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P L A IN T IF F ' S E X H IB IT AL-1811 10k'.Wizard: View Filings ybt; appreciate the inherent beauty of financial graphs Page 1 of 38 Company symbol: Save Options: SEC Filings [Filings && Email this section kd Email entire filing ujg in i register / naa ALCOA INC filed this 10-K405 on 02/28/2000. Note: This Drop-DoiMt Box allows you to navigate through the filing. The number with in the"()' is the number of lines. e.g. 'Item 1. Business(323)* - This section is called 'Item 1. Business* and it is 323 lines long. J Entire Document (6295) Entire Filina. Back to Search. New Search. Next Section. View Header. Filing Attachments More About ALCOA INC: Income Statement Balance Sheet Insider Trading Snapshot Printer friendly format UNITED STATES ii SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-3610 ALCOA INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-0317820 (State of incorporation) (I.R.S. Employer Identification No.) Alcoa Corporate Center, 201 Isabella Street, Pittsburgh, Pennsylvania 15212-5858 (Address of principal executive offices) (Zip code) http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 2 of 38 Registrant's telephone number--area code 412 Investor Relations----------------------------553-3042 Office of the Secretary--------------553-4707 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $1.00 New fork Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of February 17, 2000 there were 371,872,159 shares of common stock, par value $1.00, of the registrant outstanding. The aggregate market value of such shares, other than shares held by persons who may be deemed affiliates of the registrant, was approximately $28,450 million. Documents incorporated by reference. Parts I and II of this Form 10-K incorporate by reference certain information from the registrant's 1999 Annual Report to Shareholders. Part III of this Form 10-K incorporates by reference the registrant's Proxy Statement dated February 25, 2000, except for the performance graph and Compensation Committee Report. 1 ALCOA INC. Formed in 1888 under the laws of the Commonwealth of Pennsylvania, Alcoa Inc. has its registered office in Pittsburgh, Pennsylvania. The name of the Company was changed, effective January 1, 1999, from Aluminum Company of America to Alcoa Inc. In this report, unless the context otherwise requires, Alcoa or the Company means Alcoa Inc. and all subsidiaries consolidated for the purposes of its financial statements. PART I Item 1. Business. http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 3 of38 Overview Alcoa is the world's leading producer of primary aluminum, fabricated aluminum and alumina and a major participant in all segments of the industry: mining, refining, smelting, fabricating and recycling. Alcoa serves customers worldwide primarily in the transportation (including aerospace, automotive, rail and shipping), packaging, building and industrial markets with a great variety of fabricated and finished products. Alcoa is organized into 25 independently managed business units and has over 228 operating locations in 32 countries. Alcoa gives business unit leaders clear responsibilities that concentrate authority closer to customers. The U.S. remains the largest market for aluminum. Europe, Asia and Latin America, however, present opportunities for substantial growth in aluminum use. To take advantage of these growth opportunities, Alcoa has made acquisitions or formed joint ventures and strategic alliances in key regional markets. Recent Developments In August 1999, Alcoa and Reynolds Metals Company (Reynolds) announced that they had reached a definitive merger agreement under which Alcoa will acquire all outstanding shares of Reynolds in a tax-free stock-for-stock transaction. Reynolds shareholders will receive 1.06 shares of Alcoa common stock for each share of Reynolds common stock. The combined company will have about 127,000 employees and will operate in over 300 locations in 37 countries. Based on annualized 1999 results, the combined company should have annual revenues that exceed $21 billion. Alcoa and Reynolds have made all of the requisite competition notification filings with the appropriate U.S. and international governmental authorities. On February 11, 2000, the Reynolds stockholders voted to approve and adopt the merger agreement. Completion of the merger is subject to satisfaction of applicable regulatory requirements. Market and Geographic Information Alcoa serves a variety of customers in a number of markets. Consolidated sales from these markets during the past three years were: 2 (dollars in mil 1999 1998 http://www. 1 Okwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Transportation Packaging Distributor and Other Aluminum Ingot Alumina and Chemicals Building and Construction U.S. Australia Spain Brazil Germany Other Total Total Page 4 of38 $ 3,976 3,169 2, 896 2,241 1, 842 2, 199 $16,323 $ 3,738 3, 304 2,764 2,012 1,781 1,741 $15,340 (dollars 1999 $10,392 1,398 1,059 730 521 2,223 in mill 1998 $ 9,212 ' 1,470 965 934 554 2,205 $16,323 $15,340 Alcoa's Financial Reporting Segments In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," Alcoa reports four worldwide segments: Alumina and Chemicals, Primary Metals, Engineered Products and Flat-Rolled Products. All of the Company's products that do not fall into one of those four segments are reported in the category entitled Other. See Note O to the Financial Statements for information on segment and related geographic financial information. I. Alumina and Chemicals The Alumina and Chemicals segment includes the production and sale of: o bauxite o alumina o alumina-based chemicals used principally in industrial applications and o transportation services for bauxite and alumina. The segment consists of a group of companies and assets referred to as Alcoa World Alumina and Chemicals (AWAC). Alcoa owns 60% and WMC Limited (WMC) owns 40% of the AWAC group of companies. AWAC has two businesses with distinct product lines: Alcoa World Alumina (AWA) produces smelter grade alumina and Alcoa Industrial Chemicals (AIC) makes alumina-based chemicals. AWA also has two geographic regions: Alcoa World Alumina - Australia (AWA Australia) and Alcoa World Alumina - Atlantic (AWA - Atlantic). Alcoa World Alumina Australia is the trading name for Alcoa of- Australia Limited (AofA); all references throughout this report will be to AWA - Australia instead of AofA. Bauxite and Alumina Bauxite is aluminum's principal raw material. Alcoa refines bauxite into alumina using a chemical process. Alcoa processes into alumina most of the bauxite that it mines. All of the Company's active bauxite interests are part of AWAC, except in Brazil. http ://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 5 of38 3 Alcoa is the world's leading producer of alumina. The Company sells alumina principally from operations in Australia, Jamaica and Suriname. Alcoa sold approximately 53% of its alumina production in 1999 under supply contracts to third parties worldwide. The Company consumed the remainder of its alumina production in its smelting and industrial chemical operations. Alcoa negotiates most of its alumina supply contracts on the basis of agreed volumes over multi-year periods to assure a continuous supply to the smelters. The parties negotiate the prices periodically. Prices may be based on formulas related to aluminum ingot market prices or to alumina production costs. AWA entities and Sino Mining Alumina Limited (SMAL) have a long-term agreement for the purchase of alumina for the Chinese aluminum industry. SMAL is ultimately owned by the China State Nonferrous Metals Industry Administration (SNMIA), a Chinese state-owned enterprise that has succeeded the China National Nonferrous Metals Industry Corporation as the entity responsible for the Chinese aluminum industry as part of the ongoing governmental restructuring in China. The agreement entitles a subsidiary of SMAL to purchase a minimum of 400,000 metric tons '(mt) of alumina per year for 30 years. The ongoing restructuring of SNMIA and the Chinese aluminum industry has not impacted this agreement. The SMAL subsidiary also has the option to increase its alumina purchases as the needs of the Chinese aluminum industry grow. In November 1999, Alcoa and China Aluminum Corp. (Chaleo) signed a memorandum of understanding to form a strategic partnership. SNMIA witnessed the memorandum of understanding. The parties are negotiating a master strategic partnership agreement that is expected to involve an association of several Chaleo and Alcoa aluminum production facilities. Alcoa World Alumina - Australia AWA - Australia's bauxite mineral lease is due for renewal in 2002, but renewal options allow AWA - Australia to extend the lease until 2044. AWA - Australia's three alumina refineries, located in Kwinana, Pinjarra and Wagerup, in Western Australia, have an aggregate annual capacity of 7.3 million mt at the end of 1999. In October 1999, AWA - Australia announced that it had completed its 440,000 mt per year expansion of the Wagerup refinery. This expansion increased Wagerup's production capacity from approximately 1.7 million mt per year to approximately 2.2 million mt per year. This is the first stage of a planned expansion to 3.3 million mt per year at Wagerup, for which AWA - Australia has obtained environmental approval. AWA - Australia meets most of the energy requirements of its Australian refineries through a contract with the North West Shelf Gas Joint Venture. The contract extends through 2020. In May 1999, AWA announced that it had applied for a patent for a highefficiency causticization invention for use in the alumina refining process. A research team at the Kwinana refinery developed the new process, which improves productivity at a refinery by reducing the amount of sodium carbonate in the chemical solution for processing the bauxite ore. AWA - Australia is exploring the possibility of selling three power http ://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k.Wizard: View Filings Page 6 of 38 stations in Western Australia and has requested bids from interested parties. The three natural gas-fired cogeneration power stations are located within each of AWA - Australia's three alumina refineries in Western Australia. Alcoa World Alumina - Atlantic Suriname Suriname Aluminum Company, L.L.C. (Suralco) mines bauxite in Suriname under rights that expire in 2032. Suralco also holds a 24% minority interest in a bauxite mining joint venture managed by the 4 majority owner, an affiliate of Billiton pic (Billiton). Bauxite from both mining operations serves Suralco's share of a refinery in Suriname. Suralco expects to deplete the current mine reserves at both operations in the period 2005-2010. Suralco owns 55% of a 1.7 million mt per year alumina refinery in Paranam, Suriname and operates the plant. An affiliate of Billiton holds the remaining 45% interest. Jamaica Bauxite mining rights in Jamaica expire after the year 2020. The bauxite mining rights are held in a joint venture (Jamaica) with the Government of Jamaica. In January 2000, Jamalco entered into a cost-sharing and production-sharing joint venture with Aluminum Partners of Jamaica to mine the bauxite. An Alcoa subsidiary and a corporation owned by the Government of Jamaica are equal participants in an alumina refinery in Clarendon Parish, Jamaica. The Alcoa subsidiary manages the joint venture. At the end of 1999, the refinery's annual capacity was approximately one million mt. Brazil Alcoa owns 59% of Alcoa Aluminio S.A. (Aluminio). Aluminio manages the operation of the Alumar Consortium (Alumar), a cost-sharing and production sharing venture that owns a large refining and smelting project near Sao Luis, in the northeastern state of Maranhao. For the refining project, Aluminio owns 35.1% of Alumar, an affiliate of Billiton owns 36%, Abalco S.A. (owned 60% by Alcoa and 40% by WMC) owns 18.9% and an affiliate of Alcan Aluminium Limited (Alcan) owns 10%. In 1999, the Alumar refinery completed an expansion of 260,000 mt, bringing the total annual capacity to approximately 1.25 million mt. The smelter consumes most of this alumina production. Aluminio holds an 8.6% interest and Abalco S.A. holds a 4.6% interest in Mineracao Rio do Norte S.A. (MRN), a mining company jointly owned by affiliates of Alcan, Companhia Brasileira de Aluminio, Companhia Vale do Rio Doce, Billiton, Norsk Hydro and Reynolds. Aluminio and Abalco S.A. purchase bauxite from MRN under long-term supply contracts. http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 7 of38 At Pocos de Caldas, Aluminio mines bauxite and operates a refinery. The refinery has an annual capacity of 275,000 mt and primarily supplies Aluminio's nearby smelter. Spain Alcoa and a WMC affiliate hold 60% and 40% interests, respectively, in the refinery at San Ciprian. The refinery's current annual capacity is 1.1 million mt. A modernization plan for the San Ciprian plant will increase alumina production capacity by 220,000 mt per year. Basic engineering of the project has been completed and the work is expected to finish by March 2001. Africa Alcoa has long-term contracts to purchase bauxite mined by a partiallyowned entity in the Republic of Guinea in Western Africa. This bauxite services most of the requirements of the Pt. Comfort, Texas and San Ciprian, Spain alumina refineries. The contracts expire after 2011. United States AWA, through a majority-owned entity, St. Croix Alumina, L.L.C., owns a 600,000 mt per year alumina refinery located on St. Croix, U.S. Virgin Islands. In February 1998, AWA restarted the refinery due to 5 an increase in worldwide demand for alumina. The refinery had been inactive as a result of world alumina market conditions. AWA owns an alumina refinery at Pt. Comfort, Texas with an annual capacity to 2.3 million mt. Alcoa Industrial Chemicals Alcoa sells industrial chemicals to customers in a broad spectrum of markets. These markets include: o refractories o ceramics o abrasives o chemicals processing and o other specialty applications. Alcoa produces or processes industrial chemicals, principally alumina-based chemicals, at the following locations. Except for the plants located in Brazil, all of the following facilities are part of AIC: o Bauxite, Arkansas o Dalton, Georgia o Falta, India (joint venture) o Ft. Meade, Florida o Iwakuni and Naoetsu, Japan o Kwinana and Rockingham, Australia o Leetsdale, Pennsylvania o Ludwigshafen, Germany o Moerdijk and Rotterdam, the Netherlands o Pocos de Caldas and Salto, Brazil o Port Allen and Vidalia, Louisiana o Pt. Comfort, Texas and o Singapore. In late 1998, AIC began construction of a facility in China to process tabular alumina and other alumina-based materials for sale to the Chinese refractory market. This facility is scheduled for completion in the first half of 2000. Alcoa produces aluminum fluoride at two locations, Pt. Comfort and Ft. Meade, both in the U.S. At Pt. Comfort, the aluminum fluoride is produced http://www. 10kwizard.com/fll_submis. asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 8 of38 from fluorspar and at Ft. Meade it is produced from hydrofluosilicic acid. Aluminum fluoride is used in the aluminum smelting process. AIC and PR Minerals, LLC formed a joint venture company named Great Lakes Minerals, L.L.C. The new company processes industrial mineral products, primarily refractory aggregates such as calcined bauxite and brown fused alumina. A newly constructed processing facility in Wurtland, Kentucky began operating in January 2000. II. Primary Metals The Company smelts primary aluminum from alumina obtained principally from its alumina refineries. Alcoa's consolidated primary aluminum capacity is approximately 3.2 million mt per year. When operating at capacity, Alcoa's smelters satisfy most of the primary aluminum requirements of its fabricating operations. Alcoa operations used most of the Company's primary aluminum production in 1999 for alloying and/or further fabricating. Purchases of aluminum scrap, principally used beverage cans, supplemented by purchases of ingot when necessary, satisfy additional aluminum requirements. 6 Since 1994, Alcoa has had 450,000 mt of its worldwide smelting capacity idle because of an oversupply of ingot on world markets. In January 2000, Alcoa announced that it will restart approximately 200,000 mt of its currently idled aluminum smelting capacity. The Company plans to bring this capacity into production over the course of the year. Alcoa will have approximately 250,000 mt of aluminum smelting capacity that remains idle following this restart. Alcoa produces aluminum from alumina by an electrolytic process requiring large amounts of electric power. Electric power accounts for approximately 25% of the Company's primary aluminum costs. Alcoa generates approximately 25% of the power used at its.smelters worldwide. Most purchase contracts for firm power tie prices to aluminum prices or to prices based on various indices. In February 1999, the Company entered into a 50/50 joint venture with C.C. Pace Resource Management, LLC, an energy management and consulting company, to form Pace Global Energy Services, LLC. The new company will provide a variety of energy-related management and consulting services to Alcoa and to other unaffiliated companies. Australia AWA - Australia is a participant in a joint venture smelter at Portland, the State of Victoria, with an annual capacity of 345,000 mt. The owners the smelter are: o AWA - Australia (45% interest) o China International Trust and Investment Corporation (22.5% interest) o Marubeni Aluminium Australia Pty., Ltd. (22.5% interest) and o Eastern Aluminum Ltd. (10% interest). in of Each participant in this smelter contributes to the cost of operations and construction in proportion to its interest in the venture. Each participant also then receives a proportionate share of the output. AWA - Australia supplies the alumina through individual commercially negotiated contracts and operates the smelter. http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 1 Ok Wizard: View Filings Page 9 of 38 Power is generated from extensive brown coal deposits covered by a long term mineral lease held by AWA - Australia, and that power currently provides approximately 40% of the electricity for the Company's 180,000 mt per annum smelter in Point Henry, Victoria. The State Electricity Commission of Victoria, under contracts with AWA - Australia, provides the remaining power for this smelter and all power for the Portland smelter. Using a formula, the parties determine the power prices based on the price of aluminum. Negotiations have been finalized to permit power interuptibility at both Point Henry and Portland that will contribute to accommodating peak demands in the power grid serving the State of Victoria. Brazil The Alumar smelter at Sao Luis, Brazil has an annual capacity of 365,000 mt. Based on the cost-sharing and production-sharing structure, Aluminio receives about 54% of the production from this smelter. The alumina requirements for its share of the smelter production are supplied from Aluminio's share of the nearby refinery. Aluminio purchases electric power from Central Eletricas de Minas Gerais S.A. (CEMIG), the governmentcontrolled electric utility, at a small discount from the applicable industrial tariff price. There is a protective cap on the price of the electric power based on the London Metal Exchange (LME) aluminum price. In February 1999, Aluminio and CEMIG entered into a new power purchase agreement. Similar to the previous agreement, Aluminio purchased the plant's anticipated full power requirements for 38- months, beginning April 1999, through a single payment based on the price of energy on the date of the agreement. 7 Aluminio participates in a consortium that is building the new Machadinho hydroelectric power plant in Southern Brazil. In early 1998, after all of the necessary environmental and other approvals had been obtained, the consortium began construction of the dam and related facilities. At the end of 1999, over 40% of the project was completed. Aluminio will share in the output of the plant beginning in 2002. Aluminio expects its share to be sufficient to supply approximately one-half of the power requirements for the Pocos de Caldas smelter. Europe The Company's aluminum smelters at Portovesme and .Fusina, Italy have a combined annual capacity of 187,000 mt. The owners of the Eurallumina refinery, located on the island of Sardinia adjacent to the Portovesme smelter, supply approximately 40% of the alumina for the smelters under an evergreen agreement. The balance of the alumina requirements for the smelters is supplied by AWA. ENEL, Italy's state-owned utility, supplies power for these smelters. The Company also operates smelters at San Ciprian, La Coruna and Aviles, Spain, with a combined annual capacity of 360,000 mt. The San Ciprian refinery supplies alumina, and the government-controlled power grid currently supplies electric power at the lowest applicable industrial tariff rate. The Company reports equity earnings from its interest in two smelters in Norway. Elkem Aluminium ANS, 50%-owned by an Alcoa subsidiary, is a http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 10 of 38 partnership that owns and operates the smelters. North America In May 1999, the Company filed with the Federal Energy Regulatory Commission, and the states of New York and North Carolina, indicating its intent to combine five of its wholly-owned utility subsidiaries, Yadin, Inc., Tapoco, Inc., Alcoa Generating Corporation, Long Sault, Inc. and Colockum Transmission Company into a single entity, to be called Alcoa , .Power Generating Inc. (APGI). The mergers into APGI were effective January 1 2000 The Company generates approximately 35% of the power requirements for its 11 North American smelters and generally purchases the remainder under long-term contracts. Alcoa obtains approximately 12% of the self-generated power from its entitlement to a fixed percentage of the output from Chelan County Public Utility District's Rocky Reach hydroelectric power facility located in the State of Washington. In addition, Alcoa has a contract with the Bonneville Power Administration (BPA) that services the Wenatchee, Washington smelter. Several contractual provisions allow power supply restrictions when power is in short supply. Beginning in 1995, power purchased from a local public utility district replaced a portion of the power supplied under the BPA contract. The Wenatchee facility currently uses no power from BPA, but instead purchases its additional power needs from the local public utility district. The Company has generated substantially all of the power used at its Warrick, Indiana smelter using nearby coal reserves. A 1996 coal supply contract satisfies 40% of the smelter's fuel requirements through 2006. Low-sulfur coal contracts satisfied an additional 35% of the requirement through 1999. Short-term contracts of less than two years satisfy the remainder of the fuel requirements. The Rockdale, Texas smelter uses lignite to generate power. Company-owned generating units supply about one-half of the total requirements. Texas Utilities Company supplies the balance through a long-term power contract expiring in 2013. 8 APGI owns and operates hydroelectric facilities under Federal Energy Regulatory Commission licenses. These facilities provide electric power for the aluminum smelters at Alcoa, Tennessee and Badin, North Carolina. The Tennessee smelter also purchases firm and interruptible power from the Tennessee Valley Authority under a contract recently extended to 2010. In mid-1999, APGI entered into a power sales contract with Carolina Power & Light Company (CP&L), under which APGI sells the capacity and energy produced at its hydroelectric units to CP&L and, in return, CP&L supplies the power requirements of the Badin plant. This arrangement continues through the end of August 2000. The purchased power (primarily hydroelectric) contract for the Massena, New York smelter expires not earlier than 2003. Alcoa, however, may terminate this contract with one year's notice. The Lauralco smelter located in Deschambault, Quebec purchases electricity under a long-term contract that expires in 2014, subject to certain extension provisions. The power rates are linked to the prevailing price of http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 11 of 38 aluminum. Alcoa also has ownership interests in the following smelters: Intalco, located in Ferndale, Washington (61.00%); Eastalco, located in Frederick, Maryland (61.00%); Mt. Holly, located in Goose Creek, South Carolina (50.33%); and Becancour, located in Becancour, Quebec (24.95%). A Japanese consortium, led by a subsidiary of Mitsui & Co. Ltd., owns an aggregate 39% interest in each of the Intalco and Eastalco facilities. Subsidiaries of Century Aluminum Company, a publicly traded domestic corporation, and Sudelektra Holding, AG, a Swiss corporation, together own 49.67% of Mt. Holly. On February 7, 2000, Century Aluminum Company announced that it had reached agreement in principle to acquire Sudelektra Holding's 23% interest in Mt. Holly. The transaction is expected to be completed by the end of the first quarter of 2000. Subsidiaries of Reynolds own an aggregate 50% interest, and a subsidiary of Pechiney owns a 25.05% interest in Becancour and operates the smelter. Intalco, Eastalco, Mt. Holly, and Becancour are all cost-sharing and production-sharing joint ventures. Intalco, Eastalco, Mt. Holly, and Becancour purchase electricity under long-term contracts that expire in the years 2001, 2003, 2005 and 2014, respectively, subject to certain extension provisions. Except for Intalco, each facility's contract is with a single supplier. The power rate for all of the electricity supplied to the Becancour facility is linked to the prevailing price of aluminum. In late 1995, Intalco entered into a series of new long-term power contracts with the BPA and British Columbia Power Exchange Corporation to provide all of its electricity needs from September 1996 through 2001. Under these contracts, Intalco's power costs are no longer linked to the price of aluminum but are set at a fixed rate. Mt. Holly entered into a new electric power supply agreement in 1997, while Eastalco amended its existing power supply agreement during the same year. For the foreseeable future, these contracts are expected to meet the power requirements of these facilities. In addition, Alcoa produces and markets aluminum paste, particles, flakes and atomized powder. The Company also produces high-purity aluminum. Suriname In March 1999, Alcoa shut down its 30,000 mt per year smelter in Paranam, Suriname. III. Flat-Rolled Products Alcoa's flat-rolled products serve three principal markets: packaging, transportation and building and construction. Light gauge sheet products, mainly rigid container sheet and foil, serve the packaging market, and mill products (sheet and plate) serve the other markets. Alcoa employs its own sales force for most flat-rolled products. 9 http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 12 of 38 Rigid Container Sheet (RCS) RCS accounted for most of the 1999 revenues in the packaging market. Can companies purchase RCS for production of beverage and food cans and can ends . The number of RCS customers in the U.S. is relatively small. Use of aluminum beverage cans continues to increase by approximately 3% annually worldwide. Aluminum's diverse characteristics, particularly its light weight, recyclability and flexibility for package designs, are significant factors in packaging markets. Aluminum competes with materials such as steel, plastic and glass in these markets. Alcoa maintains leadership in the packaging markets by improving processes and facilities. Alcoa also provides marketing, research and technical support to its customers. Alcoa produces RCS at the following locations: o Warrick, Indiana o Alcoa, Tennessee o Point Henry and Yennora, Australia (joint venture facilities) o Moka, Japan (joint venture facility) and o Swansea, U.K. Kaal Australia Pty., Ltd., 50%-owned by Alcoa, owns and operates the former AWA - Australia rolling mill at Point Henry and the former Comalco Limited rolling mill at Yennora. These mills produce RCS for the Australian and Asian markets. AWA - Australia supplies Kaal Australia with aluminum ingot. A subsidiary of Alcoa participates in a 50/50 joint venture with Kobe Steel, Ltd. that produces RCS for markets in Japan and other Asian countries. In connection with this venture, Alcoa has a long-term contract to supply metal to Kobe Steel. Used aluminum beverage cans are an important source of metal for RCS. Recycling aluminum conserves raw materials, reduces litter and saves energy -- about 95% of the energy needed to produce aluminum from bauxite. In addition, recycling capacity costs much less than new primary aluminum capacity. The Company has can recycling or remelt facilities at or near its plants in: o Warrick, Indiana o Alcoa, Tennessee and o Yennora, Australia. Foil Alcoa's Lebanon, Pennsylvania facility produces industrial foil, laminated foil and brazing sheet. The building and construction, packaging and automotive markets use these products. Continuous casting facilities in Hawesville, Kentucky and Badin, North Carolina produce reroll stock in support of the Lebanon facility. The Company also owns and operates an additional casting facility in St. Louis, Missouri. Foil products from this facility are sold primarily to commercial users in the flexible packaging, converter, food service and pharmaceutical industries. Alcoa also owns and operates a facility in Russellville, Arkansas. The Russellville plant, which is supported by the casting facility in St. Louis, produces foodservice and converter foil products. Aluminio, near Recife, Brazil, manufactures light gauge sheet, foil products and laminated evaporator panels. The Yennora, Australia plant also produces light gauge sheet. In addition, the facilities at Alicante and Sabinanigo, Spain produce foil products. Alcoa and Shanghai Aluminum Fabrication Plant (SAFP) have a joint venture, owned 60% by Alcoa and 40% by SAFP, that operates the former SAFP aluminum foil production facility in Shanghai, China. With ' http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 13 of 38 10 the addition of a second caster in April 1998, the annual output of the joint venture facility is now over 15,000 mt. The Company owns a 56% interest in a foil mill in Kunming, Yunnan, China. In August 1999, Alcoa and Kibar Holding Co. of Turkey signed a letter of intent to form a strategic alliance with Kibar's Turkish aluminum business. Kibar's aluminum business, known as Assan Aluminyum, is the leading rolled products business in Turkey. In November 1999, Alcoa purchased substantially all the assets of Golden Aluminum Company, a subsidiary of ACX Technologies, Inc. Golden Aluminum's operations include a shuttered rolling facility in San Antonio, Texas and a rolling facility in Ft. Lupton, Colorado. Alcoa will retain the San Antonio plant for development work and non-can sheet production. In January 2000, Alcoa sold the Ft. Lupton facility to Quanex Corporation. Mill Products Alcoa produces sheet and plate products that are used in the following markets: o aerospace o auto and truck o lithographic o railroad o shipbuilding o building and construction o defense and o other industrial and consumer markets. The Company maintains its own sales force for most of the sheet and plate products. Differentiation of material properties, price and service are significant competitive factors in these markets. Aluminum's diverse characteristics are important in markets where competitive materials include steel and plastics for automotive and building applications; magnesium, titanium, composites and plastics for aerospace and defense applications; and wood and vinyl in building and construction applications. Alcoa continues to develop alloys and products for aerospace and defense applications, such as those developed for the Boeing 777 aircraft, the Lockheed F-16 aircraft, the Canadair aircraft, the Advanced Amphibious Assault Vehicle and the Airbus A340-600 aircraft. Davenport, Iowa is home to Alcoa's largest sheet and plate plant. The plant produces products requiring special alloying, heat-treating and other processing. Some of these products are unique and proprietary. Over the past two years, the Davenport plant's heat-treating capacity for sheet and plate was increased to meet aerospace and automotive demand. Alcoa also commissioned the largest vertical heat-treat furnace in North America, thus tripling the plant's capacity for wide-width fuselage sheet. A horizontal plate heat-treating furnace, which was installed in 1997, has increased the plant's capacity by 30%. Alcoa has a plant in Hutchinson, Kansas for further processing and just-intime stocking of aluminum sheet products for the U.S. aerospace market. Alcoa serves European sheet and plate markets through a distribution center in Paal, Belgium. Alcoa has a plant in Danville, Illinois for further processing and just-intime stocking of aluminum sheet products for the North American automotive http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 14 of 38 market. This facility began to operate in 1998 and became fully operational during the second half of 1999. 11 The Company also has plants in Lancaster, Pennsylvania and Texarkana, Texas that produce sheet and plate, and semi-fabricated products, circles and blanks. The Lancaster facility also produces semi-fabricated cast aluminum plate, engineered to meet highly specialized industrial applications. The Texarkana mill is a leased facility. The five-year operating lease for the facility expires in November 2002, but is renewable for up to two additional years. Alcoa's Memory Products business in Sidney, Ohio was closed in 1999 as the memory disk market and customer base declined. Alcoa's Brite Products business in Norcross, Georgia was closed in 1999. Alcoa and Kobe Steel have a joint venture consisting of one company in the U.S. and one in Japan. The focus of these ventures is to expand the use of aluminum sheet products in passenger cars and light trucks. As a result of a restructuring of the venture in January 2000, the U.S. company will focus on research and development efforts, while the Japanese company will continue to engage in commercial (manufacturing, marketing and sales) as well as research and development efforts, to serve the transportation industry. The Company's Hungarian subsidiary, Alcoa-Kofem Kft (Kofem), produces common alloy flat and coiled sheet as well as soft alloy extrusions for the building, construction, food, transportation and agricultural markets in central and western Europe. Kofem delivers aluminum truck bodies to major beverage companies in Europe and the Middle East. The Company's Alcoa Italia S.p.A. subsidiary produces industrial plate and common alloy flat and coiled sheet for the building and construction, transportation and other industrial markets in Europe at its Fusina, Italy rolling mill. Alcoa has rolling mills at Amorebieta, Alicante and Sabinanigo, Spain. These mills produce common alloy flat and coiled sheet for the building and construction, and transportation markets, lithographic sheet and coil, bright products for lighting, cosmetic and industrial uses and foil products for food, pharmaceutical and industrial applications in Europe. In April 1999, Alcoa completed the acquisition of the bright products business of Pechiney's Rhenalu rolling plant located at Castelsarrasin near Toulouse, France. In August 1999, Alcoa, the Holding Company for Metallurgical Industries and the Egypt Aluminum Company (Egyptalum) signed a memorandum of understanding relating to the formation of a strategic alliance between Alcoa and Egyptalum. Egyptalum is the largest aluminum company in Egypt, with substantial assets in smelting and rolled products. IV. Engineered Products Engineered products include aluminum extrusions, forgings, castings and wire, rod and bar. http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 15 of 38 Extrusions The North American extrusion business is comprised of Alcoa Engineered Products and Alcoa Extruded Construction Products. 12 Alcoa Engineered Products has nine operating locations: o Baltimore, Maryland - hard alloy extrusions o Catawba, North Carolina - specialized extrusions o Chandler, Arizona - hard alloy extrusions, tube and forge stock o Cressona, Pennsylvania - industrial and distribution common alloy extrusions o Elizabethton, Tennessee - industrial and distribution common alloy extrusions o Lafayette, Indiana - hard alloy extrusions and tube o Massena, New York - cast rod, mechanical-grade redraw rod, wire and coldfinished rod and bar extrusions o Morris, Illinois - industrial and distribution common alloy extrusions o Spanish Fork, Utah - industrial and distribution common alloy extrusions These facilities are supported by sales and administration centers in Illinois, Indiana and Pennsylvania. Extruded aluminum products from these operations are sold to original equipment manufacturers in aerospace/defense, automotive, commercial transportation, machinery, electrical, recreation, consumer durables and other industrial markets and to distributors who service these markets. Alcoa Extruded Construction Products has nine operating locations: Arkansas, Florida, Georgia (2), Ohio, Louisiana, Mississippi, South Dakota and an international operation in Monterrey, Mexico. These facilities manufacture and sell soft-alloy extruded products. Representative products include window and door frames, bath and shower enclosures, patio and pool enclosures, stadium seating, light poles and flag poles, and colored architectural shapes. Alcoa Extruded Construction Products' shower and bath enclosures are distributed through service centers in California,. Florida, Georgia, Iowa, North Carolina, Pennsylvania, Texas and Washington, as well as through independent distributors. The Mexican operation consists of a two-press extrusion plant in Monterrey. All plants and facilities are owned by the Company, except for the plant located in Monterrey and the service centers, which are leased. The Company closed its extrusion facility in West Chicago, Illinois in April 1999. In January 2000, Alcoa purchased Excel Extrusions, Inc., a subsidiary of Noranda Aluminum, Inc., located in Warren, Ohio. The facility produces soft-alloy aluminum extrusions that are used primarily in the building and construction markets. A subsidiary in Argentina and Aluminio manufacture aluminum extruded products. Aluminio operates five plants in Brazil, with a total of fifteen extrusion presses. Alcoa Extrusions Hannover GmbH S Co. KG produces and markets high-strength aluminum extrusions and rod and bar to serve European transportation and defense markets. The subsidiaries of Alcoa Europe Holding B.V., formerly Alcoa Nederland Holding B.V., produce extrusions, common alloy sheet products and a variety http://www.l0kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 16 of 38 of finished products for the building industry, such as aluminum windows, doors and aluminum ceiling systems. These companies also manufacture products for agricultural applications, such as automated greenhouse systems. Alcoa Italia S.p.A. produces and markets industrial extrusions through plants in Bolzano, Fossanova, Feltre and Iglesias, Italy. Also part of Alcoa Italia S.p.A. is an extrusion die shop located in Mori, Italy. The Company owns and operates extrusion plants in Vails, Noblejas and La Coruna, Spain. Alcoa also has extrusion plants in Hungary and the United Kingdom. In March 1999, Alcoa completed its acquisition of Reynolds' aluminum extrusion plant in Irurzun, Spain as well as its distribution operation for architectural systems, which has warehouses in several cities in Spain. 13 Kawneer Company, Inc. (Kawneer) designs, manufactures and markets architectural aluminum products and is a leading producer of these products in the U.S. and Canada. These products include entrances, windows, framing and curtain wall systems for the commercial building markets. Kawneer products also are engineered for use on construction projects throughout the world. Kawneer operates five integrated architectural plants, 17 service centers and one additional manufacturing location in the U.S. Distribution is principally through dealers, most of whom are glazing contractors. Kawneer also operates two integrated architectural plants in Canada that provide most of the product that is sold for large overseas projects, as well as two service centers. Aluraax Europe N.V. manages Kawneer Europe's operations in the United Kingdom, France, Germany and Poland. It also participates in a joint venture in Morocco. Three manufacturing plants located in France, England and Germany, two of which are owned and one of which is leased, provide architectural aluminum products similar to those produced by Kawneer operations in the U.S. These products are marketed under the Kawneer Europe name throughout Europe. Kawneer Europe's subsidiaries also operate service centers in France, Poland and Morocco. Other former operations of Alumax Europe, which included custom extrusion plants in the United Kingdom and the Netherlands, and an aluminum recycling facility in the Netherlands that produces soft-alloy extrusion billet, have been integrated operationally into Alcoa Europe Extrusion and End Products Business Unit. Forgings and Castings The Company's plant in Cleveland, Ohio produces aluminum forgings, sold principally in the aerospace, automotive, commercial transportation and defense markets. The Cleveland plant, along with the Company's facility in Barberton, Ohio, also produces aluminum forged wheels for passenger automobiles, sport utility vehicles and light trucks and wheels for the bus and Class 8 heavy-duty truck industry. Alcoa's plant in Szekesfehervar, Hungary manufactures forged aluminum truck wheels for the European market. The plant also manufactures wheels for http://www.l0kwizard.com/fil_submis.asp?uid=35979862&iacc=1116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 17 of 38 export to Asian, South American and other geographic markets that use European-style wheels. Aluminio plans to build a 72,000-unit-per-year aluminum wheel plant in the state of Pernambuco, Brazil. The new plant initially will operate by finishing Alcoa wheels imported in unfinished form. V. Other This category includes the production and sale of high performance body structures for cars, electrical, plastic and composite materials products, manufacturing and packaging equipment, magnesium products and steel and titanium forgings. Alcoa Automotive In 1999, Alcoa refocused its Automotive Structures business unit. The Company formed two new businesses, Alcoa Automotive Castings (which includes a Finished Extruded Components unit) and Alcoa Automotive Engineering. Alcoa Automotive Castings offers high-quality, structural castings and formed and machined extrusions, while Alcoa Automotive Engineering provides design, engineering, prototyping and cost analysis aluminum structures, assemblies and components. for 14 The manufacturing plant in Soest, Germany became part of the Alcoa Automotive Castings business. Alcoa produces the components and selected sub-assemblies for the Audi A8 spaceframe, the result of a cooperative effort between the two companies that began in 1981. The Soest plant also produces the front end module for the new Mercedes-Benz A Class car. Alcoa Automotive Castings's Modena, Italy facility assembles spaceframes for the Ferrari 360 Modena, which was introduced in 1999 to favorable automotive industry reviews. In August 1999, Alcoa acquired almost all of the remaining 50% interest in the A-CMI partnership from Hayes Lemmerz International, Inc. A-CMI was a joint venture formed in 1995 between Alcoa and CMI International, Inc. to produce cast aluminum products for the automotive industry. Hayes Lemmerz purchased CMI International, Inc. in February 1999. A-CMI, now part of Alcoa Automotive Castings, has plants located in Fruitport, Michigan, Hawesville, Kentucky and Lista, Norway. The Lista plant is located near the 50%-owned Elkem Aluminium ANS smelter, which delivers molten aluminum to the plant. Current Automotive Castings customers include DaimlerChrysler, Ford, Volvo, BMW and General Motors. Alcoa also designs and builds specialized die-casting machines through a subsidiary in Montreal, Canada. Alcoa's plant in Northwood, Ohio manufactures DaimlerChrysler's Plymouth Prowler frame and a variety of aluminum structural assemblies for the U.S. automotive industry, including the Corvette windshield surround. Alcoa is working with several other automobile manufacturers in North America and Japan to develop new automotive applications for aluminum products. http://www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 18 of 38 Alcoa Automotive Engineering includes the design and engineering offices Esslingen (Stuttgart), Germany, Southfield (Detroit), Michigan and Alcoa Technical Center, near Pittsburgh, Pennsylvania. The Company designs aluminum auto body structures for a variety of car manufacturers and for Tier 1 suppliers to the automotive industry at these locations. in Alumax Engineered Metal Processes, Inc. (AEMP) produced automotive components with operations in Jackson, Tennessee and Bentonville, Arkansas using a semi-solid forging process. In May 1999, Alcoa completed the sale of the Jackson, Tennessee facility to the management of AEMP. In addition, Alcoa closed the Bentonville, Arkansas plant. Alcoa Fujikura Ltd. (AFL) AFL produces and markets electronic and electrical distribution systems (EDS) for the automotive industry, as well as fiber optic products and systems for selected electric utilities, telecommunications, cable television and datacom markets. AFL supplies EDS to: o Ford o Subaru o PACCAR o Audi and o Volkswagen. AFL owns Michels GmbH & Co. K.G. (Michels), a European manufacturer of EDS for automobiles. AFL also owns the Stribel group of companies, European manufacturers of electromechanical and electronic components for the European automotive market. The European facilities are located in Germany, Hungary, Ireland and the United Kingdom. 15 AFL and Aluminio have a joint venture, AFL do Brasil Ltda., that manufactures and sells EDS in Brazil. AFL also has' an EDS manufacturing facility in Venezuela. Significant competitive factors in the EDS markets include price, quality and full service supplier capability, as automakers increasingly require support from selected suppliers on a global basis. Six "R" Communications, L.L.C., part of AFL's telecommunications division, is a Monroe, North Carolina-based provider of EF&I services (engineer, furnish and install) to the telecom, CATV and eledtric utility industries. EF&I subsidiaries of Six "R" Communications include T.I.C.S. Corporation in Charlotte, North Carolina; MinTel Communications, L.L.C. in Norcross, Georgia; and Quality Control Services, L.L.C. in Richmond, Virginia. In October 1999, AFL's telecommunications division acquired 55% of the stock of Tele-Tech Company, Inc., in Lexington, Kentucky and 55% of the stock of Digisys Corp. in Alpharetta, Georgia. Both companies are providers of EF&I services nationally to the telecom industry and cabling contracting services for LAN and computer network installations. In February 2000, AFL's telecommunications division acquired privately held Noyes Fiber Systems, Inc., headquartered in Belmont, New Hampshire. Noyes Fiber Systems is a manufacturer of fiber optic test equipment for measuring, maintaining and documenting the performance of fiber optic networks. Packaging and Closures http ://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 1 Ok Wizard: View Filings Page 19 of 38 Alcoa Closure Systems International, Inc. (ACSI), the world's largest producer of plastic closures, manages all of Alcoa's worldwide closures businesses other than in South America. ACSI coordinates its business from Indianapolis, Indiana. The Company's South American closures business and PET (polyethylene terephthalate) plastic bottles manufacturing facilities are managed separately by Aluminio from Sao Paulo, Brazil. The use of plastic closures has surpassed that of aluminum closures for beverage containers in the U.S. and in many other countries. Alcoa has plastic closure, PET plastic bottle, closure molding equipment and packaging equipment design and assembly facilities at the following locations: Packaging and Closures Facilities: o Barcelona, Spain o Barueri, Itapissuma, Lages and Queimados, Brazil o Bogota, Colombia o Buenos Aires, Argentina o Crawfordsville, Indiana o Englewood, Colorado o Ensenada and Saltillo, Mexico o Lima, Peru o Lyubuchany, Russia o Manama, Bahrain o Manila, the Philippines o Nogi, Japan o Olive Branch, Mississippi o Randolph, New York o San Jose, Costa Rica o Santiago, Chile o Sidney, Ohio o Szekesfehervar, Hungary 16 o Tianjin, China and o Worms and Viernheim, Germany. The Alcoa Packaging Equipment business unit designs, manufactures and services: o can forming equipment o can decoration equipment o registered embossers o end conversion presses o a variety of testing equipment for the can-making industry o plastic and aluminum closure handling, orientation, inspection and capping equipment for the food and beverage industry and o specialty aluminum components for the semiconductor equipment industry. Other Aluminum Products Aluminio and Phelps Dodge Corporation have a joint venture that produces aluminum electric cable and copper wiring and cables in Brazil. The venture, Phelps Dodge & Alcoa Fios e Cabos Eletricos S.A., is owned 60% by Phelps Dodge and 40% by Aluminio. Production takes place at the venture's plant in Pocos de Caldas. Alcoa Building Products, Inc. (ABP) manufactures and markets residential aluminum siding and other aluminum building products. ABP sells these products principally to specialty distributors. ASCI produces aluminum closures for bottles at Worms, Germany, Nogi, Japan and Barcelona, Spain. In early 1999, the Company sold the assets subject to certain liabilities of Capsulas Metalicas, S.A., its metal beverage closures business in Barcelona, Spain, to Alucapvit, S.p.A. Alcoa also owns a 36% interest in American Trim, L.L.C., a joint venture that manufactures primarily auto parts and appliance control panels. Other Nonaluminum Products ABP produces vinyl siding and accessories and other nonaluminum building products for the residential building and construction markets. http ://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 20 of 38 Northwest Alloys, Inc., in Addy, Washington, produ'ces magnesium from minerals in the area owned by the Company. Alcoa uses the magnesium for certain aluminum alloys and also sells it to third parties. Aluminio owns 40% and affiliates of Alcatel of France own 60% of a joint venture, called Alcatel Cabos Brazil. The venture manufactures, in Brazil, and sells telecommunication cables and related accessories in South America. The Alcoa facility at Cleveland, Ohio produces large press steel, titanium and special super-alloy forgings. Aerospace and commercial customers are the principal purchasers of these products. Competition The markets for most aluminum products are highly competitive. Price, quality and service are the principal competitive factors in most of these markets. Where aluminum products compete with other materials, the diverse characteristics of aluminum are also a significant factor, particularly its light weight and recyclability. 17 The aluminum industry is highly cyclical, and the LME-based prices of primary aluminum influence the Company's results of operations. This price sensitivity impacts a portion of the Company's alumina sales and many of the Company's aluminum products. There is, however, less impact on the more specialized and value-added products. The Company continues to examine all aspects of its operations and activities and redesign them where necessary to enhance effectiveness and achieve cost reductions. Alcoa believes that it enhances its competitive position through its improved processes, extensive facilities and willingness and ability to commit capital where necessary to meet growth in important markets, and by the capability of its employees. This is being done through aggressive implementation of the Alcoa Business System (ABS) that encompasses the entire value chain, including manufacturing and supporting business processes. Research and development has led to improved product quality and production techniques, new product development and cost control. ABS is based upon the complete integration of the Company's mission, vision and values with manufacturing and its business processes and measures in order to produce desired outcomes. The basic tenets of ABS are (1) making products for use (not inventory), and working only, on the needs of customers (external and internal) (2) doing away with waste everywhere and (3) recognizing that success can only be achieved through people. Alcoa has realized significant achievements to date through the implementation of ABS in its businesses, including: o reduction of waste o reduction in lead times o improvement in delivery performance o improvement in "throughput" and recovery o increases in productivity o reduction of inventory and backlogged orders o reduction in handling equipment and o emptying of factory floor space. Alcoa believes that ABS will in time substantially improve its profitability relative to its peers. In July 1998, Alcoa announced a $1.1 http://www. 1 Okwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 21 of 38 billion cost reduction initiative to be achieved by January 1, 2001. The Company intends to realize a significant portion of this reduction through ABS. At the end of 1999, the Company had achieved $728 million in annualized cost savings towards the $1.1 billion goal. Risk Factors In addition to the risks inherent in its operations, Alcoa is exposed to financial, market, political and economic risks. The following discussion, which provides additional detail regarding Alcoa's exposure to the risks of changing commodity prices, foreign exchange rates and interest rates, includes forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those projected in these forward-looking statements. Commodity Price Risks Alcoa is a leading global producer of aluminum ingot and aluminum fabricated products. As a condition of sale, customers often require Alcoa to commit to fixed-price contracts that sometimes extend a number of years into the future. Customers will likely require Alcoa to enter into similar arrangements in the future. These contracts expose Alcoa to the risk of fluctuating aluminum prices between the time the order is accepted and the time that the order ships. 18 In the U.S., Alcoa is net metal short and is subject to the risk of higher aluminum prices for the anticipated metal purchases required to fulfill the long-term customer contracts noted above. To hedge this risk, Alcoa enters into long positions, principally using futures and options. Alcoa follows a stable pattern of purchasing metal; therefore, it is highly likely that anticipated metal requirements will be met. At December 31, 1999 and 1998, these contracts totaled approximately 465,000 mt and 933,000 mt, respectively. These contracts act to fix the purchase price for these metal purchase requirements, thereby reducing Alcoa's risk to rising metal prices. A hypothetical 10% change from the 1999 year-end, three-month LME aluminum ingot price of $1,650 per mt would result in a pretax gain or loss to future earnings of $77 million related to all of the futures and options contracts noted above. However, it should be noted that any change in the value of these contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying metal purchase transactions. Earnings were selected as the measure of sensitivity due to the historical relationship between aluminum ingot prices and Alcoa's earnings. The hypothetical change of 10% was calculated using a parallel shift in the existing December 31, 1999 forward price curve for aluminum ingot. The price curve takes into account the time value of money, as well as future expectations regarding the price of aluminum ingot. The futures and options contracts noted above are with creditworthy counterparties and are further supported by cash, treasury bills or irrevocable letters of credit issued by carefully chosen banks. The expiration dates of the options and the delivery dates of the futures http://www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 I0.k Wizard: View Filings Page 22 of 38 contracts noted above do not always coincide exactly with the dates on which Alcoa is required to purchase metal to meet its contractual commitments with customers. Accordingly, some of the futures and options positions will be rolled forward. This may result in significant 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. Alcoa also had 21,000 mt and 29,000 mt of futures and options contracts outstanding at year-end 1999 and 1998, respectively, that cover long-term, fixed-price commitments to supply customers with metal from internal sources. Accounting convention requires that these contracts be marked to market, which resulted in after-tax gains of $12 million in 1999 and charges of $45 million in 1998 and $13 million in 1997. A hypothetical 10% change in aluminum ingot prices from the year-end 1999 level of $1,650 per mt would result in a pretax gain or loss of $3 million related to these positions. The hypothetical gain or loss was calculated using the same model and assumptions noted earlier. Alcoa sells products to various third parties at prices that are influenced by changes in LME aluminum prices. From time to time, the Company may elect to hedge a portion of these exposures to reduce the risk of fluctuating market prices on these sales. Towards this end, Alcoa may enter into short positions using futures and options contracts. At December 31, 1999, these contracts totaled 244,000 mt. These contracts act to fix a portion of the sales price related to these sales contracts. A hypothetical 10% change in aluminum ingot prices from the year-end 1999 level of $1,650 per mt would result in a pretax gain or loss of $29 million related to these positions. The hypothetical gain or loss was calculated using the same model and assumptions noted earlier. Alcoa also purchases certain other commodities, such as fuel oil, natural gas and copper, for its operations and enters into futures and options contracts to eliminate volatility in the prices of such products. None of these contracts are material. For additional information on financial instruments, see Notes A and T to the financial statements. 19 Foreign Exchange Risks Alcoa is subject to significant exposure from fluctuations in foreign currencies. As a matter of company policy, foreign currency exchange contracts, including forwards and options, are sometimes used to limit the risk of fluctuating exchange rates. A hypothetical 10% change in applicable 1999 year-end forward rates would result in a pretax gain or loss of approximately $169 million related to these positions. However, it should be noted that any change in the value of these contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged item. The model assumes a parallel shift in the forward curve for the applicable currencies and includes the foreign currency impacts of Alcoa's cross-currency interest rate swaps. See Notes A and T for information related to the accounting policies and fair market values of Alcoa's foreign exchange contracts at December 31, 1999 and 1998. Interest Rate Risks Alcoa attempts to maintain a reasonable balance between fixed- and floating-rate debt and uses interest rate swaps and caps to keep financing http.V/www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 23 of 3 8 costs as low as possible. At December 31, 1999 and 1998, Alcoa had $3,067 million and $3,489 million of debt outstanding at effective interest rates of 5.8% and 6.1%, respectively, after the impact of interest rate swaps and caps is taken into account. A hypothetical change of 10% in Alcoa's effective interest rate from year-end 1999 levels would increase or decrease interest expense by $20 million. The interest rate effect of Alcoa's cross-currency interest rate swaps has been included in this analysis. For more information related to Alcoa's use of interest rate instruments, see Notes A and T. Risk Management All of the aluminum and other commodity contracts, as well as the various types of financial instruments, are straightforward and are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility, and principally cover underlying exposures. Alcoa's commodity and derivative activities are subject to the management, direction and control of the Strategic Risk Management Committee (SRMC). SRMC is composed of the chief executive officer, the chief financial officer and other officers and employees that the chief executive officer may select from time to time. SRMC reports to the board of directors at each of its scheduled meetings on the scope of its derivative activities. Material Limitations The disclosures, with respect to aluminum prices and foreign exchange risk, do not take into account the underlying anticipated purchase obligations and the underlying transactional foreign exchange exposures. If the underlying items were included in the analysis, the gains or losses on the futures and options contracts may be offset. Actual results will be determined by a number of factors that are not under Alcoa's control and could vary significantly from those disclosed. Year 2000 Issue Alcoa, like other businesses, made substantial preparations for the Year 2000 issue. The Year 2000 issue arose from the past practice of utilizing two digits (as opposed to four) to represent the year in some computer programs and software. If uncorrected, this could have resulted in computational errors as dates are compared across the century boundary. The vast majority of the products produced and sold by Alcoa are unaffected by Year 2000 issues in use or operation since they contain no microprocessors. 20 Based on information available to date, Alcoa has not experienced any significant events attributable to Year 2000 issues. The Company will continue to monitor for potential issues at Alcoa,' its customers and suppliers, in order to permit a rapid response should any issues arise. Alcoa believes that if any Year 2000 issues were to arise, they would not have a significant impact on its operations and would most likely be isolated, short-term events. Alcoa's Year 2000 program provided a focused effort across all of the Company's locations that: o identified, assessed, remediated and tested 26,2'32 Alcoa systems and http://www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undeflned 8/28/2000 lQk Wizard: View Filings Page 24 of 38 components; o formally assessed 3,399 critical and important suppliers; o conducted 202 formal on-site program verification reviews; o provided Year 2000 readiness information to 2,802 separate customers and o updated and completed 1,890 contingency plans. In 1999 and 1998, Alcoa incurred $38 million each year of direct costs in connection with its Year 2000 program. These costs include external consulting costs and the cost of hardware and software replaced as a result of Year 2000 issues. Alcoa does not expect to incur significant direct costs related to the Year 2000 issue during the current year. Employees Alcoa had approximately 107,700 employees worldwide at year-end 1999. Alcoa and its unions ratified six-year labor agreements covering the majority of Alcoa's U.S. production workers in mid-1996. As part of the agreements, Alcoa and the unions agreed to an unprecedented partnership mandating that they work cooperatively on customer requirements, business objectives and shareholder and union interests. The agreements set broad goals for employee safety, job security, and influence, control and accountability for the work environment. Other major provisions include wage increases over the first five years, enhanced pension benefits, increases in sickness and accident insurance, life insurance and dental benefits and the amount of income a spouse may earn before sharing medical benefit costs. The agreements have five years of defined provisions. At the end of the fifth year, Alcoa and the unions will reopen the entire contract. If the parties cannot reach agreement, they will submit the economic provisions to arbitration. Agreements negotiated under guidelines established by a national industrial relations authority cover wages for AWA - Australia employees. Aluminio negotiates wages for both hourly and salaried employees annually in compliance with government guidelines. Each Aluminio location, however, has a separate compensation package for its employees. Research and Development Alcoa, a technology leader in the aluminum industry, engages in research and development programs that include process and product development, and basic and applied research. Alcoa conducts these activities within its business units and at Alcoa Technical Center. Expenditures for R&D activities were $128 million in 1999, $128 million in 1998 and $143 million in 1997. The Company funds substantially all RSD expenses. 21 http.V/www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 IQk Wizard: View Filings Page 25 of 38 Each of the major process/product areas within the Company has a Technology Management Review Board (TMRB), consisting of members from various worldwide locations. The TMRB is responsible for formulating and communicating a technology strategy for its particular process/product area, developing and managing the technology portfolio and ensuring the global transfer of technology. Environmental Alcoa's Environment, Health and Safety Policy confirms its commitment to operate worldwide in a manner that protects the environment and the health and safety of employees and of the citizens of the communities where the Company operates. Alcoa continues its efforts to develop and implement modern technology, and standards and procedures, to meet its Environment, Health and Safety goals. The Company spent approximately $90 million during 1999 for new or expanded facilities for environmental control. Capital expenditures for such facilities will approximate $99 million in 2000. These figures do not include the costs of operating these facilities. Remediation expenses are continuing at many of the Company's facilities. See Note U on Environmental Matters in the Annual Report to Shareholders and "Item 3 -- Legal Proceedings" below. Alcoa's operations worldwide, like those of others in manufacturing industries, have in recent years become subject to increasingly stringent legislation and regulations intended to protect human health and safety, and the environment. The Company expects this trend to continue. Compliance with new laws, regulations or policies could require substantial expenditures by the Company in addition to those mentioned above. Alcoa supports the use of sound scientific research and realistic risk criteria to analyze environmental and human health and safety effects and to develop effective laws and regulations in all countries where it operates. The Company also relies on internal standards that it applies worldwide to ensure that its facilities operate with minimal adverse environmental, health and safety impacts, even where no regulatory requirements exist. Alcoa recognizes that recycling and pollution prevention offer real solutions to many environmental problems, and it continues vigorously to pursue efforts in these areas. Item 2. Properties. See "Item 1. Business." Alcoa believes that its facilities are suitable and adequate for its operations. Item 3. Legal Proceedings. In the ordinary course of its business, Alcoa is involved in a number of lawsuits and claims, both actual and potential, including some which it has asserted against others. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. It is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. Management believes, however, that the disposition of matters that are pending or asserted will not have a material adverse effect on the financial position of the Company. Environmental Matters http://www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 lQk Wizard: View Filings Page 26 of 38 Alcoa is involved in proceedings under the Superfund or analogous state provisions regarding the usage, disposal, storage or treatment of hazardous substances at a number of sites in the U.S, The Company has committed to participate, or is engaged in negotiations with Federal or state authorities relative to its alleged liability for participation, in clean up efforts at several such sites. 22 In response to a unilateral order issued under Section 106 of the Comprehensive Environmental Compensation and Liability Act of 1980 (CERCLA) by the U.S. Environmental Protection Agency (EPA) Region II regarding releases of hazardous substances, including polychlorinated biphenyls (PCBs), into the Grasse River near its Massena, New York facility, Alcoa has been conducting investigations and studies of the river under order from the EPA issued under CERCLA. In December 1999, the Company submitted an Analysis of Alternatives report to EPA. The report evaluates several alternative remedial approaches for the Grasse River. Representatives of various Federal and state agencies and a Native American tribe, acting in their capacities as trustees for natural resources, have asserted that Alcoa may be liable for loss or damage to such resources under Federal and state law based on Alcoa's operations at its Massena facility. While formal proceedings have not been instituted, the Company continues to actively investigate these claims. In March 1994, Alcoa and Region VI of the EPA entered into an administrative order on consent, EPA Docket No. 6-11-94, concerning the Alcoa (Pt. Comfort)/Lavaca Bay National Priorities List site that includes portions of Alcoa's Pt. Comfort, Texas bauxite refining operations and portions of Lavaca Bay, Texas, adjacent to the Company's plant. The administrative order requires the Company to conduct a remedial investigation and feasibility study under EPA oversight. Work under the administrative order is proceeding, including actions to fortify an offshore dredge disposal island that may include the removal of certain mercury-contaminated sediments adjacent to Alcoa's plant in and near routinely dredged navigation channels. As required by the order, the Company submitted a baseline risk assessment for the site. A Feasibility Study is anticipated to be filed in March 2000. The Company and certain Federal and state natural resource trustees, who previously served Alcoa with notice of their intent to file suit to recover damages for alleged loss or injury of natural resources in Lavaca Bay, have entered into several agreements to cooperatively identify restoration alternatives and approaches for Lavaca Bay. Efforts under those agreements are ongoing. In March 1997, Alcoa Italia S.p.A. received an order from Italian governmental authorities relating to several environmental deficiencies at its Fusina Plant. Alcoa Italia and the governmental authorities commenced discussions that resulted in a plan for sampling certain emission points. During 1998, Alcoa Italia sampled air emissions at the Fusina Plant. The results of the samples, which indicated that the emissions are within the authorized limits, were submitted to the Italian governmental authorities, who have formally notified Alcoa Italia that the emissions are satisfactory and that the order has been closed. On May 13, 1998, an action was filed in the Superior Court of Riverside County, California allegedly on behalf of more than 500 plaintiffs who currently live, or formerly lived, in the Glen Avon, California area, who claim to have suffered personal injuries, both physical and emotional, as http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 27 of 38 well as property damage, as a result of air and water contamination due to the escape of toxic wastes from the Stringfellow disposal site. The complaint, which names Alcoa, Alumax Inc. and more than 130 other companies as defendants, was served on Alcoa and Alumax in October 1998. Alcoa filed a motion in February 1999 stating that claims are barred by the statute of limitations. Amended pleadings were filed by the plaintiffs in August 1999, and demurrer motions are now pending before the court. In March 1998, Region V of the EPA referred various alleged environmental violations at Alcoa's Warrick Operations to the civil division of the U.S. Department of Justice (DOJ). The alleged violations stem from an April 1997 multi-media environmental inspection of Warrick Operations by the EPA relating to water permit exceedances as reported on monthly discharge monitoring reports, wastewater toxicity issues and alleged opacity violations. Alcoa and the DOJ entered into a series of tolling agreements to suspend the statute of limitations related to the alleged violations in this matter. The parties have reached final agreement on the language of a consent decree that will formalize settlement of this matter. The consent decree will be executed by the parties and lodged with the court during the first quarter of 2000. 23 In October 1998, Region V of the EPA referred various alleged environmental violations at Alcoa's Lafayette Operations to the civil division of the DOJ. The alleged violations relate to water permit exceedances as reported on monthly discharge monitoring reports. Alcoa and the DOJ entered into a tolling agreement to suspend the statute of limitations related to the alleged violations in order to facilitate settlement discussions with the DOJ and EPA. The parties have been unable to reach settlement on this matter. In June 1999, the DOJ and EPA filed a complaint against Alcoa in the United States District Court for the Northern District of Indiana. Alcoa filed a motion to dismiss and a motion to strike certain parts of the government's complaint requesting sediment remediation in August 1999. A discovery schedule had been entered into by the parties and this matter is scheduled for trial in January 2002. In March 1999, two search warrants were executed by various federal and state agencies on the Alcoa Port Allen works of Discovery Aluminas, Inc., a subsidiary, in Port Allen, Louisiana. Also in March, Discovery Aluminas, Inc. was served with a grand jury subpoena that required the production to a federal grand jury of certain company records relating to alleged environmental issues involving wastewater discharges and management of solid or hazardous wastes at the plant. In April 1999, the Port Allen plant manager was indicted for a single count of violating the Clean Water Act. The case has not been set for trial. In October 19.99, a second grand jury subpoena for documents was issued to Alcoa requesting information regarding wastewater discharges from a Port Allen plant. Alcoa has provided a complete and timely response to the subpoena. Alcoa also is engaged in discussions with the U.S. Attorney's office and the EPA seeking to resolve the situation. Other Matters Alcoa initiated a lawsuit in King County, Washington in December 1992 against nearly 100 insurance companies that provided insurance coverage for environmental property damage at Alcoa plant sites between the years 1956 and 1985. The trial for the first three sites concluded in October 1996 with a jury verdict partially in Alcoa's favor and an award of damages to Alcoa. In its post-trial decisions, the trial court substantially reduced http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=1.116089&p=undefLned 8/28/2000 10k Wizard: View Filings Page 28 of 3 8 the amount that Alcoa will be able to recover from its insurers on the three test sites. Alcoa appealed these rulings to the Washington Court of Appeals, which, upon completion of briefing, certified the appeal to the Washington Supreme Court. Oral argument was heard in January 2000. A decision by the court is expected by the third quarter 2000. In April 1997, German customs authorities conducted a search of the offices of Alcoa VAW Hannover Presswerk GmbH & Co. KG (Alcoa VAW) in Hannover, Germany, seeking materials relating to export transactions dating from 1992. In November 1997, German customs authorities reported 53 documentary customs violations, and in January 1998, the local district attorney opened legal proceedings on the matter. Discussions between Alcoa VAW and German customs authorities continue. Alcoa, along with various asbestos manufacturers, distributors and other businesses, is a defendant in numerous individual lawsuits filed in the State of Texas on behalf of persons claiming injury as a result of occupational exposure to asbestos at various Alcoa facilities. In two of these cases, jury verdicts were returned against the Company, and settlements have been reached. Following the March 9, 1998 announcement of the proposed acquisition of Alumax by Alcoa and AMX Acquisition Corporation, five putative class actions on behalf of stockholders of Alumax were filed in the Delaware Court of Chancery against Alumax and certain of Alumax's directors. Four of these actions also named Alcoa as a defendant. The plaintiffs in those actions alleged, among other things, that the director defendants agreed to a buyout of Alumax at an inadequate price, that they failed to provide Alumax's stockholders with all necessary information about the value of Alumax, that they failed to make an informed decision as no market check of Alumax's value was obtained and the acquisition 24 was structured to ensure that stockholders would tender their shares and was coercive. In addition, the plaintiffs alleged that the Schedules 14D-1 and 14D-9 filed by Alcoa, AMX Acquisition Corporation and Alumax, respectively, failed to disclose certain information necessary for Alumax's stockholders to make an informed decision regarding the offer and the other transactions contemplated by the merger agreement. Plaintiffs sought to enjoin the acquisition or to rescind it in the event that it was consummated and to cause Alumax to implement a "full and fair" auction for Alumax. Plaintiffs also sought compensatory damages in an unspecified amount, costs and disbursements, including attorneys' fees, and such other relief as the Delaware Court of Chancery may deem appropriate. The matter has been dismissed. The Internal Revenue Service (IRS) asserted that Alumax and certain of its subsidiaries were improperly included in the 1984, 1985, and 1986 consolidated income tax returns of AMAX Inc. and on that basis assessed a Federal income tax deficiency against Alumax of $129 million. Alumax filed a petition in the United States Tax Court seeking a redetermination of the purported deficiency. On September 30, 1997, the Tax Court decided in favor of the IRS, stating that AMAX Inc. did not have the 80% control necessary to consolidate. On October 27, 1997, Alumax paid an aggregate of $411 million to the IRS, representing the deficiency and accrued interest. On December 24, 1997, Alumax filed a notice of appeal of the Tax Court's decision to the United States Court of Appeals for the Eleventh Circuit. A decision affirming the Tax Court's decision was handed down by the Court of Appeals on January 21, 1999. The Company requested a rehearing of the http://www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 29 of 38 issue. Under the terms of a Tax Disaffiliation Agreement executed by Alumax and AMAX in connection with the merger of AMAX into Cyprus Minerals Company and the public distribution of all of Alumax's shares in November 1993, Alumax assumed responsibility for all proceedings relating to the abovedescribed deficiency and payment of any additional taxes, along with interest that may ultimately be due; and Cyprus Amax Minerals Company will share certain tax benefits that will become available to it in the event of a final adverse determination. An appeal was decided against the Company, and the case has been closed. In July 1999, Alcoa Aluminio received notice that an administrative proceeding was commenced by Brazil's Secretary of Economic Law of the Ministry of Justice against Brazilian producers of primary aluminum, including Alcoa Aluminio. The suit alleges collusive action in the pricing of primary aluminum in violation of Brazilian antitrust law. Alcoa Aluminio has presented its defense and is awaiting the decision of the Secretary of Economic Law. If the Secretary of Economic Law determines that the antitrust law was violated, then the action may be further prosecuted by the Administrative Council of Economic Defense. Brazilian law provides for civil and criminal sanctions for violations of antirust law, including fines ranging from 1% to 30% of a company's revenue during the last fiscal year. On October 15, 1999, Victoria Shaev, who represents that she is an Alcoa shareholder, filed a purported derivative action on behalf of the Company in the United States District Court for the Southern District of New York, naming as defendants the Company, each member of Alcoa's Board of Directors, certain officers of the Company and PricewaterhouseCoopers LLP, Alcoa's independent accountants. The shareholder did not make a demand on the Company prior to filing this lawsuit. Under relevant law, this demand is required. The lawsuit alleges, among other things, that Alcoa's proxy statement dated March 8, 1999 contained materially false and misleading representations and omissions concerning the Company's proposed Alcoa Stock Incentive Plan and that the shareholder approval of the plan, based upon these alleged representations and omissions, was defective. The Plaintiff seeks to invalidate the shareholder approval of the plan and enjoin its implementation. She also requests that Alcoa pay the costs and disbursements of the action, including the fees of her accountants, counsel and experts. The matter is being defended. 25 Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1999. Item 4A. Executive Officers of the Registrant. The names, ages, positions and areas of responsibility of the executive officers of the Registrant as of February 15, 2000 are listed below. Paul H. O'Neill, 64, Director and Chairman of the Board. Mr. O'Neill was elected a director of Alcoa in 1986 and became Chairman of the Board in 1987. He was Chief Executive Officer from June 1987 to May 1999. Before joining Alcoa, Mr. O'Neill had been an officer since 1977 and President and a director since 1985 of International Paper Company. Alain J. P. Belda, 56, Director, President and Chief Executive Officer. Mr. Belda was elected to Alcoa's Board of Directors in September 1998. He has http://www. 1 Okwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 30 of 38 been Chief Executive Officer since May 1999 and President since January 1997. He was elected Chief Operating Officer in January 1997, Executive Vice President in 1994 and Vice Chairman in 1995. Mr. Belda was President of Alcoa Aluminio S.A. in Brazil from 1979 to March 1994. He was elected Vice President of Alcoa in 1982 and, in 1989, was given responsibility for all of Alcoa's interests in Latin America (other than Suriname). In August 1991 Mr. Belda was named President - Latin America for the Company. Michael Coleman, 49, Vice President and President - Alcoa Rigid Packaging Division. Mr. Coleman joined Alcoa in January 1998. He had been Vice President - Operations of North Star Steel from 1993 to 1994, Executive Vice President - Operations from 1994 to 1996 and President from 1996 through 1997. Mr. Coleman joined North Star Steel in 1982. L. Patrick Hassey, 54, Vice President and President - Alcoa Europe. Mr. Hassey joined Alcoa in 1967 and was named Davenport Works Manager in 1985. In 1991, he was elected a Vice President of Alcoa and appointed President Aerospace/Commercial Rolled Products Division. He was appointed President Alcoa Europe in November 1997. Barbara S. Jeremiah, 48, Vice President-Corporate Development. Ms. Jeremiah joined Alcoa in 1977 as an attorney and was elected Assistant General Counsel in 1992 and Corporate Secretary in 1993. She was elected to her current position in 1998, where she heads Alcoa corporate development activities. Richard B. Kelson, 53, Executive Vice President and Chief Financial Officer. Mr. Kelson was elected Assistant General Counsel in 1989, Senior Vice President - Environment, Health and Safety in 1991 and Executive Vice President and General Counsel in May 1994. He was named to his current position in May 1997. Frank L. Lederman, 50, Vice President and Chief Technical Officer. Mr. Lederman was Senior Vice President and Chief Technical Officer of Noranda, Inc., a Canadian-based, diversified natural resource company, from 19881995. He joined Alcoa as a Vice President in May 1995 and became Chief Technical Officer in December 1995. In his current position Mr. Lederman directs operations of the Alcoa Technical Center. 26 Joseph C. Muscari, 53, Vice President-Environment, Health and Safety, Audit and Compliance. Mr. Muscari joined Alcoa in 1969 and was named PresidentAlcoa Asia in 1993. In 1997, he was elected Vice President-Audit. He was named to his current position in May 1999 and is responsible for EHS policy, standards and strategy and the Alcoa integrated audit process. In addition, Mr. Muscari is the chief compliance officer for the company. G. John Pizzey, 54, Vice President and President - Alcoa World Alumina and Chemicals. Mr. Pizzey joined Alcoa of Australia Limited in 1970 and was appointed to the board of Alcoa of Australia as Executive Director Victoria Operations and Managing Director of Portland Smelter Services in 1986. He was named President - Bauxite and Alumina Division of Alcoa in 1994 and President - Primary Metals Division of Alcoa in 1995. Mr. Pizzey was elected a Vice President of Alcoa in 1996 and was appointed President Alcoa World Alumina in November 1997. Lawrence R. Purtell, 52, Executive Vice President and General Counsel. Mr. Purtell joined Alcoa in November 1997. He had been Corporate Secretary and http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 31 of 38 Associate General Counsel of United Technologies Corporation from 1989 to 1992. Mr. Purtell was Vice President and General Counsel of Carrier Corporation, a unit of United Technologies Corporation and international designer, manufacturer and marketer of heating, ventilating and air conditioning equipment and services, from 1992 to 1993. He was Senior Vice President and General Counsel and Corporate Secretary of McDermott International, Inc. from 1993 to 1996. In 1996, Mr. Purtell joined Koch Industries, Inc. as Senior Vice President, General Counsel and Corporate Secretary. Robert F. Slagle, 59, Executive Vice President, Human Resources and Communications. Mr. Slagle was elected Treasurer in 1982 and Vice President in 1984. In 1986, he was named Vice President - Industrial Chemicals and, in 1987, Vice President - Industrial Chemicals and U.S. Alumina Operations. Mr. Slagle served as Vice President - Raw Materials, Alumina and Industrial Chemicals in 1989, and Vice President of Alcoa and Managing Director Alcoa of Australia Limited in 1991, He was named President - Alcoa World Alumina in 1996 and was elected to his current position in November 1997. G. Keith Turnbull, 64, Executive Vice President - Alcoa Business System. Dr. Turnbull was appointed Assistant Director of Alcoa Laboratories in 1980. He was named Director - Technology Planning in 1982, Vice President Technology Planning in 1986 and Executive Vice President - Strategic Analysis/Planning and Information in 1991. In January 1997 he was named to his current position, with responsibility for company-wide implementation of the Alcoa Business System. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. Dividend per share data, high and low prices per share and the principal exchanges on which the Company's common stock is traded are set forth on page 65 of the 1999 Annual Report to Shareholders {Annual Report) and are incorporated herein by reference. On January 10, 2000, the Board of Directors declared a two-for-one common stock split. The stock split is subject to the approval of Alcoa shareholders, who must approve an amendment to Alcoa's Articles of Incorporation to increase the authorized shares of Alcoa common stock at the Company's annual meeting on May 12, 2000. If approved, shareholders of record on May 26, 2000 will receive an 27 additional common share for each share held. The additional shares will be distributed on or about June 9, 2000. Per-share amounts and number of shares outstanding have not been adjusted for the stock split since it is subject to shareholder approval. At February 14, 2000 {the record date for the Company's 2000 annual shareholders meeting), there were approximately 185,000 Alcoa shareholders, including both record holders and an estimate of the number of individual participants in security position listings. Item 6. Selected Financial Data. The comparative table showing selected financial data for the Company is on http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 32 of 38 page 28 of the Annual Report and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Management's review and comments on the consolidated financial statements are on pages 29 through 38 of the Annual Report and are incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information regarding quantitative and qualitative disclosures about market risk is on pages 35 through 37 of the Annual Report and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The Company's consolidated financial statements, the notes thereto and the report of the independent public accountants are on pages 39 through 55 of the Annual Report and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information regarding Directors is contained under the caption "Board of Directors" on pages 5 through 11 of the Registrant's definitive Proxy Statement dated February 25, 2000 (Proxy Statement) and is incorporated herein by reference. The information regarding executive officers is set forth in Part I, Item 4A under "Executive Officers of the Registrant." The information required by Item 405 of Regulation S-K contained under the caption "Compliance With Section 16(a) Reporting" on page 13 of the Proxy Statement is incorporated herein by reference. 28 Item 11. Executive Compensation. This information is contained under the caption "Executive Compensation" on pages 15 through 25 of the Proxy Statement and is incorporated herein by reference. The performance graph and Report of the Compensation Committee shall not be deemed to be "filed." Item 12. Security Ownership of Certain Beneficial Owners and Management. This information is contained under the caption "Alcoa Stock Ownership and Performance" on pages 12 through 13 of the Proxy Statement and is incorporated herein by reference. http://www. 10kwizard.com/fll_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 33 of 38 Item 13. Certain Relationships and Related Transactions. This information is contained under the caption "Transactions with Directors' Companies" on page 5 of the Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) The consolidated financial statements, financial statement schedule and exhibits listed below are filed as part of this report. (1) The Company's consolidated financial statements, the notes thereto and the report of the independent public accountants are on pages 39 through 55 of the Annual Report and are incorporated herein by reference. (2) The following report and schedule should be read with the Company's consolidated financial statements in the Annual Report: Independent Accountant's Report of PricewaterhouseCoopers LLP dated January 10, 2000, except for Note V, for which the date is February 11, 2000, on the Company's financial statement schedule filed as a part hereof for the fiscal years ended December 31, 1999, 1998 and 1997. Schedule II - Valuation and Qualifying Accounts - for the fiscal years ended December 31, 1999, 1998 and 1997. (3) Exhibits Exhibit Number Description * ------------- ------------------------------- 2. Agreement and Plan of Merger among the Company,. RLM Acquisition Corp. and Reynolds Metals Company dated as of August 18, 1999, incorporated by reference to exhibit 99.1 to the Company's Report on Form 8-K filed August 27, 1999. 3(a). Articles of the Registrant as amended, incorporated by reference to exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 29 3(b). By-Laws of the Registrant as amended, incorporated by reference to exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10(a). Alcoa Stock Acquisition Plan, effective January 1, 1999. . 10(b). Employees' Excess Benefit Plan, Plan A, inc.orporated by reference to exhibit 10(b) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1980. 10(c). Incentive Compensation Plan, as amended effective January 1, 1993, incorporated by reference to exhibit 10(c) to the Company's Annual Report http://www,10kwizard.com/fil_submis.asp?uid=35979862&iacc=1116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 34 of 38 on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1992. 10(d). Employees' Excess Benefit Plan, Plan C, as amended and restated in 1994, effective January 1, 1989, incorporated by reference to exhibit 10(d) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1994. 10(e). Employees' Excess Benefit Plan, Plan D, as amended effective October 30, 1992, incorporated by reference to exhibit 10(e) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1992 and exhibit 10(e)(1) the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1994. 10(f). Employment Agreement of Paul H. O'Neill, as amended through February 25, 1993, incorporated by reference to exhibit 10(h) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1987, exhibit 10(g) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1990 and exhibit 10(f)(2) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1992. 10(g). Deferred Fee Plan for Directors, as amended effective November 10, 1995, incorporated by reference to exhibit 10(g) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. 10(h). Restricted Stock Plan for Non-Employee Directors, as amended effective March 10, 1995, incorporated by reference to exhibit 10(h) Company's Annual Report on Form 10-K (Commission file number 1-3610) the year ended December 31, 1994. to the for 10(h)(1). Amendment to Restricted Stock Plan for Non-Employee Directors, effective November 10, 1995, incorporated by reference to exhibit 10(h)(1) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. 10 (i). Fee Continuation Plan for Non-Employee Directors, incorporated by reference to exhibit 10 (k) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1989. 10{i)(1). Amendment to Fee Continuation Plan for Non-Employee Directors, effective November 10, 1995, incorporated by reference to exhibit 10 (i) (1) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. 30 10(j). Deferred Compensation Plan, as amended effective October 30, 1992, incorporated by reference to exhibit 10(k) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1992. 10{j)(1). Amendments to Deferred Compensation Plan, effective January 1, 1993, February 1, 1994 and January 1, 1995, incorporated by reference to exhibit 10 (j) (1) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1994. http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings Page 35 of 38 10(j)(2). Amendment to Deferred Compensation Plan, effective June 1, 1995, incorporated by reference to exhibit 10 (j) (2) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. 10{j)(3). Amendment to Deferred Compensation Plan, effective November 1, 1998. 10(j)(4). Amendments to Deferred Compensation Plan, effective January 1, 1999. 10(k). Summary of the Executive Split Dollar Life Insurance Plan, dated November 1990, incorporated by reference to exhibit 10(m) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1990. 10(1). Dividend Equivalent Compensation Plan, effective February 3, 1997, incorporated by reference to exhibit 10(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10(m). Form of Indemnity Agreement between the Company and individual directors or officers, incorporated by reference to exhibit 10 (j) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1987. 10(n). Amended and Restated Revolving Credit Agreement (364-Day), dated as of August 13, 1999, incorporated by reference to exhibit 10(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10(o). Revolving Credit Agreement (Five-Year), dated as of August 14, 1998, incorporated by reference to exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 10(p). Alcoa Stock Incentive Plan, effective June 1, 1999, incorporated by reference to exhibit 10(p) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10(q). Alcoa Supplemental Pension Plan for Senior Executives, effective January 1, 1999, incorporated by reference to exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10(r). Deferred Fee Estate Enhancement Plan for Directors, effective July 10, 1998, incorporated by reference to exhibit 10(r) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10(s). Alcoa Deferred Compensation Estate Enhancement Plan, effective July 10, 1998, incorporated by reference to exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 31 http://www. 10kwizard.com/fil_submis. asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 36 of 38 10(s)(1). Amendments to Alcoa Deferred Compensation Estate Enhancement Plan, effective January 1, 2000. 12. Computation of Ratio of Earnings to Fixed Charges. 13. Portions of Alcoa's 1999 Annual Report to Shareholders. 21. Subsidiaries and Equity Entities of the Registrant. 23. Consent of Independent Certified Public Accountants. 24. Power of Attorney for certain directors. 27. Financial data schedule. Exhibit Nos. 10(a) through 10(1) and 10 (p) through 10(s) (1) are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K. Amendments and modifications to other Exhibits previously filed have been omitted when in the opinion of the Registrant such Exhibits as amended or modified are no longer material or, in certain instances, are no longer required to be filed as Exhibits. No other instruments defining the rights of holders of long-term debt of the Registrant or its subsidiaries have been filed as Exhibits because no such instruments met the threshold materiality requirements under Regulation S-K. The Registrant agrees, however, to furnish a copy of any such instruments to the Commission upon request. (b) Reports on Form 8-K. Alcoa filed a Form 8-K, dated November 12, 1999, with the Securities and Exchange Commission to report that a shareholder filed a purported derivative action on behalf of the Company alleging that the Company's proxy statement, dated March 8, 1999, contained materially false and misleading representations and omissions concerning the Company's proposed Alcoa Stock Incentive Plan. 32 Independent Accountant's Report on Financial Statement Schedule To the Shareholders and Board of Directors of Alcoa Inc. (Alcoa) Our audits of the consolidated financial statements referred to in our report dated January 10, 2000, except for Note V for which the date is February 11, 2000, appearing in the 1999 Annual Report to Shareholders of Alcoa (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP 600 Grant Street Pittsburgh, Pennsylvania January 10, 2000, except for Note V, for which the date is February 11, 2000 http ://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefined 8/28/2000 10k Wizard: View Filings 33 Page 37 of 38 Col. A Description SCHEDULE II - VALUATION AND QUALIFYING A FOR THE YEARS ENDED DECEMBER 31 (in millions) Col. B Col. C Additions Balance at beginning of period Charged to costs and expenses Charged to other accounts (A) Allowance for doubtful accounts: 1999 $ 61 $10 $ (5) (A) 1998 $ 37 $11 $ 23 (A) 1997 $ 48 $6 $ (4) (A) Income tax valuation allowance: 1999 $135 $12 $ 6(A) 1998 $104 $16 $ 21(A) 1997 $110 $12 $ (13) (A) FN Notes: (A) (B) (C) (D) Collections on accounts previously written off, acquisition/divest currency translation adjustments. Uncollectible accounts written off. Related primarily to reductions in the valuation reserve based on Related primarily to utilization of tax loss carryforwards. 34 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALCOA INC. February 28, 2000 By /s/Timothy S. Mock Timothy S. Mock Vice President and Controller (Also signing as Principal Accounting Officer) http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=l 116089&p=undefmed 8/28/2000 10k Wizard: View Filings Page 38 of 38 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/Alain J. P. Belda President February 28, 2000 Alain J. P. Belda and Chief Executive Officer (Principal Executive Officer and Director) /s/Richard B. Kelson Executive Vice President and February 28, 2000 Richard B. Kelson Chief Financial Officer (Principal Financial Officer) Kenneth W. Dam, Joseph T. Gorman, Judith M. Gueron, Sir Ronald Hampel, Hugh M. Morgan, John P. Mulroney, Paul H. O'Neill, Henry B. Schacht, Franklin A. Thomas and Marina v.N. Whitman, each as a Director, on February 28, 2000, by Denis A. Demblowski, their Attorney-in-Fact.* *By /s/Denis A. Demblowski Denis A. Demblowski Attorney-in-Fact 35 Alcoa Logo Form A07-15899 Next Section Home | Filings Log in | | Insider Trading | Institutional Holdings | Financials Snapshot Register | Help | About Us | Questions or Feedback | Copyright 1999 10-K Wizard Technology, LLC All Rights Reserved. 10-K Wizard is a registered trademark of 10-K VMzard Technology, LLC. Ronin DISCLAIMER and TRADEMARK INFORMATION http://www. 10kwizard.com/fil_submis.asp?uid=35979862&iacc=:l 116089&p=undefined 8/28/2000 Content high Alcoa Completes Merger With Reynolds Metals ,PITTSBURGH, Pa. and RICHMOND, Va., May 3 2000 - Alcoa Inc. and Reynolds Metals Company announced today that the U.S. Department of Justice and the European Union have approved their proposed merger and that the merger has been completed. Reynolds shareholders had already approved the merger on February 11. The merger adds impressive strengths to Alcoa's worldwide operations, including the Reynolds brand name, its packaging and consumer products businesses, smelting operations, manufacturing operations serving the construction and transportation markets, and bauxite reserves in Brazil, Guyana and Guinea. Under the terms of a consent decree entered into with the DOJ and an undertaking agreed with the EU, Alcoa will sell a 25% interest in Reynolds' Longview, Washington aluminum smelter, as well as Reynolds' interest in three alumina refineries: Worsley, Australia (56% owned); Stade, Germany (50% owned); and Sherwin, Texas (100% owned). Three of Reynolds four global business units will be fully merged with Alcoa: Packaging and Consumer business (1999 revenue of $1.45 billion); Construction and Distribution business (1999 revenue of $1.02 billion); and Transportation business (1999 revenue of $400 million). In addition, from Reynolds Base Materials business, approximately one million metric tons of smelting capacity, bauxite reserves and two petroleum coke plants will be merged into Alcoa. "We are extremely pleased to complete this merger and welcome Reynolds employees to Alcoa," said Alcoa President and CEO Alain Belda. "We will rapidly integrate Reynolds and thereby create additional value for Alcoa and Reynolds customers and other stakeholders." With respect to the Reynolds businesses to be sold under the regulatory approvals, Mr. Belda observed, "The business case for the merger remains compelling, and proceeds from the sale of the divested assets will contribute significantly to investment in further profitable growth for Alcoa." Shares of Reynolds stock will cease trading on the New York Stock Exchange at the close of business today. As a result of the merger, each outstanding Reynolds share was converted into 1.06 shares of Alcoa common stock. Reynolds shareholders who hold their own stock certificates will receive notice in the mail regarding the process to exchange their shares for Alcoa http://www.alcoa.com/news/latest/05_03_2000.asp Page 1 of 2 8/28/2000 Content high stock. Reynolds shareholders whose shares are held through banks or brokers will receive information about their holdings from those institutions. Editorial Contacts: Bonita A. Cersosimo Alcoa Phone: 1 412 553 4462 LouAnne Nabhan Reynolds Metals Phone: 1 804 281 2171 Investor Relations: Edgar M. Cheely, Jr. Randall J. Killeen Alcoa Phone: 1 412 553 2231 Julian H. Taylor Reynolds Metals 1 804 281 4505 Getting To Know Alcoa Doing Business Vtfth Alcoa News & Features Investor Information Page 2 of 2 http ://www. alcoa. com/news/latest/05_03_2000.asp 8/28/2000 ALCOA 1999 Annual Report To Alcoa Shareholders: Alcoa begins the 21st century with an unprecedented show of strength In 1999 we posted record revenues. ea rnings, and g rowthand topped the Dow's 30 companies by a wide margin with a total return for shareholders of 126%... <c.ittut ott 2 i; Financialarid 'UpeFatlng Highlights (dollars in millions, except share amounts) Sales Income from operations Net income Per common share: Basic earnings Diluted earnings Dividends paid Book value Total assets Capital expenditures Cash flow from operations Return on average shareholders' equity Debt as a percent of invested capital Interest coverage ratio Current assets/liabilities ratio Price/earnings (P/E) ratio Shipments of aluminum products (000 metric tons) Number of shareholders Average common shares outstanding (000) Number of employees 1993 SI 6,323 1,296 1,054 2.S7 2.82 805 17.03 17,066 920 2,236 17.2% 28% 3.3 1.6 io 1 29.4 4,473 135,000 366,944 107.700 1998 $15,340 1,091 853 2.44 2.42 .75 16.36 17,463 932 2,197 16.3% 32% 7.4 1.5 to 1 15.4 3,951 119,000 349,114 103,500 % change 6 19 24 18 17 7 4 (2) (1) 2 6 (13) 12 91 13 55 5 4 T395 Revenues:TO Billion 11% BY MARKET 25% Transportation 20% Packaging 18% Distribution and Other 13% Aluminum Ingot 13% Building and Construction 11% Alumina and Chemicals 14% BY COUNTRY 64% U.S. 9% Australia 6% Spain 4% Brazil 3% Germany 14% Other 1 To Alcoa Shareholders: Alain Belda, President and Chief Executive Officer (right) with Paul O'Neill, Chairman of the Board 2 continued from cover Revenues rose to a new high of $16.3 billion, and earnings exceeded $1 billion for the first time in our history. Earnings per share increased by 17% to $2.82. The annual rate of return for Alcoa shareholders has averaged 33% over the past five years. These are extraordinary results not only for Alcoa and for this year but for most industrial companies and for any aluminum company, ever. Still, it's important to realize: Our 1999 performance is a milestone, not a destination. It simply represents where we are now and holds some indication of what we can do and where we can go. Looking back, these results are the fruits of determined, highly focused efforts over a period of years by a great many Alcoa people, led by a management team committed to a high level of performance measured in profitable growth and in living our values. Looking ahead, we can survey the global challenges before us from a raised platform a larger, more versatile operating base capable of integrating Statistical Snapshot 1999 Compared with 1998 -13% f Revenues 6% Income from Operations 19% Earnings 24% Safety Improvement 50% Market Cap total valuator Alcoa shares outstanding Debt as a % of invested capital ` " ' 126% Ingot Prices No Longer Dictate Net Income millions dollars 1.20 1.00 0.80 0.60 86 87 88 89 90 91 92* 93 94 95 96 97 98 99 Notlncomo Aluminum Ingot prices per pound *1992 includes a net loss of $1.2 billion reflecting tbe inpact of changes in accounting rules for postretirBment benefits and income taxes. World Aluminum Consumption by Region SK Asia including Japan North America M Europe S8 Other Source: 1998 Bureau of Metal Statistics systems, services, and technologies across all business unit lines and national boundaries. Our strategies are based on the premise that profitable growth is the indispensable fuel for sustained business success, and that such growth begins with customers who share our objectives and to whom we can provide a wholesolution resource. As we integrate the key acquisitions made over the past few years and extend our reach globally, it is clear that Alcoa has now established a basa for profitable growth on a global scale. In keeping with our new view of the company and its global position, in 1999 we changed our name from Aluminum Company of America to Alcoa Inc. 1.999 Acquisitions Our major acquisition news in 1999 was the announcement of an agreement to acquire Reynolds Metals. This will add almost $5 billion in revenues, 100 facilities in 24 countries, and 19,000 new Alcoans to our family. Also in 1999, we continued the integration of two significant acquisitions from 1998: Inespal in Spain, and Alumax, which together added $4 billion to our revenues and brought 19,000 people, a refinery, eight smelters, six rolling mills, and 15 extrusion plants into the'Alcoa system. These new Alcoans and facilities have significantly contributed to our performance in 1999. Best-practice sharing of technology and operating methods has enriched both the old and the new Alcoa. Not all of our growth activities in 1999 were on so large a scale. In April we acquired the Castelsarrasin facility from Pechiney. This is a specialized bright rolling mill in France. We also acquired the Irurzun extrusion plant in Spain from Reynolds. In July we purchased the other 50% of A-CMI, a joint venture with Hayes Lemmerz that produces cast automotive structural parts in the U.S. and Norway. In October we acquired the San Antonio, Texas rolling operations of ACX, a Coors facility, to support Alcoa Alcoa 1999 Revenues Alcoa 4- Reynolds t18.3 billion SI Commodity Products S Transportation a Packaging nt Construction. Distribution and Other $21.0 billion a Commodity Products Transportation a Packaging i Construction, Distribution and Other 3 Foil Products and Mill Products. We have purchased the Excel extrusion facility in Warren, Ohio from Noranda Aluminum, to strengthen our extrusion construction products group. Finally, we initiated discussions with several different companies in Asia with an eye to accelerating our growth in that region. Greater Alcoa participation in Asia is a key goal in 2000. In July we completed the expansion of the Wagerup, Australia refinery - on time and on budget - adding 440,000 metric tons per year to our world alumina system. Growth, Integration and Learning This ongoing stream of acquisitions and their subsequent performance have demonstrated that we now have a globally transportable management system, capable of integrating new operations swiftly, almost seamlessly, and of implementing our vision, values, and business system wherever we grow. They have also underscored the fact that we have the humility to learn from talented people and successful technologies within these acquired operations - to absorb new ideas, new ways of doing things and of going to market. We are keenly aware of the potential leverage inherent in taking the best of this acquired talent and knowledge and applying it across the entire network of Alcoa's operations. This is something that our organizational systems are expressly designed to do. The Alcoa Business System Over the past few years, we have amassed considerable experience in taking a system integration approach to the use of management tools, production process controls, quality systems, technology, and human resource development. We have synthesized this knowledge in what we call the AlcoaBusiness System (ABS) - a dear set of profitable growth objectives, along with the means of deployment and of management to achieve them. Part of ABS is APS - the Alcoa Production System - a disciplined methodology to eliminate waste and empower the tremendous talents of our people to raise productivity beyond what was once thought possible. For the customer, APS is a system to provide exactly 4 Hernando's Turnaround Delivery performance 1997 1998 1999 76.7% 84.0% 93.0% Recovery on shipments 70.2% 72.9% 75.3% Lost workday injuries 6 00 Roy Powell of the APS Team at Alcoa's Hamar'ido, Miss, extrusion plant explains the value stream established for Press f!4. Wi-ii Roy * Onvi-i Patrick. APIs manager for ;he t-ii-iinuss uni;. what is needed, when it's needed, at the lowest cost - a key to making Alcoa the supplier of choice in almost any market. In 1999, we compiled our first full year of applying ABS consistently across our global network and extending it into the operations of recently acquired companies. The results speak for themselves, including annualized cost reductions of $728 million - part of a $1.1 billion initiative that we will complete this year. This is a good beginning, but we can see a great deal of additional potential as the system continues to roll out. Related to these efficiencies, we have been working to align Alcoa's technology development with our product and market priorities, allocating research resources to the most significant short-term and long-term opportunities. These research and development efforts support ABS both today and tomorrow - eventually playing a role in reinventing the aluminum industry by improving many of its basic processes. The bottom line objective is new and expanded applications for aluminum. Core Values Hand in hand with these developments, Alcoa continues a vigorous program of support for its core values - which we believe are inseparable from the financial, commercial, manufacturing, and technology components of long-term success. In considering and implementing the acquisitions discussed earlier, we have made health, safety, and environmental issues an essential part of our due diligence process. Our confidence in our managers and management systems stems partly from the fact that they have been thoroughly tested in reaching progressively higher standards of protecting the health and safety of our people and the well being of the environments within which we live and work. Alcoa board i visiting plants in Spam and iraly, review Alcoa's rais in making body strnci-iies for trie feuari :'B0 Moilena. Progress in Safety lost workday rate per 200,000 wrk hours 87 88 89 90 91 92 93 94 95 96 97 98 99 & U.S. Manufacturing* Alcoa "Source: Bureau of labor Statistics and Alcoa Real Tne Safety Data As to safety specifically, our lost workday (LWD) accident rate in 1998 had improved to one LWD per 292 employees. In 1999, it improved still further, to one in 456, even as we added 20,000 Alcoans to the group as a result of acquisitions in Europe and the U.S. This translates to one accident in a million work hours - a remarkable achievement. Even one accident is one too many, but we can be very proud of the leadership and dedication of the Alcoa managers who pursue our ambitious safety goals day in, day out, year-round. Their goal is zero workplace injuries. On the environmental front, we continue to operate benchmark mine rehabilitation programs in Brazil, Australia, Jamaica and the U.S., many of which have been internationally recognized. Beyond these programs, our employees have planted over 300,000 trees in the first two years of our One Million Trees program. Alcoa sets the standards for bauxite residue management, leads the industry in PFC reductions, and is making rapid strides in chlorine use reduction. Fifteen of our locations are now certified to the ISO 14001 Environmental Management System, and 50 more are working toward that goal. This is all part of what it will take to be the supplier of choice, employer of choice, and partner of choice in all of our key markets and operating locations around the world. Thanks to the creative energy and commitment of our people and the integration of our systems, that goal is now within reach. Alain J. P. Belda, President and Chief Executive Officer February 15, 2000 6 growing with Alcoa mean* to be the preferred supplier In each of It* markets, providing value exceeding anything available from other sources. This l why the Alcoa Production System Is based on producing for use, not for Inventory, Tor an Alcoa customer, this means gening exactly what you want when you want It >-at the lowest witwri^yh^gj,, the Customers are partners. SYSTEMATICALLY Z'\ M : h> Take a vaHwWe r iroprovementdeveloped as, at one Alcoa location : ,/ and apply it across the ^ ^ organisation. Leveraged ^ > productivity. The Alcoa Business System (ABS) i is the means we've evolved to integrate best-practice / knowledge, technology, " and customer service - / ;\ to Jock in these systematic gains as a way of life. ^ V, After successful application in a cross-section of/' : ^ .manufacturing processes; , %\ this system is now being :. f rolled out to Alcoa operations everywhere.; 4y>xi4:>:v.->. vX ./ ** \ 4- Simon Poiion (JpHI rliOl, hIim:Iiu(!h Ol#?il Ldiiiili:o l,relief Oost.lianihriuii. Quonnc Alcoa's partnerships and acquisitions have A remarkable: track record, partly because they are based on mutual respect and kept promises. Values are at the core of Our due diligence process. Employees and host communities recognize and respond to our priorities in health and safety, environmental T respoflsibBity, and respect for the individual. Alcoa brings its core values to ea'&fi of itsbperations around the world. SWMysy/&' personal COMMITMENT We are committed to empoweffngthe remarUable potential of a worldwide talent pool - people who can accomplish anything they set their minds to. This means freely sharing information and welcoming the involvement of employee ideas. None of us is as smart as all of us. Alcoa ie determined to be not only the supplier of choice but the employer of choice as well. 12 Reynolds to Join Alcoa In a special meeting February 11, 2000, shareholders of Reynolds Metals Company voted to approve a merger agreement announced earlier by the two companies. Alcoa will acquire all outstanding shares of Reynolds in a tax free stock-for-stock transaction. Reynolds shareholders will receive 1.06 shares of Alcoa common stock for each share of Reynolds common stock. Equity value of the transaction is approximately $4.8 billion. The combined company will have some 127,000 employees. It will operate in over 300 locations in 37 countries. Based on 1999 results, Alcoa and Reynolds together have about $21 billion in revenues. The merger is being reviewed by the US. Department of Justice and the European Commission, as well as various other competition authorities. Both Alcoa and Reynolds have expressed confidence of ultimate regulatory approval. When the agreement was first announced in August, Alcoa CEO Alain Belda noted: "There is an obvious complementary fit between our companies that will create benefits for our shareholders, customers and employees." He said the new company would be better positioned to address the ongoing globalization of the metals industry and the new competitive landscape this is creating "It will permit the greater efficiencies and cost reductions required by an environment which recently has seen some of the lowest prices in years for our commodity products," he added. "As we move to combine the two companies, we will seek to integrate Reynolds employees harmoniously and expeditiously into the Alcoa family and to preserve the Reynolds brand." Next: Solar Powered Walls Kawneer, the architectural aluminum products business that became part of Alcoa with the Alumax acquisition, will provide its first vertical photovoltaic (PV) or solar electric-powered curtain wall in the United States. The solar powered wall will be part of the University of Wisconsin's Green Bay Academic Center. The large vestibule and main walkway area of the center also include Kawneer's slope glazed 1600 PowerWaH" overhead panels, for a total 2,300 square feet of PV panels. 1600 PowerWall is the first fully tested curtain wall system to harness the energy of the sun. It incorporates solar electric modules designed specifically for the purpose by BP-Solarex. In Europe, a demonstration sample of PowerWall panels is scheduled to be installed at the Solar Energy Laboratory of Ecole Polytechnique de Lausanne in Switzerland. 16 NEWS Breaking New Ground with Mercedes The Mercedes-Benz S-Class Coupe will be the newest production model from the German automaker to feature aluminum in body structure applications. Introduced at last year's Geneva Auto Show, the car will be in full production in early 2000. Alcoa Automotive's Casting and Extrusion Finishing plant in Soest, Germany is producing several components for this path-breaking Mercedes, including an Alcoa Vacuum Die Cast sidewall component as well as extrusions for the front and rear roof frames and supporting cross members for the passenger compartment. Alcoa Automotive Engineering has been working with Mercedes since 1994 on design, engineering, and prototyp ing of these aluminum parts. Investing lri Commuriities In 1999, for the fifth consecutive year, Alcoa Foundation's commu nity investments grew by more than $1 million, consistent with growth of the Foundation's asset base. Alcoa Europe locations saw grants in their communities increase by a total of 47%, from $870,000 to $1.28 million. Worldwide, the Foundation made grants totaling $17.94 million. In addition, Alcoa business units con tributed cash and noncash community investments of $3.5 million. In 2000, the Foundation will continue to direct significant resources to international community philanthropy, strengthening its alignment with Alcoa's global reach. Spanish Refinery Expands A modernization plan for the San Ciprian plant (Lugo, Spain) will increase alumina production capacity by 220,000 mtpy. San Ciprian's current capacity is 1.11 mil lion mtpy of smelter-grade and chemical-grade alumina. This expansion in capacity was made possible by stateof-the-art process technology, some of it developed at San Ciprian and some trans ferred from Alcoa alumina plants in other countries. Basic engineering of the project has been completed, and the work is expected to finish by March 2001. The San Ciprian industrial com plex consists of the alumina refinery and a smelter. Closures' World Strategy Alcoa Closure Systems International (CSI) contin ues to expand its manufac turing presence globally to meet expected market growth and to be situated near major customers. This strategy reduces shipping costs and improves response time during peak demand periods. After expanding European and South American operations, CSI opened new facilities in Ensenada, Mexico and San Jose, Costa Rica in early 1999. Now, construction work has begun on a new plastic closures manufactur ing facility near Manila in the Philippines. Growth in Fiber Optics Removing a Hazard An innovative vehicle towing system developed in the Anglesea brown coal mine of Alcoa World AluminaAustralia has eliminated the risk of injury from wire sling and hook towing systems. Anglesea replaced the con ventional wire and hook system with safer continuous polyester slings and easy access bollards. The new system earned Anglesea the inaugural Victorian Minerals Industry Safety & Health Innovations Award. Inspiration for the towing system came from the moor ing systems used in shipping and the push-pull couplings on earth-moving scrapers. 'More"'Alumina' from Wagerup Alcoa has completed a major expansion of its Wagerup alumina refinery to lift the capacity of its three-refinery system in Western Australia. An A$260 million expansion - raising Wagerup's capacity by 440,000 to 2.2 million metric tons per year (mtpy) -- was completed in mid-year, on schedule and on budget, and has now been integrated with existing production. Alcoa's Pinjarra refinery has a current rated capacity of 3.2 million mtpy, and Kwinana is at 1.9 million mtpy. Alcoa Fujikura Ltd. (AFL) has bought a majority stake in TeleTech Co. in Kentucky and DigiSys Corp. in Georgia. The two companies specialize in building and installing the fiber-optic systems that move voice, cable and data traffic - one of the fastest growing segments of the telecommunications industry In a related development, based on strong fiber-optic cable sales and forecasts, AFL moved to increase its cable capacity in Spartanburg, S.C. The new equipment will be installed during the first quarter of 2000. Dateline: Badin, N.C., 8000 BC Near Alcoa's Badin Works, along the Yadkin River in North Carolina, archaeologists have unearthed a treasure trove of artifacts dating back some 10,000 years - the oldest excavated site in the state and one of the most ancient in North America. Now 135,000 of these artifacts - stone tools, pottery shards, spear points, and other articles - have been donated by Alcoa to the University of North Carolina at Chapel Hill, to be shared by scholars, students, and the public. At least three distinct cultures occupied the site from about 8000 to 1000 BC. NEWS 17 18 NEWS':?:! As Others See Us Several surveys reported in late 1999 by leading financial publi cations rank Alcoa among the pacesetters in global business. Financial Timas. In a compilation of "The World's Most Respected Companies" by the Financial Times and PricewaterhouseCoopers, Alcoa ranked first among resources companies and 21st among all companies. Rankings were determined by surveying company CEOs in 75 countries worldwide. Industry Wsak. Earlier in the year, Alcoa was selected as one of the World's 100 Best-Managed Companies by Industry Week magazine. Actualidad Economics, Spain's principal economic weekly, named Alcoa "The Most Dynamic Multinational in Galicia," based on voting by readers. The magazine is one of the Pearson Group, which publishes the Economist and the Financial Times. The award was presented by the president of Galicia, the province where Alcoa's San Ciprian facilities are located. Business Review Weekly in Australia, polling CEOs and CFOs of the nation's largest companies, named Alcoa World Alumina-Australia to the "Most Admired" list, including first place rankings for growth potential and for commitment to community, environment and ethical issues. Progress in Continuous Casting Alcoa is stepping up its efforts to capture the efficiencies of continuous casting. Development of this technology was begun earlier in the 1990s at Davenport. Recent moves: > Purchase of Kaiser Aluminum Corporation's MicromiUTM assets. These include intellectual property, pilot line facilities in Pleasanton, Calif, and a pilot plant near Reno, Nevada. The Reno plant will be operated to further refine the thin strip continuous casting process for aluminum sheet applications. > Acquisition of substantially all the assets of Golden Aluminum Company, a unit of ACX Technologies, for $41 million. Golden's operations included a shuttered rolling facility in San Antonio, Texas and a rolling facility in Fort Lupton, Colo. The Fort Lupton mill was subsequendy sold, but the San Antonio facility has been reopened and restarted to continue development of slabcaster technology, one form of continuous casting. The plant will be converted to a non-can sheet commercial rolling mill, and production is expected to begin shortly > Relocating a roll caster from Alcoa's Aviles smelter in Spain to its Alicante rolling mill there and commissioning it to produce foil stock. Alcoa now has 22 continuous casters operating around the globe. Teaming Up to CutCosts Alcoa's plant in Badin, North Carolina, reached an agreement with the United Steelworkers of America on a plan for its smelt ing operations to meet cost-cutting goals for the Year 2000. In June, Badin announced a goal of trimming smelter operating costs by four cents per pound in 2000. Since then, the plant has identified and pursued a number of opportunities to meet that goal. Under the agreement, Badin will redesign work processes to gain efficiencies and reduce labor costs. Among the initiatives are inventory reductions and teaming with suppliers to identify process improvements. The agreement also includes a voluntary retirement offer to eligible employees. Less than half of the goal would be achieved through workforce attrition. Extrusion Facilities Adcled Alcoa is in the process of adding three new soft alloy extrusion facilities in North and South America. Excel Extrusions, a Noranda Aluminum subsidiary located in Warren, Ohio, will become part of Alcoa Extruded Construction Products. This plant has the capacity to produce 35 million pounds of extrusions per year plus a vertical paint line with capacity of 24 million pounds per year. Also in negotiations: acquisition of Almax extrusion operations in Brazil and the soft alloy extrusion business of Aluar in Argentina. Primary market for these products is the building and construction industry Faster, Better Cap Linings In Europe, CSI has imple mented a product design modification, resulting in a 20% increase in lining speeds. The new closures also have improved CO, retention, enhancing the shelf life of carbonated beverages in the marketplace. A major bever age maker has evaluated the sealing improvement and approved it for use. This tech nology is being incorporated throughout the CSI system by means of new liner tooling. The concept and experimen tal tooling were developed in the CSI research facility in Crawfordsville, Indiana. A-CMINow 100% Alcoa Already a 50% owner of A-CMI, Alcoa has now acquired the remaining 50% from Hayes Lemmerz. A-CMI was a joint venture formed in 1995 between Alcoa and CMI International (later acquired by Hayes) to produce cast aluminum prod ucts for the auto industry It has operating locations in Kentucky, Michigan and Lista, Norway Of the3.8 billion pounds of aluminum going into North American vehicles, 3 billion pounds are castings. Among these, structural castings - such as suspension cradles and cross members - represent what promises to be a high growth market over coming years. Global Alliances Continuing the company's worldwide growth initiatives of recent years, Alcoa is forging new alliances in Europe, Asia, and North Africa as well as the U.S.: China. A memorandum of understanding (MOU) calling for a strategic partnership has been signed between Alcoa and China Aluminum Corp. (Chaleo), which manages many of the country's j aluminum facilities. The parties have targeted the end of June 2000 j to complete negotiations and sign a master agreement expected to involve an association of several aluminum production facilities j of Chaleo and Alcoa. Turkey. Alcoa and Kibar Holding Co. of Turkey have signed a letter of intent to form a strategic alliance with respect to Kibar's Turkish aluminum business, Assan Aluminyum, which is that nation's leading rolled products business. Kibar is one of Turkey's largest industrial groups. Egypt. An MOU was announced between Alcoa and the Egyptian j government's Holding Company for Metallurgical Industries and its subsidiary company, Egyptalum. The memorandum envisions an Alcoa majority-owned strategic partnership designed to mod ernize Egyptalum operations into a more effective competitor in national and regional markets. A definitive agreement is expected in early 2000. Structural "Castings""for"Volvo The Swedish carmaker regards its vehicles as among the safest in the world. Alcoa's Scandinavian Casting Center in Lista, Norway j is manufacturing four safety-critical structural, chassis and sus pension components for the Volvo S80 and S80 four-wheel drive models. Alcoa is producing the rear wheel carrier, rear cross mem- i her, and front steering knuckle for the S80 and the rear cross mem- ; her for the S80 four-wheel drive model. Both subframes employ state-of-the-art casting technology with a combination of metal molds and cores. (Volvo S80 photo, page 8) Another Safety Milestone Alcoa Fujikura Ltd. (AFL) is achieving world-class safety performance. Total recordable and lost workday injury rates have been reduced 35% in 1999, and two AFL locations are approaching j 30 million work hours without a single lost workday case. Driveshafts are Booming Alcoa Engineered Products received new contracts for 400,000 aluminum driveshafts for shipment in 1999. The driveshafts are for use on BMW's 5-series luxury vehicles, General Motors' GMT-800 truck program, and Ford Motor's Crown Victoria police car platform. NEWS 19 Net Gains........................................... In addition to a highly developed worldwide intranet, Alcoa's business units and resource units increasingly use the Internet for fast, cost-effective customer service, product information, procurement, and many other functions. A few current examples: E-Purchasing. The Alcoa Mall is up and running as a stream lined business-to-business e-commerce system for procurement of many goods and services bought by the company. It employs the Ariba Operating Resource Management System, which will provide a company-wide process to handle many low-value, high-volume transactions. Proof-of-concept operations were completed in January involving four locations, and a ramp-up of additional locations and suppliers is scheduled to begin in May. E-Closures. Alcoa CSI introduced a new e-commerce extranet service in a successful test at the International Bottled Water Association trade show in November. The new service will be rolled out to key bottled water customers throughout the year. Handling Inquiries. AlumaxBath.com is part of the marketing program supporting Alcoa Extruded Products' Bath Enclosure business. This unit generates more than 50,000 inquiries per year, which move electronically to local dealers. Customers and dealers use the site to download instruction sheets and technical data. Soon, consumers will be able to order small replacement parts such as towel bar brackets and guides. ProSpec* is a resource for building and remodeling professionals, offered through Alcoahomes.com, the Web site of Alcoa Building Products. Architects can go to the site for specifications, color guides, and downloadable CAD drawings for vinyl and metal exterior products. Online Ordering. Kawneer Europe has launched an industry leading interactive Web site and extranet geared to customer service and visibility in the European specifier market. The site will provide online ordering using KaluCAD, Kawneer's com puter-aided design and calculation system. 'High''Wowth'Markets Alcoa CSI increased market share in the high growth bottled water and sport/fruit drink segments of the beverage market in 1999. In the small size bottled water category - growing by 20% per year - CSI's popular push-pull Sport-Lok* closure contributed to Alcoa's growth. In the sport/fruit drink closure segment, single-serve bottles are gaining popularity, glass is converting to plastic, and convenient spout and sport type clo sures are in favor. Alcoa's sales are growing based on product quality and strong relationships with major customers. Idled Capacity to Restart On January 19,2000 Alcoa announced it would restart some 200,000 mtpy of idled aluminum smelting capacity over the course of the year. The move leaves approximately 250,000 mtpy of Alcoa's aluminum smelting capacity still idle. Podines to be restarted are located at smelters that are currently in production in Australia and the United States. Due to continuing implemen tation of the Alcoa Production System, the additional output will require minimal, if any, increase in staffing. Alumina for the restarted capacity will be sourced by Alcoa World Alumina's supply network. "Alcoa is taking this action due to continued strong demand in the U.S. and in other parts of the world," commented Alcoa President and CEO Alain Belda. He said the company will continue to review market conditions under which additional idle capacity can be returned to production. "Alcoa's ability to produce primary aluminum profitably, at lower costs," he added, "is significantly enhanced by the rapid deployment of our Alcoa Production System." Person of the Year Alcoa CEO Alain Belda was honored as "Person of the Year 1999" by the Brazilian-American Chamber of Commerce. The organization recognizes individuals who have made significant contributions to the promotion of trade, investment, and business between the U.S. and Brazil. Past recipients include Dr. Henry Kissinger, Henry Ford II, David Rockefeller and former Alcoa Chairman Krome George. The Long Haul Outstanding service is part and parcel of an outstanding product. Two long-term success stories help to illustrate how that works in the wheel business. > Gene DiSano, executive vice president of Century Wheel and Rim, Los Angeles, remembers a time when he sold Alcoa's forged aluminum wheels on a trial basis and even gave some away in an effort to spark customer interest. His company has been distribut ing Alcoa truck wheels since they were first produced back in 1955. Today, Century is AFP's largest distributor. "Alcoa has been there to help us at every turn," says DiSano, whose team sells more than 30,000 Alcoa wheels each year. > Over the years, Spitz Auto Parts of Irwin, Pa. has grown as Alcoa's wheel business has grown. Supplying Alcoa wheels and other truck parts to small-trailer manufacturers across the country, Spitz services 20 OEM accounts with 32 different Alcoa wheel products as well as assembly and logistics support. Average delivery time: 72 hours. 20 NEWS AluMhum Gemma Casas Billing department The Ferrari 360 Modena sports car with an Alcoa spaceframe was on display in the Alcoa Corporate Center in Pittsburgh last fall, as automotive industry observers continued their favorable reviews: Associated Press reported: "For the aluminum maker, highprofile arrangements like that with Ferrari mean that other carmakers will take notice and realize the versatility of the metal, for all kinds of automotive applications. For Ferrari, there is apparently no turning back. By producing a bigger, lighter car that can outperform its predecessors, the company now must look at aluminum or composite materials - which are also lighter than steel - for future models." Automotive News, in an article titled, "Aluminum Use Made A Dream Come True," noted that the Ferrari 360 Modena is lighter and faster than its forerunners, yet also bigger, safer and easier to drive. "In a word, aluminum is the key ingredient that makes it possible to combine all those attributes," the magazine reported. American Metal Market said one of the reasons aluminum was chosen by Ferrari for the spaceframe and body of its 360 Modena was the ability to consolidate parts by using aluminum extrusions, castings, and sheet. Parts required in the spaceframe were 67% fewer than for a comparable steel structure - helping to defray the cost premium associated with aluminum vs. steel. AMM reported that Ferrari is considering making aluminum the dominant material in future vehicles. The Alcoa Brand. Ferrari is installing a nameplate on each 360 Modena that has the Alcoa corporate mark and says, "Alcoa Automotive." The plate is on the frame, in the engine compart ment opposite the Ferrari nameplate and visible through the glass hatch cover. (See back cover.) New Pla nt Goes On Line Great Lakes Minerals, a joint venture of Alcoa Industrial Chemicals with PR Minerals, completed its new facility in Wurtland, Kentucky and commenced operations in January 2000. Initial products to be processed are brown fused alumina and refractory grade bauxite. The raw materials are imported from China. A WHeel Plant for Brazil Alcoa Aluminio plans to build a 72,000-unit-per-year aluminum wheel plant in Brazil. Currently, Aluminio imports forged aluminum wheels from the Alcoa wheel plant in Hungary for truck and bus manufacturers in Brazil. The new plant, located in Pernambuco, ini tially will operate by finishing Alcoa wheels imported in unfinished form. NEWS 21 Great Place to Work! Alcoa Alumimo was rated one of the 50 greatest places to work in Brazil, according to Exame magazine, the main business publication in the country The nomination is a result of an exten sive research process that included interviews with 242 companies. The results are segmented into nine categories: compensation, benefits, career opportunities, management trust and confidence, pride of working in the company, internal communication, work environment, training and development, and innovation in the work system. Some Alcoa practices commended in the study: > Learning organization > A Palavra e Sua - confidential e-mail from employee to president > Community programs > Employee involvement in processes and teams > Benefit package X NeigHborKood Partnership In 1999, Alcoa Foundation launched Allegheny Works, an initiative to improve literacy and job training in Pittsburgh's Northside community, where Alcoa's corporate center is located. Thirteen grants totaling $200,000 were awarded to nonprofit organizations, as part of a five-year commitment from the Foundation for up to $1 million. Allegheny Works is the result of a year-long collabora tion between Alcoa Foundation and Northside community, reli gious, youth and education leaders. Projects range from producing an urban teen magazine to teaching economic literacy and entre preneurship to low-income families who want to start businesses. Good Building, ] Good Business j The Alcoa Corporate j Center is one of nine build- i ings to win a 1999 Business i Week!Architectural Record j Award, given annually to organizations who prove that "good design is good business." Alcoa was credit- j ed with possessing a clear j view of the 21st century, pur- j suing "the goal of becoming j a much more agile, inter active work culture." The Alcoa team included j Chairman Paul O'Neill and j several hundred employees working in various task forces, j A Benchmark in Safety Pinjarra Refinery of Alcoa World Alumina-Australia raised the bar on safety per formance when it underwent a Health and Safety audit conducted by Western Australia's Department of Minerals and Energy (DOME). Passing 141 of the 145 elements audited, the refinery operation was cred ited with a 97.3 % compli ance level, giving Pinjarra the highest score recorded by DOME since their manage ment system audits began in 1996. 22 NEWS Eliiabeth Kovacs Administrative assistant Melbourne, Australia Robert Tang Potline technology engineer Eastalco smelter Frederick, Maryland APS: Progress Report The Alcoa Production System - manufacturing arm of the Alcoa Business System - continues to roll out across the company's world wide network of operations, improving production efficiencies, job satisfaction, and responsiveness to customer needs. Following are a few recent examples of the results: Crossona, Pa. Extrusion plant metal inventory trimmed by 32%, compared with 1998 levels. Efficiency improved by elimination of waste from all processes in the value stream. In 1999, pounds pro duced per work hour registered their largest-ever annual gain. All told, a safer and cleaner as well as more productive work environment. Sorocaba, Brazil. Alcoa University training sessions in 1999 (including one for customers) focused on reliability and related issues. Delivery performance rose to 97.9% while order lead time fell from seven days to three days. Extrusion costs were trimmed by 17% in 1999 following a 19.7% reduction in 1998. Hemando, Miss. Alcoans at an extrusion plant which had been experiencing difficulties achieved a dramatic turnaround in 1999 through relentless pursuit of APS methods. Year over year, delivery performance improved by 11 %, recovery rates by 3 %, inventory turns by 38% - and there were zero lost workday injuries. The plant became solidly profitable. Dninen, Netherlands. APS teams in Drunen's Flat-Rolled Products plant reduced inventory simplified logistics, and acceler ated flow time by 30%. Drunen Extrusions developed a "visual factory" concept so crane operators can see exactly when and where to transport goods. Process improvements raised output by 100 kg per hour on each press. Sidney, Ohio. Alcoa Building Products sharply reduced in-process inventory and cut conversion costs by 3.7%. The plant recorded only one lost workday injury in the entire year. Sz6kesfeh6rvdr, Hungary. APS programs cut throughput time by 70% and inventory by 56 %. Output per employee increased by 17%, and safety performance improved by 50%. Lafayette, Ind. By late 1999, the ingot plant of Lafayette Operations had reached 100% performance on delivery of cut billet to Lafayette's extrusion plants. The tube mill raised delivery per formance by 29% and, in the case of driveshaft shipments, reached 99%. Inventory decreased by 38%. Shipments grew by 12%. Productivity measured in pounds shipped per work hour rose 23 %. Portland and Point Henry, Australia. > Pordand potrooms converted to a "pull" system - producing molten metal to meet real-time demand from the ingot mill reducing the need for vacuum crucibles from 24 to 14 and saving A$400,000 in capital ouday Ongoing savings will be around A$100,000 per year. > At Point Henry, reduction in coke inventory made it possible to take one coke tank out of service and reduce inventories of petro leum coke, for a one-time saving of some ASl.5 million. Additional one-time savings of A$560,000 flowed from eliminating 700 of 10,000 anode rods. Linking Up with Boeing Alcoa Mill Products linked APS to Boeing's Manufacturing System during three one-week long joint meetings of key execu tives and manufacturing staffs. Result: the entire material supply chain for the new generation Boeing 737 is connected - from casting, rolling, skin sheet polishing, structural bond, and final assembly for the fuselage skin sheet. Benefits: faster flow times, shortened cycle times, and lower costs for both enterprises. APS and Customer Service Alcoa Forged Products created a new subsidiary designed to increase service capabilities to large truck and trailer customers who outsource their tire mounting and logistics operations. Called Alcoa Sub-Assembly and Logistics (ASL), this unit has leveraged Alcoa's technology and APS to make major improvements in both noise reduction and ergonomics and to accelerate the order fulfill ment and tire mounting process to less than two hours. For cus tomers, this means significant savings in floor space requirements and inventory costs. The transformation will continue through 2000, as ASL opens four to six additional facilities. Productivity Improvement Extrusions Stdkaslehilrv'Sf Hungary Output par employee Base 1996 = 100 Sv O) m oonv '96 '97 '96 '99 '00* Estimate Shipments and Delivery Tube Mill Lafayette, Indiana o a io a '98 '99 Shipments millions of lbs. Delivery Performance percent Order Lead Time Flat-Rolled Products hapisriiirnn. Br3til Days 1% s. X1 11 i '97 '99 '99 Sheet 8) Foil Evaporator NEWS 23 24 NEWST? Innovations...................................... New lids Are Easy to Open. It took an aluminum company to improve on the plastic film laminates used to put a lid on prod ucts such as yogurt, applesauce, and contact lenses. Conventional peel-open lids consist of "adhesive peeling" laminates that often give consumers trouble when they try to open the package. Now Alcoa Foil Products has come up with a "cohesively peeling" film, using a patented blend of polyolefins developed by Alcoa Technical Center. The new material provides a good seal - in fact reduces the frequency of leakers - but makes it easier to open the container. In processing, it cuts costs and reduces the chance of contamina tion. Manufacturers such as Bausch & Lomb and food processors including Dannon and Mott are taking a keen interest. Bright Future. A new coated aluminum sheet from Alcoa Mill Products brings lasting luster to the outer body panels of Airstream's high-end recreational vehicles. Called Translite'" coated sheet, this coated aluminum alloy sheet was developed by Alcoa Technical Center. It's rolled and coated at Lancaster. For Airstream and other manufacturers, the appeal of Translite is a brilliant sur face that resists peeling, corrosion or yellowing over time. Recycling Saltcake. Researchers at Alcoa's San Ciprian refinery in Spain have developed a patented, solid-liquid calcination (SLC) process to remove organic compounds and carbonate from Bayer plant liquor. The process eliminates environmental impact on plant surroundings by recycling waste saltcake as a feed component. This material would otherwise be a hazardous waste that is costly to remediate. By recovering the saltcake, the new process reduces soda losses and environmental costs. Advance in Extrusions. A breakthrough in extrusion technology was spearheaded by Alcoa Europe and its Central Die Shop with support from the Alcoa system and collaboration with a European technical university'Objective: eliminate cosdy, time-consuming press trials for extrusion dies. The new system can simulate the extrusion process by computer, showing the metal flow all the way from billet to profile - the finished shape - taking into account all the differences in flow speed and temperatures. That's a world's first. Initial runs were successful, and worldwide implementation of the system will begin later this year. New Refractory Technology. A refractory placement technology and materials system, developed and patented by Alcoa Industrial Chemicals (AIC), is beginning to change the world of monolithic, cast-in-place refractories. Called InfilcastTM, this system is easier to mix and install, and it gives the refractory material higher resistance to thermal shock and a longer lifetime, compared to conventional castables. This makes alumina refracto ries more competitive against magnesia-based materials for such applications as steel ladle linings and prefabricated refractory shapes. No high capital cost machinery is required. A number of customers have now taken licenses to use Infilcast, and worldwide interest is strong. AIC expects this technology to be a major driver for growth of the tabular and reactive alumina businesses in coming years. Financial a and Corporate 26 Ttyiill's AknTs Major A f;tH.ft 28 Vl v u .l i iuiincui Data 29 huancu! Review 39 Xiana^in'kmtx Report 39 Audit i .omntitn e Rcpui i 39 Indejn nde.nt Accountant's Report 40 (..onsolivl.uvJ luunncnd Statements 44 Notes to iinaiKial Statements 55 Stipyl e men talHna need inlonnauon; 56 I I-Year Hnancial Data 58 \Y yrldwtde < )peraoons' 62 Directors ami t )l beers 64 Business Units . : 65 Shareholder Information 66 tdossuri 67 Index VSfarX<M$. TRENDS in Alcoa's Major Markets TRANSPORTATION $4.0 BILLION (25%) Alcoa Segments that sell products to this market: - flat-rolled products - engineered products - other Revenue increases in the auto motive sector pushed Alcoa's transportation market sales ahead of those in packaging for the second year in a row. The automotive market consumes approximately 4.5 million mtpy of aluminum globally, or about 10 billion pounds. (The Aluminum Association) North American auto produc tion currently uses some 3.# billion pounds of aluminum per year, of which close to 80% is in the form of castings. (Oucker) In 1999 Alcoa formed a new business, Alcoa Automotive Castings, to strengthen its posi tion for global growth in cast components. Worldwide, an estimated 1,200 launch vehicles will be used to put satellites into orbit through 2008, requiring an average of 85,000 pounds of aluminum per rocket. Aircraft Build Rates 1,200 Growth in Aluminum Content lbs. per vehicle. North America 900 600 300 96 96 97 98 99 00E Planes with fewer than 100 seats B Planes with more than 100 seats as 91 96 & 99 Source: Ducker PACKAGING $3.2 BILLION (20%) Alcoa Segments that sell products to this market: - flat-rolled products - other Alcoa's packaging revenues are primarily horn sales of beverage can sheet, followed by plastic and aluminum closures, foil products and packaging machinery Total U.S. aluminum beverage can shipments in 1999 slipped .7% to just over 102 billion units. Soft-drink cans decreased by .9%, while the decline in beer cans eased to .3%. Excess capacity in can body sheet has pressured margins for the past dozen years. Several producers have recently con verted their rolling mills to other products. A report by Credit Suisse First Boston suggests that the market "will remain difficult for two more years until capacity is rationalized." The single serve bottled water market is growing by more than 20% a year. Alcoa Closure Systems international's pushpull Sport-Lok* closure Is one of the most successful products in this segment. Aluminum Beverage Can Demand billions of cans 200 150 100 50 94 95 96 97 98 99 M Middle East & Africa :& Latin America & Mexico M Europe SS U.S. & Canada B Pacific Sources: Alcoa, CMI, CCL Kaal, IMES Bottled Water Growth billions of units 94 95 96 97 98 99 Small Size PET in U.S. Si Canada. Sources: Alcoa, Industry 300 200 100 DISTRIBUTION AND OTHER $2.9 BILLION (18%) Alcoa Segments that sell products to this market: - flat-rolled products - engineered products - other Most of the revenues in this market are from sales of alu minum extrusions, sheet, and plate to distributors. "Other" includes such items as magnesium, and products and services for the telecom munications industry. 26 The U.S. distributor market share for sheet, plate, and extrusions remained consistent in 1999 at about 36% or 2.4 billion pounds shipped. (NAAD) Fueled by Internet traffic and demand for increased bandwidth, revenues of Alcoa Fujikura Ltd. Telecommunications Group increased by 43% in 1999. Two new plants and an acquisi tion were added to support growth in this market. Alcoa Revenue Growth from the Telecommunications Industry 1991 =100 ALUMINUM INGOT $2.2 BILLION (13%) Alcoa Segments that sell products to this market: - primary metals Alcoa will restart 200,000 mtpy of primary aluminum capacity in 2000; 250,000 mtpy remain idle. * Worldwide primary aluminum capacity is estimated at 25.4 million mtpy (James E King), including 3.2 million mtpy capacity owned by Alcoa. Aluminum ingot is an interna tionally produced, priced and traded commodity whose principal trading market is the London Metal Exchange, or LME. Alcoa produces aluminum ingot primarily for further fabrication into higher value products. Ingot shipments to third parties in 1999 were 32% of total aluminum shipments. Average Ingot Prices per pound 8889 90 91 92 93 94 95 96 97 98 99 SI Alcoa 9 Metals Week BUILDING AND CONSTRUCTION $2.2 BILLION (13%) Alcoa Segments that sell products to this market: - flat-rolled products - engineered products - other Alcoa's revenues in this market are from an array of fabricated aluminum products for com mercial and residential applica tions plus vinyl siding for new homes and remodeling.* * Repair and remodeling expen ditures in the U.S. are projected to grow 4-5% a year through 2005. With broad product lines, Alcoa Building Products (ABP) is a leader in this segment. The introduction in 1999 of two new high-end vinyl siding panels strengthened ABP's position. The National Association of Home Builders, the U.S. Conference of Mayors, and HUD have set a goal to build a million affordable housing units in central cities and inner suburbs. As a lower cost, maintenance-free cladding material, vinyl siding is posi tioned to play a prominent role in this effort. The growth of Alcoa's Kawneer Company architec-. rural products in Europe outpaced the growth of the commercial construction market as a whole. ALUMINA AND CHEMICALS $1.8 BILLION (11 %) Alcoa Segments that sell products to this market: - alumina and chemicals Alcoa is the world's largest producer of alumina, the white, powdery substance refined from bauxite ore. Alumina is used to produce aluminum and alumina-based chemicals. World alumina supplies were tightened in 1999 by an explo sion July 5 that disabled Kaiser's 1 million mtpy Gramercy, La. refinery. Partially offsetting this shortfall, the Wagerup, Western Australia refinery of Alcoa World Alumina and Chemicals came on stream in July with 440,000 mtpy of additional capacity. in 1999 Alcoa World Alumina and Chemicals sold about 53% of consolidated alumina production to third parties. European steel producers are operating at maximum capacity and some are forecasting pro duction records for 2000. Alcoa Industrial Chemicals' alumina refractory products used to line steel furnaces are in a position to benefit from this market growth. Worldwide Demand for Alumina millions of metric tons 50 40 30 20 10 94 95 96 97 98 99 00E i&i Total imports into CIS and China S& Non-metallurgical alumina S Smelter-grada alumina Source: CRU Worldwide Aluminum Ingot Inventory millions of metric tons as of 10/99 U.S. Repair & Remodeling Expenditures billions of dollars 150 125 100 75 88 90 92 94 96 98 00E Source: U.S. Census Bureau C-50, National Association of Home Builders Alcoa Alumina Production millions of metric tons 14 12 10 8 94 95 96 97 98 99 27 Selected Financial Data (dollars In millions, except per-share amounts and ingot prices) Sales Net income- Earnings per common share Basic Diluted Alcoa's average realized price per pound for aluminum ingot Average US. market price per pound for aluminum ingot (Metals Week) Cash dividends paid per common share Total assets Long-term debt (noncurrent) mo $16,325 1.05-5 2.3 132 ,6? .50.5 1 1998 $15,340 853 2.44 2.42 .67 .66 .75 17,463 2,877 * Includes net after-tax gains of $44 in 1997, and net after-tax charges of $122 in 1996 and $10 in 1995 1997 $13,319 805 2.33 2.31 .75 .77 .488 13,071 1,457 1996 $13,061 515 1.47 1.46 .73 .71 .665 13,450 1,690 1995 $12,500 791 2.22 2.20 .81 .86 .45 13,643 1,216 Revenues by Market billions of dollars Alumina and Chemicals Building and Construction Aluminum Ingot Distribution Packaging Transportation Revenues by Geographic Area billions of dollars MW Other Americas Pacific Europe US 95 96 97 98 99 95 96 97 98 99 Results of Operations (dollars in millions, except share amounts and ingot prices; shipments in thousands ot metric tons (mtj) Earnings Summary 1999 was a milestone year for Alcoa, as net income exceeded $1 billion for the first time in the company's 111-year history. Highlights from the year include: > Net income of $1,054, a 24% increase from 1998; > Aluminum shipments of 4,478 mt, up 13% from 1998; > Revenues of $16,323, driven by higher volumes; and > Return on average shareholders' equity of 172%. The improvement in Alcoa's 1999 net income was the result of higher aluminum revenues, operating improvements and a lower effective tax rate. Revenues increased as a result of higher volumes, partly offset by lower overall aluminum prices. Alcoa's financial results for 1998 also were strong, as summarized below: > Net income of $853, 6% above 1997; > Aluminum shipments of 3,951 mt, up 34% from 1997; > Revenues of $15,340, resulting from higher volumes; and > Return on average shareholders' equity of 163%. Improved financial results for 1998 relative to 1997 were the result of higher volumes, aided in part by the Alumax and Inespal acquisitions, and good cost performance. Partially offsetting these positive factors were lower overall aluminum and alumina prices and the impact of higher debt levels. Segment information Alcoa's operations consist of four worldwide segments: Alumina and Chemicals, Primary Metals, Flat-Rolled Products, and Engineered Products. Alcoa businesses that are not reported to management as part of one of these four segments are aggregated and reported as "Other." Alcoa's management reporting system measures the after-tax operating income (ATOt) of each segment. Nonoperating items, such as interest income, interest expense, foreign exchange gains/losses, the effects of UFO accounting and minority interest, are excluded from segment profit In addition, certain expenses, such as corporate general administrative expenses, depreciation and amortization on corporate assets, and certain special items, are not included in segment results. Segment assets exclude cash, cash equivalents, short term investments and all deferred taxes. Segment assets also exclude items such as corporate fixed assets, UFO reserve, goodwill allocated to corporate and other amounts. In 1999 Alcoa changed its internal reporting system to include the results of aluminum hedging in the Primary Metals segment Previously, these results were included as reconciling items between segment ATOl and net income. Segment results for 1998 and 1997 have been restated to reflect this change. ATOI for all segments totaled $1,489 in 1999, compared with $1344 in 1998 and $1,247 in 1997 See Note O to the financial state ments for additional information. The following discussion provides shipment, revenue and ATOF data for each segment for the years 1997 through 1999. Net Income millions of dollars 95 96 97 98 99 Percent Return on Shareholders' Equity 95 96 97 98 99 i Alumia} and ChenilCiils Third-party alumina shipments (mt) Third-party sales Intersegment sales Total sales After-tax operadng income mop 7,9331,34 2 y2i $2,76;' s to;' 1998 7,130 $1,847 832 $2,679 $ 318 1997 7,223 $1,978 634 $2,612 $ 302 This segment's activities include the mining of bauxite, which is then refined into alumina. Alumina is sold to internal and external customers worldwide or is processed into industrial chemical prod ucts. Approximately two-thirds of the durd-party sales from this segment are from alumina. In 1999, third-party sales of alumina were up 5% compared with 1998. Shipments fell 1% while realized prices rose 6%. For 1998, third-party sales of alumina fell 14% from 1997, as realized prices fell 13% and shipments fell 1%. Lower third-party shipments, as a consequence of higher intersegment sales in 1999 and 1998, were a direct result of the Alumax acquisition. Previously, sales of alumina to Alumax were classified as third-party revenues; these sales are now recorded as intersegment. Including intersegment sales, shipments were down slightly in 1999 and up in 1998. Third-party sales of alumina-based chemical products were down 3% in 1999, as the divestiture of Alcoa Specialty Chemicals in 1998, lower prices and a lower value-added mix more than offset higher shipments. In 1998, sales were unchanged compared with 1997, as higher shipments, aided by acquisitions, were offset by lower prices. Segment ATOl for 1999 fell 3% from 1998 to $307 Alumina ATOl fell 4%, as Intersegment sales comprised a higher percentage of total sales. Offsetting a portion of this decline was improved cost perfor mance in Brazil, along with lower energy and raw material costs at operations in Australia and the U.S., respectively. Chemicals ATOl for 1999 rose 13%, as the impact of lower third-party sales was more than offset by cost improvements relating to productivity enhance ments at North American operations and lower production costs. Segment ATOl in 1998 rose 5% over 1997, as lower operating costs and the impact of the Inespal acquisition were partly offset by lower realized prices. hi 1999 Alcoa completed the expansion of its 'Xhgerup alumina refinery in Australia. This expansion, which increases Wigerup's capacity by 440,000 mt to a total plant capacity of 2.2 million mt per year, was completed on time and on budget. !!. tVitY-tiry f&stsii; Third-party aluminum shipments (mt) Third-party sales Intersegment sales Total sales After-tax operating income 1999 $2,2-n .$3,03-1 $ ;33 1998 1,392 $2,105 2,509 $4,614 $ 372 1997 940 $3,483 $ 399 The focus of this segment is Alcoa's worldwide smelter system Primary Metals receives alumina from the Alumina and Chemicals segment and produces aluminum ingot to be used by Alcoa's fabricat ing businesses, as well as sold to outside customers. Other products produced and sold by this segment include powder and scrap. r*1 OO OO 00 V* --< eq cd ed eo in eo to Revenues by Segment billions of dollars Alumina & Chemicals Primary Metals Engineered Products Flat-rolled Products Other 96 97 98 99 Alumina Production thousands of metric tons 95 96 97 98 99 Alcoa's aluminum hedging activities also are included in this segment. Aluminum ingot produced by Alcoa and used internally is transferred to other segments at prevailing market prices. Third-party sales of ingot, which nuke up the majority of this segment's thiid-party revenues, rose 4% from 1998. The increase was due to higher ship ments, which also rose 4%. On average, prices in 1999 compared with 1998 were unchanged. In 1998, third-party sales of ingot rose 32% from 1997. The increase was the result of additional shipments from the smelting operations of acquired companies, which were partially offset by an 11% decline in realized prices. Intersegment sales increased in 1999 relative to 1998, and in 1998 relative to 1997, as Alumax and Inespal sourced the majority of their metal needs internally. Alcoa's average realized price for ingot in 1999 was 67 cents per pound, unchanged from 1998. In 1997, the average realized price was 75 cents. This compares with average prices on the London Metal Exchange (LVfE) of 63 cents per pound in 1999 and 1998, and 74 cents in 1997 Alcoa operated its worldwide smelting system at 90% of rated capacity in 1999. In January 2000, Alcoa announced that it will restart approximately 200,000 mt of idle smelting capacity by the end of the current year. Alcoa continues to have 250,000 mt of smelting capacity idle. Primary Metals ATOI rose 44% in 1999 from 1998. Driving the improvement was a 7% increase in shipments due to including a full year's results from the 1998 July purchase of Alumax. Lower raw material prices, $45 of productivity improvements at U.S. operations and cost efficiencies in Brazil also had a positive impact on segment ATOI. Mark-to-market gains in 1999 versus losses in 1998 added $57 to ATOI in 1999. Primary metals atoi fell 7% in 1998 from 1997, as lower metal prices and higher mark-to-market losses more than offset the impact of acquired companies and the results of internal hedging. Lower operating costs in 1998 helped ease the decline, muting the impact of lower prices. III. Rai-Hofei Protiucis Third-parry aluminum shipments (mt) Third-parry sales Intersegment sales Total sales After-tax operating income 1,`:S1 $ 281 1998 1,764 $4,900 59 $4,959 $ 306 1997 1,469 $4,188 $3 $4,241 $ 269 This segment's principal business is the production and sale of aluminum plate, sheet and foil This segment includes rigid container sheet (RCS), which is used to produce aluminum beverage cans, and mill products used in the transportation and distributor markets. Approximately 45% of the third-party shipments and sales in this segment are derived from the sale of RCS, while a similar amount is obtained from mill products. Other flat-rolled products, such as foil, comprise the remainder of this segment. Third-party sales from this segment in 1999 increased 4% from 1998, as shipments, aided by a full year's results from the former Alumax locations, rose 12%. Third-party sales in 1998 increased 17% over 1997, as the impact from acquisitions was partially offset by a 2% decline in prices. Third-party sales from RCS were down 5% in 1999 primarily as a result of lower prices. RCS pricing tends to lag movements in the co o crj co O t-- Lf5 C\J U-5 00 CV1 Aluminum Production thousands of metric tons 95 96 97 98 99 31 LME by three to six months, resulting in RCS prices falling year over year. For the industry as a whole, 1599 shipments of beverage cans by U.S. can manufacturers fell .7% from 1998. In 1998, these shipments rose 2.2%. Third-party sales were essentially unchanged in 1998 from 1997, as were shipments and prices. Mill products third-party sales were up 14% from 1998, as ship ments rose 32% and average prices fell 14%. Higher shipments in the U.S. and the impact of acquisitions were partly offset by lower shipments in Latin America. Average realized prices fell in part due to acquisitions, as post-Alumax, lower value-added products made up a higher percentage of total shipments. Third-party sales from mill products in 1998 were up 21% over 1997 Shipments, aided by acqui sitions, increased 23%, while prices fell 2%. ATOI for Flat-Rolled Products fell 8% in 1999 as higher revenues and cost reductions were overshadowed by lower prices and lower equity earnings. RCS ATOI fell 14%, as a $16 decline in equity earnings from Kaal, a 50%-owned joint venture that operates RCS facilities in Australia and Japan, had a negative impact on financial perfor mance. The decline in Kaal's earnings was primarily the result of lower revenues from Japan. Lower prices, $3 of higher advertising costs and a less profitable mix, partially offset by $7 of cost improve ments related to purchased materials, also had a negative impact on RCS ATOI. Mill products ATOI fell 9%, as improved results for U.S. operations were more than offset by weaker performance in Latin America and Europe. U.S. mill products results were aided by acquisitions, which increased volumes, along with $11 of improved productivity and cost performance. A shift in mix towards lower value-added products offset a portion of these gains. In Europe and Latin America, lower prices were partly offset by productivity and cost improvements. Partly offsetting the decline in RCS and mill products ATOI were improved results from foil operations and the shutdown of Alcoa Memory Products in 1999. In 1998, ATOI for Flat-Rolled Products rose 14%, as increases from mill products and foil were partially offset by declines in RCS. RCS ATOI was down, as higher costs for labor and services reduced margins. Mill products ATOI rose, as acquisitions and higher prices for products used in the transportation market offset losses related to the production and sale of computer memory disks. IV. Enc-ihesisrd Products Third-party aluminum shipments (mt) Third-party sales Intersegment sales Total sales After-tax operating income 9S1: Ao 5 (SO 1998 729 $3,110 11 $3,121 $ 183 1997 441 $2,077 9 $2,086 $ 100 This segment includes hard and soft alloy extrusions, aluminum forgings, rod and bar. These products serve the transportation, construction and distributor markets. Third-party shipments for this segment were up 36% in 1999 generating a 20% increase in revenues. In 1998, third-party shipments rose 65% over 1997, resulting in a 50% increase in revenues. Acquisitions and higher shipments of forged wheels, partly offset by the 1998 sale of Alcotec, a wire fabricator, were responsible for the increase in shipments. Average realized prices for Engineered Products for the 1999 period fell 12%, to $1.71 CVl 00 --I "fl* LCTDi >--I ID GO e-- LO 00 05 05 Tl> Aluminum Product Shipments thousands of metnc tons WM Third-Party Ingot t&Ht Fabncated Products 95 96 97 98 99 per pound, primarily due to the addition of the Alumax extrusion businesses in the 1998 third quarter. These businesses produce primarily soft alloy extrusions, which have a lower value-added, resulting in a reduction in average realized prices. Extruded product sales were up 26% from 1998 as shipments rose 43%. In 1998, sales rose 65% on a 91% increase in shipments. The Alumax acquisition was a significant factor in the increase in ship ments. Partially offsetting higher shipments were lower soft alloy prices and a 23% drop in shipments of hard alloy products. Forged wheel sales increased 33% and 32% in 1999 and 1998, respectively, from the prior year. Continued strong demand for forged wheels used in sport utility vehicles and light trucks was a major factor in the higher shipment levels. Engineered Products 1999 ATOI fell 2% from 1998 to $180. The 1998 sale of Alcotec resulted in an $18 decrease in 1999 segment ATOI relative to 1998. Additionally, declines in the extrusion business in Latin America and in the architectural extrusion business in the U.S. were nearly offset by improved results in Europe and from forged products. The decline in Latin America was due to lower volumes and prices, while the drop in returns from the architectural extrusion business was due to lower volumes and higher production costs. Europe benefited from acquisitions, increased market share and productivity improvements. Forged products ATOI rose 39%, as higher prices and continued growth in the wheel market offset a shift to a lower value-added mix. ATOI in 1998 for this segment rose 84% over the comparable 1997 period. The increase was due to acquired companies, the above-mentioned gain on the sale of Alcoa's interest in Alcotec and improved operating results from European extrusion facilities. Also contributing to the increase were higher shipments of forged wheels. V Other Third-party aluminum shipments (rat) Third-party sales After-tax operating income <> 'j i-S6 1998 66 $3,362 $ 165 1997 106 $3,457 $ 177 This category includes Alcoa Fujikura Ltd. (AFL), which produces electrical components for the automotive industry along with tele communications products. In addition, Alcoa's aluminum and plastic closures operations, residential building products operations and aluminum automotive engineering and parts businesses are included in this group. Third-party sales from this group were up 1% from 1998, as higher sales of automotive electrical components, the acqui sition of the remaining 50% of A-CMI in the 1999 third quarter and increased sales from closures were nearly offset by declines from packaging operations in BraziL This segment's third-party sales in 1998 were down 3% from 1997, as higher sales of automotive electri cal components were more than offset by the loss of revenues from the sale of Alcoa Aluminio's cable business in late 1997. Third-party sales at AFL increased 5% in 1999 and 7% in 1998, relative to the prior year, as higher volumes were pardy offset by declining prices. Closures revenue for 1999 rose 7% from 1998, as higher volumes were somewhat offset by lower prices. In 1998, closures revenues fell 1% compared with 1997 This group incurred a special item gain of $71 in 1997 The gain was the result of the sale of various businesses, a majority interest in Alcoa's Brazilian cable business and land in Japan. ATOI for this group rose 13% from 1998, as improvements in closures and aluminum automotive parts were partly offset by a decline from packaging operations in BraziL The improvement in closures ATOI was a result of higher volumes and $6 of cost improve ments, offset in part by lower prices. Aluminum automotive parts benefited from higher volumes and selling prices, lower administra tive costs and $12 of improved productivity. Cost improvements of $22 somewhat offset the impact of a 23% decline in revenues from packaging operations in Brazil. In 1998, ATOI fell 7% from 1997, as improved results at AFL, along with a gain from the sale of Alcoa's Australian gold operations, were more than offset by special item gains in 1997 versus no special items in 1998. Reconciliation of ato: to Consolidated Net Income The following reconciles segment ATOI to Alcoa's consolidated net income and explains each line item in die reconciliation: Total after-tax operating income Elimination of intersegment (profit) loss Unallocated amounts (net of tax): Interest income Interest expense Minority interest Corporate expense Other Consolidated net income Si 3 ('? ) u (; 7 f > 00 fa* 1998 $1,344 (16) 64 (129) (238) (197) 25 1997 $1,247 12 67 (92) (268) (172) 11 $ 805 Items required to reconcile ATOI to consolidated net income include: > Corporate adjustments to eliminate any remaining profit or loss between segments; > The after-tax impact of interest income and expense at che statutory rate; > Minority interest; > Corporate expense, comprised of general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities along with depreciation on corporate owned assets; and > Other, which includes the impact of LIFO, differences between estimated tax rates used in each segment and the corporate effective tax rate and other nonoperating items such as foreign exchange. The variance in Ocher from 1999 to 1998 was due to UFO adjust ments that occurred in 1999 and adjustments to deferred taxes that resulted from a change in the Australian corporate income tax rate. Special items There were no special items recorded in 1999 or 1998. Special items in 1997 resulted in a net gain of $96 ($44 after tax and minority interests, or 13 cents per basic share). The fourth quarter sale of a majority interest in Alcoa's Brazilian cable business and land in Japan generated gains of $86. In addition, the sale of equity securities resulted in a gain of $38, while the divestiture of noncore businesses provided $25. These gains were partially offset by charges of $53, related to environmental and impairment matters. Costs and Other Costs ol Goods Sold -- Cost of goods sold (COGS) totaled $12,536 for 1999, up 5% from 1998. The increase was due to higher volumes that generated additional costs of $1,100. The higher volumes relate primarily to acquired companies. Offsetting a portion of the acquisition-driven increases were cost and operating improvements of approximately $500. The $1,658 increase in 1998 relative to 1997 was due to higher volumes of $1,800, which also were related primarily to acquisitions, partly offset by cost improvements of $200. COGS as a percentage of sales fell 1% to 76.8% in 199% as higher shipments, good cost control and a UFO liquidation more than offset the negative impact of lower overall aluminum prices on revenues. In 1998, COGS as a percentage of sales was .7 percentage points higher than the 77.1% recorded in 1997, as higher shipments and a higher value-added product mix more than offset the impact of cost improvements. Selling and General Administrative Expenses-- S&ga expenses increased 9%, or $68, to $851 in 1999. The higher level of these costs in 1999 was due to acquisitions; Alcoa owned Alumax for 12 months in 1999 versus six months in 1998. In addition, higher personnel costs related to pay for performance had a negative impact on s&GA in 1999. As a percentage of sales revenue, S&GA was 5.2% in 1999 S&GA for 1998 rose $101 from 1997 to $783, or 5.1% of sales revenues. The higher 1998 S&GA total results from acquisitions, partially offset by cost reductions. Research and Development Expenses -- r&d expenses of $128 in 1999 were essentially unchanged from 1998, as a reduction in corporate spending was offset by increases in the primary metals and flat-rolled products areas. R&D costs for 1998 were down 10% from 1997 A reduction in R&D personnel was primarily responsible for lower spending on research in the metals, castings, closures and alumina businesses. Interest Expense -- Interest expense of $195 in 1999 was down $3 from 1998. Total interest costs, including capitalized interest, were up 2% to $216 in 1999. The increase in total interest costs was due to a higher level of capitalized interest along with higher interest rates partly offset by lower debt levels and the repayment of some higher cost debt. The increase in capitalized interest relates to the expansion of the Wagerup alumina refinery in Australia. Interest expense in 1998 totaled $198, up $57 from 1997 The increase was the result of 1998 borrowings of over $1,850, the proceeds of which were used primarily to fund acquisitions. Income Taxes -- Alcoa's effective tax rate in 1999 was 29.9%, 5.1 percentage points below the statutory rate of 35%. The lower rate is primarily due to lower taxes on foreign income and a reduction in the Australian corporate income tax rate. In the 1999 fourth quarter, Australia reduced its corporate income tax rate from 36% to 34% for 2000 and to 30% for 2001. Alcoa's effective tax rate in 1998 was 32%, three percentage points below the statutory rate of 35%. The lower rate is primarily due to lower taxes on foreign income. The 1997 effective tax rate was 33%, two percentage points below the statutory rate of 35%. The lower rate is primarily due to the favorable tax effect of certain special items. OO CM -- OO OO Cost of Goods Sold as a percent of sales ;lii Revenue billions of dollars Cost of goods sold as a percent of sales 95 96 97 98 99 in i--< CM LT> in in in in Selling and General Administrative Expenses as a percent of sales Revenue billions of dollars :<: Selling and general administrative expenses as a percent of sales 95 96 97 98 99 Other Income/Foreign Currency -- Other income totaled $124 in 1993 down $2$ from 1998. The decline was due to a $57 decline in interest income, a negative swing in foreign exchange and lower gains from asset sales. Offsetting a portion of these negative factors were gains from marking to market certain aluminum commodity contracts versus losses in 1998. In 1998 from 1997, other income fell 9% to $149. The majority of the change was due to increased losses from marking to market aluminum commodity contracts and lower interest income. Offsetting a portion of these negative factors were increased gains related to asset sales, higher equity income and a positive swing in foreign exchange. Exchange gains (losses) included in other income were $(18.7) in 1999 $(3.7) in 1998 and $(9.8) in 1997 The total impact on net income, after taxes and minority interests, was $(8_3) in 1999 $(8.0) in 1998 and $6.9 in 1997 In July 1999 the Brazilian real became the functional currency for translating the financial statements of Alcoa's 59%-owned Brazilian subsidiary, Alcoa Aluminio (Aluminio). Economic factors and circumstances related to Aluminio's operations had changed significandy since the devaluation of the real in the 1999 first quarter. Under SFAS 52, "Foreign Currency Translation," the change in these facts and circumstances required a change to Aluminio's functional currency. As a result, at July 1,1999 Alcoa's shareholders' equity (cumulative translation adjustment) and minority interests were reduced by $156 and $108, respectively. These amounts were driven principally by a reduction in fixed assets. This reduction resulted in a $15 decrease in Aluminio's depreciation expense for 1999. Minority Interests -- Minority interests' share of income from operations rose 2% from 1998 to $242. The increase was due to higher earnings at Alcoa of Australia (AofA) andAFL, partly offset by lower earnings from Alcoa World Alumina LIjC For 1998, minority interest fell 11% to $238, as lower earnings at Aluminio and AofA were partly offset by improvements at AFL. Risk Factors In addition to the risks inherent in its operations, Alcoa is exposed to financial, market, political and economic risks. The following discussion, which provides additional detail regarding Alcoa's expo sure to the risks of changing commodity prices, foreign exchange rates and interest rates, includes forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those projected in these forward-looking statements. Commodity Price Risks -- Alcoa is a leading global producer of aluminum ingot and aluminum fabricated products. As a condition of sale, customers often require Alcoa to commit to fixed-price contracts that sometimes extend a number of years into the future. Customers will likely require Alcoa to enter into similar arrangements in the future. These contracts expose Alcoa to the risk of fluctuating aluminum prices between the time the order is accepted and the time that the order ships. In the U.S., Alcoa is net metal short and is subject to the risk of higher aluminum prices for the anticipated metal purchases required to fulfill the long-term customer contracts noted above. To hedge this risk, Alcoa enters into long positions, principally using futures and options. Alcoa follows a stable pattern of purchasing metal; therefore, it is highly likely that anticipated metal requirements will be met. At December 31, 1999 and 1998, these contracts totaled approximately 465,000 mt and 933,000 mt, respectively. These contracts act to fix the purchase price for these metal purchase requirements, thereby reducing Alcoa's risk to rising metal prices. A hypothetical 10% change from the 1999 year-end, three-month LME aluminum ingot price of $1,650 per mt would result in a pretax gain or loss to future earnings of $77 related to all of the futures and options contracts noted above. However, it should be noted that any change in the value of these contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying metal purcliase transactions. Earnings were selected as the measure of sensitivity due to the historical relationship between aluminum ingot prices and Alcoa's earnings. The hypothetical change of 10% was calculated using a parallel shift in the existing December 31, 1999 forward price curve for aluminum ingot. The price curve takes into account the time value of money, as well as future expectations regarding the price of aluminum ingot. The futures and options contracts noted above are with credit worthy counterparties and are further supported by cash, treasury bills or irrevocable letters of credit issued by carefully chosen banks. The expiration dates of the options and the delivery dates of the futures contracts noted above do not always coincide exactly with the dates on which Alcoa is required to purchase metal to meet its contractual commitments with customers. Accordingly, some of the futures and options positions will be rolled forward. This may result in significant cash inflows if the hedging contracts are "in-themoney" 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. Alcoa also had 21,000 mt and 29000 mt of futures and options contracts outstanding at year-end 1999 and 1998, respectively, that cover long-term, fixed-price commitments to supply customers with metal from internal sources. Accounting convention requires that these contracts be marked to market, which resulted in after tax gains of $12 in 1999 and charges of $45 in 1998 and $13 in 1997 A hypothetical 10% change in aluminum ingot prices from the year-end 1999 level of $1,650 per mt would result in a pretax gain or loss of $3 related to these positions. The hypothetical gain or loss was calculated using the same model and assumptions noted earlier. Alcoa sells products to various third parties at prices that are influenced by changes in LME aluminum prices. From time to time, the company may elect to hedge a portion of these exposures to reduce the risk of fluctuating market prices on these sales. Towards this end, Alcoa may enter into short positions using futures and options contracts. At December 31,1999, these contracts totaled 244,000 mt. These contracts act to fix a portion of the sales price related to these sales contracts. A hypothetical 10% change in alumi num ingot prices from the year-end 1999 level of $1,650 per mt would result in a pretax gain or loss of $29 related to these positions. The hypothetical gain or loss was calculated using the same model and assumptions noted earlier. Alcoa also purchases certain other commodities, such as fuel oil, natural gas and copper, for its operations and enters into futures and options contracts to eliminate volatility in the prices of sudi products. None of these contracts are material. For additional information on financial instruments, see Notes A and T to the financial statements. Foreign Exchange Risks -- Alcoa is subject to significant exposure from fluctuations in foreign currencies. As a matter of company policy, foreign currency exchange contracts, including forwards and options, are sometimes used to limit the risk of fluctuating exchange rates. A hypothetical 10% change in applicable 1999 year-end forward rates would result in a pretax gain or loss of approximately $169 related to these positions. However, it should be noted that any change in the value of these contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged item. The model assumes a parallel shift in the forward curve for the applicable currencies and includes the foreign currency impacts of Alcoa's cross-currency interest rate swaps. See Notes A and T for information related to the accounting policies and fair market values of Alcoa's foreign exchange contracts at December 31,1999 and 1998. Interest Rate Risks -- Alcoa attempts to maintain a reasonable balance between fixed- and floating-rate debt and uses interest rate swaps and caps to keep financing costs as low as possible. At December 31,1999 and 1998, Alcoa had $3,067 and $3,489 of debt outstanding at effective interest rates of 5.8% and 6.1%, respectively, after the impact of interest rate swaps and caps is taken into account. A hypodietical change of 10% in Alcoa's effective interest rate from year-end 1999 levels would increase or decrease interest expense by $20. The interest rate effect of Alcoa's cross-currency interest rate swaps has been included in this analysis. For more information related to Alcoa's use of interest rate instruments, see Notes A and T. Risk Management -- All of the aluminum and other commodity contracts, as well as the various types of financial instruments, are straightforward and are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility, and principally cover underlying exposures. Alcoa's commodity and derivative activities are subject to the management, direction and control of the Strategic Risk Manage ment Committee (SRMC). SRMC is composed of the chief executive officer, the chief financial officer and other officers and employees that the chief executive officer may select from time to time. SRMC reports to the board of directors at each of its scheduled meetings on the scope of its derivative activities. Material Limitations -- The disclosures, with respect to aluminum prices and foreign exchange risk, do noc take into account the under lying anticipated purchase obligations and the underlying trans actional foreign exchange exposures. If the underlying items were included in the analysis, the gains or losses on the futures and options contracts may be offset Actual results will be determined by a number of factors that are not under Alcoa's control and could vary significantly from those disclosed. Environmental Matters Alcoa continues to participate in environmental assessments and cleanups at a number of locations. These include approximately 10 owned or operating facilities and adjoining properties, approxi mately 10 previously owned or operated facilities and adjoining Cash from Operations millions of dollars 95 96 97 98 99 Debt as a Percent of Invested Capital properties and approximately 65 Superfund and other waste sites. A liability is recorded for environmental remediation costs or damages when a cleanup program becomes probable and the costs or damages can be reasonably estimated. For additional information, see Notes A and U to the financial statements. As assessments and cleanups proceed, the liability is adjusted based on progress in determining the extent of remedial actions and related costs and damages. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements and technological changes. Therefore, it is not possible to determine the outcomes or to estimate with any degree of accuracy the potential costs for certain of these matters. For example, there are issues related to Alcoa's Massena, New York, and Pt. Comfort, Texas plant sites that allege natural resource damage or off-site contaminated sediments, where investigations are ongoing. Based on these faces, it is possible chat Alcoa's results of operations, in a particular period, could be materially affected by matters relating to these two sites. However, based on facts currently available, management believes that the disposition of these matters will not have a materially adverse effect on the financial position or liquidity of the company. Alcoa's remediation reserve balance at the end of 1999 was $174, of which $63 was classified as a current liability, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. About 22% of this balance relates to Alcoa's Massena, New York plant site and 11% relates to Alcoa's Pt. Comfort, Texas plant site. Remediation expenses charged to the reserve were $47 in 1999 $63 in 1998 and $64 in 1997 These include expenditures currently mandated, as well as those not required by any regulatory authority or third party. In 1999 die reserve balance was increased by $4 to cover anticipated future environmental expenditures. Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be about 2% of cost of goods sold. Liquidity and Capital Resources (dollars in millions, except share amounts) Cash from Operations Cash from operations increased 2% to $2,236 in 1999, after rising 16% in 1998 to $2,197, versus $1,888 in 1997 The 1999 increase was primarily the result of higher earnings, pardy offset by higher working capital requirements. The increase in cash from operations in 1998 relative to 1997 was due to higher earnings, a reduction in deferred hedging gains and lower working capital requirements. Higher working capital requirements for 1999 were a result of liigher receivables, a reduction in taxes and payables, pardy offset by lower inventories. In 1998, lower working capital requirements were essentially due to lower levels of receivables and inventories, partially offset by a decrease in accounts payable and accrued expenses. Financing Activities Financing activities used $1,166 of cash in 1999 versus $280 in the 1998 period. The primary reason for the increase in 1999 was a decrease in borrowings. This decrease was partly offset by an Free Cash Flow to Debt Coverage times covered 95 96 97 98 99 Capital Expenditures and Depreciation millions of dollars Capital Expenditures 8888 Depreciation 95 96 97 98 99 increase in common stock issued in connection with employee stock option plans. Specifically, in 1999 Alcoa used $838 of cash to repur chase 15,605,522 shares of the company's common stock at an average price of $53.70 per share. In 1998, Alcoa used $365 to repurchase 9774,600 shares of common stock. Stock purchases in 1999 and 1998 were partially offset by $609 and $87, respectively, of stock issued for employee stock option plans. Net payments on long-term debt in 1999 totaled $428, versus $561 of net additions in 1998. In 1998, Alcoa issued $1,100 of commercial paper, $250 of term debt due in 2018, $200 of term debt due in 2005 and $300 of thirty-year bonds due in 2028. Partially offsetting these borrowings were net payments of $350 on commercial paper and the repayment of $9S0 of Alumax debt. In the 1998 third quarter, Alcoa entered into a new $2,000 revolving-credit facility. The facility is comprised of a 364-day $1,000 facility and a five-year $1,000 facility. The revolving-credit facilities are used to support the Alcoa and AofA commercial paper programs. Dividends paid to shareholders were $298 in 1999 an increase of $33 from 1998. The difference was due to a higher total dividend in 1999 with a total payout of 805 cents per share versus 75 cents per share in 1998. In 1998, dividends to shareholders rose $94 from 1997 to $265, as the total payout of 75 cents per share was significantly above the 1997 payout of 48.8 cents per share. In early January 2000, Alcoa's board of directors increased the base dividend by 33%, to $1.00 per share, and increased the threshold for payment of the variable dividend to $3.00 per share. This will result in a quarterly dividend of 25 cents per share for 2000, a 24% increase from die 1999 quarterly dividend of 20.125 cents per share. Alcoa's variable dividend program provides for the distribution, in the following year, of 30% of Alcoa's annual earnings in excess of $3.00 per basic share. Dividends paid and return of capital to minority interests totaled $122 in 1999 a decline of $100 from the prior year. The decline was due to a lack of dividends paid at Aluminio and at entities comprising Alcoa World Alumina and Chemicals (AWAC). In 1998, dividends paid and return of capital to minority interests fell $120 from 1997 to $222. The decrease is a result of AWAC and AofA returning funds to their investors in 1997. Of the $342 cash outflow in 1997, $206 relates to payments made by AofA, while a payment of $96 was made by AWAC. Debt as a percentage of invested capital was 285% at the end of 1999 compared with 31.7% for 1998 and 25.0% for 1997. investing Activities Cash used for investing activities in 1999 totaled $1,167 down $1,210 from 1998. Capital expenditures totaled $920, compared with $932 in 1998 and $913 in 1997 Of the total expenditures in 1999 77% related to capacity expansion, including alumina production in Australia and automotive sheet production in the U.S. Also included are costs of new and expanded facilities for environmental control in ongoing operations totaling $91 in 1999 $105 in 1998 and $94 in 1997 Alcoa used $1,463 in 1998 for acquisitions, notably the Alumax and Inespal transactions. During the 1999 period, Alcoa spent $122 to acquire a number of businesses, including the bright products business of Pechiney's Rhenalu rolling plant located near Toulouse, France and Reynolds' aluminum extrusion plant in Irurzun, Spain. In 1999 Alcoa also acquired the remaining 50% interest in its A-CMI partnership from Hayes Lemmerz. A-CM1 was a joint venture between Alcoa and CMI International formed to produce cast aluminum products for the automotive industry. In the 1999 fourth quarter, Alcoa acquired Golden Aluminum's closed rolling facility in San Antonio, Texas. Alcoa added $96 and $126 to its investments in 1999 and 1998, respectively, primarily to acquire a stake in the Norwegian metals producer, Elkem. In 1998, Alcoa received $55 from the sale of its specialty chemical, Alcotec wire, Vernon cast plate and Australian gold operations. Asset sales in 1997 generated $265 and included the Caradco, Arctek, Alcoa Composites, Norcold, Dayton Technologies and Richmond, Indiana facilities. Also included was the sale of a majority interest in Alcoa's Brazilian cable business. Ytiiefr aiDOC Issue Alcoa, like other businesses, made substantial preparations for the "Vtar 2000 issue. The Year 2000 issue arose from the past practice of using two digits (as opposed to four) to represent the year in some computer programs and software. If uncorrected, this could have resulted in computational errors as dates are compared across the century boundary. The vast majority of the products produced and sold by Alcoa are unaffected by Year 2000 issues in use or operation since they contain no microprocessors. Based on information available to date, Alcoa has not experienced any significant events attributable to Year 2000 issues. The company will continue to monitor for potential issues at Alcoa, its customers and suppliers, in order to permic a rapid response should any issues arise. Alcoa believes that if any Year 2000 issues were to arise, they would not have a significant impact on its operations and would most likely be isolated, short-term events. Alcoa's Year 2000 program provided a focused effort across all of the company's locadons that: > identified, assessed, remediated and tested 26,232 Alcoa systems and components; > formally assessed 3,399 critical and important suppliers; > conducted 202 formal on-site program verification reviews; > provided Year 2000 readiness information to 2,802 separate customers; and > updated and completed 1,890 contingency plans. In 1999 and 1998, Alcoa incurred $38 each year of direct costs in connection with its Year 2000 program. These costs include external consulting costs and the cost of hardware and software replaced as a result of Year 2000 issues. Alcoa does not expect to incur significant direct costs related to the Year 2000 issue during the current year. Subsequent Event On February 11, 2000, the shareholders of Reynolds Metals Company, by majority vote, approved the proposed merger transaction between Alcoa and Reynolds. The merger transaction remains subject to the approval of various governmental authorities. Management's Report to Alcoa Shareholders Audit Committee Report Independent Accountant's Report The accompanying financial statements of Alcoa and consolidated subsidiaries were prepared by management, which is respon sible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on manage ment's best judgments and estimates. The other financial information included in this annual report is consistent with that in the financial statements. The company maintains a system of inter nal controls, including accounting controls, and a strong program of internal auditing. The system of controls provides for appro priate procedures that are consistent with high standards of accounting and adminis tration. The company believes that its system of internal controls provides reasonable assurance that assets are safeguarded against losses from unauthorized use or disposition and that financial records are reliable for use in preparing financial statements. Management also recognizes its responsibility for conducting the company's affairs according to the highest standards of personal and corporate conduct This responsibility is characterized and reflected in key policy statements issued from time to time regarding, among other things, conduct of its business activities within the laws of the host countries in which the company operates and potentially conflicting outside business interests of its employees. The company maintains a systematic program to assess compliance with these policies. The Audit Committee of the Board of Directors, which is composed of five independent directors, met four times in 1999. In addition, the chairman of this committee met with management and the independent accountants prior to the announcement of quarterly earnings in April, July and October. The Audit Committee oversees Alcoa's financial reporting process on behalf of the Board of Directors. In fulfilling its responsibility, the committee recommended to the Board the reappointment of PricewaterhouseCoopers LLP as the company's independent public accountants. The Audit Committee reviewed with the Vice President-Environment, Health and Safety, Audit and Compliance and the independent accountants the overall scope and specific plans for their respective audits. The committee reviewed with management Alcoa's annual and quarterly reporting process, and the adequacy of the company's internal controls. Without management present, the committee met separately with the Vice President-Environment, Health and Safety, Audit and Compliance and the independent accountants to review the results of their examinations, their ' evaluations of the company's internal controls, and the overall quality of Alcoa's financial reporting. Henry B. Schacht Chairman, Audit Committee To the Shareholders and Board of Directors Alcoa Inc. (Alcoa) In our opinion, the accompanying consoli dated balance sheet and the related consoli dated statements of income and shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Alcoa at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing stan dards generally accepted in the United States which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence support ing the amounts and disclosures in the finan cial statements, assessing the accounting principles used and significant estimates made by management, and evaluadng the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. 600 Grant St., Pittsburgh, Pa. January 10, 2000, except for Note V, for which the date is February 11, 2000. President and Chief Executive Officer Richard B. Kelson Executive Vice President and Chief Financial Officer Statement of Consolidated income (in millions, except per-share amounts) For the year ended December 31 Revenues Sales (O) Other income Costs artt; Expenses Cost of goods sold Selling, general administrative and other expenses Research and development expenses Provision for depreciation, depletion and amortization Special items (D) Interest expense (S) Esrningti Income before taxes on income Provision for taxes on income (P) Income from operations Minority interests Nat inetj-rte Earnings per Share (B and M) Basic Diluted The accompanying notes are an integral part of the financial statements. Alcoa and subsidiaries If*.,}//}* *24 16,44 ` 12.536 Sit 128 8 $8 5::- j i ,?.)>> (242) . S -J .0.5-1 S E.S? S 2.87 1998 $15,340 149 15,489 11,933 783 128 842 -- 198 13,884 1,605 514 1,091 (238) $ 853 $ 2.44 $ 2.42 1997 $13,319 163 13,482 10,275 682 143 735 (96) 141 11,880 1,602 529 1,073 (268) $ 805 $ 2.33 $ 2.31 Consolidated Balance Sheet (in millions) December 31 Asset:; Current assets: Cash and cash equivalents (T) Short-term investments (T) Receivables from customers, less allowances: 1999 - $58; 1998 - $61 Other receivables Inventories (E) Deferred income taxes (P) Prepaid expenses and other current assets Total current assets Properties, plants and equipment (F) Goodwill, net of accumulated amortization of $221 in 1999 and $179 in 1998 (C) Other assets (H and T) Total Assats i.iabililki:; Current liabilities: Short-term borrowings (weighted average rate of 5.1% in 1999 and 4.8% in 1998) (T) Accounts payable, trade Accrued compensation and retirement costs Taxes, including taxes on income Other current liabilities Long-term debt due within one year (G and T) Total current liabilities Long-term debt, less amount due within one year (G and T) Accrued postretirement benefits (Q) Other noncurrent liabilities and deferred credits (I) Deferred income taxes (P) Total liabilities Minority Interests (AandJ) Contingent liabilities (L) Shareholders' Equity Preferred stock (N) Common stock (N) Additional capital Retained earnings Treasury stock, at cost Accumulated other comprehensive loss Total shareholders' equity T'jial U;jbiliti(!.:> And Equity The accompanying notes are an integral part of the financial statements. Alcoa and subsidiaries W) S 23 7 >7 2,199 165 1.618 233 271 4,soo 9,135 I ,.52S 1,805 $17.06'; 1998 $ 342 39 2,163 171 1,881 198 231 5,025 9,134 1,414 1,890 $17,463 $ .145 1.219 587 t68 424 7 t : * 1,770 M?3 '5 3 7 9.290 1,458 S6 V-) 5 l,?'H 6.0-Vi it ,26 Oi (655) 6,3 J 5 $17,066 $ 431 1,044 553 431 628 181 3,268 2,877 1,840 1,588 358 9,931 1,476 -- 56 395 1,676 5,305 (1,029) (347) 6,056 $17,463 Statement of Consolidated Cash Flows (in millions) For the year ended December 31 Cash from Operations, Net income Adjustments to reconcile net income to cash from operations: Depreciation, depletion and amortization Change in deferred income taxes Equity earnings before additional taxes, net of dividends Noncash special items Gains from investing activities--sale of assets Minority interests Other Changes in assets and liabilities, excluding effects of acquisitions and divestitures: (Increase) reduction in receivables 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 Cash received on long-term alumina supply contract Change in deferred hedging gains/losses Net change in noncurrent assets and liabilities Cash fi-o-ri operations Financing Activities Net additions (reduction) to short-term borrowings Common stock issued and treasury stock sold Repurchase of common stock Dividends paid to shareholders Dividends paid and return of capital to minority interests Net change in commercial paper Additions to long-term debt Payments on long-term debt Cash used ;ot financing aciivitis:;; Investing Activities Capital expenditures Acquisitions, net of cash acquired (K) Proceeds from the sale of assets Sale of (additions to) investments Changes in minority interests Changes in short-term investments Other Cash used lot invests it; activities-: Efi-jet of exchange rate chanties on cash Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash anti csis-h siqidvalants si and of yesti The accompanying notes are an integral part of the financial statements. Alcoa and subsidiaries 1999 $ l.fiU 5V-1 (10) (i ~) 3J (<6) 2.<?> (dot t^i ?.h thd} (69) ; :..:o iS9i 609 (fs.iS) (2S'Si (122) -- U.OuO} (1.166) {-)/"') :5 i^.'J id.') td'i . (1,167) $ ?.i? 1998 $ 853 856 no (3) -- (32) 238 (23) 145 100 23 (68) 69 -- (51) (20) 2,197 (76) 87 (365) (265) (222) 776 881 (1,096) (280) (932) (1,463) 55 (126) 33 66 (10) (2,377) 1 (459) 801 $ 342 1997 $ 805 754 83 (31) (96) -- 268 (5) 12 53 (26) 82 (27) 240 (113) (111) 1,888 143 203 (604) (171) (342) (79) 188 (327) (989) (913) -- 265 52 14 (87) (10) (679) (17) 203 598 $ 801 Statement of Shareholders' Equity (in millions, except share amounts) December 31 a', end o- 1d*6 Comprehensive income--1997 Net income--1997 Other comprehensive income (loss): Minimum pension liability, net of $2 tax benefit Unrealized translation adjustments Unrealized gains on securities, net of $1 tax expense Gains on securities included in net income, net of $13 tax benefit Comprehensive income Cash dividends: Preferred @ $3.75 per sliare Common @ $.488 per share Treasury sliares purchased Stock issued: compensation plans Sdtance <3i w-d of 1997 Comprehensive income--1998: Net income--1998 Other comprehensive income (loss): Minimum pension liability, net of $3 tax benefit Unrealized translation adjustments Comprehensive income Cash dividends: Preferred (3| $3.75 per share Common @ $.75 per share Treasury shares purchased Stock issued: AJumax acquisition Stock issued: compensation plans Stock issued: cwo-for-one split 3a?ar:e a* end o? Comprehensive income--1999: Net income--1999 Other comprehensive loss: Unrealized translation adjustments (A) Comprehensive income Cash dividends: Preferred @ $3.75 per share Common @ $.805 per share Treasury shares purchased Stock issued: compensation plans Saisocc Si viyf oi ISiW Comprehensive income $ 805 (4) (250) 1 (24) $ 528 $ 853 (5) 11 $ 859 Si,OS 4 !'yi) 9 /':>-> Preferred stock $56 56 56 $56 Common stock $179 Additional capital $ 592 (14) 179 578 19 197 395 1,302 (7) (197) 1,676 $355 Si >04 Comprised of unrealized translation adjustments of $(623) and minimum pension liability of $(15) Alcoa and subsidiaries Retained earnings $4,083 805 Accumulated ocher Treasury comprehensive stock income (loss) $ (371) $ (76) shareholders' equity $4,463 805 (2) (169) 4,717 853 (604) 217 (758) (277) (353) (277) (2) (169) (604) 203 4,419 853 (2) (263) 5,305 (365) 94 (1,029) :2 ' S-< .C*:i i (H \y.j ' S* 1.260) 6 (347) QS-\) 6 (2) (263) (365) 1,321 87 -- 6,056 .0.V4 (296) th'.'Sj Or-5 %6., i ^ '<. Share Activity (number of sliares) ixsr.t;s si end 1936 Treasury shares purchased Stock issued: compensation plans Preferred stock 557,649 Salima; ind of 1119# Treasury sliares purchased Stock issued: Alumax acquisition Stock issued: compensation plans 3ii!i-i-i:t: and of Iff;?; Treasury shares purchased Stock issued: compensation plans S.'iitit'.e.n of frnd of 1999 557,649 557,649 5.f7M? The accompanying notes are an integral part of die financial statements. Issued 357,845,166 357,845^166 36,850,760 394,695,926 Common stock Treasury (12,825,888) (16,154,534) 7,686,508 (21,293,914) (9,774,600) 3,181,666 (27,886,848) n..Vv605 J22; ' 26.946,92:;} Net outstanding 345,019,278 (16,154,534) 7,686,508 336,551,252 (9,774,600) 36,850,760 3,181,666 366,809,078 \ ^S-iS.44.?. Notes to Consolidated Financial Statements (dollars and shares in millions, except per-share amounts) A. Summary of Significant Accounting Policies Principles of Consolidation. The consolidated financial statements include the accounts of Alcoa and companies more than 50% owned. Investments in other entities are accounted for principally on an equity basis. The consolidated financial statements are prepared in conformity with generally accepted accounting principles and require manage ment to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial state ments. They may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates upon subsequent resolution of identified matters. Inventory Valuation. Inventories are carried at the lower of cost or market, with cost for a substantial portion of U.S. and Canadian inventories determined under the last-in, first-out (UFO) method. The cost of other inventories is principally determined under the average-cost method. See Note E for additional detail. Properties, Plants and Equipment Properties, planes and equipment are recorded ac cost. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets, averaging 33 years for structures and between five and 25 years for machinery and equipment. Profits or losses from the sale of assets are included in other income. Repairs and maintenance are charged to expense as incurred. Interest related to the construction of qualifying assets is capitalized as part of the construction costs. Depletion is taken over the periods during which the estimated mineral reserves are extracted. See Notes F and S for additional detail. Amortization of Intangibles. The excess purchase price over the net tangible assets of businesses acquired is reported as goodwill in the consolidated balance sheet. Goodwill and other intangibles are amortized on a straight-line basis over not more than 40 years. The carrying value of goodwill and other 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 value. See Note H for additional information. Revenue Recognition. Alcoa recognizes revenue when title passes to the customer. Environmental Expenditures. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing conditions caused by past operations, and which do not contribute to future revenues, are expensed. Liabilities are recorded when remedial efforts are probable and the coses can be reasonably estimated. The liability may include costs such as site investigations, consultant fees, feasibility studies, outside contractor and monitoring expenses. Estimates are not discounted or reduced by potential claims for recovery. Claims for recovery are recognized when received. The estimates also include costs related to other potentially responsible parties to the extent that Alcoa has reason to believe such parties will not fully pay their proportionate share. The liability is periodically reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity and other factors that may be relevant, including changes in technology or regulations. See Note U for additional infortnatioa Stock-Based Compensation. Alcoa accounts for stock-based compensation in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost is not required to be recognized on options granted. Disclosures required with respect to alternative fair value measurement and recognition methods prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," are presented in Note N. Financial Instruments and Commodity Contracts. Alcoa enters into long-term contracts to supply fabricated products to a number of its customers. To hedge the market risk of changing prices for purchases or sales of metal, Alcoa uses commodity futures and options contracts. Gains and losses related to transactions that qualify for hedge accounting, including closed futures contracts, are deferred and reflected in cost of goods sold when the underlying physical trans action takes place. The deferred gains or losses are reflected on the balance sheet in ocher current and noncurrent liabilities or assets. If future purchased metal needs are revised lower than initially anticipated, the futures contracts associated with the reduction no longer qualify for deferral and are marked to market. Mark-to-market gains and losses are recorded in other income in the current period. The effectiveness of the hedge is measured by a historical and probable future high correlation of changes in the fair value of the hedging instruments with changes in value of the hedged item. If correlation ceases to exist, hedge accounting will be terminated and gains or losses recorded in other income. To date, high correlation has always been achieved. Alcoa also enters into futures and options contracts that cover long-term, fixed-price commitments to supply customers with metal from internal sources.'These contracts are marked to market, and the gains and losses from changes in market value of the contracts are recorded in other income in the current period. This resulted in after-tax gains of $12 in 1999 and losses of $45 in 1998 and $13 in 1997. From time to time, Alcoa may elect to sell forward a portion of its production. Gains and losses related to transactions that qualify for hedge accounting are deferred and reflected in revenues when the underlying physical transaction takes place. The deferred gains or losses are reflected on the balance sheet in other current and noncurrent liabilities or assets. If the above contracts no longer qualify for deferral, the contracts are marked to market to other income in the current period. Alcoa also purchases certain other commodides such as fuel oil, gas and copper for its operations and enters into futures contracts to eliminate volatility in the prices of such products. None of these contracts are material. Alcoa attempts to maintain a reasonable balance between fixedand floating-rate debt, using interest rate swaps and caps, to keep financing costs as low as possible. If the requirements for hedge accounting are met, amounts paid or received under these agree ments are recognized over the life of the agreements as adjustments to interest expense. Otherwise, the instruments are marked to market, and the gains and losses from changes in the market value of the contracts are recorded in other income in the current period. Upon early termination of an interest rate swap or cap, gains or losses are deferred and amortized as adjustments to interest expense of the related debt over the remaining period covered by the terminated swap or cap. Alcoa is subject to exposure from fluctuations in foreign currencies. To manage this exposure, Alcoa uses foreign exchange forward and option contracts. Gains and losses on contracts that meet the requirements for hedge accounting are deferred and included in the basis of the underlying transactions. Contracts that do not meet diese requirements are marked to market in other income each period. Cash flows from financial instruments are recognized in the statement of cash flows in a manner consistent with the underlying transactions. See Note T for additional detail. Foreign Currency. The local currency is the functional currency for Alcoa's significant operations outside the U.S., except in Canada, where the U.S. dollar is used as the functional currency. The deter mination of the functional currency for Alcoa's Canadian operations is made based on the appropriate economic and management indicators. Effective July 1,1999, the Brazilian real became the functional currency for translating the financial statements of Alcoa's 59%owned Brazilian subsidiary, Alcoa Aluminio S.A. (Aluminio). Economic factors and circumstances related to Aluminio's operations have changed significantly since the devaluation of the real in the 1999 first quarter. Under SFAS No. 52, "Foreign Currency Translation," the change in these facts and circumstances required a change to Aluminio's functional currency. As a result of the change, at July 1,1999 Alcoa's shareholders' equity (Cumulative Translation Adjustment) and minority interests accounts were reduced by $156 aud $108, respectively. These amounts were driven principally by a reduction in fixed assets. This reduction resulted in a $15 decrease in Aluminio's depreciation expense for 1999. One of the factors affecting the change in Aluminio's functional currency was Alcoa's purchase of approximately $185 of Aluminio's 75% secured export notes. The repurchase of these notes is consis tent with Alcoa's recent policy change regarding the manner in which large subsidiaries are capitalized and will result in lower overall financing costs to the company. Racantly Adopted Accounting Standards. A Statement of Position (SOP) was issued by the American Institute of CPAs in April 1998. The SOP, "Reporting on the Costs of Start-up Activities," requires that costs incurred to open a new facility, introduce a new product, commence a new operation or other similar activities be expensed as incurred. This SOP, which was adopted in 1999 did not have a material impact on Alcoa's financial statements. Racantly Issued Accounting Standards. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Account ing for Derivative Instruments and Hedging Activities." The standard requires that entities value all derivative instruments at fair value and record the instruments on the balance sheet. The standard also significantly changes the requirements for hedge accounting. In June 1999 the FASB approved a delay in the effective date of this standard until January 2001. The company believes that the adoption of the standard will have a material impact on its balance sheet Upon adoption, Alcoa's commodity, foreign exchange and interest rate derivative contracts as well as certain underlying exposures will be recorded on the balance sheet at fair value. Management is currently assessing the details of the standard and is preparing a plan of implementation. Reclassification. Certain amounts in previously issued financial statements were reclassified to conform to 1999 presentations. 8. Common Stock Split On January 10, 2000, the board of directors declared a two-for-one common stock split. The stock split is subject to the approval of Alcoa shareholders, who must approve an amendment to Alcoa's Articles of Incorporation to increase the authorized shares of Alcoa common stock at the company's annual meeting on May 12, 2000. If approved, shareholders of record on May 26, 2000, will receive an additional common share for each share held. The additional shares will be distributed on June 9 2000. Per-share amounts and number of shares outstanding in this report have not been adjusted for the stock split since it is subject to shareholder approval. If the stock split is approved by shareholders, earnings per share would be restated to the following: (Unaudited)199919981997 Basic EPS %i Diluted EPS 1.41 $1.22 1.21 $1.17 1.15 C. Acquisitions In August 1999, Alcoa and Reynolds Metals Company (Reynolds) announced they had reached a definitive agreement to merge. Under the agreement, Alcoa will acquire all of the outstanding shares of Reynolds at an exchange rate of 1.06 shares of Alcoa common stock for each share of Reynolds. The value of the transaction is approxi mately $4,800. The combined company will have annual revenues of $21,000, approximately 127,000 employees and will operate over 300 locations in 37 countries around the world. The acquisition is subject to the expiration of antitrust waiting periods and other customary conditions. The acquisition of Reynolds will be accounted for using the purchase method. In July 1998, Alcoa acquired Alumax Inc. (Alumax) for approxi mately $3,800, consisting of cash of approximately $1,500, stock of approximately $1,300 and assumed debt of approximately $1,000. Alumax operates over 70 plants and other manufacturing facilities in 22 states, Canada, Western Europe and Mexico. The following unaudited pro forma information for the years ended December 31, 1998 and 1997 assumes that the acquisition of Alumax had occurred at the beginning of each respective year. Adjustments that have been made to arrive at the pro forma totals include those related to acquisition financing, the amortization of goodwill, the elimination of transactions between Alcoa and Alumax and additional depreciation related to the increase in basis that resulted from the transaction. Tax effects from the pro forma adjust ments noted above have been included at the 35% U.S. statutory rate. (Unaudited) Net sales Net income Earnings per share: Basic Diluted 1998 $:6.766 1997 $16,160 770 1.36 2 35 2.02 2.00 The pro forma results are not necessarily indicative of what actually would have occurred if the transaction had been in effect for the periods presented, are not intended to be a projection of future results and do not reflect any cost savings that might be achieved from die combined operations. In February 1998, Alcoa completed its acquisition of Inespal, S.A. of Madrid, Spain. Alcoa paid approximately $150 in cash and assumed $260 of debt and liabilities in exchange for substantially all of Inespal's businesses. The acquisition included an alumina refinery, three aluminum smelters, three aluminum rolling facilities, two extrusion plants and an administrative center. Alcoa completed a number of other acquisitions in 1999 1998 and 1997 None of these transactions had a material impact on Alcoa's financial statements. Alcoa's acquisitions have been accounted for using the purchase method. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair market values. Any excess purchase price over the fair market value of the net assets acquired has been recorded as goodwill. In the case of the Alumax acquisition, the allocation of the purchase price resulted in goodwill of approximately $910, which is being amortized over a forty-year period. Operating results have been included in the statement of consolidated income since the dates of the acquisitions. Had the Inespal acquisition occurred at the beginning of 1998, net income for that year would not have been materially different. D. Special items Special items in 1997 resulted in a gain of $96 ($44, or 13 cents per basic share, after tax and minority interests). The fourth quarter sales of a majority interest in Alcoa's Brazilian cable business and land in Japan generated gains of $86. In addition, the sale of equity securities resulted in a gain of $38, while the divestiture of noncore businesses provided $25. These gains were partially offset by charges of $53, related primarily to environmental and impairment matters. As of the end of 1998, the impairment liability had been substantially extin guished. The actual costs incurred related to the impairments were not significantly different than the original estimates. B. Inventories December 31 Finished goods 'Kbrk in process Bauxite and alumina Purchased raw materials Operating supplies :ot.q S 363 330 lib. Id 2 $1,618 1998 $ 418 592 347 361 163 $1,881 Approximately 57% of total inventories at December 31, 1999 were valued on a UFO basis. If valued on an average-cost basis, total inventories would have been $645 and $703 higher at the end of 1999 and 1998, respectively. During 1999 UFO inventory quantities were reduced, which resulted in a partial liquidation of the UFO bases. The impact of this liquidation increased net income by $31 or eight cents per share. r. Properties. Rants end Equipment, at. Cost December 31 Land and land rights, including mines Structures Machinery and equipment Less: accumulated depreciation and depletion 4 r.'.x.v 9,303 Construction work in progress $ 9.1.33 1998 $ 284 4,561 12,649 17,494 9,091 8,403 731 $ 9,134 G. Long-Term Debt Other Assets December 31 _______________ Ij'jO1598 Commercial paper, variable rate. (5.8% and 5.4% average rates) 5.75% Notes payable, due 2001 6.125% Bonds, due 2005 650% Bonds, due 2018 6.75% Bonds, due 2028 Bank loans, 75 billion yen, due 199$ (4.4% fixed race) Tax-exempt revenue bonds ranging from 35% to 5.9%, due 2000-2033 Alcoa Fujikura Ltd. Variable-rate term loan, due 1999-2002 (55% average rate) Alcoa Aluminio 7596 Notes, due 2008 \kriable-rate notes, due 1999-2001 (76% and 6.6% average rates) Alcoa of Australia Euro-commercial paper, variable rate. (5.4% average rate) Other Less: amount due within one year & 960 7.51; .'..'to .*')<; 210 V'- 8 20 46 2.724 #.7 S2.65'' $ 745 250 200 250 300 December 31 Investments, principally equity investments Intangibles, net of accumulated amortization of $177 in 1999 and $139 in 1998 Noncurrent receivables Deferred income taxes Deferred charges and other 78 $ CIO \r; 45 47.A .591 51.20.5 1998 127 67 505 605 $1,890 'O 00 153 i. Other Noncurrent Liabilities and Deferred Credits December 31 230 Deferred hedging gains Deferred alumina sales revenue 388 Environmental remediation Deferred credits 40 Other noncurrent liabilities % 210 ;.l; lii 3 Ty.yi 'Pi 1998 $ 55 228 124 336 845 $1,588 250 174 3,058 181 $2,877 The deferred hedging gains are associated with metal contracts and will be reflected in future earnings concurrent with the hedged revenues or costs. J, Minority interests The amount of long-term debt maturing in each of the next five years is $67 in 2000, $366 in 2001, $209 in 2002, $1,010 in 2003 and $27 in 2004. In 1998, Alcoa issued $300 of thirty-year bonds due in 2028, $250 of term debt due in 2018, $200 of term debt due in 200$ and $1,100 of commercial paper. The proceeds from these borrowings were used to fund acquisitions and for general corporate purposes. In 1998, Alcoa entered into a new $2 billion revolving-credit facility, which expires in equal amounts in August 2000 and August 2003. Under this agreement, certain levels of consolidated net worth must be maintained while commercial paper balances are outstanding. In 1997, Alcoa Fujikura issued a $250 term loan and entered into a five-year, $250 revolving-credit agreement. The proceeds of the term loan were used to repay existing debt. These agreements require Alcoa Fujikura to maintain certain financial ratios. In 1996, Alcoa Aluminio issued $400 of export notes, of which $185 were repurchased by Alcoa in 1999. The export note agreement requires Aluminio to maintain certain financial rados. A portion of the commercial paper issued by Alcoa and all of the Euro-commercial paper issued by Alcoa of Australia (AofA) are classified as long-term debt because they are backed by the revolving-credit facility noted above. The following table summarizes the minority shareholders' interests in the equity of consolidated subsidiaries. December 31 Alcoa of Australia Alcoa Aluminio Alcoa AXforld Alumina Alcoa Fujikura Ocher majority-owned companies % 439 .'90 260 216 $1,458 1998 $ 376 366 290 233 211 $1,476 K, Cash How Information Cash payments for interest and income taxes follow. Interest Income taxes 1999 S225 39-; 1998 $199 371 The details of cash payments related to acquisitions follow. Fair value of assets Liabilities Stock Issued Cash paid Less: cash acquired Net cash paid lor acquisitions :J<99 S 2f>2 123 sm 1998 $ 5,511 (2,554) (1,321) 1,636 173 $ 1,463 1997 $146 343 1997 ___ -- -- ___ -- -- L Contingent Liabilities \hrious lawsuits, 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 uucertaindes that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contin gencies. However, based on facts currently available, 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. Aluminio is currently party to a hydroelectric construction project in Brazil. Total estimated construction costs are $500, of which the company's share is 24%. In the event that other participants in this project fail to fufill their financial responsibilities, Aluminio may be liable for its pro rata share of the deficiency. AofA is party to a number of natural gas and electricity contracts that expire between 2001 and 2022. Under these take-or-pay contracts, AofA is obligated to pay for a minimum amount of natural gas or electricity even if these commodities are not required for operations. Commitments related to these contracts total $190 in 2000, $182 in 2001, $179 in 2002, $176 in 2003, $176 in 2004 and $2,222 thereafter. Expenditures under these contracts totaled $179 in 1999 $171 in 1998 and $219 in 1997 M. Earnings Per Share- Basic earnings per common share (EPS) amounts are computed by dividing earnings after the deduction of preferred stock dividends by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive securities outstanding. See Note N for additional information. The details of basic and diluted earnings per common share follow. jOOO 1998 1997 Net income Less: preferred stock dividends $ 853 $ 805 222 Income available to common stockholders $ 851 $ 803 Average shares outstanding--basic Effect of dilutive securities: Shares issuable upon exercise of dilutive outstanding stock options Average shares outstanding--diluted 6.'/ 173 6 349.1 2.5 351.6 344.5 3.3 347.8 Basic EPS Diluted F.PS $ i.n $ 2.44 2.42 $ 2.33 2.31 N, 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 of $100 per share and an annual $3.75 cumulative dividend preference per share. Class B serial preferred stock has 10 million shares audiorized (none issued) and a par value of $1 per share. Common Stock. There are 600 million shares authorized at a par value of $1 per share. As of December 31,1999 40,833,662 shares of common stock were reserved for issuance under the long-term stock incentive plan. Stock options under the company's stock incentive plan have been and may be granted, generally at not less than market prices on the dates of grant, except for the 25 cents per-share options issued as a payout of earned performance share awards. The stock option program includes a reload or stock continuation ownership feature. Stock options granted have a maximum term of 10 years. Vesting occurs one year from the date of grant and six months for options granted under die reload feature. Alcoa's net income and earnings per share would have been reduced to the pro forma amounts shown below if compensation cost had been determined based on the fair value at the grant dates. Net income: As reported Pro forma Basic earnings per share: As reported Pro forma Diluted earnings per share: As reported Pro forma 19*? i!,054 2.S'; S.M2 V..4-S 1998 $853 815 2.44 2.33 2.42 2.31 1997 $805 756 2.33 2.19 2.31 2.17 The weighted average fair value of options granted was $10.69 per share in 1999 $5.73 per share in 1998 and $5.90 per share in 1997 The (air value of each option is estimated on the date of grant or subsequent reload using the Black-Scholes pricimg model with the following assumptions: 1999 1998 1997 Average risk-free interest rate Expected dividend yield Expected volatility Expected life (years): New option grants Reload option grants 5 O'*/ \A ,\.S i< 5.2% 2.1 25.0 2.5 1.5 6.1% 1.3 25.0 2.5 1.0 The transactions for shares under options were: 0. Segment and Geographic Area information Outstanding, beginning of year: Number of options Weighted average exercise price Granted: Number of options Weighted average exercise price Exercised: Number of options Weighted average exercise price Expired or forfeited: Number of options Weighted average exercise price Outstanding, end of year: Number of options Weighted average exercise price 2S.6 **3.00 21 k wA S; .VV3J.T 544 2? 1998 21.1 $31.67 11.8 $34.37 (6.0) $30.13 (3) $36.49 26.6 $33.00 1997 20.1 $25.87 12.8 $36.07 (11.5) $26.40 (.3) $31.70 21.1 $31.67 Alcoa is primarily a producer of aluminum products. Its segments are organized by product on a worldwide basis. Alcoa's management reporting system evaluates performance based on a number of factors; however, the primary measure of performance is the after-tax operating profit of each segment. Nonoperating items such as interest income, interest expense, foreign exchange gains/losses, the effects of UFO accounting and minority interest are excluded from segment profit, in addition, certain expenses such as corporate general admin istrative expenses, depreciation and amortization on corporate assets and certain special items are not included in segment results. Segment assets exclude cash, cash equivalents, short-term investments and all deferred taxes. Segment assets also exclude items such as corpo rate fixed assets, UFO reserves, goodwill allocated to corporate and Exercisable, end of year: Number of options Weighted average exercise price Shares reserved for future options other amounts. In 1999 Alcoa changed its internal reporting system "\.V /. 13.8 10.4 to include the results of aluminum hedging in the Primary Metals $30.47 $26.73 segment. Previously, these results were reported as reconciling items i-t.i 11.4 17.8 between segment ATOI and net income. Segment results for 1998 and 1997 have been restated to reflect this change. The following tables summarize certain stock option information at December 31,1999: Options Outstanding Range of exercise price Number $ 0.25 $13.93-$27.57 $27J8-$41.21 $41.22-$54.85 $54.86-$68.49 $68.50-$82.13 .3 1.9 5.6 12.3 5.9 .5 Total 26.5 Weighted average remaining life employment career 4.20 5.60 8.21 6.04 6.05 6.74 lighted average exercise price $ 005 22.13 35.12 43.00 62.24 73.07 44.29 The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (Note A). Transactions between segments are established based on negotiation between the parties. Differences between segment totals and Alcoa's consolidated totals for line items not reconciled are primarily due to corporate allocations. Alcoa's products are used primarily by packaging, transportation (including aerospace, automotive, rail and shipping), building and construction, and industrial customers worldwide. Total exports from the U.S. were $1,309 in 1999, compared with $1,283 in 1998 and $1,207 in 1997 Alcoa's reportable segments follow. Options Exercisable Range of exercise price $ 0.25 $13.93-$27.57 $27.58-$41.21 $41.22-$54.85 $54.86-$68.49 $68.50-$82.13 Total Number .3 1.9 5.6 3.9 1.5 -- 13.2 Weighted average exercisable price $ 0.25 22.13 35.12 44.91 62.35 _ $38.41 Alumina and Chemicals. This segment's activities include the mining of bauxite, which is then refined into alumina. The alumina is then sold to internal and external customers worldwide, or processed into industrial chemical products. The alumina operations of Alcoa World Alumina and Chemicals (AWAC) comprise the majority of this segment. Primary Metals. This group's focus is Alcoa's worldwide smelter system. Primary Metals receives alumina from the Alumina and Chemicals segment and produces aluminum ingot to be used by other Alcoa segments, as well as sold to outside customers. Results from internal hedging contracts and from marking to market certain aluminum commodity contracts are also included in this segment. Rat-Rolled Products. This segment's primary business is the production and sale of aluminum plate, sheet and foil This segment includes the aggregation of rigid container sheet (RCS), which is used to produce aluminum beverage cans, and mill products used in the transportation and distributor markets. Engineered Products. This segment includes the aggregation of hard and soft alloy extrusions, aluminum forgings, rod and bar. These products serve primarily the transportation, construction and distributor markets. Other. This category includes Alcoa Fujikura Ltd., which produces electrical components for the automotive industry along with telecommunication products. In addition, Alcoa's aluminum and plastic closure operations and Alcoa's residential building products operations are included in this group. Segment information Alumina and chemicals isna Sales; Third-party sales Intersegment sales Total sales $1,S42 H.'.V S2,"6? Profit and loss; Equity income (loss) Depreciation, depletion and amortization Special items Income tax After-tax operating income t JM IS:* 3"? Assets: Capital expenditures Equity investment Total assets 5* S3 .1,250 Primary metals 52,24 j $5/;, >4 3 A2 a*. >14 555 5 U'P ) s$ S-yirt* Flat-roiled products Engineered products 55.1! 3 51 s <?; li<-r 151 2x1 5- 1(16 fco 5,5'<5 5 *.V.4i $ 8:-: $w .'.,.38? Other S3.:;l;i i.UKi 5> 50 ) 4'# 10.1 iS*- 5 ir; Total 3."95 S1 ' ,4S v 'i N53 U .SI-; 1S93 Sales: Third-party sales Intersegment sales Total sales Profit and loss: Equity iucome (loss) Depreciation, depletion and amortization Special items Income tax After-tax operating income Assets: Capital expenditures Equity investment Total assets $1,847 832 $2,679 $1 159 -- 174 318 $ 275 50 3,082 $2,105 2,509 $4,614 $ 27 176 -- 196 372 $ 164 150 5,341 $4,900 59 $4,959 $8 190 -- 126 306 $ 152 69 3,513 $3,110 11 $3,121 $ (1) 88 -- 85 183 $ 105 -- 2,427 $3,362 $3,362 $ 10 155 -- 107 165 $ 143 146 2,246 $15,324 3,411 $18,735 $ 45 768 -- 688 1,344 $ 839 415 16,609 m'f Sales: Third-party sales Intersegment sales Total sales Profit and loss: Equity income Depreciation, depletion and amortization Special items loss (gain) Income tax After-tax operating income Assets: Capital expenditures Equity investment Total assets $1,978 634 $2,612 -- $ 175 4 168 302 $ 201 51 3,027 $1,600 1,883 $3,483 $ 23 129 0) 214 399 $ 137 140 2,334 $4,188 53 $4,241 $7 173 (1) 123 269 $ 159 61 2,786 $2,077 9 $2,086 -- $ 66 (2) 48 100 $ 149 1 1,469 $3,457 $3,457 $ 12 156 (71) 104 177 $ 128 124 2,284 $13,300 2,579 $15,879 $ 42 699 (73) 657 1,247 $ 774 377 11,900 The following reconciles segment information to consolidated totals. The provision for taxes on income consisted of: :rx`:Q 1998 1997 1998 1997 Sales: Total sales Elimination of intersegment sales Other revenues $20,112 6 $18,735 (3,411) 16 $15,879 (2,579) 19 Current: U.S. federal* Foreign State and local Si 75 306 $159 219 26 $172 274 -- Consolidated sales $',6,32.1 $15,340 $13,319 4'H 404 446 Net income: Total after-tax operating income Elimination of intersegment (profit) loss Unallocated amounts (net of tax): Interest income Interest expense Minority interest Corporate expense Other Consolidated net income 3 1,439 (Ml dtj (242) 02 $ 1.054 $ 1,344 (16) 64 (129) (138) (197) 25 $ 853 $ 1,247 12 67 (92) (268) (172) 11 $ 805 Deferred: U.S. federal* Foreign State and local Total ?1 (25) 5 54 55?*? 81 25 4 110 $514 82 (4) 5 83 $529 * Includes U.S. taxes related to foreign income In the 1999 fourth quarter, Australia reduced its corporate income tax rate from 36% to 34% for 2000 and 30% for 2001. Assets: Total assets Elimination of intersegment receivables Unallocated amounts: Cash, cash equivalents and short-term investments Deferred tax assets Corporate goodwill Corporate fixed assets LIFO reserve Other Consolidated assets $ > .114 <15? 0.2 3) 7 1645) fi/ti) $17.06* $16,609 (378) 381 703 480 315 (703) 56 $17,463 $11,900 (286) 906 560 -- 326 (770) 435 $13,071 In 199% the exercise of employee stock options generated a tax benefit of $145. This amount was credited to additional capital and reduced current taxes payable. Reconciliation of the U.S. federal statutory rate to Alcoa's effective tax rate follows. jr>no 1998 1997 U.S. federal statutory rate Taxes on foreign income Stare taxes net of federal benefit Tax rate changes Other .15.0% iZA) .5 0.A) 35.0% (4.1) .7 -- .4 35.0% (-2) U) (1.6) Effective tax rate 32.0% 33.0% Geographic information for revenues, based on country of origin, and long-lived assets follows: Revenues: U.S. Australia Spain Brazil Germany Odier Long-lived assets: U.S. Australia Brazil Canada Germany Other <, ; (J. jO ` I..059 /.V; 52* 2,223 $i 6,.23 1998 $ 9,212 1,470 965 934 554 2,205 $15,340 1997 $ 7,593 1,875 44 1,161 580 2,066 $13,319 $ 4,630 1.535 y\2 94<1 ij 5:1,132 $ 6,726 1,441 967 890 213 1,023 $11,260 $ 4,133 1,453 1,047 2 201 853 $ 7,689 R Income Taxes The components of income before taxes on income were: U.S. Foreign /m j 1998 $ 595 1,010 $1,605 1997 $ 708 894 $1,602 The components of net deferred tax assets and liabilities follow. December 31 Depreciation Employee benefits Loss provisions Deferred income/ expense Tax loss carryforwards Tax credit carryforwards Other ) rs-i \ Jerk: red to\ vo.'U'XX U.S hatnhries -- 5 *72 > - % 9\ l m Valuation allowance 0 14) $1,541 1998 Deferred tax assets Deferred tax liabilities -- $ 869 208 $ 881 -- -- 124 192 5 68 1,466 (135) $1,331 103 -- -- 46 1,030 $1,030 Of the total deferred tax assets associated with the tax loss carry forwards, $31 expires over the next 10 years, $10 over the next 20 years and $144 is unlimited. A substantial portion of the valuation allowance relates to these carryforwards because the ability to generate sufficient foreign taxable income in future years is uncertain. The cumulative amount of Alcoa's share of undistributed earnings for which no deferred taxes have been provided was $1,838 at December 31, 1999. Management has no plans to distribute such earnings in the foreseeable future. It is not practical to determine the deferred tax liability on these earnings. Q. Pension Plans and Other Postretirernent Benefits Alcoa maintains pension plans covering most U.S. employees and certain other employees. Pension benefits generally depend on 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. Alcoa maintains health care and life insurance benefit plans cover ing most eligible U.S. retired employees and certain other retirees. Generally, the medical plans pay a stated percentage of medical expenses, reduced by deductibles and other coverages. These plans are generally unfunded, except for certain benefits funded through a trust. Life benefits are generally provided by insurance contracts. Alcoa retains the right, subject to existing agreements, to change or eliminate these benefits. The table below reflects the status of Alcoa's pension and post retirement benefit plans. December 31 Chartres in benefit obiipaton Benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial (gains) losses Alumax acquisition Divestitures Benefits paid Exchange rate Benefit obligation ar end of year Cnsmfjt: if* j/fisn Fair value of plan assets at beginning of year Actual return on plan assets Alumax acquisition Divestiture Employer contributions Participants contributions Benefits paid Administrative expenses Exchange rate Fair value of plan assets at end of year funded sduus Unrecognized net actuarial gain Unrecognized net prior service cost (credit) Unrecognized transition obligation Net amount recognized Arr-f.nint h the ibssr. Prepaid benefit Accrued benefit liability Intangible asset Accumulated other comprehensive income Net amount recognized of; The components of net periodic benefit costs are reflected below. December 31 '.y -hu bfir#:it Service cost Interest cost Expected return on plan assets Amortization of prior service cost (benefit) Recognized actuarial (gain) loss Amortization of transition obligation Nec periodic benefit costs * $ M' '541 {-7} ':U 2 S `)* Pension benefits 1998 $ 119 318 (391) 48 (7) 2 $ 89 Pension benefits 1999 1998 Hi r* 42 $ {U`i} -- i < 7'. ii ? S3C6 $4,700 119 318 8 165 473 (46) (333) (10) $5,394 i VMS i.7. t.j 2': {\<} Xfi if, 105 % U,i3:';. i $5,101 601 429 (50) 47 11 (351) (17) (13) $5,758 $ 364 (789) 90 2 $ (333) ? (i 1 :471: 24 S s3i< 2: $ 59 (425) 9 24 $ (333) Postretirement benefits 1999 1998 % *j^f2. 9 ).(! l {t7 i } {'30) {\i $ $ 1,675 18 112 1 31 148 (5) (117) U) $ 1,862 $ 300 -- i ill $rivV;3) / $ ' \ l s : *: $ 88 12 -- -- -- -- -- -- -- $ 100 $(1,762) (48) (151) -- $(1,961) -- $(1,961) -- -- sr; $(1,961) 1997 $ 95 305 (346) 37 i 1 $ 93 S * 15 j OS' 34) ? 81 Postretirement benefits 1998 1997 $ 18 112 $ 18 105 (8) (34) (7) (34) (5) -- $ 83 or-o (4) -- The aggregate benefit obligation and fair value of plan assets for the pension plans with benefit obligations in excess of plan assets were $1,022 and $696, respectively, as of December 31, 1999, and $754 and $445, respectively, as of December 31,1998. The aggregate pension accumulated benefit obligation and fair value of plan assets with accumulated benefit obligations in excess of plan assets were $337 and $11$ respectively, as of December 31,1999, and $501 and $287, respectively, at December 31,1998. Weighted average assumptions used to determine plan liabilities and expense follow. T. Financial Insim-mems The carrying values and fair values of Alcoa's financial instruments at December 31 follow. xm 1998 (jitryiw' vaine F.'.sr v?: fur; Carrying value Fair value Cash and cash equivalents Short-term investments Noncurrent receivables Short-term debt Long-term debt S "?7 43 *>1.0 2>65? < 2X7 7" id 410 2.,$.Its $ 342 39 67 612 2,877 $ 342 39 67 612 2,902 December 31 Discount rate Expected long-term return on plan assets Rate of compensation increase 9.00 5.00 1998 6.5096 9.00 5.00 1997 6.75% 9.00 5.00 Bar measurement purposes, a 6J% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5.25% in 2004 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in these assumed rates would have the following effects: 1% increase Effect on total of service and interest cost components $ 11 Effect on postrecirement benefit obligations120(102) 1% $ (8) The methods used to estimate the fair values of certain financial instruments follow. Cash and Cash Equivalents, Short-Term Investments and Short-Term Debt. The carrying amounts approximate fair value because of the short maturity of the instruments. All investments purchased with a maturity of three months or less are considered cash equivalents. Noncurrent Receivables. The fair value of noncurrent receivables is based on anticipated cash flows and approximates carrying value. Long-Term Debt. The fair value is based on interest rates that are currently available to Alcoa for issuance of debt with similar terms and remaining maturities. decrease Alcoa holds or purchases derivative financial instruments for purposes other than trading. Details of the significant instruments follow. Alcoa also sponsors a number of defined contribution pension plans. Expenses were $64 in 19951 $57 in 1998 and $47 in 1997 R. Lease Expanse Certain equipment, warehousing and office space and oceangoing vessels are under operating lease agreements. Total expense for all leases was $145 in 1999, $130 in 1998 and $111 in 1997. Under long term operating leases, minimum annual rentals are $78 in 2000, $56 in 2001, $40 in 2002, $21 in 2003, $12 in 2004 and a total of $33 for 2005 and thereafter. S. interest Cos! Componeols Amount charged to expense Amount capitalized 5195 1998 $198 13 $211 1997 $141 9 $150 Foreign Exchange Contracts. The company enters into foreign exchange contracts to hedge its significant firm and anticipated purchase and sale commitments denominated in foreign currencies. These contracts cover periods commensurate with known or expected exposures, generally within 36 months, and are principally unsecured foreign exchange contracts with carefully selected banks. The market risk exposure is essentially limited to risk related to currency rate movements. Unrealized gains/(losses) on these contracts at December 31, 1999 and 1998 were $57 and $(36), respectively. The table below reflects the various types of foreign exchange contracts Alcoa uses to manage its foreign exchange risk. Forwards Purchased options Written options J9* M;rker S -- V30 d -- 1998 Notional amount Market value $2,845 52 27 $(58) 1 -- The notional values summarized above provide an indication of the extent of the company's involvement in such instruments but do not represent its exposure to market risk. Alcoa utilizes written options mainly to offset or close out purchased options. The following table summarizes by major currency the contractual amounts of Alcoa's forward exchange and option contracts translated to U.S. dollars at December 31 rates. The "buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign curren cies, and the "sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies. Australian dollar Canadian dollar Dutch guilder Japanese yen Deutsche mark Pound sterling Other If* Bay it,4*7 ;_'S_ fs A- .sril ? x -- 21 $J,5M "* 1998 Buy $1,751 230 135 109 22 30 35 $2,312 Sell $211 129 22 14 69 70 36 $551 U. Environmental Matters Alcoa continues to participate in environmental assessments and cleanups at a number of locations. These include approxi mately 10 owned or operating facilities and adjoining properties, approximately 10 previously owned or operated facilities and adjoining properties and approximately 65 Superfund and other waste sites. A liability is recorded for environmental remediation costs or damages when a cleanup program becomes probable and the costs or damages can be reasonably estimated. See Note A for additional information. As assessments and cleanups proceed, the liability is adjusted based on progress in determining the extent of remedial actions and related costs and damages. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements and technological changes. Therefore, it is Interest Rate Swaps. Alcoa manages its debt portfolio by using interest rate swaps and options to achieve an overall desired position of fixed and floating rates. As of December 31,1999 the company had the following interest rate swap contracts outstanding: > Four interest rate swap contracts relating to Alcoa's 5.75% notes that mature in 2001. The swaps convert $175 notional amount from fixed rates to floating rates and mature in 2001. > Five interest rate swap contracts relating to Alcoa Fujikura's variable rate loan. These agreements convert the variable rate to a fixed rate on a notional amount of $198 and mature in 2002. In addition to the above, Aluminio has a number of cross not possible to determine the outcomes or to estimate with any degree of accuracy the potential costs for certain of these matters. For example, there are issues related to the Massena, New York, and Pt. Comfort, Texas sites that allege natural resource damage or off-site contaminated sediments, where investigations are ongoing. The following discussion provides additional details regarding the current status of these two sites. Massena/Grasse River. Sediments and fish in the Grasse River adjacent to Alcoa's Massena, New 'fork plant site contain varying levels of polychlorinated biphenyl (PCB). Alcoa has been identified by the U.S. Environmental Protection Agency (EPA) as potentially respon currency interest rate swap contracts, relating to deposit accounts, that primarily convert local currency floating rates to dollar fixed sible for this contamination and, since 1989 has been conducting investigations and studies of the river under order from the epa issued rates, on a notional amount of $257 Alcoa utilizes cross-currency rate swaps to take advantage of under the Comprehensive Environmental Response, Compensation and Liability Act, also known as Superfund. international debt markets. At year-end 1999 Alcoa had in place $60 of cross-currency interest rate swaps that effectively convert U.S. During 1999, Alcoa continued to perform studies and investigations on the Grasse River. A planned pilot test of certain sediment capping dollar-denominated debt into liabilities in yen based on Japanese interest rates. Based on current interest rates for similar transactions, the fair value of all interest rate swap agreements is not material. techniques, intended for 1999 could not be completed because a final scope of work could not be developed with EPA in time to complete the project before the construction season concluded. In addition, in the 1999 fourth quarter, Alcoa submitted an Analysis of Alternatives Credit and market risk exposures are limited to the net interest to EPA. This report identified potential courses of remedial action differentials. The net payments or receipts from interest rate swaps are recorded as part of interest expense and are not material. The related to the PCB contamination of the river. Alcoa has proposed to EPA that the planned pilot scale tests be conducted to assess the effect of interest rate swaps on Alcoa's composite interest rate on long-term debt was not material at the end of 1999 or 1998. feasibility of performing certain sediment-covering techniques before selection and approval of a remedial alternative by EPA. The costs Alcoa is exposed to credit loss in the event of nonperformance by of these pilot scale tests have been fully reserved. The results of counterparties on die above instruments, but does not anticipate these tests and discussions with EPA regarding all of the alternatives nonperformance by any of the counterparties. identified should provide additional information for the selection For further information on Alcoa's hedging and derivatives and approval of the appropriate remedial alternative. Alcoa intends activities, see Note A. to seek EPA approval for the pilot tests in the first half of 2000. The Analysis of Alternatives report and the results of the pilot tests must be reviewed and approved by EPA. Currently, no one of the alternatives is more likely to be selected than any other. The range of additional costs associated with the potential courses of remedial action is between zero and $53. Alcoa is also aware of a natural resource damage claim that may be asserted by certain federal, state and tribal natural resource trustees at this location. Pt Comfort/Lavaca Bay. In 1990, Alcoa began discussions with certain state and federal natural resource trustees concerning alleged releases of mercury from its Pt Comfort, Texas facility into the adjacent Lavaca Bay. In March 1994, El'A listed the `Alcoa (Point Comfortj/Lavaca Bay Site" on the National Priorities List and, shortly thereafter, Alcoa and EPA entered into an administrative order on consent under which Alcoa is obligated to conduct certain remedial investigations and feasibility studies. In accordance with this order, Alcoa recently submitted a draft remedial investigation, a draft feasi bility study and a draft baseline risk assessment to EPA. In addition, Alcoa recently commenced construcdon of the EPA-approved project to fortify an offshore dredge disposal island. The probable and estimable costs of these actions are fully reserved. Additional costs to complete a remedy currently cannot be estimated since they will depend on the extent of remediation required, if any, the remedial method chosen and the rime frame to complete any remediation activity. Since the order with EPA, Alcoa and the natural resource trustees have continued efforts to understand natural resource injury and ascertain appropriate restoration alternatives. That process is currently expected to be complete by late 2000 or early 2001. Based on the above, it is possible that Alcoa's results of operations, in a particular period, could be materially affected by matters relating to these two sites. However, based on facts currently available, management believes that the disposition of these matters will not have a materially adverse effect on the financial position or liquidity of the company. Alcoa's remediation reserve balance at the end of 1999 and 1998 was $174 and $217 (of which $63 and $85 were classified as a current liability), respectively, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. About 22% of the 1999 balance relates to the Massena plant site, and 11% of the 1999 balance relates to the Pt. Comfort plant site. Remediation expenses charged to the reserve were $47 in 1999 S63 in 1998 and $64 in 1997 They include expenditures currently mandated, as well as those not required by any regulatory authority or third party. In 1999, the reserve balance was increased by $4 million to cover anticipated future environmen tal expenditures. In 1998, the reserve balance was increased as a result of adding the Alumax environmental reserve to Alcoa's existing reserve balance. Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be about 2% of cost of goods sold. Supplemental Financial Information Quarterly Data (unaudited) (dollars in millions, except per-share amounts) Sales Income from operations Net income Earnings per share: Basic Diluted ^ * .?r;5 247 .V.! ,cii .<v) vr.'.ond $4,<;i * 240 JsV XA TbiU $4,052 3: 5 .71 9(>\i\xh $4,25 442. 354' 59 1,296 ] .Co 4 2S> .'..82 The 1999 fourth quarter included an after-eax credit of $49 related to changes in the lu-'O index and UFO liquidations. VMS Sales Income from operations Net income Earnings per share: Basic Diluted i'-.i":$3,445 Nvoad $3,587 Tail'd $4,109 fourth $4,199 $15,340 280 269 266 276 1,091 210 207 218 218* 853 .63 .62 .61 .59 2.44 .62 .62 .61 .59 2.42 'The 1998 fourth quarter included an after-tax credit of $32 related to changes in the LIFO index Number of Employees (unaudited! Other Americas U.S. Europe Pacific 1959 4>,: 00 35,400 18,800 5.^00 iev"f> 1998 40,900 38,900 18,200 5,500 103,500 1997 36,200 27,200 11,900 6,300 81,600 Dividends Paid per Common Share cents WZ& Variable USS Base M. Subsequent Event On February 11,2000, the shareholders of Reynolds Metals Company, by majority vote, approved the proposed merger transaction between Alcoa and Reynolds. The merger transaction remains subject to the approval of various governmental authorities. 95 96 97 98 99 11-Year Summary of Financial and Other Data (dollars in millions, except per-share amounts and ingot prices) Op;raiii>g Besiults DivkSemfc DcssjareiJ Financial Position Common Shora Dote (dollars per share) Operating Data (thousands of metric tons) Otner Statistics For the year ended December 31 Sales St6,3'.'.3 Other income 1 Cost of goods sold 12.536 Selling, general administrative and other expenses >i>! Research and development expenses Depreciation and depletion Special items--(income) expense Interest expense J9> Taxes on income >53 Income from operations 1,255 Minority interests 17-ili Extraordinary losses and accounting changes* Net income (loss) Alcoa's average realized price per pound for aluminum ingot i .0.5': F- 7 Average U.S. market price per pound for aluminum ingot (Metals Week) .66 Preferred stock Common stock Working capital 1.797 Properties, plants and equipment Other assets (liabilities), net i-vv.M Total assets 17,1?-; 5 Long-term debt (noncurrent) 2,557 Minority interests 1)47? Shareholders' equity 5,315 Basic earnings per share 2.M " Diluted earnings per share 2 -U Dividends declared .SO.Y Book value (based on year-end outstanding shares) 17 i-i Price range: High S 5:( Low 37 Shareholders (number) ! 85.000 Average shares outstanding (thousands) 366.944 Alumina shipments ",07`4 Aluminum product shipments: Primary Fabricated and finished products i ,511 ' 7 Total AA Primary aluminum capacity: Consolidated <, j 7. Total, including affiliates' and others' share of joint ventures 1,024 Primary aluminum production: Consolidated 2.8 51 Total, including affiliates' and others' share of joint ventures 3.V>5 Capital expenditures 5920 Number of employees S 0 ''`,700 Pretax profit on revenues (%) H.3 Return on average shareholders' equity (%) '17.?. Return on average invested capital (%) 15.3 1598 $15,340 149 11,933 783 128 842 -- 198 514 1,091 (238) -- 853 .67 .66 2 263 1,757 9,134 (482) 17,463 2,877 1,476 6,056 2.44 2.42 .75 16.36 40% 29 119,000 349,114 7,130 1,367 2,584 3,951 3,159 3,984 2,471 3,158 $932 103,500 10.4 16.3 13.8 * Reflects the cumulative effects of the accounting changes for postretirement benefits and income taxes in 1592 1997 $13,319 163 10,275 682 143 735 (96) 141 529 1,073 (268) -- 805 .75 .77 2 169 1,964 6,667 (1,315) 13,071 1,457 1,440 4,419 2.33 2.31 .488 12.97 44% 32 % 95,800 344,452 7,223 920 2,036 2,956 2,108 2,652 1,725 2,254 $913 81,600 11.9 18.1 15.5 1996 $13,061 67 10,084 717 165 747 199 134 361 721 (206) -- 515 .73 .71 2 232 1,908 7,078 (1,223) 13,450 1,690 1,611 4,463 1.47 1.46 .665 12.77 33 V6 24% 88,300 348,667 6,406 901 1,940 2,841 2,101 2,642 1,708 2,240 $996 76,800 8.2 11.6 11.0 1995 $12,500 155 9,477 718 141 713 16 120 446 1,024 (233) -- 791 .81 .86 2 160 2,090 6,930 (1,750) 13,643 1,216 1,609 4,445 2.22 2.20 .45 12.45 3014 18% 83,600 356,036 6,407 673 1,909 2,582 1,905 2,428 1,506 2,037 $887 72,000 11.6 18.5 15.9 1994 $ 9,904 487 7,945 640 126 671 80 107 219 603 (160) (68) 375 .64 .71 2 142 1,600 6,689 (1,572) 12,353 1,030 1,688 3,999 1.05 1.04 .40 11.04 22% 16% 55,200 355,764 6,660 655 1,896 2,551 1,905 2,428 1,531 2,067 $612 60,200 7.9 9.9 9.3 1993 $ 9,056 93 7,264 633 130 692 151 88 (10) 201 (196) -- 5 .56 .53 2 140 1,610 6,507 (1,711) 11,597 1,433 1,389 3,584 .01 .01 .40 9.98 19* 14* 55,300 350,692 5,962 841 1,739 2,580 1,905 2,428 1,770 2,315 $757 63,400 2.1 .1 4.3 1992 $ 9,491 97 7,415 623 212 683 252 105 132 166 (144) (1,161) (1,139) .59 .58 2 137 1,083 6,416 (1,734) 11,023 855 1,306 3,604 (3.35) (3.33) .40 10.35 20% 15* 55,200 341,896 5,468 1,023 1,774 2,797 1,905 2,428 1,903 2,446 $789 63,600 3.1 (26.7) (14.0) . 1991 $ 9,884 97 7,523 612 252 698 331 153 193 219 (156) -- 63 .67 .59 2 151 1,546 6,586 (702) 11,178 1,131 1,362 4,937 .18 .18 .445 14.35 18* 13% 55,800 339,936 4,898 1,179 1,657 2,836 1,903 2,498 1,919 2,511 $850 65,600 4.1 1.2 4.2 1990 $10,710 160 7,684 619 220 690 415 185 404 653 (358) -- 295 .75 .74 2 265 1,706 6,747 (414) 11,413 1,295 1,581 5,163 .85 .84 .765 15.05 19% 12% 56,300 344,816 5,024 1,179 1,545 2,724 1,903 2,498 1,870 2,395 $851 63,700 9.7 5.7 9.7 1989 $10,910 250 7,402 562 183 638 -- 178 830 1,367 (422) -- 945 .92 .88 2 240 1,595 6,659 (137) 11,541 1,316 1,533 5,267 2.67 2.59 .68 14.86 19% 13% 56,500 353,216 5,106 960 1,619 2,579 1,907 2,420 1,876 2,391 $876 60,600 19.7 19.1 19.2 Aerospace Components A uto Compottents Auto Engineering Building Products Closures, Machinery Packaging M a c h in e ry Alcoa Worldwide Operations Country Arrjfifrrirw Companies Alusud Argentina S.A. Industrial y Coniercial Location Buenos Aires 1 4 2 ii c 2 & 15 ! 1 8 i aaa E V *> <2 m j .$ 1`Ea PC e J 1a! 5 1 .0 a eaS | * PC If i ias 88 Aiin*rniia Feroscar SJi. Industrial y Comercial Alcoa World Alumina - Australia La Plata Huntfy Willowdale Kwinana, Pinjarra 8 tf 9 Point Henr^ Portland! 8 W&gerup 8 Australian Fused Materials Pty Limited! Rockingham e Kaal Australia Pty Limited! Point Henry 8 Yennora % 88 Gulf Closures WLL.t Manama ts Alcoa Aluminio S.A. Barueri, Lages 88 Itapissuma 9 8 99 9 8 Po^os dc Caldas Queimados 8 8 a 9 8 99 Salto 9 Sio Caetano, Sorocaba 88 Hirbario, Utinga 16 8 AKI. do Brasil Uda. Itajubl 89 Consdrcio de Aluminio do Maranhao Sio Luis 8 % Minera^ao Rio do Norte S.A.! Trombecas 9 CoO.-jd.': Alcoa Fujikura Ltd. Owen Sound 8 Aluminerie de Bicancour, Inc.! Bicancour 8 Aluminerie Lauralco, Inc. Deschambault 8 DBM Industries, Ltd. Montreal . Kawneer Company Canada Limited Lethbridge, Scarborough 9 Chite Alusud Embalajes Chile Lrda. Santiago 8 C-ins Alcoa Closure Systems International (Tianjin) Co., Ltd. Tianjin 8 Alcoa (Shanghai) Aluminum Products Co., Limited Shanghai 8 Qingdao Alcoa Co., Ltd. Qingdao 8 Costa Yunnan Xinmeilu Aluminum Foil Co., Ltd. Alusud Embalajes Colombia Ltda. Alcoa CSI de Centro America, S. A. Kunming Bogota Sanjosl 9 9 8 9 Alcoa France S.A. Castelsarrasin 8 Kawneer France S.A. Montpellier, Toulouse 9 Vfcndargues 9 (yi'rw.y Alcoa Automotive GmbH Esslingcn 8 Soest 8 88 Alcoa Chemie GmbH Ludwigtdufen 9 Alcoa Deutschland GmbH Viemheim, Worms am Rhein 88 Alcoa Extrusions Hannover GmbH Sc Co., KG Kawneer Deutschland GmbH Hannover Mdnchengladbach 8 e 9 Michels GmbH Sc Co., KG Cologne, Gross Mehring 8 8 Herzebrock, Ingolstadt 9 ft Rheda-Wiedenbruck 8 8 St. Vic, \Walfsburg 8 8 Gums* 58 Stribel GmhH Frickenhausen HaJco (Mining) Inc.! Sangaredi * includes aluminum paste, particle, Bake and atomized powder, ceramics, magnesium, PET preform bottle production, truck wheels, die-casting machinery, systems and components for appliances, and telecommunications !Ownership of 50% or less 99 8 Xe $ I 11 1 i ad <e3 Ia < .3 i -c U .a * Cc 1 O0 2 a 'I1 O -3 5 (?a2 a 1 `a to c .0 ae 1a J VI 1 -rsS3 c Jj <* CS a 0I 3 <a* .0 1i5 2 1&e6 VI 5 Ss 2 Ea5 c 3 3a f 3 O. 1 t PC 1 V 0 Country fcuJis Ir-l.-v*.1 Jsn>3'-:.a Ps1g>,;C0 Wc-t-j-.co ^vC*:V^v Paru Fh-nwij-.fis floMwa l-SSi iiprtin f e Companies Location afi AHL Hungary Kft Enying, Mor, Szdkesfehirvdr a TorokszentmiklAs & Vfeszprimvarsiny Alcoa-K6fm Kft Szikesfehdrvdr 8 Alcoa Wheel Products Europe Mfg. & Trading L.LG SzAkcsfchdrvlr CSI Hungary Manufacturing and Trading, LL.G Szkesfehrvdr AlcoaACC Industrial Chemicals Limited Falta (* Alena Fujikura Ireland Limited Dundalk a Alcoa Italia S.pA. Bolzano, Peltre, Fossanova Fusina Iglesias, Mori, Novara Portovesme Alcoa Italia S.p.A. Automotive Structures Modena * Alcoa Minerals of Jamaica, L.L.G Clarendon 9* Alcoa Kasei Limited Naoetsu a KSL Alcoa Aluminum Company, Ltd. (Kaal)t Moka Moralcn Limited Iwakuni City Shibazaki Scisakusho Limited Nogi Alcoa CSI de Mexico en Ensenada, S.A. de C.V. Ensenada Alcoa CSI de Mexico en Saltillo, SA. de GV. Saltillo Alcoa Fujikura Ltd. Acuna, Juirez, Monterrey tt Picdras Negras, Torredn Alumav Extrusions Mexico, S.A. de C.V. Monterrey Kawneer Marne SA. Casablanca 8 Alcoa Chemie Nederland B.V. Rotterdam V Alcoa Moerdijk B.V. Moerdijk Alcoa Nederland B.V De Lier, Zwijndrecht 8 Drunen *9 Geldermalsen, Giessen * Ahimax Extrusions B.V. Kerkrade Roermond Alcoa Automotive! Lista 9 Elkem Aluminium ANS f Lista, Mosjoen Alusud Peru SA. Lima Alcoa Closure Systems International (Philippines) Manila Kawneer Polska Sp. z.o.o. Alcoa CSI \bstok Ltd. Wirsaw Lyubachany * ACAP Singapore Pte Ltd. Singapore s Alcoa Arquicectura S.L. Alcoa CSI Espana, S.A. Irurzun Barcelona Alcoa Navarra S.A. Irurzun Alcoa Inespal S.A. Avilas La Coruna Alcoa TransformaciAn SA. Alicante Amorebieta La Coruna (Arteixo), Noblejas Operations listings continue on next page. Sabindnigo c o0e. E *2 t? .! I1 e c & a jj o &a 1 a a <3 <u Alumina | Alum ina Chemicals | Building Products | G in Reclamation j Electrical Products j Extrusions, Tube j Packaging Machinery | Prtmary Aluminum | Sheet, Plate j & & $ J * a s e -X 1 |$ a' o s? 1 J a 9 1 as I t1J s 8 9 a a 98 8 9 a a tt 8 a a a 98 9 9 9 8 a B <8 9 98 a9 8 & t . l | a 33 o a &ua | 2 kV -c 5 s e' Aerospace Components A lu m in a 1A lum ina Chemicals A uto Components A uto Engineering Building Products Cart Reclamation Closures, Machinery Electrical Products Primary Aluminum aridwide Operations continued Country continued UnittKj > Unftftd Companies Location Alrimina Espanola S.A. San Cipriin ExtrusitVndeAluminioSA. Vails Suriname Aluminum Company L.LC. Moengo Paranam Alcoa Manufacturing (G3) Limited Swansea Alcoa Extruded Products {UK) Limited AFL UJC. Led. Uantrisant, Swansea Laindon Alcoa Systems (UK) Limited Stratford-on-Avon Kawneer Ui(. Limited Runcorn Alcoa Alcoa, Term.; Evansville, Ind. Anhum, \thsh. Badin, NC. Chillicothe, Ohio Cleveland, Ohio Danville, 111. Davenport, Iowa Denton, Texas Hawesville, Ky. Hutchinson, Kansas Irvine, Calif. Lafayette, Ind. Lebanon, Pa. Leetsdale, Pa. Massena, MY. New Kensington, Pa. RockdaJc, Texas San Antonio, Texas Wenatchee, Wash. Alcoa Automotive Alcoa Center, Pa. Fruicport, Mich.; Hawesville, Ky. Northwood, Ohio Southfield, Mich. Alcoa Building Products, Inc. Denison, Texas; Gaffney, SC. Princeville, 111.; Sidney Ohio Alcoa Closure Systems International, Inc. Stuarts Draft, Va. CrawforcUvUle, Ind. Alcoa Extrusions, Inc. Olive Branch, Miss. Catawba, N.C. Cressona, Pa. Eli2abethton, Tenn. Fairburn, Ga. Hernando, Miss. Magnolia, Ark. Morris, 111. Plant Cit% Fla. Spanish Fork, Utah Yinkton, ST). Includes altuninum paste, particle, flake and atomized powder, ceramics, magnesium, PET preform bottle production, truck wheels, die-casting machinery systems and components for appliances, and telecommunications Ownership of 50% or less 60 Aerospace Components A lu m in a Alum ina Chemicals Ai4fo Components A uto Engineering ] Bauxite M ining | Building Products \ Can Reclamation | Cartings; Forgings | Extrusions, Tube | Foil Products Primary Aluminum Sheet, Plate J Aerospace Components A lu m in a Auto Components Bauxite M ining Building Products Cartings, Forgings Closures, Machinery Electrical Products F oil Products [ Other* -a a 1.3 S' Ec 1e & 'JJ Sit 0 | <3 .3E e <3 r Es 1 s E 1 1 1 31aa 1IiI 88 9 8 8 88 9 8 88 8 45 89 8 88 8 8 88 8 8 8e 8 8 8s 88 88 88 8 a 99 8 88 98 8 8 88 88 8 9 8 8 8 8 8 H8 99 88 8e 8a 8 88 8 . 8 tVc- l 15 < *3 $X o I uV U V S <3 5 1.8? <2 *fe=3 -ft 3o 1 Country St.'jffsS continued Companies Alcoa Fujikura Ltd. Alcoa Packaging Machinery; Inc. Alcoa World Alumina L1C. Alumax of South Carolina, Inc. Ahimax Foils, Inc. Alumax Mill Products, Inc. American Trim, LLCt BficC Research, Inc. DigiSys Corp. DiscoveryAluminas, Inc. Eastalco Aluminum Company Excel Extrusions, Inc. Great Lakes Minerals, L.L.C. Halethorpe Extrusions, Inc. Intalco Aluminum Corporation Kawneer Company Inc MinTel Communications, L.LC. Northwest Alloys, Inc. Norton-Alcoa Proppantst Permatech, Inc. Pimalco, Inc. Quality Control Services, Inc. St. Croix Alumina, L.L.C. Six "R" Communications, L.L.C. Stolle Machinery, Inc. Telelech Company, Inc. T.I.C.S. Corporation Tifton Aluminum Company, Inc. Alcoa Fujikura Ltd. Venezuela, CA. Location Dearborn, Mich.; El Paso, Texas Houston, Miss. Mattawan, Mich.; Nashville, Tenn. New Boston, Mich.; SheJbyviiie, Ky. Spartanburg, S.C. Traverse City, Mich. Englewood, Colo.; Randolph, N.Y. Bacon Rouge, La.; Bauxite, Ark. Dalton, Ga.; Fort Meade, Fla. Point Comfort, Texas Vidalia, La. Goose Creek, SC. Russellville, Ark.; St. Louis, Mo. Lancaster, Pa.; Texarkana, Texas Cullman, Ala.; Lima, Ohio Sidney, Ohio; Spring Lake, Mich. Wapakoneta, Ohio Barberton, Ohio Alpharetta, Ca. Port Allen, La. Frederick, Md. Wirren, Ohio Wurtland, Ky. Baltimore, Md. Ferndale, Wash. Bloomsburg, Pa.; Bristol, Ind. Franklin, Ind.; Harrisonburg, \fc. Jonesboro, Ca.; Norcross, Ga. Springdale, Ark.; Visalia, Calif. Norcross, Ga. Addy, Wash. Fort Smith, Ark. Graham, NC Chandler, Ariz. Richmond, Vi. Sc. Croix, V.l. Monroe, N.C. Sidney, Ohio Lexington, Ky. Charlotte, NC. Delhi, La.; Tifton, Ga. \hlencia Aerospace Components Alumina | Alum ina Chemicals Auto Engineering | Bauxite M ining | Can Reclamation j Castings, Forgings Closures, Machinery | Extrusions, Tube Foil Products Packaging Machinery j Primary Alum inum j Sheet, Plate Wire, Rod, Bar j Aerospace Components A lu m in a Alum ina Chemicals Auto Components Auto Engineering Building Products Can Reclamation Castings, Forgings Closures, Machinery Foil Products 1Sheet, Plate S' X8 <3 8 8 8 8 0 u 8 8 8 8 8 8 8 8 8 j r-g eEX gi uXf1 s ! 1 I1.8 8 8 M 88 8 0 8 8 0 a 8 8 u 0 8 a 8 00 0 * & 1 Isc Uo -3Xc ? 3 CXQ 9 0 S <2 Vi 1TX3 !a 1t 8 0 0 1 0 Board Committees Th-i Audit Corn-rikto'j Reviews the performance of the independent public accountants, makes recommendations, reviews audit plans, audit results and findings of the internal auditors and the independent accountants, reviews the environmental audits and monitors compliance with Alcoa business conduct policies. Kenneth W Dam Judith M. Gueron Henry B. Schacht (chairman) Franklin A. Thomas Marina v.N. Whitman from left to right: John P. Mtilvopey, 64, former president and chief operating officer of Rohm and Haas Company, a specialty chemicals manufacturer, from 1586-1998. Director since 1987 Kcfj/u'th \v! Dairi, 67, Max Pam Professor of American and Foreign Law, University of Chicago Law School; president and chief executive officer of United Way of America 1992; vice president for law and external relations of IBM 19851992; Deputy Secretary of State 1982-1985; provost of the University of Chicago 1980-1982. Director since 1987 ALun !. T , 56, chief executive officer of Alcoa since May 1999 and president since January 1997; elected chief operating officer in January 1997; elected vice chairman in 1995 and executive vice president in 1994; president of Alcoa Aluminio S.A. from 1979 to March 1994; president - Latin America in August 1991. Director since 1998. H-.ifjvy B. Schacht, 65, managing director since January 2000 and senior advisor 1999 of E. M. Warburg, Pincus Sc Co., LLC, a financial services firm; senior advisor to Lucent Technologies Inc 1998-1999; chairman 1996-1998 and chief executive officer 19961997; chairman of Cummins Engine Company, Inc 1977-1995; chief executive officer 1973-1994. Director since 1994. M. Cwirou, 58, president of Manpower Demonstration Research Corporation (MDRC), a ronpiofit research organization, since 1986; executive vice president for research and evaluation 1978-1986; prior to MDRC, director of special projects and studies and a consultant for the New York City Human Resources Administration. Director since 1988. A TT:o:.. 65, consultant, TFF Study Group, a nonprofit institution assisting development in South Africa, since 1996; president of The Ford Foundation 1979-1996; president and chief executive officer of Bedford Stuyresant Restoration Corporation 1967-1977 Director since 1977. TaiU K. O'jSk'Ui, 64, chairman of the board of Alcoa since 1987 and chief executive officer 19871999; president and director of International Paper Company 1985-1987. Director since 1986. Ri:D3.:d Hampel. 67, chairman of United News & Media PLC, a UJC-based media company, since 1999; chairman of Imperial Chemical Industries PLC 1995-1999, and a director 1985-1999; deputy chairman and chief executive officer 1993-1995; chief operating officer 1991-1993. Director since 1995. Marina v.N. Whitman, 64, professor of Business Administration and Public Policy, University of Michigan since 1992; vice president and group executive, public affairs and marketing staffs of General Motors Corporation (CMC) 1985-1992; vice president and chief economist of GMC 1979-1985; member of the President's Council of Economic Advisers 1972-1973. Director since 1994. M MoC" ;m. 59, managing director WMC Limited, an Australian mining and minerals processing company since 1986 and its chief executive officer since 1990; executire director of WMC from 1976 to 1986. Director since 1998. I'. Corns.*?!, 62, chairman and chief executive officer of TRW Inc., a global company serving the automotive, space and information systems markets, since 1988; chief operating officer 1985-1988; president 1985-1991. Director since 1991. The Compensate! CommUtee Determines the compensation of Alcoa officers and performs specified functions under company compensation plans. Kenneth W Dam Joseph T. Gorman Hugh M. Morgan John P. Mulroney Franklin A. Thomas (chairman) The Execulk"? Commstsea Meets principally when specific action must be taken between Board meetings; has been granted the authority of the Board in the management of the company's business and affairs. Kenneth W Dam Paul H. O'Neill (chairman) Franklin A. Thomas The Norvursafcrtg CornrniU-'H Reviews the performance of incumbent directors and the qualifications of nominees proposed for election to the Board and makes recommendations to the Board with regard to nominations for director. Joseph T. Gorman Sir Ronald Hampel John P. Mulroney (chairman) Franklin A. Thomas Tensor: and Savings Pten :rrv--j$tnu:nt Cc'-rimiU&e Reviews and makes recommenda tions to the Board concerning the investment management of the assets of Alcoa's retirement plans and principal savings plans. Joseph T. Gorman (chairman) Judith M. Gueron Sir Ronald Hampel Hugh M. Morgan Franklin A. Thomas Marina v.N. Whitman Officers (As of February 15, 2000) HiuS H. O'NciJS Chairman of the Board Afctflds President and Chief Executive Officer George E. Ikrgf:ro President - Reynolds Integration f.ioda U. Rnrko Tax Counsel WjBuim \i Cimsiiiphtv Vice President - Alcoa and President, Alcoa Forged Products Mk:l:.:r.l Oi;e;v:an Vice President - Alcoa and President, Alcoa Rigid Packaging John 'S'. Collins ill Vice President - Alcoa and President, Alcoa Mill Products Deiiis A. DcmbltyA'ski Secretary and Senior Counsel Ronald iX Dick?) Vice President - Tax j&Hc:? I* Giuiorscadr Counsel and Assistant Secretary Rlvlurd I., Fischer Special Counsel to the CEO Ronald A. GUb Vice President - Alcoa and President - Alcoa Closure Systems International L Patrick Hz'ncy Vice President - Alcoa and President, Alcoa Europe Ktfbcr:. S. Kitghe'j J{ Vice President - Alcoa and Chairman, President and CEO, Alcoa Fujikura Ltd. fta;bo;a S. jesstrdah Vice President Corporate Development RidwivJ B. Executive Vice President and Chief Financial Officer K. K::j:.hr: Assistant Controller Kathleen I... fj&np Assistant Secretary Ptank 1.. Fede-man Vice President and Chief Technical Officer TnOf.hy' j Vice President - Alcoa and President, Alcoa Asia Ltd. Joseph l\. !.i.u*or Assistant Controller Christopher j. Ly*Kh Vice President and Chief Information Officer Thomas J. \kv.k Assistant General Counsel L. Rkhmx) Vice President - Alcoa and President, Alcoa Automotive T::V:t*;d-;v S. Mr.V.k Vice President and Controller Joseph C. hhiscari Vice President - Environment, Health 8c Safery, Audit and Compliance VeilUamJ rk..:Jr. Vice President - Alcoa Business Support Services ji.n-.cph 0. RdKgrino Vice President - Pension Fund Investments and Analysis G. job/:. Vi/Xfiy Vice President - Alcoa and President, Alcoa ^Xbrld Alumina and Chemicals Ro^rU Wx'tzr, U Senior Assistant General Counsel l.mvivoce & h;;:re;i Executive Vice President and General Counsel Aiati C Banket: Vice President - Alcoa and President, Alcoa Primary Metals B. SavageAssistant Controller Rr-I'crt i\ Slagle Executive Vice President - Human Resources and Communications iV::;: \) Tho/lUS Vice President - Alcoa and President, Alcoa Engineered Products G. Turphuil Executive Vice President Alcoa Business System Kuvt R. TJKild?* Assistant General Counsel Room yp<:7ifiV\YK:t Vice President and Treasurer Robert S. Aetherbee Assistant Controller jobr M. Wilvow Senior Assistant General Counsel Rii.vf.cll C sor Vice President Government Affairs Business Units Alcoa Asia Ltd. Timothy J. Loveque, President Hong Kong, China Regional management and business development, including sales and marketing services for other Alcoa businesses Alcoa Automotive L Richard Milner, President Alcoa Center, Pennsylvania Design and manufacture of high-performance, light-weight aluminum automotive materials and components Alcoa Building Product!;, Inc. Larry G. Gold, President Sidney, Ohio Coated aluminum, vinyl extruded, and injection molded building products Alcoa Closure Systems :r;;^cnat;onal Ronald A. Glah, President Indianapolis, Indiana Plastic and aluminum closures (bottle caps), plastic botdes, services and supplies for packaging markets Alcoa c-Busicoas Fausto P. Moraira, President Sao Paulo, Brazil Strategic and commercial leadership of Alcoa's global e-commerce activities Alcoa r:^tnf;-:;rsHS P-xkSuc-s Paul D. Thomas, President Lafayette, Indiana Aluminum extruded shapes, tube, rod and bar for use in aerospace, road, rail and marine transportation, machinery and equipment, recreational products, electrical applications and other durable goods AIco3 R'j'opC' L. Patrick Hassey, President Lausanne, Switzerland Strategic, commercial, operational and regional leadership for Alcoa's primary, flat-rolled, extrusion and end products, and Kawneer businesses in Europe Alcoa Eutoiig Extnsslona aud End Products Ricardo E. Baida, President Geneva, Switzerland Aluminum extrusions, window systems, and end products for the building, transportation, general distribution, industrial, commercial, and aerospace markets Alcoa uroj>s Flat-Rolled Prefects Laandro Guilltn Barba, President Madrid, Spain Aluminum sheet, plate and foil for the industrial, transportation, lithographic, lighting, food and pharmaceutical markets Alcoa urope, Kawneer Michel Mare Lavite, President Brussels, Belgium Aluminum architectural systems for the building and construction industry AEurofW Primary bMrv.ite System Glusappa Toia, President Milan, Italy Primary aluminum ingot, billets and rolling slab Alcoa extruded Constructed PrtKhrCU; Kenneth R. McElheny, President Plant City, Florida Painted, anodized, mill finish aluminum extrusions, bath enclosures and stadium searing systems for the building and construction markets A:cc*i roll Products Ralph Matera, President Lebanon, Pennsylvania Aluminum thin sheet, foil and laminated materials used in applications for automotive, appliance, building and construction, machinery and equipment, and packaging markets Aico<: Forged Prodi-ofs William F. Christopher, President Cleveland, Ohio Wlieeis for the heavy truck and automotive industries and forged structural parts for aerospace, power generation and other commercial applications Alcoa Fujikur.s Ltd Robert S. Hughes II, Chairman, President and CEO Brentwood, Tennessee Automotive electrical/electronic systems, electronic components, and specialty fiber-optic products for automotive and telecommunications markets, and wire products for the electrical market Alcoa Industrial Cdeovcala Hamlsh Petrie, General Manager Cliarlotce, North Carolina Alumina and other inorganic chemical products for refractory, adsorbent and catalyst, ceramic and abrasive, polymer and water treatment markets AlcOo Will Product;; John W. Collins III, President Davenport, Iowa Aluminum sheet and plate for the aerospace, defense, automotive, truck, railroad, marine, building and construction, machinery and equipment, lithographic, and ocher industrial and consumer markets Alcoa Packii^iotj Etjuiprouni David W. Groetsch, President Englewood, Colorado . Engineered equipment solutions for the packaging industry and other high production manufacturing processes Alcoa Prinf-ary Metals Alan C. Renkon, President Knoxville, Tennessee Primary metal products produced in North America for various aluminum, magnesium and powder markets and applications Ak-.os World Alumina and Chemicals G. John Plzzey, President Pittsburgh, Pennsylvania Strategic, commercial and operational leadership of Alcoa's global bauxite and alumina activities Aiccfci Woild Alumina - Ailco-ic John M. Sibly, President Pittsburgh, Pennsylvania Bauxite mining and alumina refining in Jamaica and Suriname, bauxire mining in Guinea, and alumina refining in the United Scares, Virgin Islands, Spain and Brazil Agob World Aiumir-a -Australis B. Michael Baltzell, President Perth, Western Australia Bauxite mining, alumina refining, alumina chemicals and aluminum smelting in Australia Company William O. Cralley, President Norcross, Georgia Engineered architectural aluminum products and systems including entrances, framing, windows and curtain walls for commercial building markets t.aSV: Arr-'jriuj sod Afooa Ak-min-o S. A Adjarma A2vedo, President Sao Paulo, Brazil Bauxite mining, alumina refining, aluminum smelting and fabricating for various markets and applications; plastic closures, bottles and labels Alcoa Rigid Psckaying Michael Coleman, President Knoxville, Tennessee Aluminum sheet for beverage and food cajis, and can recycling Shareholder Information Annual Meeting The annua) meeting of shareholders will be at 9:30 am. on Friday, May 12, 2000 at the DoubleTree Hotel Pittsburgh. Company News Visit our Web site at wwwalcoa.com for current stock quotes, SEC filings, quarterly earnings reports and other company news announcements. This information is also available toll-free 24 hours a day by calling 1 800 522 6757 (in the U.S. and Canada) or 1 402 572 4993 (all other calls). Reports may be requested by voice, fax or mail. Copies of the annual report, Alcoa Update, and Forms 10-K and 10-Q may be requested through the Internet, by calling the toll-free numbers, or by writing to Corporate Communications at the corporate center address. Investor Infoirnetior: Security analysts and investors may write to Director - Investor Relations, at the corporate center address or call 1 412 553 2231. Other Furiliostions For a report of contributions and programs supported by Alcoa Foundation, write Alcoa Foundation at the corporate center address or call 1 412 553 2348. For a report on Alcoa's environmental, health and safety performance, write Alcoa EHS Department at the corporate center address. Dividends Alcoa's objective is to pay common stock dividends at rates com petitive with other investments of equal risk and consistent with the need to reinvest earnings for long-term growth. To support this objective, Alcoa pays a base quarterly dividend of 25 cents per common share. Alcoa also pays a variable dividend that is linked directly to financial performance. The variable dividend is 30% of Alcoa's annual earnings over $3.00 per basic share. This is calculated annually and paid quarterly, together with the base dividend, to shareholders of record at each quarterly distribution date. Dividend Reinvestment The company offers a Dividend Reinvestment and Stock Purchase Plan for shareholders of Alcoa common and preferred stock. The plan allows shareholders to reinvest all or part of their quarterly dividends in shares of Alcoa common stock. Shareholders also may purchase additional shares under the plan with cash contributions. The company pays brokerage commissions and fees on these stock purchases. 08Ct Deposit of Dividends Shareholders may have their quarterly dividends deposited directly into their checking, savings or money market accounts at any financial institution that participates in the Automated Clearing House (ACH) system. Sh.3fiihote3: Services Shareholders with questions on account balances, dividend checks, reinvestment or direct deposit, address changes, lost or misplaced scock certificates, or other shareholder account matters may contact Alcoa's stock transfer agent, registrar and dividend disbursing agent: First Chicago Trust Company, a Division of EquiServe Shareholder Services Group P.O. Box 2500 Jersey City, NJ 07303-2500 Telephone Response Center: 1 800 317 4445 Outside U.S. and Canada: 1 201 324 0313 Internet address: www.equiserve.com Telecommunications Device for the Deaf ODD): 1 201 222 4955 For shareholder questions on other matters related to Alcoa, write to Denis Demblowski, Office of the Secretary, at the corporate center address or call 1 412 553 4707 Stock bstitio Common: New York Stock Exchange, The Electronical Stock Exchange in Switzerland and exchanges in Brussels, Frankfurt and London Preferred: American Stock Exchange Ticker symbol: AA Quarterly Comrnon cstool; inior-noiion Quarter First Second Third Fourth Year H;e; $45% 70,1 S3* $8 lit: /><v S.J'.'V 40 vi 5SU S?'4 iUOl.b 10135 -2012s .201.15 S.tfO.'O 0 High $39% 39'% 37 40* $40* 1998 Low $32% 31* 29 33* $29 Dividend $.1875 .1875 .1875 .1875 $.7500 Cen-rion Shan- Data Estimated number of shareholders* Wi 1998 1997 1996 1995 lx 119,000 95,800 88,300 83,600 Average shares outstanding (000) 349,114 344,452 348,667 356,036 * These estimates include shareholders who own stock registered in their own names and those who own stock through banks and brokers. Corporate Girder Alcoa 201 Isabella St. at 7th St. Bridge Pittsburgh, PA 15212-5858 Telephone: 1 412 553 4545 Fax: 1 412 553 4498 Internet: www.alcoa.com Alcoa Inc. is incorporated in the Commonwealth of Pennsylvania. Glossary Alloy A substance with metallic properties, composed of two or more chemical elements of which at least one is a metal. More specifically, aluminum plus one or more odier elements, produced to have certain specific, desirable characteristics. Alumina Aluminum oxide pro duced from bauxite by an intricate chemical process. It is a white powdery 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. Aluminum foil A fiat-rolled product, rectangular in cross section, of thickness from 0.006" to 0.00025". Aluminum plate A flat-rolled product, rectangular in cross section, of thickness not less than 0.250" and with sheared or sawed edges. Aluminum sheet A rolled product, fiat or coiled, rectangular iu cross sectiou, with thickness less chan 0.250" but not less chan 0.006" and with slit, sheared or sawed edges. Aluminum SpaceFramrf" An integrated structure of aluminum castings and extruded parts chat forms the primary body frame of a new generation of automobiles. Anodizing An electrochemical process for applying a protective or decorative coating to metal surfaces. Bauxite An ore from which alumina is extracted and from which aluminum is eventually smelted. Bauxite usually contains at least 45% alumina. About four pounds of bauxite are required to produce one pound of aluminum. Casting The process of forming molten metal into a particular sliape by pouring it into a mold and letting it liarden. Continuous casting A means of casting aluminum in which an ingot, billet, tube or other shape is contin uously solidified and withdrawn while the molten metal is being poured, so that its length is not determined by mold dimensions. Engineered product A basic aluminum fabricated product that lias been mechanically altered to create special properties for specific purposes; forgings and extrusions are examples of engineered products. Extrusion The process of shaping material by forcing it to flow through a shaped opening in a die. Fabricate To work a material into a finished state by machining, forming or joining. Rat-rolled products Aluminum plate, sheet or foil products made by passing ingot through pairs of rolls. By 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 to predetermined shape by one or more processes such as hammering, pressing or rolling. Hydrats An aluminum oxide with three molecules of chemically combined water. Ingot A cast form suitable for remelting or fabricating. An ingot may cake many forms: some may be 30 feet long and weigh 15 tons; others are notched or specially shaped for stacking and handling. London Metal Exchange (LME) The international trading body that facilitates the worldwide open market buying and selling of metals. Magnesium A light, silvery, moderately hard metallic element used in processing metals and chemicals, and in alloying aluminum to give it desired metallurgical properties. Metric ton (mt) A unit of mass and weight equal to 1,000 kilograms, or 2,204.6 pounds. Micromill Alcoa Micromill teclmology uses fully continuous casting and rolling processes to produce aluminum sheet with reduced capital investment, lower operating costs, and-for some products-superior metallurgical properties. Mill products Metal that has been fabricated into an intermediate form before being made into a finished product The most common fabri cating processes for aluminum are rolling, extruding, forging and casting. Example: aluminum sheet, a mill product, is used to make beverage cans, a finished product. Pot In aluminum production: the electrolytic reduction cell, commonly called a "pot," in which aluiniua dissolved in molten cryolite is reduced to metallic alu minum. A series of cells connected electrically is called a potline. Smelt To fuse or melt ore in order to extract or refine the metal it contains. Alcoa Inside InO ij: Ji'Uik'.'vV \`k:f;<:if i !j?00 <c: <> OIO:'! i>^5 U iiO'-iOCO tv.'n'jy' 'r,OU\',uHV. .'iOvcX>pn;-} >0 0*00 v//M-' 0,-j I .'TnJ \ v >y /'X'.'O/i : <i>':: JO r ? T:! V Vv. 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