Alcoa Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 filing. Unless noted otherwise, financial amounts are in millions of U.S. dollars.
Business context and reporting period
Alcoa is an integrated producer of bauxite, alumina, and aluminum, with three reportable segments: Bauxite, Alumina, and Aluminum. Results are sensitive to commodity prices, energy and raw-material costs, and foreign exchange. The company operates through 28 locations in nine countries and consolidates AWAC, its 60%-owned joint venture with Alumina Limited.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Sales | $12,152 | $9,286 |
| Income (loss) before tax | $1,199 | $173 |
| Net income (loss) attributable to Alcoa | $429 | $(170) |
| Diluted earnings (loss) per share | $2.26 | $(0.91) |
| Cash provided from operations | $920 | $394 |
| Capital expenditures | $390 | $353 |
| Segment Adjusted EBITDA | $3,053 | $1,317 |
Cost of goods sold was $9,153, or approximately 75.3% of sales, versus $7,969, or 85.8%, in 2020. Net margin attributable to Alcoa was approximately 3.5%, compared with a loss margin of approximately 1.8% in 2020. Segment Adjusted EBITDA is a non-GAAP measure and is not equivalent to consolidated operating income or cash flow.
Average realized alumina price rose to $326 per metric ton from $273; primary aluminum price rose to $2,879 from $1,915. Third-party alumina shipments were 9.629 million metric tons and aluminum-product shipments were 3.007 million metric tons, both broadly level with 2020.
At year-end, cash and cash equivalents were $1,814; long-term debt, net of discounts and costs, was $1,727; and short-term borrowings were $75. Net pension and other postretirement benefits liability fell to $973 from $2,395. Current assets were $5,026 and current liabilities $3,223. Cash flow from operations included substantial working-capital use, notably higher receivables and inventories.
Material changes versus the prior comparable period
- Sales rose approximately 31%, and Alcoa moved from a $170 attributable loss to $429 attributable net income. Improved aluminum and alumina pricing was the principal driver.
- Segment Adjusted EBITDA increased to $3,053 from $1,317. Alumina EBITDA increased to $1,002 from $497; Aluminum increased to $1,879 from $325; Bauxite declined to $172 from $495.
- Operating cash flow increased to $920 from $394, but was partly absorbed by working-capital investment and pension contributions. Investing activities provided $565, mainly reflecting $966 of asset-sale proceeds.
- Debt was reduced through early redemption of $750 of 6.75% notes due 2024 and $500 of 7.00% notes due 2026; Alcoa issued $500 of 4.125% notes due 2029. Debt and pension-risk reduction improved the balance sheet, though 2021 results included significant nonrecurring charges.
- Alcoa sold the Warrick rolling mill for consideration of approximately $670 and sold the Eastalco and Rockdale sites for transaction values of $100 and $240. The company no longer has a rolled-products business.
Outlook, management commentary, risks, and unusual items
Management projected 2022 capital expenditures of approximately $525: $450 sustaining and $75 return-seeking. Shipment outlooks were 48.0–49.0 million metric tons of bauxite, 14.2–14.4 million metric tons of alumina, and 2.5–2.6 million metric tons of aluminum. Management expected high energy and raw-material costs to remain challenges, while aluminum shipments were expected to decline, principally because of the San Ciprián curtailment and the absence of rolling-mill sales.
Portfolio actions included a two-year curtailment of the 228,000-metric-ton-per-year San Ciprián smelter beginning in January 2022, with restart planned from January 2024; restart of Alumar capacity in Brazil, expected at full capacity in Q4 2022; and a planned partial restart at Portland in 2022. Wenatchee’s previously curtailed smelter was permanently closed. By year-end, Alcoa had reviewed approximately 75% of its 1.5-million-metric-ton smelting-capacity target and 58% of its 4-million-metric-ton refining-capacity review. Its stated longer-term aims include first-quartile cost positioning and up to 85% renewable power for its smelting portfolio.
Unusual 2021 items materially affected reported earnings: restructuring and other charges were $1,128, including an $848 noncash U.S. pension annuity settlement loss, $80 for Wenatchee closure, $62 for San Ciprián curtailment, and other pension and closure items. Other income included $354 of net gains on asset sales. The effective tax rate was 52.5%, including a $103 valuation allowance against Spanish subsidiary deferred tax assets.
Principal risks include aluminum and alumina price volatility; energy and raw-material inflation or supply disruption; labor disputes; COVID-19 and operational interruptions; environmental and climate-related obligations; foreign-exchange and geopolitical exposures; pension assumptions; and legal and tax contingencies. The Australian Taxation Office dispute involves assessed tax of approximately $156, compounded interest claims of approximately $516, and proposed penalties of approximately $94; Alcoa disputes the claims and states the potential loss cannot be predicted. Spanish proceedings related to the former Avilés and La Coruña facilities have an estimated reasonably possible loss range of $0–$70. The company also disclosed environmental remediation reserves of $309.
Alcoa reported $1,814 cash and an undrawn $1.5 billion revolving credit facility, with no borrowings under that facility at year-end and compliance with its covenants. The facility matures in November 2023 and is secured, subject to exceptions. The company cautioned that commodity markets, credit access, and covenant compliance could affect future liquidity. A quarterly dividend of $0.10 per share began in 2021, and a new $500 million share-repurchase authorization was approved; future returns remain discretionary and subject to restrictions.
Important facts investors should verify
- How much of 2021 earnings and segment EBITDA is repeatable after separating commodity-price effects, asset-sale gains, pension settlement charges, and other restructuring items.
- Whether 2022 shipment, restart, and capital-spending plans were achieved, especially at Alumar, Portland, and San Ciprián, and how energy costs affected margins.
- Cash conversion and liquidity: working-capital needs, restricted cash, debt maturities and refinancing, and compliance with credit-facility covenants.
- Outcomes and financial exposure from the Australian tax dispute, Spanish facility litigation, environmental remediation, and other contingencies.
- Progress and costs of the capacity-review strategy, including closures, curtailments, restarts, and any remaining obligations associated with divested assets.