Alcoa 2015 Annual Report Download - page 77

Other actions taken in 2015 to help drive a lower position on the respective global cost curves include additional
curtailments and/or closures of 2,100 kmt of refining capacity and 499 kmt of smelting capacity, all within the United
States. The initiation of these actions occurred late in 2015 and will be completed during the first half of 2016;
therefore, management expects to realize the benefits of curtailing/closing this high-cost capacity during 2016.
Additionally, Alcoa has initiatives to drive further productivity improvements during 2016, including from
procurement and overhead programs. Furthermore, the smelter and the refinery at the joint venture in Saudi Arabia are
expected to provide a two-percentage point reduction on each of the respective global cost curves by the end of 2016
(from 2013).
Management will also continue to focus on revenue growth for both the midstream and downstream operations, which
is expected from multiple sources. The midstream operations anticipate positive contributions from both the
Davenport, IA rolling mill facility and Tennessee rolling mill facility (expansion completed in September 2015), both
of which serve the growing demand for aluminum sheet in the U.S. automotive and market as a result of changing
emission regulations. Likewise, the downstream operations expect favorable results from projects completed in late
2014 and throughout 2015 to meet growing demand in both the aerospace and commercial transportation end markets.
These projects include an expansion of aluminum lithium capabilities in Lafayette, IN, expansions in LaPorte, IN and
Hampton, VA to provide nickel-based super alloy structural components and airfoil blades for jet engines, and an
expansion at a facility in Hungary to double production of aluminum wheels. Additionally, the downstream operations
completed 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 agreements related to the
aerospace end market valued at approximately $13,500, including six contracts valued at more than $6,700 combined
with four major customers in the aerospace end market. Under one of these six contracts, the midstream operations will
supply aluminum sheet and plate, and under the other five contracts, the downstream operations will supply jet engine
components (including aluminum and aluminum-lithium fan blades), multi-material fastening systems, titanium plate
and billet, and titanium seat track assemblies.
In addition to focusing on the above-mentioned operational improvements, management has committed to executing
the following transaction. On September 28, 2015, Alcoa announced that 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 Solutions segments. Alcoa is targeting to complete the separation in the second
half of 2016. The transaction is subject to a number of conditions, including, but not limited to, final approval by
Alcoa’s Board of Directors, receipt of a favorable opinion of legal counsel with respect to the tax-free nature of the
transaction for U.S. federal income tax purposes, 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 for any reason until the proposed
transaction is complete, abandon the separation plan or modify or change its terms.
Results of Operations
Earnings Summary
Net loss attributable to Alcoa for 2015 was $322, or $0.31 per diluted share, compared with Net income attributable to
Alcoa of $268, or $0.21 per share, in 2014. The decrease in results of $590 was mostly due to a lower average realized
price for both aluminum and alumina, a charge for legal matters in Italy, unfavorable price/product mix in the
midstream and downstream operations, an unfavorable change in income taxes due to a higher amount of discrete
income tax charges and nondeductible items, lower energy sales, and higher costs. These negative impacts were
partially offset by net favorable foreign currency movements, net productivity improvements, higher volume in the
midstream and downstream operations, and lower charges and expenses related to a number of portfolio actions (e.g.,
capacity reductions, divestitures, acquisitions).
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