Exhibit 13
FINANCIAL REVIEW
(dollars in millions, except share amounts and ingot prices)
FIVE-YEAR SELECTED FINANCIAL DATA 1994 1993 1992 1991 1990
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Sales and operating revenues $ 9,904.3 $ 9,055.9 $ 9,491.5 $ 9,884.1 $ 10,710.2
Income before extraordinary loss and
accounting changes* 443.1 4.8 22.4 62.7 295.2
Extraordinary loss and accounting changes (67.9) - (1,161.6) - -
Net income (loss)* 375.2 4.8 (1,139.2) 62.7 295.2
Per common share^
Before extraordinary loss and accounting
changes 2.48 .02 .12 .36 1.70
Net income 2.10 .02 (6.70) .36 1.70
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Alcoa's average realized price per pound for
aluminum ingot .64 .56 .59 .67 .75
Average U.S. market price per pound for
aluminum ingot (Metals Week) .71 .53 .58 .59 .74
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Cash dividends declared per common share^ .80 .80 .80 .89 1.53
Total assets 12,353.2 11,596.9 11,023.1 11,178.4 11,413.2
Long-term debt (noncurrent) 1,029.8 1,432.5 855.3 1,130.8 1,295.3
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<FN>
* Includes net charges of $50.0, or 28 cents per common share, in 1994; $74.5,
or 43 cents per share, in 1993; $173.9, or $1.02 per share, in 1992; $217.0,
or $1.28 per share, in 1991; and $275.0, or $1.60 per share, in 1990. Also
included in 1994 is a gain of $300.2, or $1.69 per share.
^ All per share amounts have been restated to reflect the two-for-one stock
split in February 1995.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Earnings for the year, before unusual items, were $193 compared
with $79 in 1993. Total revenues of $9,904 were $848 higher than
those for the previous year. Most of the revenue increase was from
a higher-value aluminum product mix and higher shipments of
nonaluminum products, partially offset by lower prices for a
number of products.
Gross margin (sales and operating revenues less cost of goods
sold) was up $190 from 1993. The increase was helped by the higher
revenues and improved cost performance. Margin was unfavorably
affected by higher purchased metal and other raw material costs.
The following table summarizes Alcoa's results adjusted for
unusual items described later in this discussion.
1994 1993 1992
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Net income (loss) $ 375.2 $ 4.8 $ (1,139.2)
Significant unusual items:
Gain from Alcoa/ WMC
transaction (300.2) - -
Special charges, net 50.0 74.5 173.9
Extraordinary loss 67.9 - 50.2
Accounting changes, net - - 1,111.4
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Adjusted net income $ 192.9 $ 79.3 $ 196.3
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The year-to-year comparisons in the discussion that follows on
geographic and segment information also exclude the unusual items.
GEOGRAPHIC AND SEGMENT INFORMATION
Operating profit in 1994 was $513 compared with $351 in 1993 and
$533 in 1992. Operating profit, for geographic and segment
purposes, consists of sales and operating revenues less operating
expenses--except interest expense, nonoperating income, income
taxes and minority interests. See Note P to the financial
statements for additional geographic and segment information.
OPERATIONS BY GEOGRAPHIC AREA
USA--Revenues of $5,574 were up 6% from 1993 after a decline of
7% in 1993 from 1992. Most of the recovery in revenues was due
to higher fabricated products shipments. Prices for these
products continued to be weak. Revenues were also negatively
affected by lower shipments of aluminum ingot due to the idling
of 410,000 metric tons (mt) of U.S. smelting capacity that began
in 1993. Although the average ingot price rose 13% from 1993,
lower ingot shipments more than offset that benefit and ingot
revenues fell 23%.
U.S. operations had an operating loss in 1994 of $65 compared
with a loss of $193 in 1993 and a profit of $55 in 1992. The
improvement from 1993 is principally reflected in building
products, forged products and commercial rolled products.
PACIFIC--Revenues of $1,670 in 1994 were down 5% from 1993. The
Pacific area principally reflects the activities of Alcoa of
Australia (AofA). The decline in revenues was mainly due to a
10% drop in prices for alumina, and lower shipments of aluminum
ingot resulting from production cutbacks at AofA smelters.
Operating profit in 1994 was $291 compared with $399 in 1993 and
$298 in 1992. The lower profit reflects the effects of the
decline in alumina prices.
OTHER AMERICAS--Revenues of $1,362 in 1994 jumped 44% from 1993.
Alcoa Aluminio (Aluminio) in Brazil benefited from higher
shipments and prices in virtually all of its product lines.
Shipments and prices of closures, particularly in the Mexican
operations, also improved. With these benefits plus improved
performance, operating profit reached $239 in 1994 compared with
$139 in 1993 and $91 in 1992.
18
EUROPE--Revenues of $1,298 in 1994 improved by 21% over those in
1993. Operating profit in 1994 reached $48 compared with $6 in
1993 and $90 in 1992. The most significant improvements in both
revenues and profits came from Alcoa's operations in Hungary and
in the Netherlands. Alcoa-Kofem, located in Hungary, benefited
from higher fabricated products sales and significantly greater
plant utilization.
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
1994 1993 1992
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Revenues $ 1,508 $ 1,437 $ 1,422
Operating profit 277 373 278
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Approximately two-thirds of the revenues from this segment are
from sales of alumina. An oversupply of alumina that began in
1992 continued into 1994. With this overhang and smelter
cutbacks worldwide, prices for alumina fell 16% in 1992, dropped
slightly in 1993, and declined 12% in 1994.
Alumina shipments rose 12% from 1993, following an 8% increase
from 1992 to 1993. Part of the increase was due to full
utilization of AofA's Wagerup refinery expansion. Revenues, on
the other hand, were flat, as the additional volume just about
offset lower prices. Revenues in 1993 were up 8% from 1992
because of higher volume.
Revenues from alumina-based chemical products were 13%
higher than in 1993. Higher volumes in the U.S. and Brazilian
markets more than offset continued pressure on prices in the
European market. Revenues in 1993 fell 10% from 1992 due
primarily to lower demand and prices in the U.S. and Europe.
Operating profit of $277 for this segment was down $96 from
1993. The chemicals businesses showed about an 8% improvement.
However, the alumina businesses were unfavorably affected by
lower prices that more than offset lower unit production costs.
II. ALUMINUM PROCESSING SEGMENT
1994 1993 1992
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Total aluminum shipments (000
mt) 2,551 2,580 2,797
Revenues $ 6,477 $ 5,974 $ 6,517
Operating profit (loss) 145 (21) 289
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Total aluminum shipments in 1994 were down slightly from 1993
after falling 8% from 1992 to 1993. The declines were mostly
from aluminum ingot, which reflects the shutdown of 24% of the
company's smelting capacity.
Total revenues from this segment rose 8% from 1993 on higher
sales of engineered and flat-rolled products. This segment had
an operating profit of $145 in 1994 after sustaining a loss of
$21 in 1993. Factors contributing to the improvement include a
higher-value product mix, cost reductions--including lower
smelting costs--and the higher revenues. These were partially
offset by lower prices for rigid container sheet (RCS) for
beverage cans and higher cost of purchased metal. The loss in
1993 was mainly in packaging and aerospace markets, and from
aluminum ingot operations. This segment's shipments and
revenues are made up of the following product classes:
PRODUCT CLASSES 1994 1993 1992
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Shipments (000 metric tons)
Flat-rolled products 1,381 1,271 1,323
Engineered products 433 379 353
Aluminum ingot 655 841 1,023
Other aluminum products 82 89 98
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Total shipments 2,551 2,580 2,797
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Revenues
Flat-rolled products $ 3,201 $ 2,974 $ 3,189
Engineered products 1,882 1,528 1,527
Aluminum ingot 920 1,042 1,336
Other aluminum products 473 430 465
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Total revenues $ 6,476 $ 5,974 $ 6,517
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19
FLAT-ROLLED PRODUCTS--A significant portion of the shipments and
revenues in this product class comes from the sale of RCS. In
1993, Alcoa experienced severe competition for RCS market share.
As a result, RCS prices fell 9% from their 1992 level and
declined 2% in 1994. Higher demand for RCS in 1994 resulted in
a 2% increase in shipments from the year earlier. Revenues,
however, stayed about even.
Sheet and plate shipments, serving the aerospace and commer-
cial products markets, were up 31% over 1993 despite continuing
weakness in the aerospace sector. In both 1994 and 1993,
shipments to aerospace customers were down but were more than
offset by higher commercial products sales. Revenues for sheet
and plate were up 21% from 1993, due mostly to the higher volume
of commercial products.
ENGINEERED PRODUCTS--The products in this class include extru-
sions used principally in the transportation and construction
markets, forgings and wheels, wire, rod and bar, and automobile
bumpers. Total shipments of engineered products were up 14% from
1993 and revenues rose 23%. This compares with a 7% rise in
shipments in 1993 from 1992 while revenues were about the same.
Shipments of extrusions were 17% higher than in 1993 and
revenues rose 22%. Approximately one-half of 1994 revenues for
this product came from Europe and Brazil. In 1993, shipments
of extrusions were down 12% from 1992 while revenues fell 19%,
reflecting the weak aerospace market and declining prices.
Shipments of forged wheels for the transportation market
climbed 39% in 1994 with a similar increase in revenues. These
dramatic increases followed a 27% increase in shipments from
1992 to 1993 and a 31% increase in revenues.
Shipments of aluminum products for the U.S. building and
construction market rose 27% in 1994; revenues were up 24%.
ALUMINUM INGOT--Alcoa's smelters operated at approximately 80%
of worldwide rated capacity during 1994 as 450,000 mt of
capacity was idled due to the oversupply of aluminum ingot on
world markets during the last several years. As a result,
ingot shipments in 1994 were 22% lower than in 1993. Shipments
in 1993 fell 18% from 1992. The average U.S. market price for
ingot, which was 58 cents per pound in 1992, fell to 53 cents
in 1993. As world inventories declined during 1994, ingot
prices began to recover and the average U.S. price rose to 71
cents per pound. The price in early 1995 has further risen to
the high 80 cent range.
Alcoa's average realized price for ingot in 1994 was 64 cents
compared with 56 cents in 1993. Ingot revenues in 1994 were
down 12% from 1993 after falling 22% in 1993 from 1992.
Partially offsetting lower volumes and prices in the U.S. and
Australia during 1994 were higher ingot shipments and prices at
Aluminio.
OTHER ALUMINUM PRODUCTS--Shipments of these products, which are
principally scrap and aluminum closures, were down 8% from 1993,
mostly due to lower scrap sales. Revenues, however, rose 10% on
the strength of higher prices for scrap. In 1993, shipments of
other aluminum products were down 9% from 1992 while revenues
declined 8%.
III. NON-ALUMINUM PRODUCTS SEGMENT
1994 1993 1992
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Revenues $ 1,919 $ 1,646 $ 1,553
Operating profit (loss) 91 5 (31)
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Revenues from this segment were up 17% in 1994 following a 6%
increase in 1993. Operating profit of $91 rose $86 from 1993.
Revenues from packaging, retail and copper conductor products
for Aluminio were up 66%. Alcoa Fujikura benefited from strong
automobile sales in 1994; its revenues rose 17%, principally
from automobile wire harness sales. Alcoa Electronic Packaging
increased its revenues by over 200% from 1993 with greater plant
utilization and higher demand for electronic components. Plastic
closures revenues in Latin American markets jumped 27%. Alcoa is
a leading supplier worldwide of both plastic and aluminum
closures. Nonaluminum building products revenues rose 14%.
GAIN FROM ALCOA/WMC Transaction
In December 1994, Alcoa recorded a gain of $400.2 ($300.2 after-
tax) from the acquisition by Western Mining Corporation Holdings
Limited (WMC), located in Melbourne, Australia, of a 40%
interest in Alcoa's worldwide bauxite, alumina and inorganic
chemicals businesses. As part of the agreement, Alcoa acquired
an additional 9% interest in AofA, bringing its total interest
in that company to 60%. An additional cash payment may be made
by WMC in the year 2000 if certain financial performance
targets of the alumina chemicals businesses are met. See
Note C for additional information about this transaction.
SPECIAL ITEMS
Included in income from operations in 1994 is a charge of $79.7
($50.0 after-tax) from closing a forgings and extrusion plant
in Vernon, California. The charge included $32.8 for asset
write-offs and $46.9 related primarily to severance costs.
Special charges of $150.8 in 1993 ($98.0 after-tax) included
$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 was associated
with closing certain businesses at several plants, including the
manufacture of aluminum rod at Rockdale, Texas. There was also a
credit of $35.4 related to tax rate reductions, partially offset
by an $11.9 charge for new three-year labor agreements.
The 1992 special charges of $251.6 ($173.9 after-tax)
consisted of $95.7 for redundancies and $155.9 for asset dispo-
sitions. The dispositions included the shutdown of a facility in
South Bend, Indiana and impairment of Alcoa Composites, Inc.
20
EXTRAORDINARY LOSSES
The extraordinary losses in 1994 and 1992 of $67.9 and $50.2,
respectively, were from the early retirements of 7% discount
debentures that carried effective interest rates through
maturities in 2011 and 1996 of 14.7%. The losses were the
unamortized portions of the original discounts that would have
been paid at the time the debt matured.
COSTS AND OTHER INCOME
COST OF GOODS SOLD--Cost of goods sold in 1994 rose $659, or
9% from 1993. The major contributors were:
- -A higher-cost product mix $350
- -Higher volume 265
- -Higher prices for purchased
metal and other raw materials 215
These were partially offset by:
- -Operating performance
and efficiencies 160
Cost of goods sold in 1993 was $152 lower than in 1992
principally because of lower volume--$275; operating perfor-
mance--$110; and lower purchased metal costs--$57. These were
partially offset by costs associated with new subsidiaries of
$181 and inventory profits in 1992 of $76.
SELLING AND GENERAL ADMINISTRATIVE EXPENSES--These expenses
rose 5% during 1994 and primarily reflect higher commissions
and compensation costs. Selling and administrative expenses
as a percent of sales was 6.4% in 1994, 6.7% in 1993 and 6.2%
in 1992.
INTEREST EXPENSE--Interest expense was up $19 from 1993
primarily because of higher borrowings by Aluminio, higher
short-term interest rates and higher average commercial paper
outstanding during most of the year. These were partially
offset by the favorable effects of early redemption in 1994 of
high-cost debentures. At the end of 1994, there were no U.S.
commercial paper borrowings outstanding. Comparing 1993 with
1992, an $18 decline in interest costs reflects lower rates and
the payment in 1992 of high-cost discount debentures.
INCOME TAXES--Taxes on income in 1994 were $219, for an
effective tax rate for the year of 26.7%. The difference
between this rate and the U.S. statutory rate of 35% is mostly
due to a portion of the gain on the Alcoa/WMC transaction being
nontaxable.
The provision for income taxes in 1993 resulted in a tax
benefit of $10 compared with a tax cost of $132 in 1992. Besides
the effect of a lower level of pretax income in 1993, 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. 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.
OTHER INCOME/FOREIGN CURRENCY--Included in other income are
translation and exchange gains (losses) of $(10.3) in 1994,
$14.6 in 1993 and $(25.5) in 1992. In 1994 there were
unfavorable variances at operations in Germany and Australia;
and in Mexico, the peso was devalued in December. The favorable
change in 1993 from 1992 was mainly at AofA where the exchange
rate moved from 78 cents to 68 cents, and at Suralco, which was
affected by a significant devaluation of the Suriname guilder
late in 1993. At the time of the devaluation, Suralco was in a
net monetary liability position.
The effect on net income from translation and exchange gains
(losses), after taxes and minority interests, was $(9.6) in
1994, $9.0 in 1993 and $(11.1) in 1992.
21
RISK FACTORS
In addition to the risks inherent in Alcoa's worldwide business
and operations, the company is exposed generally to market,
financial, political, and economic risks.
COMMODITY RISKS--Alcoa is a leading global producer of aluminum
ingot and aluminum fabricated products. Aluminum ingot is an
internationally priced, sourced and traded commodity. The
principal trading market for ingot is the London Metal Exchange
(LME). Alcoa participates in this market by buying and selling
forward portions of its aluminum requirements and output.
In 1993, when world metal prices reached an all-time low,
Alcoa temporarily idled 310,000 mt of its primary aluminum
production. Further reductions in early 1994 brought Alcoa's
total worldwide idled capacity to 450,000 mt.
For purposes of risk assessment, Alcoa divides its operations
into four regions: U.S., Pacific, Other Americas and Europe.
The Pacific, principally Australia, and the Other Americas,
principally Brazil, are in net long metal positions, and from
time to time, may sell production forward. Europe has no
smelting operations controlled by Alcoa, and accordingly, is
net short and may purchase forward positions from time to time.
At the present time, forward purchases activity within the
latter three regions is not material.
In 1994 the company had entered into longer-term contracts
with a variety of customers in the U.S. for the supply of
approximately 1,500,000 mt of aluminum products over the next
several years. As a hedge against the economic risk of higher
prices for metal needs associated with these contracts, Alcoa
entered into long positions using principally futures and
option contracts. At December 31, 1994, these contracts totaled
approximately 1,400,000 mt. The contracts limit the unfavorable
effect of price increases on metal purchases and likewise limit
the favorable effect from price declines. The futures and option
contracts are with creditworthy counterparties and are further
supported by cash, treasury bills or irrevocable letters of
credit issued by carefully chosen banks, as appropriate.
For financial accounting purposes, the gains and losses on
the hedging contracts are reflected in earnings concurrent with
the hedged costs. The cash flows from these contracts are
classified in a manner consistent with the underlying nature of
the transactions.
The volatility of aluminum market prices can produce signifi-
cant fluctuations in the periodic mark-to-market measurement of
the futures and option contracts. Focusing only on that
valuation is meaningless because the effect of price changes on
future hedged metal purchases will approximately equal and
offset the mark-to-market valuation of the contract position.
Alcoa intends to close out the hedging contracts at the time
it purchases the metal from third parties, thus creating the
right economic match both in time and price. The deferred gains
on the hedging contracts at December 31, 1994 are expected to
offset the increase in the price of the purchased metal.
The expiration dates of the call options and the delivery
dates of the futures contracts do not always coincide exactly
with the dates on which Alcoa is required to purchase metal in
order to perform under its customer agreements.
Accordingly, the company anticipates rolling forward some of
its futures and option positions. This may result in signifi-
cant cash inflows if the hedging contracts are "in-the-money"
at the time they are rolled forward. Conversely, there could be
significant cash outflows if metal prices fall below the price
of contracts being rolled forward.
In late 1994 Alcoa implemented a program to protect the
unrealized gains that result from the increase in metal prices.
Approximately 10% of its hedge position was protected at the
end of 1994 through the purchase of options from highly rated
financial institutions. The maximum risk on the option contracts
is the premiums paid.
In addition, Alcoa had 14,000 mt of LME contracts outstanding
at year-end 1994 that cover fixed-price commitments to supply
customers with metal from internal sources. Accounting
convention requires that these contracts be marked-to-market.
Alcoa purchases other commodities, such as natural gas and
copper, for its operations and enters into contracts to
eliminate volatility in the prices of such products. None of
these contracts are material.
FINANCIAL RISK--Alcoa is subject to exposure to fluctuations
in foreign currencies. As a matter of policy, Alcoa enters into
foreign currency exchange contracts, including forwards and
options, to manage its transactional exposure to changes in
currency exchange rates.
To keep financing costs as low as possible, Alcoa uses
interest rate swaps to maintain a balance between fixed and
floating rate debt.
22
RISK MANAGEMENT--All of the aluminum and other commodity
contracts, as well as the various types of financial instru-
ments, are straightforward. They are primarily entered into
for the purpose of removing uncertainty and volatility, and
principally cover underlying exposures. Alcoa's commodity and
derivative activities are subject to the management, direction
and control of its Strategic Risk Management Committee. The
committee is composed of the Chief Executive Officer, the Chief
Financial Officer and other officers and employees that the
Chief Executive Officer may select from time to time. The
committee reports to the Board of Directors at each meeting on
the scope of Alcoa's activities and programs.
In 1994 Alcoa tested its policies regarding its derivatives
and commodities trading activities against the recommendations
of the "Group of 30." A clarified policy was approved by the
Board. The "Group of 30" was a global derivatives study group
formed to help dealers and users better manage risks and issues
associated with derivative activities. It was composed of
worldwide industry representatives, bankers, central bankers
and academics whose recommendations included issues related
to the role of senior management (including the board of
directors), authorization, control and disclosure of deriva-
tives. For additional information on financial instruments,
see Note R.
ENVIRONMENTAL MATTERS
Alcoa participates 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 Note A for additional information.
As assessments and cleanups proceed, the liability is adjusted
based on progress in determining the extent of remedial actions
and related costs and damages. The liability can change substan-
tially due to factors such as the nature and extent of conta-
mination, 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 1994 was
$329 and reflects the most probable costs to remediate identi-
fied environmental conditions for which costs can be reasonably
estimated. About 28% of this balance relates to Alcoa's Massena,
New York plant site. Remediation costs charged to the reserve
were $79 in 1994, $71 in 1993 and $102 in 1992. They include
expenditures currently mandated as well as those not required by
any regulatory authority or third parties.
Included in annual operating expenses are the recurring costs
of managing hazardous substances and pollution. Such costs are
estimated to be about 2% of cost of goods sold in 1994 and
1 1/2% in 1993 and 1992.
23
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATIONS
Cash from operations was $1,394 in 1994 compared with $535 in
1993. Among the factors that accounted for the increase in 1994
over 1993 was a higher level of operating income in 1994.
Additionally, working capital provided cash in 1994 by
reductions in inventories and other current assets and an
increase in accounts payable. These were partially offset by
higher accounts receivable. In 1993 just the opposite occurred.
Cash outlays for the 1992-1994 special items 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 severance costs.
FINANCING ACTIVITIES
Financing activities resulted in a net cash outflow of $825 in
1994. In 1993 there was a cash inflow of $386. In 1994 the
company paid off early its 7% discount debentures due 2011 that
had a face value of $225 and an effective interest rate of
14.7%. The unamortized discount was $108 at the time of
redemption. Proceeds from issuance in February 1994 of $250 of
5.75% notes due 2001 were used to redeem the 7% debentures.
Alcoa's U.S. commercial paper borrowings, which had an
outstanding balance at the end of 1993 of $337, were also
liquidated in 1994. AofA also significantly reduced its
outstanding commercial paper balance in 1994. Short-term debt
was reduced by $105 in 1994 compared with an increase of $68 in
1993.
Debt as a percent of invested capital was 15% at the end of
1994 compared with 22% and 15% at the end of 1993 and 1992,
respectively.
In July 1994, Alcoa entered into a one billion dollar, five-
year revolving credit facility with a group of international
banks, replacing the previous $750 facility. The new arrangement
will be used to back the issuance of commercial paper.
Dividends paid to shareholders were $144 in 1994 compared with
$142 in 1993 and $139 in 1992. In November 1994, Alcoa's Board
declared a two-for-one stock split distributable on February 25,
1995. The Board also approved two changes in the company's
common stock dividend policy: an increase in the base quarterly
dividend and a change in the payment schedule for the extra
dividend above the base dividend. The base quarterly dividend
was increased from 20 cents to 22.5 cents per common share. The
extra dividend payment of 30% of Alcoa's annual earnings in
excess of $3.00 per share will be paid in the following year in
equal quarterly installments with the base quarterly dividend
instead of in a single payment.
Dividends paid to minority interests of $148 in 1994 included
$86 paid by AofA and $19 paid by Aluminio. In 1993, such
dividends totaled $159, including $126 and $18 paid by AofA and
Aluminio, respectively.
INVESTING ACTIVITIES
Cash used for investing activities in 1994 amounted to $375
compared with $1,050 in 1993. In both years, the most signifi-
cant outlay was for capital expenditures. Spending for capital
projects in 1994 was $612, down $145 from 1993 and reflects
continued focus on improving manufacturing processes with a
minimum of capital spending. More than one-half of the expendi-
tures were for sustaining activities.
Capital expenditures for new and expanded facilities for
environmental control in ongoing operations were $45 in 1994,
$76 in 1993 and $75 in 1992.
Cash inflows from investing activities in 1994 consisted
mainly of liquidating short-term investments, primarily at
AofA. AofA used the proceeds to pay down its commercial paper
borrowings. Additionally, Alcoa received a partial payment from
the Alcoa/WMC transaction of $68. Additional net proceeds of
$367 related to this transaction were received in early January
1995.
24
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, 1994 and 1993, and the related state-
ments of consolidated income, shareholders' equity and
consolidated cash flows for each of the three years in the
period ended December 31, 1994. 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 presen-
tation. 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, 1994 and 1993, and
the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting
principles.
As discussed in Notes S and V 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 L.L.P.
COOPERS & LYBRAND L.L.P.
600 Grant St., Pittsburgh, Pa.
January 11, 1995
25
STATEMENT OF CONSOLIDATED INCOME
Alcoa and subsidiaries
For the year ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------
(in millions, except share amounts)
REVENUES
Sales and operating revenues (P) $ 9,904.3 $ 9,055.9 $ 9,491.5
Gain from Alcoa/WMC transaction (C) 400.2 - -
Other income, principally interest 87.0 93.0 96.9
- ------------------------------------------------------------------------------
10,391.5 9,148.9 9,588.4
- ------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold and operating
expenses 7,845.7 7,187.0 7,339.1
Selling, general administrative and
other expenses 632.7 603.6 586.8
Research and development expenses 125.8 130.4 212.2
Provision for depreciation, depletion
and amortization 671.3 692.6 682.4
Interest expense (N) 106.7 87.8 105.4
Taxes other than payroll and severance
taxes 107.1 105.6 112.3
Special items (D) 79.7 150.8 251.6
- ------------------------------------------------------------------------------
9,569.0 8,957.8 9,289.8
- ------------------------------------------------------------------------------
EARNINGS
Income before taxes on income 822.5 191.1 298.6
Provision (credit) for taxes on income
(S) 219.2 (10.3) 132.3
- ------------------------------------------------------------------------------
Income from operations 603.3 201.4 166.3
Minority interests (K) (160.2) (196.6) (143.9)
- ------------------------------------------------------------------------------
Income before extraordinary loss and
accounting changes 443.1 4.8 22.4
Extraordinary loss on debt prepayments,
net of tax benefits of $40.4 in 1994
and $25.8 in 1992 (D) (67.9) - (50.2)
Cumulative effect of accounting changes
for:
Postretirement benefits, net of $667.2
tax benefit (V) - - (1,166.4)
Income taxes (S) - - 55.0
- ------------------------------------------------------------------------------
NET INCOME (LOSS) $ 375.2 $ 4.8 $ (1,139.2)
- ------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE:
(B and L)
Before extraordinary loss and
accounting changes $ 2.48 $ .02 $ .12
Extraordinary loss (.38) - (.30)
Accounting changes:
Postretirement benefits - - (6.85)
Income taxes - - .33
- ------------------------------------------------------------------------------
Earnings (Loss) per common share $ 2.10 $ .02 $ (6.70)
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
26
CONSOLIDATED BALANCE SHEET
Alcoa and subsidiaries
December 31 1994 1993
- ------------------------------------------------------------------------------
(in millions)
ASSETS
Current assets:
Cash and cash equivalents (includes cash
of $177.5 in 1994 and $58.0 in 1993) (R
and T) $ 619.2 $ 411.7
Short-term investments (R) 5.5 243.6
Receivables from customers, less
allowances: 1994-$37.4; 1993-$33.2 1,440.6 1,218.7
Receivable from WMC, net (C) 366.9 -
Other receivables 182.5 211.3
Inventories (E) 1,144.2 1,227.2
Deferred income taxes 235.6 103.2
Prepaid expenses and other current assets 158.7 286.8
- ------------------------------------------------------------------------------
Total current assets 4,153.2 3,702.5
Properties, plants and equipment (F) 6,689.4 6,506.8
Other assets (G) 1,510.6 1,387.6
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 12,353.2 $ 11,596.9
- ------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Short-term borrowings (weighted average
rate 7.9% in 1994 and 5.8% in 1993) (R) $ 261.9 $ 362.5
Accounts payable, trade 739.3 596.3
Accrued compensation and retirement costs 363.9 288.0
Taxes, including taxes on income 393.0 364.3
Provision for layoffs and impairments (D) 84.4 128.8
Other current liabilities 557.0 302.2
Long-term debt due within one year 154.0 50.8
- ------------------------------------------------------------------------------
Total current liabilities 2,553.5 2,092.9
Long-term debt, less amount due within one
year (H and R) 1,029.8 1,432.5
Accrued postretirement benefits (V) 1,850.5 1,845.2
Other noncurrent liabilities and deferred
credits (I) 1,011.8 1,022.2
Deferred income taxes 220.6 231.1
- ------------------------------------------------------------------------------
Total liabilities 6,666.2 6,623.9
- ------------------------------------------------------------------------------
MINORITY INTERESTS (A, C and K) 1,687.8 1,389.2
- ------------------------------------------------------------------------------
Contingent liabilities (O) - -
SHAREHOLDERS' EQUITY
Preferred stock (M) 55.8 55.8
Common stock (B and M) 178.7 88.8
Additional capital (B) 663.5 715.9
Translation adjustment (A) (68.6) (188.5)
Retained earnings 3,173.9 2,946.1
Unfunded pension obligation (4.0) (7.0)
Treasury stock, at cost (.1) (27.3)
- ------------------------------------------------------------------------------
Total shareholders' equity 3,999.2 3,583.8
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 12,353.2 $ 11,596.9
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
27
STATEMENT OF CONSOLIDATED CASH FLOWS
Alcoa and subsidiaries
For the year ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------
(in millions)
CASH FROM OPERATIONS
Net income (loss) $ 375.2 $ 4.8 $ (1,139.2)
Adjustments to reconcile net income
(loss) to cash from operations:
Depreciation, depletion and
amortization 688.8 711.1 710.1
Gain from Alcoa/WMC transaction (400.2) - -
Reduction of assets to net realizable
value 32.8 16.7 144.3
Reduction in deferred income taxes (55.6) (124.5) (88.0)
Equity earnings before additional
taxes, net of dividends 5.1 11.7 14.8
Provision for special items 46.9 134.1 107.4
Gains from investing activities (10.3) (1.3) (7.2)
Book value of asset disposals 47.4 20.8 15.3
Accounting changes - - 1,111.4
Extraordinary loss 67.9 - 50.2
Minority interests 160.2 196.6 143.9
Other (1.9) (11.4) 53.9
(Increase) reduction in receivables (155.0) 15.6 84.5
(Increase) reduction in inventories 115.8 (130.2) 166.7
(Increase) reduction in prepaid
expenses and other current assets 129.4 (152.2) 70.8
Increase (reduction) in accounts
payable and accrued expenses 336.6 (202.8) (248.7)
Increase (reduction) in taxes,
including taxes on income (6.8) (6.0) (.6)
Payment of amortized interest on deep
discount debt (8.6) - (63.8)
Net change in noncurrent assets and
liabilities 25.9 52.0 82.3
- ------------------------------------------------------------------------------
CASH FROM OPERATIONS 1,393.6 535.0 1,208.1
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net additions (reduction) to short-term
borrowings (104.9) 67.5 244.0
Common stock issued and treasury stock
sold 61.7 17.7 36.2
Dividends paid to shareholders (144.4) (142.3) (138.9)
Dividends paid to minority interests (148.1) (159.3) (140.9)
Additions to long-term debt 494.9 748.0 338.4
Payments on long-term debt (934.4) (145.8) (687.1)
Redemption of subsidiary preferred stock (50.0) - -
- ------------------------------------------------------------------------------
CASH FROM (USED FOR) FINANCING
ACTIVITIES (825.2) 385.8 (348.3)
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (611.7) (757.0) (788.8)
Acquisitions, net of cash acquired (9.6) (16.3) (7.7)
Sales of subsidiaries - - 12.6
Additions to investments (21.2) (5.9) (127.1)
Sales of investments - .3 50.5
Reductions in minority interests (44.7) (14.2) (18.4)
Proceeds from Alcoa/WMC transaction 67.8 - -
Short-term investments 250.8 (243.6) -
Other receipts 14.9 5.8 7.6
Other payments (21.2) (19.5) (21.4)
- ------------------------------------------------------------------------------
CASH (USED FOR) INVESTING ACTIVITIES (374.9) (1,050.4) (892.7)
- ------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 14.0 (6.9) (44.7)
- ------------------------------------------------------------------------------
Net change in cash and cash equivalents 207.5 (136.5) (77.6)
Cash and cash equivalents at beginning
of year 411.7 548.2 625.8
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR-
END $ 619.2 $ 411.7 $ 548.2
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
28
STATEMENT OF SHAREHOLDERS' EQUITY
Alcoa and subsidiaries
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 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 @ $.80 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 @ $.80 per share (140.2) (140.2)
Stock issued: compensation
plans .9 (3.0) 19.8 17.7
Stock issued: debt
conversions (2.7) 149.5 146.8
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
Net income-1994 375.2 375.2
Cash dividends:
Preferred @ $3.75 per
share (2.1) (2.1)
Common @ $.80 per share (142.3) (142.3)
Two-for-one stock split 89.3 (89.3) -
Stock issued: compensation
plans .6 36.9 (3.0) 27.2 61.7
Minimum pension liability
adjustments 3.0 3.0
Translation adjustments 119.9 119.9
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1994 $ 55.8 $ 178.7 $ 663.5 $ (68.6) $ 3,173.9 $ (4.0) $ (.1) $ 3,999.2
- -----------------------------------------------------------------------------------------------------------------------------------
SHARE ACTIVITY (B) Common Stock
----------------------------------------------------------------
Preferred stock Issued Treasury Net outstanding
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1991 557,649 177,608,440 (7,443,802) 170,164,638
Stock issued: compensation plans 1,262,274 1,262,274
Stock issued: debt conversions 32,256 32,256
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1992 557,649 177,608,440 (6,149,272) 171,459,168
Stock issued: compensation plans 610,452 610,452
Stock issued: debt conversions 4,652,936 4,652,936
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1993 557,649 177,608,440 (885,884) 176,722,556
Stock issued: compensation plans 1,106,538 883,382 1,989,920
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF 1994 557,649 178,714,978 (2,502) 178,712,476
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial state-
ments 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.
Environmental Expenditures. Expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expen-
ditures 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 appro-
priate, elements of costs such as site investigations, consul-
tants' 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 periodi-
cally reviewed and adjusted to reflect current remediation
progress, prospective estimate 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 to cover exposures for foreign exchange, interest
rates 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.
Intangibles. The excess of purchase price over net tangible
assets of businesses acquired is included in other assets in
the consolidated balance sheets. It is Alcoa's policy to
amortize intangibles on a straight-line basis over not more
than forty years. The carrying value of intangibles is
evaluated periodically in relation to the operating perfor-
mance and future undiscounted cash flows of the underlying
businesses. Adjustments are made if the sum of expected future
net cash flows is less than book value.
Foreign Currency. The local currency is the functional currency
for Alcoa's significant operations outside the U.S., except in
Brazil.
Reclassification. Certain amounts in previously issued
financial statements were reclassified to conform to 1994
presentations.
B. COMMON STOCK SPLIT
On November 11, 1994, the Board of Directors declared a two-
for-one common stock split distributable on February 25, 1995 to
shareholders of record at the close of business on February 3,
1995. In this report, all per share amounts and numbers of
shares have been restated to reflect the stock split. In
addition, an amount equal to the one dollar par value of the
shares outstanding at December 31, 1994 has been transferred
from additional capital to common stock.
C. GAIN FROM ALCOA/WMC Transaction
In December 1994, Alcoa recorded a gain of $400.2 ($300.2
after-tax) from the acquisition by Western Mining Corporation
Holdings Limited (WMC), located in Melbourne, Australia, of a
40% interest in Alcoa's worldwide bauxite, alumina and
inorganic chemicals businesses. As part of the agreement, Alcoa
acquired an additional 9% interest in Alcoa of Australia,
bringing its total interest in that company to 60%. An addi-
tional cash payment may be made by WMC in the year 2000 if
certain financial performance targets of the chemicals
businesses are met. Alcoa has indemnified WMC for certain
preformation environmental and other liabilities.
The significant effects of the transaction on the year-end
balance sheet were increases of $68 in cash, $367 in net
receivables and $202 in goodwill; offset by an increase in
minority interests of $230. The net receivable was collected in
early January 1995. If this transaction had occurred at the
beginning of 1994, net income for the year would not have been
materially different.
D. SPECIAL AND EXTRAORDINARY ITEMS
Special items in 1994 consisted of a charge of $79.7 ($50.0
after-tax) from closing a forgings and extrusion plant in
Vernon, California. The charge included $32.8 for asset write-
offs and $46.9 primarily related to severance costs.
Special items of $150.8 in 1993 ($98.0 after-tax and minority
interests) included $134.1 for severance costs associated with
permanent reductions of hourly paid and salaried employees,
30
mainly in the company's U.S. aluminum operations. The remaining
$16.7 was 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 extraordinary losses in 1994 and 1992 were from early
redemption of 7% debentures due 2011 and 1996, respectively,
that carried effective interest rates of 14.7%.
E. INVENTORIES
December 31 1994 1993
- ---------------------------------------------------------------------------
Finished goods $ 249.6 $ 317.3
Work in process 456.1 415.7
Bauxite and alumina 195.2 165.9
Purchased raw materials 131.0 188.2
Operating supplies 112.3 140.1
- ---------------------------------------------------------------------------
$ 1,144.2 $ 1,227.2
- ---------------------------------------------------------------------------
Approximately 55% of total inventories at December 31, 1994
were valued on a LIFO basis. If valued on an average cost
basis, total inventories would have been $691.9 and $623.9
higher at the end of 1994 and 1993, 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 this reduction increased
pretax income from operations by $49.9.
F. PROPERTIES, PLANTS AND EQUIPMENT, AT COST
December 31 1994 1993
- ---------------------------------------------------------------------------
Land and land rights, including
mines $ 238.0 $ 229.0
Structures 3,860.0 3,603.4
Machinery and equipment 10,003.7 9,317.7
- ---------------------------------------------------------------------------
14,101.7 13,150.1
Less, accumulated depreciation
and depletion 7,812.9 7,093.9
- ---------------------------------------------------------------------------
6,288.8 6,056.2
Construction work in progress 400.6 450.6
- ---------------------------------------------------------------------------
$ 6,689.4 $ 6,506.8
- ---------------------------------------------------------------------------
G. OTHER ASSETS
December 31 1994 1993
- ---------------------------------------------------------------------------
Investments, principally equity
investments $ 355.9 $ 322.2
Intangibles, net of accumulated
amortization of $208.5 in 1994
and $189.8 in 1993 396.6 179.2
Noncurrent receivables 67.6 218.9
Deferred income taxes 364.6 431.5
Deferred charges and other 325.9 235.8
- ---------------------------------------------------------------------------
$ 1,510.6 $ 1,387.6
- ---------------------------------------------------------------------------
H. LONG-TERM DEBT
December 31 1994 1993
- ---------------------------------------------------------------------------
U.S.
4.625% Notes payable, due 1996 $ 175.0 $ 175.0
5.75% Notes payable, due 2001 247.8 -
Bank loans 7.5 billion yen, due
1999, (4.4% fixed rate) 74.4 -
Discount debentures 7%, $225
face amount, due 2011 (14.7%
effective yield) - 117.3
Commercial paper (3.6% average
rate) - 337.3
Tax-exempt revenue bonds
ranging from 3.7% to 7.5% due
2000-2012 132.7 133.5
Alcoa Aluminio
Variable rate note due 1995-
2001 (8.2% and 5.8% average
rates) 322.6 328.7
Alcoa of Australia
Euro-commercial paper, variable
rate, due 1997 (3.9% and 3.4%
average rates) 150.0 302.0
Other subsidiaries 81.3 89.5
- ---------------------------------------------------------------------------
1,183.8 1,483.3
Less, amount due within one year 154.0 50.8
- ---------------------------------------------------------------------------
$ 1,029.8 $ 1,432.5
- ---------------------------------------------------------------------------
The amount of long-term debt maturing in each of the next five
years is $154.0 in 1995, $276.8 in 1996, $222.7 in 1997, $47.0
in 1998 and $86.9 in 1999.
Alcoa's Revolving Credit Agreement of $1,000 with a group of
international banks matures in July 1999. Under the agreement,
certain levels of consolidated net worth and working capital
must be maintained while commercial paper balances are
outstanding.
The commercial paper issued by Alcoa and the Euro-commercial
paper issued by Alcoa of Australia are classified as long-term
debt since they are backed by long-term revolving credit
agreements.
I. OTHER NONCURRENT LIABILITIES AND DEFERRED CREDITS
December 31 1994 1993
- ---------------------------------------------------------------------------
On-site environmental remediation $ 282.7 $ 348.0
Other noncurrent liabilities 511.3 437.1
Deferred credits 217.8 237.1
- ---------------------------------------------------------------------------
$ 1,011.8 $ 1,022.2
- ---------------------------------------------------------------------------
31
J. LEASE EXPENSE
Certain equipment, warehousing and office space, and ocean-
going vessels are under operating lease agreements. Total
expense for all leases was $71.6 in 1994, $73.7 in 1993 and
$74.8 in 1992. Under long-term operating leases, minimum annual
rentals are $32.3 in 1995, $28.2 in 1996, $22.5 in 1997, $15.3
in 1998, $10.8 in 1999, and a total of $30.2 for 2000 and
thereafter.
K. MINORITY INTERESTS
The following table summarizes the minority shareholders'
interests in the equity of consolidated subsidiaries.
December 31 1994 1993
- ---------------------------------------------------------------------------
Alcoa of Australia $ 588.1 $ 616.1
Alcoa International Holdings
Company (AIHC) 200.0 250.0
Alcoa Aluminio 340.7 164.9
Alcoa Brazil Holdings Company
(ABHC) - 102.1
Alcoa Alumina and Chemicals 327.9 -
Other majority-owned companies 231.1 256.1
- ---------------------------------------------------------------------------
$ 1,687.8 $ 1,389.2
- ---------------------------------------------------------------------------
AIHC's minority interests consist of three series of preferred
stock with a weighted average annual dividend rate of 4.2% for
1994, 5.1% for 1993 and 6.7% for 1992.
During 1994, the minority shareholder of ABHC exchanged its
interest in ABHC for common shares of Alcoa Aluminio. Addi-
tionally, Alcoa Aluminio's minority shareholder converted
$214.7 of preferred stock to common stock.
Alcoa Alumina and Chemicals represents the primary entity
formed by the Alcoa/WMC transaction.
L. 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
177,881,428 in 1994, 175,346,282 in 1993 and 170,948,178 in
1992. Fully diluted earnings per common share are not stated
since the dilution is not material.
M. 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, 1994, shares of
common stock reserved for issuance were:
Number of shares
- ----------------------------------------------------------
Long-term stock incentive plan 9,659,040
Employees' savings plans 4,097,532
Incentive compensation plan 169,228
- ----------------------------------------------------------
13,925,800
- ----------------------------------------------------------
Stock options under the long-term stock incentive plan have
been and may be granted, generally at not less than market
prices on the dates of grant, except for the $.50 per share
options issued as a payout of earned performance share awards.
At December 31, 1994, options for 4,242,636 shares were
exercisable.
The transactions for shares under option were:
1994 1993 1992
- ------------------------------------------------------------------------------
Outstanding, beginning of
year:
Number 8,032,852 6,572,104 6,028,062
Price $.50-40.07 $.50-40.07 $.50-38.44
Granted:
Number 5,050,798 2,963,458 3,168,004
Price $35.88-44.72 $.50-38.57 $.50-40.07
Exercised:
Number (5,125,962) (1,353,092) (2,600,162)
Price $.50-40.25 $.50-36.57 $.50-40.07
Expired or canceled (57,598) (149,618) (23,800)
- ------------------------------------------------------------------------------
Outstanding, end of year:
Number 7,900,090 8,032,852 6,572,104
Price $.50-44.72 $.50-40.07 $.50-40.07
- ------------------------------------------------------------------------------
Shares reserved for future
options at end of year 1,758,950 5,006,192 7,359,240
- ------------------------------------------------------------------------------
N. INTEREST COST COMPONENTS
1994 1993 1992
- ------------------------------------------------------------------------------
Amount charged to expense $ 106.7 $ 87.8 $ 105.4
Amount capitalized 1.5 3.5 11.1
- ------------------------------------------------------------------------------
$ 108.2 $ 91.3 $ 116.5
- ------------------------------------------------------------------------------
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. However,
based on currently available facts, management believes that
the disposition of matters that are pending or asserted will
not have a materially adverse effect on the financial position
of the company.
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, 1994, 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.
32
P. 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 1994 1993 1992
- ------------------------------------------------------------------------------
Sales to customers:
Alumina and chemicals $ 1,508.4 $ 1,436.5 $ 1,421.6
Aluminum processing 6,476.5 5,973.6 6,516.9
Non-aluminum products 1,919.4 1,645.8 1,553.0
Intersegment sales: (1)
Alumina and chemicals 496.0 649.3 671.8
Aluminum processing 3.0 13.6 22.0
Non-aluminum products 74.8 72.9 61.5
Eliminations (573.8) (735.8) (755.3)
- ------------------------------------------------------------------------------
Total sales and operating
revenues $ 9,904.3 $ 9,055.9 $ 9,491.5
- ------------------------------------------------------------------------------
Operating profit (loss)
before special items:
Alumina and chemicals $ 277.3 $ 372.7 $ 278.2
Aluminum processing 144.7 (21.2) 288.5
Non-aluminum products 91.2 5.0 (31.0)
Unallocated - (5.1) (2.5)
- ------------------------------------------------------------------------------
Total $ 513.2 $ 351.4 $ 533.2
- ------------------------------------------------------------------------------
Operating profit (loss) after
special items:
Alumina and chemicals $ 277.3 $ 365.6 $ 273.5
Aluminum processing 65.0 (155.0) 181.9
Non-aluminum products 91.2 (4.9) (171.3)
Unallocated - (5.1) (2.5)
- ------------------------------------------------------------------------------
Total operating profit 433.5 200.6 281.6
Gain from Alcoa/WMC
transaction 400.2 - -
Other income 87.0 93.0 96.9
Add (deduct) other income in
operating profits 8.5 (14.7) 25.5
Interest expense 106.7 87.8 105.4
- ------------------------------------------------------------------------------
Income before taxes on
income $ 822.5 $ 191.1 $ 298.6
- ------------------------------------------------------------------------------
Identifiable assets:
Alumina and chemicals $ 3,013.2 $ 2,854.3 $ 2,685.5
Aluminum processing 6,693.0 6,929.1 6,640.1
Non-aluminum products 1,607.1 1,483.7 1,313.6
- ------------------------------------------------------------------------------
Total identifiable assets 11,313.3 11,267.1 10,639.2
Investments 355.9 322.2 368.9
Corporate assets (2) 684.0 7.6 15.0
- ------------------------------------------------------------------------------
Total assets $ 12,353.2 $ 11,596.9 $ 11,023.1
- ------------------------------------------------------------------------------
Depreciation and depletion:
Alumina and chemicals $ 139.1 $ 144.5 $ 137.6
Aluminum processing 455.3 475.3 483.0
Non-aluminum products 94.0 85.1 84.8
- ------------------------------------------------------------------------------
Total depreciation and
depletion (3) $ 688.4 $ 704.9 $ 705.4
- ------------------------------------------------------------------------------
Capital expenditures:
Alumina and chemicals $ 159.2 $ 232.6 $ 234.5
Aluminum processing 323.2 423.7 462.1
Non-aluminum products 129.3 100.7 92.2
- ------------------------------------------------------------------------------
Total capital
expenditures $ 611.7 $ 757.0 $ 788.8
- ------------------------------------------------------------------------------
Geographic area information 1994 1993 1992
- ------------------------------------------------------------------------------
Sales to customers:
USA $ 5,574.0 $ 5,279.4 $ 5,658.6
Other Americas 1,362.4 948.2 1,055.9
Pacific 1,670.1 1,752.5 1,710.2
Europe 1,297.8 1,075.8 1,066.8
Transfers between geographic
areas: (1)
USA 765.0 832.9 1,001.6
Other Americas 291.4 342.6 253.6
Pacific 17.2 36.1 54.3
Europe 13.4 28.3 65.1
Eliminations (1,087.0) (1,239.9) (1,374.6)
- ------------------------------------------------------------------------------
Total sales and operating
revenues $ 9,904.3 $ 9,055.9 $ 9,491.5
- ------------------------------------------------------------------------------
Operating profit (loss)
before special items:
USA $ (65.2) $ (193.1) $ 55.0
Other Americas 239.0 139.5 90.9
Pacific 291.1 399.2 297.6
Europe 48.3 5.8 89.7
- ------------------------------------------------------------------------------
Total $ 513.2 $ 351.4 $ 533.2
- ------------------------------------------------------------------------------
Operating profit (loss) after
special items:
USA $ (144.9) $ (340.7) $ (176.5)
Other Americas 239.0 139.5 87.0
Pacific 291.1 399.2 297.6
Europe 48.3 2.6 73.5
- ------------------------------------------------------------------------------
Total operating profit $ 433.5 $ 200.6 $ 281.6
- ------------------------------------------------------------------------------
Identifiable assets:
USA $ 5,750.4 $ 6,270.9 $ 6,092.3
Other Americas 1,792.5 1,691.4 1,441.9
Pacific 2,646.1 2,384.2 2,345.6
Europe 1,124.3 920.6 759.4
- ------------------------------------------------------------------------------
Total identifiable assets 11,313.3 11,267.1 10,639.2
- ------------------------------------------------------------------------------
Capital expenditures:
USA $ 272.9 $ 405.0 $ 457.6
Other Americas 131.4 105.0 75.1
Pacific 131.6 162.7 184.5
Europe 75.8 84.3 71.6
- ------------------------------------------------------------------------------
Total capital
expenditures $ 611.7 $ 757.0 $ 788.8
- ------------------------------------------------------------------------------
<FN>
(1) Transfers between segments and geographic areas are based on generally
prevailing market prices.
(2) Corporate assets in 1994 include cash of $68 and a net receivable of $367
related to the Alcoa/WMC transaction.
(3) Includes depreciation of $17.1 in 1994, $12.3 in 1993 and $23 in 1992
reported as research and development expenses in the income statement
Total exports from the U.S. in 1994 were $988 compared with
$896 in 1993 and $993 in 1992.
33
Q. 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 1994 1993
- ---------------------------------------------------------------------------
Cash and short-term investments $ 34.5 $ 160.2
Other current assets 376.4 283.7
Properties, plants and equipment,
net 929.0 870.8
Other assets 161.8 207.8
- ---------------------------------------------------------------------------
Total assets 1,501.7 1,522.5
- ---------------------------------------------------------------------------
Current liabilities 415.2 372.7
Long-term debt* 222.2 322.5
Other liabilities 33.3 35.9
- ---------------------------------------------------------------------------
Total liabilities 670.7 731.1
- ---------------------------------------------------------------------------
Net assets $ 831.0 $ 791.4
- ---------------------------------------------------------------------------
<FN>
*Held by Alcoa Brazil Holdings Company-$22.5
1994 1993 1992
- ------------------------------------------------------------------------------
Revenues* $ 915.1 $ 685.8 $ 659.0
Costs and expenses (808.9) (625.3) (634.8)
Translation and exchange
adjustments (3.0) (10.7) (9.2)
Income tax expense (19.7) (.6) 5.6
- ------------------------------------------------------------------------------
Net income $ 83.5 $ 49.2 $ 20.6
- ------------------------------------------------------------------------------
<FN>
*Revenues from Alcoa were $54 in 1994. The terms of the transactions were
established by negotiation between the parties.
Alcoa of Australia Limited--a 51%-owned subsidiary of Alcoa
International Holdings Company (60% at December 31, 1994):
December 31 1994 1993
- ---------------------------------------------------------------------------
Cash and short-term investments $ 88.2 $ 350.3
Other current assets 484.9 425.7
Properties, plants and equipment,
net 1,645.3 1,430.1
Other assets 102.5 85.7
- ---------------------------------------------------------------------------
Total assets 2,320.9 2,291.8
- ---------------------------------------------------------------------------
Current liabilities 317.9 399.7
Long-term debt 150.2 302.0
Other liabilities 382.6 332.7
- ---------------------------------------------------------------------------
Total liabilities 850.7 1,034.4
- ---------------------------------------------------------------------------
Net assets $ 1,470.2 $ 1,257.4
- ---------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------
Revenues* $ 1,519.2 $ 1,660.9 $ 1,661.7
Costs and expenses (1,236.5) (1,264.6) (1,297.7)
Translation and exchange
adjustments .6 5.2 (13.8)
Income tax expense (80.7) (88.1) (132.0)
Accounting changes^ - - 33.6
- ------------------------------------------------------------------------------
Net income $ 202.6 $ 313.4 $ 251.8
- ------------------------------------------------------------------------------
<FN>
* Revenues from Alcoa were $28.5 in 1994, $50.3 in 1993 and $60.6 in 1992. The
terms of the transactions were established by negotiation between the
parties.
^ Consists of $37 for income taxes and $(3.4) for postretirement benefits
R. FINANCIAL INSTRUMENTS
The carrying values and fair values of Alcoa's financial
instruments at December 31 follow.
1994 1993
---------------------------------------------------
Carrying Fair Carrying Fair
value value value value
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 619.2 $ 619.2 $ 411.7 $ 411.7
Short-term investments 5.5 5.5 243.6 243.6
Noncurrent receivables 67.6 67.6 218.9 218.9
Short-term debt 415.9 415.9 413.3 413.3
Long-term debt 1,029.8 1,002.3 1,432.5 1,545.0
- ------------------------------------------------------------------------------
The methods used to estimate the fair value of certain finan-
cial instruments follow.
Cash and Cash Equivalents, Short-Term Investments and Short-
Term Debt. The carrying amount approximates fair value because
of the short maturity of the instruments. All investments
purchased with a maturity of three months or less are
considered cash equivalents.
Noncurrent Receivables. The fair value of noncurrent
receivables is based on anticipated cash flows and approximates
carrying value.
Long-Term Debt. The fair value is based on interest rates that
are currently available to Alcoa for issuance of debt with
similar terms and remaining maturities.
Alcoa holds or purchases derivative financial instruments
principally for purposes other than trading. Financial instru-
ments held for trading purposes are insignificant. Details of
the significant instruments follow.
Foreign Exchange Contracts. The company enters into foreign
exchange contracts to hedge most of its firm and anticipated
purchase and sale commitments denominated in foreign currencies
for periods commensurate with its known or expected exposures.
These contracts are part of a worldwide program to minimize the
volatility due to foreign exchange exposures. The market risk
exposure is essentially limited to risk related to currency rate
movements. The forward exchange contracts and options in the
following table are made up of contracts to hedge firm purchase
and sale commitments and anticipated sales expected to be
denominated in foreign currencies at December 31. The contracts
generally mature within 12 months and are principally unsecured
forward exchange contracts with carefully selected banks. Gains
or losses arising from these contracts are reflected in other
income when the transactions are completed. Unrealized gains
(losses) at December 31, 1994 and 1993 were $47.8 and $(1.5),
respectively.
34
The table below reflects the various types of foreign
exchange contracts Alcoa uses to manage its foreign exchange
risk.
1994 1993
---------------------------------------------------
Notional Market Notional Market
amount value amount value
- ------------------------------------------------------------------------------
Forwards $ 1,578.7 $ 1,637.4 $ 1,776.6 $ 1,766.1
Options purchased 422.3 19.8 138.1 3.1
Options written 162.0 (9.9) 69.2 .1
- ------------------------------------------------------------------------------
The notional amounts of options summarized above do not
represent amounts exchanged by the parties and thus are not a
measure of the company's exposure to options. The amounts
exchanged are based on the terms of the options which relate
primarily to exchange rates and expiration dates.
The table below summarizes by major currency the contractual
amounts of Alcoa's forward exchange and option contracts in
U.S. dollars translated at December 31 rates. The "buy" amounts
represent the U.S. dollar equivalent of commitments to purchase
foreign currencies and the "sell" amounts represent the U.S.
dollar equivalent of commitments to sell foreign currencies.
1994 1993
---------------------------------------------------
Buy Sell Buy Sell
- ------------------------------------------------------------------------------
Australian dollar $ 1,197.8 $ 268.3 $ 928.0 $ 332.6
Dutch guilder 138.2 44.2 74.6 28.2
Deutsche mark 79.0 167.1 81.6 173.3
Pound sterling 41.9 89.6 10.5 115.7
Other 77.0 166.9 115.9 124.5
- ------------------------------------------------------------------------------
Total $ 1,533.9 $ 736.1 $ 1,210.6 $ 774.3
- ------------------------------------------------------------------------------
Interest Rate Swaps. Alcoa's debt portfolio is managed by using
interest rate swaps and options to achieve an overall desired
position of fixed and floating rates. At December 31, 1994,
Alcoa had outstanding four interest rate swap contracts to
convert a fixed rate obligation to floating rates on a notional
amount of $175. The contracts mature in 2001. The company also
bought $100 notional amount of interest rate caps on the first
1995 swap payment. Alcoa Aluminio also had an outstanding
interest rate swap to convert a floating rate obligation to a
series of fixed rates on a notional amount of $109 at year-end
1994.
Credit and market risk exposures are limited to the net
interest differentials. The net payments or receipts from
interest rate swaps are recorded as part of interest expense
and are not material. The effect of interest rate swaps on
Alcoa's composite interest rate on long-term debt was not
material at the end of 1994.
Alcoa is exposed to credit loss in the event of nonperfor-
mance by counterparties on the above instruments, but does not
anticipate nonperformance by any of the counterparties.
For further information on Alcoa's hedging and derivatives
activities, see Risk Factors in the Financial Review section of
this annual report.
S. INCOME TAXES
Alcoa implemented SFAS 109 as of January 1, 1992 and the cumu-
lative effect of this change is reported in 1992 earnings. The
components of income before taxes on income were:
1994 1993 1992
- ------------------------------------------------------------------------------
U.S. $ 203.6 $(359.4) $ (241.5)
Foreign 618.9 550.5 540.1
- ------------------------------------------------------------------------------
$ 822.5 $ 191.1 $ 298.6
- ------------------------------------------------------------------------------
The provision for taxes on income consisted of:
1994 1993 1992
- ------------------------------------------------------------------------------
<c)
Current:
U.S. federal* $ 114.0 $ (53.6) $ 46.9
Foreign 151.1 163.0 174.1
State and local 9.7 4.8 (.7)
- ------------------------------------------------------------------------------
274.8 114.2 220.3
- ------------------------------------------------------------------------------
Deferred:
U.S. federal* (51.3) (80.2) (71.2)
Foreign 5.8 (47.2) (11.7)
State and local (10.1) 2.9 (5.1)
- ------------------------------------------------------------------------------
(55.6) (124.5) (88.0)
- ------------------------------------------------------------------------------
Total $ 219.2 $ (10.3) $ 132.3
- ------------------------------------------------------------------------------
<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 for statutory tax rate changes of
$9.9 in the U.S. and $41.6 in Australia.
Reconciliation of the effective tax rate to the U.S. statu-
tory rate follows.
1994 1993 1992
- ------------------------------------------------------------------------------
U.S. federal statutory rate
(%) 35.0 35.0 34.0
Taxes on foreign income (1.1) (9.2) 10.0
State taxes net of federal
benefit (.1) 2.1 (1.3)
Tax rate changes - (26.9) -
Adjustments to prior years'
accruals (1.8) (3.0) (1.5)
Nontaxable portion of Alcoa/
WMC transaction gain (4.9) - -
Other (.4) (3.4) 3.1
- ------------------------------------------------------------------------------
Effective tax rate (%) 26.7 (5.4) 44.3
- ------------------------------------------------------------------------------
The components of net deferred tax assets and liabilities
follow.
1994 1993
-------------------------------------------------------
Deferred tax Deferred tax Deferred tax Deferred tax
December 31 assets liabilities assets liabilities
- ------------------------------------------------------------------------------
Depreciation - $ 938.8 - $ 864.4
Employee benefits $ 822.0 - $ 781.5 -
Loss provisions 243.9 - 264.9 -
Deferred income 112.4 48.4 38.4 84.1
Tax loss carryforwards 212.9 - 291.2 -
Tax credit carryforwards 86.4 - 20.1 -
Other 56.0 18.2 41.0 21.2
- ------------------------------------------------------------------------------
1,533.6 1,005.4 1,437.1 969.7
Valuation allowance (170.0) - (171.4) -
- ------------------------------------------------------------------------------
$ 1,363.6 $ 1,005.4 $ 1,265.7 $ 969.7
- ------------------------------------------------------------------------------
35
Of the total tax loss carryforwards, $13.1 expires over the
next 10 years, $65.8 expires over the next 15 years and $134.0
is unlimited. A substantial portion of the valuation allowance
is for these carryforwards because the ability to utilize a
portion of them is uncertain. There is no limit on utilization
of the tax credit carryforwards.
The cumulative amount of Alcoa's share of undistributed
earnings for which no deferred taxes have been provided was
$1,575.8 at December 31, 1994. 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.
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 follow.
1994 1993 1992
- ------------------------------------------------------------------------------
Interest* $ 107.3 $101.2 $ 193.9
Income taxes 238.4 193.6 264.4
- ------------------------------------------------------------------------------
<FN>
*Includes $8.6 in 1994 and $63.8 in 1992 of amortized interest on the
debentures retired early
In a noncash transaction early in 1993, $149 of 6 1/4 Conver-
tible Subordinated Debentures due 2002 were converted to common
stock by issuing 4.6 million shares of treasury stock.
U. 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 suffi-
ciently 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.
1994 1993 1992
- ------------------------------------------------------------------------------
Benefits earned $ 90.6 $ 102.4 $ 92.2
Interest accrued on projected
benefit obligation 261.2 253.9 250.7
Net amortization 46.5 59.8 29.7
- ------------------------------------------------------------------------------
398.3 416.1 372.6
Less: expected return on plan
assets* 281.4 268.1 259.2
- ------------------------------------------------------------------------------
$ 116.9 $ 148.0 $ 113.4
- ------------------------------------------------------------------------------
<FN>
*The actual returns were higher (lower) than the expected returns by $(282.7)
in 1994, $324.2 in 1993 and $82.4 in 1992 and were deferred as actuarial
gains (losses).
The status of the pension plans follows.
Assets exceed Accumulated benefit
accumulated obligation
benefit obligation exceeds assets
---------------------------------------------------
December 31 1994 1993 1994 1993
- ------------------------------------------------------------------------------
Plan assets, primarily
stocks and bonds at
market $ 3,337.7 $ 3,688.4 $ 231.4 $ 90.6
- ------------------------------------------------------------------------------
Present value of
obligation:
Vested 2,721.2 3,154.8 335.2 197.1
Nonvested 237.3 310.9 4.9 17.3
- ------------------------------------------------------------------------------
Accumulated benefit
obligation 2,958.5 3,465.7 340.1 214.4
Effect of assumed salary
increases 236.1 328.1 32.9 20.0
- ------------------------------------------------------------------------------
Projected benefit
obligation $ 3,194.6 $ 3,793.8 $ 373.0 $ 234.4
- ------------------------------------------------------------------------------
Plan assets greater (less
than) projected benefit
obligation $ 143.1 $ (105.4) $ (141.6) $ (143.8)
Unrecognized:
Transition (assets)
obligations 21.8 7.7 (8.9) 10.8
Prior service costs 45.9 138.6 32.2 53.8
Actuarial (gains) losses,
net (415.9) (113.3) 34.0 (4.1)
Minimum liability
adjustment - - (23.2) (43.4)
- ------------------------------------------------------------------------------
Accrued pension cost $ (205.1) $ (72.4) $ (107.5) $ (126.7)
- ------------------------------------------------------------------------------
Assumptions used to determine plan liabilities and expenses follow.
December 31 1994 1993 1992
- ------------------------------------------------------------------------------
Settlement discount rate 8.25% 6.75% 6.75%
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 1994 1993 1994 1993
- ------------------------------------------------------------------------------
Plan assets at fair market
value $ 3,079.1 $ 3,270.5 - $ 21.7
Accumulated benefit
obligation (2,813.2) (3,115.6) - (23.9)
- ------------------------------------------------------------------------------
$ 265.9 $ 154.9 - $ (2.2)
- ------------------------------------------------------------------------------
Alcoa also sponsors a number of defined contribution pension
plans. Expenses were $32.9 in 1994, $34.5 in 1993 and $23.9 in
1992.
36
V. POSTRETIREMENT BENEFITS
Alcoa implemented SFAS 106 as of January 1, 1992 and the cumu-
lative effect of this change was reported in 1992 earnings.
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.
Changes made in 1993 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.
The components of postretirement benefit expense follow.
1994 1993 1992
- ------------------------------------------------------------------------------
Service cost of benefits
earned $ 20.2 $ 29.9 $ 42.9
Interest cost on liability 104.4 110.2 135.9
Net amortization (50.0) (32.4) -
Return on plan assets (4.8) (5.2) (3.7)
- ------------------------------------------------------------------------------
Postretirement benefit costs $ 69.8 $ 102.5 $ 175.1
- ------------------------------------------------------------------------------
The status of the postretirement benefit plans was:
December 31 1994 1993
- ---------------------------------------------------------------------------
Retirees $ 1,040.3 $ 1,070.4
Fully eligible active plan
participants 112.5 142.9
Other active participants 307.8 378.6
- ---------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 1,460.6 1,591.9
Plan assets, primarily stocks and
bonds at market 53.3 53.4
- ---------------------------------------------------------------------------
APBO in excess of plan assets 1,407.3 1,538.5
Unrecognized net:
Reduction in prior service
costs 420.1 469.4
Actuarial gains (losses) 103.3 (78.8)
- ---------------------------------------------------------------------------
Accrued postretirement benefit
liability $ 1,930.7 $ 1,929.1
- ---------------------------------------------------------------------------
For measuring the liability and expense, a 10% annual rate of
increase in the per capita claims cost was assumed for 1995,
declining gradually to 5.5% by the year 2003 and thereafter.
Other assumptions used to measure the liability and expense
follow.
December 31 1994 1993 1992
- ------------------------------------------------------------------------------
Settlement discount rate 8.25% 6.75% 6.75%
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
- ------------------------------------------------------------------------------
For 1994 a 1% increase in the trend rate for health care
costs would have increased the APBO by 8% and service and
interest costs by 9%.
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY DATA (UNAUDITED)
(dollars in millions, except share amounts)
1994 First Second Third Fourth Year
- ------------------------------------------------------------------------------
Sales and operating
revenues $ 2,221.6 $ 2,479.4 $ 2,561.5 $ 2,641.8 $ 9,904.3
Income from operations 1.5 78.7 121.3 401.8 603.3
Net income (loss)* (108.3) 45.4 70.1 368.0 375.2
Per common share (.61) .25 .39 2.07 2.10
- ------------------------------------------------------------------------------
<FN>
*After a special charge of $50.0, or 28 cents per share, and an extraordinary
loss of $67.9, or 38 cents per share, in the first quarter and a gain of
$300.2, or $1.69 per share, in the fourth quarter
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 .16 .20 .16 (.50) .02
- ------------------------------------------------------------------------------
<FN>
* After special items of $23.8, or 14 cents per share, in the second quarter,
$4.0, or two cents per share, in the third quarter and $70.2, or 43 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.
37
GRAPHICS APPENDIX LIST
Aluminum Product Shipments - page 19.
(thousands of metric tons)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Fabricated products 1,545 1,657 1,774 1,739 1,896
Ingot 1,179 1,179 1,023 841 655
----- ----- ----- ----- -----
Total 2,724 2,836 2,797 2,580 2,551
===== ===== ===== ===== =====
Alcoa's Average Realized Ingot Price - page 21.
(cents per pound)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
$.75 $.67 $.59 $.56 $.64
Percent Return on Shareholders' Equity - page 23.
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Before unusual items 10.9 5.5 4.6 2.2 5.2
After unusual items 5.7 1.2 * 0.1 9.9
<FN>
* The return on reported earnings was a negative 26.7%
Average Number of Employees - page 23.
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Outside U.S. 27,100 29,300 29,400 31,700 31,400
U.S. 36,600 36,300 34,200 31,700 30,300
------ ------ ------ ------ ------
Total 63,700 65,600 63,600 63,400 61,700
====== ====== ====== ====== ======
Cash From Operations - page 24.
(millions of dollars)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
1,558 1,426 1,208 535 1,394
Capital Expenditures and Depreciation - page 24.
(millions of dollars)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Capital Expenditures 851 850 789 757 612
Depreciation 690 698 682 693 671