Alcoa, Inc. (NYSE: AA)

Alcoa (NYSE:AA) | Products & Business Segments

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Alcoa is a global leader in lightweight metals engineering and manufacturing. Alcoa's products, which include aluminum, titanium, and nickel, are used worldwide in aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications.

Alcoa is also the world leader in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its active participation in all major aspects of the industry: technology, mining, refining, smelting, fabricating, and recycling. Aluminum is a commodity that is traded on the London Metal Exchange (LME) and priced daily based on market supply and demand. Sales of primary aluminum and alumina represent approximately 40% of Alcoa's revenues.

Alcoa is a global company operating in 30 countries. Based upon the country where the point of sale occurred, the United States and Europe generated 55% and 26%, respectively, of Alcoa's sales in 2015. In addition, Alcoa has investments and operating activities in, among others, Australia, Brazil, China, Guinea, Iceland, Russia, and Saudi Arabia. Governmental policies, laws and regulations, and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in these countries.

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. Upon completion of the separation, Alcoa shareholders will own all of the outstanding shares of both companies.

Alcoa is headquartered in New York City and incorporated in Pennsylvania.

Alcoa's operations consist of five principal business segments:

Alumina
Primary Metals
Global Rolled Products
Engineered Products and Solutions
Transportation and Construction Solutions.



The following table highlights Alcoa's sales from 2013 to 2015 by segment:
Alcoa's Segment Sales



A description of the business of each of the company's segments is set forth below.


Alumina

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The Alumina segment is part of Alcoa's upstream operations and consists of the company's worldwide refinery system, including the mining of bauxite, which is then refined into alumina.

Alcoa has bauxite mining facilities in Australia, Brazil, Guinea, Jamaica, Saudi Arabia and Suriname. The Alumina segment has refining facilities in Australia, Brazil, Jamaica, Spain, Suriname, and the United States.

The Alumina segment mines bauxite, from which alumina is produced and then sold directly to external smelter customers, as well as to the Primary Metals segment, or to customers who process it into industrial chemical products. More than half of Alumina's production is sold under supply contracts to third parties worldwide, while the remainder is used internally by the Primary Metals segment. Alumina produced by this segment and used internally is transferred to the Primary Metals segment at prevailing market prices. A portion of this segment's third-party sales are completed through the use of agents, alumina traders, and distributors.

AWAC is an unincorporated global joint venture between Alcoa and Alumina Limited and consists of a number of affiliated operating entities, which own, or have an interest in, or operate the bauxite mines and alumina refineries within the Alumina segment (except for the Poços de Caldas refinery in Brazil and a portion of the São Luĺs refinery in Brazil). Alcoa owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated by the company for financial reporting purposes. As such, the results and analysis presented for the Alumina segment are inclusive of Alumina Limited's 40% interest.

In 2015, alumina production was 15.72 million metric tons (mmt) compared to 16.61 and 16.62 mmt in 2014 and 2013, respectively. Third-party alumina shipments were 10.76, 10.65 and 9.97 mmt in 2015, 2014 and 2013, respectively.

     Financial results for Alcoa's Alumina segment were as follows:
Performance of Alcoa's principal lines of business

Third-party sales for the Alumina segment decreased 2% in 2015 compared with 2014, largely attributable to a 2% decline in average realized price, somewhat offset by a 1% increase in volume. The change in average realized price was mostly driven by a decrease in both the average alumina index/spot price and average LME-based price, somewhat offset by a higher percentage (75% compared to 68%) of smelter-grade alumina shipments linked to an alumina index/spot price instead of an LME-based price.

Operating income for the Alumina segment increased $376 million in 2015 compared with 2014, mainly caused by net favorable foreign currency movements due to a stronger U.S. dollar, especially against the Australian dollar and Brazilian real; net productivity improvements; and lower input costs, including natural gas, fuel oil, and transportation, all of which were slightly offset by higher labor and maintenance costs. These positive impacts were slightly offset by the previously mentioned lower average realized price and the absence of a gain on the sale of a mining interest in Suriname ($18 million).


Primary Metals

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The Primary Metals segment is part of Alcoa's upstream operations and consists of the company's worldwide smelter system.

Primary Metals purchases alumina, mostly from the Alumina segment, from which primary aluminum is produced and then sold directly to external customers and traders, as well as to Alcoa's midstream operations and, to a lesser extent, downstream operations. Results from the sale of aluminum powder, scrap, and excess energy are also included in this segment, as well as the results of aluminum derivative contracts and buy/resell activity. Primary aluminum produced by Alcoa and used internally is transferred to other segments at prevailing market prices. The sale of primary aluminum represents approximately 90% of this segment's third-party sales. Buy/resell activity occurs when this segment purchases metal and resells such metal to external customers or the midstream and downstream operations in order to maximize smelting system efficiency and to meet customer requirements.

The Primary Metals segment has facilities in Australia, Brazil, Canada, Iceland, Norway, Spain, and the United States.

In 2015, aluminum production was 2.81 mmt compared to 3.13 and 3.55 mmt in 2014 and 2013, respectively. Third-party aluminum shipments were 2.48, 2.53 and 2.80 mmt in 2015, 2014 and 2013, respectively.

     Financial results for Alcoa's Primary Metals segment were as follows:
Performance of Alcoa's principal lines of business

Third-party sales for the Primary Metals segment declined 18% in 2015 compared with 2014, primarily due to a 14% drop in average realized price, the absence of sales (approximately $585 million) from five smelters and a rod mill that were closed, curtailed or divested in 2014, and lower energy sales in Brazil, due to both a decrease in energy prices and a weaker Brazilian real. These negative impacts were slightly offset by higher volume in the remaining smelter portfolio and higher buy/resell activity. The change in average realized price was largely attributable to a 10% lower average LME price and lower regional premiums, which dropped by an average of 39% in the United States and Canada and 44% in Europe. The higher buy/resell activity was primarily related to the fulfillment of customer orders with aluminum purchased from the smelter at the Saudi Arabia joint venture.

Operating income for the Primary Metals segment decreased $439 million in 2015 compared with 2014, primarily caused by lower average realized aluminum prices and lower energy sales, higher energy costs, and an unfavorable impact related to the curtailment of the São Luís smelter. These negative impacts were somewhat offset by net favorable foreign currency movements due to a stronger U.S. dollar against most major currencies, net productivity improvements, the absence of a write-off of inventory related to the permanent closure of the Portovesme, Point Henry, and Massena East smelters ($44 million), and a lower equity loss related to the joint venture in Saudi Arabia, including the absence of restart costs for one of the potlines that was previously shut down due to a period of instability.


Global Rolled Products

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The Global Rolled Products segment represents Alcoa's midstream operations and produces aluminum sheet and plate for a variety of end markets. Approximately one-half of the third-party shipments in this segment consist of sheet sold directly to customers in the packaging end market for the production of aluminum cans (beverage, food, and pet food). 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 industrial products (mainly used in the production of machinery and equipment and consumer durables) end markets. A small portion of this segment also produces aseptic foil for the packaging end market. While the customer base for flat-rolled products is large, a significant amount of sales of sheet and plate is to a relatively small number of customers

The Global Rolled Products segment has facilities in Brazil, China, Hungary, Italy, Russia, United Kingdom, and the United States.

In 2015, third-party aluminum shipments were 1.78, 1.96 and 1.91 mmt in 2015, 2014 and 2013, respectively.

     Financial results for Alcoa's Global Rolled Products segment were as follows:
Performance of Alcoa's principal lines of business

Third-party sales for the Global Rolled Products segment declined 15% in 2015 compared with 2014, primarily driven by the absence of sales ($1,052 million) from six rolling mills in Australia, Spain, Russia, and France, unfavorable pricing, mostly due to a decrease in metal prices (both LME and regional premium components), and unfavorable foreign currency movements, mainly the result of a weaker euro, Russian ruble, and Brazilian real. These negative impacts were somewhat offset by increased demand of the remaining rolling portfolio and favorable product mix (automotive and aerospace versus industrial products). The volume improvement of the remaining portfolio was largely attributable to the automotive (North America) and can sheet packaging (China) end markets, slightly offset by lower demand in the industrial products end market.

Operating income for the Global Rolled Products segment decreased $1 million in 2015 compared with 2014, primarily attributable to unfavorable price/product mix, largely the result 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 Micromill production process and the ramp-up of the Tennessee automotive expansion. These negative impacts were virtually offset by net productivity improvements across most businesses and higher volumes of the remaining rolling portfolio, principally driven by higher demand in the automotive end market.


Engineered Products and Solutions

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The Engineered Products and Solutions 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 (titanium, steel, and nickel alloys) and seamless rolled rings (mostly nickel alloys); and investment castings (nickel super alloys, titanium, and aluminum), including airfoils and forged jet engine components (e.g., jet engine disks), all of which are sold directly to customers and through distributors. More than 70% of the third-party sales in this segment are from the aerospace end market. A small part of this segment also produces various forging and extrusion metal products for the oil and gas, industrial products, automotive, and land and sea defense end markets. Seasonal decreases in sales are generally experienced in the third quarter of the year due to the European summer slowdown across all end markets.

The Engineered Products and Solutions segment has facilities in Australia, Canada, China, France, Germany, Hungary, Japan, Mexico, Morocco, Russia, South Korea, United Kingdom, and the United States.

     Financial results for Alcoa's Engineered Products and Solutions segment were as follows:
Performance of Alcoa's principal lines of business

Third-party sales for the Engineered Products and Solutions segment improved 27% in 2015 compared with 2014, largely attributable to the third-party sales ($1,310 million) of three acquired businesses (TITAL, RTI and Firth Rixson), primarily aerospace-related, and higher volumes in this segment's organic businesses, mostly related to the aerospace end market. These positive impacts were slightly offset by unfavorable foreign currency movements, principally driven by a weaker euro.

Operating income for the Engineered Products and Solutions segment increased $16 million in 2015 compared with 2014, principally the result of net productivity improvements across most businesses, a positive contribution from inorganic growth, and overall higher volumes in this segment's organic businesses. These positive impacts were partially offset by unfavorable price/product mix, higher costs related to growth projects, and net unfavorable foreign currency movements, primarily related to a weaker euro.


Transportation and Construction Solutions

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The Transportation and Construction Solutions segment represents a portion 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, which are sold directly to customers and through distributors. A small part of this segment also produces aluminum products for the industrial products end market.

The Transportation and Construction Solutions segment has facilities in Brazil, Canada, France, Germany, Hungary, Japan, Mexico, Morocco, Netherlands, Spain, United Kingdom, and the United States.

     Financial results for Alcoa's Transportation and Construction Solutions segment were as follows:
Performance of Alcoa's principal lines of business

Third-party sales for the Transportation and Construction Solutions segment decreased 7% in 2015 compared with 2014, primarily driven by unfavorable foreign currency movements, principally caused by a weaker euro and Brazilian real, and lower volume related to the building and construction end market, somewhat offset by higher volume related to the commercial transportation end market.

Operating income for the Transportation and Construction Solutions segment declined $14 million in 2015 compared with 2014, mainly due to higher costs, net unfavorable foreign currency movements, primarily related to a weaker euro and Brazilian real, and unfavorable price/product mix. These negative impacts were mostly offset by net productivity improvements across all businesses.

Company Information

Revenues ('15): $22,534M -5.7%

R&D ('15): $238M +9.2%

Net Profit ('15): $-322M NEG

CAPEX ('15): $1,180M -3.2%

Alcoa - Tier I/II

Products News Subsidiaries Acquisitions Competitors Customers R&D Spending 5-Year Financials

Aerospace Sector:


Metals; Aerostructures; Metal Processing

Alcoa Products:


Alumina; Primary aluminum; Aluminum sheet and plate; Fastening systems (titanium, steel, and nickel alloys); Seamless rolled rings (mostly nickel alloys); Investment castings (nickel super alloys, titanium, and aluminum), including airfoils and forged jet engine components (e.g., jet engine disks); Various forging and extrusion metal products; Integrated aluminum structural systems; Architectural extrusions; and Forged aluminum commercial vehicle wheels. Download Alcoa Aerospace Fact Sheet [PDF] for full list of aerospace products.

Alcoa's Major DoD Defense Programs:


| A-10 | AH-1Z | AH-64 | B-1B | Bradley IFV | C-5 | C-17 | C-130 | CH-47 | CH-53K |
| E-2C/D | E-8C JSTARS | F-15 | F-16 | F/A-18E/F | F-22 | F-35 | JDAM | JSOW |
| KC-46A | M1 Abrams | MQ-1B | MRAP | P-3C Orion | P-8A Poseidon | RQ-4B | T-45 |
| UH-1Y | UH-72 | V-22 |

Alcoa's Commercial Programs:


| Airbus: A319, A320, A321, A330, A350 XWB, A380 |
| Boeing: 737NG, 737 MAX, 747-8, 767, 777, 777X, 787 |

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