Alcoa Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Unless otherwise noted, dollar amounts are in millions.
Business context
Alcoa is an integrated upstream aluminum producer, with bauxite mining, alumina refining, aluminum smelting and casting, and energy operations across nine countries. Its two reportable segments are Alumina and Aluminum. Results are exposed to volatile aluminum and alumina prices, energy and raw-material costs, foreign exchange, and operating conditions. The filing says average 2023 alumina and aluminum prices declined 6% and 17%, respectively, from 2022.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Sales | $10,551 | $12,451 |
| Cost of goods sold | $9,813 | $10,212 |
| Gross profit (sales less cost of goods sold) | $738 | $2,239 |
| Loss before income taxes | $(584) | Income of $702 |
| Net loss attributable to Alcoa | $(651) | $(123) |
| Diluted loss per share | $(3.65) | $(0.68) |
| Cash provided from operations | $91 | $822 |
| Capital expenditures | $531 | $480 |
| Segment Adjusted EBITDA | $734 | $2,280 |
- Sales declined about 15%; gross margin was approximately 7.0%, versus 18.0% in 2022. Segment Adjusted EBITDA fell about 68%.
- Management attributed weaker results mainly to lower realized aluminum and alumina prices, higher production costs, lower equity earnings, and the absence of favorable prior-year derivative mark-to-market results. Lower energy costs and favorable currency impacts partly offset these pressures.
- Alumina segment Adjusted EBITDA was $273, down from $788; Aluminum segment Adjusted EBITDA was $461, down from $1,492. Alumina production declined 13%; aluminum production increased 5%.
- Cash and cash equivalents were $944 at year-end, down from $1,363. Current assets were $4,405 and current liabilities $3,030. Cash from operations of $91 was below capital expenditures of $531.
- Long-term debt was $1,811 before unamortized discounts and financing costs, including $79 due within one year; short-term borrowings were $56. Cash exceeded reported debt by roughly $923 when short-term borrowings are included. The $1,250 revolving credit facility had no year-end borrowings, and the company reported compliance with its financial covenants at December 31, 2023.
- Alcoa paid $72 in dividends in 2023 and made no share repurchases. The $500 repurchase authorization remained available at year-end.
Material changes and unusual items
- Restructuring and other charges were $184 in 2023, versus $696 in 2022. 2023 charges included $101 for closing the curtailed Intalco smelter, $53 related to the San Ciprián viability agreement, and a $21 pension settlement loss.
- Other expenses, net, shifted to $134 of expense from $118 of income in 2022, reflecting derivative results and lower joint-venture earnings, including a $41 Alcoa share of a Ma’aden utility-settlement adjustment.
- Income tax expense was $189 despite a pretax loss. The effective tax rate was negative 32.4%, including a $154 valuation allowance against AWAB deferred tax assets and a $58 reversal of Iceland subsidiary valuation allowances. Alcoa also recorded a $36 benefit under the U.S. Section 45X tax credit.
- Asset retirement obligations rose to $989 from $828; environmental remediation reserves were $268 at year-end. The auditor identified mine reclamation and bauxite-residue-area closure obligations as a critical audit matter, citing significant estimation judgments.
- In January 2024, Alcoa amended its revolving credit facilities, temporarily easing the minimum interest coverage covenant for 2024 and agreeing to provide collateral, subject to a ratings-based release mechanism. ANHBV drew $201 under the Japanese-yen facility on January 24, 2024.
Outlook, management commentary, and risks
- 2024 production and shipments: Alcoa expects Alumina production of 9.8–10.0 million metric tons and shipments of 12.7–12.9 million metric tons. Aluminum production is expected at 2.2–2.3 million metric tons and shipments at 2.5–2.6 million metric tons. Alumina shipments above production include trading and externally sourced material.
- Costs and investment: Management expects lower raw-material costs to benefit Alumina, and lower raw-material and energy costs—particularly in Brazil and Norway—to benefit Aluminum, partly offset by lower value-added product sales. 2024 capital expenditures are projected at approximately $550.
- Portfolio actions: Alcoa announced full curtailment of the 2.2-million-tonne-per-year Kwinana refinery beginning in Q2 2024. It expects $180–$200 of restructuring charges, approximately $115 of related cash outlays in 2024–2025, and annual pretax improvements of about $70 beginning in Q3 2024. The 2023 Kwinana pretax loss was approximately $130.
- San Ciprián: The Spanish refinery and smelter incurred significant losses. Management warned that available internal funding could be exhausted in the second half of 2024 absent a long-term solution with stakeholders. Affordable power and permitting delays put the planned smelter restart at risk; the company began the initial restart process in January 2024 while discussions continued.
- Cost program: A productivity and competitiveness program launched in January 2024 targets approximately $100 in annualized savings, about 5% of controllable operating costs excluding raw materials, energy, and transportation, by Q1 2025.
- Key risks: Commodity-price cycles; energy price and supply disruptions; lower-grade bauxite and mine-permit constraints in Western Australia; execution and costs of curtailments, closures, and restarts; San Ciprián’s viability; environmental, reclamation, and tailings obligations; foreign exchange, geopolitical and trade risks; and labor, tax, pension, and cybersecurity exposures.
- Contingencies: Alcoa disputes Australian tax assessments concerning historic alumina sales, including approximately $145 of assessed tax, $481 of compounded interest, and proposed penalties of approximately $87; the company says the ultimate loss or range cannot be predicted. St. Croix red-dust litigation also remains unresolved, with the company unable to estimate a reasonably possible loss. Other environmental and legal claims are discussed in the filing.
- Management stated that cash, projected cash flows, liquidity options, and strategic actions should fund short- and long-term needs, while cautioning that financing access depends on market and credit conditions. The company’s financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether operating cash flow recovers from $91 and how much of 2024 capital spending and restructuring outlays must be funded internally or through additional borrowing.
- Whether Kwinana curtailment delivers the projected $70 annual improvement, and whether the expected $180–$200 charge and approximately $115 cash outlays remain on plan.
- Whether San Ciprián secures affordable, permitted power and a viable long-term operating solution before internal funding is exhausted.
- Actual 2024 aluminum and alumina prices, production and shipment volumes, and the extent to which lower input costs offset weak pricing and operational constraints.
- Compliance with amended credit covenants, collateral requirements, credit-rating outlooks, and the company’s ability to maintain liquidity and dividends.
- Developments in the Australian tax dispute, St. Croix litigation, mine approvals, environmental remediation, and asset-retirement estimates.