Alcoa 2014 Annual Report Download - page 77

of smelter capacity. These other changes were mostly offset by net productivity improvements, net favorable foreign
currency movements, the absence of both a net charge for certain environmental remediation matters and a charge for
the civil portion of a legal matter, and stronger volumes in three of the four segments.
Sales—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 items 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.
Sales for 2013 were $23,032 compared with sales of $23,700 in 2012, a decline of $668, or 3%. The decrease was
primarily due to lower primary aluminum volumes, including those related to curtailed and shutdown smelter capacity,
a decline in the average realized price for primary aluminum, driven by lower London Metal Exchange (LME) prices,
and unfavorable pricing in the midstream segment due to a decrease in metal prices. These items were somewhat offset
by higher volumes in the alumina portion of the upstream operations and the midstream and downstream operations.
Cost of Goods Sold—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 items were partially offset by higher costs for
bauxite, energy, and labor, write-offs of inventory 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.
COGS as a percentage of Sales was 83.7% in 2013 compared with 86.1% in 2012. The percentage was positively
impacted by net productivity improvements across all segments, the absence of a net charge for five environmental
remediation matters ($194), net favorable foreign currency movements due to a stronger U.S. dollar, and a positive
impact related to the March 2012 fire at the cast house in Massena, NY (insurance recovery in 2013 plus the absence of
business interruption and repair costs that occurred in 2012). These items were partially offset by the previously
mentioned realized price impacts and higher input costs, including those related to bauxite mining and a planned
maintenance outage at a power plant.
Selling, General Administrative, and Other Expenses—SG&A expenses were $995, or 4.2% of Sales, in 2014
compared with $1,008, or 4.4% of Sales, in 2013. The decline of $13 was due to decreases in various expenses,
including legal and consulting fees and contract services, mostly offset by costs associated with an acquisition of an
aerospace business ($42—see Engineered Products and Solutions in Segment Information below) and higher stock-
based compensation expense.
SG&A expenses were $1,008, or 4.4% of Sales, in 2013 compared with $997, or 4.2% of Sales, in 2012. The increase
of $11 was principally the result of higher labor costs, partially offset by a decrease in professional expenses and
contract services and lower bad debt expense.
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