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 September 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 November 10, 1994, 7,634 shares of common stock, par
value $1.00, of the Registrant were outstanding.
PART I - FINANCIAL INFORMATION
AIHC and subsidiaries
Consolidated Balance Sheet
(in millions, except share amounts)
<TABLE>
<CAPTION>
(unaudited)
September 30 December 31
1994 1993
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 21.7 $ 13.3
Short-term investments (all cash equivalents except
$2.5 in 1994 and $243.6 in 1993) 118.3 394.7
Receivables from customers, less allowances:
1994 - $10.9; 1993 - $11.3 (a) 388.6 351.5
Inventories (b) 323.6 333.0
Prepaid expenses and other current assets 44.1 19.3
------- -------
Total current assets 896.3 1,111.8
------- -------
Properties, plants and equipment, at cost 2,863.8 2,562.4
Less, accumulated depreciation, depletion and
amortization 1,145.8 971.4
------- -------
Net properties, plants and equipment 1,718.0 1,591.0
Notes receivable - Aluminum Company of America (c) 955.9 914.8
Investments 175.6 155.0
Other assets and deferred charges 99.0 100.0
------- -------
Total assets $ 3,844.8 $ 3,872.6
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings (d) $ 140.8 $ 129.5
Accounts payable, trade (a) 155.9 197.8
Accrued compensation and retirement costs 37.4 30.1
Taxes, including taxes on income 96.6 167.8
Future taxes on income 15.3 14.1
Other current liabilities 25.3 32.4
Long-term debt due within one year .7 -
------- -------
Total current liabilities 472.0 571.7
------- -------
Long-term debt 150.0 302.1
Noncurrent liabilities and deferred credits 155.8 145.7
Deferred income taxes 249.1 224.0
------- -------
Total liabilities 1,026.9 1,243.5
------- -------
MINORITY INTERESTS 739.9 680.1
------- -------
SHAREHOLDERS' EQUITY
Preferred stock, $100 par value, 5,000,000 shares
authorized; 2,000,000 shares issued and outstanding
in 1994, 2,500,000 in 1993 (e) 200.0 250.0
Common stock, $1 par value, 8,000 shares authorized;
7,634 shares issued and outstanding - -
Additional capital 86.3 85.9
Translation adjustment (142.0) (214.7)
Retained earnings 1,933.7 1,827.8
------- -------
Total shareholders' equity 2,078.0 1,949.0
------- -------
Total liabilities and equity $ 3,844.8 $ 3,872.6
======= =======
(see accompanying notes)
</TABLE>
AIHC and subsidiaries
Statements of Consolidated Income and Retained Earnings (unaudited)
(in millions)
<TABLE>
<CAPTION>
Third quarter ended Nine months ended
September 30 September 30
------------ ------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Statement of Consolidated Income
REVENUES
Sales and operating revenues $ 662.2 $ 602.0 $1,890.7 $1,698.2
Revenues from related parties 12.6 22.4 34.1 91.6
Other income, principally
interest(a) 20.1 20.1 49.5 56.0
------- ------- ------- -------
694.9 644.5 1,974.3 1,845.8
------- ------- ------- -------
COSTS AND EXPENSES
Cost of goods sold and operating
expenses (a) 527.9 479.3 1,523.2 1,339.0
Selling, general administrative
and other expenses (a) 24.9 19.0 60.8 57.1
Provision for depreciation,
depletion and amortization 32.1 28.6 94.6 85.2
Interest expense 3.5 5.9 12.4 17.6
------- ------- ------- -------
588.4 532.8 1,691.0 1,498.9
------- ------- ------- -------
EARNINGS
Income before taxes on income 106.5 111.7 283.3 346.9
Provision for taxes on income (f) 26.8 35.9 85.3 69.4
------- ------- ------- -------
Income from operations 79.7 75.8 198.0 277.5
Equity losses (1.5) (2.0) (10.7) (4.5)
Minority interests (30.0) (30.7) (74.3) (120.6)
------- ------- ------- -------
NET INCOME $ 48.2 $ 43.1 $ 113.0 $ 152.4
======= ======= ======= =======
Statement of Consolidated Retained Earnings
Retained earnings at beginning of $1,887.8 $1,756.8 $1,827.8 $1,655.6
period
Net income for period 48.2 43.1 113.0 152.4
------- ------- ------- -------
1,936.0 1,799.9 1,940.8 1,808.0
Less: Preferred dividends declared 2.3 2.7 7.1 10.8
------- ------- ------- -------
Retained earnings at end of period $1,933.7 $1,797.2 $1,933.7 $1,797.2
======= ======= ======= =======
(see accompanying notes)
</TABLE>
AIHC and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30
-------------------
1994 1993
---- ----
<S> <C> <C>
CASH FROM OPERATIONS
Net income $ 113.0 $ 152.4
Adjustments to reconcile net income to cash from
operations:
Depreciation, depletion and amortization 94.5 85.2
Increase (reduction) in deferred income taxes 5.2 (32.2)
Equity earnings before additional taxes, net of
dividends 9.8 4.2
Book value of asset disposals 12.5 -
Minority interests 74.3 120.6
Other 4.7 24.9
Increase in receivables (29.6) (41.7)
(Increase) reduction in inventories 29.0 (2.5)
(Increase) reduction in prepaid expenses and
other current assets (15.6) 16.0
(Increase) in accounts payable and
accrued expenses (50.6) (52.2)
Reduction in taxes, including taxes on income (82.1) (49.4)
Net change in noncurrent assets and liabilities (5.2) 28.3
------- -------
CASH FROM OPERATIONS 159.9 253.6
------- -------
FINANCING ACTIVITIES
Net change in short-term borrowings 7.3 98.3
Retirement of preferred stock (49.6) -
Dividends paid to shareholders (8.0) (10.9)
Dividends paid to minority interests (63.7) (93.6)
Reductions of minority interest (.1) -
Additions to long-term debt 11.0 101.2
Payments on long-term debt (184.7) (75.9)
------- -------
CASH PROVIDED FROM FINANCING ACTIVITIES (287.8) 19.1
------- -------
INVESTING ACTIVITIES
Capital expenditures (104.8) (102.6)
Loans by finance subsidiary to related parties (103.3) (125.7)
Payments received on finance subsidiary loans 62.3 11.2
Reduction in short-term investments, excluding
cash equivalents 243.8 -
Additions to investments (16.5) (10.5)
------- -------
CASH PROVIDED FROM INVESTING ACTIVITIES 81.5 (227.6)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 19.5 (24.7)
------- -------
CHANGES IN CASH
Net change in cash and cash equivalents (26.9) 20.4
Cash and cash equivalents at beginning of year 164.4 379.4
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 137.5 $ 399.8
======= =======
(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 $21.1 at September 30, 1994 and $28.5 at December
31, 1993. Trade accounts payable include amounts owed to
Alcoa of $35.4 and $52.5 at the same respective dates.
Interest income from loans to Alcoa (see note c) follows.
1994 1993
---- ----
Third quarter $ 12.0 $ 8.3
Nine months $ 30.9 $ 23.9
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
---- ----
Third quarter $139.0 $105.0
Nine months $406.4 $331.9
(b) Inventories consisted of:
September 30 December 31
1994 1993
---- ----
Finished goods $ 78.8 $ 67.6
Work in process 50.9 39.2
Bauxite and alumina 53.9 91.5
Purchased raw materials 71.4 58.7
Operating supplies 68.6 76.0
----- -----
$323.6 $333.0
===== =====
(c) Alcoa International Finance Company, AIHC's finance
subsidiary, has loaned $955.9 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.
<TABLE>
<CAPTION>
Face amount Maturity date Interest rate
----------- ------------- -------------
<S> <C> <C>
$400.0 June 30, 1996 5.51%*
100.0 March 31, 1995 4.90%
50.0 March 31, 1995 5.91%
50.0 December 31, 1994 5.87%
355.9 On Demand 5.84%**
-----
$955.9
=====
<FN>
* Effective rate as of September 30, 1994. Rate varies
quarterly based on market rates.
** Effective rate as of September 30, 1994. Rate varies
monthly based on market rates.
</TABLE>
(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 100 million
Belgian francs. At September 30, 1994 ANF had loaned 39.5
million Dutch guilders at 5.26%, 8 million pounds sterling
at 5.76%, and 93 million Belgian francs at 6.13%; or the
equivalent of $38.4.
(e) In April 1994, AIHC redeemed, at par, all 500,000 outstanding
shares of its Voting Preferred Stock, Series I.
Notes to Consolidated Financial Statements
(in millions, except share amounts)
(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 31.3% 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
L.L.P., 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 September 30, 1994 and the unaudited
statements of consolidated income and retained earnings for the
three-month and nine-month periods ended September 30, 1994 and
1993, and consolidated cash flows for the nine-month periods
ended September 30, 1994 and 1993, which are included in AIHC's
Form 10-Q for the period ended September 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 L.L.P.
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
October 7, 1994
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
(in millions, except as noted)
Results of Operations
<TABLE>
<CAPTION>
Third quarter Nine months
ended September 30 ended September 30
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and operating revenues by
segment:
Alumina $ 234.7 $ 266.6 $ 708.2 $ 765.2
Aluminum 281.0 218.3 743.9 625.7
Sales and Distribution 159.1 139.5 472.7 398.9
------- ------- ------- -------
Total $ 674.8 $ 624.4 $1,924.8 $1,789.8
Net Income $ 48.2 $ 43.1 $ 113.0 $ 152.4
</TABLE>
Overview
Alcoa International Holdings Company's (AIHC) 1994 third
quarter earnings were $5.1 higher than the 1993 period. Year-
to-date earnings were $39.4 lower than in the respective 1993
period. Earnings for the 1993 nine-month period 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 affected 1994
earnings.
AIHC's operations, divided into three segments, follow:
1. Alumina Segment
Total revenues from the alumina segment were $234.7 in the
1994 third quarter, a decrease of 12% from the 1993 quarter.
Year-to-date, revenues were down 7% from the 1993 nine-month
period.
Alumina shipments increased 7% and 9%, respectively, over the
1993 third quarter and nine-month periods. In spite of
increased shipments, revenues dropped 11% compared to the
1993 third quarter because of a 17% decline in prices. Year-
to-date, revenues and prices are down 7% and 15%,
respectively, primarily due to an oversupply of alumina
brought on by aluminum production curtailments.
Revenues from alumina-based chemicals increased 6% in the
1994 quarter and 7% year-to-date over the respective 1993
periods. The revenues include those from ACAP Australia
(ACAP), a subsidiary which began operations in the 1993
fourth quarter. Excluding ACAP revenues, third quarter
revenues decreased 4%, reflecting changes in product mix.
Year-to-date, revenues were down 3% due to a 15% reduction in
prices, partially offset by a 14% increase in shipments.
Gold revenues for the 1994 nine-month period fell 25% from
1993 due to a reduction in shipments resulting from lower
grade ore. Prices also fell by 16%. Gold production was
92,610 ounces compared to 103,870 ounces during the 1993
period.
2. Aluminum Segment
For the third quarter, total revenues from this segment were
up 29%, compared to the 1993 period. For the nine-month
period, revenues increased 19%. Most of the increases relate
to Alcoa-Kofem, Kft (Kofem) which experienced higher
shipments in the 1994 quarter and year-to-date periods for
nearly all of its products.
Primary aluminum shipments for the first nine months of 1994
were down 2% from 1993. Alcoa of Australia's (AofA)
shipments were down due to production cuts, but growth in
Kofem shipments helped offset the decline. In 1993, 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 nine months
increased 6%, reflecting higher realized prices. Aluminum
ingot prices continue to rise due to higher demand for
aluminum and reductions in worldwide aluminum production.
Rigid container sheet (RCS) revenues from AofA increased 24%
from the 1993 third quarter, resulting from a 32% rise in
shipments, partially offset by a 7% decline in prices. Year-
to-date, RCS shipments and revenues were up 12% and 2%,
respectively.
Revenues from Alcoa Nederland Holding Company (ANH) in the
1994 nine-month period rose 6% from the comparable 1993
period. The increase was due to higher shipments of rolled
products and extrusions, and revenues from Compri Aluminum, a
producer of building products that was acquired in the third
quarter of 1993.
3. Sales and Distribution Segment
The Sales and Distribution segment includes the worldwide
sales activities of certain of the Company's wholly owned
subsidiaries. These sales subsidiaries handle a broad range
of alumina and aluminum products in various markets
worldwide. Revenues from this segment increased 14% and 19%,
respectively, from the 1993 quarter and nine-month periods.
RCS shipments to Saudi Arabia, the Far East, Mexico and
Canada along with increased shipments of forgings and plate
to Canada contributed to the improvement.
Cost of Goods Sold
Cost of goods sold was 78.2% of sales in the 1994 quarter, or
.7 percentage points higher than in the 1993 quarter. Year-
to-date, the ratio was 79.1%, 2.9 percentage points higher
than the 1993 period. The 1994 ratios were unfavorably
impacted by declining alumina and chemicals prices.
Other Income and Expense Items
Other income was unchanged from the 1993 third quarter and
down 12% from the nine-month period. The year-to-date
decrease was largely due to lower exchange adjustments,
losses on asset dispositions and lower interest income due to
liquidation of a significant portion of AofA's short-term
investments.
Selling, general and administrative expenses increased 31%
and 7%, respectively, from the 1993 quarter and nine-month
periods. The increases are primarily due to the addition of
Compri Aluminum (as mentioned above), a weaker U.S. dollar,
and higher selling costs at Kofem and Alcoa International S.
A.
Depreciation, depletion and amortization expense increased
12% from the 1993 third quarter and 11% from the 1993 nine-
month period. The increases are due to higher asset
capitalization and obsolescence during the 1994 periods.
Interest expense declined $2.4 and $5.2 from the 1993 third
quarter and nine-month periods. The declines are primarily
due to a significant debt reduction by AofA during the 1994
second quarter.
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 31.3%. The difference between this rate and
the U.S. statutory rate of 35% is primarily due to taxes on
foreign income.
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 September
30, 1994 was $10 and reflects AIHC's most probable cost to
remediate identified environmental conditions.
Liquidity and Capital Resources
Cash from operations during the 1994 nine-month period was
$159.9, down $96.4 from the same 1993 period. The reduction
was primarily caused by lower year-to-date 1994 earnings and
a reduction in tax liabilities.
In April 1994, AIHC redeemed, at par, all 500,000 outstanding
shares of its Voting Preferred Stock, Series I.
AIHC paid dividends of $7.1 to preferred shareholders in the
1994 nine-month period compared to $10.8 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
nine-month period were $130 compared to $191 in the 1993
period. AIHC received $66.3 and $97.4, respectively, of the
AofA dividends.
Payments on long-term debt in the first nine months of 1994
exceeded additions by $173.7. The net decrease in long-term
debt is attributable to AofA debt payments made using the
proceeds from liquidation of short-term investments.
AIHC's debt as a percentage of invested capital fell to 5.1%
at September 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 nine-month period generated
$81.5. The most significant item was $243.8 generated by a
reduction in short-term investments. Capital expenditures
reduced cash by $104.8 and new loans to related parties used
$41.0.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12. Computation of Earnings to Fixed Charges
27. Financial Data Schedule
(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
November 10, 1994 By /s/ JAN. H. M.HOMMEN
Date Jan H. M. Hommen
Executive Vice President
(Principal Financial Officer
and Chief Accounting Officer)
EXHIBITS
Page
12. Computation of Ratio of Earnings to Fixed Charges 14
27. Financial Data Schedule
AIHC and subsidiaries EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
For the nine months ended September 30, 1994
(in millions, except ratio)
<TABLE>
<CAPTION>
1994
------
<S> <C>
Earnings:
Income before taxes on income and equity loss $ 283.3
Fixed charges 21.4
Proportionate share of income of 50%-owned persons (11.7)
Amortization of capitalized interest 4.0
-------
Total earnings $ 297.0
=======
Fixed Charges:
Interest expense:
Consolidated $ 12.4
Proportionate share of 50%-owned persons 5.1
-------
17.5
-------
Amount representative of the interest factor in rents:
Consolidated 3.9
Proportionate share of 50%-owned persons -
-------
3.9
-------
Fixed charges added to earnings 21.4
-------
Preferred stock dividend requirements 10.4
-------
Total fixed charges $ 31.8
=======
Ratio 9.34
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 137,500
<SECURITIES> 2,500
<RECEIVABLES> 399,500
<ALLOWANCES> 10,900
<INVENTORY> 323,600
<CURRENT-ASSETS> 896,300
<PP&E> 2,863,800
<DEPRECIATION> 1,145,800
<TOTAL-ASSETS> 3,844,800
<CURRENT-LIABILITIES> 472,000
<BONDS> 150,700
<COMMON> 0
0
200,000
<OTHER-SE> 1,878,000
<TOTAL-LIABILITY-AND-EQUITY> 3,844,800
<SALES> 1,890,700
<TOTAL-REVENUES> 1,924,800
<CGS> 1,523,200
<TOTAL-COSTS> 1,523,200
<OTHER-EXPENSES> 94,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,400
<INCOME-PRETAX> 283,300
<INCOME-TAX> 85,300
<INCOME-CONTINUING> 113,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
