Alcoa 2011 Annual Report Download - page 71

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 maintains a disciplined approach to cash management and strengthening of its balance sheet. In 2011, as in the
prior two years, management continued 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, management initiated an additional series of operational and financial actions to significantly improve
Alcoa’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, management initiated 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.
In 2011, management continued its previous actions to maintain the achieved procurement and overhead savings from
the past two years and to further improve cash with working capital initiatives. Additionally, maintaining a level of
capital expenditures consistent with that of 2010 was planned. During 2012, management plans to continue the actions
from 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.
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 an analysis of long-term liquidity, see Contractual
Obligations and Off-Balance Sheet Arrangements.
Cash from Operations
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.
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