Document oDmDZ64wx1j74YxrB7d27y4jX

~ fJ f f cr '-*.0 k. . L'^ ^ O Customer satisfaction comes from listening, learning, understanding customer needs and continuously improving the value we provide. Our best customer relationships become long-term partnerships in quality. Our 1990 Annual Report AR 0869 Overview 1990 Financial and Operating Highlights (dollars in millions, except share amounts) 2 Alcoa and subsidiaries Sales Net income 1990 | 1989 % Change $10,710.2 f $10,910.0 295.2*! 944.9 : (2)% (69) Per common share: Earnings Dividends paid Book value 3.40* 3.05 60.20 10.67 2.72 59.41 (68) 12 1 Total assets Capital expenditures Cash flow from operations 11,413.2 850.9 1.586.7 11,540.6 875.7 1,970.8 (1) (3) (19) Return on shareholders' equity Debt as a percent of invested capital Current asset/liability ratio 5.7%t 16% 1.8 to 1 ! 19.1% 16% 1.7 to 1 (70) -- 6 Shipments of aluminum products (000 metric tons) Average common shares outstanding (000) Average number of employees 2,724 86,204 : 63,700 "Includes a special charge of ':275.0. or S3.19 per common share ! Excluding the special charge, the return is 10.9% 2,579 88,304 60,600 6 (2) 5 Sources of 1990 Revenues --y Metals and Chemicals Aerospace and Industrial Products Packaging Systems Materials Science Other AR 0872 Overview 1990 To Alcoa Shareholders 3 As we have noted in the past, boom conditions in the economy do not last forever, and the events of 1990 underscored the point. While Western European and Asian economies maintained good rates of real growth, the U.S. economy deteriorated throughout the year. This was enough to shift supply/demand balances in the world aluminum industry', driving down prices, as indicated by a 16% year-to-year reduction in the average spot price of aluminum ingot. From Alcoa's perspective, the slowdown in the automotive and housing sectors of the U.S. economy had the most serious effect. For the year 1990, Alcoa earned $295.2 million, or $3.40 per share. Return on average shareholders' equity was 5.7%. Revenues totaled $10.9 billion with shipments of aluminum products at 2.72 million metric tons. As compared with the record years of 19SS and 1989, earnings were down sharply while shipment volumes measured by weight were up 6% over 1989. Alcoa took a one-time after-tax charge of $275 million in the fourth quarter related to asset writedowns, environmental cleanup activities at U.S. plants and a loss on an anticipated asset sale. Although the general trend of business conditions was down in 1990, there were important crosscurrents in our own operations that had a significant impact on the company's total results. On the plus side, Alcoa of Australia earned $614 million, matching the record level achieved in 1989. On the negative side, earnings in Brazil dropped from the record level of $176 million in 1989 to $1.3 million in 1990 as the Brazilian government pursued its program of stopping inflation, and the economy plunged into recession. Early in 1991, order rates and prices are stabilized at fourth quarter 1990 levels and aluminum inventories are at historically low volumes. This suggests the potential for an improved pricing environment when the U.S. economy begins to recover from the recession. Alcoa continues to have a very strong balance sheet with debt at 16% of invested capital, giving us the ability to endure economic downturns while maintaining our capital improvement program and providing the flexibility to make prudent expansion investments. Global Expansion 1990 marked the first concrete step in our plan to expand our participation in world markets. Late in September, we announced the formation of a joint venture with Kobe Steel to produce and market sheet for the fast-growing Japanese and Asian beverage container markets. We are extremely pleased about this development because it will give us local production capacity in Japan, with state-of-the-art technology, in partnership with an established and respected company. The joint venture will build a new cold-rolling mill adjacent to Kobe Steel's Moka plant. In addition to the can stock venture, we are studying collaboration to develop aluminum products for the automotive industry and other areas of potential partnering. Modernization A $1.2 billion plant and equipment modernization program that began in 1983 reached the final stage of completion in late 1990 as a new rolling mill was started up at the Davenport, Iowa plant and a new hot line was started up at the Tennessee plant. Wit it the completion of these important milestones, 1991 will be the first year since 1983 that operations are not hampered by major construction projects. The consequence, for example, in the rigid container sheet business will be to raise our effective ability to supply the market to 1.9 biihon pounds of material as compared to our actual sales in 1990 of 1.4 billion pounds. Importantly, customer demand appears to be strong enough to support this level of production, and therefore our new and welcome challenge is to utilize in a highly productive way the capacity that has been created through this multiyear investment program. AR 0873 Overview 1990 4 The Quality Process Most of this annual report is devoted to illustrations of our efforts to achieve Excellence Through Quality. This is a fitting allocation of space because it reflects the priority we are giving to quality inside Alcoa and in our dealings with customers and suppliers. All of these illustrations are about people creating exceptional value through workplace teams using disciplined analytic tools and techniques. In 1990, we expanded the scope and the depth of our effort as we engaged more Alcoans in meaningful training, education and application of quality process ideas. The Future We continue to give first priority to achieving an iniury-free workplace. Over the last three years, we have made continuing progress in improving our industry-leading safety performance as we move toward zero incidents. For example, the lost workday rate declined from 1.7S per 200,000 work hours in 1987 to 1.05 in 1990. We will achieve further gains in 1991. Among the other issues on the horizon for Alcoa, three deserve special mention: a recent ruling by the Financial Accounting Standards Board with regard to postretirement health care benefits for employees, the status of our non-aluminum businesses and the prospects for greatly expanded use of aluminum in automobiles. The FASB Ruling The FASB (the accounting rule-making body in the U.S.) has issued a directive to cause all companies to change the accounting treatment for retiree health care benefits. Until the issuance of this new rule, conventional accounting practice had been to charge these medical costs as an expense on a current basis; that is, medical bills actually paid for retired employees in 1990 were charged to expense in 1990. In the face of runaway inflation in medical care costs, the FASB has determined that companies should accrue medical and life insurance costs over the working lives of their employees. The accounting board has provided discretion in implementing the change. First, companies may implement the change now, or anytime between now and the mandatory implementation in 1993. Second, companies may "catch up" with obligations arising from the past by either charging to earnings the entire accumulated past obligation in one lump sum or charging the past obligations to earnings on a pro rata basis over a period up to 20 years. We have not yet selected the timing or the method to be used in Alcoa's case, but we have done some preliminary estimates which indicate that the lump sum value may be on the order of $1 billion. When this obligation is recorded in the new way mandated by the FASB, it will have the effect of reducing our equity account with a consequent change in traditional financial ratios. For example, the debt to equity ratio will go up because the equity account will be reduced. This is not a cause for alarm, but we thought it best to alert shareholders to this impending charge before it takes place. Non-Aluminum Businesses In 1987 we stated our belief that Alcoa's success depends fundamentally on superior competitive performance in our base aluminum business. At that time we indicated our commitment to the base business and a determination to prove the value of the then existing non-aluminum Paul O'Sedl (l), Chairman and Chief Executive Officer and Fred Federalf. President and Chief Operating Officer AR 0874 I to ft Overview 1990 6 businesses rather than pursuing additional diversifications. We have continued on that course, strengthening the base businesses to develop their potential. 1991 will be an important time for our largest non-aluminum business investment, Alcoa Electronic Packaging (AEP). After four-plus years of business development--including the creation of an organization, staffing with superior people and putting in place leading-edge equipment--we will ship significant quantities of commercially competitive ceramic packages for computer integrated circuits to two major customers in the first half of 1991. This is a critical milestone for aep. one we must pass successfully before we proceed with the next stages of investment. Aluminum in Automobiles Aluminum use in automobiles has grown from an average 80 lbs. per car (U.S.) in 1975 to 160 lbs. in 1990. While the growth has been substantial, it appears we may now be on the threshold of a spectacular increase in the use of aluminum for automotive applications. Some commentators in the Japanese automobile industry are predicting a 40% reduction in the weight of the average auto by the year 2000, to be achieved largely through the substitution of aluminum for steel parts. We are working to assure that we will be an important part of this prospective development. In the meantime, we're continuing our own development efforts to supply aluminum parts for a new concept automobile spaceframe and expect to complete plans for a manufacturing facility for spaceframe parts in 1991. Alcoans Ultimately, the future of our enterprise is in the hearts and minds and hands of tfie 63,000 people who call themselves Alcoans. Over the last few years we have asked them for extraordinary effort--and they have responded. Every day has brought change: > Higher expectations and standards of excellence, as we have begun to set our goals by scientific limits and "best world practices" rather than by our oivn past performance; > Relocation of employees and families, as we have sought to strengthen the focus on internal and external customers; > The challenge of discovery, as we have asked our people to maintain the essentials ofpast practices while ynaking the time to learn and use new tools arid techniques that ivill pave our way to a superiorfuture; and > The constant coynpanion of wicertainty, as we have worked to ideyitify and implement policies and practices that will eyiable us to live up to our Vision and Values. In all, our organization is in transition--from a successful past to a future where the definition of excellence is limited only by the collective imagination of our people. We are proud to play a part in this transition and to call ourselves Alcoans. Paul H. O'Neill Chairman and Chief Executive Officer February 15, 1991 President and Chief Operating Officer AR 0876 Operating Results Operations Review Sources of Revenues Scope of Operations Market Dynamics 8 Metals anti Chemicals - r- 3s% i';K:knt:ini' Systems 25?i : .\ ..Civ i 5% > Bauxite is mined in Australia, Brazil, Jamaica and Suriname and is refined into alumina in these countries and in the U.S. Alumina is the principal raw material used to make aluminum. > Annual consolidated primary aluminum capacity of 1.9 million metric tons (nit) is made up of 11 smelters in Australia. Brazil, Suriname and the U.S.. and three affiliated smelters in Mexico and Norway. > Alumina-based chemicals are produced at 11 facilities in Australia. Brazil, Germany, Japan. The Netherlands and the U.S. > Alcoa of Australia (aa> owns and operates a gold mine in Western Australia. > Alcoa maintains a global low-cost system of refineries and smelters. > aa is the largest low-cost alumina pro ducer in the world, aa sells more than 70% of its alumina outside the Alcoa system. > Electricity accounts for approximately 30% of the cost of making primary alumi num. For its smelters worldwide, Alcoa generates 43% of the power used. The cost of purchased power a; many Alcoa smelters is tied to aluminum prices. > 31 plants in North America, South America and Europe fabricate aluminum sheet, plate, forgings, castings, extrusions, tube, wire, rod and bar lor transportation, building, industrial and consumer applications. > 12 plants in the U.S., The Netherlands. Brazil and Mexico iurther process fabricated aluminum into building materials, automobile and truck components and computer memory disks. > 9 plants in the U.S. make plastic, vinyl and wood building products. > Alcoa is the world's leading supplier of aluminum alloys for commercial aircraft, supplying virtually all aircraft manufacturers. This market continues to grow as new planes are built and existing aircraft are modernized. > Aluminum is gaining additional momen tum for use in automobile engines, frames, trim and other components due to its strength and light weight, offering safety and greater fuel efficiency. > One-third of Alcoa's fabricated products are sold through independent distributors at more than 350 service centers in the U.S.. Brazil, Europe and Japan. > 4 facilities in the US., the U.K. and Australia produce aluminum sheet for beverage cans. > 315,000 mt of used aluminum beverage cans were collected for recycling at 2,200 Alcoa-affiliated centers in the U.S. > 9 facilities in the U.S., Spain, Germany, Japan and Brazil produce aluminum and plastic closures. Cappers and related equipment are made at 3 plants in the U.S.. Europe and Japan. > 7 plants in the U.S. produce food and beverage packaging equipment. > 3 facilities in the U.S., Mexico and Brazil make foil, fin stock and foil laminates. > Alcoa is the worlds leading supplier of aluminum can sheet for beverage containers and food packaging. > 96% of the 92 billion beverage cans pro duced in the U.S. in 1990 were aluminum. > An increase in legislation supporting environmental issues and heightened consumer awareness of aluminum's recycla bility are driving forces m the growth of aluminum beverage and food cans. > Alcoa is a leading supplier of both aluminum and plastic closures. Plastic closures have now surpassed aluminum closures in the U.S. Aluminum closures still dominate the world market. > Alcoa Fujikura Ltd. (afli operates 16 plants iri the U.S. and Mexico that produce electrical wiring systems and other auto components. AFL also makes fiber optic cables for telecommunications. > Alcoa Electronic Packaging. Inc. <aepi is developing ceramic packages for computer integrated circuits at one U.S. facility. > Alcoa Composites. Inc. <acd manufactures composite materials for aircraft, ships and railcars at 4 U.S. facilities. > Alcoa Separations Technology. Inc. designs and makes products and systems at 5 facilities in the U.S. and Europe that purify, filter or separate materials. > afl designs and supplies electrical distribution systems and components to Ford Motor Company and several Japanese auto makers including Subaru. > Significant growth opportunities exist worldwide for fiber optic cable for voice, data and video communications, afl is a leading supplier to MCI and other telecommunica tions companies. > aep intends to become a leading supplier of ceramic packages for integrated circuits. > New, lightweight composite materials are being developed. These materials may compete with aluminum in some uses. AR 0878 Revenues (in millions) 1990 Highlights Looking Ahead $4,200 3.360 2,520 1.6S0 840 86 S7 SS 89 90 $4,200 $4,200 3,360 2.520 1,680 840 S6 87 SS 89 90 $4,200 3.360 2.520 1.680 ,-- 1 L 86 87 8S 89 90 840 > Spot alumina prices declined in 1990. but remained above $250 per mt. In response to high demand, refineries were run at full capacity. The bauxite mine and the associated high-cost alumina refinery in Bauxite, Ark. ceased operations. > Aluminum ingot demand remained strong in Europe and Japan. The U.S. market softened at year-end. Average representative spot prices for aluminum ingot declined from 1939 levels. > A potline at the Wenatchee. Wash, smelter was restarted, bringing Alcoa's U.S. primary aluminum smelters to full operation. > Construction has begun on a 630.000 mt. S250 million expansion of a.vs Wagerup alumina refinery in W. Australia. Upon completion in 1993. Wagerup's annual capacity will expand to 1.5 million mt. > Alcoa Minerac3o received an environ mental license from the Brazilian govern ment to develop a bauxite mine in the Amazon region. Initial annual capacity will be 2.25 million mt. Construction begins in 1991. > Consistent with Alcoa's environmental policy, environmental cleanup continues at most smelters and refineries. > Demand for aerospace products remained strong while softness existed in the U.S. housing and auto markets. > Modernization of major sheet and plate facilities, including installation of a newcold mill at Davenport (Iowa) Works, was completed. > Alcoa was chosen by Ford Motor Com pany to supply 100% of the aluminum for the hoods of the 1991 Crown Victoria. Grand Marquis and Lincoln Towne Car. This is the first commercial use of Alcoa's alloy 2008. developed to offer formabiiity. strength and weight savings for auto applications. > With grow ing emphasis on recyclability, fuel efficiency and safety, auto makers in Germany, Japan and the U.S. are looking to aluminum as an ideal material to provide these benefits. Alcoa is centralizing the planning of the long-range activities of its business units which supply products to the worldwide automotive industry to better serve this growing market. > Alcoa is continuing to develop new alloys and products for aerospace applications. Boeing is currently evaluating a variety of these advanced products for its new777 aircraft. > The modernization of Alcoa's can sheet plants in Warrick, Ind. and Alcoa, Tenn. neared completion, resulting in increased productivity and higher can sheet quality. > A plastic closure plant opened in Brazil to serve the rapidly growing Latin American market. Capacity was added to serve the U.S. and European markets. > A new high-strength, formable alloy for use in beverage can tabs was developed byAlcoa Laboratories and Warrick Operations. > Alcoa shipped 755.000 mt of can sheet, a decrease of 8% from 1989. 21.4 billion aluminum and plastic closures were shipped, an increase of 12% from 19S9. > Alcoa's joint venture with Kobe Steel Ltd., Japan's leading producer of rolled aluminum products, plans to produce and market aluminum sheet for the growing beverage container markets in Japan and other Asian countries. > Growth opportunities for Alcoa's closure business are being pursued internationally through joint ventures and technology licensing agreements. > Foil laminate products for microwave food packaging and peelable lids for single serve containers are growing in popularity. > AFL opened a plant in Mexico to produce components for the instrument panel of Ford Motor Company's 1991 Crown Victoria and Grand Marquis, and opened an engi neering and design office in Japan to work with Mazda and other auto makers. > afl became the first U.S. electrical distribution systems manufacturer to supply a Japanese auto maker. The 1991 Subaru Legacy uses afl's product. > AEP delivered a prototype ceramic package to a major U.S. computer maker. > aci acquired Bonded Technology. Inc., a producer of aerospace parts made of bonded composite materials. > afl plans to expand its position as a key supplier to the auto and telecommunications industries through continued emphasis on quality while pursuing acquisitions in key markets. > The sale of ACI's Astech division, which produces titanium honeycomb engine components for aircraft, is expected to be completed in 1991. > Act is pursuing a variety of product applications for the transportation market. With Union Pacific Railroad, ACI is develop ing a fiberglass composites railcar to carry autos and other valuable cargo. AR 0879 Operating Results Selected Six-Year Financial Data (in millions, except share amounts) 10 1990 1989 ; 1988 Sales and operating revenues Other income, principally interest $10,710.2 $10,910.0 S 9,795.3 154.9 25i.5; 140.3 Cost of goods sold and operating expenses Selling, general administrative and other expenses Research and development expenses Provision for depreciation and depletion Translation and exchange adjustments Interest expense Taxes on income Other taxes Special items (income) expense 7,606.2 592.3 220.3 639.9 (5.4) 184.7 393.8 115.5 414.4 7,338.3 540.S 1S2.4 63S.3 1.9 ITS.3 79S.4 115.7 -- 6,527.7 485.0 167.4 623.2 168.1 208.4 59S.3 120.7 -- Income from operations Minority interests Extraordinary (losses) Net income (loss) Per common share Cash dividends declared per common share 653.4 1,367.4 1,036.8 (358.2) (422.5) (175.4) ---- 295.2 944.9 861.4 3.40 10.67 9.74 ( 3.05 2.72 ' 1.30 Working capital Properties, plants and equipment Other assets and liabilities, net Total assets 1,706.3 6,747.0 349.8 11,413.2 1,594.9 6,658.6 ; 714.9 : 11,540.6 : 1.307.9 6,415.0 452.3 10.537.5 Long-term debt--noncurrent Future taxes on income Minority interests Shareholders' equity 1,295.3 763.5 1,581.0 5,163.3 1,316.3 ; 852.1 ; 1,533.1 ! 5.266.9 - 1,524.7 770.1 1,244.9 4,635.5 1987 $7,767.0 91.8 ; 1986 . $6,431.4 52.5 ' 1985 $6,599.5 82.7 5,456.7 445.0 173.7 5S7.3 111.1 240.S 214.9 90.9 231.3 307.1 (S3.1) (23.9) 200.1 2.25 1.20 984.1 6.402.7 542.0 9,901.9 2,457.6 700.5 860.0 3,910.7 4,753.2 5,038.3 364.6 14S.9 522.9 61.2 274.S 118.9 S2.6 (138.5) 295.3 (31.3) (9.9) 254.1 2.96 : I 1.20 | S39.3 ; .6,230.4 624.9 9.545.1 i 2,521.7 ! 660.8 ; 790.5 i 3.721.6 ! 372.7 120.3 515.5 1.6 330.5 (32.5' 83.2 242.5 10.1 126.7'. -- (16.6' (.23) 1.20 1,326.1 6,199.9 303.2 9,428.9 3,123.5 662.5 735.3 3,307.9 <0 AR 0880 Operating Results '? Export sales from the U.S. were $926 in 1990, slightly lower than the $935 in 1989. The operating profits referred to above differ from net income in that the former do not include interest, income taxes and non operating income. Alcoa's operations consist of three seg ments: Alumina and Chemicals, Aluminum Processing and Non-Aluminum Products. A discussion of each segment follows. Additional segment and geographic area information can be found in Note R to the financial statements on page 47. Alumina and Chemicals Segment This segment's revenues were $1,842 in 1990 compared with $1,743 in 1989 and $1,216 in 1988. Alumina represents about 70% of total revenues in this segment, aa's alumina shipments were up 3% from 1989; revenues were down 3%. These lower reve nues were more than offset by increased alumina sales in the U.S. Prices for alumina have drifted downward from the historically high level attained in 1989 when alumina supplies worldwide were very tight. Chemicals revenues increased 15% from the prior year following a 12% increase in 1989 from 1988. The industrial chemicals markets remained strong through most of 1990, particularly in Europe, but began to weaken near the end of the year. The alumina refinery at Bauxite, Arkansas Siring II /V for nun: * i ini * an: < <y. . . infft* m-p mm- * wV/ io.\i n; i , ittKp- pff. . was closed down in mid-90. This facility will continue to produce alumina chemical. Construction started on AA's 630,000 nu expansion of its Wagerup alumina refinery. Aluminum Processing Segment Revenues for the Aluminum Processing segment were derived from the following: Aluminum Processing . Segment Revenues: Packaging Systems Aerospace and lndustn.il Prefects Metals and Chemicals Materials Science 1 Total revenues 1 Aluminum shipments ' (000 metric tens1 | 1990 S2.540 : 2.665 2.237 ' 36 ; S7.47S j 1 I 2.724 1 19S9 S2.791 2.S94 2.2S0 54 ; SS.019 ; 2.579 I iy-- S2.7*: 2..s: 2.0::' 7" S7.677 2.504 Although aluminum product shipments increased 6% over the prior year, revenues were down 7%. In 1989 this segment's shipments were 3% "higher than those for 1988 while revenues were up 4%. > Packaging Systems--Shipments of rigid container sheet (RCS) for beverage cans were down S% from 1989; revenues declined 12%. Heavy price discounting prevailed in the U.S. late in 1989 and continued through- Retum on Shareholders' Equity 1 Including special items V Kxcludmg special items 90 25% 20 15 10 5 AR 0882 Operating Results 13 out 1990. However, rcs bookings for 1991 strongly indicate that Alcoa is regaining U.S. market share that it lost in 1989. In Europe, RCS shipments from Alcoa's Swansea opera tions were up 35% from 1989 and revenues increased 53%. European operations con tributed 13% of total RCS revenues in 1990 compared with 7% in 1989. Revenues from aluminum closures were up 9% from 1989, following an 8% increase from 1988 to 1989. These increases reflect higher demand in Europe and the Far East. > Aerospace and Industrial Products--In 1990 total Aerospace and Industrial Products shipments were down 3% from 1989 while revenues declined 8%. For sheet and plate products, demand in the aerospace market remained strong in 1990 but the U.S. auto motive, housing and consumer goods markets remained weak. Sheet and plate shipments were 8% lower than those of a year ago while revenues fell 10%. Reflecting similar economic conditions, shipments of sheet and plate products in 1989 were 16% lower than those for 1988. But higher prices for some products and a higher value-added product mix kept the decrease in revenues to only 2%. For extruded products, prices were lower in 1990 compared with 1989. Although shipments of these products rose by 1%, revenues were off 4%. The European extrusion markets showed improvement, !>/ i! in >; h r :k.> 'r-'A.C Ptiju;;. .w dr.J *1 :\h:f....... ` `rrtt Sr~- .\ tU<u r i'i`i itu/H I'JS.; \: :t h n it: ' ' '/>: n!s ' / -f'./'r of it.:., . '(/`in'tt/tt . / )its i>: .. -* . onp,/r, tl u :;i: .. ' however, as both shipments and revenues from Alcoa Nederland increased 14% and 16%, respectively. For forged wheels, demand continued to grow; shipments were 22% higher and revenues rose 21%. Revenues from aluminum trim for automo biles and products for the building industry in the U.S. were down from 1989, as well as in 1989 compared with 198S, mainly due to lower volume. > Metals--Aluminum ingot prices continued to slide in 1990. The average U.S. market price (Metals Week) for ingot was $1.10 per pound in 1988, fell to 88 cents in 1989 and dropped to 74 cents in 1990. In early 1991 this price was in the upper 60s. Alcoa's average realized price for ingot was 75 cents per pound in 1990 compared with 91 cents in 1989. Total shipments of aluminum ingot reached 1.177,000 mt, an increase of 22% over 1989. Revenues were $1,940, slightly lower than the $1,946 in 1989. Ingot shipments from the U.S. system were 15% higher than thosafor 1989 while revenues increased just over 1%. AA's ingot shipments rose 38% over 1989 but revenues were up only 8%. AA's higher shipments were primarily from the volume of ingot it purchased and resold. Aluminio's domestic Aluminum Product Shipments (millions of metric tons) f 86 87 ' Fabricated products t Primary aluminum 3.0 24 l.S 1.2 .6 Primary Aluminum Production (millions of metric tons) 2.5 2.0 1.5 1.0 .5 86 87 Affiliates and others' share of joint ventures B Consolidated AR 0883 Operating Results ingot sales fell sharply from a year ago due to the deepening recession in Brazil. However, the drop in domestic volume was more than offset by higher exports. Overall, Aluminio's ingot shipments were up 13% from 1989 but revenues fell 18%. Non-Aluminum Products Segment This segment's revenues were $1,390 com pared with $1,148 in 1989 and $903 in 1988. More than half of the increase from 1989 to 1990 is due to full-year revenues of a vinyl and wood building products subsidiary compared with six months of revenues in 1989 when the subsidiary was acquired. Revenues from gold production at aa increased by 43% over 1989 with a 17% increase in production. Subsidiaries that produce purification systems had a 24% decline in revenues due to weak demand. The subsidiary that produces electrical dis tribution systems for autos had a 3% drop in revenues due to the slowdown in the U.S. automotive market. Alcoa Electronic Packaging (AEP) had operating costs of $73 in 1990 and $35 in 1989 as it continued to invest in the development of the ceramic packaging business, aep expects to ship its first commercially competitive material to two major customers in the first half of 1991. An important decision point will be reached in 1991 relative to future invest ments in aep.* I h: MOAi'mi raycL'd 315.(W1* inrlnr tons >>; u.-. aluiumuhi :t t i <1U.'. ivilh )' tl/> . .Vl.iVJJ-'HV/K.' `U < "l ntt fal /"' i iitanu .3u ,; Cost of Goods Sold Cost of goods sold of $7,606 in 1990 was 4% higher than in 1989. Several factors contributed to the increase of $268, includ ing higher volume in 1990. Additionally, 1990's production costs reflect a full year for the acquired building products subsidiary compared with half of a year in 1989. Higher alumina and labor costs were partially offset by lower purchased metal costs, lower pro duction costs due to a change in mix, and higher utilization. Aluminio's increased production costs reflected lower utilization because of the depressed markets in Brazil. Included in cost of goods sold in 1989 was $35 for eligible U.S. hourly and salaried employees under a profit sharing program. In 1990, the Board of Directors authorized a bonus payment totaling $10 for some 23,000 eligible employees in recognition of the significant earnings for the year. Other Income and Expense Items Other income in 4990 was $97 lower than in 1989. Equity earnings from Alcoa's Norwegian smelting partnership and Mexican operations dropped $34. Income from inter est and short-term investments was $32 lower. Gains in 1989 and losses in 1990 on sales of capital assets also affected the change in other income. Other income in 1989 was Cost of Goods Sold as a Percent of Sales 86 87 88 89 90 80% ! 70 | 65 ; I GO I I _i AR 0884 Operating Results 15 $111 higher than in 1988 due primarily to interest on short-term investments by AA and Aluminio. Selling, general administrative and other expenses in 1990 rose nearly 10% from the 1989 level. More than half of the increase is from subsidiaries acquired since mid-1989. Professional fees, travel and benefits were among the other expenses that rose in 1990. Research and development expenses rose 21% over 1989. Most of the increase related to preproduction and qualification activity at Alcoa's ceramic products subsidiary. Spending in 1990 also focused on programs related to upgrading products and processes such as castings technology, the aluminum intensive vehicle and composites. Depreciation expense was up $52 from 1989, reflecting new subsidiaries and the amortization of Alcoa's fabricated products modernization programs that were placed in service during 1990. The aftertax effect of translation and exchanges gains (losses) included in Alcoa's net income, after allocation to minority interests, follows. Alcoa Aiumimo Alcoa o: Australia Other: Consolidated Equity companies Effect on net income 1990 $ 5.1 j 2.0 (7.5)' (7.6) >(3.0)1 19S9 SC22.7) 19.5 . (4.S) (.9) ; S (8.9) i 1988 $(35.6); (43.6); (4.2) 1.4 1 $(S7.0) 7^7, l .'>. Primary Aluminum Capacity (millions of metric tons) Interest expense, which dropped an average 13% annually over the past several years, rose nearly 4% from 19S9. The major reason was higher short-term borrowings by Aluminio to cover its operating needs. The effective tax rate for 1990 was 37.6% compared with 36.9 o for 1989. The differ ence between these rates and the U.S. statutory rate of 34% is mainly due to higher taxes on income from outside the U.S. The table below shows total income and operating taxes accrued by Alcoa. Taxes o:: tr.cone Pavroi) taxes Properly taxes Other i 1490 19S9 1965 ! $363.8 S 79S.4 S59S.3 i '.-1.9 157.5 140.1 i 4S.3 47.7 41.1 1 67.2 73.4 ; 88.1 -l 2 S 1.077.0 ! $867.6 Minority Interests A portion of consolidated income from operations is attributable to shareholders that have up to a 50%' ownership interest in some Alcoa subsidiaries. These shareholders are collectively referred to as "minority interests." Income from operations attributed to minority interests in 1990 was $64 less than in 1989, due primarily to Aluminio's significantly lower earnings. 8G 87 88 89 90 Affiliates and others1 share of joint ventures 9 Consolidated AR 0885 Operating Results 16 ; ;,r;: ';r.- Resources Cash from Operations Cash from operations was $1,587 in 1990 compared with 51,971 in 1989. The differ ence was mostly due to a lower level of income in 1990. Cash and short-term invest ments at year-end 1990 were $636, of which $408 was held by aa and Aluminio. At year-end 1989. cash and short-term investments were S805. The dollar value of inventories increased by $104 in 1990. reflecting higher costs for materials and labor. Aluminum inventory tonnages at the end of 1990 and 1989 were at virtually the same level. Financing Activities Financing activities during 1990 required cash outlays totaling $932 versus $827 in 1989. In 1990 Alcoa bought back 2,861,700 shares of its common stock as part of a plan to repurchase ten million shares. The cost to repurchase these shares was $182. In 1989 repurchases of 1,393,000 shares cost $101. Alcoa also bought back and retired 102,140 shares of preferred stock in 1990. Dividends paid to shareholders reached $267 in 1990, which included a profit sharing dividend, based on 1989 earnings, of $122 ($1.40 per share). A five cent per share payment was also made in 1990 to redeem n' ;*. n: v ; -. ( UPliiil ; L.6 all outstanding shareholder rights. In 1989 dividends were $243, of which $99 ($1.12 per share) was profit sharing for 1988. In February 1991 shareholders received a profit sharing dividend of 18 cents per share, based on 1990's earnings adjusted to exclude the special charge. Dividends paid to minority interests in 1990 and 1989 were $300 and $217, respectively. Alcoa received dividends of $235 in 1990 and $162 in 1989 from aa, and $48 and $107 from Aluminio in the respective periods. In 1990 long-term debt payments exceeded borrowings by $169. In 1989 and 1988 there were also net reductions of $119 and $S49, respectively. At year-end 1990 and 1989 debt as a percent of invested capital was 16%. compared with 21% at the end of 1988. Investing Activities Capital expenditures in 1990 were $851 compared with $876 in. 1989 and $866 in 1988. About 16% of 1990's expenditures was related to the flat-rolled products moderni zation programs which are now complete. The remaining capital expenditures related to a variety of projects aimed to reduce costs, improve efficiency and maintain or increase capacity. Capital Expenditures and Depreciation Expense {in billions) 86 87 88 ( Capital expenditures - Depreciation su !>(l AR 0886 Opiating Rsu,ls 17 Environmental Matters Compliance with increasingly stringent environmental laws and regulations has resulted in higher expenditures, including costs for cleanup of company locations and superfund and other waste sites. In December 1990 Alcoa's provision for environmental liabilities was increased by $136.4. Alcoa records a liability for environ mental remediation costs when a cleanup program becomes probable and the costs can be reasonably estimated. Management is unable to predict the possible future effect that environmental laws, regulations and litigation may have on operations or earnings because of the many uncertainties associated with the various environmental issues. Other Developments A five-year multiple option loan facility was increased from S500 to S753 in early 1990. Under the agreement, banks will make advances to Alcoa in U.S. dollars or other currencies. The agreement stipulates that while advances are outstanding, debt cannot exceed 150% of net worth, the current ratio cannot be less than 1 to 1, and a minimum working capital of $500 must be maintained. This revolving facility was not used in 1990. In late 1990 Alcoa and Kobe Steel agreed to form a 50-50 joint venture, KSL Alcoa Aluminum Company, that will produce and market aluminum sheet primarily for the growing beverage container markets in Components of Invested Capital (in billions) $10 8 86 87 88 H Minority interests Long-term debt 89 90 8 Shareholders' equity Japan and other Asian countries. A new plant, which will have a cold-rolling line, will be built in Japan, with production scheduled to begin in 1993. The partners will also study opportunities for developing aluminum products for the automotive market. An accounting standard on income taxes was issued in 1987 and must be implemented by 1992. Management estimates that the company's financial position would have been nominally affected if the standard had been in effect as of the end of 1990. An accounting standard for postretirement benefits was issued in late 1990 and must be implemented by 1993. Under the new rules, Alcoa's estimated retiree medical and life insurance costs will have to be accrued ratably from the date c: hire until the employee is eligible to receive the benefits, rather than as these costs are incurred. Cash flows will not be affected. Companies have an option to either record the liability for unaccrued postretirement costs for retirees eligible to receive benefits in one lump sum or amortize it over a speci fied period. There also will be a substantial increase in the annual amount of benefits charged to expense. The amounts, method or timing cannot be determined until a review of the standard is completed. Prelim inary estimates indicate that the lump sum value of the liability is likely to be on the order of $1 billion. Return on Invested Capital Including special items Excluding special items AR 0887 Alcoa and Its Customers Boeing New Alloys for the 777 Cooperation between Alcoa and its aerospace customers has often spearheaded the develop ment of new aerospace materials. The latest advance in alloy development will enhance the performance of the Boeing 777 twin jet scheduled to roll out in 1994. And this time, an innovative method of sharing technical data will assure the consistency of the new materials from shipment to shipment, as long as they're in use. The 777 is a new wide-bodv long-range commercial trans port with new wing technology. For the upper wing, Alcoans at Davenport (Iowa) Works and Lafayette (Ind.) Works have made prototype parts from a new aluminum alloy developed at the Alcoa Technical Center. As the plane moves into pro duction and through certification, the critical challenge is to make certain these materials do not vary at any time from the orig inal design specifications. The solution: track the production processes at Davenport and Lafayette with statistical process controls (SPC) and make the SPC approach an integral part of the material specification require ments set by the customer. Alcoans will run SPC charts on up to nine critical processing steps plus five alloying elements. Four key properties of the mate rial will be charted as well. This advanced use of statistical tools will enable Alcoa and its aerospace customers to insure product consistency over time. 21 Alcoa's latest partner ing effort telth Boeing takes advantage of advanced statistical tools to maintain precise, consistent characteristics of a nctv aluminum alloy developed for use in the Boeing 777. On facing page. Joel Bmeer ih and John Campbell check statistical process control tSPCi charts they're using at Davenport I'loica/ Works to track keysteps in processing aluminum tor Boeing. II;th a scale model of the new 777. below. Alcoa's Pete Wright (li and Boeing's Sven .tz.Vr compare the latest SPC data with those t'rom earlier shipments, i cn/ymg uk: lormity o' the material over time, as shown ih the accompanying chart. Monitoring Silicon Content in Aerospace Alloys ' \>% jj Upper control Target Lower ccntioi AR 0891 Alcoa and Its Customers Shell Securing the Seal Marketing motor oil in easyopening one-quart plastic bottles, Shell Oil Company wanted to give consumers the benefit of a more tamper-evident package. The bottles are made by Sonoco Graham, and Alcoa's H-C Industries molds Uni-Lok closures to seal them. At Shell's suggestion, Alcoa and Sonoco Graham joined in a three-way quality partnership to improve the package. In addition to tamper evidence, the team focused on the consistency of seal security-- preventing "leakers"--and ease of opening, which tended to vary. Team members decided to take on the challenge of opti mizing the entire package. H-C engineers developed a more uniform compression molded closure with an in-shell molded liner. Sonoco Graham design engineers reconfigured the bottle finish for a precise match to the new closure, and team members from both companies worked out the details that made the tamper-evident band work with the new bottle. In test runs, the new package proved to be 99% tamper-evident. Seals are consistently secure, and closures are uniformly easy to open. Shell decided to move 100% of production to the new package design. For all concerned, the partner ship added vaiue for customers, and now other oil companies are expressing interest in the new package design. Total U.S. market: 1.8 billion bottles a year. 24 Shell Oil Company packs millions of quarts of motor oil a year in plastic bottles made by Sonoco Graham with tamperevident closures from Alcoa's H-C Industries. In a three-way quality partnership, packag ing and production specialists from Shell, Sonoco Graham and Alcoa modified the closure, the bottle thread design and the tamper-evident band (see the crosssection diagram below). At right, Sonoco Grahams John Litton (l) checks a successful test run of the new package with Lee Albrecht of H-C Industries and Anthony Bridges (r) of Shell. Liner Bottle Closure a Tamper-evident band AR 0894 '! .V'-' r: a year to productioni Alcoa and Its Customers Komatsu Partnering with Alcoa's Suppliers Alcoa's partnerships with customers have a mirror image. When our role is that of customer rather than supplier, it's no less important to have quality-driven partnerships to raise the value of what we buy. At the Huntly mine near Booragoon, Western Australia, Alcoa of Australia had been using four giant Komatsu Mark I 85metric ton (mt) dump trucks since 1984 to haul bauxite ore from the minesite to the alumina refinery. Komatsu factory, service and senior management personnel regularly visit the minesite to check on customer satisfaction. In 1987, as Huntly prepared for a conversion from 16-hour to 24-hour operations, regular dis cussions were begun to identify needs and opportunities in haul ing and loading. This joint effort singled out four priorities: safety, operator comfort, haul speed and the service life of differential, transmission and brake systems. Komatsu used this analysis to design the 1989 Mark III truck to meet Alcoa targets. During a six-month minesite trial of the first Mark III truck, Komatsu factory engineers came to Huntly to participate in on-site training programs. Results: 1990 trucking and loading costs per mt were 8% lower than in 1988, despite two years of inflation. Total ton nage hauled was up 69% with fewer vehicles, even though average hauling distance had increased from 2.5 to 3.9 km. And, most important of all, trucking and loading safety errors and injuries were down 50%. 29 Loaded with 85 metric tons of bauxite ore from Alcoa of Austra lia's Huntly mine, a Komatsu Mark 111 dump truck (facing page) heads for the crusher, where the ore will be processed for the Pinjarra refinery. In a quality partner ship with Australian Alcoans. Komatsu engineers designed the Mark III to meet Alcoa targets for safety, productivity and service life. Here. Rex Baker (l) and Peter Burgess (r) of Alcoa discuss opera tor training programs with Ted Takiguchi of Komatsu. As the chart shows, the part nership succeeded in boosting the ton nage hauled while decreasing the fleet. Increasing Hauling Efficiency Millions ol mt Number 88 90 88 90 AR 0899 Alcoa a-o Its Customers Smelters Doubling the Life of a Smelting Pot The heart of a smelting plant is the potroom, where aluminum oxide (alumina) is reduced in electrolytic cells called "pots," yielding aluminum metal. How long can a pot go on working? World-class perfor mance is over seven years, but some potrooms average less than four. And the difference affects costs and efficiency for the entire series of internal customers who depend on this source of metal. In a quality partnership to lengthen pot life, Alcoans from the company's U.S. smelting locations have zeroed in on the causes of pot failures. The team's first target was improving the quality of new pot start-ups because roughly 50% of a pot's ability to achieve full service life is determined by the initial curing process known as bake-in and by new pot operating procedures. Another 20% is due to the way the lining of the cell is installed by the pot repair group. With help from Alcoa Technical Center in setting up testing facilities, the team has worked to identify optimum start-up practices--baking energy, soak ing temperature, initial operating temperature and other variables --and to standardize these prac tices at all smelters. The project is ongoing, but progress is already evident. Pots lined in the first half of 1987 showed a 20% failure rate in their first 600 days of operation. For pots lined in the second half of 1988, this early-failure rate is down to zero. 30 v These are a feu: of the Alcoans who formed a quality partnership involving all of Alcoa's U.S. smelters in an effort to lengthen the service life of smelt ing pots. Below, on a potline at Masscna (N. Y.) Operations, Mike Dishaw (l), Al Kellison, Bruce LaDue and Tommy Oakes (r) add a molten bath to a new pot as part of the start-up procedure. At right, pot repairers Phil Ross (l) and Al Miller carefully level and tamp the castable mis for a new pot. The partial cross section of a pot shown in the diagram on this page indicates the complexity of what they're dealing with: more than 200 "building blocks" that go together to make up a smelting pot. AR 0901 Alcoa and Its Customers Bk 32 Alee ....... ...... Harness Expertsi^^jv^r1^ decision,to,'--. ;..:^ T 'shorten the product Alcoa Fujikura Ltd. :; development cycle: -m lAFUis known for - -..;' - and to rely on expert -,, making high-quality > i suppliers who could-. - wire harnesses--the . designas well as man-'' electrical distribution ufacture a component systems for cars and : "v AFL's experts '' trucks. responded by resolving . Now, Ford Motor ' engineering, quality y..\ Compan? has given and feasibility issues ' ; . AFL a chance to serve well in advance of as architects as well production. As a as builders--taking result, they avoided on the design respon most of the time- sibility for wire har consuming, expensive nesses to equip Ford's changes and modifica successor to the tions that most start Crown Victoria/Grand up runs experience. Marquis line. This partnership grew out ISgfeWS mm V V* ^ \ .v x I vW > . s* '-vuv ' 0 ~:a\ v 5(S 'I The QualityDriven, Driveshaft Aluminum driveshafts . for. the Corvette and \ . - vehicles are made', jj .... .^-,v ./ . ::vr.y,; ^ -11 - by, Dana Corporation,.* =i V Wat<iing Dana _ V:i he asked, ilthe,tubing^abteiasimplify;baP+m? -using alloy tul^^;^ahp|6yre5 balanced . were made. toihm^^j'Sai^ -: frmAlcoa'sLafajmttev,^rebalance,inspect, fit -' prirjivtnleranr^jtf'^Atirin^aiiH-artiially^v-A-^- ;(Ih(f:).^&rksiThe^-- ^,'ah3^teach shaft to ;.the first place^\';'!<^^^ . criticalquality issue; - _rassure!thisprecision,, -Theteamworked.^ is fatigue life. which; Alcoa salesman Steve, . to reconcile spe^ca-i:> - in turn depends on ` ; 'Cramer 0) talked to . tionsahdmeasurihg-;.",,'are,savingmoney..'i.;.;^ , precise tolerances and ; Dana's Bob Stanley techniques,then 'V''' , fit of the shaft with about formuig a- . targeted other key 1... '/-y,. ::its ballyoke.- - : -jointqualityteam. - quality and cost fee-'; -.- ' 1- ;;r. iy^'rT `';n>t^mVastU'si'a;<* Couldn't many of t0rS` V* .tHf^sa^ltfigawedfe Alcoa and Its Customers Warric^TfeanisHis^:3Wfflncfck'sGaQr; , *v, -- ,- Alrreww nrganiapn a M m productsinmi. tipmbranchjnRiotdes* Janieibi Butspace!is> ( at apremiuiri.-.VTorfes'. whosdrt; pack and'^f load sometimeshadil; to wait fop each, other. .' Mangueira Alcoans:. '.. rearranged schedules/ starting their fcstJSf: . nightshiftytosortH!;'-; 'y ~'v''.. and packeach,day's. ,- ; v Consistent Coke a joint quality task ... orders by dawn of the.' ' force with coke sup- ' next day. Response plier Great Lakes time dropped from, ?',` . At Alcoa's smelters/ Carbon. In two years 72 hours to 24, and; .. i-carbon anodes are' of intensive teamwork, delivery capacity has : made from calcined. . they've determined . doubled. . ., petroleum coke, and which coke properties . consistent quality ; y are most important m the coke helps to . to Alcoa's processes improve anode quality and have significantly : and smelting control. reduced the vari .. To pursue this goal, ability of these crucial Alcoans from Pitts^ , . factors. The partner-. burgh Procurement;. ship continues to . - and from the smelters produce measurable ' ^ in Tennessee, Texas improvements. - :\and Indiana formed AR 0903 Alcoa and Its Customers Environment The Ultimate Customer Throughout Alcoa's operations worldwide, the ultimate cus tomers are the people in every community where we have an impact. Here are some of the ways in which Alcoa tries to meet the needs of its environ mental constituents: Prevention. Alcoa's Early Environmental Involvement Pro gram anticipates and addresses environmental impacts of new products and processes while they're still under development. Reduction. By recycling 126 billion cans in the U.S. in the 1980s, Alcoa reduced litter and solid waste, lessened the need for new mines, refineries and smelters, and saved the energy needed to run them. What works for cans should eventually work for cars, appliances, other products and their packaging. Reclamation. Alcoans around the world pursue a serious, company-wide commitment to protect the environment. Case in point: Alcoa of Australia, with three bauxite mining areas in a Jarrah forest region southeast of Perth, has been honored by the United Nations Environmental Programme for a reforestation program that returns mined areas to timber, clean water and wildlife (photo, next page). An Environmental Material. Aluminum has been called "the green metal." Aluminum products typically save weight and conserve energy in shipping, handling and everyday use. Aluminum is a superbly efficient conductor of electricity and heat. And it's the only material that pays its way through the recycling loop (see chart). When it's all said and done, Alcoa believes that aluminum will be seen not as part of the prob lem but as part of the solution. Environmental efforts, before and after thefact: In Alcoa's Environmen tal Technology Center, Brian Breisinger runs a series of tests on waste materials from a proposed manufacturing process--part ofan Early Environmental Involvement Program to identify and deal with environmental issues before they become problems. Below, at Warrick (IndJ Operations, Randy Tuley takes a bale of used beverage cans to be recycled, making new alumi num with only 5% of the energy required to produce the same metal from bauxite. On the next page is an example ofenvi ronmental rehabilita tion in regions where bauxite is mined. Value ot Recyclables Price per ton Aluminum cans Steel cans Plastic bottles c- Glass bottles AR 0905 Financial and Corporate Data Management's Report to Alcoa Shareholders Audit Committee Report 36 The accompanying financial statements of Alcoa and consolidated subsidiaries were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management'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 internal controls, including accounting controls, and a strong program of internal auditing. The system of controls provides for appropriate procedures that are consistent with high standards of accounting and administration. 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 regard ing, 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 four independent directors, met four times in 1990. The Audit Committee oversees Alcoa's financial reporting process on behalf of the Board of Directors. In fulfilling its respon sibility, the committee recommended to the board the reappoint ment of Coopers & Lybrand as the company's independent public accountants. The Audit Committee reviewed with the internal auditors 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 internal auditors and 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. Franklin A. Thomas, Chairman Audit Committee Independent Auditor's Report Paul H. O'Neill Chairman of the Board and Chief Executive Officer James W. Wirth Senior Vice President-Finance To the Shareholders and Board of Directors Aluminum Company of America (Alcoa) We have audited the accompanying consolidated balance sheets of Alcoa as of December 31,1990 and 1989, and the related statements of consolidated income, shareholders' equity and cash flows for each of the three years in the period ended December 31,1990. These financial statements are the respon sibility of Alcoa's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alcoa at December 31,1990 and 1989, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,1990 in conformity with generally accepted accounting principles. 600 Grant St. Pittsburgh, Pa. January 18.1991 AR 0908 Financial ana Corporate Data Statement of Consolidated Income (in million*, except stare amounts), For the year ended December 31 Revenues Sales and operating revenues (R) Other income, principally interest Costs and Expenses Cost of goods sold and operating expenses Selling, general administrative and other expenses Research and development expenses Provision for depreciation, depletion and amortization Translation and exchange adjustments Interest expense (L) Taxes other than payroll and severance taxes Special items (B) Earnings Income before taxes on income Provision for taxes on income (H) Income from operations Minority interests (O) Net Income Earnings per Common Share (J) The accompanying notes are an integral part of the financial statements. 39 Alcoa and subsidiaries 1990 1989 1988 $10,710.2 154.9 10,865.1 $10,910.0 251.5 11,161.5 $9,795.3 140.3 9,935.6 7,606.2 592.3 220.3 689.9 (5.4) 184.7 115.5 414.4 1 9,817.9 l I _. _ (i \ 1,047.2 1 393.8 I 1 653.4 ; | (358.2) 1 $ 295.2 i $ 3.40 7,338.3 540.8 182.4 638.3 1.9 178.3 115.7 8,995.7 2,165.8 798.4 1,367.4 (422.5) $ 944.9 $ 10.67 6,527.7 485.0 167.4 623.2 168.1 208.4' 120.7 8.300.5 1.635.1 598.3 1.036.8 (175.4) $ 861.4 $ 9.74 AR 0909 Financial and Corporate Data Consolidated Balance Sheet (m millions) ' December 31 Assets Current assets: Cash Short-term investments, at cost which approximates market Receivables from customers, less allowances: 1990-$14.9; 1989-$ 1L8 Other receivables Inventories (C) Prepaid expenses and other current assets Total current assets Properties, plants and equipment (D) Other assets (E) Total assets Liabilities Current liabilities: Short-term borrowings Accounts payable, trade Accrued compensation and retirement costs Taxes, including taxes on income Other current liabilities Long-term debt due within one year Total current liabilities Long-term debt, less amount due within one year (F) Noncurrent liabilities and deferred credits Future taxes on income Total liabilities Minority Interests (();. Contingent liabilities (Q) Shareholders' Equity Preferred stock (I) Common stock (I) Additional capital Translation adjustment Retained earnings Treasury stock, at cost Total shareholders' equity Total liabililies and equity The accompanying notes are an integral part of the financial statements. 40 Alcoa and subsidiaries 1990 1989 $ 60.1 576.0 1,420.9 184.0 1,374.8 128.2 3,744.0 6,747.0 922.2 $11,413.2 $ 98.1 706.9 1,327.7 199.5 1,240.0 165.3 3,737.5 6,658.6 1,144.5 $11,540.6 $ 132.5 763.2 199.3 500.4 382.2 60.1 2,037.7 1,295.3 572.4 763.5 4,668.9 1,581.0 i $ 103.9 742.1 215.6 1 567.1 317.5 196.4 2,142.6 1,316.3 429.6 852.1 4,740.6 1,533.1 55.8 88.8 713.5 92.9 , 4,473.1 ! (260.8) 5,163.3 | $11,413.2 66.0 88.8 707.4 46.4 4,448.8 (90.5) 5,266.9 $11,540.6 AR 0910 V Financial and Corporate Data Statement of Consolidated Cash Flows (in millions) . For the year ended December 31 Cash from Operations Income from operations Adjustments for noncash transactions: Depreciation, depletion and amortization . Reduction of assets to net realizable value Increase (reduction) in future taxes on income Equity earnings before additional taxes, net of dividends Provision for special items (Gains) losses from financing and investment transactions Book value of asset disposals Other Qncrease) reduction in receivables (Increase) in inventories (Increase) reduction in prepaid expenses and other current assets Increase in accounts payable and accrued expenses Increase (reduction) in taxes, including taxes on income Net change in noncurrent assets and liabilities .. .. ii-ou ):"i.tticjP'fi Activitios Common stock issued and treasury stock sold Repurchase of common stock Repurchase of preferred stock Additions to (reductions of) minority interests Dividends paid to shareholders Dividends paid to minority interests Additions to long-term debt Payments on long-term debt Payments on long-term debt--acquired subsidiaries C sr insed tor; tinaiirm:' hiries 1 - Aciiv'n-.--.. Capital expenditures Acquisition of subsidiaries, net of cash acquired Sale of subsidiaries Other--receipts --payments i\iV) imcMiny. *..Ca:\Jl m.:n Effect of exchange rate changes u:i cash Changes in Cash Net change in cash and short-term investments Cash and short-term investments at beginning of year : r y<;ar-OPC The accompanying notes are an integral part of the financial statements. 41 . Alcoa and subsidiaries 1990 1989 1988 $ 653.4 717.7 222.9 (88.6) 29.9 191.5 .4 17.2 (3.2) (39.5) (104.4) 66.9 31.5 (74.3) (34.7) 1,586.7 $1,367.4 664.0 82.0 (47.1) (20.8) 19.3 14.3 74.6 (198.9) (40.3) 33.9 110.8 (88.4) 1,970.8 $1,036.8 645.3 96.8 (7.1) (32.1) 20.0 (27.2) (282.7) (108.5) (85.2) 87.6 315.8 57.6 1,717.1 8.2 (182.1) (4.3) (18.3) (267.1) (299.6) 330.7 (499.6) (932.1) 34.4 (100.9) 54.1 (242.9) (217.3) 121.6 (240.4) (236.0) (827.4) 4.2 297.0 (117.2) (94.9) 125.3 (974.5) (760.1) (850.9) (13.7) 56.0 (29.9) (838.5) 15.0 (875.7) (44.5) 59.7 66.1 (36.3) (830.7) (14.5) (866.0) (20.0) 139.5 103.1 (86.4) (729.8) 16.1 (168.9) 805.0 $ 636.1 298.2 506.8 $ 805.0 243.3 263.5 $ 506.8 AR 0911 V. Financial and Corporate Data Statement of Consolidated Shareholders' Equity (in millions, except share amounts) ' 42 ` Alcoa and subsidiaries December 31 Balance at end of 1987 Net income--1988 Cash dividends: Preferred @ $3.75 per share Common @ $1.30 per share Stock issued under incentive, option and savings plans Translation adjustments Balance at end of 1988 Net income--1989 Cash dividends: Preferred @ $3.75 per share Common (2) $2.72 per share Stock issued under incentive, option and savings plans Translation adjustments Treasury shares purchased Balance at end of 1989 Net income--1990 Cash dividends: Preferred @ $3.75 per share Common @ $3.05 per share Stock issued under incentive, option and savings plans Translation adjustments Treasury shares purchased Shares retired Balance at end of 1990 Preferred stock $66.0 66.0 66.0 (10.2) S55.8 Common stock $88.1 Additional Translation capital adjustment $676.3 $74.3 Retained earnings $3,006.0 861.4 Treasury stock Shareholders' equity $3,$10.7 861.4 (2.5) (114.7) (2.5) (114.7) .2 88.3 4.2 680.5 (23.8) 50.5 3,750.2 944.9 4.4 (23.8) 4,635.5 944.9 (2.5) (240.4) (2.5) (240.4) .5 26.9 88.8 707.4 (4.1) 46.4 (3.4) 4,448.8 295.2 $ 10.4 (100.9) (90.5) 34.4 (4.1) (100.9) 5,266.9 295.2 (2.2) (264.9) (2.2) (264.9) .2 $88.8 5.9 $713.5 46.5 (3.8) 11.8 (182.1) $92.9 $4,473.1 $(260.8) 8.2 46.5 (182.1) (4.3) $5,163.3 Share Activity Balance at end of 1987 Stock issued under incentive, option and savings plans Balance at end of 1988 Stock issued under incentive, option and savings plans Treasury shares purchased Balance at end of 1989 Stock issued under incentive, option and savings plans Treasury shares purchased Shares retired Balance as emi ->f if.*:; The accompanying notes arc an integral part of the financial statements. Preferred stock 659,909 659,909 659,909 Issued 88,137,422 145,052 88,282,474 521,746 88,804,220 (102,140) 557,769 88,804,220 Common stock Treasury Net outstanding 137,213 (1,393,000) (1,255,787) 155,617 (2,861,700) 88,137,422 145,052 88,282,474 658,959 (1,393,000) 87,548,433 155,617 (2,861,700) (3,961,870) 84,842,350 AR 0912 Financial and Corporate Data Notes to Financial Statements (dollar? in millions, except share amounts) 43 A. Summary of Significant Accounting Policies Principles of Consolidation. The consolidated financial statements include the accounts of Alcoa and companies more than 50% owned. Also included are joint ventures in which Alcoa has an undivided interest. Investments in other entities are accounted for principally on the equity basis. Inventory Valuation. Inventories are carried at the lower of cost or market, with cost lor a substantial portion of U.S. inventories determined under the last-in, first-out (UFO) method. The cost of other inventories is principally determined under the average cost method. Depreciation. Depletion and Amortization. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets. The book value of obsolete assets is charged to depreciation expense when they are scrapped. Profits or losses from the sale of assets are included in other income. Repairs and maintenance are charged to expense as incurred. Depletion is taken over the periods the estimated mineral reserves are extracted. Intangibles, such as goodwill and patents, are amortized over their estimated lives. Environmental Expenditures. Expenditures that relate to current operations are expensed or capitalized, as appropriate. Expendi tures that relate to an existing condition caused by past operations, and which do not contribute to future revenues, are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. Interest Costs. Interest related to construction of qualifying assets is capitalized as part of construction costs. Futures Contracts. Alcoa periodically enters into forward exchange and commodity futures contracts which are primarily accounted for as hedges of its revenues and costs. The gains and losses on these contracts are reflected in earnings concurrently with the hedged revenues or costs. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. Income Taxes. Future taxes on income are provided for timing differences in the recognition of income and expense items for financial and tax purposes in accordance with Accounting Principles Board Opinion No. 11. Investment tax credits reduce income tax expense in the year in which the related assets are placed in service or when qualified progress payments are made. Foreign Currency. The U.S. dollar is the functional currency for Alcoa's significant operations outside the U.S. B. Special Items In the 1990 fourth quarter Alcoa recorded a special charge of $414.4 ($275.0 aftertax). Of the total charge, $212.8 is associated with writedowns reflecting the decline in the value of certain business assets, mainly related to non-aluminum activities; $136.4 is related to environmental clean-up activities at the company's U.S. plant sites; and $65.2 reflects an anticipated loss from the sale of the Astech Division of Alcoa Composites, Inc., an Alcoa subsidiary. C. Inventories December 31 Finished goods Work in process Bauxite and alumina Purchased raw materials Operating supplies 1990 $ 326.5 479.1 214.2 224.5 130.5 $1,374.8 1989 $ 268.5 465.4 189.3 219.4 97.4 S 1.240.0 Approximately 59% of total inventories at December 31, 1990 were valued on a LIFO basis. If valued on an average cost basis, total inventories would have been $828.0 and $861.0 higher at the end of 1990 and 1989, respectively. D. Properties, Plants and Equipment, at Cost December 31 Land and land rights, including mines Structures Machinery and equipment Less, accumubted depreciation and depletion Construction work in progress . 1990 $ 235.6 3,537.9 8.676.8 12,450.3 6,172.4 6,277.9 469.1 $ 6,747.0 1989 $ 228.9 3.380.5 8.074.5 11,683.9 5.578.4 6.105.5 553.1 $ 6.658.6 E. Other Assets December 31 Investments Intangibles, net of accumulated amortization of S221.5 in 1990 and S92.8 in 1989 Deferred charges Other, principally noncurrent receivables 1990 $198.9 192.9 254.9 275.5 $922.2 1989 $ 229.9 303.4 238.1 373.1 $1,144.5 AR 0913 Financial and Corporate Data 44 December 31 Sinking fund debentures: 6% due 1992 9% due 1995 . 7.45% due 1996 9.45% due 2000 Notes: 8M% due 1990 9y<% due 1990 Convertible subordinated debentures: 6V%, due 2002. exchangeable (5 S62/share Discount debentures: 7%. $300 face amount, due 1996 (14.7% effective yield) 7%. $225 face amount, due 2011 (14.7% effective yield) Commercial paper (8.0% average rate) Tax exempt revenue bonds ranging from 53/<% to 12%%. due 1993-2012 Other Alcoa Aluminio: Variable rate note due 1991*1997 (10.1% and 11.3% average rate) Alcoa of Australia (aa>: 11% note due 1992 14.25% note due 1991-1994 Revolving credit agreements: Variable rate, due 1997 (8.2% average rate) Variable rate, due 1997 (12.3% average rate) Variable rates, due 1991-1992 (8.6%-17.5% average rates) Less, amount due within one year 1990 1989 $ 8.9 35.0 38.6 76.3 $ 9.7 41.5 41.6 85.0 -- 97.5 -- 40.0 150.0 150.0 211.1 113.8 76.S 122.1 106.5 202.1 113.0 -- 122.1 114.3 233.1 80.0 15.8 47.0 40.4 -- 1,355.4 60.1 $1,295.3 263.6 80.0 20.3 _ -- 132.0 1.512.7 196.4 $1,316.3 The amount of long-term debt maturing in each of the next five years is $60.1 in 1991, $148.7 in 1992, $152.9 in 1993, $85.2 in 1994 and $72.2 in 1995. AA has deposited sufficient funds with banks to retire the 11% notes due 1992. The banks have assumed liability for all future principal payments. Aluminio has interestbearing funds on deposit with a bank which will satisfy debt maturing in 1991 of $17.4. The deposit protects Aluminio from adverse foreign exchange exposure. A five-year multiple option loan facility was increased from $500 to $753 in 1990 which may be used to back up commercial paper borrowings. See "Other Developments" in the Financial Review section for additional information. Under a power contract that expires no earlier than 2011, Alcoa is entitled to a fixed percentage of the annual output front a Northwest U.S. hydroelectric facility. Alcoa makes minimum annual payments of $4 whether or not it receives power. Alcoa could be required to increase its participation if other parties to the contract defaulted. If all other parties had defaulted as of December 31. 1990, Alcoa's maximum liability would have been about $200. There is no reason to believe the other parties will default or that power will not be provided. At December 31, 1990 Alcoa had open currency exchange commitments of $2,221. These contracts are part of a worldwide program to minimize foreign exchange operating income and balance sheet exposure. The contracts generally mature within 12 months and are principally unsecured forward exchange contracts with banks. The components of income before U.S. and foreign taxes on income were: U.S. Foreign 1990 $ (177.2) 1.224.4 $1,047.2 1989 j $ 626.1 1 1.539.7 $2,165.8 : 1988 S 837.0 798.1 S 1.635.1 The provision for taxes on income consisted of: Provision for U.S. taxes: * Current Future Foreign taxes: Current Future 1990 1989 - 193S S 9S.7 (122.2) 406.3 11.0 S393.8 $2)2.4 ; 97.2 1 446.0 ; 42.8 j S798.4 ' $269.1 65.3 243.6 20.3 $598.3 'Excludes state and local income taxes of $10.2 tn 1990. $31.3 in 1989 and $37.3 in 1988: includes U.S. taxes related to foreign income The provision for taxes on income represented effective tax rates of 37.6% in 1990, 36.9% in 19S9 and 36.6% in 198S. The difference between these rates and the U.S. statutory rate of 34% resulted from: % of income before taxes Investment credits Taxes on foreign income Other 1990 (.6) 4.6 (.4) 3.6 1989 (.4) 3.3 -- 2.9 1988 (.3) 2.1 .8 2.6 The components of the provision for future taxes were: Depreciation Employee benefits Loss provisions not currently deductible Deferred income Other 1990 $ 42.6 (10.7) (121.0) (18.5) (3.6) $0)1.2) 1989 $ 72.5 15.0 .3 53.7 (1.5) $140.0 1988 $72.7 16.2 4.9 (6.7) 0.5) S85.6 Investment credits and allowances included in income were $6.1 in 1990, $9.2 in 1989 and $5.9 in 1988. The cumulative amount of Alcoa's share of undistributed earn ings for which no deferred taxes have been provided was $1,448.9 at December 31, 1990. Management has no plans to distribute such earnings in the foreseeable future. Alcoa and the Internal Revenue Service (IRS) have settled consolidated tax returns through 1982. Alcoa received deficiency notices from the IRS for the years 1983 and 1984. In the opinion of management, settlement of these issues would have had an insignificant effect on the financial position of the company at December 31, 1990. AR 0914 v I Financial and Corporate Data 45 I. Preferred and Common Stock J. Earnings per Common Share Preferred Stin k. Alcoa has two classes of preferred stock. The Primary earnings per common share are computed by subtracting serial preferred stock has 557,860 shares authorized, with a par annual preferred dividend requirements from net income, and value per share of $100 and an annual $3.75 per share cumula dividing that amount by the weighted average number of common tive dividend preference. The Class B serial preferred stock has shares outstanding during each year. The average number of 10,000,000 shares authorized (none issued) and a par value of $1 per share. shares used to compute primary earnings per common share was 86,204,179 in 1990, 88,304,110 in 1989 and 88,201,595 in 1988. Fully diluted earnings per common share are not stated Ciwiinoii Stm k. There are 300,000,000 shares authorized at a since the dilution is not material. par value of $1 per share. As of December 31,1990, shares i | of common stock reserved for issuance were: I I h. f.CCi.-iC l`. i Number of shares j Convertible debentures ! Long-term stock incentive plan Salaried employees' savings plan Incentive compensation plan 2.419.355 i 4.281,758 : 2.048.766 91,149 8.841.028 ' Certain equipment, warehousing and office space, and ocean going vessels are under operating lease agreements. Total expense for all leases was $80.6 in 1990, $66.7 in 1989 and $61.6 in 1988. Under long-term leases, minimum annual rentals are $40.8 in 1991, $32.0 in 1992, $27.0 in 1993, $22.3 in 1994, $14.0 in 1995 and a total of $38.6 for 1996 and thereafter. Stock options under the long-term stock incentive plan have been and may be granted, generally at not less than market prices on the dates of grant. At December 31,1990, options for 1,818,077 shares were exercisable. The transactions for shares under option were: L. Interest. i.'ns:. C"i 1990 j 1989 1988 Outstanding, beginning of year. Number Price Granted: Number Price Exercised: Number Price Expired or canceled Outstanding, end of year: Number Price Shares reserved for future options at end of year 1990 : 1989 1988 1,953.888 : $26.38-74.88 | 779.016 $1.00-76.88 2.164.885 $26.00-55.38 662,639 $62.13-74.88 1,733.335 $23.56-55.38 648,850 $52.56 (212.826). $1.00-62.13 | (49.530) r (855.636) $26.00-55.38 (18.000) > 2.470.548 : 1.953.888 $1.00-76.88 , $26.38-74.88 i (200.525) $23.56-46.88 (16,775) 2.164,885 $26.00-55.38 1.811.210 1,399.120 2.043.759 In 1986 Alcoa adopted a shareholder rights plan under which each share of common stock had a right that traded with the stock until the right became exercisable. In the 1990 third quarter Alcoa redeemed all outstanding rights at a cost of five cents per right, or $4.3. Amount charged to expense Amount capitalized $184.7 1 20.5 , $205.2 | $178.3 18.5 $196.8 $208.4 21.2 $229.6 Alcoa and certain subsidiaries provide health care and life insurance benefits for eligible retired employees. A significant majority of all U.S. employees and certain other employees qualify if they become eligible for retirement while working for the company. Alcoa retains the right, subject to existing agree ments, to amend or terminate these benefits. The costs of these benefits are expensed when claims are paid and were $52.8 in 1990, $43.1 in 1989 and $38.5 in 1988. Alcoa also made Medicare reimbursements of $8.2 in 1990, $10.4 in 1989 and $6.9 in 1988. At December 31,1990, there were approximately 23,500 eligible retirees. An accounting standard for postretirement benefits was issued in late 1990. Under the new rules, the estimated costs of these benefits must be accrued ratably from the date of hire until the employee is eligible to receive the benefits, rather than as claims are paid. The liability for unaccrued postretirement costs for eligible retirees is expected to be material. Companies have an option to either record this liability in one lump sum or amortize it over a specified period. There also will be a substantial increase in the annual amount of benefits charged to expense. Alcoa must make the accounting change by 1993. ) i 7*: f AR 0915 Financial and Corporate Data 46 X. Pension Plans Alcoa and certain subsidiaries maintain pension plans covering substantially all U.S. employees and certain other employees. Pension benefits generally depend upon length of service, job grade and remuneration. Substantially all benefits are paid through pension trusts that are funded in amounts sufficient to ensure that all plans have adequate funds to pay benefits to retirees as they become due. Pension costs include the following components which were calculated as of January 1 of each yean Benefits earned Interest accrued on projected benefit obligation Net amortization Less: expected return on plan assets* ! 1990 | 1989 S 76.2 ` $ 66.2 229.6 16.8 322.6 220.1 15.0 301.3 236.7 ' 211.1 1988 $ 50.5 211.0 2.2 263.7 195.4 S 85.9 $ 90.2 $ 68.3 'The actual returns were higher (lower) than the expected returns by $083,7) in 1990. $185.4 in 1989 and $32.6 in 1989 and were deferred as actuarial gains (losses). The following table describes the funded status of the pension plans. The funded status of a plan is defined as the difference between the accumulated benefit obligation (actuarial present value of benefits earned to date based on present pay levels) and the amount provided for future benefits. Accumulated benefit obligation: Vested Non-vested Additional obligation for projected compen sation increases Projected benefit obligation Plan assets, primarily stocks and bonds, at market (Prepaid) accrued pension costs Amount provided for future benefits Projected benefit obligation in excess of amount provided for future benefits Consists of: Unamortized initial obligations of plans Unamortized prior service costs Unrecognized net actuarial (gains) losses December 31,1990 Overfunded plans Under- . funded plans December 31.1989 Over- : funded j plans ! } Under funded plans $1,239.7 114.3 $2,517.1 1 $ 1.363.5 118.5 . 196.5 j 64.5 139.1 1,418.5 ---1--.-6-2--1--.-1 [, 1.441.6 (48.8) 1.353.8 64.6 1 160.2 | i 2,873.8 j 1 j 2,890.8 [ (48.6) | $27.4 3.0 8.5 38.9 .5 18.5 1.392.8 1.418.4 2.842.2 i 19.0 $ 25.7 $ 202.7 $ 31.6 | $ (62.0) $ 78.8 $ i 6.7 ; 45.3 42.4 $ 25.7 103.8 20.1 $ 202.7 63.1 (38.2)! $ 31.6 $19.9 $12.9 (1.5) 8.5 $19.9 For the underfunded plans at December 31,1990 and 1989, Alcoa recorded a deferred charge and an additional liability of $63.6 and $11.4, respectively. These amounts are the difference between the accumulated benefit obligation and the amount provided for future benefits. The projected benefit obligation at December 31 was deter mined using a settlement discount rate of 8% for 1990 and 1989, and 8.75% for 1988. The assumed long-term rate for compensa tion increases was 5.5% for all three years. Assumed earnings on plan assets used for determining pension expense was 9% for all three years. O.Mirv '?' Alcoa's consolidated financial statements include 100% of the assets, liabilities and earnings of companies that are more than 50%-owned by Alcoa. The ownership interests of the other shareholders in these companies are called minority interests. The $358.2 reduction in Alcoa's 1990 net income is the minority shareholders' share of earnings of these subsidiaries. The following table summarizes the minority shareholders' interests in the equity of these subsidiaries. December 31 Alcoa of Australia Alcoa International Holdings Company (A1HC) Alcoa Aluminio Alcoa Brazil Holdings Company Other majority-owned companies ' 1990 j 1989 ; S 762.2 - $ 688.3 250.0 -, 250.0 . 202.8 , 223.9 99.8 ; 109.0 266.2 261.9 $1,581.0 . $1,533.1 aihc's minority interests consist of five series of preferred stock with a weighted average annual dividend rate of 8.8% until 1991. Alcoa Aluminio's minority interests include $214.7 of convert ible preferred stock with an annual dividend of $18.4. See Note S for further details on Aluminio's restructuring in 1989. Cash payments for interest were: 1990-S198.6,1989-$189.1 and 1988-$246.4. Cash payments for income taxes were: 1990-$488.0, 1989-$545.7 and 1988-S271.9. All short-term investments qualify as cash equivalents. Various lawsuits and claims and proceedings have been or may be instituted or asserted against Alcoa and its subsidiaries, including those pertaining to environmental, product liability and safety and health matters. While the amounts claimed may be substantial and the ultimate liability cannot now be determined, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on the financial position of the company. Financial and Corporate Oafa 47 7-c*i*nn.'ir ;ir>l * i--.'ir.-,i lnfurmiiiinii Alcoa is primarily an integrated producer of aluminum products. Alcoa's operations consist of three segments: Alumina and Chemicals, Aluminum Processing, and Non-Aluminum Products. The Alumina and Chemicals segment includes the production and sale of bauxite, alumina and alumina chemicals, and related transportation services for this segment. The Aluminum Processing segment includes the production and sale of molten metal, ingot, and aluminum products that are flat-rolled, engineered or finished. Also included are power, transportation and other services for this segment. The Non-Aluminum Products segment includes the production and sale of electrical, ceramic, plastic and composite materials products, manufacturing equipment, gold, separations systems, magnesium products and steel and titanium forgings. Segment information Sales to customers: Alumina and chemicals Aluminum processing Non-aluminum products Intersegment sales: (1) Alumina and chemicals Aluminum processing Non-aluminum products Eliminations Total sales and operating revenues Operating profit: (2) Alumina and chemicals Aluminum processing Non-aiuminum products Unallocated Total operating profit Other income Interest expense State and local taxes on income Income before taxes on income Identifiable assets: Alumina and chemicals Aluminum processing Non-aluminum products Total identifiable assets Investments Corporate assets Total assets Depreciation and depletion: Alumina and chemicals Aluminum processing Non-aluminum products Total depreciation and depletion (3) Capital expenditures: Alumina and chemicals Aluminum processing Non-aluminum products Total capital expenditures 1990 1989 1988 $ 1.842.2 7.477.8 1.390.2 $ 1.743.4 8.019.1 1.147.5 $ 1.215.5 7,677.2 902.6 1,423.7 5.5 89.5 (1.518.7) 1,172.3 3.1 115.5 (1.290.9) 622.7 .8 111.7 (735.2) $10,710.2 510,910.0 $ 9,795.3 $ 1.319.3 32.5 (270.6) 6.0 1.087.2 154.9 184.7 10.2 S 1.047.2 S 1,182.8 901.7 32.9 6.5 2.123.9 251.5 178.3 31.3 $ 2,165.8 $ 418.9 1,332.3 (11.2) .5 1,740.5 140.3 208.4 37.3 $ 1,635.1 $ 2.855.3 6.983.9 1,292.9 11,132.1 198.9 82.2 $11,413.2 $ 2,480.8 7,123.7 1,422.3 11,026.8 229.9 283.9 $11,540.6 $ 2.577.4 6.477.3 1.145.2 10.199.9 197.1 140.5 $10,537.5 $ 144.8 464.1 98.6 $ 145.6 434.0 75.6 $ 154.5 407.0 76.5 $ 707.5 S 655.2 $ 638.0 $ 148.5 610.8 91.6 $ 850.9 $ 175.6 595.3 104.8 S 875.7 $ 110.7 652.3 103.0 $ 866.0 Geographic area information Sales to customers: USA Other Americas Pacific Europe Transfers between geographic areas: (1) USA Other Americas Pacific Europe Eliminations Total sales and operating revenues Operating profit: (2) USA Other Americas Pacific Europe Total operating profit Identifiable assets: USA Other Americas Pacific Europe Total identifiable assets Investments Corporate assets Total assets Capital expenditures: USA Other Americas Pacific Europe Total capital expenditures 1990 1989 1988 S 6.383.5 1,206.0 2.124.1 996.6 $ 6.696.4 1.392.0 2.039.7 781.9 $ 6.254.9 1,243.8 1,510.3 786.3 84S.9 396.9 374.4 51.1 (1,668.3) 818.9 377.4 348.1 72.2 (1.616.6) 590.6 235.5 132.2 21.2 (979.5) $10,710.2 $10,910.0 $ 9,795.3 $ (147.1) 219.2 930.0 85.1 $ 1.087.2 $ 652.2 392.2 1,017.8 61.7 $ 2,123.9 $ 921.8 317.3 413.7 87.7 $ 1,740.5 $ 5.998.9 1.506.5 2.877.6 749.1 11.132.1 198.9 82.2 $11,413.2 $ 6.127.7 1,592.9 2.638.9 667.3 11.026.8 229.9 283.9 $11,540.6 $ 5,592.6 1.612.9 2.383.9 610.5 10.199.9 197.1 140.5 $10,537.5 $ 592.0 124.2 94.6 40.1 $ 850.9 $ 605.8 85.7 138.5 45.7 $ 875.7 $ 601.7 60.3 137.9 66.1 $ 866.0 (1) Transfers between segments and geographic areas are based on generally prevailing market prices. (2) Operating profit, excluding the special items of $414.4 described in Note B, follows: Segment: Alumina and chemicals Aluminum processing Non-aluminum products Unallocated 1990 $1,334.6 200.1 (39.1)1 --- -- 6 .0 <[ $1,501.6 ' Geographic area: USA Other Americas Pacific Europe i $ 262.2 ' I 219.2 | ) 930.0 I I 90.2 $1,501.6 (3) Includes depreciation of $17.6 in 1990, $16.9 in 1989 and $14.8 in 1988 reported as research and development expenses in the income statement. AR 0917 Financial and Corporate Data >. M;i.i*iri!y-'i '.iifii Sii^. - I . The condensed financial statements of the principal majorityowned subsidiaries follow. Alcoa Aluminio S.A. (Aluminio). Summarized consolidated financial data for Aluminio, a 59%-owned* Brazilian subsidiary (65% in 1988), follows. December 31 Cash and short-term investments Other current assets Properties, plants and equipment, net Other assets Total assets Current liabilities Long-term debtt Other liabilities 1990 : $ 13.6 : 261.1 1 927.8 94.3 1,296.8 238.0 220.2 15.7 1989 $ 60.4 308.0 914.9 101.8 1.385.1 223.4 251.6 24.4 Total liabilities Net assets 473.9 S 822.9 499.4 $ 885.7 * In April 1989 Alcoa Brazil Holdings Company (abhcj increased its ownership in Ahiminio to 75% by converting $204.5 of debt into additional common stock. At the same time. ABHG sold 21 % of its common stock to Aluminio s minority shareholder. As a result of these transactions. Alcoa's effective ownership in Aluminio was reduced to 59%. tHeld by abhc--$22.5 Revenues Costs and expenses Translation and exchange adjustments Income tax expense Net income 1990 $ 862.4 (861.6) 8.6 (8.1) $ 1.3 1989 $ 949.5 (691.7) (37.1) (44.6) $ 176.1 1988 $ 886.9 (660.5) (55.0) (10.4) $ 161.0 Alcoa ofAustralia Limited (AA). Summarized consolidated financial data for aa, a 51%-owned subsidiary of Alcoa Interna tional Holdings Company, follows. December 31 Cash and short-term investments Other current assets Properties, plants and equipment, net Other assets Total assets Current liabilities Long-term debt Other liabilities Total liabilities Net assets 1990 1989 $ 394.2 $ 296.9 671.1 525.1 1 1.559.3 1.585.1 172.8 ; 165.4 2,797.4 2,572.5 695.9 178.7 367.4 588.5 227.8 351.5 1,242.0 1,167.8 $1,555.4 $1,404.7 Supplemental Financial Information (dollar amounts in milfiaos, except per share data) Quarterly Data Hm.uuJin-'l1 48 1990 Sales and operating revenues Income from operations Net income* Earnings per common share* Fust Second Third Fourth , Year $2,636.3 $2,691.4 $2,676.1 $2,706.4 $10,710.2 231.7 148.6 251.4 161.9 210.3 125.1 (40.0) (140.4) 653.4 295.2 1.69 1.86 1.46 (1.61) 3.40 1989 First Second Third Fourth Year Sales and operating revenues Income from operations Net income Earnings per common share $2,624.4 $2,757.8 $2,834.4 $2,693.4 $10,910.0 392.1 276.0 398.5 285.2 315.9 219.0 260.9 164.7 1.367.4 944.9 3.12 3.21 2.46 1.88 10.67 * includes special charge of $275.0, or $3.19 per common share, in the fourth quarter Av-ir.l^ ` t- * USA Other Americas Pacific Europe `>yo.^ :.i.iu-.liu-tl> ! 1990 j 36.600 1 16,600 | 6.600 ! - 3.900 | i 63.700 ! 1989 35.100 15,200 6.500 3.800 60.600 1988 34.000 15.000 6.000 4,000 59.000 Revenues* Costs and expenses Translation and exchange adjustments Income tax expense Net income 1990 $ 2,422.0 (1,484.6) 4.7 (328.1) $ 614.0 , 1989 $ 2,318.4 (1,377.1) 41.7 (370.0) $ 613.0 1988 $ 1,532.0 (1,025.0) * (105.7) (191.3) $ 210.0 Revenues from Alcoa were S377.6 in 1990. S364.2 in 1989 and $1493 in 1988. The terms of the transactions were established by negotiation between the parties. f AR 0918 s. Financial and Corporate Data Officers (as of February 15.1991) Mnna tfonicn t C > >:n i; . Paul H. O'Neill Chairman of the Board and Chief Executive Officer C. Fred Fetterolf President and Chief Operating Officer Peter R. Bridenbaugh Vice President-Research and Development Thomas L. Carter Vice President-Quality John L. Diederich Group Vice PresidentMetals and Chemicals Richard L. Fischer Senior Vice PresidentCorporate Development and General Counsel Ronald R. Hoffman Group Vice PresidentPackaging Systems Vincent R. Scorsone Group Vice PresidentAerospace and Industrial Products Donald R. Whitlow Senior Vice PresidentEmployee Relations James W. Wirth Senior Vice PresidentFinance Bruce R. Barstow Vice President and Director General-Grupo Aluminio Alain Belda Vice PresidentLatin America George E. Bergeron Vice President and General Manager-Rigid Packaging Earnest J. Edwards Vice President and Controller Charles P. Fletcher Vice President-Engineering Albert E. Germain Vice President-Taxes and Tax Counsel Clyde R. Gillespie Vice President and General Manager-Forgings and Castings Harry M. Goern Vice PresidentProcurement and Transportation Jan H. M. Hommen Vice President and Treasurer Frank P. Jones, Jr. Vice PresidentGovernment Affairs Charles K. Ligon Vice President-Separations M. Sandy Nelson, Jr. Vice President and General Manager-Sheet and Plate Richard C. Rawe Vice President-Primary Metals Robert A. Reed Secretary and Assistant General Counsel Robert F. Slagle Vice President-Raw Materials, Alumina and Industrial Chemicals Norman F. Stephen Vice President and Managing Director-Alcoa of Australia Limited Thomas J. Taylor Vice President-Metal Sales, Trading and Recycling G. Keith Turnbull Vice President-Technology Planning David W. Brownlee Patent Counsel Robert D. Buchanan Senior Assistant Controller Edgar M. Cheely, Jr. Assistant Treasurer Denis A. Demblowski Assistant Secretary Donald E. Guinn Assistant General Counsel R. Lee H0I2 Assistant General Counsel Richard B. Kelson Assistant General Counsel Harold E. Meeks Assistant Treasurer Russell W. Porter, Jr. Assistant General Counsel Directors William S. Cook, 1985o Director of various companies and former Chairman and Chief Executive Officer of Union Pacific Corporation Kenneth W. Dam, 19871 Vice President-Law and External Relations, International Business Machines Corporation, a computer and information processing systems company John P. Diesel, 19801 Former President of Tenneco, Inc. C. Fred Fetterolf, 19831 Joseph T. Gorman, 1991 Chairman, President and Chief Executive Officer, TRW Inc., a global company serving the space and defense, automotive and information systems markets Judith M. Gueron, 1988+ President, Manpower Demonstration Research Corporation, a nonprofit research organization John P. Mulroney, 1987 President and Chief Operating Officer, Rohm and Haas Company, a specialty chemicals manufacturer Paul H. O'Neill, 1986t Sir Arvi Parbo, 1980 Chairman, Western Mining Corporation Limited, an Australian exploration and mining company, and Chairman of Alcoa of Australia Limited Forrest N. Shumway, 19821 Director of various companies and former Vice Chairman of Allied-Signal, Inc. Franklin A. Thomas, 1977tt President, The Ford Foundation, a nonprofit charitable foundation ODate following the name indicates the year first elected Director t Member of the Executive Committee t Member of the Audit Committee AR0919 Financial and Corporate Data Alcoa Foundation Shareholder Information 50 Alcoa Foundation's mission for 38 years has been to improve the quality of life through philanthropy primarily in the communities where Alcoa operations and offices are located. Education received 45% of the foundation's philanthropic dollars during 1990. Most of the money went to colleges and universities. The foundation awarded 54 scholarships to the children of Alcoa employees and retirees. Foundation grants also supported the arts and culture as well as nonprofit organizations. Some examples of community programs included disaster relief, food banks and shelters for the homeless, drug and alcohol rehabilitation programs, and family counseling services. Approximately 2,600 grants accounted for the $12.1 million given in 1990. Included was $1.3 million to double-match 2,912 employee and retiree gifts to 533 educational institutions. Since its founding in 1952, Alcoa Foundation has given over $175 million worldwide. Following are examples of foundation grants in 1990: > A grant was given to the school system in Alcoa, Tenn. for Vanderbilt University's "Jasper Summer Institute" program. The program includes training teachers and corporate volunteers to use video to teach students. The video series simulates reallife problems, encouraging children to apply their knowledge of math and science. > A grant to United Way International was allocated among 36 separate nonprofit agencies in Mexico. They include hospitals, orphanages, retirement communities, shelters for the homeless and educational facilities. > The foundation supported Affiliate Artists, New York City, by sponsoring four residencies for solo artists. Participating artists go directly to Alcoa plant communities, offering the residents an opportunity to see live, quality performances. > The Ministry of Health of the Government of Suriname received a grant to purchase a bus for the Recreational Center for Handi capped Children in Paramaribo, the country's capital. The bus will transport the children to schools, workplaces and physical training facilities throughout the city. > Carlow College in Pittsburgh, Pa. is using a grant to enable six disadvantaged women to earn college degrees. The grant is also for books and supplies for the neediest students. > Support to the Salvation Army in Sidney, Ohio was shared by four major community projects: the renovation of an emergency shelter for the homeless; construction of a 14,000 square foot addition to a day-care facility for low- and middle-income families; expansion of facilities for an after-school service for families with limited economic means; and the renovation of the kitchen/pantry where the needy are served hot meals. > The Pittsburgh Ballet Theatre received a grant to support a new production of "The Nutcracker." The production attracts 35,000 people annually, making it the most popular performing arts holiday event in Western Pennsylvania. "The Nutcracker" is also seen by over 41,000 people in cities where it tours. This helps to build future audiences and contributes significantly to the organizations financial stability. > A grant given to the Calhoun County Independent School District, located near Alcoa's Point Comfort Operations in Texas, provided teachers with training and materials needed to teach the Modality Math Program to kindergarten students. This program teaches mathematical concepts with hands-on teaching tools, problem solving and partnering with older student "math buddies." While not yet five years old, the children are doing second- and third-grade level math. As of December 31,1990, the total market value of Alcoa Foun dation's assets was $232 million, making it the largest permanently funded corporate foundation in the United States. Alcoa's objective is to pay common stock dividends at rates competitive 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 and an additional dividend linked directly to the company's financial performance. The base quarterly dividend is 40 cents per common share. The additional dividend is 30% of Alcoa's annual earnings over $6.00 per share. Registered owners of Alcoa common and preferred stock can use the company's Dividend Reinvestment and Stock Purchase Plan to purchase common stock shares through automatic dividend reinvestment and/or cash payments. Alcoa pays all service and brokerage charges on purchases. Contact Alcoa's stock record keeper: Pittsburgh National Bank, Stock Transfer Department, 1500 Penn Avenue, Pittsburgh, Pa. 15222 or call (412) 762-3678. Inquiries about reinvestment and payment of dividends; address corrections; changes of registration; and replacing lost dividend checks, stock certificates or tax forms should be directed to Alcoa's stock record keeper: Pittsburgh National Bank, Stock Transfer Department, 1500 Penn Avenue, Pittsburgh, Pa. 15222 or call (412) 762-3678. The annual meeting of shareholders is Friday, May 17,1991 at 9:30 a.m. in the Allegheny Ballroom of the Vista International Hotel in Pittsburgh, Pa. For copies of annual and quarterly reports, an annual fact book, and Forms 10-K and 10-Q, contact: Financial Communication, 1656 Alcoa Building, Pittsburgh, Pa. 15219 or call (412) 553-4463. Shareholders with questions on other matters related to Alcoa should contact the Office of the Secretary, 1501 Alcoa Building, Pittsburgh, Pa. 15219 or call (412) 553-4707. Quarter First Second Third Fourth Year High S77W 68* 70* 65 $77* 1990 Low $59* 60* 60Vi 49* $49* Dividend Sl.80 .40 .45* .40 $3.05 High $65* 69* 77* 79* $79* "Includes five cents per share (or redeeming outstanding rights 1989 Low $55* 59* 63* 67* $55* Dividend $1.52 .40 .40 .40 $2.72 ; AR 0920 Financial and Corporate Data 51 1990 1989 1988 1987 1986 Estimated number of shareholders* 56,300 56.500 58.400 52,600 56.400 Average shares outstanding (000) 86,204 88.304 88.202 87,671 84.900 "These estimates include shareholders who own stock registered in their own names and those who own stock through banks and broken. The estimates do not reflect two employee share ownership plans that no longer exist. Trading Ranges of Alcoa Common Stock vs. S&P 500 Index Alcoa 1501 Alcoa Building Pittsburgh, Pa. 15219 Telephone: (412) 553-4545 Telex: 866470 Facsimile: (412) 553-4498 Office of the Secretary (412) 553-4707 Office of the Treasurer (412) 553-4705 Aluminum Company of America is incorporated in the Commonwealth of Pennsylvania. Common stock: New York Stock Exchange and European exchanges in Basel, Brussels, Frankfurt, Geneva, Lausanne, London and Zurich Ticker symbol: aa Preferred stock: American Stock Exchange Sinking fund debentures: New York Stock Exchange Common stock: Pittsburgh National Bank Stock Transfer Department 1500 Penn Avenue Pittsburgh, Pa. 15222 (412) 762-3678 or First Chicago Trust Company of New York 30 West Broadway New York, N.Y. 10007 Preferred stock: First Chicago Trust Company of New York All issues: Pittsburgh National Bank Corporate Trust Department 1500 Penn Avenue Pittsburgh, Pa. 15222 (412) 762-3828 Price/Eamings Ratios of Alcoa vs. S&P 500 Index 86 87 88 I Alcoa range I S&P 500 index range 89 90 6 Dividends per Common Share $3.50 | I 2.80 i 2.10 ! 1.40 j .70 ; 86 87 88 89 90 AR 0921 iiimwi rr Financial and Corporate Data Index A Accounting policies 43 Aerospace and Industrial Products 8 Alcoa Foundation 50 Annual meeting 50 Audit Committee report 38 Auditor's report 38 Balance sheet 40 Board of directors 49 Book value per share 2 Capacity, aluminum 15* Capital expenditures 16* Capital resources 16 Cash flow statement 41 Cash from operations 16, 41 Common stock information 16. 42. 50 Cost of goods sold 14, 14* Current ratio 2 Debt 16.44 Depreciation expense 16* Description of business 47 Dividend reinvestment 50 Dividends 16, 51* Earnings per common share 11*. 45 Employees 48 Environment 17,43 Financial data, six years 10 Financial instruments 44 Financial and operating highlights 2 Financial review 10 Financing activities 16 Foreign currency 15 Geographic area information 11. 47 Income statement 39 interest costs 15.45 Inventories 43 Invested capital 17* Investing activities 16 Letter to shareholders 3 Liquidity 16 Management's report 38 Materials Science 8 Metals and Chemicals 8 Minority interests 15, 46 Notes to financial statements 43 Officers 49 Operating profit by geographic area 11* Operations review 8 Packaging Systems 8 Pensions 46 Postretirement benefits 17, 45 Preferred stock information 42, 45 Price/eamings ratio 51* Production, aluminum 13* Publications 50 Quarterly data 48, 50 Research and development 15 Results of operations 11 Retained earnings 42 Return on invested capital 17* Return on shareholders' equity 12* Revenues 9*. 12 Segment information 12, 47 Shareholder information 50 Shareholders' equity statement 42 Shareholders, number of 51 Shares, number outstanding 42, 51 Shipments, aluminum 13* Sources of revenues 2*. 8* Special items 11. 43 Stock prices 50 Stock trading ranges 51 * Taxes 15.44,46 Treasury shares 42 * Financial chart 52 Trademarks in this report: Alcoa, the Alcoa corporate symbol and Uni-Lok are registered trade marks of Aluminum Company of America. Boeing and 777 are trademarks of The Boeing Company: Coors is a trademark of Adolph Coors Company: Aerostar, Crown Victoria. F-150, Ford, Grand Marquis and Lincoln Towne Car are trademarks of Ford Motor Company: Dana is a trademark of Dana Corporation: Corvette and General Motors are trademarks of General Motors Corporation; Komatsu, Mark I and Mark III are trademarks of Komatsu Limited; Mazda is a regis tered trademark of Mazda Motor Corporation: MD-80 and MD-11 are trademarks of McDonnell Douglas Canada; Shell is a trademark of Shell Oil Company; Sonoco Graham is a trademark of Sonoco Graham Company; Legacy and Subaru are trademarks of Subaru of America, Inc.; Quickie and Sunrise Medical are trademarks of Sunrise Medical. Inc.; and Tropicana is a trademark of Tropicana Products. Inc. Design: Arnold Saks Associates Major photography: Alen MacWeeney Typography: Hamilton Phototype Printing: Graphic Arts Center Primed m USA 9103 Form A07-15277 1991 Alcoa AR 0922 Alcoa 1501 Alcoa Building Pittsburgh, Pa. 15219 0 ALCOA AR 0923