Alcoa 2009 Annual Report Download - page 68

position; higher risk tolerance on raw materials with lower minimum order quantities and lower carrying levels;
targeted headcount reductions across the globe; a global salary and hiring freeze; suspension of the existing share
repurchase program; and the addition of a new 364-day $1,900 revolving credit facility (expired in October 2009). A
number of changes were also made to Alcoa’s capital expenditures strategy as follows: capital expenditure approval
levels were lowered dramatically; growth projects were halted where it was deemed economically feasible; and all
non-critical capital expenditures were stopped. Capital expenditures are deemed critical if they maintain Alcoa’s
compliance with the law, keep a facility operating, or satisfy customer requirements if the benefits outweigh the costs.
The planned sale or shutdown of various businesses contributed positively to Alcoa’s liquidity position in 2009.
In March 2009, Alcoa announced an additional series of operational and financial actions to significantly improve the
Company’s cost structure and liquidity. Operational actions included procurement efficiencies and overhead
rationalization to reduce costs and working capital initiatives to yield significant cash improvements. Financial actions
included a reduction in the quarterly common stock dividend from $0.17 per share to $0.03 per share, which began
with the dividend paid on May 25, 2009, and the issuance of 172.5 million shares of common stock and $575 in
convertible notes that collectively yielded $1,438 in net proceeds.
Along with the foregoing actions, cash provided from operations and financing activities is expected to be adequate to
cover Alcoa’s current operational and business needs. For a discussion of long-term liquidity, see Contractual
Obligations and Off-Balance Sheet Arrangements.
Cash from Operations
Cash from operations in 2009 was $1,365 compared with $1,234 in 2008, resulting in an increase of $131, or 11%. The
improvement of $131 is principally related to a $1,639 cash inflow associated with working capital, $395 in lower
pension contributions, and a positive change of $103 in noncurrent assets and noncurrent liabilities, all of which was
mostly offset by significantly lower earnings (including the effects of non-cash income and expenses) and $147 in cash
used for discontinued operations. The components of the change in working capital were as follows: a $443 decrease in
receivables, primarily as a result of lower sales across all businesses and heightened collection efforts; a $1,611
reduction in inventories, mostly due to lower levels of inventory on-hand in response to a significant drop in demand,
curtailed production at Alcoa’s refineries and smelters, and reduced costs for certain raw materials; a $223 decline in
prepaid expenses and other current assets; a $653 decrease in accounts payable, trade, principally the result of fewer
purchasing needs and declining commodity prices; a $187 increase in accrued expenses, mainly driven by a charge
related to a recent European Commission decision on electricity pricing for smelters; and a decline of $172 in taxes,
including income taxes, mostly due to the change from an operating income position to an operating loss position.
In 2010, Alcoa estimates that a payment in the range of $300 to $500 will be required related to the aforementioned
European Commission decision. Additionally, Alcoa expects to receive a U.S. federal income tax refund of $300 to
$350 for the carryback of its 2009 net operating loss to the 2007 and 2006 tax years.
Cash from operations in 2008 was $1,234 compared with $3,111 in 2007, resulting in a decrease of $1,877, or 60%.
The decline of $1,877 was primarily due to a decrease in earnings (including the effects of non-cash income and
expenses); a $779 cash outflow associated with working capital; $201 in higher pension contributions; and the absence
of $93 in cash received on a long-term aluminum supply contract. These cash outflows were slightly offset by $97 in
cash provided from discontinued operations. The components of the $779 change in working capital are as follows: a
$142 increase in receivables, primarily as a result of improved sales from most businesses not classified as held for
sale; a $522 increase in inventories, mostly due to higher costs of raw materials and other inputs; a $37 decline in
prepaid expenses and other current assets; a $156 decrease in accounts payable, trade; a $209 decrease in accrued
expenses; and a $213 increase in taxes, including taxes on income.
Financing Activities
Cash provided from financing activities was $37 in 2009 compared with cash provided from financing activities of
$1,478 in 2008 and cash used for financing activities of $1,538 in 2007.
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