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ALCOA97
1997 Annual Report

Table of contents

  • Page 1
    1997 Annual Report ALCOA97

  • Page 2
    ... Itapissuma, Brazil. nized into 19 business units, José with 178 operating with 187 operating locations and 81,600 locations and 76,800 employees in 28 countries. employees in 28 countries. Alcoa's mission is to be the best aluminum company in the world, setting world standards in quality aluminum...

  • Page 3
    ...Index 63 1997 Revenues: $13.3 Billion By Market By Geographic Area 10% 11% 24% 16% 15% 24% 16% 13% 54% 17% â- Packaging â- Transportation â- Distribution and Other â- Alumina and Chemicals â- Aluminum Ingot â- Building and Construction Market Trends covered on page 56 â- U.S. â- Europe...

  • Page 4
    ... $78 and a market capitalization of $13.1 billion. well. Prepare for the future. Never relax. We are a company on the move. Some long-term shareholders will remember Alcoa's advertising slogan from years gone by - "We can't wait for Tomorrow." This generation of Alcoans is giving new meaning to the...

  • Page 5
    ... Nonferrous Metals Industry has given us a 30-year contract to supply alumina to the world's largest future market. In turn, this agreement has given us a basis to restart our alumina capacity in St. Croix (the Virgin Islands) and to begin an expansion of our alumina production capacity in Australia...

  • Page 6
    ... Primary Aluminium Institute, we have agreed to chair a committee of members to create a scientifically "bulletproof" life cycle analysis of the industry's products. And, within Alcoa, we have established a process to examine every aspect of our energy utilization to determine where and how we can...

  • Page 7
    NEWS97 The newsmakers - Alcoa people worldwide: their energy, skills, and ideas in action. Here, Steve Hanna, cold mill operator at Davenport, inspects a sample of bright sheet for surface quality. Story on page 14. 5

  • Page 8
    ... former Soviet Union. -38°c! Europe In the past two years, Alcoa's European operations have grown dramatically, with the acquisition of the national aluminum companies of Italy and Spain and expanded activity in automotive structures, closure systems, forged wheels, and alumina-based products. 6

  • Page 9
    ...in 1998. Environment Looking at Life Cycles What are the total environmental impacts of aluminum - from mining and refining through the useful life and recycling of finished products? That's the question to be addressed by a new task force, headed by Alcoa Chairman Paul O'Neill. Empaneled by the...

  • Page 10
    ...in Worldwide Wheels Alcoa is now shipping forged aluminum truck wheels from its new plant in Székesfehérvár, Hungary, to customers on three continents. Production began in mid-1997 to serve Alcoa's European truck wheel customers and those in Brazil and Australia who require European-style wheels...

  • Page 11
    ... of 600,000 mt per year. On the other side of the globe, AWAC began a 440,000 mt per year expansion of the Wagerup refinery in Western Australia, scheduled to come onstream in 1999. Alcoa's worldwide capacity for alumina is sold out for 1998, including the new production from St. Croix. AWAC is...

  • Page 12
    ...it possible to print magazine-quality photographs directly onto aluminum beverage cans with no significant increase in costs. Advances in Packaging Equipment. Stolle Machinery in Sidney, Ohio, part of Alcoa Packaging Equipment, has extended its product line with two new systems for making can ends...

  • Page 13
    ... at Tropicana. Alcoa's Closure Systems International (CSI) scored a home run with the introduction of its spout fitment closure for Tropicana's paperboard juice cartons. Developed in collaboration with Tropicana and International Paper Company, the CSI system features a reclosable closure with...

  • Page 14
    ... to rationalize services and to relocate senior management to the principal focus of Australian activities. About 70% of Alcoa's Australian employees work in Western Australia. A Respected Employer Alcoa's Wagerup alumina refinery was recognized by the Australian Human Resource Institute, the...

  • Page 15
    ...first stage of a planned expansion at Wagerup to 3.3 million mt per year, for which AWAC has obtained environmental approval. A World's First in Recycling At its Portland smelter, Alcoa of Australia has developed a facility to recycle the spent linings of aluminum smelting pots rather than dispose...

  • Page 16
    ... recog- For super surface quality, cut the chatter. A "chatter monitor," jointly developed by Alcoa Technical Center (ATC) and the Aerospace/Commercial Rolled Products business unit, has been installed on the No. 3 Cold Mill at Alcoa's Davenport plant. Eight sensors, hooked up to an online computer...

  • Page 17
    ... foil. Monthly production grew 224% in 1997, making Alcoa Shanghai China's market leader in 6- and 7-micron products using roll casting technology. ISO 9002 certification is Xu Yun Hua, packing operator, Alcoa Shanghai New Refractories Plant for China Alcoa Industrial Chemicals plans to begin...

  • Page 18
    ... 1997. Alcoa Engineered Products was challenged by its customers - Ford, General Motors, Chrysler, Jaguar, and Isuzu - to increase capacity. Using the tools of their new Alcoa Production System, workers at Lafayette Operations achieved sharp reductions in changeover and cycle times, raising monthly...

  • Page 19
    ... U.S. The editors report: "The 1997 Audi A8 with its aluminum spaceframe body technology indicates what is possible when the status quo in materials is challenged in automotive design. The luxury sedan delivers a new standard in weight savings, structural integrity, safety, performance and comfort...

  • Page 20
    ... top four brands in the country. North America North America is Alcoa's largest market and home to a highly diversified manufacturing base. There are 82 Alcoa refining, smelting, and manufacturing locations in this part of the world, plus administrative, research, and customer service facilities...

  • Page 21
    ... model for other major forest landholders, Alcoa is leading by example." 19 supplier sta- tus for a cable network in Anaheim, Calif., one of the first cities to take fiber optics to the home. â- Fiber-optic components and assemblies for the new Alcoa Corporate Center in Pittsburgh. contract...

  • Page 22
    ... new Freightliner tractors. Pimalco Chooses USW Workers at Alcoa's Pimalco aerospace extrusions plant in Chandler, Ariz. agreed to be unionized by the United Steelworkers Union (USW). Pimalco is part of the Alcoa Engineered Products business unit. With the merger of the Aluminum, Brick, and Glass...

  • Page 23
    ...cial Habitat centers or consult the Yellow Pages for other recycling locations. Alcoa Rigid Packaging is a founding sponsor. Ind. closure plant to Silgan Holdings Inc. The move marked Alcoa's departure from the metal beverage closures business in the United States, where the soft drink market has...

  • Page 24
    ...of Davenport plate over ten years. Full production is expected to start in 2005. Gary Andrade, plate mill operator, Davenport Environment What to Do With Used Oil Until last July, Alcoa's Pimalco aerospace unit in Arizona was buying, on average, 1,630 gallons of oil per month. Since that time, oil...

  • Page 25
    ... added by Engineered Products since 1995. By year end, Alcoa's hard alloy extrusion capacity will exceed 45,000 mt per year. Kudos from the Customer. Davenport Works and Alcoa Aerospace Center in Irvine, Calif. received the MHI (Japan) excellent supplier award for 1997. Davenport supplies fuselage...

  • Page 26
    ..., Itapissuma, Brazil Brazil Using M ore Aluminum The Brazilian Aluminum Association (ABAL) reported that Brazil's domestic consumption of aluminum in 1997 reached 657,000 mt, an 18.1% increase over 1996. During the year, the Association launched a Quality Award Helps Community Since Alcoa Aluminio...

  • Page 27
    ...350 mt of Rail cable to be used in building a segment of the North/South Transmission Line, aimed at integrating Brazil's northern transmission grid with the southern region. Franklin Thomas, Alcoa Director Environment The Alcoa Forest Alcoans have been busy planting trees - roughly three million...

  • Page 28
    NEWS97 Rosey Mays, #8 press operator, Lafayette, Ind., U.S. 26

  • Page 29
    ... m on sh a re Before ext raord in a r y loss †Net in com e Alcoa's average rea lized p r ice p er p ou n d for a lu m in u m in got Average U.S. m a rket p r ice p er p ou n d for a lu m in u m in got (Metals Week) Ca sh d ividen d s p a id p er com m on sh a re Tot a l a sset s Lon g-ter m debt...

  • Page 30
    ...Alcoa con t in u es to h ave 450,000 m et r ic ton s (m t) of it s worldw ide sm elt in g cap acit y id led . Before sp ecia l item s, ret u r n on sh a reh olders' equ it y for 1997...for m at ion . Op e ra t ion s b y Ge o gra p h ic Are a USA - Reven u es fell less t h a n 1% from 1996 to $7,189. Th...

  • Page 31
    ...fell 4% in 1997, a s h igh er revenu es for in got a n d a lu m in a , a lon g w it h im p roved cost p er for m a n ce, were offset by lower rea lized p r ices. Du e to Alcoa's relat ively sm a ll exp osu re to Asia n m a rket s, t h e fin a n cia l p roblem s t h ere d id n ot h ave a sign ifica...

  • Page 32
    ...m en t s. Alum inum Ingot - For t h e fou r t h con secu t ive yea r, Alcoa h ad 450,000 m t of sm elt in g cap acit y id le, op erat in g it s worldw ide sm elt in g system at 82% of rated cap acit y in 1997. In got revenu es in 1997 in crea sed 5% a s p r ices clim bed 3% a n d sh ip m en t s rose...

  • Page 33
    ... h er a lu m inu m p rodu ct s fell 5% from 1995 du e to lower p r ices, wh ich were p ar t ia lly offset by a 17% in crea se in sh ip m en t s. III. Non a lu m in u m Pro d u ct s Se gm e n t 1997 Revenu es Op erat in g p rofit $3,118 197 1996 $3,146 117 1995 $2,708 113 Co s t s a n d Ot h e r In...

  • Page 34
    ...sell p rodu ct ion for wa rd . Op erat ion s in t h e Eu... a n ge from t h e 1997 yea r-en...ge in t h e va lu e of t h ese con t ract s, rea l or h yp ot h et ica l, wou ld be sign ifica n t ly offset by a n inverse ch a n ge...es t h ere w ill be n o a lu m inu m sm elter cap acit y rest ar ted by Alcoa...

  • Page 35
    ... va lu es of Alcoa's foreign exch a n ge con t ract s at Decem ber 31, 1997 a n d 1996. Interest Rate Risks - Alcoa at tem pt s to m a int a in a rea son able bala n ce bet ween fixed- a n d ï¬,oat in g-rate debt a n d u ses in terest rate swap s a n d cap s to keep fin a n cin g cost s a s low...

  • Page 36
    ... a n average p r ice of $74.72 p er sh a re. In 1996, Alcoa u sed $317 to repu rch a se 5,402,500 sh a res. Stock pu rch a ses in 1997 were p ar t ly offset by $203 of t rea su r y stock issu ed p r im a r ily for em ployee stock opt ion pla n s. Dividen d s p a id to sh a reh olders were $170 in...

  • Page 37
    ... isit ion of In esp a l, S.A. of Mad r id , Sp a in . Alcoa p a id $210 in ca sh a n d a ssu m ed $200 of debt in exch a n ge for su bst a n t ia lly a ll of In esp a l's bu sin esses. In esp a l is a n in tegrated a lu m inu m p rodu cer w it h 1997 revenu es of $1,100. Th e acqu isit ion in clu...

  • Page 38
    ... a n d p oten t ia lly con ï¬,ict in g ou t side bu sin ess in terest s of it s em ployees. Th e com p a n y m a int a in s a system at ic p rogram to a ssess com plia n ce w it h t h ese p olicies. Audit Committee Report Independent Accountant's Report Th e Au d it Com m it tee of t h e Board of...

  • Page 39
    ...Alcoa a n d su bsid iar ies For t h e year en ded Decem ber 31 1997 1996 1995 Re ve n u e s Sa les a n d op erat in g revenu es (P) Ot h er in com e, p r in cip a lly in terest Co s t s a n d Ex p e n s e s Cost of good... an yin g n otes a re a n in tegral p ar t of t h e fin a n cia l st atem ...

  • Page 40
    ... (O) Add it ion a l cap it al Ret a in ed ea r n in gs Trea su r y stock, at cost Accu m u lated ot h er com p reh en sive in com e (A a n d Q) Tot al sh a reh olders' equ it y Tota l Lia b ilit ie s a n d Eq u it y Th e accom p an yin g n otes a re a n in tegral p ar t of t h e fin a n cia l st...

  • Page 41
    ... (in m illion s) Alcoa a n d su bsid iar ies For t h e year en ded Decem ber 31 1997 1996 1995 Ca s h from Op e ra t ion s Net in com e Adju st m en t s to recon cile n et in com e to ca sh from op erat ion s: Dep reciat ion , deplet ion a n d a m or t izat ion Ch a n ge in defer red...

  • Page 42
    Statement of Shareholders' Equit y (in m illion s, except sh a re a m ou nt s) Com p reh en sive in com e Prefer red stock Com m on stock Add it iona l cap ita l Ret a in ed ear n in gs Alcoa a n d su bsid iar ies Accu m u lated ot h er Trea su r y com p reh en sive in com e stock Decem ber 31 ...

  • Page 43
    ...re m a rked-to-m a rket , a n d t h e ga in s a n d losses from ch a n ges in m a rket va lu e of t h e con t ract s a re recorded in ot h er in com e in t h e cu r ren t p er iod . Th is resu lted in aft er-t a x losses of $12.7 in 1997, $57.1 in 1996 a n d $37.9 in 1995. Alcoa a lso at tem pt s to...

  • Page 44
    ... ie s a n d De fe r re d Cre d it s Decem ber 31 Defer red h edgin g ga in s Defer red a lu m in a sales revenu e On-site environ m en t al rem ed iat ion Defer red cred it s Ot h er n on cu r ren t liabilit ies 1997 $ 101.6 235.9 170.3 161.3 602.1 $1,271.2 1996 $ 218.9 - 216.9 181.0 588.7 $1,205...

  • Page 45
    ... Fixed-rate n ote, du e 2008 Va r iable-rate n otes, du e 1998 -2001 (6.9% a n d 7.3% average rates) Alcoa of Au st ralia Eu ro-com m ercia l p ap er, va r iable rate, (5.7% a n d 5.5% average rates) Ot h er su bsid iar ies Less: a m ou nt du e w it h in on e year 1997 $ 248.8 - 78.0 130.5 250.0 395...

  • Page 46
    ... ir va lu e of each opt ion is est im ated on t h e date of gra n t or su bsequ en t reload u sin g t h e Black-Sch oles p r icin g m odel w it h t h e follow in g a ssu m pt ion s: 1997 Average r isk-free in terest rate Exp ected d ividen d yield Exp ected volat ilit y Exp ected life (years): Stock...

  • Page 47
    ... Se gm e n t an d Ge o graph ic Are a In form at ion Alcoa is t h e world's lead in g p rodu cer of a lu m inu m a n d a lu m in a a n d a m ajor p ar t icip a n t in a ll segm en t s of t h e in du st r y: m in in g, refin in g, sm elt in g, fabr icat in g, a n d recyclin g. Alcoa ser ves cu stom...

  • Page 48
    ... s. Un rea lized ga in s (losses) on t h ese con t ract s at Decem ber 31, 1997 a n d 1996 were $(84.9) a n d $34.8, resp ect ively. Th e t able below reï¬,ect s t h e va r iou s t yp es of foreign exch a n ge con t ract s Alcoa u ses to m a n age it s foreign exch a n ge r isk. 1997 Notion al am ou...

  • Page 49
    ... er act ive p ar t icip an t s Accu m u lated p ost ret irem en t ben efit obligat ion (APBO) Pla n a sset s, p r im a r ily stocks a n d bon d s at m a rket APBO in excess of pla n a sset s Un recogn ized n et : Redu ct ion in p r ior ser vice cost s Act u a r ia l ga in s 1997 $1,135.7 200.9 338...

  • Page 50
    ... s for wh ich cost s ca n be rea son ably est im ated . Abou t 24% of t h e 1997 bala n ce relates to Alcoa's Ma ssena , New York pla n t site a n d 23% of t h e 1997 bala n ce relates to Alcoa's Pt . Com for t , Texa s pla n t site. Rem ed iat ion exp en ses ch a rged to t h e reser ve were $64 in...

  • Page 51
    ...ar $3,298.6 $13,319.2 289.8 210.3 1.23 1.21 1,073.0 805.1 4.66 4.62 *Aft er sp ecia l ch a rges (ga... a r ter Alcoa of Australia Lim ited - a 60%-ow n ed su bsid iar y of Alcoa In tern at ion a l Hold in gs Com ...Eu rop e â- Pa cific *At yea r-en d 15% 44% *Revenu es from Alcoa were $64.1 in 1997...

  • Page 52
    ... n t in g ch a n ges * Net in com e (loss) Alcoa's average rea lized p r ice p er p ou n d for a lu m inu m in got Average U.S. m arket p r ice p er p ou n d for alu m inu m ingot (Metals Week) Div ide n ds De clare d Fin an cial Po s it ion Prefer red stock Com m on stock Workin g cap it al Prop er...

  • Page 53
    1994 $ 9,904.3 487.2 7,845.7 632.7 125.8 671.3 106.7 219.2 107.1 79.7 603.3 (160.2) (67.9) 375.2 .64 .71 2.1 142.3 1,599.7 6,689.4 (1,572.3) 12,353.2 1,029.8 1,687.8 3,999.2 2.10 2.08 .80 22.07 45 1 ⁄8 32 ⁄8 1 1993 $ 9,055.9 93.0 7,187.0 603.6 130.4 692.6 87.8 (10.3) 105.6 150.8 201.4 (196.6) -...

  • Page 54
    Auto Body Structure Design & Mfg. Closures, Machinery Packaging Machinery Castings, Forgings Building Products Can Reclam ation Electrical Products Bauxite Mining Extrusions, Tube Prim ary Aluminum Alumina Chemicals Alcoa Worldwide Operations A erospace Components Auto Components, A ...

  • Page 55
    ..., Tube Auto Body Structure Design & Mfg. Alumina Chemicals Auto Components, A ssemblies A erospace Components Electrical Products Building Products Can Reclam ation Bauxite Mining Castings, Forgings Foil Products Packaging Machinery Closures, Machinery Operations listings continue...

  • Page 56
    Auto Body Structure Design & Mfg. Closures, Machinery Packaging Machinery Can Reclam ation Bauxite Mining Extrusions, Tube continued Castings, Forgings Building Products Electrical Products Prim ary Aluminum Alumina Chemicals Alcoa Worldwide Operations A erospace Components Auto ...

  • Page 57
    ... r u sion bu sin esses in Eu rop e W illiam F. Ch ris toph e r, Presiden t Clevela n d , Oh io Forged a n d ca st st r u ct u ra l p ar t s for au tom ot ive a n d aerosp ace ap plicat ion s, a n d wh eels for t h e t r u ck a n d au tom ot ive in du st r ies Alcoa World Alu m in a G. Joh n Piz ze...

  • Page 58
    .... In 1997 there were seven, with more than ten others being considered. Alcoa serves this growing market through its Automotive Structures business unit. Growth in Alcoa Revenues From Aluminum Driveshafts 1994 = 100 500 â- Sales of telecommunications products like fiber-optic cable and engineer...

  • Page 59
    .... Alcoa Building Products business unit goes to market with the Alcoa and Mastic® residential siding brands. In a recent survey of U.S. contractors, Alcoa had the highest brand recognition. Trends in U.S. Home Improvement Expenditures in billions of 1997 dollars 150 125 â- The Worldwide Aluminum...

  • Page 60
    ...Vice Presiden t - Alcoa Bu sin ess System De n is A. De m blow s k i Secret ar y a n d Sen ior Cou n sel Tim oth y J . Le ve que Vice Presiden t - Alcoa a n d Presiden t , Alcoa Asia Ltd . Ro ge r A. G. Vin e s Vice Presiden t - Alcoa a n d Ch a ir m a n a n d Ma n agin g Director, Alcoa of Au st...

  • Page 61
    ...con su lt an t at t h e New York Cit y Hu m a n Resou rces ...es t h e com p en sat ion of Alcoa officers a n d p er for m s sp ecified fu n ct ion s u n der com p an y com p en sat ion pla n s. Ken n et h W. Dam Joseph T. Gor m a n Joh n P. Mu lron ey Sir Ar vi Pa rbo Fran klin A. Th om a s (ch a ir...

  • Page 62
    ... in Willia m Pen n Hotel in Pit t sbu rgh . Com pan y Ne w s Ca ll 1-800-522-6757 toll-free 24 h ou rs a day for Alcoa's latest qu a r terly ea r n in gs rep or t a n d ot h er com p a n y n ew s a n n ou n cem en t s. Rep or t s m ay be requ ested by voice, fa x or m a il. Th is in for...

  • Page 63
    ... m at ters related to Alcoa , w r ite to Den is Dem blow ski, Office of t h e Secret ar y, at t h e h eadqu a r ters add ress or ca ll (412) 553-4707. Sto ck Lis t in g Com m on : New York Stock Exch a n ge, Th e Elect ron ica l Stock Exch a n ge in Sw it zerla n d a n d exch a n ges in Br u ssels...

  • Page 64
    ...u lated su ga r. Alu m in a is a n in ter m ed iate step in t h e p rodu ct ion of a lu m in u m from bau xite a n d is a lso a va lu able ch... e ear t h ; e.g., Alcoa p rodu ces a lu m in u m from m in ed bau xite ore. A low-grade, brow n ish-black coal. Lon don Me tal Ex chan ge (LME) An o diz in...

  • Page 65
    ...n Din e Fin a n cia l t y p og ra ph y : Ha m ilt on Ph ot ot y p e Pr in t in g: Gra ph ic Ar t s Ce n t e r Pr in t e d in USA 98 03 For m A07-15821 © 1998 Alcoa Pa ge s 27- 62 a re p r in t e d on re c ycle d p a p e r. N Ne w s Br ie fs 5-26 Non a lu m in u m p ro d u ct s s e g m e n t 31, 45...