Alcoa 1999 Annual Report Download - page 36

Cost of
Goods Sold
as a percent
of sales
75.8
77.2
77.1
77.8 76.8
9695 97 98 99
Revenue –
billions of dollars
12.5 13.1 13.3
15.3
16.3
Cost of goods
sold as a percent
of sales
5.7
5.5
5.1
5.1 5.2
9695 97 98 99
12.5 13.1 13.3
15.3
16.3
Selling and
General
Administrative
Expenses
as a percent
of sales
Revenue –
billions of dollars
Selling and general
administrative
expenses as a
percent of sales
Costs and Other
Costs of Goods Sold —Costofgoodssold (COGS) totaled $12,536
for1999,up5%from1998.Theincreasewasduetohighervolumes
that generated additional costs of $1,100. The higher volumes
relate primarily to acquired companies. Offsetting a portion of the
acquisition-driven increases were cost and operating improvements
of approximately $500. The $1,658 increase in 1998 relative to
1997 was due to higher volumes of $1,800, which also were related
primarily to acquisitions, partly offset by cost improvements of
$200.
COGS as a percentage of sales fell 1% to 76.8% in 1999, as
higher shipments, good cost control and a
LIFO liquidation more
than offset the negative impact of lower overall aluminum prices on
revenues. In 1998,
COGS as a percentage of sales was .7 percentage
points higher than the 77.1% recorded in 1997, as higher shipments
and a higher value-added product mix more than offset the impact
of cost improvements.
Selling and General Administrative Expenses —
S&GA expenses
increased 9%, or $68, to $851 in 1999. The higher level of these costs
in 1999 was due to acquisitions; Alcoa owned Alumax for 12 months
in 1999 versus six months in 1998. In addition, higher personnel
costs related to pay for performance had a negative impact on
S&GA
in1999.Asapercentageofsalesrevenue, S&GA was 5.2% in 1999.
S&GA for1998rose$101from1997to$783,or5.1%ofsalesrevenues.
The higher 1998
S&GA total results from acquisitions, partially offset
by cost reductions.
Research and Development Expenses —
R&D expenses of $128
in 1999 were essentially unchanged from 1998, as a reduction in
corporate spending was offset by increases in the primary metals and
flat-rolled products areas.
R&D costs for 1998 were down 10% from
1997. A re du c t io n i n R&D personnel was primarily responsible for
lower spending on research in the metals, castings, closures and
alumina businesses.
Interest Expense — Interest expense of $195 in 1999 was down $3
from 1998. Total interest costs, including capitalized interest, were up
2% to $216 in 1999. The increase in total interest costs was due to
a higher level of capitalized interest along with higher interest rates
partly offset by lower debt levels and the repayment of some higher
cost debt. The increase in capitalized interest relates to the expansion
of the Wagerup alumina refinery in Australia. Interest expense in
1998 totaled $198, up $57 from 1997. The increase was the result of
1998 borrowings of over $1,850, the proceeds of which were used
primarily to fund acquisitions.
Income Taxes — Alcoa’s effective tax rate in 1999 was 29.9%,
5.1 percentage points below the statutory rate of 35%. The lower rate
is primarily due to lower taxes on foreign income and a reduction in
the Australian corporate income tax rate. In the 1999 fourth quarter,
Australia reduced its corporate income tax rate from 36% to 34%
for 2000 and to 30% for 2001.
Alcoa’s effective tax rate in 1998 was 32%, three percentage points
below the statutory rate of 35%. The lower rate is primarily due to
lower taxes on foreign income.
The 1997 effective tax rate was 33%, two percentage points below
the statutory rate of 35%. The lower rate is primarily due to the
favorable tax effect of certain special items.