SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (earliest event reported): June 10, 1998
ALUMINUM COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
Pennsylvania 1-3610 25-0317820
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
425 Sixth Avenue, Alcoa Building, Pittsburgh, Pennsylvania 15219-1850
(Address of principal executive offices) (Zip code)
Office of Investor Relations 412-553-3042
Office of the Secretary 412-553-4707
(Registrant's telephone number including area code)
Item 7. Financial Statements and Exhibits.
On March 9, 1998, Aluminum Company of America ("Alcoa") and
Alumax Inc., a Delaware corporation ("Alumax"), announced that
they have entered into a definitive agreement under which Alcoa
will acquire all outstanding shares of Alumax common stock pursu-
ant to a tender offer and merger (the "Alumax Transaction"). The
tender offer will be financed in part by a private offering of debt
securities by Alcoa (the "Offering"). On March 13, 1998, Alcoa
commenced the Alumax Transaction with a cash tender offer for
one-half of the outstanding Alumax shares at $50.00 per share. If
at least fifty percent of the outstanding shares of Alumax common
stock are purchased pursuant to the tender offer, remaining holders
of Alumax common stock will receive 0.6975 of a share of Alcoa
common stock for each share of Alumax common stock held. If fewer
than fifty percent of the outstanding shares of Alumax common stock
are purchased pursuant to the tender offer, in the merger holders of
Alumax common stock will instead receive a combination of (i) an
amount in cash representing a prorated portion of the cash remaining
available from the tender offer and (ii) a smaller fraction of a
share of Alcoa common stock as provided in the definitive agreement,
for each share of Alumax common stock held.
The Alumax Transaction is valued at approximately $3.8 billion,
including the assumption of debt. The Alumax Transaction is
conditioned upon approval by Alumax's stockholders as well as
expiration of antitrust waiting periods and other customary
conditions, and is expected to be completed in the third quarter
of 1998.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated
Financial Statements are based on and should be read in
conjunction with the historical consolidated financial statements
of Alcoa and Alumax, including the notes thereto, adjusted to
give effect to the Offering, the Alumax Transaction and related
transactions. The Unaudited Pro Forma Condensed Consolidated
Statement of Income does not (a) purport to represent what the
results of operations actually would have been if the Offering
and the Alumax Transaction had occurred as of the date indicated
or what such results will be for any future periods or (b) give
effect to certain non-recurring charges expected to result from
the acquisition.
The Unaudited Pro Forma Condensed Consolidated Statements of
Income for the three month period ended March 31, 1998 and for
the year ended December 31, 1997 gives effect to the Offering, the
Alumax Transaction and related transactions as if such transactions
had occurred on January 1, 1997. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1998 gives effect to
the Offering, the Alumax Transaction and related transactions as if
such transactions had occurred on that date.
The pro forma adjustments are based upon available information
and include certain assumptions and adjustments which the
managements of Alcoa and Alumax believe to be reasonable. These
adjustments are directly attributable to the transactions
referenced above and are expected to have a continuing impact on
Alcoa's business, results of operations and financial position.
No assumptions or adjustments have been made related to severance
arrangements, restructuring costs or recurring benefits from
synergies. Alumax has certain severance plans, agreements and
policies applicable to its directors, executive management and
certain of its salaried employees. It is probable that some
covered persons will become entitled to severance benefits under
these arrangements following the completion of the Alumax
Transaction. The total amount payable under such arrangements is
approximately $110 million. The actual amount to be paid cannot
be determined at present because Alcoa has not yet identified the
employees who might be affected. Alcoa has initiated an
assessment of restructuring costs and potential benefits from
synergies; however, this assessment is not complete. Therefore,
an estimate of these amounts is not yet available. The purchase
of Alumax will be accounted for using the purchase method of
accounting, pursuant to which the total purchase costs of the
acquisition will be allocated to the tangible and intangible
assets and liabilities acquired based upon their estimated fair
values. The purchase price allocation is preliminary, based on
facts currently known to the companies. Alcoa and Alumax are not
aware of any significant unrecorded obligations or contingencies,
other than the severance arrangements referred to above, and do not
believe that the final purchase price allocation will materially
differ. The final allocation of the purchase price will be made
based upon valuations and other studies that have not been
completed.
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 1998
---------------------------------------------------------
Historical
Historical Alumax Pro Forma
Alcoa (Reclassified)(A) Adjustments Pro Forma
---------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Assets:
Current Assets
Cash, cash equivalents and short-term
investments $ 1,002.1 $ 47.9 $ (332.0)(C) $ 718.0
Receivables from customers, less allowance 2,029.9 468.3 - 2,498.2
Inventories 1,421.2 495.5 92.0 (B) 2,008.7
Prepaid expenses and other current assets 652.3 102.5 - 754.8
--------- -------- -------- ---------
Total current assets 5,105.5 1,114.2 (240.0) 5,979.7
Properties, plant and equipment at cost 15,387.1 3,329.0 1,081.7 (B) 19,797.8
Less: accumulated depreciation, depletion and
amortization (8,717.9) (1,314.6) - (10,032.5)
--------- -------- -------- ---------
Net properties, plant and equipment 6,669.2 2,014.4 1,081.7 9,765.3
Other assets 2,398.4 263.7 404.2 (B)
(9.6)(B) 3,056.7
--------- -------- -------- ---------
Total Assets $14,173.1 $3,392.3 $1,236.3 $18,801.7
========= ======== ======== =========
Liabilities:
Short term borrowings $ 544.7 $ - $ - $ 544.7
Accounts payable 887.5 140.1 - 1,027.6
Accrued liabilities 1,420.3 229.7 7.6 (B) 1,657.6
Long-term debt due within one year 112.9 57.6 - 170.5
--------- -------- -------- ---------
Total current liabilities 2,965.4 427.4 7.6 3,400.4
Long-term debt 1,811.0 831.9 1,100.0 (C) 3,742.9
Accrued postretirement benefits 1,741.9 165.2 - 1,907.1
Other noncurrent liabilities and deferred
credits 1,465.9 104.0 1.7 (B) 1,571.6
Deferred income taxes 289.9 194.6 404.2 (B) 888.7
--------- -------- -------- ---------
Total liabilities 8,274.1 1,723.1 1,513.5 11,510.7
Minority interests 1,467.5 - - 1,467.5
Shareholders' Equity:
Preferred stock 55.8 - - 55.8
Common stock 178.9 0.6 (0.6)(B) -
19.4 (C) 198.3
Additional capital 573.4 942.1 (942.1)(B)
1,372.6 (C) 1,946.0
Retained earnings 4,758.1 802.0 (802.0)(B) 4,758.1
Treasury stock, at cost (767.9) (59.1) 59.1 (B) (767.9)
Accumulated other comprehensive income (366.8) (16.4) 16.4 (B) (366.8)
--------- -------- -------- ---------
Total shareholders' equity 4,431.5 1,669.2 (277.2) 5,823.5
--------- -------- -------- ---------
Total liabilities and equity $14,173.1 $3,392.3 $1,236.3 $18,801.7
========= ======== ======== =========
The accompanying notes are an integral part of
the Unaudited Pro Forma Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Statement of Income
Three Months Ended March 31, 1998
---------------------------------------------------------
Historical
Historical Alumax Pro Forma
Alcoa (Reclassified)(A) Adjustments Pro Forma
---------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Revenues
Sales and operating revenues $3,445.1 $775.3 $(45.3)(D) $4,175.1
Other income, principally interest 28.1 1.7 - 29.8
-------- ------ ------ --------
3,473.2 777.0 (45.3) 4,204.9
Costs and Expenses
Cost of goods sold and operating expenses 2,618.2 579.4 (45.3)(D) 3,152.3
Selling, general administrative and other
expenses 153.8 56.8 - 210.6
Research and development expenses 24.5 1.8 - 26.3
Provision for depreciation, depletion and
amortization 184.8 39.3 13.3 (E)
(1.8)(F) 235.6
Interest expense 39.2 18.4 16.5 (G)
(2.5)(H) 71.6
Taxes other than payroll taxes 32.1 8.0 - 40.1
-------- ------ ------ --------
3,052.6 703.7 (19.8) 3,736.5
Earnings
Income before taxes on income 420.6 73.3 (25.5) 468.4
Provision for taxes on income 140.9 29.3 (8.1)(J) 162.1
-------- ------ ------ --------
Income from operations 279.7 44.0 (17.4) 306.3
Minority interests (69.8) - - (69.8)
-------- ------ ------ --------
Net income $ 209.9 $ 44.0 $(17.4) 236.5
======== ====== ====== ========
Earnings per Share
Basic $ 1.25 $ 0.82 $ - $ 1.26
Diluted $ 1.24 $ 0.81 - $ 1.25
Weighted average shares outstanding:
Basic 168.1 53.5 (53.5)(K)
19.4 (K) 187.5
Diluted 169.3 54.6 (54.6)(K)
19.4 (K) 188.7
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statement.
</TABLE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
---------------------------------------------------------
Historical
Historical Alumax Pro Forma
Alcoa (Reclassified)(A) Adjustments Pro Forma
---------------------------------------------------------
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Sales and operating revenues $13,319.2 $2,930.9 $(257.5)(D) $15,992.6
Other income, principally interest 162.5 5.1 - 167.6
--------- -------- ------- ---------
13,481.7 2,936.0 (257.5) 16,160.2
Costs and Expenses
Cost of goods sold and operating
expenses 10,155.8 2,210.4 (254.8)(D) 12,111.4
Selling, general administrative and other
expenses 670.6 238.8 - 909.4
Research and development expenses 143.2 10.9 - 154.1
Provision for depreciation, depletion and
amortization 734.9 152.9 53.4 (E)
(6.2)(F) 935.0
Interest expense 140.9 60.9 66.0 (G)
(10.0)(H) 257.8
Taxes other than payroll taxes 130.1 24.9 - 155.0
Special items (95.5) - - (95.5)
--------- -------- ------- ---------
11,880.0 2,698.8 (151.6) 14,427.2
Earnings
Income before taxes on income 1,601.7 237.2 (105.9) 1,733.0
Provision for taxes on income 528.7 203.5(I) (33.5)(J) 698.7
--------- -------- ------- ---------
Income from operations 1,073.0 33.7 (72.4) 1,034.3
Minority interests (267.9) - - (267.9)
--------- -------- ------- ---------
Net income $ 805.1 $ 33.7 $ (72.4) $ 766.4
========= ======== ======= =========
Earnings per share:
Basic $ 4.66 $ 0.62 - $ 3.99
Diluted $ 4.62 $ 0.60 - $ 3.95
Weighted average shares outstanding:
Basic 172.2 54.7 (54.7)(K)
19.4 (K) 191.6
Diluted 173.9 55.7 (55.7)(K)
19.4 (K) 193.3
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
</TABLE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(A) Certain reclassifications have been made to the Alumax
historical financial statements to conform to the presen-
tation to be used by Alcoa upon completion of the Alumax
Transaction, including the adoption of SFAS 130,
Comprehensive Income.
(B) The acquisition is to be accounted for as a purchase
business combination. The Unaudited Pro Forma Condensed
Consolidated Financial Statements do not include any
adjustments related to Alumax employee or director
severance arrangements. Alcoa expects that the
majority of Alumax employees will continue in their
current jobs after completion of the merger transaction
as part of the combined organization. However, where
there is an overlap in functions or other duplication
resulting from the combination, redeployment of
personnel and job eliminations are likely to result.
Alumax has certain severance plans, agreements and policies
applicable to its directors, executive management and
certain of its salaried employees. It is probable that some
covered persons will become entitled to severance benefits
under these arrangements following the completion of the
Alumax Transaction. The total amount payable under such
arrangements is approximately $110 million. The actual amount
to be paid cannot be determined at present because Alcoa has
not yet identified the employees who might be affected. In
addition, Alcoa has initiated an assessment of restructuring
costs and potential benefits from synergies; however, this
assessment is not complete. Therefore, an estimate of these
amounts is not yet available. For purposes of these Unaudited
Pro Forma Condensed Consolidated Financial Statements, the
purchase price has been calculated assuming the exercise of
all Alumax employee and director stock options. In addition,
the purchase price includes an adjustment for deferred income
taxes representing the difference between the assigned values
and the tax bases of the assets and liabilities acquired. The
purchase price, including acquisition costs, has been allocated
as follows (see note C):
<TABLE>
<CAPTION>
March 31,
1998
---------
<S> <C>
Purchase price:
Acquisition of outstanding shares of common stock $ 2,700.8
Effect of assumed exercise of employee and director stock options $ 83.2
Acquisition expenses $ 40.0
Book value of net assets acquired $(1,669.2)
---------
Increase in basis $ 1,154.8
=========
Allocation of increase in basis:
Increase in inventory value to convert LIFO to fair value $ 92.0
Increase in the fair value of property, plant and equipment $ 1,081.7
Write-off pre-operating costs $ (9.6)
Accrual to record the fair market value of financial instruments $ (7.6)
Adjust pension and postretirement accruals $ (1.7)
Increase in goodwill $ 404.2
Increase in deferred tax liabilities-long-term $ (404.2)
---------
$ 1,154.8
=========
</TABLE>
The purchase price allocation is preliminary and further
refinements may be made based on the completion of final
valuation studies.
(C) Represents the cash purchase of 50% of the Alumax common stock
(27,007,750 shares at March 31, 1998 at $50 per share) and the
issuance of Alcoa common stock for the remaining Alumax common
stock (27,007,749 shares at an exchange ratio of .6975 shares of
Alcoa common stock per share of Alumax common stock).
The number of shares of Alumax common stock was determined as
follows:
<TABLE>
<CAPTION>
March 31,
1998
---------
<S> <C>
Number of shares issued and outstanding 53,593,956
Number of shares subject to stock based and deferred awards 421,543
----------
54,015,499
</TABLE>
Employee and director stock options were assumed to be
exercised for net shares of 1,665,316. The resulting
outstanding Alumax common stock was assumed to be purchased
by Alcoa, 50% for cash (at $50 per share) and 50% for Alcoa
common stock at the exchange ratio noted above.
The acquisition financing is expected to include the issuance
by Alcoa of $1.1 billion of long-term debt at an estimated
average interest rate of 6.0%. The long-term debt to be
issued is expected to be comprised of commercial paper and term
debt. The commercial paper is classified as long-term debt
since it is backed by Alcoa's $1.3 billion revolving Credit
Facility. A 25 basis point increase in the estimated 6.0%
average interest rate would reduce pro forma net income by $1.8
million as of December 31, 1997 and $.5 million as of March 31,
1998.
<TABLE>
<CAPTION>
March 31,
1998
---------
<S> <C>
Details of acquisition financing:
Total cash requirements $1,432.0
========
Sources of cash requirements:
Long-term debt issuance, estimated interest rate 6.0% $1,100.0
Cash from internal sources $ 332.0
--------
Total cash requirements $1,432.0
========
Total stock acquisition price paid in shares of Alcoa common stock $1,392.0
Par value of Alcoa common stock issued at $71.6875 $ (19.4)
--------
Additional capital $1,372.6
========
</TABLE>
(D) Represents the elimination of inter-company sales of
alumina between Alcoa and Alumax and the related inter-company
profit.
(E) Pro forma adjustments have been included to adjust
depreciation expense based on property, plant and equipment
fair values and the amortization of goodwill. An average
useful life of 25 years was assumed for fixed assets and a 40
year amortization period was assumed for goodwill.
(F) Represents an adjustment to eliminate the amortization of
Alumax pre-operating costs.
(G) Represents interest expense related to the long-term debt
identified in (C) above.
(H) Represents an adjustment to record interest expense based
on the fair value of the Alumax financial instruments.
(I) Included in 1997 was a $108.6 million ($0.54 per pro
forma diluted share) provision associated with a United States
Tax Court decision concerning an alleged income tax
deficiency.
(J) Represents income taxes related to pro forma adjustments
at the statutory rate.
(K) Represents the conversion of shares of Alumax common stock and
the issuance of 19.4 million shares of Alcoa common stock in
the Alumax Transaction.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the following authorized officer.
ALUMINUM COMPANY OF AMERICA
By /s/ Earnest J. Edwards
Date June 10, 1998 Earnest J. Edwards
Senior Vice President and
Controller
(Principal Accounting Officer)
