UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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.
-1-
ALUMINUM COMPANY OF AMERICA
Aluminum Company of America, with headquarters in Pittsburgh,
Pennsylvania, was formed in 1888 under the laws of the
Commonwealth of Pennsylvania. In this report, unless the context
otherwise requires, Alcoa or the Company means Aluminum Company
of America and all subsidiaries consolidated for the purposes of
its financial statements.
PART I
Item 1. Business.
Overview
Alcoa is the world's largest integrated aluminum company.
It is also the world's largest alumina producer with close
proximity of bauxite mines to its refineries in Australia,
Jamaica and Suriname, and high quality bauxite in Brazil.
Alumina, a white powdery material, is an intermediate step in the
production of aluminum from bauxite and is also a valuable
chemical on its own. As a growing, worldwide company, Alcoa now
has over 170 operating locations in 28 countries, serving a broad
range of markets in developing and industrialized economies.
Alcoa's products are used in and on beverage containers,
airplanes and automobiles, commercial and residential buildings,
chemicals, and a wide array of consumer and industrial
applications. These products are sold directly to industrial
customers and other end-users or through independent distributors
in the U.S., Brazil, Europe and the Far East.
The Company is organized into 21 independently-managed
business units. Business unit leaders are assigned clear
performance responsibilities that concentrate authority closer to
customers-where most of Alcoa's value creation takes place.
The U.S. remains the largest market for aluminum. However,
the Pacific Rim, Latin America, Asia and Europe all present
opportunities for substantial growth in aluminum use. To take
advantage of these growth opportunities, Alcoa has formed joint
ventures and strategic alliances in key regional markets and
continues to develop new applications for its products.
Market and Geographic Area Information
Alcoa serves a variety of customers in a number of markets.
Consolidated revenues from these markets during the past three
years were:
<TABLE>
(dollars in millions)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Packaging $3,326 $3,797 $2,830
Transportation 2,655 2,232 1,671
Distributor and Other 2,154 1,988 1,570
Alumina and Chemicals 1,940 1,705 1,494
Building and Construction 1,537 1,531 1,391
Aluminum Ingot 1,449 1,247 948
------ ------ -----
Total $13,061 $12,500 $9,904
====== ====== =====
</TABLE>
-2-
Close to one-half of Alcoa's consolidated sales now is
derived from geographic regions other than the U.S., reflecting
the Company's growing global presence.
<TABLE>
(dollars in millions)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. $7,246 $7,043 $5,574
Pacific 2,248 1,986 1,670
Other Americas 1,726 1,780 1,362
Europe 1,841 1,691 1,298
------ ------ -----
Total $13,061 $12,500 $9,904
====== ====== =====
</TABLE>
Major Operations
U.S. - The Company has six aluminum smelters with a combined
annual rated capacity of 1.285 million metric tons (mt) that
mostly support its internal primary aluminum requirements. It has
two large rolling facilities for can sheet, and a number of
aluminum fabricating facilities that serve the aerospace,
automobile, truck, building and construction, packaging and other
markets. A substantial majority of 1996 consolidated revenues
generated in the U.S. was derived from these major operations.
Alcoa Fujikura Ltd. (AFL), a 51%-owned subsidiary, designs,
produces and markets automotive electrical distribution systems.
AFL also produces fiber optic products and systems for electric
utilities, telecommunications, cable television and datacom
markets. AFL's 1996 revenues were about 11% of consolidated
revenues. AFL also has operations in Europe, Mexico and Brazil.
Australia - Alcoa of Australia Limited (AofA) is 60%-owned
by Alcoa and is the Company's largest subsidiary. AofA's
integrated aluminum operations include bauxite mining facilities,
three alumina refineries, two aluminum smelters and two alumina-
based chemicals plants. AofA is the world's largest, and one of
the lowest-cost, producers of alumina. An AofA subsidiary also
mines gold in Western Australia. AofA's 1996 revenues were 15%
of Alcoa's consolidated revenues.
Brazil - Alcoa Aluminio S.A. (Aluminio), an integrated
aluminum producer, is owned 59% by Alcoa. Aluminio operates
bauxite mining facilities and two alumina refineries that
principally serve its two aluminum smelters. It has several
alumina-based chemicals, aluminum fabricating and extrusion
plants, plastic closures and container operations, packaging
equipment and building and automotive product facilities.
Aluminio's revenues in 1996 were 9% of Alcoa's consolidated
revenues.
Alcoa's Financial Reporting Segments
Alcoa's integrated operations consist of three segments:
Alumina and Chemicals, Aluminum Processing and Nonaluminum
Products. See Note R to the Financial Statements for segment and
related geographic area financial information.
Alumina and Chemicals Segment
The Alumina and Chemicals segment includes the production
and sale of bauxite, alumina, alumina-based chemicals used
principally in industrial applications and transportation
services for bauxite and alumina. The segment consists of a
group of companies and assets referred to as Alcoa World Alumina
and Chemicals (AWAC). Alcoa provides operating management for
AWAC which is owned 60% by Alcoa and 40% by WMC Limited of
Australia (WMC). See Note C to the Financial Statements.
-3-
Bauxite
Bauxite, aluminum's principal raw material, is refined into
alumina through a chemical process. Most of the bauxite mined
and alumina produced by the Company, except by AofA, is further
processed by the Company into aluminum. All of the Company's
active bauxite interests are part of AWAC, except for Aluminio's
mines in Pocos de Caldas, Brazil and its 8.6% interest in
Mineracao Rio do Norte S.A. (MRN), a joint venture described
under "Alumina" below.
AofA's bauxite mineral leases expire in 2003. Renewal
options allow AofA to extend the leases until 2045.
Suriname Aluminum Company, L.L.C. (Suralco) mines bauxite in
Suriname under rights that expire in 2032. Suralco also holds a
26% minority interest in a bauxite mining joint venture managed
by the majority owner, an affiliate of Gencor Limited of South
Africa. Bauxite from both mining operations serves Suralco's
share of a refinery in Suriname. Current mine reserves at both
operations are expected to be depleted in 2005.
The Company has long-term contracts to purchase bauxite
mined by a partially-owned entity in the Republic of Guinea in
Western Africa. The bauxite services most of the requirements of
the Point Comfort, Texas alumina refinery. The contracts expire
after 2011.
Bauxite mining rights in Jamaica expire after the year 2020.
These rights are owned by a joint venture with the Government of
Jamaica.
Alumina
Alcoa is the world's leading supplier of alumina. Alumina
is sold principally from operations in Australia, Jamaica and
Suriname. About 59% of the Company's alumina production in 1996
was sold to third parties. Most alumina supply contracts are
negotiated on the basis of agreed volumes over multi-year periods
to assure a continuous supply to the smelters that receive the
alumina. Prices are negotiated periodically or are based on
formulas related to aluminum ingot market prices or to alumina
production costs.
In June 1996, AWAC announced a curtailment of 350,000 mt of
its annual production of smelter-grade alumina due to an
oversupply of alumina in world markets.
Australia. AofA's three alumina refineries, located in
Kwinana, Pinjarra and Wagerup, in Western Australia, have an
aggregate annual rated capacity of 6.7 million mt. The natural
gas requirements of the refineries are supplied primarily under a
contract with parties comprising the North West Shelf Gas Joint
Venture. This contract expires in 2005 and imposes minimum
purchase requirements. Most of AofA's alumina is sold under
supply contracts to third party customers worldwide.
In November 1996, AWAC entities and Sino Mining Alumina
Limited (SMAL), a subsidiary of China National Nonferrous Metals
Industry Corporation (CNNC), entered into a long-term agreement
for the purchase of alumina for the CNNC smelter system. The
arrangements entitle a subsidiary of SMAL to purchase a minimum
of 400,000 mt of alumina per year for 30 years. It also has the
option to increase its alumina purchases as CNNC's needs grow.
CNNC is a Chinese state-owned enterprise, which operates and
controls the state-owned nonferrous industry in China.
Suriname. Suralco owns 55% of a 1.7 million mt per year
alumina refinery in Paranam, Suriname and operates the plant. An
affiliate of Gencor holds the remaining 45% interest.
-4-
Jamaica. An Alcoa subsidiary and a corporation owned by the
Government of Jamaica are equal participants in an alumina
refinery in Clarendon Parish, Jamaica. The Alcoa subsidiary
manages the joint venture. The refinery's annual capacity is
expected to increase from 800,000 to about 1 million mt when
warranted by market conditions.
Brazil. Aluminio operates the Alumar Consortium (Alumar), a
cost-sharing and production-sharing venture that owns a large
refining and smelting project near Sao Luis, in the northeastern
state of Maranhao. In late 1996, the Alumar refinery was
expanded by 260,000 mt per year, bringing total annual capacity
to 1.3 million mt. It is owned 35.1% by Aluminio, 36% by an
affiliate of Gencor, 18.9% by Abalco S.A. (owned 60% by Alcoa and
40% by WMC) and 10% by an affiliate of Alcan Aluminium Limited
(Alcan). Most of this alumina production is consumed at the
smelter.
Aluminio holds an 8.6% interest and Abalco S.A. holds a 4.6%
interest in MRN, a mining company that is jointly owned by
affiliates of Alcan, Companhia Brasileira de Aluminio, Companhia
Vale do Rio Doce, Gencor, Norsk Hydro and Reynolds Metals
Company. Aluminio and Abalco S.A. purchase bauxite from MRN
under a long-term supply contract.
At Pocos de Caldas, Aluminio mines bauxite and operates a
refinery. The refinery has an annual capacity of 270,000 mt and
primarily supplies Aluminio's nearby smelter.
U.S. Alcoa Alumina & Chemicals, L.L.C., through a majority-
owned entity, St. Croix Alumina, L.L.C., owns a 600,000 mt per
year alumina refinery located on St. Croix, U.S. Virgin Islands.
The refinery is currently inactive due to world alumina market
conditions.
Alcoa Alumina & Chemicals, L.L.C. owns an alumina refinery
at Point Comfort, Texas. A 365,000 mt per year expansion was
recently completed and brought annual capacity to 2.3 million mt.
Approximately 20% of the refinery's output supplies industrial
chemicals operations at that location.
Industrial Chemicals
Alcoa sells industrial chemicals to customers in a broad
spectrum of markets for use in refractories, ceramics, abrasives,
chemicals processing and other specialty applications.
Industrial chemicals, principally alumina-based chemicals,
are produced or processed at the locations that follow. Except
for the plants located in Brazil, all of these facilities are
part of AWAC.
Industrial Chemicals Facilities
Mobile, Alabama Kwinana and Rockingham, Australia
Bauxite, Arkansas Pocos de Caldas and Salto, Brazil
Ft. Meade, Florida Ludwigshafen, Germany
Dalton, Georgia Falta, India*
Lake Charles, Port Allen and Iwakuni and Naoetsu, Japan
Vidalia, Louisiana Moerdijk and Rotterdam, The
Leetsdale, Pennsylvania Netherlands
Nashville, Tennessee Singapore, Singapore
Point Comfort, Texas
*Joint venture
Aluminum fluoride, used in aluminum smelting, is produced
from fluorspar at Point Comfort and from hydrofluosilicic acid at
Ft. Meade.
-5-
Aluminum Processing Segment
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.
Revenues and shipments for the principal classes of products
in the Aluminum Processing segment follow.
<TABLE>
(dollars in millions)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Aluminum ingot $1,449 $1,197 $ 920
Flat-rolled products 3,920 4,177 3,201
Engineered products 2,269 2,303 1,882
Other aluminum products 338 357 474
----- ----- -----
Total $7,976 $8,034 $6,477
===== ===== =====
(mt in thousands)
Shipments:
Aluminum ingot 901 673 655
Flat-rolled products 1,357 1,380 1,381
Engineered products 495 454 433
Other aluminum products 88 75 82
----- ----- -----
Total 2,841 2,582 2,551
===== ===== =====
</TABLE>
Aluminum Ingot
The Company smelts primary aluminum from alumina obtained
principally from its alumina refineries. Alcoa's consolidated
primary aluminum capacity is rated at approximately 2.1 million
mt per year. When operating at capacity, Alcoa's smelters more
than satisfy the primary aluminum requirements of its fabricating
operations. Most of the Company's primary aluminum production in
1996 was delivered to other Alcoa operations for alloying and/or
further fabricating. Purchases of aluminum scrap, principally
used beverage cans, supplemented by purchases of ingot when
necessary, satisfy additional aluminum requirements.
During 1996, Alcoa had 450,000 mt, or 21% of its worldwide
smelting capacity, idle because of an oversupply of ingot on
world markets.
Aluminum is produced from alumina by an electrolytic process
requiring large amounts of electric power. Electric power
accounts for about 25% of the Company's primary aluminum costs.
Alcoa generates approximately 40% of the power used at its
smelters worldwide. Most purchase contracts for firm power tie
prices to aluminum prices or to prices based on various indices.
Australia. AofA is a participant in a joint venture smelter
at Portland, Victoria, with an annual rated capacity of 320,000
mt. The venture is owned 45% by AofA, 25% by the State of
Victoria and 10% each by the First National Resources Trust, the
China International Trust and Investment Corporation and Marubeni
Aluminium Australia Pty., Ltd.. A subsidiary of AofA operates
the smelter. Each participant in this smelter is required to
contribute to the cost of operations and construction in
proportion to its interest in the venture and is entitled to its
proportionate share of the output. Alumina is supplied by AofA.
The Portland site can accommodate additional smelting capacity.
-6-
Currently, approximately 36% of the power for the 180,000 mt
Point Henry smelter is generated by AofA using its extensive
brown coal deposits. The balance of the power for this smelter
and power for the Portland smelter are provided under contracts
with the State Electricity Commission of Victoria. Power prices
are tied by formula to aluminum prices. Informal discussions
continue with the State Government of Victoria to clarify various
aspects of power supply to the smelters.
Brazil. The Alumar smelter at Sao Luis, Brazil has an
annual rated capacity of 362,000 mt. Aluminio receives about 54%
of the production from this smelter. Electric power is purchased
from the government-controlled power grid in Brazil at a small
discount from the applicable industrial tariff price and is
protected by a cap based on the London Metal Exchange (LME) price
of aluminum.
In late 1996, Aluminio contracted with Central Eletricas de
Minas Gerais S.A. (CEMIG), the government-controlled electric
utility, to supply power to Aluminio's 90,000 mt Pocos de Caldas
smelter for a 30-month period, beginning in October 1996.
Aluminio purchased the plant's anticipated full power
requirements for this 30-month period through a single payment
based on the price of energy on the date of the agreement. At
the end of this period, Aluminio may be subject to increased
power prices for the plant and may decide to negotiate another
purchase of power from CEMIG or from another utility.
In 1996, Aluminio participated in a consortium that won a
bidding process to build the new Machadinho hydroelectric power
plant in Southern Brazil. If all environmental and other
approvals that are necessary for the construction of the dam
and related facilities are received, Aluminio would be entitled
to a share of the output beginning in 2002. Aluminio's share is
expected to be sufficient to supply approximately one-half of the
power requirements for the Pocos de Caldas smelter.
Europe. In late March 1996, Alcoa completed the acquisition
of the principal operating assets of Alumix S.p.A. (Alumix),
Italy's state-owned, integrated aluminum producer. Aluminum
smelters at Portovesme and Fusina, with combined annual capacity
of 180,000 mt, were among the assets purchased. Alumina is
supplied under a three-year arrangement by an Italian state-owned
company to both the Portovesme and Fusina smelters. Power for
these smelters is supplied by ENEL, Italy's state-owned utility.
Alcoa and SEPI, the Spanish State Entity for Industrial
Participations, jointly announced in late February 1997 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 completed before the end of 1997.
U.S. Approximately 55% of the power requirements for
Alcoa's six U.S. smelters is generated by the Company; the
remainder is purchased under long-term contracts. Approximately
12% of the self-generated power is obtained from Alcoa's
entitlement to a fixed percentage of the output from a
hydroelectric power facility located in the northwestern United
States.
The Company has generated substantially all of the power
used at its Warrick, Indiana smelter using nearby coal reserves.
A new coal supply contract has been secured which satisfies 50%
of the smelter's fuel requirement through 2006. Existing low-
sulfur coal contracts satisfy an additional 35% of the
requirement through 1999.
-7-
Lignite is used to generate power for the Rockdale, Texas
smelter. Company-owned generating units supply about half of the
total requirements, and the balance is purchased through a long-
term power contract with Texas Utilities expiring in 2013.
Two subsidiaries of the Company own and operate
hydroelectric facilities under Federal Energy Regulatory
Commission licenses. They provide electric power for the
aluminum smelters at Alcoa, Tennessee and Badin, North Carolina.
The Tennessee plant also purchases firm and interruptible power
from the Tennessee Valley Authority. At the Badin plant,
additional power is purchased from Duke Power under an evergreen
contract providing for specified periods of notice before
termination by either party.
The purchased power (primarily hydroelectric) contract for
the Massena, New York smelter expires not earlier than 2003, but
may be terminated by Alcoa with one year's notice.
In addition to the power output entitlement contract for its
Wenatchee, Washington smelter referred to earlier, Alcoa has a
contract with the Bonneville Power Administration (BPA). Several
contractual provisions allow restrictions when power is in short
supply. Beginning in 1995, a portion of the power supplied under
the BPA contract was replaced by power purchased from a local
public utility district. Additional power has subsequently been
purchased from the district, and currently no BPA power is
utilized at Wenatchee Works.
Suriname. Suralco owns and operates a 30,000 mt per year
smelter in Paranam, Suriname. Suralco also operates the
Afobaka hydro project which supplies power to the smelter.
Norway. Although not included in the revenues and shipment
tables above or in the rated primary aluminum capacity figures,
the Company reports equity earnings from its interest in two
smelters in Norway. Elkem Aluminium ANS, 50%-owned by an Alcoa
subsidiary, Norsk Alcoa A/S, is a partnership that owns and
operates the smelters.
Flat-Rolled Products
Alcoa's flat-rolled products serve three principal markets:
light gauge sheet products mainly serve the packaging market, and
sheet and plate products serve the transportation and building
and construction markets. Alcoa employs its own sales force for
most products sold in the packaging market.
Rigid Container Sheet (RCS). Most of the 1996 revenues in the
packaging market were derived from RCS which is sold to can
companies for production of beverage and food cans and can ends.
The number of RCS customers in the U.S. is relatively small.
Use of aluminum beverage cans continues to increase, particularly
in Asia, Europe and South America, where per capita consumption
remains relatively low.
Aluminum's diverse characteristics, particularly its light
weight and recyclability, are significant factors in packaging
markets where alternatives such as steel, plastic and glass are
competitive materials. Leadership in the packaging markets is
maintained by improving processes and facilities, as well as by
providing marketing, research and technical support to customers.
RCS is produced at the following locations:
-8-
RCS Facilities
Warrick, Indiana Yennora, Australia*
Alcoa, Tennessee Moka, Japan*
Point Henry, Australia* Swansea, Wales
*Joint venture
In May 1996, Kaal Australia Pty. Ltd., 50%-owned by Alcoa,
purchased AofA's rolling mill at Point Henry. Kaal Australia had
already acquired from Comalco Limited its rolling mill at
Yennora. These mills continue to produce RCS for the Australian
and Asian markets. AofA continues to supply Kaal Australia with
aluminum ingot.
A subsidiary of Alcoa participates in a 50/50 joint venture
with Kobe Steel, Ltd. to serve RCS markets in Japan and other
Asian countries. In connection with this venture, Alcoa has a
long-term contract to supply metal to Kobe.
Used aluminum beverage cans are an important source of metal
for RCS. Recycling aluminum conserves raw materials, reduces
litter and saves energy - about 95% of the energy needed to
produce aluminum from bauxite. In addition, recycling capacity
costs much less than new primary aluminum capacity. Can
recycling or remelt facilities are located at or near Alcoa's
Warrick, Indiana and Alcoa, Tennessee plants.
Foil. This product is produced at Alcoa's Lebanon, Pennsylvania
and Hawesville, Kentucky facilities. Light gauge sheet, foil
products and laminated evaporator panels are manufactured by
Aluminio at Recife, Brazil. Light gauge sheet also is produced
at Yennora, Australia.
Alcoa and Shanghai Aluminum Fabrication Plant (SAFP) have a
joint venture that operates the former SAFP aluminum foil and
foil laminate production facility in Shanghai, China. A venture
facility, owned 60% by Alcoa and 40% by SAFP, currently produces
approximately 10,000 mt of aluminum foil per year. Through the
use of technology and the addition of a second caster, annual
output is expected to increase to about 18,000 mt within five
years.
Sheet and Plate. Sheet and plate products serve the aerospace,
auto and truck, lithographic, railroad, ship-building, building
and construction, defense and other industrial and consumer
markets. The Company maintains its own sales forces for most of
these products.
Differentiation of material properties, price and service
are significant competitive factors. Aluminum's diverse
characteristics are important in these markets where competitive
materials include steel and plastics for automotive and building
applications; magnesium, titanium, composites and plastics for
aerospace and defense applications; and wood and vinyl in
building and construction applications. Alcoa continues to
develop alloys and products for aerospace applications, such as
those developed for the Boeing 777 aircraft.
Alcoa's largest sheet and plate plant is located at
Davenport, Iowa. It produces products requiring special
alloying, heat-treating and other processing, some of which are
unique or proprietary. In late April 1996, Alcoa announced an
increase in the Davenport, Iowa plant's heat-treating capacity
for sheet and plate as part of a $75 million investment to meet
aerospace and automotive demand. Alcoa also commissioned the
largest vertical heat-treat furnace in North America, thus
tripling the plant's capacity for wide-width fuselage sheet. In
1996, construction began on a horizontal plate heat-treating
furnace that will increase capacity by 50%. The Company expects
this capacity to be in production in early 1997.
-9-
The Company continues to produce cast aluminum plate at its
Vernon, California plant after closing its hard alloy extrusion,
tube and forgings facilities there in 1994. Over the past two
years, Alcoa has invested approximately $10 million in new
machinery and equipment for the plant's cast aluminum plate
operation.
Alcoa and Kobe have a joint venture in the U.S. and one in
Japan to serve the transportation industry. Initial emphasis of
these ventures is focused on expanding the use of aluminum sheet
products in passenger cars and light trucks.
The Company's Hungarian subsidiary, Alcoa-Kofem Kft,
produces common alloy flat and coiled sheet as well as soft alloy
extrusions and end products for the building, construction, food
and agricultural markets in central and western Europe. In July
1996, Alcoa acquired the remaining 49.9% interest in Kofem from
the Hungarian government.
In 1996, Kofem began delivering aluminum truck bodies to
major beverage companies in Russia and Poland. Kofem will deliver
additional truck bodies to customers in central and eastern
European countries in 1997.
Included in the previously mentioned acquisition of Alumix
is the rolling mill at Fusina which produces industrial plate and
common alloy flat and coiled sheet for the building and
construction, transportation and other industrial markets in
Europe.
In April 1996, Alcoa opened a 165,000 square-foot plant in
Hutchinson, Kansas for further processing and just-in-time
stocking of aluminum sheet products for the U.S. aerospace
market. Alcoa serves European sheet and plate markets through a
distribution center in Paal, Belgium.
Alcoa has begun construction of a 165,000 square-foot plant
in Danville, Illinois for further processing and just-in-time
stocking of aluminum sheet products for the North American
automotive market. The Company expects this facility to begin
production late in 1997.
Engineered Products
Engineered products include extrusions used in the
transportation and construction markets; aluminum forgings and
castings; aluminum wheels; wire, rod and bar; and automobile
bumpers.
Extrusions. Aluminum extrusions and tube are produced
principally at five U.S. locations:
- the Chandler, Arizona plant produces hard alloy
extrusions, tube and forge stock;
- the Lafayette, Indiana plant produces a broad range of
hard alloy extrusions and tube;
- the Baltimore, Maryland plant produces large press
extrusions; and
- the Tifton, Georgia and Delhi, Louisiana plants produce
common alloy extrusions.
Aluminum extruded products are manufactured by a subsidiary
in Argentina and by Aluminio at several locations in Brazil. In
March 1996, Aluminio acquired the extrusion assets of an Alcan
affiliate in Brazil. The assets included four plants and eight
extrusion presses. The transaction has been submitted to
Brazilian antitrust authorities for review and approval, and that
approval is still pending.
Alcoa Extrusions Hannover GmbH & Co. KG produces and markets
high-strength aluminum extrusions and rod and bar to serve
European transportation and defense markets. In January 1997,
Alcoa acquired the remaining 40% interest and now owns 100%
of this company.
-10-
The subsidiaries of Alcoa Nederland Holding B.V. produce
extrusions, common alloy sheet products and a variety of finished
products for the building industry, such as aluminum windows,
doors and aluminum ceiling systems. These companies also
manufacture products for the agricultural industry such as
automated greenhouse systems.
Aluminum East ZAO, through its Building Systems
International branch, assembles and sells aluminum windows and
doors in Russia.
The acquisition of the Alumix assets mentioned earlier also
included the purchase of extrusion plants in Bolzano, Fossanova,
Feltre and Iglesias, Italy and an extrusion die shop in Mori,
Italy.
Alcoa also has extrusion plants in Hungary, Spain and the
United Kingdom.
Mechanical-grade redraw rod, wire and cold-finished rod and
bar are produced at Massena, New York and are sold to
distributors and customers for applications in the building and
transportation markets.
Forgings/Castings. Aluminum forgings, sold principally in the
aerospace, automotive and defense markets, are produced at
Cleveland, Ohio. The plant also produces forged aluminum wheels
for the auto, bus and truck markets.
In 1996 Alcoa began construction of a $20 million wheel
production facility at the Cleveland plant. This is the first
phase of a multi-phase plan to increase production of forged
aluminum wheels to meet market demand for U.S. light trucks.
In March 1996, Alcoa and Superior Industries International
Inc. formed a company to produce cast aluminum wheels for
commercial trucks and buses. The wheels will be marketed through
Alcoa's existing wheel sales organization. The initial
manufacturing operations will be located at Superior's Van Nuys,
California facility. The parties expect to reach commercial
production levels by mid-1997.
Alcoa is constructing a plant in Szekesfehervar, Hungary to
manufacture forged aluminum truck wheels for the European market.
The plant also may manufacture wheels for export to Asian, South
American and other geographic markets where European-style wheels
are used. The plant is expected to begin production in April
1997.
Alcoa has a 50/50 partnership, A-CMI, with a subsidiary of
CMI International, Inc. to produce cast and forged aluminum
automotive parts. In 1996, A-CMI began construction of its first
European manufacturing plant in Lista, Norway. It will develop
and produce cast aluminum chassis, suspension, brake and
powertrain components and systems. The plant represents a total
investment of approximately $40 million. It is being built near
the 50%-owned Elkem Aluminium ANS smelter, which will deliver
molten aluminum to the plant. Production is expected to begin in
mid-1997.
In 1996, A-CMI also began activity at its Kentucky Casting
Center in Hawesville, Kentucky. This is A-CMI's second North
American facility and will produce aluminum chassis and
suspension structural components for the automotive market.
Alcoa also designs and builds specialized die-casting
machines through a subsidiary in Montreal, Canada.
Automotive Body Structures. Alcoa Automotive Structures GmbH
produces aluminum components and sub-assemblies for aluminum
automotive spaceframes. Aluminum spaceframes represent a
significant departure from the traditional method and material
used to manufacture primary auto body structures.
-11-
In 1993, Alcoa began operating a unique multi-million dollar
plant in Soest, Germany to supply aluminum spaceframe body
structures to its first customer, Audi AG. In 1994, Audi began
marketing its A8 luxury sedan in Europe-the first production
automobile to utilize a complete aluminum spaceframe body
structure. The aluminum spaceframe of the A8 is a result of a
cooperative effort between Alcoa and Audi that began in 1981 and
is constructed from components and sub-assemblies that are
produced by Alcoa. The 1997 A8 debuted in U.S. showrooms in the
fall of 1996. The Soest plant now is in the process of beginning
production of the front end module for the new Mercedes-Benz A
Class car.
Alcoa Automotive Structures GmbH also operates a design and
engineering office in Esslingen (Stuttgart), Germany where it
develops designs for aluminum auto body structures for a variety
of European car manufacturers.
Alcoa is working with several other automobile manufacturers
in North America and Japan to develop new automotive applications
for aluminum products. For example, Chrysler Corporation expects
its Plymouth Prowler, a new roadster, to enter initial, low-
volume production in 1997. Carrying 900 pounds of aluminum (or
approximately one-third of its weight), the Prowler is
constructed of an all-aluminum frame and body as well as aluminum
for brake rotors and suspension components. Alcoa will provide
the car's frame as well as aluminum sheet stock to be stamped
into body panels and bumper assemblies.
Alcoa's newly-constructed plant in Northwood, Ohio
manufactures the Prowler frame and a variety of aluminum
structural assemblies for the U.S. automotive industry.
Other Aluminum Products. Aluminio produces aluminum truck and
van bodies and aluminum casting products in Sao Paulo, Brazil and
aluminum electrical cable at its Pocos de Caldas plant.
Alcoa Building Products, Inc. (formerly The Stolle
Corporation) manufactures and markets residential aluminum siding
and other aluminum building products. These products are sold
principally to wholesale distributors.
Alcoa produces aluminum closures for bottles at Richmond,
Indiana; Worms, Germany; Nogi and Ichikawa, Japan; and Barcelona,
Spain. In late February 1997, Alcoa entered into a letter of
intent to sell the assets of its Richmond, Indiana works.
In May 1996, Alcoa and Sinter Metals, Inc. of Cleveland,
Ohio, formed a strategic alliance to develop and expand the
market for aluminum parts produced by powder metallurgy
techniques, especially for the automotive, business machine,
appliance, lawn care and leisure equipment markets.
Alcoa produces and markets aluminum paste, particles, flakes
and atomized powder. It also produces high-purity aluminum.
Nonaluminum Products Segment
The Nonaluminum Products segment includes the production and
sale of electrical, plastic and composite materials products,
manufacturing and packaging equipment, gold, magnesium products
and steel and titanium forgings.
Alcoa Fujikura Ltd. (AFL)
AFL produces and markets electronic and electrical
distribution systems (EDS) for the automotive industry, as well
as fiber optic products and systems for selected electric
utilities, telecommunications,
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cable television and datacom markets. AFL is the only EDS
supplier that has been awarded the Total Quality Excellence
Award by Ford Motor Company. AFL also supplies EDS to
Subaru of America, Inc., Auto Alliance, Inc. (Mazda-Ford
joint venture), Kenworth, Peterbilt, Mack and Navistar.
In July 1995, AFL acquired the operations of Electro-Wire
Products, Inc. Electro-Wire Products, Inc. manufactured EDS for
autos, trucks and farm equipment. Combining these two businesses
created a worldwide enterprise that is the largest supplier of
EDS to Ford Motor Company's worldwide operations, and sales to
Ford represented a significant portion of AFL's 1996 revenues.
The combined enterprise also is the largest supplier of EDS to
the heavy truck industry.
Michels GmbH & Co. K.G., a manufacturer of EDS for
automobiles, appliances and farm equipment, with three plants in
Germany and five plants in Hungary, is 90%-owned by AFL. The
Stribel group of companies, European manufacturers of
electromechanical and electronic components for the European
automotive market, are also owned by AFL.
In August of 1996, AFL and Aluminio began to manufacture and
sell EDS in Brazil through a joint venture.
Significant competitive factors in the EDS markets include
price, quality and full service supplier capability. Automakers
increasingly require support from their selected suppliers on a
global basis.
Packaging and Closures
Alcoa Closures Systems International, Inc. (ACSI) is the
world's largest producer of plastic closures for beverage
containers. Its business is coordinated from Indianapolis,
Indiana. The use of plastic closures has surpassed that of
aluminum closures for beverage containers in the U.S. and is
gaining momentum in other countries. Alcoa has plastic closure,
PET (polyethylene terephthalate) plastic bottles or packaging
equipment design and assembly facilities at the following
locations:
Packaging and Closures Facilities
Crawfordsville, Indiana
Santiago, Chile
Ichikawa, Japan
Olive Branch, Mississippi
Tianjin, China
Nogi, Japan
Buenos Aires, Argentina
Bogota, Colombia
Saltillo, Mexico
Manama, Bahrain
Szekesfehervar, Hungary
Lima, Peru
Barcelona, Spain
Barueri, Itapissuma,
Lages and Queimados,
Brazil
ACSI has announced plans to begin production of plastic
closures at Lubuchany, Russia, south of Moscow, in late 1997.
The unit will be known as Alcoa CSI Vostok.
The Alcoa Packaging Equipment business unit (APE) designs,
manufactures and services bodymakers, decoration equipment, end
conversion presses and a variety of testing equipment to the
canmaking industry, along with plastic and aluminum closure
capping equipment and rapid changeover and quick-change bottle
control parts to the beverage industry. In 1996, the Alcoa
Advanced Technologies division of APE began supplying advanced
material products to the semiconductor equipment industry.
Other Nonaluminum Products
Alcoa Building Products, Inc.'s principal products for
building and construction markets are vinyl siding and
accessories and plastic injected molded shutters and
architectural accessories. Dayton
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Technologies, Inc. produces extruded profiles for the vinyl
window and patio door markets, and Caradco, Inc. manufactures
vinyl and wood windows and patio doors. At the end of February
1997, Alcoa sold Dayton Technologies, Inc. to Deceuninck
Plastics Industries, N.V., a Belgian building materials
company. In January 1997, Alcoa reached an agreement in
principle for the sale of Caradco, Inc. to JELD-WEN inc., a
privately-held building products and millwork manufacturer.
This sale is expected to be completed by the beginning of the
1997 second quarter.
Northwest Alloys, Inc., in Addy, Washington, produces
magnesium from minerals in the area owned by the Company. The
magnesium is used by Alcoa for certain aluminum alloys and also
sold to third parties.
In November 1996, Aluminio and Alcatel Cable Ameriques
(ACA), a subsidiary of Alcatel of France, formed a joint venture
to manufacture, in Brazil, and sell telecommunication cables and
related accessories in South America. The venture, called
Alcatel Cabos Brazil, is owned 40% by Aluminio and 60% by ACA and
affiliates.
Aluminio also owns and operates a chain of retail
construction materials outlets in Brazil. Aluminio currently is
considering the partial or total disposition of its interest in
these outlets.
Alcoa Composites, Inc. (ACI) principally designed and
manufactured composite parts and structures for aerospace and
transportation applications. In October 1996, ACI closed its
Fibertek division in Springville, Utah. In January 1997, ACI
sold the assets of its last operating division, Composite
Structures, in Monrovia, California to an investment group. ACI
plans an orderly transition and/or liquidation of its remaining
assets and liabilities.
An AofA subsidiary, Hedges Gold Pty. Ltd., mines gold from
its mining leases in Western Australia. Gold production has been
declining since 1990.
Large press steel, titanium and special super-alloy forgings
are produced at Cleveland, Ohio. These products are sold
principally in aerospace and commercial markets.
Norcold, Inc. manufactures refrigeration units used in
recreational vehicles, boats and other applications. The major
component for these refrigeration units is manufactured by
another Alcoa subsidiary, Arctek Corporation. At the end of
February 1997, Alcoa sold all of the assets of Norcold and Arctek
to The Dyson-Kissner-Moran Corporation.
Alcoa owns a 36% interest in a joint venture established in
January 1996, that manufactures auto parts and appliance control
panels.
In June 1996, the Company closed Alcoa Electronic Packaging
(AEP) located in San Diego, California, which produced ceramic
packages used to hold integrated circuits for electronic
equipment. In December 1995, AEP was notified by its major
customer, Intel, that no new orders would be forthcoming.
Risk Factors
In addition to inherent operating risks, Alcoa is exposed to
financial, market, political and economic risks.
-14-
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.
The aluminum industry is highly cyclical and the Company's
results of operations are influenced by LME-based prices of
primary aluminum. This price sensitivity impacts a portion of
the Company's alumina sales and many of the Company's aluminum
products, with less impact on the more specialized and value-
added products.
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
million mt and 2.483 million 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 million 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 million 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.
-15-
Accounting convention requires that these contracts be
marked-to-market, resulting in an after-tax charge to earnings of
$57 million in 1996, and $38 million 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 to the Financial
Statements.
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.
Employees
Alcoa had approximately 76,800 employees worldwide at year-
end 1996. Approximately 38% of the employees are located in the
U.S. New six-year labor agreements covering the majority of
Alcoa's U.S. production workers were ratified in mid-1996. As
part of the agreements, Alcoa and the unions agreed to an
unprecedented partnership mandating that they work cooperatively
on customer requirements, business objectives and shareholder and
union interests. The agreements set broad, new goals for
employee safety, job security, influence, control and
accountability for the work environment.
Other major provisions include: wage increases over the
first five years; enhanced pension benefits; increases in
sickness and accident insurance, life insurance and dental
benefits and the amount of income a spouse may earn before
sharing medical benefit costs. The new agreements have five
years of defined provisions. At the end of the fifth year, the
entire contract will be reopened. If agreement cannot be
reached, the economic provisions will be submitted to
arbitration.
In late September 1996, a new five-year labor agreement
covering about 1,100 employees at Alcoa's Forged Products
business unit in Cleveland, Ohio was ratified. A three-week
strike followed the late-August expiration of the previous three-
year pact.
Wages for AofA employees are covered by agreements which are
negotiated under guidelines established by a national industrial
relations authority.
-16-
Wages for both hourly and salaried employees of Aluminio are
negotiated annually in compliance with government guidelines.
Each Aluminio location, however, has established a separate
compensation package for its employees.
Research and Development
Alcoa, a technology leader in the aluminum industry, engages
in research and development programs which include basic and
applied research and process and product development. These
activities are conducted principally at Alcoa Technical Center
near Pittsburgh, Pennsylvania. Several business units conduct
their own R&D programs. Expenditures for R&D activities were
$166 million in 1996, $141 million in 1995 and $126 million in
1994. Substantially all R&D is funded by the Company.
Environmental
Alcoa's Environment, Health and Safety Policy confirms its
commitment to operate worldwide in a manner which protects the
environment and the health and safety of employees and of the
citizens of the communities where the Company operates.
Alcoa continues its efforts to develop and implement modern
technology, and standards and procedures, to meet its
Environment, Health and Safety Policy. Approximately $68 million
was spent during 1996 for new or expanded facilities for
environmental control. Capital expenditures for such facilities
will approximate $113 million in 1997. The costs of operating
these facilities are not included in these figures. Remediation
expenses are continuing at many of the Company's facilities. See
Environmental Matters on page 27 in the Annual Report to
Shareholders and "Item 3 - Legal Proceedings" below.
Alcoa's operations worldwide, like those of others in
manufacturing industries, have in recent years become subject to
increasingly stringent legislation and regulations intended to
protect human health and safety and the environment. This trend
is expected to continue. Compliance with new laws, regulations
or policies could require substantial expenditures by the Company
in addition to those referenced above.
Alcoa supports the use of sound scientific research and
realistic risk criteria to analyze environmental and human health
and safety effects and to develop effective laws and regulations
in all countries where it operates. The Company also relies on
internal standards that are applied worldwide to ensure that its
facilities operate with minimal adverse environmental, health and
safety impacts, even where no regulatory requirements exist.
Alcoa recognizes that recycling and pollution prevention offer
real solutions to many environmental problems, and it continues
vigorously to pursue efforts in these areas.
Item 2. Properties.
See "Item 1 - Business." Alcoa believes that its
facilities, substantially all of which are owned, are suitable
and adequate for its operations.
Item 3. Legal Proceedings.
In the ordinary course of its business, Alcoa is involved in
a number of lawsuits and claims, both actual and potential,
including some which it has asserted against others. While the
amounts claimed may be substantial, the ultimate liability cannot
now be determined because of the considerable uncertainties that
exist. It is possible that results of operations or liquidity in
a particular period could be materially affected by certain
contingencies. Management believes, however, that the
disposition of
-17-
matters that are pending or asserted will not have
a material adverse effect on the financial position of the
Company.
Environmental Matters
Alcoa is involved in proceedings under the Superfund or
analogous state provisions regarding the usage, disposal, storage
or treatment of hazardous substances at a number of sites in the
U.S. The Company has committed to participate, or is engaged in
negotiations with Federal or state authorities relative to its
alleged liability for participation, in clean-up efforts at
several such sites.
In response to a unilateral order issued under Section 106
of the Comprehensive Environmental Compensation and Liability
Act of 1980 (CERCLA) by the U.S. Environmental Protection Agency
(EPA) Region II regarding releases of hazardous substances,
including polychlorinated biphenyls (PCBs), into the Grasse
River near its Massena, New York facility, Alcoa conducted
during 1995 certain remedial activities in the Grasse River
for the removal and appropriate disposal of certain river
sediments. During 1996, the Company submitted an Analysis
of Alternatives Report, which is being reviewed by the EPA.
Representatives of various Federal and state agencies and a
Native American tribe, acting in their capacities as trustees for
natural resources, have asserted that Alcoa may be liable for
loss or damage to such resources under Federal and state law
based on Alcoa's operations at its Massena, New York facility.
While formal proceedings have not been instituted, the Company is
actively investigating these claims.
On March 31, 1994, Alcoa and Region VI of the EPA entered
into an administrative order on consent, EPA Docket No. 6-11-94,
concerning the Alcoa (Point Comfort)/Lavaca Bay National
Priorities List site which includes portions of Alcoa's Point
Comfort, Texas bauxite refining operations and portions of Lavaca
Bay, Texas, adjacent to the Company's plant. The administrative
order requires the Company to conduct a remedial investigation
and feasibility study at the site overseen by the EPA. Work
under the administrative order is proceeding. The Company and
certain Federal and state natural resource trustees, who
previously served Alcoa with notice of their intent to file suit
to recover damages for alleged loss or injury of natural
resources in Lavaca Bay, entered into several agreements during
1996 to cooperatively identify restoration alternatives and
approaches for Lavaca Bay. Efforts under those agreements are
ongoing.
In June 1988, the EPA added Alcoa's Vancouver , Washington
Potlining Pile to the National Priorities List under CERCLA. As
a result of Alcoa's cleanup efforts, effective September 30, 1996
the site was delisted.
Other Matters
Alcoa was named as one of several defendants in a number of
lawsuits filed as a result of the Sioux City, Iowa DC-10 plane
crash in 1989. The plaintiffs claim that Alcoa fabricated the
titanium fan disk involved in the alleged engine failure of the
plane from a titanium forging supplied by a third party. Two of
the 117 cases are still pending.
On December 21, 1992, Alcoa was named as a defendant in KML
Leasing v. Rockwell Standard Corporation filed in the District
Court of Oklahoma County, Oklahoma on behalf of 7,317 Aero
Commander, Rockwell Commander and Gulfstream Commander aircraft
owners. The complaint alleges defects in certain wingspars
manufactured by Alcoa. Alcoa's aircraft builders products
liability insurance carrier has assumed defense of the matter.
In May 1993, Alcoa received a reservation of rights letter from
its insurance carrier which purports to reserve its rights with
respect to a majority of the types of damages claimed. In May
1995, the court granted Alcoa's motion for summary judgment to
dismiss
-18-
the action. The summary judgment was reversed, on
plaintiff's appeal, in February 1996, and the case was remanded
to the trial court. The Company and co-defendants filed a
petition in March 1996 for rehearing before the Oklahoma
intermediate appellate court. In November 1996, plaintiffs
dismissed Alcoa as a defendant in this matter, but have a right
to refile for one year.
In August 1994, the U.S. Department of Justice (DOJ) issued
a Civil Investigative Demand (CID) to Alcoa regarding activities
undertaken by Alcoa in response to a multinational Memorandum of
Understanding negotiated by the U.S. government and other
sovereign nations. Alcoa complied with the request in November
1994 and is waiting for a response from the DOJ.
On March 27, 1995, the DOJ issued a CID requesting
information regarding pricing policies on aluminum rigid
container sheet in 1994 and 1995. Alcoa complied with the
document request and provided interrogatory answers in June 1995.
On November 21, 1996, the DOJ closed its review without taking
any action.
On June 13, 1995, the Company was served with a class action
complaint in the matter of John P. Cooper, et al. v. Aluminum
Company of America, Case Number 3-95-CV-10074, pending in the
United States District Court for the Southern District of Iowa.
The named plaintiffs allege violation of Federal and state civil
rights laws prohibiting discrimination on the basis of race and
gender. Plaintiffs seek class action status for five classes of
employees or prospective employees of Alcoa at its Davenport,
Iowa facility and also a permanent injunction against allegedly
discriminatory practices, restitution of claimed benefits and
income, and unspecified compensatory and punitive damages. Alcoa
answered the Complaint and denied all alleged violations of
Federal or state law. Alcoa also filed a motion to dismiss
certain of the plaintiffs' claims.
Alcoa initiated a lawsuit in King County, Washington in
December 1992 against nearly one hundred insurance companies that
provided insurance coverage for environmental property damage at
Alcoa plant sites between the years 1956 and 1985. The trial for
the first three sites concluded in October 1996 with a jury
verdict partially in Alcoa's favor and an award of damages to
Alcoa. Post-trial motions continue to determine the effect of
the verdict on remaining aspects of the case.
On March 5, 1996, a class action complaint was filed in Los
Angeles County (California) Superior Court against U.S. producers
of primary aluminum, including Alcoa, claiming conspiracy and
collusive action in violation of state antitrust laws. The suit
alleged that the defendants colluded to raise prices of aluminum
products by cutting production. The defendants removed the case
to Federal court in April 1996. On July 1, 1996, the U.S.
District Court for the Central District of California granted the
defendants' motion for summary judgment and the complaint was
dismissed. Plaintiff has filed a notice of appeal with the Ninth
Circuit Court of Appeals. The appeal is pending.
On March 20, 1996, Alcoa received a subpoena from the U.S.
Department of Commerce in connection with the export of potassium
fluoride by a subsidiary for use at its alumina refineries in
Jamaica and Suriname. The Company is cooperating with the
investigation.
On December 20, 1996, JMB Realty Corporation (JMB) filed a
complaint for declaratory relief and damages against Alcoa and
two subsidiaries, Alcoa Properties, Inc. and Alcoa Securities
Corporation, in the Circuit Court of Cook County, Illinois. JMB
claims that it is entitled to a rebate of approximately $71
million from Alcoa Properties, Inc., arising from a stock
transaction that occurred in 1986 in which a subsidiary of JMB
purchased the outstanding stock of substantially all of Alcoa
Properties, Inc.'s real estate holding subsidiaries. JMB also is
seeking an order canceling three promissory notes that it made
and delivered to Alcoa Securities Corporation. JMB owes Alcoa
Securities Corporation approximately $53 million on the notes,
which matured on December 31, 1996. On January 3, 1997, Alcoa
Securities Corporation filed suit against JMB in the Superior
Court of Chittenden County, Vermont seeking to collect
-19-
the approximately $53 million that JMB owes Alcoa Securities
Corporation. Both cases are in a preliminary pleading stage.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's
security holders during the fourth quarter of 1996.
Item 4A. Executive Officers of the Registrant.
The names, ages, positions and areas of responsibility of
the executive officers of the Registrant as of March 1, 1997 are
listed below.
Paul H. O'Neill, 61, Chairman of the Board and Chief
Executive Officer. Mr. O'Neill was elected a director of Alcoa
in 1986 and became Chairman of the Board and Chief Executive
Officer in June 1987. Before joining Alcoa, Mr. O'Neill had been
an officer since 1977 and President and a director since 1985 of
International Paper Company.
Alain J. P. Belda, 53, President and Chief Operating
Officer. Mr. Belda was elected President and Chief Operating
Officer in January 1997. He was President of Alcoa Aluminio S.A.
in Brazil from 1979 to March 1994. Mr. Belda was elected Vice
President of Alcoa in 1982 and, in 1989, was given responsibility
for all of Alcoa's interests in Latin America (other than
Suriname). In August 1991 he was named President - Latin America
for the Company. Mr. Belda was elected Executive Vice President
in 1994 and Vice Chairman in 1995.
George E. Bergeron, 55, Vice President and President - Rigid
Packaging Division. Mr. Bergeron was named President - Alcoa
Closure Systems International in 1982 and was elected Vice
President and General Manager - Rigid Packaging Division in July
1990. He assumed his current responsibilities in 1991.
Peter R. Bridenbaugh, 56, Executive Vice President. Dr.
Bridenbaugh became Director, Alcoa Laboratories in 1983. He was
elected Vice President - Research and Development in 1984 and
Executive Vice President in 1991. He was the Company's Chief
Technical Officer from 1991 to 1995. Dr. Bridenbaugh currently
is responsible for Alcoa's automotive groups.
Richard L. Fischer, 60, Executive Vice President -
Chairman's Counsel. Mr. Fischer was elected Vice President and
General Counsel in 1983 and became Senior Vice President in 1984.
He was given the additional responsibility for Corporate
Development in 1986 and in 1991 named to his present position.
In his current assignment, Mr. Fischer is responsible for
Corporate Development and the expansion and integration of
Alcoa's international business activities.
Patricia L. Higgins, 47, Vice President and Chief
Information Officer. Ms. Higgins joined Alcoa in January 1997
and is responsible for the integration and implementation of the
Company's computer initiatives. She began her career at American
Telephone & Telegraph Co. in 1977 and was Vice President of
International Sales Operations in Network Systems before joining
Nynex Corporation in 1991 as Group Vice President, Manhattan
Market Area. In 1995, Ms. Higgins moved to Unisys Corporation
where she was President, Communications Market Sector Group.
Ronald R. Hoffman, 62, Executive Vice President - Human
Resources and Communications. Mr. Hoffman, an officer since
1975, was named Vice President - Flat Rolled Products in 1979.
He was elected a Group Vice President in 1984 and was given
responsibility for the Company's Packaging Systems group in 1986.
He assumed his current responsibilities in 1991.
-20-
Jan H. M. Hommen, 53, Executive Vice President and Chief
Financial Officer. Mr. Hommen was Financial Director of Alcoa
Nederland until 1979 when he was elected Assistant Treasurer -
Corporate Finance of Alcoa. He was elected Treasurer in August
1986 and Vice President and Treasurer in December 1986. He was
elected to his current position in 1991. Mr. Hommen has
announced his resignation from Alcoa effective April 1, 1997. He
will be joining Philips Electronics, N.V. in the Netherlands as
Executive Vice President - Chief Financial Officer.
Richard B. Kelson, 50, Executive Vice President -
Environment, Health and Safety, and General Counsel. Mr. Kelson
was appointed Assistant Secretary and Managing General Attorney
in 1984 and Assistant General Counsel in 1989. He was elected
Senior Vice President - Environment, Health and Safety in 1991
and Executive Vice President and General Counsel in May 1994.
Frank L. Lederman, 47, Vice President and Chief Technical
Officer. Mr. Lederman was Senior Vice President and Chief
Technical Officer for Noranda, Inc., a company he joined in 1988.
Mr. Lederman joined Alcoa as a Vice President in May 1995 and
became Chief Technical Officer in December 1995. In his current
position Mr. Lederman directs operations of the Alcoa Technical
Center.
L. Richard Milner, 50, Vice President - Corporate
Development. Mr. Milner was named General Manager - Castings
Division in 1984 and General Manager - Primary Products,
Marketing in 1986. In 1987 he assumed responsibility as Director
- - Corporate Development. He was elected to his current position
in 1991.
Robert F. Slagle, 56, Vice President and President - Alcoa
World Alumina. Mr. Slagle was elected Treasurer in 1982 and Vice
President in 1984. In 1986, he was named Vice President -
Industrial Chemicals and, in 1987, was named Vice President -
Industrial Chemicals and U.S. Alumina Operations. Mr. Slagle was
named Vice President - Raw Materials, Alumina and Industrial
Chemicals in 1989, and Vice President of Alcoa and Managing
Director - Alcoa of Australia Limited in 1991. He was named to
his current position, with responsibility for Alcoa's global
bauxite and alumina activities, in January 1996.
G. Keith Turnbull, 61, Executive Vice President - Alcoa
Business System. Dr. Turnbull was appointed Assistant Director
of Alcoa Laboratories in 1980. He was named Director -
Technology Planning in 1982, Vice President - Technology Planning
in 1986 and Executive Vice President - Strategic
Analysis/Planning and Information in 1991. In January 1997 he
was named to his current position, with responsibility for
company-wide implementation of Alcoa Business System.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Dividend per share data, high and low prices per share and
the principal exchanges on which the Company's common stock is
traded are set forth on pages 56-57 of the 1996 Annual Report to
Shareholders (the Annual Report) and are incorporated herein by
reference.
At February 10, 1997 (the record date for the Company's 1997
annual shareholders meeting), there were approximately 88,300
Alcoa shareholders, including both record holders and an estimate
of the number of individual participants in security position
listings.
-21-
Item 6. Selected Financial Data.
The comparative columnar table showing selected financial
data for the Company is set forth on page 21 of the Annual Report
and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Management's review and comments on the consolidated
financial statements are set forth on pages 22 through 29 of the
Annual Report and are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements, the notes
thereto and the report of the independent public accountants are
set forth on pages 30 through 44 of the Annual Report and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding Directors is contained under the
caption "Board of Directors" on pages 4 through 8 of the
Registrant's definitive Proxy Statement dated March 12, 1997 (the
Proxy Statement) and is incorporated herein by reference.
The information regarding executive officers is set forth in
Part I, Item 4A under "Executive Officers of the Registrant."
The information required by Item 405 of Regulation S-K
contained under the caption "Section 16(a) beneficial ownership
reporting compliance" on page 9 of the Registrant's Proxy
Statement is incorporated herein by reference.
Item 11. Executive Compensation.
This information is contained under the caption
"Compensation of executive officers" on pages 10 through 16 of
the Proxy Statement and is incorporated herein by reference. The
performance graph and Compensation Committee Report shall not be
deemed to be "filed."
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
This information is contained under the caption "Security
ownership" on pages 8 through 9 of the Proxy Statement and is
incorporated herein by reference.
-22-
Item 13. Certain Relationships and Related Transactions.
This information is contained under the caption "Certain
relationships and related transactions" on page 8 of the Proxy
Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K.
(a) The consolidated financial statements, financial
statement schedule and exhibits listed below are filed as part of
this report.
(1) The Company's consolidated financial statements, the
notes thereto and the report of the independent public
accountants are set forth on pages 30 through 44 of the Annual
Report and are incorporated herein by reference.
(2) The following report and schedule should be read in
conjunction with the Company's consolidated financial statements
in the Annual Report:
Independent Accountant's Report of Coopers & Lybrand L.L.P.
dated January 8, 1997 on the Company's financial statement
schedule filed as a part hereof for the fiscal years ended
December 31, 1996, 1995 and 1994.
Schedule II - Valuation and Qualifying Accounts - for the
fiscal years ended December 31, 1996, 1995 and 1994.
(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.
-23-
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.
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.
-24-
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.
Amendments and modifications to other Exhibits previously
filed have been omitted when in the opinion of the Registrant
such Exhibits as amended or modified are no longer material or,
in certain instances, are no longer required to be filed as
Exhibits.
No other instruments defining the rights of holders of long-
term debt of the Registrant or its subsidiaries have been filed
as Exhibits because no such instruments met the threshold
materiality requirements under Regulation S-K. The Registrant
agrees, however, to furnish a copy of any such instruments to the
Commission upon request.
(b) Reports on Form 8-K. None was filed in the fourth
quarter of 1996.
-25-
Independent Accountant's Report
To the Shareholders and Board of Directors
Aluminum Company of America
Our report on the consolidated financial statements of Aluminum
Company of America has been incorporated by reference in this Form 10-K
from page 30 of the 1996 Annual Report to Shareholders of Aluminum
Company of America. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedule listed under Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
January 8, 1997
-26-
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(in millions)
Col. A Col. B Col. C Col. D Col. E
- ------ ------ ------ ------ ------
Additions
---------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of period expenses accounts Deductions end of period
- ----------- --------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1996 $ 45.8 $24.0 $ 1.5(A) $22.9(B) $ 48.4
1995 $ 37.4 $17.4 $(1.8)(A) $ 7.2(B) $ 45.8
1994 $ 33.2 $13.4 $(2.0)(A) $ 7.2(B) $ 37.4
Income tax valuation allowance:
1996 $112.1 $23.9 - $26.0(C) $110.0
1995 $170.0 $16.2 - $74.1(C) $112.1
1994 $171.4 $19.9 - $21.3(C) $170.0
<FN>
Notes: (A) Collections on accounts previously written off, acquisition
of subsidiaries and foreign currency translation adjustments.
(B) Uncollectible accounts written off
(C) Related primarily to reductions in the valuation reserve
based on a change in circumstances.
</TABLE>
-27-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ALUMINUM COMPANY OF AMERICA
March 11, 1997 By /s/Earnest J. Edwards
Earnest J. Edwards
Vice President and Controller
(Also signing as Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Paul H. O'Neill Chairman of the Board March 11, 1997
Paul H. O'Neill and Chief Executive
Officer (Principal
Executive Officer
and Director)
/s/Jan H. M. Hommen Executive Vice President March 11, 1997
Jan H. M. Hommen Chief Financial Officer
(Principal Financial
Officer)
Kenneth W. Dam, John P. Diesel, Joseph T. Gorman, Judith M.
Gueron, Sir Ronald Hampel, John P. Mulroney, Sir Arvi Parbo,
Henry B. Schacht, Forrest N. Shumway, Franklin A. Thomas and
Marina v.N. Whitman, each as a Director, on March 11, 1997,
by Barbara Jeremiah, their Attorney-in-Fact.*
*By /s/Barbara Jeremiah
Barbara Jeremiah
Attorney-in-Fact
-28-
Exhibit 10(a)
LONG TERM STOCK INCENTIVE PLAN
OF
ALUMINUM COMPANY OF AMERICA
(Revised, Effective January 1, 1997)
ARTICLE I
DEFINITIONS
The following words as used herein shall have the following
meanings unless the context otherwise requires.
PLAN means the Long Term Stock Incentive Plan of Aluminum Company
of America, as amended from time to time, which is a continuation
of the Employees' Stock Option Plan.
COMPANY means Aluminum Company of America.
SUBSIDIARY means any corporation in which the Company owns,
directly or indirectly, stock possessing 50% or more of the total
combined voting power of all classes of stock in such other
corporation, and any corporation, partnership, joint venture or
other business entity as to which the company possesses a direct
or indirect ownership interest where either (a) such interest
equals 50% or more or (b) the Company directly or indirectly has
power to exercise management control.
BOARD means the Board of Directors of the Company and includes
any duly authorized Committee when acting in lieu thereof.
EMPLOYEE means any employee of the Company or a Subsidiary.
AWARD means any stock option award granted or delivered under the
Plan.
OPTIONEE means any person who has been granted a stock option
under the Plan.
COMMITTEE means the Committee established under Section 1 of
Article V to administer the Plan.
COMPANY STOCK means common stock of the Company and such other
stock and securities, described in Section 2 of Article IV, as
shall be substituted therefor.
FAIR MARKET VALUE means, with respect to Company Stock, (1) the
mean of the high and low sales prices of such stock (a) as
reported on the composite tape (or other appropriate reporting
vehicle as determined by the Committee) for a specified date or,
if no such report of such price shall be available for such date,
as reported for the New York Stock Exchange for such date or (b)
if the New York Stock Exchange is closed on such date, the mean
of the high and low sales prices of such stock as reported in
accordance with (a) above for the next preceding day on which
such stock was traded on the New York Stock Exchange, or (2) at
the option of and as determined by the Committee, the average of
the mean of the high and low sales prices of such stock as
reported in accordance with (1) above for a period of up to ten
consecutive business days.
OPTION PERIOD means the period of time provided pursuant to
Section 4 of Article III within which a stock option may be
exercised, without regard to the limitations on exercise imposed
pursuant to Section 5 of Article III.
ARTICLE II
PARTICIPATION
SECTION 1. Purpose. The purposes of the Plan are to motivate
key employees, to permit them to share in the long-term growth
and financial success of the Company and its Subsidiaries while
giving them an increased incentive to promote the well-being of
those companies, and to link the interests of key employees to
the long-term interests of the Company's shareholders.
SECTION 2. Eligibility. Employees who, in the sole opinion of
the Committee, play a key role in the management, operation,
growth or protection of some part or all of the business of the
Company and its Subsidiaries (including officers and employees
who are members of the Board) shall be eligible to be granted
Awards under the Plan. The Committee shall select from time to
time the Employees to whom Awards shall be granted. No Employee
shall have any right whatsoever to receive any Award unless
selected therefor by the Committee.
SECTION 3. Limitation on Optioned Shares. In no event may any
stock option be granted to any Employee who owns stock possessing
more than five percent of the total combined voting power or
value of all classes of stock of the Company. The maximum number
of shares subject to options awarded to any one individual in any
calendar year may not exceed one million shares.
SECTION 4. No Employment Rights. The Plan shall not be
construed as conferring any rights upon any person for a
continuation of employment, nor shall it interfere with the
rights of the Company or any Subsidiary to terminate the
employment of any person and/or take any personnel action
affecting such person without regard to the effect which such
action might have upon such person as an Optionee or prospective
Optionee.
ARTICLE III
TERMS OF OPTIONS
SECTION 1. General. The Committee from time to time shall
select the Employees to whom stock options shall be granted, the
type of stock options and the number of shares of Company Stock
to be included in each such option. Each option granted under
the Plan shall be subject to the terms and conditions required by
this Article III, and such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in
each case.
SECTION 2. Option Price. The price at which each share of
Company Stock covered by an option may be purchased shall be
determined by the Committee. In no event shall such price be
less than one hundred percent of the Fair Market Value of Company
Stock either on the date the option is granted or over a period
of up to ten business days as specified by the Committee. The
option price of each share purchased pursuant to an option shall
be paid in full at the time of such purchase. The purchase price
of an option shall be paid in cash, provided however that, to the
extent permitted by and subject to any limitations contained in
any stock option agreement or in rules adopted by the Committee,
such option purchase price may be paid by the delivery to the
Company of shares of Company Stock having an aggregate Fair
Market Value on the date of exercise which, together with any
cash payment by the Optionee, equals or exceeds such option
purchase price. The Committee shall determine whether and if so
the extent to which actual delivery of share certificates to the
Company shall be required. The foregoing provisions relating to
the delivery of Company Stock in lieu of payment of cash upon
exercise of an option apply to all outstanding options.
SECTION 3. Types of Options. The Committee shall have the
authority, in its sole discretion, to grant to Employees from
time to time non-qualified stock options and such other types of
options as are permitted by law or the provisions of the Plan.
SECTION 4. Period for Exercise. The Committee shall determine
the period or periods of time within which the option may be
exercised by the Optionee, in whole or in part, provided that the
Option Period shall not exceed ten years from the date the option
is granted.
SECTION 5. Special Limitations. Notwithstanding the Option
Period provided in Section 4 of this Article III, a stock option
(other than a reload stock option) shall not be exercisable until
one year after the date the option is granted.
SECTION 6. Termination of Employment.
(a) Subject to the provisions of Section 4 and 5 of this
Article III, the Committee shall specify in administrative rules
or otherwise, the rules that shall apply to stock options with
respect to the exercise of any stock options upon termination of
the Optionee's employment.
(b) Following the Optionee's death, the option may be
exercised by the Optionee's legal representative or
representatives, or by the person or persons entitled to do so
under the Optionee's last will and testament, or, if the Optionee
shall fail to make testamentary disposition of the option or
shall die intestate, by the person or persons entitled to receive
said option under the intestate laws.
(c) The Committee in its sole discretion may shorten the
period of exercise of any such stock option in the event that the
Optionee takes any action which in the judgment of the Committee
is not in the best interests of the Company and its Subsidiaries.
SECTION 7. Transferability; Beneficiaries; Etc. Each stock
option shall be nontransferable by the Optionee except by last
will and testament or the laws of descent and distribution and is
exercisable during the Optionee's lifetime only by the Optionee
or a legal representative. Notwithstanding the foregoing and the
preceding Section 6, at the discretion of the Committee,
(a) some or all Optionees may be permitted to transfer some or
all of their options to one or more immediate family members,
and/or
(b) some or all Optionees may be permitted to designate one or
more beneficiaries to receive some or all of their Awards and
stock appreciation rights in the event of death prior to
exercise thereof, in which event a permitted beneficiary or
beneficiaries shall then have the right to exercise or
receive payment for each affected Award or stock
appreciation right in accordance with its other terms and
conditions.
SECTION 8. Employment Obligation. In consideration for the
granting of each stock option, except options delivered under
Section 11 of this Article III, the Optionee shall agree to
remain in the employment of the Company or one or more of its
Subsidiaries, at the pleasure of the Company or such Subsidiary,
for a continuous period of at least one year after the date of
grant of such stock option or until retirement, on a date which
is at least six months after the date of such grant, under any
retirement plan of the Company or a Subsidiary, whichever may be
earlier, at the salary rate in effect on the grant date or at
such changed rate as may be fixed from time to time by the
Company or such Subsidiary. At the discretion of the Committee,
this obligation may be deemed to have been fulfilled under
specified circumstances, such as if the Optionee enters
government service.
SECTION 9. Date Option Granted. For the purposes of the Plan, a
stock option shall be considered as having been granted on the
date on which the Committee authorized the grant of such stock
option, except where the Committee has designated a later date,
in which event such designated date shall constitute the date of
grant of such stock option, provided, however, that in either
case notice of the grant of the option shall be given to the
Employee within a reasonable time.
SECTION 10. Alternative Settlement Methods. Where local law may
interfere with the normal exercise of an option, the Committee in
its discretion may approve stock appreciation rights or other
alternative methods of settlement for stock options.
SECTION 11. Reload Stock Options. The Committee shall have the
authority to specify, either at the time of grant of a stock
option or at a later date, that upon exercise of all or a portion
of that stock option (except an option referred to in the next
section, Section 12) a reload stock option shall be granted under
specified conditions. A reload stock option may entitle the
Optionee to purchase shares (i) which are covered by the
exercised option or portion thereof at the time of exercise of
such option or portion but are not issued upon such exercise, or
(ii) whose value (on the date of grant) equals the purchase price
of the exercised option or portion thereof and any related tax
withholdings. The exercise price of the reload stock option
shall be the Fair Market Value at the time of grant, determined
in accordance with Section 2 of this Article III. The duration
of a reload stock option shall not extend beyond the expiration
date of the option it replaces. The specific terms and
conditions applicable for reload stock options shall be
determined by the Committee and shall be set forth in rules
adopted by the Committee and/or in agreements or other
documentation evidencing reload stock options.
SECTION 12. Dividend Equivalents. Stock options delivered in
payment of contingent awards of performance shares (effective
January 1993, these types of awards are no longer granted) may
provide the Optionee with dividend equivalents payable in cash,
shares, additional discount options or other consideration prior
to exercise.
ARTICLE IV
COMPANY STOCK
SECTION 1. Number of Shares. The shares of Company Stock that
may be issued under the Plan, out of authorized but heretofore
unissued Company Stock, or out of Company Stock held as treasury
stock, or partly out of each, shall not exceed 8.6 million shares
plus an additional number of share equal to the number of shares
which at January 1, 1997 were reserved for issuance under the
Plan as then in effect. Except as otherwise determined by the
Committee, the number of shares of Company Stock so reserved
shall be reduced by the number of shares issued upon an Option
exercise, less (i) the shares, if any, used to pay withholding
taxes and/or (ii) the shares, if any, delivered by the Optionee
in full or partial payment of the option purchase price. Unless
the Committee otherwise determines, shares not purchased under
any option granted under the Plan which are no longer available
for purchase thereunder by virtue of the total or partial
expiration, termination or voluntary surrender of the option and
which were not issued upon exercise of a related stock
appreciation right and shares referred to in clauses (i) or (ii)
of the preceding sentence shall continue to be otherwise
available for the purposes of the Plan. Payments for Awards in
cash shall reduce the number of shares available for issuance by
such number of shares as has a Fair Market Value at the time of
such payment equal to such cash.
SECTION 2. Adjustments in Stock.
(a) Stock Dividends. If a dividend shall be declared upon
Company Stock payable in shares of said stock, (i) the number of
shares of Company Stock subject to outstanding Awards and (ii)
the number of shares reserved for issuance pursuant to the Plan
shall be adjusted by adding to each such share the number of
shares which would be distributable thereon if such share had
been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend.
(b) Reorganization, Etc. In the event that the outstanding
shares of Company Stock shall be changed into or exchanged for a
different number or kind of shares of stock or other securities
of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of
shares, merger or consolidation, or otherwise, then there shall
be substituted for each share of Company Stock subject to
outstanding Awards and for each share of Company Stock reserved
for issuance pursuant to the Plan, the number and kind of shares
of stock or other securities which would have been substituted
therefor if such share had been outstanding on the date fixed for
determining the shareholders entitled to receive such substituted
stock or other securities.
(c) Other Changes in Stock. In the event there shall be
any change, other than as specified in subsections (a) and (b) of
this Section 2, in the number or kind of outstanding shares of
Company Stock or of any stock or other securities into which such
Company Stock shall be changed or for which it shall have been
exchanged, then and if the Committee shall at its discretion
determine that such change equitably requires an adjustment in
the number or kind of shares subject to outstanding Awards or
which have been reserved for issuance pursuant to the Plan, such
adjustments shall be made by the Committee and shall be effective
and binding for all purposes of the Plan and each outstanding
stock option and other Award.
(d) General Adjustment Rules. No adjustment or
substitution provided for in this Section 2 shall require the
Company to sell or deliver a fractional share under any stock
option or other Award and the total substitution or adjustment
with respect to each Award shall be handled in the discretion of
the Committee either by deleting any fractional shares or by
appropriate rounding up to the next whole share. In the case of
any such substitution or adjustment, the option price per share
for each stock option shall be equitably adjusted by the
Committee to reflect the greater or lesser number of shares of
stock or other securities into which the stock subject to the
option may have been changed.
ARTICLE V
GENERAL MATTERS
SECTION 1. Administration. The Plan shall be administered by a
Committee of not less than three Directors appointed by the
Board, none of whom shall have been eligible to receive an Award
under the Plan within the twelve months preceding their
appointment.
SECTION 2. Authority of Committee. Subject to the provisions of
the Plan, the Committee shall have full and final authority to
determine the Employees to whom Awards shall be granted, the type
of Awards to be granted, the number of shares to be included in
each Award, and the other terms and conditions of the Awards.
Nothing contained in this Plan shall be construed to give any
Employee the right to be granted an Award or, if granted, to any
terms and conditions therein except such as may be authorized by
the Committee. The Committee is empowered, in its discretion, to
(i) modify, amend, extend or renew any Award theretofore granted,
subject to the limitations set forth in Article III and with the
proviso that no modification or amendment shall impair without
the Optionees' consent any option theretofore granted under the
Plan, (ii) adopt such rules and regulations and take such other
action as it shall deem necessary or proper for the
administration of the Plan and (iii) delegate any or all of its
authority (including the authority to select eligible employees
and to grant stock options) to one or more senior officers of the
Company, except with respect to Awards for officers or any
performance share awards, and except in the event that any such
delegation would cause this Plan not to comply with Securities
and Exchange Commission Rule 16b-3 (or any successor rule). The
Committee shall have full power and authority to construe,
interpret and administer the Plan, and the decisions of the
Committee shall be final and binding upon all parties.
SECTION 3. Withholding. The Company or any Subsidiary shall
have the right to deduct from all amounts paid in cash under this
Plan any taxes required by law to be withheld therefrom. In the
case of payments of Awards in the form of Company Stock, at the
Committee's discretion, (a) the Optionee may be required to pay
over the amount of any withholding taxes, (b) the Optionee may be
permitted to deliver to the Company the number of shares of
Company Stock whose Fair Market Value is equal to or less than
the withholding taxes due or (c) the Company may retain the
number of shares calculated under (b) above.
SECTION 4. Nonalienation. No Award shall be assignable or
transferable, except by will or the laws of descent and
distribution, and except that in its discretion the Committee may
authorize exercise by or payment to a beneficiary designated by
an Optionee. No right or interest of any Optionee in any Award
shall be subject to any lien, obligation or liability.
SECTION 5. General Restriction. Each Award shall be subject to
the requirement that if at any time the Board or the Committee
shall determine in its discretion that the listing, registration
or qualification of shares upon any securities exchange or under
any state or Federal law, rule, regulation or decision, or the
consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with,
the granting of such Award or the issue, purchase or delivery of
shares or payment thereunder, such Award may not be exercised in
whole or in part and no payment therefor shall be delivered
unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Board or Committee.
SECTION 6. Effective Date and Duration of Plan. The Plan
initially became effective May 1, 1965. The Plan as amended
herein shall become effective January 1, 1997. No Awards shall
be granted under the Plan after January 1, 2002 although shares
thereafter may be delivered in payment of Awards granted prior
thereto.
SECTION 7. Amendments. The Board may from time to time amend,
modify, suspend or terminate the Plan, provided, however, that no
such action shall (a) impair without an Optionee's consent any
option theretofore granted under the Plan or deprive any Awardee
of any shares of Company Stock which that person may have
acquired through or as a result of the Plan or (b) be made
without the approval of the shareholders of the Company where
such change would materially increase the benefits accruing to
Optionees, materially increase the maximum number of shares which
may be issued under the Plan or materially modify the Plan's
eligibility requirements.
SECTION 8. Construction. The Plan shall be interpreted and
administered under the laws of the Commonwealth of Pennsylvania
without application of its rules on conflict of laws.
ARTICLE VI
[DELETED, Effective January 1997]
Exhibit 10(l)
ALUMINUM COMPANY OF AMERICA
DIVIDEND EQUIVALENT COMPENSATION PLAN
1. PURPOSE.
The purpose of the Aluminum Company of America Dividend
Equivalent Compensation Plan (the "Plan") is to attract and
retain outstanding individuals as officers and key employees
of Aluminum Company of America (the "Company") and its
subsidiaries and to furnish additional incentives to such
individuals through cash awards related to the performance
of the Company and its common stock. To this end, the Board
of Directors of the Company or the Committee hereinafter
designated may determine that compensation shall be awarded
and paid periodically to officers and other key employees of
the Company and its subsidiaries, in amounts based upon cash
dividends paid to holders of common stock of the Company, on
the terms and subject to the conditions set forth in this
Plan.
2. PARTICIPANTS.
Participants in the Plan shall consist of such officers and
other key employees of the Company and its subsidiaries as
the Committee in its sole discretion may select from time to
time to receive dividend equivalent payments. Participants
who are no longer active employees of the Company or one of
its subsidiaries may continue to have Plan accounts, but no
new dividend equivalent units may be credited to the
participant's account once active employment ceases, except
for adjustments required by Section 6 of this Plan.
3. ADMINISTRATION OF THE PLAN.
(a) Committee. The Plan shall be administered by a
committee (the "Committee") consisting of at least two
members designated by the Board of Directors of the Company
from among those of its members who are not officers or
employees of the Company or a parent or subsidiary of the
Company and who otherwise satisfy the definition of a "Non-
Employee Director" in Rule 16b-3(b)(3) promulgated under
Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"). In the absence of specific rules to the
contrary, action by the Committee shall require the consent
of a majority of the members of the Committee, expressed
either orally at a meeting of the Committee or in writing in
the absence of a meeting.
(b) Committee Authority. Subject to the provisions of
the Plan, the Committee shall have authority (a) to
determine which employees of the Company and its
subsidiaries shall be eligible for participation in the
Plan; (b) to select employees to receive compensation
payments under the Plan; (c) to determine the number of
share units on which dividend equivalent payments will be
made and all other terms and conditions of any payment; and
(d) to determine the amount of the dividend equivalent
payment per share unit which may be a percentage, not
exceeding 100%, of the amount of the cash dividend per share
of common stock payable to holders of the Company's common
stock. The Committee also shall have authority to interpret
the Plan and to establish, amend and rescind rules and
regulations for the administration of the Plan, and all such
interpretations, rules and regulations shall be conclusive
and binding on all persons; provided, however, that the
Committee shall not exercise such authority in a manner
adversely and significantly affecting dividend equivalent
payments previously made unless the action taken is required
to comply with any applicable law or regulation.
4. EFFECTIVE DATE AND TERM OF PLAN.
The Plan shall become effective on January 1, 1997. The
Plan shall remain in effect until terminated by action of
the Board of Directors.
5. DIVIDEND EQUIVALENT PAYMENTS.
(a) Dividend Equivalent Units and Dividend Equivalent
Payments. The Board of Directors or the Committee shall
have discretion to make dividend equivalent payments on
hypothetical share units ("Dividend Equivalent Units" or "DE
Units") determined from time to time for participants in the
Plan. The amount of such payments shall be determined by
the Board of Directors or the Committee. The record and
payment dates for dividend equivalent payments will be the
same as the record and payment dates for dividends on shares
of common stock of the Company, except that payment may be
made in the employee's regular pay check next being
delivered after the dividend payment date to shareholders.
(b) Participant Accounts. The Company shall maintain
a dividend equivalent unit account for each participant in
the Plan. Dividend Equivalent Units shall be credited to or
debited from such account as determined by the Committee.
The number of DE Units in any individual participant's
account may not exceed the number of shares subject to stock
options granted under the Company's Long Term Stock
Incentive Plan (or any successor plan) and held by such
participant. DE Units shall not be awarded or credited on
any discount options held by any participant nor shall any
additional DE Units be awarded or credited to any
participant who is not an active employee on the date the
award or credit is made, except as required by operation of
section 6 of this Plan. The Committee shall prescribe in
administrative rules or otherwise the method and timing of
determining the number of DE Units to be credited to or
debited from Plan participant accounts.
(c) Account Value and Activity. Dividend Equivalent
Units shall have no value and shall not entitle the
participant to receive any benefit or payment other than a
cash dividend equivalent payment if, when and in such amount
as determined by the Board of Directors or the Committee in
its discretion. No person other than a current or former
active employee of the Company or one of its subsidiaries
may have a Plan account or any interest therein.
(d) Additional Terms and Conditions. The agreement or
instrument, if any, evidencing an individual's participation
in the Plan may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be
determined by the Committee in its sole discretion. The
Committee may at any time impose such additional terms and
conditions on dividend equivalent payments as it deems
necessary or desirable for compliance with Section 16(a) or
16(b) of the Securities Exchange Act of 1934 and the rules
and regulations thereunder or to preserve or qualify for
deductibility of compensation payable hereunder under
applicable U.S. federal tax law or regulations.
6. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION, ETC.
The number of DE Units in a participant's Plan account shall
be subject to adjustment by the Committee in its sole
discretion in the event of changes in the outstanding common
stock of the Company by reason of stock dividends, stock
splits, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant
changes in corporate structure or capitalization occurring
after the credit thereof, provided that if the Company shall
change its common stock into a greater or lesser number of
shares through a stock dividend, stock split-up or
combination of shares, outstanding Dividend Equivalent Units
shall be adjusted proportionately to prevent inequitable
results.
7. AMENDMENT AND TERMINATION OF PLAN.
The Plan may be amended in any respect or terminated by the
Board of Directors of the Company. In the event of
termination, no participant shall be entitled to receive any
payment or benefit for any DE Units standing in his or her
account prior to termination.
8. MISCELLANEOUS.
(a) No Right to a Payment. Neither the adoption of
the Plan nor any action of the Board of Directors or of the
Committee shall be deemed to give any employee any right to
be selected as a participant or to be paid a dividend
equivalent payment.
(b) Rights as Shareholder. No person shall have any
rights as a shareholder of the Company with respect to any
Dividend Equivalent Units.
(c) Employment. Nothing contained in this Plan shall
be deemed to confer upon any employee any right of continued
employment with the Company or any of its subsidiaries or to
limit or diminish in any way the right of the Company or any
such subsidiary to terminate his or her employment at any
time with or without cause.
(d) Taxes. The Company or a subsidiary shall be
entitled to deduct from any payment under the Plan the
amount of any tax required by law to be withheld with
respect to such payment or may require any participant to
pay such amount to the Company prior to and as a condition
of making such payment.
(e) Nontransferability. No Dividend Equivalent Unit
shall be transferable.
(f) Governing Law. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth
of Pennsylvania, excluding any choice of law provisions
which may indicate the application of the laws of another
jurisdiction. Any provision of this Plan which is
determined to be illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be severed and
stricken herefrom, and, in that event, the remaining
provisions hereof shall continue in effect, subject in all
cases to the right of the Board of Directors or the
Committee to terminate or modify the Plan at any time.
Exhibit 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE YEAR ENDED DECEMBER 31
(In millions, except share and per share amounts)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
1. Income applicable to common stock before
extraordinary loss and accounting changes* $512.8 $788.4 $441.0
2. Net income applicable to common stock* $512.8 $788.4 $373.1
3. Average number of common shares
outstanding at the beginning of the
year and the end of each month during
the year 174,333,524 178,018,083 177,881,428
4. Primary earnings per common share
before extraordinary loss and accounting
changes (1 divided by 3) $ 2.94 $ 4.43 $ 2.48
5. Primary earnings per common share
(shares for extraordinary loss and
accounting change calculations =
177,247,646 in 1994) $ 2.94 $ 4.43 $ 2.10
6. Fully diluted earnings before extra-
ordinary loss and accounting changes (1) $512.8 $788.4 $441.0
7. Fully diluted earnings (2) $512.8 $788.4 $373.1
8. Shares issuable under stock incentive
plans (treasury stock method) 34,359 35,664 22,930
9. Shares issuable upon exercise of
dilutive outstanding stock
options (treasury stock method) 1,846,215 1,642,922 1,232,914
10. Fully diluted shares (3 + 8 + 9) 176,214,098 179,696,669 179,137,27
11. Fully diluted earnings per common
share before extraordinary loss
and accounting changes
(6 divided by 10) $2.91 $4.39 $2.46
12. Fully diluted earnings per common
share (shares for extraordinary
loss and accounting change
177,908,286 in 1994) $2.91 $4.39 $2.08
<FN>
* After preferred dividend requirement
</TABLE>
Exhibit 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31
(in millions, except ratios)
1996 1995 1994 1993 1992
<S> ---- ---- ---- ---- ----
Earnings: <C> <C> <C> <C> <C>
Income before taxes on income, and before
extraordinary loss and accounting changes $1,081.7 $1,470.2 $822.5 $191.1 $298.6
Minority interests' share of earnings of
majority-owned subsidiaries
without fixed charges 4.1 2.0 - (5.9) (5.7)
Less equity (earnings) losses (29.6) (59.5) (.3) 13.0 12.2
Fixed charges added to net income 170.7 150.7 138.4 110.1 133.5
Proportionate share of income (loss)
of 50%-owned persons 25.3 58.2 1.9 (11.5) (11.2)
Distributed income of less than 50%-
owned persons - - - - -
Amortization of capitalized interest:
Consolidated 21.9 23.1 25.5 20.6 20.0
Proportionate share of 50%-owned persons 1.2 .8 1.2 .8 1.0
------- ------- ----- ----- -----
Total earnings $1,275.3 $1,645.5 $989.2 $318.2 $448.4
======= ======= ===== ===== =====
Fixed Charges:
Interest expense:
Consolidated $133.7 $119.8 $106.7 $ 87.8 $105.4
Proportionate share of 50%-owned person 4.9 6.7 7.4 5.5 7.0
----- ----- ----- ----- -----
138.6 126.5 114.1 93.3 112.4
----- ----- ----- ----- -----
Amount representative of the interest
factor in rents:
Consolidated 31.8 24.0 23.9 16.4 20.7
Proportionate share of 50%-owned persons
.3 .2 .4 .4 .4
----- ----- ----- ----- -----
32.1 24.2 24.3 16.8 21.1
----- ----- ----- ----- -----
Fixed charges added to earnings 170.7 150.7 138.4 110.1 133.5
----- ----- ----- ----- -----
Interest capitalized:
Consolidated 5.3 1.9 1.5 3.5 11.1
Proportionate share of 50%-owned persons - - - - -
----- ----- ----- ----- -----
5.3 1.9 1.5 3.5 11.1
----- ----- ----- ----- -----
Preferred stock dividend requirements - 4.9 13.1 29.6 62.4
of majority-owned subsidiaries ----- ----- ----- ----- -----
Total fixed charges $176.0 $157.5 $153.0 $143.2 $207.0
===== ===== ===== ===== =====
Ratio of earnings to fixed charges 7.25 10.45 6.47 2.22 2.17
==== ===== ==== ==== ====
</TABLE>
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.
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 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-
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>
Exhibit 21
<TABLE>
<CAPTION>
SUBSIDIARIES AND EQUITY ENTITIES OF THE REGISTRANT
(As of December 31, 1996)
State or
country of
Name organization
---- ------------
<S> <C>
Alcoa Alumina & Chemicals, L.L.C.* Delaware
Alcoa ACC Industrial Chemicals Ltd. India
Alcoa Kasei Limited Japan
Alcoa Minerals of Jamaica, Inc., L.L.C. Delaware
Alcoa Steamship Company, Inc. New York
Halco (Mining) Inc. Delaware
Compagnie des Bauxites de Guinee Delaware
Lib-Ore Steamship Company, Inc. Liberia
Moralco Limited Japan
St. Croix Alumina, L.L.C. Delaware
Suriname Aluminum Company, L.L.C. Delaware
Alcoa Brazil Holdings Company Delaware
Alcoa Aluminio S.A. Brazil
Alcoa Building Products, Inc.** Ohio
Alcoa Closure Systems International, Inc. Delaware
Alcoa Generating Corporation Indiana
Alcoa International Holdings Company Delaware
Alcoa Inter-America, Inc. Delaware
Alcoa Japan Limited Japan
Alcoa-Kofem Kft Hungary
Alcoa Nederland Holding B.V. Netherlands
Alcoa International, S.A. Switzerland
Alcoa Italia S.p.A. Italy
Alcoa Nederland B.V. Netherlands
Norsk Alcoa A/S Norway
Alcoa of Australia Limited Australia
A.F.P. Pty. Limited Australia
Hedges Gold Pty. Ltd. Australia
Alcoa of Australia (Asia) Limited Hong Kong
Alcoa Russia, Inc. Delaware
Asian-American Packaging Systems Co., Ltd. China
Kobe Alcoa Transportation Products, Ltd. Japan
Unified Accord SDN. BHD. Malaysia
<FN>
* Registered to do business in California, Florida, Georgia,
Louisiana, North Carolina, Pennsylvania and Texas under the
name of Alcoa Industrial Chemicals.
**Registered to do business in Ohio under the name of Mastic.
State or
country of
Name
organization
Alcoa Laudel, Inc. Delaware
Alcoa Manufacturing (G.B.) Limited England
Alcoa Properties, Inc. Delaware
Alcoa South Carolina, Inc. Delaware
Jonathan's Landing, Inc. Delaware
Alcoa Recycling Company, Inc. Delaware
Alcoa Securities Corporation Delaware
Alcoa Automotive Structures, Inc. Delaware
Alcoa Brite Products, Inc. Delaware
Alcoa Fujikura Ltd. Delaware
Stribel GmbH Germany
Michels GmbH Germany
Alcoa Kobe Transportation Products, Inc. Delaware
Alcoa Nederland Finance B.V. Netherlands
Alcoa Automotive Structures GmbH Germany
Alcoa Chemie GmbH Germany
Alcoa Deutschland GmbH Germany
Alcoa Extrusions Hannover GmbH & Co. KG Germany
Alcoa Chemie Nederland B.V. Netherlands
Alcoa Moerdijk B.V. Netherlands
Alcoa Packaging Machinery, Inc. Delaware
ASC Alumina, Inc. Delaware
B & C Research, Inc. Ohio
Halethorpe Extrusions, Inc. Delaware
H-C Industries de Mexico, S.A. de C.V. Mexico
Northwest Alloys, Inc. Delaware
Pimalco, Inc. Arizona
Three Rivers Insurance Company Vermont
Tifton Aluminum Company, Inc. Delaware
Alcoa (Shanghai) Aluminum Products Company Limited China
Capsulas Metalicas, S.A. Spain
Gulf Closures W.L.L. Bahrain
Shibazaki Seisakusho Limited Japan
Tapoco, Inc. Tennessee
Yadkin, Inc. North Carolina
<FN>
The names of certain subsidiaries and equity entities which,
considered in the aggregate, would not constitute a significant
subsidiary, have been omitted from the above list.
(/TABLE>
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Aluminum Company of America on Form
S-8 (Registration Nos. 33-22346, 33-24846, 33-49109, 33-60305
and 33-00033) and Form S-3 (Registration Nos. 33-877, 33-49997,
33-60045 and 33-64353) of our reports dated January 8, 1997 on
our audits of the consolidated financial statements and
financial statement schedule of Aluminum Company of America and
consolidated subsidiaries as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31,
1996, which reports are incorporated by reference or included
in this Form 10-K.
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
March 11, 1997
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
Directors of Aluminum Company of America (the "Company") hereby
constitute and appoint JAN H. M. HOMMEN, ROBERT G. WENNEMER,
EARNEST J. EDWARDS and BARBARA S. JEREMIAH, or any of them,
their true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which said
attorneys and agents, or any of them, may deem necessary or
advisable or may be required to enable the Company to comply
with the Securities Exchange Act of 1934, as amended, and any
rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the
registration under said Act of the Company's Annual Report on
Form 10-K for 1996, including specifically, but without limiting
the generality of the foregoing, power and authority to sign the
name of the undersigned Directors of the Company to the
Company's Annual Report on Form 10-K for 1996 to be filed with
the Securities and Exchange Commission and to any instruments or
documents filed as part of or in connection with any such Form
10-K; and the undersigned hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents on the date set opposite their names below.
/s/Kenneth W. Dam January 10, 1997
Kenneth W. Dam
/s/John P. Diesel January 10, 1997
John P. Diesel
/s/Jospeh T. Gorman January 10, 1997
Joseph T. Gorman
/s/Judith M. Gueron January 10, 1997
Judith M. Gueron
/s/Sir Ronald Hampel January 10, 1997
Sir Ronald Hampel
/s/John P. Mulroney January 10, 1997
John P. Mulroney
/s/Sir Arvi Parbo January 10, 1997
Sir Arvi Parbo
/s/Henry B. Schacht January 10, 1997
Henry B. Schacht
/s/Forrest N. Shumway January 10, 1997
Forrest N. Shumway
/s/Franklin A. Thomas January 10, 1997
Franklin A. Thomas
/s/Marina v.N. Whitman January 10, 1997
Marina v.N. Whitman
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 598,100
<SECURITIES> 18,500
<RECEIVABLES> 1,674,700
<ALLOWANCES> 48,400
<INVENTORY> 1,461,400
<CURRENT-ASSETS> 4,281,200
<PP&E> 15,729,900
<DEPRECIATION> 8,652,400
<TOTAL-ASSETS> 13,449,900
<CURRENT-LIABILITIES> 2,373,400
<BONDS> 1,868,300
178,900
0
<COMMON> 55,800
<OTHER-SE> 4,227,700
<TOTAL-LIABILITY-AND-EQUITY> 13,449,900
<SALES> 13,061,000
<TOTAL-REVENUES> 13,128,400
<CGS> 9,966,000
<TOTAL-COSTS> 9,966,000
<OTHER-EXPENSES> 747,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,700
<INCOME-PRETAX> 1,081,700
<INCOME-TAX> 360,700
<INCOME-CONTINUING> 514,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 514,900
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.91
</TABLE>
