Alcoa 2010 Annual Report Download - page 68

Environmental Matters
See the Environmental Matters section of Note N to the Consolidated Financial Statements in Part II Item 8 of this
Form 10-K.
Liquidity and Capital Resources
Alcoa takes a very disciplined approach to cash management and strengthening of its balance sheet. In 2010,
management continued to face the significant challenge of maintaining this approach while providing the Company
with the necessary liquidity to operate effectively as the global economy continues to recover from the economic
downturn that began in 2008.
In response to changes in the economic markets across the globe in the second half of 2008, management initiated the
following actions to conserve cash and preserve liquidity: greater scrutiny over the daily management of Alcoa’s cash
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 (lifted at the beginning of 2010);
suspension of the existing share repurchase program (expired in December 2010); 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.
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.
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 2010 was $2,261 compared with $1,365 in 2009, resulting in an increase of $896, or 66%. The
improvement of $896 was primarily due to significantly better operating results, partially offset by a $870 cash outflow
associated with working capital. The major components of the change in working capital were as follows: a $770
increase in receivables, primarily as a result of higher sales in three of the four reportable segments and a significant
rise in LME prices; a $1,473 increase in inventories, mostly due to a build-up of levels to meet anticipated demand and
higher input costs; a $960 increase in accounts payable, trade, principally the result of higher purchasing needs and
timing of vendor payments; and a $649 increase in taxes, including income taxes, mainly due to a $310 receivable
recorded in 2009 and the receipt of $347 in 2010, both related to a federal income tax refund for the carryback of
Alcoa’s 2009 net loss to prior tax years.
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