I.R.S. Employer Identification
No.)
425 Sixth Avenue - Alcoa Building, Pittsburgh, Pennsylvania
15219-1850
(Address of principal executive offices) (Zip Code)
Office of Investor Relations 412-553-3042
Office of the Secretary 412-553-4707
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of April 24, 1997, 173,630,470 shares of common stock,
par value $1.00, of the Registrant were outstanding.
A07-15785
-1-
PART I - FINANCIAL INFORMATION
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet
(in millions)
<TABLE>
<CAPTION>
(unaudited)
March 31 December 31
ASSETS 1997 1996
-------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (includes cash of
$116.3 in 1997 and $93.4 in 1996) $ 518.3 $ 598.1
Short-term investments 83.3 18.5
Receivables from customers, less allowances:
1997-$46.3; 1996-$48.4 1,851.8 1,674.7
Other receivables 154.0 154.2
Inventories (b) 1,391.2 1,461.4
Deferred income taxes 172.8 159.9
Prepaid expenses and other current assets 209.0 214.4
---------- --------
Total current assets 4,380.4 4,281.2
========== ========
Properties, plants and equipment, at cost 15,630.0 15,729.9
Less, accumulated depreciation, depletion and
amortization 8,671.2 8,652.4
---------- ---------
Net properties, plants and equipment 6,958.8 7,077.5
---------- ---------
Other assets 2,058.8 2,091.2
---------- --------
Total assets $ 13,398.0 $13,449.9
=========== =========
LIABILITIES
Current liabilities:
Short-term borrowings $ 205.0 $ 206.5
Accounts payable, trade 838.2 799.2
Accrued compensation and retirement costs 371.6 404.3
Taxes, including taxes on income 445.5 407.9
Provision for layoffs and impairments 69.6 89.6
Other current liabilities 331.7 287.4
Long-term debt due within one year 187.6 178.5
---------- -------
Total current liabilities 2,449.2 2,373.4
---------- -------
Long-term debt, less amount due within one 1,528.2 1,689.8
year
Accrued postretirement benefits 1,787.6 1,791.2
Other noncurrent liabilities and deferred 1,191.0 1,205.5
credits
Deferred income taxes 310.1 317.1
---------- -------
Total liabilities 7,266.1 7,377.0
---------- -------
MINORITY INTERESTS 1,637.1 1,610.5
---------- --------
SHAREHOLDERS' EQUITY
Preferred stock 55.8 55.8
Common stock 178.9 178.9
Additional capital 589.2 591.9
Translation adjustment (170.6) (93.1)
Retained earnings 4,158.2 4,082.6
Net unrealized gains - securities available 21.8 23.4
for sale
Unfunded pension obligation (4.9) (5.8)
Treasury stock, at cost (333.6) (371.3)
------- -------
Total shareholders' equity 4,494.8 4,462.4
------- -------
Total liabilities and shareholders' equity $13,398.0 $13,449.9
========= =========
The accompanying notes are an integral part of the financial
statements.
</TABLE>
-2-
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
First quarter ended
March 31
--------
1997 1996
---- ----
<S> <C> <C>
REVENUES
Sales and operating revenues $3,231.1 $3,149.6
Other income, principally interest 41.3 28.2
------- -------
3,272.4 3,177.8
------- -------
COSTS AND EXPENSES
Cost of goods sold and operating expenses 2,489.0 2,346.5
Selling, general administrative and other
expenses 159.0 169.3
Research and development expenses 35.6 39.9
Provision for depreciation, depletion and
amortization 182.6 183.3
Interest expense 37.3 32.3
Taxes other than payroll and severance 33.8 33.5
taxes
Special items (e) (4.6) -
------- ------
2,932.7 2,804.8
------- -------
EARNINGS
Income before taxes on income 339.7 373.0
Provision for taxes on income (c) 118.9 126.8
------- -------
Income from operations 220.8 246.2
Less: Minority interests' share (61.7) (68.0)
------- -------
NET INCOME $ 159.1 $ 178.2
======== ========
Earnings per common share (d) $ .92 $ 1.01
======== ========
Dividends paid per common share $ .225 $ .3325
======== ========
The accompanying notes are an integral part of the financial
statements.
</TABLE>
-3-
Alcoa and subsidiaries
Condensed Statement of Consolidated Cash Flows (unaudited)
(in millions)
<TABLE>
<CAPTION>
Three months ended
March 31
--------
1997 1996
-------- --------
<S> <C> <C>
CASH FROM OPERATIONS
Net income $ 159.1 $ 178.2
Adjustments to reconcile net income to cash from
operations:
Depreciation, depletion and amortization 186.5 187.3
Increase in deferred income taxes 4.0 35.5
Equity income before additional taxes, net of (4.8) (4.6)
dividends
Special items - net of payments (4.6) -
Book value of asset disposals 3.6 10.9
Minority interests 61.7 68.0
Other (15.5) (5.4)
Increase in receivables (194.4) (138.7)
(Increase) reduction in inventories 36.3 (151.0)
(Increase) reduction in prepaid expenses and
other current assets 1.2 (15.9)
Reduction in accounts payable and accrued (.7) (15.4)
expenses
Increase in taxes, including taxes on income 53.8 70.7
Reduction in deferred hedging gains (33.4) (55.4)
Net change in noncurrent assets and liabilities (7.4) (30.6)
-------- --------
CASH FROM OPERATIONS 245.4 133.6
-------- --------
FINANCING ACTIVITIES
Net changes in short-term borrowings (1.1) 14.7
Common stock issued and treasury stock sold 118.6 20.2
Repurchase of common stock (83.5) (88.1)
Dividends paid to shareholders (39.0) (60.9)
Dividends paid to minority interests (33.0) (3.1)
Additions to long-term debt 159.9 75.5
Payments on long-term debt (310.3) (216.6)
-------- --------
CASH USED FOR FINANCING ACTIVITIES (188.4) (258.3)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (208.0) (180.9)
Acquisitions, net of cash acquired - (171.5)
Proceeds from the sale of assets 121.2 -
Net change in short-term investments (64.9) (15.8)
Additions to investments (.4) (28.0)
Changes in minority interests 20.6 .5
Repayment of loan to WMC - 121.8
Other - receipts .3 -
- payments (6.1) (7.0)
-------- --------
CASH USED FOR INVESTING ACTIVITIES (137.3) (280.9)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .5 4.5
CHANGES IN CASH -------- --------
Net change in cash and cash equivalents (79.8) (401.1)
Cash and cash equivalents at beginning of year 598.1 1,055.6
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 518.3 $ 654.5
======== ========
The accompanying notes are an integral part of the financial
statements.
</TABLE>
-4-
Notes to Condensed Consolidated Financial Statements
(in millions, except share amounts)
Notes:
(a) Summarized consolidated financial data for Alcoa
Aluminio S.A. (Aluminio) and Alcoa of Australia
Limited (AofA) begin on page 16.
(b) Inventories consisted of:
March 31 December 31
1997 1996
---------- -----------
Finished goods $ 391.3 $ 403.1
Work in process 392.3 421.1
Bauxite and alumina 257.3 283.1
Purchased raw materials 235.3 235.5
Operating supplies 115.0 118.6
-------- --------
$1,391.2 $1,461.4
======== ========
Approximately 53.9% of total
inventories at March 31,1997 were valued on a LIFO
basis. If valued on an average cost basis, total
inventories would have been $770.5 and $753.7 higher at
March 31, 1997 and December 31, 1996, respectively.
(c) The income tax provision for the period is based on the
effective tax rate expected to be applicable for the
full year. Lower taxes on foreign income were offset by
higher taxes on asset sales, resulting in a 35%
effective tax rate for 1997.
(d) The following formula is used to compute primary
earnings per common share (EPS):
EPS = Net income - preferred dividend requirements
--------------------------------------------
Weighted average number of common shares
outstanding for the period
The average number of shares used
to compute primary earnings per common share was
173,121,653 in 1997 and 175,612,108 in 1996. Fully
diluted earnings per common share are not stated since
the dilution is not material.
(e) A net pretax gain of $4.6 (an after-tax loss of $1.1)
was recorded in the 1997 first quarter related to
special items. Asset sales generated income of $25.0,
while increases to environmental reserves and an
impairment at a U.S. manufacturing facility resulted in
a charge of $20.4.
-5-
(f) In late February, 1997, Alcoa and SEPI, the Spanish
State Entity for Industrial Participation, jointly
announced that they signed a Letter of Intent for
Alcoa to acquire the main sectors of the aluminum
business of Inespal, S.A. of Madrid. Inespal is an
integrated aluminum producer with 1996 revenues of
$1.1 billion. The acquisition includes an alumina
refinery, three aluminum smelters, aluminum rolling,
foil and extrusion businesses and related facilities.
The acquisition is expected to be completed before the
end of 1997.
(g) On April 21, 1997, Alcoa announced that it had signed
a letter of intent with Reynolds Metals Company to
acquire Reynolds' rolling mill in Muscle Shoals,
Alabama, two nearby can reclamation plants and a coil
coating facility in Sheffield, Alabama. The
transaction is subject to regulatory approval and
other closing conditions and should be completed in
the second half of the year. Upon closing, the
companies expect to enter a long-term agreement under
which Alcoa would become a major supplier of can sheet
to Reynolds.
-6-
In the opinion of the Company, the financial statements
and summarized financial data in this Form 10-Q report
include all adjustments, including those of a normal
recurring nature, necessary to fairly state the results
for the periods. This Form 10-Q report should be read
in conjunction with the Company's annual report on Form
10-K for the year ended December 31, 1996.
The financial information required in this Form 10-Q by
Rule 10-01 of Regulation S-X has been subject to a
review by Coopers & Lybrand L.L.P., the Company's
independent certified public accountants, as described
in their report on page 8.
-7-
Independent Auditor's Review Report
To the Shareholders and Board of Directors
Aluminum Company of America (Alcoa)
We have reviewed the unaudited condensed consolidated
balance sheet of Alcoa and subsidiaries as of March 31,
1997, the unaudited condensed statements of consolidated
income and condensed consolidated cash flows for the
three-month periods ended March 31, 1997 and 1996, which
are included in Alcoa's Form 10-Q for the period ended
March 31, 1997. These financial statements are the
responsibility of Alcoa's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed
consolidated financial statements referred to above for
them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of Alcoa and subsidiaries as of December
31, 1996, and the related statements of consolidated
income, shareholders' equity, and cash flows for the year
then ended (not presented herein). In our report dated
January 8, 1997, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been
derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
April 4, 1997
-8-
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
(dollars in millions, except share amounts)
<TABLE>
<CAPTION>
Results of Operations
Principal income and operating data follow.
First quarter ended
March 31
--------
1997 1996
-------- --------
<S> <C> <C>
Sales and operating revenues $3,231.1 $3,149.6
Net income 159.1 178.2
Earnings per common share .92 1.01
Shipments of aluminum products (1) 720 656
Shipments of alumina (1) 1,769 1,514
<FN>
(1) In thousands of metric tons (mt)
</TABLE>
Overview
Alcoa earned $159.1, or 92 cents per common share, for the first
quarter of 1997. This compares with earnings of $178.2, or $1.01
per share, in the 1996 first quarter. Revenues increased 3% to
$3,231 compared with $3,150 for the 1996 quarter, while aluminum
shipments increased 10%. Annualized return on shareholders'
equity was 13.7% for the 1997 quarter, compared with 15.2% in the
1996 quarter.
Special items in the 1997 quarter resulted in a pretax gain of
$4.6 (an after-tax loss of $1.1). Previously announced asset
sales generated income of $25.0, while increases to environmental
reserves and an impairment at a U.S. manufacturing facility
resulted in a charge of $20.4.
Alcoa of Australia Limited's (AofA) pretax income from operations
increased 3% from the 1996 quarter to $127, primarily due to
higher shipments of alumina and ingot. The higher shipments were
partially offset by a lack of rigid container sheet (RCS) sales
due to the sale of AofA's rolled products division to Kaal
Australia (Kaal) in May, 1996.
In Brazil, Alcoa Aluminio's (Aluminio) first quarter 1997 pretax
income from operations was $22, a decrease of 25% from the
comparable 1996 period. A gain from a 1996 first quarter asset
sale accounted for a portion of the decrease. Revenues were
slightly lower in the 1997 quarter, principally due to lower
ingot shipments partially offset by higher shipments of
fabricated products. Lower revenues related to packaging
products also had a negative effect on earnings in the 1997
quarter.
-9-
Consolidated revenue and shipment information by segment follows.
<TABLE>
<CAPTION>
First quarter ended Revenues Shipments (000 mt)
March 31 -------- ------------------
Segment 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
1. Alumina and $ 495 $ 462 1,769(1) 1,514(1)
chemicals ------ ------ ----- -----
2. Aluminum processing:
Flat-rolled products 896 1,006 329 337
Engineered products 605 518 142 103
Aluminum ingot 381 324 230 201
Other aluminum 75 78 19 15
products ------ ------ ----- -----
1,957 1,926 720 656
------ ------ ----- -----
3. Nonaluminum products 779 762
------ ------
Total $3,231 $3,150
====== ======
<FN>
(1) Alumina shipments only.
</TABLE>
1. Alumina and Chemicals Segment
Total revenues for this segment were $495 in the 1997 first
quarter, an increase of 7% from the comparable 1996 quarter. The
higher revenues were driven by an increase of 17% in alumina
shipments, partially offset by a 6% decrease in alumina prices.
Revenues from chemicals products rose 3% from the 1996 first
quarter, principally due to higher sales in the U.S.
Alcoa World Alumina and Chemicals (AWAC) produced 2,505 mt of
alumina during the 1997 first quarter, compared with 2,538 mt in
the comparable 1996 period. Of the 1997 first quarter amount,
1,769 mt was shipped to third-party customers.
2. Aluminum Processing Segment
Flat-rolled products - Total flat-rolled products revenue was
down 11% from the 1996 first quarter. The decline was due to
lower RCS volumes partially offset by higher shipments resulting
from the Alumix acquisition by Alcoa Italia. Lower prices also
had a negative effect on total flat-rolled products revenue.
Sales of RCS for beverage cans provide more than half of the
revenues and shipments within flat-rolled products. RCS revenues
were down 28% from the 1996 first quarter due to a 20% decline in
volume and a 9% drop in prices. The primary reasons for the RCS
volume drop were high first quarter 1996 shipments due to pre-
labor negotiation inventory build-up by customers and customer
inventory adjustments during the 1997 first quarter. The sale of
AofA's Rolled Product Division to Kaal in May 1996 also had a
negative effect on shipments, resulting in a 23,000 mt loss in
shipments when compared with the 1996 quarter. These lower RCS
shipments were partially offset by higher ingot shipments by
AofA, which now sells ingot to Kaal for fabrication into RCS
instead of fabricating the ingot into RCS itself.
-10-
Sheet and plate revenues increased 11% from the 1996 period, as a
16% rise in shipments was partially offset by lower prices.
Engineered products - Engineered products include extrusions used
in the transportation and construction markets, aluminum
forgings, and wire, rod and bar. Revenues from the sale of
engineered products increased 17% from the 1996 first quarter on
a 38% increase in shipments. Average prices, however, fell
approximately 16% from the comparable prior year quarter. The
Alumix acquisition, which occurred in the 1996 second quarter,
accounted for approximately 40% of the shipment increase.
Revenues from sales of extruded products were up 31% from the
1996 quarter on a 49% increase in volume. Approximately half of
the volume and revenue increase is attributable to the above
mentioned Alumix acquisition.
Shipments of forged aluminum wheels increased 6% in the 1997
quarter, rebounding from lower 1996 shipments that resulted from
the end of the Ford F-150 program. Revenues from wheels were up
4% from the 1996 first quarter, reflecting the higher shipments,
partially offset by a 2% decline in prices.
Aluminum ingot - Revenues for this product were up 18% from the
1996 first quarter on a 14% increase in shipments, primarily at
AofA and Alcoa Italia. AofA's increase in shipments is related
to the Kaal transaction described above. Alcoa Italia added
approximately 7,900 mt of ingot shipments in the 1997 first
quarter as a result of the Alumix acquisition in 1996. Realized
ingot prices in the 1997 quarter increased 3% from 1996,
reflecting higher market prices.
Other aluminum products - The major products in this category
include aluminum closures and the sale of aluminum scrap.
Revenue decreased 4% from the 1996 first quarter, primarily due
to lower prices for both of these products.
3. Nonaluminum Products Segment
Revenues for the nonaluminum products segment were $779 in the
1997 first quarter, up 2% from the 1996 quarter. The increase
reflects a 17% increase in sales at Alcoa Fujikura Ltd. (AFL),
partly offset by lower or, in some cases, a lack of sales at a
variety of entities that were sold in the first quarter of 1997.
The sales include Alcoa Composites, Dayton Technologies, Norcold
and Arctek. Agreements to sell Caradco, a producer of building
products, and Alcoa's Richmond, Indiana aluminum closure facility
were also reached during the 1997 first quarter, with closings to
take place in the second quarter. Lower revenues from packaging
products in Latin America, a result of lower volumes, also had a
negative effect on this segment's results when compared with the
1996 quarter.
Cost of Goods Sold
Cost of goods sold increased $142.5, or 6%, from the 1996 first
quarter. The increase reflects costs associated with the Alumix
acquisition which were not in the 1996 quarter, cost increases
for materials and services and higher volume. These were
partially offset by improved cost performance. Cost of goods
sold as a percentage of revenue in the 1997 first quarter was
77.0% versus 74.5% in the 1996 first quarter. The higher ratio
in 1997 is primarily due to the above-mentioned items.
-11-
Other Income & Expenses
Other income was up $13.1 from the 1996 first quarter primarily
due to the 1997 quarter having an after-tax mark-to-market gain
of $6.1 versus an after-tax mark-to-market loss of $16.0 in the
1996 quarter. This factor was offset by lower interest and
equity income, and translation and exchange losses in the 1997
quarter versus a gain in the 1996 period.
Selling, general and administrative expenses were down $10.3, or
6%, from the 1996 first quarter. The acquisition of Alumix
resulted in an $11.6 increase in these costs for the 1997
quarter; otherwise, these costs would have been 13% below the
previous year's levels.
Interest expense was up $5.0, or 15%, from the 1996 first
quarter, due to higher borrowings at Aluminio and at Alcoa Italia
related to the Alumix acquisition.
The income tax provision for the period is based on the effective
tax rate expected to be applicable for the full year. Lower
taxes on foreign income were offset by higher taxes on asset
sales, resulting in a 35% effective tax rate for 1997.
Minority interests' share of income from operations fell 9% from
the 1996 first quarter. The decrease is due primarily to lower
earnings at Aluminio and AWAC, partially offset by improved
earnings at AFL.
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 the U.S., and for export, Alcoa enters into long-term
contracts with a number of its customers. At December 31, 1996,
such contracts totaled approximately 2,369,000 mt. Alcoa may
enter into similar arrangements in the future.
As a hedge against the risk of higher prices for anticipated
metal purchases to fulfill long-term customer contracts, Alcoa
entered into long positions, principally using futures and
options. At March 31, 1997 and December 31, 1996, these
contracts totaled approximately 879,000 mt and 872,000 mt,
respectively. Alcoa follows a fairly stable pattern of
purchasing metal; therefore it is highly likely that the
anticipated metal requirements will be met.
The futures and options contracts limit the unfavorable effect of
price increases on metal purchases and likewise limit the
favorable effect from price declines. The contracts are with
creditworthy counterparties and are further supported by cash,
treasury bills, or irrevocable letters of credit issued by
carefully chosen banks.
-12-
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.
Alcoa intends to close out the hedging positions 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 of $191 at March 31, 1997 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 to meet its
contractual commitments with customers. Accordingly, some of the
futures and option positions will be rolled forward. 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, as was the case in
1996, if metal prices fall below the price of contracts being
rolled forward.
In addition, Alcoa had 225,000 mt and 205,000 mt of LME contracts
outstanding at March 31, 1997 and December 31, 1996,
respectively, that cover long-term fixed-price commitments to
supply customers with metal from internal sources. Accounting
convention requires that these contracts be marked-to-market,
which resulted in after-tax gains of $6.1 and losses of $16.0 at
March 31, 1997 and 1996, respectively.
Alcoa also purchases certain other commodities, such as gas and
copper, for its operations and enters into futures contracts to
eliminate volatility in the prices of such products. None of
these contracts are material.
Financial Risk
Alcoa is subject to significant exposure from fluctuations in
foreign currencies. As a matter of company policy, foreign
currency exchange contracts, including forwards and options, are
used to manage transactional exposure to changes in currency
exchange rates. The forward contracts principally cover firm
commitments. Options are generally used to hedge anticipated
transactions.
Alcoa also attempts to maintain a reasonable balance between
fixed and floating rate debt and uses interest rate swaps and
caps to keep financing costs as low as possible.
Risk Management
All of the aluminum and other commodity contracts, as well as the
various types of financial instruments, are straightforward.
They are used primarily to mitigate uncertainty and volatility,
and principally cover underlying exposures.
Alcoa's commodity and derivative activities are subject to the
management, direction and control of the Strategic Risk
Management Committee (SRMC) It is composed of the chief
executive officer, the president, the chief financial officer and
other officers and employees as the chief executive officer may
select from time to time. SRMC reports to the Board of Directors
at each of its scheduled meetings on the scope of its derivatives
activities.
-13-
Environmental Matters
Alcoa continues to participate in environmental assessments
and cleanups at a number of locations, including operating
facilities and their adjoining property; at previously owned
or operated facilities; and at Superfund and other waste
sites. A liability is recorded for environmental remediation
costs or damages when a cleanup program becomes probable and
the costs or damages can be reasonably estimated.
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 substantially due to factors such as the
nature or extent of contamination, 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 the 1997
first quarter was $273 and reflects the most probable costs
to remediate identified environmental conditions for which
costs can be reasonably estimated. Approximately 27% of the
reserve relates to Alcoa's Massena, N.Y. plant site and 19%
relates to Alcoa's Pt. Comfort, Texas plant site.
Remediation expenditures charged to the reserve during the
1997 three-month period were $13. They include expenditures
currently mandated as well as those not required by any
regulatory authority or third party.
Included in ongoing operating expenses are the recurring
costs of managing hazardous substances and environmental
programs. These costs are estimated to be about 2% of cost
of goods sold.
Liquidity and Capital Resources
Cash from Operations
Cash from operations during the 1997 first quarter totaled
$245.4, compared with $133.6 in the 1996 quarter. The increase
reflects a lower level of working capital requirements, partially
offset by lower earnings.
Cash outlays for 1996 special items related to severance costs
were approximately $23. These costs consist of salary
continuation payments for up to two years and pension supplements
and medical costs to be paid over the lives of the employees.
-14-
Financing Activities
Financing activities used $188.4 of cash in the first quarter,
compared with $258.3 in the 1996 period. The 1997 first quarter
included $83.5 used to repurchase 1,190,600 shares of the
company's common stock. Dividends paid to shareholders were
$39.0 in the 1997 three-month period, a decrease of $21.9 over
the 1996 period. The decrease was due to Alcoa's bonus dividend
program, which paid out 10.75 cents in the 1996 quarter above the
base dividend. In March 1997, the board of directors voted to
increase the base quarterly dividend by 11%, to 25 cents per
share. Payments on long-term debt during the first three months
of 1997 exceeded additions by $150.4 as Alcoa reduced outstanding
commercial paper balances. Alcoa issued $118.6 of stock in the
1997 first quarter in connection with its long-term stock
incentive plan.
Investing Activities
Investing activities used $137.3 during the 1997 first quarter,
compared with $280.9 in the 1996 period. Capital expenditures
for the 1997 period were $208.0, up $27.1 from the 1996 first
quarter. Capital expenditures were mostly for sustaining
operations, with approximately 23% related to capacity-enhancing
projects. During the 1997 quarter, Alcoa completed asset sales
involving its Alcoa Composites, Dayton Technologies, Norcold and
Arctek subsidiaries. A total of $121.2 was received for the
operating assets of these entities. In the 1996 quarter, Alcoa
used $171.5 to purchase the operating assets of Alumix in Italy.
Accounting Rule Change
A new ACIPA Statement of Position related to environmental
liabilities was implemented in the 1997 first quarter. The
implementation did not have a material effect on the financial
statements.
A new accounting rule, FAS 128 - Earnings per Share (EPS), was
issued in February 1997. The implementation will require the
disclosure of basic (currently referred to as primary) and
diluted (currently referred to as fully diluted) EPS. The
calculation of basic EPS under the new rule will not change from
the current calculation of primary EPS. The calculation of
diluted EPS under the new rule will not be materially different
from the current calculation of fully diluted EPS, which is
available in Exhibit-11 of this document. Implementation of this
new standard will begin as of December 31, 1997.
-15-
Alcoa and subsidiaries
Summarized unaudited consolidated financial data for Aluminio, a
59%-owned subsidiary of Alcoa Brazil Holdings Company, follow.
<TABLE>
<CAPTION>
March 31 December 31
-------- -----------
1997 1996
--------- ------------
<S> <C> <C>
Cash and short-term investments $ 279.3 $ 269.1
Other current assets 454.0 441.2
Properties, plants and equipment, 892.9 897.5
net
Other assets 232.3 235.0
------- ---------
Total assets 1,858.5 1,842.8
------- ---------
Current liabilities 438.7 404.0
Long-term debt 454.2 492.5
Other liabilities 63.6 62.1
------- ---------
Total liabilities 956.5 958.6
------- ---------
Net assets $ 902.0 $ 884.2
======== ==========
First quarter ended
March 31
--------
1997 1996
------- -------
Revenues (1) $ 288.2 $ 291.2
Costs and expenses (265.8) (262.0)
Translation and exchange (.1) .6
adjustments
Income tax expense (4.5) (4.2)
------- -------
Net income $ 17.8 $ 25.6
======== ========
Alcoa's share of net income $ 10.5 $ 15.1
======== ========
<FN>
(1) Revenues from Alcoa and its subsidiaries, the terms of
which were established by negotiations between the parties,
follow.
First quarter ended March 31: 1997 - $2.4, 1996 - $2.6
</TABLE>
-16-
Alcoa and subsidiaries
Summarized unaudited consolidated financial data for AofA, a
60%-owned subsidiary of Alcoa International Holdings Company,
follow.
<TABLE>
<CAPTION>
March 31 December 31
-------- -----------
1997 1996
---------- ------------
<S> <C> <C>
Cash and short-term investments $ 58.3 $ 13.9
Other current assets 525.7 522.4
Properties, plants and 1,645.4 1,695.4
equipment, net
Other assets 106.3 108.6
------- -------
Total assets 2,335.7 2,340.3
------- -------
Current liabilities 336.8 341.9
Long-term debt 159.5 131.0
Other liabilities 425.1 435.7
------- -------
Total liabilities 921.4 908.6
------- -------
Net assets $1,414.3 $ 1,431.7
======== =========
First quarter ended
March 31
--------
1997 1996
------- ---------
Revenues (1) $ 491.7 $ 485.6
Costs and expenses (364.3) (362.0)
Translation and exchange
adjustments - -
Income tax expense (46.9) (43.7)
------- --------
Net income $ 80.5 $ 79.9
========= =========
Alcoa's share of net income $ 48.3 $ 47.9
========= =========
<FN>
(1) Revenues from Alcoa and its subsidiaries, the terms
of which were established by negotiations between the
parties, follow.
First quarter ended March 31: 1997 - $12.7, 1996 - $16.5
</TABLE>
-17-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In mid-March 1997, Alcoa's Lebanon Works received a draft Consent
Order and Agreement from the Pennsylvania Department of
Environmental Protection (DEP) for the alleged emissions of
hexane in excess of permissible levels. Alcoa had reported the
potential problem with hexane emissions to the DEP in late 1995.
The DEP is seeking civil penalties in excess of $100,000 for
emissions which occurred during 1995 and 1996 and additional
penalties for emissions in excess of authorized levels in 1997.
At a meeting in mid-April, Alcoa and the DEP agreed to changes to
the Consent Order and Agreement and to further negotiate the
amount of the proposed civil penalty. Alcoa is actively pursuing
a pollution prevention project which will eliminate the need to
use hexane at the facility and thereby eliminate all hexane
emissions.
On March 27, 1997, Alcoa Italia received an order from Italian
governmental authorities relating to several environmental
deficiencies at its Fusina Plant. Several of the issues are the
result of the prior owner's failure to obtain required
authorizations and delays in the scheduled installation of
certain emission control equipment. Alcoa Italia is working with
the authorities to resolve each of the issues raised and is
continuing with its programs to install the last pollution
control system that is required under the order and to complete
the requested emission sampling program.
On April 15, 1997, German customs authorities conducted a search
of the offices of Alcoa VAW Hannover Presswerk GmbH & Co. KG
(Alcoa VAW) in Hannover, Germany, seeking material relating to
export transactions dating from 1992. Alcoa VAW is cooperating
fully with the investigation.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11. Computation of Earnings per Common Share
12. Computation of Ratio of Earnings to Fixed Charges
15. Independent Accountants' letter regarding unaudited
financial information
27. Financial Data Schedule
(b) No reports on Form 8-K were filed by Alcoa during the
quarter covered by this report.
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
ALUMINUM COMPANY OF AMERICA
April 25, 1997 By /s/ PAUL H. O'NEILL
Date Paul H. O'Neill
Chairman of the Board and
Chief Executive Officer and
Acting Chief Financial Officer
(Principal Financial Officer)
April 25, 1997 By /s/ EARNEST J. EDWARDS
Date Earnest J. Edwards
Vice President and Controller
(Chief Accounting Officer)
-19-
EXHIBITS
Page
11. Computation of Earnings per Common Share 21
12. Computation of Ratio of Earnings to Fixed Charges 22
15. Independent Accountants' letter regarding
unaudited financial information 23
27. Financial Data Schedule
-20-
Alcoa and subsidiaries EXHIBIT 11
<TABLE>
<CAPTION>
Computation of Earnings (Loss) per Common Share
For the three months ended March 31
(in millions, except share amounts)
1997 1996
----------- ----------
<S> <C> <C>
1. Income applicable to common stock* $158.5 $177.7
2. Weighted average number of common
shares outstanding during the period 173,121,653 175,612,108
outstanding during the period
3. Primary earnings per common share
(1 divided by 2) $.92 $1.01
4. Fully diluted earnings (1) $158.5 $177.7
5. Shares issuable under compensation 37,320 26,044
plans
6. Shares issuable upon exercise of
dilutive outstanding stock options
(treasury stock method) 1,722,383 1,516,732
7. Fully diluted shares (2 + 5 + 6) 174,881,356 177,154,884
8. Fully diluted earnings per common
share (4 divided by 7) $.91 $1.00
<FN>
* After preferred dividend requirement
</TABLE>
-21-
Alcoa and subsidiaries EXHIBIT 12
<TABLE>
<CAPTION>
Computation of Ratio of Earnings to Fixed Charges
For the three months ended March 31, 1997
(in millions, except ratio)
1997
<S>
Earnings: <C>
Income before taxes on income $ 339.7
Minority interests' share of earnings of
majority-owned subsidiaries without
fixed charges 1.2
Equity income (7.7)
Fixed charges 47.5
Proportionate share of income (loss) of
50%-owned persons 6.6
persons
Distributed income of less than 50%-owned
persons -
Amortization of capitalized interest 5.4
-------
Total earnings $ 392.7
Fixed Charges:
Interest expense:
Consolidated $ 37.3
Proportionate share of 50%-owned persons 1.5
-------
38.8
-------
Amount representative of the interest
factor in rents:
Consolidated 8.6
Proportionate share of 50%-owned persons .1
-------
8.7
-------
Fixed charges added to earnings 47.5
-------
Interest capitalized:
Consolidated 2.2
Proportionate share of 50%-owned persons -
-------
2.2
-------
Preferred stock dividend requirements of
majority-owned subsidiaries -
-------
Total fixed charges $ 49.7
=======
Ratio of earnings to fixed charges 7.9
=======
</TABLE>
-22-
EXHIBIT 15
April 4, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Aluminum Company of America
1. Form S-8 (Registration No. 33-24846 and 33-00033)
Alcoa Savings Plan for Salaried Employees
2. Form S-8 (Registration No. 33-22346, 33-49109 and
33-60305) Long Term Stock Incentive Plan
3. Form S-3 (Registration No. 33-49997) and
Form S-3 (Registration No. 33-60045) and
Form S-3 (Registration No. 33-64353)
Debt Securities and Warrants to Purchase Debt
Securities,
Preferred Stock and Common Stock
Ladies and gentlemen:
We are aware that our report dated April 4, 1997,
accompanying interim financial information of Aluminum
Company of America (Alcoa) and subsidiaries for the three-
month period ended March 31, 1997, is incorporated by
reference in the registration statements referred to above.
Pursuant to Rule 436 (c) under the Securities Act of 1933,
this report should not be considered as part of a
registration statement prepared or certified by us within
the meaning of Sections 7 and 11 of that Act.
Very truly yours,
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 518,300
<SECURITIES> 83,300
<RECEIVABLES> 1,851,800
<ALLOWANCES> 46,300
<INVENTORY> 1,391,200
<CURRENT-ASSETS> 4,380,400
<PP&E> 15,630,000
<DEPRECIATION> 8,671,200
<TOTAL-ASSETS> 13,398,000
<CURRENT-LIABILITIES> 2,449,200
<BONDS> 1,715,800
178,900
0
<COMMON> 55,800
<OTHER-SE> 4,260,100
<TOTAL-LIABILITY-AND-EQUITY> 13,398,000
<SALES> 3,231,100
<TOTAL-REVENUES> 3,272,400
<CGS> 2,489,000
<TOTAL-COSTS> 2,489,000
<OTHER-EXPENSES> 182,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,300
<INCOME-PRETAX> 339,700
<INCOME-TAX> 118,900
<INCOME-CONTINUING> 159,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,100
<EPS-PRIMARY> .92
<EPS-DILUTED> .91
</TABLE>
