Alcoa 2012 Annual Report Download - page 64

midstream (increase of $2,500) and downstream (increase of $1,600) operations by 2013. In conjunction with the
revenue targets, management is committed to improving margins that will exceed historical levels in the midstream and
downstream operations. Management has made significant progress on these targets as described below.
In 2012, actions taken to improve Alcoa’s position on the cost curve for both refining and smelting operations included
production curtailments of 390 kmt of the Atlantic refinery system; the creep of low-cost capacity at the refineries in
Australia; full or partial curtailment of 240 kmt of smelting capacity in Europe and the permanent closure of 291 kmt
of smelting capacity in the U.S.; the near full-startup of the Estreito hydroelectric power project in Brazil; and new
energy contracts for two U.S. smelters. Additionally, the aluminum complex in Saudi Arabia continues to be on target
as first production from the smelter occurred in December 2012 and the mine and refinery are expected to commence
in 2014. At December 31, 2012, Alcoa’s refining operations were in the 30th percentile and smelting operations were
in the 47th percentile, a four-percentage point improvement, on the respective cost curves.
The midstream and downstream operations both achieved margins that exceeded historical levels for the second year in
a row and are making progress against the respective revenue growth targets. The midstream operations will continue
to build on this success in 2013 through expansion of the rolling facilities in Davenport, IA to meet rising U.S.
automotive demand, due to changing emissions regulations, and volume growth in Russia and China, including
emerging markets like consumer electronics. The downstream operations will extend their profitable growth in 2013
through continued innovative solutions to meet a wide-range of customer needs, as well as expansion of aluminum
lithium capabilities in Lafayette, IN to meet the growing demand in the aerospace market and the opening of a forged
wheels facility in Suzhou, China that will serve the commercial transportation market.
Results of Operations
Earnings Summary
Income from continuing operations attributable to Alcoa for 2012 was $191, or $0.18 per diluted share, compared with
$614, or $0.55 per share, in 2011. The decline of $423 in continuing operations was primarily due to the following:
lower realized prices for aluminum and alumina, higher input costs, and charges for litigation and environmental
remediation matters. These items were partially offset by net productivity improvements, a gain on the sale of U.S.
hydroelectric power assets, a decline in the results attributable to noncontrolling interests, lower restructuring charges,
net favorable foreign currency movements, lower income taxes due to a decline in operating results, a favorable LIFO
(last in, first out) impact, and higher volumes in the midstream and downstream segments.
Income from continuing operations attributable to Alcoa for 2011 was $614, or $0.55 per share, compared with $262,
or $0.25 per share, in 2010. The improvement of $352 in continuing operations was primarily due to the following:
higher realized prices for alumina and aluminum, stronger volumes in the midstream and downstream segments, net
productivity improvements, and a net favorable change in mark-to-market derivative contracts. These items were
partially offset by higher input costs, net unfavorable foreign currency movements, higher income taxes due to better
operating results, and additional restructuring charges.
Net income attributable to Alcoa for 2012 was $191, or $0.18 per share, compared with $611, or $0.55 per share, in
2011, and $254, or $0.24 per share, in 2010. In 2011, net income of $611 included a loss from discontinued operations
of $3, and, in 2010, net income of $254 included a loss from discontinued operations of $8.
In 2011, Alcoa restarted the following previously curtailed production capacity in the U.S.: Massena East, NY
(125 kmt-per-year); Wenatchee, WA (43 kmt-per-year); and Ferndale, WA (Intalco: 47 kmt-per-year (11 kmt more
than previously planned)). These restarts occurred to help meet anticipated growth in aluminum demand and to meet
obligations outlined in power agreements with energy providers. As a result of these restarts, aluminum production
increased by approximately 150 kmt during 2011 and by 215 kmt in 2012.
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