Document 8R9jYMd3Dwm8Q0zdv08753x3B

Alcoa 1994 AR 1197 Room to Grow Where are Alcoa's most promising paths to growth? i| j After a hundred years ofdiscov- j ____ ____ ering and expanding the uses ^ ^ 10 years Vice President ^ ofaluminum, is the excitement ago as a joint invest- PeriquitoandPresi- windinEdown? Or is it just , . ?. J. beginning? . .ment in a smelter by dent Fausto Moreira / . . - , , ,Alcoa and Camargo . of Alcoa Alominio - CorreahasgTwminto^iTieetwth^ :. .v.:>'.-l-^^i^^^o/dK^raigeiilJbusniiis^^Gartos^Dlaffand'j^L'V-i-!.' In the world ofstructural rials, aluminum is one ofthe c irrepressible youngsters. ryrr***a*SA-rS>,.*aOv r--u mmm/. ^ : wood,iron, 'steel;-and ceramic materials have been around for ' ' X -S *y 1 millennia, aluminum only for, , -7X ''}/ y> ;' -; ; ' * decades. Entrenched habits " . ' '' die hard, but as the automotive, v ' .. industry is now beginning to demonstrate, the inherent f/f'' advantages ofthis light, strong, Iff'* :' " ' ^sjllSBHk^ys fully recyclable metal offer vSr / ;: solutions to some ofthe big ^ problems ahead--urthe *' ` - case ofcarmaking, issues such; as efficiency, safety, perfor- :* r}. j : mance, energy conservation, . ' ?/; /// and emissions. - // - In industry after industry--and country' after country--the promise ofaluminum is primed for realization. Alcoa is focusing its firepower on the maj or opportunities and continuing to forge partnerships with effective allies to leverage the effort or accelerate the timetable. (Partic ipants in some ofthese partner ships are shown in photographs ; throughout this report.) , 1 This essayhighlights some of these growth initiatives and the assets Alcoa can muster for com petitive successes worldwide. ' A . '* AR 1198 Aluminum sheet from Alcoa goes into cans of many shapes, sizes and designs. In the U.S. alone, consumers choose aluminum cans 100 billion times a year and recycle nearly two-thirds of them. In many other markets around the world, the aluminum can growth rate is beginning to accelerate. AR 1199 IKIIK In surveying the growth horw-_ , - An organiZStion transformed zons ahead, the first plate to'/ ' into a worldwide enterprise-- lo6k is underfoot. How solid is global not only in resources and the ground? . - 'markets but, increasingly, also i: ? . ' m terms oftalent, outlook, pirn ^"loriAIeoa, the footing is firm. ;, ducfioniaglides, and strategic - nrhtvmsfrWfitextraordinarily1;; <^partnerships,J.v in; dteaimnmum;%'- < AV-/. &op^ed,itightingtiim. Signs ` iH^aiiltlfe'^^J^eties iswfll i-iow'dfebt; i6w-cost'4ei)^ arid^>&;'^'inatibh1smd[technology transfer-. i'r:A_.rZ^4_;`-'II: - -v::= y-jisinisif, ^7K*rfHl. uuiuii 1 rmi&l I -f AR1200 AR 1201 A World Of Opportunities Alcoa has changed in response to a climate shift in world business, and in anticipation of changes that are clearly in prospect. sloping countries, ' ^ Ivancing economy ^ gtpisholds thepromise ofmulti-; ple^worteldsvrvisidinegmdaermkeatnpdeftot'r`>.--' ; 1.^ stationsucmopmropdauractbsl*e.yFiothrAthlocosea-,.'.V- f ^alreadyidascthhieevperdoimnitsheeoUfmiS.uf ltb^^^4H-Jfi . |s|ptjust through exports, but . i increasingly by means ofpro-, . 'y - v. \i}. i ^' -a' i }$ 'p[ -'l \y duriion close to die customer, -r^ So Alcoa has major investments f in Australia, South America and ^ Eastern Europe, and is studying /possible ventures in India, iilVlflHft fMi III /'Russia, China, and elsewhere;' IMMM * * * f : ' ; In advanced economies, environmental and competitive _ pressures are driving the need for higher performance materi- -V* als, products and processes. In ___ Europe, North America, and parts of Asia, the same techno- / logical and material strengths that have earned Alcoa a special place in aerospace and packag- -. . ingmarkets now answer to the A ' i needs ofcustomers in auto- TM | motive, trucking, rail, construe- don, chemical, and a host of -m W ^imsinesseswhereperformance g hre pscalatinjMMfc, ~ .. fc&l : *p_; ' /. . . , ;-:-j /s.j!: y* -f fl -;t - '' -*j* '/V- . t. . .-'r- ' 't y AR 1202 In a 12-year collabora tion. Alcoa and Audi developed the spaceframe for the first all aluminum production car and are now working on designs and processes to accommodate future, higher volume aluminum-structured cars. From left, HansPeter Rottlander, manager of advanced manufacturing devel opment, and Franz Paefgen. director of technical development for Audi; Rick Winter of Alcoa Technical Center and Dave Schlendorf, president of Alcoa Automotive Structures; and Jurgen Gebhardt, director of manufactur ing for Audi :>;J. j VV -"'V *'-* ` **,,' . . ' In The Boeing : Technology. Technical . -^ Company Everett collaborations with Wash., plant Alcoa's - Boeing and other, -' 5 ; /; *; :- ' Dari Goodyear, man-' aerospace customers; J ; j ager of applications - have spearheaded*: - - ill | | I j) I . engineering, and the development : ' v' : v -sales engineer Mark - of advanced alloys, . ^ ; ' Behrends confer with' ' manyofwhich ; .Terry Vallon, senior are designed into the metallurgical engineer . new Boeing 777. for Boeing Materials ' P] VTWJI lillfffiiiii Forces In 1994 Alcoa and Western new cast aluminum truck .:i' Mining Corp. -- for 35 years our major partner in Alcoa of Australia-- forged a worldwide wheels; and CMI International (1994), to produce cast aluminum components. / /Y enterprise in alumina and chemicals. In a global business // climate, alliances become // Froma strongbase in Brazil, increasingly vital. For TUcoa' ' V \ fAlcoa andCamargo Correa, long-; the strategy ofjoining forc^ v m timepaitoers in Alcoa Aluminio,, iwith sprqngpartheni^ ; areadihngnewenterprises in^>.- ourobjectives andvaluM^f; Argentina,.Chile; Colombia; has proved to bea solia/long-' S'; 1 andPeru.. term success. KAAL, ajoint venture ofAlcoa and Kobe Steel, is producing can sheet in Moka,Japan for , export to Asian markets., ^AnditrKiS^^Europe, Alcoa- _ flSllli Kofem, a 1992jointventure ofAlcoa and Htingalu, began to make a profit in 1994 on its. .___ extrusions androlled products. International partnerships extend Alcoa's reach and pro vide the on-the-scene presence ofrespected partner companies in each region ofthe world. Aluminum and plastic closures--and the . capping machinery . to apply them--are manufactured on four. continents by Alcoa Closure Systems Internationa!for bottlers in more than 50 countries. The principle applies not only to countries but to industries. In its long-term strategy for a larger role in the automotive industry, Alcoa has entered design and technology collaborationswith carmakers in Europe,Japan and die U.S., as well asj oint ventures with. >; otherleading partsmakers: .., Fujikura Ltd. (1984), to produce wiring systems; Superior Industries (1993), to develop v i; i ` ' - ^1 1 : AR 1204 A Toolbox for Values One group ofAlcoans has won worldwide recognition for envi ronmental leadership. Another A workin progress within Alcoa is to take the best safety method ologies to be found anywhere business unit, on another in the company and to assemble continent, has shown an extraor them into a toolbox, for use dinary ability to adapt quickly anywhere else in the world. As ' arid cost-effectively to change.. v in the traditional technology >,' Ai:numberofoperating units --f* r._ naveraiseasaiety pertormance V.. engineering; tnenestpracnces 5 . * to levels once thought impossi-; ^<;; in safety;health; mviroWiental ble; Others have had extraor- < v management, toiming, or ^- - dinar>'success in self-directed - teamingor quality orwaste : f;: : .''".'reduction..'/ ` ; with proper coaching; around, / theworld. . As matters ofpolicy', these are V; Alcoa's values. As bottom-line: Best practices travel well. They factors, they are leading indica- partner well with good compa ;' tors. As segments oftechnology > nies on any continent And in --albeit soft technology--they : - the longrun they lift the level of are skillsandsystems thatsome performance, avoid costs and group, Somewhere in Alcoa, has delays, generate enthusiasm on carried to world-standard levels. >. the plant floor, and raise the battingaverageon successful new ventures. The most valuable item in the waste stream, aluminum cans pay their own way through the recycling loop. They are by far the most recycled kind ol AR126 AR 1207 Tomorrow's Winners The Vision hasn't changed: "Alcoa will be the best alu minum company in the world and a leader in other businesses in which we choose to compete." customers. Alcoa Electronic Packaging has taken on domi nantJapanese producers and carved out a major share ofthe U.S. market in ceramic packages for integrated circuits. "Choosing to compete" is a : c - NorthwestAUoys is growingits highlyseleqtiveprocess which fqcusesmostlteenlyon :de^bjpi^rii^kete^~agpHcaT`'yj & 5 ! - prospects forprofitable growthi,>; 1 Today, somerofthe choices c- rfSl r fes made ihreamtyears--both in AndthelM^e^on^potehtial ; S' businesses-fare beginning to - -' growth'stonesmaerospace,: ; . deliveron their promise. '? ran transportitesidential con- Examples. AlcoaFujikuraLtd.:. alhmina,pfiniaiVmetalsand 1ms surpassed $600 million elsewhere--around the Alcoa in annual sales ofautomotive : worlds .., -``K . electrical systems and fiber optics and is nowmovinginto . Eastern and Western Europe. A `restructured Alcoa Construction Products has developed a power house distribution system and has grown to over $600 million in sales. AlcoaAutomotive Structures andAlcoa Forged itow,Products are rapidly expanding the manuiacture ofhigh-value- added automotive products. Alcoa Closure Systems International has become a worldwide leader in closures . and capping systems for bever age packaging, with 18 plants V on four continents, and is now addingPET plastic bottle production: in developing : countries formany ofthe same. Threa big Alcoa-'- y businesses that can. get a lot bigger:: -^ automotive . now including struduras; world; leadership in alumlna^T -"and its chemicals;^; "and worldwide growth:^ in aluminum bever-/ . - . age cans.-';; ;-.v ' if AR 1208 AR 1209 AR 1210 Report to Shareholders Alcoa 1994 Page Contents 14 Financial and Operating Highlights 15 Letter to Shareholders 18 Financial Review 25 Financial Statements and Notes 38 11-Year Summary 40 Worldwide Operations 43 Business Units 4 1 NewslViefs 44 Officers 45 Directors 40 Shareholder Information 48 Glossary 40 Index AR1211 To Alcoa Shareholders Earnings in 1994 were $375.2 million. Included in diis total are several one time adjustments -- a $300 million gain and charges of$118 million. What is noteworthy here is not the raw numbers but their direction, and the reversal offortunes these results express for Alcoa and the aluminum industry' as a whole. After several years of the most exume aluminum market distortions of this century, the industry is returning to something recognizable as a normal business climate; that is, a climate in which exceptional efforts have a reason able chance ofproducing exceptional results. For Alcoa, 1994 was a year ofsolid progress on many fronts. Safety For the seventh consecutive year, we improved our safety performance. Lost workday cases fell to .72 per 200.000 work hours, giving us a worldwide rate that is 78% less than the latest published figures for U.S. manufacturing industry' and 61 % lower than 1987, when we made safety our first internal priority. We still have much to do to deliver our goal of an injury-free work place, and we have plans in place to continue our progress. Operating Proficiency Each of our businesses and resource units has financial and non-financial measurements to plan, track and achieve progress as compared with past performance, world benchmark levels and theoretical limits. These mea surements cover everything from on-time delivery to customers to safety and environmental performance to physical performance of individual process es. Almost all of our processes have continued to improve, and this is the key reason Alcoa was able to maintain its profitability through the downward spiral of the industry that began in 1991 and continued into early 1994. We believe this is the key to creating distinguished total returns for our share holders by outperforming our industry, and that is our goal. We want to excel in everything we do --in customer satisfaction, in applying technology', in serving worldwide markets, in safety and environmental stewardship, in administrative processes. We want to do it better and faster. Perhaps you noticed that one of our businesses, Alcoa Fujikura (AFL), was recognized in 1994 as a TQE supplier by Ford Motor Company and as supplier of the year by Volkswagen. This exemplifies what can be achieved by dedicated people, applying quality tools and leading-edge ideas to customer needs. Perhaps you have also noticed that your company reports its quarterly financial results soon after the end of each quarter -- well before most of the corporations in the world. This is because we set an objective a few years ago to complete the closing ofour worldwide financial books within three work ing days after the end of each quarter. Our objective was to improve the qual ity of all financial transactions, which in turn reduces the amount of time our financial staff spends adding up the past results in order to fre'e them up to work on the future, and shortens the time lag between performance and 15 AR 1213 measurement. In an enterprise with 169 operating and sales locations in 26 countries, this was no timid objective, but our financial staffhas done thejob. The AFL and financial dosing examples only highlight the thousands of Aactions that have been taken by Alcoans to strengthen our competitive posi /f7t A*- tion. When added together, they are the reason for growth in the market /W W`i/>U*Z . value of our company. To make the point concrete: in 1988, our market value was $4.9 billion. By conuast, at December 31,1994 Alcoa's market value was $7.7 billion. In addition, since the beginning of 198S Alcoa has paid $1,190 billion in dividends to our shareholders while we have further strengthened our balance sheet as compared with our competitors. None of this should be taken as an indication that we take our competitors lightly. We know them to be intelligent, aggressive and determined to out perform your company. The market valuation and dividends paid, we believe, validate the idea that our policies are on the right track. Our intention now is to speed up our rate of progress. tAfcC. c~u\ External Conditions As we begin 1995, external conditions have turned in our favor, permitting more attention to expansion and growth and less to elemental survival. At the beginning of 1994, surplus aluminum inventories on the London Metal Exchange (LME) had accumulated to 2.5 million metric tons, driving the price of a pound of aluminum ingot to 47 cents -- the lowest ever real level. Through the first half of the year, inventories continued to rise, reach ing 2.6 million metric tons inJune. Through the second half of the year, production curtailments and strong demand for the product reversed this trend, and LME inventories dropped by nearly one million metric tons by year end. As surplus inventories dropped, prices on the LME began to rise, and at year end the price stood at 90 cents a pound. These trends are contin uing into early 1995. The most important reason for these changed condi tions is the simultaneous economic growth in Western Europe, the Americas and major parts of Asia. We expect this growth to continue through 1995. Prices As prices for primary metal have risen, we have begun to pass along these increases to our customers in fabricated product prices and, as you might imagine, the increases have not been gladly received, even though everyone concedes that continuation of price levels of the recent past would destroy the aluminum industry. We, as much as our customers, would prefer more stability in prices, high enough on a steady basis to provide a competitive rale of return to our stockholders. This is especially important to our growing position as a supplier to the automotive industry because the auto companies need to plan their product cost over a seven-year product life. It is also impor tant to our major position as a supplier to the aluminum can business. Cvclicalitv is an issue that we have dealt with for some time with the aircraft industry. We have long-term pricing arrangements with customers in the air craft industry that smooth out the price cycles. Their product life cycle can 16 AR 1214 effectively build in a fixed cost for aluminum so that they're not subjected to sharp ups and downs in the day-to-day pricing ofaluminum in the market. We are hopeful as we go through this strong upcycle that we will be able to structure supply arrangements with more ofour customers on a long-term basis that will serve to smooth the violent cycles of the recent past. Growth With good external economic conditions, we are stepping up our drive to make each of our businesses responsible for its own financial success while accelerating growth in those that produce the best results. One of our major moves in 1994 to create the basis for growth was the establishment of a worldwide partnership with Western Mining Corp. encompassing our alumina and chemicals production assets. This new arrangement expands a long-standing parmership with Western Mining in Australia and paves the way for further world expansion in a business where we have technological strength and an excellent market and cost position. This annual report features some of our many partnership arrangements because they have served us well and we believe an expansion of the partner ship idea is a major avenue to future, profitable growth. In this vein, we have taken great pride as Audi began marketing the AS in 1994: the first all aluminum car to use a spaceframe body structure -- the product of a technical collaboration ofAlcoa and Audi spanning the past 12 years. The car has been widely acclaimed as a major breakthrough in automotive design, engineering and performance, called by The Sunday Times of London "the best car of its generation." The aluminum spaceframe structure in the AS gives the car an incomparable level of torsional stiffness and remarkable crash-worthiness relative to all other cars in production. The other major automobile companies have increased their utilization of aluminum, and there is a growing level of interest in new applications. In Summary Looking back, 1994 was a year of accomplishment and preparation for an exciting future for our company. 1995 holds the promise ofeconomic success for our shareholders and our employees. In fact, our confidence in the future caused the Board of Directors to raise the dividend rate and split the stock two-for-one. By design, our employees participate in the eco nomic success we create, and therefore, 1995 should be a good year for all. We thank our customers for their business, our employees for their innovations and perseverance, and our shareholders for their support. l~< uUJ/le T I Paul H. O'Neill Chairman of the Board and Chief Executive Officer February 28, 1995 17 AR 1215 Financial Review (dollars in millions, except share amounts and ingot prices) Five-Year Selected Financial Data 1994 1993 1992 1991 1990 Sales and operating revenues Income before extraordinary loss and accounting changes* Extraordinary loss and accounting changes Net income (loss)* Per common sharet Before extraordinary loss and accounting changes Net income Alcoa's average realized price per pound for aluminum ingot Average U.S. market price per pound for aluminum ingot (Metals Week) S 9.904.3 443.1 (67.9) 375.2 $ 9,055.9 4.8 4.8 $ 9,491.5 22.4 (1,161.6) (1,139.2) S 9,884.1 62.7 62.7 2.-IS 2.10 .64 .02 .12 .02 (6.70) .56 .59 .36 .36 .67 .71 .53 . .5S .59 Cash dividends declared per common sharet Total assets Long-term debt (noncurrent) .80 12.353.2 1.029.8 .so 11,596.9 1,432.5 .SO 11,023.1 855.3 .89 11.17S.4 1,130.8 Includes net charges of S50.0, or 2S cents per common share, in 199-1; S74.5, or 43 cents per share, in 1993; S173.9. or S1.012 per share, iu 1992; S217.0, or S1.2S per share, in 1991; and $273.0, or S1.G0 per share, in 1990. Also included in 1994 is a, gain of S300.2. or $ 1.159 per share. tAll per share amounts have been restated to reflect the itro-for-one stock split in February 199"). $10,710.2 295.2 295.2 1.70 1.70 .75 .74 l .33 11,413.2 1,295.3 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 S848 higher than those for the previous year. Most of the revenue increase was from a highervalue aluminum product mix and higher shipments of nonaluminum products, partially offset by lower prices for a number of products. Gross margin (sales and operating reve nues less cost of goods sold) was up $190 from 1993. The increase was helped by the higher revenues and improved cost perfor mance. 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. I'i'il 19!W 1992 Net income (loss) Significant unusual items: Gain from Alcoa/ wmc: transaction f Kill -J) Special charges, net '.{111 Lxtraoidinary loss i.7 9 Accounting change*, net Adjusted net income s |-|J $ 4.8 S(l. 139.2) 74..7 - 173.9 50.2 1,111.4 S79.3 S 190.3 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 com pared 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, non operating income, income taxes and minority interests. See Note P to the finan cial statements for additional geographic and segment information. Operations by Geographic Area USA-- Revenues of $5,574 were up 69c from 1993 after a decline of 7% in 1993 from 1992. Most of the recovery in reve nues 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 139c from 1993, lower ingot shipments more than offset that benefit and ingot revenues fell 239c. U.S. operations had an operating loss in 1994 of $65 compared with a loss of S193 in 1993 and a profit of S55 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 wete down 59c from 1993. The Pacific area prin cipally reflects the activities of Alcoa of Australia (AofA). The decline in revenues was mainly due to a 107c drop in prices for alumina, and lower shipments of aluminum ingot resulting from production cutbacks at AofA smellers. 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 447o 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 bene fits plus improved performance, operating profit reached $239 in 1994 compared with $139 in 1993 and $91 in 1992. 18 AR 1216 Europe -- Revenues of SI.298 in 1994 improved by 21% over those in 1993. Oper ating profit in 1994 leached S48 compared with $6 in 1993 and S90 in 1992. The most significant improvements in both revenues and profits came from Alcoa's operations in Hungary and in the Netherlands. AlcoaKofem, 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-Alumi num Products. I. Alumina and Chemicals Segment Revenues Operating profit Hi'11 M.'>ns SI,437 S 1.422 377 373 27S Approximately tuo-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 world wide, 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 utiliza tion 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 S% 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 pres sure 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 S277 for this segment was down $96 from 1993. The chemicals businesses showed about an 8% improve ment. However, the alumina businesses were unfavorably affected by lower prices that more than of fset lower unit produc tion costs. II. Aluminum Processing Segment Total aluminum shipments (000 mt) Revenues Operating profit (loss) 1994 2.r.ri $fv!77 ii:> 1993 1992 2,580 55,974 (21) 2,797 $6317 289 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 S% 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 S21 in 1993. Factors c1o99n3tributi1n99g2 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 alumi num ingot operations. This segments ship ments and revenues are made up of the following product classes: Product classes li'M 1993 1992 Shipments (000 metric tons) Flat-rolled products Engineered products Aluminum ingot Other aluminum products Total shipments 1.3X1 433 r.:>.-i S3 3..V11 1,271 379 841 89 2.580 1.323 333 1.023 9S 2,797 Revenues Fl.u-rolled products Engineered products Aluminum ingot Other aluminum pioducis Total rexenues S3.3<)1 I.SS'J . S2.974 t,52S 1,042 S3.189 1,527 1,330 173 430 *405 Sit. 17* S3.97-1 56.517 Aluminum Product Shipments thouwnds ofm/trie tons 2.724 2.836 &'yvlsr 2.797 2.550 2.551 upssss IpR mil 90 91 92 9a 9-1 '* Ingot * Fabricated Product.-. 19 AR 1217 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 sliare. 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 27c increase in shipments from the year earlier. Revenues, however, stayed about even. Sheet and plate shipments, serving the aerospace and commercial products markets, were up 319c 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 extrusions 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 17c 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 rev enues 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 anti construction market rose 27% in 1994: revenues were up 24%. Aluminum Ingot --Alcoa's smelters oper ated at approximately 80% of worldwide rated capacity during 1994 as 450,000 rnt of capacity was idled due to the oversupply of aluminum ingot on world markets during the last several years. As a lesult, ingot shipments in 1994 were 22% lower than in 1993. Shipments in 1993 fell 18% from 1992. The average US. market price for ingot, which was 5S 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 US. 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 S%. III. Non-Aluminum Products Segment .I'.W-t 1993 Revenues S1 .t I i! Operating profit (loss) S1.646 5 1992 S1.533 (Itl) Revenues from this segment were up 17% in 1994 following a 6% increase in 1993. Operating profit of S91 rose S86 from 1993. Revenues from packaging, retail and copper conductor products for Aluminio were up 66%. Alcoa 1-ujikura benefited from strong automobile sales in 1994: its revenues rose 17%, principally from auto mobile wire harness sales. Alcoa Electronic Packaging increased its revenues by over 200% from 1993 with greater plant utiliza tion and higher demand for electronic components. Plastic closures revenues in Latin American marketsjumped 27%. Alcoa is a leading supplier worldwide of both plastic and aluminum closures. Nonaluminum building products revenues rose 14%. Gain From Alcoa/wstc Transaction In December 1994, Alcoa recorded a gain of $400.2 ($300.2 after-tax) from the acquisi tion by Western Mining Corporation Hold ings Limited (vvmq, located in Melbourne, Australia, of a 40% interest in Alcoa's worldwide bauxite, alumina and inorganic chemicals businesses. As part of the agree ment, 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 vvmc: in the year 2000 if certain financial performance targets of the alumina chemicals businesses are met. See Note C for additional infor mation about this transaction. Special Items Included in income from operations in 1994 is a charge of $79.7 (S50.0 after-tax) from closing a forgings and extrusion plant in Vernon, California. The charge included S32.S for asset write-offs and S46.9 related primarily to severance costs. Special charges of S150.S in 1993 (S98.0 after-tax) included S134.1 for severance costs associated with permanent reductions of hourly paid and salaried employees, mainly in the company's U.S. aluminum opera tions. The remaining $16.7 was associated with closing certain businesses at several plants, including the manufacture of alu minum rod at Rockdale, Texas. There was also a credit of S35.4 related to tax rate reductions, partially offset by an $11.9 change 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 disposi tions. The dispositions included the shut down of a facility in South Bend, Indiana and impairment of Alcoa Composites, Inc. 20 AR 1218 Extraordinary Losses The extraordinary losses in 1994 and 1992 of $67.9 and $50.2, respectively, were from the early retirements or 7% discount debentures that carried effective interest rates through maturities in 2011 and 1996 of 14.7%. The losses were the unamor tized 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 S350 Higher volume 265 Higher prices (or purchased metal and other raw materials 215 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 US statutory rate of 35% is mostly due to a portion of the gain on the Alcoa/vv'MC 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 S65 reduction to AofA's taxes. In addition, the US. tax rate increased from 34% to 359c in 1993. Although the rate increased, Alcoa benefited by a one-time credit of S10 because of its net deferred tax assets in the U.S. Alcoa's Average Realized Ingot Price tnto firr W) 91 9`J 93 94 These were partially offset by: Operating performance and efficiencies 160 Cost of goods sold in 1993 was S152 lower than in 1992 principally because oflower volume -- $275; operating performance -- $110; and lower purchased metal costs -- $57. These were partially offset by costs associated with new subsidiaries of S1S1 and inventor)' profits in 1992 of S76. Selling and General Administrative Expenses --These expenses rose 5% during 1994 and primarily reflect higher commis sions 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. Other Income/Foreign Currency -- Included in other income are translation and exchange gains (losses) of $(I0.3) in 1994. $14.6 in 1993 and S(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 7S cents to 6S 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 trans lation and exchange gains (losses), after taxes and minority interests, was $(9.6) in 1994. $9.0 in 1993 and $(11.1) in 1992. Interest Expense -- Interest expense was up $19 from 1993 primarily because of higher borrowings bv 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 "ere no US. commercial paper borrowings outstanding. Comparing 1993 with 1992, an SIS decline in interest costs reflects lower rates and the pavtnent in 1992 of high-cost discount debentures. AR 1219 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 ofaluminum ingot and aluminum fabricated products. Aluminum ingot is an internationally priced, sourced and traded commodity. The principal trad ing market for ingot is the London Metal Exchange (1-ME). 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 pur chases 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 unfa vorable 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 significant fluctuations in the periodic mark-to-market measure ment of the futures and option contracts. Focusing only on that valuation is mean ingless because the effect of price changes on future hedged metal purchases will approximately equal and offset the markto-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 con tracts 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 r 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 niarkedto-mnrkei. Alcoa purchases other commodities, such as natural gas and copper, for its operations and enters into contracts to elim inate volatility in the prices of such prod ucts. None of these contracts are material. Financial Risk -- Alcoa is subject to expo sure 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 possi ble, Alcoa uses interest rate swaps to main tain a balance between fixed and floating rate debt. 22 AR 1220 Risk Management -- All of the aluminum and other commodity contracts, as well as the various types of financial instruments, are straightforward. They are primarily entered into for the purpose of removing uncertainty and volatility, and principally cover underlying exposures. Alcoa's com modity and derivative activities are subject to the management, direction and control of its Strategic Risk Management Commit tee. The committee is composed of the Chief Executive Officer, the Chief Finan cial Officer and other officers and employ ees 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 regard ing 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 ofworldwide industry representatives, bankers, central bankets and academics whose recommendations included issues related to the role of senior manage ment (including the board of directors), authorization, control and disclosure of derivatives. For additional information on financial instruments, see Note R. actions and related costs and damages. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements and technological changes. For example, there are certain matters, including several related to alleged natural resource damage or alleged off-site con taminated 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 S329 and reflects the most probable costs to remediate identified 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 haz ardous substances and pollution. Such costs are estimated to be about 2% of cost of goods sold in 1994 and \Y>% in 1993 and 1992. Percent Return on Shareholders' Equity 10.9 .5.5 4.r *> o 1.2 !*BS m 0.1 !><l PI PC1 P.t H B JWI'oic imusunl itcMiiN After nmiMuit iicm.v rThr trim mm </ moiti^'t tinm ttrgalitr 26 T'Z I I Average Number of Employees Environmental Matters Alcoa participates in environmental assess ments and cleanups at a number of loca tions, 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 addi tional information. As assessments and cleanups proceed, the liability is adjusted based on progress in determining the extent of remedial 90 91 Outside L'.S. t'.S 92 93 94 23 AR 1221 Liquidity and Capital Resources Cash From Operations Cash from operations was SI 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 operat ing 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 receiv able. 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 SS25 in 1994. In 1993 there was a cash inflow of $386. In 1994 the com pany paid off early its 7% discount deben tures due 2011 that had a face value of S225 and an effective interest rate of 14.7%. The unamortized discount was $10S at the time of redemption. Proceeds from issu ance in February 1994 of $250 of 5.75% notes due 2001 were used to redeem the 7% debentures. Alcoa's US. commercial paper borrow ings, 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 S105 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 S750 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 div idend 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 divi dend instead of in a single payment. Dividends paid to minority interests of SMS in 1994 included SS6 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 significant outlay was for capital expenditures. Spend ing for capital projects in 1994 was $612, down $145 from 1993 and reflects contin ued focus on improving manufacturing processes with a minimum of capital spending. More than one-half of the expenditures 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 S75 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. Addition ally, Alcoa received a partial payment from the Alcoa/vwic: transaction of$6S. Additional net proceeds of $367 related to this transaction were received in early (anuarv 1995. Cash from Operations millions ofHctlan IU <1| \Y2 \r.\ lM r "1 -- -- Capital Expenditures and Depreciation mittfans ofdnflats Capital Expenditures Dcpica.iiinn 24 AR 1222 Management's Report to Alcoa Shareholders Audit Committee Report Independent Auditor's Report The accompanying financial statements of Alcoa and consolidated subsidiaries were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on managements bestjudgments and estimates. The other financial information included in this annual report is consistent with that in the financial statements. The company maintains a system of internal controls, including accounting controls, and a strong program of internal auditing. The system of controls provides for appropriate procedures that are con sistent with high standards of accounting and administration. The company believes that its system of internal controls prov ides reasonable assurance that assets are safe guarded against losses from unauthorized use or disposition and that financial records are reliable for use in preparing financial statements. Management also recognizes its respon sibility for conducting the company's affairs according to the highest standards of per sonal and corporate conduct. This respon sibility is-characterized and reflected in key policy statements issued from time to time regarding, among other things, conduct of its business activities within the laws of the host countries in which the company operates and potentially conflicting outside business interests of its employees. The company maintains a systematic program to assess compliance with these policies. Paul H. O'Neill Chairman of the Board and Chief Executive Officer The Audit Committee of the Board of Directors, which is composed of fire inde pendent directors, met fire times in 1994. The Audit Committee oversees Alcoa's financial reporting process on behalf of the Board of Directors. In fulfilling its responsibility, the committee recom mended to the Board the reappointment of Coopers & Lybrand as the company's independent public accountants. The Audit Committee reviewed with the Director-- Internal Audit and the independent accountants the overall scope and specific plans for their respective audits. The com mittee reviewed with management Alcoa's annual and quarterly reporting process, and the adequacy of the company's inter nal controls. Without management present, the committee met separately with the Director--Internal Audit and the indepen dent accountants to review the results of their examinations, their evaluations of the company's internal controls, and the over all quality of Alcoa's financial reporting. Franklin A. Thomas Chairman, Audit Committee To the Shareholders and Board of Directors Aluminum Company ofAmerica (Alcoa) We have audited the accompanying con solidated balance sheet of Alcoa as of December 31, 1994 and 1993, and the related statements of consolidated income, shareholders' equity and consolidated cash flows for each of the three years in the period ended December 31, 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 misstate ment. 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 sig nificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide p reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated finan cial 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. X Jan H. M. Hommen Executive Vice President and (.hid Kin.inu.il Officer 600 Gram St., Pittsburgh, Pa. January II, l!K)i 25 AR 1223 Statement of Consolidated Income For the year ended December 31 (in millions, except share amounts) Revenues Sales and operating revenues (P) Gain from Alcoa/wMC transaction (C) Other income, principally interest Costs and Expenses Cost of goods sold and operating expenses Selling, general administrative and other expenses Research and development expenses Provision for depreciation, depletion and amortization Interest expense (N) Taxes other than payroll and severance taxes Special items (D) Earnings Income before taxes on income Provision (credit) for taxes on income (S) Income from operations Minority interests (K) Income before extraordinary loss and accounting changes Extraordinary loss on debt prepayments, net of tax benefits of $40.4 in 1994 and S25.S in 1992 (D) Cumulative effect of accounting changes for: Pbstretirement benefits, net of S667.2 tax benefit (V) Income taxes (S) Net Income (Loss) Earnings (Loss) per Common Share: (B and L) Before extraordinary loss and accounting changes Extraordinary loss Accounting changes: Postretirement benefits Income taxes Earnings (Loss) per common share The accompanying notes are an integral pan of the financial statements. Alcoa awl Nubsiduiiics 1994 S 9,904.3 400.2 87.0 10,391.5 7,845.7 (>32.7 125.S 071.3 I0(i.7 107.1 70.7 0.509.0 822.5 210.2 GOO.O (160.2) 443.1 (67.0) S 375.2 S 2.48 (.38) S 2.10 1993 $9,055.9 - 93.0 9.14S.9 7,187.0 603.6 130.4 692.6 S7.S 105.6 150.S 8.957.S 191.1 (10.3) 201.4 (196.6) 4.8 _. $ 4.8 $ .02 - $ .02 1992 $ 9,491.5 - 96.9 9.5SS.4 7,339.1 586.8 9\9 9 6S2.4 105.4 112.3 251.6 9.2S9.8 29S.6 132.3 166.3 (143.9) 22.4 (50.2) (1,166.4) 55.0 $(1,139.2) $ .12 (.30) (6.85) .33 $ (6.70) 26 AR 1224 Consolidated Balance Sheet Alcoa and subsidiaries December 31 fin millions) Assets Current assets: Cash and cash equivalents (includes cash of $177.5 in 1994 and $58.0 in 1993) (R and T) Short-term investments (R) Receivables from customers, less allowances: 1994-$37.4; 1993-S33.2 Receivable from u'mc, net (Q Other receivables Inventories (E) Deferred income taxes Prepaid expenses and other current assets Total current assets Properties, plants and equipment (F) Other assets (G) Total Assets Liabilities Current liabilities: Short-term borrowings (weighted average rate 7.9% in 1994 and 5.8% in 1993) (R) Accounts payable, trade Accrued compensation and retirement costs Taxes, including taxes on income Provision for layoffs and impairments (D) Other current liabilities Long-term debt due within one year Total current liabilities Long-term debt, less amount due within one vear (H and R) Accrued postretirement benefits (V) Other noucurrent liabilities and deferred credits (I) Deferred income taxes Total liabilities Minority Interests (A, C and K) Contingent liabilities (O) Shareholders' Equity Preferred stock (M) Common stock (B and M) Additional capital (B) Translation adjustment (A) Retained earnings Unfunded pension obligation Treasury stock, at cost Total shareholders' equity Total Liabilities and Equity The .iccoiiijwnyim; nines aie an inie"ral |);n I of the financial statements. 1994 1993 S 619.2 1,440.6 366.9 182.5 1.144.2 235.6 158.7 4.153.2 li.6S9.-l 1.510.6 312.353.2 3 261.9 739.3 363.9 393.0 84.4 557.0 154.0 2.553.5 1.029.8 1,850.5 1.011.8 220.6 6.666.2 1.687.8 - 33.tS 178.7 663.5 (68.6) 3.173.9 (4.0) (1) 3.999.2 SI 2.353.2 5 411.7 243.6 1,218.7 - 211.3 1,227.2 103.2 286.S 3,702.5 6,506. S 1,387.6 SI 1,596.9 S 362.5 596.3 2SS.0 364.3 12S.S 302.2 50.S 2,092.9 1,432.5 1,845.2 1,022.2 231.1 6,623.9 1,389.2 - 55.8 88.8 715.9 (188.5) 2,946.1 (7.0) (27.3) 3,583.8 $11,596.9 27 AR 1225 Statement of Consolidated Cash Rows Alcoa and subsidiaries For the year ended December 31 (in millions) Cash from Operations Net income (loss) Adjustments to reconcile net income (loss) to cash from operations: Depreciation, depletion and amortization Gain from Alcoa/\\'MC transaction Reduction of assets to net realizable value Reduction in deferred income taxes Equity earnings before additional taxes, net of dividends Provision for special items Gains from investing activities Book value of asset disposals Accounting changes Extraordinary loss Minoritv interests Other (Increase) reduction in receivables (Increase) reduction in inventories (Increase) reduction in prepaid expenses and other current assets Increase (reduction) in accounts payable and accrued expenses Increase (reduction) in taxes, including taxes on income Payment of amortized interest on deep discount debt Net change in noncurrent assets and liabilities Cash from operations Financing Activities Net additions (reduction) to short-term borrowings Common stock issued and treasury stock sold Dividends paid to shareholders Dividends paid to minority interests Additions to long-term debt Pavments on long-term debt Redemption of subsidiary preferred stock Cash from (used for) financing activities Investing Activities Capital expenditures Acquisitions, net of cash acquired Sales of subsidiaries Additions to investments Sales of investments Reductions in minority interests Proceeds from Alcoa/u'MC transaction Short-term investments Other receipts Other payments Cash (used for) investing activities Effect of exchange rate changes on cash Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at vear-end The accompanying notes are an integral part of the financial statements. 28 1994 $ 375.2 688.8 (400.2) 32.8 (55.6) 5.1 46.9 (10.3) 47.-1 67.9 160.2 (1.9) (155.0) 115.8 129.4 556.6 (6.8) (8.6) 25.9 1,393.6 (104.9) 61.7 (144.4) (148.1) 494.9 (934.4) (50.0) (825.2) (611.7) (9.6) - (21.2) - (44.7) 67.8 250.8 14.9 (21.2) (374.9) 14.0 207.5 -111.7 S 619.2 GO TT </> 1993 711.1 - 16.7 (124.5) 11.7 134.1 (1.3) 20.S 196.6 (H.4) 15.6 (130.2) (152.2) (202.S) (6.0) 52.0 535.0 67.5 17.7 (142.3) (159.3) 748.0 (145.8) 385.8 (757.0) (16.3) (5.9) .3 (14.2) - (243.6) 5.8 (19.5) (1,050.4) (6.9) (136.5) 54S.2 S 411.7 1992 f $(1,139.2) 710.1 144.3 (SS.0) 14.S 107.4 (7.2) 15.5 1.111.4 50.2 143.9 53.9 84.5 166.7 70.8 (24S.7) (6) (63.8) 82.3 1.20S.I 244.0 36.2 (13S.9) (140.9) 33S.4 (687.1) (348.3) (7S8.S) (7.7) 12.6 (127.1) 50.5 (18.4) 7.6 (21.4) (892.7) (44.7) (77.6) 625.8 S 548.2 AR 1226 Statement of Shareholders' Equity Alcoa and subsidiaries December 31 (in millions, except share amounts) Preferred Common Additional Translation stock stock capital adjustment Unfunded Retained pension earnings obligation Treasury Shareltolders' stock equity Balance at end of 1991 Net loss-1992 Cash dividends: Preferred @ $3.75 per share Common @ $.80 per share Stock issued: compensation plans Stock issued: debt conversions Translation adjustments Balance at end of 1992 Net income-1993 Cash dividends: Preferred (2 $3.75 per share Common @ S.80 per share Stock issued: compensation plans Stock issued: debt conversions Minimum pension liability adjustments Translation adjustments Balance at end of 1993 Net income-1994 Cash dividends: Preferred @ $3.75 per share Common ( $.80 per share Two-for-one stock split Stock issued: compensation plans Minimum pension liability adjustments Translation adjustments Balance at end of 1994 $55.8 55.8 55.8 S55.8 $ 88.8 88.S 8S.S 89.3 .6 $178.7 $713.8 1.2 715.0 .9 S (55.8) $4,378.1 (1,139.2) (2.1) (136.8) (10.7) (92.2) (14S.0) 3.0S9.3 4.8 (2.1) (140.2) (3.0) (2.7) 715`.9 (89.3) 36.9 (40.5) (188.5) 2,946.1 375.2 (2.1) (142.3) (3.0) S663.5 119.9 S (68.6) S 3,173.9 Share Activity (B) Preferred stock Balance at end of 1991 Stock issued: compensation plans Stock issued: debt conversions Balance at end of 1992 Stock issued: compensation plans Stock issued: debt conversions Balance at end of 1993 Stock issued: compensation plans Balance at end of 1994 557,649 557,649 557,649 557.64 9 The accompanying notes arc an integral jjari of the financial statements. Issued 177,608,440 177,608,440 177,608,440 1,106.538 178.714.978 $(243.3) 45.7 1.0 (196.6) $(7.0) (7.0) 19.S 149.5 (27.3) * 27.2 3.0 S(4.0) S (.1) $ 4,937.4 (1,139.2) (2.1) (136.8) 36.2 1.0 (92.2) 3,604.3 4.S (2.1) (140.2) 17.7 146.S (7.0) (40.5) 3.5S3.S 375.2 (2.1) (142.3) 61.7 3.0 119.9 $ 3,999.2 Treasury Common Stock Net outstanding (7,443,802) 1,262,274 32,256 (6,149,272) 610,452 4,652,936 (885,884) 883,382 (2.502) 170,164,638 1,262,274 32,256 171,459,168 610,452 4,652,936 176,722,556 1,989,920 178.712,176 29 AR 1227 Notes to Consolidated Financial Statements (dollars in millions, except share amounts) A. Summary of Significant Accounting Policies Principles ofConsolidation. The consolidated financial statements include the accounts of Alcoa and companies more than 50% owned'. Also included arejoint 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 esti mated useful lives of the assets. The book value of obsolete assets is charged to depreciation expense when they are scrapped. Prof its 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 extiacted. Environmental Expenditures. Expenditures that relate to current operations are expensed or capitalized, as appropriate. Expendi tures 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 remedia tion expenditures may include, as appropriate, elements of costs such as site investigations, consultants' fees, feasibility studies, outside contractor expenses and monitoring expenses. Estimates are not discounted, nor are claims for recovery recognized. The estimates also include costs apportioned to other potentially responsible parties to the extent that Alcoa has reason to believe such parties will not fully pay their proportionate share. The liability is periodically reviewed and adjusted to reflect current remediation progress, prospective 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 consoli dated balance sheets. It is Alcoa's polio' 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 performance 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 \alue. 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 twofor-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 outstand ing 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 (\vmq, 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 addi tional 9% interest in Alcoa of Australia, 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 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 receiv ables and $202 in goodwill; offset by an increase in minority inter ests 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 ofS79.7 ($50.0 after tax) from closing a forgings and extrusion plant in Vernon, California. The charge included $32.8 for asset write-offs and S46.9 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 AR 1228 mainly in the company's US. aluminum operations. The remain ing $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 (S173.9 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, lnd. and impairment ofAlcoa 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 Deccmlwr 31 Finished goods Work in process Bauxite and alumina Purchased raw materials Operating supplies 1994 $ 249.0 450.1 193.2 131.0 i I2.:i SI.IH.2 1993 S 317.3 415.7 165.9 1SS.2 NO.! SI.227.2 Approximately 55% of total inventories at December 31, 1994 were valued on a i.ifo basis. If valued on an average cost basis, total inventories would have been S691.9 and $623.9 higher at the end of 1994 and 1993, respectively. During 1992 certain UFO inventory quantities were reduced and flowed through cost of goods sold at prior t ears' 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 H. Long-Term Debt December 31 US. 4.62591 Notes payable, due 1996 5.75# Notes payable, due 2001 Bank loans 73 billion ven, due 1999, (4.4% fixed rate) Discount debentures 7%, S225 lace amount. due 2011 (14.7% effective vieltl) Commercial paper (3.6# average rate) Tax-exempt revenue bonds ranging from 3.7% to 7.5% due 2000-2012 Alcoa Aluntinio Variable rate note due 1993-2001 tS.2# and 5.8# average rates) Alcoa of Australia Euro-commercial paper, variable rate, due 1997 (3.9# anti 3.4# average rates) Other subsidiaries Less, amount due within one year I'HJl 1993 $ 175.0 247.8 74.) - 132.7 S 175.0 " 117.3 337.3 133.5 322 6 328.7 1 '(> n si. 3 1.1 s;; 8 15 1.0 $1,029.3 302.0 S9.5 1.483.3 50.8 SI.432.5 The amount of long-term debt maturing in each of the next five years is $154.0 in 1995, S276.S in 1996, S222.7 in 1997, $47.0 in 199S and SS6.9 in 1999. Alcoa's Revolving Credit Agreement of $1,000 with a group of international banks matures in Julv 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 aycl the Euro-com mercial paper issued bv Alcoa of Australia are classified ns longterm debt since they are backed by long-term revolving credit agreements. Land and land rights, including mines Structures Machinery and equipment Less, accumulated depreciation and depletion Construction work in progress S 238.0 5.800.0 Hl.003.7 M.I0J.7 7,812.9 0.283.8 41)0.0 S 0,089 l S 229.0 3,603.4 9,317.7 13.150.1 7,093.9 6,056.2 450.6 S 6.506.S 1. Other Noncurrent Liabilities and Deferred Credits December 31 1994 On-site environmental remediation Other noncurrent liabilities Deferred credits S 282.7 311.3 217.S SI.Ill 1.8 1993 S 348.0 437.1 237.1 SI,022.2 C. Other Assets December 31 Investments, principally equity investments Intangibles, net of accumulated amoimation of S203.5 in 1994 and SIS9.S in 1993 Noncurrent receivables Deferred income taxes Deferred charges and other 1994 s 555.9 o 87.6 50 i 6 I| M.M'H, J. Lease Expense 1993 S 322.2 179.2 218.9 431.5 235.8 S1.3S7.6 Certain equipment, warehousing and office space, and ocean going vessels are under operating lease agreements. Total expense for all leases was S71.6 in 1994, $73.7 in 1993 and $74.8 in 1992. Under long-term operating leases, minimum annual rentals are $32.3 in 1995, $2S.2 in 1996, S22.5 in 1997, $15.3 in 1998, $10.8 in 1999, and a total of S30.2 for 2000 and thereafter. 31 AR 1229 K. Minority Interests The following table summarizes the minority shareholders' inter ests in the equity of consolidated subsidiaries. December 31 1994 1993 Alcoa ofAustralia Alcoa International Holdings Company (aihq Alcoa Aluminio Alcoa Brazil Holdings Company tviiHto Alcoa Alumina and Chemicals Other majority-owned companies S 588.1 `200.0 :ho.7 - .*1*27.1) S1 .087 si S 616.1 250.0 164.9 102.1 - 256.1 S1.3S9.2 aihcs 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 ofabhc exchanged its interest in abhc for common shares of Alcoa Aluminio. Additionall)', Alcoa Aluminio's minority shareholder converted $214.7 of preferred stock to common stock. Alcoa Alumina and Chemicals represents the prima^ entity formed by the Alcoa/wMc transaction. 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: HUH 1993 1992 Outstanding, beginning of year: Number Price Granted: Number Price Exercised: Number Price Expired or canceled Outstanding, end of year: Number Price Shares reserved for future options at end of year s.o:t*2.s;>2 6,372.1(H 6.028.062 >.;o~to.07 S.50-40.07 $.50-38.44 5.050.708 2.963.45S 3,168,004 >:i.5.88~l 1.7*2 $.50-38.57 S.50-40.07 i.v i ii (57.508) (1.333,092) $.50-30.57 (I49.6IS) (2.600.102) S.50-4007 (23.8001 7.!>0().0`>0 S.032.S52 (5,5/2.10-1 >.50--H.7*2 S.50-40.07 S.50-40.07 1.758.050 5.000.192 7.339.240 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: Nnmlk'i "I \ Long-term stock incentive plan Employees' savings plans Incentive compensation plan V.ii.V.MHIl i "M7. IWJ'JS 1 " <_' Vsiiii N. Interest Cost Components Amount charged to expense Amount capitalized 199-1 SI 00 7 1.5 Mas.? 1993 S87.8 3.5 $91.3 1992 SI 03.4 >1.1 SI 16.5 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 parlies 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 AR 1230 P. Segment and Geographic Area Information Alcoa is primarily an integrated producer of aluminum products. Alcoa's operations consist of three segments: Alumina and Chemi cals, Aluminum Processing, and Non-Aluminum Products. The Alumina and Chemicals segment includes the production and sale of bauxite, alumina, alumina chemicals and transporta tion 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 Sales to customers: Alumina and chemicals Aluminum processing Non-aluminum products Intersegment sales: (1) Alumina and chemicals Aluminum processing Non-aluminum products Eliminations Total sales and operating revenues S i .:>os.-i 1.919.4 496 0 3.0 74 .S C>7:s.si S 9.'.KH.3 Operating profit (loss) before special items: Alumina and chemicals $ Aluminum processing Non-aluminum products Unallocated Total 8 277 3 144.7 91.2 - :>] Operating profit (loss) after special items: Alumina and chemicals $ *77 Aluminum processing li't.O Non-aluminum products 91.2 Unallocated - Total operating profit Cain from Alcoa/UMC transaction Other income Add (deduct) other income in operating profits Interest expense i33.:> -100.2 S7.0 S.a 10*1.7 Income before taxes on income $ Identifiable assets: Alumina and chemicals Aluminum processing Non-aluminum products Total identifiable assets Investments Corporate assets (2) Total assets S 3.013.2 6.693.0 l.007.1 11.313 3 3:0.9 6M.U *>1 2.333 2 Depreciation and depletion: Alumina and chemicals Aluminum processing Non-aluminum products Total depreciation ami depletion (3) $ 1 89. 1 4.V1 91 0 s fiSX. | Capital expenditures: Alumina and chemicals Aluminum processing Non-aluminuin products Tina! capital expenditures s 139.2 323.2 129 1 n hi 1 7 1993 $ 1,436.5 5.973.6 1.645.S 649.3 13.6 72.9 (735.S) $ 9,055.9 $ 372.7 (21-2) 5.0 (5.1) S 351.4 $ 365.6 (155.0) (4.9) (5.1) 200.6 93.0 (14.7) 87.S S 191.1 S 2,854.3 6,929.1 1,483.7 11.267.1 322.2 7.6 $11,596.9 $ 144.5 475.3 85.1 S 704.9 S 232.6 123.7 100.7 $ 757.0 1992 Geographic area information 1994 1993 1992 s 1,421.6 6,516.9 1,553.0 671.S 22.0 61.5 (755.3) s 9,491.5 $ 27S.2 2SS.5 (31.0) (2.5) s 533.2 $ 273.5 1SI.9 (171.3) (2.5) 2S1.6 96.9 Sales to customers: USA Other Americas Pacific Europe Transfers between geographic areas: (1) USA Other Americas Pacific Europe Eliminations Total sales and operating revenues S ;>..w4 0 1.362 4 I.OTil 1 1.297.S S 5.279.4 943.2 1.752.5 1.075.S 76.VO 291.1 17.2 13,1 (I.OST.O) $ 9.9'>{.3 S32.9 342.6 36.1 28.3 (1.239.9) S 9.055.9 Operating profit (loss) before special items: USA S Other Americas Pacific Europe Total $ t6V2i 239.9 291 1 4s.:; M3.2 S (193.1) 139.5 399.2 5.S S 331.4 Operating profit (loss) after special items USA Other Americas Pacific Europe Total operating profit X _(14 1.9) , $ 239 ll 291 1 4s s 4:*.;; S (340.7) 139.5 399.2 2.6 200.6 $ 5.65S.6 1,055.9 1.710.2 1.066.8 1.001.6 253.6 54.3 65.1 (1,374.6) S 9,491.5 $ 55.0 90.9 297.6 89.7 S 533.2 $ (176.5) S7.0 297.6 73.5 S 281.6 25.5 105.4 s 298.6 S 2.685.5 6.640.1 1,313.6 10,639.2 3GS.9 15.0 SI 1,023.1 $ 137.6 483.0 S4.3 $ 705.4 5 234.5 162.1 92.2 $ 7SS.S Identifiable assets: USA Other Americas Pacific Europe Total identifiable assets S 5.750.4 1.792.:> 2.646.1 1.124.3 1 1.313.3 S 6,270.9 1,691.4 2,384.2 920.6 11,267.1 S 6.092.3 1.441.9 2,345.6 759.4 10,639.2 Capital expenditures: USA Other Americas Pacific Europe Total capital expenditures S* 272.9 13.1.4 131 6 75 X $ 6117 S 405.0 105.0 162.7 S4.3 S 757.0 $ 457.6 75.1 184.5 71.6 $ 788.8 (1) Transfers between segments and geographic areas arc based on generally prevailing market prices. (2) Corporate assets in 1994 include cash of $68 and a net receivable of$3C7 related to the Alcoa/wstt: transaction. (3) Includes depreciation of $17.1 m 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 199-1 were S9S8 compared with S89G in 1998 and $993 in 1992. 33 AR 1231 Q. Majority-Owned Subsidiaries R. Financial Instruments The condensed financial statements of Alcoa's principal majorityowned subsidiaries follow. The earning values and fair values ofAlcoa's financial instruments at December 31 follow. Alcoa Aluminio S.A -- a 59%-owned Brazilian subsidiary: December 31 1991 Cash and short-term investments Other current assets Properties, plants and equipment, net Other assets Total assets Current liabilities Long-term debt* Other liabilities Total liabilities Net assets S 34.:> 371i.-1 irjii.o Ihl.S I..Ml 1.7 l 1 .V2 >*> > 1170.7 > srn.u Held by Alcoa lira7.il Holdings Company--S22.5 1<>oj 1993 1993 $ 160.2 2S3.7 S70.8 207.8 1.522.5 372.7 322.5 35.9 731.1 S 791.4 1992 Cash and cash equivalents Short-term investments Nonciirreni receivables Short-term debt Long-term debt 1991 Can ung value luh value S 619.2 5.5 117 C> 1.020.S $ til 11.2 (17 li 11 .V0 1.1x12 3 1993 Carrying value Fait value S 411.7 243.6 218.9 413 3 1.432.5 S 411.7 243.6 21S.9 413.3 1,545.(1 The methods used to estimate the fair value of certain financial instruments follow. Cash and Cash Equivalents, Short-Term Investments and Short-Term Debt. The carrying amount approximates lair v alue because of the short maturity of the instruments. All investments purchased with a maturity of three months or less are considered cash equivalents. Revenues* Costs and expenses Translation and exchange adjustments Income tax expense Net income > 915.! (sStis.iM i:t.ni (10.7) v ,s $ 6S5.8 (625.3) (10.7) (.6) S 49.2 S 659.0 (634.S) (9.2) 5.6 S 20.6 Revenues from Alcoa were S54 in 199-1. The terms of the transactions were established by negotiation between the parlies. Concurrent Receivables. The fair value of noncurretu receivables is based on anticipated cash (lows 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 ofAustralia Limited -- a 519c-owned subsidiary of Alcoa International Holdings Company (60% at December 31, 1994): December 31 |OM \ 1993 Cash and short-term investments Other current assets Properties, plants and equipment, net Other assets Total assets Current liabilities Long-term debt Other liabilities Total liabilities Net assets s SS.2 IS-i 0 i.ti-i.v:; io*_\: 2.320.0 317.11 1.70.2 3vS2.<i ,3."i0.7 M.-170.2 S 350.3 425.7 1.430.1 S5.7 2.291.8 399.7 302.0 332.7 1,034.4 SI.257.4 KHU 1993 1992 Revenues* Costs and expenses Translation and exchange adjustments Income tax expense Accounting changes t Net income S 1 .:!!> 2 11 1, INI t.71 - S 1,660.9 (1.2G4.G) 5.2 (88.1) - S 313.4 S 1.661.7 (1.297.7) (13.S) (132.0) 33.6 S 251.8 Revenues from Alcoa wcic S2S.5 in 199-1, S50.3 in 1993 anti $60.6 in 1992. The terms of the transactions were established by negotiation between the part If' tConsisls of 537 for income taxes and S(3.-l) for postretiicment henehis Alcoa holds or purchases derivative financial instruments princi pally for purposes other than trading. Financial instruments 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 princi pally 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 S47.S and S(1.5), respectively. 34 AR 1232 The table below refleas the various types of Foreign exchange contracts Alcoa uses to manage its foreign exchange risk. 1994__________________ _________ 1993 Notional amount Market value Notional amount Market value Forwards Sl.578.7 51.637.4 51,776.6 Options purchased 19.8 138.1 Options writtenI<i2.ll(It1.))69.2d 51.766.1 3.1 The notional amounts of options summarized above do not repre sent 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. It".' I l>m Sell 1993 Buy Sell Australian dollar Dutch guilder Deutsche mark Pound sterling Other Total SI. 197.8 1:18.2 7*.M) -II.* I 77.0 S'JIkS.ii 44.2 1 Ii7.l N'.ui uio.o S7:wi.1 S 928.0 74.6 SI.6 10.5 115.9 SI.210.6 5332.6 2S.2 173.3 115.7 124.5 S774.3 Interest Rate Swaps. Alcoa's debt portfolio is managed by using interest rate swaps and options to achieve an overall desired posi tion 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 ate 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 nonperformance by counterparties on the above instruments, but does not antici pate 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 ofJanuary 1, 1992 and the cumulative efiea of this change is reported in 1992 earnings. The components of income before taxes on income were: IWI 1993 1992 US. Foreign Simt ris.s) 5(359.4) 550.5 S 191.1 5(241.5) 540.1 S29S.6 The provision for taxes on income consisted of: Ml 1 1995 Current: US federal* Foreign State and local Deferred: US. federal* Foreign State and local Total si i-i > 151 1 `>7 1*7 t.S (51 s (inn (;YYt>) S2WV2 S (53 6) 163.0 4.S 114.2 (S0.2) (47.2) 2.9 (124.5) $ (10.3) Includes US. taxes related to foreign income 1992 $ 46.9 174.1 (7) 220.3 (71.2) (117) (5.1) (SS.O) 5132.3 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 nf the effective tax rate to the U.S. statutoiy rate follows. MU 1993 1992 US. federal statutory rate (9F) Taxes on foreign income State taxes net of federal benefit Tax rate changes Adjustments to prior years' accruals Kontaxable portion of Alcoa/wMC transaction gain Other Effective tax rate (%) tin Mi - (1.8) (4.9) (4) *Jl>.7 35.0 (9.2) 2.1 (26.9) (3.0) __ (3.4) (5.4) 34.0 10.0 (1-3) - (1.5) _ 3.1 44.3 The components of net deferred tax assets and liabilities follow. Decembers! MU 1993 Dck-ncd u\ Delated t.ix Deferred tax Deferred tax awis h.ihiliiio assets liabilities Depreciation Employee benefits Loss provisions Deferred income Tax loss carryforwards Tax credit carryforwards Other Valuation allowance - 5 S22.0 213 9 1 1-J.I 212.9 86. | ,v;.o l.5:t:;.6 (I7ll.ll) 51.."6:1.6 s :s.s - IS. 1 - i s.:r IJ1II.VI 51 .fMO. 1 - $ 781.5 264.9 38.4 291.2 20.1 41.0 1,437.1 (171.4) 51.265.7 5864.4 - 84.1 - 21.2 969.7 5969.7 35 AR 1233 Of the total tax loss carryforwards, $13.1 expii-es over the next 10 years, $65.8 expires over the next 15 years and $134.0 is unlim ited. 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 ofAlcoa's share of undistributed earn ings 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. I! KM 1993 1992 Interest* Income taxes SUIT.:; 23S.4 $101.2 193.6 S193.9 264.4 * Includes SS.6 in 199-4 ami S63.S in 1992 of amortized interest on the debentures retired early In a noncash transaction early in 1993, $149 of 6K Convertible Subordinated Debentures due 2002 were converted to common stock by issuing 4.6 million shares of treasury stock. The status of the pension plans follows. December 31 Assets exceed accumulated benefit obligation I'.H) 1 1993 Plan assets, primarily stocks and bonds at market $3,337.7 S3.6S8.4 Present value of obligation: Vested Nonvested Accumulated benefit obligation Effect of assumed salary increases Projected benefit obligation 2.721.2 >*7 *, 2.93X.3 236 1 >8.191.0 3,154.8 310.9 3.465.7 32S.1 S3.793.S Plan assets greater (less titan) projected benefit obligation > 1 13.1 Unrecognized: Transition (assets) obligation 21.8 Prior service costs 4.7.9 Actuarial (gains) losses, net hi...in Minimum liability adjustment - Accrued pension cost - (2115.1) $ (105.4) 7.7 13S.6 (113.3) - S (72.4) Accumulated benefit obligation exceeds assets I'.Kl l 1993 $ 231.4 $ 90.6 4.9 8KI.I 32.9 $ 373 (l 197.1 17.3 214.4 20.0 $ 234 4 <i 1 M.6) (S.'.l) 32.2 34.0 (28.2! Si 107.51 $(143.8) 10.8 53.S (4.1) (43.4) $(126.7) Assumptions used to determine plan liabilities and expenses follow. 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 sufficiently funded to ensure that all plans can pay benefits to retirees as they become due. Pension costs include the following components that were calculated as ofJanuary 1 of each year. 199) 1993 1992 Benefits earned Interest accrued on projected benefit obligation Net amortization Less: expected return on plan assets* n 90.6 261.2 16.3 30s.3 2N1.4 *1 169 $102.4 253.9 59.8 416.1 268.1 $148.0 S 92.2 250.7 29.7 372.6 259.2 SI 13.4 The actual returns weic higher (lowci) than the expected returns by $(2S2.7) in 1994, 5324.2 in 1993 and 5X2.4 in 1992 and were deferred as actuarial gains (losses). December 31 Settlement discount rate Long-term rate for compensation increases Long-term rate of return on plan assets 1991 *S.2.V/i 3.3 9.0 1993 6.757c 0.0 9.0 1992 6.7557 5.5 9.0 Supplemental information related only to Alcoa's U.S. pension plans partially insured by the Pension Benefit Guarantee Corporation follow. December 31 Assets exceed accumulated benefit obligation I'.KH 1993 Accumulated benefit obligation exceeds assets 1994 1993 Plan assets at fan market value Accumulated benefit obligation >8.II7'.U $3,270.5 (2.818.21 5 265.'.) (3.115.6) $ 154.9 - $21.7 - (23.9) - $ (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 AR 1234 Supplemental Financial Information V. Postretirement Benefits Alcoa implemented StAS 106 as ofJanuary 1, 1992 and the cumulative effect of this change was reported in 1992 earnings. Alcoa maintains health care and life insurance benefit plans covering most eligible US. 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. IW4 1993 1992 Service cosi of benefits earned Interest cosi on liability Net amortization Return on plan asseis Ibstrctirement benefit costs $ `JO.`2 104.4 (50.0) *4.8) S 69.S S 29.9 110.2 (32.4) (5.2) SI 02.3 $ 42.9 133.9 (3.7) ..S17JU Quarterly Data (unaudited) (dollars in millions, except siiare amounts) 1994 First Second Third Hmirth Yeai Sales and operating revenues S9Wl.fi Income from operations 1.3 Net income (loss)* (losj) Per common share (fill S2.479.4 7S.7 43.4 .23 S2.36L5 121.3 711.1 .39 $2.641.8 401.8 368.0 2.07 $*UKH.3 603.3 373.2 2.10 After a special charge of S50.0, or 28 cents jkm- share, and an cxtmnrdmarv loss of $67.9, or 38 cents per share.. in the first tjuaileraud a g.iiin of $300.2,, or $1.69 per share, in the lourih (juaner 1993 First Second Thiixl Fourth Year Sales and operating revenues $2,109.6 Income from operations (V4.5 Net income (loss) * r 27.6 Per common share .16 $2,403.3 109.6 35.3 .20 $2,230.2 73.4 28.S .10 $2,310.8 (46.1) (Sfi.9) (.30) $9,033.9 201.4 4.8 .02 The status of the postretirement benefit plans was: December 31 1994 Retirees Fully eligible active plan participants Other active participants Accumulated postretiremen! benefit obligation (,\rBO) Plan assets, primarily stocks and bonds at market Arno in excess of plan asseis Unrecognized net: Reduction in prior service costs Actuarial gains (losses) Accrued postretirement benefit liability $1.0411.3 112.3 ;U)7.S 1.400.6 1.407.3 420.1 103.3 SI.930.7 1993 SI.070.4 142.9 373.1) 1.591.9 53.4 1.538.3 469.-1 (78.8) SI,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 5.57c by the year 2003 and thereafter. Other assumptions used to measure the liability and expense follow. After special items orS23.S. or U tents per sluice, in (he second quarter. $-1.0. or two cents per share, in the third quarter ami $70.2, or -Cl cents per share, in the fourth quarter tNet income for the second quarter includes a credit of $20.11 from a reduction in Australia's cor|>oraie tax rale from hhv to 33rt and a $9.1 credit in the third quarter from the change in the U.S. tax nue. Average Number of Employees (unaudited) 1991 USA Other Americas Pacific Europe 30.300 16.700 6.400 S.300 61.700 1993 31.700 16.600 6.700 8,400 63,400 1992 34.200 17.000 6.200 6.200 63.600 December 3119941993________________________________________________ K Settlement discount rale Long-term rate for compensation increases Long-term rate of return on plan asseis 8.23'* 3.3 9.0 6.739c 3.5 0.0 G.Tj^c 3.3 0.0 For 199-1 a 1% increase in the trend rate for health care costs would have increased the .\rito by S7r and service and interest costs by 9%. 37 AR1235 11-Year Summary of Financial and Other Data (dollars in millions, except share amounts) For the year ended December 31 199-4 Operating results Sales and operating revenues Other income (loss) Cost of goods sold and operating expenses Selling, general and administrative expenses Research and development expenses Depreciation and depletion Interest expense Taxes on income Other taxes Special items-(income) expense Income from operations Minority interests Extraordinary gains (losses) and accounting changes* Net income (loss) S 9.904.3 487.2 /,S-45. / 032.7 123.8 671.3 100.7 219.2 107.1 79.7 603.3 (100.2) (07.9) 373.2 Alcoa's average realized price per pound for aluminum ingot Average U.S. market price per pound for aluminum ingot (Metals Week) .04 .71 Dividends declared Preferred stock Common stock 2.1 142.3 Financial position Working capital Properties, plants and equipment Other assets (liabilities), net Total assets Long-term debt (noncurrent) Minority interests Shareholders' equity 1.399.7 0.089.4 (1.372.3) 12.353.2 1,029.8 1,087.8 3,999.2 Common share data (dollars per share)t Net income (loss) Dividends declared Book value (based on year-end outstanding shares) Price range: High Low Shareholders (number) Average shares outstanding (thousands) 2.10 .80 22.07 45!< T2K 55,200 177,882 Operating data (thousands of metric tons) Aluminum product shipments: Primary Fabricated and finished products Total Primary aluminum capacity: Consolidated Total, including affiliates and others' share ofjoint ventures Primary aluminum production: Consolidated Total, including affiliates and others' share ofjoint ventures ()');") 1.890 2.551 1,905 2.428 1.331 2,007 Other statistics Capital expenditures Average number of employees Return on average shareholders' equity (%) Return on average invested capital (%) 80.12 01,7011 9.9 9.3 Reflects the cumulative effects of the accounting changes for postretirement benefits and income taxes in 1992 t All common share amounts were restated to reflect the two-for-one stock split m February 1995. 38 1993 $ 9,055.9 93.0 7,187.0 603.6 130.4 692.6 87.S (10.3) 105.6 150.S 201.4 (196.6) 4.S .56 .53 2.1 140.2 1,609.6 6,506.8 (1,710.9) 11,596.9 1,432.5 1,389.2 3,5S3.S .02 .80 19.96 39K 29 k. 55,300 175,346 841 1,739 2,580 1,905 2,428 1,770 2,315 $757 63,400 .1 4.3 1992 S 9,491.5 96.9 7,339.1 5S6.S 212.2 682.4 105.4 132.3 112.3 251.6 166.3 (143.9) (1,161.6) (1,139.2) .59 .5S 2.1 136.8 1.0S3.0 6,415.S (1,733.6) 11,023.1 S55.3 1,305.6 3,604.3 (6.70) .80 20.70 40X 30k 55,200 170,948 1,023 1,774 2,797 1,905 2,428 1,903 2,446 S789 63,600 (26.7) (14.0) AR1236 1991 $ 9,884.1 97.1 7,444.8 579.8 251.9 697.9 153.2 192.8 111.2 330.9 218.7 (156.0) _ 62.7 .67 .59 2.1 151.2 1,546.0 6,586.1 (701.9) 11,178.4 1,130.8 1,362.0 4,937.4 .36 .89 28.69 3614 26% 55,800 169,968 1,179 1,657 2,836 1,903 2.49S 1,919 2,511 S850 65,600 1.2 4.2 1990 $10,710.2 160.3 7,606.2 592.3 220.3 689.9 184.7 404.0 105.3 414.4 653.4 (358.2) - 295.2 .75 .74 2.2 264.9 1,706.3 6,747.0 (413.7) 11,413.2 1,295.3 1,581.0 5,163.3 1.70 1.53 30.10 38% 24% 56,300 172,408 1,179 1,545 2,724 1,903 2,498 1,870 2,395 SS51 63,700 5.7 9.7 1989 $10,910.0 249.6 7,338.3 540.8 182.4 638.3 178.3 S29.7 84.4 _ 1,367.4 (422.5) - 944.9 .92 .8S 2.5 240.4 1,594.9 6,658.6 (137.2) 11,540.6 1,316.3 1,533.1 5,266.9 5.34 1.36 29.71 39% 27% 56,500 176,608 960 1,619 2,579 1,907 2,420 1,876 2,391 $876 60,600 19.1 19.2 1988 $ 9,795.3 (27.8) 6,527.7 485.0 167.4 623.2 208.4 635.6 83.4 - 1,036.8 (175.4) - 861.4 .96 1.10 2.5 114.7 1,307.9 6,415.0 (317.S) 10,537.5 1,524.7 1,244.9 4,635.5 4.87 .65 25.88 26% 19% 58,400 176,404 796 1,708 2,504 1,756 2,231 1,814 2,250 $866 59,000 20.2 16.2 1987 $7,767.0 (19-3) 5,456.7 445.0 173.7 5S7.3 240.8 221.1 84.7 231.3 307.1 (83.1) (23.9) 200.1 .72 .72 2.5 105.1 9S4.1 6,402.7 (158.5) 9,901.9 2,457.6 860.0 3,910.7 1.13 .60 21.81 32% 16% 52,600 175,342 493 1,720 2,213 1,689 2,076 1,498 1,851 $856 55,000 5.2 6.3 1986 $6,431.4 (8.7) 4,753.2 364.6 148.9 522.9 274.8 124.7 76.8 (13S.5) 295.3 (31.3) (9.9) 254.1 .59 .56 2.5 102.7 S39.3 6,230.4 (35.9) 9,545.1 2,521.7 790.5 3,721.6 1.48 .60 21.00 23% 16% 56,400 169,800 452 1,563 2,015 1,659 2,046 1,401 1,662 $825 54,000 7.2 6.5 1985 $6,599.5 81.1 5.038.3 372.7 120.3 515.5 330.5 (26.9) 77.6 242.5 10.1 (26.7) (16.6) .54 .49 2.5 97.5 1,326.1 6,199.9 (359.3) 9,428.9 3,123.5 735.3 3,307.9 (.12) .60 19.92 20% 14% 57,900 162,482 1984 $7,135.7 69.4 5,346.8 338.3 96.0 473.4 331.7 217.0 85.9 27.1 28S.9 (32.9) 256.0 .67 .61 2.5 97.2 1,380.4 5,977.3 (393.0) 9,218.4 3,063.2 557.9 3,343.6 1.57 .60 20.20 24% 15% 57,500 162,130 521 1,624 2,145 1,481 1,739 1,492 1,735 $907 55,000 (.5) 3.1 460 1,656 2,116 1,809 2,064 1,665 1,873 $880 55,000 7.8 7.0 AR 1237 Alcoa Worldwide Operations Country Argentina Australia Bahrain Belgium Brazil Chile China Colombia France Germany Guinea 1 lungary Companies Alusud Argentina S-V Industrial yComcrcial FeroscarSA. Indusuial yComercial Alcoa ofAustralia Limited Austntlian Fused Minerals Guir Closures W.l-L. Alcoa Uouwprodukten N.V. Alcoa Aluminio S.A. AlumarConsormmi Mineracao Rio dc Norte S.A. Tendiudo Material* Tara Construcao Ltda. Alusud Embalajcs Chile Ltda. Asian-American Packaging Systems, Co., Ltd. Alusud Embalajes Colombia Ltda. Forges de Bologne S.A. Alcoa Automotive Structures GmbH Alcoa Chemie GmbH Alcoa Deutschland GmbH Alcoa VAW Hannover Presswerk GmbH & Co. KG Michels GmbH Stribel GmbH Halco (Mining), Inc. Michels GmbH Suibcl GmbH Alcoa-Koleni KIT CSI Hungary Location Buenos Aires La Plata Boddingion Hunily.Jarrahdale, Willow-dale Kuinana. Pinjnrrn Point Henry Ponlandt Wagcrup Rockingham Manamat Turnhom Banieri Colin Guanilbos ltnpissuma Pindnmonhnngaba, Sorocaba Poeos dcCaldas Salto Tubarao Valinhos Sao Luis Trombeuist Sao Paulo Santiago Tianjin Bogota Bologne Soest Ludwigshafcn Tellig, Viernheim Worms am Rhein Hannover Hcrzcbmck, St. Vit Frickcnhausen Sangurcdif Enving, Mor. Salgotarjan S/.ekc.slehers ar. Yes/prem Mor Szckc.slehrnm S/ekeslelicivar LS iI . = c <&& ! 1* 1 r c*". .=S 2 <S ?. .? 1 5 n c i z i I FI * I -- 40 AR 1238 Vndudes aluminum paste, particle,flake and atomizedponder, ceramics, gold mining, magnesium, and systems and componentsfor appliances tOumenhip of50% orless Country India Ireland Jamaica japan Malaysia Mexico Netherlands Nor\va\ Peru Singapore Spain Suriname United Kingdom United States Companies Location Alumina Products India. Ltd. Falla AFL Ireland Lid. Dundalk Alcoa Minerals ofjamaica, L.L.C. Alcoa Kasei Limited Qarendon Naoetsu ------ KSL Alcoa Aluminum Company. Ltd. (KAAL) Mokat Moralco Limited Iwakuni City Shibaznki Seisakusho Limited Ichikawa, Nogi Unified Accord SON. BHD. Kunla Lumpur Alcoa Fujikura Ltd. Acuna, Monierrey Piedras Xegras Alutodo de Mexico. S.A. de C.V. Cuadalaharn H-C Industries de Mexico, S.A. de C.V. Saltillo Alcoa Cliemic Nederland B.V. Rotterdam Alcoa Moerdijk B.V. Rotterdam Alcoa Nederland B.V. Assen, Cuijk, DeLier Celdemialsen, Giessen Zwijndrecht Druncn Elkem Aluminium ANS Listaf, Mo$jocn+ Alusud Embalajes Pen* Lida. Lima ACAP Singapore Pie Lid. Singapore Closure Svstems International Singapore Capsulas Metalicas S.A. Barcelona Extrusion deAhtminioS.A. Vails, Tarragona Suriname Aluminum Company, L.L.C. Moengo Paranam Alcoa Extruded Products (UK) Limited Swansea Alcoa Manufacturing (G.B.) Limited Swansea Alcoa Systems (UK) Limited Stratford-on-Avon Alcoa Alcoa,Tenn.; Evansville, Ind. Badin, N.C. Bauxite, Ark.; Fort Meade, Fla. Cleveland, Ohio Davenport, Iowa; Irvine, Calif. Lafayette, Ind. Lebanon, Pa. Lcetsdale. Pa. Massena, N.Y. Mobile, Ala.; Vidalia, La. New Kensington, Pa. Point Comfort. Texas Richmond, Ind. * i? l \ ?i C S D0-5 =5X5*" i 5 si i J`*-j |"f! t c: 1 1 !c. 5 C J, i;5 *si2 ^== i* Ts** |"5 \Ic _ Ofterahons listing* continue on next page. 41 AR 1239 includes nlumin u m paste, particle, flake and atomizedponder, ceramics, gold mining, magnesium, and systems and componentsfor appliances tOwnership of50 % or less Country United States continued Companies Alcoa Brite Products, Inc. Alcoa Composites, Inc Alcoa Construction Products Alcoa CSI Alcoa Fujikura Ltd. Alcoa Mcmoiy Products, Inc. Alcoa Rackaging Machinery', Inc. Alcoa Specialty Chemicals, Inc. Alcoa-Zepf, L.L.C. Alcotcc Wire Company Autoprod, Inc. B&:C Research. Inc, Haleihorpe Extrusions, Inc. Northwest Alloys, Inc. Norton-Alcoa Proppams Pcrmatech, Inc. Pimalco, Inc. Siollc Machinery, Inc. Stollc Products, Norcold and Arctek Structural Laminates Company Tifton Aluminum Company, Inc. Location Rockdale, Texas Wenatchee, Wash. Norcross, Ga. Monrovia, Calif. Springville, Utah Denison, Texas; Gaffney, S.C. Miamisburg, Ohio; Princeville, 111. Raniou), III.; Sidney, Ohio Springboro, Ohio; Stuarts Draft. Va. Crawfordsville, Ind. Indianapolis, Ind. Olive Branch, Miss. San Diego, Calif. Brentwood, Tenn.; Dearborn. Mich. Del Rio, Texas; Mauawan, Mich. North Royalton, Ohio San Antonio, Texas Houston, Miss.; Nashville. Tenn. Sparianburg.S.C. Sidney, Ohio Englewood, Colo. Randolph, N.Y. Nashville, Tenn.; Vidalia. La. Indianapolis, Ind. Traverse City, Mich. Clearwater, Fla.t Barberton. Ohio Baltimore, Md. Add)', Wash. Fort Smith, Ark.f Graham, N.C. Chandler, Ariz. Sidney, Ohio Gettysburg. Ohio Sidney, Ohio New Kensington, Pa. Delhi. La.; Tifton, Ga. t- . *E I }; F c S *c I 56 * 1 V I * iz _ t iiiI *C !i - is? 1 I 1 e = ! -K ty _VK i <3 2 0 E I S6 . B B B B - 42 AR 1240 Business Units Aerospace/Commercial Rolled Products L_ Patrick Hassey, President Davenport, Iowa General purpose and specialt)' aluminum sheet and plate for aerospace, automotive, printing and other industries Alcoa Asia Ltd. Joseph C. Muscari, President Tokvo,Japan Sales and marketing services, business development and management in the Asian region Alcoa ofAustralia Limited Robert F. Slagle, Managing Director Melbourne, Australia Bauxite miningand alumina refining, aluminum smelting, aluminum sheet for beverage can market and gold mining Alcoa Bauxite and Alumina Roger A. G. Vines, President Pittsburgh, Pennsylvania Bauxite mining and alumina refining in Jamaica and Suriname, bauxite mining in Guinea, and alumina refining in the United States Alcoa Closure Systems International TtmothyJ. Leveque, President Indianapolis, Indiana Plastic and aluminum closures (bottle caps), capping and other equipment and supplies for packaging markets Alcoa Composites, Inc. David L. Rittichier, President Monrovia, California Lightweight metallic and nonmetallic structures for aerospace, transportation and defense markets Alcoa Construction Products Dana R. Snyder, President Sidney, Ohio Aluminum and vinyl building products Alcoa Electronic Packaging, Inc. Kenneth W. Blevins, President San Diego, California Ceramic packages for semi conductors used in the comput er and electronics markets Alcoa Extrttsion/Tube System John W. Collins III, President Lafayette, Indiana Aluminum extrusions and tubes for aerospace, automotive, building and construction, machinery and equipment industries Alcoa Foil Products Kenneth R. McElhenev, President Lebanon, Pennsylvania Aluminum sheet, foil and laminated materials used in heat exchangers and other applications for the automo tive, building and construction, machinery and equipment, and packaging markets Alcoa Forged Products Robert S. Hughes n. President Cleveland, Ohio Aluminum castings and forg ings in a variety ofmaterials for the aerospace, transportation and commercial markets Alcoa Fujikura Ltd. Robert H. Barton RI, President Brentwood, Tennessee Automotive electrical / electronic systems, electronic components, and specialt)' fiber optic products for the automotive and telecommuni cations markets; and wire prod ucts for the electrical market Alcoa Industrial Chemicals Michael J.Schreier, President Charlotte, North Carolina Alumina and other inorganic chemical products for die refractor)', adsorbent and cata lyst, ceramic and abrasive, polymer and water treatment markets Alcoa Nederland Holding B.V. H.A.J. Bemelmans, President Drunen, Netherlands Aluminum coil sheet, exunsions and other fabricated products for the horticultural, packag ing, transportation, and build ing and construction markets Alcoa Packaging Equipment David \V. Groetsch, President Englewood, Colorado Engineered packaging equipment for the beverage industry and filling equipment for the food and dairy industry Alcoa Primary Metals G,John Pizzey, President Knoxville, Tennessee Primary aluminum products produced in the United States for various markets and appli cations Alcoa Wire, Rod and Bar Tunothy S. Mock, President Massen.i. New York Aluminum wire, rod and bar for various markets and applications Automotive Structures International David W.Schlendorf, President Munich. Germany Extruded and cast aluminum pans and subassemblies for spacefmme structures used in the automotive market Latin America and Alcoa AWtnunioS.A. Fausto P. Morcira. President Paulo F. Pcriquito, Executive Vice President Sao Paulo, Brazil Bauxite mining, alumina refining, aluminum smelting and fabricating, for various markets and applications; plastic closures, bottles and iabels; copper cable, aluminum truck bodies and retailing of home building products Northwest Alloys, Inc. Edward L. Sandman, President Addy. Washington Magnesium as an alloying material for Alcoa and other aluminum fabricators Worldwide Automotive Products Richard A. Schultz, Director Pittsburgh, Pennsylvania Coordinates Alcoa products and systems for automotive markets Alcoa Rigid Packaging George E. Bergeron, President Knoxville, Tennessee Aluminum sheet for the beverage and food can indus tries and can recycling AR 1241 Shareholder Information Annual Meeting The annual meeting ofshare holders will be at 9:30 a.m. on Friday, May 12,1995 at the Vista International Hotel in Pittsburgh. Financial Information For copies ofthe annual report, Alcoa Update and Forms 10-Kand 10-Q, write Corporate Communications at the headquarters address or call (412) 553-4463. Other Publications A report of contributions and programs supported by Alcoa Foundation is available by wait ing Alcoa Foundation, 425 Sixth Avenue, Room 2220, Pittsburgh, PA 15219-1S50 or by calling (412) 553-2343. A report on Alcoa's environ mental, health and safety per formance is available by writing Alcoa Environment,* Health and Safety Department, 425 Sixth Avenue, Room 1962, Pittsburgh, PA 15219-1850 or by calling (412) 553-4637. Dividends Alcoa's objective is to pay com mon stock dividends at rates competitive with other invest ments ofequal risk and consis tent with the need to reinvest earnings for long-term growth. To support this objective, Alcoa pays a base quarterly div idend and an additional divi dend linked directly to the company's financial perfor mance. The base quarterly dividend is 22.5 cents per com mon share, based on the twofor-one stock split in February 1995. The additional dividend is 30% ofAlcoa's annual earnings over S3.00 per share. Dividend Reinvestment The company offers a Dividend Reinvestment and Stock Purchase Plan for share holders ofAlcoa common and preferred stock. The plan allows shareholders to reinvest quarterly dividends in shares ofthe company's common stock. Shareholders may also purchase addiuonal shares under the plan with cash con tributions. The company pays brokerage commissions and fees on these stock purchases. Shareholder Services StockTransfer .-Went, Registrar and Disbursing Agent (for inquiries and changes in share holder accounts): First Chicago Trust Company ofNew York Attention: Shareholder Services, P.O. Box 2500, Jersey City, NJ 07303-2500 Telephone Response Center: 1-800-446-2617 Shareholders with questions on odier matters related to Alcoa may write to Barbara S. Jeremiah, Office ofthe Secretary, at the headquarters address or call (412) 553-4707. Stock Data Common: New York Stock Exchange and European exchanges in Basel, Brussels, Frankfurt, Geneva, Lausanne, London and Zurich Preferred: American Stock Exchange Ticker symbol: AA Headquarters Alcoa 425 Sixth Avenue Pittsburgh, PA 15219-1S50 Telephone: (412) 553-4545 Telex: S66470 Facsimile: (412) 553-4498 Aluminum Company ofAmerica is incorporated in the Commonwealth of Pennsylvania. * ry r - : ' _ . > mom stainless steel to anodized aluminum in 1995. It s a new maiketforup to 20 million po which is lower m weight and cost than stainless ^ i W'.. uf t i^yfl^rp-yi^'agreementraaAMlwntKCTplnyF^rlMT^tHpwwaayyffnofrmmaajjhorriimprovements in the , i ^ "X'v- ; 'Jr '"ti. / tv A*-V. !\jAv:-iyy.v>S..>jV:f.' AR 1244 Quarterly Stock Information Quarter High l .* t\\ Dividend First Second Third Fourth Year S-tl list* t:t% 45 U S-IIHs SWVk 321* 371* 3K1* ST."!- Adjusted for two-for-one stock split S.20 .20 .21) .211 S.Stl High S39V4 35W 39 37Vk $39 W 1993* Low Dividend S32V 29V4 33 32% S29Mt S.20 .20 .20 .20 S.80 Common Share Data Estimated number Average shares ___________of shareholders*________ outstanding (000)t 199-1 1993 1992 1991 1990 .">.201) 53,300 53,200 55,800 56.300 I77.SS2 175,346 170.94S 169,96S 172.40S These estimates include shareholders who own stock registered in their own names and those who own stock through banks and brokers. fAdjusted for nvo-forone stock split Dividends per Common Share* dollars ST53 in? S.S9 S.80 S.80 S.80 US ->vV _ 90 91 N Base 92 93 94 Profit sharing Investor Information Security analysts and investors seeking information about the company may write to Edgar M. Cheely.Jr., Manager - Investor Relations, 425 Sixth Avenue, Room 2928, Pittsburgh, PA 15219-1850 or call (412) 553-2451. *Adjuttfd X rejirfl J 'or 1 uoektpiit inFrbntary 1995 Market Value ofAlcoa Common Stock* mitfiorti ofdollars 90 91 92 93 94 Board on doanfifmft and start* ovttfamdinf al teekytvt'fnd AR 1245 Glossary Allnv-A substance with metallic prop erties, composed of two or more chem ical elements of wh ich at least one is a metal. More specifically, aluminum plus one or more other elements, pro duced to have certain specific, desir able characteristics. Alumina-Aluminum oxide produced from bauxite bvan intricate chemical process, h is a white powder)' material that looks like granulated sugar. Alumina is an intermediate step in the production of aluminum from bauxite and is also a valuable chemical on its own. A nodi/mg - An elect! ochemical process for applying a protective or decorative coating to metal surfaces. bauxite -- An ore from which alumina is extracted and f rom which aluminum is eventually smelled. Bauxite usualIv contains at least 45% alumina. About four pounds of bauxite are requited to produce one pound ofaiuminum Bra/.ing-Joining metals bv flowing a thin laver of molten, nonfetrous filler metal into the space between them. Casting - The process < >fft inn i ng molten metal into a particular shape by pouring it into a mold and letting it harden. Cold mill-The equipment on which aluminum is rolled into sheet or foil by passing it through pairs of rollers under pressure. In cold rolling, the incoming melat is normally at room temperature. Engineered product - A basic alu minum fabricated product that h:i' been mechanically altered to cieate special properties for specific purpos es: forgings and extrusions are exam ples of engineered products. KxiriiMon - The process of shaping material by forcing it to flow tlnough a shaped opening in a die. Fabricate- To work a material into a finished state by machining, forming 01 joining. Flat-rolled products-Aluminum plate, sheet or foil products made l>\ passing ingot through pairs of rolls. Bv moving the rolls closer together and passing the ingot between them, the* thickness is reduced and the length is increased. Forging-A metal part worked a> pre determined shape by one or moi e processes such as hammering, press ing or rolling. Hvdrate-Analuminum oxide with three molecules of chemically combined water. Ingot-A cast form suitable for rcmelting or fabricating. An ingot mav take mam forms: some mav be .`Id feet long and weigh 13 tons: others ai e notched or specialh shaped lor slat king and handling London Metals F.xchange < l.Mh} - The imci national ti acling hodv that iacih* tales the worldwide open market Inn ing and selling ot metals. Mdunesium - A light, silver'. moder ate!' hard, metallic element used in piocessing metal.-, and chemicals, and in allot mg aluminum to give it desired metallurgical properties. Mill products - Metal that has been fabricated into an intei mediate hum before being made into a finished I product. The most common labi icating processes foraluininum are rolling, extruding, forging and cast ing. Example: aluminum sheet, a mill product, is used to make beverage cans, a Finished pioduu. HIT - Polyethvlene tcrephthalate: a plastic common!' used to make bottle' for lieveragev |h*t - In aluminum piodm non: the elcctrohtic icduction tell. commonU called a "pot." in which alumina dosolved in molten crvoluc is ieduced to metallic aluminum. A senc-sol cells connected elecu it all' is cal lei l a pol lute. Smelc - To fuse oi melt oie in tit tier to extract or refine the metal it contains. Space frame - An integrated structm e ofaiuminum castings and extruded pai is that form the primal's' body frame of a new generation of automo biles. AR 1246 Index \ At running policies 36 At t turning nik' changes 35. 37 Alton Alnininio (Aluminio) IS, 34 A|>; f'Au.siralia IS. 34 Alumin.i andchemicals segment 19,33 Aluminum capacity 38 Aluminum processing segment 19,33 Aluminum product shipments 14, l`.r.3S Aluminum production 38 Annual meeting 46 Assets/Liabilities 1-1. `27 Audit Committee report 25 Auditor's report 2") r. balance sheet 27 Hoard of directors 45 I look value 14.38 business unit'- 43 ( Capital expciuhunes 24". 33 Capital resources 23-24 Cashflow 24.2H.36 Cash from operations 24". 28 Common stock hook value 14, 3S dividends 14.24, 3S. 47' earnings per share 14. 26. 30. 32 market value 47" quarterly market pi ices 47 share activity 29 shares outstanding 14. 29. 32 split 24.30 slock options 32 Cost of goods sold 21 Current ratio 14 I) Debt long-term 24,31 as percent of capital 14 Depreciation expense 30. 33 Directors 43 Dividend leinvestmem 46 Dividends I4.24.3S 1. Darning pci common sh.ue 14. 19, 26. 30. 32 l.mplnvecs, numbet of 1 I. 23 \ 37, 3S Kmiummcnial expenditures 23, 30 Kiiiidi diiurv losses 2 1.30 FP Financial data balance sheet 27 rash flows 28 ] 1-year suntman 38 highlights 14 income statement 26 notes 30-37 quarterly 37 selected five-year IS share activity 29 shareholders'equity 29 Financial instruments 34-35 Financial review 1S-24 Financial summary, 11-year 3S Financing activities 24 Fixed assets 31 Foreign currency 21,30, 34 C Geographic area information 1S-19, 33 II Health care benefits 37 I Income statement 26 income taxes 21,35 Intangibles 30,31 Interest costs 21,32 Interest coverage ratio 14 Inventories 31 Investing activities 24 I. Lease expense 31 Letter to shareholders 15-17 Liabilities contingent 32 noncurrent 31 LIFO 31 Liquidity 23*24 M Management's report 25 Minority interests 32 Pension plans 36 Pom retirement benefits 37 Preferred stock 29.32 Profit by geographic area 18-19.33 Properties, plants and equipment 31 Publications 46 Q Quarterly data 37 R Realized prices lor aluminum ingot 21 * Research and development 26 Retained earnings 29 Return on invested capital 14. *23, 38 Return on shareholders' equip 14, 23'. 3S Revenues 14.18.33 hv geographic area 14*. 18-19.33 bv market 14" bv segment 18-20, 33 Risk factors 22-23 S Segment information 18-20. 33 Selected financial data IS SeUingnndgeneral administrative expenses 21 Share activity 29 Shareholder information 46 dividend reinvestment 46 dividends 14.24,38.46 records 46 return on equitv 14,38 Shareholders, number of 47 Shareholders* equip 29 Shares outstanding 29. 32 Shipments ol aluminum pi oducts 11. 19.3S Special charges 20.36 Stock information 46.47 Srrnlso Common stork Stock options 32 Stock split 24,30 Stock transfer agents 46 Subsidiaiies, majoruv-owned 34 NT Newsllriefs 44-4S Non-Alumimim products segment 20. 33 <) Officers 44 Operating locations 40-42 Operating results 18-21 earnings per share 14. *26. 3<>. 32 ll-yeai summary data 38 financial review 18*21 * highlights 14 pinfit hvgeugtapluc aioa 18-19, 33 ietin n on invested capital I 4. 38 t cmi n on shareholders'cqum 14, 38 Othct income 2) Taxes 21.35 Treasure shares 29 W Worldwide operations 46-42 "C hail Trademarks in this report: Alcoa*and the Alcoa corporate symbol are registered tradcmarksul Aluminum Company ofAmerica. Annual Report team: Kditor: Honita Cersosimo. '1 lie Financials: Dick l-wrcnce. ('.ontribuiois: DarleneJohnson, Greg Mims. Joyce Salt/mau. Design: Arnold Saks Associates. Kdiioria! consuliing: Alan VaiiDim* Pi inted in USA 950:1 Form A07-15645 '*j 1995 Alcoa Pi mted on reeve led papei 49 AR 1247 Latitude for Growth. On most maps, north is up and south is down -- for no particular reason except that the original mapmakers lived in the northern hemisphere. On Alcoa's global map, the key direction is forward -- from some of the world's great resources of raw materials and energy, forward to the leading edge of aluminum technology in transportation, packaging, metalworking, and other industries worldwide. As to the map shown here, Australian Alcoans hang it up to remind them that being "down under" is no barrier to being the world's best. H ALCOA AR 1248