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Unlocking Value
ANNUAL REPORT 2015

Table of contents

  • Page 1
    Unlocking Value ANNUAL REPORT 2015

  • Page 2
    FUTURE READY Globally Competitive Upstream Business DRIVING VALUE Lightweight Multi-Material Innovation Powerhouse

  • Page 3
    ... engineering and manufacturing, Alcoa innovates multi-material solutions that advance our world. Our technologies enhance transportation, from automotive and commercial transport to air and space travel, and improve industrial and consumer electronics products. We enable smart buildings, sustainable...

  • Page 4

  • Page 5
    Launching Two Strong Companies

  • Page 6
    ... of productivity improvements, renegotiated long-term energy contracts and brought on line the world's lowest-cost aluminum smelting and alumina refining complex in Saudi Arabia. We re-focused the upstream portfolio around five free-standing business units-the world's largest low-cost Bauxite...

  • Page 7
    ...billion of aerospace contracts in the twelve months ending in January 2016. With the strong organic and inorganic growth in our aerospace businesses within our Engineered Products and Solutions group, we moved our Wheel and Transportation Products and our Building and Construction businesses to form...

  • Page 8
    ... $5.6 Global Rolled Products Primary Metals Engineered Products and Solutions Alumina Transportation and Construction Solutions BY GEOGRAPHIC AREA Financial and Operating Highlights ($ in millions, except per-share amounts) 5% 2014 2013 2015 14% Sales Net (loss) income Per common share data...

  • Page 9
    ...Metal Price Alumina Price Index / Spot Currency Volume Price/Mix Productivity Energy Raw Materials Cost Increases/ Other 2015 -$469 MARKET +$766 PERFORMANCE -$626 COST HEADWINDS To strengthen the Company, Alcoa announced business improvement programs across its portfolios: the Value-Add...

  • Page 10
    Value-Add Portfolio The Value-Add business, which includes the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments, reported solid results in 2015: revenue of $13.5 billion, after-tax operating income (ATOI) of $1.0 billion and adjusted ...

  • Page 11
    ... result, the Company is on target to meet its 2016 goals of moving to the 38th percentile on the global aluminum cost curve and 21st percentile on the global alumina cost curve. $11.2B Revenue After-tax operating income Adjusted EBITDA Global alumina cost curve Global aluminum cost curve $901M...

  • Page 12
    ... Value-Add Company. The former will comprise five strong business units that today make up Global Primary Products: Bauxite, Alumina, Aluminum, Cast Products and Energy. The latter will include Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions...

  • Page 13
    ...-material products and solutions. Sixty seven percent of Value-Add's 2015 third-party revenue was derived from the aerospace, commercial transportation, building and construction, automotive and industrial gas turbines end markets. As it prepares to be a standalone company, the Value-Add business...

  • Page 14
    ... new aluminumlithium capabilities and our 2014 Firth Rixson acquisition. Firth Rixson increased the Company's offerings made of nickel-based superalloys, titanium, stainless steel and advanced aluminum alloys. With Firth Rixson, Alcoa holds the number one global position in jet engine rolled rings...

  • Page 15
    ... result, our automotive and brazing sheet revenues are expected to increase 2.4 times from 2014 to $1.8 billion in 2018. In 2015, we completed our automotive expansion in Alcoa, Tennessee four months early to meet strong demand for aluminum vehicles. The new plant is the Company's second major North...

  • Page 16
    ... business unit. The unit will provide services like training and technical support as well as generate product sales from our San Antonio Works facility in Texas starting with automotive sheet in North America and expanding into other market sectors and regions. By the end of 2015, Alcoa had secured...

  • Page 17
    ... markets. We have a broad portfolio offering of products and systems that can serve the needs of all types of projects-from the smallest to the truly monumental. With the global demand for green building solutions increasing, Alcoa developed new aluminum components and designs that enhance energy...

  • Page 18
    ... supply of bauxite. In 2015, we took steps to build a third-party bauxite business, including sending our first shipment from our Juruti, Brazil mine to Europe. We also worked with potential new customers who are testing bauxite samples, and we anticipate trial shipments in 2016. Positioned...

  • Page 19
    ... Ma'aden-Alcoa joint venture in Saudi Arabia-the world's lowestcost, fully integrated aluminum complex-and top-tier smelters in Iceland, Norway and Canada, such as our Deschambault facility, shown here. 3. Our energy assets in North and South America have a power production capacity of approximately...

  • Page 20
    ... cost and also sell power to external customers. Approximately 70 percent of Alcoa-generated power is sold externally, driving significant earnings. Additionally, we also acquire energy for our operations. In 2015, Alcoa of Australia Limited secured a new 12-year gas supply agreement (starting...

  • Page 21
    ... to work in the potline under heavy magnetic fields. As a result of using iPads, operators are able to react more quickly when pots need adjustments. The quicker reaction time is saving real dollars, and in 2015, this idea saved Alcoa approximately $1 million at the Baie-Comeau plant. The process...

  • Page 22
    ... of employee volunteers donating their energies and expertise to local organizations, including 80,000 volunteer hours during our annual Month of Service. The Foundation's work in the communities of newly acquired plants helped to introduce our new colleagues to the Alcoa Values. Where Alcoa closed...

  • Page 23
    ... numbers: Investor Relations 212) 836-2674 Office of the Secretary--------(212) 836-2732 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $1.00 per share New York Stock Exchange Depositary Shares...

  • Page 24
    .... Item 14. Part IV Item 15. Exhibits, Financial Statement Schedules ...Signatures ...171 182 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and...

  • Page 25
    ...concerning global demand growth for aluminum, supply/ demand balances, growth of the aerospace, automotive and other end markets, or other trend projections, anticipated financial results or operating performance, statements about Alcoa's strategies, objectives, goals, targets, outlook, and business...

  • Page 26
    ...Primary Metals, Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. Description of the Business Information describing Alcoa's businesses can be found on the indicated pages of this report: Item Page(s) Discussion of Recent Business Developments...

  • Page 27
    ...income tax purposes, completed financing, and the effectiveness of a Form 10 registration statement to be filed with the U.S. Securities and Exchange Commission. Upon completion of the separation, Alcoa shareholders will own all of the outstanding shares of both companies. Alcoa may, at any time and...

  • Page 28
    ... their bauxite. Alcoa Bauxite Interests, Share of Reserves and Annual Production1 Owners' Mining Rights (% Entitlement) Alcoa of Australia Limited (AofA)2 (100%) Alcoa Alumínio S.A. (Alumínio)3 (100%) Alcoa World Alumina Brasil Ltda. (AWA Brasil)2 (100%) Suriname Aluminum Company, L.L.C. (Suralco...

  • Page 29
    ... (or an earlier) date. Alcoa World Alumina LLC (AWA LLC) owns 100% of N.V. Alcoa Minerals of Suriname (AMS). Suralco and AMS are parts of the AWAC group of companies which are owned 60% by Alcoa and 40% by Alumina Limited. At the end of 2015, AWAC's bauxite mineral and mining rights remained valid...

  • Page 30
    ... needed. Kingdom of Saudi Arabia-Al Ba'itha: The Al Ba'itha Mine began production during 2014 and production was increased in 2015. Declared reserves are as for December 31, 2015. The proven reserves have been decremented for 2015 mine production. The declared reserves are located in the South Zone...

  • Page 31
    ... Willowdale. Operator History Power Source Electrical energy from natural gas is supplied by the refinery. Mine locations Alcoa accessed by roads. Ore is transported to refineries by long distance conveyor and rail. Mining lease from Mining began in the Western Australia 1963. Government. ML1SA...

  • Page 32
    ...1999. Mine construction was completed in the second quarter of 2015, and the mining operations continued at planned levels. The company generates electricity at the mine site from fuel oil. The mine includes fixed plants for crushing and train loading; workshops and ancillary services; power plant...

  • Page 33
    ...will produce a variety of sheet products. The refinery, smelter and rolling mill are located within the Ras Al Khair industrial zone on the east coast of the Kingdom of Saudi Arabia. The smelter and refinery are fully operational. The mine construction was completed in the second quarter of 2015 and...

  • Page 34
    ... by the Bayer Process. This term is commonly used when there is a hybrid or variant Bayer Process that will refine the bauxite. The total amount of silica contained in the bauxite. Alumina Refining Facilities and Capacity Alcoa is the world's leading producer of alumina. Alcoa's alumina refining...

  • Page 35
    ...completed it by the end of November 2015 (877,000 mtpy of capacity at Suralco had previously been curtailed). The Company is currently in discussions with the Suriname government to determine the best longterm solution for Suralco due to limited bauxite reserves and the absence of a long-term energy...

  • Page 36
    ... unavailability of a secure long-term energy supply in Western Australia. These constraints continue and as such the project remains under suspension. In May 2012, the Government of Western Australia granted Alcoa a 5 year extension of the original environmental approval. In 2015, Alcoa applied for...

  • Page 37
    ... 2016, the Company announced it will delay the curtailment (230,000 mtpy) of its Intalco smelter in Ferndale, Washington until the end of the second quarter of 2016. Recent decreases in energy and raw material costs have made it more cost effective in the near term to keep the smelter operating...

  • Page 38
    ... Greenland. Negotiations between the parties are anticipated to complete in 2016. Global Rolled Products The Company's Global Rolled Products segment represents Alcoa's midstream operations. For a discussion of this segment's business, see "Results of Operations-Segment Information" in Part II, Item...

  • Page 39
    ..., Brazil rolling mill to increase production of specialty foils for aseptic and flexible packages. Initial work for the expansion is underway and commissioning is expected to begin in 2016. As noted above, Alcoa and Saudi Arabian Mining Company (Ma'aden) entered into a joint venture to develop...

  • Page 40
    ... the new technology will be ready for product qualification in 2016. On July 23, 2015, Alcoa completed the acquisition of RTI International Metals, Inc. (RTI), a global supplier of titanium and specialty metal products and services for commercial aerospace, defense, energy and medical device markets...

  • Page 41
    ...Alcoa (100%) Japan Mexico Morocco Russia South Korea United Kingdom United States Products Forgings Fasteners Aerospace and Industrial Gas Turbine Castings and Forgings Aerospace and Industrial Gas Turbine Castings Aerospace Castings/Fasteners Fasteners Extrusions and Forgings Extrusions Forgings...

  • Page 42
    ... the value-add portfolio and creation of this new segment, the Company also moved the Latin American soft alloy extrusions business to Transportation and Construction Solutions. In January 2015, Alcoa opened its expanded wheels manufacturing plant in Hungary, doubling Alcoa's capacity to produce its...

  • Page 43
    ... Products Architectural Products Forgings Forgings Forgings Architectural Products Architectural Products Forgings Canada France Germany Hungary Japan Mexico Morocco Netherlands Spain United Kingdom United States 1 2 Facilities with ownership described as "Alcoa (100%)" are owned by the Company...

  • Page 44
    ...) Steam Transportation and Construction Solutions Aluminum coil Electricity Natural gas Paint/Coating Primary aluminum (ingot, billet, P1020, high purity) Resin Scrap aluminum Generally, other materials are purchased from third-party suppliers under competitively priced supply contracts or bidding...

  • Page 45
    ... primary aluminum production costs. Alcoa generates approximately 14% of the power used at its smelters worldwide and generally purchases the remainder under long-term arrangements. The paragraphs below summarize the sources of power and natural gas for Alcoa's smelters and refineries. North America...

  • Page 46
    ...a new license. Since the permanent closure of the Badin, North Carolina smelter, power generated from APGI's Yadkin system is largely being sold to an affiliate, Alcoa Power Marketing LLC, and then into the wholesale market. APGI generates substantially all of the power used at the Company's Warrick...

  • Page 47
    ... the market. Europe - Electricity Alcoa's smelters at San Ciprián, La Coruña and Avilés, Spain purchase electricity under bilateral power contracts that commenced on January 1, 2013. The contracts for San Ciprián and Avilés smelters each have a four-year term (expiring December 31, 2016). The...

  • Page 48
    ... including producers in the gas production areas and independent gas marketers. For Alcoa's larger consuming locations in Canada and the U.S., the gas commodity and the interstate pipeline transportation are procured (directly or via the local distribution companies) to provide increased flexibility...

  • Page 49
    ... Alcoa has remained actively involved with projects aimed at developing cost-based gas supply opportunities. Energy Facilities The following table sets forth the electricity generation capacity and 2015 generation of facilities in which the Company has an ownership interest: Country Australia Brazil...

  • Page 50
    ...2014, and $192 million in 2013. The Company continued to work on new developments in all business segments in 2015. With a focus on multimaterials, the Company integrated acquisitions of TITAL, Firth Rixson and RTI which expanded its reach into aerospace by adding advanced technologies and materials...

  • Page 51
    ...was Chief Financial Officer for Global Primary Products from December 2011 to July 2013. In addition to these roles, Mr. Harvey served as Director of Investor Relations, interfacing with securities analysts and investors globally on Alcoa's performance and strategic direction, from September 2010 to...

  • Page 52
    ... Alcoa in 2000, Mr. Oplinger has held key corporate positions in financial analysis and planning and as Director of Investor Relations. He also has held key positions in the Global Primary Products business, including as Controller, Operational Excellence Director, Chief Financial Officer and Chief...

  • Page 53
    ... global supply and demand for aluminum and aluminum prices. While Alcoa believes that the long-term prospects for aluminum and aluminum products are positive, the Company is unable to predict the future course of industry variables or the strength of the global economy and the effects of government...

  • Page 54
    ... value-add manufacturing and engineering businesses to capture growth opportunities in strong end markets like automotive and aerospace. Alcoa is building out its value-add businesses, including by introducing innovative new products and technology solutions, and investing in expansions of value-add...

  • Page 55
    ... generally expects to meet the energy requirements for its alumina refineries and primary aluminum smelters from internal sources or from long-term contracts, certain conditions could negatively affect Alcoa's results of operations, including the following significant increases in electricity costs...

  • Page 56
    ... 28, 2015, S&P issued a statement that these ratings and outlook for Alcoa were not affected by Alcoa's plan to separate into two publicly-traded companies. On May 29, 2013, Moody's Investors Service downgraded Alcoa's long-term debt rating from Baa3 to Ba1, which is below investment grade, and...

  • Page 57
    ...Ma'aden, the Saudi Arabian Mining Company, to develop a fully integrated aluminum complex (including a bauxite mine, alumina refinery, aluminum smelter and rolling mill) in the Kingdom of Saudi Arabia. Although the Company has, in connection with the Saudi Arabia joint venture and its other existing...

  • Page 58
    ...to be an Alcoa target. Insufficient cash generation or capital project overruns may negatively impact Alcoa's ability to fund as planned its sustaining and return-seeking capital projects. Over the long term, Alcoa's ability to take advantage of improved aluminum or other market conditions or growth...

  • Page 59
    ... in the discount rate or lower-than-expected investment returns on plan assets could have a material negative effect on the Company's cash flows. Adverse capital market conditions could result in reductions in the fair value of plan assets and increase the Company's liabilities related to such...

  • Page 60
    ..., productivity and cost-reduction initiatives to improve performance and conserve cash, including new procurement strategies for raw materials, such as backward integration and non-traditional sourcing from numerous geographies, deployment of company-wide business process models, such as Alcoa...

  • Page 61
    ... health, safety or environmental matters, including remediation costs and damages related to certain sites. Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs, all of which can have a material and adverse effect on earnings and cash...

  • Page 62
    ... Alcoa's business. On September 28, 2015, Alcoa announced plans to separate into two independent publicly-traded companies: a ValueAdd company comprising the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments, and an Upstream company...

  • Page 63
    ... has been made for the purpose of this report, the Company knows of no material defects in title to any such properties. See Notes A and H to the financial statements for information on properties, plants and equipment. Alcoa has active plants and holdings under the following segments and in the...

  • Page 64
    ...end of 2012). The extension was originally through 2010, but the date was changed by legislation adopted by the Italian Parliament effective on August 15, 2009. Prior to expiration of the tariff in 2005, Alcoa had been operating in Italy for more than 10 years under a power supply structure approved...

  • Page 65
    ... timing of such payment, Alcoa paid the requested amount in five quarterly installments of $69 million (â,¬50 million) beginning in October 2012 through December 2013. Notwithstanding the payments made, Alcoa's estimate of the most probable loss of the ultimate outcome of this matter and the low end...

  • Page 66
    ... and rolling operations and the Portovesme, Italy smelter (both of which are owned by Alcoa's subsidiary, Alcoa Trasformazioni S.r.l.) from Alumix, an entity owned by the Italian Government. Alcoa also acquired the extrusion plants located in Feltre and Bolzano, Italy. At the time of the acquisition...

  • Page 67
    ... out in the agreement between Alcoa and Ligestra, those two parties will share the remediation costs and environmental damages claimed by the MOE and MOPW. The remediation project filed by Alcoa and Ligestra has been approved by the MOE. See Note N to the Consolidated Financial Statements under the...

  • Page 68
    ..., the Company is unable to reasonably predict an outcome or to estimate a range of reasonably possible loss. As previously reported, by an amended complaint filed April 21, 2005, Alcoa Global Fasteners, Inc. was added as a defendant in Orange County Water District (OCWD) v. Northrop Corporation, et...

  • Page 69
    ... to be material to the results of operations, cash flows, and financial position of the Company. As previously reported, on August 2, 2013, the State of North Carolina, by and through its agency, the North Carolina Department of Administration, filed a lawsuit against Alcoa Power Generating Inc...

  • Page 70
    .... Tax As previously reported, in September 2010, following a corporate income tax audit covering the 2003 through 2005 tax years, an assessment was received as a result of Spain's tax authorities disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company...

  • Page 71
    ..., management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of the Company. Item 4. Mine Safety Disclosures. The information concerning mine safety violations...

  • Page 72
    ... and Issuer Purchases of Equity Securities. The Company's common stock is listed on the New York Stock Exchange where it trades under the symbol AA. The Company's quarterly high and low trading stock prices and dividends per common share for 2015 and 2014 are shown below. 2015 Low Dividend $12.65...

  • Page 73
    ...31, 2010 2011 2012 2013 2014 2015 Alcoa Inc. $100 $ 57 $ 58 $ 72 $107 $ 68 ® S&P 500 Index 100 102 118 157 178 181 ® S&P 500 Materials Index 100 90 104 130 139 128 Copyright© 2016 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved. Source: Research Data Group, Inc...

  • Page 74
    ... Business Alcoa is a global leader in lightweight metals engineering and manufacturing. Alcoa's innovative, multi-material products, which include aluminum, titanium, and nickel, are used worldwide in aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas...

  • Page 75
    .../spot price. Conversely, Alcoa's upstream operations realized the benefit of a stronger U.S. dollar in 2015 compared to 2014. In the midstream operations, after-tax operating income was stable in 2015 from 2014 despite generating $1,052 less revenue due to the closure and divestiture of six rolling...

  • Page 76
    ...to slightly exceed supply due to capacity reductions in China, as well as other parts of the world. Management also anticipates improved market conditions for value-add products in the aerospace, building and construction, packaging, automotive, and industrial gas turbine global end markets, despite...

  • Page 77
    ... three acquisitions (mostly aerospace-related) in November 2014 through July 2015 (see Engineered Products and Solutions in Segment Information under Results of Operations below) that will incrementally increase revenue. Furthermore, in 2014 and 2015, Alcoa entered into a number of multi-year supply...

  • Page 78
    ... 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...

  • Page 79
    ... with the acquisition of Firth Rixson ($42-see Engineered Products and Solutions in Segment Information below) and higher stock-based compensation expense. Research and Development Expenses-R&D expenses were $238 in 2015 compared with $218 in 2014 and $192 in 2013. The increase in 2015 as compared...

  • Page 80
    ...Primary Metals segment, 90 in the Global Rolled Products segment, 85 in the Alumina segment, and 475 in Corporate); $34 ($14 after-tax and noncontrolling interest) for asset impairments, virtually all of which was related to prior capitalized costs for an expansion project at a refinery in Australia...

  • Page 81
    ...exit costs related to decisions to permanently shut down and demolish three smelters and two rolling mills (see below); a $332 ($163 after-tax and noncontrolling interest) net loss for the divestitures of four operations (see Alumina, Primary Metals, and Global Rolled Products in Segment Information...

  • Page 82
    ... 1,790 employees (1,210 in the Primary Metals segment, 470 in the Global Rolled Products segment, 80 in the Alumina segment, and 30 in Corporate), including $26 in pension costs; accelerated depreciation of $204 related to the three facilities in Australia as they continued to operate during 2014...

  • Page 83
    ... the results of its reportable segments. The pretax impact of allocating such charges to segment results would have been as follows: 2015 2014 2013 Alumina Primary Metals Global Rolled Products Engineered Products and Solutions Transportation and Construction Solutions Segment total Corporate Total...

  • Page 84
    ... cash surrender value of company-owned life insurance. These items were somewhat offset by a gain on the sale of a mining interest in Suriname ($28) and a portion of an equity investment in a China rolling mill ($14). Income Taxes-Alcoa's effective tax rate was 179.4% (provision on income) in 2015...

  • Page 85
    ... ownership interest in a mining and refining joint venture in Jamaica (see Alumina in Segment Information below), and the absence of a combined $79 ($32 was noncontrolling interest's share) discrete income tax charge related to a respective tax rate change in both Brazil and Spain (see Income Taxes...

  • Page 86
    ... $17 and $34 related to this legal matter in 2013 and 2012, respectively. Segment Information Alcoa's operations consist of five worldwide reportable segments: Alumina, Primary Metals, Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions (see below...

  • Page 87
    ...2015), Alcoa Forgings and Extrusions (includes the other portions of Firth Rixson), and Alcoa Titanium and Engineered Products (a new business unit that consists solely of the RTI International Metals business acquired in July 2015) business units. Segment information for all prior periods presented...

  • Page 88
    ... by the end of May 2014 (see Primary Metals below). As a result, management reduced the alumina production at the Poços de Caldas refinery by approximately 200 kmt-per-year by mid-2014. This reduction was replaced by an increase in production at lower cost refineries within Alcoa's global system...

  • Page 89
    ... operating results and assets and liabilities related to the smelter were included in the Primary Metals segment. As it relates to Alcoa's previous 50.33% ownership stake, the smelter (Alcoa's share of the capacity was 115 kmt-per-year) generated sales of approximately $280 in 2013 and, at the time...

  • Page 90
    ... market conditions for the price of aluminum. The shutdown of the Warrick smelter is expected to be completed by the end of March 2016. Separate from the 2015 smelting capacity review described above, in June 2015, management approved the permanent closure of the Poços de Caldas smelter effective...

  • Page 91
    ... primarily related to the fulfillment of customer orders with aluminum purchased from the smelter at the Saudi Arabia joint venture. Third-party sales for the Primary Metals segment increased 3% in 2014 compared with 2013, mainly due to higher energy sales in Brazil resulting from excess power due...

  • Page 92
    ...Seasonal increases in can sheet sales are generally experienced in the second and third quarters of the year. This segment also includes sheet and plate sold directly to customers and through distributors related to the aerospace, automotive, commercial transportation, building and construction, and...

  • Page 93
    ... of overall pricing pressure in the global can sheet packaging end market, and higher costs related to growth projects, including research and development as Alcoa develops and qualifies products from a new Micromillâ„¢ production process and the ramp-up of the Tennessee automotive expansion. These...

  • Page 94
    ... since the date of acquisition. Also in March 2015, Alcoa signed a definitive agreement to acquire RTI International Metals, Inc. (RTI), a global supplier of titanium and specialty metal products and services for the commercial aerospace, defense, energy, and medical device end markets. On July...

  • Page 95
    ...of Alcoa's downstream operations and produces products that are used mostly in the nonresidential building and construction and commercial transportation end markets. Such products include integrated aluminum structural systems, architectural extrusions, and forged aluminum commercial vehicle wheels...

  • Page 96
    ... an increase in price at December 31, 2014 indexed to December 31, 2013); a change in Metal price lag, the result of lower prices for aluminum; an increase in Interest expense, principally caused by an 8% higher average debt level, which was largely attributable to higher outstanding long-term debt...

  • Page 97
    ... result of higher prices for aluminum; an increase in Interest expense, primarily the result of lower capitalized interest ($28) and fees paid associated with the execution and termination of a 364-day senior unsecured bridge term loan facility related to the then-planned acquisition of Firth Rixson...

  • Page 98
    ...secured a new 12-year gas supply agreement to power its three alumina refineries in Western Australia beginning in July 2020. This agreement was conditional on the completion of a third-party acquisition of the related energy assets from the then-current owner, which occurred in June 2015. The terms...

  • Page 99
    ... at a smelter in Canada. On August 8, 2014, the Highway and Transportation Funding Act (HATFA) was signed into law by the United States government. HATFA, in part, provides temporary relief for employers who sponsor defined benefit pension plans related to funding contributions under the Employee...

  • Page 100
    ...the "Credit Facility"), the proceeds of which are to be used to provide working capital or for other general corporate purposes of Alcoa. Subject to the terms and conditions of the Credit Agreement, Alcoa may from time to time request increases in lender commitments under the Credit Facility, not to...

  • Page 101
    ... fixed income securities held by Alcoa's captive insurance company and equity contributions of $29 related to the aluminum complex joint venture in Saudi Arabia. These items were somewhat offset by $302 in cash acquired with RTI International Metals (see Engineered Products and Solutions in Segment...

  • Page 102
    ... sale of a mining interest in Suriname and a portion of an equity investment in a China rolling mill. The use of cash in 2013 was primarily due to $1,193 in capital expenditures (includes costs related to environmental control in new and expanded facilities of $143), 34% of which related to growth...

  • Page 103
    ... table. Estimated minimum required pension funding and postretirement benefit payments are based on actuarial estimates using current assumptions for discount rates, long-term rate of return on plan assets, rate of compensation increases, and health care cost trend rates, among others. The minimum...

  • Page 104
    ... represent Alcoa's committed investment related to a joint venture in Saudi Arabia. Alcoa is a participant in a joint venture to develop a new aluminum complex in Saudi Arabia, comprised of a bauxite mine, alumina refinery, aluminum smelter, and rolling mill, which requires the Company to...

  • Page 105
    ...; the testing of goodwill, equity investments, and properties, plants, and equipment for impairment; estimating fair value of businesses to be divested; pension plans and other postretirement benefits obligations; stock-based compensation; and income taxes. Management uses historical experience and...

  • Page 106
    ... materials related to the demolition of certain power facilities. The fair values of these AROs are recorded on a discounted basis, at the time the obligation is incurred, and accreted over time for the change in present value. Additionally, Alcoa capitalizes asset retirement costs by increasing...

  • Page 107
    ... Corporate's goodwill. In November 2014, Alcoa acquired Firth Rixson (see Engineered Products and Solutions in Segment Information under Results of Operations above), and, as a result recognized $1,801 in goodwill. This amount was allocated between the AFSR and Alcoa Forgings and Extrusion reporting...

  • Page 108
    ... markets and market share, sales volumes and prices, production costs, tax rates, capital spending, discount rate, and working capital changes. Most of these assumptions vary significantly among the reporting units. Cash flow forecasts are generally based on approved business unit operating plans...

  • Page 109
    ... impairment of Primary Metals' goodwill resulted from several causes: the prolonged economic downturn; a disconnect between industry fundamentals and pricing that has resulted in lower metal prices; and the increased cost of alumina, a key raw material, resulting from expansion of the Alumina Price...

  • Page 110
    ... rates of bond payments in the same respective year. The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan assets (a four-year average or the fair value at the plan measurement date is used for certain non-U.S. plans). The process used...

  • Page 111
    ... the Primary Metals business (2013 realized prices were the lowest since 2009) combined with prior year cumulative losses of the Spanish consolidated tax group. During 2014, the underlying value of the deferred tax assets decreased due to a remeasurement as a result of the enactment of new tax rates...

  • Page 112
    ...sells products to various related companies, consisting of entities in which Alcoa retains a 50% or less equity interest, at negotiated prices between the two parties. These transactions were not material to the financial position or results of operations of Alcoa for all periods presented. Recently...

  • Page 113
    ...it was acquired by the Company in a purchase business combination in July 2015. RTI International Metals is a 100% owned subsidiary whose total assets (excluding goodwill and intangible assets) and total sales represent 5% and 1%, respectively, of the related consolidated financial statement amounts...

  • Page 114
    ...and Board of Directors of Alcoa Inc. In our opinion, the accompanying consolidated balance sheet and the related statements of consolidated operations, consolidated comprehensive loss, changes in consolidated equity, and consolidated cash flows present fairly, in all material respects, the financial...

  • Page 115
    Alcoa and subsidiaries Statement of Consolidated Operations (in millions, except per-share amounts) For the year ended December 31, Sales (Q) Cost of goods sold (exclusive of expenses below) Selling, general administrative, and other expenses Research and development expenses Provision for ...

  • Page 116
    ... Total 2015 2014 2013 2015 2014 2013 2015 2014 2013 $ (322) $ 268 $(2,285) $ 125 $ (91) $ 41 $ (197) $ 177 $(2,244) For the year ended December 31, Net (loss) income Other comprehensive loss, net of tax (B): Change in unrecognized net actuarial loss and prior service cost/benefit related to pension...

  • Page 117
    ... (H) Goodwill (A & E) Investments (I) Deferred income taxes (T) Other noncurrent assets (J) Total Assets Liabilities Current liabilities: Short-term borrowings (K & X) Accounts payable, trade Accrued compensation and retirement costs Taxes, including income taxes Other current liabilities Long-term...

  • Page 118
    ... Equity income, net of dividends Impairment of goodwill (A & E) Restructuring and other charges (D) Net gain from investing activities-asset sales (O) Net periodic pension benefit cost (W) Stock-based compensation (R) Excess tax benefits from stock-based payment arrangements Other Changes in assets...

  • Page 119
    ...Total stock stock stock capital earnings stock hensive loss interests equity Balance at December 31, 2012 Net (loss) income Other comprehensive loss (B) Cash dividends declared: Preferred @ $3.75 per share Common @ $0.12 per share Stock-based compensation (R) Common stock issued: compensation plans...

  • Page 120
    ... of structures and machinery and equipment by reporting segment (numbers in years): Segment Alumina: Alumina refining Bauxite mining Primary Metals: Aluminum smelting Power generation Global Rolled Products Engineered Products and Solutions Transportation and Construction Solutions Structures 30...

  • Page 121
    ... allocation of Corporate's goodwill. In November 2014, Alcoa acquired Firth Rixson (see Note F), and, as a result recognized $1,801 in goodwill. This amount was allocated between the AFSR and Alcoa Forgings and Extrusion reporting units, which is part of the Engineered Products and Solutions segment...

  • Page 122
    ... markets and market share, sales volumes and prices, production costs, tax rates, capital spending, discount rate, and working capital changes. Most of these assumptions vary significantly among the reporting units. Cash flow forecasts are generally based on approved business unit operating plans...

  • Page 123
    ... Primary Metals reporting unit. The impairment of Primary Metals' goodwill resulted from several causes: the prolonged economic downturn; a disconnect between industry fundamentals and pricing that has resulted in lower metal prices; and the increased cost of alumina, a key raw material, resulting...

  • Page 124
    ... terms. The shipping terms vary across all businesses and depend on the product, the country of origin, and the type of transportation (truck, train, or vessel). Alcoa periodically enters into long-term supply contracts with alumina and aluminum customers and receives advance payments for product...

  • Page 125
    ... such time that the related tax benefits are recognized. Stock-Based Compensation. Alcoa recognizes compensation expense for employee equity grants using the nonsubstantive vesting period approach, in which the expense (net of estimated forfeitures) is recognized ratably over the requisite service...

  • Page 126
    ... fair values. Any excess purchase price over the fair value of the net assets acquired is recorded as goodwill. For all acquisitions, operating results are included in the Statement of Consolidated Operations from the date of the acquisition. Discontinued Operations and Assets Held For Sale. For...

  • Page 127
    ...respective acquisition date. Such amounts recorded in current period operations were not material to the Statement of Consolidated Operations for the year ended December 31, 2015. In November 2015, the FASB issued changes to the balance sheet classification of deferred taxes, which Alcoa immediately...

  • Page 128
    ...Investment Company Act of 1940 for registered money market funds. These changes become effective for Alcoa on January 1, 2016. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements. In April 2015, the FASB issued changes to the presentation...

  • Page 129
    ... obligation. In August 2015, the FASB deferred the effective date by one year, making these changes effective for Alcoa on January 1, 2018. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements. In August 2014, the FASB issued changes...

  • Page 130
    ... at end of period Cash flow hedges (X) Balance at beginning of period Other comprehensive income (loss): Net change from periodic revaluations Tax expense Total Other comprehensive income before reclassifications, net of tax Net amount reclassified to earnings: Aluminum contracts(5) Energy contracts...

  • Page 131
    ... computation of net periodic benefit cost for pension and other postretirement benefits (see Note W). These amounts were included in Provision for income taxes on the accompanying Statement of Consolidated Operations. In all periods presented, there were no tax impacts related to rate changes and no...

  • Page 132
    ...Primary Metals segment, 90 in the Global Rolled Products segment, 85 in the Alumina segment, and 475 in Corporate); $34 ($14 after-tax and noncontrolling interest) for asset impairments, virtually all of which was related to prior capitalized costs for an expansion project at a refinery in Australia...

  • Page 133
    ... asset impairments of $217, representing the write-off of the remaining book value of all related properties, plants, and equipment; $156 for the layoff of approximately 3,100 employees (1,800 in the Primary Metals segment and 1,300 in the Alumina segment), including $30 in pension costs (see...

  • Page 134
    ... Transportation and Construction Solutions segment, 45 in the Global Rolled Products segment, 60 in the Alumina and Primary Metals segments combined, and 185 in Corporate); $34 ($26 after-tax) for asset impairments related to prior capitalized costs for a modernization project at a smelter in Canada...

  • Page 135
    ... all related properties, plants, and equipment; and $55 in other exit costs. Additionally in 2013, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value resulting in a charge of $9 ($6 after-tax), which was recorded in Cost of goods sold...

  • Page 136
    ... results would have been as follows: 2015 2014 2013 $ 233 $ 287 $ 11 691 553 295 131 266 15 49 13 12 8 10 16 1,112 1,129 349 83 39 433 $1,195 $1,168 $782 Alumina Primary Metals Global Rolled Products Engineered Products and Solutions Transportation and Construction Solutions Segment total Corporate...

  • Page 137
    ...In 2015 and 2013, Alcoa recognized an impairment of goodwill in the amount of $25 and $1,731 ($1,719 after noncontrolling interest), respectively, related to the annual impairment review of the soft alloy extrusion business in Brazil (included in the Transportation and Construction Solutions segment...

  • Page 138
    ... company with approximately 650 employees based in Germany, produces aluminum and titanium investment casting products for the aerospace and defense end markets. The purpose of this acquisition is to capture increasing demand for advanced jet engine components made of titanium, establish titanium...

  • Page 139
    ... Operations. RTI is a global supplier of titanium and specialty metal products and services for the commercial aerospace, defense, energy, and medical device end markets. The purpose of this acquisition is to expand Alcoa's range of titanium offerings and add advanced technologies and materials...

  • Page 140
    .... The rolling mill generated sales of approximately $130 in 2014 and, at the time of divestiture, had approximately 1,870 employees. 2014 Acquisitions. In June 2014, Alcoa signed a purchase agreement to acquire an aerospace jet engine components company, Firth Rixson, from Oak Hill Capital Partners...

  • Page 141
    ... Alcoa's aerospace business and position the Company to capture additional aerospace growth with a broader range of high-growth, value-add jet engine components. The operating results and assets and liabilities of Firth Rixson were included within the Engineered Products and Solutions segment...

  • Page 142
    ... rolling mills combined generated sales of approximately $500 in 2013 and, at the time of divestiture, had approximately 750 employees. G. Inventories December 31, Finished goods Work-in-process Bauxite and alumina Purchased raw materials Operating supplies 2015 $ 811 1,272 445 720 194 $3,442 2014...

  • Page 143
    ... Machinery and equipment: Alumina: Alumina refining Bauxite mining Primary Metals: Aluminum smelting Power generation Global Rolled Products Engineered Products and Solutions* Transportation and Construction Solutions Other 2015 $ 481 2,387 1,054 3,567 518 1,298 658 239 619 10,340 2014 $ 548 2,750...

  • Page 144
    ... use critical infrastructure, including power generation derived from reserves of natural gas, as well as port and rail facilities, developed by the government of Saudi Arabia. First production from the smelter, rolling mill, and mine and refinery occurred in December of 2012, 2013, and 2014...

  • Page 145
    ...government of Saudi Arabia and is responsible for desalinating sea water and producing electricity for Saudi Arabia. The combined water and power plant will convert the three joint venture companies' gas into electricity and water at cost, which will be supplied to the refinery, smelter, and rolling...

  • Page 146
    ... contracts (X) Cash surrender value of life insurance Gas supply prepayment (N) Prepaid gas transmission contract (N) Value-added tax receivable Deferred mining costs, net Unamortized debt expense Prepaid pension benefit (W) Advance related to European Commission Matter in Italy (N) Other 2015 2014...

  • Page 147
    ...value of the issued shares increased Additional capital on the accompanying Consolidated Balance Sheet. This transaction was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash financing activity. In September 2014, Alcoa completed a public debt offering...

  • Page 148
    ... payment date and Alcoa makes payment to the third-party intermediary on the date stipulated in accordance with the commercial terms negotiated with its vendors. Alcoa records imputed interest related to these arrangements in Interest expense on the accompanying Statement of Consolidated Operations...

  • Page 149
    ... taxes (T) Accrued compensation and retirement costs Fair value of derivative contracts (X) Liability related to the resolution of a legal matter (N) Contingent payment related to an acquisition (F) Deferred alumina sales revenue Deferred credit related to derivative contract (X) Other 2015 2014...

  • Page 150
    ... in the 2012 second quarter in respect of the suit (see Agreement with Alumina Limited below). Government Investigations. On February 26, 2008, Alcoa Inc. advised the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") that it had recently become aware of the claims by...

  • Page 151
    ... a mining and refining joint venture in Jamaica-see Note F). Alcoa owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated by the Company for financial reporting purposes. In October 2012, Alcoa and Alumina Limited entered into an agreement to allocate the costs of...

  • Page 152
    ...end of 2012). The extension was originally through 2010, but the date was changed by legislation adopted by the Italian Parliament effective on August 15, 2009. Prior to expiration of the tariff in 2005, Alcoa had been operating in Italy for more than 10 years under a power supply structure approved...

  • Page 153
    ...the end of 2011, as part of a restructuring of Alcoa's global smelting system, management decided to curtail operations at the Portovesme smelter during 2012 due to the uncertain prospects for viable, long-term power, along with rising raw materials costs and falling global aluminum prices (mid-2011...

  • Page 154
    ... with a number of other sites. Of the changes to the remediation reserve in 2015 and 2014, $86 and $47, respectively, was recorded in Restructuring and other charges, while the remainder was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. Payments related to...

  • Page 155
    ...EPA decision in 2016-any resulting liability is not expected to be material). At December 31, 2015 and 2014, the reserve balance associated with this matter was $8 and $15, respectively. Fusina and Portovesme, Italy-In 1996, Alcoa acquired the Fusina smelter and rolling operations and the Portovesme...

  • Page 156
    ... MOE for review during 2016. The ultimate outcome of this matter may result in a change to the existing reserve for Portovesme. Baie Comeau, Quebec, Canada-In August 2012, Alcoa presented an analysis of remediation alternatives to the Quebec Ministry of Sustainable Development, Environment, Wildlife...

  • Page 157
    ... this time, the Company is unable to reasonably predict an outcome for this matter. In March 2013, Alcoa's subsidiary, Alcoa World Alumina Brasil (AWAB), was notified by the Brazilian Federal Revenue Office (RFB) that approximately $110 (R$220) of value added tax credits previously claimed are being...

  • Page 158
    ...the Company. Commitments Investments. Alumínio, a wholly-owned subsidiary of Alcoa, is a participant in four consortia that each owns a hydroelectric power project in Brazil. The purpose of Alumínio's participation is to increase its energy self-sufficiency and provide a long-term, low-cost source...

  • Page 159
    ...and buildings, alumina refinery process control technology, plant equipment, vehicles, and computer equipment are under operating lease agreements. Total expense for all leases was $210 in 2015, $227 in 2014, and $232 in 2013. Under long-term operating leases, minimum annual rentals are $243 in 2016...

  • Page 160
    ... $14 gain related to the sale of a mining interest in Suriname and an equity investment in a China rolling mill, respectively. P. Cash Flow Information Cash paid for interest and income taxes was as follows: Interest, net of amount capitalized Income taxes, net of amount refunded 2015 2014 2013 $487...

  • Page 161
    ...2015), Alcoa Forgings and Extrusions (includes the other portions of Firth Rixson), and Alcoa Titanium and Engineered Products (a new business unit that consists solely of the RTI International Metals business acquired in July 2015) business units. Segment information for all prior periods presented...

  • Page 162
    ... customers. Engineered Products and Solutions. This segment represents a portion of Alcoa's downstream operations and produces products that are used mostly in the aerospace (commercial and defense), commercial transportation, and power generation end markets. Such products include fastening systems...

  • Page 163
    The operating results and assets of Alcoa's reportable segments were as follows: Global Rolled Products Engineered Products and Solutions Transportation and Construction Solutions Alumina 2015 Sales: Third-party sales Intersegment sales Total sales Profit and loss: Equity loss Depreciation, ...

  • Page 164
    ...819 (767) 16 943 $ 37,363 Sales by major product grouping were as follows: 2015 Sales: Alumina Primary aluminum Flat-rolled aluminum Investment castings Fastening systems Architectural aluminum systems Aluminum wheels Other extruded and forged products Other 2014 2013 $ 3,333 $ 3,401 $ 3,151 5,085...

  • Page 165
    ... Sales of the aluminum from Alcoa's smelter in Iceland occurred in both Spain and the Netherlands. Geographic information for long-lived assets was as follows (based upon the physical location of the assets): December 31, Long-lived assets: United States Australia Brazil Iceland Canada Norway China...

  • Page 166
    ... dividend yield as authorized by Alcoa's Board of Directors is $0.12 per annum or $0.03 per quarter. In July 2015, Alcoa issued 87 million shares of common stock as consideration paid to acquire RTI (see Note F). In early 2014, Alcoa issued 89 million shares of common stock under the terms of Alcoa...

  • Page 167
    ...grant using a lattice-pricing model, which generated a result of $4.47, $2.84, and $2.24 per option in 2015, 2014, and 2013, respectively. The lattice-pricing model uses a number of assumptions to estimate the fair value of a stock option, including an average risk-free interest rate, dividend yield...

  • Page 168
    ... (loss) income available to Alcoa common shareholders-diluted Average shares outstanding-basic Effect of dilutive securities: Stock options Stock and performance awards Mandatory convertible preferred stock Convertible notes Average shares outstanding-diluted 2015 2014 2013 $ (322) $ 268 $(2,285) 69...

  • Page 169
    ... of employee stock options generated a tax benefit of $3 and $9 in 2015 and 2014, respectively, and a tax charge of $1 in 2013, representing only the difference between compensation expense recognized for financial reporting and tax purposes. These amounts decreased equity and increased either...

  • Page 170
    ...'s share of a loss on the divestiture of an ownership interest in a mining and refining joint venture in Jamaica (see Note F). (2) In November 2014, Spain enacted corporate tax reform that changed the corporate tax rate from 30% in 2014 to 28% in 2015 to 25% in 2016. As a result, Alcoa remeasured...

  • Page 171
    ... the Primary Metals business (2013 realized prices were the lowest since 2009) combined with prior year cumulative losses of the Spanish consolidated tax group. During 2014, the underlying value of the deferred tax assets decreased due to a remeasurement as a result of the enactment of new tax rates...

  • Page 172
    ... for which no deferred taxes have been provided was approximately $4,000 at December 31, 2015. Alcoa has a number of commitments and obligations related to the Company's growth strategy in foreign jurisdictions. As such, management has no plans to distribute such earnings in the foreseeable future...

  • Page 173
    ... the annual effective tax rate for 2015, 2014, and 2013 would be approximately 12%, 4%, and (1)%, respectively, of pretax book income (loss). Alcoa does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Statement of Consolidated Operations during 2016...

  • Page 174
    ..., 2014. In 2014, as a result of the preparation for and ratification of the new agreement, Alcoa recognized $18 ($12 after-tax) in Cost of goods sold on the accompanying Statement of Consolidated Operations for, among other items, business contingency costs and a onetime signing bonus for employees...

  • Page 175
    ... by purchasing coverage directly from insurance carriers. This change resulted in the adoption of a significant plan amendment by certain Alcoa U.S. postretirement benefit plans in August 2014. Accordingly, these plans were required to be remeasured, and through this process, the discount rate was...

  • Page 176
    ... of accumulated net actuarial loss Prior service (benefit) cost Amortization of prior service (cost) benefit Total, before tax effect Less: Amounts attributed to joint venture partners Net amount recognized, before tax effect Other postretirement benefits 2015 2014 $ 2,368 14 92 26 48 (6) (235...

  • Page 177
    ... value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets was as follows: Accumulated benefit obligation Fair value of plan assets Components of Net Periodic Benefit Cost Pension benefits(1) Other postretirement benefits(2) 2015 2014 2013 2015 2014 2013...

  • Page 178
    ... differ materially): December 31, Discount rate Rate of compensation increase 2015 2014 4.29% 4.00% 3.5 3.5 The discount rate is determined using a Company-specific yield curve model (above-median) developed with the assistance of an external actuary. The cash flows of the plans' projected benefit...

  • Page 179
    .... For 2016, management anticipates that 7.75% will be the expected long-term rate of return. Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (assumptions for nonU.S plans did not differ materially): 2015 2014 2013 5.5% 5.5% 5.5% 4.5% 4.5% 4.5% 2019...

  • Page 180
    ... securities consist of: (i) direct investments in the stock of publicly traded U.S. and non-U.S. companies and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (ii) the plans' share of commingled funds...

  • Page 181
    ... interest and dividends earned on various investments. **As of December 31, 2014, the total fair value of pension plans' assets excludes a net payable of $116, which represents assets related to divested businesses (see Note F) to be transferred to the buyers' pension plans less securities sold not...

  • Page 182
    ...3* Balance at end of year * In 2015 and 2014, there were no transfers of financial instruments into or out of Level 3. Funding and Cash Flows It is Alcoa's policy to fund amounts for pension plans sufficient to meet the minimum requirements set forth in applicable country benefits laws and tax laws...

  • Page 183
    ... executive officer, the chief financial officer, and other officers and employees that the chief executive officer selects. The SRMC meets on a periodic basis to review derivative positions and strategy and reports to Alcoa's Board of Directors on the scope of its activities. The aluminum, energy...

  • Page 184
    ...accompanying Statement of Consolidated Operations. Also, Alcoa has a power contract separate from above that contains an LME-linked embedded derivative. The embedded derivative is valued using the probability and interrelationship of future LME prices, Australian dollar to U.S. dollar exchange rates...

  • Page 185
    ...of Consolidated Operations as electricity purchases were made under the contract. Finally, Alcoa has a derivative contract that will hedge the anticipated power requirements at one of its smelters once the existing power contract expires in September 2016. Beyond the term where market information is...

  • Page 186
    ... in 2016 to $53 per barrel in 2018 Price of aluminum beyond forward curve Aluminum: $2,060 per metric ton in 2026 to $2,128 per metric ton in 2027 Embedded credit derivative 35 Credit spread between Alcoa 3.41% to 4.29% and counterparty (3.85% median) Energy contract 2 Price of electricity beyond...

  • Page 187
    ...effect on these amounts of a hypothetical change (increase or decrease of 10%) in the market prices or rates that existed as of December 31, 2015: Fair value asset/(liability) $966 (35) (2) Index change of + / - 10% $340 4 136 Embedded aluminum derivatives Embedded credit derivative Energy contract...

  • Page 188
    ...2014: Sales $ $ $ $ Cost of goods sold Other expenses, net (15) (2) * In November 2014, three new embedded derivatives were contained within renewed power contracts; however, there was no amount included for issuances as the fair value on the date of issuance was zero. There were no purchases, sales...

  • Page 189
    ... related to these five derivative instruments in 2015, 2014, and 2013. Assuming market rates remain constant with the rates at December 31, 2015, a realized gain of $45 is expected to be recognized in Sales over the next 12 months. Energy contract. Alcoa has a derivative contract that will hedge...

  • Page 190
    ... values of Alcoa's other financial instruments were as follows: 2015 December 31, Cash and cash equivalents Restricted cash Noncurrent receivables Available-for-sale securities Short-term borrowings Commercial paper Long-term debt due within one year Contingent payment related to an acquisition Long...

  • Page 191
    ...its Board of Directors approved a plan to separate into two independent, publicly-traded companies. One company will comprise the Alumina and Primary Metals segments and the other company will comprise the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction...

  • Page 192
    ... Financial Information (unaudited) Quarterly Data (in millions, except per-share amounts) First 2015 Sales Net income (loss) attributable to Alcoa Earnings per share attributable to Alcoa common shareholders**: Basic Diluted 2014 Sales Net (loss) income attributable to Alcoa Earnings per share...

  • Page 193
    ... Controls and Procedures Alcoa's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have...

  • Page 194
    ...Equity Compensation Plan Information" of the Proxy Statement and is incorporated by reference. The information required by Item 403 of Regulation S-K is contained under the captions "Alcoa Stock Ownership- Stock Ownership of Certain Beneficial Owners" and "-Stock Ownership of Directors and Executive...

  • Page 195
    ... information is included in the consolidated financial statements or notes thereto. (3) Exhibits. Exhibit Number 2. Description* Share Purchase Agreement, dated as of June 25, 2014, by and among Alcoa Inc., Alcoa IH Limited, FR Acquisition Corporation (US), Inc., FR Acquisitions Corporation (Europe...

  • Page 196
    ... RTI International Metals, Inc. and The Bank of New York Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.1 on Form 8-K dated July 23, 2015. Alcoa Retirement Savings Plan for Bargaining Employees, as Amended and Restated effective January 1, 2015. Alcoa Retirement Savings Plan...

  • Page 197
    .... Plea Agreement dated January 8, 2014, between the United States of America and Alcoa World Alumina LLC, incorporated by reference to exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Offer of Settlement of Alcoa Inc. before the Securities and Exchange...

  • Page 198
    ... to the Company's Current Report on Form 8-K dated February 1, 2016. Alcoa Internal Revenue Code Section 162(m) Compliant Annual Cash Incentive Compensation Plan, incorporated by reference to Attachment D to the Company's Definitive Proxy Statement on Form DEF 14A, filed March 7, 2011. 2004 Summary...

  • Page 199
    ... to Non-Employee Director Compensation and Stock Ownership Guidelines, effective January 1, 2011, incorporated by reference to exhibit 10(b) to the Company's Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended September 30, 2010. Summary of 2013 Non-Employee Director...

  • Page 200
    ... Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2010. Amendment to the Amendment dated as of December 30, 2010 to Deferred Compensation Plan, effective January 1, 2011, incorporated by reference to exhibit 10(t)(12) to the Company's Annual Report...

  • Page 201
    ... to exhibit 10(aa)(5) to the Company's Annual Report on Form 10-K for the year ended December 31, 2011. Amendment to Alcoa Supplemental Pension Plan for Senior Executives, effective September 1, 2014, incorporated by reference to exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the...

  • Page 202
    ... 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 . Global Pension Plan, effective January 1, 1998, incorporated by reference to exhibit 10(jj) to the Company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2004...

  • Page 203
    ... file number 1-3610) dated May 13, 2009. Terms and Conditions for Stock Options, effective January 1, 2011, incorporated by reference to exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. Form of Award Agreement for Restricted Share Units, effective...

  • Page 204
    ...the Company's Current Report on Form 8-K dated May 8, 2013. Amendment to Employees' Excess Benefits Plan C, effective August 11, 2014. Amendment to Deferred Compensation Plan, effective August 11, 2014. Amendment to Deferred Compensation Plan, effective January 1, 2016. RTI International Metals, Inc...

  • Page 205
    ... Inc. Terms and Conditions for Special Retention Awards under the 2013 Alcoa Stock Incentive Plan, incorporated by reference to exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013. Summary of 2015 Non-Employee Director Compensation and Stock Ownership...

  • Page 206
    ... and Director) Klaus Kleinfeld Executive Vice President and Chief Financial Officer (Principal Financial Officer) William F. Oplinger February 19, 2016 February 19, 2016 Arthur D. Collins, Jr., Kathryn S. Fuller, Sean O. Mahoney, Michael G. Morris, E. Stanley O'Neal, James W. Owens, John C. Plant...

  • Page 207
    ... AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions, except ratios) For the year ended December 31, 2015 2014 2013 2012 2011 Earnings: Income (loss) from continuing operations before income taxes Noncontrolling interests' share of earnings of majority-owned...

  • Page 208
    ... Canada Canada Ohio Ohio Name Alcoa Domestic LLC Alcoa Securities Corporation Howmet International Inc. Howmet Holdings Corporation Howmet Corporation Howmet Castings & Services, Inc. Alcoa International Holdings Company Alcoa Australian Holdings Pty. Ltd. Alcoa of Australia Limited 1 Alcoa (China...

  • Page 209
    ...-182899, 333-189882, 333-205829, and 333-203275) of Alcoa Inc. and its subsidiaries of our report dated February 19, 2016 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. PricewaterhouseCoopers LLP...

  • Page 210
    ...'s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2016 3. 4. Name: Klaus...

  • Page 211
    ...'s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2016 3. 4. Name: William...

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    ...Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 19, 2016 Name: Klaus Kleinfeld Title: Chairman and Chief Executive Officer Dated: February 19, 2016...

  • Page 213
    ... ingot prices and per-share amounts) For the year ended December 31, 2015 2014 2013 Operating Results Sales $ 22,534 $ 23,906 $ 23,032 Cost of goods sold (exclusive of expenses below) 18,069 19,137 19,286 Selling, general administrative, and other expenses 979 995 1,008 Research and development...

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    ... of February 24, 2016 (the record date for the 2016 annual shareholders' meeting). Represents earnings per share on net income (loss) attributable to Alcoa common shareholders. Book value per share = (Total shareholders' equity minus Preferred stock) divided by Common stock outstanding, end of year.

  • Page 215
    ... 31, 2015, costs associated with the planned separation of Alcoa and the acquisitions of RTI International Metals and TITAL ($46), a gain on the sale of land in the United States and an equity investment in a China rolling mill ($44), a write-down of inventory related to the permanent closure or...

  • Page 216
    ... of Working Capital for each period presented represent the average of the ending balances in each of the three months during the respective quarter. (2) Reconciliation of Net Debt December 31, 2015 2014 2013 2012 2011 2010 Short-term borrowings $ 38 $ 54 $ 57 $ 53 $ 62 $ 92 Commercial paper...

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    ... 14.0% 12.5% Reconciliation of Transportation and Construction Solutions(2) Adjusted EBITDA(1) Year ended December 31, 2015 $ 166 $ 43 - 63 (1) $ 271 $ 2014 180 $ 42 - 69 - 291 $ 2013 167 $ 42 - 67 (2) 274 $ 2012 126 $ 42 - 49 (9) 208 $ 2011 109 $ 45 (1) 38 (1) 190 $ 2010 73 $ 48 (2) 18 - 137...

  • Page 218
    ...2015), Alcoa Forgings and Extrusions (includes the other portions of Firth Rixson), and Alcoa Titanium and Engineered Products (a new business unit that consists solely of the RTI International Metals business acquired in July 2015) business units. Segment information for all prior periods presented...

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    ..., Global Primary Products Kay H. Meggers Executive Vice President President, Global Rolled Products Kenneth P. Wisnoski Vice President President, International Project Development and Asset Management Peter Hong Ronald E. Barin Vice President Chief Investment Officer, Pension Plan Investments...

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    ... stock dividends at rates competitive with other investments of equal risk and consistent with the need to reinvest earnings for long-term growth. Cash dividend decisions are made by Alcoa's Board of Directors and are reviewed on a regular basis. Stock Listing Common Stock New York Stock Exchange...

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    Alcoa Corporate Center 201 Isabella Street Pittsburgh, PA 15212-5858 Tel 1.412.553.4545 Fax 1.412.553.4498 www.alcoa.com Alcoa Inc. is incorporated in the Commonwealth of Pennsylvania