FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number 1-3610
September 30, 1996
ALUMINUM COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0317820
(State of incorporation) (I.R.S. Employer Identification No.)
425 Sixth Avenue-Alcoa Building, Pittsburgh,Pennsylvania 15219-1850
(Address of principal executive offices) (Zip Code)
Office of Investor Relations 412-553-3042
Office of the Secretary 412-553-4707
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of October 28, 1996, 173,402,760 shares of common stock,
par value $1.00, of the Registrant were outstanding.
A07-15763
PART I - FINANCIAL INFORMATION
Alcoa and subsidiaries
Condensed Consolidated Balance Sheet
(in millions)
(unaudited)
September 30, December 31
ASSETS 1996 1995
------------- -----------
Current assets:
Cash and cash equivalents (includes cash of
$90.8 in 1996 and $120.5 in 1995) $ 669.0 $ 1,055.6
Short-term investments 37.8 6.8
Accounts receivable from customers, less
allowances: 1,690.9 1,546.3
1996-$53.0; 1995-$45.8
Other receivables 143.4 297.0
Inventories (b) 1,569.2 1,418.4
Deferred income taxes 138.9 244.8
Prepaid expenses and other current assets 188.2 172.8
-------- --------
Total current assets 4,437.4 4,741.7
-------- --------
Properties, plants and equipment, at cost 15,530.2 15,214.8
Less, accumulated depreciation, depletion and
amortization 8,611.4 8,285.1
-------- --------
Net properties, plants and equipment 6,918.8 6,929.7
-------- --------
Other assets 2,066.3 1,972.0
-------- --------
Total assets $13,422.5 $13,643.4
======== ========
LIABILITIES
Current liabilities:
Short-term borrowings $ 381.8 $ 345.0
Accounts payable, trade 811.0 861.7
Accrued compensation and retirement costs 402.4 384.3
Taxes, including taxes on income 401.8 304.7
Other current liabilities 490.3 408.3
Long-term debt due within one year 163.3 348.2
-------- --------
Total current liabilities 2,650.6 2,652.2
-------- --------
Long-term debt, less amount due within one 1,380.2 1,215.5
year
Accrued postretirement benefits 1,807.1 1,827.3
Other noncurrent liabilities and deferred 1,303.0 1,585.7
credits
Deferred income taxes 328.2 308.6
-------- --------
Total liabilities 7,469.1 7,589.3
-------- --------
MINORITY INTERESTS 1,596.4 1,609.4
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock 55.8 55.8
Common stock 178.9 178.9
Additional capital 597.0 637.1
Translation adjustment (93.5) (79.0)
Retained earnings 3,943.8 3,800.1
Unfunded pension obligation (5.2) (9.3)
Treasury stock, at cost (319.8) (138.9)
-------- --------
Total shareholders' equity 4,357.0 4,444.7
-------- --------
Total liabilities and shareholders' equity $13,422.5 $13,643.4
======== ========
(see accompanying notes)
2
Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per share amounts)
Third quarter Nine months
ended ended
September 30 September 30
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES
Sales and operating revenues $3,240.6 $3,264.8 $9,803.3 $9,391.9
Other income 18.0 61.3 36.6 118.9
------- ------- ------- -------
3,258.6 3,326.1 9,839.9 9,510.8
------- ------- ------- -------
COSTS AND EXPENSES
Cost of goods sold and operating 2,517.4 2,434.4 7,440.2 6,926.1
expenses
Selling, general administrative and
other 181.6 182.4 533.0 519.7
expenses
Research and development expenses 36.0 34.1 113.9 98.2
Provision for depreciation,
depletion and 181.1 185.4 554.9 529.0
amortization
Interest expense 37.4 33.1 103.1 84.0
Taxes other than payroll and
severance 31.7 27.5 98.3 93.6
taxes
Special items (c) 115.1 9.4 180.5 9.4
------- ------- ------- -------
3,100.3 2,906.3 9,023.9 8,260.0
------- ------- ------- -------
EARNINGS
Income before taxes on income 158.3 419.8 816.0 1,250.8
Provision for taxes on income (d) 53.6 150.3 277.4 419.9
------- ------- ------- -------
Income from operations 104.7 269.5 538.6 830.9
Less: Minority interests' share
(36.3) (43.1) (159.8) (191.3)
------- ------- ------- -------
NET INCOME $ 68.4 $ 226.4 $ 378.8 $ 639.6
======= ======= ======= =======
Earnings per common share (e) $ .39 $ 1.27 $ 2.16 $ 3.58
Dividends paid per common share $ .3325 $ .225 $ .9975 $ .675
======= ======= ======= =======
(see accompanying notes)
3
Alcoa and subsidiaries
Condensed Statement of Consolidated Cash Flows (unaudited)
(in millions)
Nine months ended
September 30
------------
1996 1995
------ ------
CASH FROM OPERATIONS
Net income $ 378.8 $ 639.6
Adjustments to reconcile net income to cash from
operations:
Depreciation, depletion and amortization 566.8 541.6
Change in deferred income taxes 95.2 (22.5)
Equity (income) losses before additional taxes, net
of dividends 1.6 (25.5)
Provision for special items 180.5 9.4
Losses from financing and investing activities - (1.4)
Book value of asset disposals 30.6 11.3
Minority interests 159.8 191.3
Other (23.3) 3.1
(Increase) reduction in receivables 47.4 (209.6)
(Increase) reduction in inventories 3.5 (315.1)
(Increase) reduction in prepaid expenses and other
current (15.1) 3.1
assets
Reduction in accounts payable and accrued expenses (304.5) (262.6)
Reduction in taxes, including taxes on income 15.1 (48.4)
Increase (reduction) in deferred hedging gains (165.9) 390.3
Net change in noncurrent assets and liabilities (98.4) 171.7
------- -------
CASH FROM OPERATIONS 872.1 1,076.3
------- -------
FINANCING ACTIVITIES
Net changes in short-term borrowings 34.6 88.7
Common stock issued and treasury stock sold 36.7 101.4
Repurchase of common stock (257.7) (185.7)
Dividends paid to shareholders (178.0) (121.6)
Dividends paid to minority interests (145.2) (87.2)
Additions to long-term debt 456.1 532.0
Payments on long-term debt
(489.5) (136.3)
------- -------
CASH FROM (USED FOR) FINANCING ACTIVITIES (543.0) 191.3
------- -------
INVESTING ACTIVITIES
Capital expenditures (631.1) (547.1)
Additions to investments (58.1) (8.1)
Net change in short-term investments (31.1) (1.8)
Changes in minority interests (25.3) (139.3)
Acquisition of subsidiaries, net of cash acquired (171.5) (426.6)
Loan/repayment from to WMC 121.8 (121.8)
Net proceeds from Alcoa/WMC transaction - 366.9
Proceeds from sale of Pt. Henry 82.8 -
Other - receipts - 3.8
- payments (9.2) (18.9)
------- -------
CASH USED FOR INVESTING ACTIVITIES (721.7) (892.9)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6.0 (5.0)
------- -------
CHANGES IN CASH
Net change in cash and cash equivalents (386.6) 369.7
Cash and cash equivalents at beginning of year 1,055.6 619.2
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 669.0 $ 988.9
======= =======
(see accompanying notes)
4
Notes to Consolidated Financial Statements
(in millions, except share amounts)
Notes:
(a) Summarized consolidated financial data for Alcoa
Aluminio S.A. (Aluminio) and Alcoa of Australia
Limited (AofA) begin on page 15.
(b) Inventories consisted of:
September 30 December 31
1996 1995
------------ -----------
Finished goods $ 441.3 $ 323.1
Work in process 478.4 483.9
Bauxite and alumina 299.0 241.4
Purchased raw materials 228.8 254.5
Operating supplies 121.7 115.5
------- -------
$1,569.2 $1,418.4
======= =======
Approximately 55% of total inventories at September 30,
1996 was valued on a LIFO basis. If valued on an
average cost basis, total inventories would have been
$814.1 and $802.1 higher at September 30, 1996 and
December 31, 1995, respectively.
(c)The special charge of $115.1 ($65.5 after-tax) in
the 1996 third quarter was related to incentives
paid to employees who voluntarily left the company
and for permanent layoff costs. The total pre-tax
charge related to the layoffs of $170.5 was reduced
by a credit of $65.2 that was recorded as a pension
curtailment in accordance with the provisions of
Statement of Financial Accounting Standards 88
(SFAS 88), Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits. The remaining $9.8
is related principally to a writedown of
manufacturing equipment taken out of service at
several locations. In the 1996 second quarter, an
additional $65.4 ($40.0 after-tax) was recorded for
the closing of Alcoa Electronic Packaging (AEP),
Alcoa's ceramic packaging operations in San Diego,
California. Most of this charge was related to
asset writedowns.
(d)The income tax provision for the period is based on
the effective tax rate expected to be applicable
for the full year. The difference between the 1996
estimated effective tax rate of 34% and the U.S.
statutory rate of 35% is primarily due to lower tax
rates on income earned outside the U.S.
(e)The following formula is used to compute primary
earnings per common share (EPS):
EPS = Net income - preferred dividend requirements
---------------------------------------------
Weighted average number of common shares
outstanding for the period
5
The average number of shares used to compute primary
earnings per common share was 174,737,995 in 1996 and
178,383,420 in 1995. Fully diluted earnings per common
share are not stated since the dilution is not material.
(f) Certain amounts in previously issued financial
statements were reclassified to conform to 1996
presentations.
6
- -----------
In the opinion of the Company, the financial statements
and summarized financial data in this Form 10-Q report
include all adjustments, including those of a normal
recurring nature, necessary to fairly state the results
for the periods. This Form 10-Q report should be read
in conjunction with the Company's annual report on Form
10-K for the year ended December 31, 1995.
The financial data required in this Form 10-Q by Rule
10-01 of Regulation S-X has been reviewed by Coopers &
Lybrand L.L.P., the Company's independent auditors, as
described in their report on page 8.
7
Independent Auditor's Review Report
To the Shareholders and Board of Directors
Aluminum Company of America (Alcoa)
We have reviewed the unaudited condensed consolidated
balance sheet of Alcoa and subsidiaries as of September
30, 1996, the unaudited condensed statements of
consolidated income for the three-month and nine-month
periods ended September 30, 1996 and 1995, and condensed
consolidated cash flows for the nine-month periods ended
September 30, 1996 and 1995, which are included in
Alcoa's Form 10-Q for the period ended September 30,
1996. These financial statements are the responsibility
of Alcoa's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed
consolidated financial statements referred to above for
them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of Alcoa and subsidiaries as of December
31, 1995, and the related statements of consolidated
income, shareholders' equity, and consolidated cash flows
for the year then ended (not presented herein). In our
report dated January 8, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In
our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of
December 31, 1995 is fairly stated, in all material
respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
October 4, 1996
8
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
(dollars in millions, except share amounts)
Results of Operations
Principal income and operating data follow.
Third quarter Nine months
ended ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Sales and operating revenues $3,240.6 $3,264.8 $9,803.3 $9,391.9
Net income 68.4 226.4 378.8 639.6
Earnings per common share .39 1.27 2.16 3.58
Shipments of aluminum 717 655 2,094 1,936
products (1)
Shipments of alumina (1) 1,575 1,661 4,736 4,653
<FN>
- -----------
(1) in thousands of metric tons (mt)
Overview
Alcoa reported 1996 third quarter earnings of $68.4, or 39 cents
per share, after a special after-tax charge of $65.5, or 38 cents
per share, related to layoff provisions and equipment writedowns.
Earnings in the comparable 1995 quarter were a third quarter
record of $226.4, or $1.27 per share.
The special charge of $65.5 ($115.1 pre-tax) in the 1996 third
quarter was related to incentives paid to employees who
voluntarily left the Company and for permanent layoff costs. A
total of 2,900 employees were affected by the reductions, with
475 U.S. salaried employees accepting voluntary separation
incentives. These reductions are being undertaken as part of
Alcoa's goal of reducing selling, general and administrative
expenses by $300 annually. It is expected that the majority of
the cash payments associated with these charges will be made
during the next twelve months, with a significant portion made
during the 1996 fourth quarter. The total pre-tax charge related
to the layoffs of $170.5 was reduced by a credit of $65.2 that
was recorded as a pension curtailment in accordance with the
provisions of SFAS 88. The remaining $9.8 is related principally
to a writedown of manufacturing equipment taken out of service at
several locations. In addition, a pre-tax credit of approximately
$13 will be recorded as employees are terminated, primarily in
the 1996 fourth quarter. The credit is related to a curtailment
of other post-employment benefits in accordance with the
provisions of Statement of Financial Accounting Standards 106,
Employers' Accounting for Postretirement Benefits Other than
Pensions.
The 1996 third quarter also includes after-tax losses of $16.0
related to marking to market certain aluminum commodity
contracts. The Company enters into these commodity contracts to
lock in conversion margins for fabricated product businesses and
to have its primary metal units at market at all times. Of these
after-tax losses, $3.4 is attributable to fabricated product
sales contracts that were delivered during the quarter and $12.6
is related to fabricated product sales contracts that will be
shipped in future quarters. Current accounting convention
requires that these contracts be marked to market and not be
matched against the fabricated product sales contracts at
9
the time that they are shipped to customers. Year-to-date,
after-tax mark-to-market losses totaled $64.6, compared with
$11.1 in the 1995 period.
For the first nine months of 1996, earnings were $378.8, or $2.16
per share, after special charges of $105.5 or 61 cents per share.
The additional special charge in the 1996 second quarter of 40.0
relates to the closing of AEP. In the 1995 nine-month period,
earnings were $639.6 or $3.58 per share.
Alcoa of Australia Limited's (AofA) pre-tax income from
operations for the 1996 third quarter declined 14% from the year-
ago quarter; year-to-date, AofA's pre-tax income increased 10%
relative to 1995. The year-to-date improvement was due primarily
to higher prices for alumina and higher shipments of ingot
partially offset by lower metal prices. However, the 1996
quarter was negatively affected by lower alumina shipments.
Additionally, 1995 third quarter and year-to-date after-tax
results were negatively affected by $27.2 resulting from an
increase in the Australian tax rate from 33% to 36%.
In Brazil, Alcoa Aluminio's (Aluminio) third quarter 1996 pretax
loss from operations was $18.4, a decrease of $53.7 from the 1995
third quarter. The decrease was primarily due to higher costs
during the 1996 quarter, lower metal prices and an inventory
write-down related to packaging products. Year-to-date, pre-tax
income was $20.2, down 85% from the 1995 nine-month period.
Revenues were flat compared with the 1995 period, while costs
increased 15%, due to higher raw material prices and the
previously mentioned inventory writedown.
Alcoa's operations, divided into three segments, follow:
1. Alumina and Chemicals Segment
Third quarter ended Nine months ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Alumina and chemicals $ 488 $ 477 $ 1,454 $ 1,286
revenues
Alumina shipments (000 mt) 1,575 1,661 4,736 4,653
Total revenues for the Alumina and Chemicals segment were $488 in
the 1996 third quarter, up 2% from the comparable 1995 quarter.
Year-to-date, revenues were $1,454, up 13% from the 1995 period.
Alumina revenues for the 1996 third quarter were flat compared
with the 1995 period as shipments fell 5% while prices climbed
6%. In the year-to-date period, revenues were up 17% on the
strength of a 14% increase in prices. Chemicals revenues rose 5%
from both the 1995 quarter and year-to-date levels, principally
due to higher shipments.
In late 1994, Alcoa and WMC Limited (WMC) of Melbourne, Australia
combined ownership of their respective worldwide bauxite, alumina
and inorganic chemicals businesses into a group of companies
known as Alcoa World Alumina and Chemicals (AWAC). During the
1996 third quarter, AWAC produced 2,499 mt of alumina. Of this
amount, 1,575 mt were shipped to third-party customers.
10
2. Aluminum Processing Segment
Third quarter ended Nine months ended
ended September 30 September 30
------------------ ------------
Product classes 1996 1995 1996 1995
---- ---- ---- ----
Revenues
Flat-rolled products $ 936 $ 1,046 $ 2,953 $ 3,255
Engineered products 569 568 1,707 1,752
Aluminum ingot 374 331 1,078 832
Other aluminum products 83 99 245 280
------ ------ ------ ------
Total $ 1,962 $ 2,044 $ 5,983 $ 6,119
Shipments (000 metric
tons)
Flat-rolled products 324 346 1,009 1,076
Engineered products 134 109 368 345
Aluminum ingot 240 177 664 459
Other aluminum products 19 23 53 56
------ ------ ------ ------
Total 717 655 2,094 1,936
Flat-rolled products - The majority of revenues and shipments for
flat-rolled products are derived from rigid container sheet
(RCS), which is used to produce aluminum beverage can bodies and
can ends. Shipments of RCS in the 1996 third quarter were down
17% from the 1995 quarter, primarily due to the sale of AofA's
Rolled Product Division to KAAL Australia in May, 1996. This
resulted in an 18,000 mt loss in shipments when compared with the
1995 quarter. Year-to-date, shipments were down 14% with the
Rolled Products Division accounting for 28,000 mt. Revenues from
RCS fell 22% and 18% from the respective 1995 quarter and year-
to-date periods. Overall flat-rolled products revenues were down
approximately 10% for both the year-to-date and third quarter
periods. The above-mentioned declines in RCS shipments and
revenues were partially offset by the results of Alumix, acquired
by Alcoa Italia in the 1996 first quarter, which recorded
revenues of $20 in the 1996 third quarter.
Engineered products - These products include extrusions used in
the transportation and construction markets, forged aluminum
wheels, and wire, rod and bar. Revenues from the sale of
engineered products were flat in the 1996 third quarter as higher
shipments offset lower prices. Year-to-date, revenues and prices
were down 3% and 9%, respectively, as improvement in the
aerospace markets was more than offset by declines in other
engineered products.
Revenues for extruded products were higher by 21% and 11% from
the 1995 third quarter and nine-month periods. Prices fell 14%
and 7% over the same periods, while shipments were up 41% and
19%, respectively. Extruded product revenues and shipments were
positively affected by the Alumix acquisition, which increased
revenues by $32 in the 1996 third quarter.
Aluminum ingot - Ingot shipments for the 1996 third quarter were
up 35% from the 1995 quarter on the strength of higher shipments
by AofA and Aluminio. Year-to-date, shipments were 44% higher
than those in the 1995 period, resulting in a 29% increase in
revenues. Ingot revenues continue to be negatively affected by
falling prices, as the LME three-month price has fallen 22% from
1995 third quarter levels.
11
Other aluminum products - Shipments of other aluminum products
during the 1996 nine-month period fell 6% from 1995, while prices
fell 7%, mainly due to a continued drop in aluminum closure
prices. Third quarter 1996 revenues were down 17% because of
these lower prices.
3. Non-aluminum Segment
Revenues for the non-aluminum segment were $790 in the 1996 third
quarter, up 6% from $744 in the 1995 quarter. Year-to-date, this
segment had revenues of $2,366, compared with $1,987 in 1995. The
increase is partly due to higher revenues at Alcoa Fujikura Ltd.
(AFL), where sales have increased 50% on a year-to-date basis,
aided by the acquisition of Electro-Wire Products (EWP) in July
1995. Sales of building products also showed strong growth as
revenues increased 8% over the 1995 nine-month period.
Offsetting these gains was a $77 decrease in sales related to AEP
as the facility was closed.
Cost of Goods Sold
Cost of goods sold increased $83, or 3%, from the 1995 third
quarter. Year-to-date, the increase was $514, or 7%. The
increases are the result of the acquisition of Alumix, higher
volumes in the non-aluminum product area and cost increases for
certain raw materials. Cost of goods sold as a percentage of
revenues in the 1996 year-to-date period was 75.9%, or 2.2
percentage points higher than the 1995 ratio. The higher ratio
in 1996 is primarily due to lower prices for nearly all aluminum
products and higher costs for certain raw materials.
Other Income & Expenses
Other income totaled $18 in the 1996 third quarter, a drop of $43
from the 1995 period. Year-to-date, other income was down $82.
The decreases are primarily due to increased losses from marking-
to-market aluminum commodity contracts, lower equity earnings and
reduced interest income.
Selling, general and administrative expenses were flat when
comparing the 1995 and 1996 third quarters and were up $13 on a
year-to-date basis. The acquisition of Alumix resulted in a $10
and $23 increase in these costs for the 1996 quarter and nine-
month periods. Otherwise, these costs would have been below
previous year's levels.
Interest expense was up $19 from the 1995 nine-month period,
primarily due to higher borrowings related to the EWP
acquisition by AFL and higher borrowings by Aluminio.
The estimated effective tax rate for 1996 is 34%. The difference
between this rate and the U.S. statutory rate of 35% is primarily
due to lower tax rates on income outside of the U.S.
Minority interests' share of income from operations declined 16%
from the 1995 year-to-date period. The decrease is due to lower
earnings at Aluminio, and Alcoa-Kofem, offset by an increase at
AofA.
Commodity Risks
In the U.S., and for export, Alcoa enters into long-term sales
contracts with a number of its customers. At December 31, 1995,
such contracts totaled approximately 2,483,000 mt of aluminum
products over the next several years.
12
In order to minimize the economic risk of higher prices for metal
needs associated with these long-term contracts, Alcoa entered
into futures and options contracts. As of September 30, 1996,
Alcoa had 1,160,000 mt of these contracts outstanding. According
to present accounting conventions, 894,000 mt of these contracts
qualify for hedge accounting treatment while the remaining
266,000 mt of contracts are required to be accounted for on a
mark-to-market basis. This mark-to-market valuation resulted in
an after-tax charge of $16.0 for the 1996 third quarter. Of this
amount, $3.4 was attributed to fabricated product sales contracts
that were delivered during the third quarter, and $12.6 relates
to fabricated product sales contracts that will be shipped in
future quarters.
Alcoa purchases other commodities, such as natural gas and
copper, for its operations and enters into forward contracts to
eliminate volatility in the prices of such products. None of
these contracts are material.
Environmental Matters
Alcoa continues to participate in environmental assessments
and cleanups at a number of locations, including operating
facilities and their adjoining property; at previously owned
or operated facilities; and at Superfund and other waste
sites. Alcoa records a liability for environmental
remediation costs and/or damages when a cleanup program or
liability becomes probable and the costs/damages can be
reasonably estimated.
As assessments and cleanups proceed, these liabilities are
adjusted based on progress in determining the extent of
remedial actions and the related costs and damages. The
liability can change substantially due to factors such as the
nature or extent of contamination, changes in remedial
requirements and technological improvements.
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 the 1996
third quarter was $307 and reflects Alcoa's most probable
cost to remediate identified environmental conditions for
which costs can be reasonably estimated. About a quarter of
the reserve relates to Alcoa's Massena, New York plant site.
Remediation expenditures charged to the reserve during the
1996 nine-month period were $18. Expenditures included those
currently mandated as well as those not required by any
regulatory authority or third party.
Included in ongoing operating expenses are the recurring
costs of managing hazardous substances and pollution. Alcoa
estimates that these costs will be about 2% of cost of goods
sold in 1996.
13
Liquidity and Capital Resources
Cash from Operations
Cash from operations during the 1996 nine-month period was
$872.1, $204.2 lower than in the 1995 period. Lower working
capital requirements were offset by decreases in earnings and a
reduction in cash related to hedging activities.
Financing Activities
Financing activities used $543.0 of cash during the first nine
months of 1996. This included $257.7 to repurchase 4,437,500
shares of the Company's common stock. Dividends paid to
shareholders were $178.0 in the 1996 year-to-date period, an
increase of $56.4 from 1995. The increase was due to Alcoa's
variable dividend program, which paid out 10.75 cents above the
base dividend of 22.5 cents in the 1996 third quarter. The
additional dividend of 10.75 cents also will be paid in the
remaining 1996 quarter to shareholders of record at the quarterly
distribution date.
Payments on long-term debt during the first nine months of 1996
exceeded additions by $33.4. Commercial paper borrowings during
the third quarter totaled $146, with the proceeds used for
general corporate purposes. Alcoa repaid $175 of the 4.625%
Notes which matured during the period. Debt as a percentage of
invested capital was 18.8% at the end of the 1996 third quarter,
up from 16.7% recorded at year-end 1995.
Investing Activities
Investing activities used $721.7 during the 1996 nine-month
period, compared with $892.9 in the 1995 period. Capital
expenditures totaled $631.1, with $171.5 used for acquisitions,
principally related to the Alumix purchase. Alcoa received $82.8
from KAAL as payment for the purchase of AofA's Rolled Products
Division. Alcoa also received $121.8 from WMC which was
originally loaned to WMC in January, 1995. The $366.9 of cash
generated in 1995 was related to the AWAC transaction.
14
Alcoa and subsidiaries
Summarized consolidated financial data for Aluminio, a Brazilian
subsidiary effectively owned 59% by Alcoa, follow.
(unaudited)
September 30 December 31
1996 1995
---- ----
Cash and short-term investments $ 201.2 $ 252.4
Other current assets 370.0 379.3
Properties, plants and equipment, 892.0 857.2
net (1)
Other assets 181.3 185.4
------- -------
Total assets 1,644.5 1,674.3
------- -------
Current liabilities 425.1 431.6
Long-term debt (1) 267.4 314.5
Other liabilities 64.3 56.1
------- -------
Total liabilities 756.8 802.2
------- -------
Net assets $ 887.7 $ 872.1
======= =======
(unaudited) (unaudited)
Third quarter ended Nine months ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues $ 302.4 $ 298.6 $ 893.4 $ 892.1
Costs and expenses (321.1) (264.0) (874.2) (758.6)
Translation and exchange
adjustments 0.3 0.7 1.0 4.0
Income tax (expense)/benefit 6.9 (4.3) 5.7 (16.5)
------ ------ ----- ------
Net income/(loss) $ (11.5) $ 31.0 $ 25.9 $ 121.0
====== ====== ===== ======
Alcoa's share of net income $ (6.8) $ 18.3 $ 15.3 $ 71.4
====== ====== ===== ======
<FN>
(1) Held by Alcoa Brazil Holdings Company - $22.5
(2) Revenues from Alcoa and its subsidiaries, the terms of which
were established by negotiations between the parties, follow.
Third quarter ended September 30: 1996 - $6.1, 1995 - $51.6
Nine months ended September 30: 1996 - $12.4, 1995 - $154.0
15
Alcoa and subsidiaries
Summarized consolidated financial data for AofA, an Australian
subsidiary, 60% owned by Alcoa, follow.
(unaudited)
September 30 December 31
------------ -----------
1996 1995
---- ----
Cash and short-term investments $ 99.7 $ 61.6
Other current assets 502.5 551.6
Properties, plants and 1,653.2 1,615.7
equipment, net
Other assets 99.0 101.2
------- -------
Total assets 2,354.4 2,330.1
------- -------
Current liabilities 331.5 380.7
Long-term debt 186.0 127.0
Other liabilities 432.7 415.5
------- -------
Total liabilities 950.2 923.2
------- -------
Net assets $1,404.2 $1,406.9
======= =======
(unaudited) (unaudited)
Third quarter ended Nine months ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues (1) $ 469.6 $ 480.8 $ 1,479.1 $1,313.3
Costs and expenses (360.9) (354.5) (1,121.7) (987.4)
Translation and exchange
adjustments - - - -
Income tax expense (40.4) (70.9) (127.5) (134.8)
------- ------- ------- ------
Net income $ 68.3 $ 55.4 $ 229.9 $ 191.1
======= ======= ======= =======
Alcoa's share of net income $ 41.0 $ 33.2 $ 137.9 $ 114.7
======= ======= ======= =======
<FN>
(1) Revenues from Alcoa and its subsidiaries, the terms of which
were established by negotiations between the parties, follow.
Third quarter ended September 30: 1996 - $9.7, 1995 - $12.6
Nine months ended September 30: 1996 - $41.2, 1995 - $37.4
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, Alcoa initiated a lawsuit in King County,
Washington in December 1992 against nearly one hundred insurance
companies that provided insurance coverage to the Company between
the years 1956 and 1985. Trial commenced in April 1996 against
those insurance companies which provided all risk property
coverage to the Company. A jury verdict was returned on October
3, 1996 which held these insurers liable for past damages, as
well as future damages, at a number of contaminated areas at
Alcoa's Point Comfort, Massena and Vancouver plants. The jury
also found that the insurers were not liable for certain other
contaminated areas and was unable to reach a verdict as to still
other areas.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11. Computation of Earnings per Common Share
12. Computation of Ratio of Earnings to Fixed Charges
15. Independent Accountants' letter regarding unaudited
financial information
27. Financial Data Schedule
99. Forward Looking Statements
(b) No reports on Form 8-K were filed by Alcoa during the
quarter covered by this report.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
ALUMINUM COMPANY OF AMERICA
October 30, 1996 By /s/ JAN H. M. HOMMEN
Date Jan H. M. Hommen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
October 30, 1996 By /s/ EARNEST J. EDWARDS
Date Earnest J. Edwards
Vice President and Controller
(Chief Accounting Officer)
18
EXHIBITS
Page
11. Computation of Earnings per Common Share 20
12. Computation of Ratio of Earnings to Fixed Charges 21
15. Independent Accountants' letter regarding 22
unaudited financial information
27. Financial Data Schedule
99. Forward Looking Statements 23
19