Alcoa 2015 Annual Report Download - page 78

Net income attributable to Alcoa for 2014 was $268, or $0.21 per share, compared with Net loss attributable to Alcoa
of $2,285, or $2.14 per share, in 2013. The improvement in results of $2,553 was primarily due to the absence of all of
the following: an impairment of goodwill, a discrete income tax charge for valuation allowances on certain deferred tax
assets, and charges for the resolution of a legal matter. Other significant changes in results included the following:
higher energy sales, a higher average realized price for primary aluminum, net productivity improvements, and net
favorable foreign currency movements. These other changes were mostly offset by higher charges and expenses related
to a number of portfolio actions (e.g., capacity reductions, divestitures, acquisitions), higher overall input costs, and an
unfavorable change in income taxes due to higher operating results.
Sales—Sales for 2015 were $22,534 compared with sales of $23,906 in 2014, a decline of $1,372, or 6%. The decrease
was primarily due to the absence of sales related to capacity that was closed, sold or curtailed in the midstream and
upstream operations (see Global Rolled Products and Primary Metals in Segment Information below), a lower average
realized price for aluminum in both the upstream and midstream operations and for alumina in the upstream operations,
unfavorable foreign currency movements in the midstream and downstream operations, and lower energy sales (both as
a result of lower pricing and unfavorable foreign currency movements). These negative impacts were partially offset by
the addition of sales from three recently acquired businesses (see Engineered Products and Solutions in Segment
Information below), higher volume across all segments, favorable product mix in the midstream operations, and higher
buy/resell activity for primary aluminum.
Sales for 2014 were $23,906 compared with sales of $23,032 in 2013, an improvement of $874, or 4%. The increase
was mainly the result of higher volumes in the midstream, downstream, and alumina portion of the upstream
operations, higher energy sales resulting from excess power due to curtailed smelter capacity, increased buy/resell
activity for primary aluminum, and a higher average realized price for primary aluminum. These positive impacts were
partially offset by lower primary aluminum volumes, including those related to curtailed and shutdown smelter
capacity, and unfavorable price/product mix in the midstream operations.
Cost of Goods Sold—COGS as a percentage of Sales was 80.2% in 2015 compared with 80.1% in 2014. The
percentage was negatively impacted by a lower average realized price for both aluminum and alumina in the upstream
operations, unfavorable price/product mix in the midstream and downstream operations, lower energy sales, and higher
costs. These negative impacts were mostly offset by net favorable foreign currency movements due to a stronger U.S.
dollar, net productivity improvements across all segments, higher volume in the midstream and downstream
operations, a favorable LIFO (last in, first out) adjustment due to lower prices for aluminum and alumina ($208), lower
inventory write-downs related to the decisions to permanently shut down and/or curtail capacity in the upstream and
midstream operations (difference of $23—see Restructuring and Other Charges below), and the absence of costs
related to a new labor agreement that covers employees at 10 locations in the United States (see below).
COGS as a percentage of Sales was 80.1% in 2014 compared with 83.7% in 2013. The percentage was positively
impacted by net productivity improvements across all segments, both the previously mentioned higher energy sales and
higher average realized price for primary aluminum, net favorable foreign currency movements due to a stronger U.S.
dollar, lower costs for caustic and carbon, and the absence of costs related to a planned maintenance outage in 2013 at a
power plant in Australia. These positive impacts were partially offset by higher costs for bauxite, energy, and labor,
higher inventory write-downs related to the decisions to permanently shut down certain smelter and rolling mill
capacity (difference of $58—see Restructuring and Other Charges below), and costs related to a new labor agreement
that covers employees at 10 locations in the United States (see below).
On June 6, 2014, the United Steelworkers ratified a new five-year labor agreement covering approximately 6,100
employees at 10 U.S. locations; the previous labor agreement expired on May 15, 2014. In 2014, as a result of the
preparation for and ratification of the new agreement, Alcoa recognized $18 ($12 after-tax) in COGS for, among other
items, business contingency costs and a one-time signing bonus for employees. Additionally, as a result of the
provisions of the new labor agreement, a significant plan amendment was adopted by one of Alcoa’s U.S. pension
plans. Accordingly, this plan was required to be remeasured, which resulted in a $13 decrease to 2014 net periodic
benefit cost.
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