Alcoa 2010 Annual Report Download - page 53

Results of Operations
Earnings Summary
Income from continuing operations attributable to Alcoa for 2010 was $262, or $0.25 per diluted share, compared with
a loss from continuing operations of $985, or $1.06 per share, in 2009. The improvement of $1,247 in continuing
operations was primarily due to the following: continued increases in realized prices for alumina and aluminum;
ongoing net costs savings and productivity improvements across all segments; and the absence of both a charge
associated with a European Commission electricity pricing matter in Italy and a loss on the sale of an equity
investment; partially offset by net unfavorable foreign currency movements; higher energy costs; unfavorable changes
in LIFO (last in, first out) inventories; additional depreciation charges and operating costs for growth projects; and the
absence of gains on the exchange of equity interests and on the acquisition of bauxite and refinery interests.
Loss from continuing operations attributable to Alcoa for 2009 was $985, or $1.06 per share, compared with income
from continuing operations of $229, or $0.27 per share, in 2008. The decline of $1,214 in continuing operations was
primarily due to the following: significant declines in realized prices for alumina and aluminum; large volume
decreases in the midstream and downstream operations; a charge associated with a European Commission electricity
pricing matter in Italy; a loss on the sale of an equity investment; charges related to 2009 restructuring programs; and
higher depreciation and interest charges; all of which was partially offset by procurement and overhead cost savings
across all businesses; the absence of the charges associated with 2008 restructuring programs; net favorable foreign
currency movements due to a stronger U.S. dollar; favorable LIFO inventory adjustments; various discrete income tax
benefits and a significant fluctuation in income taxes due to a change in the results of operations from pretax income to
a pretax loss; a gain on the exchange of equity interests; a gain on the acquisition of an entity in the Republic of
Suriname; and net income of various other nonoperating items.
Net income attributable to Alcoa for 2010 was $254, or $0.24 per share, compared with a net loss of $1,151, or $1.23
per share, in 2009, and a net loss of $74, or $0.10 per share, in 2008. In 2010, the net income of $254 included a loss
from discontinued operations of $8, and in 2009 and 2008, the net loss of $1,151 and $74 included a loss from
discontinued operations of $166, and $303, respectively.
In March 2009, Alcoa announced a series of operational and financial actions, which were in addition to those
announced at the end of 2008, to significantly improve Alcoa’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. In
January 2010, Alcoa announced further operational actions to not only maintain the procurement and overhead savings
and working capital improvements achieved in 2009, but to improve on them throughout 2010. Also, a further
reduction in capital expenditures was planned in order to achieve the level necessary to sustain operations without
sacrificing the quality of Alcoa’s alumina and aluminum products.
In late 2008, management made the decision to reduce Alcoa’s aluminum and alumina production in response to the
then significant economic downturn. As a result of this decision, reductions of 750 kmt, or 18%, of annualized output
from Alcoa’s global smelting system were implemented (includes previous curtailment at Rockdale, TX in June 2008).
Accordingly, reductions in alumina output were also initiated with a plan to reduce production by 1,500 kmt-per-year
across the global refining system. The aluminum and alumina production curtailments were completed in early 2009 as
planned. Smelters in Rockdale (267 kmt-per-year) and Tennessee (215 kmt-per-year) were fully curtailed while another
268 kmt-per-year was partially curtailed at various other locations. The refinery in Point Comfort, TX was partially
curtailed by approximately 1,500 kmt-per-year between the end of 2008 and the beginning of 2009 (384 kmt-per-year
remains curtailed as of December 31, 2010). In mid-2009, further action became necessary resulting in the decision to
fully curtail the Massena East, NY smelter (125 kmt-per-year) and partially curtail the Suralco (Suriname) refinery
(480 kmt-per-year – represented Alcoa World Alumina and Chemicals’ (AWAC) previous 55% ownership interest at
the time of curtailment – total curtailed is approximately 870 kmt).
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