Alcoa 2011 Annual Report Download - page 58

the past three years to achieve additional procurement and overhead savings, to further improve on working capital,
and to maintain a consistent level of capital expenditures.
In late 2008, management made the decision to reduce Alcoa’s aluminum and alumina production in response to the
then global 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, 2011). 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
(870 kmt-per-year: 793 kmt-per-year remains curtailed as of December 31, 2011).
In 2011, Alcoa restarted the following previously curtailed production capacity in the U.S.: Massena East (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 increased aluminum production by approximately 150 kmt during 2011 and are
expected to increase aluminum production by 215 kmt on an annual basis in 2012 and beyond and occurred to help
meet anticipated growth in aluminum demand and to meet obligations outlined in power agreements with energy
providers.
In late 2011, management approved the permanent shutdown and demolition of the smelter located in Tennessee and
two potlines (capacity of 76 kmt-per-year) at the smelter located in Rockdale (four potlines remain). This decision was
made after a comprehensive strategic analysis was performed to determine the best course of action for each facility.
Factors leading to this decision were in general focused on achieving sustained competitiveness and included, among
others: lack of an economically viable, long-term power solution; changed market fundamentals; cost competitiveness;
required future capital investment; and restart costs.
Also, at the end of 2011, management approved a partial or full curtailment of three European smelters as follows:
Portovesme, Italy (150 kmt-per-year); Avilés, Spain (46 kmt out of 93 kmt-per-year); and La Coruña, Spain (44 kmt
out of 87 kmt-per-year). These curtailments are expected to be completed in the first half of 2012. The curtailment of
the Portovesme smelter may lead to the permanent closure of the facility, while the curtailments at the two smelters in
Spain are planned to be temporary. These actions are the result of uncompetitive energy positions, combined with
rising material costs and falling aluminum prices (mid-2011 to late 2011).
Sales—Sales for 2011 were $24,951 compared with sales of $21,013 in 2010, an improvement of $3,938, or 19%. The
increase was primarily due to a rise in realized prices for alumina and aluminum, better pricing in the midstream
segment, and higher volumes in the Primary Metals segment and virtually all businesses in the midstream and
downstream segments.
Sales for 2010 were $21,013 compared with sales of $18,439 in 2009, an improvement of $2,574, or 14%. The increase
was mainly driven by a rise in realized prices for alumina and aluminum, as a result of significantly higher LME prices,
favorable pricing in the midstream segment, and sales from the smelters in Norway (acquired on March 31, 2009:
increase of $332), slightly offset by the absence of sales from divested businesses (Transportation Products Europe and
most of Global Foil: decrease of $175) and unfavorable mix in the downstream segment.
Cost of Goods Sold—COGS as a percentage of Sales was 82.1% in 2011 compared with 81.7% in 2010. The
percentage was negatively impacted by higher energy and raw materials costs and net unfavorable foreign currency
movements due to a weaker U.S. dollar, mostly offset by the previously mentioned higher realized prices and net
productivity improvements.
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