Annual Report - 2012

Steady Progress
in Volatile Times
2012 Annual Report
Primary Metals $7.4
$0.3
$3.1
$5.5
$7.4
Global Rolled Products
Engineered Products
and Solutions
Alumina
Other
52%
25%
16%
7%
United States
Europe
Pacifc
Other Americas
Alcoa is the worlds leading producer of primary aluminum and fabricated
aluminum, as well as the worlds largest miner of bauxite and refner of alumina.
In addition to inventing the modern-day aluminum industry, Alcoa innovation
has been behind major milestones in the aerospace, automotive, packaging,
building and construction, commercial transportation, consumer electronics,
and industrial markets over the past 125 years.
Among the solutions Alcoa markets are fat-rolled products, hard alloy extrusions
and forgings, as well as Alcoa
wheels, fastening systems, precision and

investment castings, and building systems in addition to its expertise in other
light metals such as titanium and nickel-based superalloys.
Alcoa employs approximately 61,000 people in 30 countries across the world.
For more information, visit www.alcoa.com and follow @Alcoa on Twitter at
twitter.com/Alcoa.
Alcoa at a Glance
2012 Sales: $23.7 Billion
$ in millions, except per-share amounts 2012 2011 2010
Sales $23,700 $24,951 $21,013
Income from continuing operations 191 614 262
Per common share data:
Basic:
Income from continuing operations 0.18 0.58 0.25
Net income 0.18 0.57 0.25
Diluted:
Income from continuing operations 0.18 0.55 0.25
Net income 0.18 0.55 0.24
Dividends paid 0.12 0.12 0.12
Total assets 40,179 40,120 39,293
Capital expenditures 1,261 1,287 1,015
Cash provided from operations 1,497 2,193 2,261
Book value per share* 12.32 12.96 13.26
Common stock outstanding end of year (000) 1,067,212 1,064,412 1,022,026
Estimated number of shareholders** 318,000 319,000 325,000
* Book value per share = (T otal shareholders equity minus Preferred stock) divided by Common stock
outstanding, end of year.
** These estimates are based on the record date of the annual shareholders meeting held in the year following
the year listed and include registered shareholders and beneficial owners holding stock through banks,
brokers, or other nominees.
Financial and Operating Highlights
Number of Employees
BY SEGMENT
BY GEOGRAPHIC AREA
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2012 2011 2010
U.S. 26,000 26,000 24,000
Europe 17,000 17,000 17,000
Other Americas 11,000 11,000 11,000
Pacic 7,000 7,000 7,000
61,000 61,000 59,000
Cover
Maaden-Alcoa Joint Venture, Saudi Arabia
Employees left to right
Ronni Meredith, Australia
Mike Kennedy, Australia
Edmund Chu, United States
Natalie Rhoden-Halliman, Jamaica
Francisco Carlos Silva Machado, Brazil
Amanda Tilbury, Australia
Judodine Nichols, United States
Janne Sigursson, Iceland
ALCOA 2012 Annual Report 1
s a young boy growing up in a harbor town not far from the North
Sea coast, Iwas intrigued by adventure stories about sea captains and
explorers. Stormy seas, dangerous currents and stubborn headwinds
seemed to be part of their daily lives. Uncertain what the next day would
bring, they always had to be ready to respond quickly and condently.
No matter how bad things were, the call from the ships bridge, Steady
as she goes! kept the crew focused on their work as they dealt with the
dangers and uncertainties of their voyage.
That image of plowing through stormy seas came to mind as I thought of
the theme for this years shareholder report. For Alcoa in 2012, steady
as she goes was the call to action as we worked to keep the Company
on course in the face of major headwinds and market turbulence. We
succeeded because we had a strong team of Alcoans that had been
tested in the economic crisis of 2009. We succeeded because our
businesses leveraged Alcoas unique strengths and staying power to
gain advantages that none of their competitors enjoy. We succeeded
because we stayed focused on what we do best: create value for our
customers and manage well those operational and nancial factors we
can control.
Despite exceeding our 2012 goals and outperforming many of our peers,
it is disappointing that factors we cannot control resulted in barely any
appreciation in our stock price. The threat of the U.S. scal cliff, the worry over defaults in several European countries, and a once-
in-a-century leadership change in China all created tremendous business uncertainty. Its not surprising that economic and political
volatility had a major impact on an industry that provides a metal that is vital to so many other industries. It also created volatility in the
price of aluminum, which trades as a commodity on the London Metal Exchange (LME) and which has become a proxy for uncertainty
in the world economy. Building on the sharp decline in the LME price in 2011, the average LME price dropped 16% further in 2012
and had several swings of more than 30%. That aluminum price volatility and decline had a $1 billion negative impact on Alcoas 2012
results, created signicant headwinds for our businesses and had a major impact on the stock price of Alcoa and our aluminum peers.
STEADY PROGRESS
IN VOLATILE TIMES
Income from continuing operations of $191 million, or $0.18
per share
Excluding impact of special items, income from continuing
operations of $262 million, or $0.24 per share
Revenue of $23.7 billion, despite lower metal prices
Adjusted EBITDA of $2.0 billion
Cash from operations of $1.5 billion; free cash fow of
$236 million
Days working capital an all-time record low of 24 days
Debt-to-capital of 34.8%
Strong cash on hand of $1.9 billion
Reduced net debt more than $450 million; year-end balance
29% lower than 2008
Achieved cash sustainability targets for the fourth consecutive
year
Each of our four business segments contributed to our 2012
fnancial performance and made substantial progress toward
their long-term organic growth and proftability goals.
YEAR END FINANCIAL RESULTS*
* See Calculation of Financial Measures, at the end of this report for reconciliations
of certain non-GAAP financial measures (adjusted income, adjusted EBITDA, free
cash flow, and net debt amounts) presented in this letter.
Klaus Kleinfeld
Chairman of the Board
and Chief Executive Ofcer
A
When increases in the cost of energy, raw materials, labor and pensions, among others,
were added to the net impact of the aluminum price decline and foreign currency movements,
the total negative impact to Alcoas 2012 income from continuing operations was $1.6 billion.
Fortunately, we were able to stay on course by following the three strategic priorities we
committed to in 2007: protable growth, the Alcoa Advantage and disciplined execution.
One of the main examples of disciplined execution continues to be our Cash Sustainability
Program initiatives. We used this approach successfully during the 2009 economic crisis to
reduce costs, improve productivity and generate cash; and we have made it part of our way
of doing business ever since. Thanks to the rigorous execution of those initiatives by every
Alcoa employee, and improvements in volume, price and mix, we offset the cost headwinds
and more than 35% of the net market impact of LME price and foreign currency movements.
After four consecutive years of achieving our cash sustainability targets, Alcoa is in a signicantly
stronger liquidity position than it was four years ago. We achieved free cash ow of $236 million
by capturing productivity improvements, managing total spend of capital expenditures and
reducing days working capital to a record low. Nowhere has the hard work and achievements
of Alcoans been more evident than in driving down days working capital by nearly 45% in the
last four years. We ended the year with less debt and a strong cash position, resulting in the
lowest year-end net debt level since 2006.
By successfully addressing the factors that we can control operational, commercial and
nancial we were able to compensate for the impact of those beyond Alcoas inuence:
the economic and political volatility affecting our industry coupled with the decline in the LME
price of aluminum.
Offsetting price declines, we held steady on the rening cost curve by
capturing $190 million in productivity improvements and by curtailing
390,000 metric tons per year of high-cost renery capacity. To reach
our goal of moving seven points down the cost curve by 2015, we will
be optimizing our renery portfolio, moving to less expensive energy,
sustaining existing cost reductions and bringing on line the Maaden-
Alcoa joint venture renery in Saudi Arabia. We are also increasing
margins by shifting the pricing of smelter-grade alumina to an Alumina
Price Index (API) that better reects market fundamentals than the
LME. We increased external sales of API or spot-priced smelter-grade
alumina to approximately 40% in the fourth quarter of 2012, a jump
of 12 percentage points over the previous year. In 2013, we forecast
that on average 48% of our external smelter-grade alumina sales will
be priced against the API or spot price.
Alumina
FINANCIAL PERFORMANCE
REDUCED DAYS WORKING CAPITAL
TO RECORD LEVELS
2008 2009 2010 2011 2012
43
33
30
27
24
-3 days
EXCEEDED PRODUCTIVITY* GAIN TARGETS
2009 2010 2011 2012 Total
2,410
742
1,099
1,291 5,542
$850
target for
2012
$ in millions
DISCIPLINED CAPITAL AND INVESTMENT SPEND
Capital Expenditures
2008 2009 2010 2011 2012
3,438
1,622
1,015
1,287 1,261
Saudi Arabia JV*
2010 2011 2012
160
249
177
$ in millions
REDUCED NET DEBT BY 29% SINCE 2008
2008 2009 2010 2011 2012
Cash Net Debt Debt to Cap
10,578
9,819
9,165
9,371
8,829
9,816
762
1,481
8,338 7,622 7,432 6,968
1,543 1,939
1,861
34.8% 35.3% 34.9%
38.7%
42.5%
$ in millions
Following the rening process,
alumina is shipped from
dedicated port facilities
to Alcoas smelters
and customers.
2011 LME
-$885
Market
+$1,005
Performance
-$670
Cost Headwinds
Currency Volume Price/Mix Productivity Energy Raw
Materials
Cost Increases/
Other
2012
-200
40
280
520
760
1,000
812 1,014
129
92
127
786
91
20
559
262
INCOME FROM CONTINUING OPERATIONS EXCLUDING RESTRUCTURING & OTHER SPECIAL ITEMS
$ in millions
* All gures are pretax and pre-minority interest. 2009/2010 represent net
productivity; 2011/2012 represent gross productivity.
* Includes spend related to the rolling mill automotive expansion project.
Our smelter portfolio is on course to achieve
our 2015 targets, moving four percentage
points down the cost curve in 2012. We made
$245million in productivity improvements,
curtailed 240,000 metric tons of European
smelter capacity, permanently closed 291,000
metric tons of smelter capacity in the United
States, secured benecial long-term power
contracts and produced rst metal ahead of
schedule from the smelter coming online in
Saudi Arabia, which will be the lowest-cost
smelter in the world. We are also improving
margins in the Primary Metals segment by
converting more of the output from our cast
houses to value-add products, resulting in a
65% increase in value-add volume to external
customers and a 51% prot increase since
2009.
Every year, more than 200 teams of Alcoa employees are nominated
for extraordinary achievements producing substantial business
results. The teams compete for Alcoa Impact Awards in six
categories, and the winners are recognized at the annual Alcoa
Leadership Conference.
A team from Alcoa Global Primary Products in Europe won the
2012 Alcoa Impact Award in the Asset Management category for
implementing a project to improve forecasting accuracy and free
cash ow. The project resulted in a $67 million improvement in
accounts receivable.
Primary Metals
By driving the at-rolled portfolio to higher
value-add products and growing market
share, our Global Rolled Products (GRP)
business achieved a 35% increase in after-tax
operating income (ATOI) and a 19% increase in
adjusted EBITDA per metric ton, another year
of historically high returns. GRP continues to
make progress against its three-year $2.5billion
organic revenue growth target. We expect
to achieve $1.5 billion targeted growth from
regions, new customers, share gains, new
products and innovation by the end of 2013.
The remaining organic revenue growth depends
on the LME metal price and end-market
growth. To accelerate future growth, we are
expanding our Davenport, Iowa, facility to
meet demand as the U.S. automotive industry
shifts to aluminum to achieve light weighting
and signicantly higher fuel efciency. We are
also building a rolling mill in Saudi Arabia to
produce sheet for packaging, automotive,
building and construction and foil with our
joint venture partner, Maaden. This will be
an integral part of the lowest-cost aluminum
complex in the world.
After using the downturn to reposition its
portfolio, reduce costs and prepare for
protable growth, this segment continues to win
new business and improve adjusted EBITDA
margins year-over-year. Our downstream
businesses increased ATOI by 14% in 2012
and achieved a full-year record high 19.2%
adjusted EBITDA margin, which is more than
double the margins of 10 years ago. With
organic revenue growth of $180 million in
2012, we made progress toward our three-
year $1.6 billion revenue growth target for our
ve industry-leading downstream business
units. By the end of 2013, we expect $1.0
billion in targeted growth from regions, new
customers, share gains, new products and
innovation. The remaining organic growth will
depend on end-market growth.
Engineered Products and Solutions
Alcoa is expanding the rolling mill at Davenport, Iowa, to produce
aluminum coils for an automotive market shifting from steel to aluminum.
Alcoa aluminum is the metal of choice for building durable structures and
striking designs for buildings like this Cancer Center in Cleveland, Ohio.
GRP: GROWING PROFITABILITY
AT RECORD LEVELS
0
100
200
300
400
500
600
700
100,000 80,000 60,000 40,000 20,000 0 120,000
Alcoa 2015
23
rd

Percentile
Alcoa 2012
30
th

Percentile
Alcoa 2010
30
th

Percentile
ALUMINA COST CURVE
CUMULATIVE PRODUCTION (000MT)
0
50
100
150
200
250
300
350
400
$X.X
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
273
253
249
276
226
201
108
119
314
327
390
Adjusted EBITDA/MT
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20,000 40,000 60,000 0
Alcoa 2012
47
th

Percentile
Alcoa 2010
51
st

Percentile
Alcoa 2015
41
st

Percentile
ALUMINUM COST CURVE
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
8
9
12
11
12
13
15
13
17
18
19 Adjusted EBITDA Margin
-10 points
10-YR
Average
~ $235/MT
-7 points
$
PRIMARY METALS:
COST CURVE DOWN 4% POINTS
0
100
200
300
400
500
600
700
100,000 80,000 60,000 40,000 20,000 0 120,000
Alcoa 2015
23
rd

Percentile
Alcoa 2012
30
th

Percentile
Alcoa 2010
30
th

Percentile
ALUMINA COST CURVE
0
50
100
150
200
250
300
350
400
$X.X
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
273
253
249
276
226
201
108
119
314
327
390
Adjusted EBITDA/MT
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20,000 40,000 60,000 0
Alcoa 2012
47
th

Percentile
Alcoa 2010
51
st

Percentile
Alcoa 2015
41
st

Percentile
ALUMINUM COST CURVE
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
8
9
12
11
12
13
15
13
17
18
-10 points
10-YR
Average
~ $235/MT
-7 points
$/mt
ALUMINA: COST CURVE HOLDING STEADY
0
100
200
300
400
500
600
700
100,000 80,000 60,000 40,000 20,000 0 120,000
Alcoa 2015
23
rd

Percentile
Alcoa 2012
30
th

Percentile
Alcoa 2010
30
th

Percentile
ALUMINA COST CURVE
0
50
100
150
200
250
300
350
400
$X.X
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
273
253
249
276
226
201
108
119
314
327
390
Adjusted EBITDA/MT
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20,000 40,000 60,000 0
Alcoa 2012
47
th

Percentile
Alcoa 2010
51
st

Percentile
Alcoa 2015
41
st

Percentile
ALUMINUM COST CURVE
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
8
9
12
11
12
13
15
13
17
18
-10 points
10-YR
Average
~ $235/MT
-7 points
$/mt
EPS: RECORD MARGINS EXCEEDING
HISTORICAL LEVELS
0
100
200
300
400
500
600
700
100,000 80,000 60,000 40,000 20,000 0 120,000
Alcoa 2015
23
rd

Percentile
Alcoa 2012
30
th

Percentile
Alcoa 2010
30
th

Percentile
ALUMINA COST CURVE
0
50
100
150
200
250
300
350
400
$X.X
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
273
253
249
276
226
201
108
119
314
327
390
Adjusted EBITDA/MT
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20,000 40,000 60,000 0
Alcoa 2012
47
th

Percentile
Alcoa 2010
51
st

Percentile
Alcoa 2015
41
st

Percentile
ALUMINUM COST CURVE
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
8
9
12
11
12
13
15
13
17
18
-10 points
10-YR
Average
~ $235/MT
-7 points
%
While driving performance in each of those four businesses, we also are rebalancing Alcoas portfolio through organic growth,
acquisitions and divestitures. Our goal is to make ourselves less dependent on the commodity and LME changes in the upstream business
and increase our value-add mid-stream and downstream businesses. Each sector continues to draw on a powerful array of competitive
advantages unique to Alcoa three strategic priorities, a strong global presence in growth markets, the parental benets we call the
Alcoa Advantage and a solid foundation of values that have guided Alcoa for 125 years in good times and bad. For example, during the
economic crisis of 2009 we launched the Cash Sustainability Program that guided Alcoa successfully through the downturn while also
driving systemic changes to our cost structure. As that program continued to drive the improvements to our businesses, it enabled us
to achieve all of our cash sustainability targets in 2012.
In each of our global regions, we have built
on Alcoas local relationships and reputation
to improve the protability of our existing
operations and to introduce our business
units to new opportunities.
In China, we are developing plans with
our new joint venture partner, China Power
Investment Corporation (CPI), for expansion
in the worlds fastest-growing market. We are
shifting our rolling business to focus on the
tremendous potential in Chinas automotive
and packaging markets. As a result of the
solid performance of our fasteners business in
China, Commercial Aircraft of China (COMAC)
recently contracted with Alcoa to partner in the
development and production of the new C-919
aircraft. Our new wheel production facility
in China continues to expand its capacity,
supporting more than half of our sales to the
growing Chinese commercial vehicle market
within months of its opening.
In Brazil, where we have a substantial
upstream presence, our initiative to introduce
and grow our mid-stream and downstream
businesses produced $256 million in organic
growth in 2012. To establish a presence in the
Brazilian commercial transportation business,
we are opening a forged wheels facility and
are partnering with the countrys largest bus
manufacturer to build and test a prototype
for what will be the worlds rst all-aluminum
bus. We are expanding sales of aluminum
risers to the countrys major off-shore oil
drilling program and are increasing sales to
the Brazilian commercial aerospace industry.
In Europe, we had a tale of two worlds.
InSouthern Europe, where energy is expensive,
we worked with government ofcials in Italy
to obtain approval to curtail our smelter in
Portovesme and in Spain to gain support for
more affordable electricity rates. In Norway
and Iceland, affordable energy and technical
advancements have helped our smelter
operations to be prot leaders among our
global primary businesses.
In the Middle East, the construction of
our Maaden-Alcoa joint venture facilities
is progressing well. Infact, on December
12, 2012, we produced the rst hot metal
only 25 months after we broke ground, an
extraordinary achievement. Onthe same day,
we broke ground for a rolling mill expansion
targeted at the automotive market. When fully
operational, the integrated aluminum facility
will be the lowest-cost and most-efcient in
the world. The Government of Saudi Arabia
is in discussions with manufacturers planning
to establish operations in the region, who
would become customers of the aluminum
joint venture.
Regional Growth and Protability
Alcoa is bringing its popular aluminum wheels to the growing
commercial transportation industry in Brazil.
The signing of a joint venture with China Power Investment
Corporation is a major step for Alcoas future growth in China.
The Fjaral smelter in Iceland is one of the highly protable
Northern European smelters in Alcoas Primary Metals portfolio.
In December 2012, the Maaden-Alcoa Joint Venture produced
the rst metal in Saudi Arabia, only 25 months after construction
began.
LEVERAGING THE ALCOA PLATFORM
FOR PROFITABLE GROWTH
Achieved All 2012 Cash Sustainability Targets
Positive
Free
Cash Flow
Productivity & Overhead
Target: $850m
Actual: $1.3b
Working Capital
Target: 1.5 days
Actual: 3.5 days
Capital Spend and Investments
Target: $1.7b
Actual: $1.4b
Maintain Debt-to-Capital
Target: 30%-35%
Actual: 34.8%

In anticipation of Alcoas 125
th
Anniversary celebration this year, we
took time to reexamine the principles upon which the Company was
founded and thrives to the present day. We spoke to thousands of
Alcoans around the world to identify their hopes and dreams for
Alcoas future and to ask them how Alcoas enduring values can best
be expressed to guide future Alcoans.
The vision that best dened our employees hope for the future is
an inspiring recognition of Alcoas contributions to mankind: Alcoa.
Advancing Each Generation. In acknowledging that vision, we recognize
that todays Alcoans stand on the shoulders of the generations of
Alcoans who came before us, and we are committing to carry on that
legacy for future generations.
The value statement that emerged from our examination is a
reafrmation of those principles that guided us for the past 125 years.
The statement focuses on the ve enduring values that our employees
told us should remain Alcoas True North for centuries to come.
Of Alcoas three strategic priorities, I consider the Alcoa Advantage
the priority that provides the stable foundation for Alcoas continued
performance. This is all about Alcoas unique attributes that make each
one of our business units better creating an unbeatable competitive
edge for Alcoas businesses and unmatched value for Alcoas customers.
That parental advantage consists of ve major levers.
OPERATING SYSTEM
The productivity and working capital savings that enabled Alcoas
businesses to manage costs and cash despite the challenges of 2012
are outcomes of the Company-wide business systems grounded in
regular performance reviews with clear metrics. This provides a means
for the leaders of the separate businesses to benet from proven
processes, a sophisticated information technology infrastructure and
corporate centers of excellence that set best-in-class standards for
both quality and savings.
PROCUREMENT
As a buyer of more than $18 billion annually of materials and services
worldwide, Alcoa has major purchasing scale and a global footprint
that is producing value in new ways. In 2012, we upgraded our
procurement processes and business intelligence systems, providing
us the foundation to accelerate our productivity efforts. For example,
we recently recognized $48 million in savings by leveraging our
Maaden-Alcoa joint venture and developed an integrated carbon
strategy that will provide Alcoa over $100 million annually in reduced
raw material costs.
CUSTOMER
To measure customer satisfaction and loyalty, Alcoa uses a process
called Net Promoter Score (NPS). During 2012, our NPS score
improved by 9.5% and 14 of our 24 business units now have higher
scores than their direct competitors. A unique strength of Alcoa is our
deep and enduring relationships from the C-Level of our customers
to the shop oor with global leaders in aerospace, transportation,
power generation and packaging. These relationships help Alcoas
businesses to anticipate emerging customer needs and introduce to
them the innovations and solutions to meet those needs and make
our customers more competitive.
TECHNOLOGY
The strong organic growth of our businesses in 2012 is due in large
measure to innovation that provides a major competitive advantage
to Alcoas customers and businesses. Pulling experience from each
of our markets, the Alcoa Technical Center (ATC) is our innovation
cornerstone, developing the next generation of Alcoa products,
processes and services. The ATC has become a busy forum for visits
by customers seeking to draw on the benets of our metals research
and development of proprietary alloys, processes and nishing
technologies. During 2012, ATC made major strides in a wide range
of areas, from advancing jet engines to breakthrough aluminum die
casting technology to using byproducts of our production process to
safely clean waste water. Since appointing a new Chief Technology
Ofcer from one of the Alcoa business units, weve dramatically
accelerated commercial technology applications across all our business
sectors and strengthened external licensing of technology to generate
additional revenue for Alcoa.
TALENT
In todays world, where
information circles the
globe in nano-seconds,
I firmly believe that
people are the only
sustainable advantage.
We are finding that
Alcoa has become a
magnet for top talent
aspiring to join a high-
performance team. Ambitious professionals see a company with a
can-do attitude and tremendous career opportunities, with mobility
across diverse businesses and growth regions. Alcoans in plants and
ofces around the world are energized and motivated, as reected
in the 40% rise of our employee engagement scores in the past
ve years. Because strong leadership is key to maintaining a highly
motivated and productive workforce, in 2012 we accelerated training
for supervisors at all our global locations. We also expanded Alcoa
Academy, our leadership learning school with a faculty of successful
leaders from across the Company, by adding a program for emerging
leaders to the existing executive and plant manager curriculum.
Besides the cross-fertilization and best practice sharing that takes
place in our training programs, we also are increasingly moving talent
across business sectors through a disciplined succession planning
process that ensures we have successors ready to move into our
300 most-critical positions.
The Alcoa Advantage
Alcoa participated in the National Society of Black Engineers annual
convention and career fair in Pittsburgh.
Values
Integrity is the fundamental principle that guides everything we do.
During 2012, we hired an expert on corporate governance, Audrey
Strauss, as our Chief Legal and Compliance Ofcer. Audreys mission
is to ensure that every Alcoan understands and lives by both the spirit
and the laws that form our concept of integrity at Alcoa.
Innovation is the core value upon which our Company was founded
by inventor Charles Martin Hall, along with the dedicated support of
his sister Julia. With a greater emphasis on commercial applications
and licensing, Alcoans are innovating to continuously create growth
opportunities for our customers and our Company.
Respect is a very personal value dened by an appreciation for
human dignity and diversity. We are proud that Alcoa was chosen
in 2012 for the coveted Catalyst award, which is given each year to
only three companies worldwide who are deemed best-in-class for
providing opportunities to women in the workplace.
Environment, Health and Safety is a combined value for
which Alcoa is widely known and respected. Building on our
reputation for being best-in-class for safety, during 2012 we launched
a global wellness program to improve the health and longevity of
every Alcoan.
Excellence is a broad term that is lived by Alcoans who go the extra
mile in whatever they do. It explains why Alcoa exceeded our nancial
goals in this very challenging year. And it explains why our vision of
Advancing Each Generation will remain believable and achievable for
the next 125 years and beyond.
On the back cover of this report, you can nd an exact replica of the
values statement that is framed on the walls of every Alcoa plant and
ofce around the world. Following this letter, we highlight some examples
of how Alcoans lived the values every day, everywhere during 2012.
You can see in the adjoining pages how Alcoans live our vision to create
innovations for our customers. This is why I am so optimistic about
Alcoas future. Alcoa is a great company, built on strong values and
run by excellent people. We make a product for the ages. More than
a century ago, Alcoas aluminum enabled the Wright brothers to build
an aircraft that could y just a few hundred feet off the ground. Half
a century ago, Alcoas aluminum enabled astronauts to y hundreds
of miles into the unknown of outer space. Today, Alcoas aluminum is
millions of miles away on a vehicle called Curiosity, exploring the surface
of the planet Mars. In every market we serve from aerospace to
automotive, from construction to consumer electronics, from industrial
to packaging Alcoa is literally reaching for the stars.
Thanks to the light weight, recyclability and durability of aluminum,
we expect strong growth in each of our end-markets through 2020.
While LME prices are currently driven by macroeconomic factors
that largely ignore underlying market fundamentals, we have every
condence that customer needs will once again drive the markets.
And when they do, aluminum will be the metal of choice. It is this
bright future for Alcoa and for our miracle metal that should give our
shareholders condence that their investment in Alcoa will grow for
many years to come. And, it is the steady progress in the face of the
economic volatility of the past year that should give our shareholders
condence that Alcoa has the structure, strategy and leadership to
ensure that, in good times and bad, their investment will prosper.
I am rmly committed to that goal. In the meantime, our investors can
be assured that steady progress does not mean simply hanging
on to the wheel and hoping for fair weather. It means holding to our
tried and true values during adversity as we pursue new approaches
to value creation with determination and urgency.
Alcoas Bright Future
Klaus Kleinfeld
Chairman of the Board and Chief Executive Ofcer
March 2013
LEVERAGING THE ALCOA PLATFORM

FOR PROFITABLE GROWTH
Our strategic direction is clear. We have a long-term view and the
demonstrated ability to adjust quickly to changing conditions and
deliver continuous and sustainable improvement. In this volatile and
uncertain economic environment, Alcoa is focusing on the things
we can control.
We will continue to execute our long-term strategy, driving protable
growth by improving our cost competitiveness, growing in our strong
end markets and gaining share through product innovation.
We remain focused on annual nancial targets with the overarching
goal of positive free cash ow regardless of metal price.
We have a target to capture productivity gains and overhead
savings of $750 million.
We will remain focused on disciplined spend with specic targets
established for growth capital ($550 million), sustaining capital
($1 billion), and on the Maaden-Alcoa joint venture ($350 million).
We will continue to manage our capital structure and maintain a
debt-to-capital ratio in the range of 30%-35%.
We are committed to investment-grade credit status. Alcoas balance
sheet and liquidity position are strong, and we will continue to decrease
debt and manage cash conservatively to ensure ongoing liquidity.
2013 Focus
Alcoans are always looking for new ways to add value for our customers and our Company. And they are great at forming teams to build
on our diversity of talent, wisdom and experience. Innovation is in Alcoas DNA from our inventor-founder, Charles Martin Hall. Applying
innovation through teamwork is in our DNA from his sister, Julia Hall, a chemist who helped Charles bring his inventions to life.
The men and women of todays Alcoa are sustaining that tradition of innovation through teamwork. The scientists and technicians at the
Alcoa Technical Center work closely with the market teams in our business units and our group centers of excellence, all collaborating to
drive the innovation chain from research to development to application. They are guided by a passion to apply innovation to improve products
for our customers and production processes for Alcoa.
Weve chosen fve areas that illustrate how innovation works at Alcoa. The frst three beneft our customers in the aerospace, automotive
and oil and gas industries. The next enables Alcoa to produce alumina more effciently and the last benefts our smelter operation and our
local communities.
Living Alcoas Vision: Applying Innovation to Advance Each Generation
During 2012, we began expanding our capacity to meet growing demand from aerospace customers
for aluminum-lithium (Al-Li). Because our third generation Al-Li alloys are 4% to 6% less dense and 5%
to 7% stiffer than conventional aluminum alloys, they enable manufacturers to build lighter and stronger
airplanes. The combined benets of lighter weight and the corrosion resistance properties of Al-Li lead to
lower fuel costs and maintenance expense for our customers. Forthose performance and cost benets,
aircraft designers are choosing Alcoa Al-Li alloys for a wide range of aircraft, including the Airbus A380,
the largest commercial airplane in the world. To meet that increased demand, Alcoa is building a new
state-of-the-art facility in Indiana that will produce more than 20,000 metric tons of Al-Li annually,
expanding the Alcoa Technical Centers Al-Li capacity by 30% and upgrading our Kitts Green, UK,
casting house to serve European aerospace customers.
Lighter Airplanes with Alcoas Aluminum-Lithium
Developing Aluminum-Lithium applications at the Alcoa
Technical Center that provide less dense and lighter weight
metal for aircraft manufacturers.
To obtain fuel efciencies that reduce consumer cost and meet stricter
Corporate Average Fuel Economy (CAFE) standards, our automotive
customers are rapidly replacing steel with lightweight aluminum in automobiles.
In recent years, Alcoa has made great strides in improving fuel efciency with
aluminum wheels that are 44% lighter than steel wheels. Now aluminum
use is shifting to more components and by 2025, the amount of aluminum
in cars is projected to increase by 60%. Were developing technologies to
adapt to that growth, such as a pretreatment for the metal that enhances
the performance of structural adhesive. Because the Alcoa pretreatment
is compatible with existing automotive manufacturing processes, it sets
a new industry standard for cost-effective mass production of aluminum-
intensive vehicles.
Building Lighter Weight Automobiles with Alcoa Structural Pretreatment
Alcoa built the hood for the Cadillac ATS which has been praised for innovative lightweighting
and was named car of the year by Esquire magazine.

G
e
n
e
r
a
l

M
o
t
o
r
s
Faster and Less-Expensive Drilling for Oil and Gas Thanks to
Alcoa Aluminum Drill Pipes
Alcoas innovative and proprietary aluminum alloy drill pipe is a tapered, high-strength, aluminum
alloy tube with a steel tool joint using a proprietary thermal connection technology that allows steel
tool joints to be attached to the aluminum pipe body. Produced in 30-foot aluminum tube sections,
the Alcoa drill pipe is approximately 40% lighter than steel drill pipe and can increase drilling reach
20% or more. Given the weight advantage and less friction, especially in extended-reach wells, the
aluminum pipe can improve rotational speeds and rate, which allows for reduced drilling time and
cost. For many long wells, this process can save days of drilling time for signicant savings to our
customers.
Lightweight aluminum drill pipes are decreasing the time
and cost of drilling for oil and gas.
Six decades ago, Alcoas leaders
established and endowed a nonproft
entity the Alcoa Foundation to extend
the Companys values to beneft the
communities where we operate. Long
before sustainability or corporate
social responsibility became part of the
business lexicon, Alcoa and all Alcoans
understood the value of earning a
social license to operate.
In 2012, we achieved these milestones
in support of the sustainability of our
communities and our planet:
Contributed $21.5 million to more than
3,000 nonprofts around the world.
Dedicated $4.5 million toward
Science, Technology, Engineering
and Math (STEM) and Workforce
Development initiatives that reached
200,000 students and teachers.
Achieved a record 60% participation
34,000 Alcoa volunteers in 24
countries during Alcoas Month
of Service through 1,050 events that
helped more than 450,000 people.
Supported more than 12,000 Alcoans
in small group ACTION volunteerism
events that they organized for smaller
community-based organizations.
Launched Alcoans in Motion to
provide funds for groups of Alcoans
to participate in physical activities for
charity. Refecting Alcoas renewed
commitment to wellness, 2,500
Alcoans participated in 87 events
in 16 countries.
Focused more than $9 million toward
environmental programs to recycle
more than one million pounds of
aluminum, replenish communities
with more than one million trees and
identify ways for individuals to reduce
their environmental footprint by using
less water and energy.
Alcoa was widely recognized for its
contributions to society in 2012. In
our 11
th
consecutive year on the Dow
Jones Sustainability Index, Alcoa was
again named the aluminum industry
sustainability leader. In Alcoas 30
th

Consecutive Year on Fortunes Most
Admired list, we were again recognized
as the most admired metals company
in the world. Finally, Alcoa topped the
Basic Materials category and placed
2
nd
in the overall ranking of 360 U.S.
companies in the Maplecroft Climate
Innovation (CII) Leaders Indices.
Applying Alcoas
Values to Sustain
our Communities
and our World
Our researchers developed process and
technology innovations to increase the yields
of Alcoas reneries over the past decade by
2.4 million metric tons of alumina annually.
That 17% yield improvement is equivalent
to adding an entire new renery the size
of Alcoa of Australias Wagerup renery.
They gured a way to boost productivity
by developing a liquor composition model
that allows more alumina to be extracted
during the precipitation process, saving us
$24 million annually. Our researchers developed state-of-the-art instruments, which in addition to
smarter control methods, improve the productivity of our reneries main circuit controls, gaining
another $60 million/year in savings. Experimenting with ways to drive down energy costs, they
developed a wide range of innovations, such as indirect slurry heating, that combine to produce
another $150 million yearly in savings, which reduces the cost of producing alumina by more
than 12% per metric ton.
Increasing Alcoas Renery Yield
Technology and process innovations in Alcoas Australian operations
contribute to a 17% increase in the yield of Alcoas renery operations.
Our smelting engineers and energy specialists
have also found ways to reduce our energy
costs while benetting the community through
a partnership with the regional electric
grid operator. At our Warrick smelter near
Evansville, Indiana, we continuously adjust
power consumption by reducing production
when power is needed to support reliability of
the regions grid, and increasing production
when power is cheaper. Through this demand
response process, the smelter essentially
operates as a virtual battery, providing
supplementary power for short-term uctuations
and market needs. Providing this power helps
maintain grid stability and avoid brownouts, and can generate $15,000 to $120,000 in net
revenues every day for Alcoa. While the traditional paradigm was to maintain a continuous,
stable electric load for smelting operations, our engineers have developed processes to maintain
efciency and stability even during power modulations that occur on four-second intervals.
Demand response also has a signicant environmental benet. As more wind energy sources
come on line, our ability to adjust production and provide power back to the grid can ll gaps
when wind power is not available, preventing the need for additional thermal generation to
keep demand and supply in equilibrium.
Saving Energy and the Environment Thanks to Alcoas
Smart Grid Innovations
Alcoas Warrick, Indiana, plant adjusts power consumption to earn
revenues for Alcoa and help the region.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2012
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3610
ALCOA INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0317820
(State of incorporation) (I.R.S. Employer Identification No.)
390 Park Avenue, New York, New York 10022-4608
(Address of principal executive offices) (Zip code)
Registrants telephone numbers:
Investor Relations------------ (212) 836-2674
Office of the Secretary-------(212) 836-2732
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $1.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes No .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes No .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting
company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No .
The aggregate market value of the outstanding common stock, other than shares held by persons who may be deemed
affiliates of the registrant, as of the last business day of the registrants most recently completed second fiscal quarter
was approximately $9 billion. As of February 11, 2013, there were 1,069,326,205 shares of common stock, par value
$1.00 per share, of the registrant outstanding.
Documents incorporated by reference.
Part III of this Form 10-K incorporates by reference certain information from the registrants definitive Proxy
Statement for its 2013 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A (Proxy Statement).
EXPLANATORY NOTE
Alcoa Inc. (the Registrant) is filing this Amendment No. 1 on Form 10-K/A (Form 10-K/A) to its Annual Report
on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission on
February 15, 2013 (the Original Filing), for the sole purpose of inserting the conformed signature of one of the two
applicable persons on the certifications filed as Exhibit 31 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Such conformed signature was inadvertently omitted from the electronic version of Exhibit 31 filed with the Original
Filing, although the Registrant had a manually signed copy of the certification in its possession when the Original
Filing was made. Additionally, the certifications pursuant to both Section 302 and 906 of the Sarbanes-Oxley Act of
2002 included in the Original Filing have been updated to reflect the filing date of this Form 10-K/A.
Except as described above, no other changes have been made to the Original Filing, and this Form 10-K/A does not
modify, amend or update in any way any of the financial or other information contained in the Original Filing.
TABLE OF CONTENTS
Page(s)
Part I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Part II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 51
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . 159
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Part III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . 160
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Part IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Note on Incorporation by Reference
In this Form 10-K, selected items of information and data are incorporated by reference to portions of the Proxy
Statement. Unless otherwise provided herein, any reference in this report to disclosures in the Proxy Statement shall
constitute incorporation by reference of only that specific disclosure into this Form 10-K.
2
PART I
Item 1. Business.
General
Formed in 1888, Alcoa Inc. is a Pennsylvania corporation with its principal office in New York, New York. In this
report, unless the context otherwise requires, Alcoa or the Company means Alcoa Inc. and all subsidiaries
consolidated for the purposes of its financial statements.
The Companys Internet address is http://www.alcoa.com. Alcoa makes available free of charge on or through its
website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains these reports at
http://www.sec.gov.
Forward-Looking Statements
This report contains (and oral communications made by Alcoa may contain) statements that relate to future events and
expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include those containing such words as anticipates, believes,
estimates, expects, forecast, hopes, outlook, projects, should, targets, will, will likely result, or
other words of similar meaning. All statements that reflect Alcoas expectations, assumptions or projections about the
future other than statements of historical fact are forward-looking statements, including, without limitation, forecasts
concerning aluminum industry growth or other trend projections, anticipated financial results or operating
performance, and statements about Alcoas strategies, objectives, goals, targets, outlook, and business and financial
prospects. Forward-looking statements are subject to a number of known and unknown risks, uncertainties and other
factors and are not guarantees of future performance. Actual results, performance or outcomes may differ materially
from those expressed in or implied by those forward-looking statements. For a discussion of some of the specific
factors that may cause Alcoas actual results to differ materially from those projected in any forward-looking
statements, see the following sections of this report: Part I, Item 1A. (Risk Factors), Part II, Item 7. (Managements
Discussion and Analysis of Financial Condition and Results of Operations), including the disclosures under Segment
Information and Critical Accounting Policies and Estimates, and Note N and the Derivatives Section of Note X to the
Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data). Alcoa disclaims
any intention or obligation to update publicly any forward-looking statements, whether in response to new information,
future events or otherwise, except as required by applicable law.
Overview
Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum, and alumina
combined, through its active and growing participation in all major aspects of the industry: technology, mining,
refining, smelting, fabricating, and recycling. Aluminum is a commodity that is traded on the London Metal Exchange
(LME) and priced daily. Aluminum and alumina represent more than 80% of Alcoas revenues, and the price of
aluminum influences the operating results of Alcoa. Non-aluminum products include precision castings and aerospace
and industrial fasteners. Alcoas products are used worldwide in aircraft, automobiles, commercial transportation,
packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications.
Alcoa is a global company operating in 30 countries. Based upon the country where the sale occurred, the U.S. and
Europe generated 52% and 25%, respectively, of Alcoas sales in 2012. In addition, Alcoa has investments and
operating activities in, among others, Australia, Brazil, China, Guinea, Iceland, Russia, and the Kingdom of Saudi
3
Arabia, all of which present opportunities for substantial growth. Governmental policies, laws and regulations, and
other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect
the results of operations in these countries.
Alcoas operations consist of four worldwide reportable segments: Alumina, Primary Metals, Global Rolled Products,
and Engineered Products and Solutions.
Description of the Business
Information describing Alcoas businesses can be found on the indicated pages of this report:
Item Page(s)
Discussion of Recent Business Developments:
Managements Discussion and Analysis of Financial Condition and Results of Operations:
OverviewResults of Operations (Earnings Summary) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Notes to Consolidated Financial Statements:
Note D. Restructuring and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Note F. Acquisitions and Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Segment Information:
Business Descriptions, Principal Products, Principal Markets, Methods of Distribution, Seasonality and
Dependence Upon Customers:
Alumina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Primary Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Global Rolled Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Engineered Products and Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Financial Information about Segments and Financial Information about Geographic Areas:
Note Q. Segment and Geographic Area Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
The following tables and related discussion of the Companys Bauxite Interests, Alumina Refining and Primary
Aluminum Facilities and Capacities, Global Rolled Products, Engineered Products and Solutions and Corporate
Facilities provide additional description of Alcoas businesses. The Alumina segment primarily consists of a series of
affiliated operating entities referred to as Alcoa World Alumina and Chemicals (AWAC). Alcoa owns 60% and
Alumina Limited owns 40% of these individual entities. For more information on AWAC, see Exhibit Nos. 10(a)
through 10(f)(1) to this report.
Bauxite Interests
Aluminum is one of the most plentiful elements in the earths crust and is produced primarily from bauxite, an ore
containing aluminum in the form of aluminum oxide, commonly referred to as alumina. Aluminum is made by
extracting alumina from bauxite and then removing oxygen from the alumina. Alcoa processes most of the bauxite that
it mines into alumina. The Company obtains bauxite from its own resources and from those belonging to the AWAC
enterprise, located in the countries listed in the table below, as well as pursuant to both long-term and short-term
contracts and mining leases. In 2012, Alcoa consumed 45 million metric tons (mt) of bauxite from AWAC and its own
resources, 7.1 million mt from related third parties and 1.1 million mt from unrelated third parties. Tons of bauxite are
reported as bone dry metric tons (bdmt) unless otherwise stated. See the glossary of bauxite mining related terms at the
end of this section.
The Company has access to large bauxite deposit areas with mining rights that extend in most cases more than 20 years
from today. For purposes of evaluating the amount of bauxite that will be available to supply as feedstock to its
refineries, the Company considers both estimates of bauxite resources as well as calculated bauxite reserves. Bauxite
resources represent deposits for which tonnage, densities, shape, physical characteristics, grade and mineral content can
be estimated with a reasonable level of confidence based on the amount of exploration sampling and testing
4
information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill
holes. Bauxite reserves represent the economically mineable part of resource deposits, and include diluting materials
and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have
been carried out to define the reserves, and include consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and governmental factors. Alcoa employs a
conventional approach (including additional drilling with successive tightening of the drill grid) with customized
techniques to define and characterize its various bauxite deposit types allowing Alcoa to confidently establish the
extent of its bauxite resources and their ultimate conversion to reserves.
The table below only includes the amount of proven and probable reserves controlled by the Company. While the level
of reserves may appear low in relation to annual production levels, they are consistent with historical levels of reserves
for our mining locations. Given the Companys extensive bauxite resources, the abundant supply of bauxite globally
and the length of the Companys rights to bauxite, it is not cost-effective to invest the significant resources necessary to
establish bauxite reserves that reflect the total size of the bauxite resources available to the Company. Rather, bauxite
resources are upgraded annually to reserves as needed by the location. Detailed assessments are progressively
undertaken within a proposed mining area and mine activity is then planned to achieve a uniform quality in the supply
of blended feedstock to the relevant refinery. Alcoa believes its present sources of bauxite on a global basis are
sufficient to meet the forecasted requirements of its alumina refining operations for the foreseeable future.
Bauxite Resource Development Guidelines
Alcoa has developed best practice guidelines for bauxite reserve and resource classification at its operating bauxite
mines. Alcoas reserves are declared in accordance with Alcoas internal guidelines as administered by the Alcoa Ore
Reserve Committee (AORC). The reported ore reserves set forth in the table below are those that Alcoa estimates could
be extracted economically with current technology and in current market conditions. Alcoa does not use a price for
bauxite, alumina, or aluminum to determine its bauxite reserves. The primary criteria for determining bauxite reserves
are the feed specifications required by the customer alumina refinery. In addition to these specifications, a number of
modifying factors have been applied to differentiate bauxite reserves from other mineralized material. Alcoa mining
locations have annual in-fill drilling programs designed to progressively upgrade the reserve classification of their
bauxite.
5
Alcoa Bauxite Interests, Share of Reserves and Annual Production
1
Country Project
Owners
Mining
Rights (%
Entitlement)
Expiration
Date of
Mining
Rights
Probable
Reserves
(million
bdmt)
Proven
Reserves
(million
bdmt)
Available
Alumina
Content
(%)
AvAl
2
O
3
Reactive
Silica
Content
(%)
RxSiO
2
2012
Annual
Production
(million
bdmt)
Australia Darling Range
Mines ML1SA
Alcoa of Australia
Limited (AofA)
2
(100%) 2045 34.7 109.0 32.9 0.94 31.8
Brazil Poos de Caldas Alcoa Alumnio S.A.
(Alumnio)
3
(100%) 2020
4
0.5 1.1 39.5 4.3 0.8
Juruti
4,5
RN102, RN103,
RN104
Alcoa World Alumina
Brasil Ltda. (AWA
Brasil)
2
(100%) 2100
4
25.8 13.4 47.4 3.4 3.8
Jamaica Harmons
Valley
South
Manchester
North
Manchester
Alcoa Minerals of
Jamaica, L.L.C.
2
(55%)
Clarendon Alumina
Production Ltd.
6
(45%)
2031 2.6 0.9 42.1 1.9 1.8
Suriname Coermotibo Suriname Aluminum
Company, L.L.C.
(Suralco)
2
(55%)
N.V. Alcoa Minerals of
Suriname (AMS)
7
(45%) 2033
8
- 2.6 39.1 4.9 1.4
Onverdacht Suralco (55%)
AMS
7
(45%) 2033
8
3.1 0.7 51.8 4.5 1.6
Equity interests:
Brazil Trombetas Minerao Rio do
Norte S.A. (MRN)
9
(100%) 2046
4
4.0 9.5 50.7 4.2 2.8
Guinea Bok Compagnie des
Bauxites de Guine
(CBG)
10
(100%) 2038
11
29.0 29.9
TAl
2
O
3
12
50.2
TSiO
2
12
1.7 3.2
Kingdom of
Saudi
Arabia
Al Baitha Maaden Bauxite &
Alumina Company
(100%)
13
2037 33.9 21.3 TAA
14
47.2
TSiO
2
14
9.8
Production
to begin
2014
1
This table shows only the AWAC and/or Alcoa share (proportion) of reserve and annual production tonnage.
2
This entity is part of the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited.
3
Alumnio is owned 100% by Alcoa.
4
Brazilian mineral legislation does not establish the duration of mining concessions. The concession remains in force
until the exhaustion of the deposit. The Company estimates that (i) the concessions at Poos de Caldas will last at least
until 2020, (ii) the concessions at Trombetas will last until 2046 and (iii) the concessions at Juruti will last until 2100.
Depending, however, on actual and future needs, the rate at which the deposits are exploited and government approval is
obtained, the concessions may be extended to (or expire at) a later (or an earlier) date.
5
In September 2009, development of a new bauxite mine was completed in Juruti, state of Par in northern Brazil. The
mine is fully operational and produced 3.8 million bdmt in 2012.
6
Clarendon Alumina Production Ltd. is wholly-owned by the Government of Jamaica.
6
7
Alcoa World Alumina LLC (AWA LLC) owns 100% of N.V. Alcoa Minerals of Suriname (AMS). AWA LLC is part of
the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited.
8
Mining rights expired for the Caramacca area. The mining rights in the Onverdacht and Coermotibo areas where Suralco
has active mines extend until 2033. Bauxite within these areas will likely be exhausted in the next few years. Alcoa is
actively exploring and evaluating alternative sources of bauxite in Suriname. A feasibility study relating to the
development of a mine at the Nassau Plateau is in progress.
9
Alumnio holds an 8.58% total interest, AWA Brasil (formerly Abalco S.A., which merged with Alcoa World Alumina
Brasil Ltda. in December 2008) holds a 4.62% total interest and AWA LLC holds a 5% total interest in MRN. MRN is
jointly owned with affiliates of Rio Tinto Alcan Inc., Companhia Brasileira de Alumnio, Companhia Vale do Rio Doce,
BHP Billiton Plc (BHP Billiton) and Norsk Hydro. Alumnio, AWA Brasil, and AWA LLC purchase bauxite from MRN
under long-term supply contracts.
10
AWA LLC owns a 45% interest in Halco (Mining), Inc. Halco owns 100% of Bok Investment Company, a Delaware
company, which owns 51% of CBG. The Guinean Government owns 49% of CBG, which has the exclusive right
through 2038 to develop and mine bauxite in certain areas within a 10,000 square-mile concession in northwestern
Guinea.
11
AWA LLC has a bauxite purchase contract with CBG that expires in 2029. Before that expiration date, AWA LLC
expects to negotiate an extension of the contract as CBG will have concession rights until 2038. The CBG concession
can be renewed beyond 2038 by agreement of the Government of Guinea and CBG should more time be required to
commercialize the remaining economic bauxite within the concession.
12
GuineaBok: CBG prices bauxite and plans the mine based on the bauxite qualities of total alumina (TAl
2
O
3
) and total
silica (TSiO
2
).
13
Maaden Bauxite & Alumina Company is a joint venture owned by Saudi Arabian Mining Company (Maaden) (74.9%)
and AWA Saudi Limited (25.1%). AWA Saudi Limited is part of the AWAC group of companies and is owned 60% by
Alcoa and 40% by Alumina Limited.
14
Kingdom of Saudi ArabiaAl Baitha: Bauxite reserves and mine plans are based on the bauxite qualities of total
available alumina (TAA) and total silica (TSiO
2
).
Qualifying statements relating to the table above:
AustraliaDarling Range Mines: Huntly and Willowdale are the two active mines in the Darling Range of Western
Australia. The mineral lease issued by the State of Western Australia to Alcoa is known as ML1SA and its term
extends to 2045. The lease can be renewed beyond 2045. The declared reserves have been estimated to the end of
December 2012. The amount of reserves reflect the total AWAC share. Additional resources are routinely upgraded by
additional exploration and development drilling to reserve status. The Huntly and Willowdale mines supply bauxite to
three local AWAC alumina refineries.
BrazilPoos de Caldas: Declared reserves are as of the end of October 2012. Tonnage is total Alcoa share.
Additional resources are being upgraded to reserves as needed.
BrazilJuruti RN102, RN103, RN104: Declared reserves are as of November 1, 2012. Declared reserves are total
AWAC share. Declared reserve tonnages and the annual production tonnage (estimate to the end of 2012) are washed
product tonnages. The Juruti mines operating license is periodically renewed and the next renewal is in 2014.
JamaicaJamalco: Declared reserves are as of October 2012. The declared reserve and annual production tonnages
are AWAC share only (55%). Declared reserves are in the following areas: Harmons Valley, South Manchester, North
Manchester and Porus/Victoria. Current ore mining is in Harmons Valley and South Manchester with a small amount
of ore from a test stockpile in North Manchester. The location has scheduled probable reserves from North Manchester
and Porus/Victoria within the 2013-2016 period. Additional resources are in the process of being upgraded to reserves.
7
SurinameSuralcoCaramacca: Caramacca has been removed from the reserves due to the expiration of the
mining permits for this area. Some ore remains at Caramacca and the permit is awaiting renewal by the Government of
Suriname so that the last ore can be recovered.
SurinameSuralcoCoermotibo and Onverdacht: Declared reserves are as of October 1, 2012. AWAC owns
100%. Additional resources are being evaluated for upgrading to reserves.
Kingdom of Saudi ArabiaAl Baitha: Declared reserves are as of March 2011 and are for the South Zone of the Az
Zabirah Bauxite Deposit. The reserve tonnage in this declaration is AWAC share only (25.1%). The Al Baitha Mine is
due to begin production during 2014.
BrazilTrombetas-MRN: Declared reserves are as of May 31, 2012. Declared and annual production tonnages
reflect the total for Alumino and AWAC shares (18.2%). Declared tonnages are washed product tonnages.
GuineaBok-CBG: Declared reserves are as of January 1, 2012. The declared reserves are based on export quality
bauxite reserves. The AWAC share of CBG equates to 22.95%. Declared reserve tonnages are based on the AWAC
share of CBGs reserves. Annual production tonnage reported is based on AWACs 22.95% share. Declared reserves
quality is reported based on total alumina (TAl
2
O
3
) and total silica (TSiO
2
) because CBG export bauxite is sold on this
basis. Additional resources are being routinely drilled and modeled to upgrade to reserves as needed.
8
The following table provides additional information regarding the Companys bauxite mines:
Mine & Location
Means of
Access Operator
Title,
Lease or
Options History
Type of
Mine
Mineralization
Style Power Source
Facilities,
Use &
Condition
AustraliaDarling
Range Huntly and
Willowdale.
Mine locations
accessed by roads.
Ore is transported
to refineries by
long distance
conveyor and rail.
Alcoa Mining Lease from
the Western Australia
Government. ML1SA.
Expires in 2045.
Mining began
in 1963.
Open-cut mines.
Bauxite is derived
from the weathering
of Archean granites
and gneisses and
Precambrian
dolerite.
Electrical
energy from
natural gas
is supplied
by the
refinery.
Infrastructure includes buildings
for administration and services;
workshops; power distribution;
water supply; crushers; long
distance conveyors.
Mines and facilities are
operating.
BrazilPoos de
Caldas Closest town
is Poos de Caldas,
MG, Brazil.
Mine locations are
accessed by road.
Ore transport to
the refinery is by
road.
Alcoa Mining licenses from
the Government of
Brazil and Minas
Gerais. Company
claims and third-party
leases. Expire in
2020.
Mining began
in 1965.
Open-cut mines.
Bauxite derived
from the weathering
of nepheline syenite
and phonolite.
Commercial
grid power.
Mining offices and services are
located at the refinery.
Numerous small deposits are
mined by contract miners and the
ore is trucked to either the
refinery stockpile or intermediate
stockpile area.
Mines and facilities are
operating.
BrazilJuruti
Closest town is Juruti
located on the
Amazon River.
The mines port at
Juruti is located
on the Amazon
River and
accessed by ship.
Ore is transported
from the mine site
to the port by
Company owned
rail.
the Government of
Brazil and Par.
Mining rights do not
have a legal
expiration date. See
footnote 4 to the table
above.
The operating
licenses next renewal
date is in 2014.
The Juruti deposit
was systematically
evaluated by
Reynolds Metals
Company
beginning in 1974.
Alcoa merged
Reynolds into the
Company in 2000.
Alcoa then
executed a due
diligence program
and expanded the
exploration area.
Mining began in
2009.
Open-cut mines.
Bauxite derived
from weathering
during the Tertiary
of Cretaceous fine
to medium grained
feldspathic
sandstones.
The deposits are
covered by the
Belterra clays.
Electrical
energy from
fuel oil is
generated at
the mine
site.
Commercial
grid power
at the port.
At the mine site: Fixed plant
facilities for crushing and
washing the ore; mine services
offices and workshops; power
generation; water supply;
stockpiles; rail sidings.
At the port: Mine and rail
administrative offices and
services; port control facilities
with stockpiles and ship loader.
Mine and port facilities are
operating.
JamaicaHarmons
Valley South
Manchester North
Manchester All
located in the Parish
of Manchester.
The mines are
accessed by road.
Ore is transported
to the refinery by
Company rail.
The refinery is
located near
Halse Hall,
Clarendon Parish.
the Government of
Jamaica.
Expire 2031.
Mining began
in 1963.
Open-cut mines.
The karst landscape
from the White
Limestone
Formation of
Eocene to Miocene
age host the quasi-
funnel shaped
bauxite deposits
which are residual
from the weathering
of volcanic and
terrestrial materials.
Commercial
grid power.
Numerous small to large deposits
are mined within the license
areas by contract miners and
delivered to stockpile areas.
The main mine administrative
offices and services are located
near San Jago. Ore is delivered
to San Jago by truck and by
Ropecon conveyor. The train
loadout area is at San Jago.
Mine, railroad and other facilities
are operating.
Suriname
Coermotibo and
Onverdacht Mines are
located in the districts
of Para and
Marowijne.
The mines are
accessed by road.
Ore is delivered to
the refinery by
road from the
Onverdacht area
and by river barge
from the
Coermotibo area.
Alcoa Brokopondo
Concession from the
Government of
Suriname.
Concessions formerly
owned by a BHP
Billiton (BHP)
subsidiary that was a
45% joint venture
partner in the
Surinamese bauxite
mining and alumina
refining joint
ventures. AWA LLC
acquired that
subsidiary in 2009.
After the acquisition
of the subsidiary, its
name was changed to
N.V. Alcoa Minerals
of Suriname.
Expires in 2033.
Alcoa began mining
in Suriname in
1916. The
Brokopondo
Agreement was
signed in 1958.
As noted, Suralco
bought the bauxite
and alumina
interests of a BHP
subsidiary from
BHP in 2009.
Open-cut mines.
For some mines the
overburden is
dredged and mining
progresses with
conventional open-
cut methods.The
protoliths of the
bauxite have been
completely
weathered.The
bauxite deposits are
mostly derived
from the weathering
of Tertiary
Paleogene arkosic
sediments. In a few
spots the bauxite
overlies
Precambrian
granitic and
gneissic rocks
which are now
saprolite.
Bauxitization likely
occurred during the
middle to late
Eocene Age.
Commercial
grid power.
In the Onverdacht mining areas
the bauxite is mined and
transported to the refinery by
truck. In the Coermotibo mining
areas the bauxite is mined and
stockpiled and then transported
to the refinery by barge. Some of
the ore is washed in a small
beneficiation plant located in the
Coermotibo area.The main
mining administrative offices
and services and workshops and
laboratory are located at the
refinery in Paranam.The ore is
crushed at Paranam.
The mines and washing plant are
operating.
9
Mine & Location
Means of
Access Operator
Title,
Lease or
Options History
Type of
Mine
Mineralization
Style Power Source
Facilities,
Use &
Condition
BrazilMRN
Closest town
is Trombetas in the
State of Par, Brazil.
The mine and
port areas are
connected by
sealed road
and company
owned rail.
Washed ore is
transported to
Porto Trombetas
by rail.
Trombetas
is accessed by
river and by
air at the airport.
MRN Mining rights and
licenses from the
Government of Brazil.
Concession rights
expire in 2046.
Mining began
in 1979.
Major expansion in
2003.
Open-cut mines.
Bauxite derived
from weathering
during the Tertiary
of Cretaceous fine
to medium grained
feldspathic
sandstones.
The deposits are
covered by the
Belterra clays.
MRN
generates
its own
electricity
from fuel
oil.
Ore is mined from several
plateaus crushed and transported
to the washing plant by long
distance conveyors.
The washing plant is located in
the mining zone.
Washed ore is transported to the
port area by company owned and
operated rail.
At Porto Trombetas the ore is
loaded onto customer ships
berthed in the Trombetas River.
Some ore is dried and the drying
facilities are located in the port
area.
Mine planning and services;
mining equipment workshops are
located in the mine zone.
The main administrative, rail and
port control offices and various
workshops are located in the port
area.
MRNs main housing facilities,
the city, are located near the
port.
The mines, port and all facilities
are operating.
GuineaCBG
Closest town to the
mine is Sangaredi.
Closest town to the
port is Kamsar. The
CBG Lease is
located within the
Bok, Telimele and
Gaoual
administrative
regions.
The mine and
port areas are
connected by
sealed road and
company operated
rail. Ore is
transported to the
port at Kamsar by
rail. There are air
strips near both the
mine and port.
These are not
operated by the
company.
CBG CBG Lease expires in
2038.The lease is
renewable in 25 year
increments.CBGs
rights are specified
within the Basic
Agreement and
Amendment 1 to the
Basic Agreement with
the Government of
Guinea.
Construction began
in 1973.
First export ore
shipment was in
1973.
Open-cut mines.
The bauxite deposits
within the CBG
lease are of two
general types.TYPE
1: In-situ laterization
of Ordovician and
Devonian plateau
sediments locally
intruded by dolerite
dikes and sills.
TYPE. 2: Sangaredi
type deposits are
derived from clastic
deposition of
material eroded from
the Type 1 laterite
deposits and
possibly some of the
proliths from the
TYPE 1 plateaus
deposits.
The
company
generates
its own
electricity
from fuel
oil at both
Kamsar and
Sangaredi.
Mine offices, workshops, power
generation and water supply for
the mine and company mine city
are located at Sangaredi.
The main administrative offices,
port control, railroad control,
workshops, power generation
and water supply are located in
Kamsar. Ore is crushed, dried
and exported from Kamsar. CBG
has company cities within both
Kamsar and Sangaredi.
The mines, railroad, driers, port
and other facilities are operating.
Kingdom of Saudi
ArabiaAl Baitha
Mine. Qibah is the
closest regional
centre to the mine,
located in the
Qassim province.
The mine and
refinery are
connected by road
and rail. Ore will
be transported to
the refinery at Ras
Al Khair by rail.
Maaden
Bauxite &
Alumina
Company
The current mining
lease will expire in
2037.
The initial
discovery and
delineation of
bauxite resources
was carried out
between 1979 and
1984.
The southern zone
of the Az Zabirah
deposit was granted
to Maaden in 1999.
Currently the mine
is in development.
Production is to
begin in 2014.
Open-cut mine.
Bauxite occurs as a
paleolaterite profile
developed at an
angular
unconformity
between underlying
late Triassic to
early Cretaceous
sediments (parent
rock sequence
Biyadh Formation)
and the overlying
late Cretaceous
Wasia Formation
(overburden
sequence).
The
company
will
generate
electricity
at the mine
site from
fuel oil.
The mine will include fixed
plants for crushing and train
loading; workshops and ancillary
services; power plant; water
supply.
There will be a company village
with supporting facilities.
The mine is under construction.
Mining operations are to
commence in 2014.
Kingdom of Saudi Arabia Joint Venture
In December 2009, Alcoa and Saudi Arabian Mining Company (Maaden) entered into a joint venture to develop a fully integrated
aluminum complex in the Kingdom of Saudi Arabia. In its initial phases, the complex includes a bauxite mine with an initial
10
capacity of 4 million bdmtpy; an alumina refinery with an initial capacity of 1.8 million mtpy; an aluminum smelter
with an initial capacity of ingot, slab and billet of 740,000 mtpy; and a rolling mill with initial capacity of 380,000
mtpy. The mill will produce sheet, end and tab stock for the manufacture of aluminum cans, as well as other products
to serve the automotive, construction, and other industries.
The refinery, smelter and rolling mill are located within the Ras Al Khair industrial zone on the east coast of the
Kingdom of Saudi Arabia. First hot metal from the smelter was produced on December 12, 2012. Rolling mill
production is anticipated to start sometime in 2013. First production from the mine and refinery is expected in 2014.
Total capital investment is expected to be approximately $10.8 billion (SAR 40.5 billion). Maaden owns a 74.9%
interest in the joint venture. Alcoa owns a 25.1% interest in the smelter and rolling mill, with the AWAC group holding
a 25.1% interest in the mine and refinery. For additional information regarding the joint venture, see the Equity
Investments section of Note I to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and
Supplementary Data).
Glossary of Bauxite Mining Related Terms
Term Abbreviation Definition
Alcoa Ore Reserves Committee AORC The group within Alcoa, which is comprised of Alcoa
geologists and engineers, that specifies the guidelines by
which bauxite reserves and resources are classified. These
guidelines are used by Alcoa managed mines.
Alumina Al
2
O
3
A compound of aluminum and oxygen. Alumina is extracted
from bauxite using the Bayer Process. Alumina is a raw
material for smelters to produce aluminum metal.
AORC Guidelines The Alcoa guidelines used by Alcoa managed mines to
classify reserves and resources. These guidelines are issued by
the Alcoa Ore Reserves Committee (AORC).
Available alumina content AvAl
2
O
3
The amount of alumina extractable from bauxite using the
Bayer Process.
Bauxite The principal raw material (rock) used to produce alumina.
Bauxite is refined using the Bayer Process to extract alumina.
Bayer Process The principal industrial means of refining bauxite to produce
alumina.
Bone dry metric ton bdmt Tonnage reported on a zero moisture basis.
Coermotibo The mining area in Suriname containing the deposits of
Bushman Hill, CBO Explo, Lost Hill and Remnant.
Juruti RN102, RN103, RN104 Mineral claim areas in Brazil associated with the Juruti mine,
within which Alcoa has the mining operating licenses issued
by the state.
ML1SA The Mineral Lease issued by the State of Western Australia to
Alcoa. Alcoa mines located at Huntly and Willowdale operate
within ML1SA.
Onverdacht The mining area in Suriname containing the deposits of
Kaaimangrasi, Klaverblad, Lelydorp1 and Sumau 1.
Open-cut mine The type of mine in which an excavation is made at the surface
to extract mineral ore (bauxite). The mine is not underground
and the sky is viewable from the mine floor.
Probable reserve That portion of a reserve, i.e. bauxite reserve, where the
physical and chemical characteristics and limits are known
with sufficient confidence for mining and to which various
mining modifying factors have been applied. Probable reserves
are at a lower confidence level than proven reserves.
11
Term Abbreviation Definition
Proven reserve That portion of a reserve, i. e. bauxite reserve, where the
physical and chemical characteristics and limits are known
with high confidence and to which various mining modifying
factors have been applied.
Reactive silica RxSiO
2
The amount of silica contained in the bauxite that is reactive
within the Bayer Process.
Reserve That portion of mineralized material, i.e. bauxite, that Alcoa
has determined to be economically feasible to mine and supply
to an alumina refinery.
Silica SiO
2
A compound of silicon and oxygen.
Total alumina content TAl
2
O
3
The total amount of alumina in bauxite. Not all of this alumina
is extractable or available in the Bayer Process.
Total available alumina TAA The total amount of alumina extractable from bauxite by the
Bayer Process. Commonly this term is used when there is a
hybrid or variant Bayer Process that will refine the bauxite.
Total silica TSiO
2
The total amount of silica contained in the bauxite.
Alumina Refining Facilities and Capacity
Alcoa is the worlds leading producer of alumina. Alcoas alumina refining facilities and its worldwide alumina
capacity are shown in the following table:
Alcoa Worldwide Alumina Refining Capacity
Country Facility
Owners
(% of Ownership)
Nameplate
Capacity
1
(000 MTPY)
Alcoa
Consolidated
Capacity
2
(000 MTPY)
Australia Kwinana AofA
3
(100%) 2,190 2,190
Pinjarra AofA (100%) 4,234 4,234
Wagerup AofA (100%) 2,555 2,555
Brazil Poos de Caldas Alumnio
4
(100%) 390 390
So Lus (Alumar) AWA Brasil
3
(39%)
Rio Tinto Alcan Inc.
5
(10%)
Alumnio (15%)
BHP Billiton
5
(36%) 3,500 1,890
Jamaica Jamalco Alcoa Minerals of Jamaica, L.L.C.
3
(55%)
Clarendon Alumina Production Ltd.
6
(45%) 1,478 841
Spain San Ciprin Almina Espaola, S.A.
3
(100%) 1,500 1,500
Suriname Suralco Suralco
3
(55%)
AMS
7
(45%) 2,207
8
2,207
United States Point Comfort, TX AWA LLC
3
(100%) 2,305
9
2,305
TOTAL 20,359 18,112
1
Nameplate Capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily
represent maximum possible production.
12
2
The figures in this column reflect Alcoas share of production from these facilities. For facilities wholly-owned by
AWAC entities, Alcoa takes 100% of the production.
3
This entity is part of the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited.
4
This entity is owned 100% by Alcoa.
5
The named company or an affiliate holds this interest.
6
Clarendon Alumina Production Ltd. is wholly-owned by the Government of Jamaica.
7
AWA LLC owns 100% of N.V. Alcoa Minerals of Suriname (AMS). AWA LLC is part of the AWAC group of
companies and is owned 60% by Alcoa and 40% by Alumina Limited.
8
In May 2009, the Suralco alumina refinery announced curtailment of 870,000 mtpy. The decision was made to protect
the long-term viability of the industry in Suriname. The curtailment was aimed at deferring further bauxite extraction
until additional in-country bauxite resources are developed and market conditions for alumina improve. The refinery
currently has approximately 893,000 mtpy of idle capacity.
9
Reductions in production at Point Comfort resulted mostly from the effects of curtailments initiated in late 2008 through
early 2009, as a result of overall market conditions. The reductions included curtailments of approximately 1,500,000
mtpy. Of that original amount, 384,000 mtpy remain curtailed.
As noted above, Alcoa and Maaden are developing an alumina refinery in the Kingdom of Saudi Arabia. Initial
capacity of the refinery is expected to be 1.8 million mtpy. First production is expected in 2014. For additional
information regarding the joint venture, see the Equity Investments section of Note I to the Consolidated Financial
Statements in Part II, Item 8. (Financial Statements and Supplementary Data).
The 2.1 million mtpy expansion of the Alumar consortium alumina refinery in So Lus, Maranho, completed by the
end of 2009, has increased the refinerys nameplate capacity to approximately 3.5 million mtpy, with Alcoas share of
such capacity more than doubling to 1.89 million mtpy based on its 54% ownership stake through Alumnio and
AWAC.
In November 2005, AWA LLC and Rio Tinto Alcan Inc. signed a Basic Agreement with the Government of Guinea
that sets forth the framework for development of a 1.5 million mtpy alumina refinery in Guinea. In 2006, the Basic
Agreement was approved by the Guinean National Assembly and was promulgated into law. The Basic Agreement was
originally set to expire in November 2008, but was extended to November 2012, and has been recently extended again
until 2015. Pre-feasibility studies were completed in 2008. Additional feasibility study work was completed in 2012,
and further activities are planned for 2013.
In September 2006, Alcoa received environmental approval from the Government of Western Australia for expansion
of the Wagerup alumina refinery to a maximum capacity of 4.7 million mtpy, a potential increase of over 2 million
mtpy. This approval had a term of 5 years and included environmental conditions that must be satisfied before Alcoa
could seek construction approval for the project. The project was suspended in November 2008 due to global economic
conditions and the unavailability of a secure long-term energy supply in Western Australia. These constraints continue
and as such the project remains under suspension. In May 2012, the Government of Western Australia granted Alcoa a
5 year extension of the 2006 environmental approval.
In 2008, AWAC signed a cooperation agreement with Vietnam National Coal-Minerals Industries Group (Vinacomin)
in which they agreed to conduct a joint feasibility study of the Gia Nghia bauxite mine and alumina refinery project
located in Vietnams Central Highlands. The cooperation between AWAC and Vinacomin on Gia Nghia is subject to
approval by the Government of Vietnam. If established, the Gia Nghia venture is expected to be 51% owned by
Vinacomin, 40% by AWAC and 9% by others.
13
Primary Aluminum Facilities and Capacity
The Companys primary aluminum smelters and their respective capacities are shown in the following table:
Alcoa Worldwide Smelting Capacity
Country Facility
Owners
(% Of Ownership)
Nameplate
Capacity
1
(000 MTPY)
Alcoa
Consolidated
Capacity
2
(000 MTPY)
Australia Point Henry AofA (100%) 190 190
3
Portland AofA (55%)
CITIC
4
(22.5%)
Marubeni
4
(22.5%) 358 197
3,5
Brazil Poos de Caldas Alumnio (100%) 96 96
So Lus (Alumar) Alumnio (60%)
BHP Billiton
4
(40%) 447 268
Canada Baie Comeau, Que. Alcoa (100%) 385 385
Bcancour, Que. Alcoa (74.95%)
Rio Tinto Alcan Inc.
6
(25.05%) 413 310
Deschambault, Que. Alcoa (100%) 260 260
Iceland Fjaral Alcoa (100%) 344 344
Italy Fusina Alcoa (100%) 44
7
44
Portovesme Alcoa (100%) 150
7
150
Norway Lista Alcoa (100%) 94 94
Mosjen Alcoa (100%) 188 188
Spain Avils Alcoa (100%) 93
8
93
La Corua Alcoa (100%) 87
8
87
San Ciprin Alcoa (100%) 228 228
United States Evansville, IN (Warrick) Alcoa (100%) 269 269
Massena East, NY Alcoa (100%) 125 125
Massena West, NY Alcoa (100%) 130 130
Mount Holly, SC Alcoa (50.33%)
Century Aluminum Company
4
(49.67%) 229 115
Rockdale, TX Alcoa (100%) 191
9
191
Ferndale, WA (Intalco) Alcoa (100%) 279
10
279
Wenatchee, WA Alcoa (100%) 184
11
184
TOTAL 4,784 4,227
1
Nameplate Capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily
represent maximum possible production.
2
The figures in this column reflect Alcoas share of production from these facilities.
3
Figures include the minority interest of Alumina Limited in facilities owned by AofA. From these facilities, Alcoa takes
100% of the production allocated to AofA.
4
The named company or an affiliate holds this interest.
14
5
In December 2008, approximately 15,000 mtpy annualized production was idled at the Portland facility due to overall
market conditions. In July 2009, an additional 15,000 mtpy annualized production was idled, again, due to overall
market conditions. This production remains idled.
6
Owned through Rio Tinto Alcan Inc.s interest in Pechiney Reynolds Qubec, Inc., which is owned by Rio Tinto Alcan
Inc. and Alcoa.
7
In May 2010, Alcoa and the Italian Government agreed to a temporary curtailment of the Fusina smelter. As of June 30,
2010, the Fusina smelter was fully curtailed. Additionally, in January 2012, as part of a restructuring of Alcoas global
smelting system, Alcoa announced that it had decided to curtail operations at the Portovesme smelter during the first half
of 2012. In March 2012, Alcoa decided to delay the curtailment of the Portovesme smelter until the second half of 2012
based on negotiations with the Italian government and other stakeholders. In the third quarter of 2012, Alcoa began the
process of curtailing the Portovesme smelter, and it has since been fully curtailed as of November 2012 with all 150,000
mtpy idled. This action may lead to the permanent closure of the Portovesme smelter.
8
In January 2012, Alcoa announced its intentions to partially and temporarily curtail its Avils and La Corua smelters.
The partial curtailments were completed in the first half of 2012. As a result of a modification to the load interruptibility
regime currently in place in the Spanish power market, Alcoa has commenced the restart of a portion (25,000 mtpy
combined for Avils and La Corua) of the capacity previously curtailed in the first half of 2012 in order to meet the
requirements of the modified interruptibility regime. See the Management Discussion and Analysis of Financial
Condition and Results of Operations section for more information.
9
Between June and November 2008, three of Rockdales six potlines were idled as a result of uneconomical power prices.
The remaining three operating lines were idled in November 2008 due to uncompetitive power supply and overall
market conditions. In January 2012, Alcoa announced that it will permanently shut down and demolish two of the six
idled potlines as part of a larger strategy to improve its cost position and competitiveness. The remaining four potlines
(191,000 mtpy) remain idled.
10
Approximately half of one potline at the Intalco smelter remains idled, approximately 45,200 mtpy.
11
One potline at the Wenatchee smelter remains idled, or approximately 41,000 mtpy.
As of December 31, 2012, Alcoa had approximately 591,000 mtpy of idle capacity against total Alcoa Consolidated
Capacity of 4,227,000 mtpy.
All production at the Tennessee smelter was idled in March 2009 due to economic conditions. In January 2012, Alcoa
announced that it would permanently shut down the 215,000 mtpy facility as part of a larger strategy to improve its
cost position and competitiveness. Demolition and remediation are ongoing.
In January 2011, Alcoa and China Power Investment Corporation (CPI) signed a Memorandum of Understanding
(MOU) to collaborate on a broad range of aluminum and energy projects in China and other locations. The projects
under consideration may range from mining, refining, smelting, and aluminum fabrication to collaboration on energy
projects. A new joint venture company, established in November 2012, is discussed below under the Global Rolled
Products segment.
As noted above, Alcoa and Maaden are developing an aluminum smelter in the Kingdom of Saudi Arabia. The smelter
is expected to have an initial capacity of ingot, slab and billet of 740,000 mtpy. First hot metal was produced on
December 12, 2012.
In December 2008, Alcoa and the Brunei Economic Development Board agreed to further extend an existing MOU to
enable more detailed studies into the feasibility of establishing a modern, gas-powered aluminum smelter in Brunei
Darussalam. The MOU extends a memorandum signed originally in 2003. Phase one of the feasibility study will
determine scope and dimensions of the proposed facility, power-delivery strategy, location, as well as an associated
port and infrastructure. At completion of phase one, the parties will determine whether a more detailed phase two study
is warranted. If completed, it is expected that the smelter would have an initial operating capacity of 360,000 mtpy with
the potential for future increase. In 2012, the MOU was further extended to enable determination of feasibility.
In 2007, Alcoa and Greenland Home Rule Government entered into an MOU regarding cooperation on a feasibility
study for an aluminum smelter with a 360,000 mtpy capacity in Greenland. The MOU also encompasses a
15
hydroelectric power system and related infrastructure improvements, including a port. In 2008, Greenlands parliament
allocated funding to support the second phase of joint studies with Alcoa and endorsed that the smelter be located at
Maniitsoq. In 2010, Alcoa and the Greenland Home Rule Government revised the completion dates for feasibility
studies associated with development of the proposed integrated hydro system and aluminum smelter at Maniitsoq to
enable more detailed consideration of aspects of the project related to construction and provision of energy and to
allow the Greenland parliament sufficient time to deliberate and vote on critical aspects of national legislation
concerning the project. The feasibility studies were completed in the fourth quarter of 2011. In December 2012, the
Greenland parliament enacted framework legislation encompassing particular requirements of large scale
developmental projects. The parliament also approved continuation of feasibility studies as described in the MOU.
In the fourth quarter of 2011, Alcoa and the Government of Angola, through the ministries of Energy, Water &
Geology, Mines and Industry, entered into an exclusive MOU regarding cooperation on a feasibility study for an
aluminum smelter in Angola with a 720,000 mtpy capacity. The MOU also encompasses a hydroelectric power system
and power transmission facilities to be built by the Government and a resulting long term power purchase agreement.
The principal business of the Companys Global Rolled Products segment is the production and sale of aluminum
plate, sheet and foil. This segment includes rigid container sheet, which is sold directly to customers in the packaging
and consumer market. This segment also includes sheet and plate used in the aerospace, automotive, commercial
transportation, and building and construction markets.
As noted above, Alcoa and Maaden are developing a rolling mill in the Kingdom of Saudi Arabia. In 2010, the joint
venture entity, Maaden Rolling Company signed project financing for its rolling mill and broke ground on the
construction of the mill. Initial capacity is approximately 380,000 mtpy. The rolling mill is anticipated to start
sometime in 2013. In March 2012, Alcoa and Maaden announced commencement of work to extend the product mix
of their aluminum complex currently under construction, enabling the two companies to include capability for
producing approximately 100,000 metric tons of a wide range of products suitable for further downstream
manufacturing in the complexs product lines. They include automotive heat-treated and non-heat-treated sheet,
building and construction sheet and foil stock sheet. The line is expected to start production at the end of 2014.
As discussed above, in 2011, Alcoa and CPI signed an MOU followed by a Letter of Intent that provides a framework
for the creation of a joint venture which includes a focus on producing high-end fabricated aluminum products in
China. In February 2012, Alcoa and CPI announced that they finalized an agreement to establish a joint venture
company to produce high-end fabricated aluminum products in China. The new joint venture company, Alcoa CPI
Aluminum Investment Co. Ltd., was established in November 2012 and will be majority owned and managed by Alcoa
and based in Shanghai.
In March 2012, the Company broke ground on a $300 million expansion of its Davenport Works plant to meet rising
demand for aluminum from the automotive market. The expansion will create an additional 150 full time jobs in
Davenport once completed. The planned expansion was announced in September 2011 and is expected to be completed
by the end of 2013. An economic development incentive package from the Iowa Department of Economic
Development helped secure the selection of Davenport for the expansion.
On August 31, 2012, Alcoa assumed full control and ownership of Evermore Recycling LLC (Evermore). Evermore
had previously been a joint venture between Alcoa and Novelis Corporation, created for the purpose of used beverage
can procurement.
16
Global Rolled Products Principal Facilities
Country Location
Owners
1
(% Of Ownership) Products
Australia Point Henry Alcoa (100%) Sheet
Yennora Alcoa (100%) Sheet
Brazil Itapissuma Alcoa (100%) Foil Products/Sheet and Plate
China Kunshan Alcoa (70%)
Shanxi Yuncheng Engraving Group (30%)
Sheet and Plate
Qinhuangdao Alcoa (100%) Sheet and Plate
France Castelsarrasin Alcoa (100%) Sheet and Plate
Hungary Szkesfehrvr Alcoa (100%) Sheet and Plate/Slabs and Billets
Italy Fusina Alcoa (100%) Sheet and Plate
Russia Belaya Kalitva Alcoa (100%) Sheet and Plate
Samara Alcoa (100%) Sheet and Plate
Spain Alicante Alcoa (100%) Sheet and Plate
Amorebieta Alcoa (100%) Sheet and Plate
United Kingdom Birmingham Alcoa (100%) Plate
United States Davenport, IA Alcoa (100%) Sheet and Plate
Danville, IL Alcoa (100%) Sheet and Plate
Newburgh, IN Alcoa (100%) Sheet
Hutchinson, KS Alcoa (100%) Sheet and Plate
Lancaster, PA Alcoa (100%) Sheet and Plate
Alcoa, TN Alcoa (100%) Sheet
Texarkana, TX Alcoa (100%) Sheet and Plate
2
1
Facilities with ownership described as Alcoa (100%) are either leased or owned by the Company.
2
The Texarkana rolling mill facility has been idle since September 2009 due to a continued weak outlook in common
alloy markets.
This segment represents Alcoas downstream operations and includes titanium, aluminum, and super alloy investment
castings; forgings and fasteners; aluminum wheels; integrated aluminum structural systems; and architectural
extrusions used in the aerospace, automotive, building and construction, commercial transportation, and power
generation markets. These products are sold directly to customers and through distributors. Additionally, hard alloy
extrusions products, which are also sold directly to customers and through distributors, serve the aerospace,
automotive, commercial transportation, and industrial products markets.
In 2012, Alcoa announced that it will expand its aluminum lithium capacity and capabilities and began construction of a
greenfield state-of-the-art facility adjacent to Alcoas Lafayette, Indiana plant. When completed the facility will produce
more than 20,000 metric tons of aluminum lithium and be capable of casting round and rectangular ingot for rolled,
extruded and forged applications. The facility is expected to cast its first aluminum lithium ingots by the end of 2014.
Alcoa is also expanding production at Alcoas Technical Center in Alcoa Center, PA and Alcoas Kitts Green plant in the
United Kingdom where upgrades undertaken in 2012 will create additional aluminum lithium casting capacity.
17
Engineered Products and Solutions Principal Facilities
Country Facility
Owners
1
Australia Oakleigh Alcoa (100%) Fasteners
Canada Georgetown, Ontario Alcoa (100%) Aerospace Castings
Laval, Qubec Alcoa (100%) Aerospace Castings
Lethbridge, Alberta Alcoa (100%) Architectural Products
Pointe Claire, Quebec Alcoa (100%) Architectural Products
Vaughan, Ontario Alcoa (100%) Architectural Products
China Suzhou Alcoa (100%) Fasteners/Forgings and Extrusions
France Dives sur Mer Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
Evron Alcoa (100%) Aerospace and Specialty Castings
Gennevilliers Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
Gurande Alcoa (100%) Architectural Products
Lzat-Sur-Lze Alcoa (100%) Architectural Products
Merxheim Alcoa (100%) Architectural Products
Montbrison Alcoa (100%) Fasteners
St. Cosme-en-Vairais Alcoa (100%) Fasteners
Toulouse Alcoa (100%) Fasteners
Us par Vigny Alcoa (100%) Fasteners
Vendargues Alcoa (100%) Architectural Products
Germany Hannover Alcoa (100%) Extrusions
Hildesheim-Bavenstedt Alcoa (100%) Fasteners
Iserlohn Alcoa (100%) Architectural Products
Kelkheim Alcoa (100%) Fasteners
Hungary Nemesvmos Alcoa (100%) Fasteners
Szkesfehrvr Alcoa (100%) Aerospace and Industrial Gas Turbine Castings/
Forgings
Japan Joetsu City Alcoa (100%) Forgings
Nomi Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
Netherlands Harderwijk Alcoa (100%) Architectural Products
Mexico Ciudad Acua Alcoa (100%) Aerospace Castings/Fasteners
Monterrey Alcoa (100%) Forgings
Morocco Casablanca Alcoa (100%) Fasteners
Russia Belaya Kalitva
2
Alcoa (100%) Extrusions and Forgings
Samara
2
Alcoa (100%) Extrusions and Forgings
South Korea Kyoungnam Alcoa (100%) Extrusions
Spain Irutzun Alcoa (100%) Architectural Products
United Kingdom Exeter Alcoa (100%) Aerospace and Industrial Gas Turbine Castings/
Alloy
Leicester Alcoa (100%) Fasteners
Redditch Alcoa (100%) Fasteners
Runcorn Alcoa (100%) Architectural Products
Telford Alcoa (100%) Fasteners
18
Country Facility
Owners
1
United States Springdale, AR Alcoa (100%) Architectural Products
Chandler, AZ Alcoa (100%) Extrusions
Tucson, AZ Alcoa (100%) Fasteners
Carson, CA Alcoa (100%) Fasteners
City of Industry, CA Alcoa (100%) Fasteners
Fullerton, CA Alcoa (100%) Fasteners
Newbury Park, CA Alcoa (100%) Fasteners
Sylmar, CA Alcoa (100%) Fasteners
Torrance, CA Alcoa (100%) Fasteners
Visalia, CA Alcoa (100%) Architectural Products
Branford, CT Alcoa (100%) Aerospace Coatings
Winsted, CT Alcoa (100%) Aerospace Machining
Eastman, GA Alcoa (100%) Architectural Products
Auburn, IN Alcoa (100%) Extrusions
Lafayette, IN Alcoa (100%) Extrusions
LaPorte, IN Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
Baltimore, MD Alcoa (100%) Extrusions
Whitehall, MI Alcoa (100%) Aerospace/Industrial Gas Turbine Castings/
Coatings/Ti Alloy and Specialty Products
Dover, NJ Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
and Alloy
Kingston, NY Alcoa (100%) Fasteners
Massena, NY Alcoa (100%) Extrusions
Barberton, OH Alcoa (100%) Forgings/Ingot Castings
Chillicothe, OH Alcoa (100%) Forgings
Cleveland, OH Alcoa (100%) Forgings
Alcoa Center, PA Alcoa (100%) Ingot Castings
Bloomsburg, PA Alcoa (100%) Architectural Products
Cranberry, PA Alcoa (100%) Architectural Products
Morristown, TN Alcoa (100%) Aerospace and Industrial Gas Turbine Ceramic
Products
Waco, TX Alcoa (100%) Fasteners
Wichita Falls, TX Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
Hampton, VA Alcoa (100%) Aerospace and Industrial Gas Turbine Castings
1
Facilities with ownership described as Alcoa (100%) are either leased or owned by the Company.
2
The operating results of this facility are reported in the Global Rolled Products segment.
Corporate Facilities
The Latin American soft alloy extrusions business is reported in Corporate Facilities. For more information, see Note Q
to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data).
19
Latin American Extrusions Facilities
Country Facility
Owners
1
Brazil Itapissuma Alcoa (100%) Extrusions
Utinga Alcoa (100%) Extrusions
Tubaro Alcoa (100%) Extrusions
1
Facilities with ownership described as Alcoa (100%) are owned by the Company.
Sources and Availability of Raw Materials
The major raw materials purchased in 2012 for each of the Companys reportable segments are listed below.
Alumina Global Rolled Products
Bauxite Alloying materials
Caustic soda Aluminum scrap
Electricity Coatings
Fuel oil Electricity
Lime (CaO) Natural gas
Natural gas Primary aluminum (ingot, billet, P1020, high purity)
Steam
Primary Metals Engineered Products and Solutions
Alloying materials Alloying materials
Alumina Electricity
Aluminum fluoride Natural gas
Calcined petroleum coke Nickel
Cathode blocks Primary aluminum (ingot, billet, P1020, high purity)
Electricity Resin
Liquid pitch Stainless Steel
Natural gas Steel
Titanium
Generally, other materials are purchased from third party suppliers under competitively-priced supply contracts or
bidding arrangements. The Company believes that the raw materials necessary to its business are and will continue to
be available.
For each metric ton of alumina produced, Alcoa consumes the following amounts of the identified raw material inputs
(approximate range across relevant facilities):
Raw Material Units Consumption per MT of Alumina
Bauxite mt 2.5 3.8
Caustic soda kg 50 100
Electricity kWh 192 273 (global average of 234)
Fuel oil and natural gas GJ 7 12
Lime (CaO) kg 11 50
20
For each metric ton of aluminum produced, Alcoa consumes the following amounts of the identified raw material
inputs (approximate range across relevant facilities):
Raw Material Units Consumption per MT of Aluminum
Alumina mt 1.92 0.02
Aluminum fluoride kg 16.5 6.5
Calcined petroleum coke mt 0.36 0.02
Cathode blocks mt 0.006 0.002
Electricity kWh 12.9 17.0
Liquid pitch mt 0.10 0.03
Natural gas mcf 2.01.0
Explanatory Note: Certain aluminum produced by Alcoa also includes alloying materials. Because of the number of
different types of elements that can be used to produce alloy aluminum products, providing a range of such elements
would not be meaningful. With the exception of a very small number of internally used products, Alcoa produces its
alloys in adherence to an Aluminum Association standard. The Aluminum Association, of which Alcoa is an active
member, uses a specific designation system to identify alloy types. In general, each alloy type has a major alloying
element other than aluminum but will also have other constituents as well, but of lesser amounts.
Energy
Employing the Bayer process, Alcoa refines alumina from bauxite ore. Alcoa then produces aluminum from the alumina
by an electrolytic process requiring substantial amounts of electric power. Energy accounts for approximately 25% of the
Companys total alumina refining production costs. Electric power accounts for approximately 26% of the Companys
primary aluminum production costs. Alcoa generates approximately 20% of the power used at its smelters worldwide and
generally purchases the remainder under long-term arrangements. The paragraphs below summarize the sources of power
and the long-term power arrangements for Alcoas smelters and refineries.
North America Electricity
The Deschambault, Baie Comeau, and Bcancour smelters in Qubec purchase electricity under existing contracts that
run through 2015, which will be followed by long-term contracts with Hydro-Qubec first executed in December 2008,
revised in 2012 and expiring in 2040, provided that Alcoa completes the modernization of the Baie Comeau smelter by
September 2016. The smelter located in Baie Comeau, Qubec has historically purchased approximately 65% of its
power needs under the Hydro-Qubec contract, receiving the remainder from a 40% owned hydroelectric generating
company, Manicouagan Power Limited Partnership (MPLP). Beginning on January 1, 2011, these percentages changed
such that approximately 80% is sourced from Hydro-Qubec, with the remaining 20% from MPLP.
The Companys wholly-owned subsidiary, Alcoa Power Generating Inc. (APGI), generates approximately 29% of the
power requirements for Alcoas smelters operating in the U.S. The Company generally purchases the remainder under
long-term contracts. APGI owns and operates the Yadkin hydroelectric project, consisting of four dams in North
Carolina. In November 2012, APGI finalized the sale of its Tapoco Hydroelectric Project to Brookfield Renewable
Energy Partners.
The relicensing process continues for Yadkin. In 2007, APGI filed with the Federal Energy Regulatory Commission
(FERC) a Relicensing Settlement Agreement with the majority of the interested stakeholders that broadly resolved
open issues. The National Environmental Policy Act process is complete, with a final environmental impact statement
having been issued in April 2008. The remaining requirement for the relicensing was the issuance by North Carolina of
the required water quality certification under Section 401 of the Clean Water Act. The Section 401 water quality
certification was issued on May 7, 2009, but was appealed, and has been stayed since late May 2009 pending
substantive determination on the appeal. On December 1,
21
2010, APGI received notice from North Carolina of its revocation of the Section 401 water quality certification, and
APGI appealed the revocation. In September 2012, the North Carolina administrative law judge dismissed without
prejudice the revocation appeal, and APGI filed a new application for a 401 certificate. This enables APGI to have a
fresh start to the 401 application process, and the state is required to act on the application within one year, or it is
deemed granted. APGI received a year-to-year license renewal from FERC in May 2008, and will continue to operate
under annual licenses until a new Section 401 certification is issued and the FERC relicensing process is complete.
Since the permanent closure of the Badin, North Carolina smelter, power generated from APGIs Yadkin system is
largely being sold to an affiliate, Alcoa Power Marketing LLC, and then sold into the wholesale market. Proceeds from
sales to the wholesale market are used to offset higher priced power contracts at other U.S. operations.
APGI generates substantially all of the power used at the Companys Warrick smelter using nearby coal reserves. Since
May 2005, Alcoa has owned the nearby Friendsville, Illinois coal reserves, with the mine being operated by Vigo Coal
Company, Inc. The mine is producing approximately one million tons of coal per year. In June 2011, the Red Brush
West Mine, owned by Alcoa and operated by Vigo Coal, was opened and produced approximately 60,000 tons per
month over an eighteen-month period. In 2012, the two owned mines provided approximately 85% of the Warrick
power plants requirements. The balance of the coal used is purchased principally from local Illinois Basin coal
producers pursuant to term contracts of varying duration. Red Brush West Mine will halt production in the first quarter
of 2013. Liberty Mine, owned by Alcoa and operated by Vigo Coal, will begin producing coal in the second quarter of
2013 and will be a one million ton per year mine. Friendsville and Liberty Mines will combine to supply 95% of the
power plants future needs.
In the State of Washington, Alcoas Wenatchee smelter operates under a contract with Chelan County Public Utility
District (Chelan PUD) under which Alcoa receives approximately 26% of the hydropower output of Chelan PUDs
Rocky Reach and Rock Island dams.
For the period from December 22, 2009 to December 31, 2012, Alcoa and the Bonneville Power Administration (BPA)
operated under a contract providing for the sale of physical power to the Intalco smelter at the Northwest Power Act
mandated industrial firm power (IP) rate. On January 1, 2013, a new contract executed between Alcoa and BPA
became effective, under which Alcoa receives physical power at the IP rate through September 30, 2022.
Prior to 2007, power for the Rockdale smelter in Texas was historically supplied from Company-owned generating
units and units owned by Luminant Generation Company LLC (formerly TXU Generation Company LP) (Luminant),
both of which used lignite supplied by the Companys Sandow Mine. Upon completion of lignite mining in the Sandow
Mine in 2005, lignite supply transitioned to the formerly Alcoa-owned Three Oaks Mine. The Company retired its
three wholly-owned generating units at Rockdale (Sandow Units 1, 2 and 3) in late 2006, and transitioned to an
arrangement under which Luminant is to supply all of the Rockdale smelters electricity requirements under a long-
term power contract that does not expire until at least the end of 2038, with the parties having the right to terminate the
contract after 2013 if there has been an unfavorable change in law or after 2025 if the cost of the electricity exceeds the
market price. In August 2007, Luminant and Alcoa closed on the definitive agreements under which Luminant has
constructed and operates a new circulating fluidized bed power plant (Sandow Unit 5) adjacent to the existing Sandow
Unit 4 and, in September 2007, on the sale of Three Oaks Mine to Luminant. Concurrent with entering into the
agreements under which Luminant constructed and operates Sandow Unit 5, Alcoa and Luminant entered into a power
purchase agreement whereby Alcoa purchased power from Luminant. That Sandow Unit 5 power purchase agreement
was terminated by Alcoa, effective December 1, 2010. In June 2008, Alcoa temporarily idled half of the capacity at the
Rockdale smelter and in November 2008 curtailed the remainder of Rockdales smelting capacity. In late 2011, Alcoa
announced that it would permanently close two of the six idled potlines at its Rockdale, Texas smelter. Demolition and
remediation activities related to these actions began in the first half of 2012 and are expected to be completed in 2013.
In August 2012, Alcoa and the Lower Colorado River Authority (LCRA) announced that they had entered into an
agreement whereby Alcoa will sell to LCRA all of the real estate associated with the Rockdale location, along with all
of Alcoas surface and groundwater rights and certain plant and equipment assets (other than the smelter and atomizer),
and assign Alcoas power contracts with Luminant to LCRA. LCRA is currently conducting due diligence associated
with the proposed transaction. If consummated, closing is expected to occur prior to September 2013.
22
In the northeast, the purchased power contracts for both the Massena East and Massena West smelters in New York
expire December 31, 2013, subject to their terms and conditions. In December 2007, Alcoa and The New York Power
Authority (NYPA) reached agreement in principle on a new energy contract to supply the Massena East and Massena
West smelters for 30 years, beginning on January 1, 2014, following an amendment in January 2011. The definitive
agreement implementing this arrangement became effective February 24, 2009. A subsequent amendment, providing
Alcoa additional time to complete the design and engineering work for its Massena East modernization plan, and
providing for the return of 256 megawatts (MW) of power to NYPA while Massena East was idled, was entered into
effective April 16, 2009 and was superseded by the January 2011 amendment. Implementation of the Massena East
modernization plan is subject to further approval of the Alcoa Board of Directors. Alcoa restarted production at
Massena East in the first quarter of 2011.
The Mt. Holly smelter in South Carolina purchases electricity from Santee Cooper under a contract that was amended
and restated in 2012, and expires December 31, 2015. The contract includes a provision for follow-on service at the
then current rate schedule for industrial customers.
Australia Electricity
Power is generated from extensive brown coal deposits covered by a long-term mineral lease held by AofA, and that
power currently provides approximately 40% of the electricity for the AofAs Point Henry smelter. The State
Electricity Commission of Victoria (SECV) provides the remaining power for this smelter, and all power for the
Portland smelter, under contracts with AofA and Eastern Aluminium (Portland) Pty Ltd, a wholly-owned subsidiary of
AofA, in respect of its interest in Portland, that extend to 2014 and 2016, respectively. Upon the expiration of these
contracts both smelters will purchase power from the Australian National Energy Market (NEM) variable spot market.
In March 2010, AofA and Eastern Aluminium (Portland) Pty Ltd (in respect of the Portland Smelter only) separately
entered into fixed for floating swap contracts with Loy Yang Power in order to manage exposure to variable energy
rates from the NEM for the Point Henry and Portland smelters. The contracts commence from the date of expiration of
the current contracts with the SECV and are in place until December 2036.
Brazil Electricity
The Alumar smelter is partially supplied by Eletronorte (Centrais Eltricas do Norte do Brasil S.A.) under a long-term
power purchase agreement originally expiring in December 2024. Eletronorte has supplied the Alumar smelter from
the beginning of its operations in 1984. Since 2006, Alcoa Alumnio S.A.s (Alumnio) remaining power needs for the
smelter are supplied from self-generated energy. In March 2012, the Eletronorte contract supply was reduced from 423
MW to 263 MW and will be further reduced to 200 MW in January 2014. In March 2012, Aluminio declared that the
Electronorte contract will be terminated by March 2014 and alternatives for supplying the remaining power needs of
both smelters are being analyzed.
Alumnio owns a 30.99% stake in MaesaMachadinho Energtica S.A., which is the owner of 83.06% of the
Machadinho hydroelectric power plant located in southern Brazil. Alumnios share of the plants output is supplied to
the Poos de Caldas smelter, and is sufficient to cover 55% of its operating needs.
Alumnio has a 42.18% interest in Energtica Barra Grande S.A.BAESA, which built the Barra Grande hydroelectric
power plant in southern Brazil. Alumnios share of the power generated by BAESA covers the remaining power needs
of the Poos de Caldas smelter and, as noted above, a portion of the power needs of Alumnios interest in the Alumar
smelter.
Alumnio also has 34.97% share in Serra do Faco in the southeast of Brazil, which began commercial generation in
August 2010. Alumnios share of the Serra do Faco output is currently being sold in the market. Power from Serra do
Facao will replace Electronorte starting January 1, 2014 when the existing contract will be further reduced by 60 MW.
Until then, power from Serra do Facao will be sold externally to the market.
23
Alumnio is also participating in the Estreito hydropower project in northern Brazil, holding a 25.49% share. Four out
of its eight generation units began commercial operation in 2011. Three additional units began operation in 2012, and
the remaining unit is expected to begin commercial operation by March 2013. Aluminios share of the plants output is
supplied to the Alumar smelter which replaced the 160 MW Electronorte power contract reduction on March 26, 2012.
With Machadinho, Barra Grande, Serra do Faco and Estreito, Alumnios current power self-sufficiency is
approximately 70%, to meet a total energy demand of approximately 690 MW from Brazilian primary aluminum
plants.
Consortia in which Alumnio participates have received concessions for the Pai Quer hydropower project in southern
Brazil (Alumnios share is 35%) and the Santa Isabel hydropower project in northern Brazil (Alumnios share is
20%). Development of these concessions has not yet begun.
Europe Electricity
Until December 31, 2005, the Company purchased electricity for its smelters at Portovesme and Fusina, Italy under a
power supply structure approved by the European Commission (EC) in 1996. That measure provided a competitive
power supply to the primary aluminum industry and was not considered state aid from the Italian Government. In 2005,
Italy granted an extension of the regulated electricity tariff that was in force until December 31, 2005 through
November 19, 2009. (The extension was originally through 2010, but the date was changed by legislation adopted by
the Italian Parliament effective on August 15, 2009). In July 2006, the EC announced that it had opened an
investigation to establish whether the extension of the regulated electricity tariff granted by Italy complied with
European Union (EU) state aid rules. On November 19, 2009, the EC announced a decision in its investigation, stating
that the extension of the tariff by Italy constituted unlawful state aid, in part, and ordered the Italian government to
recover a portion of the benefit Alcoa received since January 2006 (including interest). On April 19, 2010, Alcoa filed
an appeal against the decision of the EC with the European General Court. Additionally on May 22, 2010, Alcoa filed
an application for interim measures (suspension of decision) in connection with the EC at the European General Court.
On July 12, 2010, the European General Court dismissed the request for interim measures due to lack of urgency.
Alcoa appealed this ruling on September 10, 2010. This appeal was dismissed by the European Court of Justice on
December 16, 2011. On February 25, 2010, the Italian government issued a decree law (No.3 2010) implementing a
request from the electrical transmission system operator to reinforce the level of system security on the islands of Sicily
and Sardinia. The decree law provides the means for end-consumers to provide and, be paid for, interruptible services
up to December 31, 2012. On May 26, 2010, the EC ruled that the scheme introduced by the decree law to be a non-
aid. Alcoa applied for and gained rights to sell this service in Sardinia from the Portovesme smelter. Additional details
about this matter are in Part I, Item 3 (Legal Proceedings) of this report. On July 29, 2010, Alcoa reached agreement
with a power supplier to enter into a new contract expiring on December 31, 2012. This arrangement would have
enabled operation of the Portovesme smelter through December 31, 2012. In January 2012, Alcoa announced that it
decided to curtail operations at its Portovesme smelter. This curtailment was completed in November 2012. This
curtailment may lead to the permanent closure of the facility. Additionally, in 2010, the Fusina smelter was temporarily
curtailed due to high energy costs. As of June 30, 2010, the Fusina smelter was fully curtailed.
Alcoas smelters at San Ciprin, La Corua and Avils, Spain purchase electricity under bilateral power contracts. The
contracts that commenced in May 2009 expired on December 31, 2012 and have been replaced with new bilateral
contracts commencing on January 1, 2013. The contracts for San Ciprin and Avils smelters each have a 4 year term.
The contract for the La Corua smelter is for a single year. Prior to the establishment of power supply under the
bilateral contracts, Alcoa was supplied under a regulated power tariff. On January 25, 2007, the EC announced that it
has opened an investigation to establish whether the regulated electricity tariffs granted by Spain comply with EU state
aid rules. Alcoa operated in Spain for more than ten years under a power supply structure approved by the Spanish
Government in 1986, an equivalent tariff having been granted in 1983. The investigation is limited to the year 2005 and
it is focused both on the energy-intensive consumers and the distribution companies. It is Alcoas understanding that
the Spanish tariff system for electricity is in conformity with all applicable laws and regulations, and therefore no state
aid is present in that tariff system. A decision by the EC has not yet been made. If the ECs investigation concludes that
24
the regulated electricity tariffs for industries are unlawful, Alcoa will have an opportunity to challenge the decision in
the EU courts. Due to the high cost position of the La Corua and Avils smelters, combined with rising raw material
costs and falling aluminum prices, in early January 2012, Alcoa announced its intentions to partially and temporarily
curtail its La Corua and Avils, Spain smelters. The partial curtailments were completed in the first half of 2012. As a
result of a modification to the load interruptibility regime currently in place in the Spanish power market, Alcoa has
commenced the restart of a portion (25,000 mpty combined for Avils and La Corua) of the capacity previously
curtailed in the first half of 2012 to meet the requirements of the modified interruptibility regime. See the
Managements Discussion and Analysis of Financial Condition and Results of Operations section for more
information.
In March 2009, Alcoa and Orkla ASA exchanged respective stakes in the Sapa AB and Elkem Aluminium ANS
companies. Pursuant to the exchange, Alcoa assumed 100% ownership of the two smelters in Norway, Lista and
Mosjen, at the end of the first quarter of 2009. These smelters have long-term power arrangements in place which
continue until at least 2019.
Iceland Electricity
Alcoas Fjaral smelter in eastern Iceland began operation in 2007. Central to those operations is a forty-year power
contract under which Landsvirkjun, the Icelandic national power company, built the Krahnjkar dam and hydro-
power project, and supplies competitively priced electricity to the smelter. In late 2009, Iceland imposed two new taxes
on power intensive industries, both for a period of three years, from 2010 through 2012. One tax is based on energy
consumption; the other is a pre-payment of certain other charges, and will be recoverable from 2013 through 2015. In
2012, Iceland extended the energy consumption tax though 2015.
North America Natural Gas
In order to supply its refineries and smelters in the U.S. and Canada, Alcoa generally procures natural gas on a
competitive bid basis from a variety of sources including producers in the gas production areas and independent gas
marketers. For Alcoas larger consuming locations in Canada and the U.S., the gas commodity and the interstate
pipeline transportation are procured to provide increased flexibility and reliability. Contract pricing for gas is typically
based on a published industry index or New York Mercantile Exchange (NYMEX) price. The Company may choose to
reduce its exposure to NYMEX pricing by hedging a portion of required natural gas consumption.
Australia Natural Gas
AofA holds a 20% equity interest in a consortium that bought the Dampier-to-Bunbury natural gas pipeline in October
2004. This pipeline transports gas from the northwest gas fields to AofAs alumina refineries and other users in the
Southwest of Western Australia. AofA uses gas to co-generate steam and electricity for its alumina refining processes
at the Kwinana, Pinjarra and Wagerup refineries. Approximately 85% of AofAs gas supplies are under long-term
contract out to 2020. AofA is progressing multiple supply options to replace expiring contracts, including investing
directly in projects that have the potential to deliver cost-based gas.
25
Energy Facilities
The following table sets forth the electricity generation capacity and 2012 generation of Company-owned facilities:
Country Facility
Alcoa Consolidated Capacity
(MW) 2012 Generation (MWh)
Australia Anglesea 150 1,253,000
Brazil Barra Grande 161 785,000
Estreito 159 1,063,000
Machadinho 119 756,000
Serro do Faco 64 385,000
Canada Manicouagan 132 1,161,000
Suriname Afobaka 156 1,114,000
United States Warrick 524 4,364,000
Yadkin 215 595,000
TOTAL 1,680 11,477,000
Patents, Trade Secrets and Trademarks
The Company believes that its domestic and international patent, trade secret and trademark assets provide it with a
significant competitive advantage. The Companys rights under its patents, as well as the products made and sold under
them, are important to the Company as a whole and, to varying degrees, important to each business segment. The
patents owned by Alcoa generally concern particular products or manufacturing equipment or techniques. Alcoas
business as a whole is not, however, materially dependent on any single patent, trade secret or trademark.
The Company has a number of trade secrets, mostly regarding manufacturing processes and material compositions that
give many of its businesses important advantages in their markets. The Company continues to strive to improve those
processes and generate new material compositions that provide additional benefits.
The Company also has a number of domestic and international registered trademarks that have significant recognition
within the markets that are served. Examples include the name Alcoa and the Alcoa symbol for aluminum products,
Howmet metal castings, Huck
fasteners, Kawneer
building panels and Dura-Bright
wheels with easy-clean surface

treatments. The Companys rights under its trademarks are important to the Company as a whole and, to varying
degrees, important to each business segment.
Competitive Conditions
Alcoa is subject to highly competitive conditions in all aspects of its aluminum and non-aluminum businesses.
Competitors include a variety of both U.S. and non-U.S. companies in all major markets. Price, quality, and service are
the principal competitive factors in Alcoas markets. Where aluminum products compete with other materialssuch as
steel and plastics for automotive and building applications; magnesium, titanium, composites, and plastics for
aerospace and defense applicationsaluminums diverse characteristics, particularly its light weight, recyclability, and
flexibility are also significant factors. For Alcoas segments that market products under Alcoas brand names, brand
recognition, and brand loyalty also play a role. In addition Alcoas competitive position depends, in part, on the
Companys access to an economical power supply to sustain its operations in various countries.
Research and Development
Alcoa, a technology leader in the aluminum industry, engages in research and development programs that include
process and product development, and basic and applied research. Expenditures for research and development (R&D)
activities were $197 million in 2012, $184 million in 2011, and $174 million in 2010.
26
Most of the major process areas within the Company have a Technology Management Review Board (TMRB) or
Center of Excellence (CoE) consisting of members from various worldwide locations. Each TMRB or CoE is
responsible for formulating and communicating a technology strategy for the corresponding process area, developing
and managing the technology portfolio and ensuring the global transfer of technology. Alternatively, certain business
units conduct these activities and research and development programs within the worldwide business unit, supported by
the Alcoa Technical Center (ATC). Technical personnel from the TMRBs, ATC and such business units also
participate in the corresponding Market Sector Teams. In this manner, research and development activities are aligned
with corporate and business unit goals.
During 2012, the Company continued to work on new developments for a number of strategic projects in all business
segments. In Primary Metals, progress was made on inert anode technology with tests carried out on a pilot scale.
Progress has been successful in many respects as a result of full pot testing of anode assemblies, although there remain
technical and cost targets to achieve. If the technology proves to be commercially feasible, the Company believes that
it would result in significant operating cost savings, and generate environmental benefits by reducing certain emissions
and eliminating carbon dioxide. No timetable has been established for commercial use. The Company is also
continuing to develop the carbothermic aluminum process, which is in the research and development phase. The
technology holds the potential to produce aluminum at a lower cost, driven by reduced conversion costs, lower energy
requirements and lower emissions at a lower capital cost than traditional smelting.
The Company continued its progress leveraging new science and technologies in 2012. For example, riblets that reduce
aerodynamic drag have been analyzed and produced on a test basis. Self-cleaning nano coatings have been
demonstrated on building products (an example of such was commercialized in 2011 as EcoClean, which is the worlds
first coil-coated aluminum architectural panel that helps clean itself and the air around it). Energy saving sensing
devices are being integrated in Company manufacturing plants. Integrated thermal management products for consumer
electronics have been developed and are being validated by our customers.
A number of products were commercialized in 2012 including new fasteners, aluminum lithium (Al-Li) and more
traditional 7xxx series alloys for various aerospace applications, numerous innovations in the building and construction
market for enhanced thermal performance and increased functionality. The Company continues to develop its
Micromill
TM
technology and ran numerous customer trials in the rigid container sheet (RCS) and packaging markets.
There has been considerable progress in the development of next generation commercial truck wheels. The Company
has also continued to externally license technology including the A951 pretreatment technology, shaping technology,
and Colorkast
TM
products for the consumer electronics segment.
Alcoas research and development focus is on product development to support sustainable, profitable growth;
manufacturing technologies to improve efficiencies and reduce costs; and environmental risk reductions.
Environmental technologies continue to be an area of focus for the Company, with projects underway that address
emissions reductions, the reduction of spent pot lining, advanced recycling, and the beneficial use of bauxite residue.
As a result of product development and technological advancement, the Company continues to pursue patent protection
in jurisdictions throughout the world. At the end of 2012, the Companys worldwide patent portfolio consisted of 870
pending patent applications and 1,895 granted patents.
Environmental Matters
Information relating to environmental matters is included in Note N to the Consolidated Financial Statements under the
caption Environmental Matters on pages 119-122.
Employees
Total worldwide employment at the end of 2012 was approximately 61,000 employees in 30 countries. About 34,000
of these employees are represented by labor unions. The Company believes that relations with its employees and any
applicable union representatives generally are good.
27
In the U.S., approximately 9,600 employees are represented by various labor unions. The largest of these is the master
collective bargaining agreement between Alcoa and the United Steelworkers (USW). This agreement covers 10
locations and approximately 6,200 U.S. employees. It expires on May 15, 2014. There are 17 other collective
bargaining agreements in the U.S. with varying expiration dates. Collective bargaining agreements with varying
expiration dates also cover approximately 6,300 employees in Europe, 4,300 employees in Russia, 6,750 employees in
Central and South America, 3,900 employees in Australia, 1,200 employees in China and 2,200 employees in Canada.
Executive Officers of the Registrant
The names, ages, positions and areas of responsibility of the executive officers of the Company as of February 15,
2013 are listed below.
Nicholas J. Ashooh, 58, Vice President, Corporate Affairs. Mr. Ashooh was elected to his current position upon
joining Alcoa in January 2010. Before joining Alcoa, he was Senior Vice PresidentCommunications of American
International Group, Inc. (AIG), a leading international insurance organization, from September 2006 to January 2010.
Prior to AIG, he held executive communication positions in the electric utility industry as Senior Vice President,
Corporate Communications of American Electric Power Service Corporation (2000 to 2006); Vice President, Public
Affairs and Corporate Communications of Niagara Mohawk Power Corporation (1992 to 2000); and Director,
Corporate Communications of Public Service of New Hampshire (1978 to 1990). From 1990 to 1992, he was Vice
President, Corporate Communications of Paramount Communications Inc., a global entertainment and publishing
company.
Chris L. Ayers, 46, Executive Vice PresidentAlcoa and Group President, Global Primary Products. Mr. Ayers was
elected an Alcoa Executive Vice President in August 2010 and was named Group President, Global Primary Products
effective May 18, 2011. He served as Chief Operating Officer of Global Primary Products from August 2010 to May 18,
2011. He was elected a Vice President of Alcoa in April 2010. Mr. Ayers joined Alcoa in February 2010 as Chief
Operating Officer, Alcoa Cast, Forged and Extruded Products. Before joining Alcoa, from 1999 through December 2008,
Mr. Ayers served in various management roles at Precision Castparts Corp., including as Executive Vice President from
May 2006 to July 2008, PresidentPCC Forgings Division from December 2006 to July 2008, PresidentWyman
Gordon Forgings from 2004 to December 2006, and Vice President/General Manager from 2003 to 2004.
Michael T. Barriere, 50, Vice President, Human Resources. Mr. Barriere was elected to his current position in May
2012. He joined Alcoa in 2011 as Chief Talent Officer. Before coming to Alcoa, Mr. Barriere was Senior Vice
President, Human Resources at New York Life Insurance from 2008 to 2010. Prior to New York Life Insurance, he
held executive human resource positions at Citigroup from 2002 to 2008. From 1995 to 2002, Mr. Barriere had his own
consultancy business, providing corporate clients with training evaluation and leadership development processes.
Graeme W. Bottger, 54, Vice President and Controller. Mr. Bottger was elected to his current position effective
August 1, 2010. He joined Alcoa in 1980 as a product accountant trainee at Alcoas Point Henry facility in Australia
and from that time to his most recent appointment held a series of accounting and financial management positions in
Alcoas Australian smelting, rolling, extrusion, foil and alumina businesses and Alcoas corporate office. Mr. Bottger
was Chief Financial Officer of Alcoas Engineered Products and Solutions business group from 2005 to August 2010.
From 2003 to 2005, he was Vice President, Sales, for Alcoa Home Exteriors. From 2001 to 2003, Mr. Bottger was Vice
President, Finance for Alcoa Home Exteriors. Before his move to the United States in 1999 to accept an assignment in
Alcoas financial analysis and planning department, Mr. Bottger held the position of Chief Financial Officer for
Alcoas joint venture with Kobe Steel, Ltd. in Australia (Kaal Australia Pty. Ltd.).
Olivier M. Jarrault, 51, Executive Vice PresidentAlcoa and Group President, Engineered Products and Solutions.
Mr. Jarrault was elected an Alcoa Executive Vice President effective January 21, 2011 and was named Group President
of Engineered Products and Solutions effective January 1, 2011. He served as Chief Operating Officer of Engineered
Products and Solutions from February 2010 to January 1, 2011. Mr. Jarrault joined Alcoa in 2002 when Alcoa acquired
Fairchild Fasteners from The Fairchild Corporation. He served as President of Alcoa Fastening Systems from 2002 to
February 2010. He was elected a Vice President of Alcoa in November 2006.
28
Klaus Kleinfeld, 55, Director, Chairman of the Board and Chief Executive Officer. Mr. Kleinfeld was elected to
Alcoas Board of Directors in November 2003 and became Chairman on April 23, 2010. He has been Chief Executive
Officer of Alcoa since May 8, 2008. He was President and Chief Executive Officer from May 8, 2008 to April 23,
2010. He was President and Chief Operating Officer of Alcoa from October 1, 2007 to May 8, 2008. Mr. Kleinfeld was
President and Chief Executive Officer of Siemens AG, the global electronics and industrial conglomerate, from
January 2005 to June 2007. He served as Deputy Chairman of the Managing Board and Executive Vice President of
Siemens AG from 2004 to January 2005. He was President and Chief Executive Officer of Siemens Corporation, the
U.S. arm of Siemens AG, from 2002 to 2004.
Charles D. McLane, Jr., 59, Executive Vice President and Chief Financial Officer. Mr. McLane was elected an Alcoa
Executive Vice President in September 2007 and was elected Vice President and Chief Financial Officer of Alcoa in
January 2007. He was elected Vice President and Corporate Controller in October 2002. He joined Alcoa in May 2000
as director of investor relations, following Alcoas merger with Reynolds Metals Company. He became Assistant
Treasurer of Reynolds in 1999 and Assistant Controller of that company in 1995.
Kay H. Meggers, 48, Executive Vice PresidentAlcoa and Group President, Global Rolled Products. Mr. Meggers
was elected an Alcoa Executive Vice President in December 2011. He was named Group President, Global Rolled
Products effective November 14, 2011. Before his most recent appointment, he led Alcoas Business Excellence/
Corporate Strategy resource unit and was also responsible for overseeing Alcoas Asia-Pacific region. He joined Alcoa
in February 2010 as Vice President, Corporate Initiatives, a position responsible for planning and coordinating major
strategic initiatives from enhancing technology and innovation as part of the Alcoa Technology Advantage program to
spearheading growth strategies for China and Brazil. He was elected a Vice President of Alcoa in June 2011. Before
joining Alcoa, Mr. Meggers was Senior Vice President at Siemens U.S. Building Technologies Division and served for
three years as Business Unit Head of Building Automation. In 2006 he served for nine months as Division Head of Fire
Safety, also part of Siemens U.S. Building Technologies Division. Between 2002 and 2005, he served as Vice
President of Strategic Planning at Siemens U.S.
Audrey Strauss, 65, Executive Vice President, Chief Legal and Compliance Officer and Secretary. Ms. Strauss was
elected to her current position upon joining Alcoa in May 2012. Prior to joining Alcoa, she was a senior litigation
partner from 1990 to 2012 at Fried Frank Harris Shriver and Jacobson LLP (Fried Frank), a law firm based in New
York. Prior to her practice at Fried Frank, Ms, Strauss served in the U.S. Attorneys office for the Southern District of
New York from 1975 to 1982, where she was Chief Appellate Attorney and Chief of the Fraud Unit.
On January 4, 2013, Mr. McLane informed the Company that he had decided to retire effective August 1, 2013 after a
40-year career with the Company. On January 8, 2013, the Company announced that William F. Oplinger, 45, will
become Chief Financial Officer of the Company effective April 1, 2013, succeeding Mr. McLane. Mr. Oplinger has
been chief operating officer of the Companys Global Primary Products business since December 2011. He also serves
on the Companys Executive Council, the senior leadership team that sets strategic direction for the Company. Since
joining the Company in 2000, Mr. Oplinger has held key corporate positions in financial analysis and planning and as
director of investor relations. He also has had major assignments in the Companys largest business, Global Primary
Products, including controller, operational excellence director, chief financial officer, and his most recent position as
chief operating officer.
Item 1A. Risk Factors.
Alcoas business, financial condition and results of operations may be impacted by a number of factors. In addition to
the factors discussed elsewhere in this report, the following risks and uncertainties could materially harm our business,
financial condition or results of operations, including causing Alcoas actual results to differ materially from those
projected in any forward-looking statements. The following list of significant risk factors is not all-inclusive or
necessarily in order of importance. Additional risks and uncertainties not presently known to Alcoa or that Alcoa
currently deems immaterial also may materially adversely affect us in future periods.
29
The aluminum industry generally remains highly cyclical and is influenced by a number of factors, including
global economic conditions.
The aluminum industry generally is highly cyclical, and Alcoa is subject to cyclical fluctuations in global economic
conditions and aluminum end-use markets. Alcoa sells many products to industries that are cyclical, such as the
commercial construction and transportation industries, and the demand for our products is sensitive to, and quickly
impacted by, demand for the finished goods manufactured by our customers in these industries, which may change as a
result of changes in the general U.S. or worldwide economy, currency exchange rates, energy prices or other factors
beyond our control. For example, 2012 was a turbulent year in the world economy, characterized by an uneven
recovery in many regions and prolonged volatility and crisis in others, namely Europe, and demand for aluminum was
impacted by this turbulence. While Alcoa believes that the long-term prospects for aluminum remain positive, the
Company is unable to predict the future course of industry variables or the strength, pace or sustainability of the
economic recovery and the effects of government intervention. Negative economic conditions, such as another major
economic downturn, a prolonged recovery period, or disruptions in the financial markets, could have a material adverse
effect on Alcoas business, financial condition or results of operations.
Market-driven balancing of global aluminum supply and demand may be disrupted by non-market forces or
other impediments to production closures.
In response to market-driven factors relating to the global supply and demand of aluminum, Alcoa has recently
curtailed portions of its aluminum production. Certain other aluminum producers have independently undertaken to
make cuts in production as well. However, the existence of non-market forces on global aluminum industry capacity,
such as political pressures in certain countries to keep jobs or to maintain or further develop industry self-sufficiency,
may prevent or delay the closure or curtailment of certain producers smelters, irrespective of their position on the
industry cost curve. Other production cuts may be impeded by long-term contracts to buy power or raw materials. If
industry overcapacity persists due to the disruption by such non-market forces on the market-driven balancing of the
global supply and demand of aluminum, the resulting weak pricing environment and margin compression may
adversely affect the operating results of aluminum producers, including Alcoa.
A reduction in demand, or a lack of increased demand, for aluminum by China, Europe or a combined number
of other countries may negatively impact Alcoas results.
The aluminum industrys demand is highly correlated to economic growth. For example, the ongoing European
sovereign debt crisis has had, and may continue to have, an adverse effect on European supply and demand for
aluminum and aluminum products. The Chinese market is a significant source of global demand for commodities,
including aluminum. A sustained slowdown in Chinas economic growth and aluminum demand that is not offset by
increased aluminum demand in emerging economies, such as India, Brazil, and several South East Asian countries, or
the combined slowdown of other markets, could have an adverse effect on the global supply and demand for aluminum
and aluminum prices. A reduction in demand, or a lack of increased demand, in global markets could materially harm
Alcoas business, financial condition or results of operations.
Alcoa could be materially adversely affected by declines in aluminum prices.
The price of aluminum is frequently volatile and changes in response to general economic conditions, expectations for
supply and demand growth or contraction, and the level of global inventories. The influence of hedge funds and other
financial institutions participating in commodity markets has also increased in recent years, contributing to higher
levels of price volatility. In 2012, the LME price of aluminum reached a high of approximately $2,300 per metric ton
and a low of approximately $1,800 per metric ton. Declines in the LME price have had a negative impact on Alcoas
results of operations. Continued high LME inventories could lead to a reduction in the price of aluminum. A sustained
weak aluminum pricing environment or a deterioration in aluminum prices could have a material, adverse effect on
Alcoas business, financial condition, results of operations or cash flow.
30
Alcoas operations consume substantial amounts of energy; profitability may decline if energy costs rise or if
energy supplies are interrupted.
Alcoas operations consume substantial amounts of energy. Although Alcoa generally expects to meet the energy
requirements for its alumina refineries and primary aluminum smelters from internal sources or from long-term
contracts, certain conditions could negatively affect Alcoas results of operations, including the following:
significant increases in electricity costs rendering smelter operations uneconomic;
significant increases in fuel oil or natural gas prices;
unavailability of electrical power or other energy sources due to droughts, hurricanes or other natural causes;
unavailability of energy due to energy shortages resulting in insufficient supplies to serve consumers;
interruptions in energy supply or unplanned outages due to equipment failure or other causes;
curtailment of one or more refineries or smelters due to the inability to extend energy contracts upon
expiration or to negotiate new arrangements on cost-effective terms or due to the unavailability of energy at
competitive rates; or
curtailment of one or more smelters due to a regulatory authoritys determination that power supply
interruptibility rights granted to Alcoa under an interruptibility regime in place under the laws of the country
in which the smelter is located do not comply with the regulatory authoritys state aid rules, thus rendering
the smelter operations that had been relying on such countrys interruptibility regime uneconomic.
If events such as those listed above were to occur, the resulting high energy costs or the disruption of an energy source
or the requirement to repay all or a portion of the benefit Alcoa received under a power supply interruptibility regime
could have a material adverse effect on Alcoas business and results of operations.
Alcoas profitability could be adversely affected by increases in the cost of raw materials or by significant lag
effects of decreases in commodity or LME-linked costs.
Alcoas results of operations are affected by changes in the cost of raw materials, including energy, carbon products,
caustic soda and other key inputs, as well as freight costs associated with transportation of raw materials to refining and
smelting locations. Alcoa may not be able to fully offset the effects of higher raw material costs or energy costs
through price increases, productivity improvements or cost reduction programs. Similarly, Alcoas operating results are
affected by significant lag effects of declines in key costs of production that are commodity or LME-linked. For
example, declines in the LME-linked costs of alumina and power during a particular period may not be adequate to
offset sharp declines in metal price in that period. Increases in the cost of raw materials or decreases in input costs that
are disproportionate to concurrent sharper decreases in the price of aluminum could have a material adverse effect on
Alcoas operating results.
Alcoa is exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation, and
other economic factors in the countries in which it operates.
Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates,
competitive factors in the countries in which Alcoa operates, and continued volatility or deterioration in the global
economic and financial environment could affect Alcoas revenues, expenses and results of operations. Changes in the
valuation of the U.S. dollar against other currencies, particularly the Australian dollar, Brazilian real, Canadian dollar,
Euro and Norwegian kroner, may affect Alcoas profitability as some important raw materials are purchased in other
currencies, while the Companys products are generally sold in U.S. dollars.
31
Alcoa may not be able to successfully realize goals established in each of its four business segments, at the levels
or by the dates targeted for such goals.
Alcoa established targets for each of its four major business segments, including the following:
by 2015, driving the alumina business down into the first quartile of the industry cost curve and realizing
profit levels (per mt) that are beyond its recent historic norms;
by 2015, driving the smelting business down into the second quartile of the industry cost curve and
increasing profitability (per mt) beyond the Companys past ten-year average;
by 2013, increasing the revenues of the Global Rolled Products segment by $2.5 billion by growing 50%
faster than the market and achieving performance levels above its historic norms; and
by 2013, increasing the revenues of the Engineered Products and Solutions segment by $1.6 billion, through
market growth, new product introductions, and share gains.
There can be no assurance that any of these initiatives will be completed as anticipated. Market conditions or other
factors may prevent Alcoa from accomplishing its goals at the levels or by the dates targeted, if at all, and failure to do
so may have a material adverse effect on our business, financial condition, results of operations or the market price of
our securities.
Alcoa may not be able to realize expected benefits from its growth projects or from its streamlining portfolio
strategy.
Alcoas growth projects include the joint venture with Maaden in Saudi Arabia, the completed So Lus refinery
expansion, the Juruti bauxite mine and the ongoing Estreito hydroelectric power project in Brazil, the automotive
expansion at the Davenport, Iowa fabrication plant and the China and Russia growth projects. Although management
believes that these projects will be beneficial to Alcoa, there is no assurance that anticipated benefits will be realized.
Adverse factors may prevent Alcoa from realizing the benefits of its growth projects, including unfavorable global
economic conditions, currency fluctuations, or unexpected delays in target timelines.
Alcoa has made, and may continue to plan and execute, acquisitions and divestitures and take other actions to grow or
streamline its portfolio. Alcoa may face barriers to exit from unprofitable businesses or operations, including high exit
costs or objections from various stakeholders. In addition, Alcoa may retain unforeseen liabilities for divested entities
if the buyer fails to honor all commitments. Acquisitions also present significant challenges and risks, including the
effective integration of the business into the Company and unanticipated costs and liabilities, and the Company may be
unable to manage acquisitions successfully. There can be no assurance that acquisitions and divestitures will be
undertaken or completed in their entirety as planned or that they will be beneficial to Alcoa.
Joint ventures and other strategic alliances may not be successful.
Alcoa participates in joint ventures and has formed strategic alliances and may enter into other similar arrangements in
the future. For example, in December 2009, Alcoa formed a joint venture with Maaden, the Saudi Arabian Mining
Company, to develop a fully integrated aluminum complex (including a bauxite mine, alumina refinery, aluminum
smelter and rolling mill) in the Kingdom of Saudi Arabia. In November 2012, Alcoa and China Power Investment
Corporation (CPI) established a joint venture company to produce high-end fabricated aluminum products in China.
Although the Company has, in connection with the Saudi Arabia joint venture and its other existing joint ventures and
strategic alliances, sought to protect its interests, joint ventures and strategic alliances inherently involve special risks.
Whether or not Alcoa holds majority interests or maintains operational control in such arrangements, its partners may:
have economic or business interests or goals that are inconsistent with or opposed to those of the Company;
exercise veto rights so as to block actions that Alcoa believes to be in its or the joint ventures or strategic
alliances best interests;
32
take action contrary to Alcoas policies or objectives with respect to its investments; or
as a result of financial or other difficulties, be unable or unwilling to fulfill their obligations under the joint
venture, strategic alliance or other agreements, such as contributing capital to expansion or maintenance
projects.
In addition, the joint venture with Maaden is subject to risks associated with large infrastructure construction projects,
including the consequences of non-compliance with the timeline and other requirements under the gas supply
arrangements for the joint venture. There can be no assurance that the project as a whole will be completed within
budget or that the project phases will be completed by their targeted completion dates, or that it or Alcoas other joint
ventures or strategic alliances will be beneficial to Alcoa, whether due to the above-described risks, unfavorable global
economic conditions, increases in construction costs, currency fluctuations, political risks, or other factors.
Alcoa faces significant competition, which may have an adverse effect on profitability.
As discussed in Part I, Item 1. (BusinessCompetitive Conditions) of this report, the markets for most aluminum
products are highly competitive. Alcoas competitors include a variety of both U.S. and non-U.S. companies in all
major markets, including some that are subsidized. In addition, aluminum competes with other materials, such as steel,
plastics, composites, and glass, among others, for various applications in Alcoas key markets. The willingness of
customers to accept substitutions for the products sold by Alcoa, the ability of large customers to exert leverage in the
marketplace to affect the pricing for fabricated aluminum products, or other developments by or affecting Alcoas
competitors or customers could affect Alcoas results of operations. In addition, Alcoas competitive position depends,
in part, on the Companys access to an economical power supply to sustain its operations in various countries.
Failure to maintain investment grade credit ratings could limit Alcoas ability to obtain future financing,
increase its borrowing costs, adversely affect the market price of its existing securities, or otherwise impair its
business, financial condition and results of operations.
Alcoas long-term debt is currently rated BBB- with stable outlook by Standard and Poors Ratings Services and BBB-
with stable outlook by Fitch Ratings. Moodys Investors Services rates Alcoas long-term debt at Baa3 but announced
in December 2012 that it has placed Alcoas credit ratings on review for possible downgrade. There can be no
assurance that any rating assigned by a rating agency will remain in effect for any given period of time or that a rating
will not be lowered, suspended or withdrawn entirely by a rating agency, if, in that rating agencys judgment,
circumstances so warrant.
Maintaining an investment-grade credit rating is an important element of Alcoas financial strategy. A downgrade of
Alcoas credit ratings could adversely affect the market price of its securities, adversely affect existing financing, limit
access to the capital or credit markets or otherwise adversely affect the availability of other new financing on favorable
terms, if at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that
the Company incurs, increase the cost of borrowing, or impair its business, financial condition and results of
operations. In addition, under the project financings for the joint venture project in the Kingdom of Saudi Arabia, a
downgrade of Alcoas credit ratings below investment grade by at least two rating agencies would require Alcoa to
provide a letter of credit or fund an escrow account for a portion or all of Alcoas remaining equity commitment to the
joint venture. For additional information regarding the project financings, see Note I to the Consolidated Financial
Statements in Part II, Item 8 (Financial Statements and Supplementary Data) of this report.
Alcoa could be adversely affected by the failure of financial institutions to fulfill their commitments under
committed credit facilities.
As discussed in Part II, Item 7. (Managements Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources) of this report, Alcoa has a committed revolving credit facility with
financial institutions available for its use, for which the Company pays commitment fees. The facility is provided by a
syndicate of several financial institutions, with each institution agreeing severally (and not jointly) to make revolving
33
credit loans to Alcoa in accordance with the terms of the credit agreement. If one or more of the financial institutions
providing the committed credit facility were to default on its obligation to fund its commitment, the portion of the
committed facility provided by such defaulting financial institution would not be available to the Company.
Alcoa may not be able to realize expected benefits from the change to index pricing of alumina.
Alcoa has implemented a move to a pricing mechanism for alumina based on an index of alumina prices rather than a
percentage of the LME-based aluminum price. Alcoa believes that this change, expected to affect approximately 20%
of annual contracts coming up for renewal each year, will more fairly reflect the fundamentals of alumina including
raw materials and other input costs involved. There can be no assurance that such index pricing ultimately will be
accepted or that such index pricing will result in consistently greater profitability from sales of alumina.
Alcoas business and growth prospects may be negatively impacted by reductions in its capital expenditures.
Alcoa requires substantial capital to invest in greenfield and brownfield projects and to maintain and prolong the life
and capacity of its existing facilities. For 2013, Alcoas target is to generate positive cash flow from operations that
will exceed capital spending. Insufficient cash generation may negatively impact Alcoas ability to fund as planned its
sustaining and growth capital projects. Over the long term, Alcoas ability to take advantage of improved aluminum
market conditions may be constrained by earlier capital expenditure restrictions, and the long-term value of its business
could be adversely impacted. The Companys position in relation to its competitors may also deteriorate.
Alcoa may also need to address commercial and political issues in relation to its reductions in capital expenditures in
certain of the jurisdictions in which it operates. If Alcoas interest in its joint ventures is diluted or it loses key
concessions, its growth could be constrained. Any of the foregoing could have a material adverse effect on the
Companys business, results of operations, financial condition and prospects.
Alcoas global operations are exposed to political and economic risks, commercial instability and events beyond
its control in the countries in which it operates.
Alcoa has operations or activities in numerous countries and regions outside the U.S. that have varying degrees of
political and economic risk, including China, Europe, Guinea, Russia, and the Kingdom of Saudi Arabia. Risks include
those associated with sovereign and private debt default, political instability, civil unrest, expropriation,
nationalization, renegotiation or nullification of existing agreements, mining leases and permits, commercial instability
caused by corruption, and changes in local government laws, regulations and policies, including those related to tariffs
and trade barriers, taxation, exchange controls, employment regulations and repatriation of earnings. While the impact
of these factors is difficult to predict, any one or more of them could adversely affect Alcoas business, financial
condition or operating results.
Alcoa could be adversely affected by changes in the business or financial condition of a significant customer or
customers.
A significant downturn or further deterioration in the business or financial condition of a key customer or customers
supplied by Alcoa could affect Alcoas results of operations in a particular period. Alcoas customers may experience
delays in the launch of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their
products, or other difficulties in their businesses. If Alcoa is not successful in replacing business lost from such
customers, profitability may be adversely affected.
Cyber attacks and security breaches may threaten the integrity of Alcoas trade secrets, intellectual property
and other sensitive information, disrupt our business operations, and result in reputational harm and other
negative consequences.
Alcoa faces cybersecurity threats, including threats to its information technology infrastructure and attempts to
misappropriate or compromise its confidential information or that of third parties or create system disruptions. The
34
Company has experienced cybersecurity attacks in the past that attempted to gain unauthorized access to its information
systems to export company-sensitive data, and may experience them in the future, potentially with more frequency or
sophistication. Although its technology security measures have been able to prevent the majority of these attempts from
being successful, the Company is aware of breaches of its systems in which information from its servers has been taken.
The Company continues to investigate these incidents and, based on the information known to date, the Company does
not believe that the theft of the information is material to the Company. However, the impact of these and other such
attacks and the resulting damage may only be clear over time and after more intensive analysis. In addition, due to the
evolving nature of cybersecurity threats, the impact of any future incident cannot be predicted. While we continually work
to implement additional steps to safeguard our systems, there is no assurance that we can prevent future breaches. If Alcoa
is unable to detect or ward off attacks on its information systems or if an attack results in the theft of material company-
sensitive information, such as intellectual property, trade secrets, product development data and other business
development data, or if an attack results in a material disruption of its systems, Alcoas business, financial condition and
reputation may be materially adversely affected. Additionally, the Company has been subject to attempts to disrupt its
website through denial of service attacks. Although such attempts did not have a material negative impact on the
Company, no assurance can be given that future attempts will not impact the Company.
Alcoa may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state or foreign
law, regulation or policy.
Alcoas results of operations or liquidity in a particular period could be affected by new or increasingly stringent laws,
regulatory requirements or interpretations, or outcomes of significant legal proceedings or investigations adverse to
Alcoa. The Company may experience a change in effective tax rates or become subject to unexpected or rising costs
associated with business operations or provision of health or welfare benefits to employees due to changes in laws,
regulations or policies. The Company is also subject to a variety of legal compliance risks. These risks include, among
other things, potential claims relating to product liability, health and safety, environmental matters, intellectual
property rights, government contracts, taxes, and compliance with U.S. and foreign export laws, anti-bribery laws,
competition laws and sales and trading practices. Alcoa could be subject to fines, penalties, damages (in certain cases,
treble damages), or suspension or debarment from government contracts.
While Alcoa believes it has adopted appropriate risk management and compliance programs to address and reduce
these risks, the global and diverse nature of its operations means that these risks will continue to exist, and additional
legal proceedings and contingencies may arise from time to time. In addition, various factors or developments can lead
the Company to change current estimates of liabilities or make such estimates for matters previously not susceptible of
reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory
developments or changes in applicable law. A future adverse ruling or settlement or unfavorable changes in laws,
regulations or policies, or other contingencies that the Company cannot predict with certainty could have a material
adverse effect on the Companys results of operations or cash flows in a particular period. For additional information
regarding the legal proceedings involving the Company, see the discussion in Part I, Item 3. (Legal Proceedings), of
this report and in Note N to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and
Supplementary Data).
Alcoa is subject to a broad range of health, safety and environmental laws and regulations in the jurisdictions in
which it operates and may be exposed to substantial costs and liabilities associated with such laws and
regulations.
Alcoas operations worldwide are subject to numerous complex and increasingly stringent health, safety and
environmental laws and regulations. The costs of complying with such laws and regulations, including participation in
assessments and cleanups of sites, as well as internal voluntary programs, are significant and will continue to be so for
the foreseeable future. Environmental laws may impose cleanup liability on owners and occupiers of contaminated
property, including past or divested properties, regardless of whether the owners and occupiers caused the
contamination or whether the activity that caused the contamination was lawful at the time it was conducted.
Environmental matters for which we may be liable may arise in the future at our present sites, where no problem is
currently known, at previously owned sites, sites previously operated by us, sites owned by our predecessors or sites
35
that we may acquire in the future. Alcoas results of operations or liquidity in a particular period could be affected by
certain health, safety or environmental matters, including remediation costs and damages related to certain sites.
Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs,
all of which can have a material and adverse effect on earnings and cash flows.
Climate change, climate change legislation or regulations and greenhouse effects may adversely impact Alcoas
operations and markets.
Energy is a significant input in a number of Alcoas operations. There is growing recognition that consumption of
energy derived from fossil fuels is a contributor to global warming.
A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory change
in response to the potential impacts of climate change. There is also current and emerging regulation, such as the
mandatory renewable energy target in Australia, Australias carbon pricing mechanism introduced in 2012, Quebecs
transition to a cap and trade system with compliance required in 2013 and European direct emission regulations
expected by 2013. Alcoa will likely see changes in the margins of greenhouse gas-intensive assets and energy-intensive
assets as a result of regulatory impacts in the countries in which the Company operates. These regulatory mechanisms
may be either voluntary or legislated and may impact Alcoas operations directly or indirectly through customers or
Alcoas supply chain. Inconsistency of regulations may also change the attractiveness of the locations of some of the
Companys assets. Assessments of the potential impact of future climate change legislation, regulation and international
treaties and accords are uncertain, given the wide scope of potential regulatory change in countries in which Alcoa
operates. The Company may realize increased capital expenditures resulting from required compliance with revised or
new legislation or regulations, costs to purchase or profits from sales of, allowances or credits under a cap and trade
system, increased insurance premiums and deductibles as new actuarial tables are developed to reshape coverage, a
change in competitive position relative to industry peers and changes to profit or loss arising from increased or decreased
demand for goods produced by the Company and indirectly, from changes in costs of goods sold.
The potential physical impacts of climate change on the Companys operations are highly uncertain, and will be
particular to the geographic circumstances. These may include changes in rainfall patterns, shortages of water or other
natural resources, changing sea levels, changing storm patterns and intensities, and changing temperature levels. These
effects may adversely impact the cost, production and financial performance of Alcoas operations.
Additional tax expense or additional tax exposures could affect Alcoas future profitability.
Alcoa is subject to income taxes in both the United States and various non-U.S. jurisdictions, and its domestic and
international tax liabilities are dependent upon the distribution of income among these different jurisdictions. Alcoas
tax expense includes estimates of additional tax which may be incurred for tax exposures and reflects various estimates
and assumptions, including assessments of future earnings of the Company that could impact the valuation of its
deferred tax assets. The Companys future results of operations could be adversely affected by changes in the effective
tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the
overall profitability of the Company, changes in tax legislation and rates, changes in generally accepted accounting
principles, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of
previously filed tax returns and continuing assessments of its tax exposures. Corporate tax reform and tax law changes
continue to be analyzed in the United States and in many other jurisdictions. Significant changes to the U.S. corporate
tax system in particular could have a substantial impact, positive and negative, on Alcoas effective tax rate, cash tax
expenditures, and deferred tax assets and liabilities.
Adverse changes in discount rates, lower-than-expected investment return on pension assets and other factors
could affect Alcoas results of operations or level of pension funding contributions in future periods.
Alcoas results of operations may be negatively affected by the amount of expense Alcoa records for its pension and
other postretirement benefit plans, reductions in the fair value of plan assets and other factors. U.S. generally accepted
accounting principles (GAAP) require that Alcoa calculate income or expense for the plans using actuarial valuations.
36
These valuations reflect assumptions about financial market and other economic conditions, which may change based
on changes in key economic indicators. The most significant year-end assumptions used by Alcoa to estimate pension
or other postretirement benefit income or expense for the following year are the discount rate and the expected long-
term rate of return on plan assets. The large decline in our funded status in 2008 due to the financial crisis generated
significant unrecognized actuarial losses. We anticipate that expense in future years will continue to be affected as the
unrecognized losses are recognized in earnings. In addition, Alcoa is required to make an annual measurement of plan
assets and liabilities, which may result in a significant charge to shareholders equity. For a discussion regarding how
Alcoas financial statements can be affected by pension and other postretirement benefits accounting policies, see Part
II, Item 7. (Managements Discussion and Analysis of Financial Condition and Results of Operations) under the
caption Critical Accounting Policies and EstimatesPension and Other Postretirement Benefits, and Part II, Item 8.
(Financial Statements and Supplementary Data) under Note W to the Consolidated Financial StatementsPension and
Other Postretirement Benefits.
Although GAAP expense and pension funding contributions are not directly related, the key economic factors that
affect GAAP expense would also likely affect the amount of cash or securities Alcoa would contribute to the pension
plans. Potential pension contributions include both mandatory amounts required under federal law and discretionary
contributions to improve the plans funded status. The recently enacted Moving Ahead for Progress in the 21
st
Century
Act provides temporary relief for employers like Alcoa who sponsor defined benefit pension plans related to funding
contributions under the Employee Retirement Income Security Act of 1974 by allowing the use of a 25-year average
interest rate within an upper and lower range for purposes of determining minimum funding obligations instead of an
average interest rate for the two most recent years, as currently is the case. Alcoa has elected this temporary relief and
believes that it will moderately reduce the cash flow sensitivity of the Companys U.S. pension plans funded status to
additional declines in discount rates over the next two to three years. However, higher than expected pension
contributions due to a further decline in our funded status as a result of additional declines in the discount rate or
lower-than-expected investment returns on plan assets could have a material negative effect on our cash flows. Adverse
capital market conditions could result in reductions in the fair value of plan assets and increase the Companys
liabilities related to such plans, adversely affecting Alcoas liquidity and results of operations.
Union disputes and other employee relations issues could adversely affect Alcoas financial results.
A significant portion of Alcoas employees are represented by labor unions in a number of countries under various
collective bargaining agreements with varying durations and expiration dates. While Alcoa was successful in
renegotiating the master collective bargaining agreement with the United Steelworkers in June 2010, Alcoa may not be
able to satisfactorily renegotiate other collective bargaining agreements in the U.S. and other countries when they
expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at Alcoas
facilities in the future. Alcoa may also be subject to general country strikes or work stoppages unrelated to its business
or collective bargaining agreements. Any such work stoppages (or potential work stoppages) could have a material
adverse effect on Alcoas financial results.
Alcoas human resource talent pool may not be adequate to support the Companys growth.
Alcoas existing operations and development projects require highly skilled executives, and staff with relevant industry
and technical experience. The inability of the Company or the industry to attract and retain such people may adversely
impact Alcoas ability to adequately meet project demands and fill roles in existing operations. Skills shortages in
engineering, technical service, construction and maintenance contractors and other labor market inadequacies may also
impact activities. These shortages may adversely impact the cost and schedule of development projects and the cost
and efficiency of existing operations.
Alcoa may not realize expected long-term benefits from its productivity and cost-reduction initiatives.
Alcoa has undertaken, and may continue to undertake, productivity and cost-reduction initiatives to improve
performance and conserve cash, including new procurement strategies for raw materials, such as backward integration
and non-traditional sourcing from numerous geographies, and deployment of company-wide business process models,
37
such as the Alcoa Business System and the Alcoa Enterprise Business Solution (an initiative designed to build a
common global infrastructure across Alcoa for data, processes and supporting software). There is no assurance that
these initiatives will all be completed or beneficial to Alcoa or that estimated cost savings from such activities will be
realized.
Alcoa may not be able to successfully develop and implement technology initiatives.
Alcoa is working on developments in advanced smelting process technologies, including inert anode and carbothermic
technology, in addition to multi-alloy casting processes. There can be no assurance that such technologies will be
commercially feasible or beneficial to Alcoa.
Unexpected events may increase Alcoas cost of doing business or disrupt Alcoas operations.
Unexpected events, including fires or explosions at facilities, natural disasters, war or terrorist activities, unplanned
outages, supply disruptions, or failure of equipment or processes to meet specifications may increase the cost of doing
business or otherwise impact Alcoas financial performance. Further, existing insurance arrangements may not provide
protection for all of the costs that may arise from such events.
Further metals industry consolidation could impact Alcoas business.
The metals industry has experienced consolidation over the past several years, and there may be further industry
consolidation in the future. Although current industry consolidation has not negatively impacted Alcoas business,
further consolidation in the aluminum industry could possibly have negative impacts that we cannot reliably predict.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Alcoas principal office is located at 390 Park Avenue, New York, New York 10022-4608. Alcoas corporate center is
located at 201 Isabella Street, Pittsburgh, Pennsylvania 15212-5858. The Alcoa Technical Center for research and
development is located at 100 Technical Drive, Alcoa Center, Pennsylvania 15069.
Alcoa leases some of its facilities; however, it is the opinion of management that the leases do not materially affect the
continued use of the properties or the properties values.
Alcoa believes that its facilities are suitable and adequate for its operations. Although no title examination of properties
owned by Alcoa has been made for the purpose of this report, the Company knows of no material defects in title to any
such properties. See Notes A and H to the financial statements for information on properties, plants and equipment.
Alcoa has active plants and holdings under the following segments and in the following geographic areas:
ALUMINA
Bauxite: See the tables and related text in the Bauxite Interests section on pages 6-10 of this report.
Alumina: See the table and related text in the Alumina Refining Facilities and Capacity section on pages 12-13
of this report.
PRIMARY METALS
See the table and related text in the Primary Aluminum Facilities and Capacity section on pages 14-15 of this
report.
38
GLOBAL ROLLED PRODUCTS
See the table and related text in the Global Rolled Products Facilities section on page 17 of this report.
ENGINEERED PRODUCTS AND SOLUTIONS
See the table and related text in the Engineered Products and Solutions Facilities section on pages 18-19 of this
report.
CORPORATE
See the table and related text in the Corporate Facilities section on page 20 of this report.
Item 3. Legal Proceedings.
In the ordinary course of its business, Alcoa is involved in a number of lawsuits and claims, both actual and potential.
Litigation
As previously reported, along with various asbestos manufacturers and distributors, Alcoa and its subsidiaries as
premises owners are defendants in several hundred active lawsuits filed on behalf of persons alleging injury
predominantly as a result of occupational exposure to asbestos at various Company facilities. In addition, an Alcoa
subsidiary company has been named, along with a large common group of industrial companies, in a pattern complaint
where the Companys involvement is not evident. Since 1999, several thousand such complaints have been filed. To
date, the subsidiary has been dismissed from almost every case that was actually placed in line for trial. Alcoa, its
subsidiaries and acquired companies, all have had numerous insurance policies over the years that provide coverage for
asbestos based claims. Many of these policies provide layers of coverage for varying periods of time and for varying
locations. Alcoa has significant insurance coverage and believes that its reserves are adequate for its known asbestos
exposure related liabilities. The costs of defense and settlement have not been and are not expected to be material to the
results of operations, cash flows, and financial position of the Company.
As previously reported, in November 2006, in Curtis v. Alcoa Inc., Civil Action No. 3:06cv448 (E.D. Tenn.), a class
action was filed by plaintiffs representing approximately 13,000 retired former employees of Alcoa or Reynolds Metals
Company and spouses and dependents of such retirees alleging violation of the Employee Retirement Income Security
Act (ERISA) and the Labor-Management Relations Act by requiring plaintiffs, beginning January 1, 2007, to pay
health insurance premiums and increased co-payments and co-insurance for certain medical procedures and
prescription drugs. Plaintiffs alleged these changes to their retiree health care plans violated their rights to vested health
care benefits. Plaintiffs additionally alleged that Alcoa had breached its fiduciary duty to plaintiffs under ERISA by
misrepresenting to them that their health benefits would never change. Plaintiffs sought injunctive and declaratory
relief, back payment of benefits, and attorneys fees. Alcoa had consented to treatment of plaintiffs claims as a class
action. During the fourth quarter of 2007, following briefing and argument, the court ordered consolidation of the
plaintiffs motion for preliminary injunction with trial, certified a plaintiff class, bifurcated and stayed the plaintiffs
breach of fiduciary duty claims, struck the plaintiffs jury demand, but indicated it would use an advisory jury, and set
a trial date of September 17, 2008. In August 2008, the court set a new trial date of March 24, 2009 and, subsequently,
the trial date was moved to September 22, 2009. In June 2009, the court indicated that it would not use an advisory jury
at trial. Trial in the matter was held over eight days commencing September 22, 2009 and ending on October 1, 2009 in
federal court in Knoxville, TN before the Honorable Thomas Phillips, U.S. District Court Judge. At the conclusion of
evidence, the court set a post-hearing briefing schedule for submission of proposed findings of fact and conclusions of
law by the parties and for replies to the same. Post trial briefing was submitted on December 4, 2009.
On March 9, 2011, the court issued a judgment order dismissing plaintiffs lawsuit in its entirety with prejudice for the
reasons stated in its Findings of Fact and Conclusions of Law. On March 23, 2011, plaintiffs filed a motion for
clarification and/or amendment of the judgment order, which seeks, among other things, a declaration that plaintiffs
39
retiree benefits are vested subject to an annual cap and an injunction preventing Alcoa, prior to 2017, from modifying
the plan design to which plaintiffs are subject or changing the premiums and deductibles that plaintiffs must pay. Also
on March 23, 2011, plaintiffs filed a motion for award of attorneys fees and expenses. Alcoa filed its opposition to
both motions on April 11, 2011. On June 11, 2012, the court issued its memorandum and order denying plaintiffs
motion for clarification and/or amendment to the original judgment order. On July 6, 2012, plaintiffs filed a notice of
appeal of the courts March 9, 2011 judgment. On July 12, 2012, the trial court stayed Alcoas motion for assessment
of costs pending resolution of plaintiffs appeal. The appeal is docketed in the United States Court of Appeals for the
Sixth Circuit as case number 12-5801. On August 29, 2012, the trial court dismissed plaintiffs motion for attorneys
fees without prejudice to refiling the motion following the resolution of the appeal at the Sixth Circuit Court of
Appeals. Briefing on the appeal is complete and oral argument is scheduled for March 6, 2013.
Alba Civil Suit
As previously reported, on February 27, 2008, Alcoa Inc. (Alcoa) received notice that Aluminium Bahrain B.S.C.
(Alba) had filed suit against Alcoa, AWA, and William Rice (collectively, the Alcoa Parties), and others, in the U.S.
District Court for the Western District of Pennsylvania (the Court), Civil Action number 08-299, styled Aluminium
Bahrain B.S.C. v. Alcoa Inc., Alcoa World Alumina LLC, William Rice, and Victor Phillip Dahdaleh. The complaint
alleged that certain Alcoa entities and their agents, including Victor Phillip Dahdaleh, had engaged in a conspiracy over
a period of 15 years to defraud Alba. The complaint further alleged that Alcoa and its employees or agents (1) illegally
bribed officials of the government of Bahrain and/or officers of Alba in order to force Alba to purchase alumina at
excessively high prices, (2) illegally bribed officials of the government of Bahrain and/or officers of Alba and issued
threats in order to pressure Alba to enter into an agreement by which Alcoa would purchase an equity interest in Alba,
and (3) assigned portions of existing supply contracts between Alcoa and Alba for the sole purpose of facilitating
alleged bribes and unlawful commissions. The complaint alleged that Alcoa and the other defendants violated the
Racketeer Influenced and Corrupt Organizations Act (RICO) and committed fraud. Alba claimed damages in excess of
$1 billion. Albas complaint sought treble damages with respect to its RICO claims; compensatory, consequential,
exemplary, and punitive damages; rescission of the 2005 alumina supply contract; and attorneys fees and costs.
In response to a motion filed by the U.S. Department of Justice (DOJ) on March 27, 2008 (see Government
Investigations below), the Court ordered the Alba civil suit administratively closed and stayed all discovery to allow
the DOJ to fully conduct an investigation. On November 8, 2011, at Alcoas request, the Court removed the case from
administrative stay and ordered Alba to file an Amended Complaint by November 28, 2011, and a RICO Case
Statement 30 days thereafter for the limited purpose of allowing Alcoa to move to dismiss Albas lawsuit. Alcoa filed a
motion to dismiss, which was denied on June 11, 2012.
During the second quarter of 2012, Alcoa proposed to settle the suit by offering Alba a cash payment of $45 million.
Alcoa also offered Alba a long-term alumina supply contract. Based on the cash offer, Alcoa recorded a $45 million
($18 million after-tax and noncontrolling interest) charge in the 2012 second quarter representing Alcoas estimate of
the minimum end of the range probable to settle the case, and estimated an additional reasonably possible charge of up
to $75 million to settle the suit.
On October 9, 2012, the Alcoa Parties, without admitting any liability, entered into a settlement agreement with Alba.
The agreement called for AWA to pay Alba $85 million in two equal installments, one-half at time of settlement and
one-half one year later, and for the case against the Alcoa Parties to be dismissed with prejudice. Additionally, AWA
and Alba entered into a long-term alumina supply agreement. On October 9, 2012, pursuant to the settlement
agreement, AWA paid Alba $42.5 million, and all claims against the Alcoa Parties were dismissed with prejudice.
Under the agreement, AWA is obligated to pay an additional $42.5 million, without interest or contingency, on
October 9, 2013. Based on the settlement agreement, in the 2012 third quarter, Alcoa recorded a $40 million ($15
million after-tax and noncontrolling interest) charge in addition to the $45 million ($18 million after-tax and
noncontrolling interest) charge it recorded in the 2012 second quarter in respect of the suit. In addition, based on an
agreement between Alcoa and Alumina Limited (which holds a 40% equity interest in AWA), Alcoa estimates an
additional reasonably possible after-tax charge of between $25 million to $30 million to reallocate a portion of the
40
costs (including legal fees) of the Alba civil settlement from AWA to Alcoa, but this would occur only if a settlement
is reached with the DOJ and the Securities and Exchange Commission (the SEC) regarding their investigations (see
Government Investigations below).
Government Investigations
As previously reported, on February 26, 2008, Alcoa Inc. advised the DOJ and the SEC that it had recently become
aware of the claims by Alba as alleged in the Alba civil suit, had already begun an internal investigation, and intended
to cooperate fully in any investigation that the DOJ or the SEC may commence. On March 17, 2008, the DOJ notified
Alcoa that it had opened a formal investigation and Alcoa has been cooperating with the government since that time.
Alcoa is actively negotiating with the DOJ and the SEC to reach a resolution of their investigations of the Alba matter;
however, Alcoa has not reached any agreement with either agency. Given the uncertainty regarding whether a
settlement can be reached and, if reached, on what terms, Alcoa is not able to estimate a range of reasonably possible
loss with regard to any such settlement. If a settlement of the government investigations is reached, Alcoa believes that
the settlement amount would be material to Alcoas results of operations for the relevant fiscal period. If a settlement
cannot be reached, Alcoa will proceed to trial with the DOJ and the SEC and under those circumstances is unable to
predict an outcome or to estimate its reasonably possible loss. There can be no assurance that the final outcome of the
governments investigations will not have a material adverse effect on Alcoa.
Derivative Actions
As previously reported, on July 21, 2008, the Teamsters Local #500 Severance Fund and the Southeastern
Pennsylvania Transportation Authority filed a shareholder derivative suit in the civil division of the Court of Common
Pleas of Allegheny County, Pennsylvania against certain officers and directors of Alcoa claiming breach of fiduciary
duty, gross mismanagement, and other violations. This derivative action stems from the civil litigation brought by Alba
against Alcoa, AWA, Victor Phillip Dahdaleh, and others, and the subsequent investigation of Alcoa by the DOJ and
the SEC with respect to Albas claims. This derivative action claims that the defendants caused or failed to prevent the
matters alleged in the Alba lawsuit. The director defendants filed a motion to dismiss on November 21, 2008. On
September 3, 2009, a hearing was held on Alcoas motion and, on October 12, 2009, the court issued its order denying
Alcoas motion to dismiss but finding that a derivative action during the conduct of the DOJ investigation and
pendency of the underlying complaint by Alba would be contrary to the interest of shareholders and, therefore, stayed
the case until further order of the court. This derivative action is in its preliminary stages, and the Company is unable to
reasonably predict an outcome or to estimate a range of reasonably possible loss.
As previously reported, on March 6, 2009, the Philadelphia Gas Works Retirement Fund filed a shareholder derivative
suit in the civil division of the Court of Common Pleas of Philadelphia County, Pennsylvania. This action was brought
against certain officers and directors of Alcoa claiming breach of fiduciary duty and other violations and is based on
the allegations made in the previously disclosed civil litigation brought by Alba against Alcoa, AWA, Victor Phillip
Dahdaleh, and others, and the subsequent investigation of Alcoa by the DOJ and the SEC with respect to Albas claims.
This derivative action claims that the defendants caused or failed to prevent the conduct alleged in the Alba lawsuit. On
August 7, 2009, the director and officer defendants filed an unopposed motion to coordinate the case with the
Teamsters Local #500 suit, described immediately above, in the Allegheny County Common Pleas Court. The
Allegheny County court issued its order consolidating the case on September 18, 2009. Thereafter, on October 31,
2009, the court assigned this action to the Commerce and Complex Litigation division of the Allegheny Court of
Common Pleas and on November 20, 2009, the court granted defendants motion to stay all proceedings in the
Philadelphia Gas action until the earlier of the court lifting the stay in the Teamsters derivative action or further order
of the court in this action. This derivative action is in its preliminary stages and the Company is unable to reasonably
predict an outcome or to estimate a range of reasonably possible loss.
As previously reported, on June 19, 2012, Catherine Rubery (plaintiff) filed a shareholder derivative suit in the United
States District Court for the Western District of Pennsylvania against William Rice, Victor Dahdaleh and current and
former members of the Alcoa Board of Directors (collectively, defendants) claiming breach of fiduciary duty and
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corporate waste. This derivative action stems from the previously disclosed civil litigation brought by Alba against
Alcoa, and the subsequent investigation of Alcoa by the DOJ and the SEC described above. This derivative action
claims that defendants caused or failed to prevent illegal bribes of foreign officials, failed to implement an internal
controls system to prevent bribes from occurring and wasted corporate assets by paying improper bribes and incurring
substantial legal liability. Furthermore, plaintiff seeks an order of contribution and indemnification from defendants.
The derivative action is in its preliminary stage and Alcoa is unable to reasonably predict an outcome or to estimate a
range of reasonably possible loss.
Italian Energy Matter
As previously reported, before 2002, Alcoa purchased power in Italy in the regulated energy market and received a
drawback of a portion of the price of power under a special tariff in an amount calculated in accordance with a
published resolution of the Italian Energy Authority, Energy Authority Resolution n. 204/1999 (204/1999). In 2001, the
Energy Authority published another resolution, which clarified that the drawback would be calculated in the same
manner, and in the same amount, in either the regulated or unregulated market. At the beginning of 2002, Alcoa left the
regulated energy market to purchase energy in the unregulated market. Subsequently, in 2004, the Energy Authority
introduced regulation no. 148/2004 which set forth a different method for calculating the special tariff that would result
in a different drawback for the regulated and unregulated markets. Alcoa challenged the new regulation in the
Administrative Court of Milan and received a favorable judgment in 2006. Following this ruling, Alcoa continued to
receive the power price drawback in accordance with the original calculation method, through 2009, when the
European Commission declared all such special tariffs to be impermissible state aid. In 2010, the Energy Authority
appealed the 2006 ruling to the Consiglio di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato
ruled in favor of the Energy Authority and against Alcoa, thus presenting the opportunity for the energy regulators to
seek reimbursement from Alcoa of an amount equal to the difference between the actual drawback amounts received
over the relevant time period, and the drawback as it would have been calculated in accordance with regulation
148/2004. On February 23, 2012, Alcoa filed its appeal of the decision of the Consiglio di Stato, and that appeal
remains pending. On March 26, 2012, Alcoa received a letter from the agency (Cassa Conguaglio per il Settore Eletrico
(CCSE)) responsible for making and collecting payments on behalf of the Energy Authority demanding payment in the
amount of approximately $110 million (85 million), including interest. By letter dated April 5, 2012, Alcoa informed
CCSE that it disputes the payment demand of CCSE since (i) CCSE was not authorized by the Consiglio di Stato
decisions to seek payment of any amount, (ii) the decision of the Consiglio di Stato has been appealed and that appeal
remains pending, and (iii) in any event, no interest should be payable. On April 29, 2012, Law No. 44 of 2012
(44/2012) came into effect, changing the method to calculate the drawback. Alcoa believes that under 44/2012 its range
of reasonably possible loss is from $0 to $50 million (39 million). Following the effectiveness of 44/2012, Alcoa has
received no further demands from CCSE. At this time, the Company is unable to reasonably predict an outcome for this
matter.
European Commission Matters
As previously reported, in July 2006, the European Commission (EC) announced that it had opened an investigation to
establish whether an extension of the regulated electricity tariff granted by Italy to some energy-intensive industries
complies with European Union (EU) state aid rules. The Italian power tariff extended the tariff that was in force until
December 31, 2005 through November 19, 2009 (Alcoa has been incurring higher power costs at its smelters in Italy
subsequent to the tariff end date). The extension was originally through 2010, but the date was changed by legislation
adopted by the Italian Parliament effective on August 15, 2009. Prior to expiration of the tariff in 2005, Alcoa had been
operating in Italy for more than 10 years under a power supply structure approved by the EC in 1996. That measure
provided a competitive power supply to the primary aluminum industry and was not considered state aid from the
Italian Government. The ECs announcement expressed concerns about whether Italys extension of the tariff beyond
2005 was compatible with EU legislation and potentially distorted competition in the European market of primary
aluminum, where energy is an important part of the production costs.
On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy
constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit
Alcoa received since January 2006 (including interest). The amount of this recovery will be based on a calculation that
42
is being prepared by the Italian Government (see below). In late 2009, after discussions with legal counsel and
reviewing the bases on which the EC decided, including the different considerations cited in the EC decision regarding
Alcoas two smelters in Italy, Alcoa recorded a charge of $250 million (173 million), which included $20 million
(14 million) to write off a receivable from the Italian Government for amounts due under the now expired tariff
structure and $230 million (159 million) to establish a reserve. On April 19, 2010, Alcoa filed an appeal of this
decision with the General Court of the EU. Alcoa will pursue all substantive and procedural legal steps available to
annul the ECs decision. On May 22, 2010, Alcoa also filed with the General Court a request for injunctive relief to
suspend the effectiveness of the decision, but, on July 12, 2010, the General Court denied such request. On
September 10, 2010, Alcoa appealed the July 12, 2010 decision to the European Court of Justice (ECJ); this appeal was
dismissed on December 16, 2011.
In June 2012, Alcoa received formal notification from the Italian Government with a calculated recovery amount of
$375 million (303 million); this amount was reduced by $65 million (53 million) of amounts owed by the Italian
Government to Alcoa, resulting in a net payment request of $310 million (250 million). In a notice published in the
Official Journal of the European Union on September 22, 2012, the EC announced that it had filed an action against the
Italian Government on July 18, 2012 to compel it to collect the recovery amount. On September 27, 2012, Alcoa
received a request for payment in full of the $310 million (250 million) by October 31, 2012. Since then, Alcoa has
been in discussions with the Italian Government regarding the timing of such payment. Alcoa commenced payment of
the requested amount in five quarterly installments of $66 million (50 million), paying the first installment on
October 31, 2012. It is possible that Alcoa may be required to accelerate payment or pay in a lump sum.
Notwithstanding the payment request or the timing of such payments, Alcoas estimate of the most probable loss of the
ultimate outcome of this matter and the low end of the range of reasonably possible loss, which is $209 million (159
million) to $375 million (303 million), remains the $209 million (159 million) (the U.S. dollar amount reflects the
effects of foreign currency movements since 2009) recorded in November 2009. At December 31, 2012, Alcoas
reserve for this matter stands at $143 million (109 million), reflecting the payment made in October 2012. The full
extent of the loss will not be known until the final judicial determination, which could be a period of several years.
Separately, on November 29, 2006, Alcoa filed an appeal before the General Court (formerly the European Court of
First Instance) seeking the annulment of the ECs decision to open an investigation alleging that such decision did not
follow the applicable procedural rules. On March 25, 2009, the General Court denied Alcoas appeal. On May 29,
2009, Alcoa appealed the March 25, 2009 ruling before the ECJ. The hearing of the May 29, 2009 appeal was held on
June 24, 2010. On July 21, 2011, the ECJ denied Alcoas appeal.
As previously reported, in January 2007, the EC announced that it had opened an investigation to establish whether the
regulated electricity tariffs granted by Spain comply with EU state aid rules. At the time the EC opened its
investigation, Alcoa had been operating in Spain for more than nine years under a power supply structure approved by
the Spanish Government in 1986, an equivalent tariff having been granted in 1983. The investigation is limited to the
year 2005 and is focused both on the energy-intensive consumers and the distribution companies. The investigation
provided 30 days to any interested party to submit observations and comments to the EC. With respect to the energy-
intensive consumers, the EC opened the investigation on the assumption that prices paid under the tariff in 2005 were
lower than a pool price mechanism, therefore being, in principle, artificially below market conditions. Alcoa submitted
comments in which the Company provided evidence that prices paid by energy-intensive consumers were in line with
the market, in addition to various legal arguments defending the legality of the Spanish tariff system. It is Alcoas
understanding that the Spanish tariff system for electricity is in conformity with all applicable laws and regulations,
and therefore no state aid is present in the tariff system. While Alcoa does not believe that an unfavorable decision is
probable, management has estimated that the total potential impact from an unfavorable decision could be
approximately $90 million (70 million) pretax. Also, while Alcoa believes that any additional cost would only be
assessed for the year 2005, it is possible that the EC could extend its investigation to later years. If the ECs
investigation concludes that the regulated electricity tariffs for industries are unlawful, Alcoa will have an opportunity
to challenge the decision in the EU courts.
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Alcoa is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act,
also known as Superfund (CERCLA) or analogous state provisions regarding the usage, disposal, storage or treatment
of hazardous substances at a number of sites in the U.S. The Company has committed to participate, or is engaged in
negotiations with federal or state authorities relative to its alleged liability for participation, in clean-up efforts at
several such sites. The most significant of these matters, including the remediation of the Grasse River in Massena,
NY, are discussed in the Environmental Matters section of Note N to the Consolidated Financial Statements under the
caption Environmental Matters on pages 119-120.
As previously reported, representatives of various U.S. federal and state agencies and a Native American tribe, acting
in their capacities as trustees for natural resources (Trustees), have asserted that Alcoa and Reynolds Metals Company
(Reynolds) may be liable for loss or damage to such resources under federal and state law based on Alcoas and
Reynolds operations at their Massena, New York and St. Lawrence, New York facilities. While formal proceedings
have not been instituted, the Company has continued to actively investigate these claims. Pursuant to an agreement
entered into with the Trustees in 1991, Alcoa and Reynolds had been working cooperatively with General Motors
Corporation, which is facing similar claims by the Trustees, to assess potential injuries to natural resources in the
region. With the bankruptcy of General Motors in 2009, Motors Liquidation Company (MLC) took over General
Motors liability in this matter. In September 2009, MLC notified Alcoa and the Trustees that it would no longer
participate in the cooperative process. Alcoa and the Trustees agreed to continue to work together cooperatively
without MLC to resolve Alcoas and Reynolds natural resources damages liability in this matter. In January 2011, the
Trustees, representing the United States, the State of New York and the Mohawk tribe, and Alcoa reached an
agreement in principle to resolve the natural resource damage claims. The parties have now finalized a consent decree
which is in the process of being executed. Once fully executed, the consent decree will need to be approved by the
federal court following a minimum 30-day public comment period.
As previously reported, in August 2005, Dany Lavoie, a resident of Baie Comeau in the Canadian Province of Qubec,
filed a Motion for Authorization to Institute a Class Action and for Designation of a Class Representative against Alcoa
Canada Ltd., Alcoa Limite, Societe Canadienne de Metaux Reynolds Limite and Canadian British Aluminum in the
Superior Court of Qubec in the District of Baie Comeau. Plaintiff seeks to institute the class action on behalf of a
putative class consisting of all past, present and future owners, tenants and residents of Baie Comeaus St. Georges
neighborhood. He alleges that defendants, as the present and past owners and operators of an aluminum smelter in Baie
Comeau, have negligently allowed the emission of certain contaminants from the smelter, specifically Polycyclic
Aromatic Hydrocarbons or PAHs, that have been deposited on the lands and houses of the St. Georges neighborhood
and its environs causing damage to the property of the putative class and causing health concerns for those who inhabit
that neighborhood. Plaintiff originally moved to certify a class action, sought to compel additional remediation to be
conducted by the defendants beyond that already undertaken by them voluntarily, sought an injunction against further
emissions in excess of a limit to be determined by the court in consultation with an independent expert, and sought
money damages on behalf of all class members. In May 2007, the court authorized a class action suit to include only
people who suffered property damage or personal injury damages caused by the emission of PAHs from the smelter. In
September 2007, the plaintiff filed his claim against the original defendants, which the court had authorized in May.
Alcoa has filed its Statement of Defense and plaintiff has filed an Answer to that Statement. Alcoa also filed a Motion
for Particulars with respect to certain paragraphs of plaintiffs Answer and a Motion to Strike with respect to certain
paragraphs of plaintiffs Answer. In late 2010, the Court denied these motions. While no further formal proceedings
have occurred, Alcoa has reviewed technical data provided by the plaintiffs and is preparing to provide its own analysis
to the plaintiffs. The action continues in the discovery phase. The plaintiffs have not quantified the damages sought.
Without such amount and given the various damages alleged, at this stage of the proceeding the Company is unable to
reasonably predict an outcome or to estimate a range of reasonably possible loss.
As previously reported, in January 2006, in Musgrave v. Alcoa, et al., Warrick Circuit Court, County of Warrick,
Indiana; 87-C01-0601-CT-0006, Alcoa Inc. and a subsidiary were sued by an individual, on behalf of himself and all
persons similarly situated, claiming harm from alleged exposure to waste that had been disposed in designated pits at
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the Squaw Creek Mine in the 1970s. During February 2007, class allegations were dropped and the matter proceeded as
an individual claim. Alcoa filed a renewed motion to dismiss (arguing that the claims are barred by the Indiana
Workers Compensation Act), amended its answer to include Indianas Recreational Use Statute as an affirmative
defense and filed a motion for summary judgment based on the Recreational Use Statute. The court granted Alcoas
motion to dismiss regarding plaintiffs occupationally-related claims and denied the motion regarding plaintiffs
recreationally-related claims. On January 17, 2012, the court denied all outstanding motions with no opinion issued. A
jury trial commenced on April 10, 2012 and on May 1, 2012 the jury returned a verdict in favor of defendants Alcoa
Inc. and its subsidiary. The court entered its judgment on May 14, 2012. On May 31, 2012, plaintiffs filed a notice of
appeal. Plaintiffs brief was filed on January 25, 2013; Alcoas response is due by March 29. All subsequent briefing
replies are to be completed by April 2, 2013.
Also as previously reported, in October 2006, in Barnett, et al. v. Alcoa and Alcoa Fuels, Inc., Warrick Circuit Court,
County of Warrick, Indiana; 87-C01-0601-PL-499, forty-one plaintiffs sued Alcoa Inc. and a subsidiary, asserting
claims similar to the Musgrave matter, discussed above. In November 2007, Alcoa Inc. and its subsidiary filed motions
to dismiss both the Musgrave and Barnett cases. In October 2008, the Warrick County Circuit Court granted Alcoas
motions to dismiss, dismissing all claims arising out of alleged occupational exposure to wastes at the Squaw Creek
Mine, but in November 2008, the trial court clarified its ruling, indicating that the order does not dispose of plaintiffs
personal injury claims based upon alleged recreational or non-occupational exposure. Plaintiffs also filed a second
amended complaint in response to the courts orders granting Alcoas motions to dismiss. On July 7, 2010, the court
granted the parties joint motions for a general continuance of trial settings. Discovery in this matter is stayed pending
the outcome of the Musgrave matter. The Company is unable to reasonably predict an outcome or to estimate a range
of reasonably possible loss because plaintiffs have merely alleged that their medical condition is attributable to
exposure to materials at the Squaw Creek Mine but no further information is available due to the discovery stay.
As previously reported, in 1996, Alcoa acquired the Fusina, Italy smelter and rolling operations and the Portovesme,
Italy smelter (both of which are owned by Alcoas subsidiary, Alcoa Trasformazioni S.r.l.) from Alumix, an entity
owned by the Italian Government. Alcoa also acquired the extrusion plants located in Feltre and Bolzano, Italy. At the
time of the acquisition, Alumix indemnified Alcoa for pre-existing environmental contamination at the sites. In 2004,
the Italian Ministry of Environment (MOE) issued orders to Alcoa Trasformazioni S.r.l. and Alumix for the
development of a clean-up plan related to soil contamination in excess of allowable limits under legislative decree and
to institute emergency actions and pay natural resource damages. On April 5, 2006, Alcoa Trasformazioni S.r.l.s
Fusina site was also sued by the MOE and Minister of Public Works (MOPW) in the Civil Court of Venice for an
alleged liability for environmental damages, in parallel with the orders already issued by the MOE. Alcoa
Trasformazioni S.r.l. appealed the orders, defended the civil case for environmental damages (which is still pending)
and filed suit against Alumix, as discussed below. Similar issues also existed with respect to the Bolzano and Feltre
plants, based on orders issued by local authorities in 2006. All the orders have been challenged in front of the
Administrative Regional Courts, and all trials are still pending. However, in Bolzano the Municipality of Bolzano
withdrew the order, and the Regional Administrative Tribunal of Veneto suspended the order in Feltre. Most, if not all,
of the underlying activities occurred during the ownership of Alumix, the governmental entity that sold the Italian
plants to Alcoa.
As noted above, in response to the 2006 civil suit by the MOE and MOPW, Alcoa Trasformazioni S.r.l. filed suit
against Alumix claiming indemnification under the original acquisition agreement, but brought that suit in the Court of
Rome due to jurisdictional rules. The Court of Rome has appointed an expert to assess the causes of the pollution. In
June 2008, the parties (Alcoa and now Ligestra S.r.l. (Ligestra), the successor to Alumix) signed a preliminary
agreement by which they have committed to pursue a settlement and asked for a suspension of the technical assessment
during the negotiations. The Court of Rome accepted the request, and postponed the technical assessment, reserving its
ability to fix the deadline depending on the development of negotiations. Alcoa and Ligestra agreed to a settlement in
December 2008 with respect to the Feltre site. Ligestra paid the sum of 1.08 million Euros and Alcoa committed to
clean up the site. Further postponements were granted by the Court of Rome, and the next hearing was fixed for
November 2011. The trial was then suspended under the joint request of the parties, and was to be restarted in 2012.
The parties applied for a new postponement, that was granted by the Court, and a new hearing was fixed for
45
December 3, 2013. In the meantime, in December 2009, Alcoa Trasformazioni S.r.l. and Ligestra reached an initial
agreement for settlement of the liabilities related to Fusina. The settlement would also allow Alcoa to settle the 2006
civil suit by the MOE and MOPW for the environmental damages pending before the Civil Court of Venice. The
agreement outlines an allocation of payments to the MOE for emergency action and natural resource damages and the
scope and costs for a proposed soil remediation. In February 2011, a further and more detailed settlement relating to
Fusina was reached, allocating 80% and 20% of the remediation costs to Ligestra and Alcoa, respectively. Later in
2011, Alcoa and Ligestra signed a similar agreement relating to the Portovesme site. The agreements are contingent
upon final acceptance of the remediation project by the MOE. A proposed soil remediation project for Portovesme was
formally presented to the MOE in June 2012. To provide time for settlement with Ligestra, the Minister of
Environment and Alcoa jointly requested and the Civil Court of Venice has granted a series of postponements of
hearings in the Venice trial, assuming that the case will be closed. The last hearing was fixed for March 25, 2013.
Alcoa is unable to reasonably predict an outcome or to estimate a range of reasonably possible loss beyond what is
described in Footnote N for several reasons. First, the MOE has not yet approved the remediation plans. The Company
understands that the MOE has substantial discretion in defining what must be managed under the Italian soils law. The
availability of appropriate landfills must also be considered as well as the nature of these sites. As a result, the scope
and cost of the final remediation plans remain uncertain. Secondly, in the case in which the plan is not approved and
the settlement with Ligestra becomes void, Alcoa should be held responsible only for its share of pollution, but the area
is impacted by many sources of pollution, as well as historical pollution. Consequently, the allocation of liabilities
would need a very complex technical evaluation by the authorities that has not yet been performed.
As previously reported, on November 30, 2010, Alcoa Alumnio S.A. (Alumnio) received service of a lawsuit that had
been filed by the public prosecutors of the State of Par in Brazil in November 2009. The suit names the Company and
the State of Par, which, through its Environmental Agency, had issued the operating license for the Companys new
bauxite mine in Juruti. The suit concerns the impact of the project on the regions water system and alleges that certain
conditions of the original installation license were not met by the Company. In the lawsuit, plaintiffs requested a
preliminary injunction suspending the operating license and ordering payment of compensation. On April 14, 2010, the
court denied plaintiffs request. Alumnio presented its defense in March 2011, on grounds that it was in compliance
with the terms and conditions of its operating license, which included plans to mitigate the impact of the project on the
regions water system. In April, 2011, the State of Par defended itself in the case asserting that the operating license
contains the necessary plans to mitigate such impact, that the State monitors the performance of Aluminios obligations
arising out of such license, that the licensing process is valid and legal, and that the suit is meritless. The Companys
position is that any impact from the project had been fully repaired when the suit was filed. The Company also believes
that Jar Lake has not been affected by any project activity and any evidence of pollution from the project would be
unreliable. Following the preliminary injunction, the plaintiffs have taken no further action. The Company is not
certain whether or when the action will proceed. Given that this proceeding is in its preliminary stage and the current
uncertainty in this case, the Company is unable to reasonably predict an outcome or to estimate a range of reasonably
possible loss.
As previously reported, by an amended complaint filed April 21, 2005, Alcoa Global Fasteners, Inc. was added as a
defendant in Orange County Water District (OCWD) v. Northrop Corporation, et al., civil action 04cc00715 (Superior
Court of California, County of Orange). OCWD alleges contamination or threatened contamination of a drinking water
aquifer by Alcoa, certain of the entities that preceded Alcoa at the same locations as property owners and/or operators,
and other current and former industrial and manufacturing businesses that operated in Orange County in past decades.
OCWD seeks to recover the cost of aquifer remediation and attorneys fees. Trial on statutory, non-jury claims
commenced on February 10, 2012, and continued through September 2012 when the case was submitted to the court
for decision. On December 11, 2012, the court issued its tentative ruling in the matter dismissing plaintiff OCWDs
remaining statutory claims against all defendants. The courts tentative ruling also invited further briefing on the
decision and it is subject to modification. On January 21, 2013, defendants filed a joint brief responding to ten specific
questions posed by the courts tentative ruling. The joint brief argued that the court should make further findings of fact
and law in favor of the defendants in response to the ten questions. Alcoa Global Fasteners, Inc. also filed a separate
brief on two of the questions arguing that the court should determine that it is neither a cause of ground water
contamination nor a cause of plaintiffs incurred costs. A hearing is scheduled on February 28, 2013. A final decision
46
will be announced thereafter. Remaining in the case at this time are common law trespass and nuisance claims for a
Phase 2 trial which has not been scheduled. OCWD has asserted a total remedy cost of at least $150 million plus
attorneys fees; however the amount in controversy at this stage is limited to sums already expended by the OCWD,
approximately $4 million. The court has indicated that it is not likely to grant the OCWDs request for declaratory
relief as to future sums the OCWD expends. Alcoa believes that it is not responsible for any contamination as alleged
in the complaint or that if any liability were to be established, its liability would be insignificant. While the court has
issued a tentative decision on the statutory claims, it is not possible at this time to reasonably predict the courts final
determination as to this stage of the proceedings, nor any claims presented to a jury in the future nor the impact of
claims presented against third party defendants and it is therefore not possible to estimate a range of reasonably
possible loss for this matter. A similar matter, Orange County Water District v. Sabic, et al, civil action 30-2008-
00078246 (Superior Court of California, County of Orange) was filed against Alcoa Global Fasteners, Inc. on June 23,
2008. This matter also alleges contamination or threatened contamination of a drinking water aquifer by Alcoa and
others. A trial has been set for 2013. Alcoa believes that it is not responsible for any contamination as alleged in the
complaint or that if any liability were to be established, its liability would be insignificant. Plaintiff Orange County
Water District has made a statutory settlement demand to Alcoa and other similar demands to certain other defendants.
The demand to Alcoa is $2.5 million and is being evaluated.
St. Croix Proceedings
Josephat Henry. As previously reported, in September 1998, Hurricane Georges struck the U.S. Virgin Islands,
including the St. Croix Alumina, L.L.C. (SCA) facility on the island of St. Croix. The wind and rain associated with the
hurricane caused material at the location to be blown into neighboring residential areas. SCA undertook or arranged
various cleanup and remediation efforts. The Division of Environmental Protection (DEP) of the Department of
Planning and Natural Resources (DPNR) of the Virgin Islands Government issued a Notice of Violation that Alcoa has
contested. In February 1999, certain residents of St. Croix commenced a civil suit in the Territorial Court of the Virgin
Islands seeking compensatory and punitive damages and injunctive relief for alleged personal injuries and property
damages associated with bauxite or red dust from the SCA facility. The suit, which has been removed to the District
Court of the Virgin Islands (the Court), names SCA, Alcoa and Glencore Ltd. as defendants, and, in August 2000, was
accorded class action treatment. The class was defined to include persons in various defined neighborhoods who
suffered damages and/or injuries as a result of exposure during and after Hurricane Georges to red dust and red mud
blown during Hurricane Georges. All of the defendants have denied liability, and discovery and other pretrial
proceedings have been underway since 1999. Plaintiffs expert reports claim that the material blown during Hurricane
Georges consisted of bauxite and red mud, and contained crystalline silica, chromium, and other substances. The
reports further claim, among other things, that the population of the six subject neighborhoods as of the 2000 census (a
total of 3,730 people) has been exposed to toxic substances through the fault of the defendants, and hence will be able
to show entitlement to lifetime medical monitoring as well as other compensatory and punitive relief. These opinions
have been contested by the defendants expert reports, that state, among other things, that plaintiffs were not exposed to
the substances alleged and that in any event the level of alleged exposure does not justify lifetime medical monitoring.
Alcoa and SCA turned over this matter to their insurance carriers who have been providing a defense. Glencore Ltd. is
jointly defending the case with Alcoa and SCA and has a pending motion to dismiss. In June 2008, the Court granted
defendants joint motion to decertify the original class of plaintiffs, and certified a new class as to the claim of ongoing
nuisance, insofar as plaintiffs seek cleanup, abatement, or removal of the red mud currently present at the facility. (The
named plaintiffs had previously dropped their claims for medical monitoring as a consequence of the courts rejection
of plaintiffs proffered expert opinion testimony). The Court expressly denied certification of a class as to any claims
for remediation or cleanup of any area outside the facility (including plaintiffs property). The new class could seek
only injunctive relief rather than monetary damages. Named plaintiffs, however, could continue to prosecute their
claims for personal injury, property damage, and punitive damages. In August 2009, in response to defendants
motions, the Court dismissed the named plaintiffs claims for personal injury and punitive damages, and denied the
motion with respect to their property damage claims. In September 2009, the Court granted defendants motion for
summary judgment on the class plaintiffs claim for injunctive relief. In October 2009, plaintiffs appealed the Courts
summary judgment order dismissing the claim for injunctive relief and in March 2011, the U.S. Court of Appeals for
the 3rd Circuit dismissed plaintiffs appeal of that order. In September 2011, the parties reached an oral agreement to
47
settle the remaining claims in the case which would resolve the personal property damage claims of the 12 remaining
individual plaintiffs. On March 12, 2012, final judgment was entered in the District Court for the District of the Virgin
Islands. Alcoas share of the settlement is fully insured. On March 23, 2012, plaintiffs filed a notice of appeal of
numerous non-settled matters, including but not limited to discovery orders, Daubert rulings, summary judgment
rulings, as more clearly set out in the settlement agreement/release between the parties. Plaintiffs appellate brief was
filed in the 3rd Circuit Court on January 4, 2013, together with a motion seeking leave to file a brief of excess length.
The court has suspended the remainder of the briefing schedule, including the date for Alcoas reply brief, until it rules
on plaintiffs motion to file its brief of excess length.
Abednego. As previously reported, on January 14, 2010, Alcoa was served with a complaint involving approximately
2,900 individual persons claimed to be residents of St. Croix who are alleged to have suffered personal injury or
property damage from Hurricane Georges or winds blowing material from the property since the time of the hurricane.
This complaint, Abednego, et al. v. Alcoa, et al. was filed in the Superior Court of the Virgin Islands, St. Croix
Division. The complaint names as defendants the same entities as were sued in the February 1999 action earlier
described and have added as a defendant the current owner of the alumina facility property. In February 2010, Alcoa
and SCA removed the case to the federal court for the District of the Virgin Islands. Subsequently, plaintiffs filed
motions to remand the case to territorial court as well as a third amended complaint, and defendants have moved to
dismiss the case for failure to state a claim upon which relief can be granted. On March 17, 2011, the court granted
plaintiffs motion to remand to territorial court. Thereafter, Alcoa filed a motion for allowance of appeal. The motion
was denied on May 18, 2011. The parties await assignment of the case to a trial judge.
Phillip Abraham. As previously reported, on March 1, 2012, Alcoa was served with a complaint involving
approximately 200 individual persons claimed to be residents of St. Croix who are alleged to have suffered personal
injury or property damage from Hurricane Georges or winds blowing material from the property since the time of the
hurricane in September 1998. This complaint, Abraham, et al. v. Alcoa, et al. alleges claims essentially identical to
those set forth in the Abednego v. Alcoa complaint. The matter was originally filed in the Superior Court of the Virgin
Islands, St. Croix Division, on March 30, 2011. By motion filed March 12, 2012, Alcoa sought dismissal of this
complaint on several grounds, including failure to timely serve the complaint and being barred by the statute of
limitations.
Other Contingencies
In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be
instituted or asserted against Alcoa, including those pertaining to environmental, product liability, safety and health,
and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now
be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Companys liquidity
or results of operations in a particular period could be materially affected by one or more of these other matters.
However, based on facts currently available, management believes that the disposition of these other matters that are
pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of
the Company.
Item 4. Mine Safety Disclosures.
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is
included in Exhibit 95 of this report, which is incorporated herein by reference.
48
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
The Companys common stock is listed on the New York Stock Exchange where it trades under the symbol AA. The
Companys quarterly high and low trading stock prices and dividends per common share for 2012 and 2011 are shown
below.
2012 2011
Quarter High Low Dividend High Low Dividend
First $10.92 $10.61 $0.03 $17.75 $15.42 $0.03
Second 10.24 9.97 0.03 18.47 14.56 0.03
Third 9.93 9.78 0.03 16.60 9.56 0.03
Fourth 9.34 7.98 0.03 11.66 8.45 0.03
Year 10.92 7.98 $0.12 18.47 8.45 $0.12
The number of holders of common stock was approximately 318,000 as of February 4, 2013.
49
Stock Performance Graph
The following graph compares the most recent five-year performance of Alcoas common stock with (1) the
Standard & Poors 500
Index and (2) the Standard & Poors 500
Materials Index, a group of 27 companies

categorized by Standard & Poors as active in the materials market sector. Such information shall not be deemed to
be filed.
FIVE-YEAR CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 31, 2007
with dividends reinvested
Alcoa Inc. S&P 500

Index S&P 500

Materials Index
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
$0
$50
$100
$150
Dec-07
As of December 31, 2007 2008 2009 2010 2011 2012
Alcoa Inc. $100 $32 $47 $45 $26 $ 26
S&P 500
Index 100 63 80 92 94 109

S&P 500
Materials Index 100 54 81 99 89 102

Copyright
2013 Standard & Poors, a division of The McGraw-Hill Companies Inc. All rights reserved.
Source: Research Data Group, Inc. (www.researchdatagroup.com/S&P.htm)
50
Item 6. Selected Financial Data
(dollars in millions, except per-share amounts and ingot prices; shipments in thousands of metric tons [kmt])
For the year ended December 31, 2012 2011 2010 2009 2008
Sales $23,700 $24,951 $21,013 $18,439 $26,901
Amounts attributable to Alcoa common shareholders:
Income (loss) from continuing operations $ 191 $ 614 $ 262 $ (985) $ 229
Loss from discontinued operations - (3) (8) (166) (303)
Net income (loss) $ 191 $ 611 $ 254 $ (1,151) $ (74)
Earnings per share attributable to Alcoa common shareholders:
Basic:
Income (loss) from continuing operations $ 0.18 $ 0.58 $ 0.25 $ (1.06) $ 0.27
Loss from discontinued operations - (0.01) - (0.17) (0.37)
Net income (loss) $ 0.18 $ 0.57 $ 0.25 $ (1.23) $ (0.10)
Diluted:
Loss from discontinued operations - - (0.01) (0.17) (0.37)
Net income (loss) $ 0.18 $ 0.55 $ 0.24 $ (1.23) $ (0.10)
Shipments of alumina (kmt) 9,295 9,218 9,246 8,655 8,041
Shipments of aluminum products (kmt) 5,197 5,037 4,757 5,097 5,481
Alcoas average realized price per metric ton of aluminum $ 2,327 $ 2,636 $ 2,356 $ 1,856 $ 2,714
Cash dividends declared per common share $ 0.12 $ 0.12 $ 0.12 $ 0.26 $ 0.68
Total assets 40,179 40,120 39,293 38,472 37,822
Short-term borrowings 53 62 92 176 478
Commercial paper - 224 - - 1,535
Long-term debt, including amounts due within one year 8,776 9,085 9,073 9,643 8,565
The data presented in the Selected Financial Data table should be read in conjunction with the information provided in
Managements Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 and the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
(dollars in millions, except per-share amounts and ingot prices; production and shipments in thousands of
metric tons [kmt])
Overview
Our Business
Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum, and alumina
combined, through its active and growing participation in all major aspects of the industry: technology, mining,
refining, smelting, fabricating, and recycling. Aluminum is a commodity that is traded on the London Metal Exchange
(LME) and priced daily. Aluminum and alumina represent more than 80% of Alcoas revenues, and the price of
aluminum influences the operating results of Alcoa. Nonaluminum products include precision castings and aerospace
and industrial fasteners. Alcoas products are used worldwide in aircraft, automobiles, commercial transportation,
packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications.
51
Alcoa is a global company operating in 30 countries. Based upon the country where the point of sale occurred, the U.S.
and Europe generated 52% and 25%, respectively, of Alcoas sales in 2012. In addition, Alcoa has investments and
operating activities in, among others, Australia, Brazil, China, Guinea, Iceland, Russia, and Saudi Arabia, all of which
present opportunities for substantial growth. Governmental policies, laws and regulations, and other economic factors,
including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations
in these countries.
Management Review of 2012 and Outlook for the Future
At the end of 2011, management had projected growth in global aluminum demand of 7% for 2012. In the first half of
the year, demand was on course; however, a slowdown in growth in China in the second half resulted in an actual
growth rate of 6%. Additionally, LME pricing levels declined on average 16% year-over-year, mainly due to
macroeconomic events, including significant uncertainty of the sovereign debt of many European countries and the
U.S. fiscal cliff. The Company also faced significant headwinds for certain costs, including maintenance supplies and
services; labor, especially in emerging markets; transportation costs, mostly fuel oil; and higher pension costs.
Consequently, the 2012 operating results of the Companys upstream businesses declined compared with 2011.
Partially offsetting this decrease was the Companys midstream and downstream businesses achieving their highest
profitability ever driven by net productivity improvements and higher volumes. Management continued its relentless
focus on liquidity and cash flows generating incremental improvements in procurement efficiencies, overhead
rationalization, working capital, and disciplined capital spending. These actions enabled Alcoa to decrease debt while
maintaining a stable level of cash on hand.
The following financial information reflects some key measures of Alcoas 2012 results:
Sales of $23,700 and Income from continuing operations of $191, or $0.18 per diluted share;
Total segment after-tax operating income of $1,369;
Cash from operations of $1,497, reduced by pension contributions of $561;
Capital expenditures of $1,261, under $1,500 for the third consecutive year;
Cash on hand at the end of the year of $1,861, in excess of $1,400 for the fourth consecutive year;
Decrease in total debt of $542, and a decline of $1,749 since 2008; and
Debt-to-capital ratio of 34.8%, a decrease of 50 basis points from 2011 and within the targeted range of 30%
to 35%.
In 2013, management is projecting continued growth (increase of 7%) in the global consumption of primary aluminum,
consistent with that of 2012. All regions, except North America, are expected to have one-to-three percentage point
increases in aluminum demand over 2012 with China (11%) and India (9%) expected to have the highest growth rates
in 2013. However, added production, along with few industry-wide capacity curtailments, will result in supply slightly
exceeding demand for primary aluminum. For alumina, growth in global consumption is estimated to be 9%, and
overall demand is expected to slightly exceed supply. Management also anticipates improved market conditions for
aluminum products in all major global end markets, particularly aerospace, despite declines in certain regions. Relative
to input costs, labor and maintenance expenses will continue to be a challenge; however, management has established
and is committed to achieving the following specific goals in 2013:
generating incremental savings over those realized in 2009 through 2012 from procurement, overhead, and
working capital programs;
generating positive cash flow from operations that will exceed capital spending; and
maintaining a debt-to-capital ratio between 30% and 35%.
Looking ahead over the next one to three years, management will continue to focus on its aggressive strategic targets
established two years ago. These targets include lowering Alcoas refining and smelting operations on the cost curve to
the 23rd (from 30th) and 41st (from 51st) percentiles, respectively, by 2015 and driving revenue growth in the
52
midstream (increase of $2,500) and downstream (increase of $1,600) operations by 2013. In conjunction with the
revenue targets, management is committed to improving margins that will exceed historical levels in the midstream and
downstream operations. Management has made significant progress on these targets as described below.
In 2012, actions taken to improve Alcoas position on the cost curve for both refining and smelting operations included
production curtailments of 390 kmt of the Atlantic refinery system; the creep of low-cost capacity at the refineries in
Australia; full or partial curtailment of 240 kmt of smelting capacity in Europe and the permanent closure of 291 kmt
of smelting capacity in the U.S.; the near full-startup of the Estreito hydroelectric power project in Brazil; and new
energy contracts for two U.S. smelters. Additionally, the aluminum complex in Saudi Arabia continues to be on target
as first production from the smelter occurred in December 2012 and the mine and refinery are expected to commence
in 2014. At December 31, 2012, Alcoas refining operations were in the 30th percentile and smelting operations were
in the 47th percentile, a four-percentage point improvement, on the respective cost curves.
The midstream and downstream operations both achieved margins that exceeded historical levels for the second year in
a row and are making progress against the respective revenue growth targets. The midstream operations will continue
to build on this success in 2013 through expansion of the rolling facilities in Davenport, IA to meet rising U.S.
automotive demand, due to changing emissions regulations, and volume growth in Russia and China, including
emerging markets like consumer electronics. The downstream operations will extend their profitable growth in 2013
through continued innovative solutions to meet a wide-range of customer needs, as well as expansion of aluminum
lithium capabilities in Lafayette, IN to meet the growing demand in the aerospace market and the opening of a forged
wheels facility in Suzhou, China that will serve the commercial transportation market.
Results of Operations
Earnings Summary
Income from continuing operations attributable to Alcoa for 2012 was $191, or $0.18 per diluted share, compared with
$614, or $0.55 per share, in 2011. The decline of $423 in continuing operations was primarily due to the following:
lower realized prices for aluminum and alumina, higher input costs, and charges for litigation and environmental
remediation matters. These items were partially offset by net productivity improvements, a gain on the sale of U.S.
hydroelectric power assets, a decline in the results attributable to noncontrolling interests, lower restructuring charges,
net favorable foreign currency movements, lower income taxes due to a decline in operating results, a favorable LIFO
(last in, first out) impact, and higher volumes in the midstream and downstream segments.
Income from continuing operations attributable to Alcoa for 2011 was $614, or $0.55 per share, compared with $262,
or $0.25 per share, in 2010. The improvement of $352 in continuing operations was primarily due to the following:
higher realized prices for alumina and aluminum, stronger volumes in the midstream and downstream segments, net
productivity improvements, and a net favorable change in mark-to-market derivative contracts. These items were
partially offset by higher input costs, net unfavorable foreign currency movements, higher income taxes due to better
operating results, and additional restructuring charges.
Net income attributable to Alcoa for 2012 was $191, or $0.18 per share, compared with $611, or $0.55 per share, in
2011, and $254, or $0.24 per share, in 2010. In 2011, net income of $611 included a loss from discontinued operations
of $3, and, in 2010, net income of $254 included a loss from discontinued operations of $8.
In 2011, Alcoa restarted the following previously curtailed production capacity in the U.S.: Massena East, NY
(125 kmt-per-year); Wenatchee, WA (43 kmt-per-year); and Ferndale, WA (Intalco: 47 kmt-per-year (11 kmt more
than previously planned)). These restarts occurred to help meet anticipated growth in aluminum demand and to meet
obligations outlined in power agreements with energy providers. As a result of these restarts, aluminum production
increased by approximately 150 kmt during 2011 and by 215 kmt in 2012.
53
In late 2011, management approved the permanent shutdown and demolition of the smelter located in Tennessee
(215 kmt-per-year) and two potlines (capacity of 76 kmt-per-year) at the smelter located in Rockdale, TX (remaining
capacity of 191 kmt-per-year composed of four potlines). This decision was made after a comprehensive strategic
analysis was performed to determine the best course of action for each facility. Factors leading to this decision were in
general focused on achieving sustained competitiveness and included, among others: lack of an economically viable,
long-term power solution; changed market fundamentals; cost competitiveness; required future capital investment; and
restart costs.
Also, at the end of 2011, management approved a partial or full curtailment of three European smelters as follows:
Portovesme, Italy (150 kmt-per-year); Avils, Spain (46 kmt out of 93 kmt-per-year); and La Corua, Spain (44 kmt
out of 87 kmt-per-year). These curtailments were completed by the end of 2012. The curtailment of the Portovesme
smelter may lead to the permanent closure of the facility, while the curtailments at the two smelters in Spain are
planned to be temporary. These actions were the result of uncompetitive energy positions, combined with rising
material costs and falling aluminum prices (mid-2011 to late 2011).
In December 2012, the Spanish Government issued a Ministerial Order that modified the interruptibility regime
previously in place in the Spanish power market. The interruptibility regime allows certain industrial customers who
are willing to be subject to temporary interruptions in the supply of power to sell interruption rights to the high voltage
transmission system operator. In January 2013, Alcoa applied for and was granted rights to sell interruption services
under the modified regime from its San Ciprian, Avils, and La Corua smelters in Spain. The commitment is taken for
a one-year period. Alcoa understands that the Spanish Government intends to notify the European Commission of the
modification in the interruptibility regime for review under European state aid rules. As a result of the modification to
the interruptibility regime, Alcoa has commenced the restart of a portion (25 kmt combined for Avils and La Corua)
of the capacity previously curtailed in the first half of 2012 in order to meet the requirements of the modified
interruptibility regime.
SalesSales for 2012 were $23,700 compared with sales of $24,951 in 2011, a decrease of $1,251, or 5%. The decline
was mainly the result of a drop in realized prices for aluminum and alumina, driven by lower London Metal Exchange
(LME) prices, unfavorable pricing in the midstream segment due to a decrease in metal prices, and unfavorable foreign
currency movements, mostly due to a weaker euro, somewhat offset by higher volumes in the midstream and
downstream segments and favorable product mix in the midstream segment.
Sales for 2011 were $24,951 compared with sales of $21,013 in 2010, an improvement of $3,938, or 19%. The increase
was primarily due to a rise in realized prices for alumina and aluminum, better pricing in the midstream segment, and
higher volumes in the Primary Metals segment and virtually all businesses in the midstream and downstream segments.
Cost of Goods SoldCOGS as a percentage of Sales was 86.4% in 2012 compared with 82.1% in 2011. The percentage
was negatively impacted by the previously mentioned lower realized prices in the upstream and midstream segments,
higher input costs, a net charge for adjustments to certain environmental reserves ($194), and a charge for a civil litigation
reserve ($85). These items were somewhat offset by net productivity improvements, net favorable foreign currency
movements due to a stronger U.S. dollar, and a change in LIFO adjustments from unfavorable to favorable, primarily due
to lower prices for alumina and metal and lower costs for calcined coke.
COGS as a percentage of Sales was 82.1% in 2011 compared with 81.7% in 2010. The percentage was negatively impacted
by higher energy and raw materials costs and net unfavorable foreign currency movements due to a weaker U.S. dollar,
mostly offset by the previously mentioned higher realized prices and net productivity improvements.
Selling, General Administrative, and Other ExpensesSG&A expenses were $997, or 4.2% of Sales, in 2012
compared with $1,027, or 4.1% of Sales, in 2011. The decline of $30 was mostly due to lower stock-based
compensation expense, a decrease in bad debt expense (see below), a decline in travel expense, and less spending
across various other expenses. These items were partially offset by higher pension costs, due to the recognition of
higher net actuarial losses, and increased professional expenses, due to consulting fees associated with productivity
initiatives and higher legal expenses.
54
SG&A expenses were $1,027, or 4.1% of Sales, in 2011 compared with $961, or 4.6% of Sales, in 2010. The increase
of $66 was principally the result of higher labor costs and an increase in bad debt expense. The increase in labor costs
was the result of a higher average employee base and a higher cost of employee benefits. The higher bad debt expense
was caused by charges for anticipated customer credit losses, primarily related to those in Europe.
Research and Development ExpensesR&D expenses were $197 in 2012 compared with $184 in 2011 and $174 in
2010. The increase in 2012 as compared to 2011 was primarily caused by additional spending related to inert anode
technology for the Primary Metals segment. The increase in 2011 as compared to 2010 was mainly driven by
incremental increases across various expenses necessary to support R&D activities.
Provision for Depreciation, Depletion, and AmortizationThe provision for DD&A was $1,460 in 2012 compared
with $1,479 in 2011. The decrease of $19, or 1%, was principally the result of the cessation of DD&A due to the
decision at the end of 2011 to permanently shut down and demolish the smelter in Tennessee (see Restructuring and
Other Charges below) and the absence of DD&A on various in-use assets that reached the end of their estimated useful
life in 2011, partially offset by an increase related to assets placed into service associated with a new hydroelectric
power facility in Brazil and higher DD&A due to the capitalization of new haul roads and the write-off of old haul
roads no longer in use for mining sites in Australia.
The provision for DD&A was $1,479 in 2011 compared with $1,450 in 2010. The increase of $29, or 2%, was mostly
due to a portion of the assets placed into service in mid-2011 related to a new hydroelectric power facility in Brazil,
along with a number of small increases at various locations.
Restructuring and Other ChargesRestructuring and other charges for each year in the three-year period ended
December 31, 2012 were comprised of the following:
2012 2011 2010
Asset impairments $ 40 $150 $139
Layoff costs 47 93 43
Other exit costs 21 61 58
Reversals of previously recorded layoff and other exit costs (21) (23) (33)
Restructuring and other charges $ 87 $281 $207
Layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified
positions to be eliminated, benefits to be paid under existing severance plans, union contracts or statutory requirements,
and the expected timetable for completion of the plans.
2012 ActionsIn 2012, Alcoa recorded Restructuring and other charges of $87 ($73 after-tax and noncontrolling
interests), which were comprised of the following components: $47 ($29 after-tax and noncontrolling interests) for the
layoff of approximately 800 employees (390 in the Engineered Products and Solutions segment, 250 in the Primary
Metals segment, 85 in the Alumina segment, and 75 in Corporate), including $10 ($7 after-tax) for the layoff of an
additional 170 employees related to the previously reported smelter curtailments in Spain (see 2011 Actions below);
$30 ($30 after-tax) in asset impairments and $6 ($6 after-tax) for lease and contract termination costs due to a decision
to exit the lithographic sheet business in Bohai, China; $11 ($11 after-tax) in costs to idle the Portovesme smelter (see
2011 Actions below); $10 ($8 after-tax) in other asset impairments; a net charge of $4 ($4 after-tax and noncontrolling
interests) for other miscellaneous items; and $21 ($15 after-tax and noncontrolling interests) for the reversal of a
number of layoff reserves related to prior periods, including $10 ($7 after-tax) related to the smelters in Spain. The
reversal related to the smelters in Spain is due to lower than expected costs based on agreements with employee
representatives and the government, as well as a reduction of 55 in the number of layoffs due to the anticipation of the
restart of a portion of the previously curtailed capacity based on an agreement with the Spanish government that will
provide interruptibility rights (i.e. compensation for power interruptions when grids are overloaded) to the smelters
during 2013. A portion of this reversal relates to layoff costs recorded at the end of 2011 (see 2011 Actions below) and
a portion of this reversal relates to layoff costs recorded during 2012 (see above).
55
As of December 31, 2012, approximately 270 of the 800 employees were separated. The remaining separations for the
2012 restructuring programs are expected to be completed by the end of 2013. In 2012, cash payments of $16 were
made against layoff reserves related to the 2012 restructuring programs.
interests), which were comprised of the following components: $127 ($82 after-tax) in asset impairments and $36
($23 after-tax) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at
two U.S. locations (see below); $93 ($68 after-tax and noncontrolling interests) for the layoff of approximately 1,600
employees (820 in the Primary Metals segment, 470 in the Global Rolled Products segment, 160 in the Alumina segment,
20 in the Engineered Products and Solutions segment, and 130 in Corporate), including the effects of planned smelter
curtailments (see below); $23 ($12 after-tax and noncontrolling interests) for other asset impairments, including the write-
off of the carrying value of an idled structure in Australia that processed spent pot lining and adjustments to the fair value
of the one remaining foil location while it was classified as held for sale due to foreign currency movements; $20 ($8
after-tax and noncontrolling interests) for a litigation matter related to the former St. Croix location; a net charge of $5 ($4
after-tax) for other small items; and $23 ($16 after-tax) for the reversal of previously recorded layoff reserves due to
normal attrition and changes in facts and circumstances, including a change in plans for Alcoas aluminum powder facility
in Rockdale, TX.
In late 2011, management approved the permanent shutdown and demolition of certain facilities at two U.S. locations,
each of which was previously temporarily idled for various reasons. The identified facilities are the smelter located in
Alcoa, TN (capacity of 215 kmt-per-year) and two potlines (capacity of 76 kmt-per-year) at the smelter located in
Rockdale, TX (remaining capacity of 191 kmt-per-year composed of four potlines). Demolition and remediation
activities related to these actions began in 2012 and are expected to be completed in 2015 for the Tennessee smelter
and in 2013 for the two potlines at the Rockdale smelter. This decision was made after a comprehensive strategic
analysis was performed to determine the best course of action for each facility. Factors leading to this decision were in
general focused on achieving sustained competitiveness and included, among others: lack of an economically viable,
long-term power solution; changed market fundamentals; cost competitiveness; required future capital investment; and
restart costs. The asset impairments of $127 represent the write off of the remaining book value of properties, plants,
and equipment related to these facilities. Additionally, remaining inventories, mostly operating supplies, were written
down to their net realizable value resulting in a charge of $6 ($4 after-tax), which was recorded in Cost of goods sold
on the accompanying Statement of Consolidated Operations. The other exit costs of $36 represent $18 ($11 after-tax)
in environmental remediation and $17 ($11 after-tax) in asset retirement obligations, both triggered by the decision to
permanently shut down and demolish these structures, and $1 ($1 after-tax) in other related costs.
Portovesme, Italy (150 kmt-per-year); Avils, Spain (46 kmt out of 93 kmt-per-year); and La Corua, Spain (44 kmt
out of 87 kmt-per-year). These curtailments were completed by the end of 2012. The curtailment of the Portovesme
smelter may lead to the permanent closure of the facility, which would result in future charges, while the curtailments
at the two smelters in Spain are planned to be temporary. These actions were the result of uncompetitive energy
positions, combined with rising material costs and falling aluminum prices (mid-2011 to late 2011). As a result of these
decisions, Alcoa recorded costs of $33 ($31 after-tax) for the layoff of approximately 650 employees. As Alcoa
engaged in discussions with the respective employee representatives and governments, additional charges were
recognized in 2012 (see 2012 Actions above).
As of December 31, 2012, approximately 895 of the 1,475 employees were separated. The total number of employees
associated with the 2011 restructuring programs was updated to reflect changes in plans (agreement related to the
smelters in Spain see 2012 Actions above), better than expected operating performance at certain locations, and
natural attrition. The remaining separations for the 2011 restructuring programs are expected to be completed by the
end of 2013. In 2012 and 2011, cash payments of $23 and $24, respectively, were made against layoff reserves related
to the 2011 restructuring programs.
interests), which were comprised of the following components: $127 ($80 after-tax and noncontrolling interests) in
56
asset impairments and $46 ($29 after-tax and noncontrolling interests) in other exit costs related to the permanent
shutdown and planned demolition of certain idled structures at five U.S. locations (see below); $43 ($29 after-tax and
noncontrolling interests) for the layoff of approximately 875 employees (625 in the Engineered Products and Solutions
segment; 75 in the Primary Metals segment; 60 in the Alumina segment; 25 in the Global Rolled Products segment;
and 90 in Corporate); $22 ($14 after-tax) in net charges (including $12 ($8 after-tax) for asset impairments) related to
divested and to be divested businesses (Automotive Castings, Global Foil, Transportation Products Europe, and
Packaging and Consumer) for, among other items, the settlement of a contract with a former customer, foreign
currency movements, working capital adjustments, and a tax indemnification; $2 ($2 after-tax and noncontrolling
interests) for various other exit costs; and $33 ($24 after-tax and noncontrolling interests) for the reversal of prior
periods layoff reserves, including a portion of those related to the Portovesme smelter in Italy due to the execution of a
new power agreement.
In early 2010, management approved the permanent shutdown and demolition of the following structures, each of which
was previously temporarily idled for different reasons: the Eastalco smelter located in Frederick, MD (capacity of 195
kmt-per-year); the smelter located in Badin, NC (capacity of 60 kmt-per-year); an aluminum fluoride plant in Point
Comfort, TX; a paste plant and cast house in Massena, NY; and one potline at the smelter in Warrick, IN (capacity of 40
kmt-per-year). This decision was made after a comprehensive strategic analysis was performed to determine the best
course of action for each facility. Factors leading to this decision included current market fundamentals, cost
competitiveness, other existing idle capacity, required future capital investment, and restart costs, as well as the
elimination of ongoing holding costs. The asset impairments of $127 represent the write off of the remaining book value
of properties, plants, and equipment related to these facilities. Additionally, remaining inventories, mostly operating
supplies, were written down to their net realizable value resulting in a charge of $8 ($5 after-tax and noncontrolling
interests), which was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. The
other exit costs of $46 represent $30 ($19 after-tax and noncontrolling interests) in asset retirement obligations and $14
($9 after-tax) in environmental remediation, both triggered by the decision to permanently shut down and demolish these
structures, and $2 ($1 after-tax and noncontrolling interests) in other related costs.
As of December 31, 2012, the separations associated with 2010 restructuring programs were essentially complete. In
2012 and 2011, cash payments of $3 and $7, respectively, were made against layoff reserves related to 2010
restructuring programs.
Alcoa does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of
allocating such charges to segment results would have been as follows:
2012 2011 2010
Alumina $ 3 $ 39 $ 12
Primary Metals 20 212 145
Global Rolled Products 43 19 (11)
Engineered Products and Solutions 13 (3) 18
Segment total 79 267 164
Corporate 8 14 43
Total restructuring and other charges $87 $281 $207
Interest ExpenseInterest expense was $490 in 2012 compared with $524 in 2011. The decline of $34, or 6%, was
principally caused by the absence of a $41 net charge related to the early retirement of various outstanding notes (see
below), somewhat offset by lower capitalized interest ($8). The decrease in capitalized interest was largely attributable
to the Estreito hydroelectric power project in Brazil as construction nears completion, partially offset by an increase
related to the aluminum complex in Saudi Arabia.
Interest expense was $524 in 2011 compared with $494 in 2010. The increase of $30, or 6%, was primarily due to a
$41 net charge related to the early retirement of various outstanding notes ($74 in purchase premiums paid partially
offset by a $33 gain for in-the-money interest rate swaps), somewhat offset by the absence of a $14 net charge
related to the early retirement of various outstanding notes ($42 in purchase premiums paid partially offset by a $28
gain for in-the-money interest rate swaps).
57
Other (Income) Expenses, netOther income, net was $341 in 2012 compared with $87 in 2011. The increase of
$254 was mostly due to a gain on the sale of U.S. hydroelectric power assets ($320: see Primary Metals in Segment
Information below) and net favorable foreign currency movements ($21). These two items were somewhat offset by
lower equity income ($43), largely attributable to Alcoas share of expenses of the joint venture in Saudi Arabia and
the absence of a discrete income tax benefit recognized by the consortium related to an investment in a natural gas
pipeline in Australia (see below); the absence of a gain on the sale of land (see below); and a net unfavorable change in
mark-to-market derivative contracts ($39), principally driven by the absence of a favorable change in an energy
contract that expired in September 2011.
Other income, net was $87 in 2011 compared with Other expenses, net of $5 in 2010. The change of $92 was mainly the
result of a net favorable change of $89 in mark-to-market derivative contracts, a gain of $43 from the sale of land in
Australia, and higher equity income from an investment in a natural gas pipeline in Australia due to the recognition of a
discrete income tax benefit by the consortium (Alcoa World Alumina and Chemicals share of the benefit was $24),
slightly offset by a decrease in the cash surrender value of company-owned life insurance.
Income TaxesAlcoas effective tax rate was 50.0% in 2012 compared with the U.S. federal statutory rate of 35%.
The effective tax rate differs from the U.S. federal statutory rate principally due to the tax impact from the gain
recognized on the sale of U.S. hydroelectric power assets (see Primary Metals in Segment Information below) and an
$8 discrete income tax charge related to prior year U.S. taxes on certain depletable assets, slightly offset by a $13
discrete income tax benefit related to a change in the legal structure of an investment.
Alcoas effective tax rate was 24.0% in 2011 compared with the U.S. federal statutory rate of 35%. The effective tax
rate differs from the U.S. federal statutory rate mainly due to foreign income taxed in lower rate jurisdictions.
Alcoas effective tax rate was 26.9% in 2010 compared with the U.S. federal statutory rate of 35%. The effective tax
rate differs from the U.S. federal statutory rate primarily due to foreign income taxed in lower rate jurisdictions, a $57
discrete income tax benefit for the reversal of a valuation allowance as a result of previously restricted net operating
losses of a foreign subsidiary now available, a $24 discrete income tax benefit related to a Canadian provincial tax law
change permitting a tax return to be filed in U.S. dollars, and a $13 net discrete income tax benefit for various other
items, partially offset by a $79 discrete income tax charge as a result of a change in the tax treatment of federal
subsidies received related to prescription drug benefits provided under certain retiree health care benefit plans that were
determined to be actuarially equivalent to Medicare Part D and a $19 discrete income tax charge based on settlement
discussions of several matters with international taxing authorities (this amount represents a decrease to Alcoas
unrecognized tax benefits).
Management anticipates that the effective tax rate in 2013 will be approximately 30%. However, changes in the current
economic environment, tax legislation or rate changes, currency fluctuations, ability to realize deferred tax assets, and
the results of operations in certain taxing jurisdictions may cause this estimated rate to fluctuate.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law and extended through 2013
various expired or expiring temporary business tax provisions. Two specific temporary business tax provisions that
expired in 2011 and impacted Alcoa are the look-through rule for payments between related controlled foreign
corporations and the research and experimentation credit. The expiration of these two provisions resulted in Alcoa
recognizing a higher income tax provision of $18 in 2012. As tax law changes are accounted for in the period of
enactment, Alcoa will recognize an $18 discrete income tax benefit in 2013 related to the 2012 tax year to reflect the
extension of these provisions.
In December 2011, one of the Companys subsidiaries in Brazil applied for a tax holiday related to its expanded mining
and refining operations. If approved, the tax rate for this subsidiary will decrease significantly, resulting in future cash
tax savings over the 10-year holiday period (would be effective as of January 1, 2013). Additionally, the net deferred
tax asset of the subsidiary would be remeasured at the lower rate in the period the holiday is approved. This
remeasurement would result in a decrease to the net deferred tax asset and a noncash charge to earnings of
approximately $60 to $120. As of December 31, 2012, Alcoas subsidiarys application is still pending.
58
Noncontrolling InterestsNet loss attributable to noncontrolling interests was $29 in 2012 compared with Net
income attributable to noncontrolling interests of $194 in 2011. The change of $223 was mostly due to lower earnings
at Alcoa World Alumina and Chemicals (AWAC), which is owned 60% by Alcoa and 40% by Alumina Limited. The
decline in earnings at AWAC were attributed primarily to lower realized prices, due to a decrease in contractual LME-
based pricing, higher input costs, particularly caustic and fuel oil, and a charge for a litigation reserve of $34. These
items were somewhat offset by net productivity improvements and net favorable foreign currency movements due to a
stronger U.S. dollar.
Net income attributable to noncontrolling interests was $194 in 2011 compared with $138 in 2010. The increase of $56 was
largely the result of higher earnings at AWAC. The improved earnings at AWAC were mainly driven by higher realized
prices, partially offset by higher input costs and net unfavorable foreign currency movements due to a weaker U.S. dollar.
Loss From Discontinued OperationsLoss from discontinued operations in 2011 was $3 comprised of an additional loss
of $3 ($5 pretax) related to the wire harness and electrical portion (divested in June 2009) of the Electrical and Electronic
Solutions (EES) business as a result of a negotiated preliminary settlement related to claims filed in 2010 against Alcoa by
Platinum Equity in an insolvency proceeding in Germany, a net gain of $2 ($3 pretax) related to both the wire harness and
electrical portion and the electronics portion (divested in December 2009) of the EES business for a number of small post-
closing and other adjustments, and a $2 ($2 pretax) reversal of the gain recognized in 2006 related to the sale of the home
exteriors business for an adjustment to an outstanding obligation, which was part of the terms of sale.
Loss from discontinued operations in 2010 was $8 comprised of an additional loss of $6 ($9 pretax) related to the wire
harness and electrical portion of the EES business as a result of a contract settlement with a former customer of this
business and an additional loss of $2 ($4 pretax) related to the electronics portion of the EES business for the settling
of working capital, which was not included in the divestiture transaction.
Segment Information
Alcoas operations consist of four worldwide reportable segments: Alumina, Primary Metals, Global Rolled Products,
and Engineered Products and Solutions. Segment performance under Alcoas management reporting system is
evaluated based on a number of factors; however, the primary measure of performance is the after-tax operating
income (ATOI) of each segment. Certain items such as the impact of LIFO inventory accounting; interest expense;
noncontrolling interests; corporate expense (general administrative and selling expenses of operating the corporate
headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned
assets); restructuring and other charges; discontinued operations; and other items, including intersegment profit
eliminations and other metal adjustments, differences between tax rates applicable to the segments and the consolidated
effective tax rate, the results of the soft alloy extrusions business in Brazil, and other nonoperating items such as
foreign currency transaction gains/losses and interest income are excluded from segment ATOI.
ATOI for all reportable segments totaled $1,369 in 2012, $1,893 in 2011, and $1,424 in 2010. See Note Q to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information. The following
discussion provides shipments, sales, and ATOI data for each reportable segment and production data for the Alumina
and Primary Metals segments for each of the three years in the period ended December 31, 2012.
Alumina
2012 2011 2010
Alumina production (kmt) 16,342 16,486 15,922
Third-party alumina shipments (kmt) 9,295 9,218 9,246
Third-party sales $ 3,092 $ 3,462 $ 2,815
Intersegment sales 2,310 2,727 2,212
Total sales $ 5,402 $ 6,189 $ 5,027
ATOI $ 90 $ 607 $ 301
59
This segment represents a portion of Alcoas upstream operations and consists of the Companys worldwide refinery
system, including the mining of bauxite, which is then refined into alumina. Alumina is mainly sold directly to internal
and external smelter customers worldwide or is sold to customers who process it into industrial chemical products. A
portion of this segments third-party sales are completed through the use of agents, alumina traders, and distributors.
Slightly more than half of Alcoas alumina production is sold under supply contracts to third parties worldwide, while
the remainder is used internally by the Primary Metals segment.
In 2012, alumina production decreased by 144 kmt compared to 2011. The decline was mainly driven by lower production
in the Atlantic refinery system as a result of managements plan to reduce annual production capacity by approximately
390 kmt. This decision was made to align production with smelter curtailments initiated at the beginning of 2012 and to
reflect prevailing market conditions. The decrease at these three refineries was partially offset by higher production at the
Pinjarra and Kwinana refineries in Australia, due to system process improvements.
In 2011, alumina production increased by 564 kmt compared to 2010. The improvement was mostly the result of
higher production at the So Lus (Brazil) refinery, as the ramp-up of the 2,100 kmt expanded capacity (the Alumina
segments share is approximately 1,100 kmt-per-year) that began in late 2009 continued through 2011.
Third-party sales for the Alumina segment dropped 11% in 2012 compared with 2011, primarily related to a 15%
decline in realized prices, driven by a decrease in contractual LME-based pricing, slightly offset by realized benefits
from moving customer contracts to alumina index pricing and from improved spot pricing. Third-party sales for this
segment improved 23% in 2011 compared with 2010, largely attributable to a 21% increase in realized prices, driven
by the movement of customer contracts to alumina index pricing, benefits from improved spot prices, and improved
pricing from LME-based contracts.
Intersegment sales for the Alumina segment decreased 15% in 2012 compared with 2011, principally due to lower
realized prices and decreased demand from the Primary Metals segment. Intersegment sales for this segment climbed
23% in 2011 compared with 2010, primarily the result of higher realized prices and an increase in demand from the
Primary Metals segment.
ATOI for the Alumina segment dropped $517 in 2012 compared with 2011, mostly due to the previously mentioned
lower realized prices, higher input costs, particularly caustic and fuel oil, and the absence of a gain on the sale of land
in Australia ($30), somewhat offset by net productivity improvements and net favorable foreign currency movements
due to a stronger U.S. dollar, especially against the Brazilian real.
ATOI for this segment increased $306 in 2011 compared with 2010, mainly caused by the significant improvement in
realized prices and a gain on the sale of land in Australia ($30), partially offset by considerably higher input costs,
particularly related to caustic and fuel oil, and net unfavorable foreign currency movements due to a weaker U.S.
dollar, especially against the Australian dollar.
In 2013, the continued shift towards alumina index or spot pricing is expected to average 48% of third-party sales,
while those still contractually linked to the LME will follow a 30-day lag. Additionally, net productivity improvements
are expected to continue.
Primary Metals
2012 2011 2010
Aluminum production (kmt) 3,742 3,775 3,586
Third-party aluminum shipments (kmt) 3,056 2,981 2,845
Alcoas average realized price per metric ton of aluminum $ 2,327 $ 2,636 $2,356
Third-party sales $ 7,432 $ 8,240 $7,070
Intersegment sales 2,877 3,192 2,597
Total sales $10,309 $11,432 $9,667
ATOI $ 309 $ 481 $ 488
60
This segment represents a portion of Alcoas upstream operations and consists of the Companys worldwide smelter
system. Primary Metals receives alumina, mostly from the Alumina segment, and produces primary aluminum used by
Alcoas fabricating businesses, as well as sold to external customers, aluminum traders, and commodity markets.
Results from the sale of aluminum powder, scrap, and excess power are also included in this segment, as well as the
results of aluminum derivative contracts and buy/resell activity. Primary aluminum produced by Alcoa and used
internally is transferred to other segments at prevailing market prices. The sale of primary aluminum represents more
than 90% of this segments third-party sales. Buy/resell activity refers to when this segment purchases metal from
external or internal sources and resells such metal to external customers or the midstream and downstream segments in
order to maximize smelting system efficiency and to meet customer requirements.
In November 2012, Alcoa completed the sale of its 351-megawatt Tapoco Hydroelectric Project (Tapoco) to
Brookfield Renewable Energy Partners for $597 in cash. Alcoa recognized a gain of $320 ($173 after-tax) in Other
income, net on the accompanying Statement of Consolidated Operations, of which a gain of $426 ($275 after-tax) was
reflected in the Primary Metals segment and a loss of $106 ($102 after-tax) was reflected in Corporate. The amount in
Corporate represents the write-off of goodwill and capitalized interest related to Tapoco that were not included in the
assets of the Primary Metals segment. Tapoco is a four-station hydroelectric project located on the Little Tennessee and
Cheoah Rivers in eastern Tennessee and western North Carolina. The transaction included four generating stations and
dams, 86 miles of transmission lines, and approximately 14,500 acres of land associated with and surrounding Tapoco.
The power generated by Tapoco was primarily consumed by Alcoas smelter in Tennessee, which was temporarily
idled in 2009 and permanently shut down in 2011. Since 2009, the power generated from Tapoco was sold into the
open market.
At December 31, 2012, Alcoa had 591 kmt of idle capacity on a base capacity of 4,227 kmt. In 2012, idle capacity
decreased 53 kmt compared to 2011 due to the permanent shutdown of the smelter in Tennessee (215 kmt-per-year)
and two potlines at the smelter located in Rockdale, TX (76 kmt-per-year), mostly offset by the curtailment of the
Portovesme smelter in Italy (150 kmt-per-year) and the temporarily curtailment of a portion of the smelters in Spain:
Avils (46 kmt out of 93 kmt-per-year) and La Corua (44 kmt out of 87 kmt-per-year). Additionally, base capacity
declined 291 kmt between December 31, 2012 and 2011 due to the previously mentioned permanent shutdowns.
In late 2011, management approved the permanent shutdown and demolition of the Tennessee smelter and two potlines
at the Rockdale smelter (remaining capacity of 191 kmt-per-year composed of four potlines), each of which was
previously temporarily idled for various reasons. This decision was made after a comprehensive strategic analysis was
performed to determine the best course of action for each facility. Factors leading to this decision were in general
focused on achieving sustained competitiveness and included, among others: lack of an economically viable, long-term
power solution; changed market fundamentals; cost competitiveness; required future capital investment; and restart
costs.
Also, at the end of 2011, management approved a full curtailment of the Portovesme smelter and a partial curtailment
at the Avils and La Corua smelters. The curtailment of the Portovesme smelter may lead to the permanent closure of
the facility, while the curtailments at the two smelters in Spain are planned to be temporary. These actions were the
result of uncompetitive energy positions, combined with rising material costs and falling aluminum prices (mid-2011 to
late 2011).
At December 31, 2011, Alcoa had 644 kmt of idle capacity on a base capacity of 4,518 kmt. In 2011, idle capacity
decreased 234 kmt compared to 2010 due to the full restart of previously curtailed production capacity in the U.S.:
Massena East, NY (125 kmt-per-year); Wenatchee, WA (43 kmt-per-year); and Ferndale, WA (Intalco: 47 kmt-per-
year (11 kmt more than previously planned)). These restarts occurred to help meet anticipated growth in aluminum
demand and to meet obligations outlined in power agreements with energy providers. As a result of these restarts,
aluminum production increased by approximately 150 kmt during 2011 and by 215 kmt in 2012.
In 2012, aluminum production decreased by 33 kmt, mostly due to the previously mentioned curtailments at the
Portovesme, Avils, and La Corua smelters, partially offset by the benefit of a full year of production related to the
capacity restarted in 2011 at the Massena East, Wenatchee, and Ferndale smelters. In 2011, aluminum production
61
improved by 189 kmt, mainly the result of the previously mentioned restarted capacity at Massena East, Ferndale, and
Wenatchee, as well as higher production at the Avils smelter, where production had been previously halted due to
torrential flooding in 2010.
Third-party sales for the Primary Metals segment dropped 10% in 2012 compared with 2011, mainly due to a 12%
decline in average realized prices, driven by 16% lower average LME prices, slightly offset by higher buy/resell
activity. The U.S. capacity restarted in 2011 contributed positively to third-party sales in 2012, but was completely
offset by the curtailments of European capacity in 2012. Third-party sales for this segment improved 17% in 2011
compared with 2010, primarily due to a 12% rise in average realized prices, driven by 10% higher average LME prices,
higher volumes, largely attributable to the previously mentioned restarted U.S. capacity, and increased revenue from
the sale of excess power.
Intersegment sales for the Primary Metals segment decreased 10% in 2012 compared with 2011, principally due to a
decline in realized prices, driven by a lower LME. Intersegment sales for this segment rose 23% in 2011 compared
with 2010, mainly the result of an improvement in realized prices, driven by the higher LME, and an increase in buy/
resell activity.
ATOI for the Primary Metals segment dropped $172 in 2012 compared with 2011, principally related to the previously
mentioned decrease in realized prices; higher costs, particularly labor and other raw materials; and an unfavorable
impact as a result of business interruption and repair costs related to a fire in March 2012 at the Massena West, NY
cast house ($21); partially offset by a gain on the sale of Tapoco (see above); lower costs for alumina and energy; net
favorable foreign currency movements due to a stronger U.S. dollar, particularly against the euro and Brazilian real;
and net productivity improvements.
ATOI for this segment declined $7 in 2011 compared with 2010, primarily caused by significantly higher input costs,
including carbon, alumina, and energy, and net unfavorable foreign currency movements due to a weaker U.S. dollar,
virtually offset by improved realized prices, net productivity improvements, and higher excess power sales.
In 2013, pricing is anticipated to follow a 15-day lag on the LME and net productivity improvements are expected to
continue. Also, Alcoas share of start-up costs for the smelter in Saudi Arabia will negatively impact results.
Additionally, planned maintenance for power plants during the first half of the year and higher energy costs are
expected. Furthermore, in January 2013, Alcoa applied for and was granted rights to sell power interruption services
from its San Ciprian, Avils, and La Corua smelters in Spain for a one-year period. As a result, Alcoa has commenced
the restart of a portion (25 kmt combined for Avils and La Corua) of the capacity previously curtailed in the first half
of 2012 in order to meet the requirements of the interruption services (see the Earnings Summary section above for
additional information).
2012 2011 2010
Third-party aluminum shipments (kmt) 1,867 1,780 1,658
Third-party sales $7,378 $7,642 $6,277
Intersegment sales 163 218 180
Total sales $7,541 $7,860 $6,457
ATOI $ 358 $ 266 $ 220
This segment represents Alcoas midstream operations, whose principal business is the production and sale of
aluminum plate and sheet. A small portion of this segments operations relate to foil produced at one plant in Brazil.
This segment includes rigid container sheet (RCS), which is sold directly to customers in the packaging and consumer
market and is used to produce aluminum beverage cans. Seasonal increases in RCS sales are generally experienced in
the second and third quarters of the year. This segment also includes sheet and plate used in the aerospace, automotive,
commercial transportation, and building and construction markets (mainly used in the production of machinery and
62
equipment and consumer durables), which is sold directly to customers and through distributors. Approximately one-
half of the third-party sales in this segment consist of RCS, while the other one-half of third-party sales are derived
from sheet and plate and foil used in industrial markets. While the customer base for flat-rolled products is large, a
significant amount of sales of RCS, sheet, and plate is to a relatively small number of customers.
Third-party sales for the Global Rolled Products segment decreased 3% in 2012 compared with 2011, principally
caused by unfavorable pricing, due to a decrease in metal prices, and unfavorable foreign currency movements, mostly
due to a weaker euro, somewhat offset by higher volumes and favorable product mix. The higher volumes were largely
attributable to the packaging, automotive, building and construction, and aerospace end markets, slightly offset by the
industrial products end market. Third-party sales for this segment climbed 22% in 2011 compared with 2010, primarily
driven by better pricing; higher volumes across most businesses, particularly related to the packaging, aerospace, and
commercial transportation end markets; favorable foreign currency movements, mainly due to a stronger euro; and
favorable product mix.
ATOI for the Global Rolled Products segment improved $92 in 2012 compared with 2011, mainly the result of net
productivity improvements across all businesses, favorable product mix, and the previously mentioned higher volumes,
somewhat offset by higher input costs, particularly labor and transportation. ATOI for this segment rose $46 in 2011
compared with 2010, primarily attributable to the previously mentioned positive pricing, volume, and product mix
impacts, partially offset by higher input costs and charges for anticipated customer credit losses.
In 2013, demand in the aerospace and automotive markets is expected to remain strong. European and North American
industrial markets are uncertain; beverage can packaging markets are expected to remain mixed (by region). Continued
net productivity improvements are anticipated.
2012 2011 2010
Third-party aluminum shipments (kmt) 222 221 197
Third-party sales $5,525 $5,345 $4,584
ATOI $ 612 $ 539 $ 415
This segment represents Alcoas downstream operations and includes titanium, aluminum, and super alloy investment
castings; forgings and fasteners; aluminum wheels; integrated aluminum structural systems; and architectural
extrusions used in the aerospace, automotive, building and construction, commercial transportation, and power
generation markets. These products are sold directly to customers and through distributors. Additionally, hard alloy
extrusions products, which are also sold directly to customers and through distributors, serve the aerospace,
automotive, commercial transportation, and industrial products markets.
On March 9, 2011, Alcoa completed an acquisition of the aerospace fastener business of TransDigm Group Inc. for
$240. This business is a leading global designer, producer, and supplier of highly engineered aircraft components, with
three locations (one in the state of California and two in the United Kingdom) that employ a combined 400 people (at
time of acquisition). Specifically, this business provides a wide variety of high-strength, high temperature nickel alloy
specialty engine fasteners, airframe bolts, and slotted entry bearings. In 2010, this business generated sales of $61. The
assets and liabilities of this business were included in the Engineered Products and Solutions segment as of March 31,
2011; this business results of operations were included in this segment beginning March 9, 2011.
In July 2010, Alcoa completed an acquisition of the commercial building and construction business of a privately-held
company, Traco, for $77. This business, located in Cranberry, Pennsylvania, employing 650 people (at time of
acquisition), is a premier manufacturer of windows and doors for the commercial building and construction market and
generated sales of approximately $100 in 2009. The assets and liabilities of this business were included in the
Engineered Products and Solutions segment as of the end of July 2010 and this business results of operations were
included in this segment since the beginning of August 2010.
63
Third-party sales for the Engineered Products and Solutions segment increased 3% in 2012 compared with 2011,
primarily due to higher volumes, slightly offset by unfavorable foreign currency movements due to a weaker euro. The
higher volumes were mostly related to the aerospace, industrial gas turbine, and commercial transportation end
markets, slightly offset by lower volumes from the building and construction end market. Third-party sales for this
segment climbed 17% in 2011 compared with 2010, largely attributable to higher volumes across all businesses,
especially related to the aerospace and commercial transportation end markets. Additionally, sales from the acquired
fastener business ($58) and from the acquired building and construction business (increase of $40) and favorable
foreign currency movements due to a stronger euro were positive impacts. Slightly offsetting the positive contributions
was the absence of sales related to the April 2010 divestiture of the Transportation Products Europe business ($28).
ATOI for the Engineered Products and Solutions segment climbed $73 in 2012 compared with 2011, mainly due to net
productivity improvements in four of the five businesses and the previously mentioned higher volumes. ATOI for this
segment rose $124 in 2011 compared with 2010, principally the result of the previously mentioned volume impacts and
net productivity improvements across most businesses, somewhat offset by unfavorable price/product mix.
In 2013, the aerospace end market is expected to remain strong, while the commercial transportation and building and
construction end markets are expected to weaken. Also, continued net productivity improvements are anticipated.
Reconciliation of ATOI to Consolidated Net Income Attributable to Alcoa
Items required to reconcile total segment ATOI to consolidated net income attributable to Alcoa include: the impact of
LIFO inventory accounting; interest expense; noncontrolling interests; corporate expense (general administrative and
selling expenses of operating the corporate headquarters and other global administrative facilities, along with
depreciation and amortization on corporate-owned assets); restructuring and other charges; discontinued operations;
and other items, including intersegment profit eliminations and other metal adjustments, differences between tax rates
applicable to the segments and the consolidated effective tax rate, the results of the soft alloy extrusions business in
Brazil, and other nonoperating items such as foreign currency transaction gains/losses and interest income.
The following table reconciles total segment ATOI to consolidated net income attributable to Alcoa:
2012 2011 2010
Total segment ATOI $1,369 $1,893 $1,424
Unallocated amounts (net of tax):
Impact of LIFO 20 (38) (16)
Interest expense (319) (340) (321)
Noncontrolling interests 29 (194) (138)
Corporate expense (282) (290) (291)
Restructuring and other charges (75) (196) (134)
Discontinued operations - (3) (8)
Other (551) (221) (262)
Consolidated net income attributable to Alcoa $ 191 $ 611 $ 254
The significant changes in the reconciling items between total segment ATOI and consolidated net income attributable
to Alcoa for 2012 compared with 2011 consisted of:
a change in the Impact of LIFO, due to lower prices for alumina and metal, both of which were driven by a
decline in LME prices, and lower costs for calcined coke;
a decrease in Interest expense, primarily due to the absence of a $27 net charge related to the early retirement
of various outstanding notes (see below), somewhat offset by lower capitalized interest ($6);
a change in Noncontrolling interests, mainly the result of lower earnings at AWAC, principally driven by
lower realized prices, due to a decrease in contractual LME-based pricing, higher input costs, particularly
64
caustic and fuel oil, and a charge for a litigation reserve ($34), somewhat offset by net productivity
improvements and net favorable foreign currency movements due to a stronger U.S. dollar;
a decrease in Restructuring and other charges, principally caused by fewer asset impairments and a lower
number of employee separations; and
a change in Other, largely attributable to a net charge for adjustments to certain environmental reserves
($129), a charge for the write-off of goodwill and capitalized interest related to the sale of Tapoco that were
not included in the assets of the Primary Metals segment ($102), a charge for a litigation reserve ($67), and a
net unfavorable change in mark-to-market derivative contracts ($24).
The significant changes in the reconciling items between total segment ATOI and consolidated net income attributable
to Alcoa for 2011 compared with 2010 consisted of:
a change in the Impact of LIFO, due to higher prices for alumina and metal, both of which were driven by an
increase in LME prices and higher input costs, particularly coke, energy, and caustic soda;
an increase in Interest expense, principally caused by a $27 net charge related to the early retirement of
various outstanding notes ($48 in purchase premiums paid partially offset by a $21 gain for in-the-money
interest rate swaps), somewhat offset by the absence of a $9 net charge related to the early retirement of
various outstanding notes ($27 in purchase premiums paid partially offset by an $18 gain for in-the-money
interest rate swaps);
an increase in Noncontrolling interests, mainly due to higher earnings at AWAC, principally driven by higher
realized prices, partially offset by higher input costs and net unfavorable foreign currency movements due to
a weaker U.S. dollar;
an increase in Restructuring and other charges, mostly due to higher layoff costs, largely attributable to
Alcoas plans to curtail three smelters in Europe; and
a change in Other, primarily due to a net favorable change of $57 in mark-to-market derivative contracts and
the difference between the consolidated effective tax rate and the estimated tax rates applicable to the
segments, partially offset by a decrease in the cash surrender value of company-owned life insurance.
See the Environmental Matters section of Note N to the Consolidated Financial Statements in Part II Item 8 of this
Form 10-K.
Liquidity and Capital Resources
Alcoa maintains a disciplined approach to cash management and strengthening of its balance sheet. In 2012, as in the
prior three years, management initiated actions to significantly improve Alcoas cost structure and liquidity, providing
the Company with the ability to operate effectively as the global economy continues to recover from the economic
downturn that began in 2008. Such actions include procurement efficiencies and overhead rationalization to reduce
costs, working capital initiatives to yield significant cash improvements, and maintaining a sustainable level of capital
expenditures. In 2013, this approach will continue with the ultimate goal of generating cash from operations that
exceeds capital expenditures.
Along with the foregoing actions, cash provided from operations and financing activities is expected to be adequate to
cover Alcoas current operational and business needs. For an analysis of long-term liquidity, see Contractual
Obligations and Off-Balance Sheet Arrangements.
At December 31, 2012, cash and cash equivalents of Alcoa was $1,861, of which $659 was held outside the U.S. Alcoa
has a number of commitments and obligations related to the Companys growth strategy in foreign jurisdictions,
resulting in the need for cash outside the U.S. As such, management does not have a current expectation of repatriating
cash held in foreign jurisdictions.
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Cash from Operations
Cash from operations in 2012 was $1,497 compared with $2,193 in 2011. The decrease of $696, or 32%, was primarily
due to lower operating results, higher pension contributions of $225, and a lower net cash inflow associated with
working capital of $36, somewhat offset by a higher cash inflow of $425 in noncurrent liabilities and a positive change
of $163 in noncurrent assets.
The higher pension contributions were principally driven by the fact that in 2012 all contributions to the U.S. pension
plans were made in cash, whereas, in 2011, a $600 noncash contribution to the U.S. pension plans was made in the
form of Company common stock.
The major components of the lower net cash inflow in working capital were as follows: a favorable change of $219 in
receivables, primarily related to fewer uncollected receivables related to sales programs and lower customer sales; a
positive change of $435 in inventories, mostly due to lower levels of on-hand alumina and aluminum products and a
decrease in the LME price of aluminum; a negative change of $74 in prepaid expenses and other current assets, largely
attributable to the absence of a reduction in collateral posted related to mark-to-market derivative contracts and an
increase in both excess carbon emission credits and prepayments for natural gas in Australia, somewhat offset by an
income tax refund received for the carryback of a loss from a prior year in Canada; an unfavorable change of $406 in
accounts payable, trade, principally the result of timing of payments and receipt of vendor invoices; a higher outflow of
$45 in accrued expenses, largely attributable to a payment made to the Italian Government (see below), a decrease in
deferred revenue, the absence of a charge related to the former St. Croix location, somewhat offset by an increase in the
litigation reserve ($42.5 see below); and a negative change of $165 in taxes, including income taxes, mainly due to
less income taxes caused by lower operating results.
The higher cash inflow in noncurrent liabilities was primarily caused by an increase in certain environmental reserves
of $194, higher accrual for pension plans, and an increase in deferred revenue related to a contract to deliver sheet and
plate to a customer beginning in 2014.
In June 2012, Alcoa received formal notification from the Italian Government requesting a net payment of $310
(250) related to a November 2009 European Commission decision on electricity pricing for smelters. Alcoa has been
in discussions with the Italian Government regarding the timing of such payment. Alcoa commenced payment of the
requested amount in five quarterly installments of $66 (50) paying the first installment on October 31, 2012. It is
possible that Alcoa may be required to accelerate payment or pay in a lump sum.
On July 6, 2012, the Moving Ahead for Progress in the 21
st
Century Act (MAP-21) was signed into law by the United
States government. MAP-21, in part, provides temporary relief for employers who sponsor defined benefit pension
plans related to funding contributions under the Employee Retirement Income Security Act of 1974. Specifically,
MAP-21 allows for the use of a 25-year average interest rate within an upper and lower range for purposes of
determining minimum funding obligations instead of an average interest rate for the two most recent years. This relief
had an immediate impact on the calculation of the then remaining funding contributions in 2012, resulting in a
reduction of $130 in minimum required pension funding. Management expects to reduce its estimated minimum
required pension funding by $225 to $250 in 2013.
On October 9, 2012, Alcoa World Alumina LLC, a majority-owned subsidiary of Alcoa, paid $42.5 to the plaintiff of a
civil litigation matter pursuant to a settlement agreement. Another $42.5 is scheduled to be paid on October 9, 2013.
Cash from operations in 2011 was $2,193 compared with $2,261 in 2010. The decline of $68, or 3%, was largely
attributable to higher pension contributions of $223, a lower net cash inflow associated with working capital of $206,
an additional cash outflow of $71 in noncurrent assets, and a lower cash inflow of $36 in noncurrent liabilities, mostly
offset by better operating results.
The higher pension contributions were principally driven by cash contributions made to U.S. pension plans towards
maintaining an approximately 80% funded status.
66
The major components of the lower net cash inflow in working capital were as follows: an additional outflow of $122
in inventories, mostly due to higher production as a result of increased demand and rising input costs; a higher inflow
of $47 in prepaid expenses and other current assets, primarily driven by the absence of collateral posted related to a
mark-to-market energy contract that ended in September 2011; an additional inflow of $66 in accounts payable, trade,
principally the result of higher purchasing needs and timing of vendor payments; a lower outflow of $201 in accrued
expenses, mostly related to fewer cash payments for restructuring programs and the absence of a reduction in collateral
held related to mark-to-market energy contracts; and a smaller inflow of $385 in taxes, including income taxes, mainly
due to the absence of a $347 federal income tax refund for the carryback of Alcoas 2009 net loss to prior tax years.
Financing Activities
Cash used for financing activities was $798 in 2012 compared with cash provided from financing activities of $62 in
2011 and cash used for financing activities of $952 in 2010.
The use of cash in 2012 was principally the result of $1,489 in payments on debt, mainly related to $600 for the
repayment of borrowings under four new short-term facilities (see below), $322 for the repayment of 6% Notes due
2012 as scheduled, $280 for the repayment of the new short-term loans to support the export operations of a subsidiary
in Brazil, and $272 for previous borrowings on the loans supporting the So Lus refinery expansion, Juruti bauxite
mine development, and Estreito hydroelectric power project in Brazil; a change of $224 in commercial paper; and $131
in dividends paid to shareholders. These items were partially offset by $972 in additions to debt, due to $600 in
borrowings under four new short-term facilities (see below), $280 in new short-term loans to support the export
operations of a subsidiary in Brazil, and $92 in borrowings under loans that support the Estreito hydroelectric power
project in Brazil; and net cash received from noncontrolling interests of $76, all of which relates to Alumina Limiteds
share of AWAC.
The source of cash in 2011 was mostly driven by $1,256 in additions to long-term debt, of which $1,248 was for the
issuance of 5.40% Notes due 2021, and a change of $224 in commercial paper. These items were mostly offset by
$1,194 in payments on long-term debt, principally related to $881 for the early retirement of all of the 5.375% Notes
due 2013 and a portion of the 6.00% Notes due 2013, $217 for previous borrowings on the loans supporting the So
Lus refinery expansion, Juruti bauxite mine development, and Estreito hydroelectric power project in Brazil, and $45
for a loan associated with the Samara, Russia facility; net cash distributed to noncontrolling interests of $88, all of
which relates to Alumina Limiteds share of AWAC; and $131 in dividends paid to shareholders.
The use of cash in 2010 was primarily due to $1,757 in payments on long-term debt, mostly related to $511 for the
repayment of 7.375% Notes due 2010 as scheduled, $825 for the early retirement of all of the 6.50% Notes due 2011
and a portion of the 6.00% Notes due 2012 and 5.375% Notes due 2013, and $287 related to previous borrowings on
the loans supporting the So Lus refinery expansion and Juruti bauxite mine development in Brazil; $125 in dividends
paid to shareholders; net cash paid to noncontrolling interests of $94, all of which relates to Alumina Limiteds share of
AWAC; $66 in acquisitions of noncontrolling interests, mainly the result of the $60 paid to redeem the convertible
securities of a subsidiary that were held by Alcoas former partner related to the joint venture in Saudi Arabia; and a
change of $44 in short-term borrowings. These items were partially offset by $1,126 in additions to long-term debt, of
which $998 was for the issuance of 6.150% Notes due 2020 and $76 was related to borrowings under the loans that
support the Estreito hydroelectric power project in Brazil.
As a result of an agreement between Alcoa and Alumina Limited in September 2012, Alcoa of Australia (part of the
AWAC group of companies) will make minimum dividend payments to Alumina Limited of $100 in 2013.
On July 25, 2011, Alcoa entered into a Five-Year Revolving Credit Agreement (the Credit Agreement) with a
syndicate of lenders and issuers named therein. The Credit Agreement provides a $3,750 senior unsecured revolving
credit facility (the Credit Facility), the proceeds of which are to be used to provide working capital or for other
general corporate purposes of Alcoa, including support of Alcoas commercial paper program. Subject to the terms and
conditions of the Credit Agreement, Alcoa may from time to time request increases in lender commitments under the
67
Credit Facility, not to exceed $500 in aggregate principal amount, and may also request the issuance of letters of credit,
subject to a letter of credit sublimit of $1,000 under the Credit Facility.
The Credit Facility was scheduled to mature on July 25, 2016; however, on December 7, 2012, Alcoa received
approval for a one-year extension of the maturity date by the lenders and issuers that support $3,700 of the Credit
Facility (approval for the remaining $50 was received on January 8, 2013). As such, the Credit Facility now matures on
July 25, 2017, unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. Alcoa
may make one additional one-year extension request during the remaining term of the Credit Facility, subject to the
lender consent requirements set forth in the Credit Agreement. Under the provisions of the Credit Agreement, Alcoa
will pay a fee of 0.25% (based on Alcoas long-term debt ratings as of December 31, 2012) of the total commitment
per annum to maintain the Credit Facility.
The Credit Facility is unsecured and amounts payable under it will rank pari passu with all other unsecured,
unsubordinated indebtedness of Alcoa. Borrowings under the Credit Facility may be denominated in U.S. dollars or
euros. Loans will bear interest at a base rate or a rate equal to LIBOR, plus, in each case, an applicable margin based on
the credit ratings of Alcoas outstanding senior unsecured long-term debt. The applicable margin on base rate loans and
LIBOR loans will be 0.50% and 1.50% per annum, respectively, based on Alcoas long-term debt ratings as of
December 31, 2012. Loans may be prepaid without premium or penalty, subject to customary breakage costs.
The Credit Facility replaces Alcoas Five-Year Revolving Credit Agreement, dated as of October 2, 2007 (the Former
Credit Agreement), which was scheduled to mature on October 2, 2012. The Former Credit Agreement, which had a
total capacity (excluding the commitment of Lehman Commercial Paper Inc.) of $3,275 and was undrawn, was
terminated effective July 25, 2011.
The Credit Agreement includes covenants substantially similar to those in the Former Credit Agreement, including,
among others, (a) a leverage ratio, (b) limitations on Alcoas ability to incur liens securing indebtedness for borrowed
money, (c) limitations on Alcoas ability to consummate a merger, consolidation or sale of all or substantially all of its
assets, and (d) limitations on Alcoas ability to change the nature of its business. As of December 31, 2012 and 2011,
Alcoa was in compliance with all such covenants.
The obligation of Alcoa to pay amounts outstanding under the Credit Facility may be accelerated upon the occurrence
of an Event of Default as defined in the Credit Agreement. Such Events of Default include, among others,
(a) Alcoas failure to pay the principal of, or interest on, borrowings under the Credit Facility, (b) any representation or
warranty of Alcoa in the Credit Agreement proving to be materially false or misleading, (c) Alcoas breach of any of its
covenants contained in the Credit Agreement, and (d) the bankruptcy or insolvency of Alcoa.
There were no amounts outstanding at December 31, 2012 and 2011 and no amounts were borrowed during 2012 or
2011 under the Credit Facility.
In January 2012, Alcoa entered into two term loan agreements, totaling $350, with two separate financial institutions.
Additionally, throughout 2012, Alcoa entered into six revolving credit agreements, providing a combined $640 in
credit facilities, with six different financial institutions. The purpose of any borrowings under all eight arrangements
will be to provide working capital and for other general corporate purposes, including contributions to Alcoas pension
plans ($561 was contributed in 2012).
The two term loans were fully drawn on the same dates as the agreements and were subject to an interest rate
equivalent to the 1-month LIBOR (changed from the 3-month LIBOR in April 2012) plus a 1.5% margin. A $150 term
loan was repaid between October and November 2012 and a $200 term loan was repaid in December 2012, effectively
terminating both agreements. In February 2012, Alcoa fully borrowed $100 under one of the credit facilities, which
was repaid in August 2012. This borrowing was subject to an interest rate equivalent to the 6-month LIBOR plus a
1.25% margin. In July 2012, Alcoa fully borrowed $150 under one of the credit facilities, which was repaid in
December 2012. This borrowing was subject to an interest rate equivalent to the 3-month LIBOR plus a 1.375%
margin.
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The six revolving credit facilities expire as follows: $150 in March 2013; $100 in September 2013 (originally
December 2012, extended in September 2012); $100 in September 2013; $140 in October 2013; $100 in December
2013 (originally December 2012, extended in December 2012); and $50 in December 2015. The covenants contained
in all eight arrangements are the same as the Credit Agreement (see above).
In February 2011, Alcoa filed an automatic shelf registration statement with the Securities and Exchange Commission
for an indeterminate amount of securities for future issuance. This shelf registration statement replaced Alcoas
existing shelf registration statement (filed in March 2008). As of December 31, 2012 and 2011, $1,250 in senior debt
securities were issued under the current shelf registration statement.
Alcoas cost of borrowing and ability to access the capital markets are affected not only by market conditions but also
by the short- and long-term debt ratings assigned to Alcoas debt by the major credit rating agencies.
On April 12, 2011, Standard and Poors Ratings Services (S&P) affirmed the following ratings for Alcoa: long-term
debt at BBB- and short-term debt at A-3. Additionally, S&P changed the current outlook from negative to stable.
On March 2, 2011, Moodys Investors Service (Moodys) confirmed the following ratings for Alcoa: long-term debt at
Baa3 and short-term debt at Prime-3. Additionally, Moodys changed the current outlook from negative to stable. On
September 7, 2011, Moodys affirmed the ratings and outlook published in its March 2, 2011 report. On December 18,
2012, Moodys placed Alcoas long-term debt and short-term debt ratings under review.
On February 22, 2011, Fitch Ratings (Fitch) affirmed the following ratings for Alcoa: long-term debt at BBB- and
short-term debt at F3. Additionally, Fitch changed the current outlook from negative to stable. On August 2, 2012,
Fitch reaffirmed its previous ratings and outlook for Alcoa.
Investing Activities
Cash used for investing activities was $759 in 2012 compared with $1,852 in 2011 and $1,272 in 2010.
The use of cash in 2012 was mainly due to $1,261 in capital expenditures (includes costs related to environmental
control in new and expanded facilities of $153), 33% of which related to growth projects, including the automotive
expansion at the Davenport, IA fabrication plant and the Estreito hydroelectric power project; and $300 in additions to
investments, principally for the equity contributions of $253 related to the aluminum complex joint venture in Saudi
Arabia. These items were somewhat offset by $615 in proceeds from the sale of assets, mostly the result of $597
received for the sale of U.S. hydroelectric power assets (see Primary Metals in Segment Information above), and a net
change in restricted cash of $87, principally related to the release of funds to be used for capital expenditures of the
automotive expansion at the Davenport, IA fabrication plant.
The use of cash in 2011 was principally due to $1,287 in capital expenditures (includes costs related to environmental
control in new and expanded facilities of $148), 28% of which related to growth projects, including the Estreito
hydroelectric power project and Juruti bauxite mine development; $374 in additions to investments, mostly for the
equity contributions of $249 related to the aluminum complex joint venture in Saudi Arabia and purchase of $41 in
available-for-sale securities held by Alcoas captive insurance company; and $239 (net of cash acquired) for the
acquisition of an aerospace fastener business. These items were slightly offset by $54 in sales of investments, primarily
related to available-for-sale securities held by Alcoas captive insurance company, and $38 in proceeds from the sale of
assets, mainly attributable to the sale of land in Australia.
The use of cash in 2010 was primarily due to $1,015 in capital expenditures (includes costs related to environmental control
in new and expanded facilities of $87), 44% of which related to growth projects, including the Estreito hydroelectric power
project, Juruti bauxite mine development, and So Lus refinery expansion; $352 in additions to investments, mostly for the
equity contributions of $160 related to the joint venture in Saudi Arabia and purchase of $126 in available-for-sale securities
held by Alcoas captive insurance company; and $72 for acquisitions, principally related to the purchase of a new building
and construction systems business. These items were slightly offset by $141 in sales of investments, virtually all of which
related to the sale of available-for-sale securities held by Alcoas captive insurance company.
69
Noncash Financing and Investing Activities
In August 2012, Alcoa received a loan of $250 for the purpose of financing all or part of the cost of acquiring,
constructing, reconstructing, and renovating certain facilities at Alcoas rolling mill plant in Davenport, IA. Because
this loan can only be used for this purpose, the net proceeds of $248 were classified as restricted cash. Since restricted
cash is not part of cash and cash equivalents, this transaction was not reflected in the Statement of Consolidated Cash
Flows as it represents a noncash activity. As funds are expended for the project, the release of the cash will be reflected
as both an inflow on the Net change in restricted cash line and an outflow on the Capital expenditures line in the
Investing Activities section of the Statement of Consolidated Cash Flows. At December 31, 2012, Alcoa had $171 of
restricted cash remaining related to this transaction.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations. Alcoa is required to make future payments under various contracts, including long-term
purchase obligations, debt agreements, and lease agreements. Alcoa also has commitments to fund its pension plans,
provide payments for other postretirement benefit plans, and finance capital projects. As of December 31, 2012, a
summary of Alcoas outstanding contractual obligations is as follows (these contractual obligations are grouped in the
same manner as they are classified in the Statement of Consolidated Cash Flows in order to provide a better
understanding of the nature of the obligations and to provide a basis for comparison to historical information):
Total 2013 2014-2015 2016-2017 Thereafter
Operating activities:
Energy-related purchase obligations $29,352 $1,770 $3,110 $3,834 $20,638
Raw material purchase obligations 5,773 1,756 1,147 766 2,104
Other purchase obligations 1,283 152 316 152 663
Operating leases 1,256 198 282 179 597
Interest related to total debt 4,699 501 907 860 2,431
Estimated minimum required pension funding 2,480 460 1,110 910 -
Other postretirement benefit payments 2,590 285 560 545 1,200
Layoff and other restructuring payments 111 56 41 14 -
Deferred revenue arrangements 156 8 31 36 81
Uncertain tax positions 81 - - - 81
Financing activities:
Total debt 8,811 518 695 813 6,785
Dividends to shareholders - - - - -
Investing activities:
Capital projects 1,007 636 304 36 31
Equity contributions 439 350 89 - -
Payments related to acquisitions - - - - -
Totals $58,038 $6,690 $8,592 $8,145 $34,611
Obligations for Operating Activities
Energy-related purchase obligations consist primarily of electricity and natural gas contracts with expiration dates
ranging from 1 year to 35 years. Raw material obligations consist mostly of bauxite (relates to Alcoas bauxite mine
interests in Guinea and Brazil), caustic soda, alumina, aluminum fluoride, calcined petroleum coke, cathode blocks,
and various metals with expiration dates ranging from less than 1 year to 15 years. Other purchase obligations consist
principally of freight for bauxite and alumina with expiration dates ranging from 2 to 19 years. Many of these purchase
obligations contain variable pricing components, and, as a result, actual cash payments may differ from the estimates
provided in the preceding table. Operating leases represent multi-year obligations for certain computer equipment,
plant equipment, vehicles, and buildings and alumina refinery process control technology.
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Interest related to total debt is based on interest rates in effect as of December 31, 2012 and is calculated on debt with
maturities that extend to 2042. The effect of outstanding interest rate swaps, which are accounted for as fair value
hedges, are included in interest related to total debt. As of December 31, 2012, these hedges effectively convert the
interest rate from fixed to floating on $200 of debt through 2018. As the contractual interest rates for certain debt and
interest rate swaps are variable, actual cash payments may differ from the estimates provided in the preceding table.
Estimated minimum required pension funding and postretirement benefit payments are based on actuarial estimates using
current assumptions for discount rates, long-term rate of return on plan assets, rate of compensation increases, and health
care cost trend rates, among others. The minimum required contributions for pension funding are estimated to be $460 for
2013, $575 for 2014, $535 for 2015, $465 for 2016, and $445 for 2017. These expected pension contributions reflect the
impacts of the Pension Protection Act of 2006, the Worker, Retiree, and Employer Recovery Act of 2008, and the Moving
Ahead for Progress in the 21
st
Century Act. Pension contributions are expected to continue to decline if all actuarial
assumptions are realized and remain the same in the future. Other postretirement benefit payments are expected to
approximate $270 to $285 annually for years 2013 through 2017 and $240 annually for years 2018 through 2022. Such
payments will be slightly offset by subsidy receipts related to Medicare Part D, which are estimated to be approximately
$30 to $35 annually for years 2013 through 2022. Alcoa has determined that it is not practicable to present pension
funding and other postretirement benefit payments beyond 2017 and 2022, respectively.
Layoff and other restructuring payments expected to be paid within one year primarily relate to severance costs.
Amounts scheduled to be paid beyond one year are related to lease termination costs, special termination benefit
payments, and ongoing site remediation work.
Deferred revenue arrangements require Alcoa to deliver alumina and sheet and plate to certain customers over the
specified contract period (through 2027 for an alumina contract and through 2020 for a sheet and plate contract). While
these obligations are not expected to result in cash payments, they represent contractual obligations for which the
Company would be obligated if the specified product deliveries could not be made.
Uncertain tax positions taken or expected to be taken on an income tax return may result in additional payments to tax
authorities. The amount in the preceding table includes interest and penalties accrued related to such positions as of
December 31, 2012. The total amount of uncertain tax positions is included in the Thereafter column as the Company is
not able to reasonably estimate the timing of potential future payments. If a tax authority agrees with the tax position taken or
expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.
Obligations for Financing Activities
Total debt amounts in the preceding table represent the principal amounts of all outstanding debt, including short-term
borrowings and long-term debt. Maturities for long-term debt extend to 2042.
Alcoa has historically paid quarterly dividends on its preferred and common stock. Including dividends on preferred
stock, Alcoa paid $131 in dividends to shareholders during 2012. Because all dividends are subject to approval by
Alcoas Board of Directors, amounts are not included in the preceding table unless such authorization has occurred. As
of December 31, 2012, there were 1,067,211,953 and 546,024 shares of outstanding common stock and preferred stock,
respectively. The annual preferred stock dividend is at the rate of $3.75 per share and the annual common stock
dividend is $0.12 per share.
Obligations for Investing Activities
Capital projects in the preceding table only include amounts approved by management as of December 31, 2012.
Funding levels may vary in future years based on anticipated construction schedules of the projects. It is expected that
significant expansion projects will be funded through various sources, including cash provided from operations. Total
capital expenditures are anticipated to be approximately $1,550 in 2013.
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Equity contributions represent Alcoas committed investment related to a joint venture in Saudi Arabia. In December
2009, Alcoa signed an agreement to enter into a joint venture to develop a new aluminum complex in Saudi Arabia,
comprised of a bauxite mine, alumina refinery, aluminum smelter, and rolling mill, which will require the Company to
contribute approximately $1,100 over a five-year period (2010 through 2014). As of December 31, 2012, Alcoa has
made equity contributions of $661. The timing of the amounts included in the preceding table may vary based on
changes in anticipated construction schedules of the project.
Payments related to acquisitions are based on provisions in certain acquisition agreements that state additional funds
are due to the seller from Alcoa if the businesses acquired achieve stated financial and operational thresholds. Amounts
are only presented in the preceding table if it is has been determined that payment is more likely than not to occur. In
connection with the 2005 acquisition of two fabricating facilities in Russia, Alcoa could be required to make contingent
payments of approximately $50 through 2015, but are not included in the preceding table as they have not met such
standard.
Off-Balance Sheet Arrangements. At December 31, 2012, Alcoa has maximum potential future payments for
guarantees issued on behalf of certain third parties of $621. These guarantees expire in 2015 through 2019 and relate to
project financing for a hydroelectric power project in Brazil and the aluminum complex in Saudi Arabia. Alcoa also
has outstanding bank guarantees related to tax matters, outstanding debt, workers compensation, environmental
obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees,
which expire at various dates between 2013 and 2017 was $494 at December 31, 2012.
Alcoa has outstanding letters of credit primarily related to workers compensation, energy contracts, and leasing
obligations. The total amount committed under these letters of credit, which automatically renew or expire at various
dates, mostly in 2013, was $299 at December 31, 2012. Alcoa also has outstanding surety bonds primarily related to
tax matters, contract performance, workers compensation, environmental-related matters, and customs duties. The total
amount committed under these bonds, which automatically renew or expire at various dates, mostly in 2013 and 2014
was $193 at December 31, 2012.
Alcoa has three arrangements, each with a different financial institution, to sell certain customer receivables outright without
recourse on a continuous basis. As of December 31, 2012, sold receivables, which were derecognized from the Consolidated
Balance Sheet, in the amount of $37 under the three arrangements combined were uncollected. Alcoa services the customer
receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.
On March 30, 2012, Alcoa finalized a one-year arrangement with a financial institution to sell certain customer
receivables without recourse on a revolving basis. The sale of such receivables is completed through the use of a
bankruptcy remote special purpose entity, which is a consolidated subsidiary of Alcoa. This arrangement provides for
minimum funding of $50 up to a maximum of $250 for receivables sold. Alcoa initially sold $304 of customer
receivables in exchange for $50 in cash and $254 of deferred purchase price under this arrangement. Alcoa received
additional cash funding of $155 throughout 2012. As of December 31, 2012, the deferred purchase price receivable was
$18, which was included in Other receivables on the Consolidated Balance Sheet. The deferred purchase price
receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the
sale of new receivables will result in an increase in the deferred purchase price receivable. The net change in the
deferred purchase price receivable was reflected in the Decrease in receivables line item on the Statement of
Consolidated Cash Flows. This activity is reflected as an operating cash flow because the related customer receivables
are the result of an operating activity with an insignificant, short-term interest rate risk. In 2012, the gross cash
outflows and inflows associated with the deferred purchase price receivable were $3,339 and $3,321, respectively. The
gross amount of receivables sold and total cash collections under this program since its inception was $3,339 and
$3,116, respectively. Alcoa services the customer receivables for the financial institution at market rates; therefore, no
servicing asset or liability was recorded.
Critical Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted
in the United States of America requires management to make certain judgments, estimates, and assumptions regarding
uncertainties that affect the amounts reported in the Consolidated Financial Statements and disclosed in the
accompanying Notes. Areas that require significant judgments, estimates, and assumptions include accounting for
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derivatives and hedging activities; environmental and litigation matters; asset retirement obligations; the testing of
goodwill, equity investments, and properties, plants, and equipment for impairment; estimating fair value of businesses
to be divested; pension plans and other postretirement benefits obligations; stock-based compensation; and income
taxes.
Management uses historical experience and all available information to make these judgments, estimates, and
assumptions, and actual results may differ from those used to prepare the Companys Consolidated Financial
Statements at any given time. Despite these inherent limitations, management believes that Managements Discussion
and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and
accompanying Notes provide a meaningful and fair perspective of the Company.
A summary of the Companys significant accounting policies is included in Note A to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K. Management believes that the application of these policies on a
consistent basis enables the Company to provide the users of the Consolidated Financial Statements with useful and
reliable information about the Companys operating results and financial condition.
Derivatives and Hedging. Derivatives are held for purposes other than trading and are part of a formally documented
risk management program. For derivatives designated as fair value hedges, Alcoa measures hedge effectiveness by
formally assessing, at least quarterly, the historical high correlation of changes in the fair value of the hedged item and
the derivative hedging instrument. For derivatives designated as cash flow hedges, Alcoa measures hedge effectiveness
by formally assessing, at least quarterly, the probable high correlation of the expected future cash flows of the hedged
item and the derivative hedging instrument. The ineffective portions of both types of hedges are recorded in sales or
other income or expense in the current period. If the hedging relationship ceases to be highly effective or it becomes
probable that an expected transaction will no longer occur, future gains or losses on the derivative instrument are
recorded in other income or expense.
Alcoa accounts for interest rate swaps related to its existing long-term debt and hedges of firm customer commitments
for aluminum as fair value hedges. As a result, the fair values of the derivatives and changes in the fair values of the
underlying hedged items are reported in other current and noncurrent assets and liabilities in the Consolidated Balance
Sheet. Changes in the fair values of these derivatives and underlying hedged items generally offset and are recorded
each period in sales or interest expense, consistent with the underlying hedged item.
Alcoa accounts for hedges of foreign currency exposures and certain forecasted transactions as cash flow hedges. The
fair values of the derivatives are recorded in other current and noncurrent assets and liabilities in the Consolidated
Balance Sheet. The effective portions of the changes in the fair values of these derivatives are recorded in other
comprehensive income and are reclassified to sales, cost of goods sold, or other income or expense in the period in
which earnings are impacted by the hedged items or in the period that the transaction no longer qualifies as a cash flow
hedge. These contracts cover the same periods as known or expected exposures, generally not exceeding five years.
If no hedging relationship is designated, the derivative is marked to market through earnings.
Cash flows from derivatives are recognized in the Statement of Consolidated Cash Flows in a manner consistent with
the underlying transactions.
Environmental Matters. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures
relating to existing conditions caused by past operations, which will not contribute to future revenues, are expensed.
Liabilities are recorded when remediation costs are probable and can be reasonably estimated. The liability may
include costs such as site investigations, consultant fees, feasibility studies, outside contractors, and monitoring
expenses. Estimates are generally not discounted or reduced by potential claims for recovery. Claims for recovery are
recognized as agreements are reached with third parties. The estimates also include costs related to other potentially
responsible parties to the extent that Alcoa has reason to believe such parties will not fully pay their proportionate
share. The liability is continuously reviewed and adjusted to reflect current remediation progress, prospective estimates
of required activity, and other factors that may be relevant, including changes in technology or regulations.
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Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a
matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an
unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy,
progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals
processes, and the outcome of similar historical matters, among others. Once an unfavorable outcome is deemed
probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If
an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is disclosed and no liability is
recorded. With respect to unasserted claims or assessments, management must first determine that the probability that
an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability
to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there
has been a change in managements judgment regarding the likelihood of an unfavorable outcome or the estimate of a
potential loss.
Asset Retirement Obligations. Alcoa recognizes asset retirement obligations (AROs) related to legal obligations
associated with the normal operation of Alcoas bauxite mining, alumina refining, and aluminum smelting facilities.
These AROs consist primarily of costs associated with spent pot lining disposal, closure of bauxite residue areas, mine
reclamation, and landfill closure. Alcoa also recognizes AROs for any significant lease restoration obligation, if
required by a lease agreement, and for the disposal of regulated waste materials related to the demolition of certain
power facilities. The fair values of these AROs are recorded on a discounted basis, at the time the obligation is
incurred, and accreted over time for the change in present value. Additionally, Alcoa capitalizes asset retirement costs
by increasing the carrying amount of the related long-lived assets and depreciating these assets over their remaining
useful life.
Certain conditional asset retirement obligations (CAROs) related to alumina refineries, aluminum smelters, and
fabrication facilities have not been recorded in the Consolidated Financial Statements due to uncertainties surrounding
the ultimate settlement date. A CARO is a legal obligation to perform an asset retirement activity in which the timing
and (or) method of settlement are conditional on a future event that may or may not be within Alcoas control. Such
uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs, and other
factors. At the date a reasonable estimate of the ultimate settlement date can be made, Alcoa would record an ARO for
the removal, treatment, transportation, storage and (or) disposal of various regulated assets and hazardous materials
such as asbestos, underground and aboveground storage tanks, polychlorinated biphenyls, various process residuals,
solid wastes, electronic equipment waste, and various other materials. Such amounts may be material to the
Consolidated Financial Statements in the period in which they are recorded. If Alcoa was required to demolish all such
structures immediately, the estimated CARO as of December 31, 2012 ranges from less than $1 to $52 per structure
(132 structures) in todays dollars.
Goodwill. Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more
frequently if indicators of impairment exist or if a decision is made to sell a business. A significant amount of judgment
is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in
general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in
which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of
negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual
transaction may differ from that used to evaluate the impairment of goodwill.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. Alcoa has nine reporting units, of which five are included in the
Engineered Products and Solutions segment. The remaining four reporting units are the Alumina segment, the Primary
Metals segment, the Global Rolled Products segment, and the soft alloy extrusions business in Brazil, which is
included in Corporate. Almost 90% of Alcoas total goodwill is allocated to three reporting units as follows: Alcoa
Fastening Systems (AFS) ($1,160) and Alcoa Power and Propulsion (APP) ($1,628) businesses, both of which are
included in the Engineered Products and Solutions segment, and Primary Metals ($1,748). These amounts include an
allocation of Corporates goodwill.
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In September 2011, the Financial Accounting Standards Board issued new accounting guidance for testing goodwill for
impairment (see the Recently Adopted Accounting Guidance section of Note A to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K). The guidance provides an entity the option to first assess qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely
than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity
elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then
required to perform the existing two-step quantitative impairment test (described below), otherwise no further analysis
is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-
step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should
be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step
quantitative impairment test.
In the 2011 fourth quarter, in conjunction with managements annual review of goodwill, Alcoa early adopted the new
guidance. As a result, Alcoa instituted a policy for its annual review of goodwill to perform the qualitative assessment
for all reporting units not subjected directly to the two-step quantitative impairment test. Management will proceed
directly to the two-step quantitative impairment test for a minimum of three reporting units (based on facts and
circumstances) during each annual review of goodwill. This policy will result in each of the nine reporting units being
subjected to the two-step quantitative impairment test at least once during every three-year period.
Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair
value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the
type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on
current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on
the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the
results of the most recent two-step quantitative impairment test completed for a reporting unit (this would be 2011 and
2010 in which the estimated fair values of three and nine reporting units, respectively, were substantially in excess of
their carrying values) and compares the weighted average cost of capital (WACC) between the current and prior years
for each reporting unit.
During the 2012 annual review of goodwill, management performed the qualitative assessment for six reporting units.
Management concluded that it was not more likely than not that the estimated fair values of the six reporting units were
less than their carrying values. As such, no further analysis was required.
Under the two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair
value of each reporting unit to its carrying value, including goodwill. Alcoa uses a DCF model to estimate the current
fair value of its reporting units when testing for impairment, as management believes forecasted cash flows are the best
indicator of such fair value. A number of significant assumptions and estimates are involved in the application of the
DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to
produce, tax rates, capital spending, discount rate, and working capital changes. Most of these assumptions vary
significantly among the reporting units. Cash flow forecasts are generally based on approved business unit operating
plans for the early years and historical relationships in later years. The betas used in calculating the individual reporting
units WACC rate are estimated for each business with the assistance of valuation experts.
In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional
analysis would be required. The additional analysis would compare the carrying amount of the reporting units
goodwill with the implied fair value of that goodwill, which may involve the use of valuation experts. The implied fair
value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the
assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the
reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an
impairment loss equal to such excess would be recognized, which could significantly and adversely impact reported
results of operations and shareholders equity.
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During the 2012 annual review of goodwill, management proceeded directly to the two-step quantitative impairment
test for three reporting units as follows: the Primary Metals segment, the Alumina segment, and the Global Rolled
Products segment. For Global Rolled Products, the estimated fair value exceeded carrying value by more than 150%,
resulting in no impairment. For Primary Metals and Alumina, the estimated fair values exceeded their carrying values
by 9.2% and 7.4%, respectively, resulting in no impairment. These two reporting units have goodwill of $1,748 and
$171, respectively. In developing the fair value of these reporting units, the Company estimates future cash flows using
LME forward curve pricing and operating cost assumptions management believes are reasonable based on expected
and historical performance. The following could have a negative impact on the estimated fair values of Primary Metals
and Alumina: a significant, protracted decrease in LME and alumina prices; decrease in long-term profitability;
decrease in the long-term demand for aluminum; substantial reductions in Alcoas end markets and volume
assumptions; and an increase in discount rates.
As part of the 2012 annual review of goodwill, management considered the market capitalization of Alcoas common
stock in relation to the Companys total shareholders equity. At December 31, 2012, the market capitalization of
Alcoas common stock was $9,263. While this amount is less than the Companys total shareholders equity at
December 31, 2012, the estimated aggregate fair value of Alcoas reporting units was substantially in excess of the
aforementioned market capitalization amount. In managements judgment, the main reason for the difference between
Alcoas market capitalization and total shareholders equity at December 31, 2012 is significantly lower commodity
prices for aluminum. Management believes these commodity prices are being adversely impacted by turmoil in the
macroeconomic environment, which do not necessarily reflect aluminum industry fundamentals. For example, there
was, and continues to be, significant uncertainty of the sovereign debt of many European countries. This uncertainty
has affected the liquidity of many companies that either operate or are located in Europe, although, Alcoa has not been
impacted significantly. Additionally, during 2012, there was great concern over what was labeled the fiscal cliff in the
U.S. and a slowdown in the growth of China. The combination of this economic uncertainty and the continuing decline
in commodity prices caused the price of Alcoas common stock to remain depressed. As a result, management believes
the quoted market price of Alcoas common stock does not fully reflect the underlying value of the future aggregate
cash flows of the Companys reporting units. Accordingly, management does not believe that the comparison of
Alcoas market capitalization and total shareholders equity as of December 31, 2012 is an indication that goodwill is
impaired.
Equity Investments. Alcoa invests in a number of privately-held companies, primarily through joint ventures and
consortia, which are accounted for on the equity method. The equity method is applied in situations where Alcoa has
the ability to exercise significant influence, but not control, over the investee. Management reviews equity investments
for impairment whenever certain indicators are present suggesting that the carrying value of an investment is not
recoverable. This analysis requires a significant amount of judgment from management to identify events or
circumstances indicating that an equity investment is impaired. The following items are examples of impairment
indicators: significant, sustained declines in an investees revenue, earnings, and cash flow trends; adverse market
conditions of the investees industry or geographic area; the investees ability to continue operations measured by
several items, including liquidity; and other factors. Once an impairment indicator is identified, management uses
considerable judgment to determine if the impairment is other than temporary, in which case the equity investment is
written down to its estimated fair value. An impairment that is other than temporary could significantly and adversely
impact reported results of operations.
Properties, Plants, and Equipment. Properties, plants, and equipment are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets (asset group) may not be recoverable.
Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations
related to the assets (asset group) to their carrying amount. An impairment loss would be recognized when the carrying
amount of the assets (asset group) exceeds the estimated undiscounted net cash flows. The amount of the impairment
loss to be recorded is calculated as the excess of the carrying value of the assets (asset group) over their fair value, with
fair value determined using the best information available, which generally is a DCF model. The determination of what
constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful lives of
assets also require significant judgments.
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Discontinued Operations and Assets Held For Sale. The fair values of all businesses to be divested are estimated
using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings multiples, or
indicative bids, when available. A number of significant estimates and assumptions are involved in the application of
these techniques, including the forecasting of markets and market share, sales volumes and prices, costs and expenses,
and multiple other factors. Management considers historical experience and all available information at the time the
estimates are made; however, the fair value that is ultimately realized upon the divestiture of a business may differ
from the estimated fair value reflected in the Consolidated Financial Statements.
Pension and Other Postretirement Benefits. Liabilities and expenses for pension and other postretirement benefits
are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used
to discount the future estimated liability, the expected long-term rate of return on plan assets, and several assumptions
relating to the employee workforce (salary increases, health care cost trend rates, retirement age, and mortality).
The interest rate used to discount future estimated liabilities is determined using a Company-specific yield curve model
(above-median) developed with the assistance of an external actuary. The cash flows of the plans projected benefit
obligations are discounted using a single equivalent rate derived from yields on high quality corporate bonds, which
represent a broad diversification of issuers in various sectors, including finance and banking, manufacturing,
transportation, insurance, and pharmaceutical, among others. The yield curve model parallels the plans projected cash
flows, which have an average duration of 10 years, and the underlying cash flows of the bonds included in the model
exceed the cash flows needed to satisfy the Companys plans obligations multiple times. In 2012, 2011, and 2010, the
discount rate used to determine benefit obligations for U.S. pension and other postretirement benefit plans was 4.15%,
4.90%, and 5.75%, respectively. The impact on the liabilities of a change in the discount rate of 1/4 of 1% would be
approximately $475 and either a charge or credit of $19 to after-tax earnings in the following year.
The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan
assets (a four-year average or the fair value at the plan measurement date is used for certain non-U.S. plans). The
process used by management to develop this assumption has expanded from one that relied primarily on historical asset
return information to one that also incorporates forward-looking returns by asset class, as described below.
Prior to developing the expected long-term rate of return for calendar year 2009, management focused on historical actual
returns (annual, 10-year moving, and 20-year moving averages) when developing this assumption. Based on that process,
management utilized 9% for the expected long-term rate of return for several years through 2008. For calendar year 2009,
the expected long-term rate of return was reduced to 8.75% due to lower future expected market returns as a result of the
then global economic downturn. This was supported by the fact that, in 2008, the 10-year moving average of actual
performance fell below 9% for the first time in 20 years, although the 20-year moving average continued to exceed 9%.
For calendar year 2010, management expanded its process by incorporating expected future returns on current and
planned asset allocations using information from various external investment managers and managements own
judgment. Management considered this forward-looking analysis as well as the historical return information, and
concluded the expected rate of return for calendar 2010 would remain at 8.75%, which was between the 20-year
moving average actual return performance and the estimated future return developed by asset class.
For calendar year 2012 and 2011, management again incorporated both actual historical return information and
expected future returns into its analysis. Based on strategic asset allocation changes and estimates of future returns by
asset class, management used 8.50% as its expected long-term rate of return for both years. This rate again falls within
the range of the 20-year moving average of actual performance and the expected future return developed by asset class.
For calendar year 2013, management used the same methodology as it did for 2012 and 2011 and determined that
8.50% will be the expected long-term rate of return.
A change in the assumption for the expected long-term rate of return on plan assets of 1/4 of 1% would impact after-tax
earnings by approximately $16 for 2013.
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In 2012, a net charge of $769 ($529 after-tax) was recorded in other comprehensive loss, primarily due to a 75 basis
point decrease in the discount rate, which was slightly offset by the favorable performance of the plan assets and the
recognition of actuarial losses and prior service costs. In 2011, a net charge of $991 ($593 after-tax) was recorded in
other comprehensive loss, primarily due to an 85 basis point decrease in the discount rate, which was slightly offset by
the favorable performance of the plan assets and the recognition of actuarial losses and prior service costs. In 2010, a
net charge of $216 ($138 after-tax) was recorded in other comprehensive income, primarily due to a 40 basis point
decrease in the discount rate, which was somewhat offset by the favorable performance of the plan assets and the
recognition of actuarial losses and prior service costs. Additionally, in 2010, a charge of $2 was recorded in
accumulated other comprehensive loss due to the reclassification of deferred taxes related to the Medicare Part D
prescription drug subsidy.
Stock-based Compensation. Alcoa recognizes compensation expense for employee equity grants using the non-
substantive vesting period approach, in which the expense (net of estimated forfeitures) is recognized ratably over the
requisite service period based on the grant date fair value. The fair value of new stock options is estimated on the date
of grant using a lattice-pricing model. Determining the fair value of stock options at the grant date requires judgment,
including estimates for the average risk-free interest rate, dividend yield, volatility, annual forfeiture rate, and exercise
behavior. These assumptions may differ significantly between grant dates because of changes in the actual results of
these inputs that occur over time.
Equity grants are issued in January each year. As part of Alcoas stock-based compensation plan design, individuals
who are retirement-eligible have a six-month requisite service period in the year of grant. As a result, a larger portion
of expense will be recognized in the first half of each year for these retirement-eligible employees. Compensation
expense recorded in 2012, 2011, and 2010 was $67 ($46 after-tax), $83 ($56 after-tax), and $84 ($57 after-tax),
respectively. Of this amount, $13, $18, and $19 in 2012, 2011, and 2010, respectively, pertains to the acceleration of
expense related to retirement-eligible employees.
Most plan participants can choose whether to receive their award in the form of stock options, stock awards, or a
combination of both. This choice is made before the grant is issued and is irrevocable.
Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received
or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future
tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result
from differences between the financial and tax bases of Alcoas assets and liabilities and are adjusted for changes in tax
rates and tax laws when enacted.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will
not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable
income, including income available in carryback periods, future reversals of taxable temporary differences, projections
of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence.
Positive evidence includes factors such as a history of profitable operations, projections of future profitability within
the carryforward period, including from tax planning strategies, and the Companys experience with similar operations.
Existing favorable contracts and the ability to sell products into established markets are additional positive evidence.
Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that
are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred
tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances,
resulting in a future charge to establish a valuation allowance.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such
benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been
effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has
completed their examination even though the statute of limitations remains open. Interest and penalties related to
78
uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period
that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits
are recognized.
Related Party Transactions
Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains
a 50% or less equity interest, at negotiated arms-length prices between the two parties. These transactions were not
material to the financial position or results of operations of Alcoa for all periods presented.
Recently Adopted Accounting Guidance
See the Recently Adopted Accounting Guidance section of Note A to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Recently Issued Accounting Guidance
See the Recently Issued Accounting Guidance section of Note A to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See the Derivatives section of Note X to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
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Item 8. Financial Statements and Supplementary Data
Managements Reports to Alcoa Shareholders
Managements Report on Financial Statements and Practices
The accompanying Consolidated Financial Statements of Alcoa Inc. and its subsidiaries (the Company) were prepared by
management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles and include amounts that are based on managements best judgments and estimates.
The other financial information included in the annual report is consistent with that in the financial statements.
Management also recognizes its responsibility for conducting the Companys affairs according to the highest standards
of personal and corporate conduct. This responsibility is characterized and reflected in key policy statements issued
from time to time regarding, among other things, conduct of its business activities within the laws of the host countries
in which the Company operates and potentially conflicting outside business interests of its employees. The Company
maintains a systematic program to assess compliance with these policies.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys system of internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. The Companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on the assessment, management has concluded that the Company maintained effective internal control over financial
reporting as of December 31, 2012, based on criteria in Internal ControlIntegrated Framework issued by the COSO.
The effectiveness of the Companys internal control over financial reporting as of December 31, 2012 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is
included herein.
Klaus Kleinfeld
Chairman and
Chief Executive Officer
Charles D. McLane, Jr.
Executive Vice President and
Chief Financial Officer
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Alcoa Inc.
In our opinion, the accompanying consolidated balance sheets and the related statements of consolidated operations,
consolidated comprehensive (loss) income, changes in consolidated equity, and consolidated cash flows present fairly,
in all material respects, the financial position of Alcoa Inc. and its subsidiaries (the Company) at December 31, 2012
and 2011, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is
responsible for these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these
financial statements and on the Companys internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 15, 2013
81
Alcoa and subsidiaries
Statement of Consolidated Operations
(in millions, except per-share amounts)
For the year ended December 31, 2012 2011 2010
Sales (Q) $23,700 $24,951 $21,013
Cost of goods sold (exclusive of expenses below) 20,486 20,480 17,174
Selling, general administrative, and other expenses 997 1,027 961
Research and development expenses 197 184 174
Provision for depreciation, depletion, and amortization 1,460 1,479 1,450
Restructuring and other charges (D) 87 281 207
Interest expense (V) 490 524 494
Other (income) expenses, net (O) (341) (87) 5
Total costs and expenses 23,376 23,888 20,465
Income from continuing operations before income taxes 324 1,063 548
Provision for income taxes (T) 162 255 148
Income from continuing operations 162 808 400
Loss from discontinued operations (B) - (3) (8)
Net income 162 805 392
Less: Net (loss) income attributable to noncontrolling interests (29) 194 138
Net Income Attributable to Alcoa $ 191 $ 611 $ 254
Amounts Attributable to Alcoa Common Shareholders:
Income from continuing operations $ 191 $ 614 $ 262
Loss from discontinued operations - (3) (8)
Net income $ 191 $ 611 $ 254
Earnings per Share Attributable to Alcoa Common Shareholders (S):
Basic:
Income from continuing operations $ 0.18 $ 0.58 $ 0.25
Loss from discontinued operations - (0.01) -
Net income $ 0.18 $ 0.57 $ 0.25
Diluted:
Income from continuing operations $ 0.18 $ 0.55 $ 0.25
Loss from discontinued operations - - (0.01)
Net income $ 0.18 $ 0.55 $ 0.24
The accompanying notes are an integral part of the consolidated financial statements.
82
Statement of Consolidated Comprehensive (Loss) Income
(in millions)
Alcoa
Noncontrolling
Interests Total
For the year ended
December 31, 2012 2011 2010 2012 2011 2010 2012 2011 2010
Net income (loss) $ 191 $ 611 $ 254 $ (29) $ 194 $138 $ 162 $ 805 $ 392
Other comprehensive (loss) income, net of
tax:
Change in unrecognized net actuarial
loss and prior service cost/benefit
related to pension and other
postretirement benefits (W) (529) (593) (140) 22 (59) (4) (507) (652) (144)
Foreign currency translation
adjustments (A) (202) (543) 441 (94) (165) 334 (296) (708) 775
Unrealized gains on available-for-sale
securities (I):
Unrealized holding gains (losses) 2 - (5) - - - 2 - (5)
Net amount reclassified to earnings - - 4 - - - - - 4
Net change in unrealized gains on
available-for-sale securities 2 - (1) - - - 2 - (1)
Unrecognized losses on derivatives (X):
Net change from periodic
revaluations (12) 63 (21) (1) (6) 4 (13) 57 (17)
Net amount reclassified to
earnings (34) 121 138 - 1 - (34) 122 138
Net change in unrecognized
losses on derivatives (46) 184 117 (1) (5) 4 (47) 179 121
Total Other comprehensive (loss) income,
net of tax (775) (952) 417 (73) (229) 334 (848) (1,181) 751
Comprehensive (loss) income $(584) $(341) $ 671 $(102) $ (35) $472 $(686) $ (376) $1,143
83
Consolidated Balance Sheet
(in millions)
December 31, 2012 2011
Assets
Current assets:
Cash and cash equivalents (X) $ 1,861 $ 1,939
Receivables from customers, less allowances of $39 in 2012 and $46 in 2011 (U) 1,399 1,571
Other receivables 340 371
Inventories (G) 2,825 2,899
Prepaid expenses and other current assets 1,275 933
Total current assets 7,700 7,713
Properties, plants, and equipment, net (H) 18,947 19,282
Goodwill (E) 5,170 5,157
Investments (I) 1,860 1,626
Deferred income taxes (T) 3,790 3,546
Other noncurrent assets (J) 2,712 2,796
Total Assets $40,179 $40,120
Liabilities
Current liabilities:
Short-term borrowings (K & X) $ 53 $ 62
Commercial paper (K & X) - 224
Accounts payable, trade 2,702 2,692
Accrued compensation and retirement costs 1,058 985
Taxes, including income taxes 366 438
Other current liabilities 1,298 1,167
Long-term debt due within one year (K & X) 465 445
Total current liabilities 5,942 6,013
Long-term debt, less amount due within one year (K & X) 8,311 8,640
Accrued pension benefits (W) 3,722 3,261
Accrued other postretirement benefits (W) 2,603 2,583
Other noncurrent liabilities and deferred credits (L) 3,078 2,428
Total liabilities 23,656 22,925
Contingencies and commitments (N)
Equity
Alcoa shareholders equity:
Preferred stock (R) 55 55
Common stock (R) 1,178 1,178
Additional capital 7,560 7,561
Retained earnings 11,689 11,629
Treasury stock, at cost (3,881) (3,952)
Accumulated other comprehensive loss (3,402) (2,627)
Total Alcoa shareholders equity 13,199 13,844
Noncontrolling interests (M) 3,324 3,351
Total equity 16,523 17,195
Total Liabilities and Equity $40,179 $40,120
84
Statement of Consolidated Cash Flows
(in millions)
Cash from Operations
Net income $ 162 $ 805 $ 392
Adjustments to reconcile net income to cash from operations:
Depreciation, depletion, and amortization 1,462 1,481 1,451
Deferred income taxes (T) (99) (181) (287)
Equity loss (income), net of dividends 2 (26) (22)
Restructuring and other charges (D) 87 281 207
Net gain from investing activitiesasset sales (O) (321) (41) (9)
Loss from discontinued operations (B) - 3 8
Stock-based compensation (R) 67 83 84
Excess tax benefits from stock-based payment arrangements (1) (6) (1)
Other 63 53 151
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments:
Decrease (increase) in receivables 104 (115) (102)
Decrease (increase) in inventories 96 (339) (217)
Decrease in prepaid expenses and other current assets - 74 27
(Decrease) increase in accounts payable, trade (12) 394 328
(Decrease) in accrued expenses (83) (38) (239)
(Decrease) increase in taxes, including income taxes (47) 118 503
Pension contributions (W) (561) (336) (113)
(Increase) in noncurrent assets 9 (154) (83)
Increase in noncurrent liabilities 572 147 183
(Increase) in net assets held for sale (B) - - (7)
Cash provided from continuing operations 1,500 2,203 2,254
Cash (used for) provided from discontinued operations (3) (10) 7
Cash provided from operations 1,497 2,193 2,261
Financing Activities
Net change in short-term borrowings (original maturities of three months or less) (K) (10) (31) (44)
Net change in commercial paper (K) (224) 224 -
Additions to debt (original maturities greater than three months) (K) 972 1,256 1,126
Debt issuance costs (K) (5) (17) (6)
Payments on debt (original maturities greater than three months) (K) (1,489) (1,194) (1,757)
Proceeds from exercise of employee stock options (R) 12 37 13
Excess tax benefits from stock-based payment arrangements 1 6 1
Dividends paid to shareholders (131) (131) (125)
Distributions to noncontrolling interests (95) (257) (256)
Contributions from noncontrolling interests (M) 171 169 162
Acquisitions of noncontrolling interests (P) - - (66)
Cash (used for) provided from financing activities (798) 62 (952)
Investing Activities
Capital expenditures (1,261) (1,287) (1,015)
Acquisitions, net of cash acquired (F & P) - (240) (72)
Proceeds from the sale of assets and businesses (F) 615 38 4
Additions to investments (I & N) (300) (374) (352)
Sales of investments (I) 31 54 141
Net change in restricted cash (P) 87 (4) 7
Other 69 (39) 15
Cash used for investing activities (759) (1,852) (1,272)
Effect of exchange rate changes on cash and cash equivalents (18) (7) 25
Net change in cash and cash equivalents (78) 396 62
Cash and cash equivalents at beginning of year 1,939 1,543 1,481
Cash and cash equivalents at end of year $ 1,861 $ 1,939 $ 1,543
85
Statement of Changes in Consolidated Equity
Alcoa Shareholders
Preferred
stock
Common
stock
Additional
capital
Retained
earnings
Treasury
stock
Accumulated
other compre-
hensive loss
Noncontrolling
interests
Total
equity
Balance at December 31, 2009 $55 $1,097 $6,608 $11,020 $(4,268) $(2,092) $3,100 $15,520
Net income - - - 254 - - 138 392
Other comprehensive income - - - - - 417 334 751
Cash dividends declared:
Preferred @ $3.75 per share - - - (2) - - - (2)
Common @ $0.12 per share - - - (123) - - - (123)
Stock-based compensation (R) - - 84 - - - - 84
Common stock issued:
compensation plans (R) - - (139) - 122 - - (17)
Issuance of common stock (R) - 44 556 - - - - 600
Distributions - - - - - - (256) (256)
Contributions (M) - - - - - - 162 162
Purchase of equity from
noncontrolling interest (P) - - (2) - - - (4) (6)
Other (P) - - (20) - - - 1 (19)
Balance at December 31, 2010 55 1,141 7,087 11,149 (4,146) (1,675) 3,475 17,086
Net income - - - 611 - - 194 805
Other comprehensive loss - - - - - (952) (229) (1,181)
Common @ $0.12 per share - - - (129) - - - (129)
compensation plans (R) - - (172) - 194 - - 22
Issuance of common stock (R) - 37 563 - - - - 600
Distributions - - - - - - (257) (257)
Contributions (M) - - - - - - 169 169
Other - - - - - - (1) (1)
Balance at December 31, 2011 55 1,178 7,561 11,629 (3,952) (2,627) 3,351 17,195
Net income (loss) - - - 191 - - (29) 162
Other comprehensive loss - - - - - (775) (73) (848)
Common @ $0.12 per share - - - (129) - - - (129)
compensation plans (R) - - (68) - 71 - - 3
Distributions - - - - - - (95) (95)
Contributions (M) - - - - - - 171 171
Other - - - - - - (1) (1)
Balance at December 31, 2012 $55 $1,178 $7,560 $11,689 $(3,881) $(3,402) $3,324 $16,523
86
Notes to the Consolidated Financial Statements
(dollars in millions, except per-share amounts)
A. Summary of Significant Accounting Policies
Basis of Presentation. The Consolidated Financial Statements of Alcoa Inc. and subsidiaries (Alcoa or the
Company) are prepared in conformity with accounting principles generally accepted in the United States of America
(GAAP) and require management to make certain judgments, estimates, and assumptions. These may affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements. They also may affect the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates upon subsequent resolution of identified matters. Certain amounts in
previously issued financial statements were reclassified to conform to the 2012 presentation (see Note B).
Principles of Consolidation. The Consolidated Financial Statements include the accounts of Alcoa and companies in
which Alcoa has a controlling interest. Intercompany transactions have been eliminated. The equity method of
accounting is used for investments in affiliates and other joint ventures over which Alcoa has significant influence but
does not have effective control. Investments in affiliates in which Alcoa cannot exercise significant influence are
accounted for on the cost method.
Management also evaluates whether an Alcoa entity or interest is a variable interest entity and whether Alcoa is the
primary beneficiary. Consolidation is required if both of these criteria are met. Alcoa does not have any variable
interest entities requiring consolidation.
Related Party Transactions. Alcoa buys products from and sells products to various related companies, consisting of
entities in which Alcoa retains a 50% or less equity interest, at negotiated arms-length prices between the two parties.
These transactions were not material to the financial position or results of operations of Alcoa for all periods presented.
Cash Equivalents. Cash equivalents are highly liquid investments purchased with an original maturity of three months
or less.
Inventory Valuation. Inventories are carried at the lower of cost or market, with cost for a substantial portion of U.S.
and Canadian inventories determined under the last-in, first-out (LIFO) method. The cost of other inventories is
principally determined under the average-cost method.
Properties, Plants, and Equipment. Properties, plants, and equipment are recorded at cost. Depreciation is recorded
principally on the straight-line method at rates based on the estimated useful lives of the assets. For greenfield assets,
which refer to the construction of new assets on undeveloped land, the units of production method is used to record
depreciation. These assets require a significant period (generally greater than one-year) to ramp-up to full production
capacity. As a result, the units of production method is deemed a more systematic and rational method for recognizing
depreciation on these assets. Depreciation is recorded on temporarily idled facilities until such time management
approves a permanent shutdown. The following table details the weighted-average useful lives of structures and
machinery and equipment by reporting segment (numbers in years):
Segment Structures Machinery and equipment
Alumina:
Alumina refining 30 25
Bauxite mining 33 19
Primary Metals:
Aluminum smelting 35 21
Power generation 34 24
Global Rolled Products 32 21
Engineered Products and Solutions 29 18
87
Gains or losses from the sale of assets are generally recorded in other income or expenses (see policy that follows for
assets classified as held for sale and discontinued operations). Repairs and maintenance are charged to expense as
incurred. Interest related to the construction of qualifying assets is capitalized as part of the construction costs.
Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets (asset group) may not be recoverable. Recoverability of assets is determined by
comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their
carrying amount. An impairment loss would be recognized when the carrying amount of the assets (asset group)
exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as
the excess of the carrying value of the assets (asset group) over their fair value, with fair value determined using the
best information available, which generally is a discounted cash flow model (DCF model). The determination of what
constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful lives of
assets also require significant judgments.
Mineral Rights. Alcoa recognizes mineral rights upon specific acquisitions of land that include such underlying rights,
primarily in Jamaica. This land is purchased for the sole purpose of mining bauxite. The underlying bauxite reserves
are known at the time of acquisition based on associated drilling and analysis and are considered to be proven reserves.
The acquisition cost of the land and mineral rights are amortized as the bauxite is produced based on the level of
minable tons determined at the time of purchase. Mineral rights are included in Properties, plants, and equipment on
the accompanying Consolidated Balance Sheet.
Deferred Mining Costs. Alcoa recognizes deferred mining costs during the development stage of a mine life cycle.
Such costs include the construction of access and haul roads, detailed drilling and geological analysis to further define
the grade and quality of the known bauxite, and overburden removal costs. These costs relate to sections of the related
mines where Alcoa is either currently extracting bauxite or is preparing for production in the near term. These sections
are outlined and planned incrementally and generally are mined over periods ranging from one to five years, depending
on mine specifics. The amount of geological drilling and testing necessary to determine the economic viability of the
bauxite deposit being mined is such that the reserves are considered to be proven, and the mining costs are amortized
based on this level of reserves. Deferred mining costs are included in Other noncurrent assets on the accompanying
Consolidated Balance Sheet.
Goodwill and Other Intangible Assets. Goodwill is not amortized; instead, it is reviewed for impairment annually (in
the fourth quarter) or more frequently if indicators of impairment exist or if a decision is made to sell a business. A
significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators
may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse
changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and
cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could
be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. Alcoa has nine reporting units, of which five are included in the
Engineered Products and Solutions segment. The remaining four reporting units are the Alumina segment, the Primary
Metals segment, the Global Rolled Products segment, and the soft alloy extrusions business in Brazil, which is
included in Corporate. Almost 90% of Alcoas total goodwill is allocated to three reporting units as follows: Alcoa
Fastening Systems (AFS) ($1,160) and Alcoa Power and Propulsion (APP) ($1,628) businesses, both of which are
included in the Engineered Products and Solutions segment, and Primary Metals ($1,748). These amounts include an
allocation of Corporates goodwill.
In September 2011, the Financial Accounting Standards Board issued new accounting guidance for testing goodwill for
impairment (see Recently Adopted Accounting Guidance section of Note A below). The guidance provides an entity
the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than
88
its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more
likely than not, the entity is then required to perform the existing two-step quantitative impairment test (described
below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment
and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill
impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative
assessment or proceeds directly to the two-step quantitative impairment test.
In the 2011 fourth quarter, in conjunction with managements annual review of goodwill, Alcoa early adopted the new
guidance. As a result, Alcoa instituted a policy for its annual review of goodwill to perform the qualitative assessment
for all reporting units not subjected directly to the two-step quantitative impairment test. Management will proceed
directly to the two-step quantitative impairment test for a minimum of three reporting units (based on facts and
circumstances) during each annual review of goodwill. This policy will result in each of the nine reporting units being
subjected to the two-step quantitative impairment test at least once during every three-year period.
Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair
value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the
type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on
current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on
the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the
results of the most recent two-step quantitative impairment test completed for a reporting unit (this would be 2011 and
2010 in which the estimated fair values of three and nine reporting units, respectively, were substantially in excess of
their carrying values) and compares the weighted average cost of capital (WACC) between the current and prior years
for each reporting unit.
During the 2012 annual review of goodwill, management performed the qualitative assessment for six reporting units.
Management concluded that it was not more likely than not that the estimated fair values of the six reporting units were
less than their carrying values. As such, no further analysis was required.
Under the two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair
value of each reporting unit to its carrying value, including goodwill. Alcoa uses a DCF model to estimate the current
fair value of its reporting units when testing for impairment, as management believes forecasted cash flows are the best
indicator of such fair value. A number of significant assumptions and estimates are involved in the application of the
DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to
produce, tax rates, capital spending, discount rate, and working capital changes. Most of these assumptions vary
significantly among the reporting units. Cash flow forecasts are generally based on approved business unit operating
plans for the early years and historical relationships in later years. The betas used in calculating the individual reporting
units WACC rate are estimated for each business with the assistance of valuation experts.
In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional
analysis would be required. The additional analysis would compare the carrying amount of the reporting units
goodwill with the implied fair value of that goodwill, which may involve the use of valuation experts. The implied fair
value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the
assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the
reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an
impairment loss equal to such excess would be recognized, which could significantly and adversely impact reported
results of operations and shareholders equity.
During the 2012 annual review of goodwill, management proceeded directly to the two-step quantitative impairment
test for three reporting units as follows: the Primary Metals segment, the Alumina segment, and the Global Rolled
Products segment. For Global Rolled Products, the estimated fair value exceeded carrying value by more than 150%,
resulting in no impairment. For Primary Metals and Alumina, the estimated fair values exceeded their carrying values
by 9.2% and 7.4%, respectively, resulting in no impairment. These two reporting units have goodwill of $1,748 and
89
$171, respectively. In developing the fair value of these reporting units, the Company estimates future cash flows using
London Metal Exchange (LME) forward curve pricing and operating cost assumptions management believes are
reasonable based on expected and historical performance. The following could have a negative impact on the estimated
fair values of Primary Metals and Alumina: a significant, protracted decrease in LME and alumina prices; decrease in
long-term profitability; decrease in the long-term demand for aluminum; substantial reductions in Alcoas end markets
and volume assumptions; and an increase in discount rates.
As part of the 2012 annual review of goodwill, management considered the market capitalization of Alcoas common
stock in relation to the Companys total shareholders equity. At December 31, 2012, the market capitalization of
Alcoas common stock was $9,263. While this amount is less than the Companys total shareholders equity at
December 31, 2012, the estimated aggregate fair value of Alcoas reporting units was substantially in excess of the
aforementioned market capitalization amount. In managements judgment, the main reason for the difference between
Alcoas market capitalization and total shareholders equity at December 31, 2012 is significantly lower commodity
prices for aluminum. Management believes these commodity prices are being adversely impacted by turmoil in the
macroeconomic environment, which do not necessarily reflect aluminum industry fundamentals. For example, there
was, and continues to be, significant uncertainty of the sovereign debt of many European countries. This uncertainty
has affected the liquidity of many companies that either operate or are located in Europe, although, Alcoa has not been
impacted significantly. Additionally, during 2012, there was great concern over what was labeled the fiscal cliff in the
U.S. and a slowdown in the growth of China. The combination of this economic uncertainty and the continuing decline
in commodity prices caused the price of Alcoas common stock to remain depressed. As a result, management believes
the quoted market price of Alcoas common stock does not fully reflect the underlying value of the future aggregate
cash flows of the Companys reporting units. Accordingly, management does not believe that the comparison of
Alcoas market capitalization and total shareholders equity as of December 31, 2012 is an indication that goodwill is
impaired.
Intangible assets with indefinite useful lives are not amortized while intangible assets with finite useful lives are
amortized generally on a straight-line basis over the periods benefited. The following table details the weighted-
average useful lives of software and other intangible assets by reporting segment (numbers in years):
Segment Software Other intangible assets
Alumina 10 -
Primary Metals 9 36
Global Rolled Products 10 13
Equity Investments. Alcoa invests in a number of privately-held companies, primarily through joint ventures and
consortia, which are accounted for on the equity method. The equity method is applied in situations where Alcoa has
the ability to exercise significant influence, but not control, over the investee. Management reviews equity investments
for impairment whenever certain indicators are present suggesting that the carrying value of an investment is not
recoverable. This analysis requires a significant amount of judgment from management to identify events or
circumstances indicating that an equity investment is impaired. The following items are examples of impairment
indicators: significant, sustained declines in an investees revenue, earnings, and cash flow trends; adverse market
conditions of the investees industry or geographic area; the investees ability to continue operations measured by
several items, including liquidity; and other factors. Once an impairment indicator is identified, management uses
considerable judgment to determine if the impairment is other than temporary, in which case the equity investment is
written down to its estimated fair value. An impairment that is other than temporary could significantly and adversely
impact reported results of operations.
Revenue Recognition. Alcoa recognizes revenue when title, ownership, and risk of loss pass to the customer, all of
which occurs upon shipment or delivery of the product and is based on the applicable shipping terms. The shipping
terms vary across all businesses and depend on the product, the country of origin, and the type of transportation (truck,
train, or vessel).
90
Alcoa periodically enters into long-term supply contracts with alumina and aluminum customers and receives advance
payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue, and
revenue is recognized as shipments are made and title, ownership, and risk of loss pass to the customer during the term
of the contracts. Deferred revenue is included in Other current liabilities and Other noncurrent liabilities and deferred
credits on the accompanying Consolidated Balance Sheet.
Environmental Matters. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures
relating to existing conditions caused by past operations, which will not contribute to future revenues, are expensed.
Liabilities are recorded when remediation costs are probable and can be reasonably estimated. The liability may
include costs such as site investigations, consultant fees, feasibility studies, outside contractors, and monitoring
expenses. Estimates are generally not discounted or reduced by potential claims for recovery. Claims for recovery are
recognized as agreements are reached with third parties. The estimates also include costs related to other potentially
responsible parties to the extent that Alcoa has reason to believe such parties will not fully pay their proportionate
share. The liability is continuously reviewed and adjusted to reflect current remediation progress, prospective estimates
of required activity, and other factors that may be relevant, including changes in technology or regulations.
Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a
matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an
unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy,
progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals
processes, and the outcome of similar historical matters, among others. Once an unfavorable outcome is deemed
probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If
an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is disclosed and no liability is
recorded. With respect to unasserted claims or assessments, management must first determine that the probability that
an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability
to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there
has been a change in managements judgment regarding the likelihood of an unfavorable outcome or the estimate of a
potential loss.
Asset Retirement Obligations. Alcoa recognizes asset retirement obligations (AROs) related to legal obligations
associated with the normal operation of Alcoas bauxite mining, alumina refining, and aluminum smelting facilities.
These AROs consist primarily of costs associated with spent pot lining disposal, closure of bauxite residue areas, mine
reclamation, and landfill closure. Alcoa also recognizes AROs for any significant lease restoration obligation, if
required by a lease agreement, and for the disposal of regulated waste materials related to the demolition of certain
power facilities. The fair values of these AROs are recorded on a discounted basis, at the time the obligation is
incurred, and accreted over time for the change in present value. Additionally, Alcoa capitalizes asset retirement costs
by increasing the carrying amount of the related long-lived assets and depreciating these assets over their remaining
useful life.
Certain conditional asset retirement obligations (CAROs) related to alumina refineries, aluminum smelters, and
fabrication facilities have not been recorded in the Consolidated Financial Statements due to uncertainties surrounding
the ultimate settlement date. A CARO is a legal obligation to perform an asset retirement activity in which the timing
and (or) method of settlement are conditional on a future event that may or may not be within Alcoas control. Such
uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs, and other
factors. At the date a reasonable estimate of the ultimate settlement date can be made, Alcoa would record an ARO for
the removal, treatment, transportation, storage, and (or) disposal of various regulated assets and hazardous materials
such as asbestos, underground and aboveground storage tanks, polychlorinated biphenyls (PCBs), various process
residuals, solid wastes, electronic equipment waste, and various other materials. Such amounts may be material to the
Consolidated Financial Statements in the period in which they are recorded.
Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received
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or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future
tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result
from differences between the financial and tax bases of Alcoas assets and liabilities and are adjusted for changes in tax
rates and tax laws when enacted.
Existing favorable contracts and the ability to sell products into established markets are additional positive evidence.
are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred
tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances,
resulting in a future charge to establish a valuation allowance.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such
benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been
effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has
completed their examination even though the statute of limitations remains open. Interest and penalties related to
uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period
that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits
are recognized.
Stock-Based Compensation. Alcoa recognizes compensation expense for employee equity grants using the non-
substantive vesting period approach, in which the expense (net of estimated forfeitures) is recognized ratably over the
requisite service period based on the grant date fair value. The fair value of new stock options is estimated on the date
of grant using a lattice-pricing model. Determining the fair value of stock options at the grant date requires judgment,
including estimates for the average risk-free interest rate, dividend yield, volatility, annual forfeiture rate, and exercise
behavior. These assumptions may differ significantly between grant dates because of changes in the actual results of
these inputs that occur over time.
Derivatives and Hedging. Derivatives are held for purposes other than trading and are part of a formally documented
risk management program. For derivatives designated as fair value hedges, Alcoa measures hedge effectiveness by
formally assessing, at least quarterly, the historical high correlation of changes in the fair value of the hedged item and
the derivative hedging instrument. For derivatives designated as cash flow hedges, Alcoa measures hedge effectiveness
by formally assessing, at least quarterly, the probable high correlation of the expected future cash flows of the hedged
item and the derivative hedging instrument. The ineffective portions of both types of hedges are recorded in sales or
other income or expense in the current period. If the hedging relationship ceases to be highly effective or it becomes
probable that an expected transaction will no longer occur, future gains or losses on the derivative instrument are
recorded in other income or expense.
Alcoa accounts for interest rate swaps related to its existing long-term debt and hedges of firm customer commitments
for aluminum as fair value hedges. As a result, the fair values of the derivatives and changes in the fair values of the
underlying hedged items are reported in other current and noncurrent assets and liabilities in the Consolidated Balance
Sheet. Changes in the fair values of these derivatives and underlying hedged items generally offset and are recorded
each period in sales or interest expense, consistent with the underlying hedged item.
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Alcoa accounts for hedges of foreign currency exposures and certain forecasted transactions as cash flow hedges. The
fair values of the derivatives are recorded in other current and noncurrent assets and liabilities in the Consolidated
Balance Sheet. The effective portions of the changes in the fair values of these derivatives are recorded in other
comprehensive income and are reclassified to sales, cost of goods sold, or other income or expense in the period in
which earnings are impacted by the hedged items or in the period that the transaction no longer qualifies as a cash flow
hedge. These contracts cover the same periods as known or expected exposures, generally not exceeding five years.
If no hedging relationship is designated, the derivative is marked to market through earnings.
Cash flows from derivatives are recognized in the Statement of Consolidated Cash Flows in a manner consistent with
the underlying transactions.
Foreign Currency. The local currency is the functional currency for Alcoas significant operations outside the U.S.,
except for certain operations in Canada, Russia and Iceland, where the U.S. dollar is used as the functional currency.
The determination of the functional currency for Alcoas operations is made based on the appropriate economic and
management indicators.
Effective January 1, 2010, the functional currency of a subsidiary located in Brazil (that is part of Alcoa World
Alumina and Chemicals, which is 60% owned by Alcoa and 40% owned by Alumina Limited) was changed from the
U.S. dollar to the Brazilian real (BRL). This change was made as a result of changes in the operations of the business
following the completion of the So Lus refinery expansion and Juruti bauxite mine development. In connection with
this change, on January 1, 2010, an adjustment of $309 was recorded as an increase to the net nonmonetary assets of
this subsidiary (primarily properties, plants, and equipment) with a corresponding adjustment to the foreign currency
translation component of Accumulated other comprehensive loss. The functional currency of all of Alcoas Brazilian
operations is now BRL.
Acquisitions. Alcoas business acquisitions are accounted for using the acquisition method. The purchase price is
allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price
over the fair value of the net assets acquired is recorded as goodwill. For all acquisitions, operating results are included
in the Statement of Consolidated Operations since the dates of the acquisitions.
Discontinued Operations and Assets Held For Sale. For those businesses where management has committed to a
plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the
carrying amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is
estimated using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings
multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the
application of these techniques, including the forecasting of markets and market share, sales volumes and prices, costs
and expenses, and multiple other factors. Management considers historical experience and all available information at
the time the estimates are made; however, the fair value that is ultimately realized upon the divestiture of a business
may differ from the estimated fair value reflected in the Consolidated Financial Statements. Depreciation, depletion,
and amortization expense is not recorded on assets of a business to be divested once they are classified as held for sale.
Businesses to be divested are classified in the Consolidated Financial Statements as either discontinued operations or
held for sale.
For businesses classified as discontinued operations, the balance sheet amounts and results of operations are
reclassified from their historical presentation to assets and liabilities of operations held for sale on the Consolidated
Balance Sheet and to discontinued operations on the Statement of Consolidated Operations, respectively, for all periods
presented. The gains or losses associated with these divested businesses are recorded in discontinued operations on the
Statement of Consolidated Operations. The Statement of Consolidated Cash Flows is also reclassified for assets and
liabilities of operations held for sale and discontinued operations for all periods presented. Additionally, segment
information does not include the assets or operating results of businesses classified as discontinued operations for all
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periods presented. Management does not expect any continuing involvement with these businesses following their
divestiture, and these businesses are expected to be disposed of within one year.
For businesses classified as held for sale that do not qualify for discontinued operations treatment, the balance sheet
and cash flow amounts are reclassified from their historical presentation to assets and liabilities of operations held for
sale for all periods presented. The results of operations continue to be reported in continuing operations. The gains or
losses associated with these divested businesses are recorded in restructuring and other charges on the Statement of
Consolidated Operations. The segment information includes the assets and operating results of businesses classified as
held for sale for all periods presented. Management expects that Alcoa will have continuing involvement with these
businesses following their divestiture, primarily in the form of equity participation, or ongoing aluminum or other
significant supply contracts.
Recently Adopted Accounting Guidance.
Fair Value AccountingOn January 1, 2012, Alcoa adopted changes issued by the Financial Accounting
Standards Board (FASB) to conform existing guidance regarding fair value measurement and disclosure between
GAAP and International Financial Reporting Standards. These changes both clarify the FASBs intent about the
application of existing fair value measurement and disclosure requirements and amend certain principles or
requirements for measuring fair value or for disclosing information about fair value measurements. The clarifying
changes relate to the application of the highest and best use and valuation premise concepts, measuring the fair value of
an instrument classified in a reporting entitys shareholders equity, and disclosure of quantitative information about
unobservable inputs used for Level 3 fair value measurements. The amendments relate to measuring the fair value of
financial instruments that are managed within a portfolio; application of premiums and discounts in a fair value
measurement; and additional disclosures concerning the valuation processes used and sensitivity of the fair value
measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entitys use of a
nonfinancial asset in a way that differs from the assets highest and best use, and the categorization by level in the fair
value hierarchy for items required to be measured at fair value for disclosure purposes only. Other than the additional
disclosure requirements (see Note X), the adoption of these changes had no impact on the Consolidated Financial
Statements.
On January 1, 2011, Alcoa adopted changes issued by the FASB to disclosure requirements for fair value
measurements. Specifically, the changes require a reporting entity to disclose, in the reconciliation of fair value
measurements using significant unobservable inputs (Level 3), separate information about purchases, sales, issuances,
and settlements (that is, on a gross basis rather than as one net number). These changes were applied to the disclosures
in Note W and the Derivatives section of Note X to the Consolidated Financial Statements.
Effective January 1, 2010, Alcoa adopted changes issued by the FASB on January 21, 2010 to disclosure requirements
for fair value measurements. Specifically, the changes require a reporting entity to disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the
transfers. The changes also clarify existing disclosure requirements related to how assets and liabilities should be
grouped by class and valuation techniques used for recurring and nonrecurring fair value measurements. The adoption
of these changes had no impact on the Consolidated Financial Statements.
Business Combinations and Consolidation AccountingOn January 1, 2011, Alcoa adopted changes issued by
the FASB to the disclosure of pro forma information for business combinations. These changes clarify that if a public
entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity
as though the business combination that occurred during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. Also, the existing supplemental pro forma disclosures were expanded to
include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to
the business combination included in the reported pro forma revenue and earnings. The adoption of these changes had
no impact on the Consolidated Financial Statements.
On January 1, 2010, Alcoa adopted changes issued by the FASB to accounting for variable interest entities. These
changes require an enterprise to perform an analysis to determine whether the enterprises variable interest or interests
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give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity; to eliminate the solely quantitative approach
previously required for determining the primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and
circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that most significantly impact the entitys
economic performance; and to require enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprises involvement in a variable interest entity. The adoption of these changes
had no impact on the Consolidated Financial Statements.
Effective January 1, 2010, Alcoa adopted changes issued by the FASB on January 6, 2010 for a scope clarification to the
FASBs previously-issued guidance (in December 2007) on accounting for noncontrolling interests in consolidated
financial statements. These changes clarify the accounting and reporting guidance for noncontrolling interests and changes
in ownership interests of a consolidated subsidiary. An entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes
a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss
includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary
and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a
decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity
transaction. The adoption of these changes had no impact on the Consolidated Financial Statements.
Goodwill and Other Intangible AssetsOn January 1, 2011, Alcoa adopted changes issued by the FASB to the
testing of goodwill for impairment. These changes require an entity to perform all steps in the test for a reporting unit
whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists
based on qualitative factors. This will result in the elimination of an entitys ability to assert that such a reporting units
goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate
otherwise. Based on the then most recent impairment review of Alcoas goodwill (2011 fourth quarter), the adoption of
these changes had no impact on the Consolidated Financial Statements.
In September 2011, the FASB issued changes to the testing of goodwill for impairment. These changes provide an entity
the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying
amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market
considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to
perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to
perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may
elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test.
Under either option, the ultimate outcome of the goodwill impairment test should be the same. These changes are required
to become effective for Alcoa for any goodwill impairment test performed on January 1, 2012 or later; however, early
adoption is permitted. Alcoa elected to early adopt these changes in conjunction with managements annual review of
goodwill in the fourth quarter of 2011 (see the Goodwill and Other Intangible Assets section of Note A above). The
adoption of these changes had no impact on the Consolidated Financial Statements.
OtherOn January 1, 2012, Alcoa adopted changes issued by the FASB to the presentation of comprehensive
income. These changes give an entity the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements; the option to present components of other comprehensive
income as part of the statement of changes in stockholders equity was eliminated. The items that must be reported in
other comprehensive income or when an item of other comprehensive income must be reclassified to net income were
not changed. Additionally, no changes were made to the calculation and presentation of earnings per share.
Management elected to present the two-statement option. Other than the change in presentation, the adoption of these
changes had no impact on the Consolidated Financial Statements.
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On January 1, 2011, Alcoa adopted changes issued by the FASB to revenue recognition for multiple-deliverable
arrangements. These changes require separation of consideration received in such arrangements by establishing a
selling price hierarchy (not the same as fair value) for determining the selling price of a deliverable, which will be
based on available information in the following order: vendor-specific objective evidence, third-party evidence, or
estimated selling price; eliminate the residual method of allocation and require that the consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in
the arrangement to each deliverable on the basis of each deliverables selling price; require that a vendor determine its
best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable
on a standalone basis; and expand the disclosures related to multiple-deliverable revenue arrangements. The adoption
of these changes had no impact on the Consolidated Financial Statements, as Alcoa does not currently have any such
arrangements with its customers.
On January 1, 2011, Alcoa adopted changes issued by the FASB to the classification of certain employee share-based
payment awards. These changes clarify that there is not an indication of a condition that is other than market,
performance, or service if an employee share-based payment awards exercise price is denominated in the currency of a
market in which a substantial portion of the entitys equity securities trade and differs from the functional currency of
the employer entity or payroll currency of the employee. An employee share-based payment award is required to be
classified as a liability if the award does not contain a market, performance, or service condition. Prior to this guidance,
the difference between the currency denomination of an employee share-based payment awards exercise price and the
functional currency of the employer entity or payroll currency of the employee was not a factor considered by
management when determining the proper classification of a share-based payment award. The adoption of these
On January 1, 2010, Alcoa adopted changes issued by the FASB to accounting for transfers of financial assets. These
changes remove the concept of a qualifying special-purpose entity and remove the exception from the application of
variable interest accounting to variable interest entities that are qualifying special-purpose entities; limit the
circumstances in which a transferor derecognizes a portion or component of a financial asset; define a participating
interest; require a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as
a result of a transfer accounted for as a sale; and require enhanced disclosure. The adoption of these changes had no
impact on the Consolidated Financial Statements. In March 2010, management terminated the Companys accounts
receivable securitization program; had this program not been terminated, the adoption of these changes would have
resulted in a $250 increase to both Receivables from customers and Short-term borrowings on the accompanying
Consolidated Balance Sheet.
Effective January 1, 2010, Alcoa adopted changes issued by the FASB on February 24, 2010 to accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be
issued, otherwise known as subsequent events. Specifically, these changes clarify that an entity that is required to file
or furnish its financial statements with the Securities and Exchange Commission is not required to disclose the date
through which subsequent events have been evaluated, as had been previously required by changes issued by the FASB
in May 2009. Other than the elimination of disclosing the date through which management has performed its
evaluation for subsequent events (see Note Y), the adoption of these changes had no impact on the Consolidated
Financial Statements.
On July 1, 2010, Alcoa adopted changes to existing accounting requirements for embedded credit derivatives.
Specifically, the changes clarify the scope exception regarding when embedded credit derivative features are not
considered embedded derivatives subject to potential bifurcation and separate accounting. The adoption of these
Recently Issued Accounting Guidance. In July 2012, the FASB issued changes to the testing of indefinite-lived
intangible assets for impairment, similar to the goodwill changes issued in September 2011. These changes provide an
entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is
less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and
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market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity
elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then
required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity
also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative
impairment test. These changes become effective for Alcoa for any indefinite-lived intangible asset impairment test
performed on January 1, 2013 or later, although early adoption is permitted. Upon adoption of these changes, management
plans to proceed directly to the two-step quantitative test for Alcoas indefinite-lived intangible assets. As these changes
should not affect the outcome of the impairment analysis of an indefinite-lived intangible asset, management has
determined these changes will not have an impact on the Consolidated Financial Statements.
In December 2011, the FASB issued changes to the disclosure of offsetting assets and liabilities. These changes require an
entity to disclose both gross information and net information about both instruments and transactions eligible for offset in
the statement of financial position and instruments and transactions subject to an agreement similar to a master netting
arrangement. The enhanced disclosures will enable users of an entitys financial statements to understand and evaluate the
effect or potential effect of master netting arrangements on an entitys financial position, including the effect or potential
effect of rights of setoff associated with certain financial instruments and derivative instruments. These changes become
effective for Alcoa on January 1, 2013. Other than the additional disclosure requirements, management has determined
that the adoption of these changes will not have an impact on the Consolidated Financial Statements.
B. Discontinued Operations and Assets Held for Sale
For the years ended December 31, 2012, 2011, and 2010, there were no active businesses classified as discontinued
operations in the accompanying Statement of Consolidated Operations.
The following table details selected financial information of discontinued operations:
2012 2011 2010
Sales $- $ - $ -
Loss from operations before income taxes $- $(4) $(11)
Benefit for income taxes - 1 3
Loss from discontinued operations $- $(3) $ (8)
In 2011, discontinued operations included an additional loss of $3 ($5 pretax) related to the wire harness and electrical
portion (divested in June 2009) of the Electrical and Electronic Solutions (EES) business as a result of a negotiated
preliminary settlement related to claims filed in 2010 against Alcoa by Platinum Equity in an insolvency proceeding in
Germany, a net gain of $2 ($3 pretax) related to both the wire harness and electrical portion and the electronics portion
(divested in December 2009) of the EES business for a number of small post-closing and other adjustments, and a $2 ($2
pretax) reversal of the gain recognized in 2006 related to the sale of the home exteriors business for an adjustment to an
outstanding obligation, which was part of the terms of sale. In 2010, discontinued operations included an additional loss of
$6 ($9 pretax) related to the wire harness and electrical portion of the EES business as a result of a contract settlement
with a former customer of this business and an additional loss of $2 ($4 pretax) related to the electronics portion of the
EES business for the settling of working capital, which was not included in the divestiture transaction.
For both periods presented in the accompanying Consolidated Balance Sheet, the assets and liabilities of operations classified
as held for sale included the electronics portion of the EES business (working capital components) and the Hawesville, KY
automotive casting facility. Additionally, assets of the Tapoco Hydroelectric Project (Tapoco), along with an allocation of
goodwill from the Primary Metals reporting unit, were classified as held for sale as of December 31, 2011.
In June 2012, management committed to a plan to sell the assets, consisting of properties, plants, and equipment and
intangible assets, of Tapoco. As a result, these assets were reclassified to held for sale. The Consolidated Financial
Statements for all prior periods presented were reclassified to reflect this change. In November 2012, Alcoa completed
the sale of Tapoco (see Note F).
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The major classes of assets and liabilities of operations held for sale were as follows:
December 31, 2012 2011
Assets:
Properties, plants, and equipment $2 $136
Goodwill - 94
Other assets - 13
Assets held for sale* $2 $243
Liabilities:
Accounts payable, trade $ - $ 1
Accrued expenses 1 5
Liabilities of operations held for sale* $1 $ 6
* Assets held for sale were included in Other noncurrent assets and Liabilities of operations held for sale were
included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet.
C. Asset Retirement Obligations
Alcoa has recorded AROs related to legal obligations associated with the normal operations of bauxite mining, alumina
refining, and aluminum smelting facilities. These AROs consist primarily of costs associated with spent pot lining
disposal, closure of bauxite residue areas, mine reclamation, and landfill closure. Alcoa also recognizes AROs for any
significant lease restoration obligation, if required by a lease agreement, and for the disposal of regulated waste
materials related to the demolition of certain power facilities.
In addition to AROs, certain CAROs related to alumina refineries, aluminum smelters, and fabrication facilities have
not been recorded in the Consolidated Financial Statements due to uncertainties surrounding the ultimate settlement
date. Such uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs,
and other factors. At the date a reasonable estimate of the ultimate settlement date can be made (e.g., planned
demolition), Alcoa would record an ARO for the removal, treatment, transportation, storage, and (or) disposal of
various regulated assets and hazardous materials such as asbestos, underground and aboveground storage tanks, PCBs,
various process residuals, solid wastes, electronic equipment waste, and various other materials. If Alcoa was required
to demolish all such structures immediately, the estimated CARO as of December 31, 2012 ranges from less than $1 to
$52 per structure (132 structures) in todays dollars.
The following table details the carrying value of recorded AROs by major category (of which $75 and $76 was
classified as a current liability as of December 31, 2012 and 2011, respectively):
December 31, 2012 2011
Spent pot lining disposal $182 $187
Closure of bauxite residue areas 190 173
Mine reclamation 189 164
Demolition* 28 34
Landfill closure 17 17
Other 4 4
$610 $579
* In 2011, AROs were recorded as a result of managements decision to permanently shut down and demolish certain
structures, each of which was previously temporarily idled for different reasons (see Note D).
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The following table details the changes in the total carrying value of recorded AROs:
December 31, 2012 2011
Balance at beginning of year $579 $534
Accretion expense 25 22
Payments (81) (86)
Liabilities incurred 80 115
Foreign currency translation and other 7 (6)
Balance at end of year $610 $579
D. Restructuring and Other Charges
Restructuring and other charges for each year in the three-year period ended December 31, 2012 were comprised of the
following:
2012 2011 2010
Asset impairments $ 40 $150 $139
Layoff costs 47 93 43
Other exit costs 21 61 58
Reversals of previously recorded layoff and other exit costs (21) (23) (33)
Restructuring and other charges $ 87 $281 $207
Layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified
positions to be eliminated, benefits to be paid under existing severance plans, union contracts or statutory requirements,
and the expected timetable for completion of the plans.
2012 Actions. In 2012, Alcoa recorded Restructuring and other charges of $87 ($73 after-tax and noncontrolling
interests), which were comprised of the following components: $47 ($29 after-tax and noncontrolling interests) for the
layoff of approximately 800 employees (390 in the Engineered Products and Solutions segment, 250 in the Primary
Metals segment, 85 in the Alumina segment, and 75 in Corporate), including $10 ($7 after-tax) for the layoff of an
additional 170 employees related to the previously reported smelter curtailments in Spain (see 2011 Actions below);
$30 ($30 after-tax) in asset impairments and $6 ($6 after-tax) for lease and contract termination costs due to a decision
to exit the lithographic sheet business in Bohai, China; $11 ($11 after-tax) in costs to idle the Portovesme smelter (see
2011 Actions below); $10 ($8 after-tax) in other asset impairments; a net charge of $4 ($4 after-tax and noncontrolling
interests) for other miscellaneous items; and $21 ($15 after-tax and noncontrolling interests) for the reversal of a
number of layoff reserves related to prior periods, including $10 ($7 after-tax) related to the smelters in Spain. The
reversal related to the smelters in Spain is due to lower than expected costs based on agreements with employee
representatives and the government, as well as a reduction of 55 in the number of layoffs due to the anticipation of the
restart of a portion of the previously curtailed capacity based on an agreement with the Spanish government that will
provide interruptibility rights (i.e. compensation for power interruptions when grids are overloaded) to the smelters
during 2013. A portion of this reversal relates to layoff costs recorded at the end of 2011 (see 2011 Actions below) and
a portion of this reversal relates to layoff costs recorded during 2012 (see above).
As of December 31, 2012, approximately 270 of the 800 employees were separated. The remaining separations for the
2012 restructuring programs are expected to be completed by the end of 2013. In 2012, cash payments of $16 were
made against layoff reserves related to the 2012 restructuring programs.
interests), which were comprised of the following components: $127 ($82 after-tax) in asset impairments and $36
($23 after-tax) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures
at two U.S. locations (see below); $93 ($68 after-tax and noncontrolling interests) for the layoff of approximately 1,600
employees (820 in the Primary Metals segment, 470 in the Global Rolled Products segment, 160 in the Alumina
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segment, 20 in the Engineered Products and Solutions segment, and 130 in Corporate), including the effects of planned
smelter curtailments (see below); $23 ($12 after-tax and noncontrolling interests) for other asset impairments,
including the write-off of the carrying value of an idled structure in Australia that processed spent pot lining and
adjustments to the fair value of the one remaining foil location while it was classified as held for sale due to foreign
currency movements; $20 ($8 after-tax and noncontrolling interests) for a litigation matter related to the former St.
Croix location (see the Litigation section of Note N); a net charge of $5 ($4 after-tax) for other small items; and $23
($16 after-tax) for the reversal of previously recorded layoff reserves due to normal attrition and changes in facts and
circumstances, including a change in plans for Alcoas aluminum powder facility in Rockdale, TX.
In late 2011, management approved the permanent shutdown and demolition of certain facilities at two U.S. locations,
each of which was previously temporarily idled for various reasons. The identified facilities are the smelter located in
Alcoa, TN (capacity of 215 kmt-per-year) and two potlines (capacity of 76 kmt-per-year) at the smelter located in
Rockdale, TX (remaining capacity of 191 kmt-per-year composed of four potlines). Demolition and remediation activities
related to these actions began in 2012 and are expected to be completed in 2015 for the Tennessee smelter and in 2013 for
the two potlines at the Rockdale smelter. This decision was made after a comprehensive strategic analysis was performed
to determine the best course of action for each facility. Factors leading to this decision were in general focused on
achieving sustained competitiveness and included, among others: lack of an economically viable, long-term power
solution; changed market fundamentals; cost competitiveness; required future capital investment; and restart costs. The
asset impairments of $127 represent the write off of the remaining book value of properties, plants, and equipment related
to these facilities. Additionally, remaining inventories, mostly operating supplies, were written down to their net realizable
value resulting in a charge of $6 ($4 after-tax), which was recorded in Cost of goods sold on the accompanying Statement
of Consolidated Operations. The other exit costs of $36 represent $18 ($11 after-tax) in environmental remediation (see
Note N) and $17 ($11 after-tax) in asset retirement obligations (see Note C), both triggered by the decision to permanently
shut down and demolish these structures, and $1 ($1 after-tax) in other related costs.
Portovesme, Italy (150 kmt-per-year); Avils, Spain (46 kmt out of 93 kmt-per-year); and La Corua, Spain (44 kmt out of
87 kmt-per-year). These curtailments were completed by the end of 2012. The curtailment of the Portovesme smelter may
lead to the permanent closure of the facility, which would result in future charges, while the curtailments at the two smelters
in Spain are planned to be temporary. These actions were the result of uncompetitive energy positions, combined with rising
material costs and falling aluminum prices (mid-2011 to late 2011). As a result of these decisions, Alcoa recorded costs of
$33 ($31 after-tax) for the layoff of approximately 650 employees. As Alcoa engaged in discussions with the respective
employee representatives and governments, additional charges were recognized in 2012 (see 2012 Actions above).
As of December 31, 2012, approximately 895 of the 1,475 employees were separated. The total number of employees
associated with the 2011 restructuring programs was updated to reflect changes in plans (agreement related to the
smelters in Spain see 2012 Actions above), better than expected operating performance at certain locations, and
natural attrition. The remaining separations for the 2011 restructuring programs are expected to be completed by the
end of 2013. In 2012 and 2011, cash payments of $23 and $24, respectively, were made against layoff reserves related
to the 2011 restructuring programs.
interests), which were comprised of the following components: $127 ($80 after-tax and noncontrolling interests) in
asset impairments and $46 ($29 after-tax and noncontrolling interests) in other exit costs related to the permanent
shutdown and planned demolition of certain idled structures at five U.S. locations (see below); $43 ($29 after-tax and
noncontrolling interests) for the layoff of approximately 875 employees (625 in the Engineered Products and Solutions
segment; 75 in the Primary Metals segment; 60 in the Alumina segment; 25 in the Global Rolled Products segment;
and 90 in Corporate); $22 ($14 after-tax) in net charges (including $12 ($8 after-tax) for asset impairments) related to
divested and to be divested businesses (Automotive Castings, Global Foil, Transportation Products Europe, and
Packaging and Consumer) for, among other items, the settlement of a contract with a former customer, foreign
currency movements, working capital adjustments, and a tax indemnification; $2 ($2 after-tax and noncontrolling
interests) for various other exit costs; and $33 ($24 after-tax and noncontrolling interests) for the reversal of prior
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periods layoff reserves, including a portion of those related to the Portovesme smelter in Italy due to the execution of a
new power agreement (see the European Commission Matters section of Note N).
In early 2010, management approved the permanent shutdown and demolition of the following structures, each of which
was previously temporarily idled for different reasons: the Eastalco smelter located in Frederick, MD (capacity of 195
kmt-per-year); the smelter located in Badin, NC (capacity of 60 kmt-per-year); an aluminum fluoride plant in Point
Comfort, TX; a paste plant and cast house in Massena, NY; and one potline at the smelter in Warrick, IN (capacity of
40 kmt-per-year). This decision was made after a comprehensive strategic analysis was performed to determine the best
course of action for each facility. Factors leading to this decision included current market fundamentals, cost
competitiveness, other existing idle capacity, required future capital investment, and restart costs, as well as the
elimination of ongoing holding costs. The asset impairments of $127 represent the write off of the remaining book value
of properties, plants, and equipment related to these facilities. Additionally, remaining inventories, mostly operating
supplies, were written down to their net realizable value resulting in a charge of $8 ($5 after-tax and noncontrolling
interests), which was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. The
other exit costs of $46 represent $30 ($19 after-tax and noncontrolling interests) in asset retirement obligations and $14
($9 after-tax) in environmental remediation, both triggered by the decision to permanently shut down and demolish these
structures, and $2 ($1 after-tax and noncontrolling interests) in other related costs.
As of December 31, 2012, the separations associated with 2010 restructuring programs were essentially complete. In
2012 and 2011, cash payments of $3 and $7, respectively, were made against layoff reserves related to 2010
restructuring programs.
Alcoa does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of
allocating such charges to segment results would have been as follows:
2012 2011 2010
Alumina $ 3 $ 39 $ 12
Primary Metals 20 212 145
Global Rolled Products 43 19 (11)
Engineered Products and Solutions 13 (3) 18
Segment total 79 267 164
Corporate 8 14 43
Total restructuring and other charges $87 $281 $207
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Activity and reserve balances for restructuring charges were as follows:
Layoff
costs
Other
exit costs Total
Reserve balances at December 31, 2009 $160 $ 66 $ 226
2010:
Cash payments (93) (15) (108)
Restructuring charges 43 53 96
Other* (57) (41) (98)
Reserve balances at December 31, 2010 53 63 116
2011:
Other* (24) (34) (58)
Reserve balances at December 31, 2011 77 57 134
2012:
Other* (21) (5) (26)
Reserve balances at December 31, 2012 $ 59 $ 52 $ 111
* Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation.
In 2011, Other for other exit costs also included a reclassification of the following restructuring charges: $18 in
environmental and $17 in asset retirement obligations, as these liabilities are included in Alcoas separate reserves
for environmental remediation (see Note N) and asset retirement obligations (see Note C), respectively. In 2010,
Other for other exit costs also included a reclassification of the following restructuring charges: $30 in asset
retirement and $14 in environmental obligations, as these liabilities are included in Alcoas separate reserves for
asset retirement obligations and environmental remediation, respectively.
The remaining reserves are expected to be paid in cash during 2013, with the exception of approximately $50 to $55,
which is expected to be paid over the next several years for lease termination costs, special separation benefit
payments, and ongoing site remediation work.
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E. Goodwill and Other Intangible Assets
The following table details the changes in the carrying amount of goodwill:
Alumina
Primary
Metals
Global
Rolled
Products
Engineered
Products
and
Solutions Corporate* Total
Balance at December 31, 2010:
Goodwill $12 $993 $207 $2,551 $1,293 $5,056
Accumulated impairment losses - - - (28) - (28)
12 993 207 2,523 1,293 5,028
Acquisition of businesses - - - 150 - 150
Translation (1) (2) 1 (7) (12) (21)
Goodwill 11 991 208 2,694 1,281 5,185
11 991 208 2,666 1,281 5,157
Acquisition of businesses - - - (1) - (1)
Translation (1) 6 6 12 (9) 14
Goodwill 10 997 214 2,705 1,272 5,198
$10 $997 $214 $2,677 $1,272 $5,170
* As of December 31, 2012, $1,247 of the amount reflected in Corporate is allocated to each of Alcoas four
reportable segments ($161 to Alumina, $751 to Primary Metals, $62 to Global Rolled Products, and $273 to
Engineered Products and Solutions) included in the table above for purposes of impairment testing (see Note A).
This goodwill is reflected in Corporate for segment reporting purposes because it is not included in managements
assessment of performance by the four reportable segments.
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Other intangible assets, which are included in Other noncurrent assets on the accompanying Consolidated Balance
Sheet, were as follows:
December 31, 2012
Gross
carrying
amount
Accumulated
amortization
Computer software $ 907 $(664)
Patents and licenses 133 (88)
Other intangibles 101 (28)
Total amortizable intangible assets 1,141 (780)
Indefinite-lived trade names and trademarks 46 -
Total other intangible assets $1,187 $(780)
December 31, 2011
Gross
carrying
amount
Accumulated
amortization
Computer software $ 902 $(595)
Patents and licenses 133 (83)
Other intangibles* 101 (23)
Total amortizable intangible assets 1,136 (701)
Indefinite-lived trade names and trademarks* 46 -
Total other intangible assets $1,182 $(701)
* In 2011, customer relationships were identified as an intangible asset ($31) related to the acquisition of an aerospace
fastener business (see Note F) and were preliminarily classified as indefinite-lived in the table above. Upon the
completion of the final valuation in 2012, it was determined that the customer relationships should have a finite life.
As a result, the 2011 gross carrying amounts for indefinite-lived intangible assets and other intangible assets were
revised to conform to the 2012 presentation.
Computer software consists primarily of software costs associated with an enterprise business solution (EBS) within
Alcoa to drive common systems among all businesses.
Amortization expense related to the intangible assets in the tables above for the years ended December 31, 2012, 2011,
and 2010 was $82, $86, and $86, respectively, and is expected to be in the range of approximately $80 to $90 annually
from 2013 to 2017.
F. Acquisitions and Divestitures
Pro forma results of the Company, assuming all acquisitions described below were made at the beginning of the earliest
prior period presented, would not have been materially different from the results reported.
2012 Divestitures. In November 2012, Alcoa completed the sale of its 351-megawatt Tapoco Hydroelectric Project
(Tapoco) to Brookfield Renewable Energy Partners for $597 in cash. Alcoa recognized a gain of $320 ($173 after-
tax) in Other income, net on the accompanying Statement of Consolidated Operations, of which a gain of $426 ($275
after-tax) was reflected in the Primary Metals segment and a loss of $106 ($102 after-tax) was reflected in Corporate.
The amount in Corporate represents the write-off of goodwill and capitalized interest related to Tapoco that were not
included in the assets of the Primary Metals segment. This transaction is subject to certain post-closing adjustments as
defined in the purchase agreement. Tapoco is a four-station hydroelectric project located on the Little Tennessee and
Cheoah Rivers in eastern Tennessee and western North Carolina. The transaction included four generating stations and
dams, 86 miles of transmission lines, and approximately 14,500 acres of land associated with and surrounding Tapoco.
The power generated by Tapoco was primarily consumed by Alcoas smelter in Tennessee, which was temporarily
idled in 2009 and permanently shut down in 2011. Since 2009, the power generated from Tapoco was sold into the
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open market. Prior to November 2012, the carrying value of the assets sold, which consisted of properties, plants, and
equipment and intangible assets, along with an allocation of goodwill ($94) from the Primary Metals reporting unit,
were classified as held for sale (see Note B).
2011 Acquisitions. On March 9, 2011, Alcoa completed an acquisition of the aerospace fastener business of
TransDigm Group Inc. for $240 (cash acquired and post-closing adjustments resulted in a net purchase price of $239).
This business is a leading global designer, producer, and supplier of highly engineered aircraft components, with three
locations (one in the state of California and two in the United Kingdom) that employ a combined 400 people.
Specifically, this business provides a wide variety of high-strength, high temperature nickel alloy specialty engine
fasteners, airframe bolts, and slotted entry bearings. In 2010, this business generated sales of $61. The assets and
liabilities of this business were included in the Engineered Products and Solutions segment as of March 31, 2011; this
business results of operations were included in this segment beginning March 9, 2011. Based on the preliminary
purchase price allocation, goodwill of $154 was recorded for this transaction. In 2012, the purchase price allocation
was finalized based on the completion of a valuation study resulting in a $1 reduction of the initial goodwill amount.
Approximately $60 of goodwill is deductible for income tax purposes. No other intangible assets were identified as a
result of the final valuation. This transaction is no longer subject to post-closing adjustments. This acquisition is part of
a strategic plan to accelerate the growth of Alcoas fastener business, while adding efficiencies, broadening the existing
technology base, and expanding product offerings to better serve customers and increase shareholder value.
2010 Acquisitions. In July 2010, Alcoa completed an acquisition of the commercial building and construction business
of a privately-held company, Traco, for $77. This business, located in Cranberry, Pennsylvania, employing 650 people,
is a premier manufacturer of windows and doors for the commercial building and construction market and generated
sales of approximately $100 in 2009. The assets and liabilities of this business were included in the Engineered
Products and Solutions segment as of the end of July 2010 and this business results of operations were included in this
segment since the beginning of August 2010. Based on the preliminary purchase price allocation, goodwill of $28 was
recorded for this transaction. In 2011, the purchase price allocation was finalized based on the completion of a
valuation study resulting in a reduction in the initial goodwill amount of $4. All of the $24 in goodwill is deductible for
income tax purposes. Also in 2011, Alcoa paid an additional $1 to settle working capital, as provided for in the
acquisition agreement, reflecting an adjustment to the purchase price. This transaction is no longer subject to post-
closing adjustments.
2010 Divestitures. In April 2010, Alcoa completed the divestiture of the Transportation Products Europe business, the
assets and liabilities of which were classified as held for sale in 2008, to two separate buyers. Combined, this business
sold for $14, which was included in Proceeds from the sale of assets and businesses on the accompanying Statement of
Consolidated Cash Flows; a gain of $5 ($5 after-tax) was recognized in Restructuring and other charges on the
accompanying Statement of Consolidated Operations. These two transactions are no longer subject to post-closing
adjustments. This business generated sales of $78 in 2009 and, at the time of divestiture, had approximately 360
employees at three locations.
Contingent Payments. In connection with the 2005 acquisition of two fabricating facilities in Russia, Alcoa could be
required to make contingent payments of approximately $50 through 2015 based upon the achievement of various
financial and operating targets. Any such payment would be reflected as additional goodwill.
G. Inventories
December 31, 2012 2011
Finished goods $ 542 $ 537
Work-in-process 866 911
Bauxite and alumina 618 656
Purchased raw materials 536 532
Operating supplies 263 263
$2,825 $2,899
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At December 31, 2012 and 2011, the total amount of inventories valued on a LIFO basis was 35%. If valued on an
average-cost basis, total inventories would have been $770 and $801 higher at December 31, 2012 and 2011,
respectively. During the three-year period ended December 31, 2012, reductions in LIFO inventory quantities caused
partial liquidations of the lower cost LIFO inventory base. These liquidations resulted in the recognition of income of
$1 ($1 after-tax) in 2012, $2 ($1 after-tax) in 2011, and $27 ($17 after-tax) in 2010.
H. Properties, Plants, and Equipment, Net
December 31, 2012 2011
Land and land rights, including mines $ 676 $ 665
Structures:
Alumina:
Alumina refining 3,319 3,280
Bauxite mining 1,563 1,597
Primary Metals:
Aluminum smelting 4,042 3,950
Power generation 604 667
Global Rolled Products 1,232 1,204
Other 760 714
12,198 12,060
Machinery and equipment:
Alumina:
Alumina refining 5,279 5,223
Bauxite mining 650 661
Primary Metals:
Aluminum smelting 8,114 8,266
Power generation 994 1,012
Global Rolled Products 5,174 5,059
Engineered Products and Solutions 2,415 2,252
Other 883 764
23,509 23,237
36,383 35,962
Less: accumulated depreciation, depletion, and amortization 19,190 18,326
17,193 17,636
Construction work-in-progress 1,754 1,646
$18,947 $19,282
As of December 31, 2012 and 2011, the net carrying value of temporarily idled smelting assets was $325 and $166,
representing 591 kmt and 353 kmt of idle capacity, respectively. Additionally, the net carrying value of permanently
idled smelting assets, representing 291 kmt, was written off at the end of 2011 (see Note D). Also, the net carrying
value of temporarily idled refining assets was $68 and $65 as of December 31, 2012 and 2011, representing 1,277 and
1,177 kmt of idle capacity, respectively.
I. Investments
December 31, 2012 2011
Equity investments $1,782 $1,524
Other investments 78 102
$1,860 $1,626
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Equity Investments. As of December 31, 2012 and 2011, Equity investments included an interest in a project to
develop a fully-integrated aluminum complex in Saudi Arabia (see below), hydroelectric power projects in Brazil (see
Note N), a smelter operation in Canada (50% of Pechiney Reynolds Quebec, Inc.), bauxite mining interests in Guinea
(45% of Halco Mining, Inc.) and Brazil (18.2% of Minerao Rio do Norte S.A.), and a natural gas pipeline in
Australia (see Note N). Pechiney Reynolds Quebec, Inc. owns a 50.1% interest in the Bcancour smelter in Quebec,
Canada thereby entitling Alcoa to a 25.05% interest in the smelter. Through two wholly-owned Canadian subsidiaries,
Alcoa also owns 49.9% of the Bcancour smelter. Halco Mining, Inc. owns 100% of Bok Investment Company,
which owns 51% of Compagnie des Bauxites de Guine. The investments in the bauxite mining interests in Guinea and
Brazil and the natural gas pipeline in Australia are held by wholly-owned subsidiaries of Alcoa World Alumina and
Chemicals (AWAC), which is owned 60% by Alcoa and 40% by Alumina Limited. In 2012, 2011, and 2010, Alcoa
received $101, $100, and $33, respectively, in dividends from its equity investments.
Alcoa and Saudi Arabian Mining Company (known as Maaden) have a 30-year joint venture shareholders
agreement (automatic extension for an additional 20 years, unless the parties agree otherwise or unless earlier
terminated) setting forth the terms for the development, construction, ownership, and operation of an integrated bauxite
mine, alumina refinery, aluminum smelter, and rolling mill, in Saudi Arabia. Specifically, the project to be developed
by the joint venture will consist of: (i) a bauxite mine for the extraction of approximately 4,000 kmt of bauxite from the
Al Baitha bauxite deposit near Quiba in the northern part of Saudi Arabia; (ii) an alumina refinery with an initial
capacity of 1,800 kmt; (iii) a primary aluminum smelter with an initial capacity of 740 kmt; and (iv) a rolling mill with
an initial capacity of 380 kmt. The refinery, smelter, and rolling mill are being constructed in an industrial area at Ras
Al Khair (formerly Ras Az Zawr) on the east coast of Saudi Arabia. The facilities will use critical infrastructure,
including power generation derived from reserves of natural gas, as well as port and rail facilities, developed by the
government of Saudi Arabia. First production from the smelter occurred in December 2012. For the rolling mill and
mine and refinery, first production is expected in 2013 and 2014, respectively.
In 2012, Alcoa and Maaden agreed to expand the capabilities of the rolling mill to include a capacity of 100 kmt
dedicated to supplying aluminum automotive, building and construction, and foil stock sheet. First production related
to the expanded capacity is expected in 2014. This expansion is not expected to result in additional equity investment
(see below) due to significant savings anticipated from a change in the project execution strategy of the initial 380 kmt
capacity of the rolling mill.
The joint venture is owned 74.9% by Maaden and 25.1% by Alcoa and consists of three separate companies as
follows: one each for the mine and refinery, the smelter, and the rolling mill. Following the signing of the joint venture
shareholders agreement, Alcoa paid Maaden $80 representing the initial investment in the project. In addition, Alcoa
paid $22 and $34 to Maaden in 2011 and 2010, respectively, representing Alcoas pro rata share of certain agreed
upon pre-incorporation costs incurred by Maaden before formation of the joint venture.
Maaden and Alcoa have put and call options, respectively, whereby Maaden can require Alcoa to purchase from
Maaden, or Alcoa can require Maaden to sell to Alcoa, a 14.9% interest in the joint venture at the then fair market
value. These options may only be exercised in a six-month window that opens five years after the Commercial
Production Date (as defined in the joint venture shareholders agreement) and, if exercised, must be exercised for the
full 14.9% interest.
The Alcoa affiliate that holds Alcoas interests in the smelting company and the rolling mill company is wholly owned
by Alcoa, and the Alcoa affiliate that holds Alcoas interests in the mining and refining company is wholly owned by
AWAC. Except in limited circumstances, Alcoa may not sell, transfer or otherwise dispose of or encumber or enter into
any agreement in respect of the votes or other rights attached to its interests in the joint venture without Maadens
prior written consent.
A number of Alcoa employees perform various types of services for the smelting, rolling mill, and refining and mining
companies as part of the construction of the fully-integrated aluminum complex. At December 31, 2012 and 2011,
Alcoa had an outstanding receivable of $28 and $25, respectively, from the smelting, rolling mill, and refining and
mining companies for labor and other employee-related expenses.
107
Capital investment in the project is expected to total approximately $10,800 (SAR 40.5 billion). Alcoas equity
investment in the joint venture will be approximately $1,100 over a five-year period (2010 through 2014), and Alcoa
will be responsible for its pro rata share of the joint ventures project financing. Alcoa has contributed $661, including
$253 and $249 in 2012 and 2011, respectively, towards the $1,100 commitment. As of December 31, 2012 and 2011,
the carrying value of Alcoas investment in this project was $816 and $565, respectively.
In late 2010, the smelting and rolling mill companies entered into project financing totaling $4,035, of which $1,013
represents Alcoas share (the equivalent of Alcoas 25.1% interest in the smelting and rolling mill companies). Also, in
late 2012, the smelting and rolling mill companies entered into additional project financing totaling $480, of which
$120 represents Alcoas share. In conjunction with the financings, Alcoa issued guarantees on behalf of the smelting
and rolling mill companies to the lenders in the event that such companies default on their debt service requirements
through June 2017 and December 2018, respectively, (Maaden issued similar guarantees for its 74.9% interest).
Alcoas guarantees for the smelting and rolling mill companies cover total debt service requirements of $121 in
principal and up to a maximum of approximately $60 in interest per year (based on projected interest rates). At
December 31, 2012 and 2011, the combined fair value of the guarantees was $10 and $8, respectively, and was
included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. Under
the project financings, a downgrade of Alcoas credit ratings below investment grade by at least two agencies would
require Alcoa to provide a letter of credit or fund an escrow account for a portion or all of Alcoas remaining equity
commitment to the joint venture project in Saudi Arabia.
In late 2011, the refining and mining company entered into project financing totaling $1,992, of which $500 represents
AWACs 25.1% interest in the refining and mining company. In conjunction with the financing, Alcoa, on behalf of
AWAC, issued guarantees to the lenders in the event that the refining and mining company defaults on its debt service
requirements through June 2019 (Maaden issued similar guarantees for its 74.9% interest). Alcoas guarantees for the
refining and mining company cover total debt service requirements of $60 in principal and up to a maximum of
approximately $25 in interest per year (based on projected interest rates). At December 31, 2012 and 2011, the
combined fair value of the guarantees was $4. In the event Alcoa would be required to make payments under the
guarantees, 40% of such amount would be contributed to Alcoa by Alumina Limited, consistent with its ownership
interest in AWAC. Under the project financing, a downgrade of Alcoas credit ratings below investment grade by at
least two agencies would require Alcoa to provide a letter of credit or fund an escrow account for a portion or all of
Alcoas remaining equity commitment to the joint venture project in Saudi Arabia.
Power for the refinery, smelter, and rolling mill will be supplied under a gas allocation from Saudi Aramco, based on
authorization of the Ministry of Petroleum and Mineral Resources of Saudi Arabia (the Ministry of Petroleum). The
letter authorizing the gas allocation provides for gas to be tolled and power to be supplied to the refinery, smelter, and
rolling mill from an adjacent power and water desalination plant being constructed by a company ultimately owned by
the government of Saudi Arabia, with the major tolling elements fixed at cost. The gas allocation is contingent on the
finalization of implementing contractual arrangements and on the achievement of certain milestones, as defined in the
joint venture shareholders agreement, and includes possible penalties if the milestones are not met, including the
following: (i) potential forfeiture of a $350 letter of credit required to be provided to the Ministry of Petroleum by
Maaden (with Alcoa responsible for its pro rata share) to ensure completion of the refinery, (ii) potential forfeiture of
the gas allocation if the smelter is not completed, (iii) a potential requirement for the smelter to allocate 275 kmt of
aluminum to other entities determined by the Ministry of Petroleum if the rolling mill is not constructed, and (iv) under
a new version of the gas allocation (issued in early 2011 and further extended in May 2012), forfeiture of a $60 letter of
credit if certain auxiliary rolling facilities are not completed.
The parties subject to the joint venture shareholders agreement may not sell, transfer, or otherwise dispose of, pledge,
or encumber any interests in the joint venture until certain milestones have been met as defined in both agreements.
Under the joint venture shareholders agreement, upon the occurrence of an unremedied event of default by Alcoa,
Maaden may purchase, or, upon the occurrence of an unremedied event of default by Maaden, Alcoa may sell, its
interest for consideration that varies depending on the time of the default.
108
Other Investments. As of December 31, 2012 and 2011, Other investments included $67 and $92, respectively, in
exchange-traded fixed income and equity securities, which are classified as available-for-sale and are carried at fair
value with unrealized gains and losses recognized in other comprehensive income. Unrealized and realized gains and
losses related to these securities were immaterial in 2012, 2011, and 2010.
J. Other Noncurrent Assets
December 31, 2012 2011
Intangibles, net (E) $ 407 $ 481
Cash surrender value of life insurance 464 455
Value-added tax receivable 408 510
Fair value of derivative contracts (X) 364 44
Prepaid gas transmission contract (N) 363 346
Deferred mining costs, net 223 221
Prepaid pension benefit (W) 86 109
Unamortized debt expense 86 98
Assets held for sale (B) 2 243
Other 309 289
$2,712 $2,796
K. Debt
Long-Term Debt.
December 31, 2012 2011
6% Notes, due 2012 $ - $ 322
6% Notes, due 2013 422 422
5.25% Convertible Notes, due 2014 575 575
5.55% Notes, due 2017 750 750
6.5% Bonds, due 2018 250 250
6.75% Notes, due 2018 750 750
5.72% Notes, due 2019 750 750
6.15% Notes, due 2020 1,000 1,000
5.40% Notes, due 2021 1,250 1,250
5.87% Notes, due 2022 627 627
5.9% Notes, due 2027 625 625
6.75% Bonds, due 2028 300 300
5.95% Notes due 2037 625 625
BNDES Loans, due 2013-2029 (see below for weighted average rates) 397 627
Iowa Finance Authority Loan, due 2042 (4.75%) 250 -
Other* 205 212
8,776 9,085
Less: amount due within one year 465 445
$8,311 $8,640
* Other includes various financing arrangements related to subsidiaries, unamortized debt discounts related to the
outstanding notes and bonds listed in the table above, a beneficial conversion feature related to the convertible notes,
and adjustments to the carrying value of long-term debt related to interest swap contracts accounted for as fair value
hedges (see the Derivatives section of Note X).
109
The principal amount of long-term debt maturing in each of the next five years is $465 in 2013, $661 in 2014, $34 in
2015, $33 in 2016, and $780 in 2017.
Public DebtIn January 2012, Alcoa repaid the $322 in outstanding principal of its 6% Notes as scheduled using
available cash on hand.
In August 2012, Alcoa and the Iowa Finance Authority entered into a loan agreement for the proceeds from the
issuance of $250 in Midwestern Disaster Area Revenue Bonds Series 2012 due 2042 (the Bonds). The Bonds were
issued by the Iowa Finance Authority pursuant to the Heartland Disaster Tax Relief Act of 2008 for the purpose of
financing all or part of the cost of acquiring, constructing, reconstructing, and renovating certain facilities at Alcoas
rolling mill plant in Davenport, IA. Alcoa received $248 in net proceeds (reflecting payment of financing costs), which
was classified as restricted cash. This transaction is not reflected in the accompanying Statement of Consolidated Cash
Flows as it represents a non-cash financing and investing activity. At December 31, 2012, Alcoa had $171 of restricted
cash remaining, all of which was classified in Prepaid expenses and other current assets on the accompanying
Consolidated Balance Sheet. Interest on the Bonds is at a rate of 4.75% per annum and will be paid semi-annually in
February and August, which will commence in February 2013. Alcoa has the option through the loan agreement to
redeem the Bonds, as a whole or in part, on or after August 1, 2022, on at least 30 days, but not more than 60 days,
prior notice to the holders of the Bonds at a redemption price equal to 100% of the principal amount thereof, without
premium, plus accrued interest, if any, to the redemption date. The loan agreement ranks pari passu with Alcoas other
unsecured senior unsubordinated indebtedness.
In February 2011, Alcoa filed an automatic shelf registration statement with the Securities and Exchange Commission
for an indeterminate amount of securities for future issuance. This shelf registration statement replaced Alcoas
existing shelf registration statement (filed in March 2008). As of December 31, 2012 and 2011, $1,250 in senior debt
securities were issued under the current shelf registration statement.
In April 2011, Alcoa completed a public debt offering under its current shelf registration statement (dated February 18,
2011) for $1,250 of 5.40% Notes due 2021 (the 2021 Notes). Alcoa received $1,241 in net proceeds from the public
debt offering reflecting an original issue discount and payment of financing costs. The net proceeds were used for the
early retirement of $881 in outstanding notes (see below), early repayment of $101 in outstanding loans related to the
bauxite mine development in Brazil (see BNDES Loans below), and the remainder was used for general corporate
purposes. The original issue discount and financing costs were deferred and are being amortized to interest expense
over the term of the 2021 Notes. Interest on the 2021 Notes is paid semi-annually in April and October, which
commenced in October 2011. Alcoa has the option to redeem the 2021 Notes, as a whole or in part, at any time or from
time to time, on at least 30 days, but not more than 60 days, prior notice to the holders of the 2021 Notes at a
redemption price specified in the 2021 Notes. The 2021 Notes are subject to repurchase upon the occurrence of a
change in control repurchase event (as defined in the 2021 Notes) at a repurchase price in cash equal to 101% of the
aggregate principal amount of the 2021 Notes repurchased, plus any accrued and unpaid interest on the 2021 Notes
repurchased. The 2021 Notes rank pari passu with Alcoas other unsecured senior unsubordinated indebtedness.
In May 2011, Alcoa completed the following tender offers: (i) any and all of its 5.375% Notes due 2013 (the 5.375%
Notes) and (ii) up to $400 of its 6.00% Notes due 2013 (the 6.00% Notes and collectively with the 5.375% Notes,
the Notes). Upon expiration of the tender offers, $269 and $328 of the aggregate outstanding principal amount of the
5.375% Notes and 6.00% Notes, respectively, were validly tendered and accepted. Additionally in May 2011,
subsequent to the expiration of the tender offer for the 5.375% Notes, Alcoa elected to call for redemption the
remaining outstanding principal of $284 under the provisions of the 5.375% Notes. The total cash paid to the holders of
the tendered 5.375% Notes and 6.00% Notes and the called 5.375% Notes was $972, which consisted of $881 in debt
principal, $74 in purchase premiums, and $17 in accrued and unpaid interest from the respective last interest payment
dates up to, but not including, the respective settlement dates. The $74 was recorded in Interest expense on the
accompanying Statement of Consolidated Operations. Subsequent to the respective tender offer, the 6.00% Notes had a
remaining outstanding principal of $422.
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In conjunction with the early retirement of the 5.375% Notes, Alcoa terminated interest rate swaps with a notional
amount totaling $550. These swaps were accounted for as fair value hedges and were used to convert the stated interest
rate of the 5.375% Notes from fixed to floating. At the time of termination, the swaps were in-the-money resulting in
a gain of $33, which was recorded in Interest expense on the accompanying Statement of Consolidated Operations.
BNDES LoansIn March 2008, Alcoa Alumnio (Alumnio) entered into two separate loan agreements (the First
Loans) with Brazils National Bank for Economic and Social Development (BNDES) related to the Juruti bauxite
mine development and the So Lus refinery expansion.
The first loan agreement provides for a commitment of $248 (R$500), which is divided into five subloans, and was
used to pay for certain expenditures of the Juruti bauxite mine development. Interest on four of the subloans totaling
$233 (R$470) is a Brazil real rate of interest equal to BNDES long-term interest rate, 5.00% and 6.00% as of
December 31, 2012 and 2011, respectively, plus a weighted-average margin of 2.13%. Interest on the fifth subloan of
$15 (R$30) is a U.S. dollar rate of interest equal to the average cost incurred by BNDES in raising capital outside of
Brazil, 3.56% and 3.59% as of December 31, 2012 and 2011, respectively, plus a margin of 2.40%.
Principal and interest were payable monthly beginning in September 2009 and ending in November 2014 for the four
subloans totaling $233 (R$470) and beginning in November 2009 and ending in January 2015 for the subloan of $15
(R$30). Prior to these dates, interest was payable quarterly on borrowed amounts.
As of December 31, 2012, Alumnio had no outstanding borrowings under any of the subloans. During 2012, Alumnio
repaid $51 (R$102) and $3 (R$7) of outstanding borrowings related to the subloans totaling $233 (R$470) and the
subloan of $15 (R$30), respectively.
As of December 31, 2011, Alumnios outstanding borrowings were $55 (R$102) and $3 (R$7) and the weighted-
average interest rate was 8.13% and 5.99% for the subloans totaling $233 (R$470) and the subloan of $15 (R$30),
respectively. During 2011, Alumnio repaid $131 (R$209) and $7 (R$11) of outstanding borrowings related to the
subloans totaling $233 (R$470) and the subloan of $15 (R$30), respectively.
The second loan agreement provides for a commitment of $374 (R$650), which is divided into three subloans, and was
used to pay for certain expenditures of the So Lus refinery expansion. Interest on two of the subloans totaling $339
(R$589) is a Brazil real rate of interest equal to BNDES long-term interest rate plus a weighted-average margin of
1.99%. Interest on the third subloan of $35 (R$61) is a U.S. dollar rate of interest equal to the average cost incurred by
BNDES in raising capital outside of Brazil plus a margin of 2.02%.
Principal and interest were payable monthly beginning in December 2009 and ending in February 2015 for the two
subloans totaling $339 (R$589) and beginning in February 2010 and ending in April 2015 for the subloan of $35
(R$61). Prior to these dates, interest was payable quarterly on borrowed amounts.
As of December 31, 2012, Alumnio had no outstanding borrowings under any of the subloans. During 2012, Alumnio
repaid $176 (R$356) and $22 (R$46) of outstanding borrowings related to the subloans totaling $339 (R$589) and the
subloan of $35 (R$61), respectively.
As of December 31, 2011, Alumnios outstanding borrowings were $191 (R$356) and $23 (R$42) and the weighted-
average interest rate was 7.99% and 5.61% for the subloans totaling $339 (R$589) and the subloan of $35 (R$61),
respectively. During 2011, Alumnio repaid $67 (R$113) and $7 (R$11) of outstanding borrowings related to the
subloans totaling $339 (R$589) and the subloan of $35 (R$61), respectively.
The First Loans were repaid early without penalty under the approval of BNDES. With the full repayment of the First
Loans, the commitments were effectively terminated.
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In June 2008, Alumnio finalized certain documents related to another loan agreement with BNDES. This loan
agreement provides for a commitment of $397 (R$687), which is divided into three subloans, and is being used to pay
for certain expenditures of the Estreito hydroelectric power project. Interest on the three subloans is a Brazil real rate of
interest equal to BNDES long-term interest rate plus a weighted-average margin of 1.48%. Principal and interest are
payable monthly beginning in October 2011 and ending in September 2029 for two of the subloans totaling R$667 and
beginning in July 2012 and ending in June 2018 for the subloan of R$20. This loan may be repaid early without penalty
with the approval of BNDES.
As of December 31, 2012 and 2011, Alumnios outstanding borrowings were $311 (R$637) and $355 (R$661),
respectively, and the weighted-average interest rate was 6.49% and 7.50%, respectively. During 2012 and 2011,
Alumnio repaid $20 (R$38) and $5 (R$9), respectively, of outstanding borrowings. Additionally, Alumnio borrowed
$7 (R$13) and $5 (R$8), under the loan in 2012 and 2011, respectively.
In December 2012, Alumnio finalized certain documents related to another loan agreement with BNDES. This loan
agreement provides for a commitment of $85 (R$177) and is being used to pay for certain expenditures of the Estreito
hydroelectric power project. Due to the timing of the finalization of the loan documents and the expenditures of the
project, Alumnio advanced the cash necessary to the consortium to pay for the expenditures supported by this loan.
Interest on the loan is a Brazil real rate of interest equal to BNDES long-term interest rate plus a margin of 1.55%.
Principal and interest are payable monthly beginning in January 2013 and ending in September 2029. This loan may be
repaid early without penalty with the approval of BNDES. As of December 31, 2012, Alumnios outstanding
borrowings were $86 (R$177) and the interest rate was 6.55%.
Commercial Paper. Alcoa had no outstanding commercial paper at December 31, 2012. Outstanding commercial
paper was $224 at December 31, 2011. In 2012 and 2011, the average outstanding commercial paper was $354 and
$197. Commercial paper matures at various times within one year and had an annual weighted average interest rate of
0.8%, 0.6%, and 0.7% during 2012, 2011, and 2010, respectively.
On July 25, 2011, Alcoa entered into a Five-Year Revolving Credit Agreement (the Credit Agreement) with a
syndicate of lenders and issuers named therein. The Credit Agreement provides a $3,750 senior unsecured revolving
credit facility (the Credit Facility), the proceeds of which are to be used to provide working capital or for other
general corporate purposes of Alcoa, including support of Alcoas commercial paper program. Subject to the terms and
conditions of the Credit Agreement, Alcoa may from time to time request increases in lender commitments under the
Credit Facility, not to exceed $500 in aggregate principal amount, and may also request the issuance of letters of credit,
subject to a letter of credit sublimit of $1,000 under the Credit Facility.
The Credit Facility was scheduled to mature on July 25, 2016; however, on December 7, 2012, Alcoa received
approval for a one-year extension of the maturity date by the lenders and issuers that support $3,700 of the Credit
Facility (approval for the remaining $50 was received on January 8, 2013). As such, the Credit Facility now matures on
July 25, 2017, unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. Alcoa
may make one additional one-year extension request during the remaining term of the Credit Facility, subject to the
lender consent requirements set forth in the Credit Agreement. Under the provisions of the Credit Agreement, Alcoa
will pay a fee of 0.25% (based on Alcoas long-term debt ratings as of December 31, 2012) of the total commitment
per annum to maintain the Credit Facility.
The Credit Facility is unsecured and amounts payable under it will rank pari passu with all other unsecured,
unsubordinated indebtedness of Alcoa. Borrowings under the Credit Facility may be denominated in U.S. dollars or
euros. Loans will bear interest at a base rate or a rate equal to LIBOR, plus, in each case, an applicable margin based on
the credit ratings of Alcoas outstanding senior unsecured long-term debt. The applicable margin on base rate loans and
LIBOR loans will be 0.50% and 1.50% per annum, respectively, based on Alcoas long-term debt ratings as of
December 31, 2012. Loans may be prepaid without premium or penalty, subject to customary breakage costs.
The Credit Facility replaces Alcoas Five-Year Revolving Credit Agreement, dated as of October 2, 2007 (the Former
Credit Agreement), which was scheduled to mature on October 2, 2012. The Former Credit Agreement, which had a
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total capacity (excluding the commitment of Lehman Commercial Paper Inc.) of $3,275 and was undrawn, was
terminated effective July 25, 2011.
The Credit Agreement includes covenants substantially similar to those in the Former Credit Agreement, including,
among others, (a) a leverage ratio, (b) limitations on Alcoas ability to incur liens securing indebtedness for borrowed
money, (c) limitations on Alcoas ability to consummate a merger, consolidation or sale of all or substantially all of its
assets, and (d) limitations on Alcoas ability to change the nature of its business. As of December 31, 2012 and 2011,
Alcoa was in compliance with all such covenants.
The obligation of Alcoa to pay amounts outstanding under the Credit Facility may be accelerated upon the occurrence
of an Event of Default as defined in the Credit Agreement. Such Events of Default include, among others,
(a) Alcoas failure to pay the principal of, or interest on, borrowings under the Credit Facility, (b) any representation or
warranty of Alcoa in the Credit Agreement proving to be materially false or misleading, (c) Alcoas breach of any of its
covenants contained in the Credit Agreement, and (d) the bankruptcy or insolvency of Alcoa.
There were no amounts outstanding at December 31, 2012 and 2011 and no amounts were borrowed during 2012 or
2011 under the Credit Facility.
Short-Term Borrowings. At December 31, 2012 and 2011, Short-term borrowings were $53 and $62, respectively.
These amounts included $48 and $53 at December 31, 2012 and 2011, respectively, related to accounts payable
settlement arrangements with certain vendors and third-party intermediaries. These arrangements provide that, at the
vendors request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an
appropriate discount, before the scheduled payment date and Alcoa makes payment to the third-party intermediary on
the date stipulated in accordance with the commercial terms negotiated with its vendors. Alcoa records imputed interest
related to these arrangements as interest expense in the Statement of Consolidated Operations.
In January 2012, Alcoa entered into two term loan agreements, totaling $350, with two separate financial institutions.
Additionally, throughout 2012, Alcoa entered into six revolving credit agreements, providing a combined $640 in
credit facilities, with six different financial institutions. The purpose of any borrowings under all eight arrangements
will be to provide working capital and for other general corporate purposes, including contributions to Alcoas pension
plans ($561 was contributed in 2012).
The two term loans were fully drawn on the same dates as the agreements and were subject to an interest rate
equivalent to the 1-month LIBOR (changed from the 3-month LIBOR in April 2012) plus a 1.5% margin. A $150 term
loan was repaid between October and November 2012 and a $200 term loan was repaid in December 2012, effectively
terminating both agreements. In February 2012, Alcoa fully borrowed $100 under one of the credit facilities, which
was repaid in August 2012. This borrowing was subject to an interest rate equivalent to the 6-month LIBOR plus a
1.25% margin. In July 2012, Alcoa fully borrowed $150 under one of the credit facilities, which was repaid in
December 2012. This borrowing was subject to an interest rate equivalent to the 3-month LIBOR plus a 1.375%
margin.
The six revolving credit facilities expire as follows: $150 in March 2013; $100 in September 2013 (originally
December 2012, extended in September 2012); $100 in September 2013; $140 in October 2013; $100 in December
2013 (originally December 2012, extended in December 2012); and $50 in December 2015. The covenants contained
in all eight arrangements are the same as the Credit Agreement (see the Commercial Paper section above).
During 2012, Alcoas subsidiary, Alumnio, borrowed and repaid a total of $280 in new loans with a weighted-average
interest rate of 2.32% and a weighted-average maturity of 172 days from two financial institutions. The purpose of
these borrowings was to support Alumnios export operations.
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L. Other Noncurrent Liabilities and Deferred Credits
December 31, 2012 2011
Fair value of derivative contracts (X) $ 606 $ 624
Asset retirement obligations (C) 535 503
Environmental remediation (N) 458 289
Deferred income taxes (T) 460 395
Deferred credit related to derivative contract (X) 330 -
Accrued compensation and retirement costs 322 304
Deferred alumina sales revenue 108 116
Other 259 197
$3,078 $2,428
M. Noncontrolling Interests
The following table summarizes the noncontrolling shareholders interests in the equity of Alcoas majority-owned
consolidated subsidiaries:
December 31, 2012 2011
Alcoa World Alumina and Chemicals $3,295 $3,324
Other 29 27
$3,324 $3,351
In 2012, 2011, and 2010, Alcoa received $171, $169, and $162, respectively, in contributions from the noncontrolling
shareholder (Alumina Limited) of Alcoa World Alumina and Chemicals.
N. Contingencies and Commitments
Contingencies
Litigation
Alba Civil Suit
On February 27, 2008, Alcoa Inc. (Alcoa) received notice that Aluminium Bahrain B.S.C. (Alba) had filed suit
against Alcoa, Alcoa World Alumina LLC (AWA), and William Rice (collectively, the Alcoa Parties), and others, in
the U.S. District Court for the Western District of Pennsylvania (the Court), Civil Action number 08-299, styled
Aluminium Bahrain B.S.C. v. Alcoa Inc., Alcoa World Alumina LLC, William Rice, and Victor Phillip Dahdaleh. The
complaint alleged that certain Alcoa entities and their agents, including Victor Phillip Dahdaleh, had engaged in a
conspiracy over a period of 15 years to defraud Alba. The complaint further alleged that Alcoa and its employees or
agents (1) illegally bribed officials of the government of Bahrain and/or officers of Alba in order to force Alba to purchase
alumina at excessively high prices, (2) illegally bribed officials of the government of Bahrain and/or officers of Alba and
issued threats in order to pressure Alba to enter into an agreement by which Alcoa would purchase an equity interest in
Alba, and (3) assigned portions of existing supply contracts between Alcoa and Alba for the sole purpose of facilitating
alleged bribes and unlawful commissions. The complaint alleged that Alcoa and the other defendants violated the
Racketeer Influenced and Corrupt Organizations Act (RICO) and committed fraud. Alba claimed damages in excess of
$1,000. Albas complaint sought treble damages with respect to its RICO claims; compensatory, consequential,
exemplary, and punitive damages; rescission of the 2005 alumina supply contract; and attorneys fees and costs.
In response to a motion filed by the U.S. Department of Justice (DOJ) on March 27, 2008 (see Government
Investigations below), the Court ordered the Alba civil suit administratively closed and stayed all discovery to allow
the DOJ to fully conduct an investigation. On November 8, 2011, at Alcoas request, the Court removed the case from
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administrative stay and ordered Alba to file an Amended Complaint by November 28, 2011, and a RICO Case
Statement 30 days thereafter for the limited purpose of allowing Alcoa to move to dismiss Albas lawsuit. Alcoa filed a
motion to dismiss, which was denied on June 11, 2012.
During the second quarter of 2012, Alcoa proposed to settle the suit by offering Alba a cash payment of $45. Alcoa
also offered Alba a long-term alumina supply contract. Based on the cash offer, Alcoa recorded a $45 ($18 after-tax
and noncontrolling interest) charge in the 2012 second quarter representing Alcoas estimate of the minimum end of
the range probable to settle the case, and estimated an additional reasonably possible charge of up to $75 to settle the
suit.
On October 9, 2012, the Alcoa Parties, without admitting any liability, entered into a settlement agreement with Alba.
The agreement called for AWA to pay Alba $85 in two equal installments, one-half at time of settlement and one-half
one year later, and for the case against the Alcoa Parties to be dismissed with prejudice. Additionally, AWA and Alba
entered into a long-term alumina supply agreement. On October 9, 2012, pursuant to the settlement agreement, AWA
paid Alba $42.5, and all claims against the Alcoa Parties were dismissed with prejudice. Under the agreement, AWA is
obligated to pay an additional $42.5, without interest or contingency, on October 9, 2013. Based on the settlement
agreement, in the 2012 third quarter, Alcoa recorded a $40 ($15 after-tax and noncontrolling interest) charge in
addition to the $45 ($18 after-tax and noncontrolling interest) charge it recorded in the 2012 second quarter in respect
of the suit. In addition, based on an agreement between Alcoa and Alumina Limited (which holds a 40% equity interest
in AWA), Alcoa estimates an additional reasonably possible after-tax charge of between $25 to $30 to reallocate a
portion of the costs (including legal fees) of the Alba civil settlement from AWA to Alcoa, but this would occur only if
a settlement is reached with the DOJ and the Securities and Exchange Commission (the SEC) regarding their
investigations (see Government Investigations below).
Government Investigations
On February 26, 2008, Alcoa Inc. advised the DOJ and the SEC that it had recently become aware of the claims by
Alba as alleged in the Alba civil suit, had already begun an internal investigation, and intended to cooperate fully in
any investigation that the DOJ or the SEC may commence. On March 17, 2008, the DOJ notified Alcoa that it had
opened a formal investigation and Alcoa has been cooperating with the government since that time.
Alcoa is actively negotiating with the DOJ and the SEC to reach a resolution of their investigations of the Alba matter;
however, Alcoa has not reached any agreement with either agency. Given the uncertainty regarding whether a
settlement can be reached and, if reached, on what terms, Alcoa is not able to estimate a range of reasonably possible
loss with regard to any such settlement. If a settlement of the government investigations is reached, Alcoa believes that
the settlement amount would be material to Alcoas results of operations for the relevant fiscal period. If a settlement
cannot be reached, Alcoa will proceed to trial with the DOJ and the SEC and under those circumstances is unable to
predict an outcome or to estimate its reasonably possible loss. There can be no assurance that the final outcome of the
governments investigations will not have a material adverse effect on Alcoa.
Other Matters
In November 2006, in Curtis v. Alcoa Inc., Civil Action No. 3:06cv448 (E.D. Tenn.), a class action was filed by
plaintiffs representing approximately 13,000 retired former employees of Alcoa or Reynolds Metals Company and
spouses and dependents of such retirees alleging violation of the Employee Retirement Income Security Act (ERISA)
and the Labor-Management Relations Act by requiring plaintiffs, beginning January 1, 2007, to pay health insurance
premiums and increased co-payments and co-insurance for certain medical procedures and prescription drugs.
Plaintiffs alleged these changes to their retiree health care plans violated their rights to vested health care benefits.
Plaintiffs additionally alleged that Alcoa had breached its fiduciary duty to plaintiffs under ERISA by misrepresenting
to them that their health benefits would never change. Plaintiffs sought injunctive and declaratory relief, back payment
of benefits, and attorneys fees. Alcoa had consented to treatment of plaintiffs claims as a class action. During the
fourth quarter of 2007, following briefing and argument, the court ordered consolidation of the plaintiffs motion for
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preliminary injunction with trial, certified a plaintiff class, bifurcated and stayed the plaintiffs breach of fiduciary duty
claims, struck the plaintiffs jury demand, but indicated it would use an advisory jury, and set a trial date of
September 17, 2008. In August 2008, the court set a new trial date of March 24, 2009 and, subsequently, the trial date
was moved to September 22, 2009. In June 2009, the court indicated that it would not use an advisory jury at trial. Trial
in the matter was held over eight days commencing September 22, 2009 and ending on October 1, 2009 in federal court
in Knoxville, TN before the Honorable Thomas Phillips, U.S. District Court Judge. At the conclusion of evidence, the
court set a post-hearing briefing schedule for submission of proposed findings of fact and conclusions of law by the
parties and for replies to the same. Post trial briefing was submitted on December 4, 2009.
On March 9, 2011, the court issued a judgment order dismissing plaintiffs lawsuit in its entirety with prejudice for the
reasons stated in its Findings of Fact and Conclusions of Law. On March 23, 2011, plaintiffs filed a motion for
clarification and/or amendment of the judgment order, which seeks, among other things, a declaration that plaintiffs
retiree benefits are vested subject to an annual cap and an injunction preventing Alcoa, prior to 2017, from modifying
the plan design to which plaintiffs are subject or changing the premiums and deductibles that plaintiffs must pay. Also
on March 23, 2011, plaintiffs filed a motion for award of attorneys fees and expenses. Alcoa filed its opposition to
both motions on April 11, 2011. On June 11, 2012, the court issued its memorandum and order denying plaintiffs
motion for clarification and/or amendment to the original judgment order. On July 6, 2012, plaintiffs filed a notice of
appeal of the courts March 9, 2011 judgment. On July 12, 2012, the trial court stayed Alcoas motion for assessment
of costs pending resolution of plaintiffs appeal. The appeal is docketed in the United States Court of Appeals for the
Sixth Circuit as case number 12-5801. On July 26, 2012, the appellate court issued a briefing schedule requiring
briefing to be complete by the end of October 2012. On August 29, 2012, the trial court dismissed plaintiffs motion for
attorneys fees without prejudice to refiling the motion following the resolution of the appeal at the Sixth Circuit Court
of Appeals. Briefing on the appeal is complete and oral argument is scheduled for March 6, 2013.
On April 23, 2004, St. Croix Renaissance Group, L.L.L.P. (SCRG), Brownfield Recovery Corp., and Energy Answers
Corporation of Puerto Rico (collectively referred to as Plaintiffs) filed a suit against St. Croix Alumina L.L.C. and
Alcoa World Alumina, LLC (collectively referred to as Alcoa) in the Territorial Court of the Virgin Islands, Division of
St. Croix for claims related to the sale of Alcoas former St. Croix alumina refinery to Plaintiffs. Alcoa thereafter removed
the case to federal court and after a several year period of discovery and motion practice, a jury trial on the matter took
place in St. Croix from January 11, 2011 to January 20, 2011. The jury returned a verdict in favor of Plaintiffs and
awarded damages as described: on a claim of breaches of warranty, the jury awarded $13; on the same claim, the jury
awarded punitive damages in the amount of $6; and on a negligence claim for property damage, the jury awarded $10.
Plaintiffs filed a motion seeking pre-judgment interest on the jury award. On February 17, 2011, Alcoa filed post-trial
motions seeking judgment notwithstanding the verdict or, in the alternative, a new trial. On May 31, 2011, the court
granted Alcoas motion for judgment regarding Plaintiffs $10 negligence award and denied the remainder of Alcoas
motions. Additionally, the court awarded Plaintiffs pre-judgment interest of $2 on the breach of warranty award. As a
result of the courts post-trial decisions, Alcoa recorded a charge of $20 in 2011 (see Note D). On June 14, 2011, Alcoa
filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit regarding Alcoas denied post-trial motions.
On June 22, 2011, SCRG filed a notice of cross appeal with the Third Circuit Court related to certain pre-trial decisions of
the court and of the courts post-trial ruling on the negligence claim. The Third Circuit Court referred this matter to
mediation as is its standard practice in appeals. Following mediation and further, separate settlement discussions, the
parties executed an agreement dated September 30, 2011 resolving the matter in its entirety, and subsequently jointly
petitioned (i) the District Court to release Alcoa from the jury verdict and (ii) the Third Circuit Court of Appeals to
dismiss the matter. On March 13, 2012, the District Court entered an order discharging Alcoa from the jury verdict and,
on March 14, 2012, the Third Circuit Court of Appeals dismissed the matter. This matter is now fully resolved.
Before 2002, Alcoa purchased power in Italy in the regulated energy market and received a drawback of a portion of
the price of power under a special tariff in an amount calculated in accordance with a published resolution of the Italian
Energy Authority, Energy Authority Resolution n. 204/1999 (204/1999). In 2001, the Energy Authority published
another resolution, which clarified that the drawback would be calculated in the same manner, and in the same amount,
in either the regulated or unregulated market. At the beginning of 2002, Alcoa left the regulated energy market to
purchase energy in the unregulated market. Subsequently, in 2004, the Energy Authority introduced regulation no.
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148/2004 which set forth a different method for calculating the special tariff that would result in a different drawback
for the regulated and unregulated markets. Alcoa challenged the new regulation in the Administrative Court of Milan
and received a favorable judgment in 2006. Following this ruling, Alcoa continued to receive the power price drawback
in accordance with the original calculation method, through 2009, when the European Commission declared all such
special tariffs to be impermissible state aid. In 2010, the Energy Authority appealed the 2006 ruling to the Consiglio
di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato ruled in favor of the Energy Authority and
against Alcoa, thus presenting the opportunity for the energy regulators to seek reimbursement from Alcoa of an
amount equal to the difference between the actual drawback amounts received over the relevant time period, and the
drawback as it would have been calculated in accordance with regulation 148/2004. On February 23, 2012, Alcoa filed
its appeal of the decision of the Consiglio di Stato, and that appeal remains pending. On March 26, 2012, Alcoa
received a letter from the agency (Cassa Conguaglio per il Settore Eletrico (CCSE)) responsible for making and
collecting payments on behalf of the Energy Authority demanding payment in the amount of approximately $110
(85), including interest. By letter dated April 5, 2012, Alcoa informed CCSE that it disputes the payment demand of
CCSE since (i) CCSE was not authorized by the Consiglio di Stato decisions to seek payment of any amount, (ii) the
decision of the Consiglio di Stato has been appealed and that appeal remains pending, and (iii) in any event, no interest
should be payable. On April 29, 2012, Law No. 44 of 2012 (44/2012) came into effect, changing the method to
calculate the drawback. Alcoa believes that under 44/2012 its range of reasonably possible loss is from $0 to $50 (39).
Following the effectiveness of 44/2012, Alcoa has received no further demands from CCSE. At this time, the company
is unable to reasonably predict an outcome for this matter.
European Commission Matters. In July 2006, the European Commission (EC) announced that it had opened an
investigation to establish whether an extension of the regulated electricity tariff granted by Italy to some energy-
intensive industries complies with European Union (EU) state aid rules. The Italian power tariff extended the tariff that
was in force until December 31, 2005 through November 19, 2009 (Alcoa has been incurring higher power costs at its
smelters in Italy subsequent to the tariff end date). The extension was originally through 2010, but the date was
changed by legislation adopted by the Italian Parliament effective on August 15, 2009. Prior to expiration of the tariff
in 2005, Alcoa had been operating in Italy for more than 10 years under a power supply structure approved by the EC
in 1996. That measure provided a competitive power supply to the primary aluminum industry and was not considered
state aid from the Italian Government. The ECs announcement expressed concerns about whether Italys extension of
the tariff beyond 2005 was compatible with EU legislation and potentially distorted competition in the European
market of primary aluminum, where energy is an important part of the production costs.
On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy
constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit
Alcoa received since January 2006 (including interest). The amount of this recovery will be based on a calculation that
is being prepared by the Italian Government (see below). In late 2009, after discussions with legal counsel and
reviewing the bases on which the EC decided, including the different considerations cited in the EC decision regarding
Alcoas two smelters in Italy, Alcoa recorded a charge of $250 (173), which included $20 (14) to write off a
receivable from the Italian Government for amounts due under the now expired tariff structure and $230 (159) to
establish a reserve. On April 19, 2010, Alcoa filed an appeal of this decision with the General Court of the EU. Alcoa
will pursue all substantive and procedural legal steps available to annul the ECs decision. On May 22, 2010, Alcoa
also filed with the General Court a request for injunctive relief to suspend the effectiveness of the decision, but, on
July 12, 2010, the General Court denied such request. On September 10, 2010, Alcoa appealed the July 12, 2010
decision to the European Court of Justice (ECJ); this appeal was dismissed on December 16, 2011.
In June 2012, Alcoa received formal notification from the Italian Government with a calculated recovery amount of
$375 (303); this amount was reduced by $65 (53) of amounts owed by the Italian Government to Alcoa, resulting in
a net payment request of $310 (250). In a notice published in the Official Journal of the European Union on
September 22, 2012, the EC announced that it had filed an action against the Italian Government on July 18, 2012 to
compel it to collect the recovery amount. On September 27, 2012, Alcoa received a request for payment in full of the
$310 (250) by October 31, 2012. Since then, Alcoa has been in discussions with the Italian Government regarding the
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timing of such payment. Alcoa commenced payment of the requested amount in five quarterly installments of $66
(50), paying the first installment on October 31, 2012. It is possible that Alcoa may be required to accelerate payment
or pay in a lump sum. Notwithstanding the payment request or the timing of such payments, Alcoas estimate of the
most probable loss of the ultimate outcome of this matter and the low end of the range of reasonably possible loss,
which is $209 (159) to $375 (303), remains the $209 (159) (the U.S. dollar amount reflects the effects of foreign
currency movements since 2009) recorded in November 2009. At December 31, 2012, Alcoas reserve for this matter
stands at $143 (109), reflecting the payment made in October 2012. The full extent of the loss will not be known until
the final judicial determination, which could be a period of several years.
Separately, on November 29, 2006, Alcoa filed an appeal before the General Court (formerly the European Court of
First Instance) seeking the annulment of the ECs decision to open an investigation alleging that such decision did not
follow the applicable procedural rules. On March 25, 2009, the General Court denied Alcoas appeal. On May 29,
2009, Alcoa appealed the March 25, 2009 ruling before the ECJ. The hearing of the May 29, 2009 appeal was held on
June 24, 2010. On July 21, 2011, the ECJ denied Alcoas appeal.
As a result of the ECs November 19, 2009 decision, management had contemplated ceasing operations at its Italian
smelters due to uneconomical power costs. In February 2010, management agreed to continue to operate its smelters in
Italy for up to six months while a long-term solution to address increased power costs could be negotiated.
Also in February 2010, the Italian Government issued a decree, which was converted into law by the Italian Parliament
in March 2010, to provide interruptibility rights to certain industrial customers who were willing to be subject to
temporary interruptions in the supply of power (i.e. compensation for power interruptions when grids are overloaded)
over a three-year period. Alcoa applied for and was granted such rights (expired on December 31, 2012) related to its
Portovesme smelter. In May 2010, the EC stated that, based on their review of the validity of the decree, the
interruptibility rights should not be considered state aid. On July 29, 2010, Alcoa executed a new power agreement
effective September 1, 2010 through December 31, 2012 for the Portovesme smelter, replacing the short-term, market-
based power contract that was in effect since early 2010.
Additionally in May 2010, Alcoa and the Italian Government agreed to a temporary idling of the Fusina smelter. As of
June 30, 2010, the Fusina smelter was fully curtailed (44 kmt-per-year).
At the end of 2011, as part of a restructuring of Alcoas global smelting system (see Note D), management decided to
curtail operations at the Portovesme smelter during the first half of 2012. This action may lead to the permanent closure
of the Portovesme smelter, due to the uncertain prospects for viable, long-term power, along with rising raw materials
costs and falling global aluminum prices (mid-2011 to late 2011). In March 2012, Alcoa decided to delay the
curtailment of the Portovesme smelter until the second half of 2012 based on negotiations with the Italian Government
and other stakeholders. In September 2012, Alcoa began the process of curtailing the Portovesme smelter, which was
fully curtailed by the end of 2012.
In January 2007, the EC announced that it had opened an investigation to establish whether the regulated electricity
tariffs granted by Spain comply with EU state aid rules. At the time the EC opened its investigation, Alcoa had been
operating in Spain for more than nine years under a power supply structure approved by the Spanish Government in
1986, an equivalent tariff having been granted in 1983. The investigation is limited to the year 2005 and is focused
both on the energy-intensive consumers and the distribution companies. The investigation provided 30 days to any
interested party to submit observations and comments to the EC. With respect to the energy-intensive consumers, the
EC opened the investigation on the assumption that prices paid under the tariff in 2005 were lower than a pool price
mechanism, therefore being, in principle, artificially below market conditions. Alcoa submitted comments in which the
company provided evidence that prices paid by energy-intensive consumers were in line with the market, in addition to
various legal arguments defending the legality of the Spanish tariff system. It is Alcoas understanding that the Spanish
tariff system for electricity is in conformity with all applicable laws and regulations, and therefore no state aid is
present in the tariff system. While Alcoa does not believe that an unfavorable decision is probable, management has
estimated that the total potential impact from an unfavorable decision could be approximately $90 (70) pretax. Also,
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while Alcoa believes that any additional cost would only be assessed for the year 2005, it is possible that the EC could
extend its investigation to later years. If the ECs investigation concludes that the regulated electricity tariffs for
industries are unlawful, Alcoa will have an opportunity to challenge the decision in the EU courts.
Environmental Matters. Alcoa continues to participate in environmental assessments and cleanups at a number of
locations (more than 100). These include owned or operating facilities and adjoining properties, previously owned or
operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA)) sites. A liability is recorded for environmental remediation
when a cleanup program becomes probable and the costs or damages can be reasonably estimated.
As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of
remedial actions and related costs and damages. The liability can change substantially due to factors such as the nature
and extent of contamination, changes in remedial requirements, and technological changes, among others.
Alcoas remediation reserve balance was $532 and $347 at December 31, 2012 and 2011 (of which $74 and $58 was
classified as a current liability), respectively, and reflects the most probable costs to remediate identified environmental
conditions for which costs can be reasonably estimated.
In 2012, the remediation reserve was increased by $206 due to charges of $165 related to the Massena West, NY site
(see below), charges totaling $45 related to smelter sites in Canada and Norway (see below), a charge of $14 related to
the former East St. Louis, IL site (see below), a reversal of $30 related to the former Sherwin, TX site (see below), and
a net increase of $12 associated with a number of other sites. In 2011, the remediation reserve was increased by $31
due to charges of $18 related to the decision to permanently shut down and demolish a U.S. smelter (see Note D) and a
net increase of $13 associated with a number of other sites. In both periods, the changes to the remediation reserve,
except for the aforementioned $18 in 2011, were recorded in Cost of goods sold on the accompanying Statement of
Consolidated Operations.
Payments related to remediation expenses applied against the reserve were $22 and $19 in 2012 and 2011, respectively.
These amounts include expenditures currently mandated, as well as those not required by any regulatory authority or
third party. In 2012 and 2011, the change in the reserve also reflects an increase of $1 and a decrease of $1,
respectively, due to the effects of foreign currency translation. Additionally, the change in the 2011 reserve reflects an
increase of $3 related to the acquisition of an aerospace fasteners business (see Note F).
Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental
programs. These costs are estimated to be approximately 2% of cost of goods sold.
The following discussion provides details regarding the current status of certain significant reserves related to current
or former Alcoa sites.
Massena West, NYAlcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoas
Massena plant site, under a 1989 order from the U.S. Environmental Protection Agency (EPA) issued under CERCLA.
Sediments and fish in the river contain varying levels of polychlorinated biphenyls (PCBs).
Alcoa submitted various Analysis of Alternatives Reports to the EPA starting in 1998 through 2002 that reported the
results of river and sediment studies, potential alternatives for remedial actions related to the PCB contamination, and
additional information requested by the EPA.
In June 2003, the EPA requested that Alcoa gather additional field data to assess the potential for sediment erosion
from winter river ice formation and breakup. The results of these additional studies, submitted in a report to the EPA in
April 2004, suggest that this phenomenon has the potential to occur approximately every 10 years and may impact
sediments in certain portions of the river under all remedial scenarios. The EPA informed Alcoa that a final remedial
decision for the river could not be made without substantially more information, including river pilot studies on the
effects of ice formation and breakup on each of the remedial techniques. Alcoa submitted to the EPA, and the EPA
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approved, a Remedial Options Pilot Study (ROPS) to gather this information. The scope of this study included
sediment removal and capping, the installation of an ice control structure, and significant monitoring.
From 2004 through 2008, Alcoa completed the work outlined in the ROPS. In November 2008, Alcoa submitted an
update to the EPA incorporating the new information obtained from the ROPS related to the feasibility and costs
associated with various capping and dredging alternatives, including options for ice control. As a result, Alcoa
increased the reserve associated with the Grasse River by $40 for the estimated costs of a proposed ice control remedy
and for partial settlement of potential damages of natural resources.
In late 2009, the EPA requested that Alcoa submit a complete revised Analysis of Alternatives Report in March 2010
to address questions and comments from the EPA and various stakeholders. On March 24, 2010, Alcoa submitted the
revised report, which included an expanded list of proposed remedial alternatives, as directed by the EPA. Alcoa
increased the reserve associated with the Grasse River by $17 to reflect an increase in the estimated costs of the
Companys recommended capping alternative as a result of changes in scope that occurred due to the questions and
comments from the EPA and various stakeholders. While the EPA reviewed the revised report, Alcoa continued with
its on-going monitoring and field studies activities. In late 2010, Alcoa increased the reserve by $2 based on the then
most recent estimate of costs expected to be incurred for on-going monitoring and field studies activities. In late 2011,
the EPA and various stakeholders completed their review of the March 2010 revised report and submitted questions
and comments to Alcoa. As a result, Alcoa increased the reserve by $1 to reflect a revision in the estimate of costs
expected to be incurred for on-going monitoring and field studies activities.
In the first half of 2012, Alcoa received final questions and comments from the EPA and other stakeholders on the
revised Analysis of Alternatives Report submitted in March 2010, including a requirement that would increase the
scope of the recommended capping alternative. In June 2012, Alcoa submitted a revised Analysis of Alternatives
Report, which included four less alternatives than the previous report and addressed the final questions and comments
from all stakeholders. These final questions and comments resulted in a change to Alcoas recommended capping
alternative by increasing the area to be remediated. Consequently, Alcoa increased the reserve associated with the
Grasse River by $37 to reflect the changes to the recommended alternative.
In October 2012, the EPA selected a proposed remedy from the alternatives included in the June 2012 Analysis of
Alternatives Report and released a Proposed Remedial Action Plan (PRAP). The alternative selected by the EPA
recommends capping PCB contaminated sediments with concentration in excess of one part per million in the main
channel of the river and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one
part per million. This alternative will result in additional estimated costs above that of the alternative recommended by
Alcoa in the June 2012 Analysis of Alternatives Report. As a result, Alcoa increased the reserve associated with the
Grasse River by $128 to reflect such additional estimated costs of the EPAs proposed remedy. The PRAP was open
for public comment until November 29, 2012 (extended from November 15, 2012 due to the effects of Hurricane
Sandy). The EPA is in the process of reviewing the comments received and, at the conclusion of that review, will issue
a final Record of Decision (ROD), which may require Alcoa to record a subsequent reserve adjustment. Once a ROD is
issued, the planning and design phase is expected to take approximately two to three years, followed by the actual
remediation fieldwork that is expected to take approximately four years. The majority of the project funding is
expected to be spent between 2016 and 2020.
Sherwin, TXIn connection with the sale of the Sherwin alumina refinery, which was required to be divested as part
of the Reynolds merger in 2000, Alcoa agreed to retain responsibility for the remediation of the then existing
environmental conditions, as well as a pro rata share of the final closure of the active bauxite residue waste disposal
areas (known as the Copano facility). Alcoas share of the closure costs is proportional to the total period of operation
of the active waste disposal areas. Alcoa estimated its liability for the active waste disposal areas by making certain
assumptions about the period of operation, the amount of material placed in the area prior to closure, and the
appropriate technology, engineering, and regulatory status applicable to final closure. The most probable cost for
remediation was reserved.
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For a number of years, Alcoa has been working with Sherwin Alumina Company to develop a sustainable closure plan
for the active waste disposal areas, which is partly conditioned on Sherwins operating plan for the Copano facility. In
2012, Alcoa received the technical analysis of the closure plan and the operating plan from Sherwin in order to develop
a closure cost estimate, including an assessment of Alcoas potential liability. It was determined that the most probable
course of action would result in a smaller liability than originally reserved due to new information related to the
amount of storage capacity in the waste disposal areas and revised assumptions regarding Alcoas share of the
obligation based on the operating plan provided by Sherwin. As such, Alcoa reduced the reserve associated with
Sherwin by $30.
East St. Louis, ILIn response to questions regarding environmental conditions at the former East St. Louis
operations, Alcoa and the City of East St. Louis, the owner of the site, entered into an administrative order with the
EPA in December 2002 to perform a remedial investigation and feasibility study of an area used for the disposal of
bauxite residue from historic alumina refining operations. A draft feasibility study was submitted to the EPA in April
2005. The feasibility study included remedial alternatives that ranged from no further action to significant grading,
stabilization, and water management of the bauxite residue disposal areas. As a result, Alcoa increased the
environmental reserve for this location by $15 in 2005.
In April 2012, in response to comments from the EPA and other stakeholders, Alcoa submitted a revised feasibility
study to the EPA, which soon thereafter issued a PRAP identifying a soil cover as the EPAs recommended alternative.
Based on this recommendation, Alcoa submitted a detailed design and cost estimate for implementation of the remedy.
A draft consent decree was issued in May 2012 by the EPA and all parties are actively engaged in negotiating a final
consent decree and statement of work. As a result, Alcoa increased the reserve associated with East St. Louis by $14 to
reflect the necessary costs for this remedy.
On July 30, 2012, the EPA issued a ROD for this matter and Alcoa began the process of bidding and contracting for the
construction work. The ultimate outcome of negotiations and the bidding of the construction work could result in
additional liability.
Fusina and Portovesme, ItalyIn 1996, Alcoa acquired the Fusina smelter and rolling operations and the Portovesme
smelter, both of which are owned by Alcoas subsidiary Alcoa Trasformazioni S.r.l. (Trasformazioni), from Alumix, an
entity owned by the Italian Government. At the time of the acquisition, Alumix indemnified Alcoa for pre-existing
environmental contamination at the sites. In 2004, the Italian Ministry of Environment (MOE) issued orders to
Trasformazioni and Alumix for the development of a clean-up plan related to soil contamination in excess of allowable limits
under legislative decree and to institute emergency actions and pay natural resource damages. Trasformazioni appealed the
orders and filed suit against Alumix, among others, seeking indemnification for these liabilities under the provisions of the
acquisition agreement. In 2009, Ligestra S.r.l. (Ligestra), Alumixs successor, and Trasformazioni agreed to a stay on the
court proceedings while investigations were conducted and negotiations advanced towards a possible settlement.
In December 2009, Trasformazioni and Ligestra reached an agreement for settlement of the liabilities related to Fusina
while negotiations continued related to Portovesme. The agreement outlines an allocation of payments to the MOE for
emergency action and natural resource damages and the scope and costs for a proposed soil remediation project, which
was formally presented to the MOE in mid-2010. The agreement is contingent upon final acceptance of the remediation
project by the MOE. As a result of entering into this agreement, Alcoa increased the reserve by $12 for Fusina. Based
on comments received from the MOE and local and regional environmental authorities, Trasformazioni submitted a
revised remediation plan in the first half of 2012; however, such revisions did not require any change to the existing
reserve.
Additionally, due to new information derived from the site investigations conducted at Portovesme, Alcoa increased
the reserve by $3 in 2009. In November 2011, Trasformazioni and Ligestra reached an agreement for settlement of the
liabilities related to Portovesme, similar to the one for Fusina. A proposed soil remediation project for Portovesme was
formally presented to the MOE in June 2012. Neither the agreement with Ligestra nor the proposal to the MOE
resulted in a change to the reserve for Portovesme.
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Baie Comeau, Quebec, CanadaIn August 2012, Alcoa presented an analysis of remediation alternatives to the
Quebec Ministry of Sustainable Development, Environment, Wildlife and Parks (MDDEP), in response to a previous
request, related to known PCBs and polycyclic aromatic hydrocarbons (PAHs) contained in sediments of the Anse du
Moulin bay. As such, Alcoa increased the reserve for Baie Comeau by $25 to reflect the estimated cost of Alcoas
recommended alternative, consisting of both dredging and capping of the contaminated sediments. The ultimate
selection of a remedy may result in additional liability at the time the MDDEP issues a final decision.
Mosjen, NorwayIn September 2012, Alcoa presented an analysis of remediation alternatives to the Norwegian
Climate and Pollution Agency (known as Klif), in response to a previous request, related to known PAHs in the
sediments located in the harbor and extending out into the fjord. As such, Alcoa increased the reserve for Mosjen by
$20 to reflect the estimated cost of the baseline alternative for dredging of the contaminated sediments. The ultimate
selection of a remedy may result in additional liability at the time the Klif issues a final decision.
Other. In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be
instituted or asserted against Alcoa, including those pertaining to environmental, product liability, safety and health,
and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now
be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Companys liquidity
or results of operations in a particular period could be materially affected by one or more of these other matters.
However, based on facts currently available, management believes that the disposition of these other matters that are
pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of
the Company.
Commitments
Investments. Alumnio, a wholly-owned subsidiary of Alcoa, is a participant in four consortiums that each owns a
hydroelectric power project in Brazil. The purpose of Alumnios participation is to increase its energy self-sufficiency
and provide a long-term, low-cost source of power for its two smelters and one refinery. These projects are known as
Machadinho, Barra Grande, Serra do Faco, and Estreito.
Alumnio committed to taking a share of the output of the Machadinho and Barra Grande projects each for 30 years
and the Serra do Faco and Estreito projects each for 26 years at cost (including cost of financing the project). In the
event that other participants in any of these projects fail to fulfill their financial responsibilities, Alumnio may be
required to fund a portion of the deficiency. In accordance with the respective agreements, if Alumnio funds any such
deficiency, its participation and share of the output from the respective project will increase proportionately.
The Barra Grande project reached full capacity in 2006. Alumnios investment in this project is 42.18% and is
accounted for under the equity method. This entitles Alumnio to approximately 160 megawatts of assured power.
Alumnios total investment in this project was $159 (R$326) and $169 (R$314) at December 31, 2012 and 2011,
respectively.
The Machadinho project reached full capacity in 2002. Alumnios investment in this project is 30.99% and is
respectively. Alumnio has also issued a third-party guarantee related to its share of the consortiums debt. Alcoas
maximum exposure to loss on this project is approximately $120 (R$240), which represents Alumnios investment and
guarantee of debt as of December 31, 2012.
The Serra do Faco project reached full capacity in 2010. Alumnios investment in this project is 34.97% and is
respectively. Alumnio previously issued a third-party guarantee related to its share of the consortiums debt; however,
in October 2012, the lender released all of the consortiums investors from their respective guarantees.
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Even though the Serra do Faco project has been fully operational since 2010, construction costs continue to be
incurred to complete the facility related to environmental compliance in accordance with the installation license. Total
estimated project costs are approximately $490 (R$1,000) and Alumnios share is approximately $170 (R$350). As of
December 31, 2012, approximately $170 (R$350) of Alumnios commitment was expended on the project (includes
both funds provided by Alumnio and Alumnios share of the long-term financing).
The Estreito project is expected to reach full capacity in March 2013. Alumnios investment in this project is 25.49%,
which entitles Alumnio to approximately 150 megawatts of assured power. The Estreito consortium is an
unincorporated joint venture, and, therefore, Alumnios share of the assets and liabilities of the consortium are
reflected in the respective lines on the accompanying Consolidated Balance Sheet. Total estimated project costs are
approximately $2,520 (R$5,170) and Alumnios share is approximately $640 (R$1,320). These amounts reflect an
approved increase by the consortium in 2012 of approximately $130 (R$270) to complete the Estreito project due to
fluctuations in currency, inflation, and the price and scope of construction, among other factors. As of December 31,
2012, approximately $610 (R$1,250) of Alumnios commitment was expended on the project.
Based on the operational capabilities of all four projects at the end of 2012, Alumnios current power self-sufficiency
satisfies almost 70% of a total energy demand of approximately 690 megawatts from two smelters (So Lus (Alumar)
and Poos de Caldas) and one refinery (Poos de Caldas) in Brazil.
In 2004, Alcoa acquired a 20% interest in a consortium, which subsequently purchased the Dampier to Bunbury
Natural Gas Pipeline (DBNGP) in Western Australia, in exchange for an initial cash investment of $17 (A$24). The
investment in the DBNGP, which is classified as an equity investment, was made in order to secure a competitively
priced long-term supply of natural gas to Alcoas refineries in Western Australia. Alcoa has made additional
contributions of $141 (A$176) for its share of the pipeline capacity expansion and other operational purposes of the
consortium through September 2011. No further expansion of the pipelines capacity is planned at this time. In late
2011, the consortium initiated a three-year equity call plan to improve its capitalization structure. This plan requires
Alcoa to contribute $40 (A$40), of which $12 (A$11) and $5 (A$6) was made in 2012 and 2011, respectively. In
addition to its equity ownership, Alcoa has an agreement to purchase gas transmission services from the DBNGP. At
December 31, 2012, Alcoa has an asset of $363 (A$349) representing prepayments made under the agreement for
future gas transmission services. Alcoas maximum exposure to loss on the investment and the related contract is
approximately $520 (A$500) as of December 31, 2012.
Purchase Obligations. Alcoa is party to unconditional purchase obligations for energy that expire between 2015 and
2036. Commitments related to these contracts total $176 in 2013, $175 in 2014, $176 in 2015, $165 in 2016, $165 in
2017, and $2,688 thereafter. Expenditures under these contracts totaled $161 in 2012, $227 in 2011, and $129 in 2010.
Additionally, Alcoa has entered into other purchase commitments for energy, raw materials, and other goods and services,
which total $3,502 in 2013, $2,137 in 2014, $2,085 in 2015, $1,926 in 2016, $2,496 in 2017, and $20,717 thereafter.
Operating Leases. Certain computer equipment, plant equipment, vehicles, and buildings and alumina refinery process
control technology are under operating lease agreements. Total expense from continuing operations for all leases was
$244 in 2012, $255 in 2011, and $260 in 2010. Under long-term operating leases, minimum annual rentals are $198 in
2013, $155 in 2014, $127 in 2015, $102 in 2016, $77 in 2017, and $597 thereafter.
Guarantees. At December 31, 2012, Alcoa has maximum potential future payments for guarantees issued on behalf of
certain third parties of $621. These guarantees expire in 2015 through 2019 and relate to project financing for a hydroelectric
power project in Brazil (see Investments section above) and the aluminum complex in Saudi Arabia (see Note I). Alcoa also
has outstanding bank guarantees related to tax matters, outstanding debt, workers compensation, environmental obligations,
energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at
various dates between 2013 and 2017, was $494 at December 31, 2012.
Letters of Credit. Alcoa has outstanding letters of credit primarily related to workers compensation, energy contracts,
and leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire
at various dates, mostly in 2013, was $299 at December 31, 2012.
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Surety Bonds. Alcoa has outstanding surety bonds primarily related to tax matters, contract performance, workers
compensation, environmental-related matters, and customs duties. The total amount committed under these bonds,
which automatically renew or expire at various dates, mostly in 2013 and 2014, was $193 at December 31, 2012.
O. Other (Income) Expenses, Net
2012 2011 2010
Equity loss (income) $ 28 $(15) $(14)
Interest income (31) (20) (19)
Foreign currency (gains) losses, net (5) 16 13
Net gain from asset sales (321) (41) (9)
Net (gain) loss on mark-to-market derivative contracts (X) (13) (52) 37
Other, net 1 25 (3)
$(341) $(87) $ 5
In 2012, Net gain from asset sales included a $320 gain related to the sale of the Tapoco Hydroelectric Project (see
Note F). In 2011, Equity income included higher earnings from an investment in a natural gas pipeline in Australia due
to the recognition of a discrete income tax benefit by the consortium (Alcoa World Alumina and Chemicals share of
the benefit was $24). Also in 2011, Net gain from asset sales included a $43 gain related to the sale of land in
Australia.
P. Cash Flow Information
Cash paid for interest and income taxes was as follows:
2012 2011 2010
Interest, net of amount capitalized $454 $491 $452
Income taxes, net of amount refunded 223 382 (67)
The details related to cash paid for acquisitions were as follows:
2012 2011 2010
Assets acquired $- $253 $ 87
Liabilities assumed - (12) (15)
Noncontrolling interests acquired - - 4
Redemption of convertible securities of subsidiary - - 40
Reduction in Alcoa shareholders equity - - 22
Cash paid - 241 138
Less: cash acquired - 1 -
Net cash paid $- $240 $138
Noncash Financing and Investing Activities. In August 2012, Alcoa received a loan of $250 for the purpose of
financing all or part of the cost of acquiring, constructing, reconstructing, and renovating certain facilities at Alcoas
rolling mill plant in Davenport, IA (see Note K). Because this loan can only be used for this purpose, the net proceeds of
$248 were classified as restricted cash. Since restricted cash is not part of cash and cash equivalents, this transaction was
not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash activity. As funds are
expended for the project, the release of the cash will be reflected as both an inflow on the Net change in restricted cash
line and an outflow on the Capital expenditures line in the Investing Activities section of the Statement of Consolidated
Cash Flows. At December 31, 2012, Alcoa had $171 of restricted cash remaining related to this transaction.
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In 2011 and 2010, Alcoa issued $600 in common stock to satisfy a portion of its accrued pension benefits liability (see
Notes R and W).
Q. Segment and Geographic Area Information
Alcoa is primarily a producer of aluminum products. Aluminum and alumina represent more than 80% of Alcoas
revenues. Nonaluminum products include precision castings and aerospace and industrial fasteners. Alcoas segments
are organized by product on a worldwide basis. Segment performance under Alcoas management reporting system is
evaluated based on a number of factors; however, the primary measure of performance is the after-tax operating
income (ATOI) of each segment. Certain items such as the impact of LIFO inventory accounting; interest expense;
noncontrolling interests; corporate expense (general administrative and selling expenses of operating the corporate
headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned
assets); restructuring and other charges; discontinued operations; and other items, including intersegment profit
eliminations and other metal adjustments, differences between tax rates applicable to the segments and the consolidated
effective tax rate, the results of the soft alloy extrusions business in Brazil, and other nonoperating items such as
foreign currency transaction gains/losses and interest income are excluded from segment ATOI. Segment assets
exclude, among others, cash and cash equivalents; deferred income taxes; goodwill not allocated to businesses for
segment reporting purposes; corporate fixed assets; LIFO reserves; and other items, including the assets of the soft
alloy extrusions business in Brazil and assets classified as held for sale related to discontinued operations.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting
Policies (see Note A). Transactions among segments are established based on negotiation among the parties.
Differences between segment totals and Alcoas consolidated totals for line items not reconciled are in Corporate.
Alcoas products are used worldwide in transportation (including aerospace, automotive, truck, trailer, rail, and
shipping), packaging, building and construction, oil and gas, defense, and industrial applications. Total export sales
from the U.S. included in continuing operations were $2,107 in 2012, $1,988 in 2011, and $1,543 in 2010.
Alcoas operations consist of four worldwide reportable segments as follows:
Alumina. This segment represents a portion of Alcoas upstream operations and consists of the Companys worldwide
refinery system, including the mining of bauxite, which is then refined into alumina. Alumina is mainly sold directly to
internal and external smelter customers worldwide or is sold to customers who process it into industrial chemical
products. A portion of this segments third-party sales are completed through the use of agents, alumina traders, and
distributors. Slightly more than half of Alcoas alumina production is sold under supply contracts to third parties
worldwide, while the remainder is used internally by the Primary Metals segment.
Primary Metals. This segment represents a portion of Alcoas upstream operations and consists of the Companys
worldwide smelter system. Primary Metals receives alumina, mostly from the Alumina segment, and produces primary
aluminum used by Alcoas fabricating businesses, as well as sold to external customers, aluminum traders, and
commodity markets. Results from the sale of aluminum powder, scrap, and excess power are also included in this
segment, as well as the results of aluminum derivative contracts and buy/resell activity. Primary aluminum produced
by Alcoa and used internally is transferred to other segments at prevailing market prices. The sale of primary
aluminum represents more than 90% of this segments third-party sales. Buy/resell activity refers to when this segment
purchases metal from external or internal sources and resells such metal to external customers or the midstream and
downstream segments in order to maximize smelting system efficiency and to meet customer requirements.
Global Rolled Products. This segment represents Alcoas midstream operations, whose principal business is the
production and sale of aluminum plate and sheet. A small portion of this segments operations relate to foil produced at
one plant in Brazil. This segment includes rigid container sheet (RCS), which is sold directly to customers in the
packaging and consumer market and is used to produce aluminum beverage cans. Seasonal increases in RCS sales are
generally experienced in the second and third quarters of the year. This segment also includes sheet and plate used in
the aerospace, automotive, commercial transportation, and building and construction markets (mainly used in the
125
production of machinery and equipment and consumer durables), which is sold directly to customers and through
distributors. Approximately one-half of the third-party sales in this segment consist of RCS, while the other one-half of
third-party sales are derived from sheet and plate and foil used in industrial markets. While the customer base for flat-
rolled products is large, a significant amount of sales of RCS, sheet, and plate is to a relatively small number of
customers.
Engineered Products and Solutions. This segment represents Alcoas downstream operations and includes titanium,
aluminum, and super alloy investment castings; forgings and fasteners; aluminum wheels; integrated aluminum
structural systems; and architectural extrusions used in the aerospace, automotive, building and construction,
commercial transportation, and power generation markets. These products are sold directly to customers and through
distributors. Additionally, hard alloy extrusions products, which are also sold directly to customers and through
distributors, serve the aerospace, automotive, commercial transportation, and industrial products markets.
126
The operating results and assets of Alcoas reportable segments were as follows:
Alumina
Primary
Metals
Global
Rolled
Products
Engineered
Products
and
Solutions Total
2012
Sales:
Third-party sales $3,092 $ 7,432 $7,378 $5,525 $23,427
Intersegment sales 2,310 2,877 163 - 5,350
Total sales $5,402 $10,309 $7,541 $5,525 $28,777
Profit and loss:
Equity income (loss) $ 5 $ (27) $ (6) $ - $ (28)
Depreciation, depletion, and amortization 455 532 229 158 1,374
Income taxes (27) 106 167 297 543
ATOI 90 309 358 612 1,369
2011
Sales:
Total sales $6,189 $11,432 $7,860 $5,345 $30,826
Profit and loss:
Equity income (loss) $ 25 $ (7) $ (3) $ 1 $ 16
Income taxes 179 92 104 260 635
ATOI 607 481 266 539 1,893
2010
Sales:
Total sales $5,027 $ 9,667 $6,457 $4,584 $25,735
Profit and loss:
Equity income $ 10 $ 1 $ - $ 2 $ 13
Income taxes 60 96 92 195 443
ATOI 301 488 220 415 1,424
2012
Assets:
Capital expenditures $ 374 $ 318 $ 258 $ 200 $ 1,150
Equity investments 658 917 188 - 1,763
Goodwill 10 997 214 2,677 3,898
Total assets 9,709 11,709 4,603 5,891 31,912
2011
Assets:
Capital expenditures $ 371 $ 463 $ 157 $ 173 $ 1,164
Equity investments 450 925 123 - 1,498
Goodwill 11 991 208 2,666 3,876
Total assets 9,782 11,867 4,559 5,831 32,039
127
The following tables reconcile certain segment information to consolidated totals:
2012 2011 2010
Sales:
Total segment sales $28,777 $30,826 $25,735
Elimination of intersegment sales (5,350) (6,137) (4,989)
Corporate* 273 262 267
Consolidated sales $23,700 $24,951 $21,013
* For all periods presented, the Corporate amount includes third-party sales of three soft alloy extrusion facilities
located in Brazil.
2012 2011 2010
Net income attributable to Alcoa:
Total segment ATOI $1,369 $1,893 $1,424
Unallocated amounts (net of tax):
Impact of LIFO 20 (38) (16)
Interest expense (319) (340) (321)
Noncontrolling interests 29 (194) (138)
Corporate expense (282) (290) (291)
Restructuring and other charges (75) (196) (134)
Discontinued operations - (3) (8)
Other (551) (221) (262)
Consolidated net income attributable to Alcoa $ 191 $ 611 $ 254
December 31, 2012 2011
Assets:
Total segment assets $31,912 $32,039
Elimination of intersegment receivables (444) (483)
Unallocated amounts:
Cash and cash equivalents 1,861 1,939
Deferred income taxes 4,061 3,738
Corporate goodwill 1,272 1,281
Corporate fixed assets, net 961 935
LIFO reserve (770) (801)
Other 1,326 1,472
Consolidated assets $40,179 $40,120
Sales by major product grouping were as follows:
2012 2011 2010
Sales:
Alumina $ 2,962 $ 3,350 $ 2,740
Primary aluminum 7,121 7,907 6,842
Flat-rolled aluminum 7,378 7,642 6,277
Investment castings 1,747 1,700 1,521
Fastening systems 1,414 1,313 1,070
Architectural aluminum systems 970 973 884
Aluminum wheels 692 656 475
Other extruded aluminum and forged products 955 1,010 930
Other 461 400 274
$23,700 $24,951 $21,013
128
Geographic information for sales was as follows (based upon the country where the point of sale occurred):
2012 2011 2010
Sales:
U.S.* $12,361 $12,295 $10,560
Australia 3,222 3,587 2,842
Brazil 1,244 1,371 1,182
Spain 1,203 1,487 1,234
Netherlands** 949 1,025 940
Norway 820 927 809
France 807 825 662
Russia 713 761 584
Hungary 492 665 505
United Kingdom 438 412 331
Italy 379 537 418
China 326 283 188
Germany 216 229 231
Other 530 547 527
$23,700 $24,951 $21,013
* Sales that occurred in the U.S. include a portion of alumina from Alcoas refineries in Suriname, Brazil, Australia,
and Jamaica and aluminum from the Companys smelters in Canada.
**Sales that occurred in the Netherlands include aluminum from Alcoas smelter in Iceland.
Geographic information for long-lived assets was as follows (based upon the physical location of the assets):
December 31, 2012 2011
Long-lived assets:
U.S. $ 4,621 $ 4,439
Brazil 4,318 4,844
Australia 3,548 3,390
Iceland 1,571 1,615
Canada 1,399 1,447
Norway 898 894
Russia 494 531
Spain 445 451
Jamaica 414 417
China 395 424
Other 844 830
$18,947 $19,282
R. Preferred and Common Stock
Preferred Stock. Alcoa has two classes of preferred stock: Class A Preferred Stock and Class B Serial Preferred
Stock. Class A Preferred Stock has 660,000 shares authorized at a par value of $100 per share with an annual $3.75
cumulative dividend preference per share. There were 546,024 of such shares outstanding at December 31, 2012 and
2011. Class B Serial Preferred Stock has 10 million shares authorized (none issued) and a par value of $1 per share.
Common Stock. There are 1.8 billion shares authorized at a par value of $1 per share, and 1,177,906,557 shares were
issued at December 31, 2012 and 2011. The current dividend yield as authorized by Alcoas Board of Directors is
$0.12 per annum or $0.03 per quarter.
129
In January 2011, Alcoa contributed 36,518,563 newly issued shares of its common stock to a master trust that holds the
assets of certain U.S. defined benefit pension plans in a private placement transaction. These shares were valued at
$16.43 per share (the closing price of Alcoas common stock on January 24, 2011), or $600 in the aggregate, and were
issued to satisfy the estimated minimum required funding and to provide additional funding towards maintaining an
approximately 80% funded status of Alcoas U.S. pension plans. On January 25, 2011, the 36,518,563 shares were
registered under Alcoas then-current shelf registration statement dated March 10, 2008 (replaced by shelf registration
statement dated February 18, 2011) for resale by the master trust, as selling stockholder.
In January 2010, Alcoa contributed 44,313,146 newly issued shares of its common stock to a master trust that holds the
assets of certain U.S. defined benefit pension plans in a private placement transaction. These shares were valued at
$13.54 per share (the closing price of Alcoas common stock on January 26, 2010), or $600 in the aggregate, and were
issued to satisfy a portion of Alcoas future funding obligations to these plans, including a portion of the estimated
minimum required funding for 2011. On January 27, 2010, the 44,313,146 shares were registered under Alcoas then-
current shelf registration statement dated March 10, 2008 for resale by the master trust, as selling stockholder.
As of December 31, 2012, 110 million and 86 million shares of common stock were reserved for issuance upon
conversion of convertible notes and under Alcoas stock-based compensation plans, respectively. Alcoa issues shares
from treasury stock to satisfy the exercise of stock options and the conversion of stock awards.
Share Activity (number of shares)
Common stock
Treasury Outstanding
Balance at end of 2009 122,695,718 974,378,820
Private placement - 44,313,146
Conversion of convertible notes - 310
Issued for stock-based compensation plans (3,333,689) 3,333,689
Balance at end of 2010 119,362,029 1,022,025,965
Private placement - 36,518,563
Balance at end of 2011 113,494,491 1,064,412,066
Balance at end of 2012 110,694,604 1,067,211,953
Stock-based Compensation
Stock options under Alcoas stock-based compensation plans are granted in January each year at market prices on the
dates of grant. Prior to 2011, performance stock options were also granted to certain individuals. For performance stock
options granted in 2010, the final number of options earned was based on Alcoas adjusted free cash flow and
profitability against pre-established targets. Stock option features based on date of original grant were as follows:
Date of
original grant Vesting Term Reload feature
2002 and prior 1 year 10 years One reload
over option term
2003 3 years
(1/3 each year)
10 years One reload in 2004 for 1/3
vesting in
2004
2004 - 2009 3 years
(1/3 each year)
6 years None
2010 and forward 3 years
(1/3 each year)
10 years
None
130
In addition to the stock options described above, Alcoa grants stock awards that vest three years from the date of grant.
In 2010, certain of these stock awards were granted with the same performance conditions described above for
performance stock options. In 2012 and 2011, the final number of performance stock awards earned will be based on
the achievement of sales and profitability targets over a three-year period. One-third of the award will be earned each
year based on the performance against pre-established targets for that year. The performance stock awards earned over
the three-year period vest at the end of the third year.
The following table summarizes the total compensation expense recognized for all stock options and stock awards
(there was no stock-based compensation expense capitalized in 2012, 2011, or 2010):
2012 2011 2010
Compensation expense recognized:
Stock option grants $27 $34 $44
Stock award grants 40 49 40
Total compensation expense before income taxes 67 83 84
Benefit for income taxes 21 27 27
Total compensation expense, net of income taxes $46 $56 $57
As part of Alcoas stock-based compensation plan design, individuals who are retirement-eligible have a six-month
requisite service period in the year of grant. As a result, a larger portion of expense will be recognized in the first half
of each year for these retirement-eligible employees. Of the total compensation expense before income taxes included
in the table above, $13, $18, and $19 in 2012, 2011, and 2010, respectively, pertains to the acceleration of expense
related to retirement-eligible employees.
The fair value of new options was estimated on the date of grant using a lattice-pricing model with the following
assumptions:
2012 2011 2010
Weighted average fair value per option $ 3.11 $ 4.96 $ 4.67
Average risk-free interest rate 0.06-1.89% 0.19-3.44% 0.14-3.62%
Dividend yield 0.9% 0.9% 1.1%
Volatility 39-45% 36-43% 47-51%
Annual forfeiture rate 5% 5% 4%
Exercise behavior 45% 45% 35%
Life (years) 5.8 5.8 5.6
The range of average risk-free interest rates was based on a yield curve of interest rates at the time of the grant based
on the contractual life of the option. The dividend yield was based on a one-year average. Volatility was based on
historical and implied volatilities over the term of the option. Alcoa utilized historical option forfeiture data to estimate
annual pre- and post-vesting forfeitures. Exercise behavior was based on a weighted average exercise ratio (exercise
patterns for grants issued over the number of years in the contractual option term) of an options intrinsic value
resulting from historical employee exercise behavior. Based upon the other assumptions used in the determination of
the fair value, the life of an option was an output of the lattice-pricing model.
131
The activity for stock options was as follows (options in millions):
2012 2011 2010
Outstanding, beginning of year:
Number of options 46.8 56.1 65.5
Weighted average exercise price $17.41 $19.29 $24.44
Granted:
Exercised:
Number of options (1.5) (4.3) (1.6)
Weighted average exercise price $ 8.28 $ 8.59 $ 8.34
Expired or forfeited:
Number of options (10.8) (9.5) (16.8)
Outstanding, end of year:
Exercisable, end of year:
The total intrinsic value of options exercised during 2012, 2011, and 2010 was $2, $34, and $8, respectively. In 2012,
2011, and 2010, the cash received from option exercises was $12, $37, and $13 and the total tax benefit realized from
these exercises was $1, $11, and $2, respectively.
The following tables summarize certain stock option information at December 31, 2012 (number of options and
intrinsic value in millions):
Options Fully Vested and/or Expected to Vest*
Range of
exercise price Number
Weighted
average
remaining
contractual
life
Weighted
average
exercise
price
Intrinsic
Value
$6.12 - $8.33 17.9 2.06 $ 8.33 $7
$8.34 - $11.33 10.3 8.93 10.17 -
$11.34 - $17.40 11.2 7.21 14.47 -
$17.41 - $46.77 5.6 0.26 26.96 -
Total 45.0 4.69 12.58 $7
* Expected forfeitures are immaterial to the Company and are not reflected in the table above.
132
Options Fully Vested and Exercisable
Range of
exercise price Number
Weighted
average
remaining
contractual
life
Weighted
average
exercise
price
Intrinsic
Value
$6.12 - $8.33 17.9 2.06 $ 8.33 $7
$8.34 - $11.33 0.1 6.65 10.72 -
$11.34 - $17.40 6.2 7.07 14.10 -
$17.41 - $46.77 5.6 0.26 26.96 -
Total 29.8 2.77 13.02 $7
In addition to stock option awards, the Company grants stock awards and performance share awards, both of which
vest three years from the date of grant. Performance share awards are issued at target and the final award amount is
determined at the end of the performance period.
The following table summarizes the outstanding stock and performance share awards (awards in millions):
Stock
Awards
Performance
Share Awards Total
Weighted
average
FMV
per award
Outstanding, January 1, 2012 6.4 2.9 9.3 $13.63
Granted 3.0 1.9 4.9 10.08
Converted (1.0) (0.8) (1.8) 8.42
Forfeited (0.5) (0.2) (0.7) 13.49
Performance share adjustment - 0.2 0.2 12.74
Outstanding, December 31, 2012 7.9 4.0 11.9 12.96
At December 31, 2012, there was $22 and $35 of unrecognized compensation expense (pretax) related to non-vested
stock option grants and non-vested stock award grants, respectively. This expense is expected to be recognized over a
weighted average period of 1.5 years. As of December 31, 2012, the following table summarizes the unrecognized
compensation expense expected to be recognized in future periods:
Stock-based compensation
expense (pretax)
2013 $38
2014 18
2015 1
Totals $57
S. Earnings Per Share
Basic earnings per share (EPS) amounts are computed by dividing earnings, after the deduction of preferred stock
dividends declared and dividends and undistributed earnings allocated to participating securities, by the average
number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially
dilutive share equivalents outstanding not classified as participating securities.
133
The information used to compute basic and diluted EPS attributable to Alcoa common shareholders was as follows
(shares in millions):
2012 2011 2010
Income from continuing operations attributable to Alcoa common shareholders $ 191 $ 614 $ 262
Less: preferred stock dividends declared 2 2 2
Income from continuing operations available to common equity 189 612 260
Less: dividends and undistributed earnings allocated to participating securities - 1 1
Income from continuing operations available to Alcoa common shareholdersbasic 189 611 259
Add: interest expense related to convertible notes - 30 -
Income from continuing operations available to Alcoa common shareholdersdiluted $ 189 $ 641 $ 259
Average shares outstandingbasic 1,067 1,061 1,018
Effect of dilutive securities:
Stock options 3 7 6
Stock and performance awards 6 4 1
Convertible notes - 89 -
Average shares outstandingdiluted 1,076 1,161 1,025
Participating securities are defined as unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) and are included in the computation of earnings per share
pursuant to the two-class method. Prior to January 1, 2010, under Alcoas stock-based compensation programs, certain
employees were granted stock and performance awards, which entitle those employees to receive nonforfeitable
dividends during the vesting period on a basis equivalent to the dividends paid to holders of Alcoas common stock. As
such, these unvested stock and performance awards met the definition of a participating security. Under the two-class
method, all earnings, whether distributed or undistributed, are allocated to each class of common stock and
participating securities based on their respective rights to receive dividends. At December 31, 2012, there were no
outstanding participating securities, as all such securities have vested and were converted into shares of common stock.
At December 31, 2011 and 2010 there were 2 million and 4 million participating securities outstanding, respectively.
Effective January 1, 2010, new grants of stock and performance awards do not contain a nonforfeitable right to
dividends during the vesting period. As a result, an employee will forfeit the right to dividends accrued on unvested
awards if that person does not fulfill their service requirement during the vesting period. As such, these awards are not
treated as participating securities in the EPS calculation as the employees do not have equivalent dividend rights as
common shareholders. These awards are included in the EPS calculation utilizing the treasury stock method similar to
stock options. At December 31, 2012, 2011, and 2010, there were 12 million, 8 million, and 4 million such awards
outstanding, respectively.
In 2012 and 2010, 89 million share equivalents related to convertible notes were not included in the computation of
diluted EPS because their effect was anti-dilutive.
Options to purchase 27 million, 27 million, and 23 million shares of common stock at a weighted average exercise
price of $15.41, $24.00, and $32.73 per share were outstanding as of December 31, 2012, 2011, and 2010, respectively,
but were not included in the computation of diluted EPS because they were anti-dilutive, as the exercise prices of the
options were greater than the average market price of Alcoas common stock.
134
T. Income Taxes
The components of income from continuing operations before income taxes were as follows:
2012 2011 2010
U.S. $394 $ (98) $(403)
Foreign (70) 1,161 951
$324 $1,063 $ 548
The provision for income taxes on income from continuing operations consisted of the following:
2012 2011 2010
Current:
Federal* $ 85 $ 10 $ 33
Foreign 167 427 409
State and local 9 (1) (7)
261 436 435
Deferred:
Federal* 129 28 37
Foreign (227) (211) (320)
State and local (1) 2 (4)
(99) (181) (287)
Total $ 162 $ 255 $ 148
* Includes U.S. taxes related to foreign income
Included in discontinued operations is a tax benefit of $1 in 2011 and $3 in 2010.
The exercise of employee stock options generated a tax charge of $1 in 2012 and a tax benefit of $6 in 2011 and $2 in
2010, representing only the difference between compensation expense recognized for financial reporting and tax purposes.
These amounts decreased or increased equity and increased or reduced current taxes payable in their respective periods.
Alcoa has unamortized tax-deductible goodwill of $97 resulting from intercompany stock sales and reorganizations.
Alcoa recognizes the tax benefits (generally at a 30% to 34% rate) associated with this tax-deductible goodwill as it is
being amortized for local income tax purposes rather than in the period in which the transaction is consummated.
A reconciliation of the U.S. federal statutory rate to Alcoas effective tax rate for continuing operations was as follows:
2012 2011 2010
U.S. federal statutory rate 35.0% 35.0% 35.0%
Taxes on foreign operations (0.1) (11.0) (5.4)
Permanent differences on restructuring charges and asset disposals 10.8 - 0.7
Audit and other adjustments to prior years accruals 3.5 (1.1) 1.2
Noncontrolling interests 3.8 0.8 2.6
Statutory tax rate and law changes (0.4) 0.8 (5.1)
Tax law change related to Medicare Part D - - 14.4
Changes in valuation allowances 15.2 2.3 (8.7)
Amortization of goodwill related to intercompany stock sales/reorganizations (7.7) (2.8) (5.2)
Change in legal structure of investment (4.1) - -
Interest income related to income tax positions (1.3) (0.2) -
Company-owned life insurance/split-dollar net premiums (3.9) (0.2) (1.8)
Other (0.8) 0.4 (0.8)
Effective tax rate 50.0% 24.0% 26.9%
135
On March 23, 2010, the Patient Protection and Affordable Care Act (the PPACA) was signed into law, and, on
March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the HCERA and, together with PPACA,
the Acts), which makes various amendments to certain aspects of the PPACA, was signed into law. The Acts
effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide
prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare
Part D.
Alcoa pays a portion of the prescription drug cost for eligible retirees under certain postretirement benefit plans. These
benefits were determined to be actuarially equivalent to the Medicare Part D prescription drug benefit of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the MPDIMA). Alcoa has been receiving the
federal subsidy since the 2006 tax year related to the aforementioned postretirement benefit plans. Under the
MPDIMA, the federal subsidy did not reduce an employers income tax deduction for the costs of providing such
prescription drug plans nor was it subject to income tax individually.
Under the Acts, beginning in 2013, an employers income tax deduction for the costs of providing Medicare Part D-
equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under GAAP,
any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective
date. As a result, Alcoa recognized a noncash charge of $79 in 2010 for the elimination of a related deferred tax asset
to reflect the change in the tax treatment of the federal subsidy.
The components of net deferred tax assets and liabilities were as follows:
2012 2011
December 31,
Deferred
tax
assets
Deferred
tax
liabilities
Deferred
tax
assets
Deferred
tax
liabilities
Depreciation $ 104 $1,015 $ 74 $ 933
Employee benefits 2,742 46 2,668 51
Loss provisions 368 17 325 9
Deferred income/expense 53 203 45 181
Tax loss carryforwards 2,186 - 2,035 -
Tax credit carryforwards 508 - 477 -
Derivatives and hedging activities 117 16 109 43
Other 324 297 315 288
6,402 1,594 6,048 1,505
Valuation allowance (1,400) - (1,398) -
$ 5,002 $1,594 $ 4,650 $1,505
The following table details the expiration periods of the deferred tax assets presented above:
December 31, 2012
Expires
within
10 years
Expires
within
11-20 years
No
expiration* Other* Total
Tax loss carryforwards $ 332 $ 886 $ 968 $ - $ 2,186
Tax credit carryforwards 370 73 65 - 508
Other - - 762 2,946 3,708
Valuation allowance (212) (659) (244) (285) (1,400)
$ 490 $ 300 $1,551 $2,661 $ 5,002
* Deferred tax assets with no expiration may still have annual limitations on utilization. Other represents deferred tax
assets whose expiration is dependent upon the reversal of the underlying temporary difference. A substantial amount
of Other relates to employee benefits that will become deductible for tax purposes over an extended period of time as
contributions are made to employee benefit plans and payments are made to retirees.
136
The total deferred tax asset (net of valuation allowance) is supported by taxable temporary differences that reverse
within the carryforward period (approximately 25%), tax planning strategies (approximately 5%), and projections of
future taxable income exclusive of reversing temporary differences (approximately 70%).
Existing favorable contracts and the ability to sell product into established markets are additional positive evidence.
are not long enough to allow the utilization of the deferred tax asset based on existing projections of income. In certain
jurisdictions, deferred tax assets related to cumulative losses exist without a valuation allowance where in
managements judgment the weight of the positive evidence more than offsets the negative evidence of the cumulative
losses. Upon changes in facts and circumstances, management may conclude that deferred tax assets for which no
valuation allowance is currently recorded may not be realizable in future periods, resulting in a future charge to record
a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and
negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the
appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-
measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.
In December 2011, one of the Companys subsidiaries in Brazil applied for a tax holiday related to its expanded mining
and refining operations. If approved, the tax rate for this subsidiary will decrease significantly, resulting in future cash
tax savings over the 10-year holiday period (would be effective as of January 1, 2013). Additionally, the net deferred
tax asset of the subsidiary would be remeasured at the lower rate in the period the holiday is approved. This
remeasurement would result in a decrease to the net deferred tax asset and a noncash charge to earnings of
approximately $60 to $120. As of December 31, 2012, Alcoas subsidiarys application is still pending.
The following table details the changes in the valuation allowance:
December 31, 2012 2011
Balance at beginning of year $1,398 $1,268
Increase to allowance 45 157
Release of allowance (48) (25)
Foreign currency translation 5 (2)
Balance at end of year $1,400 $1,398
The cumulative amount of Alcoas foreign undistributed net earnings for which no deferred taxes have been provided
was approximately $8,000 at December 31, 2012. Alcoa has a number of commitments and obligations related to the
Companys growth strategy in foreign jurisdictions. As such, management has no plans to distribute such earnings in
the foreseeable future, and, therefore, has determined it is not practicable to determine the related deferred tax liability.
Alcoa and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions.
With a few minor exceptions, Alcoa is no longer subject to income tax examinations by tax authorities for years prior to
2002. All U.S. tax years prior to 2012 have been audited by the Internal Revenue Service. Various state and foreign
jurisdiction tax authorities are in the process of examining Alcoas income tax returns for various tax years through 2010.
137
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties)
was as follows:
December 31, 2012 2011 2010
Balance at beginning of year $ 51 $46 $ 48
Additions for tax positions of the current year - - -
Additions for tax positions of prior years 39 13 30
Reductions for tax positions of prior years (7) (3) (5)
Settlements with tax authorities (18) (4) (22)
Expiration of the statute of limitations - - (5)
Foreign currency translation 1 (1) -
Balance at end of year $ 66 $51 $ 46
For all periods presented, a portion of the balance at end of year pertains to state tax liabilities, which are presented
before any offset for federal tax benefits. The effect of unrecognized tax benefits, if recorded, that would impact the
annual effective tax rate for 2012, 2011, and 2010 would be approximately 6%, 2%, and 4%, respectively, of pretax
book income. Alcoa does not anticipate that changes in its unrecognized tax benefits will have a material impact on the
Statement of Consolidated Operations during 2013.
It is Alcoas policy to recognize interest and penalties related to income taxes as a component of the Provision for
income taxes on the accompanying Statement of Consolidated Operations. In 2012, 2011, and 2010, Alcoa recognized
$3, $2, and $1, respectively, in interest and penalties. Due to the expiration of the statute of limitations, settlements
with tax authorities, and refunded overpayments, Alcoa also recognized interest income of $7, $2, and $4 in 2012,
2011, and 2010, respectively. As of December 31, 2012 and 2011, the amount accrued for the payment of interest and
penalties was $15 and $12, respectively.
U. Receivables
Sale of Receivables Programs
Alcoa has three arrangements, each with a different financial institution, to sell certain customer receivables outright
without recourse on a continuous basis. As of December 31, 2012, sold receivables, which were derecognized from the
accompanying Consolidated Balance Sheet, in the amount of $37 under the three arrangements combined were
uncollected. Alcoa services the customer receivables for the financial institutions at market rates; therefore, no
servicing asset or liability was recorded.
On March 30, 2012, Alcoa finalized a one-year arrangement with a financial institution to sell certain customer
receivables without recourse on a revolving basis. The sale of such receivables is completed through the use of a
bankruptcy remote special purpose entity, which is a consolidated subsidiary of Alcoa. This arrangement provides for
minimum funding of $50 up to a maximum of $250 for receivables sold. Alcoa initially sold $304 of customer
receivables in exchange for $50 in cash and $254 of deferred purchase price under this arrangement. Alcoa received
additional cash funding of $155 throughout 2012. As of December 31, 2012, the deferred purchase price receivable was
$18, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred
purchase price receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving
program, the sale of new receivables will result in an increase in the deferred purchase price receivable. The net change
in the deferred purchase price receivable was reflected in the Decrease in receivables line item on the accompanying
Statement of Consolidated Cash Flows. This activity is reflected as an operating cash flow because the related
customer receivables are the result of an operating activity with an insignificant, short-term interest rate risk. In 2012,
the gross cash outflows and inflows associated with the deferred purchase price receivable were $3,339 and $3,321,
respectively. The gross amount of receivables sold and total cash collections under this program since its inception was
$3,339 and $3,116, respectively. Alcoa services the customer receivables for the financial institution at market rates;
therefore, no servicing asset or liability was recorded.
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Allowance for Doubtful Accounts
The following table details the changes in the allowance for doubtful accounts related to customer receivables and
other receivables:
Customer receivables Other receivables
December 31, 2012 2011 2012 2011
Balance at beginning of year $46 $ 46 $79 $87
Provision for doubtful accounts 2 19 9 7
Write off of uncollectible accounts (8) (14) (3) (3)
Recoveries of prior write-offs (1) (3) (6) (5)
Other - (2) (5) (7)
Balance at end of year $39 $ 46 $74 $79
V. Interest Cost Components
2012 2011 2010
Amount charged to expense $490 $524 $494
Amount capitalized 93 101 96
$583 $625 $590
W. Pension and Other Postretirement Benefits
Alcoa maintains pension plans covering most U.S. employees and certain employees in foreign locations. Pension
benefits generally depend on length of service, job grade, and remuneration. Substantially all benefits are paid through
pension trusts that are sufficiently funded to ensure that all plans can pay benefits to retirees as they become due. Most
salaried and non-bargaining hourly U.S. employees hired after March 1, 2006 participate in a defined contribution plan
instead of a defined benefit plan.
Alcoa also maintains health care and life insurance benefit plans covering eligible U.S. retired employees and certain
retirees from foreign locations. Generally, the medical plans pay a percentage of medical expenses, reduced by
deductibles and other coverages. These plans are generally unfunded, except for certain benefits funded through a trust.
Life benefits are generally provided by insurance contracts. Alcoa retains the right, subject to existing agreements, to
change or eliminate these benefits. All salaried and certain non-bargaining hourly U.S. employees hired after
January 1, 2002 and certain bargaining hourly U.S. employees hired after July 1, 2010 are not eligible for
postretirement health care benefits. All salaried and certain hourly U.S. employees that retire on or after April 1, 2008
are not eligible for postretirement life insurance benefits.
The funded status of all of Alcoas pension and other postretirement benefit plans are measured as of December 31
each calendar year.
On June 24, 2010, the United Steelworkers ratified a new four-year labor agreement covering approximately 5,400
employees at 11 U.S. locations; the previous labor agreement expired on May 31, 2010. In 2010, as a result of the
preparation for and ratification of the new agreement, Alcoa recognized $20 ($13 after-tax) in Cost of goods sold on
the accompanying Statement of Consolidated Operations for strike preparation costs, a one-time signing bonus for
employees, and an increase to pension net periodic benefit cost (see below). Additionally, as a result of the provisions
of the new labor agreement, a significant plan amendment was adopted by one of Alcoas U.S. pension plans.
Accordingly, this plan was required to be remeasured, and through this process, the discount rate was updated from
6.15% at December 31, 2009 to 5.95% at May 31, 2010. The plan remeasurement resulted in an increase to both
Alcoas pension liability of $166 and the plans unrecognized net actuarial loss (included in other comprehensive loss)
of $108 (after-tax). The plan remeasurement also resulted in an increase to 2010 net periodic benefit cost of $9.
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Obligations and Funded Status
Pension benefits
Other
postretirement benefits
December 31, 2012 2011 2012 2011
Change in benefit obligation
Benefit obligation at beginning of year $13,526 $12,343 $ 2,844 $ 2,902
Service cost 203 183 14 17
Interest cost 647 687 132 159
Amendments 6 40 - (1)
Actuarial losses 1,120 1,163 107 17
Settlements - (32) - -
Curtailments - (7) - -
Benefits paid, net of participants contributions (833) (813) (256) (275)
Medicare Part D subsidy receipts - - 21 25
Foreign currency translation impact 82 (38) 1 -
Benefit obligation at end of year* $14,751 $13,526 $ 2,863 $ 2,844
Change in plan assets
Fair value of plan assets at beginning of year $10,311 $ 9,451 $ 8 $ 58
Actual return on plan assets 925 783 - 2
Employer contributions 571 945 - -
Participants contributions 32 35 - -
Benefits paid (822) (805) (8) (52)
Administrative expenses (42) (38) - -
Settlements - (34) - -
Foreign currency translation impact 68 (26) - -
Fair value of plan assets at end of year* $11,043 $10,311 $ - $ 8
Funded status* $ (3,708) $ (3,215) $(2,863) $(2,836)
Less: Amounts attributed to joint venture partners (40) (34) (4) (5)
Net funded status $ (3,668) $ (3,181) $(2,859) $(2,831)
Amounts recognized in the Consolidated Balance Sheet consist of:
Noncurrent assets $ 86 $ 109 $ - $ -
Current liabilities (32) (29) (256) (248)
Noncurrent liabilities (3,722) (3,261) (2,603) (2,583)
Net amount recognized $ (3,668) $ (3,181) $(2,859) $(2,831)
Amounts recognized in Accumulated Other Comprehensive Loss
consist of:
Net actuarial loss $ 5,880 $ 5,191 $ 593 $ 511
Prior service cost (benefit) 119 129 (76) (92)
Total, before tax effect 5,999 5,320 517 419
Less: Amounts attributed to joint venture partners 54 46 (1) (1)
Net amount recognized, before tax effect $ 5,945 $ 5,274 $ 518 $ 420
Other Changes in Plan Assets and Benefit Obligations Recognized
in Other Comprehensive Loss consist of:
Net actuarial loss $ 1,073 $ 1,216 $ 107 $ 17
Amortization of accumulated net actuarial loss (384) (246) (25) (26)
Prior service cost (benefit) 9 42 - (1)
Amortization of prior service (cost) benefit (19) (19) 16 17
Total, before tax effect 679 993 98 7
Less: Amounts attributed to joint venture partners 8 10 - (1)
Net amount recognized, before tax effect $ 671 $ 983 $ 98 $ 8
* At December 31, 2012, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were
$11,521, $8,437, and $(3,084), respectively. At December 31, 2011, the benefit obligation, fair value of plan assets, and
funded status for U.S. pension plans were $10,702, $7,988, and $(2,714), respectively.
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Pension Plan Benefit Obligations
Pension benefits
2012 2011
The projected benefit obligation and accumulated benefit obligation for all defined benefit
pension plans was as follows:
Projected benefit obligation $14,751 $13,526
Accumulated benefit obligation 14,186 13,025
The aggregate projected benefit obligation and fair value of plan assets for pension plans with
projected benefit obligations in excess of plan assets was as follows:
Projected benefit obligation 13,973 12,828
Fair value of plan assets 10,142 9,470
The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets was as follows:
Accumulated benefit obligation 13,421 12,184
Fair value of plan assets 10,123 9,281
Components of Net Periodic Benefit Cost
Pension benefits
(1)
Other postretirement benefits
(2)
2012 2011 2010 2012 2011 2010
Service cost $ 186 $ 165 $ 148 $ 14 $ 17 $ 20
Interest cost 639 678 682 131 158 174
Expected return on plan assets (808) (806) (787) - (2) (7)
Recognized net actuarial loss 384 247 181 25 26 33
Amortization of prior service cost (benefit) 19 19 17 (16) (17) (15)
Settlements
(3)
- 2 2 - - (3)
Curtailments
(4)
- (9) (10) - - -
Net periodic benefit cost
(5)
$ 420 $ 296 $ 233 $154 $182 $202
(1)
In 2012, 2011, and 2010, net periodic benefit cost for U.S pension plans was $288, $190, and $155, respectively.
(2)
In 2012, 2011, and 2010, net periodic benefit cost for other postretirement benefits reflects a reduction of $64, $43, and
$39, respectively, related to the recognition of the federal subsidy awarded under Medicare Part D.
(3)
In all periods presented, settlements were due to the payment of significant lump sum benefits and/or purchases of
annuity contracts.
(4)
In each period presented, curtailments were due to elimination of benefits or workforce reductions (see Note D).
(5)
Amounts attributed to joint venture partners are not included.
Amounts Expected to be Recognized in Net Periodic Benefit Cost
Pension benefits Other postretirement benefits
2013 2013
Net actuarial loss recognition $494 $ 36
Prior service cost (benefit) recognition 19 (18)
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Assumptions
Weighted average assumptions used to determine benefit obligations for U.S. pension and other postretirement benefit
plans were as follows (assumptions for non-U.S plans did not differ materially):
December 31, 2012 2011
Discount rate 4.15% 4.90%
Rate of compensation increase 3.5 3.5
The discount rate is determined using a Company-specific yield curve model (above-median) developed with the
assistance of an external actuary. The cash flows of the plans projected benefit obligations are discounted using a
single equivalent rate derived from yields on high quality corporate bonds, which represent a broad diversification of
issuers in various sectors, including finance and banking, manufacturing, transportation, insurance, and pharmaceutical,
among others. The yield curve model parallels the plans projected cash flows, which have an average duration of 10
years, and the underlying cash flows of the bonds included in the model exceed the cash flows needed to satisfy the
Companys plans obligations multiple times.
The rate of compensation increase is based upon actual experience. For 2013, the rate of compensation increase will be
3.5%, which approximates the five-year average.
Weighted average assumptions used to determine net periodic benefit cost for U.S. pension and other postretirement
benefit plans were as follows (assumptions for non-U.S plans did not differ materially):
2012 2011 2010
Discount rate* 4.90% 5.75% 6.15%
Expected long-term rate of return on plan assets 8.50 8.50 8.75
Rate of compensation increase 3.50 3.50 3.50
* In all periods presented, the respective discount rates were used to determine net periodic benefit cost for most U.S.
pension plans for the full annual period. However, the discount rates for a limited number of plans were updated
during 2011 and 2010 to reflect the remeasurement of these plans due to new union labor agreements, settlements,
and (or) curtailments. The updated discount rates used were not significantly different from the discount rates
presented.
The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan
assets (a four-year average or the fair value at the plan measurement date is used for certain non-U.S. plans). The
process used by management to develop this assumption has expanded from one that relied primarily on historical asset
return information to one that also incorporates forward-looking returns by asset class, as described below.
Prior to developing the expected long-term rate of return for calendar year 2009, management focused on historical
actual returns (annual, 10-year moving, and 20-year moving averages) when developing this assumption. Based on that
process, management utilized 9% for the expected long-term rate of return for several years through 2008. For calendar
year 2009, the expected long-term rate of return was reduced to 8.75% due to lower future expected market returns as a
result of the then global economic downturn. This was supported by the fact that, in 2008, the 10-year moving average
of actual performance fell below 9% for the first time in 20 years, although the 20-year moving average continued to
exceed 9%.
For calendar year 2010, management expanded its process by incorporating expected future returns on current and
planned asset allocations using information from various external investment managers and managements own
judgment. Management considered this forward-looking analysis as well as the historical return information, and
concluded the expected rate of return for calendar 2010 would remain at 8.75%, which was between the 20-year
moving average actual return performance and the estimated future return developed by asset class.
142
For calendar year 2012 and 2011, management again incorporated both actual historical return information and
expected future returns into its analysis. Based on strategic asset allocation changes and estimates of future returns by
asset class, management used 8.50% as its expected long-term rate of return for both years. This rate again falls within
the range of the 20-year moving average of actual performance and the expected future return developed by asset class.
For calendar year 2013, management used the same methodology as it did for 2012 and 2011 and determined that
8.50% will be the expected long-term rate of return.
Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (assumptions for non-
U.S plans did not differ materially):
2012 2011 2010
Health care cost trend rate assumed for next year 6.0% 6.5% 6.5%
Rate to which the cost trend rate gradually declines 4.5% 5.0% 5.0%
Year that the rate reaches the rate at which it is assumed to remain 2017 2016 2015
The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by
Alcoas other postretirement benefit plans. For 2013, a 6.0% trend rate will be used, reflecting managements best
estimate of the change in future health care costs covered by the plans. The plans actual annual health care cost trend
experience over the past three years has ranged from (6.2)% to 3.8%. Management does not believe this three-year
range is indicative of expected increases for future health care costs over the long-term.
Assumed health care cost trend rates have an effect on the amounts reported for the health care plan. A one-percentage
point change in these assumed rates would have the following effects:
1%
increase
1%
decrease
Effect on other postretirement benefit obligations $124 $(114)
Effect on total of service and interest cost components 5 (5)
Plan Assets
Alcoas pension and other postretirement plans investment policy and weighted average asset allocations at
December 31, 2012 and 2011, by asset class, were as follows:
Plan assets
at
December 31,
Asset class Policy range 2012 2011
Equities 2055% 33% 34%
Fixed income 2555% 50 50
Other investments 1535% 17 16
Total 100% 100%
The principal objectives underlying the investment of the pension and other postretirement plans assets are to ensure
that Alcoa can properly fund benefit obligations as they become due under a broad range of potential economic and
financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such
obligations, and broadly diversify investments across and within the capital markets to protect asset values against
adverse movements. Specific objectives for long-term investment strategy include reducing the volatility of pension
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assets relative to pension liabilities and achieving risk factor diversification across the balance of the asset portfolio. A
portion of the assets are matched to the interest rate profile of the benefit obligation through long duration fixed income
investments and exposure to broad equity risk has been decreased and diversified through investments in macro hedge
funds, equity long and short hedge funds, global and emerging market equities, and gold. Investments are further
diversified by strategy, asset class, geography, and sector to enhance returns and mitigate downside risk. A large
number of external investment managers are used to gain broad exposure to the financial markets and to mitigate
manager-concentration risk.
Investment practices comply with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA)
and any other applicable laws and regulations. The use of derivative instruments is permitted where appropriate and
necessary for achieving overall investment policy objectives. Currently, the use of derivative instruments is not
significant when compared to the overall investment portfolio.
In the course of managing the pension and other postretirement plans assets, trustees of the plans loan securities to
brokers/dealers in exchange for a fee. The securities are subsequently returned to the plans in accordance with the
brokerage agreement. In support of these transactions, the brokers/dealers provide collateral, which exceeds the value
of the securities loaned (102%-105%).
The following section describes the valuation methodologies used by the trustees to measure the fair value of pension
and other postretirement benefit plan assets, including an indication of the level in the fair value hierarchy in which
each type of asset is generally classified (see Note X for the definition of fair value and a description of the fair value
hierarchy).
Equities. These securities consist of direct investments in the stock of publicly traded U.S. and non-U.S. companies
and are valued based on the closing price reported in an active market on which the individual securities are traded. As
such, the direct investments are generally classified in Level 1. Also, these securities consist of the plans share of
commingled funds that are invested in the stock of publicly traded companies and are valued at the net asset value of
shares held at December 31. As such, these securities are included in Level 1 if quoted in an active market, otherwise
these investments are included in Level 2. Additionally, these securities include direct investments in short and long
equity hedge funds and private equity (limited partnerships and venture capital partnerships) and are valued by
investment managers based on the most recent financial information available, which typically represents significant
unobservable data. As such, these investments are generally classified as Level 3.
Fixed income. These securities consist of U.S. government debt and are generally valued using quoted prices. As such,
these securities are included in Level 1. Also, these securities include publicly traded U.S. and non-U.S. fixed interest
obligations (principally corporate bonds and debentures) and are valued through consultation and evaluation with
brokers in the institutional market using quoted prices and other observable market data. As such, these investments are
included in Level 2. Additionally, these securities include cash and cash equivalents, which consist of government
securities in commingled funds, and are generally valued using observable market data. As such, these funds are
included in Level 2. Furthermore, these securities consist of commercial and residential mortgage-backed securities
and are valued by investment managers based on the most recent financial information available, which typically
represents significant unobservable data. As such, these investments are generally classified as Level 3.
Other investments. These investments include, among others, exchange traded funds, macro hedge funds, real estate
investment trusts, and direct investments of private real estate. Exchange traded funds, such as gold, and real estate
investment trusts are valued based on the closing price reported in an active market on which the investments are traded, and,
therefore, are included in Level 1. Also, these securities consist of the plans share of commingled funds that are invested in
real estate investment trusts and are valued at the net asset value of shares held at December 31. As such, these securities are
generally included in Level 2. Direct investments of macro hedge funds and private real estate (includes limited partnerships)
are valued by investment managers based on the most recent financial information available, which typically represents
significant unobservable data. As such, these investments are generally classified as Level 3. If fair value is able to be
determined through the use of quoted market prices of similar assets or other observable market data, then the investments
are classified in Level 2.
The fair value methods described above may not be indicative of net realizable value or reflective of future fair values.
Additionally, while Alcoa believes the valuation methods used by the plans trustees are appropriate and consistent
144
with other market participants, the use of different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different fair value measurement at the reporting date.
The following table presents the fair value of pension and other postretirement plans assets classified under the
appropriate level of the fair value hierarchy:
December 31, 2012 Level 1 Level 2 Level 3 Total
Equities:
Equity securities $1,016 $1,196 $ 117 $ 2,329
Short and long equity hedge funds - - 756 756
Private equity - - 550 550
$1,016 $1,196 $1,423 $ 3,635
Fixed income:
Intermediate and long duration government/credit $1,169 $3,689 $ 215 $ 5,073
Other - 507 - 507
$1,169 $4,196 $ 215 $ 5,580
Other investments:
Real estate $ 113 $ 83 $ 377 $ 573
Macro hedge funds - - 796 796
Other 212 - 247 459
$ 325 $ 83 $1,420 $ 1,828
Total $2,510 $5,475 $3,058 $11,043
December 31, 2011 Level 1 Level 2 Level 3 Total
Equities
Equity securities* $ 904 $1,203 $ 110 $ 2,217
Short and long equity hedge funds - - 731 731
Private equity - - 542 542
$ 904 $1,203 $1,383 $ 3,490
Fixed income:
Intermediate and long duration government/credit $1,223 $3,540 $ 211 $ 4,974
Other - 340 - 340
$1,223 $3,880 $ 211 $ 5,314
Other investments:
Real estate $ 97 $ 74 $ 375 $ 546
Macro hedge funds - - 668 668
Other 198 - 123 321
$ 295 $ 74 $1,166 $ 1,535
Total** $2,422 $5,157 $2,760 $10,339
* At December 31, 2011, Level 1 equity securities include $36 of Alcoa common stock related to the January 2011
plan contribution (see Funding and Cash Flows section below).
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**As of December 31, 2011, the total fair value of pension and other postretirement plans assets excludes a net
payable of $20, which represents securities purchased not yet settled less interest and dividends earned on various
investments.
Pension and other postretirement benefit plans assets classified as Level 3 in the fair value hierarchy represent
investments in which the trustees have used significant unobservable inputs in the valuation model. The following table
presents a reconciliation of activity for such investments:
2012 2011
Balance at beginning of year $2,760 $1,499
Realized gains 52 67
Unrealized gains 142 100
Purchases 634 1,221
Sales (538) (124)
Issuances - -
Settlements - -
Foreign currency translation impact 8 (3)
Transfers in and (or) out of Level 3* - -
Balance at end of year $3,058 $2,760
* In 2012 and 2011, there were no transfers of financial instruments into or out of Level 3
Funding and Cash Flows
It is Alcoas policy to fund amounts for pension plans sufficient to meet the minimum requirements set forth in
applicable country benefits laws and tax laws, including the Pension Protection Act of 2006, the Worker, Retiree, and
Employer Recovery Act of 2008, and the Moving Ahead for Progress in the 21
st
Century Act for U.S. plans. From time
to time, Alcoa contributes additional amounts as deemed appropriate. In 2012 and 2011, cash contributions to Alcoas
pension plans were $561 and $336. Also in 2011, Alcoa contributed newly issued shares (see Note R) of its common
stock (valued at $600) to a master trust that holds the assets of certain U.S. defined benefit pension plans in a private
placement transaction. These shares were issued to satisfy the estimated minimum required funding and to provide
additional funding towards maintaining an approximately 80% funded status of Alcoas U.S. pension plans. The
minimum required contribution to pension plans in 2013 is estimated to be $460, of which $140 is for non-U.S. plans.
Benefit payments expected to be paid to pension and other postretirement benefit plans participants and expected
Medicare Part D subsidy receipts are as follows:
Year ended December 31,
Pension
benefits
Gross Other post-
retirement
benefits
Medicare Part D
subsidy receipts
Net Other post-
retirement
benefits
2013 $ 880 $ 285 $ 30 $ 255
2014 870 280 30 250
2015 880 280 30 250
2016 890 275 30 245
2017 910 270 35 235
2018 through 2022 4,620 1,200 170 1,030
$9,050 $2,590 $325 $2,265
Defined Contribution Plans
Alcoa sponsors savings and investment plans in several countries, including the U.S. and Australia. Expenses related to
these plans were $146 in 2012, $139 in 2011, and $119 in 2010. In the U.S., employees may contribute a portion of
their compensation to the plans, and Alcoa matches, mostly in company stock, a portion of these contributions.
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X. Derivatives and Other Financial Instruments
Derivatives. Alcoa is exposed to certain risks relating to its ongoing business operations, including financial, market,
political, and economic risks. The following discussion provides information regarding Alcoas exposure to the risks of
changing commodity prices, interest rates, and foreign currency exchange rates.
Alcoas commodity and derivative activities are subject to the management, direction, and control of the Strategic Risk
Management Committee (SRMC), which is composed of the chief executive officer, the chief financial officer, and
other officers and employees that the chief executive officer selects. The SRMC meets on a periodic basis to review
derivative positions and strategy and reports to Alcoas Board of Directors on the scope of its activities.
The aluminum, energy, interest rate, and foreign exchange contracts are held for purposes other than trading. They are
used primarily to mitigate uncertainty and volatility, and to cover underlying exposures. Alcoa is not involved in
trading activities for energy, weather derivatives, or other nonexchange commodity trading activities.
The fair values and corresponding classifications under the appropriate level of the fair value hierarchy of outstanding
derivative contracts recorded as assets in the accompanying Consolidated Balance Sheet were as follows:
Asset Derivatives Level
December 31,
2012
December 31,
2011
Derivatives designated as hedging instruments:
Prepaid expenses and other current assets:
Aluminum contracts 1 $ 23 $ 51
Aluminum contracts 3 7 5
Interest rate contracts 2 8 8
Other noncurrent assets:
Energy contracts 3 3 2
Total derivatives designated as hedging instruments $ 81 $109
Derivatives not designated as hedging instruments*:
Aluminum contracts 2 $ - $ 1
Aluminum contracts 3 211 -
Foreign exchange contracts 1 1 1
Total derivatives not designated as hedging instruments $541 $ 7
Less margin held**:
Sub-total $ 26 $ 22
Total Asset Derivatives $596 $ 94
* See the Other section within Note X for additional information on Alcoas purpose for entering into derivatives
not designated as hedging instruments and its overall risk management strategies.
**All margin held is in the form of cash and is valued under a Level 1 technique. The levels that correspond to the
margin held in the table above reference the level of the corresponding asset for which it is held. Alcoa elected to net
the margin held against the fair value amounts recognized for derivative instruments executed with the same
counterparties under master netting arrangements.
147
The fair values and corresponding classifications under the appropriate level of the fair value hierarchy of outstanding
derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet were as follows:
Liability Derivatives Level
December 31,
2012
December 31,
2011
Derivatives designated as hedging instruments:
Other current liabilities:
Other noncurrent liabilities and deferred credits:
Total derivatives designated as hedging instruments $622 $653
Derivatives not designated as hedging instruments*:
Embedded credit derivative 3 3 -
Other noncurrent liabilities and deferred credits:
Aluminum contracts 1 - 1
Embedded credit derivative 3 27 28
Total derivatives not designated as hedging instruments $ 57 $ 85
Less margin posted**:
Aluminum contracts 1 $ - $ 1
Total Liability Derivatives $679 $737
* See the Other section within Note X for additional information on Alcoas purpose for entering into derivatives
not designated as hedging instruments and its overall risk management strategies.
**All margin posted is in the form of cash and is valued under a Level 1 technique. The levels that correspond to the
margin posted in the table above reference the level of the corresponding liability for which it is posted. Alcoa
elected to net the margin posted against the fair value amounts recognized for derivative instruments executed with
the same counterparties under master netting arrangements.
The following table shows the net fair values of outstanding derivative contracts at December 31, 2012 and the effect
on these amounts of a hypothetical change (increase or decrease of 10%) in the market prices or rates that existed at
December 31, 2012:
Fair value
asset/(liability)
Index change
of + / - 10%
Aluminum contracts $(85) $111
Embedded credit derivative (30) 3
Energy contracts 3 249
Foreign exchange contracts 1 8
Interest rate contracts 28 1
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from independent sources (observable
inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best
148
information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad
levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are
described below:
Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Level 2Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted
prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally
from or corroborated by observable market data by correlation or other means.
Level 3Inputs that are both significant to the fair value measurement and unobservable.
The following section describes the valuation methodologies used by Alcoa to measure derivative contracts at fair
value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified.
Where appropriate, the description includes details of the valuation models, the key inputs to those models, and any
significant assumptions. These valuation models are reviewed and tested at least on an annual basis.
Derivative contracts are valued using quoted market prices and significant other observable and unobservable inputs.
Such financial instruments consist of aluminum, energy, interest rate, and foreign exchange contracts. The fair values
for the majority of these derivative contracts are based upon current quoted market prices. These financial instruments
are typically exchange-traded and are generally classified within Level 1 or Level 2 of the fair value hierarchy
depending on whether the exchange is deemed to be an active market or not.
For certain derivative contracts whose fair values are based upon trades in liquid markets, such as interest rate swaps,
valuation model inputs can generally be verified through over-the-counter markets and valuation techniques do not
involve significant management judgment. The fair values of such financial instruments are generally classified within
Level 2 of the fair value hierarchy.
Alcoa has other derivative contracts that do not have observable market quotes. For these financial instruments,
management uses significant other observable inputs (e.g., information concerning time premiums and volatilities for
certain option type embedded derivatives and regional premiums for aluminum contracts). For periods beyond the term
of quoted market prices for aluminum, Alcoa uses a model that estimates the long-term price of aluminum by
extrapolating the 10-year London Metal Exchange (LME) forward curve. For periods beyond the term of quoted
market prices for energy, management has developed a forward curve based on independent consultant market
research. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit
considerations. Such adjustments are generally based on available market evidence (Level 2). In the absence of such
evidence, managements best estimate is used (Level 3). If a significant input that is unobservable in one period
becomes observable in a subsequent period, the related asset or liability would be transferred to the appropriate level
classification (1 or 2) in the period of such change.
149
The following table presents Alcoas derivative contract assets and liabilities that are measured and recognized at fair
value on a recurring basis classified under the appropriate level of the fair value hierarchy (there were no transfers in or
out of Levels 1 and 2 during the periods presented):
December 31, 2012 2011
Assets:
Level 1 $ 27 $ 57
Level 2 45 47
Level 3 550 12
Margin held (26) (22)
Total $596 $ 94
Liabilities:
Level 1 $ 15 $ 64
Level 2 26 44
Level 3 638 630
Margin posted - (1)
Total $679 $737
Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which
management has used at least one significant unobservable input in the valuation model. The following tables present a
reconciliation of activity for such derivative contracts:
Assets Liabilities
2012
Aluminum
contracts
Energy
contracts
Aluminum
contracts
Embedded
credit
derivative
Energy
contracts
Opening balanceJanuary 1, 2012 $ 10 $2 $602 $28 $-
Total gains or losses (realized and unrealized)
included in:
Sales (8) - (33) - -
Cost of goods sold (107) - - (1) -
Other income, net 16 - - 3 -
Other comprehensive loss 10 1 39 - -
Purchases, sales, issuances, and settlements* 596 - - - -
Transfers into and (or) out of Level 3* - - - - -
Foreign currency translation 30 - - - -
Closing balanceDecember 31, 2012 $ 547 $3 $608 $30 $-
Change in unrealized gains or losses included in
earnings for derivative contracts held at
December 31, 2012:
Sales $ - $ - $ - $ - $-
Cost of goods sold - - - - -
Other income, net 16 - - 3 -
* In July 2012, two embedded derivatives contained within existing power contracts became subject to derivative
accounting under GAAP (see below). The amount reflected in this table represents the initial fair value of these
embedded derivatives and was classified as an issuance of Level 3 financial instruments. There were no purchases,
sales or settlements of Level 3 financial instruments. Additionally, there were no transfers of financial instruments
into or out of Level 3.
150
Assets Liabilities
2011
Aluminum
contracts
Energy
contracts
Aluminum
contracts
Embedded
credit
derivative
Energy
contracts
Opening balanceJanuary 1, 2011 $ - $ 9 $702 $24 $ 62
Total gains or losses (realized and unrealized)
included in:
Sales - - (63) - -
Cost of goods sold - - - (1) (14)
Other income, net - - - 5 (48)
Other comprehensive loss 5 (7) (37) - -
Purchases, sales, issuances, and settlements** 5 - - - -
Transfers into and (or) out of Level 3** - - - - -
Foreign currency translation - - - - -
Closing balanceDecember 31, 2011 $10 $ 2 $602 $28 $ -
Change in unrealized gains or losses included in
earnings for derivative contracts held at
December 31, 2011:
Sales $ - $ - $ - $ - $ -
Cost of goods sold - - - - -
Other income, net - - - 5 -
**In 2011, there was an issuance of a Level 3 financial instrument related to a natural gas supply contract (see below).
There were no purchases, sales, or settlements of Level 3 financial instruments. Additionally, there were no transfers
of financial instruments into or out of Level 3.
As reflected in the table above, the net unrealized loss on derivative contracts using Level 3 valuation techniques was
$88 and $618 as of December 31, 2012 and 2011, respectively. These losses were mainly attributed to embedded
derivatives in power contracts that index the price of power to the LME price of aluminum. These embedded
derivatives are primarily valued using observable market prices; however, due to the length of the contracts, the
valuation model also requires management to estimate the long-term price of aluminum based upon an extrapolation of
the 10-year LME forward curve. Significant increases or decreases in the actual LME price beyond 10 years would
result in a higher or lower fair value measurement. An increase of actual LME price over the inputs used in the
valuation model will result in a higher cost of power and a corresponding increase to the liability. The embedded
derivatives have been designated as hedges of forward sales of aluminum and related realized gains and losses were
included in Sales on the accompanying Statement of Consolidated Operations.
In July 2012, as provided for in the arrangements, management elected to modify the pricing for two existing power
contracts, which end in 2014 and 2016 (see directly below), for Alcoas two smelters in Australia and the Point Henry
rolling mill in Australia. These contracts contain an LME-linked embedded derivative, which previously was not
recorded as an asset in Alcoas Consolidated Balance Sheet. Beginning on January 1, 2001, all derivative contracts
were required to be measured and recorded at fair value on an entitys balance sheet under GAAP; however, an
exception existed for embedded derivatives upon meeting certain criteria. The LME-linked embedded derivative in
these two contracts met such criteria at that time. Managements election to modify the pricing of these contracts
qualifies as a significant change to the contracts thereby requiring that the contracts now be evaluated under derivative
accounting as if they were new contracts. As a result, Alcoa recorded a derivative asset in the amount of $596 (reflects
the finalization of the valuation model) with an offsetting liability (deferred credit) recorded in Other current and non-
current liabilities. Unrealized gains and losses from the embedded derivative were included in Other (income)
expenses, net on the accompanying Statement of Consolidated Operations, while realized gains and losses were
included in Cost of goods sold on the accompanying Statement of Consolidated Operations as electricity purchases are
made under the contracts. The deferred credit is recognized in Other (income) expenses, net on the accompanying
Statement of Consolidated Operations as power is received over the life of the contracts. The embedded derivative is
151
valued using the probability and interrelationship of future LME prices, Australian dollar to U.S. dollar exchange rates,
and the U.S. consumer price index. Significant increases or decreases in the LME price would result in a higher or
lower fair value measurement. An increase in actual LME price over the inputs used in the valuation model will result
in a higher cost of power and a decrease to the embedded derivative asset.
In 2010, Alcoa entered into derivative contracts that will hedge the anticipated power requirements at Alcoas two
smelters in Australia once the existing contracts expire in 2014 and 2016. These derivatives hedge forecasted power
purchases through December 2036. Beyond the term where market information is available, management has
developed a forward curve, for valuation purposes, based on independent consultant market research. The effective
portion of gains and losses on these contracts were recorded in Other comprehensive (loss) income on the
accompanying Consolidated Balance Sheet until the designated hedge periods begin in 2014 and 2016. Once the hedge
periods begin, realized gains and losses will be recorded in Cost of goods sold. Significant increases or decreases in the
power market may result in a higher or lower fair value measurement. Higher prices in the power market would cause
the derivative asset to increase in value.
Also, Alcoa has a six-year natural gas supply contract, which has an LME-linked ceiling. This contract is valued using
probabilities of future LME aluminum prices and the price of Brent crude oil (priced on Platts), including the
interrelationships between the two commodities subject to the ceiling. Any change in the interrelationship would result
in a higher or lower fair value measurement. An LME ceiling was embedded into the contract price to protect against
an increase in the price of oil without a corresponding increase in the price of LME. An increase in oil prices with no
similar increase in the LME price would limit the increase of the price paid for natural gas. At inception, this contract
had a fair value of $5. Unrealized gains and losses from this contract were included in Other (income) expenses, net on
the accompanying Statement of Consolidated Operations, while realized gains and losses will be included in Cost of
goods sold on the accompanying Statement of Consolidated Operations as gas purchases are made under the contract.
Additionally, an embedded derivative in a power contract that indexes the difference between the long-term debt
ratings of Alcoa and the counterparty from any of the three major credit rating agencies is included in Level 3.
Management uses market prices, historical relationships, and forecast services to determine fair value. Significant
increases or decreases in any of these inputs would result in a lower or higher fair value measurement. A wider credit
spread between Alcoa and the counterparty would result in an increase of the future liability and a higher cost of
power. Realized gains and losses for this embedded derivative were included in Cost of goods sold on the
accompanying Statement of Consolidated Operations and unrealized gains and losses were included in Other (income)
expenses, net on the accompanying Statement of Consolidated Operations.
Furthermore, included within Level 3 measurements are derivative financial instruments that hedge the cost of electricity.
Transactions involving on-peak power are observable as there is an active market. However, there are certain off-peak
times when there is not an actively traded market for electricity. Therefore, management utilizes market prices, historical
relationships, and various forecast services to determine the fair value. Management utilized these same valuation
techniques for an existing power contract associated with a smelter in the U.S. that no longer qualified for the normal
purchase normal sale exception under derivative accounting in late 2009. Unrealized gains and losses for this physical
power contract were included in Other (income) expenses, net on the accompanying Statement of Consolidated
Operations, while realized gains and losses were included in Cost of goods sold on the accompanying Statement of
Consolidated Operations. Additionally, a financial contract related to the same U.S. smelter utilized by management to
hedge the price of electricity of the aforementioned power contract no longer qualified for cash flow hedge accounting
near the end of 2009. Realized gains and losses of this financial contract were included in Cost of goods sold on the
accompanying Statement of Consolidated Operations. In periods prior to January 1, 2010, unrealized gains and losses
were included in Other comprehensive (loss) income; in periods subsequent to December 31, 2009, such changes were
included in Other (income) expenses, net on the accompanying Statement of Consolidated Operations. Both the physical
power contract and the financial contract related to this U.S. smelter expired in September 2011.
152
The following table presents quantitative information for Level 3 derivative contracts:
Fair value at
December 31, 2012*
Valuation
technique
Unobservable
input
Range
($ in full amounts)
Assets:
Aluminum contract $ 2 Discounted cash flow Interrelationship of
future aluminum and
oil prices
Aluminum: $2,037 per
metric ton in 2013 to
$2,542 per metric ton
in 2018
Oil: $90 to $111 per
barrel
Aluminum contract 537 Discounted cash flow Interrelationship of
future aluminum
prices, foreign
currency exchange
rates, and the U.S.
consumer price index
(CPI)
Aluminum: $2,046 per
metric ton in 2013 to
in 2016
Foreign currency:
A$1 = $1.03 in 2013 to
$0.94 in 2016
CPI: 1982 base year of
100 and 232 in 2013 to
254 in 2016
Energy contracts 3 Discounted cash flow Price of electricity
beyond forward curve
$78 per megawatt hour
in 2013 to $170 per
megawatt hour in 2036
Liabilities:
Aluminum
contracts
600 Discounted cash flow Price of aluminum
beyond forward curve
in 2023 to $3,002 per
metric ton in 2027
Embedded credit
derivative
30 Discounted cash flow Credit spread between
Alcoa and
counterparty
1.63% to 1.91%
(1.77% median)
* The fair value of aluminum contracts reflected as assets and liabilities in this table are both lower by $8 compared to
the respective amounts reflected in the Level 3 reconciliation presented above. This is due to the fact that Alcoa has
a contract that is in an asset position for the current portion but is in a liability position for the long-term portion, and
is reflected as such on the accompanying Consolidated Balance Sheet. However, this contract is reflected as a net
liability in this table for purposes of presenting the fair value technique and assumptions utilized to measure the
contract as a whole.
153
Fair Value Hedges
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well
as the loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The gain or
loss on the hedged items are included in the same line items as the loss or gain on the related derivative contracts as
follows (there were no contracts that ceased to qualify as a fair value hedge in any of the periods presented):
Derivatives in Fair Value
Hedging Relationships
Location of Gain or (Loss)
Recognized in Earnings on Derivatives
Amount of Gain or (Loss)
2012 2011 2010
Aluminum contracts* Sales $ (9) $(126) $ 38
Interest rate contracts Interest expense 10 64 90
Total $ 1 $ (62) $ 128
Hedged Items in Fair
Value Hedging
Relationships
Recognized in Earnings on Hedged
Items
Recognized in Earnings on Hedged Items
2012 2011 2010
Aluminum contracts Sales $ (9) $ 133 $ (41)
Interest rate contracts Interest expense (10) (31) (62)
Total $(19) $ 102 $(103)
* In 2012, 2011, and 2010, the amount of gain or (loss) recognized in earnings represents $(18), $7, and $(3),
respectively, related to the ineffective portion of the hedging relationships.
Aluminum. Alcoa is a leading global producer of primary aluminum and fabricated aluminum products. As a
condition of sale, customers often require Alcoa to enter into long-term, fixed-price commitments. These commitments
expose Alcoa to the risk of fluctuating aluminum prices between the time the order is committed and the time that the
order is shipped. Alcoas aluminum commodity risk management policy is to manage, principally through the use of
futures and contracts, the aluminum price risk associated with a portion of its firm commitments. These contracts cover
known exposures, generally within three years. As of December 31, 2012, Alcoa had 386 kmt of aluminum futures
designated as fair value hedges. The effects of this hedging activity will be recognized over the designated hedge
periods in 2013 to 2016.
Interest Rates. Alcoa uses interest rate swaps to help maintain a strategic balance between fixed- and floating-rate
debt and to manage overall financing costs. As of December 31, 2012, the Company had pay floating, receive fixed
interest rate swaps that were designated as fair value hedges. These hedges effectively convert the interest rate from
fixed to floating on $200 of debt through 2018. In January 2012, interest rate swaps with a notional amount of $315
expired in conjunction with the repayment of 6% Notes, due 2012 (see Note K).
In 2011, Alcoa terminated interest rate swaps with a notional amount of $550 in conjunction with the early retirement
of the related debt (see Note K). At the time of termination, the swaps were in-the-money resulting in a gain of $33,
which was recorded in Interest expense on the accompanying Statement of Consolidated Operations. In 2010, Alcoa
terminated all or a portion of various interest rate swaps with a notional amount of $825 in conjunction with the early
retirement of the related debt. At the time of termination, the swaps were in-the-money resulting in a gain of $28,
which was recorded in Interest expense on the accompanying Statement of Consolidated Operations.
154
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss
on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative
representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are
recognized in current earnings.
Derivatives in Cash
Flow Hedging
Relationships
Amount of Gain or
(Loss) Recognized in
OCI on Derivatives
(Effective Portion)
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)*
Location of Gain
or (Loss)
Recognized in
Earnings on
Derivatives
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing)
Amount of Gain or
(Loss) Recognized
in Earnings on
Derivatives
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing)**
2012 2011 2010 2012 2011 2010 2012 2011 2010
Aluminum contracts $(10) $72 $ (6) Sales $36 $(114) $(106) Other (income)
expenses, net
$(1) $2 $-
Energy contracts - (3) (10) Cost of goods sold - (8) (25) Other (income)
expenses, net
- - -
Foreign exchange
contracts
- 1 (3) Sales - 4 (6) Other (income)
expenses, net
- - -
Interest rate contracts - (2) (1) Interest expense (2) - (1) Other (income)
expenses, net
- - -
Interest rate contracts (2) (5) (1) Other (income)
expenses, net
- (3) - Other (income)
expenses, net
- - -
Total $(12) $63 $(21) $34 $(121) $(138) $(1) $2 $-
* Assuming market rates remain constant with the rates at December 31, 2012, a loss of $23 is expected to be
recognized in earnings over the next 12 months.
**In 2012 and 2011, the amount of gain or (loss) recognized in earnings represents $(1) and $3, respectively, related to
the amount excluded from the assessment of hedge effectiveness. There was also $(1) and less than $1 recognized in
earnings related to the ineffective portion of the hedging relationships in 2011 and 2010, respectively.
Aluminum and Energy. Alcoa anticipates the continued requirement to purchase aluminum and other commodities, such as
electricity and natural gas, for its operations. Alcoa enters into forwards, futures, and options contracts to reduce volatility in
the price of these commodities. Alcoa has also entered into power supply and other contracts that contain pricing provisions
related to the LME aluminum price. The LME-linked pricing features are considered embedded derivatives. A majority of
these embedded derivatives have been designated as cash flow hedges of future sales of aluminum.
In 2010, Alcoa entered into contracts to hedge the anticipated power requirements at two smelters in Australia. These
derivatives hedge forecasted power purchases through December 2036.
Interest Rates. Alcoa had no outstanding cash flow hedges of interest rate exposures as of December 31, 2012, 2011
or 2010. An investment accounted for on the equity method by Alcoa has entered into interest rate contracts, which are
designated as cash flow hedges. Alcoas share of the activity of these cash flow hedges is reflected in the table above.
Foreign Exchange. Alcoa is subject to exposure from fluctuations in foreign currency exchange rates. Contracts may
be used from time to time to hedge the variability in cash flows from the forecasted payment or receipt of currencies
other than the functional currency. These contracts cover periods consistent with known or expected exposures through
2013.
155
Alcoa had the following outstanding forward contracts that were entered into to hedge forecasted transactions:
December 31, 2012 2011
Aluminum contracts (kmt) 1,120 1,294
Energy contracts:
Electricity (megawatt hours) 100,578,295 100,578,295
Natural gas (million British thermal units) 19,160,000 -
Foreign exchange contracts $ 71 $ -
Other
Alcoa has certain derivative contracts that do not qualify for hedge accounting treatment and, therefore, the fair value
gains and losses on these contracts are recorded in earnings as follows:
Derivatives Not Designated as Hedging
Instruments
Recognized in Earnings
on Derivatives
2012 2011 2010
Aluminum contracts Sales $ - $(13) $ 5
Aluminum contracts Other (income)
expenses, net
16 13 (18)
Embedded credit derivative Other (income)
expenses, net
(3) (5) (2)
Energy contract Other (income)
expenses, net
- 47 (23)
Foreign exchange contracts Other (income)
expenses, net
- (3) 6
Total $13 $ 39 $(32)
The aluminum contracts relate to derivatives (recognized in Sales) and embedded derivatives (recognized in Other
(income) expenses, net) entered into to minimize Alcoas price risk related to other customer sales and certain pricing
arrangements.
The embedded credit derivative relates to a power contract that indexes the difference between the long-term debt
ratings of Alcoa and the counterparty from any of the three major credit rating agencies. If the counterpartys lowest
credit rating is greater than one rating category above Alcoas credit ratings, an independent investment banker would
be consulted to determine a hypothetical interest rate for both parties. The two interest rates would be netted and the
resulting difference would be multiplied by Alcoas equivalent percentage of the outstanding principal of the
counterpartys debt obligation as of December 31 of the year preceding the calculation date. This differential would be
added to the cost of power in the period following the calculation date.
The energy contract is associated with a smelter in the U.S. for a power contract that no longer qualified for the normal
purchase normal sale exception and a financial contract that no longer qualified as a hedge under derivative accounting
in late 2009. Alcoas obligations under the contracts expired in September 2011.
Alcoa has a forward contract to purchase $58 (C$58) to mitigate the foreign currency risk related to a Canadian-
denominated loan due in 2014. All other foreign exchange contracts were entered into and settled within each of the
periods presented.
156
Material Limitations
The disclosures with respect to commodity prices, interest rates, and foreign currency exchange risk do not take into
account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis,
the gains or losses on the futures contracts may be offset. Actual results will be determined by a number of factors that
are not under Alcoas control and could vary significantly from those factors disclosed.
Alcoa is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, as well as
credit or performance risk with respect to its hedged customers commitments. Although nonperformance is possible,
Alcoa does not anticipate nonperformance by any of these parties. Contracts are with creditworthy counterparties and
are further supported by cash, treasury bills, or irrevocable letters of credit issued by carefully chosen banks. In
addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and
losses on these contracts.
Other Financial Instruments. The carrying values and fair values of Alcoas other financial instruments were as
follows:
December 31,
2012 2011
Carrying
value
Fair
value
Carrying
value
Fair
value
Cash and cash equivalents $1,861 $1,861 $1,939 $1,939
Restricted cash 189 189 25 25
Noncurrent receivables 20 20 30 30
Available-for-sale securities 67 67 92 92
Short-term borrowings 53 53 62 62
Commercial paper - - 224 224
Long-term debt due within one year 465 465 445 445
Long-term debt, less amount due within one year 8,311 9,028 8,640 9,274
The following methods were used to estimate the fair values of other financial instruments:
Cash and cash equivalents, Restricted cash, Short-term borrowings, Commercial paper, and Long-term debt
due within one year. The carrying amounts approximate fair value because of the short maturity of the instruments.
The fair value amounts for Cash and cash equivalents, Restricted cash, and Commercial paper were classified in Level
1; Short-term borrowings were classified in Level 2; and Long-term debt due within one year was classified in Level 1
of the fair value hierarchy for public debt ($422) and Level 2 of the fair value hierarchy for non-public debt ($43).
Noncurrent receivables. The fair value of noncurrent receivables was based on anticipated cash flows, which
approximates carrying value, and was classified in Level 2 of the fair value hierarchy.
Available-for-sale securities. The fair value of such securities was based on quoted market prices. These financial
instruments consist of exchange-traded fixed income and equity securities, which are carried at fair value and were
classified in Level 1 of the fair value hierarchy.
Long-term debt, less amount due within one year. The fair value was based on quoted market prices for public debt
and on interest rates that are currently available to Alcoa for issuance of debt with similar terms and maturities for non-
public debt. At December 31, 2012 and 2011, $8,456 and $8,576, respectively, was classified in Level 1 of the fair
value hierarchy for public debt and $572 and $698, respectively, was classified in Level 2 of the fair value hierarchy
for non-public debt.
Y. Subsequent Events
Management evaluated all activity of Alcoa and concluded that no subsequent events have occurred that would require
recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial
Statements.
157
Supplemental Financial Information (unaudited)
Quarterly Data
First Second Third Fourth Year
2012
Sales $6,006 $5,963 $5,833 $5,898 $23,700
Income (loss) from continuing operations $ 94 $ (2) $ (143) $ 242 $ 191
Loss from discontinued operations - - - - -
Net income (loss) $ 94 $ (2) $ (143) $ 242 $ 191
Earnings per share attributable to Alcoa common shareholders*:
Basic:
Income (loss) from continuing operations $ 0.09 $ - $ (0.13) $ 0.23 $ 0.18
Net income (loss) $ 0.09 $ - $ (0.13) $ 0.23 $ 0.18
Diluted:
Income (loss) from continuing operations $ 0.09 $ - $ (0.13) $ 0.21 $ 0.18
Net income (loss) $ 0.09 $ - $ (0.13) $ 0.21 $ 0.18
2011
Sales $5,958 $6,585 $6,419 $5,989 $24,951
Income (loss) from continuing operations $ 309 $ 326 $ 172 $ (193) $ 614
(Loss) income from discontinued operations (1) (4) - 2 (3)
Net income (loss) $ 308 $ 322 $ 172 $ (191) $ 611
Earnings per share attributable to Alcoa common shareholders*:
Basic:
(Loss) income from discontinued operations - (0.01) - - (0.01)
Net income (loss) $ 0.29 $ 0.30 $ 0.16 $ (0.18) $ 0.57
Diluted:
(Loss) income from discontinued operations - - - - -
Net income (loss) $ 0.27 $ 0.28 $ 0.15 $ (0.18) $ 0.55
* Per share amounts are calculated independently for each period presented; therefore, the sum of the quarterly per
share amounts may not equal the per share amounts for the year.
158
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Alcoas Chief Executive Officer and Chief Financial Officer have evaluated the Companys disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the
period covered by this report, and they have concluded that these controls and procedures are effective.
(b) Managements Annual Report on Internal Control over Financial Reporting
Managements Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Form 10-K
beginning on page 80.
(c) Attestation Report of the Registered Public Accounting Firm
The effectiveness of Alcoas internal control over financial reporting as of December 31, 2012 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is
included in Part II, Item 8 of this Form 10-K on page 81.
(d) Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the fourth quarter of 2012, that have
materially affected, or are reasonably likely to materially affect, the Companys internal control over financial
reporting.
Item 9B. Other Information.
None.
159
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 401 of Regulation S-K regarding directors is contained under the caption
Item 1Election of Directors of the Proxy Statement and is incorporated by reference. The information required by
Item 401 of Regulation S-K regarding executive officers is set forth in Part I, Item 1 of this report under Executive
Officers of the Registrant.
The information required by Item 405 of Regulation S-K is contained under the caption Section 16(a) Beneficial
Ownership Reporting Compliance of the Proxy Statement and is incorporated by reference.
The Companys Code of Ethics for the CEO, CFO and Other Financial Professionals is publicly available on the
Companys Internet website at http://www.alcoa.com under the section About AlcoaCorporate Governance. The
remaining information required by Item 406 of Regulation S-K is contained under the captions Corporate
Governance and Corporate GovernanceBusiness Conduct Policies and Code of Ethics of the Proxy Statement and
is incorporated by reference.
The information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is included under the captions
Item 1Election of DirectorsNominating Board CandidatesProcedure and Director Qualifications and
Corporate GovernanceCommittees of the BoardAudit Committee of the Proxy Statement and is incorporated by
reference.
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K is contained under the captions Director Compensation,
Executive Compensation (excluding the information under the caption Compensation Committee Report), and
Corporate GovernanceRecovery of Incentive Compensation of the Proxy Statement. Such information is
incorporated by reference.
The information required by Items 407(e)(4) and (e)(5) of Regulation S-K is contained under the captions Corporate
GovernanceCompensation Committee Interlocks and Insider Participation and Executive
CompensationCompensation Committee Report of the Proxy Statement. Such information (other than the
Compensation Committee Report, which shall not be deemed to be filed) is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 201(d) of Regulation S-K relating to securities authorized for issuance under equity
compensation plans is contained under the caption Equity Compensation Plan Information of the Proxy Statement
and is incorporated by reference.
The information required by Item 403 of Regulation S-K is contained under the captions Alcoa Stock
OwnershipStock Ownership of Certain Beneficial Owners and Stock Ownership of Directors and Executive
Officers of the Proxy Statement and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 of Regulation S-K is contained under the captions Executive Compensation
(excluding the information under the caption Compensation Committee Report), Corporate GovernanceDirector
Independence and Related Person Transactions of the Proxy Statement and is incorporated by reference.
The information required by Item 407(a) of Regulation S-K regarding director independence is contained under the
captions Item 1Election of Directors and Corporate Governance of the Proxy Statement and is incorporated by
reference.
160
Item 14. Principal Accounting Fees and Services.
The information required by Item 9(e) of Schedule 14A is contained under the captions Item 2Ratification of the
Appointment of the Independent Registered Public Accounting FirmReport of the Audit Committee and Audit
and Non-Audit Fees of the Proxy Statement and in Attachment A (Pre-Approval Policies and Procedures for Audit
and Non-Audit Services) thereto and is incorporated by reference.
161
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The consolidated financial statements and exhibits listed below are filed as part of this report.
(1) The Companys consolidated financial statements, the notes thereto and the report of the
Independent Registered Public Accounting Firm are on pages 81 through 158 of this report.
(2) Financial statement schedules have been omitted because they are not applicable, not required,
or the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits.
Exhibit
Number Description*
3(a). Articles of the Registrant as amended May 7, 2012, incorporated by reference to exhibit 3(a) to the
Companys Current Report on Form 8-K dated May 10, 2012.
3(b). By-Laws of the Registrant, as amended effective September 27, 2012, incorporated by reference to
exhibit 3 to the Companys Current Report on Form 8-K dated October 3, 2012.
4(a). Articles. See Exhibit 3(a) above.
4(b). By-Laws. See Exhibit 3(b) above.
4(c). Form of Indenture, dated as of September 30, 1993, between Alcoa Inc. and The Bank of New York
Trust Company, N.A., as successor to J. P. Morgan Trust Company, National Association (formerly
Chase Manhattan Trust Company, National Association), as successor Trustee to PNC Bank,
National Association, as Trustee (undated form of Indenture incorporated by reference to exhibit 4(a)
to Registration Statement No. 33-49997 on Form S-3).
4(c)(1). First Supplemental Indenture, dated as of January 25, 2007, between Alcoa Inc. and The Bank of
New York Trust Company, N.A., as successor to J.P. Morgan Trust Company, National Association
(formerly Chase Manhattan Trust Company, National Association), as successor Trustee to PNC Bank,
National Association, as Trustee, incorporated by reference to exhibit 99.4 to the Companys Current
Report on Form 8-K (Commission file number 1-3610) dated January 25, 2007.
4(c)(2). Second Supplemental Indenture, dated as of July 15, 2008, between Alcoa Inc. and The Bank of
New York Mellon Trust Company, N.A., as successor in interest to J. P. Morgan Trust Company,
National Association (formerly Chase Manhattan Trust Company, National Association, as successor
to PNC Bank, National Association), as Trustee, incorporated by reference to exhibit 4(c) to the
Companys Current Report on Form 8-K dated July 15, 2008.
4(c)(3). Third Supplemental Indenture, dated as of March 24, 2009, between Alcoa Inc. and The Bank of
New York Mellon Trust Company, N.A., as successor in interest to J.P. Morgan Trust Company,
National Association (formerly Chase Manhattan Trust Company, National Association, as successor
to PNC Bank, National Association), as Trustee, incorporated by reference to exhibit 4.2 to the
Companys Current Report on Form 8-K dated March 24, 2009.
4(d). Form of 5.55% Notes Due 2017, incorporated by reference to exhibit 4(d) to the Companys Annual
Report on Form 10-K for the year ended December 31, 2008.
4(e). Form of 5.90% Notes Due 2027, incorporated by reference to exhibit 4(d) to the Companys Annual
162
4(f). Form of 5.95% Notes Due 2037, incorporated by reference to exhibit 4(d) to the Companys Annual
4(g). Form of 6.00% Notes Due 2013, incorporated by reference to exhibit 4(a) to the Companys Current
Report on Form 8-K dated July 15, 2008.
4(h). Form of 6.75% Notes Due 2018, incorporated by reference to exhibit 4(b) to the Companys Current
Report on Form 8-K dated July 15, 2008.
4(i). Form of 5.25% Convertible Notes due 2014, incorporated by reference to exhibit 4.1 to the Companys
Current Report on Form 8-K dated March 24, 2009.
4(j). Form of 6.150% Notes due 2020, incorporated by reference to exhibit 4 to the Companys Current
Report on Form 8-K dated August 3, 2010.
4(k). Form of 5.40% Notes due 2021, incorporated by reference to Exhibit 4 to the Companys Current
Report on Form 8-K, dated April 21, 2011.
4(l). Alcoa Retirement Savings Plan for Fastener Systems Employees, incorporated by reference to
exhibit 4(e) to the Companys Form S-8 Registration Statement dated July 27, 2012.
4(m). Alcoa Retirement Savings Plan for Bargaining Employees, incorporated by reference to exhibit 4(d) to
the Companys Form S-8 Registration Statement dated July 27, 2012.
4(n). Alcoa Retirement Savings Plan for Salaried Employees, incorporated by reference to exhibit 4(c) to the
Companys Form S-8 Registration Statement dated July 27, 2012.
4(o). Alcoa Retirement Savings Plan for Hourly Non-Bargaining Employees, incorporated by reference to
exhibit 4(c) to the Companys Post-Effective Amendment No. 6 to Form S-8 Registration Statement
dated November 30, 2010.
10(a). Alcoas Summary of the Key Terms of the AWAC Agreements, incorporated by reference to
exhibit 99.2 to the Companys Current Report on Form 8-K (Commission file number 1-3610) dated
November 28, 2001.
10(b). Charter of the Strategic Council executed December 21, 1994, incorporated by reference to
November 28, 2001.
10(c). Amended and Restated Limited Liability Company Agreement of Alcoa Alumina & Chemicals, L.L.C.
dated as of December 31, 1994, incorporated by reference to exhibit 99.4 to the Companys Current
Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001.
10(d). Shareholders Agreement dated May 10, 1996 between Alcoa International Holdings Company and
WMC Limited, incorporated by reference to exhibit 99.5 to the Companys Current Report on
Form 8-K (Commission file number 1-3610) dated November 28, 2001.
10(e). Side Letter of May 16, 1995 clarifying transfer restrictions, incorporated by reference to exhibit 99.6 to
the Companys Current Report on Form 8-K (Commission file number 1-3610) dated November 28,
2001.
10(f). Enterprise Funding Agreement, dated September 18, 2006, between Alcoa Inc., certain of its affiliates
and Alumina Limited, incorporated by reference to exhibit 10(f) to the Companys Annual Report on
Form 10-K (Commission file number 1-3610) for the year ended December 31, 2006.
163
10(f)(1). Amendments to Enterprise Funding Agreement, effective January 25, 2008, between Alcoa Inc.,
certain of its affiliates and Alumina Limited, incorporated by reference to exhibit 10(f)(1) to the
Companys Annual Report on Form 10-K (Commission file number 1-3610) for the year ended
December 31, 2007.
10(g). Five-Year Revolving Credit Agreement, dated as of July 25, 2011, among Alcoa Inc., the Lenders and
Issuers named therein, Citibank, N.A., as Administrative Agent for the Lenders and Issuers, and
JPMorgan Chase Bank, N.A., as Syndication Agent, incorporated by reference to exhibit 10 to the
Companys Current Report on Form 8-K dated July 28, 2011.
10(g)(1). Extension Request, dated as of November 28, 2012, to Five-Year Revolving Credit Agreement by
Alcoa Inc. to Citibank, N.A., as Administrative Agent, and Consents to Extension Request executed by
the Lenders listed therein.
10(h). Aluminum Project Framework Shareholders Agreement, dated December 20, 2009, between Alcoa
Inc. and Saudi Arabian Mining Company (Maaden), incorporated by reference to exhibit 10(i) to the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.
10(h)(1). First Supplemental Agreement, dated March 30, 2010, to the Aluminium Project Framework
Shareholders Agreement, dated December 20, 2009, between Saudi Arabian Mining Company
(Maaden) and Alcoa Inc., incorporated by reference to exhibit 10(c) to Companys Quarterly Report
on Form 10-Q for the quarter ended March 31, 2010.
10(i). Closing Memorandum, dated December 20, 2009, between Alcoa Inc. and Aluminum Financing
Limited, incorporated by reference to exhibit 10(j) to the Companys Annual Report on Form 10-K for
the year ended December 31, 2009.
10(i)(1). Parent Guarantee, dated December 20, 2009, between Abdullah Abunayyan Trading Corp. and Alcoa
Inc., incorporated by reference to exhibit 10(j)(1) to the Companys Annual Report on Form 10-K for
10(i)(2). Parent Guarantee, dated December 20, 2009, between Alcoa Inc. and Aluminum Financing Limited,
incorporated by reference to exhibit 10(j)(2) to the Companys Annual Report on Form 10-K for the
year ended December 31, 2009.
10(j). Purchase Agreement, dated March 30, 2010, between Alcoa Inc., Aluminum Financing Limited, and
Abdullah Abunayyan Trading Corp., incorporated by reference to exhibit 10(d) to Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.
10(k). Settlement Agreement, dated as of October 9, 2012, by and between Aluminium Bahrain B.S.C.,
Alcoa Inc., Alcoa World Alumina LLC, and William Rice, incorporated by reference to exhibit 10(a)
to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.
10(l). Employees Excess Benefits Plan, Plan A, incorporated by reference to exhibit 10(b) to the Companys
Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31,
1980.
10(l)(1). Amendments to Employees Excess Benefits Plan, Plan A, effective January 1, 2000, incorporated by
reference to exhibit 10(b)(1) to the Companys Annual Report on Form 10-K (Commission file
number 1-3610) for the year ended December 31, 2000.
10(l)(2). Amendments to Employees Excess Benefits Plan, Plan A, effective January 1, 2002, incorporated by
reference to exhibit 10(j)(2) to the Companys Annual Report on Form 10-K (Commission file
164
10(l)(3). Amendments to Employees Excess Benefits Plan, Plan A, effective December 31, 2007, incorporated
by reference to exhibit 10(j)(3) to the Companys Annual Report on Form 10-K (Commission file
10(l)(4). Amendments to Employees Excess Benefits Plan, Plan A, effective December 29, 2008, incorporated
by reference to exhibit 10(j)(4) to Companys Annual Report on Form 10-K for the year ended
December 31, 2008.
10(l)(5). Amendment to Employees Excess Benefits Plan A, effective December 18, 2009, incorporated by
reference to exhibit 10(m)(5) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2009.
10(l)(6). Amendment to Employees Excess Benefits Plan A, effective January 1, 2011, incorporated by
reference to exhibit 10(n)(6) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2010.
10(l)(7). Amendments to Employees Excess Benefits Plan A, effective January 1, 2012, incorporated by
reference to exhibit 10(l)(7) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2011.
10(m). Alcoa Internal Revenue Code Section 162(m) Compliant Annual Cash Incentive Compensation Plan,
incorporated by reference to Attachment D to the Companys Definitive Proxy Statement on
Form DEF 14A, filed March 7, 2011.
10(n). 2004 Summary Description of the Alcoa Incentive Compensation Plan, incorporated by reference to
exhibit 10(g) to the Companys Quarterly Report on Form 10-Q (Commission file number 1-3610) for
the quarter ended September 30, 2004.
10(n)(1). Incentive Compensation Plan of Alcoa Inc., as revised and restated effective November 8, 2007,
incorporated by reference to exhibit 10(k)(1) to the Companys Annual Report on Form 10-K
(Commission file number 1-3610) for the year ended December 31, 2007.
10(n)(2). Amendment to Incentive Compensation Plan of Alcoa Inc., effective December 18, 2009, incorporated
by reference to exhibit 10(n)(2) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2009.
10(o). Employees Excess Benefits Plan, Plan C, as amended and restated effective December 31, 2007,
incorporated by reference to exhibit 10(l) to the Companys Annual Report on Form 10-K
10(o)(1). Amendments to Employees Excess Benefits Plan, Plan C, effective December 29, 2008, incorporated
by reference to exhibit 10(l)(1) to Companys Annual Report on Form 10-K for the year ended
December 31, 2008.
10(o)(2). Amendment to Employees Excess Benefits Plan C, effective December 18, 2009, incorporated by
reference to exhibit 10(o)(2) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2009.
10(o)(3). Amendment to Employees Excess Benefits Plan C, effective January 1, 2011, incorporated by
reference to exhibit 10(p)(3) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2010.
10(o)(4). Amendments to Employees Excess Benefits Plan C, effective January 1, 2012, incorporated by
reference to exhibit 10(o)(4) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2011.
165
10(p). Deferred Fee Plan for Directors, as amended effective July 9, 1999, incorporated by reference to
exhibit 10(g)(1) to the Companys Quarterly Report on Form 10-Q (Commission file number 1-3610)
for the quarter ended June 30, 1999.
10(q). Restricted Stock Plan for Non-Employee Directors, as amended effective March 10, 1995,
incorporated by reference to exhibit 10(h) to the Companys Annual Report on Form 10-K
10(q)(1). Amendment to Restricted Stock Plan for Non-Employee Directors, effective November 10, 1995,
incorporated by reference to exhibit 10(h)(1) to the Companys Annual Report on Form 10-K
10(r). Description of Changes to Non-Employee Director Compensation and Stock Ownership Guidelines,
effective January 1, 2011, incorporated by reference to exhibit 10(b) to Companys Quarterly Report
on Form 10-Q for the quarter ended September 30, 2010.
10(s). Fee Continuation Plan for Non-Employee Directors, incorporated by reference to exhibit 10(k) to the
December 31, 1989.
10(s)(1). Amendment to Fee Continuation Plan for Non-Employee Directors, effective November 10, 1995,
incorporated by reference to exhibit 10(i)(1) to the Companys Annual Report on Form 10-K
10(s)(2). Second Amendment to the Fee Continuation Plan for Non-Employee Directors, effective
September 15, 2006, incorporated by reference to exhibit 10.2 to the Companys Current Report on
Form 8-K (Commission file number 1-3610) dated September 20, 2006.
10(t). Deferred Compensation Plan, as amended effective October 30, 1992, incorporated by reference to
exhibit 10(k) to the Companys Annual Report on Form 10-K (Commission file number 1-3610) for
10(t)(1). Amendments to Deferred Compensation Plan, effective January 1, 1993, February 1, 1994 and
January 1, 1995, incorporated by reference to exhibit 10(j)(1) to the Companys Annual Report on
10(t)(2). Amendment to Deferred Compensation Plan, effective June 1, 1995, incorporated by reference to
exhibit 10(j)(2) to the Companys Annual Report on Form 10-K (Commission file number 1-3610) for
10(t)(3). Amendment to Deferred Compensation Plan, effective November 1, 1998, incorporated by reference to
10(t)(4). Amendments to Deferred Compensation Plan, effective January 1, 1999, incorporated by reference to
exhibit 10(q)(6) to the Companys Annual Report on Form 10-K (Commission file number 1-3610) for
166
10(t)(7). Amendments to Deferred Compensation Plan, effective November 1, 2007 incorporated by reference
to exhibit 10(p)(7) to the Companys Annual Report on Form 10-K (Commission file number 1-3610)
for the year ended December 31, 2007.
10(t)(8). Amendments to Deferred Compensation Plan, effective December 29, 2008, incorporated by reference
to exhibit 10(p)(8) to the Companys Annual Report on Form 10-K for the year ended December 31,
2008.
10(t)(9). Amendment to Deferred Compensation Plan, effective April 1, 2009, incorporated by reference to
exhibit 10(s)(9) to the Companys Annual Report on Form 10-K for the year ended December 31,
2009.
10(t)(10). Amendment to Deferred Compensation Plan, effective December 18, 2009, incorporated by reference
to exhibit 10(s)(10) to the Companys Annual Report on Form 10-K for the year ended December 31,
2009.
10(t)(11). Amendment to Deferred Compensation Plan, effective January 1, 2011, incorporated by reference to
exhibit 10(u)(11) to the Companys Annual Report on Form 10-K for the year ended December 31,
2010.
10(t)(12). Amendment to Amendment to Deferred Compensation Plan, effective January 1, 2011, incorporated
by reference to exhibit 10(u)(11) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2010, effective January 1, 2011.
10(t)(13). Amendment to Deferred Compensation Plan, effective January 1, 2013.
10(u). Summary of the Executive Split Dollar Life Insurance Plan, dated November 1990, incorporated by
reference to exhibit 10(m) to the Companys Annual Report on Form 10-K (Commission file
10(v). Amended and Restated Dividend Equivalent Compensation Plan, effective January 1, 1997,
incorporated by reference to exhibit 10(h) to the Companys Quarterly Report on Form 10-Q
(Commission file number 1-3610) for the quarter ended September 30, 2004.
10(w). Form of Indemnity Agreement between the Company and individual directors or officers, incorporated
by reference to exhibit 10(j) to the Companys Annual Report on Form 10-K (Commission file
10(x). 2004 Alcoa Stock Incentive Plan, as amended through November 11, 2005, incorporated by reference
to exhibit 10.1 to the Companys Current Report on Form 8-K (Commission file number 1-3610) dated
November 16, 2005.
10(y). 2009 Alcoa Stock Incentive Plan, incorporated by reference to Attachment C to the Companys
Definitive Proxy Statement on Form DEF 14A filed March 16, 2009.
10(y)(1). Amended and Restated 2009 Alcoa Stock Incentive Plan, dated February 15, 2011, incorporated by
reference to exhibit 10(z)(1) to the Companys Annual Report on Form 10-K for the year ended
December 31, 2010.
10(z). Terms and Conditions for Special Retention Awards under the 2009 Alcoa Stock Incentive Plan,
effective January 1, 2010, incorporated by reference to exhibit 10(e) to Companys Quarterly Report
on Form 10-Q for the quarter ended March 31, 2010.
10(aa). Alcoa Supplemental Pension Plan for Senior Executives, as amended and restated effective
December 31, 2007, incorporated by reference to exhibit 10(u) to the Companys Annual Report on
167
10(aa)(1). Amendment to Alcoa Supplemental Pension Plan for Senior Executives, effective December 29, 2008,
incorporated by reference to exhibit 10(u)(1) to Companys Annual Report on Form 10-K for the year
ended December 31, 2008.
incorporated by reference to exhibit 10(y)(2) to the Companys Annual Report on Form 10-K for the
incorporated by reference to exhibit 10(y)(3) to the Companys Annual Report on Form 10-K for the
10(aa)(4). Amendment to Alcoa Supplemental Pension Plan for Senior Executives, effective January 1, 2011,
incorporated by reference to exhibit 10(bb)(4) to the Companys Annual Report on Form 10-K for the
10(aa)(5). Amendments to Alcoa Supplemental Pension Plan for Senior Executives, effective January 1, 2012,
incorporated by reference to exhibit 10(aa)(5) to the Companys Annual Report on Form 10-K for the
10(bb). Deferred Fee Estate Enhancement Plan for Directors, effective July 10, 1998, incorporated by
reference to exhibit 10(r) to the Companys Annual Report on Form 10-K (Commission file
10(cc). Alcoa Inc. Change in Control Severance Plan, as amended and restated effective November 8, 2007,
incorporated by reference to exhibit 10(x) to the Companys Annual Report on Form 10-K
10(cc)(1). Amendment to Alcoa Inc. Change in Control Severance Plan, effective December 16, 2009,
incorporated by reference to exhibit 10(bb)(1) to the Companys Annual Report on Form 10-K for the
10(dd). Form of Agreement for Stock Option Awards, effective January 1, 2004, incorporated by reference to
exhibit 10(a) to the Companys Quarterly Report on Form 10-Q (Commission file number 1-3610) for
10(ee). Form of Agreement for Stock Awards, effective January 1, 2004, incorporated by reference to
exhibit 10(b) to the Companys Quarterly Report on Form 10-Q (Commission file number 1-3610) for
10(ff). Form of Agreement for Performance Share Awards, effective January 1, 2004, incorporated by
reference to exhibit 10(c) to the Companys Quarterly Report on Form 10-Q (Commission file
number 1-3610) for the quarter ended September 30, 2004.
10(gg). Stock Option Award Rules, revised January 1, 2004, incorporated by reference to exhibit 10(d) to the
Companys Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended
September 30, 2004.
10(hh). Stock Awards Rules, effective January 1, 2004, incorporated by reference to exhibit 10(e) to the
Companys Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended
September 30, 2004.
10(ii). Performance Share Awards Rules, effective January 1, 2004, incorporated by reference to exhibit 10(f)
to the Companys Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter
ended September 30, 2004.
168
10(jj). 2005 Deferred Fee Plan for Directors, as amended, effective January 17, 2013.
10(kk). Global Pension Plan, effective January 1, 1998, incorporated by reference to exhibit 10(jj) to the
December 31, 2004.
10(kk)(1). Amendments to Global Pension Plan, incorporated by reference to exhibit 10(jj)(1) to the Companys
2004.
10(kk)(2). Amendments to Global Pension Plan, effective January 1, 2005, incorporated by reference to
exhibit 10(gg)(2) to the Companys Annual Report on Form 10-K (Commission file number 1-3610)
10(kk)(3). Amendments to Global Pension Plan, effective December 1, 2005, incorporated by reference to
exhibit 10(gg)(3) to the Companys Annual Report on Form 10-K (Commission file number 1-3610)
exhibit 10(ff)(4) to the Companys Annual Report on Form 10-K for the year ended December 31,
2008.
10(kk)(5). Amendments to Global Pension Plan, effective July 1, 2009, incorporated by reference to exhibit
10(jj)(5) to the Companys Annual Report on Form 10-K for the year ended December 31, 2009.
exhibit 10(jj)(6) to the Companys Annual Report on Form 10-K for the year ended December 31,
2009.
10(kk)(7). Amendment to Global Pension Plan, effective January 1, 2011, incorporated by reference to exhibit
10(mm)(7) to the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
10(kk)(8). Amendment to Global Pension Plan, effective January 1, 2011.
10(ll). Executive Severance Agreement, as amended and restated effective December 8, 2008, between
Alcoa Inc. and Klaus Kleinfeld, incorporated by reference to exhibit 10(gg) to the Companys Annual
10(ll)(1). Executive Severance Agreement, as amended and restated effective December 8, 2008, between
Alcoa Inc. and Charles D. McLane, Jr., incorporated by reference to exhibit 10(gg)(2) to the
10(ll)(2). Form of Executive Severance Agreement between the Company and new officers entered into after
July 22, 2010, incorporated by reference to exhibit 10(a) to Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2010.
10(mm). Summary of 2013 Non-Employee Director Compensation and Stock Ownership Guidelines.
10(nn). Form of Award Agreement for Stock Options, effective January 1, 2006, incorporated by reference to
November 16, 2005.
10(oo). Form of Award Agreement for Stock Awards, effective January 1, 2006, incorporated by reference to
November 16, 2005.
169
10(pp). Form of Award Agreement for Performance Share Awards, effective January 1, 2006, incorporated by
reference to exhibit 10.4 to the Companys Current Report on Form 8-K (Commission file
number 1-3610) dated November 16, 2005.
10(qq). Form of Award Agreement for Performance Stock Options, effective January 1, 2006, incorporated by
reference to exhibit 10.5 to the Companys Current Report on Form 8-K (Commission file
number 1-3610) dated November 16, 2005.
10(rr). Form of Award Agreement for Stock Options, effective May 8, 2009, incorporated by reference to
exhibit 10.2 to the Companys Current Report on Form 8-K dated May 13, 2009.
10(ss). Terms and Conditions for Stock Options, effective January 1, 2011, incorporated by reference to
exhibit 10(c) to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.
10(tt). Form of Award Agreement for Restricted Share Units, effective May 8, 2009, incorporated by
reference to exhibit 10.3 to the Companys Current Report on Form 8-K dated May 13, 2009.
10(uu). Terms and Conditions for Restricted Share Units, effective January 1, 2011, incorporated by reference
to exhibit 10(b) to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.
10(vv). Summary Description of Equity Choice Program for Performance Equity Award Participants, dated
November 2005, incorporated by reference to exhibit 10.6 to the Companys Current Report on
Form 8-K (Commission file number 1-3610) dated November 16, 2005.
10(ww). Reynolds Metals Company Benefit Restoration Plan for New Retirement Program, as amended
through December 31, 2005, incorporated by reference to exhibit 10(rr) to the Companys Annual
Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2005.
10(ww)(1). Amendments to the Reynolds Metals Company Benefit Restoration Plan for New Retirement Program,
effective December 18, 2009, incorporated by reference to exhibit 10(tt)(1) to the Companys Annual
10(ww)(2). Amendments to the Reynolds Metals Company Benefit Restoration Plan for New Retirement Program,
effective January 1, 2012, incorporated by reference to exhibit 10(xx)(2) to the Companys Annual
10(xx). Global Expatriate Employee Policy (pre-January 1, 2003), incorporated by reference to exhibit 10(uu)
to the Companys Annual Report on Form 10-K (Commission file number 1-3610) for the year ended
December 31, 2005.
10(yy). Form of Special Retention Stock Award Agreement, effective July 14, 2006, incorporated by reference
to exhibit 10.3 to the Companys Current Report on Form 8-K (Commission file number 1-3610) dated
September 20, 2006.
10(zz). Omnibus Amendment to Rules and Terms and Conditions of all Awards under the 2004 Alcoa Stock
Incentive Plan, effective January 1, 2007, incorporated by reference to exhibit 10(tt) to the Companys
2007.
10(aaa). Letter Agreement, dated August 14, 2007, between Alcoa Inc. and Klaus Kleinfeld, incorporated by
reference to exhibit 10(b) to the Companys Quarterly Report on Form 10-Q (Commission file
number 1-3610) for the quarter ended September 30, 2007.
10(bbb). Employment Offer Letter, dated April 2, 2012, between Alcoa Inc. and Audrey Strauss, incorporated
by reference to exhibit 10(b) to the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2012.
170
10(ccc). Director Plan: You Make a Difference Award, incorporated by reference to exhibit 10(uu) to the
10(ddd). Form of Award Agreement for Stock Options, effective January 1, 2010, incorporated by reference to
exhibit 10(ddd) to the Companys Annual Report on Form 10-K for the year ended December 31,
2009.
12. Computation of Ratio of Earnings to Fixed Charges.
21. Subsidiaries of the Registrant.
23. Consent of Independent Registered Public Accounting Firm.
24. Power of Attorney for certain directors.
31. Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95. Mine Safety Disclosure.
101. INS XBRL Instance Document.
101. SCH XBRL Taxonomy Extension Schema Document.
101. CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101. DEF XBRL Taxonomy Extension Definition Linkbase Document.
101. LAB XBRL Taxonomy Extension Label Linkbase Document.
101. PRE XBRL Taxonomy Extension Presentation Linkbase Document.
* Exhibit Nos. 10(l) through 10(ddd) are management contracts or compensatory plans required to be filed as Exhibits
to this Form 10-K.
Amendments and modifications to other Exhibits previously filed have been omitted when in the opinion of the
registrant such Exhibits as amended or modified are no longer material or, in certain instances, are no longer required
to be filed as Exhibits.
No other instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries have been filed
as Exhibits because no such instruments met the threshold materiality requirements under Regulation S-K. The
registrant agrees, however, to furnish a copy of any such instruments to the Commission upon request.
171
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALCOA INC.
February 19, 2013 By
Graeme W. Bottger
Vice President and Controller
(Also signing as Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
Klaus Kleinfeld
Chairman and Chief Executive Officer
(Principal Executive Officer and Director)
February 19, 2013
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
February 19, 2013
Arthur D. Collins, Jr., Kathryn S. Fuller, Judith M. Gueron, Michael G. Morris, E. Stanley ONeal, James W. Owens,
Patricia F. Russo, Sir Martin Sorrell, Ratan N. Tata and Ernesto Zedillo, each as a Director, on February 19, 2013, by
Graeme W. Bottger, their Attorney-in-Fact.*
*By
Graeme W. Bottger
Attorney-in-Fact
172
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions, except ratios)
For the year ended December 31, 2012 2011 2010 2009 2008
Earnings:
Income (loss) from continuing operations before income taxes $324 $1,063 $ 548 $(1,498) $ 792
Noncontrolling interests share of earnings of majority-owned
subsidiaries without fixed charges - - - - -
Equity income (99) (127) (54) (17) (130)
Fixed charges added to earnings 533 568 532 508 452
Distributed income of less than 50 percent-owned persons 101 100 33 56 81
Amortization of capitalized interest:
Consolidated 44 43 39 30 26
Proportionate share of 50 percent-owned persons - - - - -
Total earnings $903 $1,647 $1,098 $ (921) $1,221
Fixed Charges:
Interest expense:
Consolidated $490 $ 524 $ 494 $ 470 $ 407
Proportionate share of 50 percent-owned persons - - - - 1
490 524 494 470 408
Amount representative of the interest factor in rents:
43 44 38 38 44
Fixed charges added to earnings 533 568 532 508 452
Interest capitalized:
93 102 96 165 169
Preferred stock dividend requirements of majority-owned
subsidiaries - - - - -
Total fixed charges $626 $ 670 $ 628 $ 673 $ 621
Ratio of earnings to fixed charges 1.4 2.5 1.7 (A) 2.0
(A) For the year ended December 31, 2009, there was a deficiency of earnings to cover the fixed charges of $1,594.
173
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
(As of December 31, 2012)
Name
State or
Country of
Organization
Alcoa Domestic LLC Delaware
Alcoa Securities Corporation Delaware
Howmet International Inc. Delaware
Howmet Holdings Corporation Delaware
Howmet Corporation Delaware
Howmet Castings & Services, Inc. Delaware
Alcoa International Holdings Company Delaware
Alcoa Australian Holdings Pty. Ltd. Australia
Alcoa of Australia Limited
1
Australia
Alcoa of Australia Rolled Products Pty. Ltd. Australia
Alcoa (China) Investment Company Ltd. China
Alcoa Luxembourg S. r.l. Luxembourg
Alcoa slandi ehf Iceland
Alcoa Fjaral sf Iceland
Alcoa Inversiones Espaa S.L. Spain
Alcoa Alumnio S.A. Brazil
Alcoa World Alumina Brasil Ltda.
1
Brazil
Estreito Energia S.A. Brazil
Alcoa Holding GmbH Germany
Alcoa Inespal, S.A. Spain
Almina Espaola, S.A.
1
Spain
Alumnio Espaol, S.A. Spain
Alcoa Inversiones Internacionales S.L. Spain
Alcoa-Kfm Kft Hungary
Alcoa Rus Investment Holdings LLC Russia
ZAO Alcoa Metallurg Rus Russia
ZAO Alcoa SMZ Russia
Alcoa Servizi S.r.L. Italy
Alcoa Trasformazioni S.r.L. Italy
Alcoa Transformacin de Productos, S.L. Spain
Alcoa Nederland B.V. Netherlands
Howmet SAS France
Alcoa Holding France SAS France
Norsk Alcoa Holdings AS Norway
Norsk Alcoa AS Norway
ACC-Norway, LLC Michigan
Alcoa Norway ANS Norway
Alcoa UK Holdings Limited United Kingdom
Alcoa Manufacturing (G.B.) Limited United Kingdom
Alcoa Power Generating Inc.
2
Tennessee
Alcoa World Alumina LLC
1,3
Delaware
Alcoa Minerals of Jamaica, L.L.C.
1
Delaware
Alumax Inc. Delaware
Alumax Mill Products, Inc. Delaware
Aluminerie Lauralco, Inc. Delaware
Alcoa-Lauralco Management Company Nova Scotia
Laqmar Qubec G.P. Qubec
Alcoa-Aluminerie de Deschambault L.P. Qubec
Cordant Technologies Holding Company Delaware
Alcoa Global Fasteners, Inc. Delaware
Huck International, Inc. Delaware
Reynolds Metals Company Delaware
Alcoa Aluminium Deutschland, Inc. Delaware
Alcoa GmbH Germany
Reynolds Bcancour, Inc. Delaware
Reynolds International, Inc. Delaware
RMCC Company Delaware
Alcoa Canada Ltd. Qubec
Alcoa Ltd. Qubec
The names of particular subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute, as of
the end of the year covered by this report, a significant subsidiary as that term is defined in Regulation S-X under the Securities Exchange Act of
1934.
1
Owned directly or indirectly 60% by the registrant and 40% by Alumina Limited.
2
Registered to do business in Tennessee under the name APG Trading, in Indiana under the name of AGC, in North Carolina under the name of
Yadkin, in New York under the name of Long Sault and in Washington under the name of Colockum.
3
Registered to do business in Alabama, Arkansas, California, Florida, Georgia, Louisiana, North Carolina, Pennsylvania and Texas under the
name of Alcoa World Chemicals.
174
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-172327),
Form S-4 (No. 333-141419), and Form S-8 (Nos. 33-60305, 333-27903, 333-62663, 333-79575, 333-32516,
333-36208, 333-37740, 333-39708, 333-106411, 333-128445, 333-146330, 333-153369, 333-155668, 333-159123,
333-168428, 333-170801, and 333-182899) of Alcoa Inc. and its subsidiaries of our report dated February 15, 2013
relating to the Alcoa Inc. consolidated financial statements and the effectiveness of internal control over financing
reporting, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 15, 2013
175
Exhibit 31
Certifications
I, Klaus Kleinfeld, certify that:
1. I have reviewed this annual report on Form 10-K of Alcoa Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: February 19, 2013
Name: Klaus Kleinfeld
Title: Chairman and Chief Executive Officer
176
Certifications
I, Charles D. McLane, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Alcoa Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: February 19, 2013
Name: Charles D. McLane, Jr.
Title: Executive Vice President and Chief Financial
Officer
177
Exhibit 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of
Title 18, United States Code), each of the undersigned officers of Alcoa Inc., a Pennsylvania corporation (the
Company), does hereby certify that:
The Annual Report on Form 10-K for the year ended December 31, 2012 (the Form 10-K) of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: February 19, 2013
Name: Klaus Kleinfeld
Title: Chairman and Chief Executive Officer
Dated: February 19, 2013
Name: Charles D. McLane, Jr.
Title: Executive Vice President and Chief Financial
Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging,
or otherwise adopting the signature that appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the
Form 10-K and shall not be considered filed as part of the Form 10-K.
178
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11-Year Summary of Financial and Other Data (unaudited)
(dollars in millions, except ingot prices and per-share amounts)
Operating Results
Sales $ 23,700 $ 24,951 $ 21,013
Cost of goods sold (exclusive of expenses below) 20,486 20,480 17,174
Selling, general administrative, and other expenses 997 1,027 961
Research and development expenses 197 184 174
Provision for depreciation, depletion, and amortization 1,460 1,479 1,450
Restructuring and other charges 87 281 207
Interest expense 490 524 494
Other income (expenses), net 341 87 (5)
Provision (benefit) for income taxes 162 255 148
(Loss) income from discontinued operations - (3) (8)
Cumulative effect of accounting changes
(1)
- - -
Net (loss) income attributable to noncontrolling interests (29) 194 138
Net income (loss) attributable to Alcoa 191 611 254
Income (loss) from continuing operations attributable to Alcoa 191 614 262
Ingot Prices
Alcoas average realized price per metric ton of aluminum $ 2,327 $ 2,636 $ 2,356
LME average cash price per metric ton of aluminum 2,019 2,398 2,173
LME average three-month price per metric ton of aluminum 2,050 2,422 2,198
Operating Data (thousands of metric tons)
Alumina shipments 9,295 9,218 9,246
Aluminum product shipments:
Primary
(2)
3,030 2,953 2,819
Fabricated and finished products 2,167 2,084 1,938
Total 5,197 5,037 4,757
Primary aluminum capacity:
Consolidated 4,227 4,518 4,518
Nameplate
(3)
4,784 5,075 5,075
Primary aluminum production:
Consolidated 3,742 3,775 3,586
Nameplate
(3)
4,259 4,304 4,111
Financial Position
Cash and cash equivalents $ 1,861 $ 1,939 $ 1,543
Properties, plants, and equipment, net
(4)
18,947 19,282 20,072
Total assets 40,179 40,120 39,293
Total debt 8,829 9,371 9,165
Noncontrolling interests 3,324 3,351 3,475
Total shareholders equity 13,199 13,844 13,611
Cash Flows
Cash provided from operations $ 1,497 $ 2,193 $ 2,261
Capital expenditures
(5)
1,261 1,287 1,015
Common Share Data
Estimated number of shareholders
(6)
318,000 319,000 325,000
Common stock outstanding end of year (thousands) 1,067,212 1,064,412 1,022,026
Basic earnings per share
(7)
$ 0.18 $ 0.57 $ 0.25
Diluted earnings per share
(7)
0.18 0.55 0.24
Dividends declared per share 0.12 0.12 0.12
Book value per share
(8)
12.32 12.96 13.26
Price range: High 10.92 18.47 17.60
Low 7.98 8.45 9.81
Other Data
Number of employees 61,000 61,000 59,000
(1)
Reflects the cumulative effect of the accounting change for conditional asset retirement obligations in 2005, asset retirement
obligations in 2003, and goodwill in 2002.
(2)
Primary aluminum product shipments are not synonymous with aluminum shipments of the Primary Metals segment, as a
portion of this segments aluminum shipments relate to fabricated products.
(3)
Nameplate is equivalent to the sum of Consolidated capacity or production, the joint venture partners share of capacity or
production from certain smelters majority-owned by Alcoa, and Alcoas share of capacity or production of 50-percent or less
owned smelters.
(4)
Properties, plants, and equipment, net was revised for all periods presented to reflect the movement of the Tapoco Hydroelectric
Power Project to held for sale classification (see Note B to the Consolidated Financial Statements in Part II Item 8 of Alcoas
2012 Form 10-K).
2009 2008 2007 2006 2005 2004 2003 2002
$ 18,439 $ 26,901 $ 29,280 $ 28,950 $ 24,149 $ 21,370 $ 18,879 $ 17,691
16,902 22,175 22,803 21,955 19,339 16,796 14,866 13,910
1,009 1,167 1,444 1,372 1,267 1,171 1,154 1,001
169 246 238 201 181 169 177 195
1,311 1,234 1,244 1,252 1,227 1,142 1,110 1,037
237 939 268 507 266 (29) (28) 398
470 407 401 384 339 271 314 350
161 59 1,920 236 478 266 278 175
(574) 342 1,623 853 464 546 367 307
(166) (303) (250) 22 (50) (27) - (101)
- - - - (2) - (47) 34
61 221 365 436 259 233 212 181
(1,151) (74) 2,564 2,248 1,233 1,310 938 420
(985) 229 2,814 2,226 1,285 1,337 985 487
$ 1,856 $ 2,714 $ 2,784 $ 2,665 $ 2,044 $ 1,867 $ 1,543 $ 1,455
1,664 2,572 2,638 2,569 1,898 1,716 1,431 1,350
1,699 2,621 2,661 2,594 1,900 1,721 1,428 1,365
8,655 8,041 7,834 8,420 7,857 8,062 8,101 7,486
3,022 2,902 2,260 2,057 2,124 1,853 1,834 1,912
2,075 2,579 3,133 3,488 3,335 3,208 3,153 3,266
5,097 5,481 5,393 5,545 5,459 5,061 4,987 5,178
4,813 4,531 4,573 4,209 4,004 4,004 4,020 3,948
5,370 5,229 5,285 4,920 4,940 4,955 4,969 4,851
3,564 4,007 3,693 3,552 3,554 3,376 3,508 3,500
4,130 4,710 4,393 4,280 4,406 4,233 4,360 4,318
$ 1,481 $ 762 $ 483 $ 506 $ 762 $ 457 $ 576 $ 344
19,746 17,389 16,580 13,652 11,412 10,463 10,380 9,964
38,472 37,822 38,803 37,149 33,489 32,498 31,709 29,800
9,819 10,578 7,992 7,219 6,519 6,271 7,273 8,451
3,100 2,597 2,460 1,800 1,365 1,416 1,340 1,293
12,420 11,735 16,016 14,631 13,373 13,300 12,075 9,927
$ 1,365 $ 1,234 $ 3,111 $ 2,567 $ 1,676 $ 2,199 $ 2,434 $ 1,844
1,622 3,438 3,636 3,205 2,138 1,143 870 1,273
301,000 292,000 233,000 248,000 271,000 295,000 278,400 273,000
974,379 800,317 827,402 867,740 870,269 870,980 868,491 844,819
$ (1.23) $ (0.10) $ 2.95 $ 2.59 $ 1.41 $ 1.50 $ 1.09 $ 0.49
(1.23) (0.10) 2.94 2.57 1.40 1.49 1.08 0.49
0.26 0.68 0.68 0.60 0.60 0.60 0.60 0.60
12.70 14.60 19.30 16.80 15.30 15.21 13.84 11.69
16.51 44.77 48.77 36.96 32.29 39.44 38.92 39.75
4.97 6.80 28.09 26.39 22.28 28.51 18.45 17.62
59,000 87,000 107,000 123,000 129,000 119,000 120,000 127,000
(5)
Capital expenditures include those associated with discontinued operations.
(6)
These estimates are based on the record date of the annual shareholders meeting held in the year following the year listed and
include registered shareholders and beneficial owners holding stock through banks, brokers, or other nominees.
(7)
Represents earnings per share on net income (loss) attributable to Alcoa common shareholders.
(8)
Book value per share = (Total shareholders equity minus Preferred stock) divided by Common stock outstanding, end of year.
Calculation of Financial Measures (unaudited)
(dollars in millions, except per-share and per metric ton amounts)
Reconciliation of Adjusted Income
Year ended
December 31, 2012
Income Diluted EPS
Net income attributable to Alcoa $ 191 $ 0.18
Loss from discontinued operations
Income from continuing operations attributable to Alcoa 191 0.18
Restructuring and other charges 73
Discrete tax items* (22)
Other special items** 20
Income from continuing operations attributable to Alcoa as adjusted $ 262 0.24
Income from continuing operations attributable to Alcoa as adjusted is a non-GAAP financial measure.
Management believes that this measure is meaningful to investors because management reviews the operating results
of Alcoa excluding the impacts of restructuring and other charges, discrete tax items, and other special items
(collectively, special items). There can be no assurances that additional special items will not occur in future
periods. To compensate for this limitation, management believes that it is appropriate to consider both Income from
continuing operations attributable to Alcoa determined under GAAP as well as Income from continuing operations
attributable to Alcoa as adjusted.
* Discrete tax items include a benefit for a change in the legal structure of an investment ($13); a benefit as a result of
including the then anticipated gain from the sale of the Tapoco Hydroelectric Project in the calculation of the estimated
annual effective tax rate applied to the results for the nine months ended September 30, 2012 ($12); a charge related to
prior year U.S. taxes on certain depletable assets ($8); and a net benefit for other miscellaneous items ($5).
** Other special items include a gain on the sale of the Tapoco Hydroelectric Project ($161: $275 is included in the
Primary Metals segment and $(114) is included in Corporate); a net increase in the environmental reserve related
to the Grasse River remediation in Massena, NY, remediation at two former locations, East St. Louis, IL and
Sherwin, TX, and two new remediation projects at the smelter sites in Baie Comeau, Quebec, Canada and
Mosjen, Norway ($133); a litigation reserve ($33); uninsured losses related to fire damage to the cast house at
the Massena, NY location ($28); interest income on an escrow deposit ($8); and a net favorable change in certain
mark-to-market energy derivative contracts ($5).
Reconciliation of Adjusted EBITDA
Year ended
December 31, 2012
Net income attributable to Alcoa $ 191
Add:
Net loss attributable to noncontrolling interests (29)
Loss from discontinued operations
Provision for income taxes 162
Other income, net (341)
Interest expense 490
Restructuring and other charges 87
Provision for depreciation, depletion, and amortization 1,460
Adjusted EBITDA $ 2,020
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin
plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following
items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and
Provision for depreciation, depletion, and amortization. Adjusted EBITDA is a non-GAAP financial measure.
Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional
information with respect to Alcoas operating performance and the Companys ability to meet its financial obligations.
The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
Reconciliation of Free Cash Flow
Year ended
December 31, 2012
Cash provided from operations $ 1,497
Capital expenditures (1,261)
Free cash flow $ 236
Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors
because management reviews cash flows generated from operations after taking into consideration capital
expenditures due to the fact that these expenditures are considered necessary to maintain and expand Alcoas asset
base and are expected to generate future cash flows from operations. It is important to note that Free Cash Flow does
not represent the residual cash flow available for discretionary expenditures since other non-discretionary
expenditures, such as mandatory debt service requirements, are not deducted from the measure.
Reconciliation of Net Debt
December 31,
2012 2011 2010 2009 2008
Short-term borrowings $ 53 $ 62 $ 92 $ 176 $ 478
Commercial paper 224 1,535
Long-term debt due within one year 465 445 231 669 56
Long-term debt, less amount due within one year 8,311 8,640 8,842 8,974 8,509
Total debt 8,829 9,371 9,165 9,819 10,578
Less: Cash and cash equivalents 1,861 1,939 1,543 1,481 762
Net debt $ 6,968 $ 7,432 $ 7,622 $ 8,338 $ 9,816
Net Debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors
because management assesses Alcoas leverage position after factoring in available cash that could be used to repay
outstanding debt.
Days Working Capital
Quarter ended
December 31, 2012
Receivables from customers, less allowances $ 1,399
Add: Deferred purchase price receivable* 18
Receivables from customers, less allowances, as adjusted 1,417
Add: Inventories 2,825
Less: Accounts payable, trade 2,702
Working capital $ 1,540
Sales $ 5,898
Days working capital 24
Days Working Capital = Working Capital divided by (Sales/number of days in the quarter).
* The deferred purchase price receivable relates to an arrangement to sell certain customer receivables to a financial
institution on a recurring basis. Alcoa is adding back this receivable for the purposes of the Days Working Capital
calculation.
Reconciliation of Alumina Adjusted EBITDA
Year ended December 31, 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
After-tax operating income
(ATOI) $ 315 $ 415 $ 632 $ 682 $ 1,050 $ 956 $ 727 $ 112 $ 301 $ 607 $ 90
Add:
Depreciation, depletion, and
amortization 139 147 153 172 192 267 268 292 406 444 455
Equity (income) loss (1) (1) 2 (1) (7) (8) (10) (25) (5)
Income taxes 130 161 240 246 428 340 277 (22) 60 179 (27)
Other (14) (55) (46) (8) (6) 2 (26) (92) (5) (44) (8)
Adjusted EBITDA $ 569 $ 668 $ 978 $ 1,092 $ 1,666 $ 1,564 $ 1,239 $ 282 $ 752 $ 1,161 $ 505
Production (thousand metric
tons) (kmt) 13,027 13,841 14,343 14,598 15,128 15,084 15,256 14,265 15,922 16,486 16,342
Adjusted EBITDA/Production
($ per metric ton) $ 44 $ 48 $ 68 $ 75 $ 110 $ 104 $ 81 $ 20 $ 47 $ 70 $ 31
Reconciliation of Primary Metals Adjusted EBITDA
ATOI $ 650 $ 657 $ 808 $ 822 $ 1,760 $ 1,445 $ 931 $ (612) $ 488 $ 481 $ 309
Add:
amortization 300 310 326 368 395 410 503 560 571 556 532
Equity (income) loss (44) (55) (58) 12 (82) (57) (2) 26 (1) 7 27
Income taxes 266 256 314 307 726 542 172 (365) 96 92 106
Other (47) 12 20 (96) (13) (27) (32) (176) (7) 2 (422)
Adjusted EBITDA $ 1,125 $ 1,180 $ 1,410 $ 1,413 $ 2,786 $ 2,313 $ 1,572 $ (567) $ 1,147 $ 1,138 $ 552
Production (thousand metric
tons) (kmt) 3,500 3,508 3,376 3,554 3,552 3,693 4,007 3,564 3,586 3,775 3,742
Adjusted EBITDA/Production
($ per metric ton) $ 321 $ 336 $ 418 $ 398 $ 784 $ 626 $ 392 $ (159) $ 320 $ 301 $ 148
Reconciliation of Global Rolled Products Adjusted EBITDA
ATOI $ 225 $ 222 $ 254 $ 278 $ 233 $ 178 $ (3) $ (49) $ 220 $ 266 $ 358
Add:
amortization 184 190 200 220 223 227 216 227 238 237 229
Equity loss 4 1 1 2 3 6
Income taxes 90 71 75 121 58 92 35 48 92 104 167
Other (8) (5) 1 1 20 1 6 (2) 1 1 (2)
Adjusted EBITDA $ 495 $ 479 $ 531 $ 620 $ 536 $ 498 $ 254 $ 224 $ 551 $ 611 $ 758
Total shipments (thousand
metric tons) (kmt) 1,814 1,893 2,136 2,250 2,376 2,482 2,361 1,888 1,755 1,866 1,943
Adjusted EBITDA/Total
shipments ($ per metric ton) $ 273 $ 253 $ 249 $ 276 $ 226 $ 201 $ 108 $ 119 $ 314 $ 327 $ 390
Reconciliation of Engineered Products and Solutions Adjusted EBITDA
ATOI $ 63 $ 124 $ 156 $ 271 $ 365 $ 435 $ 533 $ 315 $ 415 $ 539 $ 612
Add:
amortization 150 166 168 160 152 163 165 177 154 158 158
Equity loss (income) 6 (2) (2) (1)
Income taxes 39 55 65 116 155 192 222 139 195 260 297
Other 35 11 106 (11) (2) (7) 2 1 (1) (8)
Adjusted EBITDA $ 287 $ 356 $ 495 $ 536 $ 676 $ 783 $ 922 $ 630 $ 762 $ 955 $ 1,059
Total sales $ 3,492 $ 3,905 $ 4,283 $ 4,773 $ 5,428 $ 5,834 $ 6,199 $ 4,689 $ 4,584 $ 5,345 $ 5,525
Adjusted EBITDA Margin 8% 9% 12% 11% 12% 13% 15% 13% 17% 18% 19%
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation, depletion, and
amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and
development expenses; and Provision for depreciation, depletion, and amortization. The Other line in the tables above includes gains/losses on asset sales and other
nonoperating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA
provides additional information with respect to Alcoas operating performance and the Companys ability to meet its financial obligations. The Adjusted EBITDA
presented may not be comparable to similarly titled measures of other companies.
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Kevin J. Anton
Vice President
Chief Sustainability Ofcer
Nicholas J. Ashooh
Vice President
Corporate Affairs
Chris L. Ayers
Executive Vice President
Group President, Global Primary
Products
Ronald E. Barin
Vice President
Chief Investment Ofcer, Pension
Plan Investments
Michael T. Barriere
Vice President
Human Resources
John D. Bergen
Vice President
Corporate Projects
Graeme W. Bottger
Vice President and Controller
Julie A. Caponi
Vice President
Internal Audit
Jinya Chen
Vice President
President, Asia Pacic Region
Alan J. Cransberg
Vice President
President, Global Primary Products
Australia
Daniel Cruise
Vice President
Government Affairs and
Business Development
Mark J. Davies
President, Global Business Services
Paula S. Davis
Vice President
President, Alcoa Foundation
Franklin L. Feder
Vice President
Regional Chief Executive Ofcer
Latin America and Caribbean
Peter Hong
Vice President and Treasurer
Olivier M. Jarrault
Group President, Engineered
Products and Solutions
John Kenna
Vice President
Tax
Raymond J. Kilmer
Chief Technology Ofcer
Klaus Kleinfeld
Chairman and Chief
ExecutiveOfcer
Max W. Laun
Vice President
General Counsel
Executive Vice President and
Chief Financial Ofcer
Kay H. Meggers
Group President, Global Rolled
Products
Audrey Strauss
Chief Legal and Compliance
Ofcer and Secretary
Kenneth P. Wisnoski
Vice President
President, Global Primary Products
Growth, Bauxite and Africa
ASSISTANT OFFICERS
Robert S. Collins
Assistant Controller
Janet F. Duderstadt
Group Counsel, Global Rolled
Products and Assistant Secretary
Brenda A. Hart
Assistant General Counsel and
Assistant Secretary
Paul A. Hayes
Assistant Treasurer
Judith L. Nocito
Assistant General Counsel
Director, Global Compliance
Esra Ozer
Director, Executive Communications
and Assistant Secretary
Printed in USA 1303
Form A07-15058
2013 Alcoa
DIRECTORS
(As of February 15, 2013)
Klaus Kleinfeld, Chairman and Chief Executive Ofcer, Alcoa Inc.
Arthur D. Collins, Jr., Former Chairman and Chief Executive Ofcer, Medtronic, Inc.
Kathryn S. Fuller, Chair, Smithsonian National Museum of Natural History
Judith M. Gueron, Scholar in Residence and President Emerita, MDRC
Michael G. Morris, Chairman and Former President and Chief Executive Ofcer, American Electric Power Company, Inc.
E. Stanley ONeal, Former Chairman and Chief Executive Ofcer, Merrill Lynch & Co., Inc.
James W. Owens, Former Chairman and Chief Executive Ofcer, Caterpillar Inc.
Patricia F. Russo, Former Chief Executive Ofcer, Alcatel-Lucent
Sir Martin Sorrell, Founder and Chief Executive Ofcer, WPP plc
Ratan N. Tata, Former Chairman, Tata Sons Limited
Ernesto Zedillo, Director, Yale Center for the Study of Globalization
OFFICERS
(As of February 15, 2013)
ANNUAL MEETING
The annual meeting of shareholders will be at 9:30 a.m. Friday,
May 3, 2013, at the Fairmont Hotel, Pittsburgh, Pennsylvania.
COMPANY NEWS
Visit www.alcoa.com for Securities and Exchange Commission lings,
quarterly earnings reports, and other Company news.
Copies of the annual report and Forms 10-K and 10-Q may be requested
at no cost at www.alcoa.com or by writing to Corporate Communications
at the corporate center address located on the back cover of this report.
INVESTOR INFORMATION
Securities analysts and investors may write to Director Investor Relations,
Alcoa, 390 Park Avenue, New York, NY 10022-4608, call 1 212 836 2674,
or e-mail investor.relations@alcoa.com.
OTHER PUBLICATIONS
For more information on Alcoa Foundation and Alcoa community investments,
visit www.alcoa.com under community or www.alcoafoundation.com.
For Alcoas 2012 Sustainability Report, visit www.alcoa.com/sustainability;
write to Sustainability at the corporate center address located on the back
cover of this report; or e-mail sustainability@alcoa.com.
DIVIDENDS
Alcoas objective is to pay common stock dividends at rates competitive
with other investments of equal risk and consistent with the need to reinvest
earnings for long-term growth. Cash dividend decisions are made by Alcoas
Board of Directors and are reviewed on a regular basis.
DIVIDEND REINVESTMENT
Alcoas transfer agent sponsors and administers a Dividend Reinvestment
and Stock Purchase Plan for shareholders of Alcoa common and preferred
stock. The plan allows shareholders to reinvest all or part of their quarterly
dividends in shares of Alcoa common stock. Shareholders also may purchase
additional shares under the plan with cash contributions.
DIRECT DEPOSIT OF DIVIDENDS
Shareholders may have their quarterly dividends deposited directly to their
checking, savings, or money market accounts at any nancial institution that
participates in the Automated Clearing House system.
SHAREHOLDER INFORMATION
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SHAREHOLDER SERVICES
Shareholders with questions on account balances, dividend checks,
reinvestment, or direct deposit; address changes; lost or misplaced stock
certicates; or other shareholder account matters may contact Alcoas stock
transfer agent, registrar, and dividend disbursing agent, Computershare:
By Telephone:
1 888 985 2058 (in the U.S. and Canada)
1 201 680 6578 (all other calls)
1 800 231 5469 (Telecommunications Device for the Deaf: TDD)
By Internet:
www.computershare.com
By Regular Mail: By Overnight
Correspondence:
Transfer Agent & Registrar
Computershare Shareowner
Services LLC
P.O. Box 43006
Providence, RI 02940-3006
Transfer Agent & Registrar
Computershare Shareowner
Services LLC
250 Royall Street
Canton, MA 02021
For shareholder questions on other matters related to Alcoa, write to Corporate
Secretary, Alcoa, 390 Park Avenue, New York, NY 10022-4608, call 1 212
836 2732, or e-mail corporate.secretary@alcoa.com.
STOCK LISTING
Common: New York Stock Exchange
Ticker symbol: AA
Preferred: New York Stock Exchange Amex
Ticker symbol: AA.PR
QUARTERLY COMMON STOCK INFORMATION
2012 2011
Quarter High Low Dividend High Low Dividend
First $10.92 $10.61 $0.03 $17.75 $15.42 $0.03
Second 10.24 9.97 0.03 18.47 14.56 0.03
Third 9.93 9.78 0.03 16.60 9.56 0.03
Fourth 9.34 7.98 0.03 11.66 8.45 0.03
Year 10.92 7.98 $0.12 18.47 8.45 $0.12
COMMON SHARE DATA
Estimated number
of shareholders*
Common Stock outstanding -
end of year (000)
2012 318,000 1,067,212
2011 319,000 1,064,412
2010 325,000 1,022,026
2009 301,000 974,379
2008 292,000 800,317
* These estimates are based on the record date of the annual shareholders meeting held in
the year following the year listed and include registered shareholders and beneficial owners
holding stock through banks, brokers, or other nominees.
Alcoa Corporate Center
201 Isabella Street Pittsburgh, PA 15212-5858
Telephone: 1 412 553 4545 Fax: 1 412 553 4498
Internet: www.alcoa.com
Alcoa Inc. is incorporated in the Commonwealth of Pennsylvania
Our Values
We live our values every day,
everywhere, collaborating for the benet
of our customers, investors, employees,
communities and partners.
Integrity
We are open, honest
and accountable.
Respect
We treat all people with
dignity and provide a
diverse, inclusive work
environment.
Environment,
Health and Safety
We work safely, promote
wellness, and protect
the environment.
Innovation
We creatively transform
ideas into value. Excellence
We relentlessly pursue
outstanding and
sustainable results.
Our Vision
Alcoa. Advancing each generation.
Designed and Published by Labrador-company.com

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Steady Progress

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ALCOA 2012 Annual Report 5

LEVERAGING THE ALCOA PLATFORM

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