UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 15219-
1850
(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, par value $1.00 New York Stock Exchange
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. [ ]
As of March 3, 1997 there were 172,803,703 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 registrant, was
approximately $12,485 million.
Documents incorporated by reference.
Parts I and II of this Form 10-K incorporate by reference
certain information from the registrant's 1996 Annual Report to
Shareholders. Part III of this Form 10-K incorporates by
reference the registrant's Proxy Statement dated March 12, 1997,
except for the performance graph and Compensation Committee
Report.
This Amendment to Form 10-K is being filed to amend
Exhibit 13 thereto. The full text of Exhibit 13 is set forth
in this Amendment to Form 10-K.
-1-
PART IV
(3) 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
exhibit 3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991.
10(a). Long Term Stock Incentive Plan (restated) effective
January 1, 1997 (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, incorporated
by reference to exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
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 and exhibit 10(e)(1)
the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
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 10, 1995, incorporated by reference to exhibit
10(g) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
10(h). Restricted Stock Plan for Non-Employee Directors, as
amended effective March 10, 1995, incorporated by
reference to exhibit 10(h) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
10(h)(1).Amendment to Restricted Stock Plan for Non-Employee
Directors, effective November 10, 1995, incorporated by
reference to exhibit 10(h)(1) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995.
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(i)(1).Amendment to Fee Continuation Plan for Non-Employee
Directors, effective November 10, 1995, incorporated by
reference to exhibit 10(i)(1) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995.
-2-
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,
incorporated by reference to exhibit 10(j)(1) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(j)(2).Amendment to Deferred Compensation Plan, effective
June 1, 1995, incorporated by reference to exhibit
10(j)(2) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
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). Dividend Equivalent Compensation Plan, effective February
3, 1997 (filed herewith).
10(m). 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 1996 Annual Report to Shareholders.
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(l) are management contracts
or compensatory plans required to be filed as Exhibits to this
Form 10-K.
-3-
SIGNATURES
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 undersigned,
thereunto duly authorized.
ALUMINUM COMPANY OF AMERICA
July , 1997 By /s/ Richard B. Kelson
Richard B. Kelson
Executive Vice
President and Chief
Financial Officer
(Principal Financial
Officer)
-4-
EXHIBIT 13
SELECTED FINANCIAL DATA
(dollars in millions, except per-share amounts and ingot prices)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Sales and operating revenues $ 13,061.0 $ 12,499.7 $ 9,904.3 $ 9,055.9 $ 9,491.5
- -----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary
loss and accounting
changes* 514.9 790.5 443.1 4.8 22.4
- -----------------------------------------------------------------------------------------------------------------------------------
Extraordinary loss and
accounting changes -- -- (67.9) -- (1,161.6)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)* 514.9 790.5 375.2 4.8 (1,139.2)
- -----------------------------------------------------------------------------------------------------------------------------------
Per common share
Before extraordinary
loss and accounting
changes 2.94 4.43 2.48 .02 .12
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 2.94 4.43 2.10 .02 (6.70)
- -----------------------------------------------------------------------------------------------------------------------------------
Alcoa's average realized
price per pound for
aluminum ingot .73 .81 .64 .56 .59
- -----------------------------------------------------------------------------------------------------------------------------------
Average U.S. market price
per pound for aluminum
ingot (Metals Week) .71 .86 .71 .53 .58
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid per
common share 1.33 .90 .80 .80 .80
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 13,449.9 13,643.4 12,353.2 11,596.9 11,023.1
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt (noncurrent) 1,689.8 1,215.5 1,029.8 1,432.5 855.3
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Includes net charges of $122.3, or 70 cents per common share,
in 1996; $10.1, or six cents, in 1995; $50.0, or 28 cents, in
1994; $74.5, or 43 cents, in 1993; and $173.9, or $1.02, in 1992.
Also included in 1994 is a gain of $300.2, or $1.69 per share.
</TABLE>
-21-
RESULTS OF OPERATIONS
(dollars in millions, except share amounts and ingot prices)
EARNINGS SUMMARY
Alcoa's 1996 net income was $514.9 compared with $790.5 in 1995
and $375.2 in 1994.
Income before unusual items in 1996 was $637.2 compared with
$800.6 in 1995 and $192.9 in 1994. Revenues were a record
$13,061, an increase of 4% over 1995. Most of the increase
came from an acquisition by Alcoa Fujikura (AFL), Alcoa's
automotive electrical components business. Alumina revenues rose
on the strength of higher prices. Aluminum revenues were
unchanged, with higher shipments offsetting lower prices.
The drop in earnings from 1995 was primarily due to a 6%
decline in Alcoa's realized price per pound for aluminum
products, partially offset by higher alumina prices. The
company's aluminum smelters operated at 81% of rated capacity
during 1996 in response to high levels of aluminum inventories
worldwide.
Before unusual items, return on shareholders' equity for 1996
was 14.4% compared with 18.8% in 1995 and 5.2% in 1994.
The following table summarizes Alcoa's results adjusted for
unusual items described in more detail later in this section.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 514.9 $ 790.5 $ 375.2
- ------------------------------------------------------------------------------
Unusual items: Special
items, net 122.3 10.1 50.0
- ------------------------------------------------------------------------------
Gain from Alcoa/WMC
transaction -- -- (300.2)
- ------------------------------------------------------------------------------
Extraordinary loss -- -- 67.9
- ------------------------------------------------------------------------------
Adjusted net income $ 637.2 $ 800.6 $ 192.9
- ------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC AND SEGMENT INFORMATION
Operating profit before unusual items in 1996 was $1,350 compared
with $1,435 in 1995 and $513 in 1994. Operating profit, for
geographic and segment purposes, consists of sales and operating
revenues less operating expenses. It excludes interest expense,
nonoperating income, income taxes, minority interests and unusual
items. See Note R to the financial statements for additional
information.
OPERATIONS BY GEOGRAPHIC AREA
USA -- Revenues of $7,246 were up 3% from 1995, due mostly to
higher shipments of nonaluminum products, reflecting the AFL
acquisition. These gains were partially offset by lower
shipments of fabricated aluminum products and by the shutdown of
the company's electronic packaging operations (AEP). Revenues
in 1995 were $7,043, up $1,469 from 1994, reflecting higher prices
for fabricated aluminum products and ingot.
Operating profit in 1996 was $640 compared with $594 in 1995
and a loss of $65 in 1994. Improved profits in 1996 for building
-22-
products, automotive electrical components and alumina operations
were partially offset by lower earnings in aluminum operations
and the plastic closures business, and by the AEP shutdown.
Exports from the U.S. in 1996 were $1,015 compared with
$1,206 in 1995 and $988 in 1994.
Pacific -- Revenues totaled $2,248 in 1996 versus $1,986 in 1995
and $1,670 in 1994. Operating profit was $505 in 1996, $415 in
1995 and $291 in 1994. The principal operations in this region
are those of Alcoa of Australia (AofA). The 22% increase in
operating profit from 1995 was due to a 13% rise in alumina
prices while costs increased at a much lower rate. Alumina
volumes were even with those in 1995. Operating profit in 1995
rose 43% from 1994, as prices of alumina, ingot and fabricated
products increased substantially. Shipments of alumina fell 3%,
while shipments of ingot and fabricated products were about
even with 1994.
Other Americas -- Revenues in 1996 were $1,726 compared with
$1,780 in 1995 and $1,362 in 1994. Operating profit was $151
in 1996, $333 in 1995 and $239 in 1994. The decrease in operating
profit from 1995 relates principally to higher costs and lower
metal prices at Alcoa Aluminio's aluminum operations in Brazil.
Lower earnings from Aluminio's packaging business, along with
lower sales of rigid container sheet (RCS) by an international
selling company, also negatively affected operating profit. Most
of the 39% increase in operating profit in 1995 from 1994 was
related to Aluminio's nonaluminum operations.
Europe -- Revenues were $1,841 in 1996 compared with $1,691 in
1995 and $1,298 in 1994. Operating profit was $55 in 1996,
$92 in 1995 and $48 in 1994. Most Alcoa locations in this
region were hurt by weak economic conditions in Europe in 1996.
The lower operating profit in 1996 was mitigated slightly by
earnings from the acquisition in Italy. Aluminum operations
in Great Britain and Hungary, and chemical operations in the
Netherlands, were the major contributors to the higher
operating profit in 1995 versus 1994.
OPERATIONS BY SEGMENT
Alcoa's integrated operations consist of three segments: Alumina
and Chemicals, Aluminum Processing and Nonaluminum Products.
I. ALUMINA AND CHEMICALS SEGMENT
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,940 $ 1,758 $ 1,508
- ------------------------------------------------------------------------------
Operating profit 459 307 277
- ------------------------------------------------------------------------------
</TABLE>
Approximately two-thirds of the revenues from this segment are
derived from sales of alumina. Revenues from alumina in 1996 rose
13% from 1995 with a similar increase in 1995 from 1994. Price
was the driving factor, rising 13% in 1996 after a 16% increase
in 1995 from 1994. Shipments in 1996 remained unchanged from
1995, while 1995 shipments were slightly lower than those in
1994.
Revenues from alumina-based chemical products rose 3% in 1996
on higher volumes, as a strengthening U.S. market more than
offset weaker sales in Europe. Revenues in 1995 were up 24% from
1994, reflecting strong European demand.
Operating profit in 1996 for this segment was $459, up 50% from
1995. The increase came from alumina operations, which benefited
from higher prices and good cost control. In 1995, operating
profit of $307 was up 11% from 1994. That increase was due to
higher prices for alumina, partially offset by lower chemicals
margins.
In November 1996, Alcoa World Alumina and Chemicals (AWAC)
entered into a long-term alumina supply agreement with China
National Nonferrous Metals Industry Corporation (CNNC). The
agreement entitles Sino Mining Alumina Ltd. (SMAL), a
wholly-owned subsidiary of CNNC, to 400,000 metric tons (mt) of
alumina per year for 30 years. SMAL has the option to increase
its alumina purchases as CNNC's needs grow. As part of the
agreement, SMAL will make an advance lump-sum payment of $240
to AWAC in 1997. The payment will be deferred and amortized to
income over the life of the contract. Per-ton payments will
also be made as shipments occur.
II. ALUMINUM PROCESSING SEGMENT
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total aluminum shipments
(000 mt) 2,841 2,582 2,551
- ------------------------------------------------------------------------------
Revenues $ 7,976 $ 8,034 $ 6,477
- ------------------------------------------------------------------------------
Operating profit 774 1,015 145
- ------------------------------------------------------------------------------
</TABLE>
Total aluminum shipments increased 10% from 1995, aided by the
acquisitions of Alumix in Italy and Alcan's extrusion operations
in Brazil. Revenues fell 1%, reflecting lower prices for ingot and
most fabricated products. Revenues in 1995 for this segment rose
24% from 1994, reflecting higher prices for most products while
shipments were relatively stable.
Operating profit of $774 in 1996 was $241 lower than in 1995.
In addition to lower prices, other factors contributing to the
decline in operating profit included a lower-value product mix
and higher raw material costs that were partially offset by
better cost performance. Operating profit in 1995 increased $870
over 1994, primarily due to higher prices, a higher-value product
mix and cost reductions, partially offset by higher purchased
metal and raw material costs. The major contributors to the 1995
increase were the packaging, aerospace products and aluminum
ingot operations.
-23-
This segment's shipments and revenues are made up of the
following product classes.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments (000 mt) Flat-
rolled products 1,357 1,380 1,381
- ------------------------------------------------------------------------------
Engineered products 495 454 433
- ------------------------------------------------------------------------------
Aluminum ingot 901 673 655
- ------------------------------------------------------------------------------
Other aluminum products 88 75 82
- ------------------------------------------------------------------------------
Total shipments 2,841 2,582 2,551
- ------------------------------------------------------------------------------
Revenues Flat-rolled
products $ 3,920 $ 4,177 $ 3,201
- ------------------------------------------------------------------------------
Engineered products 2,269 2,303 1,882
- ------------------------------------------------------------------------------
Aluminum ingot 1,449 1,197 920
- ------------------------------------------------------------------------------
Other aluminum products 338 357 474
- ------------------------------------------------------------------------------
Total revenues $ 7,976 $ 8,034 $ 6,477
- ------------------------------------------------------------------------------
</TABLE>
Flat-Rolled Products -- More than half of the shipments and
revenues in this product class are derived from the sale of RCS.
Revenues from RCS in 1996 declined 16% from 1995 as prices fell
6% and shipments dropped 10%. Weaker U.S. export sales and the
sale of AofA's rolled products division to Kaal Australia, an
unconsolidated 50%-owned affiliate, were the primary reasons for
the lower shipments. The Kaal sale had the effect of reducing
AofA's RCS shipments, while at the same time increasing its
ingot shipments. Revenues in 1995 from RCS increased 40% from
1994 on the strength of higher prices as shipments fell 2%.
Alumix, an Italian government-owned subsidiary that was
acquired by Alcoa Italia in the 1996 first quarter, contributed
$153 in revenues from flat-rolled products on shipments of
76,000 mt.
Revenues from sheet and plate, serving principally the
aerospace and commercial products markets, increased 4% from
1995. Shipments of sheet products were unchanged from 1995
while plate shipments fell 10%. Prices for both sheet and
plate rose a combined 7%.
Engineered Products -- The products in this class include
extrusions used principally in the transportation and
construction markets, forgings, wheels, wire, rod and bar.
Total shipments were up 9% from 1995 but revenues fell 2%.
Compared with 1994, shipments in 1995 were up 5% and revenues
increased 22%.
Revenues from extruded products, which serve several markets,
were up 15% from 1995 as shipments rose 26%, reflecting the
Italian and Brazilian acquisitions. Extruded products revenues
in 1995 were up 29% from 1994 on the strength of higher prices.
Revenues from forged wheels fell for the first time since 1991
due to an 18% decline in shipments. Lower worldwide production
of heavy-duty trucks, the end of the Ford F-150 wheel program,
and a strike at one of Alcoa's wheel production facilities
contributed to the decline. Revenues in 1995 were up 20%
from 1994, reflecting a 13% increase in shipments.
-24-
Aluminum Ingot -- Alcoa's smelters operated at approximately 81%
of worldwide rated capacity during 1996. Since early 1994,
450,000 mt of capacity has been idle, due to the high levels
of worldwide aluminum inventories. Shipments of ingot were 34%
higher than those in 1995, generating a 21% increase in
revenues. The sale of AofA's rolled products division to Kaal
accounted for the majority of the increase. AofA now sells
ingot to Kaal instead of fabricating the ingot into RCS. Also,
Aluminio had higher third-party ingot sales due to lower
internal demand. Alcoa's average realized price for ingot in
1996 was 73 cents per pound compared with 81 cents in 1995 and
64 cents in 1994.
Other Aluminum Products -- Shipments of these products,
consisting primarily of scrap and aluminum closures, were up
17% from 1995. Scrap shipments were up 38%, resulting in an
18% increase in revenues. Shipments of aluminum closures
rose 7% but prices declined 19%. In 1995, shipments of other
aluminum products were down 8% from 1994 and prices fell 18%.
III. NONALUMINUM PRODUCTS SEGMENT
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 3,146 $ 2,708 $ 1,919
- ------------------------------------------------------------------------------
Operating profit 117 113 91
- ------------------------------------------------------------------------------
</TABLE>
Revenues from this segment were up 16% from 1995. The majority of
the increase was due to the inclusion of a full year's results
for Electro-Wire Products (EWP), acquired by AFL in July 1995.
This was partially offset by the closing of AEP in 1996. Sales
of plastic closures were essentially unchanged from 1995 levels.
Revenues from this segment in 1995 were up 41% from 1994 as
both the automotive electrical components and plastic closures
businesses expanded.
Operating profit was up 4% from 1995. Increased profits by AFL
were partially offset by a 43% price-related reduction in
earnings for magnesium products, strong competition in the
closures business and the shutdown of AEP. Operating profit
in 1995 rose 24% from 1994 as higher earnings from magnesium
products were partially offset by higher costs to launch
expansions, competition in the closures business and a
sluggish building products market.
UNUSUAL AND EXTRAORDINARY ITEMS
Special Items -- Included in 1996 income from operations was a
charge of $198.9 ($122.3 after tax and minority interests)
consisting of several items. Incentive costs for employees
who voluntarily left the company and permanent layoff costs
resulted in a charge of $95.5, net of pension and other
postemployment benefits (OPEB) curtailment credits of $75.0.
This charge was part of Alcoa's initiative to reduce
administrative expenses by $300 annually and affected 2,900
salaried employees. Cash payments in 1996 for these
incentive and layoff costs totaled approximately $31. In
addition, the shutdown of AEP resulted in a charge of $65.4,
related primarily to asset writedowns. Impairments at various
manufacturing locations added another $38.0 to special items
in 1996.
The 1995 special charge of $16.2 ($10.1 after tax and minority
interests) consisted of a $43.5 charge for severance costs,
partially offset by a net credit of $27.3 related to
environmental matters.
Special items of $79.7 ($50.0 after tax) in 1994 related to
the closing of the forgings and extrusion operations in Vernon,
California. The charge reflected provisions of $46.9, mostly for
severance costs, and $32.8 for asset writeoffs.
Gain from Alcoa/WMC Transaction -- In December 1994, Alcoa
recorded a gain of $400.2 ($300.2 after tax) from the acquisition
by WMC Limited of a 40% interest in Alcoa's worldwide bauxite,
alumina and inorganic chemicals businesses (AWAC). As part of the
agreement, Alcoa acquired an additional 9% interest in AofA,
bringing its total interest in that company to 60%. See Note
C for additional information about this transaction.
Extraordinary Loss -- The extraordinary loss in 1994 of $67.9
relates to the early retirement of 7% discount debentures that
carried an effective interest rate through maturity in 2011 of
14.7%. The loss was the unamortized portion of the original
discount that would have been paid at the time the debt
matured.
COSTS AND OTHER INCOME
Cost of Goods Sold -- Cost of goods rose 6% to $9,966 in 1996,
following a 19% increase in 1995 from 1994. Contributing to the
1996 increase was $450 of operating costs related to new
companies and higher volume of $350. These increases were
partially offset by a lower-cost product mix and cost
improvements. Cost of goods sold in 1995 was $1,514 higher
than in 1994. Higher purchased metal and raw material costs of
$660, higher volume of $550 and operating costs related to
new companies of $300 were partially offset by better operating
performance and efficiencies.
New six-year labor agreements covering the majority of
Alcoa's U.S. production workers were ratified during 1996.
The parties agreed to an unprecedented partnership providing
that Alcoa and the unions work cooperatively on customer
requirements, business objectives and shareholder and union
interests. Broad new goals were set for employee safety, job
security and accountability for the work environment.
Selling and General Administrative Expenses -- These expenses
totaled $709 in 1996, unchanged from 1995. New companies in
1996 added over $36 in new costs that were offset by lower
administrative expenses. Expenses in 1995 were up $75 from
1994 due to higher compensation costs.
-26-
Research and Development Expenses -- R&D expenses rose 17%
to $166 in 1996, with higher activity in casting technology and
in closures, automotive and environmental research.
Interest Expense -- Interest expense was up $14 from 1995,
mostly due to the higher level of debt carried by AFL related
to its EWP acquisition and Aluminio's debt refinancing in the
1996 fourth quarter.
Income Taxes -- Alcoa's effective tax rate in 1996 was 33.3%.
This rate differed from the statutory rate of 35%, primarily because
of the recognition of a tax benefit resulting from reversal of the
valuation allowance on deferred tax assets at Suriname Aluminum
Company, partially offset by state taxes on income.
The 1995 effective tax rate was 30.3%, and differs from the
statutory rate primarily because of taxes on foreign income,
partially offset by a higher tax rate in Australia.
For 1994, Alcoa's effective tax rate was 26.7%. The difference
from the statutory rate was mostly because a portion of the
gain on the Alcoa/WMC transaction was nontaxable.
Other Income/Foreign Currency -- Other income fell $88 or 57% in
1996. The decline was principally due to increased losses from
marking-to-market aluminum commodity contracts and lower equity
and interest income, partially offset by a swing in translation
adjustments. Other income in 1995 was $155 compared with $87
in 1994. The increase primarily reflects higher equity earnings
and interest income, partially offset by losses from marking-to-
market metal contracts.
Translation and exchange gains (losses) included in other
income were $3.1 in 1996, $(16.5) in 1995 and $(10.3) in 1994.
The effect on net income, after taxes and minority interests,
was $(0.3) in 1996, $(10.2) in 1995 and $(9.6) in 1994.
RISK FACTORS
In addition to inherent operating risks, Alcoa is exposed to
financial, market, 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
LME. Alcoa participates in this market by buying and selling
forward portions of its aluminum requirements and output.
Alcoa divides its operations into four regions: U.S., Pacific,
Other Americas and Europe. AofA in the Pacific region and
Aluminio in the Other Americas are generally in net long metal
positions. From time to time, they may sell production forward.
Operations in the European region are generally net metal short
and may purchase forward positions periodically. Forward
purchase and sales activity within these three regions has not
been material.
In the U.S., and for export, Alcoa enters into long-term
contracts with a number of its fabricated products customers. At
December 31, 1996 and 1995, such contracts approximated
2,369,000 mt and 2,483,000 mt, respectively. 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 December 31, 1996 and 1995, these contracts totaled
approximately 872,000 mt and 1,210,000 mt, respectively.
Alcoa follows a stable pattern of purchasing metal; therefore,
it is highly likely that 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.
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 $224 at December 31, 1996 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 options 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 205,000 mt of futures and options
contracts outstanding at year-end 1996 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
charges to earnings of $57 in 1996 and $38 in 1995.
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. For additional
information on financial instruments, see Notes A and S.
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 that 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.
ENVIRONMENTAL MATTERS
Alcoa continues to participate in environmental assessments and
cleanups at a number of locations, including at operating
facilities and adjoining properties, 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. 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
substantially due to factors such as the nature and 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 1996 was
$271 and reflects the most probable costs to remediate
identified environmental conditions for which costs can be
reasonably estimated. About 27% of this balance relates to
Alcoa's Massena, N.Y. plant site and 14% relates to Alcoa's
Pt. Comfort, Texas plant site. Remediation expenses charged to
the reserve were $72 in 1996, $62 in 1995 and $79 in 1994.
They include expenditures currently mandated as well
as those not required by any regulatory authority or third party.
Included in annual 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.
-27-
LIQUIDITY AND CAPITAL RESOURCES
(dollars in millions, except share amounts)
CASH FROM OPERATIONS
Cash from operations was $1,279 in 1996 compared with $1,713 in
1995. Contributing to the decline from 1995 were lower earnings
in 1996, a reduction in deferred hedging gains and a drop in
noncurrent liabilities resulting from a $179 payment to fund
Alcoa's pension plans. These factors were partially offset by
lower working capital requirements. Working capital in 1996
required net cash outlays of $64, mostly to fund reductions in
accounts payable and accrued expenses, partially offset by lower
inventories and accounts receivable. Working capital components
in the cash flow statement were adjusted for assets and
liabilities related to acquisitions.
Cash outlays for 1996 special items related to severance costs
were approximately $31. 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. The latter represents about 45% of total severance
costs.
FINANCING ACTIVITIES
Financing activities during 1996 resulted in cash outflows of
$535 compared with $199 in 1995. Alcoa had net long-term
borrowings of $289 in 1996. Of this amount, $400 relates to
secured export notes issued by Aluminio. The proceeds
were used to prepay Aluminio's 1995 secured export notes and
for its general corporate purposes. Alcoa paid $175 on its
4.625% notes that came due in 1996. U.S. commercial paper
borrowings reached $174 by year-end 1996. There were no
such borrowings outstanding at year-end 1995 or 1994. Short-
term borrowings decreased by $141.
Debt as a percentage of invested capital was 21.8% at the
end of 1996 compared with 16.7% for 1995 and 15.3% for 1994.
Alcoa used $317 in 1996 to repurchase 5,402,500 shares of
its common stock at an average price of $58.72 a share. In May
1996, the board of directors authorized the purchase of up to
20 million shares of Alcoa common stock, replenishing a
similar authorization issued in July 1989. More than 15
million shares were purchased under the 1989 authorization. In
1995, 4,575,400 shares were purchased at an average price of
$49.14 a share. Alcoa used $200 in 1995 and $50 in 1994 to
redeem all of the preferred stock of its subsidiary, Alcoa
International Holdings Company.
Dividends paid to shareholders were $234 in 1996 compared
with $163 in 1995. The increase is due to Alcoa's bonus dividend
program. The plan provides for the distribution of 30% of Alcoa's
annual earnings in excess of $3.00 per share in the following
year. Based on 1995 earnings, a bonus dividend of 43
cents per share was paid in 1996. Shareholders will not receive a
bonus dividend in 1997 since 1996 earnings did not exceed $3.00
per share.
-28-
Dividends paid to minority interests in 1996 were $173 and
included $158 paid by AofA. In 1995, such dividends were $122,
including $101 paid by AofA.
During the 1996 second quarter, Alcoa entered into a $1.3
billion, five-year revolving-credit facility. The new facility
will be used as a backup for Alcoa's and AofA's commercial paper
programs and for general corporate purposes.
INVESTING ACTIVITIES
Cash used for investing activities during 1996 totaled $1,208
compared with $1,072 in 1995 and $375 in 1994. Capital
expenditures for 1996 were $996 compared with $887 in 1995
and $612 during 1994. Of the total expenditures in 1996, 41%
relate to capacity expansion, including alumina and chemicals
production in the U.S., Australia and Brazil; automotive parts
production in the U.S., Brazil and Europe; and sheet and plate
production at the Davenport, Iowa plant. Also included are
costs of new and expanded facilities for environmental control
in ongoing operations totaling $68 in 1996, $54 in 1995
and $45 in 1994.
Acquisitions accounted for $302 of investing cash outflows
during 1996 and included the purchase of Alumix in Italy and
Alcan's extrusion operations in Brazil. The company also
purchased the remaining 49.9% interest in Alcoa-Kofem
in Hungary.
In 1996, Alcoa received $83 from the sale of AofA's rolled
products division to Kaal. In 1995, Alcoa received $367 from
WMC related to WMC's acquisition of 40% of Alcoa's alumina and
chemicals businesses. Alcoa, in turn, loaned $122 to WMC,
which was repaid in 1996.
ACCOUNTING RULE CHANGE
A new AICPA Statement of Position related to environmental
liabilities was issued in October 1996. Management estimates
that implementation, which will occur in 1997, will not
have a material effect on its financial statements.
SUBSEQUENT EVENT
Alcoa and SEPI, the Spanish State Entity for Industrial
Participations, jointly announced in late February that they
signed a Letter of Intent for Alcoa to acquire the main
sectors of the aluminum businesses of Inespal, S.A.
of Madrid.
Inespal is an integrated aluminum producer with 1996 revenues
of $1.1 billion. The sale includes an alumina refinery, three
aluminum smelters, aluminum rolling, foil and extrusion
businesses and related facilities.
The acquisition is expected to be final before the end of
1997.
-29-
MANAGEMENT'S REPORT TO ALCOA SHAREHOLDERS
The accompanying financial statements of Alcoa and consolidated
subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements were
prepared in accordance with generally accepted accounting
principles and include amounts that are based on management's
best judgments and estimates. The other financial information
included in this annual report is consistent with that in the
financial statements.
The company maintains a system of internal controls, including
accounting controls, and a strong program of internal auditing.
The system of controls provides for appropriate procedures that
are consistent with high standards of accounting and
administration. The company believes that its system of
internal controls provides reasonable assurance that assets
are safeguarded against losses from unauthorized use or
disposition and that financial records are reliable for
use in preparing financial statements.
Management also recognizes its responsibility for conducting
the company's affairs according to the highest standards of
personal and corporate conduct. This responsibility is
characterized and reflected in key policy statements
issued from time to time regarding, among other things, conduct
of its business activities within the laws of the host
countries in which the company operates and potentially
conflicting outside business interests of its employees.
The company maintains a systematic program to assess compliance
with these policies.
Paul H. O'Neill
Chairman of the Board and Chief Executive Officer
Jan H.M. Hommen
Executive Vice President and Chief Financial Officer
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, which is composed
of six independent directors, met eight times in 1996.
The Audit Committee oversees Alcoa's financial reporting
process on behalf of the board of directors. In fulfilling its
responsibility, the committee recommended to the Board the
reappointment of Coopers & Lybrand L.L.P. as the company's
independent public accountants. The Audit Committee reviewed
with the Director of Internal Audit and the independent
accountants the overall scope and specific plans for their
respective audits. The committee reviewed with management
Alcoa's annual and quarterly reporting process, and the
adequacy of the company's internal controls. Without management
present, the committee met separately with the Director of
Internal Audit and the independent accountants to review the
results of their examinations, their evaluations of the
company's internal controls, and the overall quality of
Alcoa's financial reporting.
Franklin A. Thomas
Chairman, Audit Committee
INDEPENDENT ACCOUNTANT'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, 1996 and 1995, and the related
statements of consolidated income, shareholders' equity and
consolidated cash flows for each of the three years
in the period ended December 31, 1996. 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 presentation. 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, 1996 and 1995, and
the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
600 Grant St., Pittsburgh, Pa.
January 8, 1997
-30-
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME Alcoa and subsidiaries
(in millions, except per-share amounts)
For the year ended
December 31 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales and operating
revenues (R) $ 13,061.0 $ 12,499.7 $ 9,904.3
- ------------------------------------------------------------------------------
Gain from Alcoa/WMC
transaction (C) -- -- 400.2
- ------------------------------------------------------------------------------
Other income, principally
interest 67.4 155.2 87.0
- ------------------------------------------------------------------------------
13,128.4 12,654.9 10,391.5
- ------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold and
operating expenses 9,966.0 9,360.1 7,845.7
- ------------------------------------------------------------------------------
Selling, general
administrative and other
expenses 708.8 707.6 632.7
- ------------------------------------------------------------------------------
Research and development
expenses 165.5 141.3 125.8
- ------------------------------------------------------------------------------
Provision for
depreciation, depletion
and amortization 747.2 712.9 671.3
- ------------------------------------------------------------------------------
Interest expense (Q) 133.7 119.8 106.7
- ------------------------------------------------------------------------------
Taxes other than payroll
and severance taxes 126.6 126.8 107.1
- ------------------------------------------------------------------------------
Special items (D) 198.9 16.2 79.7
- ------------------------------------------------------------------------------
12,046.7 11,184.7 9,569.0
- ------------------------------------------------------------------------------
EARNINGS
Income before taxes on
income 1,081.7 1,470.2 822.5
- ------------------------------------------------------------------------------
Provision for taxes on
income (V) 360.7 445.9 219.2
- ------------------------------------------------------------------------------
Income from operations 721.0 1,024.3 603.3
- ------------------------------------------------------------------------------
Minority interests (206.1) (233.8) (160.2)
- ------------------------------------------------------------------------------
Income before
extraordinary loss 514.9 790.5 443.1
- ------------------------------------------------------------------------------
Extraordinary loss on debt
prepayments, net of tax
benefit of $40.5 (D) -- -- (67.9)
- ------------------------------------------------------------------------------
NET INCOME $ 514.9 $ 790.5 $ 375.2
- ------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
(B and N)
Before extraordinary
loss $ 2.94 $ 4.43 $ 2.48
- ------------------------------------------------------------------------------
Extraordinary loss -- -- (.38)
- ------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 2.94 $ 4.43 $ 2.10
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-31-
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET Alcoa and subsidiaries
(in millions)
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (includes
cash of $93.4 in 1996 and $120.5
in 1995) (S) $ 598.1 $ 1,055.6
- ------------------------------------------------------------------------------
Short-term investments (S) 18.5 6.8
- ------------------------------------------------------------------------------
Receivables from customers, less
allowances: 1996-$48.4; 1995-$45.8 1,674.7 1,546.3
- ------------------------------------------------------------------------------
Other receivables 154.2 297.0
- ------------------------------------------------------------------------------
Inventories (E) 1,461.4 1,418.4
- ------------------------------------------------------------------------------
Deferred income taxes 159.9 244.8
- ------------------------------------------------------------------------------
Prepaid expenses and other current
assets 214.4 172.8
- ------------------------------------------------------------------------------
Total current assets 4,281.2 4,741.7
- ------------------------------------------------------------------------------
Properties, plants and equipment (F) 7,077.5 6,929.7
- ------------------------------------------------------------------------------
Other assets (G and S) 2,091.2 1,972.0
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 13,449.9 $ 13,643.4
- ------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Short-term borrowings (weighted
average rate of 6.5% in 1996 and
7.6% in 1995) (S) $ 206.5 $ 345.0
- ------------------------------------------------------------------------------
Accounts payable, trade 799.2 861.7
- ------------------------------------------------------------------------------
Accrued compensation and retirement
costs 404.3 384.3
- ------------------------------------------------------------------------------
Taxes, including taxes on income 407.9 304.7
- ------------------------------------------------------------------------------
Provision for layoffs and
impairments (D) 89.6 63.9
- ------------------------------------------------------------------------------
Other current liabilities 287.4 344.4
- ------------------------------------------------------------------------------
Long-term debt due within one year
(I and S) 178.5 348.2
- ------------------------------------------------------------------------------
Total current liabilities 2,373.4 2,652.2
- ------------------------------------------------------------------------------
Long-term debt, less amount due within
one year (I and S) 1,689.8 1,215.5
- ------------------------------------------------------------------------------
Accrued postretirement benefits (U) 1,791.2 1,827.3
- ------------------------------------------------------------------------------
Other noncurrent liabilities and
deferred credits (H) 1,205.5 1,585.7
- ------------------------------------------------------------------------------
Deferred income taxes 317.1 308.6
- ------------------------------------------------------------------------------
Total liabilities 7,377.0 7,589.3
- ------------------------------------------------------------------------------
MINORITY INTERESTS (A, C and J) 1,610.5 1,609.4
- ------------------------------------------------------------------------------
Contingent liabilities (O) -- --
SHAREHOLDERS' EQUITY
Preferred stock (K) 55.8 55.8
- ------------------------------------------------------------------------------
Common stock (B and K) 178.9 178.9
- ------------------------------------------------------------------------------
Additional capital 591.9 637.1
- ------------------------------------------------------------------------------
Translation adjustment (A) (93.1) (79.0)
- ------------------------------------------------------------------------------
Retained earnings 4,082.6 3,800.1
- ------------------------------------------------------------------------------
Net unrealized gains--securities
available for sale (S) 23.4 --
- ------------------------------------------------------------------------------
Unfunded pension obligation (5.8) (9.3)
- ------------------------------------------------------------------------------
Treasury stock, at cost (371.3) (138.9)
- ------------------------------------------------------------------------------
Total shareholders' equity 4,462.4 4,444.7
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 13,449.9 $ 13,643.4
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-32-
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED CASH FLOWS Alcoa and subsidiaries
(in millions)
For the year ended
December 31 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FROM OPERATIONS
Net income $ 514.9 $ 790.5 $ 375.2
- ------------------------------------------------------------------------------
Adjustments to reconcile
net income to cash from
operations:
Depreciation, depletion
and amortization 764.2 730.3 688.8
- ------------------------------------------------------------------------------
Gain from Alcoa/WMC
transaction -- -- (400.2)
- ------------------------------------------------------------------------------
Change in deferred
income taxes 120.3 (36.2) (55.6)
- ------------------------------------------------------------------------------
Equity earnings before
additional taxes, net
of dividends (6.6) (25.6) 5.1
- ------------------------------------------------------------------------------
Gains from investing
activities -- -- (10.3)
- ------------------------------------------------------------------------------
Special items--net of
payments 168.3 16.2 79.7
- ------------------------------------------------------------------------------
Book value of asset
disposals 61.8 44.6 47.4
- ------------------------------------------------------------------------------
Extraordinary loss -- -- 67.9
- ------------------------------------------------------------------------------
Minority interests 206.1 233.8 160.2
- ------------------------------------------------------------------------------
Other (8.5) (1.9) (1.9)
- ------------------------------------------------------------------------------
(Increase) reduction in
receivables 42.7 (50.6) (155.0)
- ------------------------------------------------------------------------------
(Increase) reduction in
inventories 87.8 (225.3) 115.8
- ------------------------------------------------------------------------------
(Increase) reduction in
prepaid expenses and
other current assets (40.3) (13.4) 129.4
- ------------------------------------------------------------------------------
Increase (reduction) in
accounts payable and
accrued expenses (181.1) (40.3) 50.2
- ------------------------------------------------------------------------------
Increase (reduction) in
taxes, including taxes
on income 27.4 (95.1) (6.8)
- ------------------------------------------------------------------------------
Payment of amortized
interest on deep
discount debt -- -- (8.6)
- ------------------------------------------------------------------------------
Increase (reduction) in
deferred hedging gains (264.5) 365.5 286.4
- ------------------------------------------------------------------------------
Net change in noncurrent
assets and liabilities (213.6) 20.0 25.9
- ------------------------------------------------------------------------------
CASH FROM OPERATIONS 1,278.9 1,712.5 1,393.6
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net additions (reduction)
to short-term borrowings (140.7) 83.3 (104.9)
- ------------------------------------------------------------------------------
Common stock issued and
treasury stock sold 41.4 58.1 61.7
- ------------------------------------------------------------------------------
Repurchase of common stock (317.2) (224.9) --
- ------------------------------------------------------------------------------
Dividends paid to
shareholders (234.2) (162.5) (144.4)
- ------------------------------------------------------------------------------
Dividends paid to minority
interests (173.2) (121.9) (148.1)
- ------------------------------------------------------------------------------
Additions to long-term
debt 916.2 612.1 494.9
- ------------------------------------------------------------------------------
Payments on long-term debt (627.1) (243.4) (934.4)
- ------------------------------------------------------------------------------
Redemption of subsidiary
preferred stock -- (200.0) (50.0)
- ------------------------------------------------------------------------------
CASH USED FOR
FINANCING ACTIVITIES (534.8) (199.2) (825.2)
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (995.7) (887.1) (611.7)
- ------------------------------------------------------------------------------
Acquisitions, net of cash
acquired (302.3) (426.1) (9.6)
- ------------------------------------------------------------------------------
Additions to investments (58.8) (15.2) (21.2)
- ------------------------------------------------------------------------------
Sale of assets 82.8 -- --
- ------------------------------------------------------------------------------
Changes in minority
interests (34.2) 30.9 (44.7)
- ------------------------------------------------------------------------------
Proceeds from Alcoa/WMC
transaction -- 366.9 67.8
- ------------------------------------------------------------------------------
Repayment from/(loan to)
WMC 121.8 (121.8) --
- ------------------------------------------------------------------------------
Changes in short-term
investments (11.7) (1.3) 250.8
- ------------------------------------------------------------------------------
Other receipts .2 3.8 14.9
- ------------------------------------------------------------------------------
Other payments (10.2) (21.6) (21.2)
- ------------------------------------------------------------------------------
CASH USED FOR
INVESTING ACTIVITIES (1,208.1) (1,071.5) (374.9)
- ------------------------------------------------------------------------------
EFFECT OF EXCHANGE
RATE CHANGES ON CASH 6.5 (5.4) 14.0
- ------------------------------------------------------------------------------
Net change in cash and
cash equivalents (457.5) 436.4 207.5
- ------------------------------------------------------------------------------
Cash and cash equivalents
at beginning of year 1,055.6 619.2 411.7
- ------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR $ 598.1 $ 1,055.6 $ 619.2
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
-33-
<TABLE>
<CAPTION>
STATEMENT OF SHAREHOLDERS' EQUITY Alcoa and subsidiaries
(in millions, except share amounts)
Net Unfunded Share-
Preferred Common Additional Translation Retained unrealized pension Treasury holders'
December 31 stock stock capital adjustment earnings gains obligation stock equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 (B) 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
- -----------------------------------------------------------------------------------------------------------------------------------
Net income--1995 790.5 790.5
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Preferred @
$3.75 per
share (2.1) (2.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Common @ $.90
per share (160.4) (160.4)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury shares
purchased (224.9) (224.9)
- -----------------------------------------------------------------------------------------------------------------------------------
Stock issued:
compensation
plans .2 (26.4) (1.8) 86.1 58.1
- -----------------------------------------------------------------------------------------------------------------------------------
Minimum pension
liability
adjustments (5.3) (5.3)
- -----------------------------------------------------------------------------------------------------------------------------------
Translation
adjustments (10.4) (10.4)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF
1995 55.8 178.9 637.1 (79.0) 3,800.1 -- (9.3) (138.9) 4,444.7
- -----------------------------------------------------------------------------------------------------------------------------------
Net income--1996 514.9 514.9
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Preferred @
$3.75 per
share (2.1) (2.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Common @ $1.33
per share (232.1) (232.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury shares
purchased (317.2) (317.2)
- -----------------------------------------------------------------------------------------------------------------------------------
Stock issued:
compensation
plans (45.2) 1.8 84.8 41.4
- -----------------------------------------------------------------------------------------------------------------------------------
Change in market
value of
securities
available for
sale $23.4 23.4
- -----------------------------------------------------------------------------------------------------------------------------------
Minimum pension
liability
adjustments 3.5 3.5
- -----------------------------------------------------------------------------------------------------------------------------------
Translation
adjustments (14.1) (14.1)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF
1996 $ 55.8 $ 178.9 $ 591.9 $ (93.1) $ 4,082.6 $ 23.4 $ (5.8) $ (371.3) $ 4,462.4
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARE ACTIVITY (B)
(number of shares) Common stock
----------------------------------------
Preferred Net
stock Issued Treasury outstanding
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------
Treasury shares
purchased (4,575,400) (4,575,400)
- ------------------------------------------------------------------------------
Stock issued:
compensation plans 207,605 1,969,349 2,176,954
- ------------------------------------------------------------------------------
BALANCE AT END OF 1995 557,649 178,922,583 (2,608,553) 176,314,030
- ------------------------------------------------------------------------------
Treasury shares
purchased (5,402,500) (5,402,500)
- ------------------------------------------------------------------------------
Stock issued:
compensation plans 1,598,109 1,598,109
- ------------------------------------------------------------------------------
BALANCE AT END OF 1996 557,649 178,922,583 (6,412,944) 172,509,639
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
-34-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial
statements include the accounts of Alcoa and companies more
than 50% owned. Also are included are undivided interests
in joint ventures. Investments in other entities are
accounted for principally on an equity basis.
The consolidated financial statements are prepared in
conformity with generally accepted accounting principles and
require management to make certain estimates and assumptions.
These may affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the financial statements. They may also affect the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates upon
subsequent resolution of some matters.
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. 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 during which the estimated mineral
reserves are extracted.
Environmental Expenditures. Expenditures for current
operations are expensed or capitalized, as appropriate.
Expenditures relating to existing conditions 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 may include elements of costs such as site
investigations, consultant fees, feasibility studies, outside
contractor expenses and monitoring expenses. Estimates are
not discounted or reduced by potential claims for recovery.
Claims for recovery are recognized when received. The estimates
also include costs related 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 periodically reviewed and adjusted to reflect
current remediation progress, prospective estimates 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.
Financial Instruments and Commodity Contracts. Alcoa enters
into long-term contracts to supply fabricated products to a
number of its customers. To hedge the market risk of changing
prices for purchases or sales of metal, Alcoa uses commodity
futures and options contracts.
Gains and losses related to transactions that qualify for
hedge accounting, including closed futures contracts, are
deferred and reflected in cost of goods sold when the underlying
physical transaction takes place. The deferred gains or losses
are reflected on the balance sheet in other current and
noncurrent liabilities or assets. If future purchased metal
needs are revised lower than initially anticipated, the futures
contracts associated with the reduction no longer qualify for
deferral and are marked-to-market. Gains and losses are recorded
in other income in the current period.
The effectiveness of the hedge is measured by a historical and
probable future high correlation of changes in the fair value of
the hedging instruments with changes in value of the hedged
item. If correlation ceases to exist, hedge accounting will be
terminated and gains or losses recorded in other income. To
date, high correlation has always been achieved. Alcoa also
enters into futures and options contracts that cover long-term,
fixed-price commitments to supply customers with metal from
internal sources. These contracts are marked-to-market, and the
gains and losses from changes in market value of the contracts
are recorded in other income in the current period.
Alcoa also attempts to maintain a reasonable balance between
fixed and floating-rate debt, using interest rate swaps and
caps, to keep financing costs as low as possible. Amounts to
be paid or received under swap and cap agreements are
recognized over the life of such agreements as adjustments to
interest expense.
Upon early termination of an interest rate swap or cap,
gains or losses are deferred and amortized as adjustments
to interest expense of the related debt over the remaining
period covered by the terminated swap or cap.
-35-
Alcoa is subject to significant exposure from fluctuations
in foreign currencies. To mitigate these risks, foreign
exchange contracts are used to manage transactional exposures
to changes in currency exchange rates. Gains and losses on
forward contracts that hedge firm foreign currency commitments,
and options that hedge anticipated transactions, are deferred
and included in the basis of the transactions underlying the
commitments. If the underlying transaction is not completed,
the financial position is closed and gains or losses are
recognized in other income in the period such commitment is
terminated.
Cash flows from financial instruments are recognized in the
statement of cash flows in a manner consistent with the underlying
transactions.
Intangibles. The excess of purchase price over net tangible
assets of businesses acquired is included in other assets in the
consolidated balance sheet. Intangibles are amortized on a
straight-line basis over not more than 40 years. The carrying
value of intangibles is evaluated periodically in relation to
the operating performance 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 1996
presentations.
B. COMMON STOCK SPLIT
On November 11, 1994, the board of directors declared a two-
for-one common stock split that was distributed 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.
C. GAIN FROM ALCOA/WMC Transaction
In December 1994, Alcoa recorded a gain of $400.2 ($300.2
after tax) from the acquisition by WMC Limited, 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 additional 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.
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 1996 consisted of a charge totaling $198.9
($122.3 after tax and minority interests). A net severance
charge of $95.5, which included pension and OPEB curtailment
credits of $75.0, relates to incentive costs for employees who
voluntarily left the company and for permanent layoff costs.
Alcoa's initiative to reduce administrative expenses by $300
annually was the driving force for the reductions, which
affected 2,900 salaried employees. Approximately 25% of
these employees were no longer with the company at year-
end 1996. Cash payments in 1996 for these incentive and layoff
costs totaled approximately $31. The shutdown of Alcoa
Electronic Packaging resulted in an additional charge of $65.4,
related primarily to asset writedowns. Impairments at various
manufacturing locations added another charge of $38.0.
Special items in 1995 totaled $16.2 ($10.1 after tax and
minority interests). It included a charge of $43.5 for
severance costs, partially offset by a net credit of $27.3
related to environmental matters.
Special items in 1994 consisted of a charge of $79.7 ($50.0
after tax) for closing the forgings and extrusion operations at
Vernon, California. The charge included $32.8 for asset write-
offs and $46.9 primarily related to severance costs.
The extraordinary loss in 1994 was from early redemption of
7% debentures due 2011 that carried an effective interest rate
of 14.7%.
E. INVENTORIES
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 403.1 $ 323.1
- ------------------------------------------------------------------------------
Work in process 421.1 483.9
- ------------------------------------------------------------------------------
Bauxite and alumina 283.1 241.4
- ------------------------------------------------------------------------------
Purchased raw materials 235.5 254.5
- ------------------------------------------------------------------------------
Operating supplies 118.6 115.5
- ------------------------------------------------------------------------------
$ 1,461.4 $ 1,418.4
- ------------------------------------------------------------------------------
</TABLE>
Approximately 53% of total inventories at December 31, 1996 were
valued on a LIFO basis. If valued on an average cost basis, total
inventories would have been $753.7 and $802.1 higher at the end of
1996 and 1995, respectively.
-36
F. PROPERTIES, PLANTS AND EQUIPMENT, AT COST
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Land and land rights, including mines $ 237.0 $ 231.3
- ------------------------------------------------------------------------------
Structures 4,028.0 3,941.7
- ------------------------------------------------------------------------------
Machinery and equipment 10,742.5 10,452.1
- ------------------------------------------------------------------------------
15,007.5 14,625.1
- ------------------------------------------------------------------------------
Less: accumulated depreciation and
depletion 8,652.4 8,285.1
- ------------------------------------------------------------------------------
6,355.1 6,340.0
- ------------------------------------------------------------------------------
Construction work in progress 722.4 589.7
- ------------------------------------------------------------------------------
$ 7,077.5 $ 6,929.7
- ------------------------------------------------------------------------------
</TABLE>
G. OTHER ASSETS
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Investments, principally equity
investments $ 497.7 $ 397.3
- ------------------------------------------------------------------------------
Intangibles, net of accumulated
amortization of $310.7 in 1996 and
$253.3 in 1995 571.1 600.0
- ------------------------------------------------------------------------------
Noncurrent receivables 75.5 94.5
- ------------------------------------------------------------------------------
Deferred income taxes 478.4 493.6
- ------------------------------------------------------------------------------
Deferred charges and other 468.5 386.6
- ------------------------------------------------------------------------------
$ 2,091.2 $ 1,972.0
- ------------------------------------------------------------------------------
</TABLE>
H. OTHER NONCURRENT LIABILITIES AND DEFERRED CREDITS
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Deferred hedging gains $ 218.9 $ 466.3
- ------------------------------------------------------------------------------
On-site environmental remediation 216.9 264.4
- ------------------------------------------------------------------------------
Deferred credits 181.0 191.8
- ------------------------------------------------------------------------------
Other noncurrent liabilities 588.7 663.2
- ------------------------------------------------------------------------------
$ 1,205.5 $ 1,585.7
- ------------------------------------------------------------------------------
</TABLE>
The deferred hedging gains are associated with metal contracts and
will be reflected in future earnings concurrent with the hedged
revenues or costs.
I. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S. 5.75% Notes payable, due 2001 $ 248.4 $ 248.0
- ------------------------------------------------------------------------------
4.625% Notes payable, due 1996 -- 175.0
- ------------------------------------------------------------------------------
Commercial paper, variable rate,
(5.4% average rate) 173.6 --
- ------------------------------------------------------------------------------
Bank loans, 7.5 billion yen, due
1999, (4.4% fixed rate) 78.0 72.9
- ------------------------------------------------------------------------------
Tax-exempt revenue bonds ranging from
3.5% to 6.6%, due 2000-2012 131.1 132.0
- ------------------------------------------------------------------------------
Alcoa Fujikura Ltd.--variable-rate
term loan, due 1996-2002 (6.1%
average rate) 262.5 300.0
- ------------------------------------------------------------------------------
Alcoa Aluminio 7.5% Fixed-rate note,
due 2008 400.0 --
- ------------------------------------------------------------------------------
Variable-rate notes, due 1996-2001
(7.3% and 7.2% average rates) 208.2 386.4
- ------------------------------------------------------------------------------
Alcoa of Australia Euro-commercial
paper, variable rate, (5.5% and 5.6%
average rates) 131.0 127.0
- ------------------------------------------------------------------------------
Other subsidiaries 235.5 122.4
- ------------------------------------------------------------------------------
1,868.3 1,563.7
- ------------------------------------------------------------------------------
Less, amount due within one year 178.5 348.2
- ------------------------------------------------------------------------------
$ 1,689.8 $ 1,215.5
- ------------------------------------------------------------------------------
</TABLE>
The amount of long-term debt maturing in each of the next five years
is $178.5 in 1997, $136.9 in 1998, $232.2 in 1999, $83.3 in 2000 and
$650.4 in 2001.
In 1996, Alcoa Aluminio issued $400 of secured export notes. The
proceeds from the notes were used to prepay the 1995 secured
export notes and for general corporate purposes. The agreement
requires Aluminio to maintain certain financial ratios.
Alcoa entered into a new $1.3 billion revolving-credit facility
with a group of international banks in 1996. Under the agreement,
which expires in July 2001, 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 the revolving-credit facility
noted above.
J. MINORITY INTERESTS
<TABLE>
<CAPTION>
The following table summarizes the minority shareholders'
interests in the equity of consolidated subsidiaries.
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Alcoa of Australia $ 572.7 $ 564.3
- ------------------------------------------------------------------------------
Alcoa Aluminio 362.5 357.6
- ------------------------------------------------------------------------------
Alcoa Alumina and Chemicals 376.7 344.0
- ------------------------------------------------------------------------------
Alcoa Fujikura 128.6 99.9
- ------------------------------------------------------------------------------
Other majority-owned companies 170.0 243.6
- ------------------------------------------------------------------------------
$ 1,610.5 $ 1,609.4
- ------------------------------------------------------------------------------
</TABLE>
-37-
K. 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 of
$100 per share 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, 1996, shares of common
stock reserved for issuance were:
<TABLE>
<CAPTION>
Number of shares
- ------------------------------------------------------------------------------
<S> <C>
Long-term stock incentive plan 14,689,877
- ------------------------------------------------------------------------------
Employees' savings plans 4,097,532
- ------------------------------------------------------------------------------
Incentive compensation plan 169,228
- ------------------------------------------------------------------------------
18,956,637
- ------------------------------------------------------------------------------
</TABLE>
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 cents per-share options
issued as a payout of earned performance share awards. The stock
option program includes a reload or stock continuation ownership
feature. Stock options granted have a maximum term of 10 years.
Vesting occurs one year from the date of grant and six months
for options granted under the reload feature.
Alcoa has elected to continue to account for stock-based
compensation arrangements under the provisions of APB Opinion
No. 25 rather than FAS No. 123. Accordingly, compensation cost
is not required to be recognized. If compensation cost had been
determined based on the fair value at the grant dates according
to FAS No. 123, Alcoa's net income and earnings per share would
have been reduced to the pro forma amounts shown below.
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Net income: As reported $ 514.9 $ 790.5
- ------------------------------------------------------------------------------
Pro forma 472.2 756.9
- ------------------------------------------------------------------------------
Earnings per share: As reported 2.94 4.43
- ------------------------------------------------------------------------------
Pro forma 2.70 4.24
- ------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted was $8.03 per
share in 1996 and $7.62 per share in 1995.
The fair value of each option is estimated on the date of grant
or subsequent reload using the Black-Scholes pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Average risk-free interest rate 5.7% 6.7%
- ------------------------------------------------------------------------------
Expected dividend yield 2.2 1.8
- ------------------------------------------------------------------------------
Expected volatility 25.0 25.0
- ------------------------------------------------------------------------------
Expected life (years): Stock options
that are not reloaded 3 3
- ------------------------------------------------------------------------------
Stock options that are reloaded 1 1
- ------------------------------------------------------------------------------
</TABLE>
The transactions for shares under options were:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of
year: Number 8,549,643 7,900,090 8,032,852
- ------------------------------------------------------------------------------
Weighted average exercise
price $43.84 $35.55 $32.73
- ------------------------------------------------------------------------------
Granted: Number 8,700,677 7,945,977 5,050,798
- ------------------------------------------------------------------------------
Weighted average exercise
price $56.30 $47.86 $38.88
- ------------------------------------------------------------------------------
Exercised: Number (7,161,003) (7,212,081) (5,125,962)
- ------------------------------------------------------------------------------
Weighted average exercise
price $47.90 $44.39 $34.42
- ------------------------------------------------------------------------------
Expired or forfeited:
Number (55,375) (84,343) (57,598)
- ------------------------------------------------------------------------------
Weighted average exercise
price $51.42 $41.62 $35.76
- ------------------------------------------------------------------------------
Outstanding, end of year:
Number 10,033,942 8,549,643 7,900,090
- ------------------------------------------------------------------------------
Weighted average exercise
price $51.73 $43.84 $35.55
- ------------------------------------------------------------------------------
Exercisable, end of year:
Number 4,346,793 3,063,335 4,242,636
- ------------------------------------------------------------------------------
Weighted average exercise
price $46.59 $34.14 $32.66
- ------------------------------------------------------------------------------
Shares reserved for future
options 4,655,935 7,738,143 1,758,950
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following tables summarize certain stock option information
at December 31, 1996:
Options outstanding:
Range of Weighted average Weighted average
exercise price Number remaining life exercise price
- ------------------------------------------------------------------------------
employment
<S> <C> <C> <C>
$ 0.50 173,714 career $ 0.50
- ------------------------------------------------------------------------------
26.28-39.41 1,276,489 4.6 34.15
- ------------------------------------------------------------------------------
39.42-59.12 5,217,190 7.9 50.71
- ------------------------------------------------------------------------------
59.13-65.94 3,366,549 5.7 62.62
- ------------------------------------------------------------------------------
10,033,942 6.6 51.73
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options exercisable:
Weighted average
Range of exercisable
exercise price Number price
- ------------------------------------------------------------------------------
<S> <C> <C>
$ 0.50 173,714 $ 0.50
- ------------------------------------------------------------------------------
26.28-39.41 1,276,489 34.15
- ------------------------------------------------------------------------------
39.42-59.12 1,698,635 49.69
- ------------------------------------------------------------------------------
59.13-63.75 1,197,955 62.13
- ------------------------------------------------------------------------------
4,346,793 46.59
- ------------------------------------------------------------------------------
</TABLE>
-38-
L. CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Cash payments for interest and income taxes follow.
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest* $ 136.4 $ 123.4 $ 107.3
- ------------------------------------------------------------------------------
Income taxes 265.8 508.3 238.4
- ------------------------------------------------------------------------------
<FN>
*Includes $8.6 in 1994 of amortized interest on the debentures retired
early
</TABLE>
<TABLE>
<CAPTION>
The details of cash payments related to acquisitions follow.
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets $ 365.2 $ 509.5 $ 38.8
- ------------------------------------------------------------------------------
Liabilities 62.4 79.8 29.2
- ------------------------------------------------------------------------------
Cash paid 302.8 429.7 9.6
- ------------------------------------------------------------------------------
Less: cash acquired .5 3.6 --
- ------------------------------------------------------------------------------
Net cash paid for
acquisitions $ 302.3 $ 426.1 $ 9.6
- ------------------------------------------------------------------------------
</TABLE>
M. ACQUISITIONS
The company made various acquisitions during 1996 totaling $302.
They include the purchase of Alumix, Italy's state-owned
integrated aluminum producer, and Alcan's extrusion operations
in Brazil. In 1995, the company made various acquisitions
totaling $426, which resulted in goodwill of approximately
$250.
All of the acquisitions have been accounted for by the
purchase method. Accordingly, the purchase prices have been
allocated to assets acquired and liabilities assumed based on
their estimated fair values. Operating results have been
included in the Statement of Consolidated Income since the dates
of the acquisitions. If the acquisitions had been made at the
beginning of the year, net income for the year would not have
been materially different.
N. 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
174,333,524 in 1996, 178,018,083 in 1995 and 177,881,428 in
1994. Fully diluted earnings per common share are not stated,
since the dilution is not material.
O. CONTINGENT LIABILITIES
Various lawsuits, 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 facts currently available,
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.
P. LEASE EXPENSE
Certain equipment, warehousing and office space and oceangoing
vessels are under operating lease agreements. Total expense
for all leases was $95.4 in 1996, $71.9 in 1995 and $71.6
in 1994. Under long-term operating leases, minimum annual
rentals are $58.0 in 1997, $47.8 in 1998, $37.0 in 1999, $26.0
in 2000, $19.5 in 2001 and a total of $42.2 for 2002 and
thereafter.
Q. INTEREST COST COMPONENTS
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount charged to expense $ 133.7 $ 119.8 $ 106.7
- ------------------------------------------------------------------------------
Amount capitalized 5.3 1.9 1.5
- ------------------------------------------------------------------------------
$ 139.0 $ 121.7 $ 108.2
- ------------------------------------------------------------------------------
</TABLE>
-39-
R. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Alcoa is primarily an integrated producer of aluminum products.
Its operations consist of the three segments that follow.
The Alumina and Chemicals segment includes the production and
sale of bauxite, alumina, alumina chemicals and related
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 Nonaluminum Products segment includes the production
and sale of electrical, plastic and composite materials
products, manufacturing equipment, gold, magnesium products
and steel and titanium forgings.
Alcoa's products are used primarily by packaging,
transportation (including aerospace, automotive, rail and
shipping), building and industrial customers worldwide.
Total exports from the U.S. in 1996 were $1,015 compared
with $1,206 in 1995 and $988 in 1994.
<TABLE>
<CAPTION>
SEGMENT INFORMATION 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to customers:
Alumina and chemicals $ 1,939.6 $ 1,757.8 $ 1,508.4
- ------------------------------------------------------------------------------
Aluminum processing 7,975.7 8,034.3 6,476.5
- ------------------------------------------------------------------------------
Nonaluminum products 3,145.7 2,707.6 1,919.4
- ------------------------------------------------------------------------------
Intersegment sales: (1)
Alumina and chemicals 617.1 540.1 496.0
- ------------------------------------------------------------------------------
Aluminum processing .4 3.7 3.0
- ------------------------------------------------------------------------------
Nonaluminum products 81.8 97.6 74.8
- ------------------------------------------------------------------------------
Eliminations (699.3) (641.4) (573.8)
- ------------------------------------------------------------------------------
Total sales and
operating revenues $ 13,061.0 $ 12,499.7 $ 9,904.3
- ------------------------------------------------------------------------------
Operating profit before
special items: Alumina
and chemicals $ 459.3 $ 306.9 $ 277.3
- ------------------------------------------------------------------------------
Aluminum processing 774.1 1,014.7 144.7
- ------------------------------------------------------------------------------
Nonaluminum products 116.6 112.9 91.2
- ------------------------------------------------------------------------------
Total $ 1,350.0 $ 1,434.5 $ 513.2
- ------------------------------------------------------------------------------
Operating profit after
special items: Alumina
and chemicals $ 431.1 $ 309.9 $ 277.3
- ------------------------------------------------------------------------------
Aluminum processing 711.8 1,001.4 65.0
- ------------------------------------------------------------------------------
Nonaluminum products 8.2 107.0 91.2
- ------------------------------------------------------------------------------
Total operating profit 1,151.1 1,418.3 433.5
- ------------------------------------------------------------------------------
Gain from Alcoa/WMC
transaction -- -- 400.2
- ------------------------------------------------------------------------------
Other income 67.4 155.2 87.0
- ------------------------------------------------------------------------------
Translation (gain) loss in
operating profit (3.1) 16.5 8.5
- ------------------------------------------------------------------------------
Interest expense (133.7) (119.8) (106.7)
- ------------------------------------------------------------------------------
Income before taxes on
income $ 1,081.7 $ 1,470.2 $ 822.5
- ------------------------------------------------------------------------------
Identifiable assets:
Alumina and chemicals $ 3,316.3 $ 3,101.9 $ 2,860.2
- ------------------------------------------------------------------------------
Aluminum processing 6,691.0 6,621.6 6,579.5
- ------------------------------------------------------------------------------
Nonaluminum products 2,328.3 2,335.0 1,566.0
- ------------------------------------------------------------------------------
Total identifiable
assets 12,335.6 12,058.5 11,005.7
- ------------------------------------------------------------------------------
Investments 497.7 397.3 355.9
- ------------------------------------------------------------------------------
Corporate assets (2) 616.6 1,187.6 991.6
- ------------------------------------------------------------------------------
Total assets $ 13,449.9 $ 13,643.4 $ 12,353.2
- ------------------------------------------------------------------------------
Depreciation and
depletion: Alumina and
chemicals $ 165.2 $ 153.8 $ 139.1
- ------------------------------------------------------------------------------
Aluminum processing 443.9 442.1 455.3
- ------------------------------------------------------------------------------
Nonaluminum products 155.1 134.4 94.0
- ------------------------------------------------------------------------------
Total depreciation and
depletion (3) $ 764.2 $ 730.3 $ 688.4
- ------------------------------------------------------------------------------
Capital expenditures:
Alumina and chemicals $ 314.6 $ 246.8 $ 159.2
- ------------------------------------------------------------------------------
Aluminum processing 472.9 399.2 323.2
- ------------------------------------------------------------------------------
Nonaluminum products 208.2 241.1 129.3
- ------------------------------------------------------------------------------
Total capital
expenditures $ 995.7 $ 887.1 $ 611.7
- ------------------------------------------------------------------------------
GEOGRAPHIC AREA
INFORMATION 1996 1995 1994
- ------------------------------------------------------------------------------
Sales to customers: USA $ 7,245.9 $ 7,042.7 $ 5,574.0
- ------------------------------------------------------------------------------
Other Americas 1,726.0 1,780.1 1,362.4
- ------------------------------------------------------------------------------
Pacific 2,247.8 1,985.7 1,670.1
- ------------------------------------------------------------------------------
Europe 1,841.3 1,691.2 1,297.8
- ------------------------------------------------------------------------------
Transfers between
geographic areas: (1) USA 790.2 959.2 765.0
- ------------------------------------------------------------------------------
Other Americas 361.5 511.4 291.4
- ------------------------------------------------------------------------------
Pacific 34.2 37.6 17.2
- ------------------------------------------------------------------------------
Europe 18.3 23.3 13.4
- ------------------------------------------------------------------------------
Eliminations (1,204.2) (1,531.5) (1,087.0)
- ------------------------------------------------------------------------------
Total sales and
operating revenues $ 13,061.0 $ 12,499.7 $ 9,904.3
- ------------------------------------------------------------------------------
Operating profit (loss)
before special items: USA $ 639.5 $ 593.6 $ (65.2)
- ------------------------------------------------------------------------------
Other Americas 151.3 333.1 239.0
- ------------------------------------------------------------------------------
Pacific 504.7 415.4 291.1
- ------------------------------------------------------------------------------
Europe 54.5 92.4 48.3
- ------------------------------------------------------------------------------
Total $ 1,350.0 $ 1,434.5 $ 513.2
- ------------------------------------------------------------------------------
Operating profit (loss)
after special items: USA $ 479.3 $ 586.4 $ (144.9)
- ------------------------------------------------------------------------------
Other Americas 140.1 330.2 239.0
- ------------------------------------------------------------------------------
Pacific 491.0 415.4 291.1
- ------------------------------------------------------------------------------
Europe 40.7 86.3 48.3
- ------------------------------------------------------------------------------
Total operating profit $ 1,151.1 $ 1,418.3 $ 433.5
- ------------------------------------------------------------------------------
Identifiable assets: USA $ 6,401.7 $ 6,398.7 $ 5,713.1
- ------------------------------------------------------------------------------
Other Americas 2,058.7 2,003.3 1,748.6
- ------------------------------------------------------------------------------
Pacific 2,671.0 2,603.1 2,536.3
- ------------------------------------------------------------------------------
Europe 1,204.2 1,053.4 1,007.7
- ------------------------------------------------------------------------------
Total identifiable
assets $ 12,335.6 $ 12,058.5 $ 11,005.7
- ------------------------------------------------------------------------------
Capital expenditures: USA $ 534.4 $ 439.7 $ 272.9
- ------------------------------------------------------------------------------
Other Americas 160.9 186.1 131.4
- ------------------------------------------------------------------------------
Pacific 162.9 168.3 131.6
- ------------------------------------------------------------------------------
Europe 137.5 93.0 75.8
- ------------------------------------------------------------------------------
Total capital
expenditures $ 995.7 $ 887.1 $ 611.7
- ------------------------------------------------------------------------------
<FN>
(1) Transfers between segments and geographic areas are based
on generally prevailing market prices.
(2) Corporate assets include: cash and marketable securities of
$616.6 in 1996, $1,062.4 in 1995 and $624.7 in 1994; and a
net receivable of $125.2 in 1995 and $366.9 in 1994 related to
the Alcoa/WMC transaction.
(3) Includes depreciation of $17.0 in 1996, $17.4 in 1995 and
$17.1 in 1994 reported as research and development expenses in
the income statement
</TABLE>
-40-
S. FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
The carrying values and fair values of Alcoa's financial
instruments at December 31 follow.
1996 1995
------------------------------------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE value value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 598.1 $ 598.1 $ 1,055.6 $ 1,055.6
- ------------------------------------------------------------------------------
Short-term investments 18.5 18.5 6.8 6.8
- ------------------------------------------------------------------------------
Noncurrent receivables 75.5 75.5 94.5 94.5
- ------------------------------------------------------------------------------
Investments available
for sale 68.0 68.0 31.9 31.9
- ------------------------------------------------------------------------------
Short-term debt 385.0 385.0 693.2 693.2
- ------------------------------------------------------------------------------
Long-term debt 1,689.8 1,678.0 1,215.5 1,263.3
- ------------------------------------------------------------------------------
</TABLE>
The methods used to estimate the fair values of certain financial
instruments follow.
Cash and Cash Equivalents, Short-Term Investments and Short-Term
Debt. The carrying amounts approximate 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.
Investments Available for Sale. The fair value of investments
is determined based on readily available market values.
Investments in marketable equity securities are classified
as "available for sale" and are carried at fair value. This
resulted in an adjustment to shareholders' equity of $23.4,
net of $12.7 in taxes, in 1996. Unrealized gains and losses
in the prior year were not material.
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 for
purposes other than trading. 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.
The contracts generally mature within 12 months and are
principally unsecured foreign exchange contracts with carefully
selected banks. The market risk exposure is essentially limited
to risk related to currency rate movements. Unrealized gains on
these contracts at December 31, 1996 and 1995 were $34.8 and
$11.5, respectively.
The table below reflects the various types of foreign exchange
contracts Alcoa uses to manage its foreign exchange risk.
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------
NOTIONAL MARKET Notional Market
AMOUNT VALUE amount value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forwards $ 2,579.5 $ 32.8 $ 2,509.2 $ 13.6
- ------------------------------------------------------------------------------
Options purchased 649.9 5.6 446.0 8.2
- ------------------------------------------------------------------------------
Options written 390.8 (2.3) 135.9 (1.7)
- ------------------------------------------------------------------------------
</TABLE>
The notional values summarized above provide an indication of the
extent of the company's involvement in such instruments but do not
represent its exposure to market risk. Alcoa utilizes written options
mainly to offset or close out purchased options.
The table below summarizes by major currency the contractual
amounts of Alcoa's forward exchange and option contracts translated
to U.S. dollars 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>
1996 1995
------------------------------------------------------
BUY SELL Buy Sell
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian dollar $ 1,858.7 $ 808.6 $ 1,565.2 $ 307.8
- ------------------------------------------------------------------------------
Dutch guilder 198.8 18.7 257.0 333.6
- ------------------------------------------------------------------------------
Japanese yen 93.7 25.2 30.9 37.1
- ------------------------------------------------------------------------------
Deutsche mark 63.5 226.0 55.0 286.2
- ------------------------------------------------------------------------------
Pound sterling 21.5 74.3 47.8 89.8
- ------------------------------------------------------------------------------
Other 45.3 248.9 38.0 73.7
- ------------------------------------------------------------------------------
$ 2,281.5 $ 1,401.7 $ 1,993.9 $ 1,128.2
- ------------------------------------------------------------------------------
</TABLE>
Interest Rate Swaps. Alcoa manages its debt portfolio by using
interest rate swaps and options to achieve an overall desired
position of fixed and floating rates. As of December 31, 1996,
Alcoa had outstanding four interest rate swap contracts maturing
in 2001 to convert a fixed-rate obligation to floating rates on
a notional amount of $175. In addition, Alcoa Fujikura had five
outstanding interest rate swap contracts to convert a
floating-rate obligation to a fixed rate on a notional amount
of $269 at year-end 1996.
Alcoa utilizes cross-currency interest rate swaps to take
advantage of international debt markets while limiting foreign
exchange risk. At year-end 1996, Alcoa had in place foreign
currency forward contracts to effectively convert the principal
payment due in 1999 on its Y=7.5 billion loan to a U.S. dollar
obligation on a notional amount of $78. Alcoa also had in
place cross-currency interest rate swaps that effectively
convert U.S. dollar denominated commercial paper into liabilities
in yen based on Japanese interest rates.
-41-
Based on current interest rates for similar transactions, the
fair value of all interest rate swap agreements is not material.
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 1996 or 1995.
Alcoa is exposed to credit loss in the event of nonperformance
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 on page 26 in Results of
Operations of this annual report.
T. 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 sufficiently 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>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned $ 101.7 $ 78.9 $ 90.6
- ------------------------------------------------------------------------------
Interest accrued on
projected benefit
obligation 291.0 285.9 261.2
- ------------------------------------------------------------------------------
Net amortization 37.8 28.5 46.5
- ------------------------------------------------------------------------------
430.5 393.3 398.3
- ------------------------------------------------------------------------------
Less: expected return on
plan assets* 324.1 305.0 281.4
- ------------------------------------------------------------------------------
$ 106.4 $ 88.3 $ 116.9
- ------------------------------------------------------------------------------
<FN>
*The actual returns were higher (lower) than the expected returns
by $155.5 in 1996, $254.1 in 1995 and $(282.7) in 1994, and were
deferred as actuarial gains (losses).
</TABLE>
<TABLE>
<CAPTION>
The status of the pension plans follows.
Assets exceed Accumulated
accumulated benefit obligation
benefit obligation exceeds assets
------------------------------------------------------
December 31 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets, primarily
stocks and bonds at
market $ 4,327.6 $ 1,959.4 $ 7.6 $ 1,937.0
- ------------------------------------------------------------------------------
Present value of
obligation: Vested 3,779.2 1,604.3 134.5 1,957.4
- ------------------------------------------------------------------------------
Nonvested 292.9 131.7 7.5 155.9
- ------------------------------------------------------------------------------
Accumulated benefit
obligation 4,072.1 1,736.0 142.0 2,113.3
- ------------------------------------------------------------------------------
Effect of assumed
salary increases 283.5 72.1 37.3 248.3
- ------------------------------------------------------------------------------
Projected benefit
obligation $ 4,355.6 $ 1,808.1 $ 179.3 $ 2,361.6
- ------------------------------------------------------------------------------
Plan assets greater
(less) than projected
benefit obligation $ (28.0) $ 151.3 $ (171.7) $ (424.6)
- ------------------------------------------------------------------------------
Unrecognized:
Transition (assets)
obligations (.8) (32.7) 9.2 45.3
- ------------------------------------------------------------------------------
Prior service costs 145.0 19.9 16.2 28.2
- ------------------------------------------------------------------------------
Actuarial (gains)
losses, net (272.0) (184.9) 32.9 36.1
- ------------------------------------------------------------------------------
Minimum liability
adjustment -- -- (24.9) (38.8)
- ------------------------------------------------------------------------------
Accrued pension cost $ (155.8) $ (46.4) $ (138.3) $ (353.8)
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assumptions used to determine plan liabilities and expenses follow.
December 31 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Settlement discount rate 7.0% 7.0% 8.25%
- ------------------------------------------------------------------------------
Long-term rate for
compensation increases 5.0 5.0 5.5
- ------------------------------------------------------------------------------
Long-term rate of return
on plan assets 9.0 9.0 9.0
- ------------------------------------------------------------------------------
</TABLE>
Alcoa also sponsors a number of defined contribution pension
plans. Expenses were $44.4 in 1996, $36.1 in 1995 and $32.9
in 1994.
U. POSTRETIREMENT BENEFITS
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
-42-
a trust. Life benefits are generally provided by
insurance contracts. Alcoa retains the right, subject to existing
agreements, to change or eliminate these benefits.
The components of postretirement benefit expense follow.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits
earned $ 19.3 $ 16.3 $ 20.2
- ------------------------------------------------------------------------------
Interest cost on liability 104.4 114.6 104.4
- ------------------------------------------------------------------------------
Net amortization (44.1) (49.5) (50.0)
- ------------------------------------------------------------------------------
Return on plan assets (5.8) (4.8) (4.8)
- ------------------------------------------------------------------------------
Postretirement benefit
costs $ 73.8 $ 76.6 $ 69.8
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The status of the postretirement benefit plans was:
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 1,022.6 $ 1,034.0
- ------------------------------------------------------------------------------
Fully eligible active plan
participants 172.6 136.7
- ------------------------------------------------------------------------------
Other active participants 364.6 330.5
- ------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 1,559.8 1,501.2
- ------------------------------------------------------------------------------
Plan assets, primarily
stocks and bonds at market 75.1 64.4
- ------------------------------------------------------------------------------
APBO in excess of plan
assets 1,484.7 1,436.8
- ------------------------------------------------------------------------------
Unrecognized net:
Reduction in prior service
costs 227.4 374.3
- ------------------------------------------------------------------------------
Actuarial gains 174.1 109.6
- ------------------------------------------------------------------------------
Accrued postretirement
benefit liability $ 1,886.2 $ 1,920.7
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For measuring the liability and expense, an 8.5% annual rate of
increase in the per capita claims cost was assumed for 1997,
declining gradually to 5.25% by the year 2003 and thereafter.
Other assumptions used to measure the liability and expense
follow.
December 31 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Settlement discount rate 7.0% 7.0% 8.25%
- ------------------------------------------------------------------------------
Long-term rate for
compensation increases 5.0 5.0 5.5
- ------------------------------------------------------------------------------
Long-term rate of return
on plan assets 9.0 9.0 9.0
- ------------------------------------------------------------------------------
</TABLE>
For 1996, a 1% increase in the trend rate for health care costs
would have increased the APBO by 7% and service and interest
costs by 12%.
V. INCOME TAXES
<TABLE>
<CAPTION>
The components of income before taxes on income were:
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 419.0 $ 556.5 $ 203.6
- ------------------------------------------------------------------------------
Foreign 662.7 913.7 618.9
- ------------------------------------------------------------------------------
$ 1,081.7 $ 1,470.2 $ 822.5
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The provision for taxes on income consisted of:
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current: U.S. federal* $ 3.5 $ 246.4 $ 114.0
- ------------------------------------------------------------------------------
Foreign 217.0 204.0 151.1
- ------------------------------------------------------------------------------
State and local 19.9 31.7 9.7
- ------------------------------------------------------------------------------
240.4 482.1 274.8
- ------------------------------------------------------------------------------
Deferred: U.S. federal* 143.1 (55.3) (51.3)
- ------------------------------------------------------------------------------
Foreign (34.8) 34.8 5.8
- ------------------------------------------------------------------------------
State and local 12.0 (15.7) (10.1)
- ------------------------------------------------------------------------------
120.3 (36.2) (55.6)
- ------------------------------------------------------------------------------
Total $ 360.7 $ 445.9 $ 219.2
- ------------------------------------------------------------------------------
<FN>
*Includes U.S. taxes related to foreign income
</TABLE>
Deferred taxes in 1995 included charges of $66.5 for utilization
of a U.S. tax loss carryforward and for statutory rate changes
of $21.9 in Australia and $14.4 in Brazil.
Reconciliation of the U.S. federal statutory rate to Alcoa's
effective tax rate follows.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory
rate 35.0% 35.0% 35.0%
- ------------------------------------------------------------------------------
Taxes on foreign income (3.0) (5.5) (1.1)
- ------------------------------------------------------------------------------
State taxes net of federal
benefit 1.7 .6 (.1)
- ------------------------------------------------------------------------------
Tax rate changes -- 2.5 --
- ------------------------------------------------------------------------------
Adjustments to prior
years' accruals .3 (1.3) (1.8)
- ------------------------------------------------------------------------------
Nontaxable portion of
Alcoa/WMC transaction
gain -- -- (4.9)
- ------------------------------------------------------------------------------
Other (.7) (1.0) (.4)
- ------------------------------------------------------------------------------
Effective tax rate 33.3% 30.3% 26.7%
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The components of net deferred tax assets and liabilities follow.
1996 1995
------------------------------------------------------
DEFERRED DEFERRED Deferred Deferred
TAX TAX tax tax
December 31 ASSETS LIABILITIES assets liabilities
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation -- $ 921.5 -- $ 950.6
- ------------------------------------------------------------------------------
Employee benefits $ 780.9 -- $ 838.8 --
- ------------------------------------------------------------------------------
Loss provisions 197.1 -- 212.0 --
- ------------------------------------------------------------------------------
Deferred income 176.1 120.6 244.0 56.4
- ------------------------------------------------------------------------------
Tax loss carryforwards 155.1 -- 113.7 --
- ------------------------------------------------------------------------------
Tax credit
carryforwards 48.2 -- 38.7 --
- ------------------------------------------------------------------------------
Other 66.7 39.4 86.7 20.8
- ------------------------------------------------------------------------------
1,424.1 1,081.5 1,533.9 1,027.8
- ------------------------------------------------------------------------------
Valuation allowance (110.0) -- (112.1) --
- ------------------------------------------------------------------------------
$ 1,314.1 $ 1,081.5 $ 1,421.8 $ 1,027.8
- ------------------------------------------------------------------------------
</TABLE>
The valuation allowance in 1996 included a favorable adjustment
of $23.1, due to the likelihood of the future realization of
deferred tax assets related to operations in Suriname.
-43-
Of the total tax loss carryforwards, $27.3 expires over the
next 10 years and $127.8 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
$1,115.5 at December 31, 1996. Management has no plans to
distribute such earnings in the foreseeable future. It is
not practical to determine the deferred tax liability on
these earnings.
W. MAJORITY-OWNED SUBSIDIARIES
The condensed financial statements of Alcoa's principal
majority-owned subsidiaries follow.
<TABLE>
<CAPTION>
Alcoa Aluminio S.A.--a 59%-owned subsidiary of Alcoa Brazil
Holdings Company:
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash and short-term
investments $ 269.1 $ 252.4
- ------------------------------------------------------------------------------
Other current assets 441.2 379.3
- ------------------------------------------------------------------------------
Properties, plants and
equipment, net 897.5 857.2
- ------------------------------------------------------------------------------
Other assets 235.0 185.4
- ------------------------------------------------------------------------------
Total assets 1,842.8 1,674.3
- ------------------------------------------------------------------------------
Current liabilities 404.0 431.6
- ------------------------------------------------------------------------------
Long-term debt 492.5 314.5
- ------------------------------------------------------------------------------
Other liabilities 62.1 56.1
- ------------------------------------------------------------------------------
Total liabilities 958.6 802.2
- ------------------------------------------------------------------------------
Net assets $ 884.2 $ 872.1
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Revenues* $ 1,188.1 $ 1,200.1 $ 915.1
- ------------------------------------------------------------------------------
Costs and expenses (1,183.5) (1,050.2) (808.9)
- ------------------------------------------------------------------------------
Translation and exchange
adjustments (.3) 4.3 (3.0)
- ------------------------------------------------------------------------------
Income tax (expense)
benefit 22.0 (2.3) (19.7)
- ------------------------------------------------------------------------------
Net income $ 26.3 $ 151.9 $ 83.5
- ------------------------------------------------------------------------------
<FN>
*Revenues from Alcoa were $12.3 in 1996, $188.4 in 1995 and $54
in 1994. The terms of the transactions were established by
negotiation between the parties.
</TABLE>
<TABLE>
<CAPTION>
Alcoa of Australia Limited--a 60%-owned subsidiary of Alcoa
International Holdings Company:
December 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash and short-term
investments $ 13.9 $ 61.6
- ------------------------------------------------------------------------------
Other current assets 522.4 551.6
- ------------------------------------------------------------------------------
Properties, plants and
equipment, net 1,695.4 1,615.7
- ------------------------------------------------------------------------------
Other assets 108.6 101.2
- ------------------------------------------------------------------------------
Total assets 2,340.3 2,330.1
- ------------------------------------------------------------------------------
Current liabilities 341.9 380.7
- ------------------------------------------------------------------------------
Long-term debt 131.0 127.0
- ------------------------------------------------------------------------------
Other liabilities 435.7 415.5
- ------------------------------------------------------------------------------
Total liabilities 908.6 923.2
- ------------------------------------------------------------------------------
Net assets $ 1,431.7 $ 1,406.9
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Revenues* $ 1,971.5 $ 1,785.0 $ 1,519.2
- ------------------------------------------------------------------------------
Costs and expenses (1,510.3) (1,372.3) (1,236.5)
- ------------------------------------------------------------------------------
Translation and exchange
adjustments -- -- .6
- ------------------------------------------------------------------------------
Income tax expense (157.7) (164.1) (80.7)
- ------------------------------------------------------------------------------
Net income $ 303.5 $ 248.6 $ 202.6
- ------------------------------------------------------------------------------
<FN>
*Revenues from Alcoa were $54.3 in 1996, $55.4 in 1995 and $28.5
in 1994. The terms of the transactions were established by
negotiation between the parties.
</TABLE>
-44-
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY DATA (UNAUDITED)
(dollars in millions, except per-share amounts)
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD FOURTH YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and operating revenues $ 3,149.6 $ 3,413.1 $ 3,240.6 $ 3,257.7 $ 13,061.0
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations 246.2 187.7 104.7 182.4 721.0
- -----------------------------------------------------------------------------------------------------------------------------------
Net income* 178.2 132.2 68.4 136.1 514.9
- -----------------------------------------------------------------------------------------------------------------------------------
Per common share 1.01 .76 .39 .78 2.94
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
*After special charges of $40.0, or 23 cents per share, in the
second quarter; $65.5, or 38 cents per share, in the third
quarter; and $16.8, or 10 cents per share, in the fourth quarter
</TABLE>
<TABLE>
<CAPTION>
1995 First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and operating revenues $ 3,009.8 $ 3,117.3 $ 3,264.8 $ 3,107.8 $ 12,499.7
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations 279.0 282.4 269.5 193.4 1,024.3
- -----------------------------------------------------------------------------------------------------------------------------------
Net income* 193.8 219.4 226.4 150.9 790.5
- -----------------------------------------------------------------------------------------------------------------------------------
Per common share 1.08 1.23 1.27 .85 4.43
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
*After special charges of $5.4, or three cents per share, in the third quarter
and $4.7, or three cents per share, in the fourth quarter
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EMPLOYEES (UNAUDITED)
(at year-end)
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
USA 28,900 31,600 29,000
- ------------------------------------------------------------------------------
Other Americas 29,800 24,300 16,800
- ------------------------------------------------------------------------------
Pacific 5,600 6,000 6,200
- ------------------------------------------------------------------------------
Europe 12,500 10,100 8,200
- ------------------------------------------------------------------------------
76,800 72,000 60,200
- ------------------------------------------------------------------------------
</TABLE>
-45-
Stock Listing
Common: New York Stock Exchange, The Electronical Stock Exchange
in Switzerland and exchanges in Brussels, Frankfurt and London
Preferred: American Stock Exchange
Ticker Symbol: AA
-56-
<TABLE>
<CAPTION>
Quarterly Common Stock Information
1996 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter High Low Dividend High Low Dividend
- ---------------------------------------------------------------------------
First $64-3/8 $49-1/8 $ .3325 $44-3/4 $36-7/8 $.225
- ---------------------------------------------------------------------------
Second 66-1/4 57 .3325 50-3/8 40-3/4 .225
- ---------------------------------------------------------------------------
Third 64-1/8 55-1/8 .3325 60-1/4 49-7/8 .225
- ---------------------------------------------------------------------------
Fourth 64-3/4 55-3/4 .3325 59-1/8 48-1/4 .225
- ---------------------------------------------------------------------------
Year $66-1/4 $49-1/8 $1.33 $60-1/4 $36-7/8 $.90
===========================================================================
</TABLE>
-57-
GRAPHICS APPENDIX LIST
<TABLE>
<CAPTION>
Revenues by Segment - page 22
(billions of dollars)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Alumina and Chemicals 1.4 1.4 1.5 1.8 1.9
Nonaluminum Products 1.6 1.7 1.9 2.7 3.2
Aluminum Processing 6.5 6.0 6.5 8.0 8.0
--- --- --- ---- ----
9.5 9.1 9.9 12.5 13.1
</TABLE>
<TABLE>
<CAPTION>
Alumina Production - page 22
(thousands of metric tons)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
9,461 10,129 10,195 10,578 10,644
</TABLE>
<TABLE>
<CAPTION>
Aluminum Product Shipments - page 24
(thousands of metric tons)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fabricated Products 1,774 1,739 1,896 1,909 1,940
Ingot 1,023 841 655 673 901
----- ----- ----- ----- -----
Total 2,797 2,580 2,551 2,582 2,841
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Alcoa's Average Realized Ingot Price - page 24
(cents per pound)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
$.59 $.56 $.64 $.81 $.73
</TABLE>
<TABLE>
<CAPTION>
Number of Employees - page 26
(at year-end)
(in thousands)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaluminum 13.9 14.1 17.3 26.7 33.8
Alumina and Aluminum 49.7 49.3 42.9 45.3 43.0
---- ---- ---- ---- ----
Total 63.6 63.4 60.2 72.0 76.8
===== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
U.S. Exports - page 26 1992 1993 1994 1995 1996
(millions of dollars) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
993 896 988 1,206 1,015
</TABLE>
<TABLE>
<CAPTION>
Cash From Operations - page 28
(millions of dollars)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
1,208 535 1,394 1,713 1,279
</TABLE>
<TABLE>
<CAPTION>
Debt as a Percent of Invested Capital - page 28
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
15.0 22.0 15.3 16.7 21.8
</TABLE>
<TABLE>
<CAPTION>
Free Cash Flow to Debt Coverage - page 28
(times covered)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
.97 .62 1.09 1.12 .79
</TABLE>
<TABLE>
<CAPTION>
Capital Expenditures and Depreciation - page 29
(millions of dollars)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Capital Expenditures 789 757 612 887 996
Depreciation 682 693 671 713 747
</TABLE>
<TABLE>
<CAPTION>
Dividends Paid per Common Share - page 57
dollars
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
.80 .80 .80 .90 1.33*
<FN>
*Base dividend of .90 and bonus dividend of .43
</TABLE>
