UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-K
(MarkOne)☒ ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
For The Fiscal Year Ended December 31, 2020OR
☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
For the transition period from _______ to _______Commission File Number 1-37816
ALCOA CORPORATION(ExactNameofRegistrantasSpecifiedinCharter)
Delaware 81-1789115(StateorOtherJurisdiction
ofIncorporationorOrganization)
(I.R.S.EmployerIdentificationNo.)
201 Isabella Street, Suite 500,
Pittsburgh, Pennsylvania(AddressofPrincipalExecutiveOffices)
15212-5858(ZipCode)
Registrant’stelephonenumber,includingareacode:412-315-2900SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass TradingSymbol(s) NameofeachexchangeonwhichregisteredCommon Stock, par value $0.01 per share AA New York Stock Exchange
SecuritiesregisteredpursuanttoSection12(g)oftheAct:
None(TitleofClass)
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.
Yes☑No☐IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.
Yes☐No☑Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.
Yes☑No☐IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).
Yes☑No☐Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct.
Largeacceleratedfiler☑Acceleratedfiler☐Non-acceleratedfiler☐Smallerreportingcompany☐Emerginggrowthcompany☐Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐Indicatebycheckmarkwhethertheregistranthasfiledareportonandattestationtoitsmanagement’sassessmentoftheeffectivenessofitsinternalcontroloverfinancialreportingunderSection404(b)oftheSarbanes-OxleyAct(15U.S.C.7262(b))bytheregisteredpublicaccountingfirmthatpreparedorissueditsauditreport. ☑
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct).Yes☐No☑Theaggregatemarketvalueoftheregistrant’svotingstockheldbynon-affiliatesatJune30,2020wasapproximately$2.1billion,basedontheclosingpricepershareofCommonStockonJune30,2020of$11.24asreportedontheNewYorkStockExchange.AsofFebruary19,2021,therewas186,251,518sharesoftheregistrant’scommonstock,parvalue$0.01pershare,outstanding.
Documents incorporated by reference.PartIIIofthisForm10-Kincorporatesbyreferencecertaininformationfromtheregistrant’sDefinitiveProxyStatementforits2021AnnualMeetingofStockholderstobefiledpursuanttoRegulation14A.
TABLE OF CONTENTS Page(s) PartI Item1. Business 1Item1A. RiskFactors 18Item1B. UnresolvedStaffComments 30Item2. Properties 30Item3. LegalProceedings 30Item4. MineSafetyDisclosures 31PartII Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 32Item6. SelectedFinancialData 35Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 36Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 56Item8. FinancialStatementsandSupplementaryData 57Item8A. SupplementalFinancialInformation 116Item9. ChangesinandDisagreementsWithAccountantsonAccountingandFinancialDisclosure 117Item9A. ControlsandProcedures 117Item9B. OtherInformation 117PartIII Item10. Directors,ExecutiveOfficersandCorporateGovernance 118Item11. ExecutiveCompensation 118Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 118Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 118Item14. PrincipalAccountingFeesandServices 118PartIV Item15. ExhibitandFinancialStatementSchedules 119Item16. Form10-KSummary 122 Signatures 123
Note on Incorporation by Reference
InthisForm10-K,selecteditemsofinformationanddataareincorporatedbyreferencetoportionsofAlcoaCorporation’sDefinitiveProxyStatementforits2021AnnualMeetingofStockholders(ProxyStatement),whichwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysaftertheendofAlcoaCorporation’sfiscalyearendedDecember31,2020.Unlessotherwiseprovidedherein,anyreferenceinthisForm10-KtodisclosuresintheProxyStatementshallconstituteincorporationbyreferenceofonlythatspecificdisclosureintothisForm10-K.
PART I
Item 1. Business.
(dollarsinmillions,exceptper-shareamounts,averagerealizedprices,andaveragecostamounts)
The Company
AlcoaCorporation,aDelawarecorporation,becameanindependent,publiclytradedcompanyonNovember1,2016,followingitsseparationfrom(theSeparationTransaction)itsformerparentcompany,AlcoaInc.(ParentCo).“Regular-way”tradingofAlcoaCorporation’scommonstockbeganwiththeopeningoftheNewYorkStockExchange(NYSE)onNovember1,2016underthetickersymbol“AA.”AlcoaCorporation’scommonstockhasaparvalueof$0.01pershare.AlcoaCorporation’sprincipalexecutiveofficeislocatedinPittsburgh,Pennsylvania.Inthisreport,unlessthecontextotherwiserequires,theterms“Alcoa,”the“Company,”“we,”“us,”and“our”refertoAlcoaCorporationandallsubsidiariesconsolidatedforthepurposesofitsfinancialstatements.
Referenceshereinto“ParentCo”refertoAlcoaInc.,aPennsylvaniacorporation,anditsconsolidatedsubsidiariesthroughOctober31,2016,atwhichtimeitwasrenamedArconicInc.(Arconic)andsincehasbeensubsequentlyrenamedHowmetAerospaceInc.
AlcoaCorporation(previouslyknownasAlcoaUpstreamCorporation)wasformedinDelawareinMarch2016forthepurposeofholdingParentCo’sBauxite,Alumina,Aluminum,CastProductsandEnergybusinesses,aswellasParentCo’srollingmilloperationsinWarrick,Indiana,and25.1%interestintheMa’adenRollingCompanyintheKingdomofSaudiArabia(SaudiArabia).AlcoaUpstreamCorporationwasrenamedAlcoaCorporationinconnectionwiththeSeparationTransaction.AlcoaCorporationenteredintocertainagreementswithParentCotoimplementthelegalandstructuralseparationbetweenthetwocompaniestogoverntherelationshipbetweenAlcoaCorporationandParentCoafterthecompletionoftheSeparationTransactionandallocatebetweenAlcoaCorporationandParentCovariousassets,liabilitiesandobligations,including,amongotherthings,employeebenefits,environmentalliabilities,intellectualproperty,andtax-relatedassetsandliabilities.
Alcoaisaglobalindustryleaderinbauxite,alumina,andaluminumproducts.TheCompanyisbuiltonafoundationofstrongvaluesandoperatingexcellencedatingbackover130yearstotheworld-changingdiscoverythatmadealuminumanaffordableandvitalpartofmodernlife.Sincedevelopingthealuminumindustry,andthroughoutourhistory,ourtalentedAlcoanshavefollowedonwithbreakthroughinnovationsandbestpracticesthathaveledtoefficiency,safety,sustainability,andstrongercommunitieswhereverweoperate.
Alcoaisaglobalcompanywithdirectandindirectownershipof28operatinglocationsacrossninecountries.TheCompany’soperationsconsistofthreereportablebusinesssegments:Bauxite,Alumina,andAluminum.TheBauxiteandAluminasegmentsprimarilyconsistofaseriesofaffiliatedoperatingentitiesheldinAlcoaWorldAluminaandChemicals,aglobal,unincorporatedjointventurebetweenAlcoaandAluminaLimited(describedbelow).TheAluminumsegmentconsistsoftheCompany’saluminumsmelting,casting,androllingbusinesses,alongwiththemajorityoftheenergyproductionbusiness.
Aluminum,asanelement,isabundantintheearth’scrust,butamulti-stepprocessisrequiredtomakealuminummetal.Aluminummetalisproducedbyrefiningaluminaoxidefrombauxiteintoalumina,whichisthensmeltedintoaluminumandcanbecastandrolledintomanyshapesandforms.AluminumisacommoditytradedontheLondonMetalExchange(LME)andpriceddaily.Alumina,anintermediaryproduct,issubjecttomarketpricingthroughtheAluminaPriceIndex(API).Asaresult,thepricesofbothaluminumandaluminaaresubjecttosignificantvolatilityand,therefore,influencetheoperatingresultsofAlcoa.
Business Strategy
InOctober2019,theCompanyannouncedseveralstrategicactionstodrivelowercostsandsustainableprofitability.Theseannouncedactionsincludedanewoperatingmodel,realigningtheoperatingportfoliooverthefollowingfiveyearsthroughareviewof1.5millionmetrictonsofsmeltingcapacityand4millionmetrictonsofrefiningcapacity,andthesaleofnon-coreassetsoverthefollowingtwelvetoeighteenmonthperiodwiththegoalofgenerating$500to$1,000.Aftertheportfoliotransformation,theCompanyexpectstobethelowestemitterofcarbondioxideamongallglobalaluminumcompanies,pertonofemissionsinbothsmeltingandrefining,andaimstomoveitsaluminumportfoliotoafirstquartilecostposition.Inaddition,Alcoaanticipatesthatupto85percentofitssmeltingportfoliowillbepoweredbyrenewableenergy,buildingupontheCompany’sexistingsustainabilityprofileandinsupportofitsstrategicpriorityto“advancesustainably.”
Thenewoperatingmodel,effectiveNovember1,2019,resultedinaleaner,moreintegrated,operator-centricorganization.Withastreamlinedexecutiveteamwhicheliminatedthebusinessunitstructure,themodelincreasedconnectivitybetween
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theCompany’soperationsandleadership,consolidatedsales,procurementandothercommercialcapabilitiesatanenterpriselevel,andreducedoverhead.TheCompanyrealized$60inannualsavingsbeginninginthesecondquarterof2020.
Fortheportfolioreview,theCompanyplaced1.5millionmetrictonsofaluminumsmeltingcapacityand4millionmetrictonsofaluminarefiningcapacityunderreview,consideringopportunitiesforsignificantimprovement,potentialcurtailments,closures,ordivestitures.In2020,theCompanyprogresseditsreviewofsmeltingandrefiningproductioncapacity.SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionBusinessUpdate.
TheCompanymetthetargetrangeforournon-coreassetsalesthroughthesaleofourhazardouswastetreatmentbusinessinGumSprings,ArkansasthatclosedinJanuary2020andourannouncedagreementtosellourWarrickrollingmillbusinessinasaleexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.
TheCompany’sstrategicpriorityto“advancesustainably”includesmaintainingtheCompany’ssociallicensetooperate,reducingrisksandimprovingprofitabilitythroughproductdifferentiation.In2020,theCompanylaunchedtheworld’sfirstlow-carbonaluminabrand,achievedAluminiumStewardshipInitiative(ASI)certificationforadditionaloperatingassets,andobtainedASI’sChainofCustodycertificationformarketingourproducts.
Joint Ventures
Alcoa World Alumina and Chemicals (AWAC)
AWACisanunincorporatedglobaljointventurebetweenAlcoaCorporationandAluminaLimited,acompanyincorporatedunderthelawsoftheCommonwealthofAustraliaandlistedontheAustralianSecuritiesExchange.AWACconsistsofanumberofaffiliatedentitiesthatown,operateorhaveaninterestinbauxiteminesandaluminarefineries,aswellasanaluminumsmelter,insevencountries.AlcoaCorporationowns60%andAluminaLimitedowns40%oftheseentities,directlyorindirectly,withsuchentitiesbeingconsolidatedbyAlcoaCorporationforfinancialreportingpurposes.ThescopeofAWACgenerallyincludestheminingofbauxiteandotheraluminousores;therefining,production,andsaleofsmeltergradeandnon-metallurgicalalumina;andtheproductionofcertainprimaryaluminumproducts.
AlcoaprovidestheoperatingmanagementforAWAC,whichissubjecttodirectionprovidedbytheStrategicCouncilofAWAC.TheStrategicCouncilconsistsoffivemembers,threeofwhomareappointedbyAlcoa(ofwhichoneistheChair),andtwoofwhomareappointedbyAluminaLimited(ofwhichoneistheDeputyChair).Mattersaredecidedbyamajorityvotewithcertainmattersrequiringapprovalbyatleast80%ofthemembers,including:changestothescopeofAWAC;changesinthedividendpolicy;equitycallsinaggregategreaterthan$1,000inanyyear;salesofalloramajorityoftheAWACassets;loansfromAWACcompaniestoAlcoaorAluminaLimited;certainacquisitions,divestitures,expansions,curtailmentsorclosures;certainrelated-partytransactions;financialderivatives,hedgesorswaptransactions;adecisionbyAWACentitiestofileforinsolvency;andchangestopricingformulaincertainofftakeagreementswhichmaybeenteredintobetweenAWACentitiesandAlcoaorAluminaLimited.
AWAC Operations
AWACentities’assetsincludethefollowinginterests: • 100%ofthebauxitemining,aluminarefining,andaluminumsmeltingoperationsofAlcoa’saffiliate,AlcoaofAustraliaLimited(AofA); • 100%oftheJurutibauxitedepositandmineinBrazil; • 45%interestinHalco(Mining)Inc.,abauxiteconsortiumthatownsa51%interestinCompagniedesBauxitesdeGuinée(CBG),abauxiteminein
Guinea; • 9.62%interestinthebauxiteminingoperationsinBrazilofMineraçãoRioDoNorte(MRN),aBraziliancompany; • 39.96%interestintheSãoLuísrefineryinBrazil; • 55%interestinthePortland,AustraliasmelterthatAWACmanagesonbehalfofthejointventurepartners; • 25.1%interestinthemineandrefineryinRasAlKhair,SaudiArabia; • 100%oftherefineryandalumina-basedchemicalsassetsatSanCiprián,Spain; • 100%interestinvariousassetsformerlyusedforminingandrefiningintheRepublicofSuriname(Suriname); • 100%oftherefineryassetsattheclosedfacilityinPointComfort,Texas,UnitedStates;and • 100%ofAlcoaSteamshipCompanyInc.,acompanythatprocuresoceanfreightandcommercialshippingservicesforAlcoaintheordinarycourseof
business.
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Exclusivity
Underthetermsoftheirjointventureagreements,AlcoaandAluminaLimitedhaveagreedthat,subjecttocertainexceptions,AWACistheirexclusivevehiclefortheirinvestments,operationsorparticipationinthebauxiteandaluminabusiness,andtheywillnotcompetewithAWACinthosebusinesses.IntheeventofachangeofcontrolofeitherAlcoaorAluminaLimited,thisexclusivityandnon-competerestrictionwillterminate,andthepartnerswillthenhaveopportunitiestounilaterallypursuebauxiteoraluminaprojectsoutsideoforwithinAWAC,subjecttocertainconditionsprovidedintheAmendedandRestatedCharteroftheStrategicCouncil.
Equity Calls
ThecashflowofAWACandborrowingsarethepreferredsourcesoffundingfortheneedsofAWAC.Anequitycallcanbemadeon30days’notice,subjecttocertainlimitations,intheeventtheaggregateannualcapitalbudgetofAWACrequiresanequitycontributionfromAlcoaandAluminaLimited.
Dividend Policy
AWACwillgenerallyberequiredtodistributeatleast50%ofthepriorcalendarquarter’snetincomeofeachAWACentity,andcertainAWACentitieswillalsoberequiredtopayadistributioneverythreemonthsequaltotheamountofavailablecashabovespecifiedthresholdsandsubjecttotheforecastcashneedsoftheAWACentity.
Leveraging Policy
DebtofAWACissubjecttoalimitof30%oftotalcapital(definedasthesumofdebt(netofcash)plusanyminorityinterestplusshareholderequity).TheAWACjointventurehasraisedalimitedamountofdebttofundgrowthprojectsaspermittedunderAlcoa’srevolvingcreditline,andinaccordancewiththejointventurepartnershipagreements.
Saudi Arabia Joint Venture
InDecember2009,AlcoaenteredintoajointventurewiththeSaudiArabianMiningCompany(Ma’aden),whichwasformedbythegovernmentofSaudiArabiatodevelopitsmineralresourcesandcreateafullyintegratedaluminumcomplexinSaudiArabia.Ma’adenislistedontheSaudiStockExchange(Tadawul).Thecomplexincludesabauxiteminewithacapacityof4milliondrymetrictonsperyear;analuminarefinerywithacapacityof1.8millionmetrictonsperyear(mtpy);analuminumsmelterwithacapacityofingot,slabandbilletof740,000mtpy;andarollingmillwithacapacityof460,000mtpy.
Thejointventureiscurrentlycomprisedoftwoentities:theMa’adenBauxiteandAluminaCompany(MBAC)andtheMa’adenAluminiumCompany(MAC).Ma’adenownsa74.9%interestintheMBACandMACjointventure.Alcoaownsa25.1%interestinMAC,whichholdsthesmelter;AWACholdsa25.1%interestinMBAC,whichholdsthemineandrefinery.InJune2019,thejointventureagreementwasamended,transferringAlcoa’s25.1%interestintheMa’adenRollingCompany(MRC),whichwaspreviouslypartofthejointventure,toMa’aden,amongotherthings.SeePartIIItem8ofthisForm10-KinNoteCtotheConsolidatedFinancialStatements.TherefineryandsmelterarelocatedwithintheRasAlKhairindustrialzoneontheeastcoastofSaudiArabia.
Ma’adenandAlcoaCorporationhaveputandcalloptions,respectively,wherebyMa’adencanrequireAlcoaCorporationtopurchasefromMa’aden,orAlcoaCorporationcanrequireMa’adentoselltoAlcoaCorporation,a14.9%interestinMBACandMACatthethenfairmarketvalue.Theseoptions,ifexercised,mustbeexercisedforthefull14.9%interestinbothentities.TheamendedjointventureagreementdefinesOctober1,2021asthedateafterwhichMa’adenandAlcoaCorporationcanexercisetheirputandcalloptions,respectively.TheamendedjointventureagreementfurtheroutlinesthattheseoptionsareexercisableforaperiodofsixmonthsafterOctober1,2021.
TheamendedjointventureagreementalsodefinesOctober1,2021asthedateafterwhichAlcoaCorporationispermittedtosellallofitssharesinbothMBACandMACcollectively,forwhichMa’adenhasarightoffirstrefusal.Priortothisdate,Ma’adenandAlcoaCorporationmaynotsell,transfer,orotherwisedisposeof,pledge,orencumberanyinterestsinthejointventure.Undertheamendedjointventureagreement,upontheoccurrenceofanunremediedeventofdefaultbyAlcoaCorporation,Ma’adenmaypurchase,or,upontheoccurrenceofanunremediedeventofdefaultbyMa’aden,AlcoaCorporationmaysell,itsinterestinthejointventureforconsiderationthatvariesdependingonthetimeofthedefault.
Others
TheCompanyispartytoseveralotherjointventuresandconsortia.Seeadditionaldetailswithineachbusinesssegmentdiscussionbelow.
TheAlumineriedeBécancourInc.(ABI)smelterisajointventurebetweenAlcoaandRioTintoAlcanInc.(RioTinto)locatedinBécancour,Québec.Alcoaowns74.95%ofthejointventurethroughtheequityinvestmentinPechineyReynolds
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Quebec,Inc.,whichownsa50.1%shareofthesmelter,andtwowholly-ownedCanadiansubsidiaries,whichown49.9%ofthesmelter.RioTintoownstheremaining25.05%interestinthejointventure.
CBGisajointventurebetweenBokéInvestmentCompany(51%)andtheGovernmentofGuinea(49%)fortheoperationofabauxitemineintheBokéregionofGuinea.BokéInvestmentCompanyisowned100%byHalco(Mining)Inc.;AWALLCholdsa45%interestinHalco.AWALLCispartoftheAWACgroupofcompaniesandisultimatelyowned60%byAlcoaand40%byAluminaLimited.
MRNisajointventurebetweenAlcoaAlumínio(8.58%),AWABrasil(4.62%)andAWALLC(5%),eachasubsidiaryofAlcoa,andaffiliatesofRioTinto(12%),CompanhiaBrasileiradeAlumínio(10%),ValeS.A.(Vale)(40%),South32(14.8%),andNorskHydro(5%)fortheoperationofabauxitemineinPortoTrombetasinthestateofParáinBrazil.AWABrasilandAWALLCarepartoftheAWACgroupofcompaniesandareultimatelyowned60%byAlcoaand40%byAluminaLimited.
Alumarisajointventurefortheoperationofarefinery,smelter,andcasthouseinBrazil.TherefineryisownedbyAWABrasil(39.96%),RioTinto(10%),AlcoaAlumínio(14.04%),andSouth32(36%).AWABrasilispartoftheAWACgroupofcompaniesandisultimatelyowned60%byAlcoaand40%byAluminaLimited.WithrespecttoRioTintoandSouth32,thenamedcompanyoranaffiliatethereofholdstheinterest.ThesmelterandcasthouseareownedbyAlcoaAlumínio(60%)andSouth32(40%).
ElysisTMLimitedPartnership(ElysisTM)isajointventurebetweenthewholly-ownedsubsidiariesofAlcoa(48.235%)andRioTinto(48.235%),respectively,andInvestissem*ntQuébec(3.53%),acompanywholly-ownedbytheGovernmentofQuébec,Canada.ThepurposeofElysisTMistoadvancelargerscaledevelopmentandcommercializationofitspatent-protectedtechnologythatproducesoxygenandeliminatesalldirectgreenhousegasemissionsfromthetraditionalaluminumsmeltingprocess.
StrathconacalcinerisajointventurebetweenaffiliatesofAlcoaandRioTinto.Thecalcinerpurchasesgreenco*kefromthepetroleumindustryandconvertsitintocalcinedco*ke.Thecalcinedco*keisthenusedasarawmaterialinanaluminumsmelter.Alcoaowns39%ofthejointventure,andRioTintoownstheremaining61%ofthejointventure.
Hydropower
MachadinhoHydroPowerPlant(HPP)isaconsortiumlocatedonthePelotasRiverinsouthernBrazilinwhichtheCompanyhasa25.8%ownershipinterestthroughAlcoaAlumínio.Theremainingownershipinterestsareheldbyunrelatedthirdparties.
BarraGrandeHPPisajointventurelocatedonthePelotasRiverinsouthernBrazilinwhichtheCompanyhasa42.2%ownershipinterestthroughAlcoaAlumínio.Theremainingownershipinterestsareheldbyunrelatedthirdparties.
EstreitoHPPisaconsortiumbetweenAlcoaAlumínio,throughEstreitoEnergiaS.A.(25.5%)andunrelatedthirdpartieslocatedontheTocantinsRiver,northernBrazil.
SerradoFacãoHPPisajointventurebetweenAlcoaAlumínio(34.9%)andunrelatedthirdpartieslocatedontheSaoMarcosRiver,centralBrazil.
ManicouaganPowerLimitedPartnership(Manicouagan)isajointventurebetweenaffiliatesofAlcoaandHydro-Québec.Manicouaganownsandoperatesthe335megawattMcCormickhydroelectricproject,whichislocatedontheManicouaganRiverintheProvinceofQuébec,Canada.Alcoaowns40%ofthejointventure.
Bauxite
ThissegmentconsistsoftheCompany’sglobalbauxiteminingoperations.Bauxiteistheprincipalrawmaterialusedtoproducealuminaandcontainsvariousaluminumhydroxideminerals,themostimportantofwhicharegibbsiteandboehmite.BauxiteisrefinedusingtheBayerprocess,theprincipalindustrialchemicalprocessforrefiningbauxitetoproducealumina,acompoundofaluminumandoxygenthatistherawmaterialusedbysmelterstoproducealuminummetal.BauxiteisAlcoa’sbasicrawmaterialinputforitsaluminarefiningprocess.TheCompanyobtainsbauxitefromitsownresourcesandfromthosebelongingtoAWAC,locatedinthecountrieslistedinthetablebelow,aswellaspursuanttobothlong-termandshort-termcontractsandminingleases.Tonsofbauxitearereportedonazero-moisturebasisasdrymetrictonsunlessotherwisestated.
Alcoaprocessesmostofthebauxitethatitminesintoaluminaandsellstheremaindertothirdparties.In2020,Alcoa-operatedminesproduced41.1milliondmtandminesoperatedbypartnershipsinwhichAlcoaandAWAChaveequityinterestsproduced6.9milliondmtonaproportionalequitybasis,foratotalCompanybauxiteproductionof48.0milliondmt.
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Basedonthetermsofitsbauxitesupplycontracts,theamountofbauxiteAWACpurchasesfromitsminority-ownedjointventuresMRNandCBGdifferfromitsproportionalequityinthosemines.Therefore,in2020,Alcoahadaccessto48.7milliondmtofproductionfromitsportfolioofbauxiteinterestsandsold6.5milliondmtofbauxitetothirdparties;42.2milliondmtofbauxitewasdeliveredtoAlcoaandAWACrefineries.
TheCompanyaimstogrowitsthird-partybauxitesalesbusiness.InDecember2016,theGovernmentofWesternAustraliagrantedpermissiontoAlcoa’smajority-ownedsubsidiary,AofA,toexportupto2.5milliondmtperyearofbauxiteforfiveyearstothird-partycustomers.Supplytothird-partycustomersbeyond2021willrequireapprovalfromtheGovernmentofWesternAustralia.Theprimarycustomerbaseforthird-partybauxiteislocatedinAsia,particularlyinChina.
Bauxite Resource and Reserve Development Guidelines
TheCompanyhasaccesstolargebauxitedepositareaswithminingrightsthatextendinmanycasesmorethan15yearsfromthedateofthisreport.Forpurposesofevaluatingtheamountofbauxitethatwillbeavailabletosupplyitsrefineries,theCompanyconsidersbothestimatesofbauxiteresourcesaswellascalculatedbauxitereserves.“Bauxiteresources” aredepositsforwhichtonnage,densities,shape,physicalcharacteristics,gradeandmineralcontentcanbeestimatedwithareasonablelevelofconfidence(basedontheamountofexplorationsamplingandtestinginformationgatheredthroughappropriatetechniquesfromlocationssuchasoutcrops,trenches,pits,workingsanddrillholes),suchthattherearereasonableprospectsforeconomicextraction.“Bauxitereserves”representthepartofresourcedepositsthatcanbeeconomicallyminedtosupplyaluminarefineries,andincludedilutingmaterialsandallowancesforlosses,whichmayoccurwhenthematerialismined.Appropriateassessmentsandstudieshavebeencarriedouttodefinethereserves,andincludeconsiderationofandmodificationbyrealisticallyassumedmining,metallurgical,economic,marketing,legal,environmental,socialandgovernmentalfactors.Alcoaemploysaconventionalapproach(includingadditionaldrillingwithsuccessivetighteningofthedrillinggrid)withcustomizedtechniquestodefineandcharacterizeitsvariousbauxitedeposittypesallowingtheCompanytoconfidentlyestablishtheextentofitsbauxiteresourcesandtheirultimateconversiontoreserves.
Alcoahasadoptedbestpracticeguidelinesforbauxitereserveandresourceclassificationatit*operatingbauxitemines.Alcoa’sreservesaredeclaredinaccordancewiththeJointOreReservesCommittee(JORC)codeguidelines.Thereportedorereservessetforthinthetablebelowarethosethatweestimatedcouldbeextractedeconomicallywithcurrenttechnologyandincurrentmarketconditions.Wedonotuseapriceforbauxite,aluminaoraluminumtodetermineourbauxitereserves.Theprimarycriteriafordeterminingbauxitereservesarethefeedspecificationsrequiredbythereceivingaluminarefinery.Morespecifically,reservesaresetbasedonthechemicalcompositionofthebauxiteinordertominimizebauxiteprocessingcostandmaximizerefineryeconomicsforeachindividualrefinery.Theprimaryspecificationsthatareimportanttothisanalysisarethe“availablealumina”contentofthebauxite,whichistheamountofaluminaextractablefrombauxiteusingtheBayerprocess,and“reactivesilica”contentofthebauxite,whichistheamountofsilicathatisreactivewithintheBayerprocess.Eachaluminarefinerywillhaveatargetspecificationfortheseparameters,butmayreceivebauxitewithinarangethatallowsblendinginstockpilestoachievethereceivingrefinery’starget.
Inadditiontothesechemicalspecifications,severalotherorereservedesignfactorshavebeenappliedtodifferentiatebauxitereservesfromothermineralizedmaterial.Thecontoursofthebauxitereservesaredesignedusingparameterssuchasavailablealuminacontentcutoffgrade,reactivesilicacutoffgrade,oredensity,overburdenthickness,orethicknessandmineaccessconsiderations.Theseparametersaregenerallydeterminedbyusinginfilldrillingorgeologicalmodeling.Further,ourmininglocationsutilizeannualin-filldrillingorgeologicalmodelingprogramsdesignedtoprogressivelyupgradethereserveandresourceclassificationoftheirbauxitebasedontheabove-describedfactors.
ThefollowingtableonlyincludestheamountofprovenandprobablereservescontrolledbytheCompany.Whilethelevelofreservesmayappearlowinrelationtoannualproductionlevels,theyareconsistentwithhistoricallevelsofreservesfortheCompany’smininglocationsandconsistentwiththeCompanyreservesstrategy.GiventheCompany’sextensivebauxiteresources,theabundantsupplyofbauxiteglobally,andthelengthoftheCompany’srightstobauxite,itisnotcost-effectivetoestablishbauxitereservesthatreflectthetotalsizeofthebauxiteresourcesavailabletotheCompany.Rather,bauxiteresourcesareupgradedannuallytoreservesasneededbythelocation.Detailedassessmentsareprogressivelyundertakenwithinaproposedminingareaandmineactivityisthenplannedtoachieveauniformqualityinthesupplyofblendedfeedstocktotherelevantrefinery.Alcoabelievesitspresentsourcesofbauxiteonaglobalbasisaresufficienttomeettheforecastedrequirementsofitsaluminarefiningoperationsfortheforeseeablefuture.
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Bauxite Interests, Share of Reserves and Annual Production1
Country Project
Owners’ MiningRights
(% Entitlement)
Expiration Date of Mining Rights
Probable Reserves2 (million
dmt)
Proven Reserves2 (million
dmt)
Available Alumina Content
(%) A.Al2O3
Reactive Silica
Content (%)
R.SiO2
2020 Annual
Production (million
dmt) Ore Reserve Design Factors
DarlingRangeMinesML1SA
AlcoaofAustraliaLimited(AofA)(100%)
2024
95.8
43.2
32.0
1.0
34.8
• A.Al2O3≥27.5%• R.SiO2≤3.5%• Minimummineablethickness1.5m• Minimumbenchwidthsof45m
BrazilPoçosdeCaldas
AlcoaAlumínioS.A.(AlcoaAlumínio)3(100%)
20314 0.1 0.7 38.5 4.0 0.2 • A.Al2O3≥30%• R.SiO2≤7%
JurutiRN101,RN102RN103,RN104,RN107,#34
AlcoaWorldAluminaBrasilLtda.(AWABrasil)(100%)
21004
41.3
51.8
47.2
3.3
6.1
• A.Al2O3≥35%• R.SiO2≤10%• WashRecovery:≥30%• Overburden/Ore(m/m)=10/1
Equity Interests: Brazil
Trombetas
MineraçãoRiodoNorteS.A.(MRN)(18.2%)
20464 0.5
3.4
48.2
5.6
2.1
• A.Al2O3≥46%• R.SiO2≤7%• WashRecovery:≥30%
Guinea
Boké
CompagniedesBauxitesdeGuinée(CBG)(22.95%)
2038
8.6
82.4
Tal2O347.2
TsiO22.0
3.6
• A.Al2O3≥44%• R.SiO2≤10%• Minimummineablethickness2m• SmallestMiningUnitsize(SMU)50mx50m
SaudiArabia
AlBa’itha
Ma’adenBauxite&AluminaCompany(MBAC)(25.1%)
2037
30.8
15.2
TAA48.2
TsiO29.3
1.2
• A.Al2O3≥40%• Miningdilutionmodeledasaskinof6cmaboveand8.5cmbelow• Miningrecoveryappliedasaskinlossof14cmoneachsideofthemineralisation• Mineralisationlessthan1mthickexcluded
1 ThistableshowsonlytheAWACand/orAlcoashare(proportion)ofreserveandannualproductiontonnage.
2 “Probablereserves”aretheportionofabauxitereservewherethephysicalandchemicalcharacteristicsandlimitsareknownwithsufficientconfidenceforminingandtowhichvariousminingmodifyingfactorshavebeenapplied.“Provenreserves”aretheportionofabauxitereservewherethephysicalandchemicalcharacteristicsandlimitsareknownwithhighconfidenceandtowhichvariousminingmodifyingfactorshavebeenapplied.
3 AlcoaAlumínioisultimatelyowned100%byAlcoa(notAWAC).
4 Brazilianminerallegislationdoesnotlimitthedurationofminingconcessions;rather,theconcessionremainsinforceuntilthedepositisexhausted.Theseconcessionsmaybeextendedlaterorexpireearlierthanestimated,basedontherateatwhichthesedepositsareexhaustedandonobtaininganyadditionalgovernmentalapproval,asnecessary.
Qualifyingstatementsrelatingtothetableabove:
Australia—DarlingRangeMines:HuntlyandWillowdalearethetwoactiveAWACminesintheDarlingRangeofWesternAustraliathatsupplybauxitetothreelocalAWACaluminarefineries.TheyoperatewithinML1SA,themineralleaseissuedbytheStateofWesternAustraliatoAlcoa’smajority-ownedsubsidiary,AofA.TheML1SAleaseencompassesagrossareaof712,881hectares(includingprivatelandholdings,stateforests,nationalparksandconservationareas)intheDarlingRangeandextendsfromeastofPerthtoeastofBunbury(ML1SAArea).TheML1SAleaseprovidesAofAwithvariousrights,includingcertainexclusivityrightstoexploreforandminebauxite,rightstodenythirdpartyminingtenementsinlimitedcirc*mstances,rightstominingleasesforothermineralsintheML1SAArea,andtherighttopreventcertaingovernmentalactionsfrominterferingwithorprejudiciallyaffectingtherightsofAofA.TheML1SAleasetermextendsto2024andcanberenewedforanadditional21-yearperiodto2045.Theabove-declaredreservesarecurrentasofDecember31,2020.TheamountofreservesreflectsthetotalAWACshare.Additionalresourcesareroutinelyupgradedbyadditionalexplorationanddevelopmentdrillingtoreservestatus.
Brazil—PoçosdeCaldas:Theabove-declaredreservesarecurrentasofDecember31,2020.TonnageistotalAlcoashare.Additionalresourcesarebeingupgradedtoreservesasneeded.
Brazil—JurutiRN101,RN102,RN103,RN104,RN107,#34:Theabove-declaredreservesarecurrentasofDecember31,2020.AllreservesareontheCapirangaPlateauinmineralclaimareasRN101,RN102,RN103,RN104,RN107,#34,within
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whichAlcoahasoperatinglicensesissuedbythestate.DeclaredreservesaretotalAWACshare.Declaredreservetonnagesandtheannualproductiontonnagearewashedandunwashedproducttonnages.TheJurutimine’soperatinglicensesareperiodicallyrenewed.
Brazil—Trombetas-MRN:Theabove-declaredreservesareasofDecember31,2020.DeclaredandannualproductiontonnagesreflectthetotalforAlcoaAlumínioandAWACshares(18.2%).Declaredtonnagesarewashedproducttonnages.
Guinea—Boké-CBG:Theabove-declaredreservesarebasedonexportqualitybauxitereservesandarecurrentasofDecember31,2020.DeclaredtonnagesreflectonlytheAWACshareofCBG’sreserves.AnnualproductiontonnageisreportedbasedonAWAC’s22.95%share.Declaredreservesqualityisreportedbasedontotalaluminacontent(Tal2O3)andtotalsilica(TsiO2)becauseCBGexportbauxiteissoldonthisbasis.Additionalresourcesarebeingroutinelydrilledandmodeledtoupgradetoreservesasneeded.
SaudiArabia—AlBa’itha:TheAlBa’ithaMinebeganproductionduring2014andproductionwasincreasedin2016.DeclaredreservesareasofDecember31,2020.ThedeclaredreservesarelocatedintheSouthZoneoftheAzZabirahBauxiteDeposit.ThereservetonnageinthisdeclarationisAWACshareonly(25.1%).
ThefollowingtableprovidesadditionalinformationregardingtheCompany’sbauxitemines,allofwhichareopen-cutmines.Excavationisdoneatthesurfaceofopen-cutminestoextractmineralore(suchasbauxite).Open-cutminesarenotundergroundandtheskyisviewablefromtheminefloor:
Mine & Location Means ofAccess Operator
Title,Lease or Options History
Type ofMine Mineralization Style Power Source
Facilities,Use & Condition
Australia—DarlingRange;HuntlyandWillowdale.
Minelocationsareaccessedbyroad.Oreistransportedtorefineriesbylongdistanceconveyorandrail.
Alcoa
MiningleasefromtheWesternAustraliaGovernment.ML1SA.Expiresin2024,withoptiontorenew.
Miningbeganin1963.
Open-cutmines;BauxiteisderivedfromtheweatheringofArcheangranitesandgneissesandPrecambriandolerite.
Electricalenergyfromnaturalgasissuppliedbytherefinery.
Infrastructureincludesbuildingsforadministrationandservices;workshops;powerdistribution;watersupply;crushers;longdistanceconveyors.Minesandfacilitiesareoperating.WeexpecttocompletetheprocessofmovingtheWillowdaleminingoperationsin2021.
Brazil—PoçosdeCaldas.ClosesttownisPoçosdeCaldas,MG,Brazil.
Minelocationsareaccessedbyroad.Oretransporttotherefineryisbyroad.
Alcoa
MininglicensesfromtheGovernmentofBrazilandMinasGerais.Companyclaimsandthird-partyleases.Operationlicenseexpiresin2022butcanbeextendedsubjecttomeetinganyapplicableconditions.
Miningbeganin1965.
Open-cutmines;Bauxitederivedfromtheweatheringofnephelinesyeniteandphonolite.
Commercialgridpower.
Miningofficesandservicesarelocatedattherefinery.Numeroussmalldepositsareminedbycontractminersandtheoreistruckedtoeithertherefinerystockpileorintermediatestockpilearea.Minesandfacilitiesareoperating.MineproductionhasbeenreducedtoalignwiththereducedproductionofthePoçosrefinerywhichisnowproducingspecialtyalumina.
Brazil—Juruti.ClosesttownisJurutilocatedontheAmazonRiver.
Themine’sportatJurutiislocatedontheAmazonRiverandaccessedbyship.Oreistransportedfromtheminesitetotheportbycompanyownedrail.
Alcoa
MininglicensesfromtheGovernmentofBrazilandPará.Miningrightsdonothavealegalexpirationdate.Seefootnote4tothetableabove.Operatinglicensesforthemine,washingplantandexplorationareintheprocessofbeingrenewed.Operatinglicensefortheportremainsvaliduntilthegovernmentagencyformalizestherenewal.
TheJurutidepositwassystematicallyevaluatedbyReynoldsMetalsCompany(Reynolds)beginningin1974.ParentComergedReynoldsintotheCompanyin2000.ParentCothenexecutedaduediligenceprogramandexpandedtheexplorationarea.Miningbeganin2009.
Open-cutmines;BauxitederivedfromweatheringduringtheTertiaryofCretaceousfinetomediumgrainedfeldspathicsandstones.ThedepositsarecoveredbytheBelterraclays.
Electricalenergyfromfueloilisgeneratedattheminesite.Commercialgridpowerattheport.
Attheminesite:Fixedplantfacilitiesforcrushingandwashingtheore;mineservicesofficesandworkshops;powergeneration;watersupply;stockpiles;railsidings.Attheport:Mineandrailadministrativeofficesandservices;portcontrolfacilitieswithstockpilesandshiploader.Mineandportfacilitiesareoperating.WeexpecttocompletetheprocessofmovingtheJurutiminingoperationsin2022.
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Mine & Location Means ofAccess Operator
Title,Lease or Options History
Type ofMine Mineralization Style Power Source
Facilities,Use & Condition
Brazil—MRN.ClosesttownisTrombetasintheStateofPará,Brazil.
Themineandportareasareconnectedbysealedroadandcompanyownedrail.WashedoreistransportedtoPortoTrombetasbyrail.Trombetasisaccessedbyriverandbyairattheairport.
MRN
MiningrightsandlicensesfromtheGovernmentofBrazil.Concessionrightsexpirein2046.
Miningbeganin1979.Majorexpansionin2003.
Open-cutmines.BauxitederivedfromweatheringduringtheTertiaryofCretaceousfinetomediumgrainedfeldspathicsandstones.ThedepositsarecoveredbytheBelterraclays.
MRNgeneratesitsownelectricityfromfueloil.
Oreminedfromseveralplateausiscrushedandtransportedtothewashingplantbylong-distanceconveyors.Thewashingplantislocatedintheminingzone.Washedoreistransportedtotheportareabycompany-ownedandoperatedrail.AtPortoTrombetastheoreisloadedontocustomershipsberthedintheTrombetasRiver.Someoreisdriedandthedryingfacilitiesarelocatedintheportarea.Mineplanningandservicesandminingequipmentworkshopsarelocatedintheminezone.Themainadministrative,railandportcontrolofficesandvariousworkshopsarelocatedintheportarea.MRN’smainhousingfacilitiesarelocatedneartheport.Themines,portandallfacilitiesareoperating.
Guinea—CBG.ClosesttowntothemineisSangaredi.ClosesttowntotheportisKamsar.TheCBGLeaseislocatedwithintheBoké,TelimeleandGaoualadministrativeregions.
Themineandportareasareconnectedbysealedroadandcompany-operatedrail.OreistransportedtotheportatKamsarbyrail.Thereareairstripsnearboththemineandport.Thesearenotoperatedbythecompany.
CBG
CBGLeaseexpiresin2038.Theleaseisrenewablein25-yearincrements.CBG’srightsarespecifiedwithintheBasicAgreementandAmendment1totheBasicAgreementwiththeGovernmentofGuinea.
Constructionbeganin1969.Firstexportoreshipmentwasin1973.
Open-cutmines:ThebauxitedepositswithintheCBGleaseareoftwogeneraltypes.TYPE1:In-situlaterizationofOrdovicianandDevonianplateausedimentslocallyintrudedbydoleritedikesandsills.TYPE2:SangareditypedepositsarederivedfromclasticdepositionofmaterialerodedfromtheTYPE1lateritedepositsandpossiblysomeoftheprolithsfromtheTYPE1plateausdeposits.
ThecompanygeneratesitsownelectricityfromfueloilatbothKamsarandSangaredi.
Mineoffices,workshops,powergeneration,andwatersupplyforthemineandcompanyminecityarelocatedatSangaredi.Themainadministrativeoffices,portcontrol,railroadcontrol,workshops,powergenerationandwatersupplyarelocatedinKamsar.Oreiscrushed,driedandexportedfromKamsar.CBGhascompanycitieswithinbothKamsarandSangaredi.Themines,railroad,driers,portandotherfacilitiesareoperating.
SaudiArabia—AlBa’ithaMine.Qibahistheclosestregionalcentertothemine,locatedintheQassimprovince.
Themineandrefineryareconnectedbyroadandrail.OreistransportedtotherefineryatRasAlKhairbyrailandtruck.
Ma’adenBauxite&AluminaCompany(MBAC)
Thecurrentminingleasewillexpirein2037.
Theinitialdiscoveryanddelineationofbauxiteresourceswascarriedoutbetween1979and1984.ThesouthernzoneoftheAzZabirahdepositwasgrantedtoMa’adenin1999.Mineconstructionwascompletedinthesecondquarterof2015,andtheminingoperationscontinuedatplannedlevels.
Open-cutmine;BauxiteoccursasapaleolateriteprofiledevelopedatanangularunconformitybetweenunderlyinglateTriassictoearlyCretaceoussediments(parentrocksequenceBiyadhFormation)andtheoverlyinglateCretaceousWasiaFormation(overburdensequence).
Thecompanygenerateselectricityattheminesitefromfueloil.
Themineincludesfixedplantsforcrushingandtrainloading;workshopsandancillaryservices;powerplant;andwatersupply.Thereisacompanyvillagewithsupportingfacilities.Miningoperationscommencedin2014.
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Alumina
ThissegmentconsistsoftheCompany’sworldwiderefiningsystem,whichprocessesbauxiteintoalumina.Alcoa’saluminasalesaremadetocustomersallovertheworldandaretypicallypricedbyreferencetopublishedspotmarketprices.TheCompany’slargestcustomerforsmeltergradealuminaisitsownaluminumsmelters,whichin2020accountedforapproximately31%ofitstotalaluminashipments.Asmallportionofthealuminaissoldtothird-partycustomerswhoprocessitintoindustrialchemicalproducts.ThissegmentalsoincludesAWAC’s25.1%shareofMBAC.
TheCompanyprimarilysellsaluminathroughfixedpricespotsalesandcontractscontainingtwopricingcomponents:(1)theAPIpricebasis,and(2)anegotiatedadjustmentbasisthattakesintoaccountvariousfactors,includingfreight,quality,customerlocation,andmarketconditions.In2020,approximately95%oftheCompany’ssmeltergradealuminashipmentstothirdpartiesweresoldonafixedpricespotbasisoradjustedAPIpricebasis.
Alcoa’saluminarefiningfacilitiesanditsworldwidealuminacapacitystatedinmetrictonsperyear(mtpy)areshowninthefollowingtable:
Country Facility
NameplateCapacity1
(000 mtpy)
AlcoaCorporationConsolidated
Capacity1
(000 mtpy) Australia(AofA) Kwinana 2,190 2,190
Pinjarra 4,234 4,234 Wagerup 2,555 2,555Brazil PoçosdeCaldas 390 390
SãoLuís(Alumar) 3,500 1,890Spain SanCiprián 1,500 1,500TOTAL 14,369 12,759
Equity Interests:
Country Facility
NameplateCapacity1
(000 mtpy)
AlcoaCorporationConsolidated
Capacity1
(000 mtpy) SaudiArabia RasAlKhair(MBAC) 1,800 452
1 NameplateCapacityisanestimatebasedondesigncapacityandnormaloperatingefficienciesanddoesnotnecessarilyrepresentmaximumpossible
production.AlcoaCorporationConsolidatedCapacityrepresentsourshareofproductionfromthesefacilities.Forfacilitieswholly-ownedbyAWACentities,Alcoatakes100%oftheproduction.
AsofDecember31,2020,Alcoahadapproximately214,000mtpyofidlecapacityrelativetototalAlcoaconsolidatedcapacityof12,759,000mtpy.The214,000mtpyofidlecapacityisatthePoçosdeCaldasfacilityasaresultofthefullcurtailmentofthePoçosdeCaldassmelter.
InOctober2019,theCompanyannouncedafive-yearreviewofourproductionassetsthatincludesarangeofpotentialoutcomesforthesefacilities,includingsignificantlyimprovedcompetitivepositioning,curtailment,closure,ordivestiture.Thereviewincludes4millionmetrictonsofglobalrefiningcapacity,ofwhich2,305,000mtpyofcapacityhasbeenpermanentlyclosedsincetheannouncedreview(PointComfortrefinery,Texas).SeePartIIItem8ofthisForm10-KinNoteDtotheConsolidatedFinancialStatementsforadditionalinformation.
Aluminum
Thissegmentcurrentlyconsistsof(i)theCompany’sworldwidesmeltingandcasthousesystem,(ii)aportfolioofenergyassetsinBrazil,Canada,andtheUnitedStates,and(iii)arollingmilllocatedatWarrickOperations(WarrickRollingMill),anintegratedaluminummanufacturingsitenearEvansville,Indiana(WarrickOperations)intheUnitedStates.Thesmeltingoperationsproducemoltenprimaryaluminum,whichisthenformedbythecastingoperationsintoeithercommonalloyingot(e.g.,t-bar,sow,standardingot)orintovalue-addingotproducts(e.g.,foundry,billet,rod,andslab).TheenergyassetssupplypowertoexternalcustomersinBrazil,and,toalesserextent,intheUnitedStates,andinternalcustomerswithintheAluminumsegment(BaieComeau(Canada)smelterandWarrick(Indiana)smelterandrollingmill)andtheAluminasegment(Brazilianrefineries).TheCompanyhasenteredintoanagreementtoselltheWarrickRollingMill,whichproducesaluminumsheetprimarilyfortheproductionofaluminumcans,toKaiserAluminumCorporation(Kaiser).Thesaleis
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expectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.ThissegmentalsoincludesAlcoa’s25.1%shareofMAC,thesmeltingjointventurecompanyinSaudiArabia.
Smelting and Casting Operations
Contractsforprimaryaluminumvarywidelyinduration,frommulti-yearsupplycontractstospotpurchases.Pricingforprimaryaluminumproductsistypicallycomprisedofthreecomponents:(i)thepublishedLMEaluminumpriceforcommoditygradeP1020aluminum,(ii)thepublishedregionalpremiumapplicabletothedeliverylocaleand(iii)anegotiatedproductpremiumthataccountsforfactorssuchasshapeandalloy.
Alcoa’sprimaryaluminumfacilitiesanditsglobalsmeltingcapacitystatedinmetrictonsperyear(mtpy)areshowninthefollowingtable:
Country Facility
NameplateCapacity1
(000 mtpy)
AlcoaCorporationConsolidated
Capacity1
(000 mtpy) Australia Portland 358 197Brazil PoçosdeCaldas2 N/A N/A SãoLuís(Alumar) 447 268Canada BaieComeau,Québec 280 280 Bécancour,Québec 413 310 Deschambault,Québec 260 260Iceland Fjarðaál 344 344Norway Lista 94 94 Mosjøen 188 188Spain SanCiprián 228 228UnitedStates MassenaWest,NY 130 130 Ferndale,WA(Intalco) 279 279 Wenatchee,WA 146 146 Evansville,IN(Warrick) 269 269TOTAL 3,436 2,993
Equity Interests:
Country Facility
NameplateCapacity1
(000 mtpy)
AlcoaCorporationConsolidated
Capacity1
(000 mtpy) SaudiArabia RasAlKhair(MAC) 740 186
1 NameplateCapacityisanestimatebasedondesigncapacityandnormaloperatingefficienciesanddoesnotnecessarilyrepresentmaximumpossible
production.AlcoaCorporation’sconsolidatedcapacityisitsshareofNameplateCapacitybasedonitsownershipinterestintherespectivesmelter.2 ThePoçosdeCaldasfacilityisacasthouseanddoesnotincludeasmelter.
AsofDecember31,2020,theCompanyhadapproximately831,000mtpyofidlesmeltingcapacityrelativetototalAlcoaconsolidatedcapacityof2,993,000mtpy.Theidlecapacityincludes230,000mtpyattheIntalcosmelterinFerndale,Washingtonwhichwascurtailedin2020and49,000mtpyofearlier-curtailedcapacity.TheAlumarandWenatcheesmeltershavebeenfullycurtailedsince2015,andthePortlandsmelterhas30,000mtpyofidlecapacity.ThesmelteratWarrickOperations,whichisdedicatedtosupplyingtheWarrickRollingMill,has108,000mtpyofidlecapacity.
TheCompany’sannouncedfive-yearreviewofourproductionassetsincludes1.5millionmetrictonsofsmeltingcapacity.ThecurtailmentoftheIntalcosmelterreducedthetargetby279,000metrictons.
OnOctober8,2020,theCompanymadethedecisiontocurtailthe228,000metrictonsofuncompetitiveannualsmeltingcapacityattheSanCipriánsmelterinSpain.Thedecisionfollowedafour-monthconsultationprocesswiththeSpanishWorksCouncilandunsuccessfulnegotiationsduringapotentialsaleprocess.OnOctober4,2020,thelaborforceatboththerefineryandthealuminumfacilitiesatSanCipriáninitiatedastrike.FollowingAlcoa’sannouncementtocurtailtheSanCipriánsmelter,theworkers’representativeschallengedthecollectivedismissalprocessinalegalproceedingbeforethe
10
HighCourtofJusticeofGalicia,whichruledinfavoroftheworkersonDecember17,2020.Asaresult,theCompanysuspendeditsplanstocurtailtheSanCipriánsmelter.OnJanuary22,2021,theCompanyreachedagreementwiththeworkers’representativestosuspendthestrike.Aspartoftheagreement,theCompanyagreedtoconductasaleprocesstosellthesmeltertoaSpanishgovernmentownedentity.
SeePartIIItem8ofthisForm10-KinNoteDtotheConsolidatedFinancialStatementsforadditionalinformation.
Rolling Operations
TheAluminumsegment’srolledproductsbusinessconsistssolelyoftheCompany’srollingmilloperationsinWarrick,Indiana,whichproducesaluminumsheet.Alcoa’srolledproductsbusinesshasthecapabilityofparticipatinginseveralmarketsegments,includingbeveragecansheet,foodcansheet,lithographicsheet,andindustrialproducts.ThetermRigidContainerSheet(RCS)iscommonlyusedforbothbeverageandfoodcansheet.RCSincludesthematerialusedtoproducethebodyofbeveragecontainers(bodystock),thelidofbeveragecontainers(endstockandtabstock),thematerialtoproducefoodcanbodyandlids(foodstock),andthematerialtoproducealuminumbottles(bottlestock)andbottleclosures(closuresheet).
In2020,ourWarrickRollingMillproducedandsold305,900metrictonsofRCSandindustrialproductstocustomersinNorthAmerica.ThemajorityofitssaleswerecoatedRCSproducts(foodstock,beverageendandtabstock).Cansheetdemandisafunctionofconsumerdemandforbeveragesandfoodinaluminumpackaging,andseasonalincreasesincansheetsalesaregenerallyexpectedinthesecondandthirdquartersoftheyear.
OnNovember30,2020,theCompanyenteredintoanagreementtoselltheWarrickRollingMilllocatedatWarrickOperations,toKaiserfortotalconsiderationofapproximately$670,whichincludes$587incashandtheassumptionof$83inotherpostretirementbenefitliabilities.Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.SeePartIIItem8ofthisForm10-KinNoteCtotheConsolidatedFinancialStatementsforadditionalinformation.
Energy Facilities and Sources
Energycomprisesapproximately21%oftheCompany’stotalaluminarefiningproductioncosts.Electricpowercomprisesapproximately26%oftheCompany’sprimaryaluminumproductioncosts.
Electricitymarketsareregionalandarelimitedinsizebyphysicalandregulatoryconstraints,includingthephysicalinabilitytotransportelectricityefficientlyoverlongdistances,thedesignoftheelectricgrid,includinginterconnections,andtheregulatorystructureimposedbyvariousfederalandstateentities.
Electricitycontractsmaybeshort-term(real-timeordayahead)oryearsinduration,andcontractscanbeexecutedforimmediatedeliveryoryearsinadvance.Pricingmaybefixed,indexedtoanunderlyingfuelsourceorotherindexsuchasLME,cost-basedorbasedonregionalmarketpricing.In2020,Alcoageneratedapproximately10%ofthepowerusedatit*smeltersworldwideandgenerallypurchasedtheremainderunderlong-termarrangements.
Thefollowingtablesetsforththeelectricitygenerationcapacityand2020generationoffacilitiesinwhichAlcoaCorporationhasanownershipinterest.SeealsotheJointVenturessectionabove.
Country Facility
Alcoa CorporationConsolidated
Capacity (MW) 2020 Generation
(MWh) Brazil BarraGrande 152 816,639 Estreito 157 1,070,880 Machadinho 119 1,348,931 SerradoFacão 60 266,607Canada Manicouagan 133 1,163,891UnitedStates Warrick 657 3,760,925TOTAL 1,278 8,427,873
Thefiguresinthistablearepresentedinmegawatts(MW)andmegawatthours(MWh),respectively.
EachfacilitylistedabovegenerateshydroelectricpowerexcepttheWarrickfacility,whichgeneratessubstantiallyallofthepowerusedbytheWarricksmeltingandrollingfacilitiesfromtheco-locatedWarrickpowerplantusingcoalpurchasedfromthirdpartiesatnearbycoalreserves.During2020,approximately31%ofthecapacityfromtheWarrickpowerplantwassoldintothemarketunderitscurrentoperatingpermits.AlcoaPowerGeneratingInc.,asubsidiaryoftheCompany,alsoowns
11
certainFederalEnergyRegulatoryCommission(FERC)-regulatedtransmissionassetsinIndiana,Tennessee,NewYork,andWashington.
TheconsolidatedcapacityoftheBrazilianenergyfacilitiesshownaboveinmegawatts(MW)istheassuredenergy,representingapproximately52%ofhydropowerplantnominalcapacity.SinceMay2015(aftercurtailmentofthePoçosdeCaldasandSãoLuíssmeltersinBrazil),theexcessgenerationcapacityfromtheBrazilianhydroelectricfacilitieshasbeensoldintothemarket.
ManicouaganPowerLimitedPartnership(Manicouagan)isajointventurebetweenaffiliatesofAlcoaCorporationandHydro-Québec.Manicouaganownsandoperatesthe335megawattMcCormickhydroelectricproject,whichislocatedontheManicouaganRiverintheProvinceofQuébec.Belowisanoverviewofourexternalenergyforoursmeltersandrefineries.Region External Energy Source Electricity Natural Gas
NorthAmerica
Québec, CanadaThethreesmeltersinQuébecpurchasealloramajorityoftheirelectricityundercontractswithHydro-QuébecthatexpireonDecember31,2029.ThesmelterlocatedinBaieComeaualsopurchasesapproximatelyone-quarterofitspowerneedsfroma40%ownedhydroelectricgeneratingcompany,ManicouaganPowerLimitedPartnership.Wenatchee, WashingtonThissmelterisservedbyacontractwithChelanCountyPublicUtilityDistrictNo.1(ChelanPUD)underwhichAlcoareceives26%ofthehydropoweroutputofChelanPUD’sRockyReachandRockIslanddams.TheWenatcheesmelterhasbeenfullycurtailedsince2015.Intalco, WashingtonPriortothecurtailmentoftheIntalcosmelter,allpowerrequirementsofthesmelterwerepurchasedfromthemarket.Massena, New York (Massena West)TheMassenaWestsmelterinNewYorkreceivespowerfromtheNewYorkPowerAuthority(NYPA)pursuanttoacontractbetweenAlcoaandNYPAthatwillexpireinMarch2026.
Alcoagenerallyprocuresnaturalgasonacompetitivebidbasisfromavarietyofsources,includingproducersinthegasproductionareasandindependentgasmarketers.ContractpricingforgasistypicallybasedonapublishedindustryindexsuchastheNewYorkMercantileExchange(NYMEX)price.
Australia
PortlandThissmelterpurchasespowerfromtheNationalElectricityMarket(NEM)variablespotmarket.ThesmelterhasfixedforfloatingswapcontractswithAGLEnergyLtd.inordertomanageexposuretothevariableenergyratesfromtheNEM.TheswapcontractswillexpireonJuly31,2021.
Western AustraliaAofAusesgastoco-generatesteamandelectricityforitsaluminarefiningprocessesattheKwinana,PinjarraandWageruprefineries.In2015,AofAsecuredasignificantportionofgassuppliesto2032,coveringmorethan95%oftherefineries’gasrequirementsthrough2023anddecreasingpercentagesthereafter.In2020,AofAcontractedforadditionalgassuppliesstartingin2024.Onacombinedbasis,thesegassupplyarrangementsareexpectedtocovermorethan80%oftherefineries’gasrequirementsthrough2027.
San Ciprián, SpainAlcoa’ssmelteratSanCiprián,Spain,purchaseselectricityunderabilateralspotpowercontractthatexpiresJune30,2021.AlcoaparticipatesinademandresponseprograminSpain,agreeingtoreduceusageofelectricityforaspecificperiodoftime,inreturnforcompensation,whichallowstheutilityorgridoperatortodivertelectricityduringtimesofpeakdemand.Theserightsareallocatedthroughanauctionprocess,thelastoccurringinDecember2019,whereAlcoasecured325MWofinterruptibilityrightsfortheperiodofJanuarytoJune2020;thisprogramwasnotineffectforthesecondhalfof2020.Lista and Mosjøen, NorwayBeginningin2017,Alcoaenteredintoseverallong-termpowerpurchaseagreements,whichsecuredapproximately50%ofthenecessarypowerfortheNorwegiansmeltersfortheperiodof2020to2035.Theremaining50%iscurrentlypurchasedundershort-termcontracts.FinancialcompensationoftheindirectcarbonemissionscostspassedthroughintheelectricitybillisreceivedinaccordancewithEUCommissionGuidelinesandtheNorwegiancompensationregime.IcelandLandsvirkjun,theIcelandicnationalpowercompany,suppliescompetitivelypricedelectricitytoAlcoa’sFjarðaálsmelterineasternIcelandundera40-yearpowercontract,whichwillexpirein2047withpricerenegotiationeffectivefrom2027.
SpainIn2020,naturalgaswassuppliedtotheSanCiprián,Spain,aluminarefinerypursuanttothreesupplycontractswithBP,EndesaandNaturgy;theBPandEndesacontractsexpiredduring2020.In2021,therefinery’snaturalgasrequirementswillbesuppliedpursuanttotwosupplycontracts,withNaturgyexpiringinJune2021andDecember2021,respectively,andonesupplycontractwithUFG(ENIgroup)expiringinDecember2021.
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Sources and Availability of Raw Materials
Generally,materialsarepurchasedfromthird-partysuppliersundercompetitivelypricedsupplycontractsorbiddingarrangements.TheCompanybelievesthattherawmaterialsnecessarytoitsbusinessareandwillcontinuetobeavailable.
Foreachmetricton(mt)ofaluminaproduced,Alcoaconsumesthefollowingamountsoftheidentifiedrawmaterialinputs(approximaterangeacrossrelevantfacilities):
Raw Material Units Consumption per mt of AluminaBauxite mt 2.2–3.6Causticsoda kg 60–100Electricity kWh 200to260totalconsumed(0to230imported)Fueloilandnaturalgas GJ 6.2–12.2Lime(CaO) kg 6–60
Foreachmetrictonofaluminumproduced,Alcoaconsumesthefollowingamountsoftheidentifiedrawmaterialinputs(approximaterangeacrossrelevantfacilities):
Raw Material Units Consumption per mt of Primary AluminumAlumina mt 1.92±0.02Aluminumfluoride kg 17.1±5.0Calcinedpetroleumco*ke mt 0.37±0.05Cathodeblocks mt 0.005±0.002Electricity kWh 13,100–16,500Liquidpitch mt 0.10±0.03Naturalgas mcf 3.0±1.0
Certainaluminumproducedincludesalloyingmaterials.Becauseofthenumberofdifferenttypesofelementsthatcanbeusedtoproducevariousalloys,providingarangeofsuchelementswouldnotbemeaningful.Withtheexceptionofaverysmallnumberofinternallyusedproducts,AlcoaproducesitsaluminumalloysinadherencetoanAluminumAssociation(ofwhichAlcoaisanactivemember)standard,whichusesaspecificdesignationsystemtoidentifyalloytypes.Ingeneral,eachalloytypehasamajoralloyingelementotherthanaluminumbutwillalsoincludelesseramountsofotherconstituents.Competition
Alcoaissubjecttohighlycompetitiveconditionsinallaspectsofthealuminumsupplychaininwhichitcompetes.Ourbusinesssegmentsoperateincloseproximitytoourbroad,worldwidecustomerbase,enablingustomeetcustomerdemandinkeymarketsinNorthAmerica,SouthAmerica,Europe,theMiddleEast,Australia,andChina.Alcoa’scompetitivepositiondepends,inpart,ontheCompany’saccesstoaneconomicalpowersupplytosustainitsoperationsinvariouscountries,inparticularforitsaluminumsmeltingoperations.
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WecompetewithavarietyofbothU.S.andnon-U.S.companiesinallmajormarketsacrossthealuminumsupplychain.Competitorsincludebauxiteminerswhosupplytothethird-partybauxitemarket,activealuminasuppliers,refinersandproducers,commoditytraders,aluminumproducers,RCSproducers,andproducersofalternativematerialssuchassteel,titanium,copper,carbonfiber,composites,plasticandglass.
Wecontinuetoenhancethesustainabilityofourproductsandarewellpositionedtoaddvalueforourcustomersbyofferingafamilyofsustainableproducts.Byhavinganintegratedaluminumvaluechain,weareabletodeliverourSustanaTMproductline,whichincludes:EcoSource™,theworld’sfirstandonlylow-carbonaluminabrand;Ecolum™,aprimaryaluminumwithnomorethan4.0mtofCO2epertonofaluminumproduced,includingindirectanddirectemissions,fromtheentireproductionprocess;andEcoDura™,analuminumproductproducedwithaminimumof50%recycledcontent,usingsignificantlylessenergythanwhatittakestoproduceonlyvirginaluminum.Theseproductspositionustoofferasustainableoptiontoourcustomersinterestedinimprovingtheirenvironmentalfootprint.
Competitiveadvantagesspecifictoeachbusinesssegmentaredetailedbelow.Bauxite:
Weareamongtheworld’slargestbauxiteminers,withbestpracticesinefficientminingoperationsandsustainability.Themajorityofbauxiteminedgloballyisconvertedtoaluminafortheproductionofaluminum.Alcoa’sbauxiteisusedbothtosupplyinternalconsumptioninouraluminarefineriesaswellasinsalesthroughourthird-partybauxitebusinesstomeetgrowingdemand.Thethird-partymarketformetallurgicalgradebauxiteisgrowingquicklyasglobaldemandforbauxiteincreases—particularlyinChina.
Ourprincipalcompetitorsinthethird-partybauxitemarketincludeRioTintoandmultiplesuppliersfromGuinea,Australia,Indonesia,andBrazil,amongothercountries.Wecompetelargelybasedonbauxitequality,priceandproximitytocustomers,aswellaslong-termbauxiteresourcesinstrategicbauxiteminelocations,includingAustralia,Brazil,andGuinea,whichishometotheworld’slargestreservesofhigh-qualitymetallurgicalgradebauxite.Ourhigh-qualitybauxiteisminedresponsiblyandreliably,therebyreducingsupplychainriskforanydownstreamuser.
Alumina:
Wearetheworld’slargestaluminaproduceroutsideofChinaandoperatecompetitive,efficientassetsacrossourrefining,aluminumsmelting,andcastingportfolios.Thealuminamarketisglobalandhighlycompetitive,withmanyactivesuppliers,producers,andcommoditytraders.Ourmaincompetitorsinthethird-partyaluminamarketareAluminumCorporationofChina,South32Limited,HangzhouJinjiangGroup,RioTintoandNorskHydroASA.Inrecentyears,therehasbeensignificantgrowthinaluminarefininginChinaandIndia.Themajorityofourproductissoldintheformofsmeltergradealumina.
Keyfactorsinfluencingcompetitioninthealuminamarketincludecostposition,price,reliabilityofbauxitesupply,qualityandproximitytocustomersandendmarkets.Wehadanaveragecostpositioninthefirstquartileofglobalaluminaproductionin2020,inpartattributabletoourdeeptechnicalexpertiseandsophisticationinrefiningtechnologyandprocessautomation.Ourrefineriesarestrategicallylocatednexttolowcostbauxitemines,andouraluminarefineriesaretunedtomaximizeefficiencywiththebauxitequalitiesfromtheseinternalmines.Inadditiontotheserefiningefficiencies,verticalintegrationaffordsastableandconsistentlong-termsupplyofbauxitetoourrefiningportfolio.
Aluminum:
InourAluminumsegment,competitionisdependentuponthetypeofproductweareselling.
Themarketforprimaryaluminumisglobal,anddemandforaluminumvarieswidelyfromregiontoregion.Wecompetewithcommoditytraders,suchasGlencore,Trafigura,J.AronandGeraldGroup,andaluminumproducerssuchasEmiratesGlobalAluminum,NorskHydro,RioTinto,CenturyAluminum,VedantaAluminumLtd.,andUnitedCompanyRUSALPlc.
Thealuminumindustryishighlycompetitive.Severalofthemostcriticalcompetitivefactorsinourindustryareproductquality,productioncosts(includingsourceandcostofenergy),price,accessandproximitytorawmaterials,customersandendmarkets,timelinessofdelivery,customerservice(includingtechnicalsupport),productinnovation,andbreadthofofferings.Wherealuminumproductscompetewithothermaterials,thediversecharacteristicsofaluminumarealsoasignificantfactor,particularlyitslightweight,strengthandrecyclability.
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Thestrengthofourpositionintheprimaryaluminummarketislargelyattributableto:ourintegratedsupplychain;long-termenergyarrangements,whichallowustocontinuallyreduceproductioncosts;theabilityofourcasthousestoprovidecustomerswithadiverseproductportfoliointermsofshapesandalloys;andourdecreasingdemandforfossilfuels,asapproximately78%ofthealuminumsmeltingportfoliooperatedbytheCompanyranonrenewablepowersourcesin2020.TheCompanyintendstocontinuetofocusonoptimizingcapacityutilization.Patents, Trade Secrets and Trademarks
TheCompanybelievesthatit*domesticandinternationalpatent,tradesecretandtrademarkassetsprovideitwithasignificantcompetitiveadvantage.TheCompany’srightsunderitsintellectualproperty,aswellasthetechnologyandproductsmadeandsoldunderthem,areimportanttotheCompanyasawholeand,tovaryingdegrees,importanttoeachbusinesssegment.Alcoa’sbusinessasawholeisnot,however,materiallydependentonanysinglepatent,tradesecretortrademark.Asaresultofproductdevelopmentandtechnologicaladvancement,theCompanycontinuestopursuepatentprotectioninjurisdictionsthroughouttheworld.AsofDecember31,2020,Alcoa’sworldwidepatentportfolioconsistedofapproximately620grantedpatentsand240pendingpatentapplications.TheCompanyalsohasanumberofdomesticandinternationalregisteredtrademarksthathavesignificantrecognitionwithinthemarketsthatareserved,includingthename“Alcoa”andtheAlcoasymbol.
InconnectionwiththeSeparationTransaction,AlcoaCorporationandParentCoenteredintocertainintellectualpropertylicenseagreementsthatprovideforalicenseofcertainpatents,trademarksandknow-howfromParentCoorAlcoaCorporation,asapplicable,totheother,onaperpetual,royalty-free,non-exclusivebasis,subjecttocertainexceptions.Government Regulations and Environmental MattersAlcoa’sglobaloperationssubjectittocompliancewithvarioustypesofgovernmentlawsandregulationswhichoftenprovidediscretiontogovernmentauthoritiesandcouldbeinterpreted,applied,ormodifiedinwaystomaketheCompany’soperationsorcomplianceactivitiesmorecostly.Theselawsandregulationsincludethoserelatingtohealthandsafety(includingthosepromulgatedinresponsetotheongoingCOVID-19pandemic),competition,dataprivacyandsecurity,environmentalcompliance,andtrade,suchastariffsorotherimportorexportrestrictionsthatmayincreasethecostofrawmaterialorcross-bordershipmentsandimpactourabilitytodobusinesswithcertaincountriesorindividuals.Foradiscussionoftherisksassociatedwithcertainapplicablelawsandregulations,seePartIItem1AofthisForm10-K.Foradditionalinformationonthefinancialimpactoftraderegulations,seePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionBusinessUpdate—Section232Tariffs.
Alcoaissubjecttoextensivefederal,state/provincialandlocalenvironmentallawsandregulations,intheU.S.andabroad,includingthoserelatingtothereleaseordischargeofmaterialsintotheair,waterandsoil,wastemanagement,pollutionpreventionmeasures,thegeneration,storage,handling,use,transportationanddisposalofhazardousmaterials,theexposureofpersonstohazardousmaterials,andgreenhousegasemissions.Weparticipateinenvironmentalassessmentsandcleanupsatapproximately60locations,whichincludecurrentlyownedoroperatedfacilitiesandadjoiningproperties,previouslyownedoroperatedfacilitiesandadjoiningproperties,andwastesites,suchasU.S.Superfund(ComprehensiveEnvironmentalResponse,CompensationandLiabilityAct(CERCLA))sites.In2020,capitalexpendituresforneworexpandedfacilitiesforenvironmentalcontrolwereapproximately$90andapproximately$135isexpectedin2021.SeePartIIItem8ofthisForm10-KinNoteStotheConsolidatedFinancialStatementsundercaptionContingenciesforadditionalinformation.
Human Capital Resources
Ourcorevalues–ActwithIntegrity,OperatewithExcellence,andCareforPeople–guideusasacompany,includingourapproachtohumancapitalmanagement.Weareonamissiontostrengthenourculturewherepeoplearetreatedwithdignityandrespect,andourcorevaluesdriveeverydaydecisions.Webelievethatourpeopleareourgreatestasset.Thesuccessandgrowthofourbusinessdependinlargepartonourabilitytoattract,developandretainadiversepopulationoftalented,qualifiedandhighlyskilledemployeesatalllevelsofourorganization,includingtheindividualswhocompriseourglobalworkforce,ourexecutiveofficersandotherkeypersonnel.
OurCompanypolicies,includingtheCodeofConduct,HarassmentandBullyingFreeWorkplacePolicy,andEHSVision,Values,Mission,andPolicy,supportourmissiontoadvanceourCompanycultureandcorevalues.AlcoamaintainsaHumanRightsPolicythatappliesgloballytotheCompany,itspartnershipsandotherbusinessassociates,andiscommittedtoabidingbyinternationalhumanrightsprinciplesencompassedintheUniversalDeclarationofHumanRights,theInternationalLaborOrganization’sDeclarationonFundamentalPrinciplesandRightsatWork,theUnitedNationsGlobalCompact,andtheUnitedNationsGuidingPrinciplesonBusinessandHumanRights.
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Employees
AsofDecember31,2020,Alcoahadapproximately12,900employeesin16countries.Approximately9,200ofourglobalemployeesarecoveredbycollectivebargainingagreementswithcertainunionsandvaryingexpirationdates,includingapproximately1,900employeesintheU.S.,1,700employeesinEurope,1,400employeesinCanada,1,600employeesinSouthAmerica,and2,600employeesinAustralia.Approximately1,700U.S.employeesarecoveredbyacollectivebargainingagreementinplacewiththeUnitedSteelworkers(USW).TherearealsoU.S.collectivebargainingagreementsinplace,withvaryingexpirationdates,withtheInternationalAssociationofMachinistsandAerospaceWorkers(IAM)andtheInternationalBrotherhoodofElectricWorkers(IBEW).
In2020,theCompanycompletedthesaleofitsGumSpringswastetreatmentfacilityinArkansasandthecurtailmentoftheIntalcosmelterinFerndale,Washington,whichreducedthenumberoftotalemployeesbyapproximately700.
Safety and Health
Thesafetyandhealthofouremployees,contractors,temporaryworkers,andvisitorsareourtopprioritiesandkeytoourabilitytoattractandretaintalent.Weaspiretoworksafely,allthetime,everywhere.Westrivetofosteracultureofhazardandriskawareness,theeffectiveunderstandinganduseofoursafesystemsofwork,proactiveincidentreporting,andknowledgesharingtoattainthisgoal.
Oursystemsaredesignedtopreventlossoflifeandseriousinjuryatourlocations.Oursafetyprogramsandsystemsincluderigoroussafetystandardsandcontrols,periodicrisk-basedaudits,aformalandstandardizedprocessforinvestigatingfatalandallseriousinjurypotentialincidents,managementofcriticalrisksandsafetyhazards,andeffortstoeliminatehazardsorimplementcontrolstopreventandmitigaterisks.
Wedocumentanyincidentthathasthepotentialtocauseaseriousinjury,andstrivetomaintainacultureofspeakingup,whereincidentsarereportedandideasareshared.Wehaveoperatingstandardsbasedonhumanperformance,whichteachesemployeeshowtoanticipateandrecognizesituationswhereerrorsarelikelytooccur,inordertoallowustopredict,reduce,manage,andpreventfatalitiesandinjuries.Weintegrateourtemporaryworkers,contractors,andvisitorsintooursafetyprogramsanddatathroughourOneAlcoa:UnitedforSafetyinitiative.
Operationalemployeesarerequiredtotakesafetyandhealthtrainingthatisdeterminedbytheirspecificroles,tasks,areaswheretheywork,jobfunctionsandresponsibilities.In2020,allsalariedemployeeswererequiredtoincludeasafetyobjectiveintheirannualperformanceobjectives.Webelievehavinganindividualsafetyobjectiveempowersouremployeestobemoreinvolvedincreatingoursafetyculture.Tofurthersupportthis,wehaveincludedasafetymetricfocusedonreducingfatalitiesandseriousinjuriesinourannualincentiveprogramforthepastseveralyears.
SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionBusinessUpdate–CoronavirusforadditionalinformationonthehealthandsafetyprotocolsimplementedbytheCompanyfortheprotectionofitsworkersduringtheCOVID-19pandemic.
Inclusion, Diversity, and Equality
Weseektoprovideasafe,respectful,andinclusiveworkplacethatreflectsthediversityofthecommunitiesinwhichweoperateandmakesAlcoaadesiredemployer.Weseektohirelocalcandidateswhenpossibleandcontinuetofocusonthediversityofourcandidatepool.
Weremainfocusedonadvancinginclusion,diversity,andequality.AsofDecember31,2020,womencomprisedapproximately15.6%ofourglobalworkforce.WearecommittedtoachievinggenderbalanceacrossAlcoaandaredefininglong-termactionstoimprovediversityandinclusion.Tosupporttheseefforts,forthepastseveralyears,wehaveincludedametricinourannualincentiveplanfocusedonincreasingthegenderdiversityofourglobalworkforce.
InOctober2020,welaunchedourGlobalInclusion&DiversityCouncilofdiverseleadersacrosstheCompanytosupporttheexecutionofourinclusionanddiversitystrategyaimedatbuildinganinclusiveculturewhereemployeesfeelvalued,empowered,andrespected.Weofferseveralglobalresourcesandinclusiongroupsforouremployees,including:AWARE–Alcoansworkingactivelyforracial-ethnicequality;EAGLE,ourLGBT+Equalityinclusiongroup;andAWN–AlcoaWomen’sNetwork.
Available Information
TheCompany’sinternetwebsiteaddressiswww.alcoa.com.AlcoamakesavailablefreeofchargeonorthroughitswebsiteitsAnnualReportsonForm10-K,QuarterlyReportsonForm10-Q,CurrentReportsonForm8-K,andamendmentstothosereportsassoonasreasonablypracticableaftertheCompanyelectronicallyfilessuchmaterialwith,orfurnishesitto,theSecuritiesandExchangeCommission(theSEC).Thesedocumentscanbeaccessedontheinvestorrelationsportionofourwebsitewww.alcoa.com/investors.ThisinformationcanalsobefoundontheSEC’sinternetwebsite,www.sec.gov.TheinformationontheCompany’swebsiteisincludedasaninactivetextualreferenceonlyandisnotapartof,orincorporatedbyreferencein,thisAnnualReportonForm10-K.
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Dissemination of Company Information
AlcoaCorporationintendstomakefutureannouncementsregardingCompanydevelopmentsandfinancialperformancethroughitswebsite,www.alcoa.com,aswellasthroughpressreleases,filingswiththeSEC,conferencecalls,andwebcasts.Information about our Executive Officers
Thenames,ages,positionsandareasofresponsibilityoftheexecutiveofficersoftheCompanyasofthefilingdateofthisForm10-Karelistedbelow.
Roy C. Harvey,47,isPresidentandChiefExecutiveOfficerofAlcoaCorporation.HebecameChiefExecutiveOfficerinNovember2016andassumedtheroleofPresidentinMay2017.Mr.HarveyservedasExecutiveVicePresidentofParentCoandPresidentofParentCo’sGlobalPrimaryProducts(GPP)divisionfromOctober2015toNovember2016.FromJune2014toOctober2015,hewasExecutiveVicePresident,HumanResourcesandEnvironment,Health,SafetyandSustainabilityatParentCo.Priortothattime,Mr.HarveyservedasChiefOperatingOfficer,andwasalsoChiefFinancialOfficer,forGPPatParentCo.Inadditiontotheseroles,Mr.HarveyservedintherolesofDirectorofInvestorRelationsandDirectorofCorporateTreasuryatParentCo.Mr.HarveyjoinedParentCoin2002asabusinessanalystfortheGPPdivisioninKnoxville,Tennessee.
William F. Oplinger,54,hasservedasExecutiveVicePresidentandChiefFinancialOfficerofAlcoaCorporationsinceNovember2016.Mr.OplingerservedasExecutiveVicePresidentandChiefFinancialOfficerofParentCofromApril1,2013toNovember2016.Mr.OplingerjoinedParentCoin2000,andthrough2013heldkeycorporatepositionsinfinancialanalysisandplanningandalsoservedasDirectorofInvestorRelations.Mr.OplingeralsoheldprincipalpositionsintheParentCo’sGPPdivision,includingasController,OperationalExcellenceDirector,ChiefFinancialOfficer,andChiefOperatingOfficer.
Sonya Elam Harden,56,hasservedasExecutiveVicePresidentandChiefExternalAffairsOfficerofAlcoaCorporationsinceAugust2020.Inthisrole,Ms.ElamHardenisresponsibleforglobalgovernmentaffairs,communityrelations,andsustainability,andsheoverseestheAlcoaFoundation.Ms.ElamHardenwastheInterimHeadofExternalAffairsofAlcoaCorporationfromMarch2020throughJuly2020andservedastheVicePresident,GovernmentAffairsfortheWesternHemispherefromNovember2016throughJuly2020.PriortoAlcoaCorporation’sseparationfromParentCo,Ms.ElamHardenheldvariousrolesofincreasingresponsibilityincommunications,marketing,andgovernmentaffairsatParentCo,includingasDirectorofCommunicationsfortheGPPdivisionfromNovember2010throughOctober2016andasDirectorofMarketingfromOctober2009toNovember2010.Ms.ElamHardeninitiallyjoinedParentCoin1989,andrejoinedin2001,afterhavingleftParentCoin1998.
Jeffrey D. Heeter,55,hasservedasExecutiveVicePresidentandGeneralCounselofAlcoaCorporationsinceNovember2016.Inthisrole,Mr.HeeterhasoverallresponsibilityfortheCompany’sgloballegal,compliance,governanceandsecuritymatters.HepreviouslyalsoservedastheSecretaryofAlcoaCorporationfromNovember2016toDecember2019.Mr.HeeterservedasAssistantGeneralCounselandanAssistantOfficerofParentCofrom2014toNovember2016.Mr.HeeterwasGroupCounselfortheGPPdivisionofParentCofrom2010to2014.From2008to2010,Mr.HeeterwasGeneralCounselofAlcoaofAustraliainPerth,Australia.Mr.HeeterjoinedParentCoin1998.
Tammi A. Jones,41,hasservedasExecutiveVicePresidentandChiefHumanResourcesOfficerofAlcoaCorporationsinceApril2020.Ms.Jonesoverseesallaspectsofhumanresourcesmanagement,includingtalentandrecruitment,compensationandbenefits,inclusionanddiversity,traininganddevelopment,andlaborrelations.Ms.JonesservedasVicePresident,CompensationandBenefitsfromJanuary2019throughMarch2020andwastheDirector,OrganizationalEffectivenessfromApril2017toDecember2018.FromApril2015throughMarch2017,Ms.JonesservedasHumanResourcesDirector,Aluminum(GPP),andsheservedasHumanResourcesDirectorforParentCoWheelsandTransportationProductsfromApril2013toApril2015.Ms.JonesjoinedParentCoin2006andheldavarietyofhumanresourcepositionsatParentCo,includingHumanResourcesDirector,EuropeBuilding&ConstructionandHumanResourcesDirector,UKandIrelandinParentCo’sBuildingandConstructionSystemsdivision.
Benjamin D. Kahrs,44,hasservedasExecutiveVicePresidentandChiefInnovationOfficerofAlcoaCorporationsinceNovember2019.Mr.Kahrsoverseestheimplementationofthenewcorporateoperatingmodelandthetransformationofmanufacturingcapabilities,aswellastheCompany’sTechnicalCenterandResearchandDevelopment(R&D),GlobalSharedServices,InformationTechnology,andAutomatedSolutionsfunctions.HewasSeniorVicePresident,ManufacturingExcellenceandR&DfromNovember2018throughOctober2019andwasSeniorVicePresident,TechnologyandCorporateDevelopmentfromNovember2016toNovember2018.Mr.KahrsservedasVicePresident,StrategyandTechnologyoftheGPPdivisionofParentCofromNovember2015toNovember2016andwasLocationManageratthePointComfort,Texas
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facilityfromAugust2012toNovember2015.Mr.KahrsinitiallyjoinedParentCoin1999,andrejoinedin2007,afterhavingleftParentCoin2004.
Timothy D. Reyes,54,hasservedasExecutiveVicePresidentandChiefCommercialOfficerofAlcoaCorporationsinceNovember2019.Inthisrole,hecreatescustomer-focusedcommercialstrategiesandisresponsibleforbusinessdevelopmentandstrategy.Mr.ReyeswaspreviouslyPresidentofAlcoaCorporation’sAluminumbusinessunitfromMarch2017toNovember2019.Mr.ReyeswasPresident,AlcoaCastProductsfromNovember2016untilMarch2017,whenthealuminumsmelting,castproductsandrolledproductsbusinesses,alongwiththemajorityoftheenergysegmentassets,werecombinedintoanewAluminumbusinessunit.FromJanuary2015toNovember2016,heservedasPresident,AlcoaCastProductsofParentCo.Priortothistime,Mr.ReyeswasPresidentofAlcoaMaterialsManagement,asubsidiaryofParentCo,fromSeptember2009untilDecember2014,responsibleforthecommercialactivitiesrelatedtoprimarymetals,alumina,andbauxitewithinParentCo’sGPPdivision,andcommoditypriceriskmanagementandglobaltransportationservicesforParentCo.Mr.ReyesjoinedParentCoin1999.
John D. Slaven,59,hasservedasExecutiveVicePresidentandChiefOperationsOfficersinceNovember2019.Mr.SlavenjoinedAlcoaCorporationinFebruary2019asExecutiveVicePresidentandChiefStrategyOfficer.Inhiscurrentrole,Mr.SlavenisresponsibleforthedailyoperationsoftheCompany’sbauxite,alumina,andaluminumassets.From2006until2019,Mr.SlavenwasPartnerandManagingDirectorattheBostonConsultingGroup,aconsultingfirm,wherehemostrecentlyledtheNorthAmericanMetalsandMining,InfrastructureandPublicTransportpractices.Priortothistime,from2002throughearly2006,Mr.SlavenworkedforParentCo,whereheimplementeditsAsiagrowthstrategy,revitalizedtheLatinAmericabusiness,andledParentCo’ssalesandmarketinggrowthinAsiabeforereturningtotheU.S.toleadthecorporatestrategy,financialplanning,andanalysisfunctions.
Item 1A. Risk Factors.
ThereareinherentrisksassociatedwithAlcoa’sbusinessandindustry.Inadditiontothefactorsdiscussedelsewhereinthisreport,thefollowingrisksanduncertaintiescouldhaveamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations,includingcausingAlcoa’sactualresultstodiffermateriallyfromthoseprojectedinanyforward-lookingstatements.Thefollowinglistofsignificantriskfactorsisnotall-inclusiveornecessarilyinorderofimportance.AdditionalrisksanduncertaintiesnotpresentlyknowntoAlcoaorthatAlcoacurrentlydeemsimmaterialalsomaymateriallyadverselyaffectusinfutureperiods.SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionForward-LookingStatements.
Commodity Risks
The aluminum industry and aluminum end-use markets are highly cyclical and are influenced by several factors, including global economic conditions.
Thenatureoftheindustriesinwhichourcustomersoperatecausesdemandforourproductstobecyclical,creatingpotentialuncertaintyregardingfutureprofitability.Thedemandforaluminumissensitiveto,andimpactedby,demandforthefinishedgoodsmanufacturedbyourcustomersinindustries,suchasthecommercialconstruction,transportation,andautomotiveindustries,whichmaychangeasaresultofchangesintheglobaleconomy,foreigncurrencyexchangerates,energypricesorotherfactorsbeyondourcontrol.Thedemandforaluminumisalsohighlycorrelatedtoeconomicgrowth,andwecouldbeadverselyaffectedbylargeorsuddenshiftsintheglobalinventoryofaluminumandtheresultingmarketpriceimpacts.TheChinesemarketisasignificantsourceofglobaldemandfor,andsupplyof,commodities,includingaluminum.IndustryovercapacityorasustainedslowdowninChinesealuminumdemand,orasignificantslowdowninothermarkets,thatisnotoffsetbydecreasesinsupplyofaluminumorincreasedaluminumdemandinemergingeconomies,suchasIndia,Brazil,andseveralSoutheastAsiancountries,couldhaveanadverseeffectontheglobalsupplyanddemandforaluminumandaluminumprices.Inaddition,changesinthealuminummarketcancausechangesinthealuminaandbauxitemarkets,whichcouldalsomateriallyaffectourbusiness,financialcondition,orresultsofoperations.Asaresultofthesefactors,ourprofitabilityissubjecttosignificantfluctuation.
Webelievethelong-termprospectsforaluminumandaluminumproductsarepositive,however,weareunabletopredictthefuturecourseofindustryvariablesorthestrengthoftheglobaleconomyandtheeffectsofgovernmentintervention.Negativeeconomicconditions,suchasamajoreconomicdownturn,aprolongedrecoveryperiod,adownturninthecommoditysector,ordisruptionsinthefinancialmarkets,couldhaveamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.
We could be materially adversely affected by declines in aluminum, alumina, and bauxite prices, including global, regional and product-specific prices.
Theoverallpriceofprimaryaluminumconsistsofseveralcomponents:(i)theunderlyingbasemetalcomponent,whichistypicallybasedonquotedpricesfromtheLME;(ii)theregionalpremium,whichcomprisestheincrementalpriceoverthebaseLMEcomponentthatisassociatedwiththephysicaldeliveryofmetaltoaparticularregion(e.g.,theMidwestpremium
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formetalsoldintheUnitedStates);and(iii)theproductpremium,whichrepresentstheincrementalpriceforreceivingphysicalmetalinaparticularshape(e.g.,coil,billet,slab,rod,etc.)and/oralloy.Eachoftheabovethreecomponentshasitsowndriversofvariability.
TheLMEpriceistypicallydrivenbymacroeconomicfactors,globalsupplyanddemandofaluminum(includingexpectationsforgrowthandcontractionandthelevelofglobalinventories),andtradingactivityoffinancialinvestors.Furthermore,animbalanceinglobalsupplyanddemandofaluminum,suchasdecreasingdemandwithoutcorrespondingsupplydeclines,couldhaveanegativeimpactonaluminumpricing.In2020,cashLMEpricingforaluminumexperiencedasignificantamountofvolatility,reachingahighof$2,054permetrictoninDecemberandalowof$1,420permetrictoninApril.HighLMEinventoriescouldleadtoareductioninthepriceofaluminumanddeclinesintheLMEpricehavehadanegativeimpactonourbusiness,financialcondition,andresultsofoperations.Further,inrecentyears,LMErulechangeshaveresultedinanincreasedminimumdailyload-outrateandcapsonwarehousecharges.Theserulechanges,andanysubsequentchangestheexchangechoosestomake,couldimpactthesupply/demandbalanceintheprimaryaluminumphysicalmarketandmayimpactregionaldeliverypremiumsandLMEaluminumprices.Regionalpremiumstendtovarybasedonthesupplyofanddemandformetalinaparticularregion,associatedtransportationcosts,andimporttariffs.Productpremiumsgenerallyareafunctionofsupplyanddemandforagivenprimaryaluminumshapeandalloycombinationinaparticularregion.Periodsofindustryovercapacitymayalsoresultinaweakaluminumpricingenvironment.
AsustainedweakLMEaluminumpricingenvironment,deteriorationinLMEaluminumprices,oradecreaseinregionalpremiumsorproductpremiumscouldhaveamaterialadverseeffectonourbusiness,financialcondition,orresultsofoperations.Similarly,ouroperatingresultsareaffectedbysignificantlageffectsofdeclinesinkeycostsofproductionthatarecommodityorLME-linked.
Mostofouraluminacontractscontaintwopricingcomponents:(1)theAPIpricebasis,and(2)anegotiatedadjustmentbasisthattakesintoaccountvariousfactors,includingfreight,quality,customerlocationandmarketconditions.BecausetheAPIcomponentcanexhibitsignificantvolatilityduetomarketexposure,revenuesassociatedwithouraluminaoperationsareexposedtomarketpricing.
Ourthird-partybauxitecontractsvaryinpricingstructureandlength,andcanbeimpactedbychangesinglobalaluminumandaluminabauxitemarketprices,aswellaschangesinbauxitequality.
Market-driven balancing of global aluminum supply and demand may be disrupted by non-market forces.
Inresponsetomarket-drivenfactorsrelatingtotheglobalsupplyanddemandofaluminumandalumina,wehavecurtailedorclosedportionsofouraluminumandaluminaproductioncapacity.Certainotherindustryproducershaveindependentlyundertakentoreduceproductionaswell.Reductionsinproductionmaybedelayedorimpairedbythetermsoflong-termcontractstobuyenergyorrawmaterials.
Theimpactofnon-marketforcesonglobalaluminumindustrycapacity,suchaspoliticalpressuresorgovernmentalpoliciesincertaincountriesrelatingtoemployment,theenvironment,ormaintainingorfurtherdevelopingindustryself-sufficiency,mayaffectoverallsupplyanddemandinthealuminumindustry.Forexample,ChineseexcesscapacityandincreasedexportsfromChinaofheavilysubsidizedaluminumproductscouldmateriallydisruptworldaluminummarketscausingpricingdeterioration.Industryovercapacityandthedisruptiononthemarket-drivenbalancingoftheglobalsupplyanddemandofaluminum,aresultingweakpricingenvironmentandmargincompressionmayadverselyaffectourbusiness,financialconditionandresultsofoperations.
Our profitability could be adversely affected by increases in the cost of raw materials, or by significant lag effects of decreases in commodity, LME-linked orproduction costs.
Ourbusiness,financialconditionandresultsofoperationsareaffectedbychangesinthecostofrawmaterials,includingenergy,carbonproducts,causticsodaandotherkeyinputs,aswellasfreightcostsassociatedwithtransportationofrawmaterialstorefiningandsmeltinglocations.Wemaynotbeabletofullyoffsettheeffectsofhigherrawmaterialcostsorenergycoststhroughpriceincreases,productivityimprovementsorcostreductionprograms.Declinesinthecostsofaluminaandenergyduringaparticularperiodmaynotbeadequatetooffsetsharpdeclinesinmetalpriceinthatperiod.Increasesinthecostofrawmaterialsordecreasesininputcoststhataredisproportionatetoconcurrentsharperdecreasesinthepriceofaluminumcouldhaveamaterialadverseeffectonouroperatingresults.
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Our operations consume substantial amounts of energy and profitability may decline if energy costs rise or if energy supplies are interrupted or becomeuncertain.
Energysupplycontractsforouroperationsvaryinlengthandmarketexposureandcouldbenegativelyimpactedby:
• significantincreasesinspotelectricity,fueloiland/ornaturalgasprices;
• unavailabilityoforinterruptionsinenergysupplyorunplannedoutagesduetodroughts,hurricanes,wildfires,othernaturaldisasters,equipmentfailureorothercauses;
• curtailmentofoneormorerefineriesorsmeltersduetotheinabilitytoextendenergycontractsuponexpirationornegotiatenewarrangementsoncost-effectiveterms,ortheunavailabilityofenergyatcompetitiverates;or
• curtailmentofoneormorefacilitiesduetohighenergycoststhatrendertheircontinuedoperationuneconomic,discontinuationofpowersupplyinterruptibilityrightsgrantedtousunderaregulatoryregimeinthecountryinwhichthefacilityislocated,orduetoadeterminationthatenergyarrangementsdonotcomplywithapplicablelaws,thusrenderingtheoperationsthathadbeenrelyingonsuchcountry’senergyframeworkuneconomic.
Ifeventssuchasthoselistedaboveweretooccur,theresultinghighenergycosts,thedisruptionofanenergysource,therequirementtorepayalloraportionofthebenefitwereceivedunderapowersupplyinterruptibilityregime,ortherequirementtoremedyanynon-complianceofanenergyframeworktocomplywithapplicablelaws,couldhaveamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.
Business Strategy Risks
We have incurred, and may incur in the future, significant costs associated with our strategy to be a lower cost, competitive, sustainable, and integratedaluminum production business by optimizing our portfolio and disposing of non-core assets, and we may not be able to realize the anticipated benefits fromannounced plans, programs, initiatives and capital investments.
Weareexecutingastrategytobealowcost,competitive,sustainable,andintegratedaluminumproductionbusinessbyimplementingproductivityandcost-reductioninitiatives,andoptimizingourportfolioofassets,includingbydivestingnon-coreassets.Wearetakingdecisiveactionstolowerthecostbaseofouroperationsthroughprocurementstrategiesforrawmaterials,laborproductivity,improvingoperatingperformance,deployingCompany-widebusinessprocessmodels,andreducingoverheadcosts.InOctober2019,weinitiatedamulti-yearreviewofourassetstodrivelowercostsandsustainableprofitability,whichincludedthepotentialsaleofnon-coreassetsoveratwelvetoeighteen-monthperiodandananalysisofexistingproductioncapacities.Wehavebegunexecutingonthisstrategy,whichhasincludedclosingandcurtailingcertainfacilitiesandsellingcertainnon-coreassets.Wemaynotbeabletorealizetheexpectedbenefitsorcostsavingsfromthisstrategy.
Wehavemade,andmaycontinuetoplanandexecute,acquisitionsanddivestituresandtakeotheractionstogroworstreamlineourportfolio.Thereisnoassurancethatanticipatedbenefitsofourstrategicactionswillberealized.Withrespecttoportfoliooptimizationactionssuchasdivestitures,curtailments,closures,andrestarts,wemayfacebarrierstoexitfromunprofitablebusinessesoroperations,includinghighexitcostsorobjectionsfromvariousstakeholders,thelackofavailabilityofbuyerswillingtopurchasesuchassetsatpricesacceptabletous,delaysduetoanyregulatoryapprovalsorgovernmentintervention,continuingenvironmentalobligations,andthirdpartiesunwillingtoreleaseusfromguaranteesorothercreditsupportprovidedinconnectionwiththesaleofassets.Inaddition,wemayretainliabilitiesfromsuchtransactions,haveongoingindemnificationobligations,andincurunforeseenliabilitiesfordivestedentitiesifabuyerfailstohonorallcommitments.
Ourannouncedmulti-yearportfolioreviewofCompanyassetsincludesevaluatingourportfoliotoassesseachfacility’sstrategicbenefits,competitiveness,andviability.Followingthisreview,weexpecttobealowcost,firstquartileproduceracrossourproductsegmentsofbauxite,alumina,andaluminum,andhaveupto85%ofsmeltingproductionfromrenewableenergysources,whichalignswithourlong-termgoalofhavingthelowestcarbon-producingrefinersandsmeltersintheindustry.Wemaynotbeabletoimplement,fullyorinacost-effectiveortimelyway,theactionsnecessarytoachieveoursustainabilitystrategy,whichactionscouldincludecurtailments,closures,ordivestituresofassets,continuedproductinnovation,capturing,maintainingand/orexpandingmarginsfromsustainableproducts,investmentinnewtechnology,andcost-effectivelong-termenergysolutions.Wemaynotachievetheexpectedbenefitsorprofitabilityassociatedwiththisstrategy,whichcouldadverselyaffecttheCompany’sbusiness,financialcondition,andresultsofoperations.Ourbusinessoperationsarecapitalintensive,andcurtailmentorclosureofoperationsorfacilitiesmayincludesignificantcostsandcharges,includingassetimpairmentchargesandothermeasures.Therecanbenoassurancethatsuchactionswillbeundertakenorcompletedintheirentiretyasplannedattheanticipatedcost,orwillresultinbeingbeneficialtotheCompany.Theeffectofclosures,curtailments,anddivestituresovertimewillreducetheCompany’scashflowandearningscapacityandresultinalessdiversifiedportfolioofbusinesses,andwewillhaveagreaterdependencyonremainingbusinessesforourfinancialresults.Additionally,curtailingcertainexistingfacilities,whethertemporarilyorpermanently,mayrequireustoincurcurtailmentandcarryingcostsrelatedtothosefacilities,aswellasfurtherincreasedcostsshouldproductionbe
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resumedatanycurtailedfacility,whichcouldhaveanadverseeffectonourbusiness,financialresultsandresultsofoperations.Executingontheseactionswillalsodivertseniormanagementtimeandresourcesfromourregularbusinessoperations.
Joint ventures, other strategic alliances, and strategic business transactions may not achieve intended results. We may experience operational challenges inintegrating or segregating assets for such a venture or transaction, and such a venture or transaction could increase the number of our outstanding shares oramount of outstanding debt and affect our financial position.
Weparticipateinjointventures,haveformedstrategicalliances,andmayenterintoothersimilararrangementsinthefuture.Forexample,AWACisanunincorporatedglobaljointventurebetweenAlcoaandAluminaLimited.AWACconsistsofanumberofaffiliatedentities,whichown,operateorhaveaninterestin,bauxiteminesandaluminarefineries,aswellasanaluminumsmelter,insevencountries.Inaddition,AlcoaispartytoajointventurewithMa’aden,theSaudiArabianMiningCompany.AlthoughtheCompanyhas,inconnectionwiththeseandourotherexistingjointventuresandstrategicalliances,soughttoprotectourinterests,jointventuresandstrategicalliancesinherentlyinvolvespecialrisks.WhetherornottheCompanyholdsmajorityinterestsormaintainsoperationalcontrolinsucharrangements,ourjointventureandotherbusinesspartnersmaytakecertainactionsandpositions,orexperiencedifficulties,thatmaynegativelyimpacttheCompanyand/oritsreputation,suchas:
• advancingeconomic,political,socialorbusinessinterestsorgoalsthatareinconsistentwith,oropposedtothoseof,theCompanyandourstakeholders;
• exercisingvetorightstoblockactionsthatwebelievetobeinourorthejointventure’sorstrategicalliance’sbestinterests;
• takingactioncontrarytoourpoliciesorobjectiveswithrespecttoourinvestments;or
• asaresultoffinancialorotherdifficulties,beunableorunwillingtofulfilltheirobligationsunderthejointventure,strategicallianceorotheragreements,suchascontributingcapitaltoexpansionormaintenanceprojects.
Wecontinuouslyevaluateandmayinthefutureenterintoadditionalstrategicbusinesstransactions.Anysuchtransactionscouldhappenatanytime,couldbematerialtoourbusinessandcouldtakeanynumberofforms,including,forexample,anacquisition,merger,saleordistributionofcertainassets,refinancing,orotherrecapitalizationormaterialstrategictransaction.Therecanbenoassurancethatourjointventures,strategicalliances,oradditionalstrategicbusinesstransactionswillbebeneficialtous,whetherduetotheabove-describedrisks,unfavorableglobaleconomicconditions,increasesincosts,foreigncurrencyfluctuations,politicalrisks,governmentinterventions,retainedliabilities,indemnificationobligations,orotherfactors.Evaluatingpotentialtransactionsandintegratingcompletedonesmaydiverttheattentionofourmanagementfromordinaryoperatingmatters.Inaddition,totheextentweconsummateanagreementforthesaleanddispositionofanassetorassetgroup,suchasthependingsaleoftheWarrickRollingMill,wemayexperienceoperationaldifficultiessegregatingthemfromourretainedassetsandoperations,whichcouldimpacttheexecutionortimingofsuchdispositionsandcouldresultindisruptionstoouroperationsand/orclaimsfordamages,amongotherthings.
Ifwecompleteastrategictransaction,wemayrequireadditionalfinancingthatcouldresultinanincreaseinthenumberofouroutstandingsharesofstockortheaggregateamountand/orcostofourdebt,whichmayresultinanadverseimpacttoourcreditratings.Thenumberofsharesofourstockortheaggregateprincipalamountofourdebtthatwemayissueinconnectionwithsuchatransactioncouldbesignificant.Moreover,thetermsofanydebtfinancingmaybeexpensiveoradverselyimpactourbusiness,financialcondition,orresultsofoperations.
Global Operational Risks
The coronavirus (COVID-19) pandemic has adversely affected, and in the future could adversely affect, the Company’s business, financial condition, or resultsof operations.
InDecember2019,therewasanoutbreakofanovelstrainofcoronavirus(COVID-19)inChinathathassincespreadtonearlyallregionsoftheworld.TheoutbreakwassubsequentlydeclaredapandemicbytheWorldHealthOrganizationinMarch2020.Todate,theCOVID-19pandemicandpreventativemeasurestakentocontainormitigatetheoutbreakhavecaused,andarecontinuingtocause,businessslowdownsorshutdownsinaffectedareasandsignificantdisruptionineconomiesandthefinancialmarketsbothgloballyandintheUnitedStates.
TheCOVID-19pandemichasresultedincertainnegativeimpactsontheCompany’sbusiness,financialcondition,andresultsofoperations.Forexample,duetotheeconomicimpactsoftheCOVID-19pandemic,therestartattheBécancour(Canada)smelterwasslowedattheendofthefirstquarterof2020butwassafelyandsuccessfullycompletedduringthethirdquarterof2020.Inaddition,theCOVID-19pandemichasnegativelyimpactedcustomerdemandforvalue-addaluminumproductsascustomershavereducedproductionlevelsinresponsetotheeconomicimpactsofthepandemic.Thisresultedinlowermarginsonaluminumproductsassalesshiftedfromvalue-addproductstocommodity-gradeproducts,primarilyduringthesecondquarterof2020.However,duringthethirdandfourthquartersof2020,value-addsalesvolume
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increased11and13percent,respectively,onasequentialbasis,primarilyduetosoliddemandrecovery,particularlyintheautomotivesector.Alcoaexperiencedchallengesfromlowmetalpricesduringmid-2020;however,metalpriceshaveincreasedandstabilizedinthesecondhalfof2020.TheCompanyhasnotexperiencedanysignificantinterruptionfromitssupplysources,andtheCompany’slocationshavehadminimalcontractor-andemployee-relateddisruptionstodate.Therecanbenoassurancethatthesetrendswillcontinueornotreverse.
Thepandemiciscontinuing,andtheultimatemagnitudeanddurationoftheCOVID-19pandemicisunknown.Uncertaintyaroundthemagnitudeanddurationofa*globalpublichealthcrisiscancauseinstabilityintheglobalmarketsandeconomies,affectingourbusinessinamultitudeofwaysandinvaryingmagnitudes.AlthoughweareunabletopredicttheultimateimpactoftheCOVID-19pandemiconourbusiness,financialcondition,andresultsofoperations,ifthisglobalhealththreatpersists,itcouldadverselyaffect:
• Globaldemandforaluminum,negativelyimpactingourabilitytogeneratecashflowsfromoperations; • Ouroperations,includingcausinginterruptions,reductions,orclosuresofouroperations,duetodecreaseddemandforourproducts,government
regulationsand/orfewerworkersinthefacilitiesduetoillnessorpublichealthrestrictions; • Commercialsustainabilityofkeyvendorsortransportationdisruptionswithinoursupplychain,whichcouldresultinhigherinventorycostsand/or
inabilitytoobtainkeyrawmaterialsorfulfillcustomerorders; • Theliquidityofcustomers,whichcouldnegativelyimpactthecollectabilityofoutstandingreceivablesandourcashflows; • Alcoa’sabilitytofundcapitalexpendituresandrequiredmaintenanceatourfacilities,whichcouldnegativelyimpactourresultsofoperationsand
profitability; • Globalfinancialandcreditmarketsandourabilitytoobtainadditionalcreditorfinancinguponacceptabletermsoratall,whichcouldnegativelyaffect
ourliquidityandfinancialcondition; • TheCompany’sabilitytomeetcovenantsinouroutstandingdebtandcreditfacilityagreements; • Investmentreturnonpensionassetsandinterestrates,andcontributiondeferrals,resultinginincreasedrequiredCompanycontributionsorunfavorable
contributiontiming,negativelyimpactingfuturecashflows; • Alcoa’sabilitytogenerateincomeincertainjurisdictions,negativelyimpactingtherealizabilityofourdeferredtaxassets; • Therecoverabilityofcertainlong-livedandintangibleassets,includinggoodwill; • Thefinancialconditionofourinvestmentsandkeyjointventurepartners,negativelyimpactingtheresultsofoperations,cashflows,andrecoverabilityof
investmentbalances; • Theeffectivenessofhedginginstruments; • Legalobligationsresultingfromemployeeclaimsrelatedtohealthandsafety;and • Ourabilitytoefficientlymanagecertaincorporatefunctionsandotheractivitiesasaresultofemployeesworkingremotely.
Furtherorprolongeddeteriorationofadverseconditionscouldcontinuetonegativelyimpactourbusiness,financialcondition,andresultsofoperations,andresultinassetimpairmentcharges,includinglong-livedassetsorgoodwill,oraffecttherealizabilityofdeferredtaxassets.ThesituationsurroundingCOVID-19remainsfluid,andgivenitsinherentuncertainty,weexpectthepandemicwillcontinuetocauseinstabilityintheglobalmarketsandeconomiesinthenearterm,particularlyifthereisacontinuedincreaseinCOVID-19casesgloballyand/orinthelocationsinwhichAlcoaoperates.ThedurationandmagnitudeoftheimpactfromtheCOVID-19pandemicdependsonfuturedevelopmentsthatcannotbeaccuratelypredictedatthistime,suchastheseverityandtransmissionrateofthevirus,theemergenceofvariants,infectionratesinareaswhereweoperate,theextentandeffectivenessofcontainmentactions,includingthetimingandeffectivenessofvaccinationeffortsinthemarketswhereweoperate,andtheimpactoftheseandotherfactorsonouremployees,customers,suppliers,jointventurepartners,andequitymethodinvestments.TheimpactoftheCOVID-19pandemiccouldhaveamaterialadverseeffectonourbusiness,financialcondition,andresultsofoperations,andmayalsohavetheeffectofheighteningmanyoftheotherrisksanduncertaintiesdescribedinthis“RiskFactors”section.
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Our participation in increasingly competitive and complex global markets exposes us to risks that could adversely affect our business, financial condition orresults of operations.
WehaveoperationsoractivitiesinnumerouscountriesandregionsoutsidetheUnitedStates,includingAustralia,Brazil,Canada,Europe,Guinea,andtheSaudiArabia.TherisksassociatedwiththeCompany’sglobaloperationsinclude:
• economicandcommercialinstabilityrisks,includingthosecausedbysovereignandprivatedebtdefault,corruption,andchangesinlocalgovernmentlaws,regulationsandpolicies,suchasthoserelatedtotariffsandtradebarriers,tradetensions,taxation,exchangecontrols,employmentregulations,andrepatriationofearnings;
• geopoliticalrisks,suchaspoliticalinstability,civilunrest,expropriation,nationalizationofpropertiesbyagovernment,impositionofsanctions,changestoimportorexportregulationsandfees,renegotiationornullificationofexistingagreements,miningleasesandpermits,andchangestominingroyaltyrulesorlaws;
• weakeningmacroeconomicconditions; • contractingmanufacturingactivity,especiallyintheglobalautomotivesector; • warorterroristactivities;
• majorpublichealthissues,suchasanoutbreakofapandemicorepidemic,whichcouldcausedisruptionsinouroperations,supplychain,orworkforce;
• difficultiesenforcingintellectualpropertyandcontractualrights,orlimitationsintheprotectionoftechnology,data,andintellectualproperty,incertainjurisdictions;and
• unexpectedevents,accidents,orenvironmentalincidents,includingnaturaldisasters.
Whiletheimpactofanyoftheforegoingfactorsisdifficulttopredict,anyoneormoreofthemcouldadverselyaffectourbusiness,financialcondition,orresultsofoperations.Existinginsurancearrangementsmaynotprovidesufficientcoverageorreimbursem*ntforsignificantcoststhatmayarisefromsuchevents.
Aswecontinuetooperateglobally,wemayfacegreatercompetitionfromcertaingeographicregions,includingAsia,whereChinaisactivelypromotingandsubsidizingitsaluminumindustry,andnegativelyaffectingpricesoutsideofChina.TheseactionsbyChinaandtradebarriersmayrestrictusfromparticipatingintheChinesemarketandpreventusfromcompetingeffectivelywithChinesecompanies.Additionally,certaincompetitorspossessfinancial,technicalandmanagementresourcestodevelopandmarketproductsthatmaycompetefavorablyagainstourproducts,andconsolidationamongourcompetitorsmayalsoallowthemtocompetemoreeffectively.
Our global operations expose us to risks related to economic, political, and social conditions, including the impact of trade policies and adverse industrypublicity, which may negatively impact our business.
Wearesubjecttorisksassociatedwithdoingbusinessinternationally,includingtheeffectsofforeignanddomesticlawsandregulations,foreignordomesticgovernmentfiscalandpoliticalcrises,politicalandeconomicdisputesandsanctions,andadverseindustrypublicity.Thesefactors,amongothers,bringuncertaintytothemarketsinwhichwecompete,andmayadverselyaffectourbusiness,financialcondition,resultsofoperations.Forexample,theimpactofenvironmentalandsupplymanagementregulatoryreformsinChinacouldadverselyimpactourbusiness,financialcondition,andresultsofoperations.Inaddition,weoperateincommunitiesaroundtheworld,andincidentsrelatedtoourindustrycouldgeneratenegativepublicityandimpactthesocialacceptabilityofouroperationsinsuchlocationsbydamagingourreputation,ourrelationshipswithstakeholders,andourcompetitiveposition.
IntheUnitedStates,inrecentyears,thepriorgovernmentadministrationpubliclysupported,andtookactionwithrespectto,theimplementationofsignificantchangestocertaintradepolicies,includingimporttariffsandquotas,modificationstointernationaltradepolicy,thewithdrawalfromorrenegotiationofcertaintradeagreements,andotherchangesthathaveaffectedU.S.traderelationswithothercountries,anyofwhichmayrequireustosignificantlymodifyourcurrentbusinesspracticesormayotherwisemateriallyandadverselyaffectourbusinessorthoseofourcustomers.Itisunclearwhetherthecurrentadministrationwillcontinuewiththesepolicies.Forexample,theCompanywassubjecttoU.S.tariffsonitsaluminumproductsproducedinandimportedfromCanadaunderSection232oftheTradeExpansionActof1962(Section232)foraportionof2020.InOctober2020,theU.S.governmentfullyreinstatedapreviousexemptiononaluminumimportsfromCanadaretroactivetoSeptember1,2020.Inaddition,suchpoliciescouldalsoresultinretaliatoryactionsbyU.S.tradingpartners.Asaresultoftheseorotherpotentialtradeactions,certainaffectedcountriesandotherforeigngovernmentshaveinitiatedormayimposeretaliatorytrademeasuresonaluminumproducedintheUnitedStates.Totheextentthatfurthertariffsareimposedonabroaderrangeofimports,orthesetariffsandothertradeactionsresultinadecreaseininternationaldemandforaluminumproducedintheUnitedStatesorotherwisenegativelyimpactdemandforourproducts,ourbusinessmaybeadverselyimpacted,andcouldfurtherexacerbatealuminumandaluminapricevolatilityandoverallmarketuncertainty.
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Our global operations expose us to various legal and regulatory systems, and changes in conditions beyond our control in foreign countries.
InadditiontothebusinessrisksinherentinoperatingoutsidetheUnitedStates,legalandregulatorysystemsinforeigncountriesmaybelessdevelopedandpredictable,andthepossibilityofvarioustypesofadversegovernmentalactionmaybemorepronounced.Unexpectedoruncontrollableeventsorcirc*mstancesinanyoftheforeignmarketsinwhichweoperate,includingactionsbyforeigngovernmentssuchaschangesinforeignpolicyorfiscalregimes,terminationofourleasesoragreementswithsuchforeigngovernments,increasedgovernmentregulation,orforcedcurtailmentorcontinuationofoperations,couldmateriallyandadverselyaffectourbusiness,financialcondition,orresultsofoperations.
Weakness in global economic conditions or in any of the industries or geographic regions in which we or our customers operate, and the cyclical nature of ourcustomers’ businesses, could adversely impact our revenues and profitability by reducing demand and margins.
Ourbusiness,financialcondition,andresultsofoperationsmaybemateriallyaffectedbytheconditionsintheglobaleconomygenerallyandinglobalcapitalmarkets,includingvolatilityinthecapitalmarketsandintheendmarketsandgeographicregionsinwhichweandourcustomersoperate(includingasaresultofCOVID-19).Manyofthemarketsinwhichourcustomersparticipatearealsocyclicalinnatureandexperiencesignificantfluctuationsindemandfortheirproductsbasedoneconomicconditions,consumerdemand,rawmaterialandenergycosts,andgovernmentactions.Manyofthesefactorsarebeyondourcontrol.
Adeclineinconsumerandbusinessconfidenceandspending,severereductionsintheavailabilityandcostofcredit,andvolatilityinthecapitalandcreditmarketscouldadverselyaffectthebusinessandeconomicenvironmentinwhichweoperateandtheprofitabilityofourbusiness.Wearealsoexposedtorisksassociatedwiththecreditworthinessofoursuppliersandcustomers.Iftheavailabilityofcredittofundorsupportthecontinuationandexpansionofourcustomers’businessoperationsiscurtailedorifthecostofthatcreditisincreased,theresultinginabilityofourcustomersoroftheircustomerstoeitheraccesscreditorabsorbtheincreasedcostofthatcreditcouldadverselyaffectourbusinessbyreducingoursalesorbyincreasingourexposuretolossesfromuncollectiblecustomeraccounts.Theseconditionsandadisruptionofthecreditmarketscouldalsoresultinfinancialinstabilityofsomeofoursuppliersandcustomers.Theconsequencesofsuchadverseeffectscouldincludetheinterruptionofproductionatthefacilitiesofourcustomers,thereduction,delayorcancellationofcustomerorders,delaysorinterruptionsofthesupplyofrawmaterialswepurchase,andbankruptcyofcustomers,suppliersorothercreditors.Anyoftheseeventscouldadverselyaffectourprofitability,cashflowandfinancialcondition.
We are exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation and other economic factors in the countries in whichwe operate.
Economicfactors,includinginflationandfluctuationsinforeigncurrencyexchangeratesandinterestrates,competitivefactorsinthecountriesinwhichweoperate,andcontinuedvolatilityordeteriorationintheglobaleconomicandfinancialenvironment,couldaffectourbusiness,financialcondition,andresultsofoperations.ChangesinthevaluationoftheU.S.dollaragainstothercurrencies,particularlytheAustraliandollar,Brazilianreal,Canadiandollar,Euro,andNorwegiankroner,mayaffectourprofitability,assomeimportantinputsarepurchasedinothercurrencies,whileourproductsaregenerallysoldinU.S.dollars.AstheU.S.dollarstrengthens,thecostcurveshiftsdownforsmeltersoutsidetheUnitedStates,butcostsforourU.S.smeltingportfoliomaynotdecline.
Unanticipated changes in tax laws or exposure to additional tax liabilities could affect our future profitability.
WearesubjecttoincometaxesinboththeUnitedStatesandvariousnon-U.S.jurisdictions.Unanticipatedchangesinforeignanddomestictaxlaws,regulations,orpolicies,ortheirinterpretationandapplicationbyregulatorybodies,orexposuretoadditionaltaxliabilitiescouldaffectourfutureprofitability.Ourdomesticandinternationaltaxliabilitiesaredependentuponthedistributionofincomeamongthesedifferentjurisdictions.Ourtaxexpenseincludesestimatesofadditionaltaxthatmaybeincurredfortaxexposuresandreflectsvariousestimatesandassumptions.TheassumptionsincludeassessmentsoffutureearningsoftheCompanythatcouldimpactthevaluationofourdeferredtaxassets.Ourfutureresultsofoperationscouldbeadverselyaffectedbychangesintheeffectivetaxrateasaresultofachangeinthemixofearningsincountrieswithdifferingstatutorytaxrates,changesintheoverallprofitabilityoftheCompany,changesintaxlegislationandrates,changesingenerallyacceptedaccountingprinciples,andchangesinthevaluationofdeferredtaxassetsandliabilities.Significantchangestotaxlawsorregulationscouldhaveasubstantialimpact,positiveornegative,onoureffectivetaxrate,cashtaxexpendituresandcashflows,anddeferredtaxassetsandliabilities.Wearesubjecttotaxauditsbyvarioustaxauthoritiesinmanyjurisdictions,suchasAustralia,Brazil,Canada,andSpain.Forexample,inJuly2020,AofAreceivedNoticesofAssessment(theNotices)fromtheAustralianTaxationOffice(ATO)relatedtothepricingofcertainhistoricthird-partyaluminasales.TheNoticesassertedclaimsforincometaxpayablebyAofAofapproximately$165(A$214),exclusiveofinterestandpenalties.TheNoticesalsoincludeclaimsforcompoundedinterestonthetaxamounttotalingapproximately$544(A$707).InaccordancewiththeATO’sdisputeresolutionpractices,
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AofApaid50%oftheassessedincometaxamountexclusiveofinterestandanypenaltiestotheATOduringthethirdquarterof2020,andtheATOisnotexpectedtoseekfurtherpaymentpriortofinalresolutionofthematter.IfAofAisultimatelysuccessful,anyamountspaidtotheATOaspartofthe50%paymentwouldberefunded.TheCompanydoesnotagreewiththeATO’spositions,andAofAwillcontinuetodefendthismatterandpursueallavailabledisputeresolutionmethods,uptoandincludingthefilingofproceedingsintheAustralianCourts.Weregularlyassessthepotentialoutcomesofexaminationsbytaxauthoritiesindeterminingtheadequacyofourprovisionforincometaxes.Theresultsoftaxauditsandexaminationsofpreviouslyfiledtaxreturnsorrelatedlitigationandcontinuingassessmentsofourtaxexposurescouldmateriallyaffectourfinancialresults.SeePartIIItem8ofthisForm10-KinNotesQandStotheConsolidatedFinancialStatementsundercaptionsUnrecognizedTaxBenefitsandContingencies,respectively.
We may be exposed to significant legal proceedings, investigations or changes in foreign and/or U.S. federal, state, or local laws, regulations or policies.
Ourresultsofoperationsorliquidityinaparticularperiodcouldbeaffectedbyneworincreasinglystringentlaws,regulatoryrequirementsorinterpretations,oroutcomesofsignificantlegalproceedingsorinvestigationsadversetotheCompany.Wemaybecomesubjecttounexpectedorrisingcostsassociatedwithbusinessoperations,compliancemeasures,orprovisionofhealthorwelfarebenefitstoemployeesduetochangesinlaws,regulationsorpolicies.Wearealsosubjecttoavarietyoflegalandcompliancerisks,including,amongotherthings,potentialclaimsrelatingtohealthandsafety,environmentalmatters,intellectualpropertyrights,productliability,dataprivacy,taxesandcompliancewithU.S.andforeignexport,anti-bribery,andcompetitionlaws,andsalesandtradingpractices.Wecouldbesubjecttofines,penalties,interest,ordamages(incertaincases,trebledamages).Inaddition,ifweviolatethetermsofouragreementswithgovernmentalauthorities,wemayfaceadditionalmonetarysanctionsandotherremediesasacourtdeemsappropriate.
Whilewebelievewehaveadoptedappropriateriskmanagementandcomplianceprogramstoaddressandreducetheserisks,theglobalanddiversenatureofouroperationsmeansthattheseriskscontinuetoexist,andadditionallegalproceedingsandcontingenciesmayarisefromtimetotime.Inaddition,variousfactorsordevelopmentscanleadtheCompanytochangecurrentestimatesofliabilitiesormakeestimatesformatterspreviouslynotsusceptibleofreasonableestimates,suchasasignificantjudicialruling,judgment,orsettlement,orsignificantregulatorydevelopmentsorchangesinapplicablelaw.Afutureadverserulingorsettlementorunfavorablechangesinlaws,regulationsorpolicies,orothercontingenciesthattheCompanycannotpredictwithcertaintycouldhaveamaterialadverseeffectonourresultsofoperationsorcashflowsinaparticularperiod.SeePartIItem3ofthisForm10-KandPartIIItem8ofthisForm10-KinNoteStotheConsolidatedFinancialStatementsundercaptionContingencies.
We are subject to a broad range of health, safety and environmental laws, regulations and other requirements in the jurisdictions in which we operate that mayexpose us to substantial claims, costs, and liabilities.
Ouroperationsworldwidearesubjecttonumerouscomplexandincreasinglystringentfederal,state,localandforeignlaws,regulations,policies,andotherrequirements,includingthoserelatedtohealth,safety,environmental,andwastemanagementanddisposalmatters,whichmayexposeustosubstantialclaims,costs,andliabilities.Wemaybesubjecttofines,penaltiesandotherdamages,suchasnaturalresourcedamagesandthecostsassociatedwiththeinvestigationandcleanupofsoil,surfacewater,groundwater,andothermediaunderlawssuchasCERCLA(commonlyknownasSuperfund)orsimilarU.S.andforeignregulations.Theselaws,regulations,policies,andotherrequirementscouldchangeorbeappliedorinterpretedinwaysthatcould(i)requireustoenjoin,curtail,closeorotherwisemodifyouroperations,includingtheimplementationofcorrectivemeasures,theinstallationofadditionalequipment,ortheundertakingofotherremedialactions,or(ii)subjectustoenforcementriskorimposeonorrequireustoincuradditionalcapitalexpenditures,complianceorothercosts,fines,orpenalties,anyofwhichcouldadverselyaffectourresultsofoperations,cashflowsandfinancialcondition,andthetradingpriceofourcommonstock.
Thecostsofcomplyingwithsuchlaws,regulations,policiesandotherrequirements,includingparticipationinassessments,remediationactivities,andcleanupsofsites,aswellasinternalvoluntaryprograms,aresignificantandwillcontinuetobesofortheforeseeablefuture.Environmentallawsmayimposecleanupliabilityonownersandoccupiersofcontaminatedproperty,includingpreviouslyowned,non-operational,ordivestedproperties,regardlessofwhethertheownersandoccupierscausedthecontaminationorwhethertheactivitythatcausedthecontaminationwaslawfulatthetimeitwasconducted.Asaresult,wemaybesubjecttoclaimsarisingfromcurrentorformerconditionsatsitesthatweownoroperatecurrently,aswellasatsitesthatweownedoroperatedinthepast,andatcontaminatedsitesthathavealwaysbeenownedoroperatedbythirdparties,regardlessofwhetherwecausedthecontaminationorwhethertheactivitythatcausedthecontaminationwaslawfulatthetimeitwasconducted.Liabilitymaybewithoutregardtofaultandmaybejointandseveral,sothatwemaybeheldresponsibleformorethanourshareofthecontaminationorotherdamages,orevenfortheentireshare.Inaddition,becauseenvironmentallaws,regulations,policiesandotherrequirementsareconstantlyevolving,wewillcontinuetoincurcoststomaintaincomplianceandsuchcostscouldincreasemateriallyandprovetobemorelimitingandcostlythanweanticipate.Evolvingstandardsandexpectationscanresultinincreasedlitigationand/orincreasedcosts,allof
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whichcanhaveamaterialandadverseeffectonourbusinessoperations,earningsandcashflows.Futurecompliancewithenvironmental,healthandsafetylegislationandotherregulatoryrequirementsorexpectationsmayprovetobemorelimitingandcostlythanweanticipateandmaydisruptourbusinessoperationsandrequiresignificantexpenditures.Ourbusiness,financialcondition,orresultsofoperationsinaparticularperiodcouldbemateriallyaffectedbycertainhealth,safetyorenvironmentalmatters,includingremediationcostsanddamagesrelatedtocertainsites.Our operations include impoundment structures, which could impact the environment or cause exposure to hazardous substances or other damage, whichcould result in material liabilities to us.Someofouroperationsgeneratehazardouswasteandotherbyproducts,whichwecontainintailingfacilities,residuestorageareas,andotherstructuralimpoundmentsthataresubjecttoextensiveregulation.Overtoppingofstorageareascausedbyextremeweatherevents,erosion,orunanticipatedstructuralfailureofimpoundmentscouldresultinsevere,andinsomecasescatastrophic,damagetotheenvironment,naturalresources,orproperty,orpersonalinjuryandlossoflife.Theseandothersimilarimpactsthatouroperationsmayhaveontheenvironment,aswellasexposurestohazardoussubstancesorwastesassociatedwithouroperations,couldresultinsignificantcosts,civilorcriminaldamages,finesorpenalties,andenforcementactionsissuedbyregulatoryorjudicialauthoritiesenjoining,curtailingorclosingoperationsorrequiringcorrectivemeasures,anyofwhichcouldmateriallyandadverselyaffectus.Climate change, climate change legislation or regulations, extreme weather conditions, and greenhouse gas effects may adversely impact our operations andmarkets.Energyisasignificantinputinanumberofouroperationsandthereisgrowingrecognitionthatconsumptionofenergyderivedfromfossilfuelsisacontributortoclimatechange.Anumberofgovernmentsorregulatorybodiesinareaswhereweoperatehaveintroducedorarecontemplatinglegislativeandregulatorychangeinresponsetothepotentialimpactsofclimatechange.Wecouldseechangesinthemarginsofgreenhousegas-intensiveassetsandenergy-intensiveassetsasaresultofregulatoryimpactsinthecountriesinwhichweoperate.Theseregulatorymechanismsmaybeeithervoluntaryorlegislatedandmayimpactouroperationsdirectlyorindirectlythroughcustomersoroursupplychain.ClimatechangeandtheinconsistencyofassociatedregulationsmayimpactthecompetitivenessoftheCompany,includingtheattractivenessofthelocationsofsomeoftheCompany’sassets.Assessmentsofthepotentialimpactoffutureclimatechangelegislation,regulationandinternationaltreatiesandaccordsareuncertain,giventhewidescopeofpotentialregulatorychangeincountriesinwhichweoperate.Wemayrealizeincreasedcapitalexpendituresresultingfromrequiredcompliancewithrevisedornewlegislationorregulations,coststopurchaseorprofitsfromsalesof,allowancesorcreditsunderacarboncredit/pricingor“capandtrade”system,increasedinsurancepremiumsanddeductiblesasnewactuarialtablesaredevelopedtoreshapecoverage,achangeincompetitivepositionrelativetoindustrypeers,andchangestoprofitorlossarisingfromincreasedordecreaseddemandforgoodsproducedbytheCompanyand,indirectly,fromchangesincostsofgoodssold.ThepotentialphysicalimpactsofclimatechangeorextremeweatherconditionsontheCompany’soperationsarehighlyuncertainandwillbeparticulartothegeographiccirc*mstances.Thesemayincludechangesinrainfallpatterns,wildfires,heatwaves,shortagesofwaterorothernaturalresources,changingsealevels,changingstormpatterns,flooding,increasedfrequencyandintensitiesofstorms,andchangingtemperaturelevels.Anyofthesemaydisruptouroperations,hindertransportationofourproductstocustomers,preventaccesstoourfacilities,negativelyimpactoursuppliers’orcustomers’operationsandtheirabilitytofulfillcontractualobligationstous,and/ordamageourfacilities,allofwhichmayincreaseourcosts,reduceproductionandadverselyaffectourbusiness,financialcondition,orresultsofoperations.
We face significant competition, which may have an adverse effect on profitability.
WecompetewithavarietyofbothU.S.andnon-U.S.aluminumindustrycompetitorsaswellaswithproducersofothermaterials,suchassteel,titanium,plastics,composites,ceramics,andglass,amongothers.Useofsuchmaterialscouldreducethedemandforaluminumproducts,whichmayreduceourprofitabilityandcashflow.Factorsaffectingourabilitytocompeteincludeincreasedcompetitionfromoverseasproducers,ourcompetitors’pricingstrategies,theintroductionoradvancementofnewtechnologiesandequipmentbyourcompetitorsorourcustomers,changesinourcustomers’strategyormaterialrequirements,andourabilitytomaintainthecost-efficiencyofourfacilities.Inaddition,ourcompetitivepositiondepends,inpart,onourabilitytooperateasanintegratedaluminumvaluechain,leverageinnovationexpertiseacrossbusinessesandkeyendmarkets,andaccessaneconomicalpowersupplytosustainouroperationsinvariouscountries.SeeBusiness—Competition.
Available Capital and Credit-Related Risks
Our business and growth prospects may be negatively impacted by limits on our ability to fund capital expenditures.
Werequiresubstantialcapitaltoinvestingrowthopportunitiesandtomaintainandprolongthelifeandcapacityofourexistingfacilities.Ourabilitytogeneratecashflowsisaffectedbymanyfactors,includingmarketandpricingconditions.Insufficientcashgenerationorcapitalprojectoverrunsmaynegativelyimpactourabilitytofundasplannedoursustaining
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andreturn-seekingcapitalprojects,andsuchpostponementinfundingcapitalexpendituresorinadequatefundingtocompleteprojectscouldresultinoperationalissues.Inaddition,totheextentouraccesstocompetitivefinancial,credit,capitaland/orbankingmarketsbecomesimpaired,ouroperations,financialresultsandcashflowscouldbeadverselyimpacted.Wemayalsoneedtoaddresscommercial,political,andsocialissuesinrelationtocapitalexpendituresincertainofthejurisdictionsinwhichweoperate.Ifourinterestinourjointventuresisdilutedorwelosekeyconcessions,ourgrowthcouldbeconstrained.Anyoftheforegoingcouldhaveamaterialadverseeffectonourbusiness,resultsofoperations,financialconditionandprospects.
Deterioration in our credit profile or increases in interest rates could increase our costs of borrowing money and limit our access to the capital markets andcommercial credit.
Themajorcreditratingagenciesevaluateourcreditworthinessandgiveusspecifiedcreditratings.Theseratingsarebasedonanumberoffactors,includingourfinancialstrengthandfinancialpoliciesaswellasourstrategies,operationsandexecutionofannouncedactions.Thesecreditratingsarelimitedinscopeanddonotaddressallmaterialrisksrelatedtoaninvestmentinus,butratherreflectonlytheviewofeachratingagencyatthetimeitsratingisissued.Nonetheless,thecreditratingswereceiveimpactourborrowingcostsaswellasouraccesstosourcesofcapitalontermsadvantageoustoourbusiness.Failuretoobtainsufficientlyhighcreditratingscouldadverselyaffectourinterestratesinfuturefinancings,ourliquidity,orourcompetitiveposition,andcouldalsorestrictouraccesstocapitalmarkets.Inaddition,ourcreditratingscouldbeloweredorwithdrawnentirelybyaratingagencyif,initsjudgment,thecirc*mstanceswarrant.Ifaratingagencyweretodowngradeourrating,ourborrowingcostscouldincrease,ourfundingsourcescoulddecrease,andwewouldneedtorelyonourcashflowsfromoperations.Asaresultofthesefactors,adowngradeofourcreditratingscouldhaveamateriallyadverseimpactonourfutureoperations,cashflows,andfinancialposition.
Inaddition,ourvariablerateindebtednessmayuseLondonInterbankOfferingRate(LIBOR)asabenchmarkforestablishingtherate.LIBORhasbeenthesubjectofrecentnational,internationalandotherregulatoryguidanceandproposalsforreform,andin2017,theU.K.FinancialConductAuthorityannouncedthatitintendstophaseoutLIBORbytheendof2021,whichissubjecttopossibleextension.ThefinancialindustryiscurrentlytransitioningawayfromLIBORasabenchmarkfortheinterbanklendingmarket.Thediscontinuation,reform,orreplacementofLIBORoranyotherbenchmarkratesmayhaveanimpactoncontractualmechanicsinthecreditmarketorcausedisruptioninthebroaderfinancialmarkets.Theconsequencesofthesedevelopmentscannotbeentirelypredictedbutcouldincludeanincreaseinthecostofourvariablerateindebtedness.
Our indebtedness restricts our current and future operations, which could adversely affect our ability to respond to changes in our business and manage ouroperations.
AlcoaandAlcoaNederlandHoldingB.V.(ANHBV),awholly-ownedsubsidiaryofAlcoa,arepartytoarevolvingcreditagreementwithasyndicateoflendersandissuersnamedtherein(assubsequentlyamended,theRevolvingCreditFacility).ThetermsoftheRevolvingCreditFacilityandtheindenturesgoverningouroutstandingnotescontaincovenantsthatimposesignificantoperatingandfinancialrestrictionsonus,includingonourabilityto,amongotherthings:
• makeinvestments,loans,advances,andacquisitions;
• amendcertainmaterialdocuments;
• disposeofassets;
• incurorguaranteeadditionaldebtandissuecertaindisqualifiedequityinterestsandpreferredstock;
• makecertainrestrictedpayments,includinglimitingtheamountofdividendsonequitysecuritiesandpaymentstoredeem,repurchaseorretireequitysecuritiesorotherindebtedness;
• engageintransactionswithaffiliates;
• materiallyalterthebusinessweconduct;
• enterintocertainrestrictiveagreements;
• createliensonassetstosecuredebt;
• consolidate,merge,sellorotherwisedisposeofallorsubstantiallyallofAlcoa’s,ANHBV’sorasubsidiaryguarantor’sassets;and
• takeanyactionsthatwouldreduceourownershipofAWACentitiesbelowanagreedlevel.
TheRevolvingCreditFacilityrequiresustocomplywithfinancialcovenantswhichincludesmaintaininganinterestexpensecoverageratioofnotlessthan5.00to1.00,andaleverageratiothatisnotgreaterthan3.00to1.00forthefourconsecutivefiscalquartersbeginninginthesecondquarterof2020.Theleverageratiorequirementwillreturnto2.50to1.00beginninginthesecondquarterof2021.TheleverageratiocomparestotalindebtednesstoConsolidatedEBITDA(asdefinedintheRevolvingCreditFacility)todeterminecompliancewiththefinancialcovenant.TheleverageratiocalculationalsodeterminesthemaximumindebtednesspermittedundertheRevolvingCreditFacility.Theresultsofthecalculationofthese
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ratios,whenconsideringtheCompany’sexistingdebtobligations,affectsandcouldrestricttheamountofadditionalborrowingcapacityundertheCompany’sRevolvingCreditFacilityorothercreditfacilities.
Inaddition,allobligationsofAlcoaCorporationoradomesticentityundertheRevolvingCreditFacilityaresecuredby,subjecttocertainexceptions,afirstprioritylienonsubstantiallyallassetsofAlcoaCorporationandthematerialdomesticwholly-ownedsubsidiariesofAlcoaCorporationandcertainequityinterestsofspecifiednon-U.S.subsidiaries.AllotherobligationsundertheRevolvingCreditFacilityaresecuredby,subjecttocertainexceptions,afirstprioritysecurityinterestinsubstantiallyallassetsofAlcoaCorporation,ANHBV,thematerialdomesticwholly-ownedsubsidiariesofAlcoaCorporation,andthematerialforeignwholly-ownedsubsidiariesofAlcoaCorporationlocatedinAustralia,Brazil,Canada,Luxembourg,theNetherlands,Norway,andSwitzerlandincludingequityinterestsofcertainsubsidiariesthatdirectlyholdequityinterestsinAWACentities.Ourabilitytocomplywiththeseagreementsmaybeaffectedbyeventsbeyondourcontrol,includingprevailingeconomic,financialandindustryconditions.Thesecovenantscouldhaveanadverseeffectonourbusinessbylimitingourabilitytotakeadvantageoffinancing,mergerandacquisition,orotheropportunities.ThebreachofanyofthesecovenantsorrestrictionscouldresultinadefaultundertheRevolvingCreditFacilityortheindenturesgoverningournotesandotheroutstandingindebtedness,includingsuchindebtednessforwhichtheCompanyisaguarantor.
SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionLiquidityandCapitalResources–FinancingActivitiesformoreinformationontherestrictivecovenantsintheRevolvingCreditFacility.
Our failure to comply with the agreements relating to our outstanding indebtedness, including due to events beyond our control, could result in an event ofdefault that could materially and adversely affect our business, financial condition, results of operations or cash flows.
Ifaneventofdefaultweretooccurunderanyoftheagreementsrelatingtoouroutstandingindebtedness,includingtheRevolvingCreditFacilityandtheindenturegoverningournotes,wemaynotbeabletoincuradditionalindebtednessundertheRevolvingCreditFacilityandtheholdersofthedefaulteddebtcouldcauseallamountsoutstandingwithrespecttothatdebttobedueandpayableimmediately.Wecannotassurethatourassetsorcashflowwouldbesufficienttofullyrepayborrowingsunderouroutstandingdebtinstrumentsifaccelerateduponaneventofdefault,whichcouldhaveamaterialadverseeffectonourabilitytocontinuetooperateasagoingconcern.Further,ifweareunabletorepay,refinanceorrestructureoursecuredindebtedness,theholdersofsuchindebtednesscouldproceedagainstthecollateralsecuringthatindebtedness.Inaddition,anyeventofdefaultordeclarationofaccelerationunderonedebtinstrumentalsocouldresultinaneventofdefaultunderoneormoreofourotherdebtinstruments.
Cybersecurity Risks
Cyber attacks, security breaches, system failures, or other cyber incidents may threaten the integrity of our information technology infrastructure and othersensitive business information, disrupt our operations and business processes, expose us to potential liability, and result in reputational harm and othernegative consequences that could have a material adverse effect on our business, financial condition and results of operations.
Wedependoninformationandcommunicationstechnology,networks,software,andrelatedsystemstooperateourbusiness,includingproductioncontrolsandoperatingsystemsatourfacilitiesandsystemsforrecordingandprocessingtransactions,interfacingwithcustomers,financialreporting,andprotectingthepersonaldataofouremployeesandotherconfidentialinformation.Ourglobaloperationsrequireincreasedrelianceontechnology,whichexposeustorisksoftheftofproprietaryinformation,includingtradesecretsandotherintellectualproperty.Theprotectionofsuchinformation,aswellassensitivecustomerinformation,personaldataofouremployees,andotherconfidentialinformation,iscriticaltous.Wefaceglobalcybersecuritythreats,whichmayrangefromuncoordinatedindividualattemptstosophisticatedandtargetedmeasures,knownasadvancedpersistentthreats,directedattheCompany.Inaddition,agreaternumberofouremployeesareworkingremotelyasaresultoftheCOVID-19pandemic,whichmayincreasecybersecurityvulnerabilitiesandrisktoourinformationtechnologiessystems.
Cyberattacksandothercyberincidentsarebecomingmorefrequentandsophisticated,areconstantlyevolving,andarebeingmadebygroupsandindividualswithsignificantresourcesandawiderangeofexpertiseandmotives.Cyberattacksandsecuritybreachesmayinclude,butarenotlimitedto,unauthorizedattemptstoaccessinformationordigitalinfrastructure,effortstodirectpaymentstofictitiousparties,viruses,ransomware,maliciouscodes,hacking,phishing,denialofservice,humanerror,andotherelectronicsecuritybreaches.Astechniquesusedincyberattackschangefrequentlyandmaynotbeimmediatelydetectable,wemaybeunabletoanticipatethesetechniques,includingthescopeandimpactofanincident,containtheincidentwithinoursystems,orimplementpreventativeorremediationmeasures.Wehaveexperiencedattemptsbyexternalpartiestopenetrateournetworksandsystems.Inaddition,weutilizethirdpartyvendorsforcertainsoftwareapplications,storagesystems,andcloudcomputingservices.Cyberattacksorsecuritybreachesontheinformationtechnologysystemsofourserviceprovidersorbusinesspartnerscouldimpactus.Suchattemptstodatehavenotresultedinanymaterialbreaches,disruptions,orlossofinformation.
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Wecontinuetoassesspotentialcyberthreatsandinvestinourinformationtechnologyinfrastructuretoaddressthesethreats,includingbymonitoringnetworksandsystems,trainingemployeesoncyberthreats,andenhancingsecuritypoliciesoftheCompanyanditsthirdpartyproviders.WhiletheCompanycontinuallyworkstostrengthenoursystemsandsecuritymeasures,safeguardinformation,andmitigatepotentialrisks,thereisnoassurancethatsuchactionswillbesufficienttopreventcyberattacksorsecuritybreaches.Theseeventscouldmanipulateorimproperlyuseoursystemsornetworks,discloseorcompromiseconfidentialorprotectedinformation,destroyorcorruptdata,orotherwisedisruptouroperations.
Inaddition,theseeventscouldnegativelyimpactourreputationandcompetitiveposition,andcouldresultinlitigationwiththirdparties,regulatoryaction,lossofbusiness,theftofassets,andsignificantremediationcosts,anyofwhichcouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.SuchsecuritybreachescouldalsoresultinaviolationofapplicableU.S.andinternationalprivacyandotherlaws,andsubjectustolitigationandgovernmentalinvestigationsandproceedings,anyofwhichcouldresultinourexposuretomaterialcivilorcriminalliability.Forexample,theEuropeanUnion’sGeneralDataPrivacyRegulationsubjectscompaniestoarangeofcomplianceobligationsregardingthehandlingofpersonaldata.IntheeventouroperationsarefoundtobeinviolationoftheGDPR’srequirements,wemaybesubjecttosignificantcivilpenalties,businessdisruptionandreputationalharm,anyofwhichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,orresultsofoperations.Cyberattacksorbreachescouldrequiresignificantmanagementattentionandresources,andresultinthediminutionofthevalueofourinvestmentinresearchanddevelopment.
Thoughwehavedisasterrecoveryandbusinesscontinuityplansinplace,ifourinformationtechnologysystems,orthoseofourthirdpartyproviders,aredamaged,breached,interrupted,orceasetofunctionproperlyforanyreason,and,ifthedisasterrecoveryandbusinesscontinuityplansdonoteffectivelyresolvetheincidentonatimelybasis,wemaysufferinterruptionsinourabilitytomanageorconductbusinessandwemaybeexposedtoreputational,competitiveandbusinessharmaswellaslitigationandregulatoryaction,whichmayadverselyimpactourbusiness,financialcondition,orresultsofoperations.
Labor- and Pension-Related Risks
Union disputes and other employee relations issues could adversely affect our business, financial condition, or results of operations.
Asignificantportionofouremployeesarerepresentedbylaborunionsinanumberofcountriesundervariouscollectivebargainingagreementswithvaryingdurationsandexpirationdates.Uniondisputesandotheremployeerelationsissuescouldadverselyaffectourbusiness,financialcondition,orresultsofoperations.Forexample,inNovember2020wefacedaworkers’strikeatourSanCipriánrefineryandsmelterinSpain,whichslowedproductionandblockedmetalshipmentsuntilJanuary2021.Theworkforcesituationthereremainstenuousasweevaluateoptionsforthesmelter’sfuture.
Wemaynotbeabletosatisfactorilyrenegotiatecollectivebargainingagreementswhentheyexpire.Inaddition,existingcollectivebargainingagreementsmaynotpreventstrikes,workstoppages,workslowdowns,unionorganizingcampaigns,orlockoutsatourfacilitiesinthefuture.Wemayalsobesubjecttogeneralcountrystrikesorworkstoppagesunrelatedtoourbusinessorcollectivebargainingagreements.Alabordisputeorworkstoppageofemployeescouldhaveamaterialadverseeffectonproductionatoneormoreofourfacilities,anddependingonthelengthofworkstoppage,onourbusiness,financialcondition,orresultsofoperations.
An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors could affect our business, financialcondition, results of operations or amount of pension funding contributions in future periods.
Ourresultsofoperationsmaybenegativelyaffectedbytheamountofexpensewerecordforourpensionandotherpostretirementbenefitplans,reductionsinthefairvalueofplanassets,andotherfactors.WecalculateincomeorexpenseforourplansusingactuarialvaluationsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(GAAP).
Thesevaluationsreflectassumptionsaboutfinancialmarketandothereconomicconditions,whichmaychangebasedonchangesinkeyeconomicindicators.Themostsignificantyear-endassumptionsusedbytheCompanytoestimatepensionorotherpostretirementbenefitincomeorexpenseforthefollowingyeararethediscountrateappliedtoplanliabilitiesandtheexpectedlong-termrateofreturnonplanassets.Inaddition,theCompanyisrequiredtomakeanannualmeasurementofplanassetsandliabilities,whichmayresultinasignificantchargetostockholders’equity.SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionCriticalAccountingPoliciesandEstimates—PensionandOtherPostretirementBenefitsandPartIIItem8ofthisForm10-KinNoteOtotheConsolidatedFinancialStatements.AlthoughGAAPexpenseandpensionfundingcontributionsareimpactedbydifferentregulationsandrequirements,thekeyeconomicfactorsthataffectGAAPexpensewouldalsolikelyaffecttheamountofcashorsecuritieswewouldcontributetothepensionplans.
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Potentialpensioncontributionsincludebothmandatoryamountsrequiredunderfederallawanddiscretionarycontributionstoimprovetheplans’fundedstatus.Higherthanexpectedpensioncontributionsduetoadeclineintheplans’fundedstatusasaresultofdeclinesinthediscountrateorlower-than-expectedinvestmentreturnsonplanassetscouldhaveamaterialnegativeeffectonourcashflows.Adversecapitalmarketconditionscouldresultinreductionsinthefairvalueofplanassetsandincreaseourliabilitiesrelatedtosuchplans,adverselyaffectingourliquidityandresultsofoperations.Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
AlcoaCorporation’sprincipalexecutiveoffice,locatedat201IsabellaStreet,Suite500,Pittsburgh,Pennsylvania15212-5858,isleased.Alcoaalsoleasesseveralofficefacilitiesandsites,bothdomesticallyandinternationally.Inaddition,Alcoaownsorhasanownershipinterestinitsproductionsites,bothdomesticallyandinternationally.AlcoaownsactiveminesandplantsclassifiedundertheBauxite,Alumina,andAluminumsegmentsofitsbusiness.TheseincludefacilitiesandassetsaroundtheworldusedforAlcoa’sbauxitemining,aluminarefining,aluminumsmeltingandcastingproduction,energygeneration,andaluminumrollingoperations.Capacityandutilizationofthesefacilitiesvariesbysegmentandthelevelofdemandforeachproduct.SeePartIItem1ofthisForm10-Kforadditionalinformation,includingtheownership,capacityandutilizationofthesefacilitiesaccordingtoeachsegment.
Severalofourwholly-ownedproductionfacilitiesareencumberedundertheCompany’sRevolvingCreditFacility.SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionLiquidityandCapitalResources–FinancingActivitiesformoreinformationontheCompany’sRevolvingCreditFacility.
AlthoughAlcoa’sfacilitiesvaryintermsofa*geandcondition,managementbelievesthatit*facilitiesaresuitableandgenerallyadequatetosupportthecurrentandprojectedoperationsofthebusiness.SeePartIIItem8ofthisForm10-KinNotesBandKtotheConsolidatedFinancialStatementsformoreinformationonproperties,plantsandequipment.
Item 3. Legal Proceedings.
Intheordinarycourseofitsbusiness,Alcoaisinvolvedinanumberoflawsuitsandclaims,bothactualandpotential.Proceedingsthatwerepreviouslydisclosedmaynolongerbereportedbecause,asaresultofrulingsinthecase,settlements,changesinourbusinessorotherdevelopments,inourjudgment,theyarenolongermaterialtoAlcoa’sbusiness,financialpositionorresultsofoperations.SeePartIIItem8ofthisForm10-KinNoteStotheConsolidatedFinancialStatementsforadditionalinformation.
Inadditiontothemattersdiscussedbelow,variousotherlawsuits,claims,andproceedingshavebeenormaybeinstitutedorassertedagainstAlcoaCorporation,includingthosepertainingtoenvironmental,safetyandhealth,commercial,tax,productliability,intellectualpropertyinfringement,employment,employeeandretireebenefitmatters,andotheractionsandclaimsarisingoutofthenormalcourseofbusiness.Whiletheamountsclaimedintheseothermattersmaybesubstantial,theultimateliabilityisnotreadilydeterminablebecauseoftheconsiderableuncertaintiesthatexist.Accordingly,itispossiblethattheCompany’sliquidityorresultsofoperationsinaparticularperiodcouldbemateriallyaffectedbyoneormoreoftheseothermatters.However,basedonfactscurrentlyavailable,managementbelievesthatthedispositionoftheseothermattersthatarependingorassertedwillnothaveamaterialadverseeffect,individuallyorintheaggregate,onthefinancialpositionoftheCompany.
Environmental Matters
AlcoaisinvolvedinproceedingsunderCERCLAandanalogousstateorotherstatutoryorjurisdictionalprovisionsregardingtheusage,disposal,storageortreatmentofhazardoussubstancesatanumberofsites.TheCompanyhascommittedtoparticipate,orisengagedinnegotiationswithauthoritiesrelativetoitsallegedliabilityforparticipation,inclean-upeffortsatseveralsuchsites.ThemostsignificantofthesemattersarediscussedinPartIIItem8ofthisForm10-KinNoteStotheConsolidatedFinancialStatementsunderthecaptionContingencies.
InAugust2005,DanyLavoie,aresidentofBaieComeauintheCanadianProvinceofQuébec,filedaMotionforAuthorizationtoInstituteaClassActionandforDesignationofaClassRepresentativeagainstAlcoaCanadaLtd.,AlcoaLimitée,SociétéCanadiennedeMetauxReynoldsLimitéeandCanadianBritishAluminumintheSuperiorCourtofQuébecintheDistrictofBaieComeau,allegingthatdefendants,asthepresentandpastownersandoperatorsofanaluminumsmelterinBaieComeau,hadnegligentlyallowedtheemissionofcertaincontaminantsfromthesmelteronthelandsandhousesoftheSt.Georgesneighborhoodanditsenvironscausingpropertydamageandhealthconcerns.InMay2007,thecourtauthorizedaclassactionsuitonbehalfofallpeoplewhosufferedpropertyorpersonalinjurydamagescausedbytheemissionofpolycyclicaromatichydrocarbonsfromtheCompany’saluminumsmelterinBaieComeau.InSeptember2007,
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plaintiffsfiledtheclaimagainsttheoriginaldefendants.TheSoderbergsmeltingoperationsthatplaintiffsallegetobethesourceofemissionsofconcernceasedoperationsin2013andhavebeendismantled.Acourtappointedexpert,engagedtoperformanalysisofthepotentialimpactsfromtheemissionsinaccordancewithasamplingprotocolagreedtobytheparties,submitteditsreporttothecourtinMay2019.Thepartiesarereviewingtheresultsofthereportwiththeirownexperts.Atthisstageoftheproceeding,weareunabletoreasonablypredictanoutcomeortoestimatearangeofreasonablypossibleloss.
Asbestos Litigation
Someofoursubsidiariesaspremisesownersaredefendantsinactivelawsuitsfiledonbehalfofpersonsalleginginjuryasaresultofoccupationalexposuretoasbestosatvariousfacilities.Aformeraffiliateofasubsidiaryhasbeennamed,alongwithalargecommongroupofindustrialcompanies,inapatterncomplaintwhereourinvolvementisnotevident.Since1999,severalthousandsuchcomplaintshavebeenfiled.Todate,theformeraffiliatehasbeendismissedfromalmosteverycasethatwasactuallyplacedinlinefortrial.Oursubsidiariesandacquiredcompaniesallhavehadnumerousinsurancepoliciesovertheyearsthatprovidecoverageforasbestosbasedclaims.Manyofthesepoliciesprovidelayersofcoverageforvaryingperiodsoftimeandforvaryinglocations.Wehavesignificantinsurancecoverageandbelievethatourreservesareadequateforknownasbestosexposurerelatedliabilities.Thecostsofdefenseandsettlementhavenotbeenandarenotexpectedtobematerialtotheresultsofoperations,cashflows,andfinancialpositionofAlcoaCorporation.
Item 4. Mine Safety Disclosures.
TheinformationconcerningminesafetyviolationsorotherregulatorymattersrequiredbySection1503(a)oftheDodd-FrankWallStreetReformandConsumerProtectionActandItem104ofRegulationS-K(17CFR229.104)isincludedinExhibit95.1ofthisreport,whichisincorporatedhereinbyreference.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
SharesoftheCompany’scommonstockarelistedontheNewYorkStockExchangeandtradeunderthesymbol“AA.”
AlcoaCorporationdidnotpaydividendsin2020,2019,or2018.DividendsonAlcoaCorporationcommonstockaresubjecttoauthorizationbytheCompany’sBoardofDirectors.Thepaymentandamountofdividends,ifany,dependsuponmattersdeemedrelevantbytheCompany’sBoardofDirectors,suchasAlcoaCorporation’sresultsofoperations,financialcondition,cashrequirements,futureprospects,anylimitationsimposedbylaw,creditagreementsorseniorsecurities,andotherfactorsdeemedrelevantandappropriate.TheCompany’sseniorsecuredrevolvingcreditfacilityandtheindenturegoverningcertainseniorunsecurednotesrestrictourabilitytopaydividendsincertaincirc*mstances.SeePartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsundercaptionLiquidityandCapitalResources–FinancingActivitiesformoreinformation.
AsofFebruary19,2021,therewereapproximately9,900holdersofrecordofsharesoftheCompany’scommonstock.BecausemanyofAlcoaCorporation’ssharesareheldbybrokersandotherinstitutionsonbehalfofstockholders,theCompanyisunabletoestimatethetotalnumberofstockholdersrepresentedbytheseholders.
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Stock Performance Graph
ThefollowinggraphcomparesAlcoaCorporation’scumulative50-monthtotalshareholderreturnwiththecumulativetotalreturnsof(1)theStandard&Poor’s(S&P)500®Index,(2)theS&PMetals&MiningIndex,agroupofcompaniescategorizedbyS&Pasactiveinthe“MetalsandMining”industrywithinthe“Materials”marketsector(GICSLevel3Index),(3)theS&PMidCap400®Index,and(4)theS&PMetals&MiningSelectIndustryIndex.Thiscomparisonwasbasedonaninitialinvestmentof$100,includingthereinvestmentofanydividends,fromNovember1,2016(beginningof“regularway”tradingforAlcoaCorporation)throughDecember31,2020.Suchinformationshallnotbedeemedtobe“filed.”
Inourfuturestockperformancegraphs,beginningin2022,theS&PMidCap400IndexwillreplacetheS&P500IndexandtheS&PMetals&MiningSelectIndustryIndexwillreplacetheS&PMetals&MiningIndex.TheS&PMidCap400IndexwasselectedasacomparatorbecauseitscompaniesbetteralignwithAlcoa’smarketcapitalization.TheS&PMetals&MiningSelectIndustryIndexwasselectedasacomparatorbecauseitisabroaderindexwithmorecompaniesintheminingandmetalsindustry,includingthoseintheS&PMetals&MiningIndex,andismorerepresentativeoftheindustryinwhichtheCompanyoperates.
2016 2017 2018 2019 2020 1-Nov 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec Alcoa Corporation $ 100 $ 127 $ 244 $ 120 $ 97 $ 104S&P 500 100 106 130 124 163 193S&P MidCap 400 100 112 130 115 145 165S&P Metals & Mining 100 109 131 99 126 185S&P Metals & Mining Select Industry 100 120 145 107 123 143
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Issuer Purchases of Equity Securities
Fourth Quarter 2020 Total Number of Shares
Purchased Weighted Average Price Paid
Per Share
Total Number of SharesPurchased as Part of Publicly
Announced Program
Approximate Dollar Valueof Shares that May Yet be
Purchased Under theProgram(1)
October1toOctober31 - $ - - $ 150,000,000 November1toNovember30 - - - 150,000,000 December1toDecember31 - - - 150,000,000 Total - - -
(1) OnOctober17,2018,AlcoaCorporationannouncedthatit*BoardofDirectorsauthorizedacommonstockrepurchaseprogramunderwhichtheCompanymaypurchasesharesofitsoutstandingcommonstockuptoanaggregatetransactionalvalueof$200,dependingoncashavailability,marketconditions,andotherfactors.Repurchasesundertheprogrammaybemadeusingavarietyofmethods,whichmayincludeopenmarketpurchases,privatelynegotiatedtransactions,orpursuanttoaRule10b5-1plan.Thisprogramdoesnothaveapredeterminedexpirationdate.AlcoaCorporationintendstoretiretherepurchasedsharesofcommonstock.
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Item 6.Selected Financial Data.
(dollars in millions, except per-share amounts and average realized prices; metric tons in thousands (kmt))For the year ended December 31, 2020 2019 2018 2017 2016 Sales $ 9,286 $ 10,433 $ 13,403 $ 11,652 $ 9,318Restructuringandothercharges,net 104 1,031 527 309 318Net(loss)income(1) (14) (853) 893 608 (346)Net(loss)incomeattributabletoAlcoaCorporation(1) (170) (1,125) 250 279 (400)EarningspershareattributabletoAlcoaCorporationcommonshareholders(1):
Basic $ (0.91) $ (6.07) $ 1.34 $ 1.51 $ (2.19)Diluted (0.91) (6.07) 1.33 1.49 (2.19)
Shipmentsofalumina(kmt) 9,641 9,473 9,259 9,220 9,071Shipmentsofaluminumproducts(kmt) 3,016 2,859 3,268 3,356 3,147Averagerealizedpricepermetrictonofalumina $ 273 $ 343 $ 455 $ 340 $ 253Averagerealizedpricepermetrictonofprimaryaluminum 1,915 2,141 2,484 2,224 1,862Cashdividendsdeclaredpercommonshare(2) $ — $ — $ — $ — $ —Totalassets(1) 14,860 14,631 16,132 17,618 16,741Totaldebt 2,542 1,800 1,802 1,412 1,445Cashprovidedfrom(usedfor)operations 394 686 448 1,224 (311)Capitalexpenditures (353) (379) (399) (405) (404)(1) AsofJanuary1,2019,theCompanychangeditsmethodforvaluingcertainofitsinventoriesheldintheUnitedStatesandCanadatotheaveragecost
methodofaccountingfromtheLast-in-first-out(LIFO)method.TheeffectsofthechangeinaccountingprinciplefromLIFOtoaveragecosthavebeenretrospectivelyappliedto2018and2017(seebelowfor2016).
(2) DividendsoncommonstockaresubjecttoauthorizationbyAlcoaCorporation’sBoardofDirectors.AlcoaCorporationdidnotdeclareanydividendsfromitsformationonNovember1,2016throughDecember31,2020.
PriortotheSeparationDate,AlcoaCorporationdidnotoperateasaseparate,standaloneentity.AlcoaCorporation’soperationswereincludedinParentCo’sfinancialresults.Accordingly,forallperiodspriortotheSeparationDate,AlcoaCorporation’sConsolidatedFinancialStatementswerepreparedfromParentCo’shistoricalaccountingrecordsandwerepresentedonastandalonebasisasifAlcoaCorporation’soperationshadbeenconductedindependentlyfromParentCo.SuchConsolidatedFinancialStatementsincludethehistoricaloperationsthatwereconsideredtocompriseAlcoaCorporation’sbusinesses,aswellascertainassetsandliabilitiesthatwerehistoricallyheldatParentCo’scorporatelevelbutwerespecificallyidentifiableorotherwiseattributabletoAlcoaCorporation.The2019changeinaccountingmethodfromLIFOtoaveragecosthasnotbeenretrospectivelyappliedto2016duetotheimpracticabilityasaresultoftheSeparationTransaction.
ThedatapresentedintheSelectedFinancialDatatableshouldbereadinconjunctionwiththeinformationprovidedinPartIIItem7ofthisForm10-KinManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsandtheConsolidatedFinancialStatementsinPartIIItem8ofthisForm10-K.
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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(dollars in millions, except per-share amounts, average realized prices, and average cost amounts;dry metric tons in millions (mdmt); metric tons in thousands (kmt))
Forward-Looking Statements
This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,”“expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words ofsimilar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historicalfact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, andsupply/demand balances; statements, projections or forecasts of future or targeted financial results, or operating or sustainability performance; statements aboutstrategies, outlook, and business and financial prospects; and statements about return of capital. These statements reflect beliefs and assumptions that are basedon Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believesare appropriate in the circ*mstances. Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks,uncertainties, and changes in circ*mstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results maydiffer materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but arenot limited to: (a) current and potential future impacts of the coronavirus (COVID-19) pandemic on the global economy and our business, financial condition,results of operations, or cash flows and judgments and assumptions used in our estimates; (b) material adverse changes in aluminum industry conditions, includingglobal supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and otherproducts, and fluctuations in indexed-based and spot prices for alumina; (c) deterioration in global economic and financial market conditions generally and whichmay also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms or at all; (d) unfavorable changes in the markets served by AlcoaCorporation; (e) the impact of changes in foreign currency exchange and tax rates on costs and results; (f) increases in energy or raw material costs oruncertainty of energy supply or raw materials; (g) declines in the discount rates used to measure pension and other postretirement benefit liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; (h) the inability to achieveimprovement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, sustainability targets, or strengthening ofcompetitiveness and operations anticipated from portfolio actions, operational and productivity improvements, technology advancements, and other initiatives; (i)the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, restructuring activities, facilityclosures, curtailments, restarts, expansions, or joint ventures; (j) political, economic, trade, legal, public health and safety, and regulatory risks in the countries inwhich Alcoa Corporation operates or sells products; (k) labor disputes and/or and work stoppages; (l) the outcome of contingencies, including legal and taxproceedings, government or regulatory investigations, and environmental remediation; (m) the impact of cyberattacks and potential information technology ordata security breaches; and (n) the other risk factors discussed in Part I Item 1A of this Form 10-K and other reports filed by Alcoa Corporation with the U.S.Securities and Exchange Commission, including those described in this report.
Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events orotherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.
Overview
Our Business
AlcoaCorporation(AlcoaortheCompany)isaverticallyintegratedaluminumcompanycomprisedofbauxitemining,aluminarefining,aluminumproduction(smelting,casting,androlling),andenergygeneration.AluminumisacommoditythatistradedontheLondonMetalExchange(LME)andpriceddaily.Additionally,aluminaissubjecttomarketpricingthroughtheAluminaPriceIndex(API),whichiscalculatedbytheCompanybasedontheweightedaverageofapriormonth’sdailyspotpricespublishedbythefollowingthreeindices:CRUMetallurgicalGradeAluminaPrice;PlattsMetalsDailyAluminaPAXPrice;andMetalBulletinNon-FerrousMetalsAluminaIndex.Asaresult,thepriceofbothaluminumandaluminaissubjecttosignificantvolatilityand,therefore,influencestheoperatingresultsofAlcoaCorporation.
Throughdirectandindirectownership,AlcoaCorporationhas28operatinglocationsinninecountriesaroundtheworld,situatedprimarilyinAustralia,Brazil,Canada,Iceland,Norway,Spain,andtheUnitedStates.Governmentalpolicies,lawsandregulations,andothereconomicfactors,includinginflationandfluctuationsinforeigncurrencyexchangeratesandinterestrates,affecttheresultsofoperationsinthesecountries.
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Business Update
Coronavirus
Inresponsetotheongoingcoronavirus(COVID-19)pandemic,AlcoahasimplementedcomprehensivemeasureswhichremaininplacetoprotectthehealthoftheCompany’sworkforce,preventinfectioninourlocations,mitigateimpacts,andsafeguardbusinesscontinuity.Asaresultofthesemeasuresandthealuminumindustrybeingclassifiedasanessentialbusiness,allofAlcoa’sbauxitemines,aluminarefineries,andaluminummanufacturingfacilitiesremainedinoperationduring2020andcontinuetoremaininoperation.EachlocationhasimplementedextensivepreparednessandresponseplanswhichincludesocialdistancingprotocolsandotherprotectiveactionsalignedwithguidancefromtheU.S.CentersforDiseaseControlandPrevention,theWorldHealthOrganization,andallotherrelevantgovernmentagenciesincountrieswhereweoperate.Theseactionsremainineffectandinclude:
• Adjustedshiftschedulesandotherworkpatternstocreateseparationfortheworkforceandensureredundancyforcriticalresources; • Developedandimplementedadditionalhygieneprotocolsandcleaningroutinesateachlocation; • Deployedcommunicationstooursuppliers,vendors,customers,anddeliverypersonnelonourcomprehensiveactions,includinghealthandsafety
protocols; • Issuedglobalcommunicationstoeducateandupdateemployeesonpublichealthpracticestomitigatethepotentialspreadofthevirusinour
communities; • Implementedaccessrestrictions;everyonemustbefreeofthesignsandsymptomsofCOVID-19beforeenteringAlcoasites; • Implementedremoteworkprocedureswherepracticalormandatedbylaw;and, • Eliminatednon-essentialtravel.
During2020,theCOVID-19pandemicresultedincertainnegativeimpactsontheCompany’sbusiness,financialcondition,operatingresults,andcashflows.Forexample,therestartattheBécancour(Canada)smelterwasslowedattheendofthefirstquarterof2020butwassafelyandsuccessfullycompletedduringthethirdquarterof2020.Additionally,theCOVID-19pandemicnegativelyimpactedcustomerdemandforvalue-addaluminumproductsascustomersreducedproductionlevelsinresponsetotheeconomicimpactsofthepandemic.Thisresultedinlowermarginsonaluminumproductsassalesshiftedfromvalue-addproductstocommodity-gradeproducts,primarilyduringthesecondquarterof2020.However,duringthethirdandfourthquartersof2020,value-addsalesvolumeincreased11and13percent,respectively,onasequentialbasis,primarilyduetosoliddemandrecovery,particularlyintheautomotivesector.Alcoaexperiencedchallengesfromlowmetalpricesduringmid-2020;however,metalpricesincreasedandstabilizedinthesecondhalfof2020.TheCompanyhasnotexperiencedanysignificantinterruptionfromitssupplysources,andtheCompany’slocationshavehadminimalcontractor-andemployee-relateddisruptionstodate.
TheCompanycontinues,throughitsoperationsleadershipteamandglobalcrisisresponseteam,toensurethateachlocation’spreparednessandresponseplansareuptodate.TheCompanycouldexperiencenegativeimpactsifthereisanincreaseinCOVID-19cases.
AlcoaandAlcoaFoundationcontinuetosupportthecommunitiesnearouroperatinglocations,withspecialfocusonBraziliancommunitiesthathavebeenmoreadverselyaffectedbythepandemic.AlcoaFoundationhaspledgedmorethan$1tosupportCOVID-19reliefeffortsinthecommunitieswhereAlcoaoperatesthroughitshumanitarianaidprogram,whichisbeingusedtoprovideneededsupportsuchasmedicalsupplies,equipment,andfood.Thisisinadditiontothealmost$3theFoundationalreadycommittedtograntmakingincommunitieswhereweoperate.
AstheultimateimpactofCOVID-19ontheglobaleconomycontinuestoevolve,theCompanyisconstantlyevaluatingthebroadimpactofthepandemiconthemacroeconomicenvironment,includingspecificregionsandendmarketsinwhichtheCompanyoperates.Asaresultofthepandemic’simpactonthemacroeconomicenvironment,managementevaluatedthefuturerecoverabilityoftheCompany’sassets,includinggoodwillandlong-livedassets,andtherealizabilityofdeferredtaxassetswhileconsideringtheCompany’scurrentmarketcapitalization.ManagementconcludedthatnoassetimpairmentsandnoadditionalvaluationallowanceswererequiredduringtheyearendedDecember31,2020.
Thepandemiciscontinuing,andtheultimatemagnitudeanddurationoftheCOVID-19pandemicisunknown.Uncertaintyaroundtheglobalpublichealthcrisiscancauseinstabilityintheglobalmarketsandeconomies,affectingourbusiness.AlthoughweareunabletopredicttheultimateimpactoftheCOVID-19pandemiconourbusiness,financialcondition,andresultsofoperations,ifthisglobalhealththreatpersists,itcouldadverselyaffect:
• Globaldemandforaluminum,negativelyimpactingourabilitytogeneratecashflowsfromoperations; • Ouroperations,includingcausinginterruptions,reductions,orclosuresofouroperations,duetodecreaseddemandforourproducts,government
regulationsand/orfewerworkersinthefacilitiesduetoillnessorpublichealthrestrictions;
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• Commercialsustainabilityofkeyvendorsortransportationdisruptionswithinoursupplychain,whichcouldresultinhigherinventorycostsand/or
inabilitytoobtainkeyrawmaterialsorfulfillcustomerorders; • Theliquidityofcustomers,whichcouldnegativelyimpactthecollectabilityofoutstandingreceivablesandourcashflows; • Alcoa’sabilitytofundcapitalexpendituresandrequiredmaintenanceatourfacilities,whichcouldnegativelyimpactourresultsofoperationsand
profitability; • Globalfinancialandcreditmarketsandourabilitytoobtainadditionalcreditorfinancinguponacceptabletermsoratall,whichcouldnegatively
affectourliquidityandfinancialcondition; • TheCompany’sabilitytomeetcovenantsinouroutstandingdebtandcreditfacilityagreements; • Investmentreturnonpensionassetsandinterestrates,andcontributiondeferrals,resultinginincreasedrequiredCompanycontributionsor
unfavorablecontributiontiming,negativelyimpactingfuturecashflows; • Alcoa’sabilitytogenerateincomeincertainjurisdictions,negativelyimpactingtherealizabilityofourdeferredtaxassets; • Therecoverabilityofcertainlong-livedandintangibleassets,includinggoodwill; • Thefinancialconditionofourinvestmentsandkeyjointventurepartners,negativelyimpactingtheresultsofoperations,cashflows,and
recoverabilityofinvestmentbalances; • Theeffectivenessofhedginginstruments; • Legalobligationsresultingfromemployeeclaimsrelatedtohealthandsafety;and • Ourabilitytoefficientlymanagecertaincorporatefunctionsandotheractivitiesasaresultofemployeesworkingremotely.
TheprecedinglistofpotentialadverseeffectsoftheCOVID-19pandemicisnotall-inclusiveornecessarilyinorderofimportanceormagnitude.Thepotentialimpact(s)ofthepandemicontheCompany’sbusiness,financialcondition,operatingresults,cashflowsand/ormarketcapitalizationisdifficulttopredictandwillcontinuetobemonitoredinsubsequentperiods.Furtheradverseconditionsorprolongeddeteriorationofconditionscouldnegativelyimpactourfinancialconditionandresultinassetimpairmentcharges,includinglong-livedassetsorgoodwill,oraffecttherealizabilityofdeferredtaxassets.
Inadditiontoutilizingallpreventativeandmitigationoptionsavailabletoensurecontinuityofoperations,theCompanyimplementedvariouscashpreservationinitiatives,withresultsasfollows:
• Reducednon-criticalcapitalexpendituresplannedfor2020by$122,inexcessofthe$100target; • Deferrednon-regulatedenvironmentalandassetretirementobligationspaymentsof$38,inexcessofthe$25target; • Initiallydeferredapproximately$200inpensioncontributionsunderprovisionsintheU.S.Government'sCoronavirusAid,Relief,andEconomic
Security(CARES)Act;withamplecashonhandandhavingachieveditsobjectivetoholdcashduringuncertaintimesin2020,theCompanymadea$250pensioncontributiontoitsU.S.pensionplansinlateDecembertocoverboththe$197deferredcontributionsdueonJanuary4,2021anda$53discretionaryprepayment;
• Deferredemployerpayrolltaxesofapproximately$14into2021and2022intheU.S.,alsoaspermittedundertheU.S.Government’sCARESAct;and,
• Implementedhiringrestrictionsoutsideofcriticalproductionroles,restrictedtravelthroughouttheorganization,andutilizedotherappropriategovernmentsupportprogramstosave$30,slightlyshortofthe$35target.
StrategicActions
Inlate2019,AlcoaCorporationannouncedstrategicactionstodrivelowercostsandsustainableprofitability:
• Theimplementationofanewoperatingmodelthatresultedinaleaner,moreintegrated,operator-centricorganizationwithreducedoverheadcosts; • Thepursuitofnon-coreassetsalesbyearly2021withthegoalofgenerating$500to$1,000innetproceedsinsupportofitsupdatedstrategic
priorities;and, • Therealignmentoftheoperatingportfoliooverthenextfiveyears,placing1.5millionmetrictonsofsmeltingcapacityand4millionmetrictonsof
aluminarefiningcapacityunderreview.Thereviewwillconsideropportunitiesforsignificantimprovement,potentialcurtailments,closures,ordivestitures.
Thenewoperatingmodelwasimplementedin2020.Inadditiontotheapproximately260employeesterminatedinconnectionwiththeimplementationofthenewoperatingmodel,60positionswereeliminatedasopenrolesorretirementswerenotreplaced.
InJanuary2020,theCompanyannouncedthesaleofElementalEnvironmentalSolutionsLLC(EES),awholly-ownedAlcoasubsidiarythatoperatedthewasteprocessingfacilityinGumSprings,Arkansas,toaglobalenvironmentalfirminatransactionvaluedat$250.ThetransactionclosedasofJanuary31,2020.Relatedtothistransaction,theCompanyreceived
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$200incashandrecordedagainof$181(pre-andafter-tax).Further,anadditional$50isheldinescrowtobepaidtoAlcoaifcertainpost-closingconditionsaresatisfied,whichwouldresultinadditionalgainbeingrecorded.
OnNovember30,2020,theCompanyenteredintoanagreementtosellitsrollingmilllocatedatWarrickOperations(WarrickRollingMill),anintegratedaluminummanufacturingsitenearEvansville,Indiana(WarrickOperations),toKaiserAluminumCorporation(Kaiser)fortotalconsiderationofapproximately$670,whichincludes$587incashandtheassumptionof$83inotherpostretirementbenefitliabilities.Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.Alcoawillretainownershipofthesite’s269kmtaluminumsmelteranditselectricitygeneratingunitsatWarrickOperationswithamarket-basedmetalsupplyagreementwithKaiser.Afterclosing,Alcoaexpectsannualdecreasesinsalesofapproximately$800andnetincome(pre-andafter-tax)of$45to$55,basedonlast12-monthpricingthroughDecember2020.Alcoaexpectstospendapproximately$100forsiteseparationandtransactioncosts,withapproximatelyhalfbeingspentin2021andtheremainderin2022and2023.
InOctober2020,theCompanymadethedecisiontocurtailthe228kmtofuncompetitiveannualsmeltingcapacityattheSanCipriánsmelterinSpain.Priortothisdecision,theCompanyhadcompletedafourmonthcollectivedismissalconsultationprocesswiththeworkers’representativeswhichfollowedaninformalprocesstodiscussthesignificantandunsustainablecirc*mstancesatthefacility.Theprocessincludedaformal30-dayconsultationperiodwiththeworkers’representativeswiththegoalofachievingthebestpossibleoutcomefortheCompanyanditsworkforce,andincludedproposalsbyAlcoatodiscussarestructuringplanforthealuminumfacilitytoendpersistentandrecurringfinanciallosses.Thealuminumfacilityincurred$56,$70,$58ofpre-andafter-taxlossesin2018,2019and2020,respectively.
Whileanagreementcouldnotbereachedwithintheinitialperiod,theworkers’representativesandtheCompanyagreedtoextendtheformalconsultationperiodtoevaluateapotentialsaleofthealuminumfacilitywithendorsem*ntfromtheSpanishnationalandregionalgovernments.Afteracomprehensivenegotiationprocess,thepotentialbuyerandAlcoadidnotagreeonterms.Subsequently,Alcoaandtheworkers’representativesmadeonemoreattempttoagreeuponasocialplanthatwouldincludegovernment-supportedunemploymentbenefits(ERTE)ortheimplementationofapermanentcollectivedismissal.Theworkers’representativesdeclinedtodiscussasocialplan,andAlcoaannounceditsdecisiontoinitiatecollectivedismissalandcurtailthesmelter.
FollowingAlcoa’sannouncement,theworkers’representativeschallengedthecollectivedismissalprocessinalegalproceedingbeforetheHighCourtofJusticeofGalicia,whichruledinfavoroftheworkersonDecember17,2020.Asaresult,theCompanysuspendeditsplanstocurtailtheSanCipriánsmelterandfiledanappealoftherulingwiththeSpanishSupremeCourtastheCompanycontinuestobelieveithasactedingoodfaithandinfullcompliancewiththelaw.Additionally,inthefourthquarterof2020,theCompanydidnotincurtheapproximately$35to$40itpreviouslyannouncedasanexpectedchargeforemployeerelatedcostsassociatedwiththecurtailmentandcollectivedismissalprocess.
AlthoughtheSanCipriánaluminarefinerywasnotincludedintheformalconsultationprocess,onOctober4,2020,thelaborforceatboththerefineryandthealuminumfacilitiesinitiatedastrikewhichhasreducedrefineryproductionandmetalshipments.OnJanuary22,2021,theCompanyandtheworkers’representativesreachedanagreementtosuspendthestrike.Aspartoftheagreement,theCompanyagreedtoconductasaleprocesswithSociedadEstataldeParticipacionesIndustriales(SEPI),aSpanishgovernmentownedentity,whichexpressedinterestinacquiringthesmelterfacility.Alcoaexpectstoincuradditionalchargesin2021ifanagreementisreachedonthesaleofthesmelter.
InApril2020,Alcoaannouncedthecurtailmentoftheremaining230kmtofuncompetitivesmeltingcapacityatit*IntalcosmelterinFerndale,Washingtonamiddecliningmarketconditions.Thefullcurtailmentof279kmt,whichincluded49kmtofearlier-curtailedcapacity,wascompletedduringthethirdquarterof2020.During2020,theCompanyrecordedRestructuringandothercharges,netof$28(seePartIIItem8ofthisForm10-KinNoteDtotheConsolidatedFinancialStatements)foremployee-relatedcostsandcontractterminationcosts,whichwereallcash-basedcharges.AtDecember31,2020,theseparationofemployeesandrelatedseveranceandemployeeterminationcostpaymentsassociatedwiththisprogramwereessentiallycomplete.
InDecember2019,theCompanyannouncedthepermanentclosureofitsaluminarefineryinPointComfort,Texasasitsfirstactionofthemulti-yearportfolioreview.Thesite’s2.3millionmetrictonsofrefiningcapacityhadbeenfullycurtailedsince2016.Asaresultofthedecisiontoclosetherefinery,a$274chargewasrecordedtoRestructuringandothercharges,netduring2019(seePartIIItem8ofthisForm10-KinNoteDtotheConsolidatedFinancialStatements).
2020Programs
Earlyin2020,Alcoaannouncedprogramstodriveleanerworkingcapitalandimprovedproductivity.During2020,theCompanymetthecombined$175to$200fullyearworkingcapitalreductionandproductivitysavingstargetwith$111inworkingcapitaland$73inproductivitycostsavings.Thisachievementwouldhavebeen$82higherwithouttheimpactoftheworkers’strikeatSanCipriánwhichincreasedyear-endinventorybalancesatthefacility.
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LiquidityLevers
In2020,Alcoaexceededits$900targetincashactionsthroughacombinationoftheCOVID-19responseinitiatives,strategicactions,and2020programsdiscussedabove.
Inadditiontothecashactionsprograms,throughout2020,managementtookseveralmeasurestoimproveandmaintainAlcoa’sliquiditylevers.TheseincludedamendingtheCompany’sRevolvingCreditFacility(seeLiquidityandCapitalResourcesbelow)totemporarilyprovideamorefavorableleverageratiocalculationthroughApril1,2021,permanentlyadjustingthecalculationofConsolidatedEBITDA(asdefinedintheRevolvingCreditFacility),andtemporarilyadjustingthemannerinwhichConsolidatedCashInterestExpenseandTotalIndebtednessarecalculated.AsofDecember31,2020,thesetemporaryadjustmentstothecalculationsofConsolidatedCashInterestExpenseandTotalIndebtednessapplythroughMarch31,2021andANHBVmay,atit*option,extendtheseadjustmentsthroughJune30,2021.Duringthesecondquarterof2020,theCompanyalsoamendedathree-yearrevolvingcreditfacilityagreementofoneofitswholly-ownedsubsidiariessecuredbycertaincustomerreceivables,convertingittoaReceivablesPurchaseAgreementthatprovidestheoptionforfasterliquidationofcertaincustomerreceivables.
OnApril8,2020,theCompany’swholly-ownedsubsidiary,AlcoaNorwayANS,drew$100againstit*one-year,multicurrencyrevolvingcreditfacility,andmaydosofromtimetotimeinthefuture,intheordinarycourseofbusiness.Repaymentofthedrawnamount,includinginterestaccruedat2.93%,occurreduponmaturityonJune29,2020.OnJuly3,2020,AlcoaNorwayANSamendedtherevolvingcreditfacilityagreementtoalignthetermsoftheagreementwiththeamendmentstotheRevolvingCreditFacility(discussedabove).OnSeptember30,2020,AlcoaNorwayANSenteredintoanAmendmentandRestatementAgreement(theA&RAgreement)tothemulticurrencyrevolvingcreditfacilityagreement.TheA&RAgreementextendedthematurityoneyearfromtheoriginalmaturitydatetoOctober2,2021,unlessfurtherextendedorterminatedearlyinaccordancewiththeprovisionsoftheA&RAgreement.TheA&RAgreementalsoamendedcertainfinancialratiocovenants,specifyingcalculationsbasedupontheresultsofAlcoaNorwayANSratherthanthecalculationsoutlinedintheRevolvingCreditFacility.
InJuly2020,AlcoaNederlandHoldingB.V.(ANHBV),awholly-ownedsubsidiaryofAlcoaCorporation,issued$750aggregateprincipalamountof5.500%SeniorNotesdue2027(the2027Notes)inaprivatetransactionexemptfromtheregistrationrequirementsoftheSecuritiesActof1933,asamended(theSecuritiesAct).Thenetproceedsofthisissuancewereapproximately$736reflectingadiscounttotheinitialpurchasersofthe2027Notesaswellasissuancecosts.
SeeCreditFacilitiesundertheLiquidityandCapitalResourcessectionofManagement’sDiscussionandAnalysisforadditionaldetailsontheabovedescribedliquiditymeasures.
Section232Tariffs
InAugust2020,theU.S.governmentreinstated10percenttariffsoncertainaluminumimportsfromCanadaunderSection232oftheTradeExpansionActof1962(Section232).InSeptember2020,theU.S.governmentannouncedthatitwouldnotimposethistarifffromSeptember2020toDecember2020iftotalaluminumimportsofnon-alloyed,unwroughtaluminumfromCanadametcertainconditions.InOctober2020,theU.S.governmentfullyreinstatedtheexemptiononaluminumimportsfromCanadaretroactivetoSeptember1,2020.TheCompanyrecordednetexpenseof$3relatedtoSection232tariffsin2020.(SeeAluminumunderSegmentInformationbelow).
Separation Transaction
Referencesto“ParentCo”refertoAlcoaInc.,aPennsylvaniacorporation,anditsconsolidatedsubsidiariesthroughOctober31,2016,atwhichtimeitwasrenamedArconicInc.(Arconic)andsincehasbeensubsequentlyrenamedHowmetAerospaceInc.
OnNovember1,2016(theSeparationDate),ParentCoseparatedintotwostandalone,publicly-tradedcompanies,AlcoaCorporationandParentCo,effectiveat12:01a.m.EasternTime(theSeparationTransaction).Regular-waytradingofAlcoaCorporation’scommonstockbeganwiththeopeningoftheNewYorkStockExchangeonNovember1,2016underthetickersymbol“AA.”TheCompany’scommonstockhasaparvalueof$0.01pershare.
InconnectionwiththeSeparationTransaction,AlcoaCorporationandParentCoenteredintocertainagreementstoimplementthelegalandstructuralseparationbetweenthetwocompanies,governtherelationshipbetweentheCompanyandParentCoafterthecompletionoftheSeparationTransaction,andallocatebetweenAlcoaCorporationandParentCovariousassets,liabilities,andobligations.TheseagreementsincludedaSeparationandDistributionAgreement,TaxMattersAgreement,EmployeeMattersAgreement,TransitionServicesAgreement,certainPatent,Know-How,TradeSecretLicenseandTrademarkLicenseAgreements,andStockholderandRegistrationRightsAgreement.
Basis of Presentation.TheConsolidatedFinancialStatementsofAlcoaCorporationarepreparedinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(GAAP).InaccordancewithGAAP,certainsituationsrequiremanagementtomakeestimatesbasedonjudgmentsandassumptions,whichmayaffectthereported
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amountsofassetsandliabilitiesandthedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements.Theyalsomayaffectthereportedamountsofrevenuesandexpensesduringthereportingperiods.Actualresultscoulddifferfromthoseestimatesuponsubsequentresolutionofidentifiedmatters.Certainamountsinpreviouslyissuedfinancialstatementswerereclassifiedtoconformtothecurrentperiodpresentation.
ThediscussionthatfollowsincludesacomparisonofourresultsofoperationsandliquidityandcapitalresourcesforthefiscalyearsendedDecember31,2020and2019.ForadiscussionofchangesfromthefiscalyearendedDecember31,2018tothefiscalyearendedDecember31,2019,refertoManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationinPartIIItem7ofAlcoaCorporation’sAnnualReportonForm10-KfortheyearendedDecember31,2019(filedFebruary21,2020).
Results of Operations
Earnings Summary
NetlossattributabletoAlcoaCorporationfor2020was$170comparedwith$1,125in2019.Thefavorablechangeof$955wasprimarilyduetolowerrestructuringcosts,favorableforeigncurrencymovements,alowerincometaxprovision,favorableimpactsfromportfolioactions,andlowernetincomeattributabletononcontrollinginterest,partiallyoffsetbylowermarginfromdecliningaluminaandaluminumprices.
Sales—Salesfor2020were$9,286comparedwith$10,433in2019,achangeof$1,147,or11%.Thedecreasewaslargelyattributedtoaloweraveragerealizedpriceforaluminaandaluminum,reducedsalesfromtheJuly2019divestitureoftwoaluminumfacilitiesinSpainandthecurtailmentoftheIntalco(Washington)smelterwhichcompletedinthesecondhalfof2020,partiallyoffsetbyhighersalesresultingfromtherestartoftheBécancour(Canada)smelterwhichcompletedinthesecondhalfof2020.
Cost of Goods Sold—CostofgoodssoldasapercentageofSaleswas86%in2020comparedwith82%in2019.Thepercentagewasnegativelyimpactedbyaloweraveragerealizedpriceforbothaluminaandaluminumproducts.Theunfavorableimpactswerepartiallyoffsetbylowerrawmaterialcosts,netfavorableforeigncurrencymovementsduetoastrongerU.S.dollar,primarilyagainsttheAustraliandollar,theeuro,andtheBrazilianreal,improvementsduetotheJuly2020divestitureoftwoaluminumfacilitiesinSpain,thecurtailmentoftheIntalco(Washington)smelterwhichcompletedinthesecondhalfof2020,therestartoftheBécancour(Canada)smelterwhichcompletedinthesecondhalfof2020,andtheabsenceofunfavorableimpactsfromthetariffsoncertainaluminumimportsin2019(seeAluminuminSegmentInformationbelow).
Selling, General Administrative, and Other Expenses—Selling,generaladministrative,andotherexpenseswere$206,or2%ofSales,in2020comparedwith$280,or3%ofSales,in2019.Thefavorablechangeof$74wasprimarilyrelatedtocostsavingsfromtheCompany’sstrategicactionsandCOVID-19responseinitiatives,lowerfeesforprofessionalservices,andthenonrecurrenceofabaddebtreserverecordedagainstaCanadiancustomerreceivableduetoa2019bankruptcyfiling.
Provision for Depreciation, Depletion, and Amortization—TheprovisionforDD&Awas$653in2020comparedwith$713in2019.Thedecreaseof$60,or8%,wasprincipallycausedbyfavorableforeigncurrencymovementsfromtheBrazilianrealandtheCanadiandollar,andthenonrecurrenceofwriteoffsofassetsin2019forprojectsnolongerbeingpursued.
Restructuring and Other Charges, Net—Restructuringandothercharges,netwas$104in2020comparedwith$1,031in2019.In2020,managementexecutedseveralactionsthatimpactedRestructuringandothercharges,net.Theseincluded$59relatedtosettlementsandcurtailmentsofcertainpensionandotherpostretirementbenefits,$28(net)forcostsrelatedtothecurtailmentoftheIntalco(Washington)smelter,and$20foradditionalcontractcostsrelatedtothecurtailedWenatchee(Washington)smelter.
In2019,managementtookseveralactionstostrengthentheCompanywhichtotaled$1,031inRestructuringandothercharges,net.Theseactionsincluded$319todivestAlcoa’sequityinvestmentinMa’adenRollingCompany,$274relatedtothedecisiontopermanentlyclosethePointComfortaluminarefinery,$235tocurtailandsubsequentlydivesttheAvilésandLaCoruña(Spain)aluminumfacilities,$119inadditionalactionstakentoreducetheoverallpensionandotherpostretirementbenefit(OPEB)liabilities,and$37associatedwiththenewoperatingmodelthatstreamlinedreportingtoassistinoperationaleffectiveness.SeePartIIItem8ofthisForm10-KinNoteDtotheConsolidatedFinancialStatementsforadetaileddescriptionofeachrestructuringaction.
Other Expenses, net—Otherexpenses,netwas$8in2020comparedwith$162in2019.Thechangeof$154wasprimarilyduetoagainonthedivestitureofawasteprocessingfacilityinGumSprings,Arkansaswhichwaspartiallyoffsetbylossesrelatedtomark-to-marketderivativeinstruments.
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Income Taxes—AlcoaCorporation’seffectivetaxratewas108.1%in2020comparedwiththeU.S.federalstatutoryrateof21%.Alcoa’seffectivetaxrateandfederalstatutoryratefor2019were(94.9)%(provisiononloss)and21%,respectively.TheeffectivetaxratediffersfromtheU.S.federalstatutoryrateprimarilyduetolossesincountrieswithfullvaluationreservesresultinginnotaxbenefit,aswellasforeignincometaxedinhigherratejurisdictions.In2019,theeffectivetaxratewasalsoimpactedbyrestructuringexpensesrelatedtodivestituresinforeignjurisdictionsthatarenotdeductiblefortaxpurposes.
Inadditiontoreviewingtheeffectivetaxrate,managementutilizesanadjustedeffectivetaxrate(theoperationaltaxrate)toassessthetaxonoperationsexclusiveofspecialitems.ManagementreviewstheoperatingresultsoftheCompanyexclusiveofspecialitems,andthereforebelievesthatthismeasureismeaningfulforassessingtheimpactofthesespecialitemsontheeffectivetaxrate.Beginninginthefirstquarterof2021,theCompanywillrevisethewayouroperationaltaxprovisioniscalculatedonaninterimbasis.TheoperationaltaxprovisionwillbegintoincludetheinterimtaximpactsrequiredunderGAAPthathavepreviouslybeenexcludedfromouroperationaltaxprovisioncalculation.Inperiodsofvolatilitywhenprofitbeforetaxbyjurisdictionmovesconsiderablybetweenperiods,inclusionoftheGAAPinterimtaximpactscanreducethefluctuationsintheinterimoperationaltaxprovision.Thischangewillhavenoimpactonourfullyearforecastedoperationaltaxprovisionandwillbeusedinallfutureperiods.ThechangewillalsohavenoimpactontheGAAPtaxprovisioninanyperiod.
Insummary,for2021andfutureperiods,thecalculationoftheCompany’soperationaltaxiscalculatedonafullyearbasisinamannerconsistentwithourGAAPtaxprovisionexceptforexclusionofthefollowingitems:
• Taxcostorbenefitattributabletospecialitemsbasedontheapplicablestatutoryratesinthejurisdictionswherethespecialitemsoccurred;and • Discretetaxitems(generallyunusualorinfrequentlyoccurringitems,changesinlaw,itemsassociatedwithuncertaintaxpositions,oreffectsof
measurement-periodadjustments).Noncontrolling Interest—Netincomeattributabletononcontrollinginterestwas$156in2020comparedwith$272in2019.TheseamountsareentirelyrelatedtoAluminaLimited’s40%ownershipinterestinseveralaffiliatedoperatingentities,whichown,haveaninterestin,oroperatethebauxiteminesandaluminarefinerieswithinAlcoa’sBauxiteandAluminasegments(exceptforthePoçosdeCaldasmineandrefineryandportionsoftheSãoLuísrefineryandinvestmentinMineraçãoRiodoNorteS.A.,allinBrazil)andaportion(55%)ofthePortlandsmelter(Australia)withintheCompany’sAluminumsegment.TheseindividualentitiescompriseanunincorporatedglobaljointventurebetweenAlcoaCorporationandAluminaLimitedknownasAlcoaWorldAluminaandChemicals(AWAC).AlcoaCorporationowns60%oftheseindividualentities,whichareconsolidatedbytheCompanyforfinancialreportingpurposesandincludeAlcoaofAustraliaLtd.(AofA),AlcoaWorldAluminaLLC(AWA),AlcoaWorldAluminaBrasilLtda.(AWAB),andAlúminaEspañola,S.A.(Española).AluminaLimited’s40%interestintheearningsofsuchentitiesisreflectedasNoncontrollinginterestonAlcoaCorporation’sStatementofConsolidatedOperations.
In2020,thesecombinedentitiesgeneratedlowernetincomecomparedto2019,primarilydrivenbyloweraluminapriceswhichwerepartiallyoffsetbyfavorableforeigncurrencymovements.
Segment Information
AlcoaCorporationisaproducerofbauxite,alumina,andaluminumproducts(primaryandflat-rolled).TheCompany’soperationsconsistofthreeworldwidereportablesegments:Bauxite,Alumina,andAluminum.SegmentperformanceunderAlcoaCorporation’smanagementreportingsystemisevaluatedbasedonanumberoffactors;however,theprimarymeasureofperformanceistheAdjustedEBITDA(Earningsbeforeinterest,taxes,depreciation,andamortization)ofeachsegment.TheCompanycalculatesSegmentAdjustedEBITDAasTotalsales(third-partyandintersegment)minusthefollowingitems:Costofgoodssold;Selling,generaladministrative,andotherexpenses;andResearchanddevelopmentexpenses.AlcoaCorporation’sAdjustedEBITDAmaynotbecomparabletosimilarlytitledmeasuresofothercompanies.
SegmentAdjustedEBITDAtotaled$1,317in2020,$1,626in2019,and$3,250in2018.Thefollowinginformationprovidesproduction,shipments,sales,andSegmentAdjustedEBITDAdataforeachreportablesegment,aswellascertainrealizedpriceandaveragecostdata,foreachofthethreeyearsintheperiodendedDecember31,2020.SeePartIIItem8ofthisForm10-KinNoteEtotheConsolidatedFinancialStatementsforadditionalinformation.
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Bauxite
2020 2019 2018 Production(mdmt) 48.0 47.4 45.8Third-partyshipments(mdmt) 6.5 6.2 5.7Intersegmentshipments(mdmt) 42.2 41.4 41.2Totalshipments(mdmt) 48.7 47.6 46.9Third-partysales $ 272 $ 297 $ 271Intersegmentsales 941 979 944Totalsales $ 1,213 $ 1,276 $ 1,215SegmentAdjustedEBITDA $ 495 $ 504 $ 426Operatingcosts $ 835 $ 859 $ 869Averagecostperdrymetrictonofbauxiteshipped $ 17 $ 18 $ 19
Operatingcostsinthetableaboveincludesallproduction-relatedcosts:conversioncosts,suchaslabor,materials,andutilities;depreciation,depletion,andamortization;andplantadministrativeexpenses.
Overview. ThissegmentrepresentstheCompany’sglobalbauxiteminingoperations.Aportionofthissegment’sproductionrepresentstheofftakefromequitymethodinvestmentsinBrazilandGuinea,aswellasAWAC’sshareofproductionrelatedtotheequityinvestmentinSaudiArabia.ProductionintheabovetablecanvaryfromTotalshipmentsdueprimarilytodifferencesbetweentheequityallocationofproductionandoff-takeagreementswiththerespectiveequityinvestment.ThebauxiteminedbythissegmentissoldprimarilytointernalcustomerswithintheAluminasegment;aportionofthebauxiteissoldtoexternalcustomers.BauxiteminedbythissegmentandusedinternallyistransferredtotheAluminasegmentatnegotiatedtermsthatareintendedtoapproximatemarketprices;salestothird-partiesareconductedonacontractbasis.Generally,thissegment’ssalesaretransactedinU.S.dollarswhilecostsandexpensesaretransactedinthelocalcurrencyoftherespectiveoperations,whicharetheAustraliandollarandtheBrazilianreal.MostoftheoperationsthatcomprisetheBauxitesegmentarepartofAWAC(seeNoncontrollingInterestinEarningsSummaryabove).
Business Update. TheBauxitesegmenthadrecordannualproductionin2020whichincludedannualproductionrecordsfortheWillowdale(Australia)andJuruti(Brazil)mines.TherecordannualproductionistheresultofstableminingconditionsandincreasedfocusonoperatingefficienciesaspartoftheCompany’s2020strategicinitiatives.
Miningoperationsarerelocatedperiodicallyinsupportofoptimizingthevalueextractedfrombauxitereserves.During2019,theCompanybegantheprocessofmovingtheWillowdaleminingoperationstothenextplannedlocationintheDarlingrangeandbeganpreparingformovementoftheJurutiminingoperationswhichbeganin2020.During2020,theCompanyincurred$82and$1incapitalexpendituresrelatedtotheWillowdaleandJurutiminingoperationrelocations,respectively.Asaresultofthesemovements,approximately$37and$16ofadditionalcapitalexpendituresrelatedtoWillowdaleandJuruti,respectively,areanticipatedfor2021.TherelocationoftheWillowdaleminingoperationsisexpectedtobecompletedduringthefirstquarterof2021andtherelocationoftheJurutiminingoperationsisexpectedtobecompletedduringthefirstquarterof2022.
Production. In2020,bauxiteproductionincreased1%comparedwith2019,fromhigherproductionatfourofthesegment’ssevenmines.
Sales. Third-partysalesfortheBauxitesegmentdecreased8%in2020comparedwith2019dueprimarilytoaloweraveragerealizedprice.Thepricedecreasewaspartiallyoffsetbya5%increaseinThird-partyshipmentsin2020,comparedwith2019.
IntersegmentsalesfortheBauxitesegmentdecreased4%in2020comparedwith2019dueprimarilytoaloweraveragerealizedprice.Thepricedecreasewaspartiallyoffsetbya2%increaseinintersegmentshipmentsin2020,comparedwith2019.
Segment Adjusted EBITDA. BauxiteSegmentAdjustedEBITDAdecreased$9in2020comparedwith2019,principallyasaresultofthepreviouslymentionedloweraveragerealizedpriceforthird-partyandintersegmentsalespartiallyoffsetbynetfavorableforeigncurrencymovementsduetoastrongerU.S.dollaragainsttheBrazilianreal.
Forward-Look. In2021,lowerintersegmentandthird-partypricesareanticipatedalongwithadditionalcapitalexpendituresrelatedtothepreviouslymentionedWillowdaleandJurutimininglocationmoves.ThelowerintersegmentbauxitepricewillprovideacorrespondingbenefittotheAluminasegmentasdiscussedbelow.TheCompanyprojectstotalbauxiteshipmentstorangebetween49.0and50.0milliondrymetrictons,animprovementfrom2020.
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Alumina
2020 2019 2018 Production(kmt) 13,475 13,302 12,857Third-partyshipments(kmt) 9,641 9,473 9,259Intersegmentshipments(kmt) 4,243 4,072 4,326Totalshipments(kmt) 13,884 13,545 13,585Third-partysales $ 2,627 $ 3,250 $ 4,215Intersegmentsales 1,268 1,561 2,101Totalsales $ 3,895 $ 4,811 $ 6,316SegmentAdjustedEBITDA $ 497 $ 1,097 $ 2,373Averagerealizedthird-partypricepermetrictonofalumina $ 273 $ 343 $ 455Operatingcosts $ 3,379 $ 3,646 $ 3,892Averagecostpermetrictonofaluminashipped $ 243 $ 269 $ 286
Intheabovetable,totalshipmentsincludemetrictonsthatwerenotproducedbytheAluminasegment.Suchaluminawaspurchasedtosatisfycertaincustomercommitmentsorrequirements.TheAluminasegmentbearstheriskoflossofthepurchasedaluminauntilcontroloftheproducthasbeentransferredtothissegment’scustomer.Additionally,operatingcostsinthetableaboveincludesallproduction-relatedcosts:rawmaterialsconsumed;conversioncosts,suchaslabor,materials,andutilities;depreciationandamortization;andplantadministrativeexpenses.
Overview. ThissegmentrepresentstheCompany’sworldwiderefiningsystem,whichprocessesbauxiteintoalumina.Thealuminaproducedbythissegmentissoldprimarilytointernalandexternalaluminumsmeltercustomers;aportionofthealuminaissoldtoexternalcustomerswhoprocessitintoindustrialchemicalproducts.Approximatelytwo-thirdsofAlumina’sproductionissoldundersupplycontractstothirdpartiesworldwide,whiletheremainderisusedinternallybytheAluminumsegment.AluminaproducedbythissegmentandusedinternallyistransferredtotheAluminumsegmentatprevailingmarketprices.Aportionofthissegment’sthird-partysalesarecompletedthroughtheuseofaluminatraders.Generally,thissegment’ssalesaretransactedinU.S.dollarswhilecostsandexpensesaretransactedinthelocalcurrencyoftherespectiveoperations,whicharetheAustraliandollar,theBrazilianreal,theU.S.dollar,andtheeuro.MostoftheoperationsthatcomprisetheAluminasegmentarepartofAWAC(seeNoncontrollingInterestinEarningsSummaryabove).ThissegmentalsoincludesAWAC’s25.1%ownershipinterestintheminingandrefiningjointventurecompanyinSaudiArabia.
Business Update. TheAluminasegmenthadrecordannualproductionin2020,whichincludedannualproductionrecordsfortheWagerup,Pinjarra,andKwinana(Australia)aluminarefineriesandtheSãoLuís(Brazil)aluminarefinery,asoperatingefficienciesweregainedacrosstherefiningsystem.
During2020,theaverageAPI(on30-daylag)reachedalowinMay2020andtrendedfavorablythroughouttheremainderoftheyear.TheAluminasegmentgainedefficienciesacrosstherefiningsystemwithadditionaloperationsfocusandsupport,acriticalcomponentoftheCompany’snewoperatingmodelandrealizedthebenefitofdecliningpricesforcausticsodaandlowerpricesforbauxite.
OnOctober4,2020,thelaborforceatboththerefineryandthealuminumfacilitiesatSanCiprián(Spain)initiatedastrikewhichreducedrefineryproductionandmetalshipments.OnJanuary22,2021,theCompanyandtheworkers’representativesreachedanagreementtosuspendthestrike.TheCompanydoesnotexpecttheimpactofthestriketohaveamaterialimpactonAluminaSegmentAdjustedEBITDAin2021.
Capacity. AtDecember31,2020,theAluminasegmenthadabasecapacityof12,759kmtwith214kmtofcurtailedrefiningcapacity.Therewerenochangestocurtailedorbasecapacityduring2020.
Production. In2020,aluminaproductionincreasedby173kmtcomparedwith2019,principallyduetooperatingefficienciesgainedacrosstherefiningsystem.The2020annualproductionrecordexceededthepreviousannualrecordsetin2019.
Sales. Third-partysalesfortheAluminasegmentdecreased19%in2020comparedwith2019,primarilyattributabletoadeclineinaveragerealizedpricewhichwasprincipallydrivenbyaloweraverageAPI(on30-daylag).Thepricedecreasewaspartiallyoffsetbya2%increaseinThird-partyshipmentsin2020,comparedwith2019.
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IntersegmentsalesfortheAluminasegmentdecreased19%in2020comparedwith2019primarilyduetoaloweraveragerealizedprice,partiallyoffsetbyincreaseddemandfromtheAluminumsegment.TheincreaseddemandfromtheAluminumsegmentwasprimarilydrivenbytherestartattheBécancour(Canada)smelterpartiallyoffsetbythecurtailmentoftheIntalcosmelter(seeAluminumbelow).
Segment Adjusted EBITDA.AluminaSegmentAdjustedEBITDAdecreased$600in2020comparedwith2019,largelyattributedtothedeclineinaveragerealizedpriceofaluminaandhigherenergycostsinAustralia.Thesenegativeimpactswerepartiallyoffsetbylowercostsforbauxiteandcausticsoda,increasedtotalshipmentsandnetfavorableforeigncurrencymovementsduetoastrongerU.S.dollar(particularlyagainsttheAustraliandollarandBrazilianreal).
Forward-Look. In2021,thelowerintersegmentbauxitepricewillbenefittheAluminasegmentwhilehighernaturalgascostsinAustraliaareexpectedtobemorethanoffsetbylowercostsforbothbauxiteandcausticsoda.TheCompanyprojectstotalaluminashipmentstorangebetween13.9and14.0millionmetrictons,stableincomparisonto2020.
AluminumTotal Aluminum information 2020 2019 2018 Third-partyaluminumshipments(kmt) 3,016 2,859 3,268Third-partysales $ 6,365 $ 6,803 $ 8,829Intersegmentsales 12 17 18Totalsales $ 6,377 $ 6,820 $ 8,847SegmentAdjustedEBITDA $ 325 $ 25 $ 451 Primary aluminum information 2020 2019 2018 Production(kmt) 2,263 2,135 2,259Third-partyshipments(kmt) 2,710 2,535 2,732Third-partysales $ 5,190 $ 5,426 $ 6,787Averagerealizedthird-partypricepermetricton $ 1,915 $ 2,141 $ 2,484Totalshipments(kmt) 2,773 2,597 2,844Operatingcosts $ 5,222 $ 5,847 $ 6,974Averagecostpermetrictonofprimaryaluminumshipped $ 1,883 $ 2,251 $ 2,452
Intheabovetable,totalaluminumthird-partyshipmentsandtotalprimaryaluminumshipmentsincludemetrictonsthatwerenotproducedbytheAluminumsegment.Suchaluminumwaspurchasedbythissegmenttosatisfycertaincustomercommitmentsorrequirements.TheAluminumsegmentbearstheriskoflossofthepurchasedaluminumuntilcontroloftheproducthasbeentransferredtothissegment’scustomer.Totalaluminuminformationincludesflat-rolledaluminumwhilePrimaryaluminuminformationdoesnot.Operatingcostsincludesallproduction-relatedcosts:rawmaterialsconsumed;conversioncosts,suchaslabor,materials,andutilities;depreciationandamortization;andplantadministrativeexpenses.
Theaveragerealizedthird-partypricepermetrictonofprimaryaluminumincludesthreeelements:a)theunderlyingbasemetalcomponent,basedonquotedpricesfromtheLME;b)theregionalpremium,whichrepresentstheincrementalpriceoverthebaseLMEcomponentthatisassociatedwiththephysicaldeliveryofmetaltoaparticularregion(e.g.,theMidwestpremiumformetalsoldintheUnitedStates);andc)theproductpremium,whichrepresentstheincrementalpriceforreceivingphysicalmetalinaparticularshape(e.g.,billet,slab,rod,etc.)oralloy.
Overview. ThissegmentconsistsoftheCompany’s(i)worldwidesmeltingandcasthousesystem,whichprocessesaluminaintoprimaryaluminum,(ii)portfolioofenergyassetsinBrazil,Canada,andtheUnitedStates,and(iii)arollingmillintheUnitedStates.
Aluminum’scombinedsmeltingandcastingoperationsproduceprimaryaluminumproducts,virtuallyallofwhicharesoldtoexternalcustomersandtraders;aportionofthisprimaryaluminumisconsumedbytherollingmill.Thesmeltingoperationsproducemoltenprimaryaluminum,whichisthenformedbythecastingoperationsintoeithercommonalloyingot(e.g.,t-bar,sow,standardingot)orintovalue-addingotproducts(e.g.,foundry,billet,rod,andslab).Avarietyofexternalcustomerspurchasetheprimaryaluminumproductsforuseinfabricationoperations,whichproduceproductsprimarilyforthetransportation,buildingandconstruction,packaging,wire,andotherindustrialmarkets.Resultsfromthesaleofaluminumpowderandscraparealsoincludedinthissegment,aswellastheimpactsofembeddedaluminumderivativesrelatedtoenergysupplycontracts.
TheenergyassetssupplypowertoexternalcustomersinBraziland,toalesserextent,intheUnitedStates,aswellasinternalcustomersintheAluminum(CanadiansmeltersandWarrick(Indiana)smelterandrollingmill)andAluminasegments(Brazilianrefineries).
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Therollingmillproducesaluminumsheetprimarilysolddirectlytocustomersinthepackagingmarketfortheproductionofaluminumcans(beverageandfood).Additionally,fromtheSeparationDatethroughtheendof2018,AlcoaCorporationhadatollingarrangement(contractuallyendedonDecember31,2018)withParentCowherebyParentCo’srollingmillinTennesseeproducedcansheetproductsforcertaincustomersoftheCompany’srollingoperations.AlcoasuppliedalloftherawmaterialstotheTennesseefacilityandpaidParentCoforthetollingservice.Seasonalincreasesincansheetsalesaregenerallyexperiencedinthesecondandthirdquartersofthecalendaryear.
Generally,thissegment’saluminumsalesaretransactedinU.S.dollarswhilecostsandexpensesofthissegmentaretransactedinthelocalcurrencyoftherespectiveoperations,whicharetheU.S.dollar,theeuro,theNorwegiankrone,theIcelandickróna,theCanadiandollar,theBrazilianreal,andtheAustraliandollar.
ThissegmentalsoincludesAlcoaCorporation’s25.1%ownershipinterestinthesmeltingjointventurecompanyinSaudiArabia(Alcoa’sinterestintherollingmilljointventurewasdivestedinJune2019).
Business Update. OnOctober4,2020,thelaborforceatboththerefineryandthealuminumfacilitiesatSanCiprián(Spain)initiatedastrikewhichreducedrefineryproductionandmetalshipments.ThestrikeremainedinplacethroughDecember31,2020andpreventedthesmelterfromshippingfinishedproducttocustomers.OnJanuary22,2021,theCompanyreachedagreementwiththeworkers’representativestosuspendthestrike.Aspartoftheagreement,theCompanyagreedtoconductasaleprocesstoSociedadEstataldeParticipacionesIndustriales(SEPI),aSpanishgovernmentownedentity,whichexpressedinterestinacquiringthesmelterfacility.
OnNovember30,2020,theCompanyenteredintoanagreementtoselltheWarrickRollingMilltoKaiserAluminumCorporationfortotalconsiderationofapproximately$670,whichincludes$587incashandtheassumptionof$83inotherpostretirementbenefitliabilities.Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.SeePartIIItem8ofthisForm10-KinNoteCtotheConsolidatedFinancialStatementsforadditionalinformation.
Asaresultofamorecompetitiveandlong-termlaboragreementreachedin2019,theprocesstorestarttheBécancour(Canada)smelterbeganinJuly2019andwascompletedduringthethirdquarterof2020.TherestartprocesshadfavorableimpactstotheAluminumsegmentduring2020asincreasedproductionresultedinhighershipmentsandAdjustedSegmentEBITDAcomparedwith2019.
InAugust2020,theU.S.governmentreinstated10percenttariffsoncertainaluminumimportsfromCanadaunderSection232oftheTradeExpansionActof1962(Section232).InSeptember2020,theU.S.governmentannouncedthatitwouldnotimposethistarifffromSeptember2020toDecember2020iftotalaluminumimportsofnon-alloyed,unwroughtaluminumfromCanadametcertainconditions.InOctober2020,theU.S.governmentfullyreinstatedtheexemptiononaluminumimportsfromCanadaretroactivetoSeptember1,2020.TheCompanyrecordednetexpenseof$3relatedtoSection232tariffsin2020.
InApril2020,Alcoaannouncedthecurtailmentoftheremaining230kmtofsmeltingcapacityattheIntalco(Washington)smelter.Thefullcurtailmentof279kmt,whichincludes49kmtofearlier-curtailedcapacity,wascompletedduringthethirdquarterof2020.SeePartIIItem8ofthisForm10-KinNoteDtotheConsolidatedFinancialStatementsforadditionalinformation.
Capacity. AtDecember31,2020,theAluminumsegmenthad831kmtofidlesmeltingcapacityonabasecapacityof2,993kmt.During2020,thecurtailmentoftheIntalcosmelterincreasedidlecapacityby230kmtwhichwaspartiallyoffsetbytheremainderoftherestartprocessattheBécancoursmelter,beguninJuly2019,whichdecreasedidlecapacityby165kmt.
Production. In2020,primaryaluminumproductionincreasedby128kmtcomparedwith2019,primarilyduetohigherproductionattheBécancoursmelterasaresultoftherestartprocesspartiallyoffsetbythecurtailmentoftheIntalcosmelter.
Sales. Third-partysalesfortheAluminumsegmentdecreased6%in2020comparedwith2019,primarilyattributedtoaloweraveragerealizedpriceofprimaryaluminum.Thechangeinaveragerealizedpriceofprimaryaluminumwasmainlydrivenbya6%loweraverageLMEprice(on15-daylag)combinedwithdecreasesinregionalandproductpremiumsfromreduceddemandforvalue-addaluminumproducts.TheunfavorableimpactoflowermetalpricesandproductpremiumswaspartiallyoffsetbyanincreaseinsalesvolumedrivenprimarilyfromtherestartoftheBécancoursmelter,whichexceededthevolumedecreasefromtheIntalcocurtailmentinmid-year2020.
Segment Adjusted EBITDA.AluminumSegmentAdjustedEBITDAincreased$300in2020comparedwith2019.Theincreasewasattributabletoloweralumina,carbon,andenergycostsoutweighingthenegativeimpactfromlowermetalpricesandunfavorablemixofvalue-addproductsby$95,net.AdjustedEBITDAimproved$126ontheCompany’scombinedportfolioactionswhichincludethedivestitureoftheAvilésandLaCoruñafacilitiesinthethirdquarterof2019,therestartoftheBécancoursmelter,andthecurtailmentoftheIntalcosmelter.OtherfavorableimpactstoAdjustedEBITDAin2020includefavorableforeigncurrencychangesandthenon-recurrenceofabaddebtreserverecordedin2019againsta
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Canadiancustomerreceivableduetobankruptcy.Additionally,impactsfromSection232tariffshadafavorableimpacttoAdjustedEBITDAof$21.
Forward-Look. In2021,weexpectfavorableimpactsfromtheBécancoursmelteroperatingatfullcapacityandtheIntalcocurtailment,partiallyoffsetbyincreasedrawmaterialsandenergycostsandunfavorableimpactsfromthesaleoftheWarrickRollingMill.Totalaluminumshipmentsareexpectedtorangebetween2.7and2.8millionmetrictons,adecreasefrom2020relatedtothechangesintheportfoliobutwellpositionedtobenefitfromtherecoveryinvalue-addproducts.
Reconciliations of Certain Segment Information
Reconciliation of Total Segment Third-Party Sales to Consolidated Sales
2020 2019 2018 Bauxite $ 272 $ 297 $ 271Alumina 2,627 3,250 4,215Aluminum:
Primaryaluminum 5,190 5,426 6,787Other(1) 1,175 1,377 2,042
Totalsegmentthird-partysales 9,264 10,350 13,315Other 22 83 88
Consolidatedsales $ 9,286 $ 10,433 $ 13,403
(1) Otherincludesthird-partysalesofflat-rolledaluminumandenergy,aswellasrealizedgainsandlossesrelatedtoembeddedderivativeinstruments
designatedascashflowhedgesofforwardsalesofaluminum.
Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods Sold
2020 2019 2018 Bauxite $ 835 $ 859 $ 869Alumina 3,379 3,646 3,892Primaryaluminum 5,222 5,847 6,974Other(1) 1,233 1,404 1,915Totalsegmentoperatingcosts 10,669 11,756 13,650Eliminations(2) (2,213) (2,707) (3,055)Provisionfordepreciation,depletion,amortization(3) (627) (676) (699)Other(4) 140 164 157
Consolidatedcostofgoodssold $ 7,969 $ 8,537 $ 10,053
(1) OtherlargelyrelatestotheAluminumsegment’sflat-rolledaluminumproductdivision.(2) ThislineitemrepresentstheeliminationofcostofgoodssoldrelatedtointersegmentsalesbetweenBauxiteandAluminaandbetweenAluminaand
Aluminum.(3) Depreciation,depletion,andamortizationisincludedintheoperatingcostsusedtocalculateaveragecostforeachofthebauxite,alumina,andprimary
aluminumproductdivisions(seeBauxite,Alumina,andAluminumabove).However,forfinancialreportingpurposes,depreciation,depletion,andamortizationispresentedasaseparatelineitemonAlcoaCorporation’sStatementofConsolidatedOperations.
(4) OtherincludescostsrelatedtoTransformation,andcertainotheritemsthatimpactCostofgoodssoldonAlcoaCorporation’sStatementofConsolidatedOperationsthatarenotincludedintheoperatingcostsofthesegments(seefootnotes1and3intheReconciliationofTotalSegmentAdjustedEBITDAtoConsolidatedNet(Loss)IncomeAttributabletoAlcoaCorporationbelow).
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Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net (Loss) Income Attributable to Alcoa Corporation
2020 2019 2018 Net(loss)incomeattributabletoAlcoaCorporation:
TotalsegmentAdjustedEBITDA $ 1,317 $ 1,626 $ 3,250Unallocatedamounts:
Transformation(1) (45) (7) (3)Intersegmenteliminations (8) 150 (8)Corporateexpenses(2) (102) (101) (96)Provisionfordepreciation,depletion,andamortization (653) (713) (733)Restructuringandothercharges,net (104) (1,031) (527)Interestexpense (146) (121) (122)Otherexpenses,net (8) (162) (64)Other(3) (78) (79) (72)
Consolidatedincome(loss)beforeincometaxes 173 (438) 1,625Provisionforincometaxes (187) (415) (732)Netincomeattributabletononcontrollinginterest (156) (272) (643)
Consolidatednet(loss)incomeattributabletoAlcoaCorporation $ (170) $ (1,125) $ 250
(1) Transformationincludes,amongotheritems,theAdjustedEBITDAofpreviouslyclosedoperations.(2) Corporateexpensesarecomposedofgeneraladministrativeandotherexpensesofoperatingthecorporateheadquartersandotherglobaladministrative
facilities,aswellasresearchanddevelopmentexpensesofthecorporatetechnicalcenter.(3) OtherincludescertainitemsthatimpactCostofgoodssoldandotherexpensesonAlcoaCorporation’sStatementofConsolidatedOperationsthatarenot
includedintheAdjustedEBITDAofthereportablesegments.
Environmental Matters
SeePartIIItem8ofthisForm10-KinNoteStotheConsolidatedFinancialStatementsundercaptionContingencies—EnvironmentalMatters.
Liquidity and Capital Resources
AlcoaCorporation’sprimaryfuturecashflowsarecenteredonoperatingactivities,particularlyworkingcapital,aswellassustainingandreturn-seekingcapitalexpenditures.Alcoa’sabilitytofunditscashneedsdependsontheCompany’songoingabilitytogenerateandraisecashinthefuture.AlthoughmanagementbelievesthatAlcoa’sfuturecashfromoperations,togetherwiththeCompany’saccesstocapitalmarkets,willprovideadequateresourcestofundoperatingandinvestingneeds,theCompany’saccessto,andtheavailabilityof,financingonacceptabletermsinthefuturewillbeaffectedbymanyfactors,including:(i)AlcoaCorporation’screditrating;(ii)theliquidityoftheoverallcapitalmarkets;and(iii)thecurrentstateoftheeconomyandcommoditymarkets.TherecanbenoassurancesthattheCompanywillcontinuetohaveaccesstocapitalmarketsontermsacceptabletoAlcoaCorporation.
ChangesinmarketconditionscausedbytheCOVID-19pandemiccouldhaveadverseeffectsonAlcoa’sabilitytoobtainadditionalfinancingandcostofborrowing.InabilitytogeneratesufficientearningscouldimpacttheCompany’sabilitytomeetthefinancialcovenantsinouroutstandingdebtandrevolvingcreditfacilityagreementsandlimitourabilitytoaccessthesesourcesofliquidityorrefinanceorrenegotiateouroutstandingdebtorcreditagreementsontermsacceptabletotheCompany.Additionally,theimpactonmarketconditionsfromtheCOVID-19pandemiccouldadverselyaffecttheliquidityofAlcoa’scustomers,suppliers,andjointventurepartnersandequitymethodinvestments,whichcouldnegativelyimpactthecollectabilityofoutstandingreceivablesandourcashflows.
InadditiontoutilizingallpreventativeandmitigationoptionsavailabletoensurecontinuityofoperationsduringtheCOVID-19pandemic,Alcoainstitutedmeasurestomanagecashduringtheglobalhealthcrisis.Takingadvantageofstrategicactionsthatwerealreadyunderway,aswellasactiveworkingcapitalandproductivityprograms,AlcoaaddeditsCOVID-19responseinitiativestoanoverallcashactionprogramtargetedtosaveordefer$900.In2020,Alcoaexceededits$900targetincashactionsthroughacombinationoftheCOVID-19responseinitiatives,strategicactions,and2020programsasdiscussedunderBusinessUpdateabove.
In2021,theCompanyanticipatescashinflowsfromthepreviouslyannouncedsaleofitsrollingmillbusinesstoKaiserAluminumCorporationfortotalconsiderationofapproximately$670,whichincludes$587incashandtheassumptionof
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$83inotherpostretirementbenefitliabilities.Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.
TheCompany’sliquidityoptionsdiscussedbelow,includingthecreditfacilitiesandtheReceivablesPurchaseAgreement,provideflexibilityinmanagingcashflows.ManagementbelievesthattheCompany’scashonhand,futureoperatingcashflows,andliquidityoptions,combinedwithitsstrategicactionsandcashpreservationinitiatives,areadequatetofunditsneartermoperatingandinvestingneeds.Forananalysisoflong-termliquidity,seeContractualObligationsandOff-BalanceSheetArrangementsbelow.
AtDecember31,2020,theCompany’scashandcashequivalentswere$1,607,ofwhich$1,521washeldoutsidetheUnitedStates.AlcoaCorporationhasanumberofcommitmentsandobligationsrelatedtotheCompany’soperationsinvariousforeignjurisdictions,resultingintheneedforcashoutsidetheUnitedStates.AlcoaCorporationcontinuouslyevaluatesitslocalandglobalcashneedsforfuturebusinessoperations,whichmayinfluencefuturerepatriationdecisions.
Cash from Operations
Cashprovidedfromoperationswas$394in2020comparedwithcashprovidedfromoperationsof$686in2019.Notablechangestothesourcesand(uses)ofcashfor2020include:
• ($104)incertainworkingcapitalaccounts(receivables,inventories,andaccountspayable,trade),including$82useofcashrelatedtofinishedgoodsinventoryatSanCipriánwhichcouldnotbeshippedatyearendduetotheworkers’strike;
• ($170)fromhigherpensioncontributions,includinga$250pensioncontributiontotheCompany’sU.S.pensionplansinlateDecembertocoverboththe$197deferredcontributionsdueonJanuary4,2021anda$53discretionaryprepayment;
• ($35)duetotimingofthecollectionofvalueaddedtaxreceivable; • ($74)includedasachangeinOthernoncurrentassetsrelatedtoataxpaymentontheAofAtaxmatter(seebelow);and • $449relatingtochangesintaxes,includingincometaxes.Thesourceofcashincludeschangesrelatedtolowertaxpaymentsmadein2020
comparedwith2019,primarilypaymentsonincometaxes,andchangesintheunderlyingtaxaccounts.Alsoincludes$169fromtheimpactofinterestdeductionson2020cashtaxpaymentsrelatedtotheAofAtaxmatter(seebelow).
TheremainingchangeinCashprovidedfromoperationsisprimarilyattributabletothechangesinrelatedStatementofConsolidatedOperationsamounts.
Inthethirdquarterof2020,AofApaidapproximately$74(A$107)totheATOrelatedtothetaxdisputedescribedinNoteStotheConsolidatedFinancialStatementsinPartIIItem8ofthisForm10-K.Uponpayment,AofArecordedanoncurrenttaxassessmentdeposit,astheCompanycontinuestobelieveitismorelikelythannotthatAofA’staxpositionwillbesustainedandthereforeisnotrecognizinganytaxexpenseinrelationtothismatter.InaccordancewithAustraliantaxlaws,theinitialinterestassessmentandadditionalinterestaredeductibleagainstAofA’s2020taxableincomeandresultedin$169(A$219)lowercashtaxpaymentsin2020.InterestcompoundedinfutureyearsisalsodeductibleagainstAofA’sincomeintherespectiveperiods.IfAofAisultimatelysuccessful,theinterestdeductionwouldbecometaxableasincomeintheyearthedisputeisresolved.Inaddition,shouldtheATOdecideintheinterimtoreduceanyinterestalreadyassessed,thereductionwouldbetaxableasincomeatthatpointintime.During2020,AofAcontinuedtorecorditstaxprovisionandtaxliabilitywithouteffectoftheATOassessment,sinceitexpectstoprevail.The2020taxpayableremainsonAofA’sbalancesheetasanoncurrentaccruedtaxliabilityandwillbeincreasedbythetaxeffectofsubsequentperiods’interestdeductions,untildisputeresolution,whichisexpectedtotakeseveralyears.AtDecember31,2020,thenoncurrentaccruedtaxliabilityresultingfromthecumulativeinterestdeductionswasapproximately$169(A$219).
Financing Activities
Cashprovidedfromfinancingactivitieswas$514in2020comparedwithcashusedforfinancingactivitiesof$444in2019.Theprimarysourceofcashin2020wastheissuanceof$750aggregateprincipalamountof2027NotesbyANHBVinJuly2020resultinginnetproceedsof$736.Thenetproceedswerepartiallyoffsetby$183innetcashpaidtoAluminaLimitedand$38infinancialcontributionsrelatedtothedivestedSpanishfacilities.Theuseofcashin2019wasprimarilydueto$421innetcashpaidtoAluminaLimitedand$12infinancialcontributionsrelatedtothedivestedSpanishfacilities.
Credit Facilities. AlcoaCorporationhasaccesstovarioussourcesofliquidityoutsideofcashgeneratedfromoperations.IncludedinthesesourcesistheSecondAmendedRevolvingCreditAgreement(“RevolvingCreditFacility”or“theFacility”)enteredintobyAlcoaCorporationandAlcoaNederlandHoldingB.V.(ANHBV)andamulticurrencyrevolvingcreditfacilityenteredintobyAlcoaNorwayANS.Additionally,theCompanyhasaReceivablesPurchaseAgreementthatalsoprovidesflexibilityformanagingcashneeds.
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TheRevolvingCreditFacilityprovidesa$1,500seniorsecuredrevolvingcreditfacilitytobeusedforworkingcapitaland/orothergeneralcorporatepurposesofAlcoaCorporationanditssubsidiaries.TheRevolvingCreditFacilityincludesanumberofcovenants,includingfinancialcovenants,thatrequiremaintenanceofaspecifiedinterestexpensecoverageratioandaleverageratio.TheleverageratiocomparestotalindebtednesstoConsolidatedEBITDA(anearningsmetricasdefinedintheRevolvingCreditFacility)todeterminecompliancewiththefinancialcovenant.ThecalculationalsodeterminesthemaximumindebtednesspermittedundertheRevolvingCreditFacility.BasedontheleverageratiocalculationasofDecember31,2020,themaximumadditionalborrowingcapacityavailabletotheCompanytoremainincompliancewiththecovenantwas$1,322;belowfullcapacitybasedoninsufficient2020earningslevelsasdefinedintheearningsmetric.BasedontheleverageratiocalculationasofDecember31,2019,themaximumadditionalborrowingcapacityavailabletotheCompanytoremainincompliancewiththecovenantwas$1,200;thelowercapacityin2019primarilyresultingfromtheimpactoftherestructuring-relatedchargesconsideredintheearningsmetric.However,theCompanystillhastheabilitytoaccessthefull$1,500creditfacilitythroughacombinationofthemaximumadditionalborrowingcapacityandtheissuancesoflettersofcreditatDecember31,2020.
OnApril21,2020,theCompanyandANHBVenteredintoanamendment(AmendmentNo.2)totheRevolvingCreditFacilitythattemporarilyadjuststheleverageratiorequirementto3.00to1.00from2.50to1.00forthesubsequentfourconsecutivefiscalquarters,beginninginthesecondquarterof2020(theAmendmentPeriod).Theleverageratiorequirementwillreturnto2.50to1.00startinginthesecondquarterof2021.DuringtheAmendmentPeriod,theCompany,ANHBV,andanyrestrictedsubsidiarieswillberestrictedfrommakingcertainrestrictedpaymentsorincurringincrementalsecuredloansundertheRevolvingCreditFacility.
OnJune24,2020,theCompanyandANHBVenteredintoanadditionalamendment(AmendmentNo.3)totheRevolvingCreditFacilitythat(i)permanentlyadjustedthecalculationofConsolidatedEBITDA(asdefinedintheRevolvingCreditFacility)byallowingtheaddbackofcertainadditionalnon-cashcostsand(ii)temporarilyadjusted,fortheremainingfiscalquartersin2020,themannerinwhichConsolidatedCashInterestExpenseandTotalIndebtedness(eachasdefinedintheRevolvingCreditFacility)arecalculatedwithrespecttocertainseniornotesissuancesduringthefiscalyearendedDecember31,2020,inclusiveoftheJuly2020issuancedescribedbelow.
ANHBVhastheoptiontoextendtheperiodsunderAmendmentNo.3toapplytoeitherorbothfiscalquartersendingMarch31,2021andJune30,2021.However,doingsowouldalsoreducetheborrowingavailabilityundertheRevolvingCreditFacilityduringtherespectivefiscalquartersbyone-thirdofthenetproceedsofsuchnoteissuancesduringthefiscalyearendingDecember31,2020.Duringthefourthquarterof2020,ANHBVhaselectedtoextendtheperiodunderAmendmentNo.3throughthequarterendingMarch31,2021,andifANHBVelectstoextendtheperiodthroughJune30,2021,therequestforextensionmustbeprovidedonorpriortoApril1,2021.Asaresultoftheelection,the2027NotesissuedinJuly2020willreducetheaggregateamountofcommitmentsundertheRevolvingCreditFacilitybyapproximately$245duringtheapplicablefiscalquarters.
TheRevolvingCreditFacilityisscheduledtomatureonNovember21,2023unlessextendedorearlierterminatedinaccordancewiththeprovisionsoftheFacility.ANHBVmaymakeextensionrequestsduringthetermoftheRevolvingCreditFacility,subjecttothelenderconsentrequirementssetforthintheFacility.AsofDecember31,2020,AlcoaCorporationwasincompliancewithallcovenants.TherewerenoborrowingsoutstandingatDecember31,2020,andtherewerenoamountsborrowedduring2020relatedtothisfacility.
OnOctober2,2019,AlcoaNorwayANS,awholly-ownedsubsidiaryofAlcoaCorporation,enteredintoaone-year,multicurrencyrevolvingcreditfacilityagreementforNOK1.3billion(approximately$152)whichisfullyandunconditionallyguaranteedonanunsecuredbasisbyAlcoaCorporation.OnApril8,2020,AlcoaNorwayANSdrew$100againstthisfacility,andmaydosofromtimetotimeinthefuture,intheordinarycourseofbusiness.Repaymentofthedrawnamount,includinginterestaccruedat2.93%,occurreduponmaturityonJune29,2020.OnJuly3,2020,AlcoaNorwayANSamendedtherevolvingcreditfacilityagreementtoalignthetermsoftheagreementwithAmendmentNo.2andAmendmentNo.3oftheRevolvingCreditFacilitydiscussedabove.
OnSeptember30,2020,AlcoaNorwayANSenteredintoanAmendmentandRestatementAgreement(theA&RAgreement)tothemulticurrencyrevolvingcreditfacilityagreementthatextendedthematurityoneyearfromtheoriginalmaturitydatetoOctober2,2021,unlessfurtherextendedorterminatedearlyinaccordancewiththeprovisionsoftheA&RAgreement.TheA&RAgreementalsoamendedcertainfinancialratiocovenants,specifyingcalculationsbasedupontheresultsofAlcoaNorwayANSratherthanthecalculationsoutlinedintheRevolvingCreditFacility.AsofDecember31,2020,AlcoaNorwayANSwasincompliancewithallsuchcovenants.AtDecember31,2020,therewerenoamountsoutstandingagainstthisfacility.
OnOctober25,2019,awholly-ownedsubsidiaryoftheCompanyenteredintoa$120three-yearrevolvingcreditfacilityagreementsecuredbycertaincustomerreceivables.OnApril20,2020,theCompanyamendedthisagreementconvertingittoaReceivablesPurchaseAgreementtosellupto$120ofthereceivablespreviouslysecuredbythecreditfacilitywithoutrecourseonarevolvingbasis.Theunsoldportionofspecifiedreceivablepoolwillbepledgedascollateraltothepurchasing
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banktosecurethesoldreceivables.DuringtheyearendedDecember31,2020,noreceivablesweresoldunderthisagreement.
Alcoa’smaximumadditionalborrowingcapacitydiscussedabovecanbeusedthroughanycombinationofAlcoa’stwocreditfacilitiesorthroughadditionalindebtedness.TheCompanymaydrawonthesefacilitiesperiodicallytoensureworkingcapitalneedsaremet.SeePartIIItem8ofthisForm10-KinNoteMtotheConsolidatedFinancialStatementsforadditionalinformationrelatedtothesecreditfacilities.
Debt.AsofDecember31,2020,AlcoaCorporationhadfouroutstandingNotesmaturingatvaryingtimes.AsummaryoftheNotesandotherlong-termdebtisshownbelow.SeePartIIItem8ofthisForm10-KinNoteMtotheConsolidatedFinancialStatementsforadditionalinformationrelatedtotheCompany’sdebt.December 31, 2020 2019 6.75%Notes,due2024 $ 750 $ 7507.00%Notes,due2026 500 5005.500%Notes,due2027 750 —6.125%Notes,due2028 500 500Other 6 84Unamortizeddiscountsanddeferredfinancingcosts (41) (34)Total 2,465 1,800Less:amountduewithinoneyear 2 1Long-termdebt,lessamountduewithinoneyear $ 2,463 $ 1,799
Ratings.AlcoaCorporation’scostofborrowingandabilitytoaccessthecapitalmarketsareaffectednotonlybymarketconditionsbutalsobytheshort-andlong-termdebtratingsassignedtoAlcoaCorporation’sdebtbythemajorcreditratingagencies.
OnApril9,2020,Moody’sInvestorService(Moody’s)affirmedaBa1ratingofAlcoa’slong-termdebt.Additionally,Moody’saffirmedthecurrentoutlookasstable.OnJuly7,2020,Moody’sreaffirmedtheBa1ratingofAlcoa’slong-termdebtaswellasthestableoutlook.
OnApril29,2020,FitchRatings(Fitch)affirmedaBB+ratingforAlcoaCorporation’slong-termdebt.Additionally,Fitchaffirmedthecurrentoutlookasstable.OnJuly7,2020,FitchreaffirmedtheBB+ratingofAlcoa’slong-termdebtaswellasthestableoutlook.
OnJune26,2020StandardandPoor’sGlobalRatings(S&P)affirmedtheBB+ratingofAlcoa’slong-termdebtandrevisedtheoutlooktonegative.OnDecember21,2020,S&PaffirmedtheBB+ratingofAlcoa’slong-termdebtandrevisedtheoutlooktostablefromnegative.
Common Stock Repurchase Program.InOctober2018,AlcoaCorporation’sBoardofDirectorsauthorizedacommonstockrepurchaseprogramwithanaggregatetransactionalvalueof$200,dependingoncashavailability,marketconditions,andotherfactors.Thisprogramdoesnothaveapredeterminedexpirationdate.AlcoaCorporationintendstoretiretherepurchasedsharesofcommonstock.InDecember2018,theCompanyrepurchased1,723,800sharesofitscommonstockfor$50;theseshareswereimmediatelyretired.Noamountswererepurchasedduring2020or2019.
Investing Activities
Cashusedforinvestingactivitieswas$167in2020comparedwith$468in2019.Thedecreaseinuseofcashfor2020waslargelyattributedtothenonrecurrenceofcashexpendituresmadein2019relatedtothedivestitureofAlcoa’sinvestmentinMa’adenRollingCompany,aswellashigherproceedsin2020fromthesaleofassets,primarilytheGumSpringswastetreatmentfacility,andlowercapitalexpenditures.
In2021,Alcoaexpectscapitalexpenditurestobeapproximately$375relatedtosustainingcapitalprojectsandapproximately$50relatedtogrowthprojects.ThetimingandamountofcapitalexpendituresmayfluctuateasaresultoftheCompany’snormaloperations.
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Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations.AlcoaCorporationisrequiredtomakefuturepaymentsundervariouscontracts,includinglong-termpurchaseobligationsandfinancingarrangements.TheCompanyalsohascommitmentstofunditspensionplansandprovidepaymentsforotherpostretirementbenefitplans.AsofDecember31,2020,asummaryofAlcoaCorporation’soutstandingcontractualobligationsisasfollows:
Total 2021 2022-2023 2024-2025 Thereafter Operatingactivities:
Energy-relatedpurchaseobligations $ 13,774 $ 1,093 $ 2,416 $ 2,346 $ 7,919Rawmaterialpurchaseobligations 5,434 989 897 657 2,891Otherpurchaseobligations 767 249 308 136 74Estimatedminimumrequiredpensionfunding 965 255 455 255 —Otherpostretirementbenefitpayments 560 65 125 115 255Interestrelatedtototaldebt 932 159 315 264 194Operatingleases 165 68 54 21 22Layoffandotherrestructuringpayments 63 62 1 — —Deferredrevenuearrangements 52 8 16 16 12Uncertaintaxpositions 7 — — — 7
Financingactivities: Long-termdebtandShort-termborrowings 2,583 79 2 751 1,751
Investingactivities: Equitycontributions 7 7 — — —
Totals $ 25,309 $ 3,034 $ 4,589 $ 4,561 $ 13,125
Obligations for Operating Activities
Energy-relatedpurchaseobligationsconsistprimarilyofelectricityandnaturalgascontractswithexpirationdatesrangingfrom1yearto27years.Rawmaterialobligationsconsistmostlyofbauxite(relatestoAWAC’sbauxitemineinterestsinGuineaandBrazil),causticsoda,alumina,aluminumfluoride,calcinedpetroleumco*ke,andcathodeblockswithexpirationdatesrangingfromlessthan1yearto15years.Otherpurchaseobligationsconsistprincipallyoffreightforbauxiteandaluminawithexpirationdatesrangingfrom1to12years.Manyofthesepurchaseobligationscontainvariablepricingcomponents,and,asaresult,actualcashpaymentsmaydifferfromtheestimatesprovidedintheprecedingtable.Inaccordancewiththetermsofseveralofthesesupplycontracts,obligationsmaybereducedasaresultofaninterruptiontooperations,suchasaplantcurtailmentoraforcemajeureevent.
InterestrelatedtototaldebtisbasedoninterestratesineffectasofDecember31,2020andiscalculatedondebtwithmaturitiesthatextendto2028.Someofthecontractualinterestratesforcertaindebtarevariable;actualcashpaymentsmaydifferfromtheestimatesprovidedintheprecedingtable.
Estimatedminimumrequiredpensionfundingandotherpostretirementbenefitpaymentsarebasedonactuarialestimatesusingcurrentassumptionsfor,amongothers,discountrates,long-termrateofreturnonplanassets,rateofcompensationincreases,and/orhealthcarecosttrendrates.Actualpaymentsmaydifferbasedonchangesinassumptions.AlcoaCorporationhasdeterminedthatitisnotpracticabletopresentpensionfundingandotherpostretirementbenefitpaymentsbeyond2025and2030,respectively.
LayoffandotherrestructuringpaymentsexpectedtobepaidwithinoneyearrelatetofinancialcontributionsunderthesharepurchaseagreementrelatedtothedivestitureoftwoSpanishaluminumfacilities,take-or-payprovisionsofsupplycontractsassociatedwithcurtailedfacilities,acontractualcommitmenttoanItaliangovernmentagencyrelatedtothetransferofthePortovesmesmelter,severancecosts,andtheterminationofanofficeleasecontract.
DeferredrevenuearrangementsrequireAlcoaCorporationtodeliveraluminatoacertaincustomeroverthespecifiedcontractperiod(through2027).Whilethisobligationisnotexpectedtoresultincashpayments,itisincludedintheprecedingtableastheCompanywouldhavesuchanobligationifthespecifiedproductdeliveriescouldnotbemade.
Uncertaintaxpositionstakenorexpectedtobetakenonanincometaxreturnmayresultinadditionalpaymentstotaxauthorities.TheamountintheprecedingtableincludesinterestandpenaltiesaccruedrelatedtosuchpositionsasofDecember31,2020.ThetotalamountofuncertaintaxpositionsisincludedintheThereaftercolumnastheCompanyisnotabletoreasonablyestimatethetimingofpotentialfuturepayments.Ifataxauthorityagreeswiththetaxpositiontakenorexpectedtobetakenortheapplicablestatuteoflimitationsexpires,thenadditionalpaymentswillnotbenecessary.
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Obligations for Financing Activities
Totaldebtamountsintheprecedingtablerepresenttheprincipalamountsofalloutstandinglong-termdebt,whichhavematuritiesthatextendto2028.
InOctober2018,AlcoaCorporation’sBoardofDirectorsauthorizedacommonstockrepurchaseprogramunderwhichtheCompanymaypurchasesharesofitsoutstandingcommonstockuptoanaggregatetransactionalvalueof$200,dependingonvariousfactors.Theprogramdoesnothaveapredeterminedexpirationdate.Accordingly,amountshavenotbeenincludedintheprecedingtable.InDecember2018,theCompanyrepurchased1,723,800sharesofitscommonstockfor$50ataweightedaveragesharepriceof$29.01(includes$0.02brokercommission).Noshareswererepurchasedin2020or2019.
Obligations for Investing Activities
Equitycontributionsarerelatedtothejointventure,ElysisTMLimitedPartnership(ElysisTM).ThisjointventurerequiresAlcoaCorporationtoinvestatotalof$21(C$28)through2021.In2018,theCompanycontributed$5(C$6)towarditsinitialinvestmentcommitmentinElysisTM.In2020,theCompanycontributedanadditional$9(C$11).
Off-Balance Sheet Arrangements.AlcoaCorporationhasoutstandingbankguaranteesandlettersofcreditrelatedto,amongothers,energycontracts,environmentalobligations,legalandtaxmatters,outstandingdebt,leasingobligations,workerscompensation,andcustomsduties.AlcoaCorporationalsohasoutstandingsuretybondsprimarilyrelatedtotaxmatters,contractperformance,workerscompensation,environmental-relatedmatters,andcustomsduties.SeePartIIItem8ofthisForm10-KinNoteStotheConsolidatedFinancialStatementsforadditionalinformation.
Critical Accounting Policies and Estimates
ThepreparationoftheCompany’sConsolidatedFinancialStatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequiresmanagementtomakecertainestimatesbasedonjudgmentsandassumptionsregardinguncertaintiesthataffecttheamountsreportedintheConsolidatedFinancialStatementsanddisclosedintheNotestotheConsolidatedFinancialStatements.Areasthatrequiresuchestimatesincludethereviewofproperties,plants,andequipmentandgoodwillforimpairment,andaccountingforeachofthefollowing:assetretirementobligations;environmentalandlitigationmatters;pensionplansandotherpostretirementbenefitsobligations;derivativesandhedgingactivities;andincometaxes.
Managementuseshistoricalexperienceandallavailableinformationtomaketheseestimates,includingconsiderationsfortheimpactofthecoronavirus(COVID-19)pandemiconthemacroeconomicenvironment,andactualresultsmaydifferfromthoseusedtopreparetheCompany’sConsolidatedFinancialStatementsatanygiventime.TheCompanyhasexperiencedcertainnegativeimpactsasaresultoftheCOVID-19pandemictodate;however,theultimatemagnitudeanddurationoftheCOVID-19pandemiccontinuestobeunknown,andthepandemic’sultimatefutureimpactontheCompany’sbusiness,financialcondition,operatingresults,cashflows,andmarketcapitalizationisuncertain.Inaddition,theCOVID-19pandemiccouldadverselyimpactestimatesmadeasofDecember31,2020regardingfutureresults,suchastherecoverabilityofgoodwillandlong-livedassetsandtherealizabilityofdeferredtaxassets.Despitetheseinherentlimitations,managementbelievesthattheamountsrecordedinthefinancialstatementsrelatedtotheseitemsarebasedonitsbestestimatesandjudgmentsusingallrelevantinformationavailableatthetime.
AsummaryoftheCompany’ssignificantaccountingpoliciesisincludedinPartIIItem8ofthisForm10-KinNoteBtotheConsolidatedFinancialStatements.
Properties, Plants, and Equipment.Properties,plants,andequipmentarereviewedforimpairmentwhenevereventsorchangesincirc*mstancesindicatethatthecarryingamountofsuchassets(assetgroup)maynotberecoverable,includingintheperiodwhenassetshavemetthecriteriatobeclassifiedasheldforsale.Recoverabilityofassetsisdeterminedbycomparingtheestimatedundiscountednetcashflowsoftheoperationsrelatedtotheassets(assetgroup)totheircarryingamount.Animpairmentlosswouldberecognizedwhenthecarryingamountoftheassets(assetgroup)exceedsthefairvalue.Theamountoftheimpairmentlosstoberecordediscalculatedastheexcessofthecarryingvalueoftheassets(assetgroup)overtheirfairvalue,withfairvaluedeterminedusingthebestinformationavailable,whichgenerallyisadiscountedcashflow(DCF)model.Thedeterminationofwhatconstitutesanassetgroup,theassociatedestimatedundiscountednetcashflows,andtheestimatedusefullivesofassetsalsorequiresignificantjudgments.
Goodwill.Goodwillisnotamortized;itisinsteadreviewedforimpairmentannually(inthefourthquarter)ormorefrequentlyifindicatorsofimpairmentexistorifadecisionismadetosellorexitabusiness.Managementwilltestgoodwillonaqualitativeorquantitativebasis.Asignificantamountofjudgmentisinvolvedindeterminingifanindicatorofimpairmenthasoccurred.Suchindicatorsmayinclude,amongothers,deteriorationingeneraleconomicconditions,negativedevelopmentsinequityandcreditmarkets,adversechangesinthemarketsinwhichanentityoperates,increasesininputcoststhathaveanegativeeffectonearningsandcashflows,oratrendofnegativeordecliningcashflowsovermultiple
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periods.Thefairvaluethatcouldberealizedinanactualtransactionmaydifferfromthatusedtoevaluategoodwillforimpairment.
Inreviewinggoodwillforimpairmentunderthequalitativeassessment,anentitywillconsideriftheexistenceofeventsorcirc*mstancesleadstoadeterminationthatitismorelikelythannot(greaterthan50%)thattheestimatedfairvalueofareportingunitislessthanitscarryingamount.Ifitisdeterminedthatanimpairmentismorelikelythannot,theentityisthenrequiredtoperformaquantitativeimpairmenttest,otherwisenofurtheranalysisisrequired.
Underthequantitativeimpairmenttest,theevaluationofimpairmentinvolvescomparingthecurrentfairvalueofeachreportingunittoitscarryingvalue,includinggoodwill.ManagementusesaDCFmodeltoestimatethecurrentfairvalueofitsreportingunits.AnumberofsignificantassumptionsandestimatesareinvolvedintheapplicationoftheDCFmodeltoforecastoperatingcashflows,includingmarketsandmarketshare,salesvolumesandprices,productioncosts,taxrates,capitalspending,discountrate,andworkingcapitalchanges.
IntheeventtheestimatedfairvalueofareportingunitpertheDCFmodelislessthanthecarryingvalue,animpairmentlossequaltotheexcessofthereportingunit’scarryingvalueoveritsfairvaluenottoexceedthetotalamountofgoodwillapplicabletothatreportingunitwouldberecognized.
ManagementperformedqualitativeassessmentsoftheBauxiteandAluminareportingunitsin2020anddeterminedthatitwasnotmorelikelythannotthatthefairvalueofeitherreportingunitwaslessthancarryingvalue.ManagementlastperformedaquantitativeimpairmenttestfortheBauxitereportingunitin2018andtheAluminareportingunitin2019.Atthetimeofeachquantitativeassessment,theestimatedfairvalueofeachrespectivereportingunitwassubstantiallyinexcessofcarryingvalue,resultinginnoimpairment.Additionally,inallprioryearspresented,therehavebeennotriggeringeventsthatnecessitatedanimpairmenttestforeithertheBauxiteorAluminareportingunits.
Asset Retirement Obligations.AlcoaCorporationrecognizesassetretirementobligations(AROs)relatedtolegalobligationsassociatedwiththestandardoperationofbauxitemines,aluminarefineries,andaluminumsmelters.TheseAROsconsistprimarilyofcostsassociatedwithminereclamation,closureofbauxiteresidueareas,spentpotliningdisposal,andlandfillclosure.AlcoaCorporationalsorecognizesAROsforanysignificantleaserestorationobligation,ifrequiredbyaleaseagreement,andforthedisposalofregulatedwastematerialsrelatedtothedemolitionofcertainpowerfacilities.ThefairvaluesoftheseAROsarerecordedonadiscountedbasis,atthetimetheobligationisincurred,andaccretedovertimeforthechangeinpresentvalue.Additionally,AlcoaCorporationcapitalizesassetretirementcostsbyincreasingthecarryingamountoftherelatedlong-livedassetsanddepreciatingtheseassetsovertheirremainingusefullife.
Certainconditionalassetretirementobligations(CAROs)relatedtoaluminarefineries,aluminumsmelters,rollingmills,andenergygenerationfacilitieshavenotbeenrecordedintheConsolidatedFinancialStatementsduetouncertaintiessurroundingtheultimatesettlementdate.ACAROisalegalobligationtoperformanassetretirementactivityinwhichthetimingand/ormethodofsettlementareconditionalonafutureeventthatmayormaynotbewithinAlcoaCorporation’scontrol.Suchuncertaintiesexistasaresultoftheperpetualnatureofthestructures,maintenanceandupgradeprograms,andotherfactors.Atthedateareasonableestimateoftheultimatesettlementdatecanbemade(e.g.,planneddemolition),AlcoaCorporationwouldrecordanARO.SuchamountsmaybematerialtotheConsolidatedFinancialStatements.
Environmental Matters.Expendituresforcurrentoperationsareexpensedorcapitalized,asappropriate.Expendituresrelatingtoexistingconditionscausedbypastoperations,whichwillnotcontributetofuturerevenues,areexpensed.Liabilitiesarerecordedwhenremediationcostsareprobableandcanbereasonablyestimated.Theliabilitymayincludecostssuchassiteinvestigations,consultantfees,feasibilitystudies,outsidecontractors,andmonitoringexpenses.Estimatesaregenerallynotdiscountedorreducedbypotentialclaimsforrecovery,whicharerecognizedasagreementsarereachedwiththirdparties.TheestimatesalsoincludecostsrelatedtootherpotentiallyresponsiblepartiestotheextentthatAlcoaCorporationhasreasontobelievesuchpartieswillnotfullypaytheirproportionateshare.Theliabilityiscontinuouslyreviewedandadjustedtoreflectcurrentremediationprogress,prospectiveestimatesofrequiredactivity,andotherfactorsthatmayberelevant,includingchangesintechnologyorregulations.
Litigation Matters.Forassertedclaimsandassessments,liabilitiesarerecordedwhenanunfavorableoutcomeofamatterisdeemedtobeprobableandthelossisreasonablyestimable.Managementdeterminesthelikelihoodofanunfavorableoutcomebasedonmanyfactorssuchas,amongothers,thenatureofthematter,availabledefensesandcasestrategy,progressofthematter,viewsandopinionsoflegalcounselandotheradvisors,applicabilityandsuccessofappealsprocesses,andtheoutcomeofsimilarhistoricalmatters.Onceanunfavorableoutcomeisdeemedprobable,managementweighstheprobabilityofestimatedlosses,andthemostreasonablelossestimateisrecorded.Ifanunfavorableoutcomeofamatterisdeemedtobereasonablypossible,thenthematterisdisclosed,andnoliabilityisrecorded.Withrespecttounassertedclaimsorassessments,managementmustfirstdeterminethattheprobabilitythatanassertionwillbemadeislikely,then,adeterminationastothelikelihoodofanunfavorableoutcomeandtheabilitytoreasonablyestimatethepotentiallossismade.Legalmattersarereviewedonacontinuousbasistodetermineiftherehasbeenachangeinmanagement’sjudgmentregardingthelikelihoodofanunfavorableoutcomeortheestimateofapotentialloss.
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Pension and Other Postretirement Benefits.Liabilitiesandexpensesforpensionandotherpostretirementbenefitsaredeterminedusingactuarialmethodologiesandincorporatesignificantassumptions,includingtheinterestrateusedtodiscountthefutureestimatedliability,theexpectedlong-termrateofreturnonplanassets,andseveralassumptionsrelatingtotheemployeeworkforce(salaryincreases,healthcarecosttrendrates,retirementage,andmortality).
Theyieldcurvemodelusedtodevelopthediscountrateparallelstheplans’projectedcashflowsandhasaweightedaveragedurationof11years.Theunderlyingcashflowsofthehigh-qualitycorporatebondsincludedinthemodelexceedthecashflowsneededtosatisfytheCompany’splanobligationsmultipletimes.Ifadeepmarketofhigh-qualitycorporatebondsdoesnotexistinacountry,thentheyieldongovernmentbondsplusacorporatebondyieldspreadisused.Theimpactonthecombinedpensionandotherpostretirementliabilitiesofachangeintheweightedaveragediscountrateof¼of1%wouldbeapproximately$205andeitherachargeorcreditofapproximately$3topretaxearningsinthefollowingyear.
Theexpectedlong-termrateofreturnonplanassetsisgenerallyappliedtoafive-yearmarket-relatedvalueofplanassets(afour-yearaverageorthefairvalueattheplanmeasurementdateisusedforcertainnon-U.S.plans).Theprocessusedbymanagementtodevelopthisassumptionisonethatreliesonforward-lookinginvestmentreturnsbyassetclass.Managementincorporatesexpectedfutureinvestmentreturnsoncurrentandplannedassetallocationsusinginformationfromvariousexternalinvestmentmanagersandconsultants,aswellasmanagement’sownjudgment.Achangeintheassumptionfortheweightedaverageexpectedlong-termrateofreturnonplanassetsof¼of1%wouldimpactpretaxearningsbyapproximately$11for2021.
Mortalityrateassumptionsarebasedonmortalitytablesandfutureimprovementscalespublishedbythirdparties,suchastheSocietyofActuaries,andconsiderotheravailableinformationincludinghistoricaldataaswellasstudiesandpublicationsfromreputablesources.
Derivatives and Hedging.Derivativesareheldforpurposesotherthantradingandarepartofaformallydocumentedriskmanagementprogram.Alcoaaccountsforhedgesoffirmcustomercommitmentsforaluminumasfairvaluehedges.ThefairvaluesofthederivativesandchangesinthefairvaluesoftheunderlyinghedgeditemsarereportedasassetsandliabilitiesintheConsolidatedBalanceSheet.ChangesinthefairvaluesofthesederivativesandunderlyinghedgeditemsgenerallyoffsetandarerecordedeachperiodinSales,consistentwiththeunderlyinghedgeditem.
TheCompanyaccountsforhedgesofforeigncurrencyexposuresandcertainforecastedtransactionsascashflowhedges.ThefairvaluesofthederivativesarerecordedasassetsandliabilitiesintheConsolidatedBalanceSheet.ThechangesinthefairvaluesofthesederivativesarerecordedinOthercomprehensive(loss)incomeandarereclassifiedtoSales,Costofgoodssold,orOtherexpenses,netintheperiodinwhichearningsareimpactedbythehedgeditemsorintheperiodthatthetransactionnolongerqualifiesasacashflowhedge.Thesecontractscoverthesameperiodsasknownorexpectedexposures,generallynotexceedingfiveyears.Ifnohedgingrelationshipisdesignated,thederivativeismarkedtomarketthroughOtherexpenses,net.CashflowsfromderivativesarerecognizedintheStatementofConsolidatedCashFlowsinamannerconsistentwiththeunderlyingtransactions.
Income Taxes.Theprovisionforincometaxesisdeterminedusingtheassetandliabilityapproachofaccountingforincometaxes.Underthisapproach,theprovisionforincometaxesrepresentsincometaxespaidorpayable(orreceivedorreceivable)forthecurrentyearplusthechangeindeferredtaxesduringtheyear.Deferredtaxesrepresentthefuturetaxconsequencesexpectedtooccurwhenthereportedamountsofassetsandliabilitiesarerecoveredorpaidandresultfromdifferencesbetweenthefinancialandtaxbasesofassetsandliabilitiesandareadjustedforchangesintaxratesandtaxlawswhenenacted.
Valuationallowancesarerecordedtoreducedeferredtaxassetswhenitismorelikelythannot(greaterthan50%)thatataxbenefitwillnotberealized.Inevaluatingtheneedforavaluationallowance,managementappliesjudgmentinassessingallavailablepositiveandnegativeevidenceandconsidersallpotentialsourcesoftaxableincome,includingincomeavailableincarrybackperiods,futurereversalsoftaxabletemporarydifferences,projectionsoftaxableincome,andincomefromtaxplanningstrategies.Positiveevidenceincludesfactorssuchasahistoryofprofitableoperations,projectionsoffutureprofitabilitywithinthecarryforwardperiod,includingfromtaxplanningstrategies,andAlcoaCorporation’sexperiencewithsimilaroperations.Existingfavorablecontractsandtheabilitytosellproductsintoestablishedmarketsareadditionalpositiveevidence.Negativeevidenceincludesitemssuchascumulativelosses,projectionsoffuturelosses,orcarryforwardperiodsthatarenotlongenoughtoallowfortheutilizationofadeferredtaxassetbasedonexistingprojectionsofincome.Incertainjurisdictions,deferredtaxassetsrelatedtocumulativelossesexistwithoutavaluationallowancewhereinmanagement’sjudgmenttheweightofthepositiveevidencemorethanoffsetsthenegativeevidenceofthecumulativelosses.Uponchangesinfactsandcirc*mstances,managementmayconcludethatdeferredtaxassetsforwhichnovaluationallowanceiscurrentlyrecordedmaynotberealized,resultinginafuturechargetoestablishavaluationallowance.Existingvaluationallowancesarere-examinedunderthesamestandardsofpositiveandnegativeevidence.Ifitisdeterminedthatitismorelikelythannotthatadeferredtaxassetwillberealized,theappropriateamountofthevaluationallowance,ifany,isreleased.Deferredtaxassetsandliabilitiesarealsore-measuredtoreflectchangesinunderlyingtaxratesduetolawchangesandthegrantingandlapseoftaxholidays.
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Taxbenefitsrelatedtouncertaintaxpositionstakenorexpectedtobetakenonataxreturnarerecordedwhensuchbenefitsmeetamorelikelythannotthreshold.Otherwise,thesetaxbenefitsarerecordedwhenataxpositionhasbeeneffectivelysettled,whichmeansthatthestatuteoflimitationshasexpired,ortheappropriatetaxingauthorityhascompletedtheirexaminationeventhoughthestatuteoflimitationsremainsopen.Interestandpenaltiesrelatedtouncertaintaxpositionsarerecognizedaspartoftheprovisionforincometaxesandareaccruedbeginningintheperiodthatsuchinterestandpenaltieswouldbeapplicableunderrelevanttaxlawuntilsuchtimethattherelatedtaxbenefitsarerecognized.
Related Party Transactions
AlcoaCorporationbuysproductsfromandsellsproductstovariousrelatedcompanies,consistingofentitiesinwhichAlcoaCorporationretainsa50%orlessequityinterest,atnegotiatedpricesbetweenthetwoparties.ThesetransactionswerenotmaterialtothefinancialpositionorresultsofoperationsofAlcoaCorporationforallperiodspresented.
Recently Adopted Accounting Guidance
SeePartIIItem8ofthisForm10-KinNoteBtotheConsolidatedFinancialStatementsundercaptionRecentlyAdoptedAccountingGuidance.
Recently Issued Accounting Guidance
SeePartIIItem8ofthisForm10-KinNoteBtotheConsolidatedFinancialStatementsundercaptionRecentlyIssuedAccountingGuidance.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
SeePartIIItem8ofthisForm10-KinNotePtotheConsolidatedFinancialStatementsundercaptionDerivatives.
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Item 8. Financial Statements and Supplementary Data.
Management’s Reports to Alcoa Corporation Stockholders
Management’s Report on Financial Statements and Practices
TheaccompanyingConsolidatedFinancialStatementsofAlcoaCorporationanditssubsidiaries(theCompany)werepreparedbymanagement,whichisresponsiblefortheirintegrityandobjectivity,inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(GAAP)andincludeamountsthatarebasedonmanagement’sbestjudgmentsandestimates.TheotherfinancialinformationincludedintheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2020isconsistentwiththatintheConsolidatedFinancialStatements.
ManagementrecognizesitsresponsibilityforconductingtheCompany’saffairsaccordingtothehigheststandardsofpersonalandcorporateconduct.Thisresponsibilityischaracterizedandreflectedinkeypolicystatementsissuedfromtimetotimeregarding,amongotherthings,conductofitsbusinessactivitieswithinthelawsofthehostcountriesinwhichtheCompanyoperatesandpotentiallyconflictingoutsidebusinessinterestsofitsemployees.TheCompanymaintainsasystematicprogramtoassesscompliancewiththesepolicies.
Management’s Report on Internal Control over Financial Reporting
Managementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting,asdefinedinRules13a-15(f)and15d-15(f)oftheU.S.SecuritiesExchangeActof1934(asamended),fortheCompany.TheCompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithGAAP.TheCompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsoftheCompany,(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithGAAP,andthatreceiptsandexpendituresoftheCompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsoftheCompany,and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionoftheCompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
ManagementconductedanassessmenttoevaluatetheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofDecember31,2020usingthecriteriainInternal Control—Integrated Framework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Basedonthisassessment,managementconcludedthattheCompanymaintainedeffectiveinternalcontroloverfinancialreportingasofDecember31,2020.
PricewaterhouseCoopersLLP,theindependentregisteredpublicaccountingfirmthatauditedtheCompany’sfinancialstatementsincludedinthisAnnualReportonForm10-KfortheyearendedDecember31,2020,hasauditedtheCompany’sinternalcontroloverfinancialreportingasofDecember31,2020andhasissuedanattestationreport,whichisincludedherein./s/RoyC.HarveyRoyC.HarveyPresidentandChiefExecutiveOfficer/s/WilliamF.OplingerWilliamF.OplingerExecutiveVicePresidentandChiefFinancialOfficer
February25,2021
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Report of Independent Registered Public Accounting Firm
Tothe ShareholdersandBoardofDirectorsofAlcoaCorporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
WehaveauditedtheaccompanyingconsolidatedbalancesheetofAlcoaCorporationanditssubsidiaries(the“Company”)asofDecember31,2020and2019,andtherelatedconsolidatedstatementsofoperations,comprehensiveincome,changesinconsolidatedequityandcashflowsforeachofthethreeyearsintheperiodendedDecember31,2020,includingtherelatednotes(collectivelyreferredtoasthe“consolidatedfinancialstatements”).WealsohaveauditedtheCompany’sinternalcontroloverfinancialreportingasofDecember31,2020,basedoncriteriaestablishedinInternal Control—Integrated Framework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofDecember31,2020and2019,andtheresultsofitsoperationsanditscashflowsforeachofthethreeyearsintheperiodendedDecember31,2020inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2020,basedoncriteriaestablishedinInternal Control—Integrated Framework(2013)issuedbytheCOSO.
Change in Accounting Principle
AsdescribedinNoteBtotheconsolidatedfinancialstatements,theCompanychangedthemannerinwhichitaccountsforleasesin2019.
Basis for Opinions
TheCompany’smanagementisresponsiblefortheseconsolidatedfinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’sReportonInternalControloverFinancialReporting.OurresponsibilityistoexpressopinionsontheCompany’sconsolidatedfinancialstatementsandontheCompany’sinternalcontroloverfinancialreportingbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)(PCAOB)andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud,andwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.
Ourauditsoftheconsolidatedfinancialstatementsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.Ourauditsalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecirc*mstances.Webelievethatourauditsprovideareasonablebasisforouropinions.
Definition and Limitations of Internal Control over Financial Reporting
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
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Critical Audit Matters
Thecriticalauditmattercommunicatedbelowisamatterarisingfromthecurrentperiodauditoftheconsolidatedfinancialstatementsthatwascommunicatedorrequiredtobecommunicatedtotheauditcommitteeandthat(i)relatestoaccountsordisclosuresthatarematerialtotheconsolidatedfinancialstatementsand(ii)involvedourespeciallychallenging,subjective,orcomplexjudgments.Thecommunicationofcriticalauditmattersdoesnotalterinanywayouropinionontheconsolidatedfinancialstatements,takenasawhole,andwearenot,bycommunicatingthecriticalauditmatterbelow,providingaseparateopiniononthecriticalauditmatterorontheaccountsordisclosurestowhichitrelates.
Realization of Net Deferred Tax Assets at Alcoa Canada Company
AsdescribedinNotesBandQtotheconsolidatedfinancialstatements,theCompanyhad$451millionofnetdeferredtaxassetsasofDecember31,2020,including$148millionofnetdeferredtaxassetsatAlcoaCanadaCompany,mostsignificantlyrelatedtopensionobligationsandderivatives.AlcoaCanadaCompanyisinathree-yearcumulativelosspositionasofDecember31,2020.Valuationallowancesarerecordedtoreducedeferredtaxassetswhenitismorelikelythannot(greaterthan50%)thatataxbenefitwillnotberealized.Managementappliesjudgmentinassessingallavailablepositiveandnegativeevidence,suchashistoryofprofitableoperationsandprojectionsoftaxableincome,inevaluatingwhetheritismorelikelythannotthatthenetdeferredtaxassetswillberealizedinthefuture.Projectionsoftaxableincomeisbasedonmacroeconomicindicatorsandinvolvesassumptionsrelatedto,amongothers,commodityprices,volumelevels,andkeyinputsandrawmaterialssuchasalumina,calcinedpetroleumco*ke,liquidpitch,energy,labor,andtransportationcosts.
TheprincipalconsiderationsforourdeterminationthatperformingproceduresrelatingtotherealizationofnetdeferredtaxassetsatAlcoaCanadaCompanyisacriticalauditmatterare(i)thesignificantjudgmentbymanagementindeterminingwhetherthenetdeferredtaxassetsaremorelikelythannottoberealizedinthefutureasAlcoaCanadaCompanyisinathree-yearcumulativelossposition;and(ii)ahighdegreeofauditorjudgment,subjectivity,andeffortinperformingproceduresandevaluatingauditevidencerelatingtomanagement’sassessmentoftherealizationofnetdeferredtaxassetsandmanagement’sassumptionforprojectedtaxableincomerelatedtocommodityprices,andcostsrelatingtoalumina.
Addressingthematterinvolvedperformingproceduresandevaluatingauditevidenceinconnectionwithformingouroverallopinionontheconsolidatedfinancialstatements.Theseproceduresincludedtestingtheeffectivenessofcontrolsrelatingtomanagement’sassessmentoftherealizationofnetdeferredtaxassetsatAlcoaCanadaCompany,includingcontrolsoverprojectedtaxableincome.Theseproceduresalsoincluded,amongothers,evaluatingthepositiveandnegativeevidenceavailableinmanagement’sassessmentoftherealizationofnetdeferredtaxassetsatAlcoaCanadaCompany,testingthecompletenessandaccuracyofunderlyingdatausedinmanagement’sassessment,andevaluatingthereasonablenessofmanagement’sassumptionforprojectedtaxableincome.Evaluatingmanagement’sassumptionforprojectedtaxableincome,relatedtocommodityprices,andcostsrelatingtoaluminainvolvedevaluatingwhethertheassumptionsusedbymanagementwerereasonableconsidering(i)thecurrentandpastperformanceofAlcoaCanadaCompany,(ii)theconsistencywithexternalmarketandindustrydata,and(iii)whethertheassumptionwasconsistentwithevidenceobtainedinotherareasoftheaudit./s/PricewaterhouseCoopersLLPPricewaterhouseCoopersLLPPittsburgh,PennsylvaniaFebruary25,2021
WehaveservedastheCompany’sauditorsince2015.
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Alcoa Corporation and Subsidiaries
Statement of Consolidated Operations(in millions, except per-share amounts)
For the year ended December 31, 2020 2019 2018 Sales(E) $ 9,286 $ 10,433 $ 13,403Costofgoodssold(exclusiveofexpensesbelow) 7,969 8,537 10,053Selling,generaladministrative,andotherexpenses 206 280 248Researchanddevelopmentexpenses 27 27 31Provisionfordepreciation,depletion,andamortization 653 713 733Restructuringandothercharges,net(D) 104 1,031 527Interestexpense(U) 146 121 122Otherexpenses,net(U) 8 162 64
Totalcostsandexpenses 9,113 10,871 11,778Income(loss)beforeincometaxes 173 (438) 1,625Provisionforincometaxes(Q) 187 415 732Net(loss)income (14) (853) 893Less:Netincomeattributabletononcontrollinginterest 156 272 643Net (loss) income attributable to Alcoa Corporation (170) (1,125) 250Earnings per share attributable to Alcoa Corporation common shareholders (F):
Basic $ (0.91) $ (6.07) $ 1.34Diluted $ (0.91) $ (6.07) $ 1.33
Theaccompanyingnotesareanintegralpartoftheconsolidatedfinancialstatements.
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Alcoa Corporation and Subsidiaries
Statement of Consolidated Comprehensive Income(in millions)
Alcoa Corporation Noncontrolling
interest Total For the year ended December 31, 2020 2019 2018 2020 2019 2018 2020 2019 2018 Net(loss)income $ (170) $ (1,125) $ 250 $ 156 $ 272 $ 643 $ (14) $ (853) $ 893Othercomprehensive(loss)income,netoftax(G):
Changeinunrecognizednetactuariallossandpriorservicecost/benefitrelatedtopensionandotherpostretirementbenefits (254) 1 503 (11) (10) 1 (265) (9) 504Foreigncurrencytranslationadjustments (225) (89) (604) (10) (24) (229) (235) (113) (833)Netchangeinunrecognizedgains/lossesoncashflowhedges (176) (321) 718 (21) (11) (20) (197) (332) 698
TotalOthercomprehensive(loss)income,netoftax (655) (409) 617 (42) (45) (248) (697) (454) 369Comprehensive (loss) income $ (825) $ (1,534) $ 867 $ 114 $ 227 $ 395 $ (711) $ (1,307) $ 1,262
Theaccompanyingnotesareanintegralpartoftheconsolidatedfinancialstatements.
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Alcoa Corporation and Subsidiaries
Consolidated Balance Sheet(in millions)
December 31, 2020 2019 Assets Currentassets:
Cashandcashequivalents(P) $ 1,607 $ 879Receivablesfromcustomers 471 546Otherreceivables 85 114Inventories(J) 1,398 1,644Fairvalueofderivativeinstruments(P) 21 59Assetsheldforsale(C) 648 —Prepaidexpensesandothercurrentassets 290 288
Totalcurrentassets 4,520 3,530Properties,plants,andequipment,net(K) 7,190 7,916Investments(H) 1,051 1,113Deferredincometaxes(Q) 655 642Fairvalueofderivativeinstruments(P) — 18Othernoncurrentassets(U) 1,444 1,412
Total Assets $ 14,860 $ 14,631Liabilities Currentliabilities:
Accountspayable,trade $ 1,403 $ 1,484Accruedcompensationandretirementcosts 395 413Taxes,includingincometaxes 91 104Fairvalueofderivativeinstruments(P) 103 67Liabilitiesheldforsale(C) 242 —Othercurrentliabilities 525 494Long-termdebtduewithinoneyear(M&P) 2 1
Totalcurrentliabilities 2,761 2,563Long-termdebt,lessamountduewithinoneyear(M&P) 2,463 1,799Accruedpensionbenefits(O) 1,492 1,505Accruedotherpostretirementbenefits(O) 744 749Assetretirementobligations(R) 625 606Environmentalremediation(S) 293 296Fairvalueofderivativeinstruments(P) 742 581Noncurrentincometaxes(Q) 209 276Othernoncurrentliabilitiesanddeferredcredits(U) 515 370
Totalliabilities 9,844 8,745Contingenciesandcommitments(S) Equity AlcoaCorporationshareholders’equity:
Commonstock(N) 2 2Additionalcapital 9,663 9,639Accumulateddeficit (725) (555)Accumulatedothercomprehensiveloss(G) (5,629) (4,974)
TotalAlcoaCorporationshareholders’equity 3,311 4,112Noncontrollinginterest(A) 1,705 1,774
Totalequity 5,016 5,886Total Liabilities and Equity $ 14,860 $ 14,631
Theaccompanyingnotesareanintegralpartoftheconsolidatedfinancialstatements.
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Alcoa Corporation and Subsidiaries
Statement of Consolidated Cash Flows(in millions)
For the year ended December 31, 2020 2019 2018 Cash from Operations Net(loss)income $ (14) $ (853) $ 893Adjustmentstoreconcilenet(loss)incometocashfromoperations:
Depreciation,depletion,andamortization 653 713 733Deferredincometaxes(Q) (26) 15 (30)Equityearnings,netofdividends(H) 20 21 17Restructuringandothercharges,net(D) 104 1,031 527Netgainfrominvestingactivities—assetsales(U) (173) (3) —Netperiodicpensionbenefitcost(O) 138 119 146Stock-basedcompensation(N) 25 30 35Provisionforbaddebtexpense 2 21 —Other 32 30 (59)Changesinassetsandliabilities,excludingeffectsofdivestituresandforeigncurrencytranslationadjustments:
Decrease(increase)inreceivables 16 283 (43)Decrease(increase)ininventories(J) 122 137 (306)Decrease(increase)inprepaidexpensesandothercurrentassets 17 27 (32)Increase(decrease)inaccountspayable,trade 25 (153) (165)(Decrease)inaccruedexpenses (153) (175) (319)Increase(decrease)intaxes,includingincometaxes 119 (330) 241Pensioncontributions(O) (343) (173) (992)(Increase)innoncurrentassets (82) (24) (101)(Decrease)innoncurrentliabilities (88) (30) (97)
Cash provided from operations 394 686 448Financing Activities Additionstodebt(originalmaturitiesgreaterthanthreemonths)(M) 739 — 560Paymentsondebt(originalmaturitiesgreaterthanthreemonths)(M) (1) (7) (135)Proceedsfromtheexerciseofemployeestockoptions(N) 1 2 23Repurchaseofcommonstock(N) — — (50)Financialcontributionsforthedivestitureofbusinesses(C) (38) (12) —Contributionsfromnoncontrollinginterest(A) 24 51 149Distributionstononcontrollinginterest (207) (472) (827)Other (4) (6) (8)
Cash provided from (used for) financing activities 514 (444) (288)Investing Activities Capitalexpenditures (353) (379) (399)Proceedsfromthesaleofassetsandbusinesses(C) 198 23 1Additionstoinvestments(H) (12) (112) (7)
Cash used for investing activities (167) (468) (405)Effect of exchange rate changes on cash and cash equivalents and restricted cash (14) (7) (4)
Netchangeincashandcashequivalentsandrestrictedcash 727 (233) (249)Cashandcashequivalentsandrestrictedcashatbeginningofyear 883 1,116 1,365
Cash and cash equivalents and restricted cash at end of year $ 1,610 $ 883 $ 1,116
Theaccompanyingnotesareanintegralpartoftheconsolidatedfinancialstatements.
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Alcoa Corporation and Subsidiaries
Statement of Changes in Consolidated Equity(in millions)
Alcoa Corporation shareholders
Common
stock Additional
capital
Retained(deficit)earnings
Accumulatedother
compre-hensive loss
Noncontrollinginterest
Totalequity
Balance at December 31, 2017 $ 2 $ 9,590 $ 318 $ (5,182) $ 2,240 $ 6,968Netincome — — 250 — 643 893Othercomprehensiveincome(loss)(G) — — — 617 (248) 369Stock-basedcompensation(N) — 35 — — — 35Commonstockissued:Compensationplans(N) — 23 — — — 23Repurchaseofcommonstock(N) — (50) — — — (50)Contributions — — — — 149 149Distributions — — — — (827) (827)Other — 13 2 — 13 28Balance at December 31, 2018 2 9,611 570 (4,565) 1,970 7,588Net(loss)income — — (1,125) — 272 (853)Othercomprehensiveloss(G) — — — (409) (45) (454)Stock-basedcompensation(N) — 30 — — — 30Commonstockissued:Compensationplans(N) — 2 — — — 2Contributions — — — — 51 51Distributions — — — — (472) (472)Other — (4) — — (2) (6)Balance at December 31, 2019 2 9,639 (555) (4,974) 1,774 5,886Net(loss)income — — (170) — 156 (14)Othercomprehensiveloss(G) — — — (655) (42) (697)Stock-basedcompensation(N) — 25 — — — 25Commonstockissued:Compensationplans(N) — 1 — — — 1Contributions — — — — 24 24Distributions — — — — (207) (207)Other — (2) — — — (2)Balance at December 31, 2020 $ 2 $ 9,663 $ (725) $ (5,629) $ 1,705 $ 5,016
Theaccompanyingnotesareanintegralpartoftheconsolidatedfinancialstatements.
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Alcoa Corporation and subsidiariesNotes to the Consolidated Financial Statements
(dollars in millions, except per-share amounts; metric tons in thousands (kmt))
A. Basis of Presentation
AlcoaCorporation(ortheCompany)isaverticallyintegratedaluminumcompanycomprisedofbauxitemining,aluminarefining,aluminumproduction(smelting,casting,androlling),andenergygeneration.Throughdirectandindirectownership,theCompanyhas28operatinglocationsinninecountriesaroundtheworld,situatedprimarilyinAustralia,Brazil,Canada,Iceland,Norway,Spain,andtheUnitedStates.
ReferencesintheseNotesto“ParentCo”refertoAlcoaInc.,aPennsylvaniacorporation,anditsconsolidatedsubsidiariesthroughOctober31,2016,atwhichtimeitwasrenamedArconicInc.(Arconic)andsincehasbeensubsequentlyrenamedHowmetAerospaceInc.
Separation Transaction.OnNovember1,2016(theSeparationDate),ParentCoseparatedintotwostandalone,publicly-tradedcompanies,AlcoaCorporationandParentCo,effectiveat12:01a.m.EasternTime(theSeparationTransaction).Regular-waytradingofAlcoaCorporation’scommonstockbeganwiththeopeningoftheNewYorkStockExchangeonNovember1,2016underthetickersymbol“AA.”TheCompany’scommonstockhasaparvalueof$0.01pershare.
InconnectionwiththeSeparationTransaction,AlcoaCorporationandParentCoenteredintocertainagreementstoimplementthelegalandstructuralseparationbetweenthetwocompanies,governtherelationshipbetweentheCompanyandParentCoafterthecompletionoftheSeparationTransaction,andallocatebetweenAlcoaCorporationandParentCovariousassets,liabilities,andobligations.TheseagreementsincludedaSeparationandDistributionAgreement,TaxMattersAgreement,EmployeeMattersAgreement,TransitionServicesAgreement,certainPatent,Know-How,TradeSecretLicenseandTrademarkLicenseAgreements,andStockholderandRegistrationRightsAgreement.
Basis of Presentation.TheConsolidatedFinancialStatementsofAlcoaCorporationarepreparedinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(GAAP).InaccordancewithGAAP,certainsituationsrequiremanagementtomakeestimatesbasedonjudgmentsandassumptions,whichmayaffectthereportedamountsofassetsandliabilitiesandthedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements.Theyalsomayaffectthereportedamountsofrevenuesandexpensesduringthereportingperiods.Managementuseshistoricalexperienceandallavailableinformationtomaketheseestimates,includingconsiderationsfortheimpactofthecoronavirus(COVID-19)pandemiconthemacroeconomicenvironment.TheCompanyhasexperiencedcertainnegativeimpactsasaresultoftheCOVID-19pandemictodate;however,theultimatemagnitudeanddurationoftheCOVID-19pandemiccontinuestobeunknown,andthepandemic’sultimatefutureimpactontheCompany’sbusiness,financialcondition,operatingresults,cashflows,andmarketcapitalizationisuncertain.Inaddition,theCOVID-19pandemiccouldadverselyimpactestimatesmadeasofDecember31,2020regardingfutureresults,suchastherecoverabilityofgoodwillandlong-livedassetsandtherealizabilityofdeferredtaxassets.Despitetheseinherentlimitations,managementbelievesthattheamountsrecordedinthefinancialstatementsrelatedtotheseitemsarebasedonitsbestestimatesandjudgmentsusingallrelevantinformationavailableatthetime.Managementregularlyevaluatesthejudgmentsandassumptionsusedinitsestimates,andresultscoulddifferfromthoseestimatesuponfutureeventsandtheireffectsornewinformation.Certainamountsinpreviouslyissuedfinancialstatementswerereclassifiedtoconformtothecurrentperiodpresentation.
Principles of Consolidation.TheConsolidatedFinancialStatementsoftheCompanyincludetheaccountsofAlcoaCorporationandcompaniesinwhichAlcoaCorporationhasacontrollinginterest,includingthosethatcomprisetheAlcoaWorldAlumina&Chemicals(AWAC)jointventure(seebelow).Intercompanytransactionshavebeeneliminated.TheequitymethodofaccountingisappliedtoinvestmentsinaffiliatesandotherjointventuresoverwhichtheCompanyhassignificantinfluencebutdoesnothaveeffectivecontrol.InvestmentsinaffiliatesinwhichAlcoaCorporationcannotexercisesignificantinfluenceareaccountedforonthecostmethod.
AWACisanunincorporatedglobaljointventurebetweenAlcoaCorporationandAluminaLimitedandconsistsofseveralaffiliatedoperatingentities,whichown,haveaninterestin,oroperatethebauxiteminesandaluminarefinerieswithintheCompany’sBauxiteandAluminasegments(exceptforthePoçosdeCaldasmineandrefineryandportionsoftheSãoLuísrefineryandinvestmentinMineraçãoRiodoNorteS.A.,allinBrazil)andaportion(55%)ofthePortlandsmelter(Australia)withintheCompany’sAluminumsegment.AlcoaCorporationowns60%andAluminaLimitedowns40%oftheseindividualentities,whichareconsolidatedbytheCompanyforfinancialreportingpurposesandincludeAlcoaofAustraliaLimited(AofA),AlcoaWorldAluminaLLC(AWA),AlcoaWorldAluminaBrasilLtda.(AWAB),andAlúminaEspañola,S.A.(Española).AluminaLimited’sinterestintheequityofsuchentitiesisreflectedasNoncontrollinginterestontheaccompanyingConsolidatedBalanceSheet.
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ManagementevaluateswhetheranAlcoaCorporationentityorinterestisavariableinterestentityandwhethertheCompanyistheprimarybeneficiary.Consolidationisrequiredifbothofthesecriteriaaremet.AlcoaCorporationdoesnothaveanyvariableinterestentitiesrequiringconsolidation.
Related Party Transactions.AlcoaCorporationbuysproductsfromandsellsproductstovariousrelatedcompanies,consistingofentitiesinwhichtheCompanyretainsa50%orlessequityinterest,atnegotiatedpricesbetweenthetwoparties.ThesetransactionswerenotmaterialtothefinancialpositionorresultsofoperationsofAlcoaCorporationforallperiodspresented.
B. Summary of Significant Accounting Policies
Cash Equivalents.Cashequivalentsarehighlyliquidinvestmentspurchasedwithanoriginalmaturityofthreemonthsorless.
Inventory Valuation.Inventoriesarecarriedatthelowerofcostormarket,withthecostofinventoriesprincipallydeterminedundertheaveragecostmethod.
Properties, Plants, and Equipment.Properties,plants,andequipmentarerecordedatcost.Interestrelatedtotheconstructionofqualifyingassetsiscapitalizedaspartoftheconstructioncosts.Depreciationisrecordedprincipallyonthestraight-linemethodovertheestimatedusefullivesoftheassets.Depreciationisrecordedontemporarilyidledfacilitiesuntilsuchtimemanagementapprovesapermanentclosure.Thefollowingtabledetailstheweightedaverageusefullivesofstructuresandmachineryandequipmentbytypeofoperation(numbersinyears):
Structures
Machineryand
equipment Bauxitemining 34 16Aluminarefining 29 29Aluminumsmeltingandcasting 37 23Energygeneration 33 24Aluminumrolling 32 23
Repairsandmaintenancearechargedtoexpenseasincurredwhilecostsforsignificantimprovementsthataddproductivecapacityorthatextendtheusefullifearecapitalized.GainsorlossesfromthesaleofassetsaregenerallyrecordedinOtherexpenses,net.Properties,plants,andequipmentarereviewedforimpairmentwhenevereventsorchangesincirc*mstancesindicatethatthecarryingamountofsuchassets(assetgroup)maynotberecoverable.Assets held for sale. Upondeterminingthatalong-livedassetordisposalgroupmeetsthecriteriatobeclassifiedasheldforsale,theCompanyceasesdepreciationandreportslong-livedassetsand/ortheassetsandliabilitiesofthedisposalgroup,ifmaterial,inthelineitemsAssetsheldforsaleandLiabilitiesheldforsale,respectively,intheConsolidatedBalanceSheet.Currentornoncurrentclassificationisdeterminedbasedontheplanneduseoftheproceedsandtimingoftransaction.TheCompanywillmeasurealong-livedassetordisposalgroupthatisclassifiedasheldforsaleatthelowerofitscarryingvalueorfairvaluelessanycoststosell.Anylossresultingfromthismeasurementisrecognizedinaperiodinwhichthefairvaluelessanycoststosellislessthanthecarryingvalueofalong-livedassetordisposalgroup.Conversely,gainsarenotrecognizedonthesaleofalong-livedassetordisposalgroupuntilthedateofsale(seeNoteC).
Leases.OnJanuary1,2019,theCompanyadoptedAccountingStandardsUpdateNo.2016-02,Leases,issuedbytheFinancialAccountingStandardsBoardregardingtheaccountingforleases,usingthemodifiedretrospectiveapproach.TheCompanydetermineswhetheranarrangementisaleaseattheinceptionofthearrangementbasedonthetermsandconditionsinthecontract.AcontractcontainsaleaseifthereisanidentifiedassetwhichtheCompanyhastherighttocontrol.Bothoperatingandfinancingleaseright-of-use(ROU)assetsareincludedinProperties,plants,andequipmentwiththecorrespondingoperatingleaseliabilitiesincludedwithinOthercurrentliabilitiesandOthernoncurrentliabilitiesanddeferredcredits,whilefinancingleaseliabilitiesareincludedinLong-termdebtduewithinoneyearandLong-termdebt,lessamountduewithinoneyearontheConsolidatedBalanceSheet.
OperatingleaseROUassetsandliabilitiesarerecognizedatthecommencementdatebasedonthepresentvalueofleasepaymentsovertheleaseterm.TheCompanyusesitsincrementalborrowingrateatthecommencementdateindeterminingthepresentvalueofleasepaymentsunlessarateisimplicitinthelease.Leasetermsincludeoptionstoextendtheleasewhenitisreasonablycertainthatthoseoptionswillbeexercised.Leaseswithaninitialtermof12monthsorless,includinganticipatedrenewals,arenotrecordedonthebalancesheet.
TheCompanyhasmadeapolicyelectionnottorecordanynon-leasecomponentsofaleaseagreementintheleaseliability.VariableleasepaymentsarenotpresentedaspartoftheinitialROUassetorliabilityrecordedattheinceptionofacontract.
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Leaseexpenseforoperatingleasepaymentsisrecognizedonastraight-linebasisovertheleaseterm.Forfinanceleases,interestexpenseisrecognizedontheleaseliabilityandtheROUassetisamortizedovertheleaseterm.
Equity Investments.Alcoainvestsinanumberofprivately-heldcompanies,primarilythroughjointventuresandconsortia,whichareaccountedforusingtheequitymethod.TheequitymethodisappliedinsituationswheretheCompanyhastheabilitytoexercisesignificantinfluence,butnotcontrol,overtheinvestee.Managementreviewsequityinvestmentsforimpairmentwhenevercertainindicatorsarepresentsuggestingthatthecarryingvalueofaninvestmentisnotrecoverable.
Deferred Mining Costs.Alcoarecognizesdeferredminingcostsduringthedevelopmentstageofaminelifecycle.Suchcostsincludetheconstructionofaccessandhaulroads,detaileddrillingandgeologicalanalysistofurtherdefinethegradeandqualityoftheknownbauxite,andoverburdenremovalcosts.ThesecostsrelatetosectionsoftherelatedmineswheretheCompanyiscurrentlyextractingbauxiteorpreparingforproductioninthenearterm.Thesesectionsareoutlinedandplannedincrementallyandgenerallyareminedoverperiodsrangingfromonetofiveyears,dependingonminespecifics.Theamountofgeologicaldrillingandtestingnecessarytodeterminetheeconomicviabilityofthebauxitedepositbeingminedissuchthatthereservesareconsideredtobeproven,andtheminingcostsareamortizedbasedonthislevelofreserves.DeferredminingcostsareincludedinOthernoncurrentassetsontheaccompanyingConsolidatedBalanceSheet.
Goodwill and Other Intangible Assets.Goodwillisnotamortizedbutisreviewedforimpairmentannually(inthefourthquarter)ormorefrequentlyifindicatorsofimpairmentexistorifadecisionismadetosellorexitabusiness.
Goodwillisallocatedamongandevaluatedforimpairmentatthereportingunitlevel,whichisdefinedasanoperatingsegmentoronelevelbelowanoperatingsegment.TheCompanyhasfivereportingunits,ofwhichthreeareincludedintheAluminumsegment(smelting/casting,energygeneration,androllingoperations).TheremainingtworeportingunitsaretheBauxiteandAluminasegments.Ofthesefivereportingunits,onlyBauxiteandAluminacontaingoodwill.AsofDecember31,2020,thecarryingvalueofthegoodwillforBauxiteandAluminawas$49and$96,respectively.Theseamountsincludeanallocationofgoodwillheldatthecorporatelevel(seeNoteL).
Goodwillistestedforimpairmentbyassessingqualitativefactorstodeterminewhetheritismorelikelythannotthatthefairvalueofthereportingunitislessthanitscarryingamountorperformingaquantitativeassessmentusingadiscountedcashflowmethod.Thequalitativeassessmentconsidersfactorssuchasgeneraleconomicconditions,equityandcreditmarkets,industryandmarketconditions,andearningsandcashflowtrends.Ifthequalitativeassessmentindicatesapossibleimpairment,thenaquantitativeimpairmenttestisperformedtodeterminethefairvalueofthereportingunitusingadiscountedcashflowmethod.Otherwise,nofurtheranalysisisrequired.Alcoa’spolicyforitsannualreviewofgoodwillistoperformthequantitativeimpairmenttestforeachofitstworeportingunitsthatcontaingoodwillatleastonceduringeverythree-yearperiodaspartofitsannualreviewofgoodwill.
Intangibleassetswithfiniteusefullivesareamortizedgenerallyonastraight-linebasisovertheperiodsbenefited.Thefollowingtabledetailstheweightedaverageusefullivesofsoftwareandotherintangibleassetsbytypeofoperation(numbersinyears):
Software Other intangible
assets Bauxitemining 3 —Aluminarefining 7 25Aluminumsmeltingandcasting 3 40Energygeneration — 29Aluminumrolling 3 20
Asset Retirement Obligations.Alcoarecognizesassetretirementobligations(AROs)relatedtolegalobligationsassociatedwiththestandardoperationofbauxitemines,aluminarefineries,andaluminumsmelters.TheseAROsconsistprimarilyofcostsassociatedwithminereclamation,closureofbauxiteresidueareas,spentpotliningandregulatedwastematerialsdisposal,andlandfillclosure.Additionally,costsarerecordedasAROsuponmanagement’sdecisiontopermanentlycloseanddemolishcertainstructuresandforanysignificantleaserestorationobligations.ThefairvaluesoftheseAROsarerecordedonadiscountedbasisatthetimetheobligationisincurredandaccretedovertimeforthechangeinpresentvalue.Additionally,theCompanycapitalizesassetretirementcostsbyincreasingthecarryingamountoftherelatedlong-livedassetsanddepreciatingtheseassetsovertheirremainingusefullife.Certainconditionalassetretirementobligationsrelatedtoaluminarefineries,aluminumsmelters,rollingmills,andenergygenerationfacilitieshavenotbeenrecordedintheConsolidatedFinancialStatementsduetouncertaintiessurroundingtheultimatesettlementdate.Thefairvalueoftheseassetretirementobligationswillberecordedwhenareasonableestimateoftheultimatesettlementdatecanbemade.
Environmental Matters.Environmentalrelatedexpendituresforcurrentoperationsareexpensedorcapitalized,asappropriate.Expendituresrelatingtoexistingconditionscausedbypastoperations,whichwillnotcontributetofuturerevenues,areexpensed.Liabilitiesarerecordedwhenremediationcostsareprobableandcanbereasonablyestimated.The
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estimatesalsoincludecostsrelatedtootherpotentiallyresponsiblepartiestotheextentthatAlcoahasreasontobelievesuchpartieswillnotfullypaytheirproportionateshare.IninstanceswheretheCompanyhasongoingmonitoringandmaintenanceresponsibilities,itisAlcoa’spolicytomaintainareserveequaltofiveyearsofexpectedcosts.Theliabilityiscontinuouslyreviewedandadjustedtoreflectcurrentremediationprogress,prospectiveestimatesofrequiredactivity,andotherfactorsthatmayberelevant,includingchangesintechnologyorregulations.
Litigation Matters.Forassertedclaimsandassessments,liabilitiesarerecordedwhenanunfavorableoutcomeofamatterisdeemedtobeprobableandthelossisreasonablyestimable.Withrespecttounassertedclaimsorassessments,managementmustfirstdeterminethattheprobabilitythatanassertionwillbemadeislikely.Then,adeterminationastothelikelihoodofanunfavorableoutcomeandtheabilitytoreasonablyestimatethepotentiallossismade.Legalmattersarereviewedonacontinuousbasistodetermineiftherehasbeenachangeinmanagement’sjudgmentregardingthelikelihoodofanunfavorableoutcomeortheestimateofapotentialloss.Legalcosts,whichareprimarilyforgenerallitigation,environmentalcompliance,taxdisputes,andgeneralcorporatematters,areexpensedasincurred.
Revenue Recognition.TheCompanyrecognizesrevenuewhenitsatisfiesaperformanceobligation(s)inaccordancewiththeprovisionsofacustomerorderorcontract.Thisisachievedwhencontroloftheproducthasbeentransferredtothecustomer,whichisgenerallydeterminedwhentitle,ownership,andriskoflosspasstothecustomer,allofwhichoccursuponshipmentordeliveryoftheproduct.Theshippingtermsvaryacrossallbusinessesanddependontheproduct,thecountryoforigin,andthetypeoftransportation.Accordingly,thesaleofAlcoa’sproductstoitscustomersrepresentsingleperformanceobligationsforwhichrevenueisrecognizedatapointintime.Revenueisbasedontheconsiderationitexpectstoreceiveinexchangeforitsproducts.Returnsandotheradjustmentshavenotbeenmaterial.Basedontheforegoing,nosignificantjudgmentisrequiredtodeterminewhencontrolofaproducthasbeentransferredtoacustomer.
TheCompanyconsidersshippingandhandlingactivitiesascoststofulfillthepromisetotransfertherelatedproducts.Asaresult,customerpaymentsofshippingandhandlingcostsarerecordedasacomponentofrevenue.Taxescollected(e.g.,sales,use,value-added,excise)fromitscustomersrelatedtothesaleofitsproductsareremittedtogovernmentalauthoritiesandexcludedfromrevenue.
Stock-Based Compensation.Compensationexpenseforemployeeequitygrantsisrecognizedusingthenon-substantivevestingperiodapproach,inwhichtheexpense(netofestimatedforfeitures)isrecognizedratablyovertherequisiteserviceperiodbasedonthegrantdatefairvalue.Thefairvalueofnewstockoptionsisestimatedonthedateofgrantusingalattice-pricingmodel.Determiningthefairvalueofstockoptionsatthegrantdaterequiresjudgment,includingestimatesfortheaveragerisk-freeinterestrate,dividendyield,volatility,annualforfeiturerate,andexercisebehavior.Theseassumptionsmaydiffersignificantlybetweengrantdatesbecauseofchangesintheactualresultsoftheseinputsthatoccurovertime.
Mostplanparticipantscanchoosewhethertoreceivetheirawardintheformofstockoptions,stockunits,oracombinationofboth.Thischoiceismadebeforethegrantisissuedandisirrevocable.
Pension and Other Postretirement Benefits. Liabilitiesandexpensesforpensionandotherpostretirementbenefitsaredeterminedusingactuarialmethodologiesandincorporatesignificantassumptions,includingtheinterestrateusedtodiscountthefutureestimatedliability,theexpectedlong-termrateofreturnonplanassets,andseveralassumptionsrelatingtotheemployeeworkforce(salaryincreases,healthcarecosttrendrates,retirementage,andmortality).
Theyieldcurvemodelusedtodevelopthediscountrateparallelstheplans’projectedcashflowsandhasaweightedaveragedurationof11years.Theunderlyingcashflowsofthehigh-qualitycorporatebondsincludedinthemodelexceedthecashflowsneededtosatisfytheCompany’splanobligationsmultipletimes.Ifadeepmarketofhigh-qualitycorporatebondsdoesnotexistinacountry,thentheyieldongovernmentbondsplusacorporatebondyieldspreadisused.
Theexpectedlong-termrateofreturnonplanassetsisgenerallyappliedtoafive-yearmarket-relatedvalueofplanassets(afour-yearaverageorthefairvalueattheplanmeasurementdateisusedforcertainnon-U.S.plans).Theprocessusedbymanagementtodevelopthisassumptionisonethatreliesonforward-lookinginvestmentreturnsbyassetclass.Managementincorporatesexpectedfutureinvestmentreturnsoncurrentandplannedassetallocationsusinginformationfromvariousexternalinvestmentmanagersandconsultants,aswellasmanagement’sownjudgment.
Mortalityrateassumptionsarebasedonmortalitytablesandfutureimprovementscalespublishedbythirdparties,suchastheSocietyofActuaries,andconsiderotheravailableinformationincludinghistoricaldataaswellasstudiesandpublicationsfromreputablesources.
Derivatives and Hedging.Derivativesareheldforpurposesotherthantradingandarepartofaformallydocumentedriskmanagementprogram.
Alcoaaccountsforhedgesoffirmcustomercommitmentsforaluminumasfairvaluehedges.Thefairvaluesofthederivativesandchangesinthefairvaluesoftheunderlyinghedgeditemsarereportedasassetsandliabilitiesinthe
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ConsolidatedBalanceSheet.ChangesinthefairvaluesofthesederivativesandunderlyinghedgeditemsgenerallyoffsetandarerecordedeachperiodinSales,consistentwiththeunderlyinghedgeditem.
TheCompanyaccountsforhedgesofforeigncurrencyexposuresandcertainforecastedtransactionsascashflowhedges.ThefairvaluesofthederivativesarerecordedasassetsandliabilitiesintheConsolidatedBalanceSheet.ThechangesinthefairvaluesofthesederivativesarerecordedinOthercomprehensive(loss)incomeandarereclassifiedtoSales,Costofgoodssold,orOtherexpenses,netintheperiodinwhichearningsareimpactedbythehedgeditemsorintheperiodthatthetransactionnolongerqualifiesasacashflowhedge.Thesecontractscoverthesameperiodsasknownorexpectedexposures,generallynotexceedingfiveyears.
Ifnohedgingrelationshipisdesignated,thederivativeismarkedtomarketthroughOtherexpenses,net.
CashflowsfromderivativesarerecognizedintheStatementofConsolidatedCashFlowsinamannerconsistentwiththeunderlyingtransactions.
Income Taxes.Theprovisionforincometaxesisdeterminedusingtheassetandliabilityapproachofaccountingforincometaxes.Underthisapproach,theprovisionforincometaxesrepresentsincometaxespaidorpayable(orreceivedorreceivable)forthecurrentyearplusthechangeindeferredtaxesduringtheyear.DeferredtaxesrepresentthefuturetaxconsequencesexpectedtooccurwhenthereportedamountsofassetsandliabilitiesarerecoveredorpaidandresultfromdifferencesbetweenthefinancialandtaxbasesofAlcoa’sassetsandliabilitiesandareadjustedforchangesintaxratesandtaxlawswhenenacted.
Valuationallowancesarerecordedtoreducedeferredtaxassetswhenitismorelikelythannot(greaterthan50%)thatataxbenefitwillnotberealized.Inevaluatingtheneedforavaluationallowance,managementappliesjudgementinassessingallavailablepositiveandnegativeevidenceandconsidersallpotentialsourcesoftaxableincome,includingincomeavailableincarrybackperiods,futurereversalsoftaxabletemporarydifferences,projectionsoftaxableincome,andincomefromtaxplanningstrategies.Positiveevidenceincludesfactorssuchasahistoryofprofitableoperations,projectionsoffutureprofitabilitywithinthecarryforwardperiod,includingfromtaxplanningstrategies,andAlcoa’sexperiencewithsimilaroperations.Existingfavorablecontractsandtheabilitytosellproductsintoestablishedmarketsareadditionalpositiveevidence.Negativeevidenceincludesitemssuchascumulativelosses,projectionsoffuturelosses,orcarryforwardperiodsthatarenotlongenoughtoallowfortheutilizationofadeferredtaxassetbasedonexistingprojectionsofincome.Deferredtaxassetsforwhichnovaluationallowanceisrecordedmaynotberealizeduponchangesinfactsandcirc*mstances,resultinginafuturechargetoestablishavaluationallowance.Existingvaluationallowancesarere-examinedunderthesamestandardsofpositiveandnegativeevidence.Ifitisdeterminedthatitismorelikelythannotthatadeferredtaxassetwillberealized,theappropriateamountofthevaluationallowance,ifany,isreleased.Deferredtaxassetsandliabilitiesarealsore-measuredtoreflectchangesinunderlyingtaxratesduetolawchangesandthegrantingandlapseoftaxholidays.
Taxbenefitsrelatedtouncertaintaxpositionstakenorexpectedtobetakenonataxreturnarerecordedwhensuchbenefitsmeetamorelikelythannotthreshold.Otherwise,thesetaxbenefitsarerecordedwhenataxpositionhasbeeneffectivelysettled,whichmeansthatthestatuteoflimitationhasexpiredortheappropriatetaxingauthorityhascompletedtheirexaminationeventhoughthestatuteoflimitationsremainsopen.Interestandpenaltiesrelatedtouncertaintaxpositionsarerecognizedaspartoftheprovisionforincometaxesandareaccruedbeginningintheperiodthatsuchinterestandpenaltieswouldbeapplicableunderrelevanttaxlawuntilsuchtimethattherelatedtaxbenefitsarerecognized.
Foreign Currency.ThelocalcurrencyisthefunctionalcurrencyforAlcoa’ssignificantoperationsoutsidetheUnitedStates,exceptforcertainoperationsinCanadaandIceland,wheretheU.S.dollarisusedasthefunctionalcurrency.ThedeterminationofthefunctionalcurrencyforAlcoa’soperationsismadebasedontheappropriateeconomicandmanagementindicators.Wherelocalcurrencyisthefunctionalcurrency,assetsandliabilitiesaretranslatedintoU.S.dollarsusingyear-endexchangeratesandincomeandexpensesaretranslatedusingtheaverageexchangeratesforthereportingperiod.UnrealizedforeigncurrencytranslationgainsandlossesaredeferredinAccumulatedothercomprehensivelossontheConsolidatedBalanceSheet.
Recently Adopted Accounting Guidance.OnJanuary1,2020,theCompanyadoptedthefollowingAccountingStandardUpdates(ASU)issuedbytheFinancialAccountingStandardBoard(FASB),noneofwhichhadamaterialimpactontheCompany’sConsolidatedFinancialStatements:
• ASUNo.2019-08,Compensation—StockCompensation(Topic718)andRevenuefromContractswithCustomers(Topic606);• ASUNo.2018-15,Intangibles–GoodwillandOther–Internal-UseSoftware;• ASUNo.2018-14,Compensation—RetirementBenefits—DefinedBenefitPlans—General(Subtopic715-20);• ASUNo.2018-13,FairValueMeasurement(Topic820);and,• ASUNo.2016-13,FinancialInstruments–CreditLosses.
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Recently Issued Accounting Guidance.
InMarch2020,theFASBissuedASUNo.2020-04toprovideoptionalguidanceforalimitedperiodoftimetoeasethepotentialburdeninaccountingfor(orrecognizingtheeffectsof)referenceratereformonfinancialreporting.ManagementiscurrentlyevaluatingtheimpactofthereplacementoftheLondonInterbankOfferedRate(LIBOR)aswellastheimpactthattheexpectedadoptionoftheapplicableprovisionswithintheoptionalguidancewillhaveontheConsolidatedFinancialStatements.Theadoptionoftheapplicableprovisionswillcoincidewiththemodificationsoftheaffectedcontracts.
InDecember2019,theFASBissuedASUNo.2019-12,IncomeTaxes(Topic740)whichisintendedtosimplifytheaccountingforincometaxesbyeliminatingcertainexceptionsandsimplifyingcertainrequirementsunderTopic740.Updatesarerelatedtointraperiodtaxallocation,deferredtaxliabilitiesforequitymethodinvestments,interimperiodtaxcalculations,taxlawsorratechangesininterimperiods,andincometaxesrelatedtoemployeestockownershipplans.TheguidanceforASUNo.2019-12becomeseffectiveforAlcoaonJanuary1,2021.Onceadopted,theprovisionwilleliminatetherequirementtomakeanintraperiodallocationifthereisalossincontinuingoperationsandincomeoutsideofcontinuingoperations.ManagementhascompletedourassessmentoftheimpactrelatedtothisguidanceandconcludedthattheadoptionofthisguidancewillnothaveamaterialimpactontheCompany’sConsolidatedFinancialStatements.
C. Divestitures and Held for Sale
Divestitures.
GumSpringsWasteTreatmentBusiness
Duringthefirstquarterof2020,theCompanysoldElementalEnvironmentalSolutionsLLC(EES),awholly-ownedAlcoasubsidiarythatoperatedthewasteprocessingfacilityinGumSprings,Arkansas,toaglobalenvironmentalfirminatransactionvaluedat$250.Relatedtothistransaction,theCompanyreceived$200incashandrecordedagainof$181(pre-andafter-tax;seeNoteU).Further,anadditional$50isheldinescrowtobepaidtoAlcoaifcertainpost-closingconditionsaresatisfied,whichwouldresultinadditionalgainbeingrecorded.
AfobakaHydroelectricDam
OnDecember31,2019,AlcoacompletedthetransferoftheAfobakahydroelectricdamtotheGovernmentoftheRepublicofSuriname,accordingtodefinitiveagreementsapprovedbyitsparliament.AftercurtailmentofAlcoa’soperationsinSurinamein2015andpermanentclosureinearly2017,Alcoacontinuedtooperatethedam,sellingelectricitytothegovernmentforitssubsequentsaletocustomersinSuriname.Atthetimeofthetransfer,thefixedassetsrelatedtothedamwerefullydepreciatedandalloutstandingamountsduetoAlcoaforelectricitysalesweresettled.
AvilésandLaCoruñaAluminumFacilities
InJuly2019,AlcoacompletedthedivestitureoftheAvilésandLaCoruña(Spain)aluminumfacilitiestoPARTERCapitalGroupAG(PARTER)inasaleprocessendorsedbytheSpanishgovernmentandsupportedbytheworkers’representatives.In2020,PARTERsolditsmajoritystakeinthefacilitiestoanunrelatedparty,hereafterreferredtocollectivelyasthebuyer.TheCompanyhadnoknowledgeofthesubsequenttransactionandhasfiledalawsuitclaimingthatthesalewasinbreachofthesaleagreementbetweenAlcoaandPARTER.
Chargesrelatedtothecurtailment,employeedismissalprocess,anddivestituretotaled$253,whichwererecordedinRestructuringandothercharges,net,Costofgoodssold,andSelling,generaladministrative,andotherexpensesasoutlinedbelow.
Relatedtothedivestiture,theCompanyrecordedRestructuringandothercharges,net,of$127fortheyearendedDecember31,2019,resultingfromfinancialcontributionsofupto$95tothebuyerpertheagreementandanetchargeof$32tomeetaworkingcapitalcommitmentandwrite-offtheremainingnetbookvalueofthefacilities’netassets.Netcashoutflowsrelatedtothetransactionwere$38and$47fortheyearsendedDecember31,2020and2019,respectively.FinancialcontributionsmadeaftertheclosingdateareclassifiedasCashusedforfinancingactivitiesontheCompany’sStatementofConsolidatedCashFlows.Inaccordancewiththetermsoftheagreement,paymentsagainsttherestructuringreservecouldbemadethroughthefourthquarterof2021,andaportionoftheremainingpaymentscouldbeoffsetbycarbonemissioncreditsmonetizedbythebuyer.
ThesmeltersatAvilésandLaCoruñawerecurtailedinFebruary2019andchargesrecordedpriortothecompletionofthedivestitureintheStatementofConsolidatedOperationsinclude:Restructuringandothercharges,netforassetimpairments($80),severanceandemployeerelatedcosts($20),andcontractterminationcosts($8);Costofgoodssoldprimarilyforthewritedownofremaininginventoriestotheirnetrealizablevalue($16);and,Selling,generaladministrative,andotherexpensesformiscellaneouscharges($2).SeeNoteDforadditionaldetail.
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Ma’adenRollingCompany
InDecember2009,Alcoainvestedinajointventurerelatedtotheownershipandoperationofanintegratedaluminumcomplex(bauxitemine,aluminarefinery,aluminumsmelter,androllingmill)inSaudiArabia.Thejointventureisowned74.9%bytheSaudiArabianMiningCompany(knownasMa’aden)and25.1%byAlcoa,andoriginallyconsistedofthreeseparatecompaniesasfollows:theMa’adenBauxiteandAluminaCompany(MBAC;thebauxitemineandaluminarefinery),theMa’adenAluminiumCompany(MAC;thealuminumsmelterandcasthouse),andtheMa’adenRollingCompany(MRC;therollingmill).
InJune2019,AlcoaandMa’adenamendedthejointventureagreementthatgovernstheoperationsofeachofthethreecompaniesthatcomprisethejointventure.Theamendment,amongotheritems,transferredAlcoa’s25.1%interestinMRCtoMa’adenand,asaresult,AlcoahasnofurtherdirectorindirectequityinterestinMRC.Priortotheamendment,bothpartnerscontributed$100toMRCtomeetcurrentcashrequirements.Asaresultofthedivestiture,AlcoarecordedRestructuringandothercharges,netof$319forthewrite-offoftheinvestmentinMRC($161),thecashcontributionsdescribedabove($100),thewrite-offoftheCompany’sshareofMRC’sdelinquentpayablesduetoMAC($59)thatwereforgivenaspartofthistransaction,partiallyoffsetbyagainresultingfromthewrite-offofthefairvalueofdebtguarantee($1).SeeNoteDforadditionaldetail.
Held for Sale.
WarrickRollingMill
OnNovember30,2020,AlcoaenteredintoanagreementtosellitsrollingmilllocatedatWarrickOperations(WarrickRollingMill),anintegratedaluminummanufacturingsitenearEvansville,Indiana(WarrickOperations),toKaiserAluminumCorporation(Kaiser)fortotalconsiderationofapproximately$670,whichincludes$587incashandtheassumptionof$83inotherpostretirementemployeebenefitliabilities.Uponannouncement,theassetsandliabilitiesrelatedtothistransactionbecameclassifiedasheldforsale.Aspartofthetransaction,Alcoawillenterintoamarket-basedmetalsupplyagreementwithKaiseratclosing.AlcoawillalsoenterintoagroundleaseagreementwithKaiserforpropertythatAlcoawillcontinuetoownatWarrickOperations.Approximately1,170employeesatWarrickRollingMill,whichincludesthecasthouse,hotmill,coldmills,andcoatingandslittinglines,willbecomeemployeesofKaiseroncethetransactioniscomplete.
Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.Alcoaexpectstospendapproximately$100forsiteseparationandtransactioncosts,withapproximatelyhalfbeingspentin2021andtheremainderin2022and2023.Uponclosureofthetransaction,theCompanyexpectstorecognizeagaininOtherexpenses,net(pre-andafter-tax)ontheStatementofConsolidatedOperations.Alcoawillcontinuetoownandoperatethesite’s269,000metrictonperyearaluminumsmelterandthepowerplant,whichtogetheremployapproximately660people.TheintegratedsiteresultsareincludedwithintheAluminumsegment.
TheassetsandliabilitiesoftheWarrickRollingMillwereclassifiedasheldforsaleintheCompany’sConsolidatedBalanceSheetasofDecember31,2020andconsistedofthefollowing:
December 31, 2020 Assets
Receivablesfromcustomers $ 86Otherreceivables 6Inventories 164
Totalcurrentassets 256Properties,plants,andequipment 1,423AccumulatedDepreciation (1,031)
Properties,plants,andequipment,net 392Total Assets held for sale 648
Liabilities Accountspayable,trade 121Accruedcompensationandretirementcosts 5Othercurrentliabilities 25
Totalcurrentliabilities 151Accruedotherpostretirementbenefits 83Othernoncurrentliabilities 8
Total Liabilities held for sale $ 242
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D. Restructuring and Other Charges, Net
Restructuringandothercharges,netforeachyearinthethree-yearperiodendedDecember31,2020werecomprisedofthefollowing:
2020 2019 2018 Settlementsand/orcurtailmentsrelatedtoretirementbenefits(O) $ 58 $ 119 $ 331Severanceandemployeeterminationcosts 16 51 2Assetimpairments 2 225 18Assetretirementobligations(R) 2 75 5Environmentalremediation(S) 1 69 2Lossondivestitures — 446 —Allowanceonvalue-addedtaxcredits(U) — — 107Powercontractpayments–non-recurring — — 62Other 36 52 48Reversalsofpreviouslyrecordedlayoffandothercosts (11) (6) (48)Restructuringandothercharges,net $ 104 $ 1,031 $ 527
Severanceandemployeeterminationcostswererecordedbasedonapproveddetailedactionplanssubmittedbytheoperatinglocationsthatspecifiedpositionstobeeliminated,benefitstobepaidunderexistingseveranceplans,unioncontractsorstatutoryrequirements,andtheexpectedtimetableforcompletionoftheplans.
2020 Actions. In2020,AlcoaCorporationrecordedRestructuringandothercharges,net,of$104whichwerecomprisedofthefollowingcomponents:$59relatedtosettlementsandcurtailmentsofcertainpensionandotherpostretirementbenefits(seeNoteO);$28(net)forcostsrelatedtothecurtailmentoftheIntalco(Washington)smelter;$20foradditionalcontractcostsrelatedtothecurtailedWenatchee(Washington)smelter;andseveralotherinsignificantitems.
InApril2020,aspartoftheCompany’sportfolioreview,AlcoaCorporationannouncedthecurtailmentoftheremaining230kmtofuncompetitivesmeltingcapacityattheIntalco(Washington)smelteramiddecliningmarketconditions.Thefullcurtailment,whichincluded49kmtofearlier-curtailedcapacity,wascompletedduringthethirdquarterof2020.The$28netrestructuringchargerecordedduring2020wascomprisedof$13forseveranceandemployeeterminationcostsfromtheseparationofapproximately685employees,$16forcontractterminationcosts,andanetcurtailmentgainof$1relatedtotheU.S.hourlydefinedbenefitpensionandretireelifeplans(seeNoteO).AtDecember31,2020,theseparationofemployeesandrelatedseveranceandemployeeterminationcostpaymentsassociatedwiththisprogramwereessentiallycompletewithapproximately$11ofpaymentsmadeagainsttheseveranceandemployeeterminationcostreserve.Paymentsrelatedtothecontractterminationcostswere$5during2020.Additionalcontractterminationcostsrelatedtotake-or-payagreementsmayrecurduringthecurtailmentperiod.
InOctober2020,theCompanymadethedecisiontocurtailthe228kmtofuncompetitiveannualsmeltingcapacityattheSanCipriánsmelterinSpain.FollowingAlcoa’sannouncementtocurtailtheSanCipriánsmelter,theworkers’representativeschallengedthecollectivedismissalprocessinalegalproceedingbeforetheHighCourtofJusticeofGalicia,whichruledinfavoroftheworkersonDecember17,2020.Asaresult,theCompanysuspendeditsplanstocurtailtheSanCipriánsmelter,filedanappealoftherulingandisevaluatingnextstepsforthesmelter.Asaresult,inthefourthquarter2020,theCompanydidnotincurtheapproximately$35to$40itpreviouslyannouncedasanexpectedchargeforemployeerelatedcostsassociatedwiththecurtailmentandcollectivedismissalprocess.
2019 Actions. In2019,AlcoaCorporationrecordedRestructuringandothercharges,net,of$1,031whichwerecomprisedofthefollowingcomponents:$319relatedtothedivestitureofAlcoaCorporation’sinterestintheMa’adenRollingCompany(seebelow);$274forexitscostsrelatedtoadecisiontopermanentlycloseanddemolishthePointComfortaluminarefinery(seebelow);$235forcostsrelatedtothesmeltercurtailmentandsubsequentdivestitureoftheAvilésandLaCoruñaaluminumfacilitiesinSpain(seebelow);$119relatedtothesettlementand/orcurtailmentofcertainpensionandotherpostretirementbenefits;$37foremployeeterminationandseverancecostsrelatedtotheimplementationofthenewoperatingmodel(seebelow);$9forclosurecostsrelatedtoacoalmine;and$38fornetchargesrelatedtovariousotheritems.
InDecember2019,AlcoaCorporationannouncedthepermanentclosureofthePointComfort(Texas)aluminarefinery.Restructuringchargesrecordedin2019relatedtotheclosureincludedassetimpairmentsof$129,assetretirementobligationsof$72,environmentalremediationcostsof$69,andseverancecostsof$4forthelayoffofapproximately40employees.Additionally,achargeof$2forthewritedownofremaininginventoriestotheirnetrealizablevaluewasrecordedinCostofgoodssoldontheaccompanyingStatementofConsolidatedOperations.Changesintheseverancereserveduring2020includedareductionfromcashpaymentsof$2andareversalof$1resultingfromchangesinemployeeseverancebenefitelections.AtDecember31,2020,theseparationsassociatedwiththisprogramwereessentiallycomplete.
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InSeptember2019,AlcoaCorporationannouncedtheimplementationofanewoperatingmodelthatresultedinaleaner,moreintegrated,operator-centricorganization.EffectiveNovember1,2019,thenewoperatingmodeleliminatedthebusinessunitstructure,consolidatedsales,procurementandothercommercialcapabilitiesatanenterpriselevel,andstreamlinedtheExecutiveTeam.ThenewstructurereducedoverheadwiththeintentionofpromotingoperationalandcommercialexcellenceandincreasingconnectivitybetweentheCompany’splantsandleadership.Asaresultofthenewoperatingmodel,AlcoaCorporationrecordedachargeof$37relatedtoemployeeterminationandseverancecostsforapproximately260employeescompany-wide.ASeveranceandemployeeterminationcostreserveof$27remainedatDecember31,2019.Inadditiontotheemployeesseparatedundertheprogram,theCompanyeliminated60positionsasopenrolesorretirementswerenotreplaced.AtDecember31,2020,theseparationsassociatedwiththisprogramwereessentiallycompleteandrelatedcashpaymentsof$25weremadeduring2020.
InJanuary2019,AlcoaCorporationreachedanagreementwiththeworkers’representativesattheAvilésandLaCoruña(Spain)aluminumfacilitiesaspartofthecollectivedismissalprocessannouncedinOctober2018andcurtailedthesmeltersatthesetwolocations,withacombinedremainingoperatingcapacityof124kmt,inFebruary2019.InJuly2019,AlcoacompletedthedivestitureoftheAvilésandLaCoruñaaluminumfacilitiestothebuyer(seeNoteC).
Restructuringandothercharges,net,relatedtothecurtailmentandcollectivedismissalprocessoftheSpanishfacilitiesincludedassetimpairmentsof$80,severanceandemployee-relatedcostsof$20,andcontractterminationcostsof$8.Additionalchargesincluded$16recordedinCostofgoodssold,primarilyforthewritedownofremaininginventoriestotheirnetrealizablevalue,and$2inmiscellaneouschargesrecordedinSelling,generaladministrative,andotherexpensesontheaccompanyingStatementofConsolidatedOperations.
Restructuringandothercharges,netrelatedtothedivestitureoftheSpanishfacilitiestotaled$127fortheyearendedDecember31,2019,forfinancialcontributionsofupto$95tothebuyerpertheagreement,anetchargeof$32tomeetaworkingcapitalcommitmentandwrite-offtheremainingnetbookvalueofthefacilities’assets.FortheyearendedDecember31,2019,netcashoutflowsrelatedtothetransactionwere$47withtotalfinancialcontributionsof$68remainingatDecember31,2019.During2020,financialcontributionsof$38weremadetothebuyerandareclassifiedasCashusedforfinancingactivitiesontheCompany’sStatementofConsolidatedCashFlows.Inaccordancewiththetermsoftheagreement,paymentsagainsttherestructuringreservecouldbemadethroughthefourthquarterof2021,andaportionoftheremainingpaymentscouldbeoffsetbycarbonemissioncreditsmonetizedbythebuyer.
InDecember2009,AlcoaCorporationinvestedinajointventurerelatedtotheownershipandoperationofanintegratedaluminumcomplex(bauxitemine,aluminarefinery,aluminumsmelter,androllingmill)intheSaudiArabia.Thejointventureisowned74.9%byMa’adenand25.1%byAlcoaCorporation,andoriginallyconsistedofthreeseparatecompaniesasfollows:MBAC,MAC,andMRC.AlcoaCorporationaccountsforitsinvestmentinthejointventureundertheequitymethodasoneintegratedinvestmentasset,consistentwiththetermsofthejointventureagreement.
InJune2019,AlcoaCorporationandMa’adenamendedthejointventureagreementthatgovernstheoperationsofeachofthethreecompaniesthatcomprisethejointventure.Underthetermsoftheamendedagreement:
• AlcoaCorporationmadeacontributiontoMRCintheamountof$100,alongwithMa’aden’searliercapitalcontributionof$100,tomeetcurrentMRCcashrequirements,includingpayingcertainamountsowedbyMRCtoMACandAlcoaCorporation;
• AlcoaCorporationandMa’adenconsentedtothewrite-offof$235ofMRC’sdelinquentpayablestoMAC; • AlcoaCorporationtransferredits25.1%interestinMRCtoMa’adenand,asaresult,hasnofurtherdirectorindirectequityinterestinMRC; • AlcoaCorporationisreleasedfromallfutureMRCobligations,includingAlcoaCorporation’ssponsorsupportof$296ofMRCdebt(seeNoteS)and
itsshareofanyfutureMRCcashrequirements;and, • AlcoaCorporationandMa’adenfurtherdefinedMBACandMACshareholderrights,includingthetiminganddeterminationoftheamountofdividend
paymentsofexcesscashtothejointventurepartnersfollowingrequireddistributionstothecommerciallendersofMBACandMAC;amongothermatters.
TheamendmentalsodefinesOctober1,2021asthedateafterwhichAlcoaCorporationispermittedtosellallofitssharesinbothMBACandMACcollectively,forwhichMa’adenhasarightoffirstrefusal.TheagreementfurtheroutlinesthatAlcoaCorporation’scalloptionandMa’aden’sputoption,relatingtoadditionalinterestsinthejointventure,areexercisableforaperiodofsix-monthsafterOctober1,2021.
Thepartieswillmaintaintheircommercialrelationshipandaspartoftheagreement,AlcoaCorporationprovidedsales,logistics,andcustomertechnicalservicessupportforMRCproductsfortheNorthAmericancansheetmarketthroughDecember2020.TheCompanywillretainits25.1%minorityinterestinMBACandMAC,andMa’adenwillcontinuetoowna74.9%interest.
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The$319restructuringchargeresultingfromtheMRCdivestitureincludedthewrite-offofAlcoaCorporation’sinvestmentinMRCof$161,thecashcontributionsdescribedaboveof$100,andthewrite-offofAlcoaCorporation’sshareofMRC’sdelinquentpayablesduetoMACof$59thatwereforgivenaspartofthistransaction,whichwerepartiallyoffsetbyagainof$1fromthewrite-offofthefairvalueofdebtguarantee.
2018 Actions.In2018,AlcoaCorporationrecordedRestructuringandothercharges,netof$527,whichwerecomprisedofthefollowingcomponents:$331(net)relatedtosettlementsandcurtailmentsofcertainpensionandotherpostretirementbenefits(seeNoteO);$107toestablishanallowanceoncertainvalue-addedtaxcreditsrelatedtotheCompany’soperationsinBrazil(seeNoteU);$86forcostsrelatedtotheenergysupplyagreementatthecurtailedWenatchee(Washington)smelter,including$73associatedwith2018managementdecisionnottorestartthefullycurtailedWenatcheesmelterwithinthetermprovidedintheenergysupplyagreement;a$15netbenefitforsettlementofmattersrelatedtothePortovesme(Italy)smelter;andan$18netchargeforotheritems.
InJune2018,managementdecidednottorestartthefullycurtailedWenatcheesmelterwithinthetermprovidedintherelatedelectricitysupplyagreement.AlcoaCorporationwasthereforerequiredtomakea$62paymenttotheenergysupplierundertheprovisionsoftheagreement.Additionally,managementdecidedtopermanentlycloseone(38kmt)ofthefourpotlinesatthissmelter.Thispotlinehasnotoperatedsince2001andtheinvestmentsneededtorestartthislinewerecostprohibitive.Theremainingthreecurtailedpotlineshaveacapacityof146kmt.Inconnectionwiththesedecisions,theCompanyrecognizedachargeof$73,composedofthe$62payment,$10forassetimpairments,and$1forassetretirementobligationstriggeredbythedecisiontodecommissionthepotline.
AlcoaCorporationdoesnotincludeRestructuringandothercharges,netintheresultsofitsreportablesegments.Theimpactofallocatingsuchchargestosegmentresultswouldhavebeenasfollows:
2020 2019 2018 Bauxite $ 1 $ 5 $ 1Alumina 5 272 112Aluminum 53 611 102
Segmenttotal 59 888 215Corporate 45 143 312TotalRestructuringandothercharges,net $ 104 $ 1,031 $ 527
Activityandreservebalancesforrestructuringchargeswereasfollows:
Severanceand
employeetermination
costs Othercosts Total
Balances at December 31, 2017 $ 11 $ 34 $ 45Restructuringcharges,net 2 109 111Cashpayments (7) (95) (102)Reversalsandother (1) (6) (7)Balances at December 31, 2018 5 42 47Restructuringcharges,net 51 161 212Cashpayments (19) (99) (118)Reversalsandother (2) (2) (4)Balances at December 31, 2019 35 102 137Restructuringcharges,net 16 36 52Cashpayments (41) (79) (120)Reversalsandother (4) (2) (6)Balances at December 31, 2020 $ 6 $ 57 $ 63
TheactivityandreservebalancesincludeonlyRestructuringandothercharges,netthatimpactthereservesforSeveranceandemployeeterminationcostsandOthercosts.Restructuringandothercharges,netthataffectedotherliabilityaccountssuchasenvironmentalobligations(seeNoteS),assetretirementobligations(seeNoteR),andpensionandotherpostretirementreserves(seeNoteO)areexcludedfromtheaboveactivityandbalances.Reversalsandotherincludereversalsofpreviouslyrecordedliabilitiesandforeigncurrencytranslationimpacts.
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ThecurrentportionofthereservebalanceisreflectedinOthercurrentliabilitiesontheConsolidatedBalanceSheetandthenoncurrentportionofthereservebalanceisreflectinOthernoncurrentliabilitiesanddeferredcreditsontheConsolidatedBalanceSheet.ThenoncurrentportionofthereserveatDecember31,2020was$1.ThenoncurrentportionofthereserveatDecember31,2019was$13,ofwhich$12relatedtofinancialcontributionstothebuyeroftheSpanishfacilities.
E. Segment and Related Information
Segment Information
AlcoaCorporationisaproducerofbauxite,alumina,andaluminumproducts(primaryandflat-rolled).TheCompanyhasthreeoperatingandreportablesegments,whichareorganizedbyproductonaglobalbasis:Bauxite,Alumina,andAluminum.SegmentperformanceunderAlcoaCorporation’smanagementreportingsystemisevaluatedbasedonanumberoffactors;however,theprimarymeasureofperformanceistheAdjustedEBITDA(Earningsbeforeinterest,taxes,depreciation,andamortization)ofeachsegment.TheCompanycalculatessegmentAdjustedEBITDAasTotalsales(third-partyandintersegment)minusthefollowingitems:Costofgoodssold;Selling,generaladministrative,andotherexpenses;andResearchanddevelopmentexpenses.AlcoaCorporation’sAdjustedEBITDAmaynotbecomparabletosimilarlytitledmeasuresofothercompanies.Thechiefoperatingdecisionmakerfunctionregularlyreviewsthefinancialinformation,includingSalesandAdjustedEBITDA,ofthesethreeoperatingsegmentstoassessperformanceandallocateresources.
Segmentassetsinclude,amongothers,customerreceivables(third-partyandintersegment),inventories,properties,plants,andequipment,andequityinvestments.TheaccountingpoliciesofthesegmentsarethesameasthosedescribedintheSummaryofSignificantAccountingPolicies(seeNoteB).Transactionsamongsegmentsareestablishedbasedonnegotiationamongtheparties.DifferencesbetweensegmenttotalsandAlcoaCorporation’sconsolidatedtotalsforlineitemsnotreconciledareinCorporate.
ThefollowingaredetaileddescriptionsofAlcoaCorporation’sreportablesegments:
Bauxite.ThissegmentrepresentstheCompany’sglobalbauxiteminingoperations.Aportionofthissegment’sproductionrepresentstheofftakefromequitymethodinvestmentsinBrazilandGuinea,aswellasAWAC’sshareofbauxiteproductionrelatedtoanequityinvestmentinSaudiArabia.ThebauxiteminedbythissegmentissoldprimarilytointernalcustomerswithintheAluminasegment;aportionofthebauxiteissoldtoexternalcustomers.BauxiteminedbythissegmentandusedinternallyistransferredtotheAluminasegmentatnegotiatedtermsthatareintendedtoapproximatemarketprices;salestothird-partiesareconductedonacontractbasis.Generally,thissegment’ssalesaretransactedinU.S.dollarswhilecostsandexpensesaretransactedinthelocalcurrencyoftherespectiveoperations,whicharetheAustraliandollarandtheBrazilianreal.MostoftheoperationsthatcomprisetheBauxitesegmentarepartofAWAC(seePrinciplesofConsolidationinNoteA).
Alumina.ThissegmentrepresentstheCompany’sworldwiderefiningsystem,whichprocessesbauxiteintoalumina.Thealuminaproducedbythissegmentissoldprimarilytointernalandexternalaluminumsmeltercustomers;aportionofthealuminaissoldtoexternalcustomerswhoprocessitintoindustrialchemicalproducts.Approximatelytwo-thirdsofAlumina’sproductionissoldundersupplycontractstothirdpartiesworldwide,whiletheremainderisusedinternallybytheAluminumsegment.AluminaproducedbythissegmentandusedinternallyistransferredtotheAluminumsegmentatprevailingmarketprices.Aportionofthissegment’sthird-partysalesarecompletedthroughtheuseofaluminatraders.Generally,thissegment’ssalesaretransactedinU.S.dollarswhilecostsandexpensesaretransactedinthelocalcurrencyoftherespectiveoperations,whicharetheAustraliandollar,theBrazilianreal,theU.S.dollar,andtheeuro.MostoftheoperationsthatcomprisetheAluminasegmentarepartofAWAC(seePrinciplesofConsolidationinNoteA).ThissegmentalsoincludesAWAC’s25.1%ownershipinterestinaminingandrefiningjointventurecompanyinSaudiArabia(seeNoteH).
Aluminum.ThissegmentconsistsoftheCompany’s(i)worldwidesmeltingandcasthousesystem,whichprocessesaluminaintoprimaryaluminum,(ii)portfolioofenergyassetsinBrazil,Canada,andtheUnitedStates,and(iii)rollingmillintheUnitedStates.
Aluminum’scombinedsmeltingandcastingoperationsproduceprimaryaluminumproducts,virtuallyallofwhicharesoldtoexternalcustomersandtraders;aportionofthisprimaryaluminumisconsumedbytherollingmill.Thesmeltingoperationsproducemoltenprimaryaluminum,whichisthenformedbythecastingoperationsintoeithercommonalloyingot(e.g.,t-bar,sow,standardingot)orintovalue-addingotproducts(e.g.,foundry,billet,rod,andslab).Avarietyofexternalcustomerspurchasetheprimaryaluminumproductsforuseinfabricationoperations,whichproduceproductsprimarilyforthetransportation,buildingandconstruction,packaging,wire,andotherindustrialmarkets.Resultsfromthesaleofaluminumpowderandscraparealsoincludedinthissegment,aswellastheimpactsofembeddedaluminumderivatives(seeNoteP)relatedtoenergysupplycontracts.
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TheenergyassetssupplypowertoexternalcustomersinBraziland,toalesserextent,intheUnitedStates,andinternalcustomersintheAluminum(CanadiansmeltersandWarrick(Indiana)smelterandrollingmill)andAluminasegments(Brazilianrefineries).
Therollingmillproducesaluminumsheetprimarilysolddirectlytocustomersinthepackagingmarketfortheproductionofaluminumcans(beverageandfood).Additionally,fromtheSeparationDatethroughtheendof2018,AlcoaCorporationhadatollingarrangement(contractuallyendedonDecember31,2018)withParentCowherebyParentCo’srollingmillinTennesseeproducedcansheetproductsforcertaincustomersoftheCompany’srollingoperations.AlcoaCorporationsuppliedalloftherawmaterialstotheTennesseefacilityandpaidParentCoforthetollingservice.OnNovember30,2020,AlcoaannouncedanagreementtosellitsrollingmilltoKaiser.Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions(seeNoteC).
Generally,thissegment’saluminumsalesaretransactedinU.S.dollarswhilecostsandexpensesofthissegmentaretransactedinthelocalcurrencyoftherespectiveoperations,whicharetheU.S.dollar,theeuro,theNorwegiankrone,theIcelandickróna,theCanadiandollar,theBrazilianreal,andtheAustraliandollar.
ThissegmentalsoincludesAlcoaCorporation’s25.1%ownershipinterestinbothasmelting(throughfullyear2020)androllingmill(throughthesecondquarterof2019)jointventurecompanyinSaudiArabia(seeNoteH).
Theoperatingresults,capitalexpenditures,andassetsofAlcoaCorporation’sreportablesegmentswereasfollows:
Bauxite Alumina Aluminum Total 2020 Sales:
Third-partysales $ 272 $ 2,627 $ 6,365 $ 9,264Intersegmentsales 941 1,268 12 2,221
Totalsales $ 1,213 $ 3,895 $ 6,377 $ 11,485SegmentAdjustedEBITDA $ 495 $ 497 $ 325 $ 1,317Supplementalinformation:
Depreciation,depletion,andamortization $ 135 $ 172 $ 322 $ 629Equityloss — (23) (7) (30)
2019 Sales:
Third-partysales $ 297 $ 3,250 $ 6,803 $ 10,350Intersegmentsales 979 1,561 17 2,557
Totalsales $ 1,276 $ 4,811 $ 6,820 $ 12,907SegmentAdjustedEBITDA $ 504 $ 1,097 $ 25 $ 1,626Supplementalinformation:
Depreciation,depletion,andamortization $ 120 $ 214 $ 346 $ 680Equityincome(loss) — 6 (49) (43)
2018 Sales:
Third-partysales $ 271 $ 4,215 $ 8,829 $ 13,315Intersegmentsales 944 2,101 18 3,063
Totalsales $ 1,215 $ 6,316 $ 8,847 $ 16,378SegmentAdjustedEBITDA $ 426 $ 2,373 $ 451 $ 3,250Supplementalinformation:
Depreciation,depletion,andamortization $ 111 $ 197 $ 394 $ 702Equityincome(loss) — 32 (38) (6)
2020 Assets:
Capitalexpenditures $ 127 $ 103 $ 111 $ 341Equityinvestments 222 264 546 1,032Totalassets 1,468 4,333 6,214 12,015
2019 Assets:
Capitalexpenditures $ 53 $ 137 $ 152 $ 342Equityinvestments 212 293 587 1,092Totalassets 1,434 4,303 6,588 12,325
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Thefollowingtablesreconcilecertainsegmentinformationtoconsolidatedtotals:
2020 2019 2018 Sales:
Totalsegmentsales $ 11,485 $ 12,907 $ 16,378Eliminationofintersegmentsales (2,221) (2,557) (3,063)Other 22 83 88
Consolidatedsales $ 9,286 $ 10,433 $ 13,403
2020 2019 2018
Net(loss)incomeattributabletoAlcoaCorporation: TotalSegmentAdjustedEBITDA $ 1,317 $ 1,626 $ 3,250Unallocatedamounts:
Transformation(1) (45) (7) (3)Intersegmenteliminations (8) 150 (8)Corporateexpenses(2) (102) (101) (96)Provisionfordepreciation,depletion,andamortization (653) (713) (733)Restructuringandothercharges,net(D) (104) (1,031) (527)Interestexpense(U) (146) (121) (122)Otherexpenses,net(U) (8) (162) (64)Other(3) (78) (79) (72)
Consolidatedincome(loss)beforeincometaxes 173 (438) 1,625Provisionforincometaxes(Q) (187) (415) (732)Netincomeattributabletononcontrollinginterest (156) (272) (643)
Consolidatednet(loss)incomeattributabletoAlcoaCorporation $ (170) $ (1,125) $ 250
(1) Transformationincludes,amongotheritems,theAdjustedEBITDAofpreviouslyclosedoperations.(2) Corporateexpensesarecomposedofgeneraladministrativeandotherexpensesofoperatingthecorporateheadquartersandotherglobaladministrative
facilities,aswellasresearchanddevelopmentexpensesofthecorporatetechnicalcenter.(3) OtherincludescertainitemsthatimpactCostofgoodssoldandotherexpensesonAlcoaCorporation’sStatementofConsolidatedOperationsthatarenot
includedintheAdjustedEBITDAofthereportablesegments.
December 31, 2020 2019 Assets:
Totalsegmentassets $ 12,015 $ 12,325Eliminationofintersegmentreceivables (193) (170)Unallocatedamounts:
Cashandcashequivalents 1,607 879Corporatefixedassets,net 453 519Corporategoodwill 141 145Deferredincometaxes 655 642Other 182 291
Consolidatedassets $ 14,860 $ 14,631
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Product Information
AlcoaCorporationhasfiveproductdivisionsasfollows:
Bauxite—Bauxiteisareddishclayrockthatisminedfromthesurfaceoftheearth’sterrain.Thisoreisthebasicrawmaterialusedtoproducealuminaandistheprimarysourceofaluminum.
Alumina—Aluminaisanoxidethatisextractedfrombauxiteandisthebasicrawmaterialusedtoproduceprimaryaluminum.Thisproductcanalsobeconsumedfornon-metallurgicalpurposes,suchasindustrialchemicalproducts.
Primary aluminum—Primaryaluminumismetalintheformofacommonalloyingot(e.g.,t-bar,sow,standardingot)oravalue-addingot(e.g.,billet,rod,andslab).Theseproductsaresoldprimarilytocustomersthatproduceproductsforthetransportation,buildingandconstruction,packaging,wire,andotherindustrialmarkets.
Flat-rolled aluminum—Flat-rolledaluminumismetalintheformofsheet,whichissoldprimarilytocustomersthatproducebeverageandfoodcans,includingbody,tab,andendstock.
Energy—Energyisthegenerationofelectricity,whichissoldinthewholesalemarkettotraders,largeindustrialconsumers,distributioncompanies,andothergenerationcompanies.
ThefollowingtablerepresentsthegeneralcommercialprofileoftheCompany’sBauxite,Alumina,Primaryaluminum,andFlat-rolledaluminumproductdivisions(seetextbelowtableforEnergy):Product division Pricing components Shipping terms(4) Payment terms(5)
Bauxite Negotiated FOB/CIF LCSightAlumina: Smelter-grade API(1)/spot FOB LCSight/CAD/Net30daysNon-metallurgical Negotiated FOB/CIF Net30days
Primaryaluminum: Commonalloyingot LME+Regionalpremium(2) DAP/CIF Net30to45daysValue-addingot LME+Regionalpremium+Product
premium(2)DAP/CIF Net30to45days
Flat-rolledaluminum Metal+Conversion(3) DAP Negotiated(1) API(AluminaPriceIndex)isapricingmechanismthatiscalculatedbytheCompanybasedontheweightedaverageofapriormonth’sdailyspotprices
publishedbythefollowingthreeindices:CRUMetallurgicalGradeAluminaPrice;PlattsMetalsDailyAluminaPAXPrice;andMetalBulletinNon-FerrousMetalsAluminaIndex.
(2) LME(LondonMetalExchange)isagloballyrecognizedexchangeforcommoditytrading,includingaluminum.TheLMEpricingcomponentrepresentstheunderlyingbasemetalcomponent,basedonquotedpricesforaluminumontheexchange.TheregionalpremiumrepresentstheincrementalpriceoverthebaseLMEcomponentthatisassociatedwiththephysicaldeliveryofmetaltoaparticularregion(e.g.,theMidwestpremiumformetalsoldintheUnitedStates).Theproductpremiumrepresentstheincrementalpriceforreceivingphysicalmetalinaparticularshape(e.g.,billet,rod,slab,etc.)oralloy.
(3) Metalrepresentstheunderlyingbasemetalcomponentplusaregionalpremium(seefootnote2).Conversionrepresentstheincrementalpriceoverthemetalpricecomponentthatisassociatedwithconvertingprimaryorscrapaluminumintosheet.
(4) CIF(cost,insurance,andfreight)meansthattheCompanypaysfortheseitemsuntiltheproductreachesthebuyer’sdesignateddestinationpointrelatedtotransportationbyvessel.DAP(deliveredatplace)meansthesameasCIFrelatedtoallmethodsoftransportation.FOB(freeonboard)meansthattheCompanypaysforcosts,insurance,andfreightuntiltheproductreachestheseller’sdesignatedshippingpoint.
(5) ThenetnumberofdaysmeansthatthecustomerisrequiredtoremitpaymenttotheCompanyfortheinvoiceamountwithinthedesignatednumberofdays.LCSightisaletterofcreditthatispayableimmediately(usuallywithinfivetotenbusinessdays)afterasellermeetstherequirementsoftheletterofcredit(i.e.shippingdocumentsthatevidencethesellerperformeditsobligationsasagreedtowithabuyer).CAD(cashagainstdocuments)isapaymentarrangementinwhichasellerinstructsabanktoprovideshippingandtitledocumentstothebuyeratthetimethebuyerpaysinfulltheaccompanyingbillofexchange.
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FortheCompany’sEnergyproductdivision,salesofelectricityarebasedoncurrentmarketprices.Electricityisprovidedtocustomersondemandthroughanationalorregionalpowergrid;thecustomersimultaneouslyreceivesandconsumestheelectricity.Paymenttermsaregenerallywithin10daysrelatedtotheprevious30daysofelectricityconsumption.
ThefollowingtabledetailsAlcoaCorporation’sThird-partysalesbyproductdivision:
2020 2019 2018 Sales:
Primaryaluminum $ 5,190 $ 5,426 $ 6,787Alumina 2,624 3,246 4,209Flat-rolledaluminum 1,115 1,220 1,884Bauxite 238 276 254Energy 141 290 335Other (22) (25) (66)
$ 9,286 $ 10,433 $ 13,403
Otherincludesrealizedgainsandlossesrelatedtoembeddedderivativeinstrumentsdesignatedascashflowhedgesofforwardsalesofaluminum(seeNoteP).
Geographic Area Information
GeographicinformationforThird-partysaleswasasfollows(baseduponthecountrywherethepointofsaleoriginated):
2020 2019 2018 Sales:
UnitedStates(1) $ 4,246 $ 4,606 $ 5,887Spain(2) 2,766 3,077 3,806Australia 1,884 2,249 2,930Brazil 346 428 498Canada 31 5 216Other 13 68 66
$ 9,286 $ 10,433 $ 13,403
(1) SalesofaportionofthealuminafromrefineriesinAustraliaandBrazilandmostofthealuminumfromsmeltersinCanadaoccurredintheUnitedStates.(2) SalesofthealuminumproducedfromsmeltersinIcelandandNorway,aswellastheoff-takerelatedtoaninterestintheSaudiArabiajointventure(see
NoteH),occurredinSpain.
Geographicinformationforlong-livedassetswasasfollows(baseduponthephysicallocationoftheassets):December 31, 2020 2019 Long-livedassets:
Australia $ 2,282 $ 2,044Brazil 1,215 1,596Iceland 1,102 1,160UnitedStates 1,009 1,491Canada 1,002 1,047Norway 357 365Spain 218 209Other 5 4
$ 7,190 $ 7,916
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F. Earnings Per Share
Basicearningspershare(EPS)amountsarecomputedbydividingNet(loss)incomeattributabletoAlcoaCorporationbytheaveragenumberofcommonsharesoutstanding.DilutedEPSamountsassumetheissuanceofcommonstockforallpotentiallydilutiveshareequivalentsoutstanding.
TheshareinformationusedtocomputebasicanddilutedEPSattributabletoAlcoaCorporationcommonshareholderswasasfollows(inmillions):
2020 2019 2018 Averagesharesoutstanding—basic 186 185 186Effectofdilutivesecurities:
Stockoptions — — 1Stockunits — — 2
Averagesharesoutstanding—diluted 186 185 189
In2020,basicaveragesharesoutstandinganddilutedaveragesharesoutstandingwerethesamebecausetheeffectofpotentialsharesofcommonstockwasanti-dilutive.HadAlcoageneratednetincomein2020,onemillioncommonshareequivalentsrelatedtofivemillionoutstandingstockunitsandstockoptionscombinedwouldhavebeenincludedindilutedaveragesharesoutstandingfortherespectiveperiod.OptionstopurchasetwomillionsharesofcommonstockoutstandingatDecember31,2020hadaweightedaverageexercisepriceof$26.85persharewhichwasgreaterthantheaveragemarketpricepershareofAlcoaCorporation’scommonstock.
In2019,basicaveragesharesoutstandinganddilutedaveragesharesoutstandingwerethesamebecausetheeffectofpotentialsharesofcommonstockwasanti-dilutive.HadAlcoageneratednetincomein2019,onemillioncommonshareequivalentsrelatedtofourmillionoutstandingstockunitsandstockoptionscombinedwouldhavebeenincludedindilutedaveragesharesoutstandingfortherespectiveperiod.OptionstopurchasetwomillionsharesofcommonstockoutstandingatDecember31,2019hadaweightedaverageexercisepriceof$32.66persharewhichwasgreaterthantheaveragemarketpricepershareofAlcoaCorporation’scommonstock.
OptionstopurchaseonemillionsharesofcommonstockoutstandingasofDecember31,2018ataweightedaverageexercisepriceof$38.67persharewerenotincludedinthecomputationofdilutedEPSbecausetheexercisepricesoftheseoptionsweregreaterthantheaveragemarketpricepershareofAlcoaCorporation’scommonstock.
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G. Accumulated Other Comprehensive Loss
ThefollowingtabledetailstheactivityofthethreecomponentsthatcompriseAccumulatedothercomprehensivelossforbothAlcoaCorporation’sshareholdersandnoncontrollinginterest:
Alcoa Corporation Noncontrolling interest 2020 2019 2018 2020 2019 2018
Pension and other postretirement benefits (O) Balanceatbeginningofperiod $ (2,282) $ (2,283) $ (2,786) $ (56) $ (46) $ (47)Othercomprehensive(loss)income:
Unrecognizednetactuariallossandpriorservicecost/benefit (545) (309) 19 (19) (14) (3)Taxbenefit(expense) 31 28 (8) 3 — —
TotalOthercomprehensive(loss)incomebeforereclassifications,netoftax (514) (281) 11 (16) (14) (3)
Amortizationofnetactuariallossandpriorservicecost/benefit(1) 269 299 546 6 5 4Taxexpense(2) (9) (17) (54) (1) (1) —
TotalamountreclassifiedfromAccumulatedothercomprehensiveloss,netoftax(7) 260 282 492 5 4 4
TotalOthercomprehensive(loss)income (254) 1 503 (11) (10) 1Balanceatendofperiod $ (2,536) $ (2,282) $ (2,283) $ (67) $ (56) $ (46) Foreign currency translation Balanceatbeginningofperiod $ (2,160) $ (2,071) $ (1,467) $ (834) $ (810) $ (581)Othercomprehensiveloss(3) (225) (89) (604) (10) (24) (229)Balanceatendofperiod $ (2,385) $ (2,160) $ (2,071) $ (844) $ (834) $ (810) Cash flow hedges (P) Balanceatbeginningofperiod $ (532) $ (211) $ (929) $ 20 $ 31 $ 51Othercomprehensive(loss)income:
Netchangefromperiodicrevaluations (345) (437) 803 (36) 20 (4)Taxbenefit(expense) 74 83 (159) 10 (6) 1
TotalOthercomprehensive(loss)incomebeforereclassifications,netoftax (271) (354) 644 (26) 14 (3)
Netamountreclassifiedtoearnings: Aluminumcontracts(4) 66 44 108 — — —Financialcontracts(5) 15 (43) (37) 6 (35) (24)Foreignexchangecontracts(4) 20 18 6 — — —Interestratecontracts(6) 5 4 — — — —
Sub-total 106 23 77 6 (35) (24)Tax(expense)benefit(2) (11) 10 (3) (1) 10 7
TotalamountreclassifiedfromAccumulatedothercomprehensiveloss,netoftax(7) 95 33 74 5 (25) (17)
TotalOthercomprehensive(loss)income (176) (321) 718 (21) (11) (20)Balanceatendofperiod $ (708) $ (532) $ (211) $ (1) $ 20 $ 31 TotalAccumulatedothercomprehensiveloss $ (5,629) $ (4,974) $ (4,565) $ (912) $ (870) $ (825)(1) Theseamountswereincludedinthecomputationofnetperiodicbenefitcostforpensionandotherpostretirementbenefits.Theamountsrelatedto
settlementsand/orcurtailmentsofcertainpensionandotherpostretirementbenefitsforAlcoaCorporationinclude$55,$116and$330fortheyearsendedDecember31,2020,2019,and2018,respectively.Theamountsrelatedtosettlementsand/orcurtailmentsofcertainpensionandotherpostretirementbenefitsforNoncontrollinginterestinclude$3,$3,and$1fortheyearsendedDecember31,2020,2019,and2018,respectively(seeNoteO).
(2) TheseamountswerereportedinProvisionforincometaxesontheaccompanyingStatementofConsolidatedOperations.(3) Inallperiodspresented,therewerenotaximpactsrelatedtoratechangesandnoamountswerereclassifiedtoearnings.(4) TheseamountswerereportedinSalesontheaccompanyingStatementofConsolidatedOperations.(5) TheseamountswerereportedinCostofgoodssoldontheaccompanyingStatementofConsolidatedOperations.(6) TheseamountswereincludedinOtherexpenses,netontheaccompanyingStatementofConsolidatedOperations.(7) Apositiveamountindicatesacorrespondingchargetoearningsandanegativeamountindicatesacorrespondingbenefittoearnings.
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H. InvestmentsDecember 31, 2020 2019 Equityinvestments $ 1,041 $ 1,103Otherinvestments 10 10 $ 1,051 $ 1,113
Equity Investments.ThefollowingtablesummarizesinformationofAlcoaCorporation’sequityinvestmentsasofDecember31,2020and2019.In2020,2019,and2018,AlcoaCorporationreceived$44,$39,and$45,respectively,individendsfromtheseequityinvestments.TheCompanydivesteditsinterestintheMa’adenRollingCompanyinJune2019(seebelow).Eachoftheinvesteeseitherownsthefacilitylistedorhasanownershipinterestinanentitythatownsthefacilitylisted:
Investee Country Nature of investment Income Statement Location
of Equity Earnings Ownership
interest Ma’adenAluminumCompany SaudiArabia Aluminumsmelterandcasthouse Otherexpenses,net 25.1% Ma’adenBauxiteandAluminaCompany SaudiArabia Bauxitemineandaluminarefinery Otherexpenses,net 25.1% HalcoMining,Inc. Guinea Bauxitemine Costofgoodssold 45% EnergéticaBarraGrandeS.A. Brazil Hydroelectricgenerationfacility Costofgoodssold 42.18% PechineyReynoldsQuebec,Inc. Canada Aluminumsmelter Costofgoodssold 50% ConsorcioSerradoFacão Brazil Hydroelectricgenerationfacility Costofgoodssold 34.97% MineraçãoRiodoNorteS.A. Brazil Bauxitemine Costofgoodssold 18.2% ManicouaganPowerLimitedPartnership Canada Hydroelectricgenerationfacility Costofgoodssold 40% ElysisTMLimitedPartnership Canada Aluminumsmeltingtechnology Otherexpenses,net 48.235%
Saudi Arabia Joint Venture—AlcoaCorporationandMa’adenhavea30-year(fromDecember2009)jointventureshareholdersagreement(automaticextensionforanadditional20years,unlessthepartiesagreeotherwiseorunlessearlierterminated)settingforththetermsforthedevelopment,construction,ownership,andoperationofanintegratedaluminumcomplexinSaudiArabia.TheprojectdevelopedbythejointventureconsistsofabauxiteminefromtheAlBa’ithabauxitedepositinthenorthernpartofSaudiArabia,analuminarefinery,aprimaryaluminumsmelter,andanaluminumrollingmill.
Thejointventureisowned74.9%byMa’adenand25.1%byAlcoaCorporationandoriginallyconsistedofthreeseparatecompaniesasfollows:thebauxitemineandaluminarefinery(MBAC),thesmelter(MAC),andtherollingmill(MRC).InJune2019,AlcoaCorporationandMa’adenamendedthejointventureagreementthatgovernstheoperationsofeachofthethreecompaniesthatcomprisethejointventure.Underthetermsoftheagreement,AlcoaCorporationtransferredits25.1%interestinMRCtoMa’adenand,asaresult,hasnofurtherdirectorindirectequityinterestinMRC.RefertoNoteDforadditionalinformationrelatedtotheagreementamendment.
AnumberofAlcoaCorporationemployeesperformvarioustypesofservicesforthesmelting,rollingmill,andminingandrefiningcompaniesaspartoftheoperationofthefully-integratedaluminumcomplex.AtDecember31,2020and2019,theCompanyhadanaggregateoutstandingreceivableof$5and$8,respectively,fromthesmelting,rollingmill,andminingandrefiningcompaniesforlaborandotheremployee-relatedexpenses.
AsofDecember31,2020and2019,thecarryingvalueofAlcoa’sinvestmentinthisjointventurewas$559and$603,respectively.
ElysisTM Limited Partnership—InJune2018,AlcoaCorporation,RioTintoplc,andtheprovincialgovernmentofQuébec,Canadalaunchedanewjointventure,ElysisTMLimitedPartnership(ElysisTM).Thepurposeofthispartnershipistoadvancelargerscaledevelopmentandcommercializationofitspatent-protectedtechnologythatproducesoxygenandeliminatesalldirectgreenhousegasemissionsfromthetraditionalaluminumsmeltingprocess.AlcoaandRioTintoplc,asgeneralpartners,eachowna48.235%stakeinElysisTM,andtheQuébecprovincialgovernment,asalimitedpartner,ownsa3.53%stake.ThefederalgovernmentofCanadaandAppleInc.,aswellastheQuébecprovincialgovernment,willprovideinitialfinancingtothepartnership.Thetotalplannedcombinedinvestment(equityanddebt)ofthefiveparticipantsinthejointventureis$147(C$188).AlcoaandRioTintoplcwillinvestacombined$43(C$55)inthejointventure,aswellascontributeandlicensecertainintellectualpropertyandpatentstoElysisTM.Todate,theCompanyhascontributed$14(C$18)towarditsinitialinvestmentcommitmentinElysisTM.Inadditiontocashcontributions,Alcoaiscontributing$3inresearchanddevelopmentexpensesannually.TheCompany’sbasisintheinvestmenthasbeenreducedtozeroforitsshareoflossesincurredtodate.Asaresult,theCompanyhas$32inunrecognizedlossesasofDecember31,2020thatwillberecognizeduponadditionalcontributionsintothepartnership.
ThefollowingtablesummarizestheprofitandlossdatafortherespectiveperiodsendedDecember31,asitrelatestoAlcoaCorporation’sequityinvestments.InformationshownfortheSaudiArabiaJointVenturefor2020onlyincludesthecombinedbalancesforMACandMBAC.For2019,theinformationshownfortheSaudiArabiaJointVentureincludesthefullperiodforbothMACandMBAC,andthedataforMRCthroughthedivestituredate.Theinvestmentsaregroupedbased
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onthenatureoftheinvestment.TheMininginvestmentsarepartoftheBauxitesegment,whiletheEnergyandOtherinvestmentsareprimarilypartoftheAluminumsegment.
Saudi ArabiaJoint Venture Mining Energy Other
2020 Sales $ 2,279 $ 841 $ 238 $ 316Costofgoodssold 1,829 543 107 283Net(loss)income (108) 46 74 (24)Equityinnet(loss)incomeofaffiliatedcompanies,beforereconcilingadjustments (27) 23 31 (11)Other (7) (1) 2 14AlcoaCorporation’sequityinnet(loss)incomeofaffiliatedcompanies (34) 22 33 3
2019 Sales $ 3,185 $ 846 $ 269 $ 159Costofgoodssold 2,722 580 143 151Net(loss)income (198) 35 107 (28)Equityinnet(loss)incomeofaffiliatedcompanies,beforereconcilingadjustments (50) 16 42 (13)Other 3 5 1 16AlcoaCorporation’sequityinnet(loss)incomeofaffiliatedcompanies (47) 21 43 3
2018 Sales $ 3,986 $ 802 $ 283 $ 120Costofgoodssold 3,334 522 146 110Netincome 9 71 114 16Equityinnetincomeofaffiliatedcompanies,beforereconcilingadjustments 2 23 46 8Other (13) (10) (4) (1)AlcoaCorporation’sequityinnet(loss)incomeofaffiliatedcompanies (11) 13 42 7
ThefollowingtablesummarizesthebalancesheetdataforAlcoaCorporation’sequityinvestments.TheinformationshownfortheSaudiArabiaJointVenturefor2020and2019onlyincludesthecombinedbalancesforMACandMBAC.
Saudi ArabiaJoint Venture Mining Energy Other
2020 Currentassets $ 1,099 $ 143 $ 119 $ 219Noncurrentassets 7,648 828 401 757Currentliabilities 794 206 27 66Noncurrentliabilities 5,347 331 113 62
2019 Currentassets $ 1,109 $ 191 $ 106 $ 181Noncurrentassets 7,931 923 509 761Currentliabilities 677 156 41 59Noncurrentliabilities 5,587 511 87 42
I. Receivables
OnOctober25,2019,awholly-ownedsubsidiaryoftheCompanyenteredintoa$120three-yearrevolvingcreditfacilityagreementsecuredbycertaincustomerreceivables.AlcoaCorporationguaranteedtheperformanceobligationsofthewholly-ownedsubsidiaryunderthefacility;howevernoassets(otherthanthereceivables)werepledgedascollateral.Feespaiduponclosureoftheagreementwereapproximately$1.AtDecember31,2019,therewerenoamountsdrawnoroutstandingrelatedtothiscreditfacility.
OnApril20,2020,theCompanyamendedthisagreementconvertingittoaReceivablesPurchaseAgreementtosellupto$120ofthereceivablespreviouslysecuredbythecreditfacilitywithoutrecourseonarevolvingbasis.Theunsoldportionofthespecifiedreceivablepoolispledgedascollateraltothepurchasingbanktosecurethesoldreceivables.DuringtheyearendedDecember31,2020,noreceivablesweresoldunderthisagreement.
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J. InventoriesDecember 31, 2020 2019 Finishedgoods $ 321 $ 305Work-in-process 112 282Bauxiteandalumina 412 446Purchasedrawmaterials 377 453Operatingsupplies 176 158 $ 1,398 $ 1,644
InventoriesrelatedtotheWarrickRollingMillhavebeenexcludedfromtheDecember31,2020balancesintheabovetableduetotheannouncedsaleoftherollingmillandhavebeenreclassifiedtoAssetsheldforsale(seeNoteC).
K. Properties, Plants, and Equipment, NetDecember 31, 2020 2019 Landandlandrights,includingmines $ 320 $ 333Structures(bytypeofoperation):
Bauxitemining 1,119 1,138Aluminarefining 2,474 2,415Aluminumsmeltingandcasting 3,447 3,457Energygeneration 360 440Aluminumrolling — 290Other 350 386
7,750 8,126Machineryandequipment(bytypeofoperation):
Bauxitemining 517 499Aluminarefining 4,180 3,956Aluminumsmeltingandcasting 6,111 6,251Energygeneration 844 879Aluminumrolling — 1,057Other 465 293
12,117 12,935 20,187 21,394Less:accumulateddepreciation,depletion,andamortization 13,332 13,799 6,855 7,595Constructionwork-in-progress 335 321 $ 7,190 $ 7,916
Properties,plantsandequipmentrelatedtotheWarrickRollingMillhavebeenexcludedfromtheDecember31,2020balancesintheabovetableduetotheannouncedsaleoftherollingmillandhavebeenreclassifiedtoAssetsheldforsale(seeNoteC).
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L. Goodwill and Other Intangible Assets
Goodwill,whichisincludedinOthernoncurrentassetsontheaccompanyingConsolidatedBalanceSheet,wasasfollows:December 31, 2020 2019 Bauxite $ 2 $ 2Alumina 2 3Aluminum — —Corporate(1) 141 145 $ 145 $ 150
(1) ThecarryingvalueofCorporate’sgoodwillisnetofaccumulatedimpairmentlossesof$742asofbothDecember31,2020and2019.AsofDecember31,
2020,the$141ofgoodwillreflectedinCorporateisallocatedtotwoofAlcoaCorporation’sthreereportablesegments($47toBauxiteand$94toAlumina)forpurposesofimpairmenttesting(seeNoteB).ThisgoodwillisreflectedinCorporateforsegmentreportingpurposesbecauseitisnotincludedinmanagement’sassessmentofperformancebythetworeportablesegments.
ManagementperformedqualitativeassessmentsoftheBauxiteandAluminareportingunitsin2020anddeterminedthatitwasnotmorelikelythatnotthatthefairvalueofeitherreportingunitwaslessthatit*carryingvalue.ManagementlastperformedaquantitativeimpairmenttestfortheBauxitereportingunitin2018andtheAluminareportingunitin2019.Atthetimeofeachquantitativeassessment,theestimatedfairvalueofeachrespectivereportingunitwassubstantiallyinexcessofitscarryingvalue,resultinginnoimpairment.
Otherintangibleassets,whichareincludedinOthernoncurrentassetsontheaccompanyingConsolidatedBalanceSheet,wereasfollows: 2020 2019
December 31,
Grosscarryingamount
Accumulatedamortization
Netcarryingamount
Grosscarryingamount
Accumulatedamortization
Netcarryingamount
Computersoftware $ 236 $ (218) $ 18 $ 240 $ (216) $ 24Patentsandlicenses 25 (8) 17 25 (8) 17Otherintangibles 20 (10) 10 22 (11) 11Totalotherintangibleassets $ 281 $ (236) $ 45 $ 287 $ (235) $ 52
ComputersoftwareconsistsprimarilyofsoftwarecostsassociatedwiththeenterprisebusinesssolutionwithinAlcoatodrivecommonsystemsamongallbusinesses.
AmortizationexpenserelatedtotheintangibleassetsinthetablesabovefortheyearsendedDecember31,2020,2019,and2018was$9,$19,and$12,respectively,andisexpectedtobeapproximately$10annuallyfrom2021to2025.
M. Debt
Long-Term Debt.December 31, 2020 2019 6.75%Notes,due2024 $ 750 $ 7507.00%Notes,due2026 500 5005.500%Notes,due2027 750 —6.125%Notes,due2028 500 500Other 6 84Unamortizeddiscountsanddeferredfinancingcosts (41) (34)Total 2,465 1,800Less:amountduewithinoneyear 2 1Long-termdebt,lessamountduewithinoneyear $ 2,463 $ 1,799
Theprincipalamountoflong-termdebtmaturingineachofthenextfiveyearsis$2in2021,$1ineachof2022and2023,$751in2024,and$1in2025.In2019,Otherincludes$77classifiedasLong-termdebtduetoanoptiontoextend.In2020,theinstrumentwasreclassifiedtoShort-termborrowingsduetotheexpectedmaturityin2021andwasincludedinOthercurrentliabilitiesontheaccompanyingConsolidatedBalanceSheet.
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144A Debt.InJuly2020,AlcoaNederlandHoldingB.V.(ANHBV),awholly-ownedsubsidiaryofAlcoaCorporation,completedaRule144A(U.S.SecuritiesActof1933,asamended)debtissuancefor$750aggregateprincipalamountof5.500%SeniorNotesdue2027(the“2027Notes”).Thenetproceedsofthisissuancewereapproximately$736reflectingadiscounttotheinitialpurchasersofthe2027Notesaswellasissuancecosts.Thenetproceedswereusedforgeneralcorporatepurposes,includingaddingcashtoitsbalancesheet.Thediscounttotheinitialpurchasers,aswellascoststocompletethefinancing,wasdeferredandisbeingamortizedtointerestexpenseoverthetermofthe2027Notes.Interestonthe2027Notesispaidsemi-annuallyinJuneandDecember,whichcommencedonDecember15,2020.Theindenturecontainscustomaryaffirmativeandnegativecovenantsthataresimilartothoseincludedintheindentureforthe2028Notesdescribedbelow,suchaslimitationsonliens,limitationsonsaleandleasebacktransactions,andaprohibitiononareductionintheownershipofAWACentitiesbelowanagreedlevel.ANHBVhastheoptiontoredeemthe2027Notesonatleast15days,butnotmorethan60days,priornoticetotheholdersofthe2027Notesundermultiplescenarios,including,inwholeorinpart,atanytimeorfromtimetotimeafterJune15,2023,ataredemptionpricespecifiedintheindenture(upto102.750%oftheprincipalamountplusanyaccruedandunpaidinterestineachcase).Also,the2027Notesaresubjecttorepurchaseupontheoccurrenceofachangeincontrolrepurchaseevent(asdefinedintheindenture)atarepurchasepriceincashequalto101%oftheaggregateprincipalamountofthe2027Notesrepurchased,plusanyaccruedandunpaidinterestonthe2027Notesrepurchased.
InMay2018,ANHBV,completedaRule144A(U.S.SecuritiesActof1933,asamended)debtofferingfor$500aggregateprincipalamountof6.125%SeniorNotesdue2028(the“2028Notes”).ANHBVreceived$492innetproceedsfromthedebtofferingreflectingadiscounttotheinitialpurchasersofthe2028Notes.Thenetproceeds,alongwithavailablecashonhand,wereusedtomakediscretionarycontributionstocertainU.S.definedbenefitpensionplans(seeNoteO).Thediscounttotheinitialpurchasers,aswellascoststocompletethefinancing,wasdeferredandisbeingamortizedtointerestexpenseoverthetermofthe2028Notes.Interestonthe2028Notesispaidsemi-annuallyinNovemberandMay,whichcommencedNovember15,2018.
ANHBVhastheoptiontoredeemthe2028Notesonatleast30days,butnotmorethan60days,priornoticetotheholdersofthe2028Notesundermultiplescenarios,including,inwholeorinpart,atanytimeorfromtimetotimeafterMay2023ataredemptionpricespecifiedintheindenture(upto103.063%oftheprincipalamountplusanyaccruedandunpaidinterestineachcase).Also,the2028Notesaresubjecttorepurchaseupontheoccurrenceofachangeincontrolrepurchaseevent(asdefinedintheindenture)atarepurchasepriceincashequalto101%oftheaggregateprincipalamountofthe2028Notesrepurchased,plusanyaccruedandunpaidinterestonthe2028Notesrepurchased.
The2028Notesindentureincludesseveralcustomaryaffirmativecovenants.Additionally,the2028Notesindenturecontainsseveralnegativecovenants,that,subjecttocertainexceptions,includelimitationsonliens,limitationsonsaleandleasebacktransactions,andaprohibitiononareductionintheownershipofAWACentitiesbelowanagreedlevel.Thenegativecovenantsinthe2028Notesindenturearelessextensivethanthoseinthe2024Notesand2026Notes(seebelow)indentureandtheRevolvingCreditFacility(seebelow).Forexample,the2028Notesindenturedoesnotincludealimitationonrestrictedpayments,suchasrepurchasesofcommonstockandshareholderdividends.
InSeptember2016,ANHBVcompletedaRule144A(U.S.SecuritiesActof1933,asamended)debtofferingfor$750aggregateprincipalamountof6.75%SeniorNotesdue2024(the“2024Notes”)and$500aggregateprincipalamountof7.00%SeniorNotesdue2026(the“2026Notes”and,collectivelywiththe2024Notes,the“Notes”).ANHBVreceived$1,228innetproceedsfromthedebtofferingreflectingadiscounttotheinitialpurchasersoftheNotes.ThenetproceedswereusedtomakeapaymenttoParentCotofundthetransferofcertainassetsfromParentCotoAlcoaCorporationinconnectionwiththeSeparationTransaction,andtheremainingnetproceedswereusedforgeneralcorporatepurposes.Thediscounttotheinitialpurchasers,aswellascoststocompletethefinancing,wasdeferredandisbeingamortizedtointerestexpenseovertherespectivetermsoftheNotes.InterestontheNotesispaidsemi-annuallyinMarchandSeptember,whichcommencedMarch31,2017.
ANHBVhastheoptiontoredeemtheNotesonatleast30days,butnotmorethan60days,priornoticetotheholdersoftheNotesundermultiplescenarios,including,inwholeorinpart,atanytimeorfromtimetotimeafterSeptember2019,inthecaseofthe2024Notes,orafterSeptember2021,inthecaseofthe2026Notes,ataredemptionpricespecifiedintheindenture(upto103.375%oftheprincipalamountforthe2024Notesandupto103.500%oftheprincipalamountofthe2026Notes,plusanyaccruedandunpaidinterestineachcase).Also,theNotesaresubjecttorepurchaseupontheoccurrenceofachangeincontrolrepurchaseevent(asdefinedintheindenture)atarepurchasepriceincashequalto101%oftheaggregateprincipalamountoftheNotesrepurchased,plusanyaccruedandunpaidinterestontheNotesrepurchased.
TheNotesindenturecontainsvariousrestrictivecovenantssimilartothosedescribedbelowfortheRevolvingCreditFacility,includingalimitationonrestrictedpayments,with,amongotherexceptions,capacitytopayannualordinarydividends.Undertheindenture,AlcoaCorporationmaydeclareandmakeannualordinarydividendsinanaggregateamountnottoexceed$38ineachoftheNovember1,2016throughDecember31,2017timeperiodandannual2018(nosuchdividendsweremade),$50ineachofannual2019and2020(nosuchdividendsweremadein2019or2020),and$75intheJanuary1,2021throughSeptember30,2026(maturitydateofthe2026Notes)timeperiod,exceptthat50%ofanyunusedamountofthebaseamountinanyofthespecifiedtimeperiodsmaybeusedinthenextsucceedingperiodfollowingtheuseofthebase
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amountinsaidtimeperiod.Additionally,therestrictedpaymentsnegativecovenantincludesageneralexceptiontoallowforpotentialfuturetransactionsincrementaltothosespecificallyprovidedforintheNotesindenture.Thisgeneralexceptionprovidesforanaggregateamountofrestrictedpaymentsnottoexceedthegreaterof$250and1.5%ofAlcoaCorporation’sconsolidatedtotalassets.Accordingly,AlcoaCorporationmaymakeannualordinarydividendsinanyfiscalyearbyanaggregateamountofupto$250,assumingnootherrestrictedpaymentshavereduced,inpartorwhole,theavailablelimit.ThelimitsoftherestrictedpaymentsnegativecovenantundertheRevolvingCreditFacilitywouldgoverntheamountofordinarydividendpaymentsAlcoaCorporationcouldmakeinagiventimeframeiftheallowedamountislessthanthelimitsoftherestrictedpaymentsnegativecovenantundertheNotesindenture.
TheNotes,the2027Notes,andthe2028NotesareseniorunsecuredobligationsofANHBVanddonotentitletheholderstoanyregistrationrightspursuanttoaregistrationrightsagreement.ANHBVdoesnotintendtofilearegistrationstatementwithrespecttoresalesoforanexchangeofferfortheNotes,2027Notes,or2028Notes.TheNotes,2027Notes,and2028NotesareguaranteedonaseniorunsecuredbasisbyAlcoaCorporationanditssubsidiariesthatareguarantorsundertheRevolvingCreditFacility(the“subsidiaryguarantors”and,togetherwithAlcoaCorporation,the“guarantors”).Eachofthesubsidiaryguarantorswillbereleasedfromtheirguaranteesupontheoccurrenceofcertainevents,includingthereleaseofsuchguarantorfromitsobligationsasaguarantorundertheRevolvingCreditFacility.
TheNotes,the2027Notes,andthe2028NotesrankequallyinrightofpaymentwitheachotherandwithallofANHBV’Sexistingandfutureseniorunsecuredindebtedness;rankseniorinrightofpaymenttoanyfuturesubordinatedobligationsofANHBV;andareeffectivelysubordinatedtoANHBV’sexistingandfuturesecuredindebtedness,includingundertheRevolvingCreditFacility,totheextentofthevalueofpropertyandassetssecuringsuchindebtedness.TheguaranteesoftheNotes,the2027Notes,andthe2028Notesrankequallyinrightofpaymentwitheachotherandwithalltheguarantors’existingandfutureseniorunsecuredindebtedness;rankseniorinrightofpaymenttoanyfuturesubordinatedobligationsoftheguarantors;andareeffectivelysubordinatedtotheguarantors’existingandfuturesecuredindebtedness,includingundertheRevolvingCreditFacility,totheextentofthevalueofpropertyandassetssecuringsuchindebtedness.
Credit Facilities.AlcoaNorwayANS
OnOctober2,2019,AlcoaNorwayANS,awholly-ownedsubsidiaryofAlcoaCorporation,enteredintoaone-year,multicurrencyrevolvingcreditfacilityagreementforNOK1.3billion(approximately$152)whichisfullyandunconditionallyguaranteedonanunsecuredbasisbyAlcoaCorporation.AlcoaNorwayANSpaysaquarterlycommitmentfeeof0.465%ontheunusedportionoftherevolvingcreditfacility.TheinterestrateonoutstandingNOKloanbalancesis1.55%perannumplustheNorwegianInterbankOfferedRate(NIBOR);theinterestrateonoutstandingUSdollarloansis1.65%perannumplusLIBOR.
OnApril8,2020,AlcoaNorwayANSdrew$100againstthisfacility,andmaydosofromtimetotimeinthefuture,intheordinarycourseofbusiness.Repaymentofthedrawnamount,includinginterestaccruedat2.93%,occurreduponmaturityonJune29,2020.During2019,noamountsweredrawnrelatedtothiscreditfacility.
OnJuly3,2020,AlcoaNorwayANSamendedthemulticurrencyrevolvingcreditfacilityagreementtoalignthetermsoftheagreementwithAmendmentNo.2andAmendmentNo.3oftheRevolvingCreditFacilitydiscussedbelow.
OnSeptember30,2020,AlcoaNorwayANSenteredintoanAmendmentandRestatementAgreement(theA&RAgreement)tothemulticurrencyrevolvingcreditfacilityagreementthatextendedthematurityoneyearfromtheoriginalmaturitydatetoOctober2,2021,unlessfurtherextendedorterminatedearlyinaccordancewiththeprovisionsoftheA&RAgreement.TheA&RAgreementalsoamendedcertainfinancialratiocovenants,specifyingcalculationsbasedupontheresultsofAlcoaNorwayANSratherthanthecalculationsoutlinedintheRevolvingCreditFacility.Additionally,thequarterlycommitmentfeeontheunusedportionofthemulticurrencyrevolvingcreditfacilitywasmodifiedfrom0.465%to0.62%.AtDecember31,2020and2019,AlcoaNorwayANSwasincompliancewithallsuchcovenants.AtDecember31,2020and2019,therewerenoamountsoutstandingrelatedtothiscreditfacility.RevolvingCreditFacilityOnNovember21,2018,AlcoaCorporationandANHBVenteredintoaSecondAmendmentandRestatementAgreementtotheRevolvingCreditAgreementdatedSeptember16,2016andtheAmendmentandRestatementAgreementdatedNovember14,2017,ineachcase,withasyndicateoflendersandissuersnamedtherein,torevisecertaintermsandprovisionsoftheoriginalagreement(theAmendmentandRestatementAgreementasrevisedbytheSecondAmendmentandRestatementAgreement,hereafterreferredtoasthe“RevolvingCreditFacility”or“theFacility”).OnApril21,2020,theCompanyandANHBVenteredintoanamendment(AmendmentNo.2)totheRevolvingCreditFacilitythattemporarilyadjuststheleverageratiorequirementto3.00to1.00from2.5to1.00forthesubsequentfourconsecutivefiscalquarters,beginninginthesecondquarterof2020(theAmendmentPeriod).Theleverageratiorequirement
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willreturnto2.50to1.00startinginthesecondquarterof2021.DuringtheAmendmentPeriod,theCompany,ANHBV,andanyrestrictedsubsidiarieswillberestrictedfrommakingcertainrestrictedpaymentsorincurringincrementalsecuredloansundertheRevolvingCreditFacility.OnJune24,2020,theCompanyandANHBVenteredintoanadditionalamendment(AmendmentNo.3)totheRevolvingCreditFacilitythat(i)permanentlyadjuststhecalculationofConsolidatedEBITDA(asdefinedintheRevolvingCreditFacility)byallowingtheaddbackofcertainadditionalnon-cashcosts,and(ii)temporarilyadjusted,fortheremainingfiscalquartersin2020,themannerinwhichConsolidatedCashInterestExpense(asdefinedintheRevolvingCreditFacility)andTotalIndebtednessarecalculatedwithrespecttocertainseniornotesissuancesduringthefiscalyearendedDecember31,2020,inclusiveoftheJuly2020issuancediscussedabove.ANHBVhastheoptiontoextendtheperiodsunderAmendmentNo.3toapplytoeitherorbothfiscalquartersendingMarch31,2021andJune30,2021.However,doingsowouldalsoreducetheborrowingavailabilityundertheRevolvingCreditFacilityduringtherespectivefiscalquartersbyone-thirdofthenetproceedsofanynoteissuancesduringthefiscalyearendedDecember31,2020.Duringthefourthquarterof2020,ANHBVelectedtoextendtheperiodunderAmendmentNo.3throughthequarterendingMarch31,2021,andifANHBVelectstoextendtheperiodthroughJune30,2021,therequestforextensionmustbeprovidedonorpriortoApril1,2021.ElectionbyANHBVtoextendthetemporaryamendmentsresultsinthe2027NotesreducingtheaggregateamountofcommitmentsundertheRevolvingCreditFacilitybyapproximately$245duringtheapplicablefiscalquarters.
TheRevolvingCreditFacilityprovidesa$1,500seniorsecuredrevolvingcreditfacilitytobeusedforworkingcapitaland/orothergeneralcorporatepurposesofAlcoaCorporationanditssubsidiaries.SubjecttothetermsandconditionsoftheRevolvingCreditFacility,ANHBVmayfromtimetotimerequesttheissuanceoflettersofcreditupto$750undertheFacility,subjecttoasublimitof$400foranylettersofcreditissuedfortheaccountofAlcoaCorporationoranyofitsdomesticsubsidiaries.Additionally,ANHBVmayfromtimetotimerequestthateachofthelendersprovideoneormoreadditionaltranchesoftermloansand/orincreasetheaggregateamountofrevolvingcommitments,togetherinanaggregateprincipalamountofupto$500.AtDecember31,2020and2019,lettersofcreditissuedundertheRevolvingCreditFacilitywere$14and$17,respectively.
TheRevolvingCreditFacilityisscheduledtomatureonNovember21,2023,unlessextendedorearlierterminatedinaccordancewiththeprovisionsoftheFacility.ANHBVmaymakeextensionrequestsduringthetermoftheFacility,subjecttothelenderconsentrequirementsspecificallysetforthintheRevolvingCreditFacility.UndertheprovisionsoftheRevolvingCreditFacility,ANHBVwillpayaquarterlycommitmentfeerangingfrom0.200%to0.425%(basedonAlcoaCorporation’sleverageratio)ontheunusedportion.
Amaximumof$750inoutstandingborrowingsundertheRevolvingCreditFacilitymaybedenominatedineuros.Loanswillbearinterestatarateperannumequaltoanapplicablemarginplus,atANHBV’soption,either(a)anadjustedLIBORrateor(b)abaseratedeterminedbyreferencetothehighestof(1)theU.S.primerateaspublishedintheWallStreetJournal,(2)thegreaterofthefederalfundseffectiverateandtheovernightbankfundingrate,plus0.5%,and(3)theonemonthadjustedLIBORrateplus1%perannum.TheapplicablemarginforallloanswillvarybasedonAlcoaCorporation’sleverageratioandwillrangefrom1.50%to2.25%forLIBORloansand0.50%to1.25%forbaserateloans,subjectineachcasetoareductionof25basispointsifAlcoaCorporationattainsatleastaBaa3ratingfromeitherMoody’sInvestorServiceorBBB-ratingfromStandardandPoor’sGlobalRatings.Outstandingborrowingsmaybeprepaidwithoutpremiumorpenalty,subjecttocustomarybreakagecosts.
AllobligationsofAlcoaCorporationoradomesticentityundertheRevolvingCreditFacilityaresecuredby,subjecttocertainexceptions(includingalimitationofpledgesofequityinterestsincertainforeignsubsidiariesto65%,andcertainthresholdswithrespecttorealproperty),afirstprioritylienonsubstantiallyallassetsofAlcoaCorporationandthematerialdomesticwholly-ownedsubsidiariesofAlcoaCorporationandcertainequityinterestsofspecifiednon-U.S.subsidiaries.AllotherobligationsundertheRevolvingCreditFacilityaresecuredby,subjecttocertainexceptions(includingcertainthresholdswithrespecttorealproperty),afirstprioritysecurityinterestinsubstantiallyallassetsofAlcoaCorporation,ANHBV,thematerialdomesticwholly-ownedsubsidiariesofAlcoaCorporation,andthematerialforeignwholly-ownedsubsidiariesofAlcoaCorporationlocatedinAustralia,Brazil,Canada,Luxembourg,theNetherlands,Norway,andSwitzerland,includingequityinterestsofcertainsubsidiariesthatdirectlyholdequityinterestsinAWACentities.However,noAWACentityisaguarantorofanyobligationundertheRevolvingCreditFacilityandnoassetofanyAWACentity,orequityinterestsinanyAWACentity,willbepledgedtosecuretheobligationsundertheRevolvingCreditFacility.AsprovidedintheRevolvingCreditFacility,eachofthementionedcompaniesshallbereleasedfromallobligationsunderthefirstprioritylienand/orfirstprioritysecurityinterestupon(i)AlcoaCorporationattainingatleastaBaa3ratingfromeitherMoody’sInvestorServiceorBBB-ratingfromStandardandPoor’sGlobalRatings,ineachcasewithastableoutlookorbetter,(ii)ANHBVdeliveringtherequiredwrittennotice,and(iii)nodefaultoreventofdefault,asdefinedintheRevolvingCreditFacility,hasoccurredoriscontinuing(thedateonwhichsuchconditionsaremet,the“CollateralReleaseDate”).
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TheRevolvingCreditFacilityincludesanumberofcustomaryaffirmativecovenants.Additionally,theRevolvingCreditFacilitycontainsanumberofnegativecovenants(applicabletoAlcoaCorporationandcertainsubsidiariesdescribedasrestricted),that,subjecttocertainexceptions,includelimitationson(amongotherthings):liens;fundamentalchanges;salesofassets;indebtedness(seebelow);enteringintorestrictiveagreements;restrictedpayments(seebelow),includingrepurchasesofcommonstockandshareholderdividends(seebelow);investments(seebelow),loans,advances,guarantees,andacquisitions;transactionswithaffiliates;amendmentofcertainmaterialdocuments;andacovenantprohibitingreductionsintheownershipofAWACentities,andcertainotherspecifiedrestrictedsubsidiariesofAlcoaCorporation,belowanagreedlevel.TheRevolvingCreditFacilityalsoincludesfinancialcovenantsrequiringthemaintenanceofaspecifiedinterestexpensecoverageratioofnotlessthan5.00to1.00,andaleverageratioforanyperiodoffourconsecutivefiscalquartersthatisnotgreaterthan2.50to1.00(2.00to1.00beginningonandsubsequenttotheCollateralReleaseDate,maybeincreasedtoalevelnothigherthan2.25to1.00undercertaincirc*mstances).InaccordancewithAmendmentNo.2,theleverageratiofortheAmendmentPeriodis3.00to1.00.AsofDecember31,2020and2019,maximumadditionalborrowingcapacitytoremainincompliancewiththesecovenantswas$1,322and$1,200,respectively.AsofDecember31,2020and2019,AlcoaCorporationwasincompliancewithallsuchcovenants.
Theindebtedness,restrictedpayments,andinvestmentsnegativecovenantsincludegeneralexceptionstoallowforpotentialfuturetransactionsincrementaltothosespecificallyprovidedforintheRevolvingCreditFacility.Theindebtednessnegativecovenantprovidesforanincrementalamountnottoexceedthegreaterof$1,000and6.0%ofAlcoaCorporation’sconsolidatedtotalassets.Additionally,therestrictedpaymentsnegativecovenantprovidesforanaggregateamountnottoexceed$100andtheinvestmentsnegativecovenantprovidesforanaggregateamountnottoexceed$400,bothofwhichcontaintwoconditionsinwhichtheselimitsmayincrease.First,inanyfiscalyear,thethresholdsfortherestrictedpaymentsandinvestmentsnegativecovenantsincreaseby$250and$200,respectively,iftheconsolidatednetleverageratioisnotgreaterthan1.50to1.00and1.50to1.00,respectively,asoftheendofthepriorfiscalyear.Secondly,inregardstoboththe$100and$250forrestrictedpaymentsandthe$200forinvestments,50%ofanyunusedamountofthesebaseamountsinanyfiscalyearmaybeusedinthenextsucceedingfiscalyear.
Thefollowingdescribesthespecificrestrictedpaymentnegativecovenantforsharerepurchasesandtheapplicationoftherestrictedpaymentsgeneralexception(describedabove)tobothsharerepurchasesandordinarydividendpayments,allsubjecttotherestrictionsapplicableduringtheAmendmentPeriod.
AlcoaCorporationmayrepurchasesharesofitscommonstockpursuanttostockoptionexercisesandbenefitplansinanaggregateamountnottoexceed$25duringanyfiscalyear,exceptthat50%ofanyunusedamountofthebaseamountinanyfiscalyearmaybeusedinthenextsucceedingfiscalyearfollowingtheuseofthebaseamountinsaidfiscalyear.Additionally,asdescribedabove,theRevolvingCreditFacilityprovidesgeneralexceptionstotherestrictedpaymentsnegativecovenantthatwouldallowAlcoaCorporationtoexecutesharerepurchasesforanypurposeinanyfiscalyearbyanaggregateamountofupto$100(seeaboveforconditionsthatprovideforthislimittoincrease),assumingnootherrestrictedpaymentshavereduced,inpartorwhole,theavailablelimit.
Also,anyordinarydividendpaymentsmadebyAlcoaCorporationareonlysubjecttothegeneralexceptionforrestrictedpaymentsdescribedabove.Accordingly,AlcoaCorporationmaymakeannualordinarydividendsinanyfiscalyearbyanaggregateamountofupto$100(seeaboveforconditionsthatprovideforthislimittoincrease),assumingnootherrestrictedpaymentshavereduced,inpartorwhole,theavailablelimit.ThelimitsoftherestrictedpaymentsnegativecovenantundertheNotesindenture(see144ADebtabove)wouldgoverntheamountofordinarydividendpaymentsAlcoaCorporationcouldmakeinagiventimeframeiftheallowedamountislessthanthelimitsoftherestrictedpaymentsnegativecovenantundertheRevolvingCreditFacility.
TheRevolvingCreditFacilitycontainscustomaryeventsofdefault,includingwithrespecttoafailuretomakepaymentsundertheRevolvingCreditFacility,cross-defaultandcross-judgmentdefault,andcertainbankruptcyandinsolvencyevents.
TherewerenoborrowingsoutstandingatDecember31,2020and2019,andnoamountswereborrowedduring2020and2019undertheRevolvingCreditFacility.
N. Preferred and Common Stock
Preferred Stock.AlcoaCorporationisauthorizedtoissue100,000,000sharesofpreferredstockataparvalueof$0.01pershare.AtDecember31,2020and2019,theCompanyhadnoissuedpreferredstock.
Common Stock.AlcoaCorporationisauthorizedtoissue750,000,000sharesofcommonstockataparvalueof$0.01pershare.AsofDecember31,2020,and2019,AlcoaCorporationhad185,978,069and185,580,166,respectively,issuedandoutstandingsharesofcommonstock.
Underitsemployeestock-basedcompensationplan,theCompanyissuedsharesof397,903in2020,809,917in2019,and1,293,336in2018.TheCompanyissuesnewsharestosatisfytheexerciseofstockoptionsandtheconversionofstockunits.AsofDecember31,2020,24,769,326sharesofcommonstockwereavailableforissuance.
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InOctober2018,AlcoaCorporation’sBoardofDirectorsauthorizedacommonstockrepurchaseprogramunderwhichtheCompanymaypurchasesharesofitsoutstandingcommonstockuptoanaggregatetransactionalvalueof$200,dependingoncashavailability,marketconditions,andotherfactors.Repurchasesundertheprogrammaybemadeusingavarietyofmethods,whichmayincludeopenmarketpurchases,privatelynegotiatedtransactions,orpursuanttoaRule10b5-1plan.Thisprogramdoesnothaveapredeterminedexpirationdate.AlcoaCorporationintendstoretiretherepurchasedsharesofcommonstock.InDecember2018,theCompanyrepurchased1,723,800sharesofitscommonstockfor$50;theseshareswereimmediatelyretired.Noshareswererepurchasedin2020or2019.
DividendsoncommonstockaresubjecttoauthorizationbyAlcoaCorporation’sBoardofDirectors.TheCompanydidnotdeclareanydividendsin2020,2019,and2018.
Stock-basedCompensation
StockoptionsandstockunitsaregenerallygrantedineitherJanuaryorFebruaryeachcalendaryeartoeligibleemployees(theCompany’sBoardofDirectorsalsoreceivecertainstockunits;however,theseamountsarenotmaterial).StockoptionsaregrantedattheclosingmarketpriceofAlcoaCorporation’scommonstockonthedateofgrantandgradevestoverathree-yearserviceperiod(1/3eachyear)withaten-yearcontractualterm.Stockunitscliffvestonthethirdanniversaryoftheawardgrantdateandcertainoftheseunitsalsoincludeeitheramarketorperformancecondition.
Thefinalnumberofmarket-basedandperformance-basedstockunitsearnedisdependentonAlcoaCorporation’sachievementofcertaintargetsoverathree-yearmeasurementperiodforgrants.Formarket-basedstockunitsgrantedin2019and2018,theawardwillbeearnedattheendofthemeasurementperiodbasedontheCompany’stotalshareholderreturnmeasuredagainstthetotalshareholderreturnoftheStandard&Poor’s500®IndexfromJanuary1ofthegrantyearthroughDecember31ofthethirdyearintheserviceperiod.Forperformance-basedstockunitsgrantedin2019and2018,theawardwillbeearnedattheendofthemeasurementperiodbasedontheCompany’sperformanceagainstapre-establishedreturn-on-capitaltargetmeasuredfromJanuary1ofthegrantyearthroughDecember31ofthethirdyearintheserviceperiod.Formarket-basedstockunitsgrantedin2020,theawardwillbeearnedattheendofthemeasurementperiodbasedontheCompany’stotalshareholderreturnmeasuredagainstthetotalshareholderreturnoftheStandard&Poor’sMetalsandMiningSelectIndustryIndexfromJanuary1ofthegrantyearthroughDecember31ofthethirdyearintheserviceperiod.Forperformance-basedstockunitsgrantedin2020,theawardwillbemeasuredfromJanuary1ofthegrantyearthroughDecember31ofthethirdyearintheserviceperiodandwillbebasedontheCompany’sperformanceagainstthreemeasures:(1)apre-establishedreturn-on-equitytarget;(2)animprovementinproportionalnetdebt;and(3)areductionincarbonintensityinbothrefiningandsmeltingoperations.
In2020,2019,and2018,AlcoaCorporationrecognizedstock-basedcompensationexpenseof$25,$30,and$35,respectively,ofwhichapproximately80%to90%wasrelatedtostockunitsineachperiod.Therewasnostock-basedcompensationexpensecapitalizedin2020,2019,or2018.
Stock-basedcompensationexpenseisbasedonthegrantdatefairvalueoftheapplicableequitygrant.Forbothstockunitswithnoperformanceormarketconditionandstockunitswithaperformancecondition,thefairvaluewasequivalenttotheclosingmarketpriceofAlcoaCorporation’scommonstockonthedateofgrantintherespectiveperiods.Forstockunitswithamarketcondition,thefairvaluewasestimatedonthedateofgrantusingaMonteCarlosimulationmodel,whichgeneratedaresultof$21.43and$35.70perunitin2020and2019,respectively.TheMonteCarlosimulationmodelusescertainassumptionstoestimatethefairvalueofamarket-basedstockunit,includingvolatility(41.65%fortheCompany)andarisk-freeinterestrate(1.38%),toestimatetheprobabilityofsatisfyingmarketconditions(theassumptionsusedtoestimatethefairvalueofstockunitsgrantedin2019werenotmateriallydifferent).Forstockoptions,thefairvaluewasestimatedonthedateofgrantusingalattice-pricingmodel,whichgeneratedaresultof$6.12,$10.86,and$21.32peroptionin2020,2019,and2018,respectively.Thelattice-pricingmodelusesseveralassumptionstoestimatethefairvalueofastockoption,includinganaveragerisk-freeinterestrate,dividendyield,volatility,annualforfeiturerate,exercisebehavior,andcontractuallife.
AssumptionsusedbytheCompanytoestimatethefairvalueofstockoptionsgrantedin2020areasfollows:
• Riskfreerate:1.83%basedonayieldcurveofinterestratesatthetimeofthegrantoverthelifeoftheoption
• Dividendyield:0%basedonhistoricaldividendspaidsincetheSeparationDateandthattheCompanydidnothaveanyimmediateplanstopaydividends
• Volatility:41.12%basedonhistoricalandimpliedvolatilitiesoverthetermoftheoption
• Pre-andpost-vestingforfeitures:4%basedonhistoricaloptionforfeituredata
• Exercisebehavior:61%basedonaweightedaverageexerciseratio
Basedupontheassumptionsusedinthedeterminationofthefairvalue,thelattice-pricingmodelresultedinanoptionlifeof6.0years.Theassumptionsandoptionlifeoutputfor2020werenotmateriallydifferentfrom2019and2018.
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Theactivityforstockoptionsandstockunitsduring2020wasasfollows:
Stock options Stock units
Number of
options
Weightedaverage
exercise price Number of
units
Weightedaverage FMV
per unit Outstanding,January1,2020 2,246,563 $ 28.38 2,127,611 $ 36.85Granted 340,400 16.29 2,016,468 15.71Exercised (55,136) 16.26 — —Converted — — (447,862) 37.73Expiredorforfeited (495,202) 27.70 (230,785) 26.59Performanceshareadjustment — — (174,753) 63.21Outstanding,December31,2020 2,036,625 26.85 3,290,679 24.19
ThenumberofConvertedunitsincludes101,447shares“withheld”tomeettheCompany’sstatutorytaxwithholdingrequirementsrelatedtotheincomeearnedbytheemployeesasaresultofvestingintheunits.
AsofDecember31,2020,the2,036,625outstandingstockoptionshadaweightedaverageremainingcontractuallifeof5.53yearsandatotalintrinsicvalueof$5.Additionally,1,416,986ofthetotaloutstandingstockoptionswerefullyvestedandexercisableandhadaweightedaverageremainingcontractuallifeof4.31years,aweightedaverageexercisepriceof$27.79,andatotalintrinsicvalueof$3asofDecember31,2020.Cashreceivedfromstockoptionexerciseswas$1,$2,and$23in2020,2019,and2018,respectively,andthetotalintrinsicvalueofstockoptionsexercisedduring2020,2019,and2018was$0,$1,and$26,respectively.
AtDecember31,2020,therewas$26(pretax)ofcombinedunrecognizedcompensationexpenserelatedtonon-vestedgrantsofbothstockoptionsandstockunits.Thisexpenseisexpectedtoberecognizedoveraweightedaverageperiodof1.62years.
O. Pension and Other Postretirement Benefits
Defined Benefit Plans
AlcoasponsorsseveraldefinedbenefitpensionplanscoveringcertainemployeesintheU.S.andforeignlocations.Pensionbenefitsgenerallydependonlengthofservice,jobgrade,andremuneration.Substantiallyallbenefitsarepaidthroughpensiontruststhataresufficientlyfundedtoensurethatallplanscanpaybenefitstoretireesastheybecomedue.Mostsalariedandnon-bargaininghourlyU.S.employeeshiredafterMarch1,2006participateinadefinedcontributionplaninsteadofadefinedbenefitplan.
TheCompanyalsomaintainshealthcareandlifeinsurancepostretirementbenefitplanscoveringcertaineligibleU.S.retiredemployeesandcertainretireesfromforeignlocations.Generally,themedicalplansareunfundedandpayapercentageofmedicalexpenses,reducedbydeductiblesandothercoverage.Lifebenefitsaregenerallyprovidedbyinsurancecontracts.TheCompanyretainstheright,subjecttoexistingagreements,tochangeoreliminatethesebenefits.Allsalariedandcertainnon-bargaininghourlyU.S.employeeshiredafterJanuary1,2002andcertainbargaininghourlyU.S.employeeshiredafterJuly1,2010arenoteligibleforpostretirementhealthcarebenefits.AllsalariedandcertainhourlyU.S.employeesthatretireonorafterApril1,2008arenoteligibleforpostretirementlifeinsurancebenefits.
AsofJanuary1,2020,thepensionbenefitplansandtheotherpostretirementbenefitplanscoveredanaggregateofapproximately38,000andapproximately30,000participants,respectively.2020 Plan Actions. In2020,managementinitiatedthefollowingactionstocertainpensionandotherpostretirementbenefitplans:
Action #1–InFebruary2020,theCompanyenteredintoanew,six-yearcollectivebargainingagreementwiththeUnionofProfessionalandOfficeWorkersoftheAlcoaSmelterofBaie-ComeauinCanada.Undertheagreement,allunionizedofficeemployeesthatareparticipantsinoneoftheCompany’sdefinedbenefitpensionplansceasedaccruingretirementbenefitsforfutureserviceeffectiveJanuary1,2021.Thischangeaffectedapproximately20employees,whoweretransitionedtoatargetbenefitplan,wherethefundingriskisassumedbytheemployees.TheCompanywillcontributeapproximately12%oftheseparticipants’eligibleearningstothenewplanonanannualbasis.Participantsalreadycollectingbenefitsorwhoterminatedwithavestedbenefitunderthedefinedbenefitpensionplanwerenotaffectedbythesechanges.
Action #2–InFebruary2020,theCompanynotifiedallnon-unionizedhourlyemployeesofAlumineriedeDeschambault,whoareparticipantsinoneoftheCompany’sdefinedbenefitpensionplans,thattheywillceaseaccruingretirementbenefits
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forfutureserviceeffectiveJanuary1,2021.Thischangeaffectedapproximately430employees,whoweretransitionedtoatoamember-fundedpensionplan,wherethefundingriskisassumedbytheemployees.TheCompanywillcontributeapproximately12%oftheseparticipants’eligibleearningstothenewplanonanannualbasis.Participantsalreadycollectingbenefitsorwhoterminatedwithavestedbenefitunderthedefinedbenefitpensionplanwerenotaffectedbythesechanges.
Action #3–InApril2020, aspartoftheCompany’sportfolioreview,Alcoaannouncedthatitwillcurtailtheremainingcapacityatit*IntalcosmelterinFerndale,Washingtonamiddecliningmarketconditions.Thefullcurtailmentwascompletedduringthethirdquarterof2020,andtheworkforcewasreducedbyapproximately685people.Asaresult,curtailmentaccountingwastriggeredintheU.S.hourlydefinedbenefitpensionandretireelifeplans(3aand3binthebelowtable,respectively).
Action #4–InSeptember2020,theCompanyandtheUnitedSteelworkersjointlynotifiedcertainU.S.retireesthattheirmedicalandprescriptiondrugcoveragewillbeprovidedthroughaninsuredgroupMedicareAdvantageandPrescriptionDrugplanandwillincludeanincreasetoparticipantcontributions,effectiveJanuary1,2021.Thesechangesaffectedapproximately8,600participants.Althoughtheplanchangeandrelatedremeasurementincreasedtheotherpostretirementbenefitliabilityby$74,theplanchangeloweredtheCompany’sexpectedcashrequirementsfortheprogramoverthenextfiveyears.
Action #5–InOctober2020,theCompanyofferedlumpsumbuyoutstospecificparticipantsinitsU.S.definedbenefitpensionplans.Asaresult,theCompanypaidapproximately$33fromplanassetsonDecember31,2020toapproximately430participants,wasrelievedofthecorrespondingpensionobligationof$35,andrecognizedasettlementchargeof$44.
Action #6–OnNovember30,2020,AlcoaannouncedanagreementtoselltheWarrickRollingMilltoKaiser.Thesaleisexpectedtoclosebytheendofthefirstquarterof2021,subjecttocustomaryclosingconditions.Approximately1,170employeesattherollingoperations,whichincludesthecasthouse,hotmill,coldmills,andcoatingandslittinglines,willbecomeemployeesofKaiseroncethetransactioniscomplete.Asaresult,Alcoarecognizedapensioncurtailmentchargeof$5.
ThefollowingtablepresentscertaininformationandthefinancialimpactsoftheseactionsontheaccompanyingConsolidatedFinancialStatements:
Action #
Number ofaffected planparticipants
Weighted averagediscount rate as of
December 31,2019
Planremeasurement
date
Weighted averagediscount rate as of
plan remeasurementdate
Increase(decrease) to
accrued pensionbenefits
liability(1)
Increase to accruedother
postretirementbenefits liability(1)
Curtailmentcharge
(gain)(2) Settlementcharge(2)
1 ~20 3.15% January31,2020 2.75% $ 18 $ — $ 1 $ —2 ~430 3.20% January31,2020 2.75% 28 — 2 —3a ~300 3.25% April30,2020 2.92% 156 — 1 —3b ~600 3.75% April30,2020 3.44% — — (2) —4 ~8,600 3.11% August31,2020 2.65% — 74 — —5 ~430 N/A December31,2020 N/A (2) — — 446 ~900 N/A December31,2020 N/A 5 — 5 —
~11,280 $ 205 $ 74 $ 7 $ 44
(1) Actions1-4causedinterimplanremeasurements,includinganupdatetothediscountratesusedtodeterminethebenefitobligationsoftheaffectedplans.
Theseamountsincludetheimpactsduetotheinterimplanremeasurements.(2) Theseamountsprimarilyrepresenttheacceleratedamortizationofaportionoftheexistingpriorservicecostorbenefitforcurtailmentsandnetactuarial
lossforsettlementsandwerereclassifiedfromAccumulatedothercomprehensivelosstoRestructuringandothercharges.Net(seeNoteD)ontheaccompanyingStatementofConsolidatedOperations.
2019 Plan Actions.In2019,managementinitiatedthefollowingactionstocertainpensionandotherpostretirementbenefitplans:
Action #1–InJune2019,theCompanyenteredintoanew,six-yearcollectivebargainingagreementwiththeNationalUnionofAluminumEmployeesofBaie-ComeauinCanada.Undertheagreement,allCanadianunionemployeesthatareparticipantsinoneoftheCompany’sdefinedbenefitpensionplansceasedaccruingretirementbenefitsforfutureserviceeffectiveJanuary1,2021.Thischangeaffectedapproximately700employees,whoweretransitionedtoatargetbenefitplan,wherethefundingriskisassumedbytheemployees.TheCompanywillcontributeapproximately12%oftheseparticipants’eligibleearningstothenewplanonanannualbasis.TheCompanywillalsocontributeadditionalcontributionsofapproximately$2spreadoverathree-yearperiodtoimprovethefinancialpositionofthenewlyestablishedtargetbenefit
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plan.Participantsalreadycollectingbenefitsorwhoterminatedwithavestedbenefitunderthedefinedbenefitpensionplanwerenotaffectedbythesechanges.
Action #2–InJuly2019,theCompanyenteredintoanew,six-yearcollectivebargainingagreementwiththeUnitedSteelworkersrepresentingtheemployeesofAlumineriedeBécancourInc.inCanada.Undertheagreement,allCanadianunionemployeesthatareparticipantsinoneoftheCompany’sdefinedbenefitpensionplansceasedaccruingretirementbenefitsforfutureserviceeffectiveJuly21,2019.Thischangeaffectedapproximately900employeeswhoweretransitionedtoamember-fundedpensionplan,wherethefundingriskisassumedbytheemployees.TheCompanywillcontributeapproximately12%oftheseparticipants’eligibleearningstothenewplanonanannualbasis.Toimprovethefinancialpositionsofboththeexistingdefinedbenefitpensionplanandthenewlyestablishedmember-fundedpensionplan,theCompanycontributedapproximately$5in2020totheexistingdefinedbenefitpensionplanandwillcontributeapproximately$2spreadoverafive-yearperiodtothenewlyestablishedmember-fundedpensionplan.Participantsalreadycollectingbenefitsorwhoterminatedwithavestedbenefitunderthedefinedbenefitpensionplanwerenotaffectedbythesechanges.
Action #3–InOctober2019,theCompanyofferedlumpsumbuyoutstospecificparticipantsinitsU.S.definedbenefitpensionplans.Asaresult,theCompanypaidapproximately$112fromplanassetsonNovember30,2019toapproximately1,700participantsandwasrelievedofthecorrespondingpensionobligationof$138.
Action #4–InDecember2019,theCompanynotifiedcertainU.S.retireesthattheywillbetransitionedtoaMedicareExchangeplanwithaCompany-providedcontribution,effectiveJanuary1,2021.Thischangeaffectedapproximately6,000participants.Thechangeimprovescostpredictabilityandallowedparticipantstoelectcoveragefromachoiceofavailableoptions.
Action #5–InDecember2019,theCompanynotifiedcertainU.S.retireesthatlifeinsurancewillnolongerbeprovided,effectiveDecember31,2019.Thischangeaffectedapproximately8,900participants.Aspartofthischange,Alcoamadeaone-timetransitionpaymenttotheaffectedretireestotaling$14inDecember2019.
ThefollowingtablepresentscertaininformationandthefinancialimpactsoftheseactionsontheaccompanyingConsolidatedFinancialStatements:
Action #
Number ofaffected planparticipants
Weighted averagediscount rate as of
December 31,2018
Planremeasurement
date
Weighted averagediscount rate as of
plan remeasurementdate
Increase(decrease) to
accrued pensionbenefits
liability(1)
Decrease toaccrued otherpostretirement
benefits liability Curtailment
charge(2) Settlementcharge(2)
1 ~700 3.85% May31,2019 3.15% $ 52 $ — $ 38 $ —2 ~900 3.80% June30,2019 3.00% 23 — — —3 ~1,700 N/A December31,2019 N/A (26) — — 664 ~6,000 N/A December31,2019 N/A — (108) — —5 ~8,900 N/A December31,2019 N/A — (56) — 8
~18,200 $ 49 $ (164) $ 38 $ 74
(1) Actions1and2causedinterimplanremeasurements,includinganupdatetothediscountratesusedtodeterminethebenefitobligationsoftheaffected
plans.Theseamountsincludetheimpactsduetotheinterimplanremeasurements.(2) Theseamountsrepresenttheacceleratedamortizationofaportionoftheexistingpriorservicecostforcurtailmentsandnetactuariallossforsettlements
andwerereclassifiedfromAccumulatedothercomprehensivelosstoRestructuringandothercharges,net(SeeNoteD)ontheaccompanyingStatementofConsolidatedOperations.
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Obligations and Funded Status
Pension benefits Other
postretirement benefits December 31, 2020 2019 2020 2019 Change in benefit obligation
Benefitobligationatbeginningofyear $ 6,532 $ 5,997 $ 848 $ 973Servicecost 56 49 5 4Interestcost 168 226 19 36Amendments 1 26 (19) (150)Actuariallosses(gains) 578 746 133 103Settlements (127) (177) — (14)Curtailments 6 — (1) —Benefitspaid,netofparticipants’contributions (381) (379) (100) (111)MedicarePartDsubsidyreceipts — — 7 7Divestitures (2) — — —Foreigncurrencytranslationimpact 73 44 — —Benefitobligationatendofyear $ 6,904 $ 6,532 $ 892 $ 848
Change in plan assets Fairvalueofplanassetsatbeginningofyear $ 5,015 $ 4,610 $ — $ —Actualreturnonplanassets 455 763 — —Employercontributions 347 175 — —Participantcontributions 10 11 — —Benefitspaid (379) (379) — —Administrativeexpenses (24) (19) — —Settlements (127) (177) — —Divestitures (2) — — —Foreigncurrencytranslationimpact 61 31 — —Fairvalueofplanassetsatendofyear $ 5,356 $ 5,015 $ — $ —
Funded status $ (1,548) $ (1,517) $ (892) $ (848)Less:Amountsattributedtojointventurepartners (45) (34) — —Netfundedstatus $ (1,503) $ (1,483) $ (892) $ (848)
Amounts recognized in the Consolidated Balance Sheet consist of:
Noncurrentassets $ — $ 33 $ — $ —Currentliabilities (11) (11) (65) (99)Noncurrentliabilities (1,492) (1,505) (744) (749)Liabilitiesheldforsale — — (83) —Netamountrecognized $ (1,503) $ (1,483) $ (892) $ (848)
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
Netactuarialloss $ 3,563 $ 3,364 $ 374 $ 261Priorservicecost(benefit) 2 5 (156) (154)Total,beforetaxeffect 3,565 3,369 218 107Less:Amountsattributedtojointventurepartners 57 42 — —Netamountrecognized,beforetaxeffect $ 3,508 $ 3,327 $ 218 $ 107
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss) consist of:
Netactuarialloss(benefit) $ 462 $ 350 $ 133 $ 103Amortizationofaccumulatednetactuarialloss (263) (247) (20) (18)Priorservicecost(benefit) 1 26 (19) (150)Amortizationofpriorservice(cost)benefit (4) (42) 17 —Total,beforetaxeffect 196 87 111 (65)Less:Amountsattributedtojointventurepartners 15 2 — —Netamountrecognized,beforetaxeffect $ 181 $ 85 $ 111 $ (65)
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AtDecember31,2020,thebenefitobligation,fairvalueofplanassets,andfundedstatusforU.S.pensionplanswere$4,695,$3,676,and$(1,019),respectively.AtDecember31,2019,thebenefitobligation,fairvalueofplanassets,andfundedstatusforU.S.pensionplanswere$4,532,$3,429,and$(1,103),respectively.
Pension Plan Benefit Obligations Pension benefits 2020 2019
Theaggregateprojectedbenefitobligationandaccumulatedbenefitobligationforalldefinedbenefitpensionplanswasasfollows:
Projectedbenefitobligation $ 6,904 $ 6,532Accumulatedbenefitobligation 6,702 6,324
Theaggregateprojectedbenefitobligationandfairvalueofplanassetsforpensionplanswithprojectedbenefitobligationsinexcessofplanassetswasasfollows:
Projectedbenefitobligation 6,813 6,014Fairvalueofplanassets 5,267 4,463
Theaggregateaccumulatedbenefitobligationandfairvalueofplanassetsforpensionplanswithaccumulatedbenefitobligationsinexcessofplanassetswasasfollows:
Accumulatedbenefitobligation 6,210 5,873Fairvalueofplanassets 4,805 4,463
Components of Net Periodic Benefit Cost Pension benefits(1) Other postretirement benefits(2) 2020 2019 2018 2020 2019 2018 Servicecost $ 54 $ 48 $ 54 $ 5 $ 4 $ 5Interestcost(3) 164 221 227 19 36 34Expectedreturnonplanassets(3) (292) (325) (341) — — —Recognizednetactuarialloss(3) 212 171 198 20 10 13Amortizationofpriorservicecost(benefit)(3) — 4 8 (15) — —Settlements(4) 51 73 410 — 8 (56)Curtailments(5) 9 38 5 (2) — (28)Netperiodicbenefitcost(6) $ 198 $ 230 $ 561 $ 27 $ 58 $ (32)(1) In2020,2019,and2018,netperiodicbenefitcostforU.Spensionplanswas$154,$155,and$358,respectively.(2) In2020,2019,and2018,netperiodicbenefitcostforotherpostretirementbenefitsreflectsareductionof$4,$7and$8,respectively,relatedtothe
recognitionofthefederalsubsidyawardedunderMedicarePartD.(3) TheseamountswerereportedinOtherexpenses,netontheaccompanyingStatementofConsolidatedOperations.(4) TheseamountswerereportedinRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).In2020,
settlementswereduetomanagementactions(seePlanActionsabove)($44)andpaymentofadditionallumpsumbenefits($7).In2019,settlementswereduetomanagementactions(seePlanActionsabove)($74)andpaymentofadditionallumpsumbenefits($7).In2018,settlementswereduetomanagementactions($341)andpaymentoflumpsumbenefits($13).
(5) TheseamountswerereportedinRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).In2020,2019,and2018,curtailmentswereduetomanagementactions(seePlanActionsabove).
(6) Amountsattributedtojointventurepartnersarenotincluded.Assumptions. Weightedaverageassumptionsusedtodeterminebenefitobligationsforpensionandotherpostretirementbenefitplanswereasfollows:December 31, 2020 2019 Discountrate—pensionplans 2.41% 3.12%Discountrate—otherpostretirementbenefitplans 2.41 3.12Rateofcompensationincrease—pensionplans 1.77 3.25
Theyieldcurvemodelusedtodevelopthediscountrateparallelstheplans’projectedcashflowsandhasaweightedaverage
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durationof11years.Theunderlyingcashflowsofthehigh-qualitycorporatebondsincludedinthemodelexceedthecashflowsneededtosatisfytheCompany’splanobligationsmultipletimes.Ifadeepmarketofhigh-qualitycorporatebondsdoesnotexistinacountry,thentheyieldongovernmentbondsplusacorporatebondyieldspreadisused.
Weightedaverageassumptionsusedtodeterminenetperiodicbenefitcostforpensionandotherpostretirementbenefitplanswereasfollows:
2020 2019 2018 Discountrate—pensionplans 3.02% 3.89% 3.59%Discountrate—otherpostretirementbenefitplans 2.84 3.94 3.18Expectedlong-termrateofreturnonplanassets—pensionplans 6.28 6.59 6.89Rateofcompensationincrease—pensionplans 3.25 3.26 3.28
For2020,2019,and2018,theexpectedlong-termrateofreturnusedbymanagementwasbasedontheprevailingandplannedstrategicassetallocations,aswellasestimatesoffuturereturnsbyassetclass.For2021,managementanticipatesthat5.66%willbetheweightedaverageexpectedlong-termrateofreturn.
InOctober2019,theSocietyofActuaries(SOA)issuedupdatedbasemortalitytables(Pri-2012)andtheirannualupdatetothemortalityimprovementscale(MP-2019).ThesewerebothconsideredindevelopingtheCompany’supdatedmortalityassumptionsforU.S.pensionandpostretirementbenefitobligationsrecordedatDecember31,2019,inconnectionwithanexperiencestudyperformedapproximatelyeveryfiveyears.ThestudyresultedintheuseofPri-2012basetableswithanadjustmenttoreflectAlcoa’sexperienceandamodifiedversionoftheMP-2019improvementscales.
AssumedhealthcarecosttrendratesforU.S.otherpostretirementbenefitplanswereasfollows(non-U.S.plansarenotmaterial): 2020 2019 2018
Healthcarecosttrendrateassumedfornextyear 5.5% 5.5% 5.5%Ratetowhichthecosttrendrategraduallydeclines 4.5% 4.5% 4.5%Yearthattheratereachestherateatwhichitisassumedtoremain 2026 2023 2022
TheassumedhealthcarecosttrendrateisusedtomeasuretheexpectedcostofgrosseligiblechargescoveredbytheCompany’sotherpostretirementbenefitplans.For2021,a5.5%trendratewillbeused,reflectingmanagement’sbestestimateofthechangeinfuturehealthcarecostscoveredbytheplans.
Plan Assets. Alcoa’spensionplaninvestmentpolicyandweightedaverageassetallocationsatDecember31,2020and2019,byassetclass,wereasfollows:
Plan assets atDecember 31,
Asset class Policy range 2020 2019 Equities 0–60% 39% 40%Fixedincome 10–85% 50 49Otherinvestments 0–35% 11 11
Total 100% 100%TheprincipalobjectivesunderlyingtheinvestmentofthepensionplanassetsaretoensurethattheCompanycanproperlyfundbenefitobligationsastheybecomedueunderabroadrangeofpotentialeconomicandfinancialscenarios,maximizethelong-terminvestmentreturnwithanacceptablelevelofriskbasedonsuchobligations,andbroadlydiversifyinvestmentsacrossandwithinvariousassetclassestoprotectassetvaluesagainstadversemovements.Investmentriskiscontrolledbyrebalancingtotargetallocationsonaperiodicbasisandongoingmonitoringofinvestmentmanagerperformance.
Theportfolioincludesanallocationtoinvestmentsinlong-durationgovernmentdebt,long-durationcorporatecredit,realestate,high-yieldbonds,emergingmarketdebt,global-listedinfrastructureandpublicandprivatemarketequities.Thetargetassetallocationisapproximately30%inequities,approximately50%infixedincome,andapproximately20%inotherinvestments.
Investmentpracticescomplywiththerequirementsofapplicablelawsandregulationsintherespectivejurisdictions,includingtheEmployeeRetirementIncomeSecurityActof1974(ERISA)intheUnitedStates.
Thefollowingsectiondescribesthevaluationmethodologiesusedbythetrusteestomeasurethefairvalueofpensionplanassets.Forplanassetsmeasuredatnetassetvalue,thisreferstothenetassetvalueoftheinvestmentonapersharebasis(or
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itsequivalent)asapracticalexpedient.Otherwise,anindicationofthelevelinthefairvaluehierarchyinwhicheachtypeofassetisgenerallyclassifiedisprovided(seeNotePforthedefinitionoffairvalueandadescriptionofthefairvaluehierarchy).
Equities—Thesesecuritiesconsistof:(i)directinvestmentsinthestockofpubliclytradedU.S.andnon-U.S.companiesandarevaluedbasedontheclosingpricereportedinanactivemarketonwhichtheindividualsecuritiesaretraded(generallyclassifiedinLevel1);(ii)theplans’shareofcommingledfundsthatareinvestedinthestockofpubliclytradedcompaniesandarevaluedatnetassetvalue;and(iii)directinvestmentsinlong/shortequityhedgefundsandprivateequity(limitedpartnershipsandventurecapitalpartnerships)andarevaluedatnetassetvalue.
Fixed income—Thesesecuritiesconsistof:(i)U.S.governmentdebtandaregenerallyvaluedusingquotedprices(includedinLevel1);(ii)cashandcashequivalentsinvestedinpublicly-tradedfundsandarevaluedbasedontheclosingpricereportedinanactivemarketonwhichtheindividualsecuritiesaretraded(generallyclassifiedinLevel1);(iii)publiclytradedU.S.andnon-U.S.fixedinterestobligations(principallycorporatebondsanddebentures)andarevaluedthroughconsultationandevaluationwithbrokersintheinstitutionalmarketusingquotedpricesandotherobservablemarketdata(includedinLevel2);and(iv)cashandcashequivalentsinvestedininstitutionalfundsandarevaluedatnetassetvalue.
Other investments—Theseinvestmentsinclude,amongothers:(i)realestateinvestmenttrustsvaluedbasedontheclosingpricereportedinanactivemarketonwhichtheinvestmentsaretraded(includedinLevel1);(ii)theplans’shareofcommingledfundsthatareinvestedinrealestatepartnershipsandarevaluedatnetassetvalue;(iii)directinvestmentsinprivaterealestate(includeslimitedpartnerships)andarevaluedatnetassetvalue;and(iv)absolutereturnstrategyfundsandarevaluedatnetassetvalue.
Thefairvaluemethodsdescribedabovemaynotbeindicativeofnetrealizablevalueorreflectiveoffuturefairvalues.Additionally,whileAlcoabelievesthevaluationmethodsusedbytheplans’trusteesareappropriateandconsistentwithothermarketparticipants,theuseofdifferentmethodologiesorassumptionstodeterminethefairvalueofcertainfinancialinstrumentscouldresultinadifferentfairvaluemeasurementatthereportingdate.
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Thefollowingtablepresentsthefairvalueofpensionplanassetsclassifiedundereithertheappropriatelevelofthefairvaluehierarchyornetassetvalue:
December 31, 2020 Level 1 Level 2 Net Asset
Value Total Equities:
Equitysecurities $ 379 $ — $ 1,469 $ 1,848Long/shortequityhedgefunds — — 5 5Privateequity — — 207 207
$ 379 $ — $ 1,681 $ 2,060Fixedincome:
Intermediateandlong-durationgovernment/credit $ 925 $ 794 $ 619 $ 2,338Cashandcashequivalentfunds 165 — 189 354Other — 2 — 2
$ 1,090 $ 796 $ 808 $ 2,694Otherinvestments:
Realestate $ 284 $ — $ 273 $ 557Other — — 37 37
$ 284 $ — $ 310 $ 594Total(1) $ 1,753 $ 796 $ 2,799 $ 5,348
December 31, 2019 Level 1 Level 2 Net Asset
Value Total Equities:
Equitysecurities $ 612 $ — $ 1,213 $ 1,825Long/shortequityhedgefunds — — 8 8Privateequity — — 177 177
$ 612 $ — $ 1,398 $ 2,010Fixedincome:
Intermediateandlong-durationgovernment/credit $ 889 $ 700 $ 560 $ 2,149Cashandcashequivalentfunds 23 — 293 316Other — 5 — 5
$ 912 $ 705 $ 853 $ 2,470Otherinvestments:
Realestate $ 208 $ — $ 287 $ 495Other — — 32 32
$ 208 $ — $ 319 $ 527Total(2) $ 1,732 $ 705 $ 2,570 $ 5,007
(1) AsofDecember31,2020,thetotalfairvalueofpensionplanassetsexcludesanetreceivableof$8,whichrepresentssecuritiesnotyetsettledplusinterest
anddividendsearnedonvariousinvestments.(2) AsofDecember31,2019,thetotalfairvalueofpensionplanassetsexcludesanetreceivableof$8,whichrepresentssecuritiesnotyetsettledplusinterest
anddividendsearnedonvariousinvestments.
Funding and Cash Flows. ItisAlcoa’spolicytofundamountsfordefinedbenefitpensionplanssufficienttomeettheminimumrequirementssetforthinapplicablecountrybenefitslawsandtaxlaws,includingERISAforU.S.plans.Fromtimetotime,theCompanycontributesadditionalamountsasdeemedappropriate.In2020,2019,and2018,cashcontributionstoAlcoa’sdefinedbenefitpensionplanswere$343,$173,and$992.
Contributionsmadein2018includeacombined$725ofunscheduledcontributionstoseveraldefinedbenefitpensionplans,includingacombined$620tothreeoftheCompany’sU.S.definedbenefitpensionplansandacombined$105totwooftheCompany’sCanadiandefinedbenefitpensionplans.TheadditionalpaymentstotheU.S.planswerediscretionaryinnatureandwerefundedwith$492innetproceedsfromaMay2018debtissuance(seeNoteM)and$128ofavailablecashonhand.TheprimarypurposeforissuingdebttofundaportionofthediscretionarycontributionstotheU.S.planswastoreducenear-termpensionfundingriskwithafixedrate,10-yearmaturityinstrument.
During2020,theCompanyinitiallydeferredapproximately$200inpensioncontributionsunderprovisionsintheU.S.Government’sCoronavirusAid,Relief,andEconomicSecurity(CARES)Act.Withamplecashonhandandhavingachieveditsobjectivetoholdcashduringuncertaintimesin2020,theCompanymadea$250pensioncontributiontoitsU.S.pensionplansinlateDecembertocoverboththedeferredcontributionsdueonJanuary4,2021andadiscretionaryprepayment.
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Alcoa’sminimumrequiredcontributiontodefinedbenefitpensionplansin2021isestimatedtobe$255,ofwhichapproximately$220isforU.S.plans.UnderERISAregulations,aplansponsorthatestablishesapre-fundingbalancebymakingdiscretionarycontributionstoaU.S.definedbenefitpensionplanmayelecttoapplyalloraportionofthisbalancetowarditsminimumrequiredcontributionobligationstotherelatedplaninfutureyears.In2021,managementwillconsidermakingsuchelectionrelatedtotheCompany’sU.S.plans.
Benefitpaymentsexpectedtobepaidtopensionandotherpostretirementbenefitplanparticipantsareasfollows:
Year ending December 31, Pensionbenefits
Otherpostretirement
benefits 2021 $ 445 $ 652022 435 652023 435 602024 430 602025 425 552026through2030 1,980 255 $ 4,150 $ 560
Defined Contribution Plans
TheCompanysponsorssavingsandinvestmentplansinseveralcountries,primarilyinAustraliaandtheUnitedStates.IntheUnitedStates,employeesmaycontributeaportionoftheircompensationtotheplans,andAlcoamatchesaspecifiedpercentageofthesecontributionsinequivalentformoftheinvestmentselectedbytheemployee.Also,theCompanymakescontributionstoaretirementsavingsaccountbasedonapercentageofeligiblecompensationforcertainU.S.employeeshiredafterMarch1,2006thatarenotabletoparticipateinAlcoa’sdefinedbenefitpensionplans.TheCompany’sexpensesrelatedtoalldefinedcontributionplanswere$73in2020,$68in2019,and$69in2018.
Member-funded Pension Plan
EffectiveJuly22,2019,theCompanycontributestoamember-fundedpensionplansponsoredbytheUnitedSteelworkersfortheemployeesofAlumineriedeBécancourInc.inCanada(seePlanActionsabove).Alcoamakescontributionstotheplanbasedonapercentageoftheemployees’eligiblecompensation.TheCompany’sexpensesrelatedtothemember-fundedpensionplanwere$10in2020and$4in2019.
P. Derivatives and Other Financial Instruments
Fair Value.Fairvalueisdefinedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thefairvaluehierarchydistinguishesbetween(i)marketparticipantassumptionsdevelopedbasedonmarketdataobtainedfromindependentsources(observableinputs)and(ii)anentity’sownassumptionsaboutmarketparticipantassumptionsdevelopedbasedonthebestinformationavailableinthecirc*mstances(unobservableinputs).Thefairvaluehierarchyconsistsofthreebroadlevels,whichgivesthehighestprioritytounadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities(Level1)andthelowestprioritytounobservableinputs(Level3).Thethreelevelsofthefairvaluehierarchyaredescribedbelow:
• Level1—Unadjustedquotedpricesinactivemarketsthatareaccessibleatthemeasurementdateforidentical,unrestrictedassetsorliabilities.
• Level2—InputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectlyorindirectly,includingquotedpricesforsimilarassetsorliabilitiesinactivemarkets;quotedpricesforidenticalorsimilarassetsorliabilitiesinmarketsthatarenotactive;inputsotherthanquotedpricesthatareobservablefortheassetorliability(e.g.,interestrates);andinputsthatarederivedprincipallyfromorcorroboratedbyobservablemarketdatabycorrelationorothermeans.
• Level3—Inputsthatarebothsignificanttothefairvaluemeasurementandunobservable.
Derivatives.AlcoaCorporationisexposedtocertainrisksrelatingtoitsongoingbusinessoperations,includingtherisksofchangingcommodityprices,foreigncurrencyexchangeratesandinterestrates.AlcoaCorporation’scommodityandderivativeactivitiesincludealuminum,energy,foreignexchangeandinterestratecontractswhichareheldforpurposesotherthantrading.Theyareusedprimarilytomitigateuncertaintyandvolatility,andtocoverunderlyingexposures.AlcoaCorporationisnotinvolvedintradingactivitiesforenergy,weatherderivatives,orothernonexchangecommoditytradingactivities.
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AlcoaCorporation’scommodityandderivativeactivitiesaresubjecttothemanagement,direction,andcontroloftheStrategicRiskManagementCommittee(SRMC),whichconsistsofatleastthreemembers,includingthechiefexecutiveofficerandthechieffinancialofficer.Theremainingmember(s)areotherofficersand/oremployeesoftheCompanyasthechiefexecutiveofficermaydesignatefromtimetotime.Currently,theonlyothermemberoftheSRMCisAlcoaCorporation’streasurer.TheSRMCmeetsonaperiodicbasistoreviewderivativepositionsandstrategyandreportstotheAuditCommitteeofAlcoaCorporation’sBoardofDirectorsonthescopeofitsactivities.
SeveralofAlcoaCorporation’saluminum,energy,andforeignexchangecontractsareclassifiedasLevel1orLevel2underthefairvaluehierarchy.Allofthesecontractsaredesignatedaseitherfairvalueorcashflowhedginginstruments.AlcoaCorporationalsohasseveralderivativeinstrumentsclassifiedasLevel3underthefairvaluehierarchy,whichareeitherdesignatedascashflowhedgesorundesignated.
ThefollowingtablespresentthedetailforLevel1,2and3derivatives(seeadditionalLevel3informationinfurthertablesbelow): 2020 2019 Balance at December 31, Assets Liabilities Assets Liabilities Level1and2derivativeinstruments $ 21 $ 7 $ 3 $ 33Level3derivativeinstruments — 838 74 615Total $ 21 $ 845 $ 77 $ 648Less:Current 21 103 59 67Noncurrent $ — $ 742 $ 18 $ 581
2020 2019
Year ended December 31,
Unrealized loss recognized inOther comprehensive (loss)
income
Realized loss reclassed fromOther comprehensive (loss)
income to earnings
Unrealized loss recognized inOther comprehensive (loss)
income
Realized loss reclassed fromOther comprehensive (loss)
income to earnings Level1and2derivativeinstruments $ 8 $ (19) $ (14) $ (26)Level3derivativeinstruments (374) (88) (385) 42Noncontrollingandequityinterest 21 1 (38) (38)Total $ (345) $ (106) $ (437) $ (22)
The2020realizedlossof$19onLevel1and2cashflowhedgeswascomprisedofan$9lossrecognizedinSalesanda$10lossrecognizedinCostofgoodssold.The2019realizedlossof$26onLevel1and2cashflowhedgeswascomprisedofan$18lossrecognizedinSalesandan$8lossrecognizedinCostofgoodssold.
During2018,Alcoarecognizedarealizedlossof$14onLevel1and2cashflowhedgesinSales.
DerivativeinstrumentsclassifiedasLevel3inthefairvaluehierarchyrepresentthoseinwhichmanagementhasusedatleastonesignificantunobservableinputinthevaluationmodel.AlcoaCorporationusesadiscountedcashflowmodeltofairvalueallLevel3derivativeinstruments.Thesevaluationmodelsarereviewedandtestedatleastonanannualbasis.InputsinthevaluationmodelsforLevel3derivativeinstrumentsarecomposedofthefollowing:(i)quotedmarketprices(e.g.,aluminumpricesonthe10-yearLondonMetalExchange(LME)forwardcurveandenergyprices),(ii)significantotherobservableinputs(e.g.,informationconcerningtimepremiumsandvolatilitiesforcertainoptiontypeembeddedderivativesandregionalpremiumsforaluminumcontracts),and(iii)unobservableinputs(e.g.,aluminumandenergypricesbeyondthosequotedinthemarket).Forperiodsbeyondthetermofquotedmarketpricesforaluminum,AlcoaCorporationestimatesthepriceofaluminumbyextrapolatingthe10-yearLMEforwardcurve.ForperiodsbeyondthetermofquotedmarketpricesfortheMidwestpremium,managementestimatestheMidwestpremiumbasedonrecenttransactions.Additionally,forperiodsbeyondthetermofquotedmarketpricesforenergy,managementhasdevelopedaforwardcurvebasedonindependentconsultantmarketresearch.Whereappropriate,valuationsareadjustedforvariousfactorssuchasliquidity,bid/offerspreads,andcreditconsiderations.Suchadjustmentsaregenerallybasedonavailablemarketevidence(Level2).Intheabsenceofsuchevidence,management’sbestestimateisused(Level3).Ifasignificantinputthatisunobservableinoneperiodbecomesobservableinasubsequentperiod,therelatedassetorliabilitywouldbetransferredtotheappropriateclassification(Level1or2)intheperiodofsuchchange(therewerenosuchtransfersintheperiodspresented).Therewerenopurchases,salesorsettlementsofLevel3derivativeinstrumentsintheperiodspresented.
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Level3derivativeinstrumentsoutstandingasofDecember31,2020aredescribedinthetablebelow:
Description Designation ContractTermination
UnobservableInputs ImpactingValuation Sensitivity to Inputs
Power contracts EmbeddedderivativethatindexespriceofpowertotheLMEpriceofaluminumplustheMidwestpremium
Cashflowhedgeofforwardsalesofaluminum
March2026December2029February2036
LMEprice,MidwestpremiumandMWhperyear
IncreaseinLMEpriceand/ortheMidwestpremiumresultsinahighercostofpowerandadecreasetothederivativeassetorincreasetothederivativeliability
EmbeddedderivativethatindexespriceofpowertotheLMEpriceofaluminum
Cashflowhedgeofforwardsalesofaluminum
September2027 LMEpriceandMWhperyear
IncreaseinLMEpriceresultsinahighercostofpowerandanincreasetothederivativeliability
EmbeddedderivativethatindexesthepriceofpowertothecreditspreadbetweentheCompanyandthecounterparty
Notdesignated October2028 Estimatedcreditspread
Widercreditspreadresultsinahighercostofpowerandincreaseinthederivativeliability
Financial contract Hedgepowerprices Cashflowhedgeoffuture
purchasesofelectricity July2021 Powerprice Lowerpowerpricesresultinalowerderivative
asset
Inadditiontotheinstrumentspresentedabove,AlcoaCorporationhadapowercontractthatexpiredonDecember31,2019containinganembeddedderivativethatindexedthepriceofpowertotheLMEpriceofaluminumthatwasdesignatedasacashflowhedgeofforwardsalesofaluminum.
AtDecember31,2020,theoutstandingLevel3instrumentsareassociatedwithsixsmelters.AtDecember31,2020and2019,thepowercontractswithembeddedderivativesdesignatedascashflowhedgeshedgeforecastedaluminumsalesof2,130kmtand2,347kmt,respectively.AtDecember31,2020and2019,thefinancialcontracthedgesforecastedelectricitypurchasesof1,427,184and3,891,096megawatthours,respectively.
ThefollowingtablepresentsquantitativeinformationrelatedtothesignificantunobservableinputsdescribedaboveforLevel3derivativeinstruments(megawatthoursinMWh):
December 31, 2020 Unobservable Input Unobservable Input Range
Liability Derivatives Powercontract $ 217 MWhofenergyneeded LME(permt) 2021:$1,979 toproducetheforecasted 2027:$2,288 mtofaluminum Electricity Rateof4millionMWhperyearPowercontracts 597 MWhofenergyneeded
toproducetheforecastedmtofaluminum
LME(permt) 2021:$1,9792029:$2,3962036:$2,693
Midwestpremium(perpound)
2021:$0.14652029:$0.16652036:$0.1665
Electricity Rateof17millionMWhperyearPowercontract — MWhofenergyneeded
toproducetheforecasted LME 2021:$1,979
2021:$1,978 mtofaluminum Midwestpremium 2021:$0.1465
2021:$0.1665 Electricity Rateof2millionmegawatthoursperyearPowercontract 23 Estimatedspreadbetween
the30-yeardebtyieldofAlcoaandthecounterparty
Creditspread 3.55%:30-yeardebtyieldspread6.13%:Alcoa(estimated)2.58%:counterparty
Financialcontract 1 Interrelationshipof Electricity(perMWh) 2021:$53.32 forwardenergypriceandtheConsumer
PriceIndex 2021:$33.33
TotalLiabilityDerivatives $ 838
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ThefairvaluesofLevel3derivativeinstrumentsrecordedintheaccompanyingConsolidatedBalanceSheetwereasfollows:
Asset Derivatives December 31,
2020 December 31,
2019 Derivativesdesignatedashedginginstruments:
Current—financialcontract $ — $ 57Noncurrent—financialcontract — 17
Totalderivativesdesignatedashedginginstruments $ — $ 74TotalAssetDerivatives $ — $ 74Liability Derivatives Derivativesdesignatedashedginginstruments:
Current—powercontracts $ 94 $ 47Current—financialcontract 1 —Noncurrent—powercontracts 720 551
Totalderivativesdesignatedashedginginstruments $ 815 $ 598Derivativesnotdesignatedashedginginstruments:
Current—embeddedcreditderivative $ 4 $ 3Noncurrent—embeddedcreditderivative 19 14
Totalderivativesnotdesignatedashedginginstruments $ 23 $ 17TotalLiabilityDerivatives $ 838 $ 615
ThefollowingtableshowsthenetfairvaluesoftheLevel3derivativeinstrumentsatDecember31,2020andtheeffectontheseamountsofahypotheticalchange(increaseordecreaseof10%)inthemarketpricesorratesthatexistedasofDecember31,2020:
Fair value
liability Index changeof + / -10%
Powercontracts $ 814 $ 346Embeddedcreditderivative 23 2Financialcontract 1 6
ThefollowingtablespresentareconciliationofactivityforLevel3derivativeinstruments:
Assets Liabilities
2020Financialcontract Power contracts
Financialcontract
Embeddedcredit
derivative January1,2020 $ 74 $ 598 $ — $ 17
Totalgainsorlossesincludedin: Sales(realized) — (74) — —Costofgoodssold(realized) 14 — — —Otherexpenses,net(unrealized/realized) — — — 7Othercomprehensive(loss)income(unrealized) (83) 290 1 —
Other (5) — — (1)December31,2020 $ — $ 814 $ 1 $ 23ChangeinunrealizedgainsorlossesincludedinearningsforderivativeinstrumentsheldatDecember31,2020:
Otherexpenses,net $ — $ — $ — $ 11
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Assets Liabilities
2019 Power contract Financialcontract
Powercontracts
Embeddedcredit
derivative January1,2019 $ 41 $ 112 $ 269 $ 20
Totalgainsorlossesincludedin: Sales(realized) — — (44) —Costofgoodssold(realized) — (86) — —Otherexpenses,net(unrealized/realized) — — (2) (2)Othercomprehensive(loss)income(unrealized) (41) 52 396 —
Other — (4) (21) (1)December31,2019 $ — $ 74 $ 598 $ 17ChangeinunrealizedgainsorlossesincludedinearningsforderivativeinstrumentsheldatDecember31,2019:
Otherexpenses,net $ — $ — $ 1 $ 1
Derivatives Designated As Hedging Instruments—Cash Flow Hedges
AssumingmarketratesremainconstantwiththeratesatDecember31,2020,arealizedlossof$94relatedtopowercontractsandarealizedlossof$1relatedtothefinancialcontractareexpectedtoberecognizedinSalesandCostofgoodssold,respectively,overthenext12months.
Material Limitations
Thedisclosureswithrespecttocommoditypricesandforeigncurrencyexchangeriskdonotconsidertheunderlyingcommitmentsoranticipatedtransactions.Iftheunderlyingitemswereincludedintheanalysis,thegainsorlossesonthefuturescontractsmaybeoffset.ActualresultswillbedeterminedbyseveralfactorsthatarenotunderAlcoaCorporation’scontrolandcouldvarysignificantlyfromthosefactorsdisclosed.
AlcoaCorporationisexposedtocreditlossintheeventofnonperformancebycounterpartiesontheaboveinstruments,aswellascreditorperformanceriskwithrespecttoitshedgedcustomers’commitments.AlcoaCorporationdoesnotanticipatenonperformancebyanyoftheseparties.Contractsarewithcreditworthycounterpartiesandarefurthersupportedbycash,treasurybills,orirrevocablelettersofcreditissuedbycarefullychosenbanks.Inaddition,variousmasternettingarrangementsareinplacewithcounterpartiestofacilitatesettlementofgainsandlossesonthesecontracts.
Other Financial Instruments.ThecarryingvaluesandfairvaluesofAlcoaCorporation’sotherfinancialinstrumentswereasfollows:
2020 2019
December 31, Carrying
value Fairvalue
Carryingvalue
Fairvalue
Cashandcashequivalents $ 1,607 $ 1,607 $ 879 $ 879Restrictedcash 3 3 4 4Short-termborrowings 77 77 — —Long-termdebtduewithinoneyear 2 2 1 1Long-termdebt,lessamountduewithinoneyear 2,463 2,692 1,799 1,961
Thefollowingmethodswereusedtoestimatethefairvaluesofotherfinancialinstruments:
Cash and cash equivalents and Restricted cash.Thecarryingamountsapproximatefairvaluebecauseoftheshortmaturityoftheinstruments.ThefairvalueamountsforCashandcashequivalentsandRestrictedcashwereclassifiedinLevel1ofthefairvaluehierarchy.
Short-term borrowings and Long-term debt, including amounts due within one year.ThefairvaluewasbasedonquotedmarketpricesforpublicdebtandoninterestratesthatarecurrentlyavailabletoAlcoaCorporationforissuanceofdebtwithsimilartermsandmaturitiesfornon-publicdebt.ThefairvalueamountsforallShort-termborrowingsandLong-termdebtwereclassifiedinLevel2ofthefairvaluehierarchy.
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Q. Income Taxes
Provision for income taxes.ThecomponentsofIncome(loss)beforeincometaxeswereasfollows:
2020 2019 2018 Domestic $ (328) $ (1,000) $ (752)Foreign 501 562 2,377Total $ 173 $ (438) $ 1,625
Provisionforincometaxesconsistedofthefollowing:
2020 2019 2018 Current:
Federal $ 2 $ (4) $ 5Foreign 211 404 757Stateandlocal — — —
213 400 762Deferred:
Federal — 2 (21)Foreign (26) 13 (9)Stateandlocal — — —
(26) 15 (30)Total $ 187 $ 415 $ 732
FederalincludesU.S.incometaxesrelatedtoforeignincome.
AreconciliationoftheU.S.federalstatutoryratetoAlcoa’seffectivetaxratewasasfollows:
2020 2019 2018 U.S.federalstatutoryrate 21.0% 21.0% 21.0%Changesinvaluationallowances 168.3 (70.3) 3.4Taxesonforeignoperations—ratedifferential 34.5 (19.3) 12.6Equityincome(loss) 2.0 (1.9) 0.3Noncontrollinginterest 1.6 (6.8) 1.0Non-deductiblelossesonforeigndivestitures — (23.1) —Taxonforeignoperations—other (0.7) (2.7) 1.1Taxholidays (1.9) 2.0 (3.2)Adjustmentofprioryearincometaxes (2.5) (1.1) (0.6)Uncertaintaxpositions (21.5) (0.6) 1.8ImpactsoftheTCJA (88.8) 5.0 9.9Other (3.9) 2.9 (2.3)Effectivetaxrate 108.1% (94.9)% 45.0%Inthefourthquarterof2020,theSupremeCourtofSpainruledinfavorofAlcoaregardingthe2006through2009taxyearassessment.Asaresult,thereserveforUncertaintaxpositionsthatwasestablishedin2018hasbeenreleased.RefertotheTaxMatterssectioninNoteSforfurtherinformation.
OnDecember22,2017,U.S.taxlegislationknownastheU.S.TaxCutsandJobsActof2017(theTCJA)wasenacted.In2018,managementcompleteditsanalysisoftheimpactofthetaxlawchanges,includingtheintroductionoftheGlobalIntangibleLow-TaxedIncomeprovisions(GILTI),thatbecameeffectiveJanuary1,2018undertheTCJArelatedtoAlcoa’s2018ConsolidatedFinancialStatements.TheCompanymadeanaccountingpolicyelectiontoincludeasaperiodcostthetaximpactgeneratedbyincludingGILTIinU.S.taxableincome.TheinclusionofGILTIin2018U.S.taxableincomewasfullyoffsetbycurrentU.S.taxlossesandnetoperatinglosscarryforwardsasexpected.NoneoftheremainingprovisionsoftheTCJAhadamaterialimpactontheCompany’s2018ConsolidatedFinancialStatements.
During2020,theU.S.TreasuryDepartmentfinalizedregulationsimplementingtheGILTIprovisionsoftheTCJA.IncludedintheseregulationsisanexclusionfromGILTIforincomesubjecttoahighrateofforeigntax,whichpermitstaxpayerstoelecttoapplytheexceptiontopreviouslyfiledtaxreturns.Managementintendstofileanamended2018taxreturntomakethiselection.Asaresult,theCompanyrecordedataxbenefitof($138)in2020toreflectthere-establishmentofcertainU.S.Federalnetoperatinglosscarryforwardsandacorrespondingtaxchargeof$138torecordafullvaluationallowanceagainsttheincreaseddeferredtaxasset.
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CertainincomeearnedbyAWABiseligibleforataxholiday,whichdecreasesthetaxrateonthisincomefrom34%to15.25%,whichwillresultinfuturecashtaxsavings.TheholidayrelatedtoproductionattheAlumarrefinerywillendonDecember31,2027,andtheholidayrelatedtotheoperationoftheJuruti(Brazil)bauxiteminewillendonDecember31,2026.Inaddition,deferredtaxassetsexpectedtoreverseintheholidayperiodarerevaluedattheholidayrate.Thisresultedinadiscreteincometaxchargeof$15and$7in2020and2019,respectively,andincometaxbenefitof$5in2018.
Certaincomponentsofthe2019restructuringchargesresultingfromtheMRCdivestitureandtheAvilésandLaCoruñafacilitiescurtailmentandsubsequentdivestiturearenotdeductiblefortaxpurposes.Theseamountsare$65forMRCand$35forAvilésandLaCoruñacombinedandareincludedinNon-deductiblelossesonforeigndivestituresintheabovetable.SeeNoteCforadditionalinformationonthedivestiturecharges.
Deferred income taxes.Thecomponentsofdeferredtaxassetsandliabilitiesbasedontheunderlyingattributeswithoutregardtojurisdictionwereasfollows:
2020 2019
December 31,
Deferredtax
assets
Deferredtax
liabilities
Deferredtax
assets
Deferredtax
liabilities Taxlosscarryforwards $ 1,668 $ — $ 1,411 $ —Employeebenefits 711 — 698 —Derivativesandhedgingactivities 214 — 154 22Lossprovisions 183 — 203 —Investmentbasisdifferences 139 — 164 —Depreciation 66 434 72 436Interest 60 2 — 2Leaseassetsandliabilities 37 36 41 40Taxcreditcarryforwards 27 — 26 —Deferredincome/expense 22 116 11 134Other 41 2 43 1 3,168 590 2,823 635Valuationallowance (2,127) — (1,778) —Total $ 1,041 $ 590 $ 1,045 $ 635
Thefollowingtabledetailstheexpirationperiodsofthedeferredtaxassetspresentedabove:
December 31, 2020
Expireswithin
10 years
Expireswithin11-20years
Noexpiration Other Total
Taxlosscarryforwards $ 284 $ 381 $ 1,003 $ — $ 1,668Taxcreditcarryforwards 17 10 — — 27Other — — 220 1,253 1,473Valuationallowance (301) (359) (822) (645) (2,127)Total $ — $ 32 $ 401 $ 608 $ 1,041
Deferredtaxassetswithnoexpirationmaystillhaveannuallimitationsonutilization.Otherrepresentsdeferredtaxassetswhoseexpirationisdependentuponthereversaloftheunderlyingtemporarydifference.
Thetotaldeferredtaxasset(netofvaluationallowance)issupportedbyprojectionsoffuturetaxableincomeexclusiveofreversingtemporarydifferencesandtaxabletemporarydifferencesthatreversewithinthecarryforwardperiod.ThecompositionofAlcoa’snetdeferredtaxassetbyjurisdictionasofDecember31,2020wasasfollows:
Domestic Foreign Total Deferredtaxassets $ 1,308 $ 1,860 $ 3,168Valuationallowance (1,185) (942) (2,127)Deferredtaxliabilities (116) (474) (590)Total $ 7 $ 444 $ 451
TheCompanyhasseveralincometaxfilersinvariousforeigncountries.Ofthe$444netdeferredtaxassetincludedundertheForeigncolumninthetableabove,approximately90%relatestosevenofAlcoa’sincometaxfilersasfollows:a$166net
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deferredtaxassetforAlcoaAlumínioS.A.inBrazil;a$148netdeferredtaxassetforAlcoaCanadaCompanyinCanada;a$104deferredtaxassetforEspañolainSpain;a$80netdeferredtaxassetforAWABinBrazil;a$38netdeferredtaxassetforAlcoaLauralcoManagementCompanyinCanada;a$38netdeferredtaxassetforAlcoaWolinbecCompanyinCanada;and,a$170netdeferredtaxliabilityforAofAinAustralia.
ThefuturerealizationofthenetdeferredtaxassetforeachoftheForeignFilerswasbasedonprojectionsoftherespectivefuturetaxableincome(definedasthesumofpretaxincome,othercomprehensiveincome,andpermanenttaxdifferences),exclusiveofreversingtemporarydifferencesandcarryforwards.TherealizationofthenetdeferredtaxassetsoftheForeignFilersisnotdependentonanyfuturetaxplanningstrategies.BothAlcoaCanadaCompanyandAlcoaWolinbecCompanyareinathree-yearcumulativelosspositionfortheperiodendedDecember31,2020withoutavaluationallowancewhere,inmanagement’sjudgment,theweightofthepositiveevidencemorethanoffsetsthenegativeevidenceofthecumulativelosses.Uponchangesinfactsandcirc*mstances,managementmayconcludethatAlcoaCanadaCompanyorAlcoaWolinbecCompany’sdeferredtaxassetsmaynotberealized,resultinginafuturechargetoestablishavaluationallowance.ManagementhasforecastedtaxableincomeforeachoftheForeignFilersfortheforeseeablefuture.Thisforecastisbasedonmacroeconomicindicatorsandinvolvesassumptionsrelatedto,amongothers:commodityprices;volumelevels;andkeyinputsandrawmaterials,suchasbauxite,alumina,causticsoda,calcinedpetroleumco*ke,liquidpitch,energy,labor,andtransportationcosts.ThesearethesameassumptionsutilizedbymanagementtodevelopthefinancialandoperatingplanthatisusedtomanagetheCompanyandmeasureperformanceagainstactualresults.
ThemajorityoftheAlcoaCanadaCompanyandaportionoftheAlcoaWolinbecCompanynetdeferredtaxassetsrelatetopensionobligationsandderivatives.ThemajorityoftheotherForeignFilers’andtheremainingportionofAlcoaCanadaCompany’sandAlcoaWolinbecCompany’snetdeferredtaxassetsrelatetotaxlosscarryforwards.TheForeignFilersdonothaveahistoryoftaxlosscarryforwardsexpiringunused.Additionally,taxlosscarryforwardshaveaninfinitelifeundertherespectiveincometaxcodesinBrazilandSpain.However,utilizationofanexistingtaxlosscarryforwardislimitedto30%and25%oftaxableincomeinaparticularyearinBrazilandSpain,respectively.
Accordingly,managementconcludedthatthenetdeferredtaxassetsoftheForeignFilerswillmorelikelythannotberealizedinfutureperiods,resultinginnoneedforapartialorfullvaluationallowanceasofDecember31,2020.
Thefollowingtabledetailsthechangesinthevaluationallowance:December 31, 2020 2019 2018 Balanceatbeginningofyear $ (1,778) $ (1,684) $ (1,927)Establishmentofnewallowances(1) — — (86)Netchangetoexistingallowances(2) (315) (101) 312Foreigncurrencytranslation (34) 7 17Balanceatendofyear $ (2,127) $ (1,778) $ (1,684)(1) Thislineitemreflectsvaluationallowancesinitiallyestablishedasaresultofachangeinmanagement’sjudgmentregardingtherealizabilityofdeferredtax
assets.(2) Thislineitemreflectsmovementsinpreviouslyestablishedvaluationallowances,whichincreaseordecreaseastherelateddeferredtaxassetsincreaseor
decrease.Suchmovementsoccurasaresultofremeasurementduetoataxratechangeandchangesintheunderlyingattributesofthedeferredtaxassets,includingexpirationoftheattributeandreversalofthetemporarydifferencethatgaverisetothedeferredtaxasset.
In2018,Alcoaimmediatelyestablishedafullvaluationallowanceof$86relatedtoaninitialdeferredtaxassetassociatedwiththeCompany’sequityinterestinElysisTM(seeNoteH).Atinception,theCompanycontributedcertainintellectualpropertyandpatentsandmadeaninitialcashinvestmentof$5toElysisTM.Thisdeferredtaxassetrelatestoanoutsidebasisdifferencecreatedbytheexcessofthetaxbasis(i.e.fairvalue)oftheseassetsoverthecarryingvalueoftheinvestmentinElysisTMrecordedbytheCompany.Since2018,thegrossoutsidebasisdifferencehasdecreasedby$102duetotaxdepreciationbasedonthefairvalueofthecontributedassetsatinception.TheresultingvaluationallowancerelatedtotheCompany’sequityinterestinElysisTMis$58atDecember31,2020.TheinitialpurposeofElysisTMistoadvancedevelopmentofaluminumsmeltertechnologywiththeultimategoalofcommercialization.Afterweighingallavailablepositiveandnegativeevidence,managementdetermineditisnotmorelikelythannotthattheCompanywillrealizethetaxbenefitofthisdeferredtaxasset.ThisconclusionwasbasedonthefactthatElysisTMisexpectedtogeneratelossesfortheforeseeablefutureasElysisTMincursexpensesduringthedevelopmentstagewithoutacommittedfuturerevenuestream.Theneedforthisvaluationallowancewillbeassessedonacontinuousbasisinfutureperiodsand,asaresult,aportionoralloftheallowancemaybereversedbasedonchangesinfactsandcirc*mstances.
Undistributed net earnings.ThecumulativeamountofAlcoa’sforeignundistributednetearningsdeemedtobepermanentlyreinvestedwasapproximately$1,915asofDecember31,2020.AlcoaCorporationhasseveralcommitmentsandobligationsrelatedtotheCompany’soperationsinvariousforeignjurisdictions;therefore,managementhasnoplanstodistributesuchearningsintheforeseeablefuture.AlcoaCorporationcontinuouslyevaluatesitslocalandglobalcashneeds
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forfuturebusinessoperationsandanticipateddebtfacilities,whichmayinfluencefuturerepatriationdecisions.ItisnotpracticabletoestimatethetaxliabilitythatmightbeincurredifsuchearningswereremittedtotheU.S.
Unrecognized tax benefits.AlcoaanditssubsidiariesfileincometaxreturnsintheU.S.federaljurisdictionandvariousforeignandU.S.statejurisdictions.Withfewexceptions,theCompanyisnotsubjecttoincometaxexaminationsbytaxauthoritiesforyearspriorto2014.ForU.S.federalincometaxpurposes,virtuallyalloftheCompany’sU.S.operationswereincludedintheincometaxfilingsofParentCo’sU.S.consolidatedtaxgrouppriortotheSeparationDate.Sincethattime,theCompany’sU.S.consolidatedtaxgroup,comprisedofthereferencedU.S.operations,hasfiledU.S.federalincometaxreturnsforthetwo-month2016post-separationperiodaswellastaxyears2017,2018,and2019.Taxyears2017and2018arecurrentlyunderexaminationbytheInternalRevenueService.TheU.S.federalincometaxfilingsofParentCo’sU.S.consolidatedtaxgrouphavebeenexaminedforallpriorperiodsthroughtheSeparationDate.ForeignjurisdictiontaxauthoritiesareintheprocessofexaminingincometaxreturnsofseveralofAlcoa’ssubsidiariesforvarioustaxyears.ExcludingtheAustraliataxmatterdiscussedinNoteS,theperiodunderforeignexaminationincludestheincometaxyearsfrom2006through2019.ForU.S.stateincometaxpurposes,theCompanyanditssubsidiariesremainsubjecttoincometaxexaminationsforthe2015taxyearandforward(asofDecember31,2020,thereweretwoactivelimitedscopeexaminations).
Inthethirdquarterof2020,AofApaidapproximately$74(A$107)totheATOrelatedtothetaxdisputedescribedinNoteS.Uponpayment,AofArecordedanoncurrenttaxassessmentdeposit,astheCompanycontinuestobelieveitismorelikelythannotthatAofA’staxpositionwillbesustainedandthereforeisnotrecognizinganytaxexpenseinrelationtothismatter.InaccordancewithAustraliantaxlaws,theinitialinterestassessmentandadditionalinterestaredeductibleagainstAofA’s2020taxableincomeresultingin$169(A$219)lowercashtaxpaymentsinthesecondhalfof2020.InterestcompoundedinfutureyearsisalsodeductibleagainstAofA’sincomeintherespectiveperiods.IfAofAisultimatelysuccessful,theinterestdeductionwouldbecometaxableasincomeintheyearthedisputeisresolved.Inaddition,shouldtheATOdecideintheinterimtoreduceanyinterestalreadyassessed,thereductionwouldbetaxableasincomeatthatpointintime.During2020,AofAcontinuedtorecorditstaxprovisionandtaxliabilitywithouteffectoftheATOassessment,sinceitexpectstoprevail.The2020taxpayableremainsonAofA’sbalancesheetasanoncurrentaccruedtaxliabilityandwillbeincreasedbythetaxeffectofsubsequentperiods’interestdeductions,untildisputeresolution,whichisexpectedtotakeseveralyears.AtDecember31,2020,thenoncurrentaccruedtaxliabilityresultingfromthecumulativeinterestdeductionswasapproximately$169(A$219).
Areconciliationofthebeginningandendingamountofunrecognizedtaxbenefits(excludinginterestandpenalties)wasasfollows:December 31, 2020 2019 2018 Balanceatbeginningofyear $ 29 $ 30 $ 10Additionsfortaxpositionsofthecurrentyear — — 1Additionsfortaxpositionsofprioryears — — 20Reductionsfortaxpositionsofprioryears (26) — —Foreigncurrencytranslation 1 (1) (1)Balanceatendofyear $ 4 $ 29 $ 30
Forallperiodspresented,aportionofthebalanceatendofyearpertainstostatetaxliabilities,whicharepresentedbeforeanyoffsetforfederaltaxbenefits.Theeffectofunrecognizedtaxbenefits,ifrecorded,thatwouldimpacttheannualeffectivetaxratefor2020,2019,and2018wouldbe3%,(7)%,and2%,respectively,ofpretaxbook(loss)income.In2018,theCompanyrecordedachargeof$30(€26),including$10(€9)forinterest,inProvisionforincometaxesontheaccompanyingStatementofConsolidatedOperationstoestablishaliabilityforits49%shareoftheestimatedlossonadisputedincometaxmatter(seeSpainintheTaxsectionofNoteS).In2020,theCompanyreceivedafavorablefinalrulingintheSupremeCourtofSpainontheSpaintaxmatterandrecordedincomeof$32(€26)fromthereversalofthe2018entryandtheinterestexpenseaccruedthrough2019.ThischangeisreflectedintheabovetableasReductionsfortaxpositionsofprioryearsintheamountof$21(€17),whichisexclusiveofinterestpreviouslychargedtoexpense.TheremainderofthechangeinReductionsfortaxpositionsofprioryearsisprimarilyrelatedtochangesinBrazilincometaxpositions.AlcoadoesnotanticipatethatchangesinitsunrecognizedtaxbenefitswillhaveamaterialimpactontheStatementofConsolidatedOperationsduring2021.
ItistheCompany’spolicytorecognizeinterestandpenaltiesrelatedtoincometaxesasacomponentoftheProvisionforincometaxesontheaccompanyingStatementofConsolidatedOperations.In2020,2019,and2018Alcoarecognized$0,$2,and$10,respectively,ininterestandpenalties.Duetotheexpirationofthestatuteoflimitations,settlementswithtaxauthorities,andrefundedoverpayments,theCompanyalsorecognizedinterestincomeof$13,$1,and$1in2020,2019,and2018,respectively.AsofDecember31,2020,and2019,theamountaccruedforthepaymentofinterestandpenaltieswas$2and$14,respectively.
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R. Asset Retirement Obligations
AlcoarecordsAROsrelatedtolegalobligationsassociatedwiththestandardoperationofbauxitemines,aluminarefineries,andaluminumsmelters.TheseAROsconsistprimarilyofcostsassociatedwithminereclamation,closureofbauxiteresidueareas,spentpotliningdisposal,andlandfillclosure.TheCompanyalsorecognizesAROsforanysignificantleaserestorationobligation,ifrequiredbyaleaseagreement,andforthedisposalofregulatedwastematerialsrelatedtothedemolitionofcertainpowerfacilities.
ThefollowingtabledetailsthecarryingvalueofrecordedAROsbymajorcategory,ofwhich$128and$111wasclassifiedasacurrentliabilityasofDecember31,2020and2019,respectively:December 31, 2020 2019 Minereclamation $ 264 $ 205Closureofbauxiteresidueareas 278 282Spentpotliningdisposal 108 106Demolition 72 85Landfillclosure 31 39Balanceatendofyear $ 753 $ 717
ThefollowingtabledetailsthechangesinthetotalcarryingvalueofrecordedAROs:December 31, 2020 2019 Balanceatbeginningofyear $ 717 $ 651Accretionexpense 21 22Liabilitiesincurred 107 148Payments (93) (90)Reversalsofpreviouslyrecordedliabilities (17) (12)Foreigncurrencytranslationandother 18 (2)Balanceatendofyear $ 753 $ 717
In2020,ReversalsofpreviouslyrecordedliabilitieswereprimarilyrelatedtothesaleofGumSprings(seeNoteU)andcompletionofdemolitionprojectsatnumeroussites.In2019,ReversalsofpreviouslyrecordedliabilitieswereprimarilyrelatedtothedivestitureoftheAvilésandLaCoruña(Spain)facilities(seeNoteD).
Liabilitiesincurredin2020includeaccrualsfornewmineareasopenedduringtheyear,higherestimatedminereclamationcosts,accrualsforbauxiteresidueareasopenedduringtheyear,andaccrualsrelatedtospentpotliningtreatmentanddisposals.Theadditionalaccrualswereprimarilyrecordedwithcorrespondingcapitalizedassetretirementcosts(seeNoteB)exceptfor$2whichwasrecordedtoRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).Liabilitiesincurredin2019includes$72relatedtotheclosureofthePointComfortaluminarefinerythatwasrecordedinRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).S. Contingencies and Commitments
Unlessspecificallydescribedtothecontrary,allmatterswithinNoteSarethefullresponsibilityofAlcoaCorporationpursuanttotheSeparationandDistributionAgreement.Additionally,theSeparationandDistributionAgreementprovidesforcross-indemnitiesbetweentheCompanyandParentCoforclaimssubjecttoindemnification.
Contingencies
EnvironmentalMatters
AlcoaCorporationparticipatesinenvironmentalassessmentsandcleanupsatseverallocations.Theseincludecurrentlyorpreviouslyownedoroperatedfacilitiesandadjoiningproperties,andwastesites,includingSuperfund(ComprehensiveEnvironmentalResponse,CompensationandLiabilityAct(CERCLA))sites.
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Thefollowingtabledetailsthechangesinthecarryingvalueofrecordedenvironmentalremediationreserves:Balance at December 31, 2017 $ 294Liabilitiesincurred 19Cashpayments (25)Reversalsofpreviouslyrecordedliabilities (3)Foreigncurrencytranslationandother (5)Balance at December 31, 2018 280Liabilitiesincurred 73Cashpayments (17)Reversalsofpreviouslyrecordedliabilities (1)Balance at December 31, 2019 335Liabilitiesincurred 7Cashpayments (19)Foreigncurrencytranslationandother (1)Balance at December 31, 2020 $ 322
AtDecember31,2020and2019,thecurrentportionoftheremediationreservebalancewas$29and$39,respectively.
In2020,theCompanyincurredliabilitiesof$7whichwereprimarilyrelatedtoongoingremediationworkatvarioussites.TheadditionalaccrualswererecordedtoCostofgoodssoldexceptfor$1whichwasrecordedtoRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).
In2019,theCompanyincurredliabilitiesof$73whichwereprimarilyrelatedtotheclosureofthePointComfortaluminarefineryandrecordedinRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).TheremainingamountwasrecordedtoCostofgoodssold.
In2018,changestotheliabilityweretheresultofongoingremediationworkatvarioussites.TheadditionalaccrualswererecordedtoCostofgoodssoldexceptfor$2thatwasrecordedtoRestructuringandothercharges,netontheaccompanyingStatementofConsolidatedOperations(seeNoteD).TheestimatedtimingofcashoutflowsontheenvironmentalremediationreserveatDecember31,2020isasfollows:2021 $ 292022-2026 142Thereafter 151Total $ 322
TheSeparationandDistributionAgreementincludesprovisionsfortheassignmentorallocationofenvironmentalliabilitiesbetweenAlcoaCorporationandParentCo.Ingeneral,therespectivepartiesareresponsiblefortheenvironmentalmattersassociatedwiththeiroperationsandthepropertiesassignedtoeach,aswellascertainenvironmentalmatterswithasharedresponsibilitybetweenthetwocompanies.
ReservebalancesatDecember31,2020and2019,associatedwithsignificantsiteswithactiveremediationunderwayorforfutureremediationwere$259and$274,respectively.Inmanagement’sjudgment,theCompany’sreservesaresufficienttosatisfytheprovisionsoftherespectiveactionplans.TheCompany’ssignificantsitesinclude:
Poços de Caldas, Brazil—Thereserveassociatedwiththe2015closureoftheAlcoaAlumínioS.A.smelterinPoçosdeCaldas,Brazil,isforremediationofhistoricspentpotliningstorageanddisposalareas.Thefinalremediationplaniscurrentlyunderreview;suchreviewcouldrequirethereservebalancetobeadjusted.
Fusina and Portovesme, Italy—AlcoaCorporation’ssubsidiaryAlcoaTrasformazioniS.r.l.hasremediationprojectsunderwayforitsclosedsmeltersitesatFusinaandPortovesmewhichhavebeenapprovedbytheItalianMinistryofEnvironmentandProtectionofLandandSea(MOE).WorkisongoingforsoilremediationattheFusinasitewithexpectedcompletionin2022andatthePortovesmesitewithexpectedcompletioninthefirsthalfof2021.Additionally,annualpaymentsaremadetoMOEovera10-yearperiodthrough2022forgroundwateremergencycontainmentandnaturalresourcedamagesattheFusinasite.AgroundwaterremediationprojectatPortovesmehadafinalremedialdesigncompletedin2020andisawaitingapprovalfromtheMOE.
Suriname—Thereserveassociatedwiththe2017closureoftheSuralcorefineryandbauxitemineisfortreatmentanddisposalofrefinerywasteandsoilremediation.Theworkbeganin2017andisexpectedtobecompletedattheendof2025.
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Hurricane Creek, Arkansas—Thereserveassociatedwiththe1990closureoftwominingareasandrefineriesnearHurricaneCreek,Arkansasisforongoingmonitoringandmaintenanceforwaterqualitysurroundingthemineareasandresiduedisposalareas.
Massena, New York—Thereserveassociatedwiththe2015closureoftheMassenaEastsmelterbytheCompany’ssubsidiary,ReynoldsMetalsCompany,isforsubsurfacesoilremediationtobeperformedafterdemolitionofthestructures.Remediationworkisexpectedtocommencein2021andwilltakefourtoeightyearstocomplete.
Point Comfort, Texas—Thereserveassociatedwiththe2019closureofthePointComfortaluminarefineryisfordisposalofindustrialwastescontainedatthesite,subsurfaceremediation,andpost-closuremonitoringandmaintenance.Thefinalremediationplaniscurrentlyunderreview,whichmayresultinachangetotheexistingreserve.
Sherwin, Texas—Inconnectionwiththe2018settlementofadisputerelatedtothepreviously-ownedSherwinaluminarefinery,theCompany’ssubsidiary,CopanoEnterprisesLLC,acceptedresponsibilityforthefinalclosureoffourbauxiteresiduewastedisposalareas(knownastheCopanofacility).Workcommencedonthefirstresiduein2018andwilltakeeighttotwelveyearstocomplete,dependingonthenatureofitspotentialre-use.Workonthenextthreeareashasnotcommencedbutisexpectedtobecompletedby2048,dependingonitspotentialre-use.
Longview, Washington—Inconnectionwitha2018ConsentDecreeandCleanupActionPlanwiththeStateofWashingtonDepartmentofEcology,theCompany’ssubsidiary,NorthwestAlloysaslandowner,acceptedcertainresponsibilitiesforfutureremediationofcontaminatedsoilandsedimentsatthesitelocatednearLongview,Washington.InDecember2020,thelesseeoftheland,whoisapartnerintheremediationofthesite,filedforbankruptcy.AsofDecember31,2020,thereserverelatedtothesiteisdeemedtobesufficient.
Other Sites—TheCompanyisintheprocessofdecommissioningvariousotherplantsandremediatingsitesinseveralcountriesforpotentialredevelopmentortoreturnthelandtoanaturalstate.Inaggregate,thereareapproximately35remediationprojectsattheseothersitesthatareplannedorunderway.Theseactivitieswillbecompletedatvarioustimesinthefuturewiththelatestexpectedtobein2026,afterwhichongoingmonitoringandotheractivitiesmayberequired.AtDecember31,2020and2019,thereservebalanceassociatedwiththeseactivitieswas$63and$61,respectively.
TaxMatters
Spain—InJuly2013,followingacorporateincometaxauditcoveringthe2006through2009taxyears,anassessmentwasreceivedfromSpain’staxauthoritiesdisallowingcertaininterestdeductionsclaimedbyParentCo’sSpanishconsolidatedtaxgroup.Throughvariousstagesofsubsequentappeal,denialandre-assessmentthroughthethirdquarterof2018,AlcoaCorporationmanagementcametobelievethatitwasnolongermorelikelythannot(greaterthan50%)toprevailinthismatter.Accordingly,inthethirdquarterof2018,AlcoaCorporationrecordedachargeof$30(€26)inProvisionforincometaxestoestablishaliabilityforitsportionoftheestimatedlossinthismatter,representingmanagement’sbestestimateatthetime.
OnNovember8,2018,AlcoafiledapetitionforappealtotheSupremeCourtofSpain.Duringthefourthquarterof2020,theSupremeCourtofSpainmetandruledinfavorofAlcoaonthe2006through2009taxyearassessment.Therulingisfinalandcannotbefurtherappealed.Asaresultofthefinalruling,Alcoareversedthe$32(€26)reservethatwasestablishedin2018andthematterisnowconsideredclosed.Additionally,aliensecuredwiththeSanCipriánsmeltertoSpain’staxauthoritiesthatwasprovidedinrelationtothismatterhasbeenauthorizedforrelease.
Brazil (AWAB)—InMarch2013,AWABwasnotifiedbytheBrazilianFederalRevenueOffice(RFB)thatapproximately$110(R$220)ofvalueaddedtaxcreditspreviouslyclaimedarebeingdisallowedandapenaltyof50%assessed.Ofthisamount,AWABreceived$41(R$82)incashinMay2012.Thevalue-addedtaxcreditswereclaimedbyAWABforbothfixedassetsandexportsalesrelatedtotheJurutibauxitemineandSãoLuísrefineryexpansion.TheRFBhasdisallowedcreditstheyallegebelongtotheconsortiuminwhichAWABownsaninterestandshouldnothavebeenclaimedbyAWAB.Creditshavealsobeendisallowedasaresultofchallengestoapportionmentmethodsused,questionsabouttheuseofthecredits,andanallegedlackofdocumentedproof.AWABpresenteddefenseofitsclaimtotheRFBonApril8,2013.IfAWABissuccessfulinthisadministrativeprocess,theRFBwouldhavenofurtherrecourse.Ifunsuccessfulinthisprocess,AWABhastheoptiontolitigateatajudiciallevel.SeparatelyfromAWAB’sadministrativeappeal,inJune2015,newtaxlawwasenactedrepealingtheprovisionsinthetaxcodethatwerethebasisfortheRFBassessinga50%penaltyinthismatter.Assuch,theestimatedrangeofreasonablypossiblelossforthesemattersis$0to$42(R$220).Itismanagement’sopinionthattheallegationshavenobasis;however,atthistime,theCompanyisunabletoreasonablypredictanoutcomeforthismatter.
Australia (AofA)—InDecember2019,AofAreceivedastatementofauditposition(SOAP)fromtheAustralianTaxationOffice(ATO)relatedtothepricingofcertainhistoricthird-partyaluminasales.TheSOAPproposedadjustmentsthatwouldresultinadditionalincometaxpayablebyAofA.During2020,theSOAPwasthesubjectofanindependentreviewprocesswithintheATO.Attheconclusionofthisprocess,theATOdeterminedtocontinuewiththeproposedadjustmentsandissued
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NoticesofAssessment(theNotices)thatwerereceivedbyAofAonJuly7,2020.TheNoticesassertedclaimsforincometaxpayablebyAofAofapproximately$165(A$214).TheNoticesalsoincludeclaimsforcompoundedinterestonthetaxamounttotalingapproximately$544(A$707).
OnSeptember17,2020,theATOissuedapositionpaperwithitspreliminaryviewontheimpositionofadministrativepenaltiesrelatedtothetaxassessmentissuedtoAofA.Thispaperproposedpenaltiesofapproximately$99(A$128).AofAdisagreeswiththeATO’sproposedpositiononpenaltiesandsubmittedaresponsetothepositionpaperinthefourthquarterof2020.AfterreviewingAofA’sresponse,theATOcouldissueapenaltyassessment.
TheCompanydoesnotagreewiththeATO’spositions,andAofAwillcontinuetodefendthismatterandpursueallavailabledisputeresolutionmethods,uptoandincludingthefilingofproceedingsintheAustralianCourts,aprocesswhichcouldlastseveralyearsandcouldinvolvesignificantexpenses.TheCompanymaintainsthatthesalessubjecttotheATO’sreview,whichwereultimatelysoldtoAluminiumBahrainB.S.C.,weretheresultofarm’slengthtransactionsbyAofAovertwodecadesandweremadeatarm’slengthpricesconsistentwiththepricespaidbyotherthird-partyaluminacustomers.
InaccordancewiththeATO’sdisputeresolutionpractices,AofApaid50%oftheassessedincometaxamountexclusiveofinterestandanypenalties,orapproximately$74(A$107),duringthethirdquarter2020,andtheATOisnotexpectedtoseekfurtherpaymentpriortofinalresolutionofthematter.IfAofAisultimatelysuccessful,anyamountspaidtotheATOaspartofthe50%paymentwouldberefunded.AofAfundedthepaymentwithcashonhandandrecordedthepaymentwithinOthernoncurrentassetsasataxassessmentdeposit;therelatedDecember31,2020balanceis$82(A$107).
Furtherinterestontheunpaidtaxandinterestamountswillcontinuetoaccrueduringthedispute.TheinitialinterestassessmentandtheadditionalinterestaccruedaredeductibleagainsttaxableincomebyAofAbutwouldbetaxableasincomeintheyearthedisputeisresolvedifAofAisultimatelysuccessful.AofAappliedthisdeductionbeginninginthethirdquarterof2020andhasreducedthecurrentyearcashtaxpaymentsbyapproximately$169(A$219).ThisamounthasbeenreflectedwithinOthernoncurrentliabilitiesanddeferredcreditsasanoncurrentaccruedtaxliabilityasofDecember31,2020(seeNoteU).
TheCompanycontinuestobelieveitismorelikelythannotthatAofA’staxpositionwillbesustainedandthereforeisnotrecognizinganytaxexpenseinrelationtothismatter.However,becausetheultimateresolutionofthismatterisuncertainatthistime,theCompanycannotpredictthepotentiallossorrangeoflossassociatedwiththeoutcome,whichmaymateriallyaffectit*resultsofoperationsandfinancialcondition.ReferencestoanyassessedU.S.dollaramountspresentedinconnectionwiththismatterhavebeenconvertedintoU.S.dollarsfromAustraliandollarsbasedontheexchangerateineffectasofDecember31,2020.
AofAispartoftheCompany’sjointventurewithAluminaLimited,anAustralianpubliccompanylistedontheAustralianSecuritiesExchange.TheCompanyandAluminaLimitedown60%and40%,respectively,ofthejointventureentities,includingAofA.
General
Inadditiontothemattersdiscussedabove,variousotherlawsuits,claims,andproceedingshavebeenormaybeinstitutedorassertedagainstAlcoaCorporation,includingthosepertainingtoenvironmental,safetyandhealth,commercial,tax,productliability,intellectualpropertyinfringement,employment,andemployeeandretireebenefitmatters,andotheractionsandclaimsarisingoutofthenormalcourseofbusiness.Whiletheamountsclaimedintheseothermattersmaybesubstantial,theultimateliabilityisnotreadilydeterminablebecauseoftheconsiderableuncertaintiesthatexist.Accordingly,itispossiblethattheCompany’sliquidityorresultsofoperationsinaparticularperiodcouldbemateriallyaffectedbyoneormoreoftheseothermatters.However,basedonfactscurrentlyavailable,managementbelievesthatthedispositionoftheseothermattersthatarependingorassertedwillnothaveamaterialadverseeffect,individuallyorintheaggregate,onthefinancialpositionoftheCompany.
Commitments
Purchase Obligations. AlcoaCorporationispartytounconditionalpurchaseobligationsforenergythatexpirebetween2028and2036.Commitmentsrelatedtothesecontractstotal$53in2021,$113in2022,$115in2023,$117in2024,$118in2025,and$948thereafter.Expendituresunderthesecontractstotaled$79in2020,$146in2019,and$169in2018.Additionally,theCompanyhasenteredintootherpurchasecommitmentsforenergy,rawmaterials,andothergoodsandservices,whichtotal$2,279in2021$1,818in2022,$1,576in2023,$1,456in2024,$1,447in2025,and$9,935thereafter.
AofAhasagassupplyagreementtopoweritsthreealuminarefineriesinWesternAustraliawhichbeganinJuly2020fora12-yearperiod.ThetermsofthisagreementrequiredAofAtomakeaprepaymentof$500intwoinstallments,thefirstofwhichwasmadeinJune2015for$300.Thesecondinstallmentof$200wasmadeinApril2016.AtDecember31,2020,AlcoaCorporationhadatotalassetof$481(A$625)whichwasincludedinPrepaidexpensesandothercurrentassets($42)andOthernoncurrentassets($439)(seeNoteU)ontheaccompanyingConsolidatedBalanceSheetrelatedtothese
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prepayments.AtDecember31,2019,AlcoaCorporationhadatotalassetof$458(A$654)whichwasincludedinPrepaidexpensesandothercurrentassets($21)andOthernoncurrentassets($437)(seeNoteU)ontheaccompanyingConsolidatedBalanceSheet.
Guarantees of Third Parties.AsofDecember31,2020and2019,theCompanyhadnooutstandingpotentialfuturepaymentsforguaranteesissuedonbehalfofathirdparty.During2019,AlcoaCorporationdivesteditsinterestinMRC,dissolvingthepreviousguaranteerelatedtoprojectfinancingfortherollingmillinSaudiArabia.
Bank Guarantees and Letters of Credit.AlcoaCorporationhasoutstandingbankguaranteesandlettersofcreditrelatedto,amongothers,energycontracts,environmentalobligations,legalandtaxmatters,outstandingdebt,leasingobligations,workerscompensation,andcustomsduties.Thetotalamountcommittedundertheseinstruments,whichautomaticallyreneworexpireatvariousdatesbetween2021and2023,was$320(includes$110issuedunderastandbyletterofcreditagreement—seebelow)atDecember31,2020.Additionally,ParentCohasoutstandingbankguaranteesandlettersofcreditrelatedtotheCompanyintheamountof$20atDecember31,2020.IntheeventParentCowouldberequiredtoperformunderanyoftheseinstruments,ParentCowouldbeindemnifiedbyAlcoaCorporationinaccordancewiththeSeparationandDistributionAgreement.Likewise,theCompanyhasoutstandingbankguaranteesandlettersofcreditrelatedtoParentCointheamountof$11atDecember31,2020.IntheeventAlcoaCorporationwouldberequiredtoperformunderanyoftheseinstruments,theCompanywouldbeindemnifiedbyParentCoinaccordancewiththeSeparationandDistributionAgreement.
InAugust2017,AlcoaCorporationenteredintoastandbyletterofcreditagreement,whichexpiresonMay3,2021(extendedoriginallyinAugust2018andagaininMay2019),withthreefinancialinstitutions.Theagreementprovidesfora$150facility,whichwillbeusedbytheCompanyformattersintheordinarycourseofbusiness.AlcoaCorporation’sobligationsunderthisfacilitywillbesecuredinthesamemannerasobligationsundertheCompany’sRevolvingCreditFacility.Additionally,thisfacilitycontainssimilarrepresentationsandwarrantiesandaffirmative,negative,andfinancialcovenantsastheCompany’sRevolvingCreditFacility(seeNoteM).AsofDecember31,2020,lettersofcreditaggregating$110wereissuedunderthisfacility.
Surety Bonds.AlcoaCorporationhasoutstandingsuretybondsprimarilyrelatedtotaxmatters,contractperformance,workerscompensation,environmental-relatedmatters,andcustomsduties.Thetotalamountcommittedunderthesebonds,whichautomaticallyreneworexpireatvariousdates,mostlyin2021,was$122atDecember31,2020.Additionally,ParentCohasoutstandingsuretybondsrelatedtotheCompanyintheamountof$15atDecember31,2020.IntheeventParentCowouldberequiredtoperformunderanyoftheseinstruments,ParentCowouldbeindemnifiedbyAlcoaCorporationinaccordancewiththeSeparationandDistributionAgreement.Likewise,theCompanyhasoutstandingsuretybondsrelatedtoParentCointheamountof$3atDecember31,2020.IntheeventAlcoaCorporationwouldberequiredtoperformunderanyoftheseinstruments,theCompanywouldbeindemnifiedbyParentCoinaccordancewiththeSeparationandDistributionAgreement.
T. Leasing
Alcoarecordsaright-of-useassetandleaseliabilityforseveraltypesofoperatingleases,includinglandandbuildings,aluminarefineryprocesscontroltechnology,plantequipment,vehicles,andcomputerequipment.Theseamountsareequivalenttotheaggregatefutureleasepaymentsonadiscountedbasis.Theleaseshaveremainingtermsofoneto37years.ThediscountrateappliedtotheseleasesistheCompany’sincrementalborrowingratebasedontheinformationavailableatthecommencementdateindeterminingthepresentvalueofleasepayments,unlessthereisarateimplicitintheleaseagreement.TheCompanydoesnothavematerialfinancingleases.
Leaseexpenseandoperatingcashflowsinclude: 2020 2019 Costsfromoperatingleases $ 74 $ 78Variableleasepayments $ 11 $ 16Short-termrentalexpense $ 3 $ 6
Right-of-useassetstotaling$6wereimpairedin2019inconjunctionwiththepermanentclosureofthePointComfort(Texas)aluminarefinery(seeNoteD).
Theweightedaverageleasetermandweightedaveragediscountratewereasfollows:December 31, 2020 2019 Weightedaverageleasetermforoperatingleases(years) 4.4 4.6Weightedaveragediscountrateforoperatingleases 5.2% 5.4%
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Thefollowingrepresentstheaggregateright-of-useassetsandrelatedleaseobligationsrecognizedintheConsolidatedBalanceSheet:December 31, 2020 2019 Properties,plants,andequipment,net $ 137 $ 154Othercurrentliabilities 60 61Othernoncurrentliabilitiesanddeferredcredits 82 100Totaloperatingleaseliabilities 142 161
Right-of-useassetsandleaseliabilitiesrelatedtotheWarrickRollingMillhavebeenexcludedfromtheDecember31,2020balancesintheabovetableduetotheannouncedsaleoftherollingmillandhavebeenreclassifiedtoAssetsheldforsale(seeNoteC).
Newleasesof$54and$30wereaddedduringtheyearsendedDecember31,2020and2019,respectively.
ThefuturecashflowsrelatedtotheoperatingleaseobligationsasofDecember31,2020wereasfollows:Year Ending December 31, 2021 $ 682022 332023 212024 132025 8Thereafter 22Totalleasepayments(undiscounted) 165
Less:discounttonetpresentvalue (23)Total $ 142
U. Other Financial Information
Interest Cost Components
2020 2019 2018 Amountchargedtoexpense $ 146 $ 121 $ 122Amountcapitalized 9 13 14 $ 155 $ 134 $ 136
Other Expenses, Net
2020 2019 2018 Equityloss $ 46 $ 49 $ 17Foreigncurrencylosses(gains),net 20 16 (57)Netgainfromassetsales (173) (3) —Netloss(gain)onmark-to-marketderivativeinstruments(P) 11 (1) (25)Non-servicecosts–pensionandOPEB(O) 108 117 139Other,net (4) (16) (10) $ 8 $ 162 $ 64
In2020,Netgainfromassetsalesincludeda$181gainrelatedtothesaleofEES(seeNoteC).
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Other Noncurrent AssetsDecember 31, 2020 2019 Gassupplyprepayment(S) $ 439 $ 437Prepaidgastransmissioncontract 315 281Goodwill(L) 145 150Deferredminingcosts,net 136 124Value-addedtaxcredits 134 179Taxassessmentdeposit(S) 82 —Intangibles,net(L) 45 52Prepaidpensionbenefit(O) — 33Other 148 156 $ 1,444 $ 1,412
Aspartofaprevioussaletransactionofanequityinvestment,Alcoamaintainedaccesstoapproximately30%oftheDampiertoBunburyNaturalGasPipelinetransmissioncapacityinWesternAustraliaforgassupplytothreealuminarefineries.AtDecember31,2020and2019,AofAhadanassetof$315and$281,respectively,representingprepaymentsmadeundertheagreementforfuturegastransmissionservices.
TheValue-addedtax(VAT)credits(federalandstate)relatetotwooftheCompany’ssubsidiariesinBrazil,AWABandAlumínio,concerningtheSãoLuísrefinery.ThisrefinerypaysVATonthepurchaseofgoodsandservicesusedinthealuminaproductionprocess.ThecreditsgenerallycanbeutilizedtooffsettheVATchargedondomesticsalesofaluminaandaluminum.However,thereisnotadomesticmarketinBrazilforthesaleofaluminaandtheCompany’sSãoLuíssmelterhasbeenfullycurtailedsinceApril2015.
Inthefourthquarterof2018,managementperformedanupdatedassessmentofthefuturerealizabilityofthestateVATcreditsamidunfavorablemarketconditionsandalackofafavorablepowercontractfortheSãoLuíssmelter.Asaresult,managementdetermineditnecessarytoestablishanallowanceontheaccumulatedstateVATbalancesandrecordeda$107chargeinRestructuringandothercharges,net,(seeNoteD)ontheaccompanyingStatementofConsolidatedOperations.WhiletheCompanyretainstheabilitytoutilizethestatecreditsinthefuture,practicallyonlytherestartoftheSãoLuíssmelterprovidestheopportunitytomonetizethesecredits.NoallowancewasestablishedonthefederalVATcreditsastheycanbeusedtoreduceothertypesoffederaltaxobligations.ThestateVATamountsareexpensedtoCostofgoodssoldasincurred.ManagementcontinuestomaintaintheSãoLuíssmelterassetsforthefutureincaseofapotentialrestart.
Other Noncurrent Liabilities and Deferred CreditsDecember 31, 2020 2019 Noncurrentaccruedtaxliability(S) $ 169 $ —Accruedcompensationandretirementcosts 116 110Operatingleaseobligations(T) 82 100Deferredenergycredits 56 50Deferredaluminasalesrevenue 45 52Other 47 58 $ 515 $ 370
OthernoncurrentliabilitiesrelatedtotheWarrickRollingMillhavebeenexcludedfromtheDecember31,2020balancesintheabovetableduetotheannouncedsaleoftherollingmillandhavebeenreclassifiedtoLiabilitiesheldforsale(seeNoteC).
Deferredenergycreditsrelatetocashreceivedin2019forcarbondioxideemissioncreditsfromagovernmentalagency.ThetermsofthecreditsrequiretheCompanytocomplywithcertainconditionsforaperiodofthreeyears.ThesedeferredcreditswillberecognizedasareductiontoCostofgoodssoldonceitisdeterminedtobeprobabletheCompanywillsatisfyallconditions.ShouldtheCompanynotmeetallconditionsduringthethree-yearperiod,thecreditswillberepaidtothegovernmentalagency.
Cash and Cash Equivalents and Restricted Cash December 31, 2020 2019 Cashandcashequivalents $ 1,607 $ 879Restrictedcash 3 4 $ 1,610 $ 883
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RestrictedcashamountsarereportedinPrepaidexpensesandothercurrentassetsontheaccompanyingConsolidatedBalanceSheet.Cash Flow Information
Cashpaidforinterestandincometaxeswasasfollows:
2020 2019 2018 Interest,netofamountcapitalized $ 135 $ 113 $ 111Incometaxes,netofamountrefunded 183 732 507
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Item 8A. Supplemental Financial Information (unaudited)
Quarterly Data(in millions, except per-share amounts)
First Second Third Fourth Year
2020 Sales $ 2,381 $ 2,148 $ 2,365 $ 2,392 $ 9,286Netincome(loss) $ 139 $ (150) $ (20) $ 17 $ (14)Netincome(loss)attributabletoAlcoaCorporation $ 80 $ (197) $ (49) $ (4) $ (170)EarningspershareattributabletoAlcoaCorporationcommonshareholders(1):
Basic $ 0.43 $ (1.06) $ (0.26) $ (0.02) $ (0.91)Diluted $ 0.43 $ (1.06) $ (0.26) $ (0.02) $ (0.91)
2019 Sales $ 2,719 $ 2,711 $ 2,567 $ 2,436 $ 10,433Netloss $ (58) $ (293) $ (147) $ (355) $ (853)NetlossattributabletoAlcoaCorporation $ (199) $ (402) $ (221) $ (303) $ (1,125)EarningspershareattributabletoAlcoaCorporationcommonshareholders(1):
Basic $ (1.07) $ (2.17) $ (1.19) $ (1.63) $ (6.07)Diluted $ (1.07) $ (2.17) $ (1.19) $ (1.63) $ (6.07)
(1) Pershareamountsarecalculatedindependentlyforeachperiodpresented;therefore,thesumofthequarterlypershareamountsmaynotequalthepershare
amountsfortheyear.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a)EvaluationofDisclosureControlsandProcedures
AlcoaCorporation’sChiefExecutiveOfficerandChiefFinancialOfficerhaveevaluatedtheCompany’sdisclosurecontrolsandprocedures,asdefinedinRules13a-15(e)and15d-15(e)oftheU.S.SecuritiesExchangeActof1934,asamended,asoftheendoftheperiodcoveredbythisreport,andtheyhaveconcludedthatthesecontrolsandproceduresareeffectiveasofDecember31,2020.
(b)Management’sAnnualReportonInternalControloverFinancialReporting
Management’sReportonInternalControloverFinancialReportingisincludedinPartIIItem8ofthisForm10-K.
(c)AttestationReportoftheRegisteredPublicAccountingFirm
TheeffectivenessofAlcoaCorporation’sinternalcontroloverfinancialreportingasofDecember31,2020hasbeenauditedbyPricewaterhouseCoopersLLP,anindependentregisteredpublicaccountingfirm,asstatedintheirreport,whichisincludedinPartIIItem8ofthisForm10-K.
(d)ChangesinInternalControloverFinancialReporting
Therehavebeennochangesininternalcontroloverfinancialreportingduringthefourthquarterof2020thathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,theCompany’sinternalcontroloverfinancialreporting.
Item 9B. Other Information.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
TheinformationrequiredbyItem401ofRegulationS-KregardingexecutiveofficersissetforthinPartIItem1ofthisForm10-KunderthecaptionInformationaboutourExecutiveOfficers.TheinformationrequiredbyItem401ofRegulationS-Kregardingdirectorsiscontainedunderthecaption“Item1ElectionofDirectors”ofAlcoaCorporation’sDefinitiveProxyStatementforthe2021AnnualMeetingofStockholders(ProxyStatement),whichwillbefiledwiththeSECwithin120daysoftheendofAlcoaCorporation’sfiscalyearendedDecember31,2020andisincorporatedhereinbyreference.
TheCompany’sCodeofConduct,whichincorporatesaCodeofEthicsthatappliestoourprincipalexecutiveofficer,principalfinancialofficer,principalaccountingofficerorcontroller,ispubliclyavailableontheCompany’swebsiteatwww.alcoa.comunderthesection“Investors—Governance—GovernanceDocuments—CodeofConduct.”AlcoaCorporationwillpostanyamendmentsto,orwaiversof,itsCodeofConductthatapplytoitsprincipalexecutiveofficer,principalfinancialofficer,principalaccountingofficerorcontrolleronitswebsite.
TheinformationrequiredbyItems407(c)(3),(d)(4)and(d)(5)ofRegulationS-Kisincludedunderthecaptions“Item1ElectionofDirectors—NominatingBoardCandidates—ProceduresandDirectorQualifications,”“CorporateGovernance—BoardInformation—BoardMeetingsandAttendance”and“CorporateGovernance—BoardInformation—CommitteesoftheBoard”oftheProxyStatementandisincorporatedhereinbyreference.
Item 11. Executive Compensation.
TheinformationrequiredbyItem402ofRegulationS-Kiscontainedunderthecaptions“Item1ElectionofDirectors—Non-EmployeeDirectorCompensationProgram,”“ExecutiveCompensation”(excludingtheinformationunderthecaption“—CompensationCommitteeReport”),and“CorporateGovernance—BoardInformation—TheBoard’sRoleinRiskOversight”oftheProxyStatement.Suchinformationisincorporatedhereinbyreference.
TheinformationrequiredbyItems407(e)(4)and(e)(5)ofRegulationS-Kiscontainedunderthecaptions“CorporateGovernance—CompensationMatters—CompensationCommitteeInterlocksandInsiderParticipation”and“ExecutiveCompensation—CompensationCommitteeReport,”respectively,oftheProxyStatement.Suchinformation(otherthantheCompensationCommitteeReport,whichshallnotbedeemedtobefiled)isincorporatedhereinbyreference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
TheinformationrequiredbyItem201(d)ofRegulationS-Kiscontainedunderthecaption“EquityCompensationPlanInformation”oftheProxyStatementandisincorporatedhereinbyreference.
TheinformationrequiredbyItem403ofRegulationS-Kiscontainedunderthecaption“BeneficialOwnership”oftheProxyStatementandisincorporatedhereinbyreference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
TheinformationrequiredbyItem404ofRegulationS-Kiscontainedunderthecaption“CorporateGovernance—RelatedPersonTransactions”oftheProxyStatementandisincorporatedhereinbyreference.
TheinformationrequiredbyItem407(a)ofRegulationS-Kiscontainedunderthecaption“CorporateGovernance—BoardInformation”oftheProxyStatementandisincorporatedhereinbyreference.
Item 14. Principal Accounting Fees and Services.
TheinformationrequiredbyItem9(e)ofSchedule14Aiscontainedunderthecaption“Item2RatificationoftheAppointmentofIndependentAuditor—AuditCommitteePre-ApprovalPolicy”and“Item2RatificationoftheAppointmentofIndependentAuditor—AuditorFees”oftheProxyStatementandisincorporatedhereinbyreference.
118
PART IV
Item 15. Exhibit and Financial Statement Schedules.
(a)Theconsolidatedfinancialstatementsandexhibitslistedbelowarefiledaspartofthisreport.
(1)TheCompany’sconsolidatedfinancialstatements,thenotestheretoandthereportoftheIndependentRegisteredPublicAccountingFirmareincludedinPartIIItem8ofthisreport.
(2)Financialstatementscheduleshavebeenomittedbecausetheyarenotapplicable,notrequired,ortherequiredinformationisincludedintheconsolidatedfinancialstatementsornotesthereto.
(3)Exhibits.ExhibitNo.
Description of Exhibit
3.1 AmendedandRestatedCertificateofIncorporationofAlcoaCorporation(incorporatedbyreferencetoExhibit3.1totheCompany’sCurrentReportonForm8-KfiledNovember3,2016(FileNo.1-37816))
3.2 AmendedandRestatedBylawsofAlcoaCorporation,asadoptedonDecember6,2017(incorporatedbyreferencetoExhibit3.1totheCompany’sCurrentReportonForm8-KfiledDecember8,2017(FileNo.1-37816))
4.1 Indenture,datedSeptember27,2016,amongAlcoaNederlandHoldingB.V.,AlcoaUpstreamCorporationandTheBankofNewYorkMellonTrustCompany,N.A.(incorporatedbyreferencetoExhibit10.19toAmendmentNo.4totheCompany’sRegistrationStatementonForm10filedSeptember29,2016(FileNo.1-37816))
4.2 SupplementalIndenture,datedasofNovember1,2016,amongtheentitieslistedinAnnexAthereto,subsidiariesofAlcoaCorporation,AlcoaCorporation,AlcoaNederlandHoldingB.V.andTheBankOfNewYorkMellonTrustCompany,N.A.(incorporatedbyreferencetoExhibit4.3totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
4.3 SecondSupplementalIndenture,datedasofDecember9,2019,amongAlcoaCorporation,AlcoaTreasuryS.àr.l,AlcoaNederlandHoldingB.V.,andTheBankofNewYorkMellonTrustCompany,N.A.undertheIndenturedatedSeptember27,2016(incorporatedbyreferencetoExhibit4.3totheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2019,filedFebruary21,2020(FileNo.1-137816)
4.4 Indenture,datedMay17,2018,amongAlcoaNederlandHoldingB.V.,AlcoaCorporation,certainsubsidiariesofAlcoaCorporation,andtheBankofNewYorkMellonTrustCompany,N.A.,astrustee(incorporatedbyreferencetoExhibit4.1totheCompany’sCurrentReportonForm8-KfiledMay17,2018(FileNo.1-37816))
4.5 SupplementalIndenture,datedasofDecember9,2019,amongAlcoaCorporation,AlcoaTreasuryS.àr.l,AlcoaNederlandHoldingB.V.,andTheBankofNewYorkMellonTrustCompany,N.A.undertheIndenturedatedMay17,2018(incorporatedbyreferencetoExhibit4.5totheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2019,filedFebruary21,2020(FileNo.1-137816))
4.6 Indenture,datedJuly13,2020,amongAlcoaNederlandHoldingB.V.,AlcoaCorporation,certainsubsidiariesofAlcoaCorporation,andTheBankofNewYorkMellonTrustCompany,NationalAssociation,astrustee(incorporatedbyreferencetoExhibit4.1totheCompany’sCurrentReportonForm8-KfiledJuly13,2020(FileNo.1-37816))
4.7 DescriptionofSecurities(incorporatedbyreferencetoExhibit4.6totheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2019,filedFebruary21,2020(FileNo.1-137816))
10.1 SeparationandDistributionAgreement,datedasofOctober31,2016,byandbetweenArconicInc.andAlcoaCorporation(incorporatedbyreferencetoExhibit2.1totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
10.2 TaxMattersAgreement,datedasofOctober31,2016,byandbetweenArconicInc.andAlcoaCorporation(incorporatedbyreferencetoExhibit2.3totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
10.3 AlcoaCorporationtoArconicInc.Patent,Know-How,andTradeSecretLicenseAgreement,datedasofOctober31,2016,byandbetweenAlcoaUSACorp.andArconicInc.(incorporatedbyreferencetoExhibit2.5totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
119
ExhibitNo.
Description of Exhibit
10.4 ArconicInc.toAlcoaCorporationPatent,Know-How,andTradeSecretLicenseAgreement,datedasofOctober31,2016,byandbetweenArconicInc.andAlcoaUSACorp.(incorporatedbyreferencetoExhibit2.6totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
10.5 AmendedandRestatedAlcoaCorporationtoArconicInc.TrademarkLicenseAgreement,datedasofJune25,2017,byandbetweenAlcoaUSACorp.andArconicInc.(incorporatedbyreferencetoExhibit2totheCompany’sQuarterlyReportonForm10-QfiledAugust3,2017(FileNo.1-37816))
10.6 SecondAmendmentandRestatementAgreement,datedasofNovember21,2018,whichincludes,asExhibitAthereto,theRevolvingCreditAgreement,datedasofSeptember16,2016,asamendedasofOctober26,2016,asamendedandrestatedasofNovember14,2017,amongAlcoaCorporation,AlcoaNederlandHoldingB.V.,thelendersandissuersfromtimetotimepartythereto,andJPMorganChaseBank,N.A.,asadministrativeagentforthelendersandissuers(incorporatedbyreferencetoExhibit10.1totheCompany’sCurrentReportonForm8-KfiledNovember26,2018(FileNo.1-37816))
10.7 AmendmentNo.1datedasofAugust16,2019totheRevolvingCreditAgreementdatedasofSeptember16,2016,asamendedasofOctober26,2016,asamendedandrestatedasofNovember14,2017andasamendedandrestatedasofNovember21,2018,amongAlcoaCorporation,AlcoaNederlandHoldingB.V.,thelendersandissuersfromtimetotimepartythereto,andJPMorganChaseBank,N.A.,asadministrativeagentforthelendersandissuers(incorporatedbyreferencetoExhibit10.1totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))
10.8 AmendmentNo.2datedasofApril21,2020totheRevolvingCreditAgreementdatedasofSeptember16,2016,asamendedasofOctober26,2016,asamendedandrestatedasofNovember14,2017andasamendedandrestatedasofNovember21,2018andasamendedonAugust16,2019,amongAlcoaCorporation,AlcoaNederlandHoldingB.V.,thelendersandissuersfromtimetotimepartythereto,andJPMorganChaseBank,N.A.,asadministrativeagentforthelendersandissuers(incorporatedbyreferencetoExhibit10.1totheCompany’sQuarterlyReportonForm10-QfiledApril29,2020(FileNo.1-37816))
10.9 AmendmentNo.3datedasofJune24,2020totheRevolvingCreditAgreementdatedasofSeptember16,2016,asamendedasofOctober26,2016,asamendedandrestatedasofNovember14,2017andasamendedandrestatedasofNovember21,2018,asamendedonAugust16,2019,andasamendedonApril21,2020,amongAlcoaCorporation,AlcoaNederlandHoldingB.V.,thelendersandissuersfromtimetotimepartythereto,andJPMorganChaseBank,N.A.,asadministrativeagentforthelendersandissuers(incorporatedbyreferencetoExhibit10.1totheCompany’sCurrentReportonForm8-KfiledJune25,2020(FileNo.1-37816))
10.10 AmendedandRestatedCharteroftheStrategicCouncilfortheAWACJointVenture(incorporatedbyreferencetoExhibit10.1totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
10.11SideLetterofNovember1,2016,betweenAlcoaCorporationandAluminaLimitedclarifyingtransferrestrictions(incorporatedbyreferencetoExhibit10.3totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
10.12ThirdAmendedandRestatedLimitedLiabilityCompanyAgreementofAlcoaWorldAluminaLLC,datedasofNovember1,2016,byandamongAlcoaUSACorp.,ASCAlumina,AluminaInternationalHoldingsPtyLtd,Alumina(USA)Inc.,ReynoldsMetalsCompany,LLCandReynoldsMetalsExploration,Inc.(incorporatedbyreferencetoExhibit10.2totheCompany’sCurrentReportonForm8-KfiledNovember4,2016(FileNo.1-37816))
10.13Shareholders’AgreementbetweenAlcoaofAustraliaLimited,AlcoaAustralianPtyLtdandAluminaLimited,originallydatedasofMay10,1996(incorporatedbyreferencetoExhibit10.13toAmendmentNo.2totheCompany’sRegistrationStatementonForm10filedSeptember1,2016(FileNo.1-37816))
10.14 KwinanaStateAgreementof1961(incorporatedbyreferencetoExhibit10.7toAmendmentNo.2totheCompany’sRegistrationStatementonForm10filedSeptember1,2016(FileNo.1-37816))
10.15 PinjarraStateAgreementof1969(incorporatedbyreferencetoExhibit10.8toAmendmentNo.2totheCompany’sRegistrationStatementonForm10filedSeptember1,2016(FileNo.1-37816))
10.16 WagerupStateAgreementof1978(incorporatedbyreferencetoExhibit10.9toAmendmentNo.2totheCompany’sRegistrationStatementonForm10filedSeptember1,2016(FileNo.1-37816))
10.17 AluminaRefineryAgreementof1987(incorporatedbyreferencetoExhibit10.10toAmendmentNo.2totheCompany’sRegistrationStatementonForm10filedSeptember1,2016(FileNo.1-37816))
120
ExhibitNo.
Description of Exhibit
10.18 FrameworkAgreement,datedJune26,2019,betweenSaudiArabianMiningCompany(Ma’aden)andAlcoaCorporation(incorporatedbyreferencetoExhibit10.1totheCompany’sQuarterlyReportonForm10-QfiledJuly31,2019(FileNo.1-37816))
10.19 AmendmentandRestatementDeeddatedJune26,2019relatingtotheAluminiumProjectFrameworkShareholders’AgreementoriginallydatedDecember20,2009betweenSaudiArabianMiningCompany(Ma’aden)andAlcoaCorporation(incorporatedbyreferencetoExhibit10.2totheCompany’sQuarterlyReportonForm10-QfiledJuly31,2019(FileNo.1-37816))
10.20 AlcoaCorporation2016StockIncentivePlan(asAmendedandRestatedasofMay9,2018),(incorporatedbyreferencetoExhibit99.1totheCompany’sCurrentReportonForm8-KfiledMay15,2018(FileNo.1-37816))*
10.21 AlcoaUSACorp.DeferredCompensationPlan(incorporatedbyreferencetoExhibit10.2toAmendmentNo.1totheCompany’sRegistrationStatementonForm10filedAugust12,2016(FileNo.1-37816))*
10.22 AlcoaUSACorp.NonqualifiedSupplementalRetirementPlanC(incorporatedbyreferencetoExhibit10.3toAmendmentNo.1totheCompany’sRegistrationStatementonForm10filedAugust12,2016(FileNo.1-37816))*
10.23 Amendment1toAlcoaUSACorp.NonqualifiedSupplementalRetirementPlanC,effectiveJanuary1,2021(incorporatedbyreferencetoExhibit10.9totheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2017,filedFebruary23,2018(FileNo.137816))*
10.24 FormofAmendedandRestatedIndemnificationAgreementbyandbetweenAlcoaCorporationandindividualdirectorsorofficers,effectiveAugust1,2017(incorporatedbyreferencetoExhibit10.5totheCompany’sQuarterlyReportonForm10-QfiledAugust3,2017(FileNo.1-37816))*
10.25 AlcoaCorporationAnnualCashIncentiveCompensationPlan(asAmendedandRestated),effectiveFebruary21,2018(incorporatedbyreferencedtoExhibit10totheCompany’sQuarterlyReportonForm10-QfiledMay9,2018(FileNo.1-37816))*
10.26 AlcoaCorporationAmendedandRestatedChangeinControlSeverancePlan,datedJuly30,2019(incorporatedbyreferencetoExhibit10.5totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))*
10.27 AmendedandRestatedFormofAlcoaCorporationChiefExecutiveOfficerandChiefFinancialOfficerExecutiveSeveranceAgreement,effectiveasofJuly30,2019(incorporatedbyreferencetoExhibit10.6totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))*
10.28 AmendedandRestatedFormofAlcoaCorporationCorporateOfficerExecutiveSeveranceAgreement,effectiveasofJuly30,2019(incorporatedbyreferencetoExhibit10.7totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))*
10.29 TermsandConditionsforEmployeeStockOptionAwards(incorporatedbyreferencetoExhibit10.30totheCompany’sRegistrationStatementonFormS-1filedJanuary18,2017(FileNo.333-215606))*
10.30 TermsandConditionsforEmployeeStockOptionAwards,datedJanuary24,2018(incorporatedbyreferencetoExhibit10.30totheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2017,filedFebruary23,2018(FileNo.137816))*
10.31 TermsandConditionsforEmployeeRestrictedShareUnits,effectiveOctober1,2019(incorporatedbyreferencetoExhibit10.2totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))*
10.32 TermsandConditionsforEmployeeStockOptionAwards,effectiveOctober1,2019(incorporatedbyreferencetoExhibit10.3totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))*
10.33 TermsandConditionsforEmployeeSpecialRetentionAwards,effectiveOctober1,2019(incorporatedbyreferencetoExhibit10.4totheCompany’sQuarterlyReportonForm10-QfiledOctober31,2019(FileNo.1-37816))*
10.34 LetterAgreement,datedDecember17,2018,betweenJohnSlavenandAlcoaCorporation(incorporatedbyreferencetoExhibit10.36totheCompany’sAnnualReportonForm10-KforthefiscalyearendedDecember31,2019,filedFebruary21,2020(1-37816))*
121
ExhibitNo.
Description of Exhibit
10.35 AlcoaCorporationNon-EmployeeDirectorCompensationPolicy,effectiveSeptember24,2020(incorporatedbyreferencetoExhibit10.1totheCompany’sQuarterlyReportonForm10-QfiledOctober30,2020(FileNo.1-37816))*
10.36 TermsandConditionsforDeferredFeeRestrictedShareUnitsDirectorAwards,effectiveDecember1,2016(incorporatedbyreferencetoExhibit10.34totheCompany’sRegistrationStatementonFormS-1filedJanuary18,2017(FileNo.333-215606))*
10.37 TermsandConditionsforRestrictedShareUnitsAnnualDirectorAwards,effectiveDecember1,2016(incorporatedbyreferencetoExhibit10.35totheCompany’sRegistrationStatementonFormS-1filedJanuary18,2017(FileNo.333-215606))*
10.38 TermsandConditionsforRestrictedShareUnitsAnnualDirectorAwards,effectiveMay9,2017(incorporatedbyreferencetoExhibit10.3totheCompany’sQuarterlyReportForm10-QfiledAugust3,2017(FileNo.1-37816))*
10.39 AlcoaCorporation2016DeferredFeePlanforDirectors,effectiveNovember1,2016,asamendedandrestatedonDecember5,2018(incorporatedbyreferencetoExhibit10.37totheCompany’sAnnualReportonForm10-KforthefiscalyearendedDecember31,2019,filedFebruary26,2019(1-37816))*
21.1 ListofSubsidiaries
23.1 ConsentofPricewaterhouseCoopersLLP
31.1 CertificationofPrincipalExecutiveOfficerrequiredbySecuritiesandExchangeCommissionRule13a-14(a)or15d-14(a)
31.2 CertificationofPrincipalFinancialOfficerrequiredbySecuritiesandExchangeCommissionRule13a-14(a)or15d-14(a)
32.1 CertificationofPrincipalExecutiveOfficer,requiredbyRule13a-14(b)orRule15d-14(b)andSection1350ofChapter63ofTitle18oftheUnitedStatesCode
32.2 CertificationofPrincipalFinancialOfficer,requiredbyRule13a-14(b)orRule15d-14(b)andSection1350ofChapter63ofTitle18oftheUnitedStatesCode
95.1 MineSafetyDisclosure
99.1 AmendedandRestatedGrantorTrustAgreementbyandbetweenAlcoaCorporationandWellsFargoBank,NationalAssociation,effectiveOctober24,2017(incorporatedbyreferencetoExhibit99.1totheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2017,filedFebruary23,2018(FileNo.137816))
101.INS InlineXBRLInstanceDocument
101.SCH InlineXBRLTaxonomyExtensionSchemaDocument
101.CAL InlineXBRLTaxonomyExtensionCalculationLinkbaseDocument
101.DEF InlineXBRLTaxonomyExtensionDefinitionLinkbaseDocument
101.LAB InlineXBRLTaxonomyExtensionLabelLinkbaseDocument
101.PRE InlineXBRLTaxonomyExtensionPresentationLinkbaseDocument
104 CoverPageInteractiveDataFile(formattedasInlineXBRLandcontainedinExhibit101)
Certainschedulesexhibits,andappendiceshavebeenomittedinaccordancewithtoItem601(a)(5)ofRegulationS-K.TheCompanyherebyundertakestofurnishcopiesofanyomittedschedule,exhibit,orappendixtotheCommissionuponrequest.
* DenotesmanagementcontractsorcompensatoryplansorarrangementsrequiredtobefiledasExhibitstothisForm10-K.
Item 16. Form 10-K Summary.
Notapplicable.
122
SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized. ALCOA CORPORATION
By: /s/MollyS.Beerman
MollyS.Beerman
SeniorVicePresidentandController
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesindicatedandasofFebruary25,2021. /s/RoyC.Harvey /s/WilliamF.Oplinger
RoyC.HarveyPresident,ChiefExecutiveOfficerandDirector(PrincipalExecutiveOfficerandDirector)
WilliamF.OplingerExecutiveVicePresidentandChiefFinancialOfficer(PrincipalFinancial
Officer)
/s/MollyS.Beerman MollyS.Beerman
SeniorVicePresidentandController(PrincipalAccountingOfficer)
/s/StevenW.Williams
StevenW.WilliamsDirector,ChairmanoftheBoardofDirectors
/s/MaryAnneCitrinoMaryAnneCitrino
Director
/s/PasqualeFiorePasqualeFiore
Director
/s/TimothyP.FlynnTimothyP.Flynn
Director
/s/KathrynS.FullerKathrynS.Fuller
Director
/s/JamesA.HughesJamesA.Hughes
Director
/s/MichaelG.MorrisMichaelG.Morris
Director
/s/JamesE.NevelsJamesE.Nevels
Director
/s/CarolL.RobertsCarolL.Roberts
Director
/s/SuzanneSitherwoodSuzanneSitherwood
Director
/s/ErnestoZedilloErnestoZedillo
Director
123
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Name
StateorCountryofOrganization
Alcoa-AluminerieDeDeschambaultL.P. CanadaAlcoaAlumínioS.A. BrazilAlcoaCanadaCo. CanadaAlcoaFjarðaálsf IcelandAlcoaHollandB.V. NetherlandsAlcoaInespalS.L.U. SpainAlcoaNederlandHoldingB.V. NetherlandsAlcoaNorwayANS NorwayAlcoaofAustraliaLimited1 AustraliaAlcoaPowerGeneratingInc.2 TennesseeAlcoaSaudiSmeltingInversionesS.L.U. SpainAlcoaTreasuryS.a.r.l. SwitzerlandAlcoaUSACorp. DelawareAlcoaUSAHoldingCompany DelawareAlcoaWarrickLLC DelawareAlcoaWolinbecCompany CanadaAlcoaWorldAluminaLLC1,3 DelawareAlcoaWorldAluminaBrasilLtda.1 BrazilAWASaudiLimited1 HongKongAlcoa-LauralcoManagementCompany CanadaAluminaEspañola,S.A.1 SpainAlumínioEspañol,S.L.U. SpainEstreitoEnergiaS.A. BrazilLuxcoaS.a.r.l. LuxembourgRBSalesCompany,Limited DelewareReynoldsBécancour,Inc. DelawareReynoldsMetalsCompany,LLC DelawareSurinameAluminumCompany,L.L.C.1 Delaware
Thenamesofparticularsubsidiarieshavebeenomittedbecause,consideredintheaggregateasasinglesubsidiary,theywouldnotconstitute,asoftheendoftheyearcoveredbythisreport,a“significantsubsidiary”asdefinedinRegulationS-XundertheSecuritiesExchangeActof1934,asamended.1 PartoftheAWACjointventure.2 RegisteredtodobusinessinTennesseeunderthenamesAPGTradingandTapoco,inNewYorkunderthenameLongSault,inIndianaunderthenameAGC,
andinWashingtonunderthenameofColockum.3 RegisteredtodobusinessinPennsylvaniaandTexasunderthenameofAlcoaWorldChemicals.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
WeherebyconsenttotheincorporationbyreferenceintheRegistrationStatementonFormS-8(Nos.333-214420,333-214423,333-218038,and333-228258)ofAlcoaCorporationofourreportdatedFebruary25,2021relatingtothefinancialstatementsandtheeffectivenessofinternalcontroloverfinancialreporting,whichappearsinthisForm10-K.
/s/PricewaterhouseCoopersLLP
PricewaterhouseCoopersLLPPittsburgh,PennsylvaniaFebruary25,2021
Exhibit 31.1
CERTIFICATIONS
I,RoyC.Harvey,certifythat:
1. IhavereviewedthisannualreportonForm10-KofAlcoaCorporation;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethe
statementsmade,inlightofthecirc*mstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthe
financialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedin
ExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
(a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderour
supervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunder
oursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsaboutthe
effectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smost
recentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,tothe
registrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
(a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhichare
reasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and
(b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’s
internalcontroloverfinancialreporting. Date:February25,2021 /s/RoyC.Harvey Name: RoyC.Harvey
Title:
PresidentandChiefExecutiveOfficer
Exhibit 31.2
CERTIFICATIONS
I,WilliamF.Oplinger,certifythat:
1. IhavereviewedthisannualreportonForm10-KofAlcoaCorporation;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethe
statementsmade,inlightofthecirc*mstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthe
financialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedin
ExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
(a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderour
supervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunder
oursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsaboutthe
effectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smost
recentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,tothe
registrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
(a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhichare
reasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and
(b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’s
internalcontroloverfinancialreporting. Date:February25,2021 /s/WilliamF.Oplinger Name: WilliamF.Oplinger
Title:
ExecutiveVicePresidentandChiefFinancialOfficer
Exhibit 32.1
CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350
ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002
InconnectionwiththeAnnualReportofAlcoaCorporation(the“Company”)onForm10-KfortheperiodendedDecember31,2020asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof(the“Report”),theundersigned,inthecapacityandonthedateindicatedbelow,herebycertifiespursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,thattohisknowledge:
1. TheReportfullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934;and
2. TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany. Date:February25,2021 /s/RoyC.Harvey RoyC.Harvey PresidentandChiefExecutiveOfficer
AsignedoriginalofthiswrittenstatementrequiredbySection906,orotherdocumentauthenticating,acknowledging,orotherwiseadoptingthesignaturethatappearsintypedformwithintheelectronicversionofthiswrittenstatementrequiredbySection906,hasbeenprovidedtotheCompanyandwillberetainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest.
Theforegoingcertificationisbeingfurnishedsolelypursuantto18U.S.C.Section1350andisnotbeingfiledaspartofthisreport.
Exhibit 32.2
CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350
ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002
InconnectionwiththeAnnualReportofAlcoaCorporation(the“Company”)onForm10-KfortheperiodendedDecember31,2020asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof(the“Report”),theundersigned,inthecapacityandonthedateindicatedbelow,herebycertifiespursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,thattohisknowledge:
1. TheReportfullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934;and
2. TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany. Date:February25,2021 /s/WilliamF.Oplinger WilliamF.Oplinger ExecutiveVicePresidentand ChiefFinancialOfficer
AsignedoriginalofthiswrittenstatementrequiredbySection906,orotherdocumentauthenticating,acknowledging,orotherwiseadoptingthesignaturethatappearsintypedformwithintheelectronicversionofthiswrittenstatementrequiredbySection906,hasbeenprovidedtotheCompanyandwillberetainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest.
Theforegoingcertificationisbeingfurnishedsolelypursuantto18U.S.C.Section1350andisnotbeingfiledaspartofthisreport.
Exhibit 95.1
Mine Safety Disclosure
Dodd-FrankActDisclosureofMineSafetyandHealthAdministrationSafetyData
Untilrecently,AlcoaCorporation’saluminarefineryinPointComfort,Texas,wassubjecttoregulationbytheMineSafetyandHealthAdministration(MSHA)undertheU.S.FederalMineSafetyandHealthActof1977(the“MineAct”).TheMSHAinspectedthisfacilityonaregularbasisandissuedvariouscitationsandorderswhenitbelievedaviolationhadoccurredundertheMineAct.
InDecember2019,Alcoaannouncedthatthefacilitywasbeingpermanentlyclosed.Duringthefirstquarterof2020,MSHAnotifiedAlcoathatitwouldnolongerexercisejurisdictionoverthefacility.Followingthisnotice,AlcoanolongerhadanyfacilitiessubjecttoregulationbyMSHA.
AsofDecember31,2020,AlcoahadonematterpendingbeforetheFederalMineSafetyandHealthReviewCommission(the“Commission”),anindependentadjudicativeagencythatprovidesadministrativetrialandappellatereviewoflegaldisputesarisingundertheMineAct,concerningaretaliationcomplaintfiledbyanemployeein2015.OnDecember17,2017,thismatterwasdismissedbyanAdministrativeLawJudgeafteratrialonthemerits.OnJanuary22,2020,theCommissionaffirmedthetrialjudgment.OnFebruary21,2020,theemployeeappealedthedecisiontotheUnitedStatesCourtofAppealsfortheDistrictofColumbia,wherethematterisstillpending.