Q. Segment and Geographic Area Information

Alcoa is primarily a producer of aluminum products. Aluminum and alumina represent approximately 80% of Alcoa’s revenues. Nonaluminum products include precision castings and aerospace and industrial fasteners. Alcoa’s products are used worldwide in transportation (including aerospace, automotive, truck, trailer, rail, and shipping), packaging, building and construction, oil and gas, defense, and industrial applications. Alcoa’s segments are organized by product on a worldwide basis. Segment performance under Alcoa’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the after-tax operating income (ATOI) of each segment. Certain items such as the impact of LIFO inventory accounting; metal price lag (see below); interest expense; noncontrolling interests; corporate expense (general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; and other items, including intersegment profit eliminations, differences between tax rates applicable to the segments and the consolidated effective tax rate, and other nonoperating items such as foreign currency transaction gains/losses and interest income are excluded from segment ATOI. Segment assets exclude, among others, cash and cash equivalents; deferred income taxes; goodwill not allocated to businesses for segment reporting purposes; corporate fixed assets; and LIFO reserves.

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note A). Transactions among segments are established based on negotiation among the parties. Differences between segment totals and Alcoa’s consolidated totals for line items not reconciled are in Corporate.

Effective in the second quarter of 2015, management removed the impact of metal price lag from the results of the Global Rolled Products and Engineered Products and Solutions (now Engineered Products and Solutions and Transportation and Construction Solutions—see below) segments in order to enhance the visibility of the underlying operating performance of these businesses. Metal price lag describes the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by the respective segment. In general, when the price of metal increases, metal price lag is favorable, and when the price of metal decreases, metal price lag is unfavorable. The impact of metal price lag is now reported as a separate line item in Alcoa’s reconciliation of total segment ATOI to consolidated net (loss) income attributable to Alcoa. As a result, this change does not impact the consolidated results of Alcoa. Segment information for all prior periods presented was updated to reflect this change.

In the third quarter of 2015, management approved a realignment of Alcoa’s Engineered Products and Solutions segment due to the expansion of this part of Alcoa’s business portfolio through both organic and inorganic growth. This realignment consisted of moving both the Alcoa Wheel and Transportation Products and Building and Construction Systems business units to a new reportable segment named Transportation and Construction Solutions. Additionally, the Latin American soft alloy extrusions business previously included in Corporate was moved into the new Transportation and Construction Solutions segment. The remaining Engineered Products and Solutions segment consists of the Alcoa Fastening Systems and Rings (renamed to include portions of the Firth Rixson business acquired in November 2014), Alcoa Power and Propulsion (includes the TITAL business acquired in March 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 was updated to reflect the new segment structure.

Alcoa’s operations consist of five worldwide reportable segments as follows:

Alumina. This segment represents a portion of Alcoa’s upstream operations and consists of the Company’s worldwide refining system. Alumina mines bauxite, from which alumina is produced and then sold directly to external smelter customers, as well as to the Primary Metals segment (see Primary Metals below), 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.

Primary Metals. This segment represents a portion of Alcoa’s upstream operations and consists of the Company’s worldwide smelting system. Primary Metals purchases alumina, mostly from the Alumina segment (see Alumina above), 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.

Global Rolled Products. This 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.

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 (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.

Transportation and Construction Solutions. This 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 operating results and assets of Alcoa’s reportable segments were as follows:


	Alumina			Primary Metals			Global Rolled Products			Engineered Products and Solutions		Transportation and Construction Solutions		Total
2015
Sales:
Third-party sales	$	3,455		$	5,591		$	6,238		$	5,342	$	1,882	$	22,508
Intersegment sales		1,687			2,170			125			-		-		3,982
Total sales	$	5,142		$	7,761		$	6,363		$	5,342	$	1,882	$	26,490
Profit and loss:
Equity loss	$	(41	)	$	(12	)	$	(32	)	$	-	$	-	$	(85	)
Depreciation, depletion, and amortization		296			429			227			233		43		1,228
Income taxes		300			(28	)		109			282		63		726
ATOI		746			155			244			595		166		1,906
2014
Sales:
Third-party sales	$	3,509		$	6,800		$	7,351		$	4,217	$	2,021	$	23,898
Intersegment sales		1,941			2,931			185			-		-		5,057
Total sales	$	5,450		$	9,731		$	7,536		$	4,217	$	2,021	$	28,955
Profit and loss:
Equity loss	$	(29	)	$	(34	)	$	(27	)	$	-	$	-	$	(90	)
Depreciation, depletion, and amortization		387			494			235			137		42		1,295
Income taxes		153			203			89			298		69		812
ATOI		370			594			245			579		180		1,968
2013
Sales:
Third-party sales	$	3,326		$	6,596		$	7,106		$	4,054	$	1,951	$	23,033
Intersegment sales		2,235			2,621			178			-		-		5,034
Total sales	$	5,561		$	9,217		$	7,284		$	4,054	$	1,951	$	28,067
Profit and loss:
Equity loss	$	(4	)	$	(51	)	$	(13	)	$	-	$	-	$	(68	)
Depreciation, depletion, and amortization		426			526			226			124		42		1,344
Income taxes		66			(74	)		123			286		67		468
ATOI		259			(20	)		292			569		167		1,267
2015
Assets:
Capital expenditures	$	184		$	156		$	307		$	383	$	77	$	1,107
Equity investments		667			634			217			-		-		1,518
Goodwill		6			-			201			4,660		58		4,925
Total assets		6,165			7,324			4,498			10,732		947		29,666
2014
Assets:
Capital expenditures	$	246		$	176		$	389		$	249	$	72	$	1,132
Equity investments		669			890			226			-		-		1,785
Goodwill		8			-			210			4,458		86		4,762
Total assets		7,350			9,308			4,908			8,800		975		31,341

The following tables reconcile certain segment information to consolidated totals:


	2015			2014			2013
Sales:
Total segment sales	$	26,490		$	28,955		$	28,067
Elimination of intersegment sales		(3,982	)		(5,057	)		(5,034	)
Corporate		26			8			(1	)
Consolidated sales	$	22,534		$	23,906		$	23,032


	2015			2014			2013
Net (loss) income attributable to Alcoa:
Total segment ATOI	$	1,906		$	1,968		$	1,267
Unallocated amounts (net of tax):
Impact of LIFO		136			(54	)		52
Metal price lag		(133	)		78			(45	)
Interest expense		(324	)		(308	)		(294	)
Noncontrolling interests		(125	)		91			(41	)
Corporate expense		(266	)		(284	)		(274	)
Impairment of goodwill		(25	)		-			(1,731	)
Restructuring and other charges		(943	)		(894	)		(607	)
Other		(548	)		(329	)		(612	)
Consolidated net (loss) income attributable to Alcoa	$	(322	)	$	268		$	(2,285	)


December 31,	2015			2014
Assets:
Total segment assets	$	29,666		$	31,341
Elimination of intersegment receivables		(318	)		(490	)
Unallocated amounts:
Cash and cash equivalents		1,919			1,877
Deferred income taxes		2,668			3,139
Corporate goodwill		476			485
Corporate fixed assets, net		733			819
LIFO reserve		(559	)		(767	)
Fair value of derivative contracts		1,078			16
Other		865			943
Consolidated assets	$	36,528		$	37,363

Sales by major product grouping were as follows:


	2015		2014		2013
Sales:
Alumina	$	3,333	$	3,401	$	3,151
Primary aluminum		5,085		6,011		6,194
Flat-rolled aluminum		6,238		7,351		7,106
Investment castings		1,812		1,784		1,807
Fastening systems		2,168		1,647		1,505
Architectural aluminum systems		951		1,002		977
Aluminum wheels		790		786		702
Other extruded and forged products		1,332		1,019		1,015
Other		825		905		575
	$	22,534	$	23,906	$	23,032

Geographic information for sales was as follows (based upon the country where the point of sale occurred):


	2015		2014		2013
Sales:
United States⁽¹⁾	$	12,425	$	12,103	$	11,766
Spain^{(2) (3)}		2,853		3,359		2,282
Australia		2,196		3,028		3,240
Brazil		854		1,398		1,221
France		802		915		862
United Kingdom		698		464		475
Hungary		622		630		555
China		565		415		259
Russia		455		642		683
Canada		308		143		123
Germany		264		229		230
Italy		139		150		157
Netherlands⁽³⁾		34		36		524
Norway⁽²⁾		30		31		283
Other		289		363		372
	$	22,534	$	23,906	$	23,032

⁽¹⁾	Sales of a portion of the alumina from Alcoa’s refineries in Suriname, Brazil, Australia, and Jamaica (prior to divestiture—see Note F) and most of the aluminum from Alcoa’s smelters in Canada occurred in the United States.

⁽²⁾	In 2015, 2014, and 2013, Sales of the aluminum from Alcoa’s smelters in Norway occurred in Spain.

⁽³⁾	In 2015 and 2014, Sales of the aluminum from Alcoa’s smelter in Iceland occurred in Spain. In 2013, 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,	2015		2014
Long-lived assets:
United States	$	5,758	$	5,403
Australia		2,159		2,538
Brazil		2,046		3,137
Iceland		1,397		1,460
Canada		1,238		1,216
Norway		463		588
China		352		389
United Kingdom		312		333
Russia		303		443
Spain		294		339
Hungary		190		210
Other		303		370
	$	14,815	$	16,426