EXHIBIT 99
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated
Financial Statements are based on and should be read in
conjunction with the historical consolidated financial statements
of Alcoa and Alumax, adjusted to give effect to the Alumax merger
and related transactions. The Unaudited Pro Forma Condensed
Consolidated Statement of Income does not (a) purport to
represent what the results of operations actually would have been
if the Alumax merger had occurred as of the date indicated or
what such results will be for any future periods or (b) give
effect to certain non-recurring charges expected to result from
the acquisition.
The Unaudited Pro Forma Condensed Consolidated Statement of
Income for the six month period ended June 30, 1998 gives effect
to the Alumax merger and related transactions as if such
transactions had occurred on January 1, 1998. The Unaudited Pro
Forma Condensed Consolidated Balance Sheet as of June 30, 1998
gives effect to the Alumax merger and related transactions as if
such transactions had occurred on that date.
The pro forma adjustments are based upon available information
and include certain assumptions and adjustments which the
managements of Alcoa and Alumax believe to be reasonable. These
adjustments are directly attributable to the transactions
referenced above and are expected to have a continuing impact on
Alcoa's business, results of operations and financial position.
Alcoa has completed an initial assessment of potential benefits
from cost savings related to combining operations, with
efficiency opportunities estimated to be $300 million over the
next one and a half years. No adjustments have been made to
these pro forma's related to potential recurring benefits from
these cost savings. The purchase of Alumax will be accounted for
using the purchase method of accounting, pursuant to which the
total purchase costs of the acquisition will be allocated to the
tangible and intangible assets and liabilities acquired based
upon their estimated fair values. The purchase price allocation
is preliminary, based on facts currently known to the companies.
Alcoa and Alumax are not aware of any significant unrecorded
obligations or contingencies, and do not believe that the final
purchase price allocation will materially differ. The final
allocation of the purchase price will be made based upon
valuations and other studies that have not been completed.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 1998
-------------------------------------
Historical Pro Forma Pro Forma
Alcoa (A) Adjustments
-------------------------------------
(in millions)
Assets
Current Assets:
Cash, cash equivalents and
short-term investments $ 909.0 $ (183.9)(C) $ 725.1
Receivables from customers, less
allowance 2,447.5 - 2,447.5
Inventories 1,887.1 36.2 (B) 1,923.3
Prepaid expenses and other current
assets 672.9 - 672.9
-------- -------- --------
Total current assets 5,916.5 (147.7) 5,768.8
Net properties, plant and
equipment 9,074.0 669.3 (B) 9,743.3
Other assets 2,586.1 240.4 (B)
(3.9)(B)
26.3 (B) 2,848.9
-------- -------- --------
Total Assets $17,576.6 $ 784.4 $18,361.0
======== ======== ========
Liabilities
Current liabilities:
Short term borrowings $ 461.6 $ - $ 461.6
Accounts payable 1,041.6 - 1,041.6
Accrued liabilities 1,616.3 40.3 (B) 1,656.6
Long-term debt due within one
year 162.8 - 162.8
-------- -------- --------
Total current liabilities 3,282.3 40.3 3,322.6
Long-term debt 3,703.4 - 3,703.4
Accrued postretirement benefits 1,898.8 - 1,898.8
Other noncurrent liabilities and
deferred credits 1,628.4 .8 (B) 1,629.2
Deferred income taxes 411.2 240.4 (B) 651.6
-------- -------- --------
Total liabilities 10,924.1 281.5 11,205.6
Minority interests 2,301.5 (817.9)(B) 1,483.6
Shareholders' Equity
Preferred stock 55.8 - 55.8
Common stock 178.9 18.4 (C) 197.3
Additional capital 573.1 1,302.4 (C) 1,875.5
Retained earnings 4,965.2 - 4,965.2
Treasury stock, at cost (1,022.7) - (1,022.7)
Accumulated other comprehensive
income (399.3) - (399.3)
-------- -------- --------
Total shareholders' equity 4,351.0 1,320.8 5,671.8
-------- -------- --------
Total liabilities and equity $17,576.6 $ 784.4 $18,361.0
======== ======== ========
The accompanying notes are an integral part of the Unaudited Pro
Forma Condensed Consolidated Financial Statements.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Six Months Ended June 30, 1998
-----------------------------------------------------
Historical Historical Pro Forma Pro Forma
Alcoa Alumax Adjustments
(Reclassified)
(A)
-----------------------------------------------------
(in millions)
Revenues
Sales $7,032.1 $1,555.1 $(109.8)(D) $8,477.4
Other income 46.4 2.2 - 48.6
-------- -------- ------- --------
7,078.5 1,557.3 (109.8) 8,526.0
Costs and Expenses
Cost of goods sold 5,378.2 1,157.6 (109.8)(D) 6,426.0
Selling, general administrative
and other expenses 308.0 168.5 - 476.5
Research and development expenses 52.4 3.3 - 55.7
Provision for depreciation,
depletion and amortization 370.9 79.4 28.2 (E)
(3.5)(F) 475.0
Interest expense 81.0 35.2 33.3 (G)
(5.0)(H) 144.5
Taxes other than payroll taxes 62.1 15.3 - 77.4
-------- -------- ------- --------
6,252.6 1,459.3 (56.8) 7,655.1
Earnings
Income before taxes on income 825.9 98.0 (53.0) 870.9
Provision for taxes on income 276.7 51.2 (16.7)(I) 311.2
-------- -------- ------- --------
Income from operations 549.2 46.8 (36.3) 559.7
Minority interests (132.2) - - (132.2)
-------- -------- ------- --------
Net income $ 417.0 $ 46.8 $ (36.3) 427.5
======== ======== ======= ========
Earnings per Share
Basic $ 2.49 $ 0.87 $ 2.30
Diluted $ 2.48 $ 0.85 $ 2.29
Weighted average shares
outstanding:
Basic 167.0 55.0 (55.0)(J)
18.4 (J) 185.4
Diluted 168.0 55.9 (55.9)(J)
18.4 (J) 186.4
The accompanying notes are an integral part of the Unaudited Pro
Forma Condensed Consolidated Financial Statements.
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(A) Certain reclassifications have been made to the Alumax
historical financial statements to conform to the presentation to
be used by Alcoa upon completion of the Alumax transaction. In
addition, the balance sheet of Alcoa at June 30, 1998 includes
100% of Alumax, with the corresponding 49% recorded as minority
interest. The pro forma adjustments to the June 30, 1998 balance
sheet represent adjustments necessary to record the 49% of Alumax
that Alcoa did not own as of June 30, 1998.
(B) On March 9, 1998, Alcoa and Alumax Inc. (Alumax) announced
that they had entered into an agreement under which Alcoa was to
acquire all of outstanding shares of Alumax for a combination of
cash and stock. On June 16, 1998, after approval by the U.S.
Department of Justice (DOJ) and other regulatory agencies, Alcoa
completed the first step of the acquisition by purchasing
approximately 51% of the outstanding shares of Alumax at $50 per
share. This resulted in an increase in the basis of 51% of the
net assets of $513.0 which includes goodwill of $179.5.
Following approval by Alumax stockholders at a special meeting on
July 31, 1998, Alcoa completed the acquisition by exchanging its
common stock for the remaining shares of Alumax at a ratio of
.6975 share of Alcoa stock per share of Alumax stock. The
exchange resulted in Alcoa issuing 18,425,380 shares to Alumax
stockholders. The transaction was valued at approximately
$3,800, including the assumption of debt, and will be accounted
for using the purchase method. The purchase price is subject to
adjustment and includes cash and stock distributed to Alumax
shareholders as well as other direct costs of the acquisition.
The goodwill resulting from the acquisition will be amortized
over a forty year period. In addition, the purchase price
includes an adjustment for deferred income taxes representing the
difference between the assigned values and the tax bases of the
assets and liabilities acquired.
Adjustments to the purchase price have been made for the
estimated impact of employee stock options, severance costs and
acquisition expenses. Alcoa expects that the majority of Alumax
employees will continue in their current jobs after completion of
the merger transaction as part of the combined organization.
However, where there is an overlap in functions or other
duplication resulting from the combination, redeployment of
personnel and job eliminations are likely to result. Alumax has
certain severance plans, agreements and policies applicable to
its directors, executive management and certain of its salaried
employees. A number of covered persons have received severance
benefits under these arrangements following Alcoa's purchase of
51% of the outstanding share of Alumax in June 1998. It is
likely that additional covered persons will also receive benefits
under these plans. The Unaudited Pro Forma Condensed
Consolidated Financial Statements include an estimate of $77.3
related to these benefits.
In addition, Alcoa has completed an initial assessment of
potential benefits from cost savings related to combining
operations, with efficiency opportunities estimated to be $300
million over the next one and a half years. No adjustments have
been made to the Unaudited Pro Forma Condensed Consolidated
Financial Statements related to potential recurring benefits from
these cost savings.
The purchase of the remaining 49% of Alumax, including
acquisition costs, has been allocated as follows (see note C):
June 30,
1998
---------
Acquisition of outstanding shares of common stock $ 1,320.8
Effect of assumed exercise of employee and director stock options 76.6
Severance costs 77.3
Acquisition expenses 30.0
Book value of net assets acquired (817.9)
---------
Increase in basis $ 686.8
=========
Allocation of increase in basis:
Increase in inventory value to convert LIFO to fair value $ 36.2
Increase in the fair value of property, plant and equipment 669.3
Write-off pre-operating costs (3.9)
Adjust hedged sales contracts to fair market value 26.3
Accrual to record the fair market value of financial instruments (40.3)
Adjust pension and postretirement accruals (.8)
Increase in goodwill 240.4
Increase in deferred tax liabilities-long-term (240.4)
---------
$ 686.8
=========
The purchase price allocation is preliminary and further
refinements may be made based on the completion of final
valuation studies.
(C) Represents the issuance of Alcoa common stock for the
remaining 26,416,315 shares of Alumax common stock at an exchange
ratio of .6975 share of Alcoa common stock per share of Alumax
common stock.
The exchange ratio used to convert common stock was determined
based on the closing price of Alcoa common stock on Wednesday,
March 4, 1998, which was the last closing price before the two
companies reached an agreement on the proposed transaction. The
closing price was $71.6875, which when converted at .6975,
results in a $50 price for the Common Stock. In accordance with
generally accepted accounting principles, the value of Alcoa
common stock to be issued was determined based on the market
price of such Alcoa common stock over a reasonable period of time
before and after the date the transaction was announced.
The acquisition financing included the issuance by Alcoa of $200
million of 6.125% bonds due in 2005, $250 million of 6.5% bonds
due in 2018 and $675 million of commercial paper at an interest
rate of 5.60%. The commercial paper is classified as long-term
debt since it is backed by Alcoa's $1.3 billion revolving credit
facility. The remaining cash costs (cash-out of employee and
director stock options, severance costs and acquisition expenses)
will be funded from internal cash.
A recap of the stock exchange transaction follows:
June 30,
1998
---------
Total stock acquisition price paid in shares of Alcoa common stock $1,320.8
Par value of Alcoa common stock issued at $71.6875 $ (18.4)
--------
Additional capital $1,302.4
========
(D) Represents the elimination of inter-company sales of alumina
between Alcoa and Alumax and the related inter-company profit.
(E) Pro forma adjustments have been included to adjust
depreciation expense based on property, plant and equipment fair
values and the amortization of goodwill. An average useful life
of 25 years was assumed for fixed assets and a 40 year
amortization period was assumed for goodwill.
(F) Represents an adjustment to eliminate the amortization of
Alumax pre-operating costs.
(G) Represents interest expense related to the long-term debt
identified in (C) above.
(H) Represents an adjustment to record interest expense based on
the fair value of the Alumax financial instruments.
(I) Represents income taxes related to pro forma adjustments at
the statutory rate.
(J) Represents the conversion of shares of Alumax common stock
and the issuance of 18.4 million shares of Alcoa common stock.