Alcoa 2000 Annual Report Download - page 41

Name /alcoa/4500 05/31/2001 06:17PM Plate # 0 com g 39 # 1
0099989796
5.5
5.1 5.1
5.2
4.8
Selling and General
Administrative Expenses
as a percent of sales
0099989796
77.2 77.1
77.8
76.8
75.6
Costs of Goods Sold
as a percent of sales
39
Costs and Other
Costs of Goods Sold (COGS) — COGS rose $4,806 or 38% to
$17,342 in 2000. The increase was primarily due to higher sales
volumes in 2000.
COGS as a percentage of sales was 75.6%, down
1.2% from 1999. The decrease is due primarily to higher sales prices
resulting from a stronger
LME and cost-cutting efforts, somewhat
offset by higher cost of sales at acquired entities and higher energy
costs.
COGS totaled $12,536 for 1999, up 5% from 1998. The increase
was due to higher volumes that generated additional costs of
$1,100. The higher volumes related primarily to acquired companies.
Offsetting a portion of the increases were cost and operating
improvements of approximately $500. In 1999,
COGS as a percentage
ofsalesalsofell1.0%to76.8%ascostreductionsanda LIFO
liquidation more than offset the negative impact of lower overall
aluminum prices on revenues.
Selling and General Administrative Expenses
(S&GA) — S&GA
expenses increased 30% to $1,108 in 2000. The increase was primar-
ily due to acquisitions and higher personnel costs related to pay for
performance, partially offset by cost-cutting improvements. However,
as a percentage of revenue,
S&GA wasdownby0.4%to4.8%in2000.
S&GA expenses in 1999 were $851, an increase of 9% or $68
from 1998. The higher level of S&GA in 1999 was also due to acquisi-
tions; Alcoa owned Alumax for 12 months in 1999 versus six months
in 1998. S&GA expenses were also impacted by higher personnel
costs related to pay for performance in 1999. As a percentage of sales
revenue, S&GA was 5.2% in 1999.
Research and Development Expenses
(R&D) — In 2000, R&D
expenses increased $66 or 52% with acquisitions accounting for $33
or 26%. The remaining increases were due to corporate spending
and increases in Primary Metals, Flat-Rolled Products and AFL.
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 segments.
Interest Expense — Interest expense rose $232 to $427 in 2000
primarily as a result of the Reynolds and Cordant acquisitions.
Debt of $1,297 was assumed in the acquisition of Reynolds while
$826 of debt was assumed in the Cordant acquisition. Alcoa issued
$1,500 of notes. Alcoa also issued $3,711 of commercial paper.
Additionally, the company entered into a new $2,490 revolving-
credit facility that expires in April 2001 and a $510 revolving-credit
facility that expires in August 2005. Total interest costs, including
interest capitalized, was $447, with the capitalized interest cost
remaining relatively constant from 1999. Interest expense of $195
in 1999 was down $3 from 1998. Total interest costs, including
capitalizedinterest,wereup2%to$216in1999duetoahigher
level of capitalized interest and 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.
Income Taxes — In 2000, Alcoa’s effective tax rate was 33.5%,
one and a half percentage points below the statutory rate of 35%.
This lower rate is primarily driven by lower taxes on foreign
income. Alcoa’s effective tax rate in 1999 was 29.9%. The lower rate
was 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%. The lower rate was primarily due to lower taxes
on foreign income.
Other Income/Foreign Currency — In 2000, other income increased
24% or $30 from 1999. The increase was due to a $59 increase in
equity income and higher interest and dividend income, offset by
foreign exchange losses. Other income totaled $124 in 1999, down
$25 from 1998. The decline was due to a $57 decline in interest
income, a negative swing in foreign exchange and lower gains from