Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3610
ALUMINUM COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0317820
(State of incorporation) (I.R.S. Employer Identification No.)
425 Sixth Avenue, Alcoa Building, Pittsburgh, Pennsylvania 15219-
1850
(Address of principal executive offices) (Zip code)
Registrant's telephone number--area code 412
Investor Relations------------553-3042
Office of the Secretary------553-4707
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $1.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
As of March 3, 1997 there were 172,803,703 shares of common
stock, par value $1.00, of the registrant outstanding. The
aggregate market value of such shares, other than shares held by
persons who may be deemed affiliates of the registrant, was
approximately $12,485 million.
Documents incorporated by reference.
Parts I and II of this Form 10-K incorporate by reference
certain information from the registrant's 1996 Annual Report to
Shareholders. Part III of this Form 10-K incorporates by
reference the registrant's Proxy Statement dated March 12, 1997,
except for the performance graph and Compensation Committee
Report.
-1-
ALUMINUM COMPANY OF AMERICA
Aluminum Company of America, with headquarters in Pittsburgh,
Pennsylvania, was formed in 1888 under the laws of the
Commonwealth of Pennsylvania. In this report, unless the context
otherwise requires, Alcoa or the Company means Aluminum Company
of America and all subsidiaries consolidated for the purposes of
its financial statements.
PART I
Item 1. Business.
Overview
Alcoa is the world's largest integrated aluminum company.
It is also the world's largest alumina producer with close
proximity of bauxite mines to its refineries in Australia,
Jamaica and Suriname, and high quality bauxite in Brazil.
Alumina, a white powdery material, is an intermediate step in the
production of aluminum from bauxite and is also a valuable
chemical on its own. As a growing, worldwide company, Alcoa now
has over 170 operating locations in 28 countries, serving a broad
range of markets in developing and industrialized economies.
Alcoa's products are used in and on beverage containers,
airplanes and automobiles, commercial and residential buildings,
chemicals, and a wide array of consumer and industrial
applications. These products are sold directly to industrial
customers and other end-users or through independent distributors
in the U.S., Brazil, Europe and the Far East.
The Company is organized into 21 independently-managed
business units. Business unit leaders are assigned clear
performance responsibilities that concentrate authority closer to
customers-where most of Alcoa's value creation takes place.
The U.S. remains the largest market for aluminum. However,
the Pacific Rim, Latin America, Asia and Europe all present
opportunities for substantial growth in aluminum use. To take
advantage of these growth opportunities, Alcoa has formed joint
ventures and strategic alliances in key regional markets and
continues to develop new applications for its products.
Market and Geographic Area Information
Alcoa serves a variety of customers in a number of markets.
Consolidated revenues from these markets during the past three
years were:
(dollars in millions)
1996 1995 1994
---- ---- ----
Packaging $3,326 $3,797 $2,830
Transportation 2,655 2,232 1,671
Distributor and Other 2,154 1,988 1,570
Alumina and Chemicals 1,940 1,705 1,494
Building and Construction 1,537 1,531 1,391
Aluminum Ingot 1,449 1,247 948
------ ------ -----
Total $13,061 $12,500 $9,904
====== ====== =====
-2-
Close to one-half of Alcoa's consolidated sales now is
derived from geographic regions other than the U.S., reflecting
the Company's growing global presence.
(dollars in millions)
1996 1995 1994
---- ---- ----
U.S. $7,246 $7,043 $5,574
Pacific 2,248 1,986 1,670
Other Americas 1,726 1,780 1,362
Europe 1,841 1,691 1,298
------ ------ -----
Total $13,061 $12,500 $9,904
====== ====== =====
Major Operations
U.S. - The Company has six aluminum smelters with a combined
annual rated capacity of 1.285 million metric tons (mt) that
mostly support its internal primary aluminum requirements. It has
two large rolling facilities for can sheet, and a number of
aluminum fabricating facilities that serve the aerospace,
automobile, truck, building and construction, packaging and other
markets. A substantial majority of 1996 consolidated revenues
generated in the U.S. was derived from these major operations.
Alcoa Fujikura Ltd. (AFL), a 51%-owned subsidiary, designs,
produces and markets automotive electrical distribution systems.
AFL also produces fiber optic products and systems for electric
utilities, telecommunications, cable television and datacom
markets. AFL's 1996 revenues were about 11% of consolidated
revenues. AFL also has operations in Europe, Mexico and Brazil.
Australia - Alcoa of Australia Limited (AofA) is 60%-owned
by Alcoa and is the Company's largest subsidiary. AofA's
integrated aluminum operations include bauxite mining facilities,
three alumina refineries, two aluminum smelters and two alumina-
based chemicals plants. AofA is the world's largest, and one of
the lowest-cost, producers of alumina. An AofA subsidiary also
mines gold in Western Australia. AofA's 1996 revenues were 15%
of Alcoa's consolidated revenues.
Brazil - Alcoa Aluminio S.A. (Aluminio), an integrated
aluminum producer, is owned 59% by Alcoa. Aluminio operates
bauxite mining facilities and two alumina refineries that
principally serve its two aluminum smelters. It has several
alumina-based chemicals, aluminum fabricating and extrusion
plants, plastic closures and container operations, packaging
equipment and building and automotive product facilities.
Aluminio's revenues in 1996 were 9% of Alcoa's consolidated
revenues.
Alcoa's Financial Reporting Segments
Alcoa's integrated operations consist of three segments:
Alumina and Chemicals, Aluminum Processing and Nonaluminum
Products. See Note R to the Financial Statements for segment and
related geographic area financial information.
Alumina and Chemicals Segment
The Alumina and Chemicals segment includes the production
and sale of bauxite, alumina, alumina-based chemicals used
principally in industrial applications and transportation
services for bauxite and alumina. The segment consists of a
group of companies and assets referred to as Alcoa World Alumina
and Chemicals (AWAC). Alcoa provides operating management for
AWAC which is owned 60% by Alcoa and 40% by WMC Limited of
Australia (WMC). See Note C to the Financial Statements.
-3-
Bauxite
Bauxite, aluminum's principal raw material, is refined into
alumina through a chemical process. Most of the bauxite mined
and alumina produced by the Company, except by AofA, is further
processed by the Company into aluminum. All of the Company's
active bauxite interests are part of AWAC, except for Aluminio's
mines in Pocos de Caldas, Brazil and its 8.6% interest in
Mineracao Rio do Norte S.A. (MRN), a joint venture described
under "Alumina" below.
AofA's bauxite mineral leases expire in 2003. Renewal
options allow AofA to extend the leases until 2045.
Suriname Aluminum Company, L.L.C. (Suralco) mines bauxite in
Suriname under rights that expire in 2032. Suralco also holds a
26% minority interest in a bauxite mining joint venture managed
by the majority owner, an affiliate of Gencor Limited of South
Africa. Bauxite from both mining operations serves Suralco's
share of a refinery in Suriname. Current mine reserves at both
operations are expected to be depleted in 2005.
The Company has long-term contracts to purchase bauxite
mined by a partially-owned entity in the Republic of Guinea in
Western Africa. The bauxite services most of the requirements of
the Point Comfort, Texas alumina refinery. The contracts expire
after 2011.
Bauxite mining rights in Jamaica expire after the year 2020.
These rights are owned by a joint venture with the Government of
Jamaica.
Alumina
Alcoa is the world's leading supplier of alumina. Alumina
is sold principally from operations in Australia, Jamaica and
Suriname. About 59% of the Company's alumina production in 1996
was sold to third parties. Most alumina supply contracts are
negotiated on the basis of agreed volumes over multi-year periods
to assure a continuous supply to the smelters that receive the
alumina. Prices are negotiated periodically or are based on
formulas related to aluminum ingot market prices or to alumina
production costs.
In June 1996, AWAC announced a curtailment of 350,000 mt of
its annual production of smelter-grade alumina due to an
oversupply of alumina in world markets.
Australia. AofA's three alumina refineries, located in
Kwinana, Pinjarra and Wagerup, in Western Australia, have an
aggregate annual rated capacity of 6.7 million mt. The natural
gas requirements of the refineries are supplied primarily under a
contract with parties comprising the North West Shelf Gas Joint
Venture. This contract expires in 2005 and imposes minimum
purchase requirements. Most of AofA's alumina is sold under
supply contracts to third party customers worldwide.
In November 1996, AWAC entities and Sino Mining Alumina
Limited (SMAL), a subsidiary of China National Nonferrous Metals
Industry Corporation (CNNC), entered into a long-term agreement
for the purchase of alumina for the CNNC smelter system. The
arrangements entitle a subsidiary of SMAL to purchase a minimum
of 400,000 mt of alumina per year for 30 years. It also has the
option to increase its alumina purchases as CNNC's needs grow.
CNNC is a Chinese state-owned enterprise, which operates and
controls the state-owned nonferrous industry in China.
Suriname. Suralco owns 55% of a 1.7 million mt per year
alumina refinery in Paranam, Suriname and operates the plant. An
affiliate of Gencor holds the remaining 45% interest.
-4-
Jamaica. An Alcoa subsidiary and a corporation owned by the
Government of Jamaica are equal participants in an alumina
refinery in Clarendon Parish, Jamaica. The Alcoa subsidiary
manages the joint venture. The refinery's annual capacity is
expected to increase from 800,000 to about 1 million mt when
warranted by market conditions.
Brazil. Aluminio operates the Alumar Consortium (Alumar), a
cost-sharing and production-sharing venture that owns a large
refining and smelting project near Sao Luis, in the northeastern
state of Maranhao. In late 1996, the Alumar refinery was
expanded by 260,000 mt per year, bringing total annual capacity
to 1.3 million mt. It is owned 35.1% by Aluminio, 36% by an
affiliate of Gencor, 18.9% by Abalco S.A. (owned 60% by Alcoa and
40% by WMC) and 10% by an affiliate of Alcan Aluminium Limited
(Alcan). Most of this alumina production is consumed at the
smelter.
Aluminio holds an 8.6% interest and Abalco S.A. holds a 4.6%
interest in MRN, a mining company that is jointly owned by
affiliates of Alcan, Companhia Brasileira de Aluminio, Companhia
Vale do Rio Doce, Gencor, Norsk Hydro and Reynolds Metals
Company. Aluminio and Abalco S.A. purchase bauxite from MRN
under a long-term supply contract.
At Pocos de Caldas, Aluminio mines bauxite and operates a
refinery. The refinery has an annual capacity of 270,000 mt and
primarily supplies Aluminio's nearby smelter.
U.S. Alcoa Alumina & Chemicals, L.L.C., through a majority-
owned entity, St. Croix Alumina, L.L.C., owns a 600,000 mt per
year alumina refinery located on St. Croix, U.S. Virgin Islands.
The refinery is currently inactive due to world alumina market
conditions.
Alcoa Alumina & Chemicals, L.L.C. owns an alumina refinery
at Point Comfort, Texas. A 365,000 mt per year expansion was
recently completed and brought annual capacity to 2.3 million mt.
Approximately 20% of the refinery's output supplies industrial
chemicals operations at that location.
Industrial Chemicals
Alcoa sells industrial chemicals to customers in a broad
spectrum of markets for use in refractories, ceramics, abrasives,
chemicals processing and other specialty applications.
Industrial chemicals, principally alumina-based chemicals,
are produced or processed at the locations that follow. Except
for the plants located in Brazil, all of these facilities are
part of AWAC.
Industrial Chemicals Facilities
Mobile, Alabama Kwinana and Rockingham, Australia
Bauxite, Arkansas Pocos de Caldas and Salto, Brazil
Ft. Meade, Florida Ludwigshafen, Germany
Dalton, Georgia Falta, India*
Lake Charles, Port Allen and Iwakuni and Naoetsu, Japan
Vidalia, Louisiana Moerdijk and Rotterdam, The
Leetsdale, Pennsylvania Netherlands
Nashville, Tennessee Singapore, Singapore
Point Comfort, Texas
*Joint venture
Aluminum fluoride, used in aluminum smelting, is produced
from fluorspar at Point Comfort and from hydrofluosilicic acid at
Ft. Meade.
-5-
Aluminum Processing Segment
The Aluminum Processing segment comprises the production and
sale of molten metal, ingot and aluminum products that are flat-
rolled, engineered or finished. Also included are power,
transportation and other services.
Revenues and shipments for the principal classes of products
in the Aluminum Processing segment follow.
(dollars in millions)
1996 1995 1994
---- ---- ----
Revenues:
Aluminum ingot $1,449 $1,197 $ 920
Flat-rolled products 3,920 4,177 3,201
Engineered products 2,269 2,303 1,882
Other aluminum products 338 357 474
----- ----- -----
Total $7,976 $8,034 $6,477
===== ===== =====
(mt in thousands)
Shipments:
Aluminum ingot 901 673 655
Flat-rolled products 1,357 1,380 1,381
Engineered products 495 454 433
Other aluminum products 88 75 82
----- ----- -----
Total 2,841 2,582 2,551
===== ===== =====
Aluminum Ingot
The Company smelts primary aluminum from alumina obtained
principally from its alumina refineries. Alcoa's consolidated
primary aluminum capacity is rated at approximately 2.1 million
mt per year. When operating at capacity, Alcoa's smelters more
than satisfy the primary aluminum requirements of its fabricating
operations. Most of the Company's primary aluminum production in
1996 was delivered to other Alcoa operations for alloying and/or
further fabricating. Purchases of aluminum scrap, principally
used beverage cans, supplemented by purchases of ingot when
necessary, satisfy additional aluminum requirements.
During 1996, Alcoa had 450,000 mt, or 21% of its worldwide
smelting capacity, idle because of an oversupply of ingot on
world markets.
Aluminum is produced from alumina by an electrolytic process
requiring large amounts of electric power. Electric power
accounts for about 25% of the Company's primary aluminum costs.
Alcoa generates approximately 40% of the power used at its
smelters worldwide. Most purchase contracts for firm power tie
prices to aluminum prices or to prices based on various indices.
Australia. AofA is a participant in a joint venture smelter
at Portland, Victoria, with an annual rated capacity of 320,000
mt. The venture is owned 45% by AofA, 25% by the State of
Victoria and 10% each by the First National Resources Trust, the
China International Trust and Investment Corporation and Marubeni
Aluminium Australia Pty., Ltd.. A subsidiary of AofA operates
the smelter. Each participant in this smelter is required to
contribute to the cost of operations and construction in
proportion to its interest in the venture and is entitled to its
proportionate share of the output. Alumina is supplied by AofA.
The Portland site can accommodate additional smelting capacity.
-6-
Currently, approximately 36% of the power for the 180,000 mt
Point Henry smelter is generated by AofA using its extensive
brown coal deposits. The balance of the power for this smelter
and power for the Portland smelter are provided under contracts
with the State Electricity Commission of Victoria. Power prices
are tied by formula to aluminum prices. Informal discussions
continue with the State Government of Victoria to clarify various
aspects of power supply to the smelters.
Brazil. The Alumar smelter at Sao Luis, Brazil has an
annual rated capacity of 362,000 mt. Aluminio receives about 54%
of the production from this smelter. Electric power is purchased
from the government-controlled power grid in Brazil at a small
discount from the applicable industrial tariff price and is
protected by a cap based on the London Metal Exchange (LME) price
of aluminum.
In late 1996, Aluminio contracted with Central Eletricas de
Minas Gerais S.A. (CEMIG), the government-controlled electric
utility, to supply power to Aluminio's 90,000 mt Pocos de Caldas
smelter for a 30-month period, beginning in October 1996.
Aluminio purchased the plant's anticipated full power
requirements for this 30-month period through a single payment
based on the price of energy on the date of the agreement. At
the end of this period, Aluminio may be subject to increased
power prices for the plant and may decide to negotiate another
purchase of power from CEMIG or from another utility.
In 1996, Aluminio participated in a consortium that won a
bidding process to build the new Machadinho hydroelectric power
plant in Southern Brazil. If all environmental and other
approvals that are necessary for the construction of the dam
and related facilities are received, Aluminio would be entitled
to a share of the output beginning in 2002. Aluminio's share is
expected to be sufficient to supply approximately one-half of the
power requirements for the Pocos de Caldas smelter.
Europe. In late March 1996, Alcoa completed the acquisition
of the principal operating assets of Alumix S.p.A. (Alumix),
Italy's state-owned, integrated aluminum producer. Aluminum
smelters at Portovesme and Fusina, with combined annual capacity
of 180,000 mt, were among the assets purchased. Alumina is
supplied under a three-year arrangement by an Italian state-owned
company to both the Portovesme and Fusina smelters. Power for
these smelters is supplied by ENEL, Italy's state-owned utility.
Alcoa and SEPI, the Spanish State Entity for Industrial
Participations, jointly announced in late February 1997 that they
signed a letter of intent for Alcoa to acquire the main sectors
of the aluminum businesses of Inespal, S.A. of Madrid.
Inespal is an integrated aluminum producer with 1996
revenues of $1.1 billion. The sale includes an alumina refinery,
three aluminum smelters, aluminum rolling, foil and extrusion
businesses and related facilities. The acquisition is expected
to be completed before the end of 1997.
U.S. Approximately 55% of the power requirements for
Alcoa's six U.S. smelters is generated by the Company; the
remainder is purchased under long-term contracts. Approximately
12% of the self-generated power is obtained from Alcoa's
entitlement to a fixed percentage of the output from a
hydroelectric power facility located in the northwestern United
States.
The Company has generated substantially all of the power
used at its Warrick, Indiana smelter using nearby coal reserves.
A new coal supply contract has been secured which satisfies 50%
of the smelter's fuel requirement through 2006. Existing low-
sulfur coal contracts satisfy an additional 35% of the
requirement through 1999.
-7-
Lignite is used to generate power for the Rockdale, Texas
smelter. Company-owned generating units supply about half of the
total requirements, and the balance is purchased through a long-
term power contract with Texas Utilities expiring in 2013.
Two subsidiaries of the Company own and operate
hydroelectric facilities under Federal Energy Regulatory
Commission licenses. They provide electric power for the
aluminum smelters at Alcoa, Tennessee and Badin, North Carolina.
The Tennessee plant also purchases firm and interruptible power
from the Tennessee Valley Authority. At the Badin plant,
additional power is purchased from Duke Power under an evergreen
contract providing for specified periods of notice before
termination by either party.
The purchased power (primarily hydroelectric) contract for
the Massena, New York smelter expires not earlier than 2003, but
may be terminated by Alcoa with one year's notice.
In addition to the power output entitlement contract for its
Wenatchee, Washington smelter referred to earlier, Alcoa has a
contract with the Bonneville Power Administration (BPA). Several
contractual provisions allow restrictions when power is in short
supply. Beginning in 1995, a portion of the power supplied under
the BPA contract was replaced by power purchased from a local
public utility district. Additional power has subsequently been
purchased from the district, and currently no BPA power is
utilized at Wenatchee Works.
Suriname. Suralco owns and operates a 30,000 mt per year
smelter in Paranam, Suriname. Suralco also operates the
Afobaka hydro project which supplies power to the smelter.
Norway. Although not included in the revenues and shipment
tables above or in the rated primary aluminum capacity figures,
the Company reports equity earnings from its interest in two
smelters in Norway. Elkem Aluminium ANS, 50%-owned by an Alcoa
subsidiary, Norsk Alcoa A/S, is a partnership that owns and
operates the smelters.
Flat-Rolled Products
Alcoa's flat-rolled products serve three principal markets:
light gauge sheet products mainly serve the packaging market, and
sheet and plate products serve the transportation and building
and construction markets. Alcoa employs its own sales force for
most products sold in the packaging market.
Rigid Container Sheet (RCS). Most of the 1996 revenues in the
packaging market were derived from RCS which is sold to can
companies for production of beverage and food cans and can ends.
The number of RCS customers in the U.S. is relatively small.
Use of aluminum beverage cans continues to increase, particularly
in Asia, Europe and South America, where per capita consumption
remains relatively low.
Aluminum's diverse characteristics, particularly its light
weight and recyclability, are significant factors in packaging
markets where alternatives such as steel, plastic and glass are
competitive materials. Leadership in the packaging markets is
maintained by improving processes and facilities, as well as by
providing marketing, research and technical support to customers.
RCS is produced at the following locations:
-8-
RCS Facilities
Warrick, Indiana Yennora, Australia*
Alcoa, Tennessee Moka, Japan*
Point Henry, Australia* Swansea, Wales
*Joint venture
In May 1996, Kaal Australia Pty. Ltd., 50%-owned by Alcoa,
purchased AofA's rolling mill at Point Henry. Kaal Australia had
already acquired from Comalco Limited its rolling mill at
Yennora. These mills continue to produce RCS for the Australian
and Asian markets. AofA continues to supply Kaal Australia with
aluminum ingot.
A subsidiary of Alcoa participates in a 50/50 joint venture
with Kobe Steel, Ltd. to serve RCS markets in Japan and other
Asian countries. In connection with this venture, Alcoa has a
long-term contract to supply metal to Kobe.
Used aluminum beverage cans are an important source of metal
for RCS. Recycling aluminum conserves raw materials, reduces
litter and saves energy - about 95% of the energy needed to
produce aluminum from bauxite. In addition, recycling capacity
costs much less than new primary aluminum capacity. Can
recycling or remelt facilities are located at or near Alcoa's
Warrick, Indiana and Alcoa, Tennessee plants.
Foil. This product is produced at Alcoa's Lebanon, Pennsylvania
and Hawesville, Kentucky facilities. Light gauge sheet, foil
products and laminated evaporator panels are manufactured by
Aluminio at Recife, Brazil. Light gauge sheet also is produced
at Yennora, Australia.
Alcoa and Shanghai Aluminum Fabrication Plant (SAFP) have a
joint venture that operates the former SAFP aluminum foil and
foil laminate production facility in Shanghai, China. A venture
facility, owned 60% by Alcoa and 40% by SAFP, currently produces
approximately 10,000 mt of aluminum foil per year. Through the
use of technology and the addition of a second caster, annual
output is expected to increase to about 18,000 mt within five
years.
Sheet and Plate. Sheet and plate products serve the aerospace,
auto and truck, lithographic, railroad, ship-building, building
and construction, defense and other industrial and consumer
markets. The Company maintains its own sales forces for most of
these products.
Differentiation of material properties, price and service
are significant competitive factors. Aluminum's diverse
characteristics are important in these markets where competitive
materials include steel and plastics for automotive and building
applications; magnesium, titanium, composites and plastics for
aerospace and defense applications; and wood and vinyl in
building and construction applications. Alcoa continues to
develop alloys and products for aerospace applications, such as
those developed for the Boeing 777 aircraft.
Alcoa's largest sheet and plate plant is located at
Davenport, Iowa. It produces products requiring special
alloying, heat-treating and other processing, some of which are
unique or proprietary. In late April 1996, Alcoa announced an
increase in the Davenport, Iowa plant's heat-treating capacity
for sheet and plate as part of a $75 million investment to meet
aerospace and automotive demand. Alcoa also commissioned the
largest vertical heat-treat furnace in North America, thus
tripling the plant's capacity for wide-width fuselage sheet. In
1996, construction began on a horizontal plate heat-treating
furnace that will increase capacity by 50%. The Company expects
this capacity to be in production in early 1997.
-9-
The Company continues to produce cast aluminum plate at its
Vernon, California plant after closing its hard alloy extrusion,
tube and forgings facilities there in 1994. Over the past two
years, Alcoa has invested approximately $10 million in new
machinery and equipment for the plant's cast aluminum plate
operation.
Alcoa and Kobe have a joint venture in the U.S. and one in
Japan to serve the transportation industry. Initial emphasis of
these ventures is focused on expanding the use of aluminum sheet
products in passenger cars and light trucks.
The Company's Hungarian subsidiary, Alcoa-Kofem Kft,
produces common alloy flat and coiled sheet as well as soft alloy
extrusions and end products for the building, construction, food
and agricultural markets in central and western Europe. In July
1996, Alcoa acquired the remaining 49.9% interest in Kofem from
the Hungarian government.
In 1996, Kofem began delivering aluminum truck bodies to
major beverage companies in Russia and Poland. Kofem will deliver
additional truck bodies to customers in central and eastern
European countries in 1997.
Included in the previously mentioned acquisition of Alumix
is the rolling mill at Fusina which produces industrial plate and
common alloy flat and coiled sheet for the building and
construction, transportation and other industrial markets in
Europe.
In April 1996, Alcoa opened a 165,000 square-foot plant in
Hutchinson, Kansas for further processing and just-in-time
stocking of aluminum sheet products for the U.S. aerospace
market. Alcoa serves European sheet and plate markets through a
distribution center in Paal, Belgium.
Alcoa has begun construction of a 165,000 square-foot plant
in Danville, Illinois for further processing and just-in-time
stocking of aluminum sheet products for the North American
automotive market. The Company expects this facility to begin
production late in 1997.
Engineered Products
Engineered products include extrusions used in the
transportation and construction markets; aluminum forgings and
castings; aluminum wheels; wire, rod and bar; and automobile
bumpers.
Extrusions. Aluminum extrusions and tube are produced
principally at five U.S. locations:
- the Chandler, Arizona plant produces hard alloy
extrusions, tube and forge stock;
- the Lafayette, Indiana plant produces a broad range of
hard alloy extrusions and tube;
- the Baltimore, Maryland plant produces large press
extrusions; and
- the Tifton, Georgia and Delhi, Louisiana plants produce
common alloy extrusions.
Aluminum extruded products are manufactured by a subsidiary
in Argentina and by Aluminio at several locations in Brazil. In
March 1996, Aluminio acquired the extrusion assets of an Alcan
affiliate in Brazil. The assets included four plants and eight
extrusion presses. The transaction has been submitted to
Brazilian antitrust authorities for review and approval, and that
approval is still pending.
Alcoa Extrusions Hannover GmbH & Co. KG produces and markets
high-strength aluminum extrusions and rod and bar to serve
European transportation and defense markets. In January 1997,
Alcoa acquired the remaining 40% interest and now owns 100%
of this company.
-10-
The subsidiaries of Alcoa Nederland Holding B.V. produce
extrusions, common alloy sheet products and a variety of finished
products for the building industry, such as aluminum windows,
doors and aluminum ceiling systems. These companies also
manufacture products for the agricultural industry such as
automated greenhouse systems.
Aluminum East ZAO, through its Building Systems
International branch, assembles and sells aluminum windows and
doors in Russia.
The acquisition of the Alumix assets mentioned earlier also
included the purchase of extrusion plants in Bolzano, Fossanova,
Feltre and Iglesias, Italy and an extrusion die shop in Mori,
Italy.
Alcoa also has extrusion plants in Hungary, Spain and the
United Kingdom.
Mechanical-grade redraw rod, wire and cold-finished rod and
bar are produced at Massena, New York and are sold to
distributors and customers for applications in the building and
transportation markets.
Forgings/Castings. Aluminum forgings, sold principally in the
aerospace, automotive and defense markets, are produced at
Cleveland, Ohio. The plant also produces forged aluminum wheels
for the auto, bus and truck markets.
In 1996 Alcoa began construction of a $20 million wheel
production facility at the Cleveland plant. This is the first
phase of a multi-phase plan to increase production of forged
aluminum wheels to meet market demand for U.S. light trucks.
In March 1996, Alcoa and Superior Industries International
Inc. formed a company to produce cast aluminum wheels for
commercial trucks and buses. The wheels will be marketed through
Alcoa's existing wheel sales organization. The initial
manufacturing operations will be located at Superior's Van Nuys,
California facility. The parties expect to reach commercial
production levels by mid-1997.
Alcoa is constructing a plant in Szekesfehervar, Hungary to
manufacture forged aluminum truck wheels for the European market.
The plant also may manufacture wheels for export to Asian, South
American and other geographic markets where European-style wheels
are used. The plant is expected to begin production in April
1997.
Alcoa has a 50/50 partnership, A-CMI, with a subsidiary of
CMI International, Inc. to produce cast and forged aluminum
automotive parts. In 1996, A-CMI began construction of its first
European manufacturing plant in Lista, Norway. It will develop
and produce cast aluminum chassis, suspension, brake and
powertrain components and systems. The plant represents a total
investment of approximately $40 million. It is being built near
the 50%-owned Elkem Aluminium ANS smelter, which will deliver
molten aluminum to the plant. Production is expected to begin in
mid-1997.
In 1996, A-CMI also began activity at its Kentucky Casting
Center in Hawesville, Kentucky. This is A-CMI's second North
American facility and will produce aluminum chassis and
suspension structural components for the automotive market.
Alcoa also designs and builds specialized die-casting
machines through a subsidiary in Montreal, Canada.
Automotive Body Structures. Alcoa Automotive Structures GmbH
produces aluminum components and sub-assemblies for aluminum
automotive spaceframes. Aluminum spaceframes represent a
significant departure from the traditional method and material
used to manufacture primary auto body structures.
-11-
In 1993, Alcoa began operating a unique multi-million dollar
plant in Soest, Germany to supply aluminum spaceframe body
structures to its first customer, Audi AG. In 1994, Audi began
marketing its A8 luxury sedan in Europe-the first production
automobile to utilize a complete aluminum spaceframe body
structure. The aluminum spaceframe of the A8 is a result of a
cooperative effort between Alcoa and Audi that began in 1981 and
is constructed from components and sub-assemblies that are
produced by Alcoa. The 1997 A8 debuted in U.S. showrooms in the
fall of 1996. The Soest plant now is in the process of beginning
production of the front end module for the new Mercedes-Benz A
Class car.
Alcoa Automotive Structures GmbH also operates a design and
engineering office in Esslingen (Stuttgart), Germany where it
develops designs for aluminum auto body structures for a variety
of European car manufacturers.
Alcoa is working with several other automobile manufacturers
in North America and Japan to develop new automotive applications
for aluminum products. For example, Chrysler Corporation expects
its Plymouth Prowler, a new roadster, to enter initial, low-
volume production in 1997. Carrying 900 pounds of aluminum (or
approximately one-third of its weight), the Prowler is
constructed of an all-aluminum frame and body as well as aluminum
for brake rotors and suspension components. Alcoa will provide
the car's frame as well as aluminum sheet stock to be stamped
into body panels and bumper assemblies.
Alcoa's newly-constructed plant in Northwood, Ohio
manufactures the Prowler frame and a variety of aluminum
structural assemblies for the U.S. automotive industry.
Other Aluminum Products. Aluminio produces aluminum truck and
van bodies and aluminum casting products in Sao Paulo, Brazil and
aluminum electrical cable at its Pocos de Caldas plant.
Alcoa Building Products, Inc. (formerly The Stolle
Corporation) manufactures and markets residential aluminum siding
and other aluminum building products. These products are sold
principally to wholesale distributors.
Alcoa produces aluminum closures for bottles at Richmond,
Indiana; Worms, Germany; Nogi and Ichikawa, Japan; and Barcelona,
Spain. In late February 1997, Alcoa entered into a letter of
intent to sell the assets of its Richmond, Indiana works.
In May 1996, Alcoa and Sinter Metals, Inc. of Cleveland,
Ohio, formed a strategic alliance to develop and expand the
market for aluminum parts produced by powder metallurgy
techniques, especially for the automotive, business machine,
appliance, lawn care and leisure equipment markets.
Alcoa produces and markets aluminum paste, particles, flakes
and atomized powder. It also produces high-purity aluminum.
Nonaluminum Products Segment
The Nonaluminum Products segment includes the production and
sale of electrical, plastic and composite materials products,
manufacturing and packaging equipment, gold, magnesium products
and steel and titanium forgings.
Alcoa Fujikura Ltd. (AFL)
AFL produces and markets electronic and electrical
distribution systems (EDS) for the automotive industry, as well
as fiber optic products and systems for selected electric
utilities, telecommunications,
-12-
cable television and datacom markets. AFL is the only EDS
supplier that has been awarded the Total Quality Excellence
Award by Ford Motor Company. AFL also supplies EDS to
Subaru of America, Inc., Auto Alliance, Inc. (Mazda-Ford
joint venture), Kenworth, Peterbilt, Mack and Navistar.
In July 1995, AFL acquired the operations of Electro-Wire
Products, Inc. Electro-Wire Products, Inc. manufactured EDS for
autos, trucks and farm equipment. Combining these two businesses
created a worldwide enterprise that is the largest supplier of
EDS to Ford Motor Company's worldwide operations, and sales to
Ford represented a significant portion of AFL's 1996 revenues.
The combined enterprise also is the largest supplier of EDS to
the heavy truck industry.
Michels GmbH & Co. K.G., a manufacturer of EDS for
automobiles, appliances and farm equipment, with three plants in
Germany and five plants in Hungary, is 90%-owned by AFL. The
Stribel group of companies, European manufacturers of
electromechanical and electronic components for the European
automotive market, are also owned by AFL.
In August of 1996, AFL and Aluminio began to manufacture and
sell EDS in Brazil through a joint venture.
Significant competitive factors in the EDS markets include
price, quality and full service supplier capability. Automakers
increasingly require support from their selected suppliers on a
global basis.
Packaging and Closures
Alcoa Closures Systems International, Inc. (ACSI) is the
world's largest producer of plastic closures for beverage
containers. Its business is coordinated from Indianapolis,
Indiana. The use of plastic closures has surpassed that of
aluminum closures for beverage containers in the U.S. and is
gaining momentum in other countries. Alcoa has plastic closure,
PET (polyethylene terephthalate) plastic bottles or packaging
equipment design and assembly facilities at the following
locations:
Packaging and Closures Facilities
Crawfordsville, Indiana
Santiago, Chile
Ichikawa, Japan
Olive Branch, Mississippi
Tianjin, China
Nogi, Japan
Buenos Aires, Argentina
Bogota, Colombia
Saltillo, Mexico
Manama, Bahrain
Szekesfehervar, Hungary
Lima, Peru
Barcelona, Spain
Barueri, Itapissuma,
Lages and Queimados,
Brazil
ACSI has announced plans to begin production of plastic
closures at Lubuchany, Russia, south of Moscow, in late 1997.
The unit will be known as Alcoa CSI Vostok.
The Alcoa Packaging Equipment business unit (APE) designs,
manufactures and services bodymakers, decoration equipment, end
conversion presses and a variety of testing equipment to the
canmaking industry, along with plastic and aluminum closure
capping equipment and rapid changeover and quick-change bottle
control parts to the beverage industry. In 1996, the Alcoa
Advanced Technologies division of APE began supplying advanced
material products to the semiconductor equipment industry.
Other Nonaluminum Products
Alcoa Building Products, Inc.'s principal products for
building and construction markets are vinyl siding and
accessories and plastic injected molded shutters and
architectural accessories. Dayton
-13-
Technologies, Inc. produces extruded profiles for the vinyl
window and patio door markets, and Caradco, Inc. manufactures
vinyl and wood windows and patio doors. At the end of February
1997, Alcoa sold Dayton Technologies, Inc. to Deceuninck
Plastics Industries, N.V., a Belgian building materials
company. In January 1997, Alcoa reached an agreement in
principle for the sale of Caradco, Inc. to JELD-WEN inc., a
privately-held building products and millwork manufacturer.
This sale is expected to be completed by the beginning of the
1997 second quarter.
Northwest Alloys, Inc., in Addy, Washington, produces
magnesium from minerals in the area owned by the Company. The
magnesium is used by Alcoa for certain aluminum alloys and also
sold to third parties.
In November 1996, Aluminio and Alcatel Cable Ameriques
(ACA), a subsidiary of Alcatel of France, formed a joint venture
to manufacture, in Brazil, and sell telecommunication cables and
related accessories in South America. The venture, called
Alcatel Cabos Brazil, is owned 40% by Aluminio and 60% by ACA and
affiliates.
Aluminio also owns and operates a chain of retail
construction materials outlets in Brazil. Aluminio currently is
considering the partial or total disposition of its interest in
these outlets.
Alcoa Composites, Inc. (ACI) principally designed and
manufactured composite parts and structures for aerospace and
transportation applications. In October 1996, ACI closed its
Fibertek division in Springville, Utah. In January 1997, ACI
sold the assets of its last operating division, Composite
Structures, in Monrovia, California to an investment group. ACI
plans an orderly transition and/or liquidation of its remaining
assets and liabilities.
An AofA subsidiary, Hedges Gold Pty. Ltd., mines gold from
its mining leases in Western Australia. Gold production has been
declining since 1990.
Large press steel, titanium and special super-alloy forgings
are produced at Cleveland, Ohio. These products are sold
principally in aerospace and commercial markets.
Norcold, Inc. manufactures refrigeration units used in
recreational vehicles, boats and other applications. The major
component for these refrigeration units is manufactured by
another Alcoa subsidiary, Arctek Corporation. At the end of
February 1997, Alcoa sold all of the assets of Norcold and Arctek
to The Dyson-Kissner-Moran Corporation.
Alcoa owns a 36% interest in a joint venture established in
January 1996, that manufactures auto parts and appliance control
panels.
In June 1996, the Company closed Alcoa Electronic Packaging
(AEP) located in San Diego, California, which produced ceramic
packages used to hold integrated circuits for electronic
equipment. In December 1995, AEP was notified by its major
customer, Intel, that no new orders would be forthcoming.
Risk Factors
In addition to inherent operating risks, Alcoa is exposed to
financial, market, political and economic risks.
-14-
Commodity Risks
Alcoa is a leading global producer of aluminum ingot and
aluminum fabricated products. Aluminum ingot is an
internationally-priced, sourced and traded commodity. The
principal trading market for ingot is the LME. Alcoa
participates in this market by buying and selling forward
portions of its aluminum requirements and output.
The aluminum industry is highly cyclical and the Company's
results of operations are influenced by LME-based prices of
primary aluminum. This price sensitivity impacts a portion of
the Company's alumina sales and many of the Company's aluminum
products, with less impact on the more specialized and value-
added products.
Alcoa divides its operations into four regions: U.S.,
Pacific, Other Americas and Europe. AofA in the Pacific region
and Aluminio in the Other Americas are generally in net long
metal positions. From time to time, they may sell production
forward. Operations in the European region are generally net
metal short and may purchase forward positions periodically.
Forward purchase and sales activity within these three regions
has not been material.
In the U.S. and for export, Alcoa enters into long-term
contracts with a number of its fabricated products customers. At
December 31, 1996 and 1995, such contracts approximated 2.369
million mt and 2.483 million mt, respectively. Alcoa may enter
into similar arrangements in the future.
As a hedge against the risk of higher prices for anticipated
metal purchases to fulfill long-term customer contracts, Alcoa
entered into long positions, principally using futures and
options. At December 31, 1996 and 1995, these contracts totaled
approximately 872,000 mt and 1.210 million mt, respectively.
Alcoa follows a stable pattern of purchasing metal; therefore, it
is highly likely that anticipated metal requirements will be met.
The futures and options contracts limit the unfavorable
effect of price increases on metal purchases and likewise limit
the favorable effect from price declines. The contracts are with
creditworthy counterparties and are further supported by cash,
treasury bills or irrevocable letters of credit issued by
carefully chosen banks.
For financial accounting purposes, the gains and losses on
the hedging contracts are reflected in earnings concurrent with
the hedged costs. The cash flows from these contracts are
classified in a manner consistent with the underlying nature of
the transactions.
Alcoa intends to close out the hedging positions at the time
it purchases the metal from third parties, thus creating the
right economic match both in time and price. The deferred gains
on the hedging contracts of $224 million at December 31, 1996 are
expected to offset the increase in the price of the purchased
metal.
The expiration dates of the call options and the delivery
dates of the futures contracts do not always coincide exactly
with the dates on which Alcoa is required to purchase metal to
meet its contractual commitments with customers. Accordingly,
some of the futures and options positions will be rolled forward.
This may result in significant cash inflows if the hedging
contracts are "in-the-money" at the time they are rolled forward.
Conversely, there could be significant cash outflows, as was the
case in 1996, if metal prices fall below the price of contracts
being rolled forward.
In addition, Alcoa had 205,000 mt of futures and options
contracts outstanding at year-end 1996 that cover long-term fixed-
price commitments to supply customers with metal from internal
sources.
-15-
Accounting convention requires that these contracts be
marked-to-market, resulting in an after-tax charge to earnings of
$57 million in 1996, and $38 million in 1995.
Alcoa also purchases certain other commodities, such as gas
and copper, for its operations and enters into futures contracts
to eliminate volatility in the prices of such products. None of
these contracts are material. For additional information on
financial instruments, see Notes A and S to the Financial
Statements.
Financial Risk
Alcoa is subject to significant exposure from fluctuations
in foreign currencies. As a matter of company policy, foreign
currency exchange contracts, including forwards and options, are
used to manage transactional exposure to changes in currency
exchange rates. The forward contracts principally cover firm
commitments. Options are generally used to hedge anticipated
transactions.
Alcoa also attempts to maintain a reasonable balance between
fixed and floating rate debt, and uses interest rate swaps and
caps to keep financing costs as low as possible.
Risk Management
All of the aluminum and other commodity contracts, as well
as the various types of financial instruments, are
straightforward. They are used primarily to mitigate uncertainty
and volatility, and principally cover underlying exposures.
Alcoa's commodity and derivative activities are subject to
the management, direction and control of the Strategic Risk
Management Committee (SRMC). It is composed of the chief
executive officer, the president, the chief financial officer and
other officers and employees that the chief executive officer may
select from time to time. SRMC reports to the Board of Directors
at each of its scheduled meetings on the scope of its derivatives
activities.
Employees
Alcoa had approximately 76,800 employees worldwide at year-
end 1996. Approximately 38% of the employees are located in the
U.S. New six-year labor agreements covering the majority of
Alcoa's U.S. production workers were ratified in mid-1996. As
part of the agreements, Alcoa and the unions agreed to an
unprecedented partnership mandating that they work cooperatively
on customer requirements, business objectives and shareholder and
union interests. The agreements set broad, new goals for
employee safety, job security, influence, control and
accountability for the work environment.
Other major provisions include: wage increases over the
first five years; enhanced pension benefits; increases in
sickness and accident insurance, life insurance and dental
benefits and the amount of income a spouse may earn before
sharing medical benefit costs. The new agreements have five
years of defined provisions. At the end of the fifth year, the
entire contract will be reopened. If agreement cannot be
reached, the economic provisions will be submitted to
arbitration.
In late September 1996, a new five-year labor agreement
covering about 1,100 employees at Alcoa's Forged Products
business unit in Cleveland, Ohio was ratified. A three-week
strike followed the late-August expiration of the previous three-
year pact.
Wages for AofA employees are covered by agreements which are
negotiated under guidelines established by a national industrial
relations authority.
-16-
Wages for both hourly and salaried employees of Aluminio are
negotiated annually in compliance with government guidelines.
Each Aluminio location, however, has established a separate
compensation package for its employees.
Research and Development
Alcoa, a technology leader in the aluminum industry, engages
in research and development programs which include basic and
applied research and process and product development. These
activities are conducted principally at Alcoa Technical Center
near Pittsburgh, Pennsylvania. Several business units conduct
their own R&D programs. Expenditures for R&D activities were
$166 million in 1996, $141 million in 1995 and $126 million in
1994. Substantially all R&D is funded by the Company.
Environmental
Alcoa's Environment, Health and Safety Policy confirms its
commitment to operate worldwide in a manner which protects the
environment and the health and safety of employees and of the
citizens of the communities where the Company operates.
Alcoa continues its efforts to develop and implement modern
technology, and standards and procedures, to meet its
Environment, Health and Safety Policy. Approximately $68 million
was spent during 1996 for new or expanded facilities for
environmental control. Capital expenditures for such facilities
will approximate $113 million in 1997. The costs of operating
these facilities are not included in these figures. Remediation
expenses are continuing at many of the Company's facilities. See
Environmental Matters on page 27 in the Annual Report to
Shareholders and "Item 3 - Legal Proceedings" below.
Alcoa's operations worldwide, like those of others in
manufacturing industries, have in recent years become subject to
increasingly stringent legislation and regulations intended to
protect human health and safety and the environment. This trend
is expected to continue. Compliance with new laws, regulations
or policies could require substantial expenditures by the Company
in addition to those referenced above.
Alcoa supports the use of sound scientific research and
realistic risk criteria to analyze environmental and human health
and safety effects and to develop effective laws and regulations
in all countries where it operates. The Company also relies on
internal standards that are applied worldwide to ensure that its
facilities operate with minimal adverse environmental, health and
safety impacts, even where no regulatory requirements exist.
Alcoa recognizes that recycling and pollution prevention offer
real solutions to many environmental problems, and it continues
vigorously to pursue efforts in these areas.
Item 2. Properties.
See "Item 1 - Business." Alcoa believes that its
facilities, substantially all of which are owned, are suitable
and adequate for its operations.
Item 3. Legal Proceedings.
In the ordinary course of its business, Alcoa is involved in
a number of lawsuits and claims, both actual and potential,
including some which it has asserted against others. While the
amounts claimed may be substantial, the ultimate liability cannot
now be determined because of the considerable uncertainties that
exist. It is possible that results of operations or liquidity in
a particular period could be materially affected by certain
contingencies. Management believes, however, that the
disposition of
-17-
matters that are pending or asserted will not have
a material adverse effect on the financial position of the
Company.
Environmental Matters
Alcoa is involved in proceedings under the Superfund or
analogous state provisions regarding the usage, disposal, storage
or treatment of hazardous substances at a number of sites in the
U.S. The Company has committed to participate, or is engaged in
negotiations with Federal or state authorities relative to its
alleged liability for participation, in clean-up efforts at
several such sites.
In response to a unilateral order issued under Section 106
of the Comprehensive Environmental Compensation and Liability
Act of 1980 (CERCLA) by the U.S. Environmental Protection Agency
(EPA) Region II regarding releases of hazardous substances,
including polychlorinated biphenyls (PCBs), into the Grasse
River near its Massena, New York facility, Alcoa conducted
during 1995 certain remedial activities in the Grasse River
for the removal and appropriate disposal of certain river
sediments. During 1996, the Company submitted an Analysis
of Alternatives Report, which is being reviewed by the EPA.
Representatives of various Federal and state agencies and a
Native American tribe, acting in their capacities as trustees for
natural resources, have asserted that Alcoa may be liable for
loss or damage to such resources under Federal and state law
based on Alcoa's operations at its Massena, New York facility.
While formal proceedings have not been instituted, the Company is
actively investigating these claims.
On March 31, 1994, Alcoa and Region VI of the EPA entered
into an administrative order on consent, EPA Docket No. 6-11-94,
concerning the Alcoa (Point Comfort)/Lavaca Bay National
Priorities List site which includes portions of Alcoa's Point
Comfort, Texas bauxite refining operations and portions of Lavaca
Bay, Texas, adjacent to the Company's plant. The administrative
order requires the Company to conduct a remedial investigation
and feasibility study at the site overseen by the EPA. Work
under the administrative order is proceeding. The Company and
certain Federal and state natural resource trustees, who
previously served Alcoa with notice of their intent to file suit
to recover damages for alleged loss or injury of natural
resources in Lavaca Bay, entered into several agreements during
1996 to cooperatively identify restoration alternatives and
approaches for Lavaca Bay. Efforts under those agreements are
ongoing.
In June 1988, the EPA added Alcoa's Vancouver , Washington
Potlining Pile to the National Priorities List under CERCLA. As
a result of Alcoa's cleanup efforts, effective September 30, 1996
the site was delisted.
Other Matters
Alcoa was named as one of several defendants in a number of
lawsuits filed as a result of the Sioux City, Iowa DC-10 plane
crash in 1989. The plaintiffs claim that Alcoa fabricated the
titanium fan disk involved in the alleged engine failure of the
plane from a titanium forging supplied by a third party. Two of
the 117 cases are still pending.
On December 21, 1992, Alcoa was named as a defendant in KML
Leasing v. Rockwell Standard Corporation filed in the District
Court of Oklahoma County, Oklahoma on behalf of 7,317 Aero
Commander, Rockwell Commander and Gulfstream Commander aircraft
owners. The complaint alleges defects in certain wingspars
manufactured by Alcoa. Alcoa's aircraft builders products
liability insurance carrier has assumed defense of the matter.
In May 1993, Alcoa received a reservation of rights letter from
its insurance carrier which purports to reserve its rights with
respect to a majority of the types of damages claimed. In May
1995, the court granted Alcoa's motion for summary judgment to
dismiss
-18-
the action. The summary judgment was reversed, on
plaintiff's appeal, in February 1996, and the case was remanded
to the trial court. The Company and co-defendants filed a
petition in March 1996 for rehearing before the Oklahoma
intermediate appellate court. In November 1996, plaintiffs
dismissed Alcoa as a defendant in this matter, but have a right
to refile for one year.
In August 1994, the U.S. Department of Justice (DOJ) issued
a Civil Investigative Demand (CID) to Alcoa regarding activities
undertaken by Alcoa in response to a multinational Memorandum of
Understanding negotiated by the U.S. government and other
sovereign nations. Alcoa complied with the request in November
1994 and is waiting for a response from the DOJ.
On March 27, 1995, the DOJ issued a CID requesting
information regarding pricing policies on aluminum rigid
container sheet in 1994 and 1995. Alcoa complied with the
document request and provided interrogatory answers in June 1995.
On November 21, 1996, the DOJ closed its review without taking
any action.
On June 13, 1995, the Company was served with a class action
complaint in the matter of John P. Cooper, et al. v. Aluminum
Company of America, Case Number 3-95-CV-10074, pending in the
United States District Court for the Southern District of Iowa.
The named plaintiffs allege violation of Federal and state civil
rights laws prohibiting discrimination on the basis of race and
gender. Plaintiffs seek class action status for five classes of
employees or prospective employees of Alcoa at its Davenport,
Iowa facility and also a permanent injunction against allegedly
discriminatory practices, restitution of claimed benefits and
income, and unspecified compensatory and punitive damages. Alcoa
answered the Complaint and denied all alleged violations of
Federal or state law. Alcoa also filed a motion to dismiss
certain of the plaintiffs' claims.
Alcoa initiated a lawsuit in King County, Washington in
December 1992 against nearly one hundred insurance companies that
provided insurance coverage for environmental property damage at
Alcoa plant sites between the years 1956 and 1985. The trial for
the first three sites concluded in October 1996 with a jury
verdict partially in Alcoa's favor and an award of damages to
Alcoa. Post-trial motions continue to determine the effect of
the verdict on remaining aspects of the case.
On March 5, 1996, a class action complaint was filed in Los
Angeles County (California) Superior Court against U.S. producers
of primary aluminum, including Alcoa, claiming conspiracy and
collusive action in violation of state antitrust laws. The suit
alleged that the defendants colluded to raise prices of aluminum
products by cutting production. The defendants removed the case
to Federal court in April 1996. On July 1, 1996, the U.S.
District Court for the Central District of California granted the
defendants' motion for summary judgment and the complaint was
dismissed. Plaintiff has filed a notice of appeal with the Ninth
Circuit Court of Appeals. The appeal is pending.
On March 20, 1996, Alcoa received a subpoena from the U.S.
Department of Commerce in connection with the export of potassium
fluoride by a subsidiary for use at its alumina refineries in
Jamaica and Suriname. The Company is cooperating with the
investigation.
On December 20, 1996, JMB Realty Corporation (JMB) filed a
complaint for declaratory relief and damages against Alcoa and
two subsidiaries, Alcoa Properties, Inc. and Alcoa Securities
Corporation, in the Circuit Court of Cook County, Illinois. JMB
claims that it is entitled to a rebate of approximately $71
million from Alcoa Properties, Inc., arising from a stock
transaction that occurred in 1986 in which a subsidiary of JMB
purchased the outstanding stock of substantially all of Alcoa
Properties, Inc.'s real estate holding subsidiaries. JMB also is
seeking an order canceling three promissory notes that it made
and delivered to Alcoa Securities Corporation. JMB owes Alcoa
Securities Corporation approximately $53 million on the notes,
which matured on December 31, 1996. On January 3, 1997, Alcoa
Securities Corporation filed suit against JMB in the Superior
Court of Chittenden County, Vermont seeking to collect
-19-
the approximately $53 million that JMB owes Alcoa Securities
Corporation. Both cases are in a preliminary pleading stage.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's
security holders during the fourth quarter of 1996.
Item 4A. Executive Officers of the Registrant.
The names, ages, positions and areas of responsibility of
the executive officers of the Registrant as of March 1, 1997 are
listed below.
Paul H. O'Neill, 61, Chairman of the Board and Chief
Executive Officer. Mr. O'Neill was elected a director of Alcoa
in 1986 and became Chairman of the Board and Chief Executive
Officer in June 1987. Before joining Alcoa, Mr. O'Neill had been
an officer since 1977 and President and a director since 1985 of
International Paper Company.
Alain J. P. Belda, 53, President and Chief Operating
Officer. Mr. Belda was elected President and Chief Operating
Officer in January 1997. He was President of Alcoa Aluminio S.A.
in Brazil from 1979 to March 1994. Mr. Belda was elected Vice
President of Alcoa in 1982 and, in 1989, was given responsibility
for all of Alcoa's interests in Latin America (other than
Suriname). In August 1991 he was named President - Latin America
for the Company. Mr. Belda was elected Executive Vice President
in 1994 and Vice Chairman in 1995.
George E. Bergeron, 55, Vice President and President - Rigid
Packaging Division. Mr. Bergeron was named President - Alcoa
Closure Systems International in 1982 and was elected Vice
President and General Manager - Rigid Packaging Division in July
1990. He assumed his current responsibilities in 1991.
Peter R. Bridenbaugh, 56, Executive Vice President. Dr.
Bridenbaugh became Director, Alcoa Laboratories in 1983. He was
elected Vice President - Research and Development in 1984 and
Executive Vice President in 1991. He was the Company's Chief
Technical Officer from 1991 to 1995. Dr. Bridenbaugh currently
is responsible for Alcoa's automotive groups.
Richard L. Fischer, 60, Executive Vice President -
Chairman's Counsel. Mr. Fischer was elected Vice President and
General Counsel in 1983 and became Senior Vice President in 1984.
He was given the additional responsibility for Corporate
Development in 1986 and in 1991 named to his present position.
In his current assignment, Mr. Fischer is responsible for
Corporate Development and the expansion and integration of
Alcoa's international business activities.
Patricia L. Higgins, 47, Vice President and Chief
Information Officer. Ms. Higgins joined Alcoa in January 1997
and is responsible for the integration and implementation of the
Company's computer initiatives. She began her career at American
Telephone & Telegraph Co. in 1977 and was Vice President of
International Sales Operations in Network Systems before joining
Nynex Corporation in 1991 as Group Vice President, Manhattan
Market Area. In 1995, Ms. Higgins moved to Unisys Corporation
where she was President, Communications Market Sector Group.
Ronald R. Hoffman, 62, Executive Vice President - Human
Resources and Communications. Mr. Hoffman, an officer since
1975, was named Vice President - Flat Rolled Products in 1979.
He was elected a Group Vice President in 1984 and was given
responsibility for the Company's Packaging Systems group in 1986.
He assumed his current responsibilities in 1991.
-20-
Jan H. M. Hommen, 53, Executive Vice President and Chief
Financial Officer. Mr. Hommen was Financial Director of Alcoa
Nederland until 1979 when he was elected Assistant Treasurer -
Corporate Finance of Alcoa. He was elected Treasurer in August
1986 and Vice President and Treasurer in December 1986. He was
elected to his current position in 1991. Mr. Hommen has
announced his resignation from Alcoa effective April 1, 1997. He
will be joining Philips Electronics, N.V. in the Netherlands as
Executive Vice President - Chief Financial Officer.
Richard B. Kelson, 50, Executive Vice President -
Environment, Health and Safety, and General Counsel. Mr. Kelson
was appointed Assistant Secretary and Managing General Attorney
in 1984 and Assistant General Counsel in 1989. He was elected
Senior Vice President - Environment, Health and Safety in 1991
and Executive Vice President and General Counsel in May 1994.
Frank L. Lederman, 47, Vice President and Chief Technical
Officer. Mr. Lederman was Senior Vice President and Chief
Technical Officer for Noranda, Inc., a company he joined in 1988.
Mr. Lederman joined Alcoa as a Vice President in May 1995 and
became Chief Technical Officer in December 1995. In his current
position Mr. Lederman directs operations of the Alcoa Technical
Center.
L. Richard Milner, 50, Vice President - Corporate
Development. Mr. Milner was named General Manager - Castings
Division in 1984 and General Manager - Primary Products,
Marketing in 1986. In 1987 he assumed responsibility as Director
- - Corporate Development. He was elected to his current position
in 1991.
Robert F. Slagle, 56, Vice President and President - Alcoa
World Alumina. Mr. Slagle was elected Treasurer in 1982 and Vice
President in 1984. In 1986, he was named Vice President -
Industrial Chemicals and, in 1987, was named Vice President -
Industrial Chemicals and U.S. Alumina Operations. Mr. Slagle was
named Vice President - Raw Materials, Alumina and Industrial
Chemicals in 1989, and Vice President of Alcoa and Managing
Director - Alcoa of Australia Limited in 1991. He was named to
his current position, with responsibility for Alcoa's global
bauxite and alumina activities, in January 1996.
G. Keith Turnbull, 61, Executive Vice President - Alcoa
Business System. Dr. Turnbull was appointed Assistant Director
of Alcoa Laboratories in 1980. He was named Director -
Technology Planning in 1982, Vice President - Technology Planning
in 1986 and Executive Vice President - Strategic
Analysis/Planning and Information in 1991. In January 1997 he
was named to his current position, with responsibility for
company-wide implementation of Alcoa Business System.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Dividend per share data, high and low prices per share and
the principal exchanges on which the Company's common stock is
traded are set forth on pages 56-57 of the 1996 Annual Report to
Shareholders (the Annual Report) and are incorporated herein by
reference.
At February 10, 1997 (the record date for the Company's 1997
annual shareholders meeting), there were approximately 88,300
Alcoa shareholders, including both record holders and an estimate
of the number of individual participants in security position
listings.
-21-
Item 6. Selected Financial Data.
The comparative columnar table showing selected financial
data for the Company is set forth on page 21 of the Annual Report
and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Management's review and comments on the consolidated
financial statements are set forth on pages 22 through 29 of the
Annual Report and are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements, the notes
thereto and the report of the independent public accountants are
set forth on pages 30 through 44 of the Annual Report and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding Directors is contained under the
caption "Board of Directors" on pages 4 through 8 of the
Registrant's definitive Proxy Statement dated March 12, 1997 (the
Proxy Statement) and is incorporated herein by reference.
The information regarding executive officers is set forth in
Part I, Item 4A under "Executive Officers of the Registrant."
The information required by Item 405 of Regulation S-K
contained under the caption "Section 16(a) beneficial ownership
reporting compliance" on page 9 of the Registrant's Proxy
Statement is incorporated herein by reference.
Item 11. Executive Compensation.
This information is contained under the caption
"Compensation of executive officers" on pages 10 through 16 of
the Proxy Statement and is incorporated herein by reference. The
performance graph and Compensation Committee Report shall not be
deemed to be "filed."
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
This information is contained under the caption "Security
ownership" on pages 8 through 9 of the Proxy Statement and is
incorporated herein by reference.
-22-
Item 13. Certain Relationships and Related Transactions.
This information is contained under the caption "Certain
relationships and related transactions" on page 8 of the Proxy
Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K.
(a) The consolidated financial statements, financial
statement schedule and exhibits listed below are filed as part of
this report.
(1) The Company's consolidated financial statements, the
notes thereto and the report of the independent public
accountants are set forth on pages 30 through 44 of the Annual
Report and are incorporated herein by reference.
(2) The following report and schedule should be read in
conjunction with the Company's consolidated financial statements
in the Annual Report:
Independent Accountant's Report of Coopers & Lybrand L.L.P.
dated January 8, 1997 on the Company's financial statement
schedule filed as a part hereof for the fiscal years ended
December 31, 1996, 1995 and 1994.
Schedule II - Valuation and Qualifying Accounts - for the
fiscal years ended December 31, 1996, 1995 and 1994.
(3) Exhibits
Exhibit
Number Description *
3(a).Articles of the Registrant as amended, incorporated by
reference to exhibit 3(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.
3(b).By-Laws of the Registrant, incorporated by reference to
exhibit 3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991.
10(a) Long Term Stock Incentive Plan (restated) effective
January 1, 1997 (filed herewith).
10(b). Employees' Excess Benefit Plan, Plan A, incorporated by
reference to exhibit 10(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1980.
10(c). Incentive Compensation Plan, as amended effective January
1, 1993, incorporated by reference to exhibit 10(c) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10(d). Employees' Excess Benefit Plan, Plan C, as amended and
restated in 1994, effective January 1, 1989, incorporated
by reference to exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
-23-
10(e). Employees' Excess Benefit Plan, Plan D, as amended
effective October 30, 1992, incorporated by reference to
exhibit 10(e) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992 and exhibit 10(e)(1)
the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
10(f). Employment Agreement of Paul H. O'Neill, as amended
through February 25, 1993, incorporated by reference to
exhibit 10(h) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987, exhibit 10(g) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1990 and exhibit 10(f)(2) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10(g). Deferred Fee Plan for Directors, as amended effective
November 10, 1995, incorporated by reference to exhibit
10(g) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
10(h). Restricted Stock Plan for Non-Employee Directors, as
amended effective March 10, 1995, incorporated by
reference to exhibit 10(h) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
10(h)(1).Amendment to Restricted Stock Plan for Non-Employee
Directors, effective November 10, 1995, incorporated by
reference to exhibit 10(h)(1) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995.
10(i). Fee Continuation Plan for Non-Employee Directors,
incorporated by reference to exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
10(i)(1).Amendment to Fee Continuation Plan for Non-Employee
Directors, effective November 10, 1995, incorporated by
reference to exhibit 10(i)(1) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995.
10(j). Deferred Compensation Plan, as amended effective October
30, 1992, incorporated by reference to exhibit 10(k) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10(j)(1).Amendments to Deferred Compensation Plan, effective
January 1, 1993, February 1, 1994 and January 1, 1995,
incorporated by reference to exhibit 10(j)(1) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(j)(2).Amendment to Deferred Compensation Plan, effective
June 1, 1995, incorporated by reference to exhibit
10(j)(2) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
10(k). Summary of the Executive Split Dollar Life Insurance
Plan, dated November 1990, incorporated by reference to
exhibit 10(m) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990.
10(l). Dividend Equivalent Compensation Plan, effective February
3, 1997 (filed herewith).
10(m). Form of Indemnity Agreement between the Company and
individual directors or officers, incorporated by
reference to exhibit 10(j) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1987.
11. Computation of Earnings per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
-24-
13. Portions of Alcoa's 1996 Annual Report to Shareholders.
21. Subsidiaries and Equity Entities of the Registrant.
23. Consent of Independent Certified Public Accountants.
24. Power of Attorney for certain directors.
27. Financial data schedule.
*Exhibit Nos. 10(a) through 10(l) are management contracts
or compensatory plans required to be filed as Exhibits to this
Form 10-K.
Amendments and modifications to other Exhibits previously
filed have been omitted when in the opinion of the Registrant
such Exhibits as amended or modified are no longer material or,
in certain instances, are no longer required to be filed as
Exhibits.
No other instruments defining the rights of holders of long-
term debt of the Registrant or its subsidiaries have been filed
as Exhibits because no such instruments met the threshold
materiality requirements under Regulation S-K. The Registrant
agrees, however, to furnish a copy of any such instruments to the
Commission upon request.
(b) Reports on Form 8-K. None was filed in the fourth
quarter of 1996.
-25-
Independent Accountant's Report
To the Shareholders and Board of Directors
Aluminum Company of America
Our report on the consolidated financial statements of Aluminum
Company of America has been incorporated by reference in this Form 10-K
from page 30 of the 1996 Annual Report to Shareholders of Aluminum
Company of America. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedule listed under Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
January 8, 1997
-26-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(in millions)
Col. A Col. B Col. C Col. D Col. E
- ------ ------ ------ ------ ------
Additions
---------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of period expenses accounts Deductions end of period
- ----------- --------- -------- ---------- ---------- -------------
Allowance for doubtful accounts:
1996 $ 45.8 $24.0 $ 1.5(A) $22.9(B) $ 48.4
1995 $ 37.4 $17.4 $(1.8)(A) $ 7.2(B) $ 45.8
1994 $ 33.2 $13.4 $(2.0)(A) $ 7.2(B) $ 37.4
Income tax valuation allowance:
1996 $112.1 $23.9 - $26.0(C) $110.0
1995 $170.0 $16.2 - $74.1(C) $112.1
1994 $171.4 $19.9 - $21.3(C) $170.0
Notes: (A) Collections on accounts previously written off, acquisition
of subsidiaries and foreign currency translation adjustments.
(B) Uncollectible accounts written off
(C) Related primarily to reductions in the valuation reserve
based on a change in circumstances.
-27-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ALUMINUM COMPANY OF AMERICA
March 11, 1997 By /s/Earnest J. Edwards
Earnest J. Edwards
Vice President and Controller
(Also signing as Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Paul H. O'Neill Chairman of the Board March 11, 1997
Paul H. O'Neill and Chief Executive
Officer (Principal
Executive Officer
and Director)
/s/Jan H. M. Hommen Executive Vice President March 11, 1997
Jan H. M. Hommen Chief Financial Officer
(Principal Financial
Officer)
Kenneth W. Dam, John P. Diesel, Joseph T. Gorman, Judith M.
Gueron, Sir Ronald Hampel, John P. Mulroney, Sir Arvi Parbo,
Henry B. Schacht, Forrest N. Shumway, Franklin A. Thomas and
Marina v.N. Whitman, each as a Director, on March 11, 1997,
by Barbara Jeremiah, their Attorney-in-Fact.*
*By /s/Barbara Jeremiah
Barbara Jeremiah
Attorney-in-Fact
-28-