Alcoa Corp - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For The Fiscal Year Ended December 31, 2019

OR

Commission File Number 1-37816

ALCOA CORPORATION

(Exact Name of Registrant as Specified in Charter)

Registrant’s telephone number, including area code: 412-315-2900

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

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 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 (or for such shorter period that the registrant was required to file such reports), 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 every Interactive Data File required to be submitted 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 such files).

  Yes  ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑       Accelerated filer ☐       Non-accelerated filer ☐       Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 Registrant’s voting stock held by non-affiliates at June 28, 2019 was approximately $4.3 billion, based on the closing price per share of Common Stock on June 28, 2019 of $23.41 as reported on the New York Stock Exchange.

As of February 14, 2020, there was 185,915,242 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Documents incorporated by reference.

Part III of this Form 10-K incorporates by reference certain information from the registrant’s Definitive Proxy Statement for its 2020 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A.

TABLE OF CONTENTS

Note on Incorporation by Reference

In this Form 10-K, selected items of information and data are incorporated by reference to portions of Alcoa Corporation’s Definitive Proxy Statement for its 2020 Annual Meeting of Stockholders (Proxy Statement), which will be filed with the Securities and Exchange Commission within 120 days after the end of Alcoa Corporation’s fiscal year ended December 31, 2019. Unless otherwise provided herein, any reference in this Form 10-K to disclosures in the Proxy Statement shall constitute incorporation by reference of only that specific disclosure into this Form 10-K.

Forward-Looking Statements

This report contains statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future financial results or operating performance; statements about strategies, outlook, and business and financial prospects; and statements about return of capital. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (b) deterioration in global economic and financial market conditions generally and which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms; (c) unfavorable changes in the markets served by Alcoa Corporation; (d) the impact of changes in foreign currency exchange and tax rates on costs and results; (e) increases

in energy costs or uncertainty of energy supply; (f) declines in the discount rates used to measure pension liabilities and other postretirement benefits or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding or other postretirement benefits; (g) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, or strengthening of competitiveness and operations anticipated from operational and productivity improvements, cash sustainability, technology advancements, and other initiatives; (h) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, restarts, expansions, or joint ventures; (i) political, economic, trade, legal, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (j) labor disputes and/or work stoppages; (k) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation; (l) the impact of cyberattacks and potential information technology or data security breaches; and (m) the other risk factors discussed in Part I Item 1A of this Form 10-K and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission, including those described in this report.

Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

PART I

Item 1.  Business.

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts; metric tons in thousands (kmt))

The Company

Alcoa Corporation, a Delaware corporation, became an independent, publicly traded company on November 1, 2016, following its separation from its former parent company, Alcoa Inc. (ParentCo or Arconic).  “Regular-way” trading of Alcoa Corporation’s common stock began with the opening of the New York Stock Exchange (NYSE) on November 1, 2016 under the ticker symbol “AA.” Alcoa Corporation’s common stock has a par value of $0.01 per share. Alcoa Corporation’s principal executive office is located in Pittsburgh, Pennsylvania. In this report, unless the context otherwise requires, the terms “Alcoa,” the “Company,” “we,” “us,” and “our” refer to Alcoa Corporation and all subsidiaries consolidated for the purposes of its financial statements.

On September 28, 2015, ParentCo announced its intention to separate ParentCo into two standalone, publicly traded companies (the Separation Transaction). Alcoa Upstream Corporation was formed in Delaware in March 2016 for the purpose of holding ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, as well as ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in the Kingdom of Saudi Arabia (Saudi Arabia) and was renamed Alcoa Corporation in connection with the Separation Transaction.  

Alcoa Corporation entered into certain agreements with Arconic to implement the legal and structural separation between the two companies to govern the relationship between Alcoa Corporation and Arconic after the completion of the Separation Transaction and allocate between Alcoa Corporation and Arconic various assets, liabilities and obligations, including, among other things, employee benefits, environmental liabilities, intellectual property, and tax-related assets and liabilities. These agreements included a Separation and Distribution Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a Transition Services Agreement, and certain Patent, Know-How, Trade Secret License, and Trademark License Agreements.

Alcoa is a global industry leader in bauxite, alumina, and aluminum products. The Company is built on a foundation of strong values and operating excellence dating back over 130 years to the world-changing discovery that made aluminum an affordable and vital part of modern life.  Since developing the aluminum industry, and throughout our history, our talented Alcoans have followed on with breakthrough innovations and best practices that have led to efficiency, safety, sustainability, and stronger communities wherever we operate.

Alcoa is a global company with direct and indirect ownership of 30 operating locations across nine countries. The Company’s operations consist of three reportable business segments: Bauxite, Alumina, and Aluminum. The Bauxite and Alumina segments primarily consist of a series of affiliated operating entities held in Alcoa World Alumina and Chemicals, a global, unincorporated joint venture between Alcoa and Alumina Limited (described below). The Aluminum segment consists of the Company’s aluminum smelting, casting, and rolling businesses, along with the majority of the energy production business.

Aluminum, as an element, is abundant in the Earth’s crust, but a multi-step process is required to make aluminum metal.  Aluminum metal is produced by refining alumina oxide from bauxite into alumina, which is then smelted into aluminum and can be cast and rolled into many shapes and forms. Aluminum is a commodity traded on the London Metal Exchange (LME) and priced daily. Alumina, an intermediary product, is subject to market pricing against the Alumina Price Index (API). As a result, the prices of both aluminum and alumina are subject to significant volatility and, therefore, influence the operating results of Alcoa.

Joint Ventures

Alcoa World Alumina and Chemicals (AWAC)

AWAC is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited, a company incorporated under the laws of the Commonwealth of Australia and listed on the Australian Securities Exchange. AWAC consists of a number of affiliated entities that own, operate or have an interest in bauxite mines and alumina refineries, as well as certain aluminum smelters, in seven countries. Alcoa Corporation owns 60% and Alumina Limited owns 40% of these entities, directly or indirectly, with such entities being consolidated by Alcoa Corporation for financial reporting purposes. The scope of AWAC generally includes the mining of bauxite and other aluminous ores; the refining, production, and sale of non-metallurgical alumina and other alumina-based chemicals; and certain primary aluminum smelting and other facilities.

Alcoa provides the operating management for AWAC, which is subject to direction provided by the Strategic Council of AWAC. The Strategic Council consists of five members, three of whom are appointed by Alcoa (of which one is the Chair),

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and two of whom are appointed by Alumina Limited (of which one is the Deputy Chair). Matters are decided by a majority vote with certain matters requiring approval by at least 80% of the members, including: changes to the scope of AWAC; changes in the dividend policy; equity calls in aggregate greater than $1,000 in any year; sales of all or a majority of the AWAC assets; loans from AWAC companies to Alcoa or Alumina Limited; certain acquisitions, divestitures, expansions, curtailments or closures; certain related-party transactions; financial derivatives, hedges or swap transactions; a decision by AWAC companies to file for insolvency; and changes to pricing formula in certain offtake agreements which may be entered into between AWAC companies and Alcoa or Alumina Limited.

AWAC Operations

AWAC entities’ assets include the following interests:

Exclusivity

Under the terms of their joint venture agreements, Alcoa and Alumina Limited have agreed that, subject to certain exceptions, AWAC is their exclusive vehicle for their investments, operations or participation in the bauxite and alumina business, and they will not compete with AWAC in those businesses. In the event of a change of control of either Alcoa or Alumina Limited, this exclusivity and non-compete restriction will terminate, and the partners will then have opportunities to unilaterally pursue bauxite or alumina projects outside of or within AWAC, subject to certain conditions provided in the Amended and Restated Charter of the Strategic Council.

Equity Calls

The cash flow of AWAC and borrowings are the preferred sources of funding for the needs of AWAC. An equity call can be made on 30 days’ notice, subject to certain limitations, in the event the aggregate annual capital budget of AWAC requires an equity contribution from Alcoa and Alumina Limited.

Dividend Policy

AWAC will generally be required to distribute at least 50% of the prior calendar quarter’s net income of each AWAC company, and certain AWAC companies will also be required to pay a distribution every three months equal to the amount of available cash above specified thresholds and subject to the forecast cash needs of the company.

Leveraging Policy

Debt of AWAC is subject to a limit of 30% of total capital (defined as the sum of debt (net of cash) plus any minority interest plus shareholder equity). The AWAC joint venture has raised a limited amount of debt to fund growth projects as permitted under Alcoa’s revolving credit line, and in accordance with the joint venture partnership agreements.

Saudi Arabia Joint Venture

In December 2009, Alcoa entered into a joint venture with the Saudi Arabian Mining Company (Ma’aden), which was formed by the government of Saudi Arabia to develop its mineral resources and create a fully integrated aluminum complex

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in the Kingdom of Saudi Arabia. Ma’aden is listed on the Saudi Stock Exchange (Tadawul). The complex includes a bauxite mine with a capacity of 4 million dry metric tons per year; an alumina refinery with a capacity of 1.8 million metric tons per year (mtpy); an aluminum smelter with a capacity of ingot, slab and billet of 740,000 mtpy; and a rolling mill with a capacity of 380,000 mtpy.

The joint venture was originally comprised of three entities: the Ma’aden Bauxite and Alumina Company (MBAC), the Ma’aden Aluminium Company (MAC), and the Ma’aden Rolling Company (MRC). Ma’aden owns a 74.9% interest in the MBAC and MAC joint venture. Alcoa owns a 25.1% interest in MAC, which holds the smelter; AWAC holds a 25.1% interest in MBAC, which holds the mine and refinery. In June 2019, the joint venture agreement was amended transferring Alcoa’s 25.1% interest in MRC to Ma’aden, amongst other things. See Note C to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K. The refinery and smelter are located within the Ras Al Khair industrial zone on the east coast of the Kingdom of Saudi Arabia.

Ma’aden and Alcoa Corporation have put and call options, respectively, whereby Ma’aden can require Alcoa Corporation to purchase from Ma’aden, or Alcoa Corporation can require Ma’aden to sell to Alcoa Corporation, a 14.9% interest in MBAC and MAC at the then fair market value. These options, if exercised, must be exercised for the full 14.9% interest in both entities. The amended joint venture agreement defines October 1, 2021 as the date after which Ma’aden and Alcoa Corporation can exercise their put and call options, respectively. The amended joint venture agreement further outlines that these options are exercisable for a period of six-months after October 1, 2021.

The amended joint venture agreement also defines October 1, 2021 as the date after which Alcoa Corporation is permitted to sell all of its shares in both MBAC and MAC collectively, for which Ma’aden has a right of first refusal. Prior to this date, Ma’aden and Alcoa Corporation may not sell, transfer, or otherwise dispose of, pledge, or encumber any interests in the joint venture. Under the amended joint venture agreement, upon the occurrence of an unremedied event of default by Alcoa Corporation, Ma’aden may purchase, or, upon the occurrence of an unremedied event of default by Ma’aden, Alcoa Corporation may sell, its interest in the joint venture for consideration that varies depending on the time of the default.

Others

The Company is party to several other joint ventures and consortia. See details within each business segment discussion below.  

The Aluminerie de Bécancour Inc. (ABI) smelter is a joint venture between Alcoa and Rio Tinto Alcan Inc. (Rio Tinto) located in Bécancour, Québec. Alcoa owns 74.95% of the joint venture through the equity investment in Pechiney Reynolds Quebec, Inc., which owns a 50.1% share of the smelter, and two wholly-owned Canadian subsidiaries, which own 49.9% of the smelter. Rio Tinto owns the remaining 25.05% interest in the joint venture.

Compagnie des Bauxites de Guinée (CBG) is a joint venture between Boké Investment Company (51%) and the Government of Guinea (49%) for the operation of a bauxite mine in the Boké region of Guinea. Boké Investment Company is owned 100% by Halco (Mining) Inc.; AWA LLC holds a 45% interest in Halco.

Mineração Rio do Norte S.A. (MRN) is a joint venture between Alcoa Alumínio (8.58%), AWA Brasil (4.62%) and AWA LLC (5%), each a subsidiary of Alcoa, and affiliates of Rio Tinto (12%), Companhia Brasileira de Alumínio (10%), Vale S.A. (Vale) (40%), South32 (14.8%), and Norsk Hydro (5%) for the operation of a bauxite mine in Porto Trombetas in the state of Pará in Brazil.

Alumar is a joint venture for the operation of a refinery, smelter, and casthouse in Brazil.  The refinery is owned by AWA Brasil (39.96%), Rio Tinto (10%), Alcoa Alumínio (14.04%), and South32 (36%). AWA Brasil is part of the AWAC group of companies and is ultimately owned 60% by Alcoa and 40% by Alumina Limited. With respect to Rio Tinto and South32, the named company or an affiliate thereof holds the interest. The smelter and casthouse are owned by Alcoa Alumínio (60%) and South32 (40%).

Elysis^TM Limited Partnership (Elysis^TM) is a joint venture between the wholly-owned subsidiaries of Alcoa (48.235%) and Rio Tinto (48.235%), respectively, and Investissement Québec (3.53%), a company wholly-owned by the Government of Québec. The purpose of Elysis^TM is to advance larger scale development and commercialization of its patent-protected technology that produces oxygen and eliminates all direct greenhouse gas emissions from the traditional aluminum smelting process.  

Strathcona calciner is a joint venture between affiliates of Alcoa and Rio Tinto. The calciner purchases green coke from the petroleum industry and converts it into calcined coke. The calcined coke is then used as a raw material in an aluminum smelter. Alcoa owns 39% of the joint venture, and Rio Tinto owns the remaining 61% of the joint venture.

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Hydropower

Machadinho Hydro Power Plant (HPP) is a consortium located on the Pelotas River in southern Brazil in which the Company has a 25.8% ownership interest through Alcoa Alumínio.  The remaining ownership interests are held by unrelated third parties.

Barra Grande HPP is a joint venture located on the Pelotas River in southern Brazil in which the Company has a 42.2% ownership interest through Alcoa Alumínio. The remaining ownership interests are held by unrelated third parties.

Estreito HPP is a consortium between Alcoa Alumínio, through Estreito Energia S.A. (25.5%) and unrelated third parties located on the Tocantins River, northern Brazil.

Serra do Facão HPP is a joint venture between Alcoa Alumínio (34.9%) and unrelated third parties located on the Sao Marcos River, central Brazil.

Manicouagan Power Limited Partnership (Manicouagan) is a joint venture between affiliates of Alcoa and Hydro-Québec. Manicouagan owns and operates the 335 megawatt McCormick hydroelectric project, which is located on the Manicouagan River in the Province of Québec. Manicouagan supplies approximately one-quarter of the electricity requirements of Alcoa’s Baie-Comeau, Québec, smelter. Alcoa owns 40% of the joint venture.

Bauxite

This segment consists of the Company’s global bauxite mining operations. Bauxite is the principal raw material used to produce alumina and contains various aluminum hydroxide minerals, the most important of which are gibbsite and boehmite. Bauxite is refined using the Bayer process, the principal industrial chemical process for refining bauxite to produce alumina, a compound of aluminum and oxygen that is the raw material used by smelters to produce aluminum metal. Bauxite is Alcoa’s basic raw material input for its alumina refining process. The Company obtains bauxite from its own resources and from those belonging to AWAC, located in the countries listed in the table below, as well as pursuant to both long-term and short-term contracts and mining leases. Tons of bauxite are reported on a zero-moisture basis as dry metric tons (dmt) unless otherwise stated.

Alcoa processes most of the bauxite that it mines into alumina and sells the remainder to third parties. In 2019, Alcoa-operated mines produced 41 million dmt and mines operated by partnerships in which Alcoa and AWAC have equity interests produced 6.4 million dmt on a proportional equity basis, for a total Company bauxite production of 47.4 million dmt.

Based on the terms of its bauxite supply contracts, the amount of bauxite AWAC purchases from its minority-owned joint ventures Mineração Rio do Norte S.A. (MRN) and Compagnie des Bauxites de Guinée (CBG) differ from its proportional equity in those mines. Therefore, in 2019, Alcoa had access to 47.6 million dmt of production from its portfolio of bauxite interests and sold 6.2 million dmt of bauxite to third parties; 41.4 million dmt of bauxite was delivered to Alcoa and AWAC refineries.

The Company aims to grow its third-party bauxite sales business. In December 2016, the Government of Western Australia granted permission to Alcoa’s majority-owned subsidiary, AofA, to export up to 2.5 million dmt per year of bauxite for five years to third-party customers. The Company is liaising with existing and potential new customers about bauxite contracts beyond the initial five-year period but any future supply to third-party customers beyond 2021 will require approval from the Government of Western Australia. The primary customer base for third-party bauxite is located in Asia, particularly in China.

Bauxite Resource and Reserve Development Guidelines

The Company has access to large bauxite deposit areas with mining rights that extend in most cases more than 20 years from the date of this report. For purposes of evaluating the amount of bauxite that will be available to supply its refineries, the Company considers both estimates of bauxite resources as well as calculated bauxite reserves. “Bauxite resources” are 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 information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes), such that there are reasonable prospects for economic extraction. “Bauxite reserves” represent the part of resource deposits that can be economically mined to supply alumina refineries, 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 drilling grid) with customized techniques to define and characterize its various bauxite deposit types allowing us to confidently establish the extent of its bauxite resources and their ultimate conversion to reserves.

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Alcoa has adopted best practice guidelines for bauxite reserve and resource classification at its operating bauxite mines. Alcoa’s reserves are declared in accordance with the Joint Ore Reserves Committee (JORC) code guidelines. The reported ore reserves set forth in the table below are those that we estimated could be extracted economically with current technology and in current market conditions. We do not use a price for bauxite, alumina or aluminum to determine our bauxite reserves. The primary criteria for determining bauxite reserves are the feed specifications required by the receiving alumina refinery. More specifically, reserves are set based on the chemical composition of the bauxite in order to minimize bauxite processing cost and maximize refinery economics for each individual refinery. The primary specifications that are important to this analysis are the “available alumina” content of the bauxite, which is the amount of alumina extractable from bauxite using the Bayer process, and “reactive silica” content of the bauxite, which is the amount of silica that is reactive within the Bayer process. Each alumina refinery will have a target specification for these parameters, but may receive bauxite within a range that allows blending in stockpiles to achieve the receiving refinery’s target.

In addition to these chemical specifications, several other ore reserve design factors have been applied to differentiate bauxite reserves from other mineralized material. The contours of the bauxite reserves are designed using parameters such as available alumina content cutoff grade, reactive silica cutoff grade, ore density, overburden thickness, ore thickness and mine access considerations. These parameters are generally determined by using infill drilling or geological modeling. Further, our mining locations utilize annual in-fill drilling or geological modeling programs designed to progressively upgrade the reserve and resource classification of their bauxite based on the above-described factors.

The following table 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 the Company’s mining locations and consistent with the Company reserves strategy. Given the Company’s extensive bauxite resources, the abundant supply of bauxite globally, and the length of the Company’s rights to bauxite, it is not cost-effective 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.

In October 2019, SRK Consultores do Brasil LTDA was retained by Alcoa Alumínio S.A. to carry out an independent audit of Mineral Resources and Mineral Reserves estimates for the Juruti Bauxite Mine, including the plateaus of Capiranga, Capiranga Central, Guaraná and Mauarí, located in the city of Juruti, state of Pará, North of Brazil. Therefore, Juruti’s reserve statement presented below represents the up-to-date outcomes from that auditing process.

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Bauxite Interests, Share of Reserves and Annual Production¹

Qualifying statements relating to the table above:

Australia—Darling Range Mines: Huntly and Willowdale are the two active AWAC mines in the Darling Range of Western Australia that supply bauxite to three local AWAC alumina refineries.  They operate within ML1SA, the mineral lease issued by the State of Western Australia to Alcoa’s majority-owned subsidiary, AofA. The ML1SA lease encompasses a gross area of 712,881 hectares (including private land holdings, state forests, national parks and conservation areas) in the Darling Range and extends from east of Perth to east of Bunbury (ML1SA Area). The ML1SA lease provides AofA with various rights, including certain exclusivity rights to explore for and mine bauxite, rights to deny third party mining tenements in limited circumstances, rights to mining leases for other minerals in the ML1SA Area, and the right to prevent certain governmental actions from interfering with or prejudicially affecting the rights of AofA. The ML1SA lease term extends to 2024 and can be renewed for an additional 21-year period to 2045. The above-declared reserves are current as of December 31, 2019. The amount of reserves reflects the total AWAC share. Additional resources are routinely upgraded by additional exploration and development drilling to reserve status.

Brazil—Poços de Caldas: The above-declared reserves are current as of December 31, 2019. Tonnage is total Alcoa share. Additional resources are being upgraded to reserves as needed.

Brazil—Juruti RN101, RN102, RN103, RN104, RN107, #34: The above-declared reserves are current as of December 31, 2019. All reserves are on Capiranga Plateau in mineral claim areas RN101, RN102, RN103, RN104, RN107, #34, within

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which Alcoa has operating licenses issued by the state. Declared reserves are total AWAC share. Declared reserve tonnages and the annual production tonnage are washed and unwashed product tonnages. The Juruti mine’s operating licenses are periodically renewed.

Brazil—Trombetas-MRN: The above-declared reserves are as of December 31, 2019. Declared and annual production tonnages reflect the total for Alumínio and AWAC shares (18.2%). Declared tonnages are washed product tonnages.

Guinea—Boké-CBG: The above-declared reserves are based on export quality bauxite reserves and are current as of December 31, 2019. Declared tonnages reflect only the AWAC share of CBG’s reserves. Annual production tonnage is reported based on AWAC’s 22.95% share. Declared reserves quality is reported based on total alumina content (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.

Kingdom of Saudi Arabia—Al Ba’itha: The Al Ba’itha Mine began production during 2014 and production was increased in 2016. Declared reserves are as of November 30, 2019. The declared reserves are located in the South Zone of the Az Zabirah Bauxite Deposit. The reserve tonnage in this declaration is AWAC share only (25.1%).

The following table provides additional information regarding the Company’s bauxite mines, all of which are open-cut mines. Excavation is done at the surface of open-cut mines to extract mineral ore (such as bauxite). Open-cut mines are not underground and the sky is viewable from the mine floor:

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Alumina

This segment consists of the Company’s worldwide refining system, which processes bauxite into alumina. Alcoa’s alumina sales are made to customers all over the world and are typically priced by reference to published spot market prices.  Our largest customer for smelter grade alumina is its own aluminum smelters, which in 2019 accounted for approximately 30% of its total alumina sales. A small portion of the alumina is sold to third-party customers who process it into industrial chemical products. This segment also includes AWAC’s 25.1% share of MBAC.

Most of the Company’s alumina contracts contain two pricing components: (1) the API price basis, and (2) a negotiated adjustment basis that takes into account various factors, including freight, quality, customer location, and market conditions. In 2019, approximately 95% of Alcoa Corporation’s smelter grade alumina shipments to third parties were sold on this basis.

Alcoa’s alumina refining facilities and its worldwide alumina capacity are shown in the following table:

As of December 31, 2019, Alcoa had approximately 214,000 mtpy of idle capacity relative to total Alcoa consolidated capacity of 12,759,000 mtpy. The idle capacity is at the Poços de Caldas facility as a result of the full curtailment of the Poços de Caldas smelter.

In December 2019, Alcoa announced the permanent closure its refinery in Point Comfort, Texas. The refinery’s 2,305,000 mpty capacity had been fully curtailed since June 2016. For additional information, see Note D to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.

Aluminum

This segment consists of (i) the Company’s worldwide smelting and casthouse system, (ii) a rolling mill in the United States, and (iii) a portfolio of energy assets in Brazil, Canada, and the United States. The smelting operations produce molten primary aluminum, which is then formed by the casting operations into either common alloy ingot (e.g., t-bar, sow, standard ingot) or into value-add ingot products (e.g., foundry, billet, rod, and slab). The rolling mill produces aluminum sheet primarily for the production of aluminum cans. The energy assets supply power to external customers in Brazil, and, to a lesser extent, in the United States, and internal customers within the Aluminum segment (Baie Comeau (Canada) smelter and Warrick (Indiana) smelter and rolling mill) and the Alumina segment (Brazilian refineries). This segment also includes Alcoa’s 25.1% share of MAC, the smelting joint venture company in Saudi Arabia.

Smelting and Casting Operations

Contracts for primary aluminum vary widely in duration, from multi-year supply contracts to monthly or weekly spot purchases. Pricing for primary aluminum products is typically comprised of three components: (i) the published LME

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aluminum price for commodity grade P1020 aluminum, (ii) the published regional premium applicable to the delivery locale and (iii) a negotiated product premium which accounts for factors such as shape and alloy.

Alcoa’s primary aluminum facilities and its global smelting capacity are shown in the following table:

As of December 31, 2019, the Company had approximately 766,000 mtpy of idle smelting capacity relative to total Alcoa consolidated capacity of 2,993,000 mtpy. This includes 165,000 mtpy at the Bécancour smelter which began the restart process after reaching a new six-year labor contract in July 2019. The restart of the Bécancour smelter is expected to be completed in the second quarter of 2020. The Alumar and Wenatchee smelters have been fully curtailed since 2015. Additionally, the Warrick (108,000 mtpy) smelter, which is dedicated to supplying the on-site rolling mill, Intalco smelter (49,000 mtpy) and Portland smelter (30,000 mtpy) each have idle capacity.

In July 2019, Alcoa divested the Avilés and La Coruña facilities in Spain that had a combined total smelting capacity of 180,000 mtpy, of which 56,000 mtpy combined was previously curtailed in a prior year.

For additional information regarding the divestiture of Avilés and La Coruña, see the Restructuring and Other Charges, Net section in Part II Item 7 of this Form 10-K.

Rolling Operations

The Aluminum segment’s rolled products business consists of the Company’s rolling mill in Warrick, Indiana, which produces aluminum sheet primarily sold directly to customers for the production of aluminum cans (beverage and food), and formerly Alcoa’s investment in MRC.  In June 2019, Alcoa and Ma’aden amended the joint venture agreement transferring Alcoa’s 25.1% interest in MRC to Ma’aden, amongst other things. See Note C to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K and the Joint Ventures section above.

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Alcoa’s rolled products business has the capability of participating in several market segments, including beverage can sheet, food can sheet, lithographic sheet, and industrial products. The term “RCS” or Rigid Container Sheet is commonly used for both beverage and food can sheet. This includes the material used to produce the body of beverage containers (body stock), the lid of beverage containers (end stock and tab stock), the material to produce food can body and lids (food stock), and the material to produce aluminum bottles (bottle stock) and bottle closures (closure sheet). Alcoa suspended production of lithographic sheet in the second quarter of 2018.

In 2019, our Warrick facility produced and sold 325.7 kilo metric tons (kMT) of RCS and industrial products, of which over 99% was sold to customers in North America. The majority of its sales were coated RCS products (food stock, beverage end and tab stock).  Seasonal increases in can sheet sales are generally expected in the second and third quarters of the year. Can sheet demand is a function of consumer demand for beverages and food in aluminum packaging. Aluminum cans have a number of functional advantages for packaging companies, including product shelf life, carbonation retention, and logistics/distribution efficiency.

Energy Facilities and Sources

Energy accounts for approximately 19% of the Company’s total alumina refining production costs. Electric power accounts for approximately 26% of the Company’s primary aluminum production costs.

Electricity markets are regional and are limited in size by physical and regulatory constraints, including the physical inability to transport electricity efficiently over long distances, the design of the electric grid, including interconnections, and the regulatory structure imposed by various federal and state entities.

Electricity contracts may be short term (real-time or day ahead) or years in duration, and contracts can be executed for immediate delivery or years in advance. Pricing may be fixed, indexed to an underlying fuel source or other index such as LME, cost-based or based on regional market pricing. In 2019, Alcoa generated approximately 10% of the power used at its smelters worldwide and generally purchased the remainder under long-term arrangements.

The following table sets forth the electricity generation capacity and 2019 generation of facilities in which Alcoa Corporation has an ownership interest. See the Joint Ventures section above.

The figures in this table are presented in megawatts (MW) and megawatt hours (MWh), respectively.

Each listed facility generates hydroelectric power except the Warrick facility, which generates substantially all of the power used at the Warrick facility using coal purchased from third parties from nearby coal reserves. In 2019, Alcoa ceased using coal from the Alcoa-owned Liberty Mine, which was operated by a third-party coal company. During 2019, approximately 24% of the capacity from the Warrick power plant was sold into the market under its current operating permits. Alcoa Power Generating Inc. also owns certain Federal Energy Regulatory Commission (FERC)-regulated transmission assets in Indiana, Tennessee, New York, and Washington.

The consolidated capacity of the Brazilian energy facilities represented here in megawatts (MW), is the assured energy that is approximately 52% of hydropower plant nominal capacity. Since May 2015 (after curtailment of the Poços de Caldas and São Luís smelters), the excess generation capacity from the Brazilian hydroelectric facilities has been sold into the market.

On December 31, 2019, the Afobaka hydroelectric dam in Suriname was transferred to the Government of the Republic of Suriname. Prior to such date, power generated from Afobaka was sold to the Government of the Republic of Suriname under a bilateral contract. Accordingly, the Company collected revenue for power sales through December 31, 2019.

Manicouagan Power Limited Partnership (Manicouagan) is a joint venture between affiliates of Alcoa Corporation and Hydro-Québec. Manicouagan owns and operates the 335 megawatt McCormick hydroelectric project, which is located on the Manicouagan River in the Province of Québec.

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Below is an overview an overview of our external energy for our smelters and refineries.

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Sources and Availability of Raw Materials

Generally, 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 (MT) of alumina produced, Alcoa consumes the following amounts of the identified raw material inputs (approximate range across relevant facilities):

For each metric ton of aluminum produced, Alcoa consumes the following amounts of the identified raw material inputs (approximate range across relevant facilities):

Certain aluminum produced includes alloying materials. Because of the number of different types of elements that can be used to produce various alloys, 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 (of which Alcoa is an active member) standard, which 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 include lesser amounts of other constituents.

Competition

Alcoa is subject to highly competitive conditions in all aspects of the aluminum supply chain in which it competes. Competitors include a variety of both U.S. and non-U.S. companies in all major markets. Alcoa’s competitive position depends, in part, on the Company’s access to an economical power supply to sustain its operations in various countries.

In each of our business segments, we enjoy several competitive advantages. We are among the world’s largest bauxite miners, with best practices in efficient mining operations and sustainability. We are the world’s largest alumina producer outside of China and operate competitive, efficient assets across our refining, aluminum smelting, and casting portfolios. Our business segments operate in close proximity to our broad, worldwide customer base, enabling us to meet customer demand in key markets in North America, South America, Europe, the Middle East, Australia, and China. Competitive advantages specific to each business segment are detailed below.

Bauxite:

The third-party market for metallurgical grade bauxite is growing quickly as global demand for bauxite increases—particularly in China. The majority of bauxite mined globally is converted to alumina for the production of aluminum. While Alcoa has historically mined bauxite for internal consumption in our alumina refineries, we aim to grow our third-party bauxite business to meet growing demand.

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Our principal competitors in the third-party bauxite market include Rio Tinto and multiple suppliers from Guinea, Australia, Indonesia, and Malaysia, among other countries. We compete largely based on bauxite quality, price and proximity to customers, as well as long-term bauxite resources in strategic bauxite mine locations, including Australia, Brazil, and Guinea, which is home to the world’s largest reserves of high-quality metallurgical grade bauxite. Alcoa has a long history of stable operations in these countries and has access to large bauxite deposits with mining rights that extend in most cases more than 20 years from the date of this report.

Alumina:

The alumina market is global and highly competitive, with many active suppliers, producers, and commodity traders. Alcoa faces competition from a number of companies, including Aluminum Corporation of China Limited, China Hongqiao Group Limited, Hindalco Industries Ltd., Hangzhou Jinjiang Group, National Aluminium Company Limited (NALCO), Noranda Aluminum Holding Corporation, Norsk Hydro ASA, Rio Tinto, South32 Limited, State Power Investment Corporation, United Company RUSAL Plc, and Chiping Xinfa Alumina Product Co., Ltd. In recent years, there has been significant growth in alumina refining in China and India. The majority of our product is sold in the form of smelter grade alumina, with 5% to 10% of total global alumina production being produced for non-metallurgical applications.

Key factors influencing competition in the alumina market include: cost position, price, reliability of bauxite supply, quality and proximity to customers and end markets. While we face competition from many industry players, we had an average cost position in the first quartile of global alumina production in 2019, in part attributable to our experienced workforce, deep technical expertise, and sophistication in refining technology and process automation. Also, our refineries are strategically located next to low cost bauxite mines, and our alumina refineries are tuned to maximize efficiency with the bauxite qualities from these internal mines. In addition to these refining efficiencies, vertical integration affords a stable and consistent long-term supply of bauxite to our refining portfolio.

Aluminum:

In our Aluminum segment, competition is dependent upon the type of product we are selling.

The market for primary aluminum is global, and demand for aluminum varies widely from region to region. We compete with commodity traders, such as Glencore, Trafigura, J. Aron and Gerald Group, and aluminum producers such as Aluminum Corporation of China Limited, China Hongqiao Group Limited, East Hope Group Co. Ltd., Emirates Global Aluminum, Norsk Hydro, Rio Tinto, Shandong Xinfa Aluminum & Power Group, Vedanta Aluminum Ltd., and United Company RUSAL Plc, as well as with alternative materials such as steel, titanium, copper, carbon fiber, composites, plastic and glass.

The aluminum industry itself is highly competitive; some of the most critical competitive factors in our industry are product quality, production costs (including source and cost of energy), price, access and proximity to raw materials, customers and end markets, timeliness of delivery, customer service (including technical support), product innovation, and breadth of offerings. Where aluminum products compete with other materials, the diverse characteristics of aluminum are also a significant factor, particularly its light weight, strength and recyclability.

In addition, in some end-use markets, competition is also affected by customer requirements that suppliers complete a qualification process to supply their plants. This process can be rigorous and may take many months to complete. However, the ability to obtain and maintain these qualifications can represent a competitive advantage.

The strength of our position in the primary aluminum market is largely attributable to the following factors:

Our rolled products business has the capability of participating in various market segments, including beverage can sheet, food can sheet, lithographic sheet, aluminum bottle sheet, and industrial products and in the U.S. competes with other North American producers of RCS products, namely Novelis Corp, Tri-Arrows Aluminum, and Constellium NV. There is also import supply of RCS from regions outside of North America, mainly for the beverage market.

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We also compete against package types made of other materials including polyethylene terephthalate (PET) bottles, glass bottles, steel tin plate and other materials. 

We compete on cost, quality, and service. The Company intends to continue to improve our cost position by increasing recycled aluminum content in our metal feedstock as well as continuing to focus on capacity utilization. We believe our team of technical and operational resources provides distinctive quality and customer service.

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 Company’s rights under its intellectual property, 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. Alcoa’s business as a whole is not, however, materially dependent on any single patent, trade secret or trademark. As a result of product development and technological advancement, the Company continues to pursue patent protection in jurisdictions throughout the world. As of December 31, 2019, Alcoa’s worldwide patent portfolio consisted of approximately 670 granted patents and 240 pending patent applications. The Company also has a number of domestic and international registered trademarks that have significant recognition within the markets that are served, including the name “Alcoa” and the Alcoa symbol.

As part of the Separation Transaction, Alcoa Corporation and Arconic entered into certain intellectual property license agreements between them. These agreements, as amended, provide for a license of certain patents, trademarks and know-how from Arconic or Alcoa Corporation, as applicable, to the other, on a perpetual, royalty-free, non-exclusive basis, subject to certain exceptions.

Environmental Matters

Alcoa is subject to extensive federal, state and local environmental laws and regulations, including those relating to the release or discharge of materials into the air, water and soil, waste management, pollution prevention measures, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to hazardous materials, greenhouse gas emissions, and the health and safety of our employees. We participate in environmental assessments and cleanups at approximately 60 locations. These include owned or operated facilities and adjoining properties, previously owned or operated facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)) sites. In 2019, capital expenditures for new or expanded facilities for environmental control were approximately $95 and approximately $90 is expected in 2020. Additional information relating to environmental matters is included in Note R to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K under the caption Contingencies—Environmental Matters.

Employees

At the end of 2019, Alcoa had approximately 13,800 employees in 15 countries. Approximately 10,500 of these employees are represented by labor unions. In the U.S., approximately 2,300 employees are represented by various labor unions. The largest collective bargaining agreement in the U.S. is the master collective bargaining agreement with the United Steelworkers (USW), which covers approximately 1,600 employees at five U.S. locations. There are three additional collective bargaining agreements at three U.S. locations with the USW, the International Association of Machinists and Aerospace Workers (IAM), and the International Brotherhood of Electric Workers (IBEW), with varying expiration dates. On a regional basis, collective bargaining agreements with varying expiration dates cover approximately 2,200 employees in Europe, 1,500 employees in Canada, 1,800 employees in Central and South America, and 2,700 employees in Australia.

On September 19, 2019, a new four-year labor agreement was ratified by the USW, covering approximately 1,700 active employees at Warrick Operations in Indiana, Massena Operations in New York, Gum Springs in Arkansas, Wenatchee Works in Washington, and Point Comfort in Texas on the ratification date. On November 22, 2019, members the USW formally ratified a new four-year labor agreement covering employees at Lake Charles Operations in Louisiana.

The Company’s labor agreement covering employees represented by the IBEW at the Warrick Power Plant in Indiana is set to expire on October 31, 2020, and negotiations will commence in October 2020.

A new six-year collective bargaining agreement with CSN (Confédération des Syndicats Nationaux) representing approximately 600 hourly employees at its Baie Comeau smelter in Canada was successfully ratified before expiration on May 31, 2019.  

On January 11, 2018, a lockout of the bargained hourly employees commenced at the Bécancour smelter in Québec, impacting approximately 1,000 employees at this facility on the date of the lockout. The Bécancour facility is owned by Alcoa (74.95%) and Rio Tinto (25.05%). On July 2, 2019, a new six-year collective bargaining agreement was ratified, ending the eighteen-month lockout.  

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On August 8, 2018, the Company’s bauxite mines and alumina refineries in Australia experienced a nearly eight-week strike by the unionized labor force that is represented by the Australian Workers’ Union (AWU). The mines and refineries continued to operate during the strike with minimal disruption. The labor force had returned to work and a new labor agreement was ratified in November 2019 covering approximately 1,400 employees across the Bauxite and Alumina segments combined.

Negotiations continue in Australia for an agreement with the Construction, Forestry, Mining, Maritime, Forestry, and Energy union, which covers approximately 75 employees in the Western Australian power stations. Negotiations will soon commence for new agreements with the Australian Manufacturing Workers Union (AMWU) and Electrical Trades Union (ETU) which both have agreements in the Western Australian mines and refineries that expire in 2020.

On October 17, 2018, the Company announced its intention to begin a formal consultation process for collective dismissals that would affect all of the employees at its Avilés and La Coruña facilities in Spain. In January 2019, Alcoa reached an agreement with workers’ representatives at these facilities. In July 2019, Alcoa divested both facilities to PARTER Capital Group AG, impacting approximately 640 employees at the two sites at the time of the divestiture.  

Available Information

The Company’s 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 amended (the Exchange Act) as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (the SEC). The information on the Company’s internet site is not a part of, or incorporated by reference in, this annual report on Form 10-K. The SEC maintains an internet site that contains these reports at http://www.sec.gov.

Dissemination of Company Information

Alcoa Corporation intends to make future announcements regarding company developments and financial performance through its website, www.alcoa.com, as well as through press releases, filings with the Securities and Exchange Commission, conference calls, and webcasts.

Information about our Executive Officers

The names, ages, positions and areas of responsibility of the executive officers of the Company as of the filing date of this Form 10-K are listed below.

Roy C. Harvey, 46, is President and Chief Executive Officer of Alcoa Corporation. He became Chief Executive Officer in November 2016 and assumed the role of President in May 2017. Mr. Harvey served as Executive Vice President of ParentCo and President of ParentCo’s Global Primary Products (GPP) division from October 2015 to November 2016. From June 2014 to October 2015, he was Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability at ParentCo. Prior to that time, Mr. Harvey was Chief Operating Officer for GPP at ParentCo from July 2013 to June 2014 and was Chief Financial Officer for GPP from December 2011 to July 2013. In addition to these roles, Mr. Harvey served as Director of Investor Relations at ParentCo from September 2010 through November 2011 and was Director of Corporate Treasury from January 2010 to September 2010. Mr. Harvey joined ParentCo in 2002 as a business analyst for GPP in Knoxville, Tennessee.

William F. Oplinger, 53, has served as Executive Vice President and Chief Financial Officer of Alcoa Corporation since November 2016. Mr. Oplinger served as Executive Vice President and Chief Financial Officer of ParentCo from April 1, 2013 to November 2016. Mr. Oplinger joined ParentCo in 2000, and through 2013 held key corporate positions in financial analysis and planning and also served as Director of Investor Relations. Mr. Oplinger also held principal positions in the ParentCo’s GPP division, including as Controller, Operational Excellence Director, Chief Financial Officer, and Chief Operating Officer.

Leigh Ann C. Fisher, 53, has served as Executive Vice President of Alcoa Corporation since November 2016 and as Chief Human Resources Officer of Alcoa Corporation since November 1, 2019. She has responsibility for all aspects of human resource management, including talent and recruitment, compensation and benefits, training and development, and labor relations. Prior to assuming her role as Chief Human Resource Officer, Ms. Fisher served as the Chief Administrative Officer of Alcoa Corporation from November 2016 until November 2019, and as Chief Financial Officer of ParentCo’s GPP division from July 2013 to November 2016. Ms. Fisher joined ParentCo in 1989 and was Group Controller for ParentCo’s GPP division from 2011 to July 2013 and Group Controller for ParentCo’s Engineered Products and Solutions division from 2008 to 2011. In December 2019, Ms. Fisher provided notice to the Company of her decision to retire from her current position, effective April 1, 2020, after which time she has agreed to remain an employee of the Company for a certain period to ensure a smooth transition of her duties.  

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Jeffrey D. Heeter, 54, has served as Executive Vice President and General Counsel of Alcoa Corporation since November 2016. In this role, Mr. Heeter has overall responsibility for the Company’s global legal, compliance, governance and security matters.  He previously served as the Secretary of Alcoa Corporation from November 2016 to November 2019.  Mr. Heeter served as Assistant General Counsel and an Assistant Officer of ParentCo from 2014 to November 2016. Mr. Heeter was Group Counsel for GPP business at ParentCo from 2010 to 2014. From 2008 to 2010, Mr. Heeter was General Counsel of Alcoa of Australia in Perth, Australia.  Mr. Heeter joined ParentCo in 1998.

Benjamin D. Kahrs, 43, has served as Executive Vice President and Chief Innovation Officer of Alcoa Corporation since November 1, 2019.  Mr. Kahrs oversees the implementation of the new corporate operating model and the transformation of manufacturing capabilities, as well as the Company’s Technical Center, Global Shared Services, Information Technology, and Automated Solutions.  He was Senior Vice President, Manufacturing Excellence and R&D from November 2018 through October 2019 and Senior Vice President, Technology and Corporate Development from November 2016 to November 2018.  Mr. Kahrs served as Vice President Strategy and Technology, GPP of ParentCo from November 2015 to November 2016 and was Location Manager at the Point Comfort, Texas facility from August 2012 to November 2015.

Timothy D. Reyes, 53, has served as Executive Vice President and Chief Commercial Officer of Alcoa Corporation since November 2019. In this role, he creates customer-focused commercial strategies and is responsible for business development.  Mr. Reyes was previously President of Alcoa Corporation’s Aluminum business unit from March 2017 to November 2019. Mr. Reyes was President, Alcoa Cast Products from November 2016 until March 2017, when the aluminum smelting, cast products and rolled products businesses, along with the majority of the energy segment assets, were combined into a new Aluminum business unit.  From January 2015 to November 2016, he served as President, Alcoa Cast Products of ParentCo.  Prior to this time, Mr. Reyes was President of Alcoa Materials Management, a subsidiary of ParentCo, from September 2009 until December 2014, responsible for the commercial activities related to primary metals, alumina, and bauxite within ParentCo’s GPP group, and commodity price risk management and global transportation services for ParentCo.

John D. Slaven, 58, has served as Executive Vice President since joining Alcoa Corporation on February 4, 2019 and was appointed Chief Operations Officer of Alcoa Corporation, effective November 1, 2019. Mr. Slaven is responsible for the daily operations of the Company’s bauxite, alumina, and aluminum assets. Prior to his current position, Mr. Slaven was Chief Strategy Officer of Alcoa Corporation. From 2006 until 2019, Mr. Slaven was Partner and Managing Director at the Boston Consulting Group, where he most recently led the North American Metals and Mining, Infrastructure and Public Transport practices. Prior to this time, from 2002 through early 2006, Mr. Slaven worked for ParentCo, where he implemented its Asia growth strategy, revitalized the Latin America business, and led ParentCo’s sales and marketing growth in Asia before returning to New York to lead the corporate strategy, financial planning, and analysis functions.    

Item 1A. Risk Factors.

Alcoa’s 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 its business, financial condition or results of operations, including causing Alcoa’s 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. See the discussion under the caption Forward-Looking Statements above.

Commodity Risks

The aluminum industry and aluminum end-use markets are highly cyclical and are influenced by several factors, including global economic conditions and shifts in the global inventory of aluminum.

The nature of the industries in which our customers operate causes demand for our products to be cyclical, creating potential uncertainty regarding future profitability. The demand for aluminum is sensitive to, and impacted by, demand for the finished goods manufactured by our customers in industries, such as the commercial construction, transportation, and automotive industries, which may change as a result of changes in the global economy, foreign currency exchange rates, energy prices or other factors beyond our control. The demand for aluminum is highly correlated to economic growth, and we could be adversely affected by large or sudden shifts in the global inventory of aluminum and the resulting market price impacts. The Chinese market is a significant source of global demand for, and supply of, commodities, including aluminum. A sustained slowdown in Chinese aluminum demand, or a significant slowdown in other markets, that is not offset by decreases in supply of aluminum or increased aluminum demand in emerging economies, such as India, Brazil, and several Southeast Asian countries, could have an adverse effect on the global supply and demand for aluminum and aluminum prices. As a result of these factors, our profitability is subject to significant fluctuation.

We believe the long-term prospects for aluminum and aluminum products are positive, however, we are unable to predict the future course of industry variables or the strength of the global economy and the effects of government intervention. Negative economic conditions, such as a major economic downturn, a prolonged recovery period, a downturn in the commodity sector,

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or disruptions in the financial markets, could have a material adverse effect on our business, financial condition, cash flows, results of operations, or the trading price of our common stock.

While the aluminum market is often the leading cause of changes in the alumina and bauxite markets, those markets also have industry-specific risks including, but not limited to, global freight markets, energy markets, and regional supply-demand imbalances. Aluminum industry specific risks can have a material effect on profitability for the alumina and bauxite markets.

We could be materially adversely affected by declines in aluminum and alumina prices, including global, regional and product-specific prices.

The overall price of primary aluminum consists of several components: (i) the underlying base metal component, which is typically based on quoted prices from the LME; (ii) the regional premium, which comprises the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States); and (iii) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., coil, billet, slab, rod, etc.) or alloy. Each of the above three components has its own drivers of variability. 

The LME price is typically driven by macroeconomic factors, global supply and demand of aluminum (including expectations for growth and contraction and the level of global inventories), and trading activity of financial investors. Furthermore, an imbalance in global supply and demand of aluminum, such as decreasing demand without corresponding supply declines, could have a negative impact on aluminum pricing. In 2019, cash LME pricing for aluminum experienced a significant amount of volatility, reaching a high of $1,923 per metric ton in March and a low of $1,696 per metric ton in October.  High LME inventories could lead to a reduction in the price of aluminum and declines in the LME price have had a negative impact on our results of operations.  Further, in recent years, LME rule changes have resulted in an increased minimum daily load-out rate and caps on warehouse charges. These rule changes, and any subsequent changes the exchange chooses to make, could impact the supply/demand balance in the primary aluminum physical market and may impact regional delivery premiums and LME aluminum prices. Regional premiums tend to vary based on the supply of and demand for metal in a particular region and associated transportation costs. Product premiums generally are a function of supply and demand for a given primary aluminum shape and alloy combination in a particular region. Periods of industry overcapacity may also result in a weak aluminum pricing environment.

A sustained weak LME aluminum pricing environment, deterioration in LME aluminum prices, or a decrease in regional premiums or product premiums could have a material adverse effect on our business, financial condition, and results of operations or cash flow.  Similarly, our operating results are affected by significant lag effects of declines in key costs of production that are commodity or LME-linked. 

Most of our alumina contracts contain two pricing components: (1) the API price basis, and (2) a negotiated adjustment basis that takes into account various factors, including freight, quality, customer location and market conditions. Because the API component can exhibit significant volatility due to market exposure, revenue associated with our alumina operations are exposed to market pricing.

Our bauxite-related contracts are typically one to two-year contracts with very little, if any, market exposure; however, we intend to enter into long-term bauxite contracts and therefore, our revenue associated with our bauxite operations may become further exposed to market pricing.

Our profitability could be adversely affected by increases in the cost of raw materials, or by significant lag effects of decreases in commodity, LME-linked or production costs.

Our 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. We 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.  Declines in the 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 our operating results.

Market-driven balancing of global aluminum supply and demand may be disrupted by non-market forces.

In response to market-driven factors relating to the global supply and demand of aluminum and alumina, we have curtailed or closed portions of our aluminum and alumina production capacity. Certain other industry producers have independently undertaken to reduce production as well. Reductions in production may be delayed or impaired by the terms of long-term contracts to buy power or raw materials.

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The existence of non-market forces on global aluminum industry capacity, such as political pressures or governmental policies in certain countries relating to employment or the environment or to maintaining or further developing industry self-sufficiency, may affect overall supply and demand in the aluminum industry. For example, Chinese excess capacity and increased exports from China of heavily subsidized aluminum products could materially disrupt world aluminum markets causing pricing deterioration. If industry overcapacity exists due to the disruption by such non-market forces on the market-driven balancing of the global supply and demand of aluminum, a resulting weak pricing environment and margin compression may adversely affect the operating results of the Company.

Our operations consume substantial amounts of energy and profitability may decline if energy costs rise or if energy supplies are interrupted or become uncertain.

Although we generally expect to meet the energy requirements for our alumina refineries and primary aluminum smelters from internal sources or from long-term contracts, certain conditions could negatively affect our results of operations, including the following:

If events such as those listed above were to occur, the resulting high energy costs, the disruption of an energy source, the requirement to repay all or a portion of the benefit we received under a power supply interruptibility regime, or the requirement to remedy any non-compliance of an energy framework to comply with applicable laws, could have a material adverse effect on our business and results of operations.

Business Strategy Risks

We may not be able to realize the expected benefits from our strategy to be a lower cost, competitive commodity business by optimizing our portfolio and disposing of non-core assets, and we have incurred, and may incur in the future, significant costs associated with such portfolio and asset actions.

We are continuing to execute a strategy to be a low cost, competitive integrated aluminum production business by implementing productivity and cost-reduction initiatives, and optimizing our portfolio of assets, including by divesting non-core assets. We are taking decisive actions to lower the cost base of our operations through procurement strategies for raw materials, labor productivity, improving operating performance, deploying Company-wide business process models, reducing overhead costs (including by streamlining the Company’s organizational structure by eliminating the business unit structure and consolidating the sales, procurement and commercial functions at the enterprise level), closing, selling or curtailing high-cost production capacity, and pursuing the sale of certain other operations. In October 2019, we initiated a multi-year review of our assets to drive lower costs and sustainable profitability, which includes the potential sale of non-core assets over the next twelve to eighteen months and an analysis of existing production capacities.  We may not be able to realize the expected benefits or cost savings from this strategy.

We have made, and may continue to plan and execute, acquisitions and divestitures and take other actions to grow or streamline our portfolio. There is no assurance that anticipated benefits of our strategic actions will be realized. With respect to portfolio optimization actions such as divestitures, curtailments, restarts, expansions, and closures, we may face barriers to exit from unprofitable businesses or operations, including high exit costs or objections from various stakeholders, the lack of availability of buyers willing to purchase such assets at prices acceptable to us, delays due to any regulatory approvals, continuing environmental obligations, and third parties unwilling to release us from guarantees or other credit support provided in connection with the sale of assets. In addition, we may retain liabilities from such transactions, have ongoing indemnification obligations, and incur unforeseen liabilities for divested entities if a buyer fails to honor all commitments. Our business operations are capital intensive, and curtailment or closure of operations or facilities may include

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significant charges, including asset impairment charges and other measures. There can be no assurance that divestitures or closures will be undertaken or completed in their entirety as planned at the anticipated cost, or that such actions will be beneficial to the Company.

Our announced a multi-year portfolio review of Company assets includes evaluating our portfolio to assess each facility’s strategic benefits, competitiveness, and viability. As part of this strategic review, we may close certain facilities. There can be significant costs associated with facility closures, and the effect of dispositions over time will reduce the Company’s cash flow and earnings capacity and result in a less diversified portfolio of businesses, and we will have a greater dependency on remaining businesses for our financial results. Additionally, we could curtail, whether temporarily or permanently, certain existing facilities, which may require us to incur curtailment and carrying costs related to those facilities, as well as further increased costs should production be resumed at any curtailed facility, which could have an adverse effect on our financial results and results of operations. Executing on these transactions will also divert senior management time and resources from our regular business operations.

Joint ventures, other strategic alliances, and business transactions may not achieve intended results. We may experience operational challenges in integrating or segregating assets for such a venture or transaction, and such a venture or transaction could increase the number of our outstanding shares or amount of outstanding debt and affect our financial position.   

We participate in joint ventures, and have formed strategic alliances, and may enter into other similar arrangements in the future. For example, AWAC is an unincorporated global joint venture between Alcoa and Alumina Limited. AWAC consists of a number of affiliated entities, which own, operate or have an interest in, bauxite mines and alumina refineries, as well as an aluminum smelter, in seven countries. In addition, Alcoa is party to a joint venture with Ma’aden, the Saudi Arabian Mining Company. Although the Company has, in connection with these and our other existing joint ventures and strategic alliances, sought to protect our interests, joint ventures and strategic alliances inherently involve special risks. Whether or not the Company holds majority interests or maintains operational control in such arrangements, our partners may:

We continuously evaluate and may in the future enter into additional strategic transactions. Any such transactions could happen at any time, could be material to our business and could take any number of forms, including, for example, an acquisition, merger, sale or distribution of certain assets, refinancing, or other recapitalization or material strategic transaction. There can be no assurance that our joint ventures, strategic alliances, or additional strategic transactions will be beneficial to us, whether due to the above-described risks, unfavorable global economic conditions, increases in costs, foreign currency fluctuations, political risks, retained liabilities, indemnification obligations, or other factors. Evaluating potential transactions and integrating completed ones may divert the attention of our management from ordinary operating matters. In addition, to the extent we consummate an agreement for the sale and disposition of an asset or asset group, we may experience operational difficulties segregating them from our retained assets and operations, which could impact the execution or timing of such dispositions and could result in disruptions to our operations and/or claims for damages, among other things.

If we complete a strategic transaction, we may require additional financing that could result in an increase in the number of our outstanding shares of stock or the aggregate amount and/or cost of our debt, which may result in an adverse impact to our credit ratings. The number of shares of our stock or the aggregate principal amount of our debt that we may issue may be significant. Moreover, the terms of any debt financing may be expensive or adversely impact our results of operations.

We could be adversely affected by changes in the business or financial condition of a significant customer or joint venture partner.

A significant downturn or deterioration in the business or financial condition of a key customer or joint venture partner could affect our results of operations in a particular period. Our 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 we are not successful in replacing business lost from such customers, profitability may be adversely affected. Our joint venture partners could be rendered unable to contribute their share of operating or capital costs, having an adverse impact on our business.

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Global Operational Risks

Our participation in increasingly competitive and complex global markets exposes us to risks that could adversely affect our business, financial condition, operating results, or cash flows.

We have operations or activities in numerous countries and regions outside the United States, including Australia, Brazil, Canada, Europe, Guinea, Suriname, and the Kingdom of Saudi Arabia. The risks associated with the Company’s global operations include:

While the impact of any of the foregoing factors is difficult to predict, any one or more of them could adversely affect our business, financial condition, operating results or cash flows. Existing insurance arrangements may not provide protection for the costs that may arise from such events.

As we continue to operate globally, we may face greater competition from certain geographic regions, including Asia, where China is actively promoting and subsidizing its aluminum industry, and negatively affecting prices outside of China. These actions by China and trade barriers may restrict us from participating in the Chinese market and prevent us from competing effectively with Chinese companies.  Additionally, certain competitors possess financial, technical and management resources to develop and market products that may compete favorably against our products, and consolidation among our competitors may also allow them to compete more effectively.

Our global operations expose us to risks related to economic and political conditions, including the impact of tariffs and sanctions, which may negatively impact our business.

We are subject to risks associated with doing business internationally, including the effects of foreign and domestic laws and regulations, foreign or domestic government fiscal and political crises, and political and economic disputes and sanctions. These factors, among others, bring uncertainty to the markets in which we compete, and may adversely affect our business, financial condition, operating results or cash flows. For example, increased government enforcement in Brazil that resulted in disruptions in the alumina supply, as well as the impact of environmental and supply management regulatory reforms in China, could adversely impact our business and results of operations.

In the United States, the current administration has publicly supported, and in some instances has already proposed or taken action with respect to, significant changes to certain trade policies, including import tariffs and quotas, modifications to international trade policy, the withdrawal from or renegotiation of certain trade agreements, including the US-Mexico-Canada Agreement, and other changes that may affect U.S. trade relations with other countries, any of which may require us to significantly modify our current business practices or may otherwise materially and adversely affect our business or those of our customers. Such changes could also result in retaliatory actions by U.S. trading partners. For example, in March 2018, the United States announced a plan to indefinitely impose a 10 percent tariff on certain imported aluminum products under Section 232 of the Trade Expansion Act of 1962, and in May 2019, Canada and Mexico received an exemption from tariffs that had been imposed on aluminum produced and imported from those countries under Section 232.  As a result of these or other potential U.S. import tariff actions, certain affected countries and other foreign governments have initiated or may impose retaliatory trade measures on aluminum produced in the United States.  To the extent that further tariffs are imposed on a broader range of imports, or these tariffs and other trade actions result in a decrease in international demand for

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aluminum produced in the United States or otherwise negatively impact demand for our products, our business may be adversely impacted, and could further exacerbate aluminum and alumina price volatility and overall market uncertainty.  

Our global operations expose us to various legal and regulatory systems, and changes in conditions beyond our control in foreign countries.

In addition to the business risks inherent in operating outside the United States, legal and regulatory systems in foreign countries may be less developed and predictable, and the possibility of various types of adverse governmental action may be more pronounced. Unexpected or uncontrollable events or circumstances in any of the foreign markets in which we operate, including actions by foreign governments such as changes in fiscal regimes, termination of our agreements with such foreign governments, increased government regulation, or forced curtailment of operations, could materially and adversely affect our business, financial condition, results of operations or cash flows.

Weakness in global economic conditions or in any of the industries or geographic regions in which we or our customers operate, and the cyclical nature of our customers’ businesses, could adversely impact our revenues and profitability by reducing demand and margins.

Our results of operations may be materially affected by the conditions in the global economy generally and in global capital markets. There has been extreme volatility in the capital markets and in the end markets and geographic regions in which we and our customers operate, which has negatively affected our revenues. Many of the markets in which our customers participate are also cyclical in nature and experience significant fluctuations in demand for our products based on economic conditions, consumer demand, raw material and energy costs, and government actions. Many of these factors are beyond our control.

A decline in consumer and business confidence and spending, severe reductions in the availability and cost of credit, and volatility in the capital and credit markets could adversely affect the business and economic environment in which we operate and the profitability of our business. We are also exposed to risks associated with the creditworthiness of our suppliers and customers. If the availability of credit to fund or support the continuation and expansion of our customers’ business operations is curtailed or if the cost of that credit is increased, the resulting inability of our customers or of their customers to either access credit or absorb the increased cost of that credit could adversely affect our business by reducing our sales or by increasing our exposure to losses from uncollectible customer accounts. These conditions and a disruption of the credit markets could also result in financial instability of some of our suppliers and customers. The consequences of such adverse effects could include the interruption of production at the facilities of our customers, the reduction, delay or cancellation of customer orders, delays or interruptions of the supply of raw materials we purchase, and bankruptcy of customers, suppliers or other creditors. Any of these events could adversely affect our profitability, cash flow and financial condition.

We are exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation and other economic factors in the countries in which we operate.

Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, competitive factors in the countries in which we operate, and continued volatility or deterioration in the global economic and financial environment, could affect our 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 our profitability, as some important inputs are purchased in other currencies, while our products are generally sold in U.S. dollars. As the U.S. dollar strengthens, the cost curve shifts down for smelters outside the United States but costs for our U.S. smelting portfolio may not decline.

Unanticipated changes in tax laws or exposure to additional tax liabilities could affect our future profitability.

We are subject to income taxes in both the United States and various non-U.S. jurisdictions. Unanticipated changes in foreign and domestic tax laws, regulations, or policies, or their interpretation and application by regulatory bodies, or exposure to additional tax liabilities could affect our future profitability. Our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. Our tax expense includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions. The assumptions include assessments of future earnings of the Company that could impact the valuation of our deferred tax assets. Our 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, and changes in the valuation of deferred tax assets and liabilities.  Significant changes to tax laws or regulations could have a substantial impact, positive or negative, on our effective tax rate, cash tax expenditures and cash flows, and deferred tax assets and liabilities.

We are subject to tax audits by various tax authorities in many jurisdictions, such as Australia, Brazil, Canada, and Spain.  We regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. The results of tax audits and examinations of previously filed tax returns or related litigation and continuing

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assessments of our tax exposures could materially affect our financial results. See Note P to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K under the caption Income Taxes – Unrecognized Tax Benefits.  

We may be exposed to significant legal proceedings, investigations or changes in foreign and/or U.S. federal, state, or local laws, regulations or policies.

Our 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 the Company. We may 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. We are also subject to a variety of legal compliance risks, including, among other things, potential claims relating to health and safety, environmental matters, intellectual property rights, product liability, taxes and compliance with U.S. and foreign export laws, anti-bribery laws, competition laws and sales and trading practices. We could be subject to fines, penalties, interest, or damages (in certain cases, treble damages). In addition, if we violate the terms of our agreements with governmental authorities, we may face additional monetary sanctions and other remedies as a court deems appropriate.

While we believe we have adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of our operations means that these risks 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 estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling, judgment, or settlement, or 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 our results of operations or cash flows in a particular period. See Part I Item 3 and Note R to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K under the caption Contingencies and Commitments—Contingencies—Litigation.

We are subject to a broad range of health, safety and environmental laws, regulations and other requirements in the jurisdictions in which we operate that may expose us to substantial claims, costs, and liabilities.

Our operations worldwide are subject to numerous complex and increasingly stringent federal, state, local and foreign laws, regulations, policies, and other requirements, including those related to health, safety, environmental, and waste management and disposal matters, which may expose us to substantial claims, costs, and liabilities. We may be subject to fines, penalties and other damages, such as natural resource damages and the costs associated with the investigation and cleanup of soil, surface water, groundwater, and other media under laws such as CERCLA (commonly known as Superfund) or similar U.S. and foreign regulations. These laws, regulations, policies, and other requirements could change or be applied or interpreted in ways that could (i) require us to enjoin, curtail, close or otherwise modify our operations, including the implementation of corrective measures, the installation of additional equipment, or the undertaking of other remedial actions, or (ii) subject us to enforcement risk or impose on or require us to incur additional capital expenditures, compliance or other costs, fines, or penalties, any of which could adversely affect our results of operations, cash flows and financial condition, and the trading price of our common stock.  

The costs of complying with such laws, regulations, policies and other requirements, including participation in assessments, remediation activities, 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. As a result, we may be subject to claims arising from current or former conditions at sites that we own or operate currently, as well as at sites that we owned or operated in the past, and at contaminated sites that have always been owned or operated by third parties, regardless of whether we caused the contamination or whether the activity that caused the contamination was lawful at the time it was conducted.  Liability may be without regard to fault and may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share. 

In addition, because environmental laws, regulations, policies and other requirements are constantly evolving, we will continue to incur costs to maintain compliance and such costs could increase materially and prove to be more limiting and costly than we anticipate.  Evolving standards and expectations can result in increased litigation and/or increased costs, all of which can have a material and adverse effect on our business operations, earnings and cash flows. Future compliance with environmental, health and safety legislation and other regulatory requirements may prove to be more limiting and costly than we anticipate, and may disrupt our business operations and require significant expenditures. Our results of operations or liquidity in a particular period could be materially affected by certain health, safety or environmental matters, including remediation costs and damages related to certain sites.

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Our operations include impoundment structures, which could impact the environment or cause exposure to hazardous substances or other damage, which could result in material liabilities to us.

Some of our operations generate hazardous waste and other byproducts, which we contain in tailing facilities, residue storage areas, and other structural impoundments that are subject to extensive regulation. Overtopping of storage areas caused by extreme weather events or unanticipated structural failure of impoundments could result in severe, and in some cases catastrophic, damage to the environment, natural resources, or property, or personal injury and loss of life. These and other similar impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in civil or criminal fines or penalties and enforcement actions issued by regulatory or judicial authorities enjoining, curtailing or closing operations or requiring corrective measures, any of which could materially and adversely affect us.

Climate change, climate change legislation or regulations, extreme weather conditions, and greenhouse gas effects may adversely impact our operations and markets.

Energy is a significant input in a number of our operations and there is growing recognition that consumption of energy derived from fossil fuels is a contributor to climate change. A number of governments or regulatory bodies in areas where we operate have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change. We could 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 we operate. These regulatory mechanisms may be either voluntary or legislated and may impact our operations directly or indirectly through customers or our supply chain. Inconsistency of regulations may also change the attractiveness of the locations of some of the Company’s 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 we operate. We 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 or extreme weather conditions on the Company’s operations are highly uncertain, and will be particular to the geographic circumstances. These may include changes in rainfall patterns, wildfires, heat waves, shortages of water or other natural resources, changing sea levels, changing storm patterns, flooding, increased frequency and intensities of storms, and changing temperature levels. Any of these may disrupt our operations, hinder transportation of our products to customers, prevent access to our facilities, negatively impact our suppliers’ or customers’ operations and their ability to fulfill contractual obligations to us, and/or damage our facilities, all of which may increase our costs, reduce production and adversely affect our operations and financial performance.  

Competition Risks

We face significant competition, which may have an adverse effect on profitability.

We compete with a variety of both U.S. and non-U.S. aluminum industry competitors as well as with producers of other materials, such as steel, titanium, plastics, composites, ceramics, and glass, among others. Use of such materials could reduce the demand for aluminum products, which may reduce our profitability and cash flow.  Factors affecting our ability to compete include increased competition from overseas producers, our competitors’ pricing strategies, the introduction or advancement of new technologies and equipment by our competitors, and our ability to maintain the cost-efficiency of our facilities.  In addition, our competitive position depends, in part, on our ability to operate as an integrated aluminum value chain, leverage innovation expertise across businesses and key end markets, and access an economical power supply to sustain our operations in various countries. See Business—Competition.

Our business is capital intensive, and if there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend operations, which could result in our recording asset impairment charges or taking other measures that may adversely affect our results of operations and profitability.

Our business operations are capital intensive. If there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend our operations, including laying off employees, recording asset impairment charges and other measures. In addition, we may not realize the benefits or expected returns from announced plans, programs, initiatives and capital investments. Any of these events could adversely affect our results of operations and profitability.

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Available Capital and Credit-Related Risks

Our business and growth prospects may be negatively impacted by limits on our ability to fund capital expenditures.

We require substantial capital to invest in growth opportunities and to maintain and prolong the life and capacity of our existing facilities. Our ability to generate cash flows is affected by many factors, including market and pricing conditions.  Insufficient cash generation or capital project overruns may negatively impact our ability to fund as planned our sustaining and return-seeking capital projects, and such postponement in funding capital expenditures or inadequate funding to complete projects could result in operational issues. In addition, to the extent our access to competitive financial, credit, capital and/or banking markets becomes impaired, our operations, financial results and cash flows could be adversely impacted.  We may also need to address commercial and political issues in relation to reductions in capital expenditures in certain of the jurisdictions in which we operate. If our interest in our joint ventures is diluted or we lose key concessions, our growth could be constrained. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.

Deterioration in our credit profile or increases in interest rates could increase our costs of borrowing money and limit our access to the capital markets and commercial credit.

The major credit rating agencies evaluate our creditworthiness and give us specified credit ratings. These ratings are based on a number of factors, including our financial strength and financial policies as well as our strategies, operations and execution. These credit ratings are limited in scope, and do not address all material risks related to an investment in us, but rather reflect only the view of each rating agency at the time its rating is issued. Nonetheless, the credit ratings we receive impact our borrowing costs as well as our access to sources of capital on terms that will be advantageous to our business. Failure to obtain sufficiently high credit ratings could adversely affect our interest rates in future financings, our liquidity, or our competitive position and could also restrict our access to capital markets. In addition, our credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. If a rating agency were to downgrade our rating, our borrowing costs could increase, our funding sources could decrease, and we would need to rely on our cash flows from operations. As a result of these factors, a downgrade of our credit ratings could have a materially adverse impact on our future operations, cash flows, and financial position.

In addition, our variable rate indebtedness may use London Interbank Offering Rate (LIBOR) as a benchmark for establishing the rate.  LIBOR has been the subject of recent national, international and other regulatory guidance and proposals for reform, and in 2017, the U.K. Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. The financial industry is currently transitioning away from LIBOR as a benchmark for the interbank lending market.  The discontinuation, reform, or replacement of LIBOR or any other benchmark rates may have an impact on contractual mechanics in the credit market or cause disruption in the broader financial markets.  The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.  

Our indebtedness restricts our current and future operations, which could adversely affect our ability to respond to changes in our business and manage our operations.

Alcoa and Alcoa Nederland Holding B.V. (ANHBV), a wholly-owned subsidiary of Alcoa, are party to a revolving credit agreement with a syndicate of lenders and issuers named therein (as subsequently amended, the Revolving Credit Agreement). The terms of the Revolving Credit Agreement and the indentures governing our outstanding notes contain covenants that impose significant operating and financial restrictions on us, including on our ability to, among other things:

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The Revolving Credit Agreement requires us to comply with financial covenants which includes maintaining an interest expense coverage ratio of not less than 5.00 to 1.00, and a leverage ratio for any period of four consecutive fiscal quarters that is not greater than 2.50 to 1.00. The calculation of these ratios, when considering the Company’s existing debt obligations, could restrict the amount of additional borrowing capacity under the Company’s Revolving Credit Facility or other credit facilities.

In addition, all obligations of Alcoa Corporation or a domestic entity under the Revolving Credit Agreement are secured by, subject to certain exceptions, a first priority lien on substantially all assets of Alcoa Corporation and the material domestic wholly-owned subsidiaries of Alcoa Corporation and certain equity interests of specified non-U.S. subsidiaries. All other obligations under the Revolving Credit Facility are secured by, subject to certain exceptions, a first priority security interest in substantially all assets of Alcoa Corporation, ANHBV, the material domestic wholly-owned subsidiaries of Alcoa Corporation, and the material foreign wholly-owned subsidiaries of Alcoa Corporation located in Australia, Brazil, Canada, Luxembourg, the Netherlands, Norway, and Switzerland including equity interests of certain subsidiaries that directly hold equity interests in AWAC entities. Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition, or other opportunities. The breach of any of these covenants or restrictions could result in a default under the Revolving Credit Agreement or the indentures governing our notes and other outstanding indebtedness, including such indebtedness for which the Company is a guarantor.

For more information on the restrictive covenants in the Revolving Credit Agreement, see the Liquidity and Capital Resources – Financing Activities section in Part II Item 7 of this Form 10-K.

Our failure to comply with the agreements relating to our outstanding indebtedness, including due to events beyond our control, could result in an event of default that could materially and adversely affect our business, financial condition, results of operations or cash flows.

If an event of default were to occur under any of the agreements relating to our outstanding indebtedness, including the Revolving Credit Agreement and the indenture governing our notes, we may not be able to incur additional indebtedness under the Revolving Credit Agreement and the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, which could have a material adverse effect on our ability to continue to operate as a going concern. Further, if we are unable to repay, refinance or restructure our secured indebtedness, the holders of such indebtedness could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument also could result in an event of default under one or more of our other debt instruments.

Cybersecurity Risks

Cyber-attacks and security breaches may threaten the integrity of our intellectual property and other sensitive information, disrupt our business operations, expose us to potential liability, and result in reputational harm and other negative consequences that could have a material adverse effect on our financial condition and results of operations.

We depend on computers, information and communications technology and related systems to enable us to operate efficiently and interface with customers as well as to maintain financial accuracy and efficiency.  In addition, our business involves the use, storage, and transmission of information about our employees and customers. The protection of such information, as well as our proprietary information, is critical to us.  In addition, we are subject to regulations around the world regarding the protection of information and data privacy, such as the European Union’s General Data Privacy Regulation (the GDPR). We face global cybersecurity threats, which may range from uncoordinated individual attempts to sophisticated and targeted measures, known as advanced persistent threats, directed at the Company. Cyber-attacks and other cyber incidents are more frequent, constantly evolving, more sophisticated, and made by groups and individuals with a wide range of expertise and motives. Cyber-attacks and security breaches may include, but are not limited to, unauthorized attempts to access information or digital infrastructure, computer viruses, ransomware, malicious codes, hacking, phishing, denial of service, and other electronic security breaches.  

We believe that we face a heightened threat of cyber-attacks because of the industry in which we operate and the markets we serve. As techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques, including their scope and impact, or implement preventative measures.  We have experienced attempts by external parties to penetrate our networks and

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systems. Such attempts to date have not resulted in any material breaches, disruptions, or loss of information.  While the Company continually works to safeguard our systems and mitigate potential risks, there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems or networks, compromise confidential or otherwise protected information, destroy or corrupt data, or otherwise disrupt our operations. These events could negatively impact our reputation and competitive position, and could result in litigation with third parties, regulatory action, loss of business, potential liability and increased remediation costs, any of which could have a material adverse effect on our financial condition and results of operations. Such security breaches could also result in a violation of applicable U.S. and international privacy and other laws, and subject us to private consumer, business partner, or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability. For example, the GDPR subjects companies to a range of new compliance obligations regarding the handling of personal data.  In the event our operations are found to be in violation of the GDPR’s requirements, we may be subject to significant civil penalties, business disruption and reputational harm, any of which could have a material adverse effect on our business.  

In addition, cyber-attacks or breaches could require significant management attention and resources, and result in the diminution of the value of our investment in research and development. While we have disaster recovery and business continuity plans in place, if our information technology systems are damaged, breached or cease to function properly for any reason, including the poor performance of, failure of or cyber-attack on third-party service providers, catastrophic events, power outages, cyber-security breaches, network outages, failed upgrades or other similar events and, if the disaster recovery and business continuity plans do not effectively resolve such issues on a timely basis, we may suffer interruptions in our ability to manage or conduct business as well as reputational harm.  As a result of such events, we may be subject to governmental investigations and litigation, any of which may adversely impact our business, results of operations, cash flows and financial condition.

Employee- and Pension-Related Risks

Loss of key personnel may adversely affect our business.

Our future success greatly depends on the continued service and performance of our executive management team and other key employees, and our ability to continue to attract and retain additional highly qualified personnel. Our executive management team and our other key employees are integral to our success based on their expertise and knowledge of our business and products. We compete for such personnel with other companies, including public and private company competitors who may periodically offer more favorable terms of employment. The loss or interruption of the services of any member of our executive management team or other key persons could have a material adverse effect on our business, results of operations and financial condition because we may not be able to find appropriate replacement personnel in a timely manner should the need arise.

Union disputes and other employee relations issues could adversely affect our financial results.

A significant portion of our employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying durations and expiration dates. See Business—Employees. Union disputes and other employee relations issues could adversely affect our financial results. We may not be able to satisfactorily renegotiate collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent strikes, work stoppages, work slowdowns, union organizing campaigns, or lockouts at our facilities in the future. We may also be subject to general country strikes or work stoppages unrelated to our business or collective bargaining agreements. A labor dispute or work stoppage of employees covered by collective bargaining agreements could have a material adverse effect on production at one or more of our facilities, and depending on the length of work stoppage, on our financial results.

An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors could affect our results of operations or amount of pension funding contributions in future periods.

Our results of operations may be negatively affected by the amount of expense we record for our pension and other postretirement benefit plans, reductions in the fair value of plan assets, and other factors. We calculate income or expense for our plans using actuarial valuations in accordance with accounting principles generally accepted in the United States of America (GAAP).

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 the Company to estimate pension or other postretirement benefit income or expense for the following year are the discount rate applied to plan liabilities and the expected long-term rate of return on plan assets. In addition, the Company is required to make an annual measurement of plan assets and liabilities, which may result in a significant charge to stockholders’ equity. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Pension and Other Postretirement Benefits and Note N to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K under the caption Pension and Other Postretirement Benefits. Although GAAP expense and pension funding contributions are impacted

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by different regulations and requirements, the key economic factors that affect GAAP expense would also likely affect the amount of cash or securities we 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. Higher than expected pension contributions due to a decline in the plans’ funded status as a result of 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 our liabilities related to such plans, adversely affecting our liquidity and results of operations.

Risk Related to Prior Separation Transaction

In connection with our Separation Transaction from ParentCo, Arconic agreed to indemnify us for certain liabilities and we agreed to indemnify Arconic for certain liabilities which could negatively impact financial results if indemnity liabilities arise in the future.

In connection with the Separation Transaction, Arconic agreed to indemnify us for certain liabilities, and we agreed to indemnify Arconic for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide Arconic may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that Arconic has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnity from Arconic may not be sufficient to protect us against the full amount of such liabilities, and Arconic may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Arconic any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.

Risks Related to Stock Ownership in the Company

Actions of activist stockholders of Alcoa could be disruptive and potentially costly, and the possibility that activist stockholders may contest, or seek changes that conflict with, our strategic direction could cause uncertainty about the strategic direction of our business.

Activist stockholders may from time to time attempt to effect changes in our Board of Directors or strategic direction and, in furtherance thereof, may seek changes in how Alcoa is governed. Our Board of Directors and management team strive to maintain constructive, ongoing communications with Alcoa stockholders, including activist stockholders, and welcome their views and opinions with the goal of working together constructively to enhance value for all stockholders.  However, activist campaigns that contest, or conflict with, our strategic direction could have an adverse effect on us because: (i) responding to actions by activist stockholders can disrupt our operations, are costly and time-consuming, and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition; (ii) perceived uncertainties as to our future direction may cause stock price decline and lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, cause concern to our current or potential customers, result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners; and (iii) these types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Anti-takeover provisions could enable our management to resist a takeover attempt by a third party and limit the power of our stockholders, which could decrease the trading price of our common stock.

Alcoa’s amended and restated certificate of incorporation (certificate of incorporation) and amended and restated bylaws (bylaws) contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with Alcoa’s Board of Directors rather than to attempt a hostile takeover. These provisions include, among others:

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In addition, we are subject to Section 203 of the Delaware General Corporation Law, which provides that, subject to limited exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15% of the outstanding voting stock of a Delaware corporation may not engage in a business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or any of its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make Alcoa immune from takeovers; however, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of Alcoa and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. These provisions of our certificate of incorporation, bylaws, and Delaware law, that have the effect of delaying or deterring a change in control of the Company could limit the opportunity for our stockholders to receive a premium for their shares and could affect the price that some investors are willing to pay for Alcoa common stock.

Item 1B.  Unresolved Staff Comments.

None.

Item 2. Properties.

Alcoa Corporation’s principal executive offices, located at 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858, are leased.  Alcoa also leases several office facilities and sites, both domestically and internationally.  In addition, Alcoa owns or has an ownership interest in its production sites, both domestically and internationally. Alcoa owns active mines and plants classified under the Bauxite, Alumina, and Aluminum segments of its business. These include facilities and assets around the world used for Alcoa’s bauxite mining, alumina refining, aluminum smelting and casting production, energy generation, and aluminum rolling operations. Capacity and utilization of these facilities varies by segment and the level of demand for each product.  See Part I Item 1 of this Form 10-K for additional information, including the ownership, capacity and utilization of these facilities according to each segment.

Several of our wholly-owned production facilities are encumbered under the Company’s Revolving Credit Facility.  For information on the Company’s Revolving Credit Facility, see Part II Item 7 of this Form 10-K under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financing Activities.

Although Alcoa’s facilities vary in terms of age and condition, management believes that its facilities are suitable and generally adequate to support the current and projected operations of the business. See Notes B and J to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for information on properties, plants and equipment.

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. Proceedings that were previously disclosed may no longer be reported because, as a result of rulings in the case, settlements, changes in our business or other developments, in our judgment, they are no longer material to Alcoa’s business, financial position or results of operations. For additional information related to ongoing legal matters, see Note R to the Consolidated Financial Statement in Item II Part 8 of this Form 10-K.  

Environmental Matters

Alcoa is involved in proceedings under CERCLA and 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 are discussed in Note R to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K under the caption Contingencies and Commitments—Environmental Matters.

In August 2005, Dany Lavoie, a resident of Baie Comeau in the Canadian Province of Québec, filed a Motion for Authorization to Institute a Class Action and for Designation of a Class Representative against Alcoa Canada Ltd., Alcoa Limitée, Société Canadienne de Metaux Reynolds Limitée and Canadian British Aluminum in the Superior Court of Québec in the District of Baie Comeau, alleging that defendants, as the present and past owners and operators of an aluminum smelter in Baie Comeau, had negligently allowed the emission of certain contaminants from the smelter on the lands and houses of the St. Georges neighborhood and its environs causing property damage and health concerns. In May 2007, the court authorized a class action suit on behalf of all people who suffered property or personal injury damages caused by the emission of polycyclic aromatic hydrocarbons from the Company’s aluminum smelter in Baie Comeau. In September 2007,

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plaintiffs filed the claim against the original defendants. The Soderberg smelting operations that plaintiffs allege to be the source of emissions of concern ceased operations in 2013 and has been dismantled.  A court appointed expert, engaged to perform analysis of the potential impacts from the emissions in accordance with a sampling protocol agreed by the parties, submitted its report to the court in May 2019. The parties are currently reviewing the results of the report with their own experts.  During a recent case management conference, the court ordered the parties to file a new timetable to prepare the case for trial by May 1, 2020. At this stage of the proceeding, we are unable to reasonably predict an outcome or to estimate a range of reasonably possible loss.

Asbestos Litigation

Some of our subsidiaries as premises owners are defendants in active lawsuits filed on behalf of persons alleging injury as a result of occupational exposure to asbestos at various facilities. A former affiliate of a subsidiary has been named, along with a large common group of industrial companies, in a pattern complaint where our involvement is not evident. Since 1999, several thousand such complaints have been filed. To date, the former affiliate has been dismissed from almost every case that was actually placed in line for trial. Our 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. We have significant insurance coverage and believe that our reserves are adequate for 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 Alcoa Corporation.

General

In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against Alcoa Corporation, including those pertaining to environmental, safety and health, commercial, tax, product liability, intellectual property infringement, employment, and employee and retiree benefit matters, and other actions and claims arising out of the normal course of business. While the amounts claimed in these other matters may be substantial, the ultimate liability is not readily determinable because of the considerable uncertainties that exist. Accordingly, it is possible that the Company’s 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 95.1 of this report, which is incorporated herein by reference.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Shares of the Company’s common stock are listed on the New York Stock Exchange and trade under the symbol “AA” in “regular-way” trading, which began on November 1, 2016 immediately following the Separation Transaction.

Alcoa Corporation did not pay dividends in 2019, 2018, or 2017. Dividends on Alcoa Corporation common stock are subject to authorization by the Company’s Board of Directors. The payment and amount of dividends, if any, depends upon matters deemed relevant by the Company’s Board of Directors, such as Alcoa Corporation’s results of operations, financial condition, cash requirements, future prospects, any limitations imposed by law, credit agreements or senior securities, and other factors deemed relevant and appropriate. The Company’s senior secured revolving credit facility and the indenture governing our senior unsecured notes restrict our ability to pay dividends in certain circumstances. For more information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financing Activities in Part II Item 7 of this Form 10-K.

As of February 14, 2020, there were approximately 11,500 holders of record of shares of the Company’s common stock. Because many of Alcoa Corporation’s shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these holders.

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Stock Performance Graph

The following graph compares Alcoa Corporation’s cumulative 38-month total shareholder return with (1) the Standard & Poor’s (S&P) 500^® Index and (2) the S&P 500^® Metals & Mining GICS Level 3 Index, a group of companies categorized by S&P as active in the “Metals and Mining” industry within the “Materials” market sector. This comparison was based on an initial investment of $100, including the reinvestment of any dividends from November 1, 2016 (beginning of “regular way” trading for Alcoa Corporation) through December 31, 2019. Such information shall not be deemed to be “filed.”

Issuer Purchases of Equity Securities

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Item 6.  Selected Financial Data.

(dollars in millions, except per-share amounts and average realized prices; metric tons in thousands (kmt))

Prior to the Separation Date, Alcoa Corporation did not operate as a separate, standalone entity. Alcoa Corporation’s operations were included in ParentCo’s financial results. Accordingly, for all periods prior to the Separation Date, Alcoa Corporation’s Consolidated Financial Statements were prepared from ParentCo’s historical accounting records and were presented on a standalone basis as if Alcoa Corporation’s operations had been conducted independently from ParentCo. Such Consolidated Financial Statements include the historical operations that were considered to comprise Alcoa Corporation’s businesses, as well as certain assets and liabilities that were historically held at ParentCo’s corporate level but were specifically identifiable or otherwise attributable to Alcoa Corporation. The change in accounting method from LIFO to average cost has not been retrospectively applied to 2016 and 2015 due to the impracticability as a result of the Separation Transaction.

The data presented in the Selected Financial Data table should be read in conjunction with the information provided in Management’s 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.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts;

dry metric tons in millions (mdmt); metric tons in thousands (kmt))

Overview

Our Business

Alcoa Corporation (Alcoa or the Company) is a vertically integrated aluminum company comprised of bauxite mining, alumina refining, aluminum production (smelting, casting, and rolling), and energy generation. Aluminum is a commodity that is traded on the London Metal Exchange (LME) and priced daily. Additionally, alumina is subject to market pricing through the Alumina Price Index (API), which is calculated by the Company based on the weighted average of a prior month’s daily spot prices published by the following three indices: CRU Metallurgical Grade Alumina Price; Platts Metals Daily Alumina PAX Price; and Metal Bulletin Non-Ferrous Metals Alumina Index. As a result, the price of both aluminum and alumina is subject to significant volatility and, therefore, influences the operating results of Alcoa Corporation.

Through direct and indirect ownership, Alcoa Corporation has 30 operating locations in nine countries around the world, situated primarily in Australia, Brazil, Canada, Iceland, Norway, Spain, and the United States. 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.

Business Update

In September 2019, Alcoa Corporation announced the implementation of a new operating model that will result in a leaner, more integrated, operator-centric organization. Effective November 1, 2019, the new operating model eliminates the business unit structure, consolidates sales, procurement and other commercial capabilities at an enterprise level, and streamlines the Executive Team that reports to the Chief Executive Officer. The new structure will reduce overhead with the intention of promoting operational and commercial excellence and increasing connectivity between the Company’s operations and leadership. As a result of the new operating model, a charge of $37 was recorded related to employee termination and severance costs. Annual operating cost savings of approximately $60 related to the new operating model are expected beginning in the second quarter of 2020.

In October 2019, the Company announced initiatives to drive lower costs and sustainable profitability. Planned initiatives include (i) over the next 12 to 18 months, pursuing non-core asset sales expected to generate an estimated $500 to $1,000 in net proceeds in support of its updated strategic priorities and (ii) over the next five years, realigning its operating portfolio. For the portfolio review, the Company has placed 1.5 million metric tons of smelting capacity and 4 million metric tons of alumina refining capacity under review. The review will consider opportunities for significant improvement, potential curtailments, closures, or divestitures.

In December 2019, the Company announced the permanent closure of its alumina refinery in Point Comfort, Texas as its first action of the multi-year portfolio review. The site’s 2.3 million metric tons of refining capacity had been fully curtailed since 2016. As a result of the decision to close the refinery, a $274 charge was recorded to Restructuring and other charges, net (see Note D to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K). Beginning in 2020, the closure is expected to result in annual net income improvement of approximately $15 (after-tax and noncontrolling interest) and cash savings of approximately $10 (Alcoa’s share) when compared to the ongoing spend for curtailment, exclusive of closure costs.

On December 31, 2019, Alcoa completed the transfer of the Afobaka hydroelectric dam to the Government of the Republic of Suriname, according to definitive agreements approved by its parliament. After curtailment of Alcoa’s operations in Suriname in 2015 and permanent closure in early 2017, Alcoa continued to operate the dam, selling electricity to the government for its subsequent sale to customers in Suriname. Alcoa expects an annual net income reduction related to the loss of electricity sales of approximately $20 (after-tax and noncontrolling interest) based on 2019 results.

In January 2020, the Company announced the sale of Elemental Environmental Solutions LLC (EES), a wholly-owned Alcoa subsidiary that operates the waste processing facility in Gum Springs, Arkansas, to a global environmental firm in a transaction valued at $250. The transaction closed as of January 31, 2020 whereby the Company received $200 with another $50 held in escrow to be paid to Alcoa if certain post-closing conditions are satisfied. As a result of the transaction, the Company expects to recognize a gain of approximately $175 in the first quarter of 2020 and annual net income improvement of approximately $10.

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Separation Transaction

References to ParentCo refer to Alcoa Inc., a Pennsylvania corporation, and its consolidated subsidiaries through October 31, 2016, at which time was renamed Arconic Inc. (Arconic).

On November 1, 2016 (the Separation Date), ParentCo separated into two standalone, publicly-traded companies, Alcoa Corporation and Arconic, effective at 12:01 a.m. Eastern Time (the Separation Transaction). Regular-way trading of Alcoa Corporation’s common stock began with the opening of the New York Stock Exchange on November 1, 2016 under the ticker symbol “AA.” The Company’s common stock has a par value of $0.01 per share.

To effect the Separation Transaction, ParentCo undertook a series of transactions to separate the net assets and certain legal entities of ParentCo, resulting in an initial cash payment of $1,072 to ParentCo by Alcoa Corporation with the net proceeds of a previous debt offering (see Note L to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K). Additionally, $247 was paid to Arconic by the Company in 2017, including $243 from the proceeds associated with the sale of certain energy operations (see Note C to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K).

In connection with the Separation Transaction, Alcoa Corporation and Arconic entered into certain agreements to implement the legal and structural separation between the two companies, govern the relationship between the Company and Arconic after the completion of the Separation Transaction, and allocate between Alcoa Corporation and Arconic various assets, liabilities, and obligations. These agreements included a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement, certain Patent, Know-How, Trade Secret License and Trademark License Agreements, and Stockholder and Registration Rights Agreement.

Basis of Presentation. The Consolidated Financial Statements of Alcoa Corporation are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In accordance with GAAP, certain situations require management to make estimates based on judgments and assumptions, which 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 periods. 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 current period presentation.

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from last-in, first-out (LIFO) to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2019 and 2018. For a discussion of changes from the fiscal year ended December 31, 2017 to the fiscal year ended December 31, 2018, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II Item 7 of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 (filed February 26, 2019).

Results of Operations

Earnings Summary

Net loss attributable to Alcoa Corporation for 2019 was $1,125 compared with net income of $250 in 2018. The change of $1,375 was primarily due to lower margin from declining alumina and aluminum prices and higher restructuring costs, partially offset by favorable currency impacts, a lower income tax provision, higher volume, and lower net income attributable to noncontrolling interest.

Sales—Sales for 2019 were $10,433 compared with $13,403 in 2018, a change of $2,970, or 22%. The decrease was largely attributed to a lower average realized price for alumina and primary aluminum, the end of a flat rolled products tolling arrangement in Tennessee, and reduced sales from the divestiture of two aluminum facilities in Spain.

Cost of Goods Sold—Cost of goods sold as a percentage of Sales was 82% in 2019 compared with 75% in 2018. The percentage was negatively impacted by a lower average realized price for both alumina and aluminum products. The unfavorable impacts were partially offset by higher alumina shipments, net favorable foreign currency movements due to a stronger U.S. dollar, primarily against the Australian dollar, the euro, and the Brazilian real, improvements due to the divestiture of two aluminum facilities in Spain, and the partial exemption of tariffs on certain aluminum imports in 2019 (see Aluminum in Segment Information below).

Selling, General Administrative, and Other Expenses—Selling, general administrative, and other expenses were $280, or 3% of Sales, in 2019 compared with $248, or 2% of Sales, in 2018. The change of $32 was primarily related to the unfavorable impact of a bad debt reserve recorded against a Canadian customer receivable due to a 2019 bankruptcy filing.

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Provision for Depreciation, Depletion, and Amortization—The provision for DD&A was $713 in 2019 compared with $733 in 2018. The decrease of $20, or 3%, was principally caused by net favorable foreign currency movements, largely due to a stronger U.S. dollar against the Brazilian real, Australian dollar and Canadian dollar and the divestiture of two aluminum facilities in Spain. The favorable changes were partially offset by higher depreciation from the shortened lives of certain residue disposal areas in Brazil as a result of regulatory changes that occurred in 2019.

Restructuring and Other Charges, Net—Restructuring and other charges, net was $1,031 in 2019 compared with $527 in 2018. In 2019, management took several actions to strengthen the Company which had a significant impact on Restructuring and other charges, net. These actions include divesting Alcoa’s equity investment in Ma’aden Rolling Company, the curtailment and subsequent divestiture of the Avilés and La Coruña (Spain) aluminum facilities, additional actions taken to reduce the overall pension and other postretirement benefit (OPEB) liabilities, announcing a new operating model that will streamline reporting to assist in operational effectiveness, and deciding to permanently close the Point Comfort alumina refinery. The increase in charges from 2018 is mainly attributed to the above factors and is partially offset by lower settlements and curtailments related to retirement benefits and the absence of a charge related to value-added tax credits recorded in 2018. See Note D in Part II Item 8 of this Form 10-K for a detailed description of each restructuring action.

Other Expenses, net—Other expenses, net was $162 in 2019 compared with $64 in 2018. The change of $98 was mostly due to unfavorable changes in foreign currency movements ($73), an unfavorable change in equity earnings ($32), primarily related to the joint venture in Saudi Arabia as a result of lower alumina and aluminum prices which were slightly offset by the partial year absence of rolling mill losses, and reduced gains related to mark-to-market derivative instruments. These items were partially offset by lower non-service costs related to pension and other postretirement benefit plans ($22) primarily due to the actions taken by management to reduce the overall pension and OPEB liabilities.

Income Taxes—Alcoa Corporation’s effective tax rate was (94.9)% (provision on loss) in 2019 compared with the U.S. federal statutory rate of 21%. Alcoa’s effective tax rate and federal statutory rate for 2018 were 45% (provision on income) and 21%, respectively. The effective tax rate differs from the U.S. federal statutory rate primarily due to losses in countries with full valuation reserves resulting in no tax benefit, as well as foreign income taxed in higher rate jurisdictions. In 2019, the effective tax rate was also impacted by restructuring expenses related to divestitures in foreign jurisdictions that are not deductible for tax purposes.

In addition to reviewing the effective tax rate, management utilizes an adjusted effective tax rate (the operational tax rate) to assess the tax on operations exclusive of special items. Management reviews the operating results of the Company exclusive of special items, and therefore believes that this measure is meaningful for assessing the impact of these special items on the effective tax rate. Management anticipates the operational tax rate in 2020 to be between 70% and 80%. However, business portfolio actions, 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 tax jurisdictions may cause the actual rate to fall outside of the estimated range.

Noncontrolling Interest—Net income attributable to noncontrolling interest was $272 in 2019 compared with $643 in 2018. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities, which own, have an interest in, or operate the bauxite mines and alumina refineries within Alcoa’s Bauxite and Alumina segments (except for the Poços de Caldas mine and refinery and portions of the São Luís refinery and investment in Mineração Rio do Norte S.A., all in Brazil) and a portion (55%) of the Portland smelter (Australia) within the Company’s Aluminum segment. These individual entities comprise an unincorporated global joint venture between Alcoa Corporation and Alumina Limited known as Alcoa World Alumina and Chemicals (AWAC). Alcoa Corporation owns 60% of these individual entities, which are consolidated by the Company for financial reporting purposes and include Alcoa of Australia Ltd. (AofA), Alcoa World Alumina LLC (AWA), Alcoa World Alumina Brasil Ltda. (AWAB), and Alúmina Española, S.A. (Española). Alumina Limited’s 40% interest in the earnings of such entities is reflected as Noncontrolling interest on Alcoa Corporation’s Statement of Consolidated Operations.

In 2019, these combined entities generated lower net income compared to 2018, primarily driven by lower alumina prices.

Segment Information

Alcoa Corporation is a producer of bauxite, alumina, and aluminum products (primary and flat-rolled). The Company’s operations consist of three worldwide reportable segments: Bauxite, Alumina, and Aluminum. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) of each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses. Alcoa Corporation’s Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Segment Adjusted EBITDA totaled $1,626 in 2019, $3,250 in 2018, and $2,739 in 2017. The following information provides production, shipments, sales, and Segment Adjusted EBITDA data for each reportable segment, as well as certain realized

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price and average cost data, for each of the three years in the period ended December 31, 2019. See Note E to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information.

Bauxite

Operating costs in the table above includes all production-related costs: conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

Overview. This segment represents the Company’s global bauxite mining operations. A portion of this segment’s production represents the offtake from equity method investments in Brazil and Guinea, as well as AWAC’s share of production related to the equity investment in Saudi Arabia. Production in the above table can vary from Total shipments due primarily to differences between the equity allocation of production and off-take agreements with the respective equity investment. The bauxite mined by this segment is sold primarily to internal customers within the Alumina segment; a portion of the bauxite is sold to external customers. Bauxite mined by this segment and used internally is transferred to the Alumina segment at negotiated terms that are intended to approximate market prices; sales to third-parties are conducted on a contract basis. Generally, this segment’s sales are transacted in U.S. dollars while costs and expenses are transacted in the local currency of the respective operations, which are the Australian dollar and the Brazilian real. Most of the operations that comprise the Bauxite segment are part of AWAC (see Noncontrolling Interest in Earnings Summary above).

Business Update. The Bauxite segment had record annual production in 2019 which included annual production records for the Willowdale, Huntly, and Juruti mines. The record annual production contributed to the record annual Adjusted EBITDA for the segment.

Additionally, in November 2019, employees in Western Australian eligible for coverage by the Australian Workers Union (AWU) enterprise agreement (EA) voted in support of the agreement proposed by the Company and representatives of the AWU in October 2019. The agreement has been ratified by the Fair Works Counsel and is in effect for approximately 1,500 employees across the Bauxite and Alumina segments combined.  

Mining operations are relocated periodically in support of optimizing the value extracted from bauxite reserves. During 2019, the Company began the process of moving the Willowdale mining operations to the next planned location in the Darling range, and began preparing for movement of the Juruti mining operations which is expected to start in 2020. As a result of these movements, additional capital expenditures are anticipated for 2020 compared with 2019.

Production. In 2019, bauxite production increased 3% compared with 2018, from higher production at five of the segment’s seven mines.

Sales. Third-party sales for the Bauxite segment increased 10% in 2019 compared with 2018, primarily attributed to a 9% increase in third-party shipments.

Intersegment sales for the Bauxite segment increased 4% in 2019 compared with 2018 which was primarily driven by a higher average realized price.

Segment Adjusted EBITDA. Bauxite Segment Adjusted EBITDA improved $78 in 2019 compared with 2018, principally as a result of the previously mentioned higher average realized price for intersegment sales and net favorable foreign currency movements due to a stronger U.S. dollar against the Australian dollar and Brazilian real.

Forward-Look. In 2020, lower intersegment and third-party prices are anticipated in addition to higher capital expenditures as a result of the previously mentioned Willowdale and Juruti mining location moves.

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Alumina

In the above table, total shipments include metric tons that were not produced by the Alumina segment. Such alumina was purchased to satisfy certain customer commitments. The Alumina segment bears the risk of loss of the purchased alumina until control of the product has been transferred to this segment’s customer. Additionally, operating costs in the table above includes all production-related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

Overview. This segment represents the Company’s worldwide refining system, which processes bauxite into alumina. The alumina produced by this segment is sold primarily to internal and external aluminum smelter customers; a portion of the alumina is sold to external customers who process it into industrial chemical products. Approximately two-thirds of Alumina’s production is sold under supply contracts to third parties worldwide, while the remainder is used internally by the Aluminum segment. Alumina produced by this segment and used internally is transferred to the Aluminum segment at prevailing market prices. A portion of this segment’s third-party sales are completed through the use of alumina traders. Generally, this segment’s sales are transacted in U.S. dollars while costs and expenses are transacted in the local currency of the respective operations, which are the Australian dollar, the Brazilian real, the U.S. dollar, and the euro. Most of the operations that comprise the Alumina segment are part of AWAC (see Noncontrolling Interest in Earnings Summary above). This segment also includes AWAC’s 25.1% ownership interest in the mining and refining joint venture company in Saudi Arabia.

Business Update. The Alumina segment had record annual production in 2019 which included annual production records for the Wagerup, Pinjarra, and San Ciprián alumina refineries. In November 2019, employees in Western Australian eligible for coverage by the AWU EA voted in support of the agreement proposed by the Company and representatives of the AWU in October 2019. The agreement has been ratified by the Fair Works Counsel and is in effect for approximately 1,500 employees across the Bauxite and Alumina segments combined. Additionally, in December 2019, the Company announced the closure of the Point Comfort alumina refinery which had been fully curtailed since 2016.

During 2019, the average API (on 30-day lag) continued to decrease, while the Alumina segment improved stability across the refining system and realized the benefit of declining prices for caustic soda.  

Capacity. At December 31, 2019, the Alumina segment had a base capacity of 12,759 kmt with 214 kmt of curtailed refining capacity, both of which were down from 2018 due to the announcement of the permanent closure of the previously curtailed Point Comfort alumina refinery. There were no other changes to curtailed or base capacity during 2019.  

Production. In 2019, alumina production increased by 445 kmt compared to 2018, principally due to stabilization of operations across the refining system.

Sales. Third-party sales for the Alumina segment decreased 23% in 2019 compared with 2018, primarily attributable to a decline in average realized price which was principally driven by a lower average API (on 30-day lag).

Intersegment sales for the Alumina segment decreased 26% in 2019 compared with 2018 which was primarily driven by a lower average realized price.

Segment Adjusted EBITDA. Alumina Segment Adjusted EBITDA decreased $1,276 in 2019 compared with 2018, largely attributed to the previously mentioned lower average realized prices, higher costs for bauxite and energy, and increased maintenance expenses. These negative impacts were partially offset by net favorable foreign currency movements due to a stronger U.S. dollar, particularly against the Australian dollar and Brazilian real, and lower costs for caustic soda.

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Forward-Look. In 2020, higher natural gas costs in Australia are expected to be more than offset by lower costs for both bauxite and caustic soda. Additionally, approximately 10% of the Alumina segment’s intercompany shipments will move to an API based price from a percentage of LME price.

Aluminum

In the above table, total aluminum third-party shipments and total primary aluminum shipments include metric tons that were not produced by the Aluminum segment. Such aluminum was purchased by this segment to satisfy certain customer commitments. The Aluminum segment bears the risk of loss of the purchased aluminum until control of the product has been transferred to this segment’s customer. Total aluminum information incudes flat-rolled aluminum while Primary aluminum information does not. Operating costs includes all production-related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

The average realized third-party price per metric ton of primary aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.) or alloy.

Overview. This segment consists of the Company’s (i) worldwide smelting and casthouse system, which processes alumina into primary aluminum, (ii) portfolio of energy assets in Brazil, Canada, and the United States, and (iii) a rolling mill in the United States.

Aluminum’s combined smelting and casting operations produce primary aluminum products, virtually all of which are sold to external customers and traders; a portion of this primary aluminum is consumed by the rolling mill. The smelting operations produce molten primary aluminum, which is then formed by the casting operations into either common alloy ingot (e.g., t-bar, sow, standard ingot) or into value-add ingot products (e.g., foundry, billet, rod, and slab). A variety of external customers purchase the primary aluminum products for use in fabrication operations, which produce products primarily for the transportation, building and construction, packaging, wire, and other industrial markets. Results from the sale of aluminum powder and scrap are also included in this segment, as well as the impacts of embedded aluminum derivatives related to energy supply contracts.

The energy assets supply power to external customers in Brazil and, to a lesser extent, in the United States, as well as internal customers in the Aluminum (Canadian smelters and Warrick (Indiana) smelter and rolling mill) and Alumina segments (Brazilian refineries).

The rolling mill produces aluminum sheet primarily sold directly to customers in the packaging market for the production of aluminum cans (beverage and food). Additionally, from the Separation Date through the end of 2018, Alcoa Corporation had a tolling arrangement (contractually ended on December 31, 2018) with Arconic whereby Arconic’s rolling mill in Tennessee produced can sheet products for certain customers of the Company’s rolling operations. Alcoa supplied all of the raw materials to the Tennessee facility and paid Arconic for the tolling service. Seasonal increases in can sheet sales are generally experienced in the second and third quarters of the calendar year.

Generally, this segment’s aluminum sales are transacted in U.S. dollars while costs and expenses of this segment are transacted in the local currency of the respective operations, which are the U.S. dollar, the euro, the Norwegian krone, the Icelandic króna, the Canadian dollar, the Brazilian real, and the Australian dollar.

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This segment also includes Alcoa Corporation’s 25.1% ownership interest in both the smelting and rolling mill joint venture company in Saudi Arabia (the rolling mill was divested in June 2019).

Business Update. During 2019, significant labor agreements in the United States and Canada were modernized and extended for up to six years. As a result of a more competitive and long-term labor agreement, the process to restart the Bécancour (Canada) smelter began in July 2019. Previously, in January 2018, a lockout of the bargained hourly employees commenced at the Bécancour smelter, as labor negotiations reached an impasse. Accordingly, management initiated a curtailment of two of the three potlines at the smelter. Additionally, in December 2018, half of the one operating potline at the Bécancour smelter was curtailed. This additional curtailment was deemed necessary to ensure continued safety and maintenance due to recent retirements and departures among the salaried workforce.

In May 2019, Canada and Mexico received an exemption from tariffs that had been imposed on aluminum produced and imported from those countries under Section 232 of the Trade Expansion Act of 1962. These tariffs were originally enacted in March 2018.

In June 2019, Alcoa and Saudi Arabian Mining Company (known as Ma’aden) amended the joint venture agreement that governs the operations of each of the three companies that comprise the joint venture. The amendment, among other items, transferred Alcoa’s 25.1% interest in the rolling mill to Ma’aden and, as a result, Alcoa has no further direct or indirect equity interest in Ma’aden Rolling Company. See Note C to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information.

In February 2019, Alcoa curtailed the smelters at Avilés and La Coruña (Spain) after reaching an agreement with the workers’ representatives on a collective dismissal process. In July 2019, Alcoa divested the Company’s interest in the Avilés and La Coruña aluminum facilities to PARTER Capital Group AG. See Note C to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.

Capacity. At December 31, 2019, the Aluminum segment had 766 kmt of idle smelting capacity on a base capacity of 2,993 kmt. In 2019, idle capacity decreased 150 kmt and base capacity decreased 180 kmt compared with December 31, 2018 due to the curtailment (February 2019) and subsequent divestiture (July 2019) of the Avilés and La Coruña facilities and the restart of 94 kmt at the Bécancour (Canada) smelter due to the aforementioned new labor agreement.

Production. In 2019, primary aluminum production decreased by 124 kmt compared with 2018, primarily due to lower production at the Bécancour smelter as a result of the previously mentioned curtailment and the curtailment and subsequent divestiture of the Avilés and La Coruña facilities, partially offset by a full year of restarted production at the Warrick smelter.

Sales. Third-party sales for the Aluminum segment decreased 23% in 2019 compared with 2018, primarily attributed to a reduction in metal price, a decrease in flat-rolled aluminum shipments due to the end of tolling arrangement with Arconic in December 2018, and decreased primary aluminum shipments, mainly resulting from the curtailment and subsequent divesture of the Avilés and La Coruña facilities and decreased production from the Bécancour (Canada) smelter resulting from the previously mentioned curtailments. The reduction in metal price was mainly driven by a 15% lower average LME price (on 15-day lag) combined with a decrease in the Midwest regional premium of 5%.

Segment Adjusted EBITDA. Aluminum Segment Adjusted EBITDA decreased $426 in 2019 compared with 2018. The decrease was mainly attributable to lower metal prices, unfavorable energy pricing, higher labor costs, and the establishment of a bad debt reserve against a Canadian customer receivable. These unfavorable impacts were partially offset by lower alumina and carbon costs, favorable foreign currency impacts due to a stronger U.S. dollar, primarily against the euro, Norwegian kroner, and Icelandic kròna, and the partial exemption of the Section 232 tariffs in the United States.

Forward-Look. In 2020, benefits from the Bécancour (Canada) smelter restart and lower raw material costs are expected to offset the volatility in energy exposures not covered by long term contracts. Additionally, the segment will experience the impact of approximately 10% of the intercompany alumina receipts moving to an API based price from a percentage of LME price.

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Reconciliations of Certain Segment Information

Reconciliation of Total Segment Third-Party Sales to Consolidated Sales

Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods Sold

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Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net (Loss) Income Attributable to Alcoa Corporation

Environmental Matters

See the Environmental Matters section of Note R to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.

Liquidity and Capital Resources

Alcoa Corporation’s primary future cash flows are centered on operating activities, particularly working capital, as well as sustaining and return-seeking capital expenditures. Alcoa’s ability to fund its cash needs depends on the Company’s ongoing ability to generate and raise cash in the future. Although management believes that Alcoa’s future cash from operations, together with the Company’s access to capital markets, will provide adequate resources to fund operating and investing needs, the Company’s access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) Alcoa Corporation’s credit rating; (ii) the liquidity of the overall capital markets; and (iii) the current state of the economy and commodity markets. There can be no assurances that the Company will continue to have access to capital markets on terms acceptable to Alcoa Corporation.

Cash provided from operations and financing activities is expected to be adequate to cover Alcoa’s operational and business needs over the next 12 months. For an analysis of long-term liquidity, see Contractual Obligations and Off-Balance Sheet Arrangements below.

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At December 31, 2019, the Company’s cash and cash equivalents were $879, of which $755 was held outside the United States. Alcoa Corporation has a number of commitments and obligations related to the Company’s operations in various foreign jurisdictions, resulting in the need for cash outside the United States. Alcoa Corporation continuously evaluates its local and global cash needs for future business operations, which may influence future repatriation decisions.

Cash from Operations

Cash provided from operations was $686 in 2019 compared with cash provided from operations of $448 in 2018. Notable changes to the sources and (uses) of cash for 2019 include:

Financing Activities

Cash used for financing activities was $444 in 2019 compared with cash used for financing activities of $288 in 2018. The increased use of cash was primarily attributed to the non-recurrence of cash sources of $560 due to the 2018 issuance of debt, $21 of lower proceeds from the exercise of employee stock options, and $12 of financial contributions paid to PARTER as part of the Avilés and La Coruña divestiture. These unfavorable changes were partially offset by $257 lower net cash paid to Alumina Limited, $128 for lower payments on debt, and $50 from the non-recurrence of common stock repurchases made in 2018.

Credit Facilities. Alcoa Corporation has access to various sources of liquidity outside of cash generated through operations.  Included in these sources is the Second Amended Revolving Credit Facility (the Revolving Credit Facility) entered into by Alcoa Corporation and Alcoa Nederland Holding B.V. (ANHBV), a revolving credit facility entered into during October 2019 by Alcoa Norway ANS, and a three-year revolving credit facility agreement, also entered into during October 2019, secured by certain customer receivables.

The Revolving Credit Facility provides a $1,500 senior secured revolving credit facility to be used for working capital and/or other general corporate purposes of Alcoa Corporation and its subsidiaries. The Revolving Credit Agreement includes a number of covenants, including financial covenants, that require maintenance of a specified interest expense coverage ratio and a leverage ratio. The leverage ratio compares total indebtedness to a calculated earnings metric as defined in the credit facility agreement to determine compliance with the financial covenant. The calculation also determines the maximum indebtedness the Company can have based on the defined earnings metric. Based on the leverage ratio calculation as of December 31, 2019, the maximum additional borrowing capacity available to the Company to remain in compliance with the covenant was $1,200; the lower capacity primarily resulting from the impact of the restructuring-related charges recorded in 2019 on the earnings metric calculation. However, the Company still has the ability to access the full $1,500 credit facility through a combination of the maximum additional borrowing capacity and the issuances of letters of credit at December 31, 2019. The Company believes that its cash on hand, future operating cash flows, and borrowing capacity at December 31, 2019 is adequate to fund its operating and investing needs. As of December 31, 2019 and 2018, Alcoa was in compliance with all covenants.

The Revolving Credit Facility is scheduled to mature on November 21, 2023 unless extended or earlier terminated in accordance with the provisions of the Second Amended Revolving Credit Agreement. ANHBV may make extension requests during the term of the Revolving Credit Facility, subject to the lender consent requirements set forth in the Second Amended Revolving Credit Agreement.

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On October 2, 2019, Alcoa Norway ANS, a wholly-owned subsidiary of Alcoa Corporation, entered into a one-year, multicurrency revolving credit facility agreement for NOK 1.3 billion (approximately $147) which is guaranteed on an unsecured basis by Alcoa Corporation. This revolving credit facility is scheduled to mature on October 2, 2020, unless extended or terminated early in accordance with the provisions of the agreement.

On October 25, 2019, a wholly-owned subsidiary of the Company entered into a $120 three-year revolving credit facility agreement secured by certain customer receivables. Alcoa Corporation guarantees the performance obligations of the wholly-owned subsidiaries under the facility, however no assets (other than the receivables) are pledged as collateral.

As of December 31, 2019, Alcoa’s combined additional borrowing capacity of $1,200 can be drawn through any combination of Alcoa’s credit facilities. No amounts were borrowed relating to these facilities during 2019. See Note L to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information related to these credit facilities.

Debt. As of December 31, 2019, Alcoa Corporation has three outstanding Notes maturing at varying times. A summary of the Notes and other debt is shown below. See Note L to the Consolidated Financial Statement in Part II Item 8 of this Form 10-K for additional information related to the Company’s debt.