Exhibit 13
SELECT PORTIONS OF
1993 ANNUAL REPORT TO SHAREHOLDERS
ALUMINUM COMPANY OF AMERICA
FINANCIAL REVIEW
(dollars in millions, except share amounts and ingot prices)
Results of Operations
The Global Oversupply of Aluminum
In 1993 Alcoa took 310,000 metric tons (mt) of annual primary
aluminum capacity out of production indefinitely. The cutbacks
were partly due to a lack of any mechanism to deal with the
economic consequences of the dissolution of the former Soviet
Union. Prior to 1991 the Russian aluminum industry was largely
self-contained and metal produced in the country was consumed by
internal market needs. Since its collapse, Russia's internal
market has weakened substantially. To help generate hard
currencies, it began selling significant quantities of metal on
world markets. It is estimated that nearly 1.5 million mt were
sold in Western markets in 1993.
Consequently, world aluminum inventories reached a high 109-
day supply at the end of 1993 compared with a 42-day supply in
the 1988-90 timeframe. As a result, metal prices fell to an eight-
year low of 47 cents per pound on the London Metal Exchange (LME)
in November 1993.
In late 1993, discussions began among the governments of six
major aluminum-producing nations to solve the oversupply
situation. A multigovernment accord was reached in January 1994
which recognized an annual surplus of 1.5 to 2 million mt. Moscow
committed to curb its annual output by 500,000 mt, while the U.S.
and the European Union (EU) agreed not to take trade actions
against Russian producers. Several nations, including Australia,
Canada, the U.S. and the EU, promised to aid in the restructuring
of the Russian aluminum industry.
Summary of Earnings
Against this backdrop of oversupply and low prices, Alcoa has
taken actions within its control to remain profitable by cutting
costs at every level. The following table summarizes Alcoa's
results, adjusted for special charges, accounting changes and
extraordinary items.
1993 1992 1991
- -------------------------------------------------------------
Reported net income (loss) $ 4.8 $(1,139.2) $ 62.7
Adjusted for:
Special charges 74.5 173.9 217.0
Accounting changes - 1,111.4 -
Extraordinary loss - 50.2 -
- -------------------------------------------------------------
Adjusted net income $79.3 $ 196.3 $279.7
- -------------------------------------------------------------
Operations by Geographic Area
Operating profit for 1993 was $351 compared with $533 in 1992 and
$797 in 1991. Operating profit consists of all revenues less
operating expenses, excluding interest expense, non-operating
income, income taxes and minority interests. The year-to-year
comparisons in this discussion also exclude special items. See
Note K to the financial statements for additional information.
USA - Revenues from U.S. operations were down 7% from 1992. Lower
revenues from ingot sales accounted for just over 50% of the
decline. Although Alcoa's average unit price for ingot fell two
cents per pound, most of the revenue decline was due to lower
shipments and reflects production cutbacks mentioned earlier.
Rigid container sheet (RCS) accounted for about 40% of the
decrease in revenues with both lower shipments and prices. These
factors had a significant effect on results in the U.S. as
evidenced by a $193 operating loss in 1993. In 1992 and 1991
there were operating profits of $55 and $98, respectively. The
1992 period also reflected deteriorating prices for most aluminum
products.
Total exports from the U.S. in 1993 were $896 compared with
$993 in 1992 and $967 in 1991.
Pacific - The Pacific area principally reflects the activities of
Alcoa of Australia (AofA). Revenues from the Pacific were up 2%
from 1992 with higher shipments of alumina, aluminum ingot and
rolled products, partially offset by lower prices. Operating
profit from the Pacific was $399 compared with $298 in 1992 and
$479 in 1991. The higher profit in 1993 was partly due to lower
costs at AofA and greater efficiencies from its Wagerup refinery
expansion. The profit decline in 1992 compared with 1991
primarily reflects the drop in prices for both alumina and ingot.
Other Americas - Revenues from this region fell 10% from a year
ago, mostly because of lower shipments by the Jamaica, Suriname
and selling subsidiaries which were partially offset with higher
shipments by Alcoa Aluminio (Aluminio) in Brazil. Operating
profit in 1993 was $139 compared with $91 in 1992 and $125 in
1991. The higher profit in 1993 was primarily due to lower costs
at Aluminio, favorable exchange adjustments in Suriname that
provided lower U.S. dollar costs, and better performance by
closures operations in Mexico.
Europe - Virtually all markets served by the European companies
experienced unfavorable economic conditions in the region during
1993. Slightly higher revenues than in 1992 were mainly due to
the 50.1% acquisition of Alcoa-Kofem, an Alcoa subsidiary in
Hungary. Operating profit in 1993 was $6 compared with $90 in
1992 and $96 in 1991. The decline in 1993 reflects start-up
losses at Alcoa-Kofem and an Alcoa Fujikura subsidiary in
Germany. Lower prices and shipments for RCS at Alcoa
Manufacturing in Great Britain, and for closures and alumina-
based chemicals, also contributed to the lower profit.
Operations by Segment
Alcoa's integrated operations consist of three segments: Alumina
and Chemicals, Aluminum Processing, and Non-Aluminum Products.
I. Alumina and Chemicals Segment
This segment generated 16% of Alcoa's total revenues in 1993.
1993 1992 1991
- -------------------------------------------
Revenues $1,437 $1,422 $1,496
Of the total revenues from this segment, two-thirds are from the
sale of alumina. Alumina shipments in 1993, most of which were by
AofA, rose 8% from 1992, following a 12% rise in 1992 from 1991.
An imbalance of alumina supply and demand during 1992 continued
into 1993. Average unit prices for alumina fell 16% in 1992 but
declined only slightly from 1992 to 1993. Revenues in 1993 were
up 8% from 1992; the increase was volume-driven. The oversupply
of alumina is expected to continue well into 1995, and there is
little expectation of improvement in alumina prices for the near
term.
Revenues from alumina-based chemical products fell 10% from
1992. This followed a 3% decline from 1991 to 1992. Lower demand
and prices in the U.S., and increased pressure on prices in
European markets were the principal reasons for the declines.
Operating profit for this segment was $373 in 1993 compared
with $278 in 1992 and $566 in 1991. The increase from 1992 was
mostly related to alumina and driven by higher volume.
II. Aluminum Processing Segment
Revenues from this segment were 66% of Alcoa's total revenues in 1993.
Product classes 1993 1992 1991
- -------------------------------------------------------
Shipments (000 metric tons)
Flat-rolled products 1,271 1,323 1,172
Engineered products 379 353 353
Aluminum ingot 841 1,023 1,179
Other aluminum products 89 98 132
- -------------------------------------------------------
Total 2,580 2,797 2,836
- -------------------------------------------------------
Revenues
Flat-rolled products $2,974 $3,189 $3,107
Engineered products 1,528 1,527 1,612
Aluminum ingot 1,042 1,336 1,742
Other aluminum products 430 465 500
- -------------------------------------------------------
Total $5,974 $6,517 $6,961
Total shipments of aluminum products were 8% lower than in 1992.
Most of the decline was from aluminum ingot, which fell 18%,
reflecting the shutdown of 25% of the company's U.S. smelting
capacity in mid-1993. Flat-rolled products, which represented 49%
of total shipments in 1993, fell 4% from the 1992 level.
Total revenues from this segment dropped $543, or 8%, from
1992. The decline was mostly due to low prices that began falling
in 1991 and continued into 1993. This segment had an operating
loss in 1993 of $21 compared with operating profits of $289 and
$355 for 1992 and 1991, respectively. The decline in 1993, which
was mainly in the packaging and aerospace markets and from
aluminum ingot operations, is more fully discussed in the product
classes below.
Market circumstances in 1993 were such that Alcoa entered
into considerably more long-term aluminum products contracts with
certain of its customers and has hedged certain costs on those
contracts.
Flat-Rolled Products - A substantial portion of flat-rolled
products shipments and revenues is derived from sales of RCS.
Shipments of RCS in 1993 were down 10% from 1992, reflecting
weaker demand and slower growth in the U.S. market. Severe
competition for market share brought RCS prices down 9% in 1993.
Shipments of RCS in 1992 rose 13% from 1991, but revenues
were only 3% higher due to pressure on prices. The higher
shipments were mostly in the U.S. as the company gained back
market share it had lost.
Sheet and plate shipments were down slightly from 1992, but
revenues fell 11%. Low demand for products in the weak aerospace
market was offset by higher commercial products shipments.
However, the latter products carried lower unit prices, which
accounted for part of the decline in revenues.
Engineered Products - These products include extrusions used in
the transportation and construction markets; aluminum forgings
and wheels; wire, rod and bar; and automobile bumpers. Total
shipments in 1993 were up 7% from 1992, but most of the increase
was due to the addition of Alcoa-Kofem. Revenues for engineered
products were even with the prior year, reflecting lower prices
on all products in this category, except forged aluminum wheels.
Revenues in 1992 were 5% lower than in 1991 due to the weakened
aerospace market.
Shipments of extrusions were down 12% and revenues fell 19%,
reflecting conditions in the aerospace market and declining
prices. Shipments of building products in the Netherlands were 5%
lower than the year earlier, and due to severe competition,
prices fell 18%. Shipments of wheels were up 27% from 1992 and
revenues climbed 31% due to higher demand.
Aluminum Ingot - Shipments of ingot fell 18% from 1992, partly
because of the smelting capacity that was temporarily idled.
Total revenues were 22% lower than a year ago, reflecting both
lower shipments and prices due to excess metal in LME warehouses
and excess capacity in the industry. Alcoa's average realized
price for ingot was 56 cents per pound in 1993 compared with 59
cents in 1992 and 67 cents in 1991.
Other Aluminum Products _ Shipments of other aluminum products
were 9% lower than those in 1992; revenues declined 8%. Shipments
of aluminum closures were down 15% and revenues fell 12%.
Aluminum closures have been steadily losing market share to
plastic closures, which Alcoa also produces. Scrap shipments were
off 3%, but due to the oversupply of metal and its negative
effect on prices, revenues dropped 12%.
III. Non-Aluminum Products Segment
This segment's revenues represented 18% of Alcoa's total revenues in
1993.
1993 1992 1991
- -----------------------------------------------------
Revenues $1,646 $1,553 $1,427
Revenues from this segment rose 6% from the year earlier. Alcoa
Fujikura, which manufactures wire harnesses and electrical
components for the automotive industry, had a 7% increase in its
sales. Sales of vinyl windows, siding and other products to the
construction industry were up 12% from 1992. Revenues from
plastic closures jumped 47% from the year-ago period with strong
sales in Brazilian and other Latin American markets. Revenues in
1993 also included those generated by Alcoa Electronic Packaging
(AEP), which moved from research and development to manufacturing
status.
This segment's operating profit for 1993 was $5 compared
with operating losses of $31 in 1992 and $134 in 1991. The
improvement is principally from a significant reduction of losses
by AEP and better results from closures, building products and
magnesium products.
Unusual and Extraordinary Items
Special Charges - Included in 1993 after-tax earnings was a net
charge of $74.5 consisting of:
* a charge of $87.2 for severance costs associated with permanent
reductions of hourly and salaried employees, mainly in U.S.
aluminum operations;
* a charge of $10.8 associated with closing certain activities at
several plants, including the manufacture of aluminum rod at
Alcoa's Rockdale, Texas plant;
* a charge of $11.9 related to new three-year labor agreements
with three unions covering employees at Alcoa's U.S. operations;
* a credit of $26.3 in June due to a change in Australia's income
tax rate from 39% to 33%; and
* a credit of $9.1 in July due to a change in the U.S. tax rate
related to Alcoa's deferred tax assets in the U.S.
After-tax special charges in 1992 consisted of $70.5 for
permanent employment reductions and $103.4 for disposition of
assets. Special charges in 1991 of $217 consisted of $160 for
environmental matters and $57 for restructuring costs in several
businesses.
Accounting Changes - There were two accounting changes
implemented in 1992 consisting of:
* a one-time charge of $1,166.4 due to a new accounting rule for
postretirement benefits other than pensions. The rule requires
accruing benefits over the period an employee provides services
to the company; and
* a credit of $55 related to the new rule on accounting for
income taxes. This one-time credit was principally due to
adjusting deferred taxes that were accrued at various rates in
previous years to the current tax rates in the countries where
Alcoa operates.
Cash flows were not affected by these changes.
Extraordinary Loss - The extraordinary loss of $50.2 in 1992
resulted from early payment of 7% discount debentures that
carried an effective interest rate through maturity in 1996 of
14.7%. The loss was the unamortized portion of the original
discount that would have been paid at maturity. The early payment
substantially reduces Alcoa's future interest costs.
Costs and Other Income
Cost of Goods Sold - These expenses were $152 lower than in 1992.
The major elements contributing to the lower costs in 1993 were:
* lower volume $275
* better operating performance and efficiencies 110
* lower purchased metal costs 57
Partially offset by:
* the addition of new subsidiaries in 1993 181
* LIFO inventory profits in 1992 76
Cost of goods sold in 1992 were $106 lower than in 1991, due
partly to lower purchased metal costs, better plant utilization
and performance, and the inventory profits. The 1992 costs also
included $78 of additional health care costs accrued under the
new accounting rule for postretirement benefits.
Selling and General Administrative Expenses _ These expenses rose
3% from 1992 despite staff reductions at corporate headquarters
and other locations. Most of the increase was due to the addition
of subsidiaries in 1993, particularly Alcoa-Kofem. Selling and
general administrative expenses in 1992 were slightly higher than
those in 1991 and included $7 of additional health care costs.
Research and Development Expenses - These expenses declined $82
from 1992 principally because of AEP's move to production status
in 1993 and program reductions at Alcoa Technical Center (ATC).
The $40 million decline in 1992 from 1991 was mostly from
employee reductions at AEP and ATC.
Interest Expense - Despite higher debt levels in 1993, interest
expense was reduced by $18 from 1992 - after a $48 reduction in
1992. These declines reflect lower interest rates and the early
payment of the high-cost debentures in 1992.
Taxes - The accrual for income taxes in 1993 resulted in a tax
credit of $10 compared with a tax cost of $132 in 1992. Besides a
lower level of pretax income, the difference included the effects
of a change in Australia's tax rate from 39% to 33% in 1993. This
resulted in a $65 reduction to AofA's taxes and primarily related
to adjusting future taxes initially recorded at the higher rate.
Taxes on income from outside the U.S. were also lower than in
1992 by $47. In addition, the U.S. tax rate increased from 34% to
35% in 1993. Although the rate increased, Alcoa benefited by a
one-time credit of $10 because of its net deferred tax assets in
the U.S.
Total income, payroll, property and other taxes were $224 in
1993, $392 in 1992 and $448 in 1991.
Other Income - Other income was down only $4 from a year ago, but
there were significant offsetting items. Interest income fell $31
primarily because of less cash to invest in short-term
investments. Translation and exchange adjustments were favorable
by $41. There was also a favorable insurance settlement at AofA
in 1992.
Foreign Currency - The translation and exchange gains (losses),
after tax and minority interests, were $9.0 in 1993, $(11.1) in
1992 and $1.6 in 1991. The favorable change from 1992 was mainly
at AofA, where the exchange rate moved from 78 cents in 1992 to
68 cents, and at Suralco, which had a significant devaluation of
the Suriname guilder in 1993.
Environmental Matters
Alcoa continues to participate in environmental assessments and
cleanups at a number of locations, including operating facilities
and adjoining property, at previously owned or operated
facilities and at Superfund and other waste sites. Alcoa records
a liability for environmental remediation costs or damages when a
cleanup program becomes probable and the costs or damages can be
reasonably estimated. (See footnote A, page 23.)
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 1993 was
$414 and reflects the most probable costs to remediate identified
environmental conditions for which costs can be reasonably
estimated. About 38% of this balance relates to Alcoa's Massena,
N.Y. plant site. Remediation expenditures charged to the reserve
were $71 in 1993, $102 in 1992 and $57 in 1991. They include
expenditures currently mandated as well as those not required by
any regulatory authority or third parties.
Included in ongoing operating expenses are the recurring
costs of managing hazardous substances and pollution. These costs
are estimated to be about 1.5% of cost of goods sold in each of
the last three years and are expected to be the same in 1994.
Liquidity and Capital Resources
Cash From Operations
Cash generated from operations in 1993 was $535
compared with $1,208 in 1992. The major items causing the
difference include:
* a lower level of income in 1993, after excluding non-cash items
in both years;
* increases in inventories and other current assets due to
changing business conditions;
* a decrease in customer receivables due to lower sales volume;
and
* a deferred interest payment in 1992 related to the discount
debentures that were retired early.
Cash outlays for the 1993 and 1992 special charges related
to severance costs consist of salary continuation payments for up
to two years, and pension and medical costs to be paid over the
lives of the employees. The latter represents about 45% of the
total charges.
Financing Activities
Financing activities in 1993 provided a cash inflow of $372. In
1992 there was a cash outflow from these activities of $367. The
$739 variance was mostly due to changes in long-term debt. In
1993 there was a net addition to long-term debt of $611 compared
with a net reduction of $349 in 1992. There was also a $176
reduction in short-term borrowings.
Borrowings in 1993 included issuance by Alcoa of $175 of
4-5/8% Notes due 1996 and $180 by Aluminio of floating rate Secured
Export Notes due 1994-1998. The proceeds from both notes were
used to repay short-term borrowings and for general corporate
purposes. In addition, Alcoa issued commercial paper of which
$337 was outstanding at the end of the year.
In July Alcoa entered into two Revolving Credit Agreements
of $375 each with a group of international banks. One of the
agreements may be renewed for one year after July 1994. The other
agreement matures in July 1997. The agreements stipulate that
while advances are outstanding, debt cannot exceed 150% of
consolidated net worth and that secured borrowings are generally
limited to 10% of consolidated net tangible assets.
The Revolving Credit Agreements are used to back up the
commercial paper, and therefore up to $375 of such paper will be
classified as long-term debt.
In a non-cash transaction early in 1993, $149 of Alcoa's
6-1/4% Convertible Subordinated Debentures due 2002 were converted
to common stock with the issuance of 2.3 million shares of
treasury stock.
In 1992 payments on debt exceeded borrowings by $349 and
included the early payment of the 7% debentures. Alcoa also paid
off its remaining three sinking fund debentures that totaled
$110.
Debt as a percent of invested capital was 22% at the end of
1993 and 15% at the end of 1992 and 1991.
Dividends paid to shareholders were $142 in 1993 compared
with $139 in 1992 and $153 in 1991. The 1991 dividends included
$14 of profit-sharing dividends based on 1990 profits in excess
of $6.00 per share, as provided for under Alcoa's dividend
policy.
Dividends paid to minority interests of $159 in 1993
included $126 paid by AofA and $18 paid by Aluminio. In 1992
dividends of $141 to minority interests included $93 paid by AofA
and $18 by Aluminio.
Investing Activities
Capital expenditures of $757 were down $32 from 1992.
Approximately 75% of the 1993 expenditures were for sustaining
projects primarily in the aluminum processing segment. Alcoa
continues to focus on improving its manufacturing processes with
a minimum of capital spending. Geographically, expenditures were
54% of the total in the U.S., 21% in the Pacific, 14% in the
Other Americas and 11% in Europe.
Capital expenditures for new or expanded facilities for
environmental control in ongoing operations were $76 in 1993, $75
in 1992 and $85 in 1991.
Acquisitions in 1993 included a joint venture in Germany to
manufacture and sell aluminum extrusions and tube for the
aircraft, automotive and defense industries in Europe, and an
Alcoa Nederland subsidiary, with operations in Belgium and the
Netherlands, that produces aluminum and steel products for the
building and construction markets.
Alcoa's off-shore subsidiaries, particularly AofA, had
investments of $244 in short-term securities with maturities
greater than 90 days at the end of 1993.
Cash investments and acquisitions in 1992 of $135 included
an interest in a bauxite mine in Brazil and capital funding for
Alcoa-Kofem and the Alcoa-Kobe packaging and engineered products
joint ventures. Alcoa also sold its 44% interest in a Mexican
affiliate and its investments in Venezuela.
Subsequent Events
In February 1994, Alcoa issued $250 of 5-3/4% Notes due 2001. The
proceeds were used to redeem $225 of its 7% debentures due 2011,
which carried an effective yield of 14.7%. The early payment will
result in an extraordinary loss in the 1994 first quarter of
$67.9.
In February 1994, Alcoa announced that it would reduce
primary aluminum production in its U.S. operations by 100,000 mt
per year. Alcoa of Australia separately announced reductions of
25,000 mt at its Point Henry smelter in Geelong, Australia and
26,000 mt at the Portland, Australia smelter. Alcoa of Australia
has a 45% interest in the Portland smelter.
Five-Year Selected Financial Data
1993 1992 1991 1990 1989
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(dollars in millions, except
share amounts and ingot prices)
Sales and operating revenues $ 9,055.9 $ 9,491.5 $ 9,884.1 $10,710.2 $10,910.0
Income before extraordinary loss and
accounting changes* 4.8 22.4 62.7 295.2 944.9
Extraordinary loss and accounting changes - (1,161.6) - - -
Net income (loss)* 4.8 (1,139.2) 62.7 295.2 944.9
Per common share
Before extraordinary loss and
accounting changes .03 .24 .71 3.40 10.67
Net income .03 (13.41) .71 3.40 10.67
- -----------------------------------------------------------------------------------------------
Alcoa's average realized price per pound
for aluminum ingot .56 .59 .67 .75 .92
Average U.S. market price per pound
for aluminum ingot (Metals Week) .53 .58 .59 .74 .88
- -----------------------------------------------------------------------------------------------
Cash dividends declared per common share 1.60 1.60 1.78 3.05 2.72
Total assets 11,596.9 1,023.1 11,178.4 11,413.2 11,540.6
Long-term debt (noncurrent) 1,432.5 855.3 1,130.8 1,295.3 1,316.3
- -----------------------------------------------------------------------------------------------
<FN>
*After special charges of $74.5, or 85 cents per common share, in
1993, $173.9, or $2.03 per share, in 1992, $217.0, or $2.56 per
share, in 1991 and $275.0, or $3.19 per share, in 1990
(Graph 1 omitted)
(Graph 2 omitted)
(Graph 3 omitted)
(Graph 4 omitted)
Financial Reports
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.
/s/Paul H. O'Neill
Paul H. O'Neill
Chairman of the Board and Chief Executive Officer
/s/Jan H. M. Hommen
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 four independent directors, met six times in 1993.
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 as the company's independent
public accountants. The Audit Committee reviewed with the
Director-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-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.
/s/Franklin A. Thomas
Franklin A. Thomas
Chairman, Audit Committee
Independent Auditor'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, 1993 and 1992, 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, 1993. 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, 1993 and 1992, and
the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.
As discussed in Notes A, P and S to the consolidated
financial statements, Alcoa changed its methods of accounting for
income taxes and postretirement benefits other than pensions in 1992.
/s/Coopers & Lybrand
600 Grant St., Pittsburgh, Pa.
January 11, 1994, except for Note U,
for which the date is February 7, 1994
Statement of Consolidated Income
For the year ended December 31 1993 1992 1991
- ---------------------------------------------------------------------------------------
(in millions, except share amounts)
Revenues
Sales and operating revenues (K and U) $ 9,055.9 $ 9,491.5 $9,884.1
Other income, principally interest 93.0 96.9 97.1
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9,148.9 9,588.4 9,981.2
- ---------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold and operating expenses 7,187.0 7,339.1 7,444.8
Selling, general administrative and other expenses 603.6 586.8 579.8
Research and development expenses 130.4 212.2 251.9
Provision for depreciation, depletion and amortization 692.6 682.4 697.9
Interest expense (N) 87.8 105.4 153.2
Taxes other than payroll and severance taxes 105.6 112.3 111.2
Special items (B) 150.8 251.6 330.9
- ---------------------------------------------------------------------------------------
8,957.8 9,289.8 9,569.7
- ---------------------------------------------------------------------------------------
Earnings
Income before taxes on income 191.1 298.6 411.5
Provision (credit) for taxes on income (P) (10.3) 132.3 192.8
- ---------------------------------------------------------------------------------------
Income from operations 201.4 166.3 218.7
Minority interests (H) (196.6) (143.9) (156.0)
- ---------------------------------------------------------------------------------------
Income before extraordinary loss and accounting changes 4.8 22.4 62.7
Extraordinary loss on debt prepayments, net of $25.8
tax benefit - (50.2) -
Cumulative effect of accounting changes for:
Postretirement benefits, net of $667.2 tax benefit
(A and S) - (1,166.4) -
Income taxes (A and P) - 55.0 -
- ---------------------------------------------------------------------------------------
Net Income (Loss) $ 4.8 $(1,139.2) $ 62.7
- ---------------------------------------------------------------------------------------
Earnings (Loss) per Common Share: (I)
Before extraordinary loss and accounting changes $ .03 $ .24 $ .71
Extraordinary loss - (.59) -
Accounting changes:
Postretirement benefits - (13.71) -
Income taxes - .65 -
- ---------------------------------------------------------------------------------------
Earnings (Loss) per common share $ .03 (13.41) $ .71
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial
statements.
Consolidated Balance Sheet
December 31 1993 1992
- --------------------------------------------------------------------------------------------------
(in millions)
Assets
Current assets:
Cash $ 58.0 $ 71.8
Short-term investments (all cash equivalents except $243.6 in 1993) (T) 597.3 476.4
Receivables from customers, less allowances: 1993-$33.2; 1992-$17.7 1,218.7 1,250.1
Other receivables 211.3 160.1
Inventories (C) 1,227.2 1,040.4
Prepaid expenses and other current assets 390.0 249.5
- --------------------------------------------------------------------------------------------------
Total current assets 3,702.5 3,248.3
Properties, plants and equipment (D) 6,506.8 6,415.8
Other assets (E) 1,387.6 1,359.0
- --------------------------------------------------------------------------------------------------
Total Assets $11,596.9 $11,023.1
- --------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Short-term borrowings $ 362.5 $ 414.2
Accounts payable, trade 596.3 617.3
Accrued compensation and retirement costs 288.0 343.2
Taxes, including taxes on income 364.3 371.5
Provision for layoffs and impairments (B) 128.8 93.1
Other current liabilities 302.2 282.1
Long-term debt due within one year 50.8 43.9
- --------------------------------------------------------------------------------------------------
Total current liabilities 2,092.9 2,165.3
Long-term debt, less amount due within one year (F and U) 1,432.5 855.3
Accrued postretirement benefits (S) 1,845.2 1,820.6
Other noncurrent liabilities and deferred credits (G) 1,022.2 990.6
Deferred income taxes 231.1 281.4
- --------------------------------------------------------------------------------------------------
Total liabilities 6,623.9 6,113.2
- --------------------------------------------------------------------------------------------------
Minority Interests (A and H) 1,389.2 1,305.6
- --------------------------------------------------------------------------------------------------
Contingent liabilities (O) - -
Shareholders' Equity
Preferred stock (J) 55.8 55.8
Common stock (J) 88.8 88.8
Additional capital 715.9 715.0
Translation adjustment (A) (188.5) (148.0)
Retained earnings 2,946.1 3,089.3
Unfunded pension obligation (7.0) -
Treasury stock, at cost (27.3) (196.6)
Total shareholders' equity 3,583.8 3,604.3
- --------------------------------------------------------------------------------------------------
Total Liabilities and Equity $11,596.9 $11,023.1
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Statement of Consolidated Cash Flows
For the year ended December 31 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
(in millions)
Cash from Operations
Net income (loss) $ 4.8 $(1,139.2) $ 62.7
Adjustments to reconcile net income (loss) to cash from operations:
Depreciation, depletion and amortization 711.1 710.1 731.6
Reduction of assets to net realizable value 16.7 144.3 31.2
Increase (reduction) in deferred income taxes (124.5) (88.0) 13.8
Equity earnings before additional taxes, net of dividends 11.7 14.8 8.0
Provision for special items 134. 107.4 302.6
(Gains) losses from financing and investing activities (1.3) (7.2) 3.1
Book value of asset disposals 20.8 15.3 30.5
Accounting changes - 1,111.4 -
Extraordinary loss - 50.2 -
Minority interests 196.6 143.9 156.0
Other (11.4) 53.9 6.0
Reduction in receivables 15.6 84.5 93.1
(Increase) reduction in inventories (130.2) 166.7 143.3
(Increase) reduction in prepaid expenses and other current assets (152.2) 70.8 14.6
Reduction in accounts payable and accrued expenses (202.8) (248.7) (42.5)
Reduction in taxes, including taxes on income (6.0) (.6) (194.5)
Payment of amortized interest on deep discount debt - (63.8) -
Net change in noncurrent assets and liabilities 52.0 82.3 66.8
- --------------------------------------------------------------------------------------------------------
Cash from operations 535.0 1,208.1 1,426.3
- --------------------------------------------------------------------------------------------------------
Financing Activities
Net additions to short-term borrowings 67.5 244.0 37.7
Common stock issued and treasury stock sold 17.7 36.2 13.4
Reductions in minority interests (14.2) (18.4) (126.3)
Dividends paid to shareholders (142.3) (138.9) (153.3)
Dividends paid to minority interests (159.3) (140.9) (205.8)
Additions to long-term debt 748.0 338.4 630.6
Payments on long-term debt (145.8) (687.1) (704.3)
- --------------------------------------------------------------------------------------------------------
Cash from (used for) financing activities 371.6 (366.7) (508.0)
- --------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (757.0) (788.8) (849.7)
Acquisitions of subsidiaries, net of cash acquired (16.3) (7.7) (31.4)
Sales of subsidiaries - 12.6 1.0
Additions to investments (5.9) (127.1) (30.8)
Sales of investments .3 50.5 -
Short-term investments, excluding cash equivalents (243.6) - -
Other receipts 5.8 7.6 3.6
Other payments (19.5) (21.4) (11.7)
- --------------------------------------------------------------------------------------------------------
Cash (used for) investing activities (1,036.2) (874.3) (919.0)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (6.9) (44.7) (9.6)
- --------------------------------------------------------------------------------------------------------
Changes in Cash
Net change in cash and cash equivalents (136.5) (77.6) (10.3)
Cash and cash equivalents at beginning of year 548.2 625.8 636.1
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at year-end $ 411.7 $ 548.2 $ 625.8
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Statement of Shareholders' Equity
Unfunded
Preferred Common Additional Translation Retained pension Treasury Shareholders'
December 31 stock stock capital adjustment earnings obligation stock equity
- --------------------------------------------------------------------------------------------------------------------------------
(in millions, except share amounts)
Balance at end of 1990 $ 55.8 $88.8 $713.5 $ 92.9 $ 4,473.1 - $(260.8) $ 5,163.3
Net income-1991 62.7 62.7
Cash dividends:
Preferred @ $3.75 per share (2.1) (2.1)
Common @ $1.78 per share (151.2) (151.2)
Stock issued: compensation plans .3 (4.4) 17.5 13.4
Translation adjustments (148.7) (148.7)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1991 55.8 88.8 713.8 (55.8) 4,378.1 - (243.3) 4,937.4
Net loss-1992 (1,139.2) (1,139.2)
Cash dividends:
Preferred @ $3.75 per share (2.1) (2.1)
Common @ $1.60 per share (136.8) (136.8)
Stock issued: compensation plans 1.2 (10.7) 45.7 36.2
Stock issued: debt conversions 1.0 1.0
Translation adjustments (92.2) (92.2)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1992 55.8 88.8 715.0 (148.0) 3,089.3 - (196.6) 3,604.3
Net income-1993 4.8 4.8
Cash dividends:
Preferred @ $3.75 per share (2.1) (2.1)
Common @ $1.60 per share (140.2) (140.2)
Stock issued: debt conversions (2.7) 149.5 146.8
Stock issued: compensation plans .9 (3.0) 19.8 17.7
Minimum pension liability adjustments (7.0) (7.0)
Translation adjustments (40.5) (40.5)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1993 $55.8 $88.8 $715.9 $(188.5) $ 2,946.1 $(7.0) $ (27.3) $ 3,583.8
- --------------------------------------------------------------------------------------------------------------------------------
Share Activity Common stock
-----------------------------------------------------------
Preferred stock Issued Treasury Net outstanding
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1990 557,769 88,804,220 (3,961,870) 84,842,350
Stock issued: compensation plans 239,969 239,969
Shares retired (120)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1991 557,649 88,804,220 (3,721,901) 85,082,319
Stock issued: compensation plans 631,137 631,137
Stock issued: debt conversions 16,128 16,128
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1992 557,649 88,804,220 (3,074,636) 85,729,584
Stock issued: compensation plans 305,226 305,226
Stock issued: debt conversions 2,326,468 2,326,468
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of 1993 557,649 88,804,220 (442,942) 88,361,278
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
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 joint ventures in which Alcoa has an
undivided interest. Investments in other entities are accounted
for principally on an equity basis.
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. The book value of
obsolete assets is charged to depreciation expense when they are
scrapped. 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 the estimated mineral
reserves are extracted. Intangibles, such as goodwill and
patents, are amortized over their estimated lives.
Environmental Expenditures. Expenditures that relate to current
operations are expensed or capitalized, as appropriate.
Expenditures that relate to an existing condition 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
for remediation expenditures may include, as appropriate,
elements of costs such as site investigations, consultants' fees,
feasibility studies, outside contractor expenses and monitoring
expenses. Estimates are not discounted, nor are claims for
recovery recognized. The estimates also include costs apportioned
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.
Futures Contracts. Alcoa enters into forward and futures
contracts for foreign exchange, interest rate and commodities that
are primarily accounted for as hedges of its committed and, in some
cases, anticipated revenues and costs. The gains and losses on
these contracts are reflected in earnings concurrently with the
hedged revenues or costs. The cash flows from these contracts are
classified in a manner consistent with the underlying nature of
the transactions.
Income Taxes. Effective January 1992 Alcoa adopted SFAS 109 on
accounting for income taxes. A tax credit of $55.0, or $.65 per
share, was recorded as a cumulative effect of an accounting
change for the net decrease to the deferred tax liability. See
Note P.
Postretirement Benefit Plans Other Than Pensions. Effective
January 1992 Alcoa adopted accounting for these benefits as
prescribed by SFAS 106. An after-tax charge of $1,166.4, or
$13.71 per share, was recorded as a cumulative effect of an
accounting change. Net income was also reduced by $59.0, or
69 cents per share, for additional 1992 expenses resulting
from the change. See Note S.
Foreign Currency. The local currency is the functional currency
for Alcoa's significant operations outside the U.S., except in
Brazil. As of January 1, 1991, Alcoa adopted the Australian
dollar as the functional currency for translating financial
statements of Alcoa of Australia. The change had the effect of
reducing Alcoa's consolidated shareholders' equity at January 1
by $133 and minority interests by $128.
Reclassification. Certain amounts in previously issued financial
statements were reclassified to conform to 1993 presentations.
B. Special Items
Special items of $150.8 in 1993 ($98.0 after tax and minority
interests) include $134.1 for severance costs associated with
permanent reductions of hourly paid and salaried employees,
mainly in the company's U.S. aluminum operations. The remaining
$16.7 is associated with closing certain businesses at several
plants, including the manufacture of aluminum rod at the
Rockdale, Texas plant.
Special items in 1992 totaling $251.6 ($173.9 after tax and
minority interests) consisted of $95.7 for redundancies and
$155.9 for asset dispositions. The dispositions included the
shutdown of a facility in South Bend, Ind. and impairment of
Alcoa Composites, Inc.
The 1991 special items of $333.8 ($217.0 after tax and
minority interests) included $257.9 for costs associated with
environmental matters at several operating locations worldwide.
The largest single provision was for the smelting and fabricating
plant in Massena, N.Y. The remaining $75.9 was for restructuring
costs in several business units. Of this amount, $2.9 relates to
an equity entity and is reported in Other Income.
C. Inventories
December 31 1993 1992
- --------------------------------------------------
Finished goods $ 317.3 $ 262.6
Work in process 415.7 350.4
Bauxite and alumina 165.9 160.1
Purchased raw materials 188.2 153.7
Operating supplies 140.1 113.6
- --------------------------------------------------
$1,227.2 $1,040.4
Approximately 58% of total inventories at December 31, 1993 were
valued on a LIFO basis. If valued on an average cost basis, total
inventories would have been $623.9 and $660.2 higher at the end
of 1993 and 1992, respectively. During 1992 certain LIFO
inventory quantities were reduced and flowed through cost of
goods sold at prior years' lower costs rather than at current
costs. The effect of these reductions increased income from
operations by $49.9.
D. Properties, Plants and Equipment, at Cost
December 31 1993 1992
- -----------------------------------------------------------------------
Land and land rights, including mines $ 229.0 $ 228.8
Structures 3,603.4 3,476.5
Machinery and equipment 9,317.7 8,990.9
- -----------------------------------------------------------------------
13,150.1 12,696.2
Less, accumulated depreciation and depletion 7,093.9 6,671.6
- -----------------------------------------------------------------------
6,056.2 6,024.6
Construction work in progress 450.6 391.2
- -----------------------------------------------------------------------
$ 6,506.8 $ 6,415.8
E. Other Assets
December 31 1993 1992
- ----------------------------------------------------------------------
Investments $ 322.2 $ 368.9
Intangibles, net of accumulated amortization
of $189.8 in 1993 and $173.5 in 1992 179.2 183.6
Noncurrent receivables 218.9 151.5
Deferred income taxes 431.5 351.3
Deferred charges and other 235.8 303.7
- ----------------------------------------------------------------------
$1,387.6 $1,359.0
F. Long-Term Debt
December 31 1993 1992
- -----------------------------------------------------------------------------------
U.S.
4.625% Notes payable, due 1996 $ 175.0 -
Convertible subordinated debentures
6-1/4%, due 2002, convertible @ $62/share - $149.0
Discount debentures (see Note U)
7%, $225 face amount, due 2011 (14.7% effective yield) 117.3 116.0
Commercial paper (3.6% average rate) 337.3 -
Tax-exempt revenue bonds ranging
from 5-3/4% to 7. 5%, due 2000-2012 133.5 134.0
Alcoa Aluminio
Variable rate note due 1994-1997 (5.8% and 6.2% average rates) 328.7 150.2
Alcoa of Australia
Euro-commercial paper, variable rates, due
1996-1997 (3.4% and 3.7% average rates) 302.0 304.0
Other 89.5 46.0
- -----------------------------------------------------------------------------------
1,483.3 899.2
Less, amount due within one year 50.8 43.9
- -----------------------------------------------------------------------------------
$1,432.5 $855.3
The amount of long-term debt maturing in each of the next five
years is $50.8 in 1994, $107.0 in 1995, $375.6 in 1996, $603.7 in
1997 and $55.1 in 1998.
Alcoa has two Revolving Credit Agreements of $375 each with
a group of international banks. One agreement may be renewed for
one year after July 1994 and the other matures in July 1997.
While commercial paper balances are outstanding, certain levels
of consolidated net worth and working capital must be maintained.
Up to $375 of 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 long-term revolving
credit agreements.
In 1992 outstanding commercial paper was classified as short-
term borrowings because the multiple-option loan facility that
backed the commercial paper expired in September 1993. The
commercial paper outstanding at December 31, 1992 was $209.6.
G. Other Noncurrent Liabilities and Deferred Credits
December 31 1993 1992
- -----------------------------------------------------------------
On-site environmental remediation $ 348.0 $444.5
Other noncurrent liabilities 437.1 321.6
Deferred credits 237.1 224.5
- -----------------------------------------------------------------
$1,022.2 $990.6
H. Minority Interests
The following table summarizes the minority shareholders'
interests in the equity of subsidiaries that are more than 50%
owned by Alcoa.
December 31 1993 1992
- -----------------------------------------------------------------
Alcoa of Australia $ 616.1 $ 599.8
Alcoa International Holdings Company (AIHC) 250.0 250.0
Alcoa Aluminio 164.9 159.5
Alcoa Brazil Holdings Company 102.1 95.8
Other majority-owned companies 256.1 200.5
- -----------------------------------------------------------------
$1,389.2 $1,305.6
AIHC's minority interests consist of four series of preferred
stock with a weighted average annual dividend rate of 5.1% for
1993, 6.7% for 1992 and 7.7% for 1991.
Alcoa Aluminio's minority interests include $214.7 of
convertible preferred stock with an annual dividend of $18.4.
I. 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 87,673,141
in 1993, 85,474,089 in 1992 and 84,983,749 in 1991. Fully diluted
earnings per common share are not stated since the dilution is
not material.
J. 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
per share of $100 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, 1993, shares of common
stock reserved for issuance were:
Number of shares
- ---------------------------------------------------
Long-term stock incentive plan 6,519,522
Employees' savings plans 2,048,766
Incentive compensation plan 84,614
- --------------------------------------------------
8,652,902
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 $1 per share options issued as
a payout of earned performance share awards. At December 31,1993,
options for 2,164,857 shares were exercisable.
The transactions for shares under option were:
1993 1992 1991
- --------------------------------------------------------------------------
Outstanding, beginning of year:
Number 3,286,052 3,014,031 2,470,548
Price $1.00-80.13 $1.00-76.88 $1.00-76.88
Granted:
Number 1,481,729 1,584,002 934,485
Price $1.00-77.13 $1.00-80.13 $1.00-72.38
Exercised:
Number (676,546) (1,300,081) (371,702)
Price $1.00-73.13 $1.00-80.13 $1.00-64.63
Expired or canceled (74,809) (11,900) (19,300)
- --------------------------------------------------------------------------
Outstanding, end of year:
Number 4,016,426 3,286,052 3,014,031
Price $1.00-80.13 $1.00-80.13 $1.00-76.88
- --------------------------------------------------------------------------
Shares reserved for future options
at end of year 2,503,096 3,679,620 896,025
K. Segment and Geographic Area Information
Alcoa is primarily an integrated producer of aluminum products.
Alcoa's operations consist of three segments: Alumina and
Chemicals, Aluminum Processing, and Non-Aluminum Products.
The Alumina and Chemicals segment includes the production
and sale of bauxite, alumina, alumina chemicals and
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 Non-Aluminum Products segment includes the production
and sale of electrical, ceramic, plastic and composite materials
products, manufacturing equipment, gold, magnesium products, and
steel and titanium forgings.
Segment information 1993 1992 1991
- ------------------------------------------------------------------------------
Sales to customers:
Alumina and chemicals $ 1,436.5 $ 1,421.6 $ 1,496.3
Aluminum processing 5,973.6 6,516.9 6,960.7
Non-aluminum products 1,645.8 1,553.0 1,427.1
Intersegment sales: (1)
Alumina and chemicals 649.3 671.8 912.4
Aluminum processing 13.6 22.0 3.1
Non-aluminum products 72.9 61.5 78.8
Eliminations (735.8) (755.3) (994.3)
- ------------------------------------------------------------------------------
Total sales and operating revenues $ 9,055.9 $ 9,491.5 $ 9,884.1
- ------------------------------------------------------------------------------
Operating profit (loss) before special items:
Alumina and chemicals $ 372.7 $ 278.2 $ 566.3
Aluminum processing (21.2) 288.5 354.5
Non-aluminum products 5.0 (31.0) (133.6)
Unallocated (5.1) (2.5) 10.0
- ------------------------------------------------------------------------------
Total $ 351.4 $ 533.2 $ 797.2
- ------------------------------------------------------------------------------
Operating profit (loss) after special items:
Alumina and chemicals $ 365.6 $ 273.5 $ 534.7
Aluminum processing (155.0) 181.9 84.4
Non-aluminum products (4.9) (171.3) (162.8)
Unallocated (5.1) (2.5) 10.0
- ------------------------------------------------------------------------------
Total operating profit 200.6 281.6 466.3
Other income 78.3 122.4 98.4
Interest expense 87.8 105.4 153.2
- ------------------------------------------------------------------------------
Income before taxes on income $ 191.1 $ 298.6 $ 411.5
- ------------------------------------------------------------------------------
Identifiable assets:
Alumina and chemicals $ 2,854.3 $ 2,685.5 $ 2,689.8
Aluminum processing 6,929.1 6,640.1 6,838.6
Non-aluminum products 1,483.7 1,313.6 1,298.0
- ------------------------------------------------------------------------------
Total identifiable assets 11,267.1 10,639.2 10,826.4
Investments 322.2 368.9 240.0
Corporate assets 7.6 15.0 112.0
- ------------------------------------------------------------------------------
Total assets $11,596.9 $11,023.1 $11,178.4
- ------------------------------------------------------------------------------
Depreciation and depletion:
Alumina and chemicals $ 144.5 $ 137.6 $ 146.6
Aluminum processing 475.3 483.0 481.3
Non-aluminum products 85.1 84.8 92.0
- ------------------------------------------------------------------------------
Total depreciation and depletion (2) $ 704.9 $ 705.4 $ 719.9
- ------------------------------------------------------------------------------
Capital expenditures:
Alumina and chemicals $ 232.6 $ 234.5 $ 285.3
Aluminum processing 423.7 462.1 480.4
Non-aluminum products 100.7 92.2 84.0
- ------------------------------------------------------------------------------
Total capital expenditures $ 757.0 $ 788.8 $ 849.7
- ------------------------------------------------------------------------------
(Notes to this table follow geographic area information)
Geographic area information 1993 1992 1991
- ---------------------------------------------------------------------------------
Sales to customers:
USA $ 5,279.4 $ 5,658.6 $ 5,705.5
Other Americas 948.2 1,055.9 1,112.0
Pacific 1,752.5 1,710.2 1,954.6
Europe 1,075.8 1,066.8 1,112.0
Transfers between geographic areas: (1)
USA 832.9 1,001.6 948.6
Other Americas 342.6 253.6 287.7
Pacific 36.1 54.3 121.7
Europe 28.3 65.1 52.6
Eliminations (1,239.9) (1,374.6) (1,410.6)
- ---------------------------------------------------------------------------------
Total sales and operating revenues $ 9,055.9 $ 9,491.5 $ 9,884.1
- ---------------------------------------------------------------------------------
Operating profit (loss) before special items:
USA $ (193.1) $ 55.0 $ 97.5
Other Americas 139.5 90.9 125.4
Pacific 399.2 297.6 478.6
Europe 5.8 89.7 95.7
- ---------------------------------------------------------------------------------
Total $ 351.4 $ 533.2 $ 797.2
- ---------------------------------------------------------------------------------
Operating profit (loss) after special items:
USA $ (340.7) $ (176.5) $ (179.0)
Other Americas 139.5 87.0 104.8
Pacific 399.2 297.6 450.2
Europe 2.6 73.5 90.3
- ---------------------------------------------------------------------------------
Total operating profit $ 200.6 $ 281.6 $ 466.3
- ---------------------------------------------------------------------------------
Identifiable assets:
USA $ 6,270.9 $ 6,092.3 $ 6,044.2
Other Americas 1,691.4 1,441.9 1,391.7
Pacific 2,384.2 2,345.6 2,571.9
Europe 920.6 759.4 818.6
- ---------------------------------------------------------------------------------
Total identifiable assets 11,267.1 10,639.2 10,826.4
Investments 322.2 368.9 240.0
Corporate assets 7.6 15.0 112.0
- ---------------------------------------------------------------------------------
Total assets $11,596.9 $11,023.1 $11,178.4
- ---------------------------------------------------------------------------------
Capital expenditures:
USA $ 405.0 $ 457.6 $ 509.0
Other Americas 105.0 75.1 60.5
Pacific 162.7 184.5 228.9
Europe 84.3 71.6 51.3
- ---------------------------------------------------------------------------------
Total capital expenditures $ 757.0 $ 788.8 $ 849.7
<FN>
(1) Transfers between segments and geographic areas are based on
generally prevailing market prices.
(2) Includes depreciation of $12.3 in 1993, $23 in 1992 and $22
in 1991 reported as research and development expenses in the
income statement.
Total exports from the U.S. in 1993 were $896 compared with $993
in 1992 and $967 in 1991.
L. Majority-Owned Subsidiaries
The condensed financial statements of Alcoa's principal majority-
owned subsidiaries follow.
Alcoa Aluminio S.A.-a 59%-owned Brazilian subsidiary:
December 31 1993 1992
- ------------------------------------------------------------
Cash and short-term investments $ 160.2 $ 54.5
Other current assets 283.7 214.7
Properties, plants and equipment, net 870.8 846.6
Other assets 207.8 156.7
- ------------------------------------------------------------
Total assets 1,522.5 1,272.5
- ------------------------------------------------------------
Current liabilities 372.7 337.4
Long-term debt* 322.5 137.6
Other liabilities 35.9 36.9
- ------------------------------------------------------------
Total liabilities 731.1 511.9
- ------------------------------------------------------------
Net assets $ 791.4 $ 760.6
<FN>
*Held by Alcoa Brazil Holdings Company-$22.5
1993 1992 1991
- --------------------------------------------------------------------
Revenues $ 685.8 $ 659.0 $ 648.0
Costs and expenses* (625.3) (634.8) (699.0)
Translation and exchange adjustments (10.7) (9.2) (8.7)
Income tax expense (.6) 5.6 (2.4)
- --------------------------------------------------------------------
Net income* $ 49.2 $ 20.6 $ (62.1)
- --------------------------------------------------------------------
<FN>
*Includes a special charge of $18.8 in 1991 for environmental and
restructuring charges
Alcoa of Australia Limited-a 51%-owned subsidiary of Alcoa
International Holdings Company:
December 31 1993 1992
- ------------------------------------------------------------
Cash and short-term investments $ 350.3 $ 354.4
Other current assets 425.7 429.5
Properties, plants and equipment, net 1,430.1 1,381.4
Other assets 85.7 80.4
- ------------------------------------------------------------
Total assets 2,291.8 2,245.7
- ------------------------------------------------------------
Current liabilities 399.7 383.4
Long-term debt 302.0 304.0
Other liabilities 332.7 334.3
- ------------------------------------------------------------
Total liabilities 1,034.4 1,021.7
- ------------------------------------------------------------
Net assets $1,257.4 $1,224.0
1993 1992 1991
- -------------------------------------------------------------------------
Revenues* $ 1,660.9 $ 1,661.7 $ 2,001.5
Costs and expenses** (1,264.6) (1,297.7) (1,500.4)
Translation and exchange adjustments 5.2 (13.8) (2.6)
Income tax expense** (88.1) (132.0) (183.0)
Accounting changes*** - 33.6 -
- -------------------------------------------------------------------------
Net income** $ 313.4 $ 251.8 $ 315.5
- -------------------------------------------------------------------------
<FN>
* Revenues from Alcoa were $50.3 in 1993, $60.6 in 1992 and
$142.3 in 1991. The terms of the transactions were established by
negotiation between the parties.
** Includes a special charge of $11.8 ($7.2 after tax) in 1991 for
environmental charges
*** Consists of $37 for income taxes and $(3.4) for postretirement
benefits
M. Financial Instruments
Under a power contract that expires no earlier than 2011, Alcoa
is entitled to a fixed percentage of the annual output from a
Northwest U.S. hydroelectric facility. Alcoa makes minimum annual
payments of $8 whether or not it receives power. Alcoa could be
required to increase its participation if other parties to the
contract default. If all other parties had defaulted as of
December 31, 1993, Alcoa's maximum liability would have been
about $190. There is no reason to believe the other parties will
default or that power will not be provided.
At December 31, 1993, Alcoa had open currency exchange
commitments consisting of purchase contracts of $516 and sell
contracts of $1,089. These contracts are part of a worldwide
program to minimize volatility in foreign exchange operating
income and balance sheet exposure. The contracts generally mature
within 12 months and are principally unsecured forward exchange
contracts with selected banks.
The methods used to estimate the fair value of certain
financial instruments follow.
Cash and Short-Term Investments. The carrying amount approximates
fair value because of the short maturity of the instruments.
Investments and Noncurrent Receivables. The majority of Alcoa's
investments represent equity interests in various companies and
joint ventures for which there is no quoted market price. To
estimate the fair value of these investments, Alcoa would have
had to incur excessive costs. The fair value of noncurrent
receivables is based on anticipated cash flows.
Long-Term Debt. The fair value of long-term debt is based on
interest rates that are currently available to Alcoa for issuance
of debt with similar terms and remaining maturities.
The fair value of recorded financial instruments, excluding
investments, does not materially differ from the values reflected
on the books.
N. Interest Cost Components
1993 1992 1991
- ---------------------------------------------------------
Amount charged to expense $87.8 $105.4 $153.2
Amount capitalized 3.5 11.1 12.6
- ---------------------------------------------------------
$91.3 $116.5 $165.8
O. Contingent Liabilities
Various lawsuits and 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. Management
believes, however, 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. Income Taxes
As discussed in Note A, Alcoa implemented SFAS 109 as of January
1, 1992 and the cumulative effect of this change is reported in
1992 earnings. Prior years' financial statements have not been
restated. The components of income before taxes on income were:
1993 1992 1991
- --------------------------------------------------------
U.S. $(359.4) $(241.5) $(230.4)
Foreign 550.5 540.1 641.9
- --------------------------------------------------------
$ 191.1 $ 298.6 $ 411.5
The provision for taxes on income consisted of:
1993 1992 1991
- -------------------------------------------------------
Current:
U.S. federal* $ (53.6) $ 46.9 $(50.0)
Foreign 163.0 174.1 217.9
State and local 4.8 (.7) 11.1
- -------------------------------------------------------
114.2 220.3 179.0
- -------------------------------------------------------
Deferred:
U.S. federal* (80.2) (71.2) (11.3)
Foreign (47.2) (11.7) 25.1
State and local 2.9 (5.1) -
- -------------------------------------------------------
(124.5) (88.0) 13.8
- -------------------------------------------------------
Total $ (10.3) $132.3 $192.8
<FN>
*Includes U.S. taxes related to foreign income
Deferred taxes in 1993 included credits of $130.4 for a U.S. tax
loss carryforward and statutory tax rate change adjustments of
$9.9 in the U.S. and $41.6 in Australia.
Reconciliation of the effective tax rate to the U.S.
statutory rate follows.
1993 1992 1991
- ----------------------------------------------------------------
U.S. federal statutory rate (%) 35.0 34.0 34.0
Taxes on foreign income (9.2) 10.0 12.4
State taxes net of federal benefit 2.1 (1.3) 1.8
Tax rate changes (26.9) - -
Adjustments to prior years' accruals (3.0) (1.5) 1.3
Other (3.4) 3.1 (2.6)
- ----------------------------------------------------------------
Effective tax rate (%) (5.4) 44.3 46.9
The components of net deferred tax assets and liabilities follow.
1993 1992
--------------------------- ---------------------------
Deferred tax Deferred tax Deferred tax Deferred tax
December 31 assets liabilities assets liabilities
- ------------------------------------------------------------------------------------
Depreciation - $864.4 - $ 929.9
Employee benefits $ 781.5 - $ 755.5 -
Loss provisions 264.9 - 255.7 -
Deferred income 38.4 84.1 70.2 75.8
Tax loss carryforwards 291.2 - 158.5 -
Tax credit carryforwards 20.1 - 85.7 -
Other 41.0 21.2 31.0 33.3
- ------------------------------------------------------------------------------------
1,437.1 969.7 1,356.6 1,039.0
Valuation allowance (171.4) - (157.3) -
- ------------------------------------------------------------------------------------
$1,265.7 $969.7 $1,199.3 $1,039.0
Of the total tax loss carryforwards, $32.0 expires over the next
two years, $51.2 expires over the next 10 years, $130.4 expires
over the next 15 years and $77.6 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.
Deferred income taxes provided for timing differences in the
recognition of revenue and expense for tax and financial
statement purposes prior to the new accounting rules follow.
1991
- -----------------------------------------------
Depreciation $57.1
Employee benefits 9.3
Loss provisions not currently deductible (57.9)
Deferred income 3.8
Other 1.5
- -----------------------------------------------
$13.8
The cumulative amount of Alcoa's share of undistributed earnings
for which no deferred taxes have been provided was $1,499.8 at
December 31, 1993. Management has no plans to distribute such
earnings in the foreseeable future. It is not practicable to
determine the deferred tax liability on these earnings.
Q. Lease Expense
Certain equipment, warehousing and office space, and oceangoing
vessels are under operating lease agreements. Total expense for
all leases was $73.7 in 1993, $74.8 in 1992 and $77.7 in 1991.
Under long-term leases, minimum annual rentals are $35.7 in 1994,
$27.9 in 1995, $21.8 in 1996, $15.5 in 1997, $12.5 in 1998 and a
total of $25.4 for 1999 and thereafter.
R. 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.
1993 1992 1991
- ------------------------------------------------------------------
Benefits earned $102.4 $ 92.2 $ 82.6
Interest accrued on projected
benefit obligation 253.9 250.7 240.9
Net amortization 59.8 29.7 21.2
416.1 372.6 344.7
Less: expected return on plan assets* 268.1 259.2 249.0
$148.0 $ 113.4 $ 95.7
<FN>
*The actual returns were higher than the expected returns by
$324.2 in 1993, $82.4 in 1992 and $253.9 in 1991 and were
deferred as actuarial gains.
The status of the pension plans follows.
Assets exceed Accumulated benefit
accumulated obligation
benefit obligation exceeds assets
---------------------- -----------------------
December 31 1993 1992 1993 1992
- ---------------------------------------------------------------------------------
Plan assets, primarily
stocks and bonds
at market $3,688.4 $1,702.1 $ 90.6 $1,662.1
- ---------------------------------------------------------------------------------
Present value of obligation:
Vested 3,154.8 1,450.0 197.1 1,697.7
Non-vested 310.9 147.8 17.3 161.2
- ---------------------------------------------------------------------------------
Accumulated benefit obligation 3,465.7 1,597.8 214.4 1,858.9
Effect of assumed
salary increases 328.1 60.3 20.0 236.7
- ---------------------------------------------------------------------------------
Projected benefit obligation $3,793.8 $1,658.1 $ 234.4 $2,095.6
- ---------------------------------------------------------------------------------
Plan assets greater (less than)
projected benefit obligation $ (105.4) $ 44.0 $ (143.8) $ (433.5)
Unrecognized:
Transition (assets) obligation 7.7 (49.3) 10.8 67.2
Prior service costs 138.6 27.0 53.8 43.6
Actuarial (gains) losses, net (113.3) 56.0 (4.1) 200.8
Minimum liability adjustment - - (43.4) (78.5)
- ---------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ (72.4) $ 77.7 $ (126.7) $ (200.4)
- ---------------------------------------------------------------------------------
Assumptions used to determine plan liabilities and expenses follow.
December 31 1993 1992 1991
- ----------------------------------------------------------------------
Settlement discount rate 6.75% 6.75% 7.25%
Long-term rate for compensation increases 5.5 5.5 5.5
Long-term rate of return on plan assets 9.0 9.0 9.0
- ----------------------------------------------------------------------
Supplemental information related only to Alcoa's U.S. pension
plans partially insured by the Pension Benefit Guarantee
Corporation follow.
Assets exceed Accumulated benefit
accumulated obligation
benefit obligation exceeds assets
----------------------- ----------------------
December 31 1993 1992 1993 1992
- ------------------------------------------------------------------------------------
Plan assets at fair market value $ 3,270.5 $ 1,359.5 $ 21.7 $ 1,601.3
Accumulated benefit obligation (3,115.6) (1,284.0) (23.9) (1,691.8)
- ------------------------------------------------------------------------------------
$ 154.9 $ 75.5 $ (2.2) $ (90.5)
- ------------------------------------------------------------------------------------
Alcoa also sponsors a number of defined contribution pension
plans. Expenses were $34.5 in 1993, $23.9 in 1992 and $22.1 in
1991.
S. 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 a trust. Life benefits are generally provided by
insurance contracts. Alcoa retains the right, subject to existing
agreements, to change or eliminate these benefits.
In 1993 changes made to certain medical plans may require
contributions by future retirees to help offset medical cost
increases. The changes reduced Alcoa's benefit expense and prior
service costs.
Alcoa implemented the new accounting rule on postretirement
benefits effective January 1, 1992. These benefits are now
accrued over the period the employee provides services to the
company. Prior to the change, costs were charged to expense when
paid. The accounting change resulted in a one-time charge to
earnings of $1,166.4, net of taxes of $667.2.
The components of postretirement benefit expense follow.
1993 1992
- ------------------------------------------------------------
Service cost of benefits earned $ 29.9 $ 42.9
Interest cost on liability 110.2 135.9
Net amortization (32.4) -
Return on plan assets (5.2) (3.7)
- ------------------------------------------------------------
Accrued postretirement benefit costs $102.5 $175.1
The status of the postretirement benefit plans was:
December 31 1993 1992
- ------------------------------------------------------------------------
Retirees $1,070.4 $1,023.6
Fully eligible active plan participants 142.9 224.9
Other active participants 378.6 757.1
- ------------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO) 1,591.9 2,005.6
Plan assets, primarily stocks and bonds at market 53.4 57.6
- ------------------------------------------------------------------------
APBO in excess of plan assets 1,538.5 1,948.0
Unrecognized net:
Reduction in prior service costs 469.4 35.7
Actuarial losses (78.8) (87.9)
- ------------------------------------------------------------------------
Accrued postretirement benefit liability $1,929.1 $1,895.8
For measuring the liability and expense, a 10.5% annual rate of
increase in the per capita claims cost was assumed for 1994,
declining gradually to 4.75% by the year 2001 and thereafter. For
both years the discount rate was 6.75%, and the rates for
compensation increases and return on plan assets were 5.5% and
9%, respectively. For 1993 a 1% increase in the trend rate for
health care costs would have increased the APBO by 10% and
service and interest costs by 12%.
Cash payments for postretirement benefits were $80.4 in
1993, $76.6 in 1992 and $71.1 in 1991.
T. Cash Flow Information
Alcoa considers all investments purchased with a maturity of
three months or less to be cash equivalents.
Cash payments for interest and income taxes follows.
1993 1992 1991
- -------------------------------------------------------
Interest $101.2 $193.9* $154.9
Income taxes 193.6 264.4 426.1
- -------------------------------------------------------
<FN>
*Includes $63.8 of amortized interest on the 7% debentures
retired early.
In a non-cash transaction early in 1993, $149 of 6-1/4
Convertible Subordinated Debentures due 2002 were converted to
common stock by issuing 2.3 million shares of treasury stock.
Cash flows in 1992 were not affected by the accounting
changes for postretirement benefits and income taxes.
U. Subsequent Events
In February 1994, Alcoa issued $250 of 5-3/4% Notes due 2001. The
net proceeds were used to redeem $225 of Alcoa's 7% Debentures
due 2011. These debentures carried an effective yield of 14.7%.
The early payment of the debentures will result in an
extraordinary loss in the 1994 first quarter of $67.9.
In February 1994, Alcoa announced that it would reduce
primary aluminum production in its U.S. operations by 100,000
metric tons (mt) per year. Alcoa of Australia separately
announced reductions of 25,000 mt at its Point Henry smelter in
Geelong, Australia and 26,000 mt at the Portland, Australia
smelter. Alcoa of Australia has a 45% interest in the Portland
smelter.
Supplemental Financial
Information
Quarterly Data (unaudited)
(dollars in millions, except share amounts)
1993 First Second Third Fourth Year
- ---------------------------------------------------------------------------------
Sales and operating revenues $2,109.6 $2,405.3 $2,230.2 $2,310.8 $9,055.9
Income from operations 64.5 109.6 73.4 (46.1) 201.4
Net income (loss) *# 27.6 35.3 28.8 (86.9) 4.8
Per common share .31 .40 .32 (1.00) .03
- ---------------------------------------------------------------------------------
<FN>
*After special items of $23.8, or 27 cents per share, in the
second quarter, $4.0, or five cents per share, in the third
quarter and $70.2, or 85 cents per share, in the fourth quarter
#Net income for the second quarter includes a credit of $26.3
from a reduction in Australia's corporate tax rate from 39% to
33% and a $9.1 credit in the third quarter from the change in the
U.S. tax rate.
1992 First Second Third Fourth Year
- ------------------------------------------------------------------------------------
Sales and operating revenues $ 2,251.4 $2,406.1 $2,381.7 $2,452.3 $ 9,491.5
Income from operations 95.7 45.7 82.2 (57.3) 166.3
Extraordinary loss - (50.2) - - (50.2)
Accounting changes (1,111.4) - - - (1,111.4)
Net income (loss) *# (1,056.3) (48.2) 45.3 (80.0) (1,139.2)
Per common share:
Extraordinary loss - (.59) - - (.59)
Accounting changes (13.06) - - - (13.06)
Net income (loss) * (12.42) (.57) .52 (.94) (13.41)
- ------------------------------------------------------------------------------------
<FN>
*After special items of $44.9, or 52 cents per share, in the second
quarter and $129.0, or $1.51 per share, in the fourth quarter
#The net loss for the year includes $49.9 LIFO inventory profits
of which $37.2 were recorded in the fourth quarter.
Average Number of Employees (unaudited)
1993 1992 1991
- ------------------------------------------------------
USA 31,700 34,200 36,300
Other Americas 16,600 17,000 16,800
Pacific 6,700 6,200 6,400
Europe 8,400 6,200 6,100
- ------------------------------------------------------
63,400 63,600 65,600
GRAPHICS APPENDIX LIST
The following graphs, together with the accompanying text set forth
below, appear on the same pages as the Financial Review (Management's
Discussion and Analysis) Section in the Annual Report but are not
part of the Financial Review.
Page Where
Graphic Appears Description of Graphic or Cross-Reference
page 14 Graph 1, a line graph, depicts percentage improvement
Graph 1 change per annum from the base year 1989 (1989=0) in the
life of smelting cells. The graph shows improvement
changes of approximately 30% in 1990; 70% in 1991; 85%
in 1992; and 93% in 1993.
The following text accompanies Graph 1:
Quantum Leap:
Improvements in the life of smelting cells
The smelting cells in which primary aluminum is made
have carbon linings that may last up to eight years.
The number of cells with linings reaching full life
expectancy is an indicator of the quality of relining
materials and methods and the proficiency of cell
operation. For Alcoa's six U.S. smelting locations,
which together have 3,632 cells, the number of cell
linings reaching full life expectancy has increased
93% since 1989. Overall improvements in cell life are
expected to yield annual savings of more than $22 million.
page 15 Graph 2, a bar chart, depicts percentage decrease per
Graph 2 annum from the base year 1990 (1990=100%) in aluminum can
sheet inventory. The bar chart shows that inventory of
can sheet decreased to approximately 75% of 1990 levels
in 1991; 40% of such levels in 1992; and 37% of such
levels in 1993.
The following text accompanies Graph 2:
Quantum Leap:
Reduction in can sheet inventory
Alcoa's largest single category of product is aluminum
sheet for beverage cans. The competitive demands of this
high-volume product require stringent controls to limit
working capital, which includes inventories, while still
meeting exacting customer delivery requirements. Since
1990 Alcoa has reduced its total can sheet inventories
64%. During the same time, working capital was slashed
56% and on-time delivery performance to customers has
never been better.
page 16 Graph 3, a bar chart, depicts the reduction in number of
Graph 3 workdays to calculate corporate earnings at four points
in time (October 1991, May 1992, October 1992 and
February 1993). The bar chart shows that the number of
workdays required to calculate such earnings was 8 in
October 1991; 5 in May 1992; 4 in October 1992; and 3 in
February 1993.
The following text accompanies Graph 3:
Quantum Leap:
Workdays to calculate
corporate earnings
Alcoa operates at 164 plants in 24 countries. Each
location's financial performance is calculated monthly
to determine corporate earnings which are reported
publicly every three months. The entire process
involves hundreds of Alcoa accounting employees around
the world and previously took eight days to complete.
In 1991 a goal was set to complete the process in
three days. The goal was achieved in 1993 and has
resulted in more timely financial information and
annual cost savings of about $7 million.
page 17 Graph 4, a line graph, depicts the "material throughput"
Graph 4 ratio calculated by Alcoa Fujikura Ltd., a subsidiary,
for the years 1991, 1992 and 1993. The ratio measures
material costs reimbursed by customers to payments made
to material suppliers. The graph shows that in 1991,
92% of payments made to material suppliers were
reimbursed by customers; in 1992, this ratio improved to
approximately 93%; and in 1993, the ratio was 95.9%.
The following text accompanies Graph 4:
Quantum Leap:
Recovery of material costs
Alcoa Fujikura Ltd. (AFL) makes wiring harnesses for
cars and trucks. They are made of wire, connectors,
terminals and coverings. To improve material usage and
reduce costs, AFL began to measure "material throughput,"
which compares material costs reimbursed by customers
to payments made to materials suppliers. This enabled
AFL to reduce material costs associated with
obsolescence, freight and handling losses, overproduc-
tion and scrap. Throughput increased to 95.9% for
savings of $6.6 million.