Alcoa 1998 Annual Report Download - page 46

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Revenue Recognition. Alcoa recognizes revenue when title
passes to the customer.
Stock-Based Compensation. Alcoa accounts for stock-based
compensation in accordance with the provisions of
APB Opinion
No. 25, ‘‘Accounting for Stock Issued to Employees,’’ and related
interpretations. Accordingly, compensation cost is not required to be
recognized on options granted. Disclosures required with respect
to alternative fair value measurement and recognition methods
prescribed by Statement of Financial Accounting Standard
(SFAS)
No. 123, ‘‘Accounting for Stock-Based Compensation,’’ are presented
in Note N.
Foreign Currency. The local currency is the functional currency
for Alcoa’s significant operations outside the U.S., except in Brazil
and Canada, where the U.S. dollar is used as the functional currency.
The determination of the functional currency for Alcoa’s Brazilian
and Canadian operations is made based on the appropriate economic
and management indicators.
Recently Adopted Accounting Standards. Alcoa has adopted
SFAS No. 131, ‘‘Disclosures about Segments of an Enterprise and
Related Information,’’ which was issued in June 1997.
SFAS No. 131
establishes standards for disclosures about products and geographic
areas. In addition, it requires the disclosure of segment information
on the same basis that is used internally for evaluating performance
and allocating resources. Accordingly, Alcoa reports four segments,
consisting of Alumina and chemicals, Primary metals, Flat-rolled
products and Engineered products. Segment information for
1996 and 1997 has been restated to meet the requirements of
SFAS No. 131. See Note O to these financial statements for the
required disclosures.
In February 1998,
SFAS No. 132, ‘‘Employers Disclosures about
Pensions and Other Postretirement Benefits,’’ was issued. The
implementation of
SFAS No. 132 revised certain footnote disclosure
requirements related to pension and other retiree benefits. See
Note Q to these financial statements for the revised disclosures.
Recently Issued Accounting Standards. In June 1998, the
Financial Accounting Standards Board issued
SFAS No. 13 3,
‘‘Accounting for Derivative Instruments and Hedging Activities.’’
The standard requires that entities value all derivative instruments
at fair value and record the instruments on the balance sheet. The
standard also significantly changes the requirements for hedge
accounting. The standard is required to be adopted by Alcoa for
the first quarter of 2000. The company believes that the adoption of
the standard will have a material impact on its financial statements.
Upon adoption, Alcoa’s aluminum, foreign exchange and interest
rate derivative contracts as well as certain underlying exposures
will be recorded on the balance sheet at fair value. Management is
currently assessing the details of the standard and is preparing a
plan of implementation.
A new Statement of Position
(SOP) was issued by the American
Institute of CPAs in April 1998. The
SOP , ‘‘Reporting on the Costs
of Start-up Activities,’’ requires that costs incurred to open a new
facility, introduce a new product, commence a new operation or
other similar activities be expensed as incurred. Management does
not believe that this
SOP , which will be adopted for 1999, will have
a material impact on Alcoa’s financial statements.
Reclassification. Certain amounts in previously issued financial
statements were reclassified to conform to 1998 presentations.
B. Common Stock Split
On January 8, 1999, the board of directors declared a two-for-one
common stock split, distributed on February 25, 1999 to share-
holders of record at the close of business on February 8, 1999. In
this report, all per-share amounts and number of shares have been
restated to reflect the stock split. In addition, an amount equal to
the one dollar par value of the shares issued at December 31, 1998
has been transferred from additional capital to common stock.
C. Acquisitions
In July 1998, Alcoa acquired Alumax Inc. (Alumax) for approxi-
mately $3,800, consisting of cash of approximately $1,500, stock of
approximately $1,300 and assumed debt of approximately $1,000.
Alumax operates over 70 plants and other manufacturing facilities
in 22 states, Canada, Western Europe and Mexico.
The following unaudited pro forma information for the years
ended December 31, 1998 and 1997 assumes that the acquisition of
Alumax had occurred at the beginning of each respective year.
Adjustmentsthathavebeenmadetoarriveattheproformatotals
include those related to acquisition financing, the amortization of
goodwill, the elimination of transactions between Alcoa and Alumax
and additional depreciation related to the increase in basis that
resulted from the transaction. Tax effects from the pro forma adjust-
ments noted above have been included at the 35% U.S. statutory rate.
December 31 (unaudited) 1998 1997
Net sales $16,766.3 $16,160.2
Net income 875.5 770.2
Earnings per share:
Basic 2.36 2.02
Diluted 2.35 2.00
The pro forma results are not necessarily indicative of what actually
would have occurred if the transaction had been in effect for the
periods presented, are not intended to be a projection of future
results and do not reflect any cost savings that might be achieved
from the combined operations.
In February 1998, Alcoa completed its acquisition of Inespal,
S.A. of Madrid, Spain. Alcoa paid approximately $150 in cash and
assumed $260 of debt and liabilities in exchange for substantially
all of Inespal’s businesses. The acquisition included an alumina
refinery, three aluminum smelters, three aluminum rolling facilities,
two extrusion plants and an administrative center.
In 1996, Alcoa made various acquisitions totaling $302. They
include the purchase of Alumix, Italy’s state-owned integrated
aluminum producer, and Alcan’s extrusion operations in Brazil.