FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission File Number 33-23092
ALCOA INTERNATIONAL HOLDINGS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 25-1563111
(State of incorporation) (I.R.S. Employer Identification No.)
5 Burlington Square, Fourth Floor, Burlington, Vermont 05402-1491
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 802-658-2726
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of August 12, 1994, 7,634 shares of common stock, par
value $1.00, of the Registrant were outstanding.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AIHC and subsidiaries
Consolidated Balance Sheet
(in millions, except share amounts)
(unaudited)
June 30 December 31
1994 1993
ASSETS ------- -----------
<S> <C> <C>
Current assets:
Cash $ 26.1 $ 13.3
Short-term investments (all cash 131.0 394.7
equivalents except $64.0 in
1994 and $243.6 in 1993)
Receivables from customers, less allowances 423.9 351.5
1994 - $8.9; 1993 - $11.3 (a):
Inventories (b) 335.5 333.0
Prepaid expenses and other current assets 32.6 19.3
------- -------
Total current assets 949.1 1,111.8
------- -------
Properties, plants and equipment, at cost 2,802.6 2,562.4
Less, accumulated depreciation, depletion 1,103.5 971.4
and amortization ------- -------
Net properties, plants and equipment 1,699.1 1,591.0
Notes receivable - Aluminum Company of 873.7 914.8
America (c)
Investments 169.0 155.0
Other assets and deferred charges 105.7 100.0
------- -------
Total assets $ 3,796.6 $ 3,872.6
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings (d) $ 90.9 $ 129.5
Accounts payable, trade (a) 201.6 197.8
Accrued compensation and retirement costs 33.3 30.1
Taxes, including taxes on income 120.8 167.8
Future taxes on income 15.1 14.1
Other current liabilities 36.8 32.4
------- -------
Total current liabilities 498.5 571.7
------- -------
Long-term debt 152.4 302.1
Noncurrent liabilities and deferred credits 155.2 145.7
Deferred income taxes 243.8 224.0
------- -------
Total liabilities 1,049.9 1,243.5
------- -------
MINORITY INTERESTS 726.7 680.1
------- -------
SHAREHOLDERS' EQUITY
Preferred stock, $100 par value, 5,000,000
shares authorized
2,000,000 shares issued and outstanding 200.0 250.0
in 1994, 2,500,000 in 1993 (e)
Common stock, $1 par value, 8,000 shares
authorized ; - -
7,634 shares issued and outstanding
Additional capital 85.9 85.9
Translation adjustment (153.7) (214.7)
Retained earnings 1,887.8 1,827.8
------- -------
Total shareholders' equity 2,020.0 1,949.0
------- -------
Total liabilities and equity $ 3,796.6 $ 3,872.6
======= =======
(see accompanying notes)
</TABLE>
<TABLE>
<CAPTION>
AIHC and subsidiaries
Statements of Consolidated Income and Retained Earnings (unaudited)
(in millions)
Second quarter ended Six months ended
June 30 June 30
-------------------- -----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Statement of Consolidated
Income
REVENUES
Sales and operating revenues $ 629.5 $ 622.4 $1,228.5 $1,096.2
Revenues from related 9.9 27.7 21.5 69.2
parties
Other income, principally
interest (a) 15.4 17.9 29.4 35.9
------ ------ ------- -------
654.8 668.0 1,279.4 1,201.3
------ ------ ------- -------
COSTS AND EXPENSES
Cost of goods sold and
operating 522.4 480.4 995.3 859.7
expenses (a)
Selling, general
administrative and other 21.1 23.9 35.9 38.1
expenses (a)
Provision for depreciation,
depletion and 32.3 29.7 62.5 56.6
amortization
Interest expense
4.1 5.8 8.9 11.7
------ ------ ------- -------
579.9 539.8 1,102.6 966.1
------ ------ ------- -------
EARNINGS
Income before taxes on 74.9 128.2 176.8 235.2
income
Provision for taxes on 25.0 (7.6) 58.5 33.5
income (f) ------ ------ ------- -------
Income from operations 49.9 135.8 118.3 201.7
Equity losses (4.3) (1.2) (9.2) (2.5)
Minority interests
(16.6) (60.0) (44.3) (89.9)
------- ------- ------- -------
NET INCOME $ 29.0 $ 74.6 $ 64.8 $ 109.3
======= ======= ======== =======
Statement of Consolidated
Retained Earnings
Retained earnings at $1,860.7 $1,686.4 $1,827.8 $1,655.6
beginning of period
Net income for period 29.0 74.6 64.8 109.3
------- ------- ------- -------
1,889.7 1,761.0 1,892.6 1,764.9
Less: Preferred dividends
declared 1.9 4.2 4.8 8.1
------- ------- ------- -------
Retained earnings at end of $1,887.8 $1,756.8 $1,887.8 $1,756.8
period ======= ======= ======= =======
(see accompanying notes)
</TABLE>
<TABLE>
<CAPTION>
AIHC and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
Six months ended
June 30
-----------------
1994 1993
---- ----
<S> <C> <C>
CASH FROM OPERATIONS
Net income $ 64.8 $ 109.3
Adjustments to reconcile net income to
cash from operations:
Depreciation, depletion and 62.5 56.6
amortization
Increase (reduction) in deferred income 3.2 (36.3)
taxes
Equity earnings before additional (3.6) 2.9
taxes, net of dividends
Minority interests 44.3 89.9
Other 6.4 31.7
Increase in receivables (67.9) (3.6)
(Increase) reduction in inventories 14.2 (16.1)
(Increase) reduction in prepaid
expenses and other current (4.0) 8.6
assets
Reduction (increase) in accounts 4.0 (52.0)
payable and accrued
expenses
Reduction in taxes, including taxes on (56.2) (61.7)
income
Net change in noncurrent assets and 2.2 20.4
liabilities -------- --------
CASH FROM OPERATIONS 69.9 149.7
-------- --------
FINANCING ACTIVITIES
Net change in short-term borrowings (42.3) 120.7
Retirement of preferred stock (50.0) -
Dividends paid to shareholders (5.7) (7.9)
Dividends paid to minority interests (42.0) (60.8)
Additions to long-term debt 11.0 79.0
Payments on long-term debt (181.0) (71.5)
-------- --------
CASH PROVIDED FROM (USED FOR) (310.0) 59.5
-------- --------
FINANCING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures (71.6) (64.2)
Loans by finance subsidiary to related (17.6) (82.3)
parties
Payments received on finance subsidiary 58.7 8.4
loans
Reduction in short-term investments, 182.3 -
excluding cash
equivalents
Additions to investments (1.3) (8.7)
-------- --------
CASH PROVIDED FROM (USED FOR) 150.5 (146.8)
INVESTING -------- --------
ACTIVITIES
EFFECT OF EXCHANGE RATE CHANGES ON CASH 18.3 (11.1)
-------- --------
CHANGES IN CASH
Net change in cash and cash equivalents (71.3) 51.3
Cash and cash equivalents at beginning of 164.4 379.4
-------- --------
year
CASH AND CASH EQUIVALENTS AT END OF $ 93.1 $ 430.7
PERIOD ======== ========
(see accompanying notes)
</TABLE>
Notes to Consolidated Financial Statements
(in millions, except share amounts)
Notes:
(a) Alcoa International Holdings Company (AIHC) is controlled by
Aluminum Company of America and its subsidiaries (Alcoa).
AIHC's receivables from customers include amounts from Alcoa
totaling $26.5 at June 30, 1994 and $28.5 at December 31,
1993. Trade accounts payable include amounts owed to Alcoa
of $72.9 and $52.5 at the same respective dates.
Interest income from loans to Alcoa (see note c) follows.
1994 1993
---- ----
Second quarter $ 10.1 $ 7.4
Six months $ 18.9 $ 15.6
The costs of products purchased from Alcoa by AIHC's selling
companies follow. Terms for these transactions were
established by negotiations between the parties.
1994 1993
---- ----
Second quarter $162.4 $121.6
Six months $267.4 $226.9
(b) Inventories consisted of:
June 30 December 31
1994 1993
---- ----
Finished goods $ 74.1 $ 67.6
Work in process 62.1 39.2
Bauxite and alumina 57.5 91.5
Purchased raw materials 73.7 58.7
Operating supplies 68.1 76.0
----- -----
$335.5 $333.0
===== =====
(c) Alcoa International Finance Company, AIHC's finance
subsidiary, has loaned $873.7 to Aluminum Company of America
under notes detailed below. Since Alcoa controls AIHC and
currently intends to continue renewing these notes, they
have been classified as noncurrent.
Face amount Maturity date Interest rate
$400.0 June 30, 1996 4.44%*
100.0 March 31, 1995 4.90%
50.0 September 30, 1994 4.46%
50.0 September 30, 1994 5.51%
273.7 On Demand 5.49%**
-----
$873.7
=====
* Effective rate as of June 30, 1994. Rate varies
quarterly based on market rates.
** Effective rate as of June 30, 1994. Rate varies monthly
based on market rates.
Notes to Consolidated Financial Statements
(in millions, except share amounts)
(d) Alcoa Nederland Finance B.V. (ANF), an Alcoa subsidiary, has
loan commitments to AIHC and its subsidiaries for 44 million
Dutch guilders, 11 million pounds sterling and 80 million
Belgian francs. At June 30, 1994 ANF had loaned 39.5
million Dutch guilders at 5.18%, 7.2 million pounds sterling
at 5.32%, and 73 million Belgian francs at 6.13%; or the
equivalent of $35.4.
(e) In April 1994, AIHC redeemed, at par, all 500,000
outstanding shares of its Voting Preferred Stock,
Series I.
(f) The income tax provision for the period is based on the
effective tax rate expected to be applicable for the
full year. The difference between the 1994 estimated
effective tax rate of 33% and the U.S. statutory rate
of 35% is primarily due to taxes on foreign income.
(g) Certain amounts in previously issued financial
statements were reclassified to conform to 1994
presentations.
- -----------------------------------------------------------
In the opinion of AIHC, the financial statements in this
Form 10-Q report include all adjustments, including those of
a normal and recurring nature, necessary to fairly state the
results for the periods presented. This Form 10-Q report
should be read in conjunction with the company's annual
report on Form 10-K for the year ended December 31, 1993.
The financial data required in this Form 10-Q by Rule 10-01
of Regulation S-X have been reviewed by Coopers & Lybrand,
the company's independent certified public accountants, as
described in their report on page 7.
Independent Auditor's Review Report
To the Shareholders and Board of Directors
Alcoa International Holdings Company (AIHC)
We have reviewed the unaudited consolidated balance sheet of
AIHC and subsidiaries as of June 30, 1994 and the unaudited
statements of consolidated income and retained earnings for the
three-month and six-month periods ended June 30, 1994 and 1993,
and consolidated cash flows for the six-month periods ended June
30, 1994 and 1993, which are included in AIHC's Form 10-Q for the
period ended June 30, 1994. These financial statements are the
responsibility of AIHC's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet of
AIHC and subsidiaries as of December 31, 1993, and the related
statements of consolidated income and retained earnings, and cash
flows for the year then ended (not presented herein). In our
report dated January 11, 1994, except for Note P for which the
date is February 7, 1994, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1993 is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Pittsburgh, Pennsylvania
July 8, 1994
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
(in millions, except as noted)
<TABLE>
<CAPTION>
Results of Operations
Second quarter Six months
ended June 30 ended June 30
-------------- -------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and operating revenues
by segment:
Alumina $235.4 $270.8 $ 473.5 $ 498.6
Aluminum 232.6 241.0 462.9 407.4
Sales and Distribution 171.4 138.3 313.6 259.4
----- ----- ------- -------
Total $639.4 $650.1 $1,250.0 $1,165.4
Net Income $ 29.0 $ 74.6 $ 64.8 $ 109.3
</TABLE>
Overview
Alcoa International Holdings Company's (AIHC) 1994 second
quarter and year-to-date earnings were $45.6 and $44.5 lower
than in the respective 1993 periods. Earnings for both the
1993 quarter and six months included a favorable adjustment
of $26.3 from a reduction in Australia's corporate tax rate
from 39% to 33%. Lower prices on products within the Alumina
segment also negatively effected 1994 earnings.
Alumina Segment
Revenues from the Alumina segment declined 13% from the 1993
second quarter and 5% year-to-date.
Alumina shipments were up 7% and 11%, respectively, from the
1993 second quarter and six months. Despite increased
shipments, revenues dropped 12% compared to the 1993 second
quarter because of an 18% decline in prices. Year-to-date,
revenues and prices are down 4% and 14%, respectively, due to
an oversupply of alumina which is expected to continue well
into 1995.
Revenues from alumina-based chemicals fell 17% from the 1993
quarter. The revenues include those from ACAP Australia
(ACAP) which began operations in the 1993 fourth quarter.
Excluding ACAP revenues, the second quarter decrease was 26%
and reflects declines in shipments and prices of 15% and 12%,
respectively. Year-to-date, revenues are up 8% due to ACAP
and higher Alcoa of Australia (AofA) shipments in the 1994
period, partially offset by lower prices.
Gold revenues for the 1994 six-month period fell 21% from
1993 due to lower shipments and a 17% reduction in prices.
Year-to-date, gold production was 57,134 ounces compared to
70,409 ounces during the 1993 period. Gold recovery per
metric ton of ore during 1994 has decreased 11% from that in
the 1993 first half.
Aluminum Segment
Revenues from this segment increased 14% compared to the 1993
first half. Most of the increase relates to Alcoa-Kofem, Kft
which experienced increased sales in 1994 for nearly all of
its products.
Year-to-date, primary aluminum shipments were about even with
1993. AofA shipments were down from the 1993 period due to
production cuts, but growth in Kofem shipments helped offset
the decline. AofA reduced production by 25,000 metric tons
(mt) at its Point Henry smelter in Geelong, Australia and
26,000 mt at the Portland, Australia smelter. AofA has a 45%
interest in the Portland smelter. Ingot revenues for the
1994 six months grew slightly, reflecting higher realized
prices. A gradual strengthening of prices in the aluminum
industry has been helped by reductions in worldwide aluminum
production and inventories.
Shipments of rigid container sheet (RCS) by AofA dropped 13%
from the 1993 second quarter. The decline, combined with an
8% deterioration in prices, caused a reduction in revenues of
20% compared to 1993. Year-to-date, RCS shipments and
revenues declined 5% and 8%, respectively.
Revenues from Alcoa Nederland Holding Company (ANH) in the
1994 second quarter and six months rose 22% and 16%,
respectively, from the comparable 1993 periods. The
increases were caused by higher shipments of rolled product
and extrusions, up 18% and 15% from the respective 1993
periods, and revenues from Compri Aluminum, a producer of
building products that was acquired in the third quarter of
1993.
Sales and Distribution Segment
Revenues from the Sales and Distribution segment, which
include sales of alumina-based chemicals and aluminum
products, increased 24% and 21%, respectively, from the 1993
quarter and six months. RCS shipments to Saudi Arabia, the
Far East, Mexico and Canada contributed to the improvement.
Cost of Goods Sold
Cost of goods sold was 81.7% of sales in the 1994 quarter, or
7.8 percentage points higher than in the 1993 quarter. Year-
to-date, the ratio was 79.6%, or 5.8 percentage points higher
than in 1993. The 1994 ratios were unfavorably impacted by
declining prices, principally in the Alumina segment.
Other Income and Expense Items
Other income was down 14% and 18%, respectively, from the
1993 second quarter and year-to-date periods. The year-to-
date decrease was largely due to lower exchange adjustments,
losses on asset dispositions and lower interest income on
AofA's short-term investments.
Depreciation, depletion and amortization expense increased
$2.6 and $5.9, respectively, from the 1993 second quarter and
first half. The increases are due to higher asset
capitalizations during the 1994 periods.
Interest expense declined $1.7 and $2.8 from the 1993 second
quarter and six months. A significant debt reduction by AofA
during the 1994 second quarter, along with lower interest
rates in 1994, were the main causes of the change.
AIHC's estimated effective tax rate is a weighted average of
the statutory rates in the countries where AIHC operates,
primarily Australia and the U.S. The estimated effective tax
rate for 1994 is 33%. The difference between this rate and
the U.S. statutory rate of 35% is primarily due to taxes on
foreign income.
AIHC's equity losses were $4.3 in the 1994 second quarter and
$9.2 year-to-date, up from losses of $1.2 and $2.5 in the
respective 1993 periods. The higher equity losses, mainly
from KSL Alcoa Aluminum Company, Ltd. (KAAL), a 50%-owned
venture in Japan that produces RCS, were partly offset by
improved results from Elkem Aluminium ANS, a smelting
partnership in Norway. The KAAL losses are largely
attributable to low RCS prices.
AIHC continues to participate in environmental assessments
and cleanups at a number of locations, including operating
facilities and adjoining properties; at previously owned and
operated facilities; and at other waste sites. AIHC records
a liability for environmental remediation costs or damages
when a cleanup program becomes probable and the costs can be
reasonably estimated. As assessments and cleanups proceed,
these liabilities are adjusted based on progress in
determining the extent of remedial actions and related costs
and damages. The liabilities can change substantially due to
factors such as the nature and extent of contamination,
changes in remedial requirements and technological changes.
AIHC's environmental remediation reserve balance at June 30,
1994 was $14 and reflects AIHC's most probable cost to
remediate identified environmental conditions.
Liquidity and Capital Resources
Cash from operations during the 1994 six-month period was
$69.9, down $79.8 from the 1993 period. The reduction was
primarily caused by lower 1994 earnings.
In April 1994, AIHC redeemed, at par, all 500,000 outstanding
shares of its Voting Preferred Stock, Series I.
AIHC paid dividends of $5.7 to preferred shareholders in the
1994 first half compared to $7.9 during the year-ago period.
The decline reflects the redemption discussed above and lower
dividend rates, most of which are set by auction from time to
time. Dividends paid by AofA during the 1994 six-month
period were $85.7 compared to $124.1 in the 1993 period.
AIHC received $43.7 and $63.3, respectively, of the AofA
dividends.
Payments on long-term debt in the first half of 1994 exceeded
additions by $170. The net decrease in long-term debt was
caused by AofA paydowns from the proceeds of short-term
investments.
AIHC's debt as a percentage of invested capital fell to 5.3%
at June 30, 1994, compared to 10.3% at year-end 1993. Lower
debt and higher minority interests and shareholders' equity
caused the percentage to decrease.
Investing activities in the 1994 first half generated $150.5.
The most significant item effecting this activity was a
reduction in short-term investments of $182.3, excluding cash
equivalents. Capital expenditures were $71.6 and $64.2
during the 1994 and 1993 six-month periods, respectively.
Capital expenditures were mostly for sustaining operations
but included some capacity-enhancing expenditures.
Subsequent Event
On July 6, 1994, Alcoa and Western Mining Corporation
Holdings (WMC) announced a restructuring of their respective
alumina and inorganic chemicals investments, as well as certain
integrated aluminum fabricating and smelting operations.
WMC and Alcoa intend to combine these operations into a worldwide
enterprise owned 60% by Alcoa and 40% by WMC. As a result of
this transaction, it is intended that AIHC's interest in AofA
will increase to 60% from 51%. The financial structure of the
transaction has not yet been determined and, therefore, the
financial impact on AIHC is uncertain. The parties expect to
complete the transaction by the end of 1994.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12. Computation of Earnings to Fixed Charges
(b) No reports on Form 8-K were filed by AIHC during the
quarter covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ALCOA INTERNATIONAL HOLDINGS COMPANY
August 12, 1994 By /s/ JAN H. M. HOMMEN
Date Jan H. M. Hommen
Executive Vice President
(Principal Financial Officer
and Chief Accounting
Officer)
AIHC and subsidiaries EXHIBIT 12
<TABLE>
<CAPTION>
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
For the six months ended June 30, 1994
(in millions, except ratio)
1994
----
<S> <C>
Earnings:
Income before taxes on income and equity loss $176.8
Fixed charges 15.2
Proportionate share of income of 50%-owned persons (9.7)
Amortization of capitalized interest 2.4
-----
Total earnings $184.7
======
Fixed Charges:
Interest expense:
Consolidated $ 8.9
Proporationate share of 50%-owned persons 3.5
12.4
----
Amount representative of the interest factor in
rents:
Consolidated 2.8
Proportionate share of 50%-owned persons -
----
2.8
----
Fixed charges added to earnings 15.2
----
Preferred stock dividend requirements 7.6
----
Total fixed charges $22.8
====
Ratio 8.10
====
</TABLE>
