UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number 1-37816
ALCOA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
81-1789115
(I.R.S. Employer
Identification No.)
201 Isabella Street, Suite 500,
Pittsburgh, Pennsylvania
(Address of principal executive offices)
15212-5858
(Zip Code)
412-315-2900
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
AA
New York Stock Exchange
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 ☒
Indicate the number of shares outstanding of each of the registrant’s classes of stock, as of the latest practicable date.
Title or Class
Outstanding Shares as of August 1, 2024
258,340,140
Series A Convertible Preferred Stock, par value $0.01 per share
4,041,989
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
1
Item 1.
Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
43
Item 4.
Controls and Procedures
PART II – OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
44
Unregistered Sales of Equity Securities and Use of Proceeds
45
Item 5.
Other Information
Item 6.
Exhibits
46
SIGNATURES
47
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 “aims,” “ambition,” “anticipates,” “believes,” “could,” “develop,” “endeavors,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “potential,” “plans,” “projects,” “reach,” “seeks,” “sees,” “should,” “strive,” “targets,” “will,” “working,” “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, statements regarding forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results, or operating performance (including our ability to execute on strategies related to environmental, social and governance matters, such as our Green Finance Framework); statements about strategies, outlook, and business and financial prospects; and statements about capital allocation and 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 the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results 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: (1) the impact of global economic conditions on the aluminum industry and aluminum end-use markets; (2) volatility and declines in aluminum and alumina demand and pricing, including global, regional, and product-specific prices, or significant changes in production costs which are linked to London Metal Exchange (LME) or other commodities; (3) the disruption of market-driven balancing of global aluminum supply and demand by non-market forces; (4) competitive and complex conditions in global markets; (5) our ability to obtain, maintain, or renew permits or approvals necessary for our mining operations; (6) rising energy costs and interruptions or uncertainty in energy supplies; (7) unfavorable changes in the cost, quality, or availability of raw materials or other key inputs, or by disruptions in the supply chain; (8) our ability to execute on our strategy to be a lower cost, competitive, and integrated aluminum production business and to realize the anticipated benefits from announced plans, programs, initiatives relating to our portfolio, capital investments, and developing technologies; (9) our ability to integrate and achieve intended results from joint ventures, other strategic alliances, and strategic business transactions; (10) economic, political, and social conditions, including the impact of trade policies and adverse industry publicity; (11) fluctuations in foreign currency exchange rates and interest rates, inflation and other economic factors in the countries in which we operate; (12) changes in tax laws or exposure to additional tax liabilities; (13) global competition within and beyond the aluminum industry; (14) our ability to obtain or maintain adequate insurance coverage; (15) disruptions in the global economy caused by ongoing regional conflicts; (16) legal proceedings, investigations, or changes in foreign and/or U.S. federal, state, or local laws, regulations, or policies; (17) climate change, climate change legislation or regulations, and efforts to reduce emissions and build operational resilience to extreme weather conditions; (18) our ability to achieve our strategies or expectations relating to environmental, social, and governance considerations; (19) claims, costs, and liabilities related to health, safety and environmental laws, regulations, and other requirements in the jurisdictions in which we operate; (20) liabilities resulting from impoundment structures, which could impact the environment or cause exposure to hazardous substances or other damage; (21) our ability to fund capital expenditures; (22) deterioration in our credit profile or increases in interest rates; (23) restrictions on our current and future operations due to our indebtedness; (24) our ability to continue to return capital to our stockholders through the payment of cash dividends and/or the repurchase of our common stock; (25) cyber attacks, security breaches, system failures, software or application vulnerabilities, or other cyber incidents; (26) labor market conditions, union disputes and other employee relations issues; (27) a decline in the liability discount rate or lower-than-expected investment returns on pension assets; and (28) the other risk factors discussed in Alcoa’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and other reports filed by Alcoa with the SEC, including those described in this report. Alcoa cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Alcoa 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. Neither Alcoa nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements and none of the information contained herein should be regarded as a representation that the forward-looking statements contained herein will be achieved.
Item 1. Financial Statements.
Alcoa Corporation and Subsidiaries
Statement of Consolidated Operations (unaudited)
(in millions, except per-share amounts)
Second quarter ended June 30,
Six months ended June 30,
2024
2023
Sales (E)
$
2,906
2,684
5,505
5,354
Cost of goods sold (exclusive of expenses below)
2,533
2,515
4,937
4,919
Selling, general administrative, and other expenses
69
52
129
106
Research and development expenses
13
6
24
16
Provision for depreciation, depletion, and amortization
163
153
324
306
Restructuring and other charges, net (D)
18
220
173
Interest expense
40
27
67
53
Other (income) expenses, net (P)
(22
)
37
60
Total costs and expenses
2,814
2,783
5,738
5,633
Income (loss) before income taxes
92
(99
(233
(279
Provision for income taxes
61
22
74
Net income (loss)
31
(121
(276
(353
Less: Net income (loss) attributable to noncontrolling interest
11
(19
(44
(20
NET INCOME (LOSS) ATTRIBUTABLE TO ALCOA CORPORATION
20
(102
(232
(333
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA CORPORATION COMMON SHAREHOLDERS (F):
Basic
0.11
(0.57
(1.29
(1.87
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
Statement of Consolidated Comprehensive Income (unaudited)
(in millions)
Alcoa Corporation
Noncontrolling interest
Total
Other comprehensive (loss) income, net of tax (G):
Change in unrecognized net actuarial gain/loss and prior service cost/benefit related to pension and other postretirement benefits
10
5
(2
8
Foreign currency translation adjustments
(60
25
(16
(76
36
Net change in unrecognized gains/losses on cash flow hedges
(62
226
(1
—
(63
Total Other comprehensive (loss) income, net of tax
(109
261
(12
9
270
Comprehensive (loss) income
(89
159
(10
(90
149
Net loss
14
12
(182
(70
26
(252
68
104
(92
145
(65
(157
169
(324
(188
4
(433
(184
2
Consolidated Balance Sheet (unaudited)
June 30,2024
December 31,2023
ASSETS
Current assets:
Cash and cash equivalents (M)
1,396
944
Receivables from customers (I)
939
656
Other receivables
135
152
Inventories (J)
1,975
2,158
Fair value of derivative instruments (M)
38
29
Prepaid expenses and other current assets
420
466
Total current assets
4,903
4,405
Properties, plants, and equipment
19,999
20,381
Less: accumulated depreciation, depletion, and amortization
13,496
13,596
Properties, plants, and equipment, net
6,503
6,785
Investments (H)
989
979
Deferred income taxes
311
333
3
Other noncurrent assets
1,601
1,650
Total assets
14,307
14,155
LIABILITIES
Current liabilities:
Accounts payable, trade
1,619
1,714
Accrued compensation and retirement costs
358
357
Taxes, including income taxes
119
88
251
214
Other current liabilities
740
578
Long-term debt due within one year (K & M)
79
Total current liabilities
3,166
3,030
Long-term debt, less amount due within one year (K & M)
2,469
1,732
Accrued pension benefits (L)
264
278
Accrued other postretirement benefits (L)
427
443
Asset retirement obligations
699
772
Environmental remediation (O)
191
202
951
1,092
Noncurrent income taxes
133
193
Other noncurrent liabilities and deferred credits
591
568
Total liabilities
8,891
8,310
CONTINGENCIES AND COMMITMENTS (O)
EQUITY
Alcoa Corporation shareholders’ equity:
Common stock
Additional capital
9,196
9,187
Accumulated deficit
(1,562
(1,293
Accumulated other comprehensive loss (G)
(3,737
(3,645
Total Alcoa Corporation shareholders’ equity
3,899
4,251
1,517
1,594
Total equity
5,416
5,845
Total liabilities and equity
Statement of Consolidated Cash Flows (unaudited)
CASH FROM OPERATIONS
Adjustments to reconcile net loss to cash from operations:
Depreciation, depletion, and amortization
(75
(36
Equity (income) loss, net of dividends
(8
123
Net loss from investing activities – asset sales (P)
17
19
Net periodic pension benefit cost (L)
Stock-based compensation
21
(Gain) loss on mark-to-market derivative financial contracts
Other
59
Changes in assets and liabilities, excluding effects of divestitures and foreign currency translation adjustments:
(Increase) decrease in receivables
(283
71
Decrease in inventories
157
Decrease in prepaid expenses and other current assets
23
63
Decrease in accounts payable, trade
(57
(277
Decrease in accrued expenses
(30
(48
Increase (decrease) in taxes, including income taxes
70
(146
Pension contributions (L)
(9
Decrease (increase) in noncurrent assets
(66
Decrease in noncurrent liabilities
(72
(104
CASH PROVIDED FROM (USED FOR) OPERATIONS
64
(176
FINANCING ACTIVITIES
Additions to debt
Payments on debt
(266
Proceeds from the exercise of employee stock options
Dividends paid on Alcoa common stock
(37
Payments related to tax withholding on stock-based compensation awards
(15
(34
Financial contributions for the divestiture of businesses (C)
(25
Contributions from noncontrolling interest
65
122
Distributions to noncontrolling interest
(32
(13
CASH PROVIDED FROM FINANCING ACTIVITIES
679
INVESTING ACTIVITIES
Capital expenditures
(265
(198
Proceeds from the sale of assets
Additions to investments
(17
CASH USED FOR INVESTING ACTIVITIES
(281
(222
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Net change in cash and cash equivalents and restricted cash
446
(377
Cash and cash equivalents and restricted cash at beginning of year
1,047
1,474
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
1,493
1,097
Statement of Changes in Consolidated Equity (unaudited)
Alcoa Corporation shareholders
Commonstock
Additionalcapital
Accumulatedothercomprehensive(loss) income
Non-controllinginterest
Totalequity
Balance at January 1, 2023
9,183
(570
(3,539
1,513
6,589
(231
Other comprehensive (loss) income (G)
(116
15
(101
Net effect of tax withholding for compensation plans and exercise of stock options
(33
Dividends paid on Alcoa common stock ($0.10 per share)
(18
Contributions
86
Distributions
(6
Balance at March 31, 2023
9,162
(819
(3,655
1,606
6,296
Other comprehensive income (G)
Balance at June 30, 2023
9,173
(939
(3,394
1,616
6,458
Balance at January 1, 2024
(55
(307
Other comprehensive income (loss) (G)
(53
Balance at March 31, 2024
9,184
(1,564
(3,628
1,540
5,534
Net income
Other comprehensive loss (G)
(26
Balance at June 30, 2024
Notes to the Consolidated Financial Statements (unaudited)
(dollars in millions, except per-share amounts; metric tons in thousands (kmt))
A. Basis of Presentation – The interim Consolidated Financial Statements of Alcoa Corporation and its subsidiaries (Alcoa Corporation, Alcoa, or the Company) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 2023 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which includes disclosures required by 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. Management uses historical experience and all available information to make these estimates. Management regularly evaluates the judgments and assumptions used in its estimates, and results could differ from those estimates upon future events and their effects or new information.
Principles of Consolidation. The Consolidated Financial Statements of Alcoa Corporation include the accounts of Alcoa Corporation and companies in which Alcoa Corporation has a controlling interest, including those that comprise the Alcoa World Alumina & Chemicals (AWAC) joint venture (see below). Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which Alcoa Corporation has significant influence but does not have effective control. Investments in affiliates in which Alcoa Corporation cannot exercise significant influence are accounted for at cost less any impairment, a measurement alternative in accordance with GAAP.
AWAC is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited and consists of several affiliated operating entities, which own, have an interest in, or operate the bauxite mines and alumina refineries within Alcoa Corporation’s Alumina segment (except for the Poços de Caldas mine and refinery and portions of the São Luís refinery, all in Brazil) and a portion (55%) of the Portland smelter (Australia) within Alcoa Corporation’s Aluminum segment. Alcoa Corporation owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated by the Company for financial reporting purposes and include Alcoa of Australia Limited (AofA), Alcoa World Alumina LLC (AWA), Alcoa World Alumina Brasil Ltda. (AWAB), and Alúmina Española, S.A. (Española). Alumina Limited’s interest in the equity of such entities is reflected as Noncontrolling interest on the accompanying Consolidated Balance Sheet. On August 1, 2024, the Company completed the acquisition of Alumina Limited (see Note C).
B. Recently Adopted and Recently Issued Accounting Guidance
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2023-09 which includes changes to income tax disclosures, including greater disaggregation of information in the rate reconciliation and disclosure of taxes paid by jurisdiction. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance will provide enhanced disclosures regarding income taxes and will not have a material impact on the Company’s financial statements.
In November 2023, the FASB issued ASU 2023-07 which requires disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM), other segment items (not included in significant segment expenses for each reportable segment), the title and position of the CODM, and an explanation of how the CODM uses the reported measure of segment profit or loss to assess segment performance and allocate resources. The adoption of this guidance will not have a material impact on the Company’s financial statements and will provide enhanced disclosures regarding reportable segments beginning in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
C. Acquisitions and Divestitures
Alumina Limited Acquisition
On August 1, 2024, Alcoa completed the acquisition of all of the ordinary shares of Alumina Limited (Alumina Shares) through a wholly owned subsidiary, AAC Investments Australia 2 Pty Ltd. Alumina Limited holds a 40% ownership interest in the AWAC joint venture. The acquisition is intended to enhance Alcoa’s position as a leading pure play, upstream aluminum company globally, while simplifying the Company’s corporate structure and governance, resulting in greater operational flexibility and strategic optionality.
Under the Scheme Implementation Deed (the Agreement) entered into in March 2024, as amended in May 2024, holders of Alumina Shares received 0.02854 Alcoa CHESS Depositary Interests (CDIs) for each Alumina Share (the Agreed Ratio), except that i) holders of Alumina Shares represented by American Depositary Shares, each of which represented 4 Alumina Shares, received 0.02854 shares of Alcoa common stock and ii) a certain shareholder received, for certain of their Alumina Shares, 0.02854 shares of Alcoa non-voting convertible preferred stock. The Alcoa CDIs are quoted on the Australian Stock Exchange.
At closing, Alumina Shares outstanding of 2,760,056,014 and 141,625,403 were exchanged for 78,772,422 and 4,041,989 shares of Alcoa common stock and Alcoa preferred stock, respectively. Based on Alcoa’s closing share price as of July 26, 2024, the Agreed Ratio implies a value of A$1.45 per Alumina Share and aggregate purchase consideration of approximately $2,800 for Alumina Limited.
The transaction consisted in substance of the acquisition of Alumina Limited’s noncontrolling interest in AWAC, the assumption of Alumina Limited’s indebtedness (approximately $385 as of August 1, 2024, see Note K), and the recognition of deferred tax assets (approximately $100, see Note N) related to Alumina Limited’s prior net operating losses. The increase in ownership in AWAC from 60% to 100%, as well as the assumption of Alumina Limited’s assets and liabilities, will be accounted for as an equity transaction under ASC 810, Consolidation, with the difference in purchase consideration and the net assets acquired recognized as an increase in total Alcoa Corporation shareholders’ equity. The accounting for the transaction is not yet complete and the final value of assets and liabilities acquired is subject to change. Additionally, as of June 30, 2024, the Company recognized transaction costs of $9 in Prepaid expenses and other current assets, which will be reclassified to Additional capital as of August 1, 2024.
Under the terms of the Agreement, Alcoa agreed to provide a shareholder loan to AWAC in place of required capital contributions by Alumina Limited if Alumina Limited’s net debt position exceeded $420 prior to the acquisition closing. Alcoa was not required to and did not provide any shareholder loans to AWAC under this provision.
Warrick Rolling Mill Divestiture
In conjunction with the sale of its rolling mill located at Warrick Operations (Warrick Rolling Mill) in March 2021, the Company recorded estimated liabilities for site separation commitments.
The Company recorded charges of $4 and $15 in the second quarter and the six-month period of 2024, respectively, in Other (income) expenses, net on the accompanying Statement of Consolidated Operations related to these commitments. During the second quarter and the six-month period of 2024, the Company spent $5 and $12 against the reserve, respectively.
In the six-month period of 2023, the Company recorded a charge of $17 in Other (income) expenses, net on the accompanying Statement of Consolidated Operations related to these commitments. During the second quarter and six-month period of 2023, the Company spent $11 and $25 against the reserve, respectively.
The remaining balance of $14 at June 30, 2024 is expected to be spent in 2024.
D. Restructuring and Other Charges, Net
In the second quarter and the six-month period of 2024, Alcoa Corporation recorded Restructuring and other charges, net, of $18 and $220, respectively, which were primarily comprised of:
7
In June 2024, Alcoa completed the full curtailment of the Kwinana refinery, as planned, which was announced in January 2024. As of March 2024, the refinery had approximately 780 employees and this number will be reduced to approximately 250 in the third quarter of 2024 to manage certain processes that will continue until about the third quarter of 2025. At that time, the employee number will be further reduced to approximately 50. In addition to the employees separating as a result of the curtailment, approximately 150 employees will either terminate through the productivity program announced in the third quarter of 2023 or redeploy to other Alcoa operations. Charges related to the curtailment totaled $205 in the six-month period of 2024 and included charges of $129 for water management costs, $41 for severance and employee termination costs for the separation of approximately 580 employees, $15 for asset retirement obligations, $13 for take-or-pay contracts, $5 for asset impairments and $2 for contract terminations. Related cash outlays of approximately $225 (which includes existing employee related liabilities and asset retirement obligations) are expected through 2025, with approximately $145 to be spent in 2024. The Company spent $22 and $24 against the reserve in the second quarter and six-month period of 2024, respectively.
In the second quarter and the six-month period of 2023, Alcoa Corporation recorded Restructuring and other charges, net, of $24 and $173, respectively, which were primarily comprised of:
In March 2023, Alcoa Corporation announced the closure of the Intalco aluminum smelter, which had been fully curtailed since 2020. The Company recorded charges of $117 related to the closure, including a charge of $16 in Cost of goods sold on the Statement of Consolidated Operations to write-down remaining inventories to net realizable value and a charge of $101 in Restructuring and other charges, net on the Statement of Consolidated Operations. The restructuring charges were comprised of asset impairments of $50, environmental and demolition obligation reserves of $50, and severance and employee termination costs of $1 for the separation of approximately 12 employees. Cash outlays related to the permanent closure of the site are expected to be $85 over the next three years with approximately $45 to be spent in 2024. The Company spent $9 and $13 against the reserve in the second quarter and six-month period of 2024, respectively.
In February 2023, the Company reached an updated viability agreement with the workers’ representatives of the San Ciprián smelter to commence the restart process in phases beginning in January 2024. The smelter was curtailed in January 2022 as a result of an agreement reached with the workers’ representatives in December 2021. Under the terms of the updated viability agreement, the Company is responsible for certain employee obligations during 2023 through 2025 and made additional commitments for capital improvements of $78. The Company recorded charges of $47 in Restructuring and other charges, net on the Statement of Consolidated Operations to establish the related reserve for employee obligations in the six month period of 2023. Cash outlays related to employee obligations are expected to be $47 through 2025, with approximately $36 to be spent in 2024. The Company spent $9 and $18 against the reserve in the second quarter and six-month period of 2024, respectively. At June 30, 2024, the Company had restricted cash of $86 to be made available for remaining capital improvement commitments at the site of $111 and smelter restart costs of $32 for both the agreement reached with the worker’s representatives in December 2021 and the updated viability agreement in February 2023. Restricted cash is included in Prepaid expenses and other current assets and Other noncurrent assets on the Consolidated Balance Sheet (see Note P).
Alcoa Corporation does not include Restructuring and other charges, net in the results of its reportable segments. The impact of allocating such charges to segment results would have been as follows:
Alumina
205
Aluminum
165
Segment total
167
Corporate
Total Restructuring and other charges, net
Activity and reserve balances for restructuring charges were as follows:
Severanceandemployeeterminationcosts
Othercosts
Balance at December 31, 2022
116
117
Restructuring and other charges, net
55
66
Cash payments
(118
(124
Reversals and other
Balance at December 31, 2023
57
156
199
(56
49
161
210
The activity and reserve balances include only Restructuring and other charges, net that impacted the reserves for Severance and employee termination costs and Other costs. Restructuring and other charges, net that affected other liability accounts such as Accrued pension benefits (see Note L), Asset retirement obligations, and Environmental remediation (see Note O) are excluded from the above activity and balances. Reversals and other includes reversals of previously recorded liabilities and foreign currency translation impacts.
The noncurrent portion of the reserve was $22 and $15 at June 30, 2024 and December 31, 2023, respectively.
E. Segment Information – Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company has two operating and reportable segments: (i) Alumina and (ii) 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) for 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 Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The CODM function regularly reviews the financial information, including Adjusted EBITDA, of these two operating segments to assess performance and allocate resources.
The operating results of Alcoa Corporation’s reportable segments were as follows (differences between segment totals and consolidated amounts are in Corporate):
Second quarter ended June 30, 2024
Sales:
Third-party sales
1,010
1,895
2,905
Intersegment sales
457
460
Total sales
1,467
1,898
3,365
Segment Adjusted EBITDA
186
233
419
Supplemental information:
90
158
Equity income
Second quarter ended June 30, 2023
894
1,788
2,682
397
401
1,291
1,792
3,083
33
110
143
80
148
Equity loss
(11
(27
Six months ended June 30, 2024
1,971
3,533
5,504
852
859
2,823
3,540
6,363
325
283
608
177
136
313
Equity (loss) income
Six months ended June 30, 2023
1,751
3,598
5,349
818
825
2,569
3,605
6,174
294
430
138
295
(28
(73
The following table reconciles Total Segment Adjusted EBITDA to Consolidated net income (loss) attributable to Alcoa Corporation:
Total Segment Adjusted EBITDA
Unallocated amounts:
Transformation(1)
Intersegment eliminations
(29
Corporate expenses(2)
(41
(24
(54
(163
(153
(306
(220
(173
(40
(67
Other income (expenses), net (P)
Other(3)
(42
(51
(61
Consolidated income (loss) before income taxes
(43
(74
Net (income) loss attributable to noncontrolling interest
Consolidated net income (loss) attributable to Alcoa Corporation
The following table details Alcoa Corporation’s Sales by product division:
1,934
1,824
3,595
3,670
904
774
1,794
1,488
Energy
62
54
Bauxite
96
109
236
Other(1)
(49
(103
(94
F. Earnings Per Share – Basic earnings per share (EPS) amounts are computed by dividing earnings by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.
The share information used to compute basic and diluted EPS attributable to Alcoa Corporation common shareholders was as follows (shares in millions):
Net income (loss) attributable to Alcoa Corporation
Average shares outstanding – basic
180
178
179
Effect of dilutive securities:
Stock options
Stock units
Average shares outstanding – diluted
181
In the six-month period of 2024, basic average shares outstanding and diluted average shares outstanding were the same because the effect of potential shares of common stock was anti-dilutive. Had Alcoa generated net income in the six-month period of 2024, two million common share equivalents related to three million outstanding stock units and stock options combined would have been included in diluted average shares outstanding for the period.
In the second quarter and six-month period of 2023, basic average shares outstanding and diluted average shares outstanding were the same because the effect of potential shares of common stock was anti-dilutive. Had Alcoa generated net income in the second quarter or six-month period of 2023, two million and three million common share equivalents, respectively, related to three million outstanding stock units and stock options combined would have been included in diluted average shares outstanding for the periods.
G. Accumulated Other Comprehensive Loss
The following table details the activity of the three components that comprise Accumulated other comprehensive loss for both Alcoa Corporation’s shareholders and Noncontrolling interest:
Pension and other postretirement benefits (L)
Balance at beginning of period
(14
(5
Other comprehensive income (loss):
Unrecognized net actuarial gain/loss and prior service cost/benefit
Tax (expense) benefit(2)
Total Other comprehensive income (loss) before reclassifications, net of tax
Amortization of net actuarial gain/loss and prior service cost/benefit(1)
Tax expense(2)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(7)
Total Other comprehensive income (loss)
Balance at end of period
76
(7
Foreign currency translation
(2,715
(2,683
(1,037
(1,025
Other comprehensive (loss) income
(2,775
(2,658
(1,053
(1,014
Cash flow hedges (M)
(922
(1,038
Other comprehensive (loss) income:
Net change from periodic revaluations
241
Tax benefit (expense)(2)
(38
Total Other comprehensive (loss) income before reclassifications, net of tax
(122
203
Net amount reclassified to earnings:
Aluminum contracts(3)
75
Financial contracts(4)
Interest rate contracts(5)
(3
Foreign exchange contracts(6)
Sub-total
(4
Total Other comprehensive (loss) income
(984
(812
Total Accumulated other comprehensive loss
(1,063
(1,020
30
(2,593
(2,685
(983
(1,040
(1,052
(916
132
94
127
(23
50
H. Investments – A summary of unaudited financial information for Alcoa Corporation’s equity investments is as follows (amounts represent 100% of investee financial information):
Saudi ArabiaJoint Venture
Mining
Sales
804
114
Cost of goods sold
613
102
Equity in net income (loss) of affiliated companies, before reconciling adjustments
Alcoa Corporation’s equity in net income of affiliated companies
700
172
620
101
32
Net (loss) income
Equity in net (loss) income of affiliated companies, before reconciling adjustments
Alcoa Corporation’s equity in net (loss) income of affiliated companies
1,515
273
229
1,212
207
209
Alcoa Corporation’s equity in net income (loss) of affiliated companies
1,300
359
237
1,302
204
219
(351
(88
The Company’s basis in the ELYSISTM Limited Partnership (ELYSIS) as of June 30, 2024 and 2023, included in Other in the table above, has been reduced to zero for its share of losses incurred to date. As a result, the Company has $66 in unrecognized losses as of June 30, 2024 that will be recognized upon additional contributions into the partnership.
The results for the Saudi Arabia joint venture for the six-month period of 2023 include an adjustment to the estimate for the settlement of a dispute with an industrial utility for periods in 2021 and 2022. Alcoa’s share of this adjustment is $41 which is included in Other (income) expenses, net on the Statement of Consolidated Operations for the six-month period of 2023. Alcoa’s total share of this dispute of $62 includes $21 that was recorded in the fourth quarter of 2022.
I. Receivables
In 2023, a wholly-owned special purpose entity (SPE) of the Company entered into and subsequently amended an agreement with a financial institution to sell up to $130 of certain customer receivables without recourse on a revolving basis. The termination date of the agreement is November 14, 2024. Company subsidiaries sell customer receivables to the SPE, which then transfers the receivables to the financial institution. The Company does not maintain effective control over the transferred receivables, and therefore accounts for the transfers as sales of receivables.
Alcoa Corporation guarantees the performance obligations of the Company subsidiaries, and unsold customer receivables are pledged as collateral to the financial institution to secure the sold receivables. The SPE held unsold customer receivables of $239 and $104 pledged as collateral against the sold receivables as of June 30, 2024 and December 31, 2023, respectively.
The Company continues to service the customer receivables that were transferred to the financial institution. As Alcoa collects customer payments, the SPE transfers additional receivables to the financial institution rather than remitting cash.
In the second quarter of 2024, the Company sold gross customer receivables of $293 and reinvested collections of $293 from previously sold receivables, resulting in no net cash remittance to the financial institution. In the six-month period of 2024, the Company sold gross customer receivables of $600 and reinvested collections of $584 from previously sold receivables, resulting in net cash proceeds from the financial institution of $16.
In the second quarter of 2023, the Company sold gross customer receivables of $98 and reinvested collections of $104 from previously sold receivables, resulting in a net cash remittance to the financial institution of $6. In the six-month period of 2023, the Company sold gross customer receivables of $174 and reinvested collections of $127 from previously sold receivables, resulting in net cash proceeds from the financial institution of $47.
Cash collections from previously sold receivables yet to be reinvested of $89 and $99 were included in Accounts payable, trade on the accompanying Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, respectively. Cash received from sold receivables under the agreement are presented within operating activities in the Statement of Consolidated Cash Flows.
J. Inventories
June 30, 2024
December 31, 2023
Finished goods
320
355
Work-in-process
268
287
Bauxite and alumina
530
586
Purchased raw materials
612
Operating supplies
245
230
K. Debt
Short-term Borrowings
Inventory Repurchase Agreements
The Company has entered into inventory repurchase agreements whereby the Company sold aluminum to a third party and agreed to subsequently repurchase substantially similar inventory. The Company did not record sales upon each shipment of inventory and the net cash received of $31 and $56 related to these agreements was recorded in Short-term borrowings within Other current liabilities on the Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, respectively. The associated inventory sold was reflected in Prepaid expenses and other current assets on the Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, respectively.
During the second quarter and six-month period of 2024, the Company recorded borrowings of $24 and $45, respectively, and repurchased $45 and $70, respectively, of inventory related to these agreements. During the second quarter and six-month period of 2023, the Company recorded borrowings of $25 (six-month period only) and repurchased $15 (both periods) of inventory related to these agreements.
The cash received and subsequently paid under the inventory repurchase agreements is included in Cash provided from financing activities on the Statement of Consolidated Cash Flows.
144A Debt
2031 Notes
In March 2024, Alcoa Nederland Holding B.V. (ANHBV), a wholly-owned subsidiary of Alcoa Corporation, completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt issuance for $750 aggregate principal amount of 7.125% Senior Notes due 2031 (the 2031 Notes), which carry a green bond designation. The net proceeds of this issuance were $737, reflecting a discount to the initial purchasers of the 2031 Notes as well as issuance costs. The Company is utilizing the net proceeds to finance and/or refinance, in whole or in part, new and/or existing qualifying projects on a two-year look back and three-year look forward that meet certain eligibility criteria within its Green Finance Framework. The net proceeds also support the Company’s cash position and ongoing cash needs, including with respect to its previously announced portfolio actions.
The discount to the initial purchasers, as well as costs to complete the financing, were deferred and are being amortized to interest expense over the term of the 2031 Notes. Interest on the 2031 Notes is paid semi-annually in March and September, and interest payments will commence September 15, 2024. The indenture contains customary affirmative and negative covenants that are similar to those included in the indenture that governs ANHBV’s 4.125% Senior Notes due 2029 issued in March 2021, such as limitations on liens, limitations on sale and leaseback transactions, a prohibition on a reduction in the ownership of AWAC entities below an agreed level, and the calculation of certain financial ratios.
ANHBV has the option to redeem the 2031 Notes on at least 10 days, but not more than 60 days, notice to the holders of the 2031 Notes under multiple scenarios, including, in whole or in part, at any time or from time to time on and after March 15, 2027, at the applicable redemption price specified in the indenture (up to 103.563% of the principal amount plus any accrued and unpaid interest in each case). Also, the 2031 Notes are subject to repurchase upon the occurrence of a change in control repurchase event (as defined in the indenture) at a repurchase price in cash equal to 101% of the aggregate principal amount of the 2031 Notes repurchased, plus any accrued and unpaid interest on the 2031 Notes repurchased.
The 2031 Notes are guaranteed on a senior unsecured basis by the Company and its subsidiaries that are party to the indenture. The 2031 Notes rank equally in right of payment with all of ANHBV’s existing and future senior unsecured indebtedness, including the ANHBV’s senior notes with maturities in 2027, 2028 and 2029; rank senior in right of payment to any future subordinated obligations of ANHBV; and are effectively subordinated to ANHBV’s existing and future secured indebtedness, including under the Revolving Credit Agreement, to the extent of the value of property and assets securing such indebtedness. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information related to ANHBV’s existing debt and related covenants.
Credit Facilities
Revolving Credit Facility
The Company has a $1,250 revolving credit and letter of credit facility in place for working capital and/or other general corporate purposes (the Revolving Credit Facility). The Revolving Credit Facility, established in September 2016, amended and restated in June 2022 and amended in January 2024, is scheduled to mature in June 2027. Subject to the terms and conditions under the Revolving Credit Facility, the Company or ANHBV, a wholly-owned subsidiary of Alcoa Corporation, may borrow funds or issue letters of credit. Under the terms of the January 2024 amendment, the Company agreed to provide collateral for its obligations under the Revolving Credit Facility. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information on the Revolving Credit Facility.
As of June 30, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Revolving Credit Facility. There were no borrowings outstanding at June 30, 2024 and December 31, 2023, and no amounts were borrowed during the second quarter and six-month periods of 2024 and 2023 under the Revolving Credit Facility.
Japanese Yen Revolving Credit Facility
The Company entered into a $250 revolving credit facility available to be drawn in Japanese yen (the Japanese Yen Revolving Credit Facility) in April 2023. The Japanese Revolving Credit Facility was amended in January 2024 and in April 2024 (see below) and is scheduled to mature in April 2025. Subject to the terms and conditions under the facility, the Company or ANHBV may borrow funds. The facility includes covenants that are substantially the same as those included in the Revolving Credit Facility. Under the current terms of the January 2024 amendment, the Company agreed to provide collateral for its obligations under the Japanese Yen Revolving Credit Facility. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information on the Japanese Yen Revolving Credit Facility.
As of June 30, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Japanese Revolving Credit Facility. There were no borrowings outstanding at June 30, 2024 and December 31, 2023. During the second quarter of 2024, no amounts were borrowed. During the six-month period of 2024, $201 (29,686 JPY) was borrowed and $196 (29,686 JPY) was repaid. No amounts were borrowed during the second quarter and six-month period of 2023 under the Japanese Yen Revolving Credit Facility.
On April 26, 2024, the Company entered into an amendment extending the maturity of the Japanese Yen Revolving Credit Facility to April 2025.
Alumina Limited Revolving Credit Facility
In connection with the acquisition of Alumina Limited, the Company assumed approximately $385 of indebtedness as of August 1, 2024, representing the amount drawn on Alumina Limited’s revolving credit facility.
Alumina Limited has a $500 revolving credit facility with tranches maturing in October 2025 ($100), January 2026 ($150), July 2026 ($150), and June 2027 ($100). Alumina Limited’s facility contains a financial covenant limiting the incurrence of indebtedness. As of June 30, 2024, Alumina Limited was in compliance with such covenant and could access the remaining commitments under the facility.
Alumina Limited’s revolving credit facility also contains a clause that allows a majority of lenders, upon a change of control, to issue a notice to Alumina Limited requiring repayment within 90 business days of issuing the notice (the 90-day Notice). Alcoa has engaged with the facility lenders and the lenders have indicated their intention to delay issuing the 90-day Notice until at least December 1, 2024, providing additional time for Alcoa to consider potential repayment or refinancing options subsequent to the acquisition of Alumina Limited.
L. Pension and Other Postretirement Benefits
The components of net periodic benefit cost were as follows:
Second quarter endedJune 30,
Six months endedJune 30,
Pension benefits
Service cost
Interest cost(1)
Expected return on plan assets(1)
(35
Recognized net actuarial loss(1)
Curtailments(2)
Settlements(2)
Net periodic benefit cost
Other postretirement benefits
Amortization of prior service benefit(1)
Plan Actions. In 2024, management initiated the following actions to a certain pension plan:
Action #1 – On January 8, 2024, Alcoa announced the full curtailment of the Kwinana refinery. As a result, curtailment accounting was triggered within Alcoa’s Australian pension plan. The Company recorded a $1 decrease to Other noncurrent assets and recognized a curtailment loss of $1 ($0 after-tax) in Restructuring and other charges, net on the accompanying Statement of Consolidated Operations.
Action #2 – In the second quarter of 2024, settlement accounting and a related plan remeasurement was triggered within Alcoa’s Australian pension plan as a result of participants electing lump sum payments. Alcoa recorded a $19 increase to Other noncurrent assets and recognized a settlement gain of $1 ($0 after-tax) in Restructuring and other charges, net on the Statement of Consolidated Operations.
Action #
Number ofaffectedplanparticipants
Weightedaveragediscount rate as of prior plan remeasurement date
Planremeasurementdate
Weightedaveragediscount rateas of planremeasurementdate
Increase (decrease) toother noncurrent assets
Curtailmentloss(1)
Settlement gain(2)
~110
N/A
~10
4.81%
5.23%
~120
Funding and Cash Flows. It is Alcoa’s policy to fund amounts for defined benefit pension plans sufficient to meet the minimum requirements set forth in each applicable country’s benefits laws and tax laws, including the Employee Retirement Income Security Act of 1974 (ERISA) for U.S. plans. From time to time, the Company contributes additional amounts as deemed appropriate.
Under ERISA regulations, a plan sponsor that establishes a pre-funding balance by making discretionary contributions to a U.S. defined benefit pension plan may elect to apply all or a portion of this balance toward its minimum required contribution obligations to the related plan in future years.
In the first and second quarters of 2024, management made such elections related to the Company’s U.S. plans and intends to do so for the remainder of 2024. As a result, Alcoa’s minimum required contribution to defined benefit pension plans in 2024 is estimated to be approximately $18, of which approximately $4 was contributed to non-U.S. plans during the second quarter of 2024. In the six-month period of 2024, $10 was contributed to non-U.S. plans.
In the second quarter of 2023, $5 was contributed to non-U.S. plans. In six-month period of 2023, $9 was contributed to non-U.S. plans.
M. Derivatives and Other Financial Instruments
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Derivatives
Alcoa Corporation is exposed to certain risks relating to its ongoing business operations, including the risks of changing commodity prices, foreign currency exchange rates, and interest rates. Alcoa Corporation’s commodity and derivative activities include aluminum, energy, foreign exchange, and interest rate contracts which are held for purposes other than trading. They are used to mitigate uncertainty and volatility, and to cover underlying exposures. While Alcoa does not generally enter into derivative contracts to mitigate the risk associated with changes in aluminum price, the Company may do so in isolated cases to address discrete commercial or operational conditions. Alcoa is not involved in trading activities for energy, weather derivatives, or other nonexchange commodity trading activities.
Alcoa Corporation’s aluminum and foreign exchange contracts are predominantly classified as Level 1 under the fair value hierarchy. All of the Level 1 contracts are designated as either fair value or cash flow hedging instruments. Alcoa Corporation also has several derivative instruments classified as Level 3 under the fair value hierarchy, which are either designated as cash flow hedges or undesignated. Alcoa includes the changes in its equity method investee’s Level 2 derivatives in Accumulated other comprehensive loss in the accompanying Consolidated Balance Sheet.
The following tables present the detail for Level 1 and 3 derivatives (see additional Level 3 information in further tables below):
Assets
Liabilities
Level 1 derivative instruments
Level 3 derivative instruments
34
1,191
1,297
1,202
1,306
Less: Current
Noncurrent
Unrealized loss recognized in Other comprehensive loss
Realized gain (loss) reclassed from Other comprehensive loss to earnings
Unrealized gain recognized in Other comprehensive loss
42
197
(58
Noncontrolling and equity interest (Level 2)
For the second quarter of 2024, the realized gains and losses on Level 1 cash flow hedges were immaterial. For the second quarter of 2023, the realized gain of $28 on Level 1 cash flow hedges was comprised of a $32 gain recognized in Sales and a $4 loss recognized in Cost of goods sold.
(132
(110
(127
(64
For the six-month period of 2024, the realized gain of $4 on Level 1 cash flow hedges was recognized in Sales. For the six-month period of 2023, the realized gain of $44 on Level 1 cash flow hedges was comprised of a $48 gain recognized in Sales and a $4 loss recognized in Cost of goods sold.
The following table presents the outstanding quantities of derivative instruments classified as Level 1:
Classification
June 30, 2023
Aluminum (in kmt)
Commodity buy forwards
187
Commodity sell forwards
206
Foreign currency (in millions of euro)
Foreign exchange buy forwards
Foreign exchange sell forwards
Foreign currency (in millions of Norwegian krone)
85
232
Foreign currency (in millions of Brazilian real)
351
Foreign currency (in millions of Canadian dollar)
Alcoa Corporation routinely uses Level 1 aluminum derivative instruments to manage exposures to changes in the fair value of firm commitments for the purchases or sales of aluminum. Additionally, Alcoa uses Level 1 aluminum derivative instruments to manage LME exposures at certain locations with profitability improvement actions (expires December 2024), and the Alumar (Brazil) smelter restart (expired December 2023).
Alcoa Corporation uses Level 1 foreign exchange forward contracts to mitigate the risk of foreign exchange exposure related to euro power purchases in Norway (expires December 2026), U.S. dollar aluminum sales in Norway (expires June 2025), U.S. dollar alumina and aluminum sales in Brazil (expires August 2025), and U.S. dollar aluminum sales in Canada (expires March 2025).
Additional Level 3 Disclosures
The following table presents quantitative information related to the significant unobservable inputs described above for Level 3 derivative instruments (megawatt hours in MWh):
Unobservable Input
Unobservable Input Range
Asset Derivatives
Financial contract (undesignated)
Interrelationship of forward energy price, LME forward price, and the Consumer Price Index
Electricity(per MWh)
2024: $93.522024: $40.54
LME (per mt)
2024: $2,491
2024: $2,562
Total Asset Derivatives
Liability Derivatives
Power contract
MWh of energy needed to produce the forecasted mt of aluminum
2024: $2,4912027: $2,742
Electricity
Rate of 4 million MWh per year
Power contracts
1,008
2024: $2,4912029: $2,7342036: $2,934
Midwest premium(per pound)
2024: $0.19992029: $0.23652036: $0.2365
Rate of 18 million MWh per year
2024: $2,4912024: $2,524
Midwest premium (per pound)
2024: $0.19992024: $0.2240
Rate of 2 million MWh per year
Power contract (undesignated)
Estimated spread between the 30-year debt yield of Alcoa and the counterparty
Credit spread
1.71%: 30-year debt yield spread6.98%: Alcoa (estimated)5.27%: counterparty
Total Liability Derivatives
The fair values of Level 3 derivative instruments recorded in the accompanying Consolidated Balance Sheet were as follows:
Derivatives not designated as hedging instruments:
Current—financial contract
Total derivatives not designated as hedging instruments
Derivatives designated as hedging instruments:
Current—power contracts
Noncurrent—power contracts
945
1,087
Total derivatives designated as hedging instruments
1,190
Noncurrent—embedded credit derivative
Assuming market rates remain constant with the rates at June 30, 2024, a realized loss of $245 related to power contracts is expected to be recognized in Sales over the next 12 months.
At June 30, 2024 and December 31, 2023, the power contracts with embedded derivatives designated as cash flow hedges include hedges of forecasted aluminum sales of 1,344 kmt and 1,456 kmt, respectively.
The following tables present the reconciliation of activity for Level 3 derivative instruments:
Financial contracts
April 1, 2024
Total gains or losses included in:
Other income, net (unrealized/realized)
Settlements and other
Change in unrealized gains or losses included in earnings for derivative instruments held at June 30, 2024:
Other income, net
Embeddedcreditderivative
1,120
Sales (realized)
Other expenses, net (unrealized/realized)
Other comprehensive income (unrealized)
146
Other expenses, net
January 1, 2024
(133
There were no purchases, sales, or settlements of Level 3 derivative instruments in the periods presented.
Other Financial Instruments
The carrying values and fair values of Alcoa Corporation’s other financial instruments were as follows:
Carrying value
Fair value
Cash and cash equivalents
Restricted cash
97
103
Short-term borrowings
56
Long-term debt due within one year
Long-term debt, less amount due within one year
2,477
1,702
The following methods were used to estimate the fair values of other financial instruments:
Cash and cash equivalents and Restricted cash. The carrying amounts approximate fair value because of the short maturity of the instruments. The fair value amounts for Cash and cash equivalents and Restricted cash were classified in Level 1 of the fair value hierarchy.
Short-term borrowings and Long-term debt, including amounts due within one year. The fair value of Long-term debt, less amounts due within one year was based on quoted market prices for public debt and on interest rates that are currently available to Alcoa Corporation for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Short-term borrowings and Long-term debt were classified in Level 2 of the fair value hierarchy.
N. Income Taxes – Alcoa Corporation’s estimated annualized effective tax rate (AETR) for 2024 as of June 30, 2024 differs from the U.S. federal statutory rate of 21% primarily due to losses in certain jurisdictions with full valuation allowances resulting in no tax benefit. In addition, income in foreign jurisdictions with higher statutory tax rates contribute to the variance from 21%.
Loss before income taxes
Estimated annualized effective tax rate
105.1
%
(29.3
Income tax (benefit) expense
(245
82
Unfavorable (favorable) tax impact related to losses in jurisdictions with no tax benefit
288
Discrete tax expense
Alcoa Australia Holdings Pty Ltd (AAH), a wholly-owned indirect subsidiary of Alcoa, made an election prior to July 31, 2024 that results in Alcoa’s other wholly-owned Australian subsidiaries joining AAH’s tax consolidated group (the AAH Tax Consolidated Group). As a result of the acquisition of Alumina Limited, Alumina Limited and all of its Australian subsidiaries, as well as AofA and all of its subsidiaries, joined the AAH Tax Consolidated Group on August 1, 2024. Alcoa will recognize a deferred tax asset of approximately $100 related to the portion of Alumina Limited’s Australian net operating loss carryforwards that the Company has determined are more likely than not to be realized as a result of the consolidated return election.
The Inflation Reduction Act of 2022 (IRA) contains a number of tax credits and other incentives for investments in renewable energy production, carbon capture, and other climate-related actions, as well as the production of critical minerals. In December 2023, the U.S. Treasury issued guidance on Section 45X of the Advanced Manufacturing Tax Credit. The Notice of Proposed Rulemaking (the Notice) clarifies that commercial grade aluminum can qualify for the credit, which was designed to incentivize domestic production of critical materials important for the global transition to renewable energy. In the second quarter and six-month period of 2024, the Company recorded benefits of $10 and $20 in Cost of goods sold, respectively, related to its Massena West smelter (New York) and its Warrick smelter (Indiana). As of June 30, 2024, benefits of $36 were included in Other receivables and $20 were included in Other noncurrent assets on the Consolidated Balance Sheet. As of December 31, 2023, benefits of $36 were included in Other receivables on the Consolidated Balance Sheet.
O. Contingencies
Environmental Matters
Alcoa Corporation participates in environmental assessments and cleanups at several locations. These include currently or previously owned or operated facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)) sites.
Alcoa Corporation’s environmental remediation reserve balance reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. The following table details the changes in the carrying value of recorded environmental remediation reserves:
284
Liabilities incurred
39
Reversals of previously recorded liabilities
Foreign currency translation and other
252
At June 30, 2024 and December 31, 2023, the current portion of the environmental remediation reserve balance was $61 and $66, respectively.
Payments related to remediation expenses applied against the reserve were $10 and $16 in the second quarter and six-month period of 2024, respectively. These amounts include mandated expenditures as well as those not required by any regulatory authority or third party.
During the second quarter and six-month period of 2023, the Company incurred liabilities of $4 and $18, respectively. The Company incurred liabilities of $14 for the six-month period of 2023 primarily related to the closure of the previously curtailed Intalco aluminum smelter, which was recorded in Restructuring and other charges, net (see Note D) on the Statement of Consolidated Operations, and incurred liabilities of $4 for the second quarter of 2023 for ongoing remediation work at various other sites, which was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. Payments related to remediation expenses applied against the reserve were $16 and $23 in the second quarter and six-month period of 2023, respectively. These amounts include mandated expenditures as well as those not required by any regulatory authority or third party. Further, the Company recorded a reversal of a reserve of $1 during the six-month period of 2023 due to the determination that certain remaining site remediation is no longer required.
The estimated timing of cash outflows from the environmental remediation reserve at June 30, 2024 was as follows:
2024 (excluding the six months ended June 30, 2024)
48
2025 – 2029
Thereafter
Reserve balances at June 30, 2024 and December 31, 2023, associated with significant sites with active remediation underway or for future remediation were $199 and $211, respectively. In management’s judgment, the Company’s reserves are sufficient to satisfy the provisions of the respective action plans. Upon changes in facts or circumstances, a change to the reserve may be required. The Company’s significant sites include:
Suriname—The reserve associated with the 2017 closure of the Suralco refinery and bauxite mine is for treatment and disposal of refinery waste and soil remediation. The work began in 2017 and is expected to be completed at the end of 2029.
Hurricane Creek, Arkansas—The reserve associated with the 1990 closure of two mining areas and refineries near Hurricane Creek, Arkansas is for ongoing monitoring and maintenance for water quality surrounding the mine areas and residue disposal areas.
Massena, New York—The reserve associated with the 2015 closure of the Massena East smelter by the Company’s subsidiary, Reynolds Metals Company, is for subsurface soil remediation to be performed after demolition of the structures. Remediation work commenced in 2021 and will take four to eight years to complete.
Point Comfort, Texas—The reserve associated with the 2019 closure of the Point Comfort alumina refinery is for disposal of industrial wastes contained at the site, subsurface remediation, and post-closure monitoring and maintenance. The final remediation plan is currently being developed, which may result in a change to the existing reserve.
Sherwin, Texas—In connection with the 2018 settlement of a dispute related to the previously-owned Sherwin alumina refinery, the Company’s subsidiary, Copano Enterprises LLC, accepted responsibility for the final closure of four bauxite residue waste disposal areas (known as the Copano facility). Work commenced on the first residue disposal area in 2018 and is expected to be completed no later than May 2028. Other than ongoing maintenance and repair activities, work on the next three areas has not commenced but is expected to be completed by 2048, depending on its potential re-use.
Longview, Washington—In connection with a 2018 Consent Decree and Cleanup Action Plan with the State of Washington Department of Ecology, the Company’s subsidiary, Northwest Alloys as landowner, accepted certain responsibilities for future remediation of contaminated soil and sediments at the site located near Longview, Washington. In December 2020, the lessee of the land, who was a partner in the remediation of the site, filed for bankruptcy and exited the site in January 2021. The full site remediation project design, including long-term and post-closure monitoring and maintenance at the site, was approved in March 2023. In the third quarter of 2023, changes in scope and cost increases for remediation resulted in an increase to the reserve. The project is planned to be completed by the end of 2026.
Addy, Washington—The reserve associated with the 2022 closure of the Addy magnesium smelter facility is for site-wide remediation and investigation and post-closure monitoring and maintenance. Remediation work is not expected to begin until 2026 and will take three to five years to complete. The final remediation plan is currently being developed, which may result in a change to the existing reserve.
Ferndale, Washington—The reserve associated with the 2023 closure of the Intalco aluminum smelter in Ferndale, Washington is for below grade site remediation and five years of post-closure maintenance and monitoring. The final remediation plan is under review.
Other Sites—The Company is in the process of decommissioning various other plants and remediating sites in several countries for potential redevelopment or to return the land to a natural state. In aggregate, there are remediation projects at 32 other sites that are planned or underway. These activities will be completed at various times in the next three to five years, after which ongoing monitoring and other activities may be required. At June 30, 2024 and December 31, 2023, the reserve balance associated with these activities was $53 and $57, respectively.
Tax
Brazil (AWAB)—Under Brazilian law, taxpayers who generate non-cumulative federal value added tax credits related to exempt exports may either request a refund in cash (monetization) or offset them against other federal taxes owed. In 2012, AWAB requested monetization of $136 (R$273) from the Brazilian Federal Revenue Office (RFB) and received $68 (R$136) that year. In March 2013, AWAB was notified by the RFB that approximately $110 (R$220) of value added tax credits previously claimed were being disallowed and a penalty of 50% was assessed. $41 (R$82) of the cash received in 2012 related to the disallowed amount. The value added tax credits were claimed by AWAB for both fixed assets and export sales related to the Juruti bauxite mine and Alumar refinery expansion for tax years 2009 through 2011. The RFB has disallowed credits they allege belong to the consortium in which AWAB owns an interest and should not have been claimed by AWAB. Credits have also been disallowed as a result of challenges to apportionment methods used, questions about the use of the credits, and an alleged lack of documented proof. AWAB presented defense of its claim to the RFB on April 8, 2013.
In February 2022, the RFB notified AWAB that it had inspected the value added tax credits claimed for 2012 and disallowed $4 (R$19). In its decision, the RFB allowed credits of $14 (R$65) that were similar to those previously disallowed for 2009 through 2011. In July 2022, the RFB notified AWAB that it had inspected the value added tax credits claimed for 2013 and disallowed $13 (R$66). In its decision, the RFB allowed credits of $10 (R$53) that were similar to those previously disallowed for 2009 through 2011. AWAB received the 2012 allowed credits with interest of $9 (R$44) in March 2022 and the 2013 allowed credits with interest of $6 (R$31) in August 2022. The decisions on the 2012 and 2013 credits provide positive evidence to support management’s opinion that there is no basis for these credits to be disallowed. AWAB will continue to dispute the credits that were disallowed for 2012 and 2013. If AWAB is successful in this administrative process, the RFB would have no further recourse. If unsuccessful in this process, AWAB has the option to litigate at a judicial level. Separately from AWAB’s administrative appeal, in June 2015, a new tax law was enacted repealing the provisions in the tax code that were the basis for the RFB assessing a 50% penalty in this matter. As such, the estimated range of reasonably possible loss for these matters is $0 to $55 (R$305). It is management’s opinion that the allegations have no basis; however, at this time, the Company is unable to reasonably predict an outcome for this matter.
Australia (AofA)—In December 2019, AofA received a statement of audit position (SOAP) from the Australian Taxation Office (ATO) related to the pricing of certain historic third-party alumina sales. The SOAP proposed adjustments that would result in additional income tax payable by AofA. During 2020, the SOAP was the subject of an independent review process within the ATO. At the conclusion of this process, the ATO determined to continue with the proposed adjustments and issued Notices of Assessment (the Notices) that were received by AofA on July 7, 2020. The Notices asserted claims for income tax payable by AofA of approximately $143 (A$214). The Notices also included claims for compounded interest on the tax amount totaling approximately $474 (A$707).
On September 17, 2020, the ATO issued a position paper with its preliminary view on the imposition of administrative penalties related to the tax assessment issued to AofA. This paper proposed penalties of approximately $86 (A$128).
AofA disagreed with the Notices and with the ATO’s proposed position on penalties. During 2020, AofA lodged formal objections to the Notices, provided a submission on the ATO’s imposition of interest and submitted a response to the ATO’s position paper on penalties. After the ATO completes its review of AofA’s response to the penalties position paper, the ATO could issue a penalty assessment.
To date, AofA has not received a response to its submission on the ATO’s imposition of interest or its response to the ATO’s position paper on penalties.
Through February 1, 2022, AofA did not receive a response from the ATO on AofA’s formal objections to the Notices and, on that date, AofA submitted statutory notices to the ATO requiring the ATO to make decisions on AofA’s objections within a 60-day period. On April 1, 2022, the ATO issued its decision disallowing the Company’s objections related to the income tax assessment, while the position on penalties and interest remains outstanding.
On April 29, 2022, AofA filed proceedings in the Australian Administrative Appeals Tribunal (AAT) against the ATO to contest the Notices. The AAT held the first directions hearing on July 25, 2022 ordering AofA to file its evidence and related materials by November 4, 2022, ATO to file its materials by April 14, 2023 and AofA to file reply materials by May 26, 2023. AofA filed its evidence and related materials on November 4, 2022. The ATO did not file its materials by April 14, 2023. At a directions hearing on May 17, 2023, the ATO was granted an extension to file its materials by August 18, 2023. At a directions hearing on September 26, 2023, the ATO was granted an additional extension to file its materials by November 3, 2023. The ATO filed its materials on November 13, 2023. At a directions hearing on November 22, 2023, AofA was ordered to file any reply materials by March 15, 2024. AofA filed its reply materials on March 15, 2024. The substantive hearing was completed in June 2024, and AofA is awaiting the AAT’s decision.
The Company maintains that the sales subject to the ATO’s review, which were ultimately sold to Aluminium Bahrain B.S.C., were the result of arm’s length transactions by AofA over two decades and were made at arm’s length prices consistent with the prices paid by other third-party alumina customers.
In accordance with the ATO’s dispute resolution practices, AofA paid 50% of the assessed income tax amount exclusive of interest and any penalties, or approximately $74 (A$107), during the third quarter 2020, and the ATO is not expected to seek further payment prior to final resolution of the matter. If AofA is ultimately successful, any amounts paid to the ATO as part of the 50% payment would be refunded. AofA funded the payment with cash on hand and recorded the payment within Other noncurrent assets as a noncurrent prepaid tax asset; at June 30, 2024 the related balance was $72 (A$107).
Further interest on the unpaid tax will continue to accrue during the dispute. The initial interest assessment and the additional interest accrued are deductible against taxable income by AofA but would be taxable as income in the year the dispute is resolved if AofA is ultimately successful. AofA applied this deduction beginning in the third quarter of 2020, reducing cash tax payments. At June 30, 2024 and December 31, 2023, total reductions in cash tax payments were $209 (A$312) and $199 (A$293), respectively, and are reflected within Other noncurrent liabilities and deferred credits as a noncurrent accrued tax liability.
The Company continues to believe it is more likely than not that AofA’s tax position will be sustained and therefore is not recognizing any tax expense in relation to this matter. However, because the ultimate resolution of this matter is uncertain at this time, the Company cannot predict the potential loss or range of loss associated with the outcome, which may materially affect its results of operations and financial condition. References to any assessed U.S. dollar amounts presented in connection with this matter have been converted into U.S. dollars from Australian dollars based on the exchange rate in the respective period.
St. Croix Proceedings—Prior to 2012, Alcoa Inc., the Company’s former parent company, was served with two multi-plaintiff actions alleging personal injury or property damage from Hurricane Georges or winds blowing material from the Company’s former St. Croix alumina facility. These actions were subsequently consolidated into the Red Dust Claims docket in 2017.
In March 2022, the Superior Court of the Virgin Islands issued an amended case management order dividing complaints filed in the Red Dust docket into groups of 50 complaints, designated Groups A through I. The parties selected 10 complaints from Group A to proceed to trial as the Group A lead cases. In May 2024, the Court issued an amended case management order with regard to the Group A lead cases scheduling trials to begin in November 2024. Trials with regard to the Group A lead cases will continue through July 2025. The Court further ordered the parties to participate in mediation on or before August 31, 2024. After completing its case analysis in the second quarter of 2024, the Company recorded a reserve for its estimate of probable loss and a related receivable for insurance proceeds with no material impact to the results of operations.
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, governance, 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.
P. Other Financial Information
Other (Income) Expenses, Net
Equity (gain) loss
139
Foreign currency losses (gains), net
(39
81
Net loss from asset sales
Net (gain) loss on mark-to-market derivative instruments
Non-service costs – pension and other postretirement benefits
Other, net
Other Noncurrent Assets
Prepaid gas transmission contract
296
297
Value added tax credits
336
Gas supply prepayment
Deferred mining costs, net
Prepaid pension benefit
125
Goodwill
144
Noncurrent prepaid tax asset
72
73
Noncurrent restricted cash
Intangibles, net
35
95
Cash and Cash Equivalents and Restricted Cash
Current restricted cash
Q. Supplier Finance Programs
The Company has various supplier finance programs with third-party financial institutions that are made available to suppliers to facilitate payment term negotiations. Under the terms of these agreements, participating suppliers receive payment in advance of the payment date from third-party financial institutions for qualifying invoices. Alcoa’s obligations to its suppliers, including amounts due and payment terms, are not impacted by its suppliers’ participation in these programs. The Company does not pledge any assets as security or provide any guarantees beyond payment of outstanding invoices at maturity under these arrangements. The Company does not pay fees to the financial institutions under these arrangements. At June 30, 2024 and December 31, 2023, qualifying supplier invoices outstanding under these programs were $123 and $104, respectively, and have payment terms ranging from 50 to 110 days. These obligations are included in Accounts payable, trade on the accompanying Consolidated Balance Sheet.
R. Subsequent Events
On August 1, 2024, the Company completed the acquisition of Alumina Limited (see Note C).
On July 31, 2024, the Board of Directors declared a quarterly cash dividend of $0.10 per share of the Company’s common stock and Series A convertible preferred stock, to be paid on August 29, 2024 to stockholders of record as of the close of business on August 12, 2024. Dividends on Alcoa’s common and preferred shares are paid in U.S. dollars. Dividends on CDIs paid in a currency other than U.S. dollar will be determined using foreign currency exchange rates as of August 22, 2024.
In May 2022, the Company received a Notice of Violation (NOV) from the U.S. Environmental Protection Agency (the EPA). The NOV alleges violations under the Clean Air Act at the Company’s Intalco smelter from when the smelter was operational. The EPA referred the matter to the U.S. Department of Justice, Environment and Natural Resources Division (the DOJ) in May 2022. The DOJ and the Company agreed to a stipulated settlement, which was filed with the United States District Court for the Western District of Washington at Seattle on July 18, 2024, requiring the Company to pay a civil fine of $5. An accrual for this matter was included within Other current liabilities on the Consolidated Balance Sheet as of June 30, 2024.
Item 2. 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; metric tons in thousands (kmt); dry metric tons in millions (mdmt))
Business Update
Alcoa continued to progress the acquisition of Alumina Limited during the second quarter of 2024 and announced the completion of the acquisition on August 1, 2024. The acquisition is intended to enhance Alcoa’s position as a leading pure play, upstream aluminum company globally, while simplifying the Company’s corporate structure and governance, resulting in greater operational and financial flexibility and strategic optionality.
Additionally, Alcoa continued to execute initiatives to further enhance its operations and reduce controllable costs. The Company’s smelters in Canada and Norway set year-to-date production records, and the Alumar smelter established stability and increased operating capacity to approximately 72 percent. The full curtailment of the Kwinana refinery in Australia was completed in June 2024, as planned.
On August 1, 2024, Alcoa completed the acquisition of all of the ordinary shares of Alumina Limited (Alumina Shares) through a wholly owned subsidiary, AAC Investments Australia 2 Pty Ltd. Alumina Limited holds a 40% ownership interest in the AWAC joint venture. Under the Scheme Implementation Deed (the Agreement) entered into in March 2024, as amended in May 2024, holders of Alumina Shares received 0.02854 Alcoa CHESS Depositary Interests (CDIs) for each Alumina Share (the Agreed Ratio), except that i) holders of Alumina Shares represented by American Depositary Shares, each of which represented 4 Alumina Shares, received 0.02854 shares of Alcoa common stock and ii) a certain shareholder received, for certain of their Alumina Shares, 0.02854 shares of Alcoa non-voting convertible preferred stock. The Alcoa CDIs are quoted on the Australian Stock Exchange under the trading symbol AAI.
For Alcoa shareholders, the transaction enhances Alcoa’s vertical integration along the value chain across bauxite mining, alumina refining, and aluminum smelting, increases Alcoa’s economic interest in its bauxite and alumina assets, simplifies governance, and reaffirms Alcoa’s commitment to Western Australia. In addition to the implied premium over prior share prices, Alumina Limited shareholders’ ownership is diversified to a large-scale, global upstream aluminum portfolio.
The transaction consisted in substance of the acquisition of Alumina Limited’s noncontrolling interest in AWAC, the assumption of Alumina Limited’s indebtedness (approximately $385 as of August 1, 2024), and the recognition of deferred tax assets (approximately $100) related to Alumina Limited’s prior net operating losses. The accounting for the transaction is not yet complete and the final value of assets and liabilities acquired is subject to change. Alcoa’s fees and expenses related to the transaction include financial advisor fees, filing fees, legal and accounting fees, and regulatory fees. The Company expects to incur approximately $35 of transaction costs related to the transaction. In the third quarter of 2024, Net income attributable to noncontrolling interest will be reported through July 31, 2024 and cease thereafter.
Additionally, under the terms of the Agreement, Alcoa agreed to provide a shareholder loan to AWAC in place of required capital contributions by Alumina Limited if Alumina Limited’s net debt position exceeded $420 prior to the acquisition closing. Alcoa was not required to and did not provide any shareholder loans to AWAC under this provision.
Portfolio Actions
Kwinana Refinery
In June 2024, Alcoa completed the full curtailment of the Kwinana refinery, as planned, which was announced in January 2024. The Company’s decision to fully curtail the refinery was made based on a variety of factors, including the refinery’s age, scale, operating costs, and current bauxite grades, in addition to market conditions.
Prior to the curtailment, the refinery had been operating at approximately 80 percent of its annual nameplate capacity of 2.2 million metric tons since January 2023, when the Company reduced production in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers.
As of March 2024, the refinery had approximately 780 employees and this number will be reduced to approximately 250 in the third quarter of 2024 to manage certain processes that will continue until about the third quarter of 2025. At that time, the employee number will be further reduced to approximately 50.
Alumar Smelter
During the second quarter of 2024, the Company resumed the controlled pace for the restart of the Alumar smelter and continued actions to improve the smelter’s overall performance, after the smelter experienced operational instability in the prior quarter. The site was operating at approximately 72 percent of the site’s total annual capacity of 268 kmt (Alcoa share) as of June 30, 2024.
San Ciprián Operations
During the second quarter of 2024, Alcoa continued its focus on improving the competitiveness of both the San Ciprián refinery and smelter, while progressing the process for the potential sale of the complex. Alcoa completed the restart of approximately 6 percent of pots at the San Ciprián smelter in the first quarter of 2024, in compliance with the February 2023 updated viability agreement.
Improving the competitiveness of the complex is dependent on finding competitive energy for both the smelter and refinery. While electricity and gas prices have declined since the global energy crisis in 2022, power prices remain uneconomical due to (i) a lack of material indirect carbon dioxide cost compensation from the Spanish government; (ii) substantial transmission costs; and (iii) permitting delays and adjustments to renewable power generation projects associated with two long-term power purchase agreements with renewable energy providers that Alcoa entered into in 2022. Additionally, Alcoa initiated a process for the potential sale of the complex during the first quarter of 2024 which is expected to conclude in the second half of 2024. Any long-term solution for the complex requires the support of the government and workers’ representatives.
The refinery and smelter incurred substantial losses in the first half of 2024 and in prior years, which have been funded with internal credit lines that are nearing their limits and for which the operations have no ability to repay. The operations have approximately $100 of available funding with cash on hand and availability under internal credit lines. Although aluminum and alumina prices improved during the first half of 2024, the San Ciprián complex remains unviable based on current and forward market assumptions for delivered energy in Spain and sales prices. While the Company had restricted cash of $86 remaining at June 30, 2024 (see Aluminum below) to be made available for capital improvements at the site and smelter restart costs, the workers’ representatives have rejected the use of this cash to fund operating losses at the smelter. Based on current economic conditions, and barring reaching an acceptable outcome on either achieving economic viability or completing a sale of the complex, the San Ciprián operations are expected to incur losses in 2024 and Alcoa anticipates that available funding will be exhausted by the end of 2024. At that point, Alcoa will not provide additional funding and difficult decisions will have to be considered regarding the future of the San Ciprián complex.
Warrick Operations
During the first quarter 2024, the Company completed the restart of one potline (54,000 mtpy) at its Warrick Operations site in Indiana that began in October 2023, and incurred restart expenses of $3.
Other Matters
In March 2024, the Company completed an offering of $750 aggregate principal amount of 7.125 percent senior notes due in 2031. This was the Company’s first notes issuance under its Green Finance Framework, which prioritizes climate change mitigation expenditures related to circular or low carbon products, pollution prevention technologies, renewable energy, and water management. The Company is utilizing net proceeds from the issuance, which can be allocated to qualifying expenditures on a two-year look back and three-year look forward, to cover expenses associated with both new and existing decarbonization and water management projects, research and development, renewable energy, and the production of low carbon alumina and aluminum products. The net proceeds also support the Company’s cash position and ongoing cash needs, including with respect to its previously announced portfolio actions. The Company does not expect to allocate part of the net proceeds to significant capital investments in breakthrough technologies as those are not expected to occur within the applicable time period.
During the first quarter of 2024, the Company initiated and fully deployed a productivity and competitiveness program across its global operations and functions. The program is part of the Company’s objective to improve overall competitiveness and profitability and includes a target to save approximately 5 percent of operating costs, exclusive of raw materials, energy and transportation costs, which are already under active management and cost control programs. Total savings are expected to approximate $100 on a run rate basis and to be achieved by the first quarter of 2025.
The Company paid a quarterly cash dividend of $0.10 per share of the Company’s common stock in June 2024, totaling $18.
See the below sections for additional details on the above-described actions.
Results of Operations
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the quarterly and year-to-date periods outlined in the table below.
Selected Financial Data:
Quarter ended
Six months ended
Sequential
Year-to-date
Statement of Operations
March 31,2024
June 30,2023
2,599
2,404
Other (income) expenses, net
2,924
(325
Provision for (benefit from) income taxes
Selected Financial Metrics
Diluted income (loss) per share attributable to Alcoa Corporation common shareholders
(1.41
Third-party shipments of alumina (kmt)
2,267
2,397
4,664
4,065
Third-party shipments of aluminum (kmt)
677
634
1,311
1,223
Average realized price per metric ton of alumina
399
372
385
367
Average realized price per metric ton of aluminum
2,858
2,620
2,743
3,000
Average Alumina Price Index (API)(1)
392
356
374
Average London Metal Exchange (LME) 15-day lag(2)
2,486
2,201
2,343
2,331
Overview
Sequential period comparison
Net income (loss) attributable to Alcoa Corporation was $20 in the second quarter of 2024 compared with $(252) in the first quarter of 2024. The favorable change of $272 is primarily a result of:
Partially offset by:
Year-to-date comparison
Net income (loss) attributable to Alcoa Corporation was $(232) in the six-month period of 2024 compared with $(333) in the six-month period of 2023. The favorable change of $101 is primarily a result of:
Sales increased $307 primarily as a result of:
Sales increased $151 primarily as a result of:
Cost of goods sold as a percentage of sales decreased 5% primarily as a result of:
Cost of goods sold as a percentage of sales decreased 2% primarily as a result of:
Selling, general administrative, and other expenses increased $9 in comparison to the first quarter of 2024 and increased $23 in comparison to the six-month period of 2023. Both the sequential and year-to-date increases are primarily a result of higher labor costs.
Depreciation increased $2 primarily as a result of:
Depreciation increased $18 primarily as a result of:
Interest expense increased $13 in comparison to the first quarter of 2024 and increased $14 in comparison to the six-month period of 2023. Both the sequential and year-to-date increases are primarily a result of additional interest on the $750 7.125% Senior Notes issued in March 2024.
Other (income) expenses, net was $(22) in the second quarter of 2024 compared with $59 in the first quarter of 2024. The favorable change of $81 was primarily a result of:
Other (income) expenses, net was $37 in the six-month period of 2024 compared with $60 in the six-month period of 2023. The favorable change of $23 was primarily a result of:
In the second quarter of 2024, Restructuring and other charges, net of $18 primarily related to:
In the first quarter of 2024, Restructuring and other charges, net of $202 primarily related to:
In the six-month period of 2024, Restructuring and other charges, net of $220 primarily related to:
In the six-month period of 2023, Restructuring and other charges, net of $173 primarily related to:
The Provision for income taxes in the second quarter of 2024 was $61 on income before taxes of $92 or 66.3%. In comparison, the first quarter of 2024 Benefit from income taxes was $(18) on a loss before taxes of $(325) or 5.5%.
The increase in tax expense of $79 is primarily attributable to higher income in the jurisdictions where taxes are paid. Additionally, the Company had losses in jurisdictions where it maintains a full tax valuation allowance.
The Provision for income taxes in the six-month period of 2024 was $43 on a loss before taxes of $(233) or (18.5)%. In comparison, the six-month period of 2023 Provision for income taxes was $74 on a loss before taxes of $(279) or (26.5)%.
The decrease in tax expense of $31 is primarily attributable to lower income in the jurisdictions where taxes are paid.
Net income (loss) attributable to noncontrolling interest was $11 in the second quarter of 2024 compared with $(55) in the first quarter of 2024. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities. Alcoa will recognize Net income (loss) attributable to Noncontrolling interest through the closing of the Alumina Limited acquisition.
The change is primarily a result of lower restructuring costs, favorable mark-to-market results on derivative instruments, and higher average realized price of alumina, partially offset by higher production costs and higher taxes.
Net income (loss) attributable to noncontrolling interest was $(44) in the six-month period of 2024 compared with $(20) in the six-month period of 2023. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities. Alcoa will recognize Net income (loss) attributable to Noncontrolling interest through the closing of Alumina Limited acquisition.
The change is primarily a result of higher restructuring costs, higher elimination of intercompany profit in inventory, and higher production costs, partially offset by higher average realized price of alumina, lower raw material and energy costs, and favorable mark-to-market results on derivative instruments.
Segment Information
Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company has two operating and reportable segments: (i) Alumina and (ii) 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) for 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 Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The CODM function regularly reviews the financial information, including Adjusted EBITDA, of these two operating segments to assess performance and allocate resources.
Business Update. The average API of $392 per metric ton trended favorably compared to the prior quarter reflecting a 10% sequential increase.
In June 2024, Alcoa completed the full curtailment of the Kwinana refinery, as planned, which was announced in January 2024. As of March 2024, the refinery had approximately 780 employees and this number will be reduced to approximately 250 in the third quarter of 2024 to manage certain processes that will continue until about the third quarter of 2025. At that time, the employee number will be further reduced to approximately 50. In addition to the employees separating as a result of the curtailment, approximately 150 employees will either terminate through the productivity program announced in the third quarter of 2023 or redeploy to other Alcoa operations.
In the second quarter of 2024, Alcoa recorded restructuring charges of $8 related to the curtailment of the refinery including $6 for water management costs and $2 for contract terminations. In the first quarter of 2024, Alcoa recorded restructuring charges of $197 including $123 for water management costs, $41 for employee related costs, $15 for asset retirement obligations, $13 for take-or-pay contracts, and $5 for asset impairments. Related cash outlays of approximately $225 (which includes existing employee related liabilities and asset retirement obligations) are expected through 2025, with approximately $145 to be spent in 2024. The Company spent $22 and $24 against the reserve in the second quarter and six-month period of 2024, respectively.
Capacity. The Alumina segment had a base capacity of 13,843 kmt with 3,204 kmt of curtailed refining capacity. In the second quarter of 2024, curtailed capacity increased 1,752 kmt due to the full curtailment of the Kwinana refinery (see above).
Total alumina 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 customers. Additionally, operating costs in the table below includes all production related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.
Bauxite production (mdmt)
9.5
10.1
19.6
19.9
Third-party bauxite shipments (mdmt)
1.5
1.0
2.5
3.7
Alumina production (kmt)
2,539
2,670
5,209
5,314
Third-party alumina shipments (kmt)
Intersegment alumina shipments (kmt)
1,025
943
1,968
1,983
Total alumina shipments (kmt)
3,292
3,340
6,632
6,048
Third-party bauxite sales
160
249
Third-party alumina sales
914
897
1,811
1,502
Total segment third-party sales
961
Intersegment alumina sales
395
1,356
Average realized third-party price per metric ton of alumina
Operating costs
1,189
1,163
2,352
2,176
Average cost per metric ton of alumina shipped
361
348
360
Production
Alumina production decreased 5% primarily as a result of:
Alumina production decreased 2% primarily as a result of:
Third-party sales increased $49 primarily as a result of:
Third-party sales increased $220 primarily as a result of:
Intersegment sales increased $62 primarily as a result of:
Intersegment sales increased $34 primarily as a result of:
Partially offset by
Segment Adjusted EBITDA increased $47 primarily as a result of:
Segment Adjusted EBITDA increased $189 primarily as a result of:
Forward Look. For the third quarter of 2024 in comparison to the second quarter of 2024, the Alumina segment anticipates increased production costs related to lower bauxite grades in Australia.
The Company expects total 2024 alumina production and shipments to remain unchanged from the prior projection, ranging between 9.8 and 10.0 million metric tons and between 12.7 and 12.9 million metric tons, respectively. The difference between production and shipments reflects trading volumes and externally sourced alumina to fulfill customer contracts due to the curtailment of the Kwinana refinery.
Business Update. Aluminum prices increased sequentially with LME prices on a 15-day lag averaging $2,486 per metric ton in the second quarter of 2024.
In April 2024, the U.S. Treasury, in coordination with the United Kingdom, announced sanctions on Russian aluminum. The sanctions ban imports into the U.S. and the United Kingdom of Russian Federation origin aluminum produced on or after April 13, 2024, and restrict activity at the London Metal Exchange and the Chicago Mercantile Exchange.
In March 2024, Alcoa completed the restart of approximately 54,000 mtpy of capacity at its Warrick Operations site in Indiana that began in October 2023. Alcoa incurred restart expenses of $3 during the first quarter of 2024.
San Ciprián Smelter
In March 2024, Alcoa completed the restart of approximately 6 percent of total pots at the San Ciprián smelter as required by the February 2023 updated viability agreement. The Company incurred restart expenses $2 during the six-month period of 2024. In connection with the December 2021 agreement and the February 2023 updated viability agreement, the Company has restricted cash of $86 remaining at June 30, 2024 to be made available for capital improvements at the site and smelter restart costs. The workers’ representatives have rejected the use of this cash to fund operating losses at the smelter.
Total aluminum third-party 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. Additionally, Total shipments includes offtake from a joint venture supply agreement.
The average realized third-party price per metric ton of 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.
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.
Production (kmt)
543
542
1,085
1,041
Total shipments (kmt)
Third-party aluminum sales
1,661
1,638
1,642
Average realized third-party price per metric ton
1,643
1,568
3,211
3,281
Average cost per metric ton of aluminum shipped
2,427
2,474
2,450
Production was consistent with the first quarter’s strong output
Production increased 4% primarily as a result of:
Third-party sales increased $257 primarily as a result of:
Third-party sales decreased $65 primarily as a result of:
Segment Adjusted EBITDA increased $183 primarily as a result of:
Segment Adjusted EBITDA decreased $11 primarily as a result of:
The following table provides consolidated capacity and curtailed capacity (each in kmt) for each smelter owned by Alcoa Corporation:
March 31, 2024
Facility
Country
Capacity(1)
Curtailed
Portland(2)
Australia
São Luís (Alumar)(3)
Brazil
84
118
Baie Comeau
Canada
314
Bécancour
350
Deschambault
Fjarðaál
Iceland
Lista
Norway
Mosjøen
200
San Ciprián(4)
Spain
228
Massena West
U.S.
130
Warrick(5)
215
269
162
2,645
409
425
2,689
588
Forward Look. For the third quarter of 2024 in comparison to the second quarter of 2024, the Aluminum segment expects lower raw material costs.
The Company expects total 2024 Aluminum segment production and shipments to remain unchanged from the prior projection, ranging between 2.2 and 2.3 million metrics tons and between 2.5 and 2.6 million metric tons, respectively.
Reconciliations of Certain Segment Information
Reconciliation of Total Segment Third-Party Sales to Consolidated Sales
Consolidated sales
Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods Sold
198
431
516
Total segment operating costs
3,065
2,929
5,994
5,973
Eliminations(2)
(431
(391
(822
(847
Provision for depreciation, depletion, and amortization(3)
(158
(155
(313
(295
Other(4)
78
Consolidated cost of goods sold
Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Income (Loss) Attributable to Alcoa Corporation
189
(161
(202
Other income (expenses), net
(59
(Provision for) benefit from income taxes
See the Environmental Matters section of Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
Liquidity and Capital Resources
Management believes that the Company’s cash on hand, projected cash flows, and liquidity options, combined with its strategic actions, will be adequate to fund its short-term (at least 12 months) and long-term operating and investing needs. The Company plans to opportunistically access liquidity sources to support its cash position and ongoing cash needs. Further, the Company has flexibility related to its use of cash; other than the Alumina Limited debt assumed as of August 1, 2024, the Company has no significant debt maturities until 2027 and no significant cash contribution requirements related to its pension plan obligations. Alcoa is considering potential repayment or refinancing options for the Alumina Limited debt assumed.
Although management believes that Alcoa’s projected cash flows and other liquidity options 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; (iii) the current state of the economy and commodity markets, and (iv) short- and long-term debt ratings. There can be no assurances that the Company will continue to have access to capital markets on terms acceptable to Alcoa Corporation.
Changes in market conditions caused by global or macroeconomic events, such as ongoing regional conflicts, high inflation, and changing global monetary policies could have adverse effects on Alcoa’s ability to obtain additional financing and cost of borrowing. Inability to generate sufficient earnings could impact the Company’s ability to meet the financial covenants in our outstanding debt and revolving credit facility agreements and limit our ability to access these sources of liquidity or refinance or renegotiate our outstanding debt or credit agreements on terms acceptable to the Company. Additionally, the impact on market conditions from such events could adversely affect the liquidity of Alcoa’s customers, suppliers, and joint venture partners and equity method investments, which could negatively impact the collectability of outstanding receivables and our cash flows.
Cash from Operations
Cash provided from operations was $64 in the six-month period of 2024 compared with cash used for operations of $176 in the same period of 2023. Notable changes to sources and (uses) of cash included:
During 2024, AofA will continue to record its tax provision and tax liability without effect of the ATO assessment, since it expects to prevail. The tax payable will remain on AofA’s balance sheet as a noncurrent liability, increased by the tax effect of subsequent periods’ interest deductions, until dispute resolution. At June 30, 2024, the noncurrent liability resulting from the cumulative interest deductions was $209 (A$312). See description of the tax dispute in Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
The Company utilizes a Receivables Purchase Agreement facility to sell up to $130 of certain receivables through an SPE to a financial institution on a revolving basis. Alcoa Corporation guarantees the performance obligations of the Company subsidiaries, and unsold customer receivables are pledged as collateral to the financial institution to secure the sold receivables. At June 30, 2024, the SPE held unsold customer receivables of $239 pledged as collateral against the sold receivables.
The Company continues to service the customer receivables that were transferred to the financial institution. As Alcoa collects customer payments, the SPE transfers additional receivables to the financial institution rather than remitting cash. In the six-month period of 2024, the Company sold gross customer receivables of $600 and reinvested collections of $584 from previously sold receivables, resulting in net cash proceeds from the financial institution of $16. In the six-month period of 2023, the Company sold gross customer receivables of $174 and reinvested collections of $127 from previously sold receivables, resulting in net cash proceeds from the financial institution of $47. Cash collections from previously sold receivables yet to be reinvested of $89 were included in Accounts payable, trade on the accompanying Consolidated Balance Sheet as of June 30, 2024. Cash received from sold receivables under the agreement are presented within operating activities in the Statement of Consolidated Cash Flows. See Note I to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
Financing Activities
Cash provided from financing activities was $679 in the six-month period of 2024 compared with $16 in the same period of 2023.
The source of cash in the six-month period of 2024 was primarily $737 net proceeds from the bond issuance (see below) and $33 of net contributions from Alumina Limited (see Noncontrolling interest above), partially offset by $37 of dividends paid and $25 of net payments on short-term borrowings (see below).
The Company has entered into inventory repurchase agreements whereby the Company sold aluminum to a third party and agreed to subsequently repurchase substantially similar inventory. The Company did not record sales upon each shipment of inventory and the net cash received of $31 related to these agreements was recorded in Short-term borrowings within Other current liabilities on the Consolidated Balance Sheet as of June 30, 2024.
During the six-month period of 2024, the Company recorded borrowings of $45 and repurchased $70 of inventory related to these agreements. During the six-month period of 2023, the Company recorded borrowings of $25 and repurchased $15 of inventory related to these agreements.
In March 2024, ANHBV, a wholly-owned subsidiary of Alcoa Corporation, completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt issuance for $750 aggregate principal amount of 7.125% Senior Notes due 2031 (the 2031 Notes), which carry a green bond designation. The net proceeds of this issuance were $737, reflecting a discount to the initial purchasers of the 2031 Notes as well as issuance costs. See Note K to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
As of June 30, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Revolving Credit Facility. There were no borrowings outstanding at June 30, 2024, and no amounts were borrowed during the six-month periods of 2024 and 2023 under the Revolving Credit Facility.
As of June 30, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Japanese Revolving Credit Facility. There were no borrowings outstanding at June 30, 2024. During the six-month period of 2024, $201 (29,686 JPY) was borrowed and $196 (29,686 JPY) was repaid. No amounts were borrowed during the six-month period of 2023 under the Japanese Yen Revolving Credit Facility.
41
Dividend
On May 9, 2024, the Board of Directors declared a quarterly cash dividend of $0.10 per share of the Company’s common stock to stockholders of record as of the close of business on May 21, 2024. In June 2024, the Company paid cash dividends of $18.
Ratings
Alcoa Corporation’s cost of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short- and long-term debt ratings assigned to Alcoa Corporation’s debt by the major credit rating agencies.
On March 6, 2024, Moody’s Investor Service downgraded the rating of ANHBV’s long-term debt from Baa3 to Ba1 and revised the outlook from negative to stable.
On March 4, 2024, Fitch Ratings downgraded the rating for Alcoa Corporation and ANHBV’s long-term debt from BBB- to BB+ and revised the outlook from negative to stable.
On March 4, 2024, Standard and Poor’s Global Ratings downgraded the rating of Alcoa Corporation’s long-term debt from BB+ to BB and revised the outlook from positive to stable.
Ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization.
Investing Activities
Cash used for investing activities was $281 in the six-month period of 2024 compared with $222 for the same period of 2023.
In the six-month period of 2024, the use of cash was primarily attributable to $265 related to capital expenditures and $17 of cash contributions to the ELYSIS partnership.
In the six-month period of 2023, the use of cash was primarily attributable to $198 related to capital expenditures and $36 of cash contributions to the ELYSIS partnership.
Recently Adopted and Recently Issued Accounting Guidance
See Note B to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
Dissemination of Company Information
Alcoa Corporation intends to make future announcements regarding company developments and financial performance through its website, http://www.alcoa.com, as well as through press releases, filings with the Securities and Exchange Commission, conference calls, and webcasts.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See Part II Item 7A Quantitative and Qualitative Disclosures About Market Risk of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023. Our exposure to market risk has not changed materially since December 31, 2023. Refer to Part I Item 1 of this Form 10-Q in Note M to the Consolidated Financial Statements under caption Derivatives for additional information.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Alcoa Corporation’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures were effective as of June 30, 2024.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. Legal Proceedings.
In the ordinary course of its business, Alcoa is involved in a number of lawsuits and claims, both actual and potential. Various 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, governance, employment, 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.
A discussion of our material pending lawsuits and claims can be found in Part I Item 3 Legal Proceedings of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
In March 2022, the Superior Court of the Virgin Islands issued an amended case management order dividing complaints filed in the Red Dust docket into groups of 50 complaints, designated Groups A through I. The parties selected 10 complaints from Group A to proceed to trial as the Group A lead cases. In May 2024, the Court issued an amended case management order with regard to the Group A lead cases scheduling trials to begin in November 2024. Trials with regard to the Group A lead cases will continue through July 2025. The Court further ordered the parties to participate in mediation on or before August 31, 2024. See “St. Croix Proceedings” under Part I Item 1 of this Form 10-Q in Note O to the Consolidated Financial Statements and “St. Croix Proceedings - Abednego and Abraham cases” under Part I Item 3 Legal Proceedings of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information regarding this legal proceeding.
SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that Alcoa Corporation reasonably believes will exceed a specified threshold. Pursuant to these regulations, the Company uses a threshold of $1 for purposes of determining whether disclosure of any such proceedings is required.
Intalco (Washington) Notice of Violation—In May 2022, the Company received a Notice of Violation (NOV) from the U.S. Environmental Protection Agency (the EPA). The NOV alleges violations under the Clean Air Act at the Company’s Intalco smelter from when the smelter was operational. The EPA referred the matter to the U.S. Department of Justice, Environment and Natural Resources Division (the DOJ) in May 2022. The DOJ and the Company agreed to a stipulated settlement, which was filed with the United States District Court for the Western District of Washington at Seattle on July 18, 2024, requiring the Company to pay a civil fine of $5.
Item 1A. Risk Factors.
We face a number of risks that could materially and adversely affect our business, results of operations, cash flow, liquidity, or financial condition. A full discussion of our risk factors can be found in Part I Item 1A. Risk Factors of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The information below includes additional risks relating to the completion of the Alumina Limited acquisition.
The issuance of shares of Alcoa common stock dilutes the ownership position of the Company’s existing stockholders and the price of Alcoa common stock may be affected.
The Alumina Limited shareholders now beneficially own approximately 31.5% of the fully diluted shares of Alcoa common stock (including the shares of Alcoa common stock issuable upon conversion of the shares of non-voting convertible preferred stock). Consequently, the Company’s existing stockholders own a smaller proportion of Alcoa common stock and of the Company’s voting power than the proportion of Alcoa common stock and of the Company’s voting power owned before the completion of the Alumina Limited acquisition and, as a result, have less influence on the Company’s management and policies.
The issuance of the new shares of Alcoa common stock could have the effect of depressing the market price for Alcoa common stock. In addition, Alumina Limited shareholders may decide not to hold and instead to sell the new shares of Alcoa common stock or CDIs received, which could have the effect of depressing the market price for Alcoa common stock. The price of Alcoa common stock and CDIs may fluctuate significantly in the days following the completion of the acquisition, including as a result of factors over which the Company has no control.
The secondary listing of the Alcoa common stock on the ASX via CDIs could lead to price variations and other impacts on the price of Alcoa common stock.
Alcoa common stock is listed as CDIs on the ASX in addition to Alcoa Corporation’s existing primary listing on the New York Stock Exchange (NYSE).
Dual listing may result in price variations between Alcoa Corporation’s securities listed on the different exchanges due to a number of factors, including that Alcoa common stock listed on the NYSE is traded in U.S. dollars and CDIs listed on the ASX are traded in Australian dollars, inherently introducing exchange rate volatility, and differences between the trading schedules and time zones of the two exchanges, among other factors. A decrease in the price of Alcoa Corporation’s securities in one market may result in a decrease in the price of Alcoa Corporation’s securities in the other market. Dual listing also presents the Company with the opportunity to raise additional funds through the issuance of CDIs, which could cause dilution to stockholders.
Alcoa Corporation’s exposure to fluctuations in foreign currency exchange rates has increased.
Alcoa Corporation has been subject to foreign currency exchange risk because it conducts business operations in several foreign countries, including Australia, through its foreign subsidiaries or affiliates, which conduct business in their respective local currencies. As the Alumina Limited acquisition is completed, Alcoa Corporation’s international operations account for a more significant portion of Alcoa Corporation’s overall operations than previously and Alcoa Corporation’s exposure to fluctuations in foreign currency exchange rates has increased.
The integration of Alumina Limited will subject Alcoa Corporation to liabilities that exist or may exist at Alumina Limited.
The integration of Alumina Limited with Alcoa Corporation may pose special risks, including write-offs and unanticipated costs or charges, and will subject Alcoa Corporation to liabilities that exist or may exist at Alumina Limited, including liabilities relating to Alumina Limited’s revolving credit facility and potential tax liabilities. Although Alcoa Corporation and its advisers conducted due diligence on the operations of Alumina Limited, there can be no guarantee that Alcoa Corporation is aware of all liabilities of Alumina Limited. These liabilities, and any additional risks and uncertainties related to the transaction not currently known to Alcoa Corporation or that Alcoa Corporation may currently deem immaterial or unlikely to occur, could negatively impact Alcoa Corporation’s business, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The table below sets forth information regarding the repurchase of shares of our common stock during the periods indicated.
Period
Total Number of Shares Purchased
Weighted Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet be Purchased Under the Program(1)
April 1 to April 30
500,000,000
May 1 to May 31
June 1 to June 30
As of the date of this report, the Company is currently authorized to repurchase up to a total of $500, in the aggregate, of its outstanding shares of common stock under the July 2022 authorization. Repurchases under this program may be made using a variety of methods, which may include open market purchases, privately negotiated transactions, or pursuant to a Rule 10b5-1 plan. This program may be suspended or discontinued at any time and does not have a predetermined expiration date. Alcoa Corporation intends to retire repurchased shares of common stock.
Item 5. Other Information.
Trading Arrangements
None of the Company’s directors or “officers,” as defined in Rule 16a-1(f) of the Exchange Act, adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, during the Company’s fiscal quarter ended June 30, 2024.
Item 6. Exhibits.
2.1
Deed of Amendment and Restatement of the Scheme Implementation Deed, dated as of May 20, 2024, by and among Alcoa Corporation, AAC Investments Australia 2 Pty Ltd and Alumina Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed May 20, 2024 (File No. 1-37816))
3.1
Certificate of Designation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed August 1, 2024 (File No. 1-37816))
3.2
Amended and Restated Bylaws of Alcoa Corporation, as adopted on July 31, 2024 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed August 1, 2024 (File No. 1-37816))
Alcoa Corporate Non-Employee Director Compensation Policy, effective August 1, 2024 (filed herewith)*
10.2
Terms and Conditions for Deferred Fee Restricted Share Units Director Awards, effective August 1, 2024 (filed herewith)*
10.3
Terms and Conditions for Restricted Share Units Annual Director Awards, effective August 1, 2024 (filed herewith)*
10.4
Alcoa Corporation 2016 Deferred Fee Plan for Directors, effective December 2016, as amended and restated on December 5, 2018, effective August 1, 2024 (filed herewith)*
31.1
Certification of Principal Executive Officer required by Rule 13a-14(a) or 15d-14(a) (filed herewith)
31.2
Certification of Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a) (filed herewith)
32.1
Certification of Principal Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (furnished herewith)
32.2
Certification of Principal Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (furnished herewith)
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Denotes management contracts or compensatory plans or arrangements required to be filed as Exhibits to this Form 10-Q.
Certain schedules exhibits, and appendices have been omitted in accordance with to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of any omitted schedule, exhibit, or appendix to the Commission upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
August 2, 2024
/s/ Molly S. Beerman
Date
Molly S. Beerman
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Renee R. Henry
Renee R. Henry
Senior Vice President and Controller
(Principal Accounting Officer)