Alcoa 2015 Annual Report Download - page 76

• Cash from operations of $1,582, reduced by $470 in pension plan contributions and a $300 prepayment to
secure a future supply of gas in Australia;
• Capital expenditures of $1,180, under $1,500 for the sixth consecutive year;
• Cash on hand at the end of the year of $1,919, in excess of $1,400 for the seventh consecutive year;
• Increase in total debt of $251, but a decline of $1,475 since 2008; and
• Total debt of $9,103, Net margin of $1,968, and Depreciation, depletion, and amortization of $1,280 (Net
margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative,
and other expenses; Research and development expenses; and Provision for depreciation, depletion, and
amortization).
In 2016, management is projecting continued growth (increase of 6%) in the global consumption of primary aluminum,
a slight change from that of the last four years, led by China at an estimated 8%. All other regions in the world, except
for Brazil and Russia (both are projected to be flat with 2015), are expected to have positive growth in aluminum
demand over 2015, including North America at an estimated 5%. After considering forecasted added production, along
with expected industry-wide capacity reductions, both of which are mainly driven by China, management anticipates a
deficit in the aluminum market. For alumina, growth in global consumption is estimated to be 6%, and demand is
expected to slightly exceed supply due to capacity reductions in China, as well as other parts of the world.
Management also anticipates improved market conditions for value-add products in the aerospace, building and
construction, packaging, automotive, and industrial gas turbine global end markets, despite declines in certain regions,
while the commercial transportation global end market is expected to decrease. Many of the conditions that drove these
markets in 2015 will continue throughout 2016.
Aerospace is expected to be driven by large commercial aircraft due to a greater than nine-year order backlog. For
building and construction, awarded nonresidential contracts are projected to be up once again in North America while a
slight decline in Europe is expected. In packaging, growth in China and Europe, mainly driven by the penetration of
aluminum in the growing beer segment and the conversion from steel cans to aluminum cans, respectively, is expected
to more than offset a slight decrease in North America. For automotive, growth is anticipated in the United States (due
to the replacement of older vehicles, low borrowing rates, and the decline in gasoline prices) and China (due to
evolving emissions policies based on new clean air legislation enacted in 2014 and a continued increase in the
percentage of the population driving automobiles), as well as Europe. Industrial gas turbines are expected to see growth
as a result of new demand for high technology turbines and upgrades of existing turbines. In commercial transportation,
improving conditions in both Europe and China are expected to be more than offset by weakness in North America,
due to high inventory levels as a result of one of the highest production years ever in 2015 and projected lower orders.
Looking ahead over the next year, management will continue to focus on lowering Alcoa’s refining and smelting
operations on the respective global cost curves to the 21st and 38th percentiles, respectively. At December 31, 2015,
Alcoa’s refining operations were at the 23rd percentile, a two-percentage point improvement from 2014, and its
smelting operations remained at the 43rd percentile on the respective global cost curves. Actions taken to improve
Alcoa’s position on the global alumina cost curve included, in late 2014, the sale of an ownership interest in a mining
and refining joint venture in Jamaica and the conversion of the fuel source from fuel oil to natural gas at a refinery in
Spain, and, in 2015, the curtailment of 1,330 kmt of high-cost capacity in Suriname. Actions taken in the smelting
operations included, in late 2014, the sale of an ownership interest in a smelter in the United States and the renewal of a
power contract at each of the three smelters in Canada, and, in 2015, the curtailment and closure of 170 kmt combined
of high-cost capacity in Brazil. Also, both the refining and smelting operations benefitted from productivity
improvements, new initiatives as well as the full realization of those implemented in 2014. While the benefits of the
actions in the refining operations can be seen in Alcoa’s improved position on the global alumina cost curve at the end
of 2015, the benefits from the actions in the smelting operations were offset by a downward shift in the global
aluminum cost curve, primarily due to the strong U.S. dollar and curtailments/closures of capacity from other smelting
industry participants.
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