Alcoa 2012 Annual Report Download - page 77

Cash from Operations
Cash from operations in 2012 was $1,497 compared with $2,193 in 2011. The decrease of $696, or 32%, was primarily
due to lower operating results, higher pension contributions of $225, and a lower net cash inflow associated with
working capital of $36, somewhat offset by a higher cash inflow of $425 in noncurrent liabilities and a positive change
of $163 in noncurrent assets.
The higher pension contributions were principally driven by the fact that in 2012 all contributions to the U.S. pension
plans were made in cash, whereas, in 2011, a $600 noncash contribution to the U.S. pension plans was made in the
form of Company common stock.
The major components of the lower net cash inflow in working capital were as follows: a favorable change of $219 in
receivables, primarily related to fewer uncollected receivables related to sales programs and lower customer sales; a
positive change of $435 in inventories, mostly due to lower levels of on-hand alumina and aluminum products and a
decrease in the LME price of aluminum; a negative change of $74 in prepaid expenses and other current assets, largely
attributable to the absence of a reduction in collateral posted related to mark-to-market derivative contracts and an
increase in both excess carbon emission credits and prepayments for natural gas in Australia, somewhat offset by an
income tax refund received for the carryback of a loss from a prior year in Canada; an unfavorable change of $406 in
accounts payable, trade, principally the result of timing of payments and receipt of vendor invoices; a higher outflow of
$45 in accrued expenses, largely attributable to a payment made to the Italian Government (see below), a decrease in
deferred revenue, the absence of a charge related to the former St. Croix location, somewhat offset by an increase in the
litigation reserve ($42.5 – see below); and a negative change of $165 in taxes, including income taxes, mainly due to
less income taxes caused by lower operating results.
The higher cash inflow in noncurrent liabilities was primarily caused by an increase in certain environmental reserves
of $194, higher accrual for pension plans, and an increase in deferred revenue related to a contract to deliver sheet and
plate to a customer beginning in 2014.
In June 2012, Alcoa received formal notification from the Italian Government requesting a net payment of $310
(€250) related to a November 2009 European Commission decision on electricity pricing for smelters. Alcoa has been
in discussions with the Italian Government regarding the timing of such payment. Alcoa commenced payment of the
requested amount in five quarterly installments of $66 (€50) paying the first installment on October 31, 2012. It is
possible that Alcoa may be required to accelerate payment or pay in a lump sum.
On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) was signed into law by the United
States government. MAP-21, in part, provides temporary relief for employers who sponsor defined benefit pension
plans related to funding contributions under the Employee Retirement Income Security Act of 1974. Specifically,
MAP-21 allows for the use of a 25-year average interest rate within an upper and lower range for purposes of
determining minimum funding obligations instead of an average interest rate for the two most recent years. This relief
had an immediate impact on the calculation of the then remaining funding contributions in 2012, resulting in a
reduction of $130 in minimum required pension funding. Management expects to reduce its estimated minimum
required pension funding by $225 to $250 in 2013.
On October 9, 2012, Alcoa World Alumina LLC, a majority-owned subsidiary of Alcoa, paid $42.5 to the plaintiff of a
civil litigation matter pursuant to a settlement agreement. Another $42.5 is scheduled to be paid on October 9, 2013.
Cash from operations in 2011 was $2,193 compared with $2,261 in 2010. The decline of $68, or 3%, was largely
attributable to higher pension contributions of $223, a lower net cash inflow associated with working capital of $206,
an additional cash outflow of $71 in noncurrent assets, and a lower cash inflow of $36 in noncurrent liabilities, mostly
offset by better operating results.
The higher pension contributions were principally driven by cash contributions made to U.S. pension plans towards
maintaining an approximately 80% funded status.
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