Alcoa 2011 Annual Report Download - page 56

Alcoa is a global company operating in 31 countries. Based upon the country where the point of sale occurred, the U.S.
and Europe generated 49% and 27%, respectively, of Alcoa’s sales in 2011. In addition, Alcoa has investments and
operating activities in, among others, Australia, Brazil, China, Guinea, Iceland, Russia, and Saudi Arabia, all of which
present opportunities for substantial growth. Governmental policies, laws and regulations, and other economic factors,
including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations
in these countries.
Management Review of 2011 and Outlook for the Future
At the end of 2010, management had projected growth in global aluminum demand of 12% for 2011. While demand
started strong in the year, it weakened in the second half, resulting in an estimated actual growth rate of 10%.
Additionally, LME pricing levels declined steadily from the peak reached in mid-2011, resulting in a more than 27%
decrease by the end of the year. The Company also faced demand destruction for aluminum end products in Europe
and significant headwinds for certain input costs during 2011. Despite these challenges, the 2011 financial results of
Alcoa improved over 2010, due in large part to the decisions made by management. At the beginning of 2011,
management continued its previous actions from its two-year cash sustainability program, which began in 2009 to
achieve targets related to procurement efficiencies, overhead rationalization, and working capital improvements.
Additionally, management planned to further improve Alcoa’s liquidity position by maintaining a consistent level of
capital expenditures with that of 2010, refinancing long-term debt set to mature during 2013, and contributing equity to
satisfy a large portion of the Company’s 2011 obligation to its U.S. pension plans.
The following financial information reflects some key metrics of Alcoa’s 2011 results:
• Sales of $24,951, a 19% improvement over 2010;
• Income from continuing operations of $614, or $0.55 per diluted share, an increase of $352 compared to
2010;
• Total segment after-tax operating income of $1,893, a 33% improvement over 2010;
• Cash from operations of $2,193, in excess of $2,000 for the second consecutive year;
• Capital expenditures of $1,287, under $1,500 for the second consecutive year;
• Cash on hand at the end of the year of $1,939, in excess of $1,000 for the third consecutive year;
• Increase in total debt of $206, but a decrease of $1,207 over the past three years; and
• Debt-to-capital ratio of 35%, consistent with the targeted range of 30% to 35%.
Management is projecting continued growth (increase of 7%) in the global consumption of primary aluminum in 2012,
but at a slower pace than 2011. China and India are expected to have double-digit increases in aluminum demand while
Russia and Brazil are expected to have 4% to 5% increases in aluminum consumption rates. Such growth, along with
industry-wide capacity curtailments, will result in demand exceeding supply for primary aluminum. For alumina,
growth in global consumption is estimated to be 9%, and overall supply and demand are expected to be balanced.
Management also anticipates improved market conditions for aluminum products in most major global end markets,
particularly aerospace and automotive. On the cost side, energy prices and certain raw materials are expected to
continue to be a challenge. Management has established and is committed to achieving the following specific goals in
2012:
• producing additional savings over those realized in 2009 through 2011 from procurement, overhead, and
working capital programs;
• generating positive cash flow from operations that will exceed capital spending; and
• maintaining a debt-to-capital ratio between 30% and 35%.
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