Item 1. Financial Statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
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 2020 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, 2020, which includes all 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, including considerations for the impact of the coronavirus (COVID-19) pandemic on the macroeconomic environment. The COVID-19 pandemic could adversely impact estimates made as of June 30, 2021 regarding future results, such as the recoverability of goodwill and long-lived assets and the realizability of deferred tax assets. Despite these inherent limitations, management believes that the amounts recorded in the financial statements related to these items are based on its best estimates and judgments using all relevant information available at the time. 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.
References in these Notes to ParentCo refer to Alcoa Inc., a Pennsylvania corporation, and its consolidated subsidiaries through October 31, 2016, at which time it was renamed Arconic Inc. (Arconic) and since has been subsequently renamed Howmet Aerospace Inc. On November 1, 2016 (the Separation Date), ParentCo separated into two standalone, publicly-traded companies, Alcoa Corporation and Arconic Inc. (the Separation Transaction). See Note A to the Consolidated Financial Statements in Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional 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 using the cost method.
AWAC is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited and consists of several affiliated operating entities, which own, or have an interest in, or operate the bauxite mines and alumina refineries within Alcoa Corporation’s Bauxite and Alumina segments (except for the Poços de Caldas mine and refinery, portions of the São Luís refinery, and investment in Mineração Rio do Norte S.A., all in Brazil) and the Portland smelter in Australia within Alcoa Corporation’s Aluminum segment. Alcoa Corporation and Alumina Limited ultimately own 60% and 40%, respectively, of the AWAC individual entities, which are consolidated by the Company for financial reporting purposes and include Alcoa of Australia Limited (AofA), Alcoa World Alumina LLC (AWA), and Alcoa World Alumina Brasil Ltda. (AWAB). Alumina Limited’s interest in the equity of such entities is reflected as Noncontrolling interest on the accompanying Consolidated Balance Sheet.
B. Recently Adopted and Recently Issued Accounting Guidance
Adopted
On January 1, 2021, the Company adopted the following Accounting Standard Updates (ASU) issued by the Financial Accounting Standard Board (FASB), none of which had a material impact on the Company’s Consolidated Financial Statements:
|
|
•
|
ASU No. 2019-12, Income Taxes (Topic 740); and,
|
|
|
•
|
ASU No. 2020-03, Codification Improvements to Financial Instruments.
|
6
Issued
In March 2020, the FASB issued ASU No. 2020-04 to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Management is currently evaluating the impact of the replacement of the London Interbank Offered Rate (LIBOR) as well as the impact that the expected adoption of the applicable provisions within the optional guidance will have on the Consolidated Financial Statements. The adoption of the applicable provisions will coincide with the modifications of the affected contracts.
C. Divestitures
Eastalco Land Sale
In June 2021, the Company completed the sale of the previously closed Eastalco Aluminum smelter site in the state of Maryland in a transaction valued at $100. Upon closing of the transaction, the Company received $94 in cash and recorded a gain of $90 in Other (income) expenses, net ($90 pre- and $89 after-tax; see Note Q) on the Statement of Consolidated Operations.
Warrick Rolling Mill
On November 30, 2020, Alcoa entered into an agreement to sell its rolling mill located at Warrick Operations (Warrick Rolling Mill), an integrated aluminum manufacturing site near Evansville, Indiana (Warrick Operations), to Kaiser Aluminum Corporation (Kaiser). At December 31, 2020, the Company had assets and liabilities held for sale of $648 and $242, respectively, related to the transaction.
On March 31, 2021, Alcoa completed the sale for total consideration of approximately $670, which includes the assumption of $66 in other postretirement benefit liabilities (after a post-closing adjustment that lowered the amount by $6 in the second quarter 2021). Additionally, as of March 31, 2021, the Company incurred transaction costs of $7. The Company recorded a gain of $27 in Other (income) expenses, net (pre- and after-tax) on the Statement of Consolidated Operations in the first quarter of 2021 (see Note Q). The consideration and gain amounts are subject to further customary post-closing adjustments. Further, the Company recorded estimated liabilities of approximately $70 in the first quarter of 2021 for future site separation commitments and remaining transaction costs associated with the sale agreement. During the second quarter of 2021, the Company recorded an additional net gain of $3 in Other (income) expenses, net related to working capital, other postretirement benefit liabilities, and site separation costs.
Alcoa entered into a market-based metal supply agreement with Kaiser in connection with the transaction. Alcoa also entered into a ground lease agreement with Kaiser for the Warrick Rolling Mill property, which Alcoa continues to own. Approximately 1,150 employees at Warrick Rolling Mill, which includes the casthouse, hot mill, cold mills, and coating and slitting lines, became employees of Kaiser as a result of the transaction. Alcoa continues to own and operate the site’s 269,000 metric ton per year aluminum smelter and the power plant, which together employ approximately 670 people. The remaining Warrick Operations site results are included within the Aluminum segment.
Gum Springs Waste Treatment Business
During the first quarter of 2020, the Company sold Elemental Environmental Solutions LLC (EES), a wholly-owned Alcoa subsidiary that operated the waste processing facility in Gum Springs, Arkansas, to a global environmental firm in a transaction valued at $250. During 2020, the Company received $200 in cash and recorded a total gain of $181 (pre- and after-tax; see Note Q). Further, an additional $50 is held in escrow to be paid to Alcoa if certain post-closing conditions are satisfied, which would result in an additional gain being recorded.
D. Restructuring and Other Charges, Net– In the second quarter and six-month period of 2021, Alcoa Corporation recorded Restructuring and other charges, net, of $33 and $40, respectively, which were comprised of the following components:
|
|
•
|
A charge of $39 (both periods) related to the settlement of certain pension benefits (see Note L);
|
|
|
•
|
A reversal of $5 (both periods) due to lower costs for waste treatment at a previously closed Suriname site;
|
|
|
•
|
A reversal of $5 (both periods) due to lower costs for site remediation related to a previously closed site in Brazil;
|
|
|
•
|
A charge of $3 and $9, respectively, for additional take or pay contract costs related to the curtailed Wenatchee (Washington) and Intalco (Washington) smelters;
|
|
|
•
|
A net charge of $9 (six-month period only) related to the settlement and curtailment of certain other postretirement benefits resulting from the sale of the Warrick Rolling Mill (see Note L);
|
7
|
|
•
|
A $12 reversal (six-month period only) of remaining environmental and asset retirement obligation reserves at a previously closed Tennessee site due to the completion of demolition and the determination that remaining site remediation is no longer required (see Note P). The reserves were originally established through a restructuring charge upon closure of the site; and,
|
|
|
•
|
A net charge of $1 and $5, respectively, for several other insignificant items.
|
In the second quarter and six-month period of 2020, Alcoa Corporation recorded Restructuring and other charges, net, of $37 and $39, respectively, which were primarily comprised of costs related to the curtailment of the Intalco (Washington) smelter of $27 (both periods), and $11 and $13, respectively, for additional contract costs related to the curtailed Wenatchee (Washington) smelter, in addition to several insignificant items including impacts related to pension curtailments.
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:
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Bauxite
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Alumina
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
Aluminum
|
|
|
3
|
|
|
|
37
|
|
|
|
18
|
|
|
|
39
|
|
|
Segment total
|
|
|
3
|
|
|
|
37
|
|
|
|
18
|
|
|
|
41
|
|
|
Corporate
|
|
|
30
|
|
|
|
—
|
|
|
|
22
|
|
|
|
(2
|
)
|
|
Total Restructuring and other charges, net
|
|
$
|
33
|
|
|
$
|
37
|
|
|
$
|
40
|
|
|
$
|
39
|
|
During 2019, the Company completed the divestiture of the Avilés and La Coruña (Spain) aluminum facilities to PARTER Capital Group AG (PARTER) in a sale process endorsed by the Spanish government and supported by the workers’ representatives. In 2020, PARTER sold its majority stake in the facilities to an unrelated party. The Company had no knowledge of the subsequent transaction prior to its announcement, and has filed a lawsuit asserting that the sale was in breach of the sale agreement between Alcoa and PARTER (see Note P).
As a result of the divestiture, a restructuring reserve of $30 remained at December 31, 2020 related to financial contributions to the divested entities pursuant to the sale agreement. In the second quarter and six-month period of 2021, cash payments of $7 and $13, respectively, were made against the reserve. In accordance with the terms of the agreement, payments against the restructuring reserve may be made through the fourth quarter of 2021. These payments are dependent upon the divested entities meeting certain capital expenditure obligations.
Activity and reserve balances for restructuring charges were as follows:
|
|
|
Severance
and
employee
termination
costs
|
|
|
Other
costs
|
|
|
Total
|
|
|
Balance at December 31, 2019
|
|
$
|
35
|
|
|
$
|
102
|
|
|
$
|
137
|
|
|
Restructuring and other charges, net
|
|
|
16
|
|
|
|
36
|
|
|
|
52
|
|
|
Cash payments
|
|
|
(41
|
)
|
|
|
(79
|
)
|
|
|
(120
|
)
|
|
Reversals and other
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
Balance at December 31, 2020
|
|
|
6
|
|
|
|
57
|
|
|
|
63
|
|
|
Restructuring and other charges, net
|
|
|
—
|
|
|
|
10
|
|
|
|
10
|
|
|
Cash payments
|
|
|
(3
|
)
|
|
|
(21
|
)
|
|
|
(24
|
)
|
|
Reversals and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance at June 30, 2021
|
|
$
|
3
|
|
|
$
|
46
|
|
|
$
|
49
|
|
The activity and reserve balances include only Restructuring and other charges, net that impact the reserves for Severance and employee termination costs and Other costs. Restructuring and other charges, net that affected other liability accounts such as environmental obligations (see Note P), asset retirement obligations, and pension and other postretirement reserves (see Note L) 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 $1 at both June 30, 2021 and December 31, 2020.
8
E. Segment Information – Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company’s operations consist of three worldwide reportable segments: Bauxite, Alumina, and Aluminum. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) of each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses. Alcoa Corporation believes that the presentation of Adjusted EBITDA is useful to investors because such measure provides both additional information about the operating performance of Alcoa Corporation and insight on the ability of Alcoa Corporation to meet its financial obligations. The presentation of Adjusted EBITDA is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP. Alcoa Corporation’s Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
The operating results of Alcoa Corporation’s reportable segments were as follows (differences between segment totals and consolidated amounts are in Corporate):
|
|
|
Bauxite
|
|
|
Alumina
|
|
|
Aluminum
|
|
|
Total
|
|
|
Second quarter ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party sales
|
|
$
|
39
|
|
|
$
|
688
|
|
|
$
|
2,102
|
|
|
$
|
2,829
|
|
|
Intersegment sales
|
|
|
179
|
|
|
|
343
|
|
|
|
3
|
|
|
|
525
|
|
|
Total sales
|
|
$
|
218
|
|
|
$
|
1,031
|
|
|
$
|
2,105
|
|
|
$
|
3,354
|
|
|
Segment Adjusted EBITDA
|
|
$
|
41
|
|
|
$
|
124
|
|
|
$
|
460
|
|
|
$
|
625
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
$
|
32
|
|
|
$
|
50
|
|
|
$
|
73
|
|
|
$
|
155
|
|
|
Equity (loss) income
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
28
|
|
|
$
|
27
|
|
|
Second quarter ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party sales
|
|
$
|
66
|
|
|
$
|
603
|
|
|
$
|
1,475
|
|
|
$
|
2,144
|
|
|
Intersegment sales
|
|
|
245
|
|
|
|
289
|
|
|
|
2
|
|
|
$
|
536
|
|
|
Total sales
|
|
$
|
311
|
|
|
$
|
892
|
|
|
$
|
1,477
|
|
|
$
|
2,680
|
|
|
Segment Adjusted EBITDA
|
|
$
|
131
|
|
|
$
|
88
|
|
|
$
|
(34
|
)
|
|
$
|
185
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
$
|
30
|
|
|
$
|
37
|
|
|
$
|
79
|
|
|
$
|
146
|
|
|
Equity loss
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
(12
|
)
|
|
$
|
(20
|
)
|
|
|
|
Bauxite
|
|
|
Alumina
|
|
|
Aluminum
|
|
|
Total
|
|
|
Six months ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party sales
|
|
$
|
97
|
|
|
$
|
1,448
|
|
|
$
|
4,149
|
|
|
$
|
5,694
|
|
|
Intersegment sales
|
|
|
364
|
|
|
|
707
|
|
|
|
5
|
|
|
|
1,076
|
|
|
Total sales
|
|
$
|
461
|
|
|
$
|
2,155
|
|
|
$
|
4,154
|
|
|
$
|
6,770
|
|
|
Segment Adjusted EBITDA
|
|
$
|
100
|
|
|
$
|
351
|
|
|
$
|
743
|
|
|
$
|
1,194
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
$
|
89
|
|
|
$
|
96
|
|
|
$
|
146
|
|
|
$
|
331
|
|
|
Equity (loss) income
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
41
|
|
|
|
35
|
|
|
Six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party sales
|
|
$
|
137
|
|
|
$
|
1,310
|
|
|
$
|
3,073
|
|
|
$
|
4,520
|
|
|
Intersegment sales
|
|
|
480
|
|
|
|
625
|
|
|
|
5
|
|
|
|
1,110
|
|
|
Total sales
|
|
$
|
617
|
|
|
$
|
1,935
|
|
|
$
|
3,078
|
|
|
$
|
5,630
|
|
|
Segment Adjusted EBITDA
|
|
$
|
251
|
|
|
$
|
281
|
|
|
$
|
28
|
|
|
$
|
560
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
$
|
64
|
|
|
$
|
86
|
|
|
$
|
160
|
|
|
$
|
310
|
|
|
Equity loss
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
(7
|
)
|
|
|
(24
|
)
|
9
The following table reconciles total Segment Adjusted EBITDA to Consolidated net income (loss) attributable to Alcoa Corporation:
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Total Segment Adjusted EBITDA
|
|
$
|
625
|
|
|
$
|
185
|
|
|
$
|
1,194
|
|
|
$
|
560
|
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformation(1)
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
|
(24
|
)
|
|
|
(26
|
)
|
|
Intersegment eliminations
|
|
|
35
|
|
|
|
30
|
|
|
|
28
|
|
|
|
22
|
|
|
Corporate expenses(2)
|
|
|
(28
|
)
|
|
|
(21
|
)
|
|
|
(54
|
)
|
|
|
(48
|
)
|
|
Provision for depreciation, depletion, and amortization
|
|
|
(161
|
)
|
|
|
(152
|
)
|
|
|
(343
|
)
|
|
|
(322
|
)
|
|
Restructuring and other charges, net (D)
|
|
|
(33
|
)
|
|
|
(37
|
)
|
|
|
(40
|
)
|
|
|
(39
|
)
|
|
Interest expense
|
|
|
(67
|
)
|
|
|
(32
|
)
|
|
|
(109
|
)
|
|
|
(62
|
)
|
|
Other income (expenses), net (Q)
|
|
|
105
|
|
|
|
(51
|
)
|
|
|
129
|
|
|
|
81
|
|
|
Other(3)
|
|
|
(2
|
)
|
|
|
(17
|
)
|
|
|
(8
|
)
|
|
|
(52
|
)
|
|
Consolidated income (loss) before income taxes
|
|
|
461
|
|
|
|
(105
|
)
|
|
|
773
|
|
|
|
114
|
|
|
Provision for income taxes
|
|
|
(111
|
)
|
|
|
(45
|
)
|
|
|
(204
|
)
|
|
|
(125
|
)
|
|
Net income attributable to noncontrolling interest
|
|
|
(41
|
)
|
|
|
(47
|
)
|
|
|
(85
|
)
|
|
|
(106
|
)
|
|
Consolidated net income (loss) attributable to Alcoa Corporation
|
|
$
|
309
|
|
|
$
|
(197
|
)
|
|
$
|
484
|
|
|
$
|
(117
|
)
|
|
(1)
|
Transformation includes, among other items, the Adjusted EBITDA of previously closed operations.
|
|
(2)
|
Corporate expenses are composed of general administrative and other expenses of operating the corporate headquarters and other global administrative facilities, as well as research and development expenses of the corporate technical center.
|
|
(3)
|
Other includes certain items that impact Cost of goods sold on Alcoa Corporation’s Statement of Consolidated Operations that are not included in the Adjusted EBITDA of the reportable segments.
|
The following table details Alcoa Corporation’s Sales by product division:
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Primary aluminum
|
|
$
|
2,112
|
|
|
$
|
1,202
|
|
|
$
|
3,839
|
|
|
$
|
2,499
|
|
|
Alumina
|
|
|
684
|
|
|
|
600
|
|
|
|
1,444
|
|
|
|
1,307
|
|
|
Flat-rolled aluminum(1)
|
|
|
—
|
|
|
|
271
|
|
|
|
320
|
|
|
|
543
|
|
|
Energy
|
|
|
49
|
|
|
|
22
|
|
|
|
88
|
|
|
|
74
|
|
|
Bauxite
|
|
|
34
|
|
|
|
61
|
|
|
|
86
|
|
|
|
120
|
|
|
Other(2)
|
|
|
(46
|
)
|
|
|
(8
|
)
|
|
|
(74
|
)
|
|
|
(14
|
)
|
|
|
|
$
|
2,833
|
|
|
$
|
2,148
|
|
|
$
|
5,703
|
|
|
$
|
4,529
|
|
|
(1)
|
Flat-rolled aluminum represented sales of the Warrick Rolling Mill through the sale of the facility on March 31, 2021 (see Note C).
|
|
(2)
|
Other includes realized gains and losses related to embedded derivative instruments designated as cash flow hedges of forward sales of aluminum.
|
10
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 information used to compute basic and diluted EPS attributable to Alcoa Corporation common shareholders was as follows (shares in millions):
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Net income (loss) attributable to Alcoa Corporation
|
|
$
|
309
|
|
|
$
|
(197
|
)
|
|
$
|
484
|
|
|
$
|
(117
|
)
|
|
Average shares outstanding – basic
|
|
|
187
|
|
|
|
186
|
|
|
|
186
|
|
|
|
186
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock units
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
Average shares outstanding – diluted
|
|
|
190
|
|
|
|
186
|
|
|
|
189
|
|
|
|
186
|
|
Options to purchase less than one million shares of common stock outstanding at June 30, 2021 were excluded because they had a weighted average exercise price of $44.11 per share which was greater than the average market price of Alcoa Corporation’s common stock.
In the second quarter and six-month period of 2020, 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 2020, one million common share equivalents related to six million outstanding stock units and stock options combined would have been included in diluted average shares outstanding for the periods. Options to purchase two million shares of common stock outstanding at June 30, 2020 were excluded because they had a weighted average exercise price of $26.45 per share which was greater than the average market price of Alcoa Corporation’s common stock.
11
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:
|
|
|
Alcoa Corporation
|
|
|
Noncontrolling interest
|
|
|
|
|
Second quarter ended
June 30,
|
|
|
Second quarter ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Pension and other postretirement benefits (L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(2,405
|
)
|
|
$
|
(2,244
|
)
|
|
$
|
(66
|
)
|
|
$
|
(56
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial loss and prior service
cost/benefit
|
|
|
164
|
|
|
|
(181
|
)
|
|
|
2
|
|
|
|
1
|
|
|
Tax benefit
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
Total Other comprehensive income (loss)
before reclassifications, net of tax
|
|
|
164
|
|
|
|
(177
|
)
|
|
|
2
|
|
|
|
1
|
|
|
Amortization of net actuarial loss and prior
service cost/benefit(1)
|
|
|
89
|
|
|
|
52
|
|
|
|
1
|
|
|
|
1
|
|
|
Tax expense(2)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Total amount reclassified from Accumulated
other comprehensive loss, net of tax(7)
|
|
|
89
|
|
|
|
50
|
|
|
|
1
|
|
|
|
1
|
|
|
Total Other comprehensive income (loss)
|
|
|
253
|
|
|
|
(127
|
)
|
|
|
3
|
|
|
|
2
|
|
|
Balance at end of period
|
|
$
|
(2,152
|
)
|
|
$
|
(2,371
|
)
|
|
$
|
(63
|
)
|
|
$
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(2,561
|
)
|
|
$
|
(2,823
|
)
|
|
$
|
(904
|
)
|
|
$
|
(1,079
|
)
|
|
Other comprehensive income(3)
|
|
|
204
|
|
|
|
135
|
|
|
|
51
|
|
|
|
94
|
|
|
Balance at end of period
|
|
$
|
(2,357
|
)
|
|
$
|
(2,688
|
)
|
|
$
|
(853
|
)
|
|
$
|
(985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges (M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(912
|
)
|
|
$
|
169
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change from periodic revaluations
|
|
|
(397
|
)
|
|
|
(513
|
)
|
|
|
9
|
|
|
|
(4
|
)
|
|
Tax benefit (expense)
|
|
|
75
|
|
|
|
112
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
Total Other comprehensive (loss) income
before reclassifications, net of tax
|
|
|
(322
|
)
|
|
|
(401
|
)
|
|
|
6
|
|
|
|
(3
|
)
|
|
Net amount reclassified to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts(4)
|
|
|
72
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
Financial contracts(5)
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
Interest rate contracts(6)
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign exchange contracts(4)
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
Sub-total
|
|
|
67
|
|
|
|
13
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
Tax (expense) benefit(2)
|
|
|
(11
|
)
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
Total amount reclassified from
Accumulated other comprehensive
loss, net of tax(7)
|
|
|
56
|
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
Total Other comprehensive (loss) income
|
|
|
(266
|
)
|
|
|
(390
|
)
|
|
|
5
|
|
|
|
(1
|
)
|
|
Balance at end of period
|
|
$
|
(1,178
|
)
|
|
$
|
(221
|
)
|
|
$
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accumulated other comprehensive loss
|
|
$
|
(5,687
|
)
|
|
$
|
(5,280
|
)
|
|
$
|
(915
|
)
|
|
$
|
(1,040
|
)
|
12
|
|
|
Alcoa Corporation
|
|
|
Noncontrolling interest
|
|
|
|
|
Six months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Pension and other postretirement benefits (L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(2,536
|
)
|
|
$
|
(2,282
|
)
|
|
$
|
(67
|
)
|
|
$
|
(56
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial loss and prior service
cost/benefit
|
|
|
233
|
|
|
|
(201
|
)
|
|
|
2
|
|
|
|
—
|
|
|
Tax benefit
|
|
|
2
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
Total Other comprehensive income (loss)
before reclassifications, net of tax
|
|
|
235
|
|
|
|
(191
|
)
|
|
|
2
|
|
|
|
—
|
|
|
Amortization of net actuarial loss and prior
service cost/benefit(1)
|
|
|
150
|
|
|
|
106
|
|
|
|
2
|
|
|
|
2
|
|
|
Tax expense(2)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Total amount reclassified from Accumulated
other comprehensive loss, net of tax(7)
|
|
|
149
|
|
|
|
102
|
|
|
|
2
|
|
|
|
2
|
|
|
Total Other comprehensive income (loss)
|
|
|
384
|
|
|
|
(89
|
)
|
|
|
4
|
|
|
|
2
|
|
|
Balance at end of period
|
|
$
|
(2,152
|
)
|
|
$
|
(2,371
|
)
|
|
$
|
(63
|
)
|
|
$
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(2,385
|
)
|
|
$
|
(2,160
|
)
|
|
$
|
(844
|
)
|
|
$
|
(834
|
)
|
|
Other comprehensive income (loss)(3)
|
|
|
28
|
|
|
|
(528
|
)
|
|
|
(9
|
)
|
|
|
(151
|
)
|
|
Balance at end of period
|
|
$
|
(2,357
|
)
|
|
$
|
(2,688
|
)
|
|
$
|
(853
|
)
|
|
$
|
(985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges (M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(708
|
)
|
|
$
|
(532
|
)
|
|
$
|
(1
|
)
|
|
$
|
20
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change from periodic revaluations
|
|
|
(700
|
)
|
|
|
339
|
|
|
|
(1
|
)
|
|
|
(30
|
)
|
|
Tax benefit (expense)
|
|
|
131
|
|
|
|
(63
|
)
|
|
|
—
|
|
|
|
8
|
|
|
Total Other comprehensive (loss) income
before reclassifications, net of tax
|
|
|
(569
|
)
|
|
|
276
|
|
|
|
(1
|
)
|
|
|
(22
|
)
|
|
Net amount reclassified to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts(4)
|
|
|
113
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
Financial contracts(5)
|
|
|
5
|
|
|
|
7
|
|
|
|
4
|
|
|
|
1
|
|
|
Interest rate contracts(6)
|
|
|
4
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign exchange contracts(4)
|
|
|
(3
|
)
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
Sub-total
|
|
|
119
|
|
|
|
38
|
|
|
|
4
|
|
|
|
1
|
|
|
Tax (expense) benefit(2)
|
|
|
(20
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
Total amount reclassified from
Accumulated other comprehensive
loss, net of tax(7)
|
|
|
99
|
|
|
|
35
|
|
|
|
3
|
|
|
|
1
|
|
|
Total Other comprehensive (loss) income
|
|
|
(470
|
)
|
|
|
311
|
|
|
|
2
|
|
|
|
(21
|
)
|
|
Balance at end of period
|
|
$
|
(1,178
|
)
|
|
$
|
(221
|
)
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accumulated other comprehensive loss
|
|
$
|
(5,687
|
)
|
|
$
|
(5,280
|
)
|
|
$
|
(915
|
)
|
|
$
|
(1,040
|
)
|
|
(1)
|
These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note L).
|
|
(2)
|
These amounts were reported in Provision for income taxes on the accompanying Statement of Consolidated Operations.
|
|
(3)
|
In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.
|
|
(4)
|
These amounts were primarily reported in Sales on the accompanying Statement of Consolidated Operations.
|
|
(5)
|
These amounts were reported in Cost of goods sold on the accompanying Statement of Consolidated Operations.
|
|
(6)
|
These amounts were reported in Other (income) expenses, net of the accompanying Statement of Consolidated Operations.
|
|
(7)
|
A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.
|
13
H. Investments– A summary of unaudited financial information for Alcoa Corporation’s equity investments is as follows (amounts represent 100% of investee financial information):
|
Second quarter ended June 30, 2021
|
|
Saudi Arabia
Joint Venture
|
|
|
Mining
|
|
|
Energy
|
|
|
Other
|
|
|
Sales
|
|
$
|
741
|
|
|
$
|
197
|
|
|
$
|
60
|
|
|
$
|
96
|
|
|
Cost of goods sold
|
|
|
508
|
|
|
|
146
|
|
|
|
32
|
|
|
|
78
|
|
|
Net income (loss)
|
|
|
102
|
|
|
|
25
|
|
|
|
27
|
|
|
|
(4
|
)
|
|
Equity in net income (loss) of affiliated companies,
before reconciling adjustments
|
|
|
26
|
|
|
|
9
|
|
|
|
11
|
|
|
|
(2
|
)
|
|
Other
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
8
|
|
|
Alcoa Corporation’s equity in net income of
affiliated companies
|
|
|
26
|
|
|
|
8
|
|
|
|
11
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second quarter ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
507
|
|
|
$
|
209
|
|
|
$
|
47
|
|
|
$
|
85
|
|
|
Cost of goods sold
|
|
|
446
|
|
|
|
130
|
|
|
|
24
|
|
|
|
75
|
|
|
Net (loss) income
|
|
|
(75
|
)
|
|
|
(5
|
)
|
|
|
20
|
|
|
|
(6
|
)
|
|
Equity in net (loss) income of affiliated companies,
before reconciling adjustments
|
|
|
(19
|
)
|
|
|
3
|
|
|
|
7
|
|
|
|
(3
|
)
|
|
Other
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
1
|
|
|
|
5
|
|
|
Alcoa Corporation’s equity in net (loss) income of
affiliated companies
|
|
|
(20
|
)
|
|
|
5
|
|
|
|
8
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,423
|
|
|
$
|
370
|
|
|
$
|
115
|
|
|
$
|
191
|
|
|
Cost of goods sold
|
|
|
1,011
|
|
|
|
269
|
|
|
|
57
|
|
|
|
171
|
|
|
Net income (loss)
|
|
|
147
|
|
|
|
20
|
|
|
|
52
|
|
|
|
(6
|
)
|
|
Equity in net income (loss) of affiliated companies,
before reconciling adjustments
|
|
|
37
|
|
|
|
10
|
|
|
|
21
|
|
|
|
(3
|
)
|
|
Other
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
11
|
|
|
Alcoa Corporation’s equity in net income of
affiliated companies
|
|
|
33
|
|
|
|
9
|
|
|
|
21
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,092
|
|
|
$
|
427
|
|
|
$
|
106
|
|
|
$
|
158
|
|
|
Cost of goods sold
|
|
|
908
|
|
|
|
278
|
|
|
|
50
|
|
|
|
142
|
|
|
Net (loss) income
|
|
|
(88
|
)
|
|
|
4
|
|
|
|
47
|
|
|
|
(15
|
)
|
|
Equity in net (loss) income of affiliated companies,
before reconciling adjustments
|
|
|
(22
|
)
|
|
|
9
|
|
|
|
18
|
|
|
|
(7
|
)
|
|
Other
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
10
|
|
|
Alcoa Corporation’s equity in net (loss) income of
affiliated companies
|
|
|
(26
|
)
|
|
|
8
|
|
|
|
17
|
|
|
|
3
|
|
The Company’s basis in the ElysisTM Limited Partnership, 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 $40 in unrecognized losses as of June 30, 2021 that will be recognized upon additional contributions into the partnership.
I. Receivables
On October 25, 2019, a wholly-owned subsidiary of the Company entered into a $120 three-year revolving credit facility agreement secured by certain customer receivables. On April 20, 2020, the Company amended this agreement converting it to a Receivables Purchase Agreement to sell up to $120 of the receivables previously secured by the credit facility without recourse on a revolving basis. The unsold portion of the specified receivable pool will be pledged as collateral to the purchasing bank to secure the sold receivables. Through the second quarter of 2021, no receivables have been sold under this agreement.
14
J. Inventories
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
Finished goods
|
|
$
|
283
|
|
|
$
|
321
|
|
|
Work-in-process
|
|
|
184
|
|
|
|
112
|
|
|
Bauxite and alumina
|
|
|
460
|
|
|
|
412
|
|
|
Purchased raw materials
|
|
|
444
|
|
|
|
377
|
|
|
Operating supplies
|
|
|
176
|
|
|
|
176
|
|
|
|
|
$
|
1,547
|
|
|
$
|
1,398
|
|
Inventories related to the Warrick Rolling Mill were excluded from the December 31, 2020 balances in the above table due to the sale of the rolling mill and were classified as Assets held for sale (see Note C).
K. Debt
Credit Facilities.
Revolving Credit Facility
On March 4, 2021 (the Amendment No. 4 Effective Date), Alcoa Corporation and Alcoa Nederland Holding B.V. (ANHBV), a wholly-owned subsidiary of the Company, entered into an amendment (Amendment No. 4) to the Revolving Credit Facility (as amended, Revolving Credit Facility) that provides additional flexibility to the Company and ANHBV by (i) increasing the maximum leverage ratio from 2.50 to 1.00 to 2.75 to 1.00 as of the Amendment No. 4 Effective Date (which maximum leverage ratio had been temporarily increased to 3.00 to 1.00 prior to the Amendment No. 4 Effective Date), (ii) decreasing the minimum interest expense coverage ratio from 5.00 to 1.00 to 4.00 to 1.00 as of the Amendment No. 4 Effective Date, (iii) amending the definition of Total Indebtedness (as defined in the Revolving Credit Facility) to permit the Company to exclude the principal amount of new senior notes issued during 2021 from indebtedness for purposes of the calculation of the leverage ratio in fiscal year 2021 (subject to adjustments based on pension obligations funded), and (iv) ending temporary restrictions on the Company’s ability to make certain restricted payments or incur incremental loans under the Revolving Credit Facility.
Amendment No. 4 also (i) provides additional debt capacity to permit the Company to issue up to $750 in aggregate principal amount of new senior notes prior to the end of fiscal year 2021 and (ii) a corresponding increase in the maximum leverage ratio commensurate with the increase in leverage resulting from the issuance of such notes up to the amount of pension obligations funded after the issuance of such notes but prior to December 31, 2021, which increase shall in any event not be in excess of the principal amount of such notes. Such additional increase in the maximum leverage ratio will be available beginning in the first quarter of 2022.
The Revolving Credit Facility provides a $1,500 senior secured revolving credit facility to be used for working capital and/or other general corporate purposes of Alcoa Corporation and its subsidiaries. In the fourth quarter of 2020, ANHBV elected to extend the period under which temporary adjustments in Amendment No. 3 would apply, through March 31, 2021. The amendment temporarily adjusted the manner in which Consolidated Cash Interest Expense and Total Indebtedness (as defined in the Revolving Credit Facility) are calculated with respect to the 5.500% Senior Notes due 2027 issued in July 2020. In addition, this election to extend the temporary amendments resulted in a reduction of the aggregate amount of commitments under the Revolving Credit Facility by approximately $245 during the first quarter of 2021, to $1,255. This reduction ended at the end of the first quarter of 2021, and the aggregate amount of commitments returned to $1,500 as of April 1, 2021.
At June 30, 2021, the maximum additional borrowing capacity available to the Company to remain in compliance with the maximum leverage ratio covenant in the Revolving Credit Facility was approximately $3,034. Therefore, the Company may access the entire amount of commitments under the Revolving Credit Facility. As of June 30, 2021, Alcoa Corporation was in compliance with all covenants. There were no borrowings outstanding at June 30, 2021, and there were no amounts borrowed during the second quarter and six-months ended 2021 related to this facility.
144A Debt.
In March 2021, ANHBV completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt issuance for $500 aggregate principal amount of 4.125% Senior Notes due 2029 (the 2029 Notes). The net proceeds of this issuance were approximately $493 reflecting a discount to the initial purchasers of the 2029 Notes, as well as issuance costs. The Company used the net proceeds, together with cash on hand, to contribute $500 to its U.S. defined benefit pension plans applicable to salaried and hourly employees on April 1, 2021, and to redeem in full $750 aggregate principal amount of the Company’s outstanding 6.75% Senior Notes due 2024 (the 2024 Notes) on April 7, 2021, and to pay transaction-related fees and expenses.
15
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 2029 Notes. Interest on the 2029 Notes is paid semi-annually in March and September, and interest payments will commence September 30, 2021. The indenture contains customary affirmative and negative covenants that are similar to those included in the indenture from the 5.500% Senior Notes due 2027 issued in July 2020, 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 2029 Notes on at least 10 days, but not more than 60 days, prior notice to the holders of the 2029 Notes under multiple scenarios, including, in whole or in part, at any time or from time to time after March 31, 2024, at a redemption price specified in the indenture (up to 102.063% of the principal amount plus any accrued and unpaid interest in each case). Also, the 2029 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 2029 Notes repurchased, plus any accrued and unpaid interest on the 2029 Notes repurchased.
The 2029 Notes rank equally in right of payment with all of ANHBV’s existing and future senior unsecured indebtedness, including the Senior Notes with maturities in 2024 (redeemed on April 7, 2021), 2026, 2027 and 2028; 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 Note M to the Consolidated Financial Statements in Part II Item 8 of the 2020 Annual Report on Form 10-K for additional information related to ANHBV’s existing debt and related covenants.
Redemption. On April 7, 2021 (the Redemption Date), the Company redeemed in full $750 aggregate principal amount of the 2024 Notes at a redemption price equal to 103.375% of the principal amount of the 2024 Notes, plus accrued and unpaid interest to but not including the Redemption Date.
The issuance of the 2029 Notes and the redemption of the 2024 Notes were determined to be an issuance of new debt and an extinguishment of existing debt. As a result, the Company recorded a loss of $32 on the extinguishment of debt in the second quarter of 2021 in Interest expense, which is comprised of the redemption premium and the write-off of deferred financing fees and unamortized debt issuance costs. The cash flows related to the transaction are classified as financing cash flows.
L. Pension and Other Postretirement Benefits – The components of net periodic benefit cost were as follows:
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
Pension benefits
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Service cost
|
|
$
|
5
|
|
|
$
|
13
|
|
|
$
|
10
|
|
|
$
|
27
|
|
|
Interest cost(1)
|
|
|
29
|
|
|
|
41
|
|
|
|
58
|
|
|
|
83
|
|
|
Expected return on plan assets(1)
|
|
|
(73
|
)
|
|
|
(73
|
)
|
|
|
(146
|
)
|
|
|
(147
|
)
|
|
Recognized net actuarial loss(1)
|
|
|
50
|
|
|
|
53
|
|
|
|
101
|
|
|
|
104
|
|
|
Settlements(2)
|
|
|
39
|
|
|
|
—
|
|
|
|
39
|
|
|
|
—
|
|
|
Curtailments(2)
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
4
|
|
|
Net periodic benefit cost
|
|
$
|
50
|
|
|
$
|
35
|
|
|
$
|
62
|
|
|
$
|
71
|
|
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
Other postretirement benefits
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
Interest cost(1)
|
|
|
4
|
|
|
|
5
|
|
|
|
8
|
|
|
|
10
|
|
|
Recognized net actuarial loss(1)
|
|
|
5
|
|
|
|
5
|
|
|
|
11
|
|
|
|
9
|
|
|
Amortization of prior service benefit(1)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
Settlements(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
Curtailments(2)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(17
|
)
|
|
|
(2
|
)
|
|
Net periodic benefit cost
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
23
|
|
|
$
|
12
|
|
|
(1)
|
These amounts were reported in Other (income) expenses, net on the accompanying Statement of Consolidated Operations (see Note Q).
|
|
(2)
|
These amounts were reported in Restructuring and other charges, net on the accompanying Statements of Consolidated Operations (see Note D) and of Cash Flows.
|
16
Plan Actions. In 2021, management initiated the following actions to certain pension and other postretirement benefit plans:
Action #1 – On March 31, 2021, Alcoa completed the sale of the Warrick Rolling Mill to Kaiser Aluminum Corporation for total consideration of $670, which included the assumption of $66 in other postretirement benefit liabilities (after a post-closing adjustment that lowered the amount by $6 in the second quarter of 2021). The consideration amount is subject to further customary post-closing adjustments. Approximately 1,150 employees at the rolling operations, which includes the casthouse, hot mill, cold mills, and coating and slitting lines, became employees of Kaiser. As a result, the affected plan was remeasured, including an update to the discount rate used to determine the benefit obligation of the plan. Accrued other postretirement benefits reflects a decrease of $40 related to the remeasurement in addition to the $66 assumed by Kaiser. Further, Alcoa recognized a curtailment gain of $17 and a settlement charge of $26.
Action #2 – In the second quarter of 2021, settlement accounting and a related plan remeasurement was triggered within Alcoa’s U.S. salaried pension plan as a result of a high number of participants electing lump sum payments. This includes former employees of the Warrick Rolling Mill, as well as other Alcoa employees making this election at retirement. Alcoa recorded a $90 decrease to Accrued pension benefits related to this remeasurement and recognized a settlement charge of $39.
The following table presents certain information and the financial impacts of this action on the accompanying Consolidated Financial Statements:
|
Action #
|
|
Number of
affected
plan
participants
|
|
Weighted
average
discount
rate as of
December 31,
2020
|
|
|
Plan
remeasurement
date
|
|
Weighted
average
discount rate
as of plan
remeasurement
date
|
|
|
Decrease to
accrued
pension
benefits
liability
|
|
|
Decrease to
accrued other
postretirement
benefits
liability
|
|
|
Curtailment
gain(1)
|
|
|
Settlement
charge(1)
|
|
|
1
|
|
~840
|
|
2.45%
|
|
|
March 31, 2021
|
|
3.06%
|
|
|
$
|
—
|
|
|
$
|
(106
|
)
|
|
$
|
(17
|
)
|
|
$
|
26
|
|
|
2
|
|
~120
|
|
2.38%
|
|
|
June 30, 2021
|
|
2.71%
|
|
|
$
|
(90
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39
|
|
|
(1)
|
These amounts represent the accelerated amortization of a portion of the existing prior service benefit for curtailments and net actuarial loss for settlements and were reclassified from Accumulated other comprehensive loss to Restructuring and other charges, net (see Note D) on the accompanying Statement of Consolidated Operations.
|
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 applicable country benefits laws and tax laws, including ERISA for U.S. plans. From time to time, the Company contributes additional amounts as deemed appropriate.
On April 1, 2021, Alcoa made $500 in unscheduled contributions to certain U.S. defined benefit pension plans. The additional contributions were discretionary in nature and were funded with net proceeds from a March 2021 debt issuance (see Note K) plus available cash on hand.
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 second quarter of 2021, management made such election related to the Company’s U.S. plans.
Alcoa’s minimum required contribution to defined benefit pension plans in 2021 is estimated to be approximately $80, assuming election of the use of the pre-funding balance for the U.S. plan requirement for the remainder of 2021.
In the second quarter of 2021, $6 was contributed to non-U.S. plans and $54 was elected to be deducted from the pre-funding balance of the U.S. plans. In the six month period of 2021, $49 and $20 were contributed to U.S. and non-U.S. plans, respectively.
In the six month period of 2020, approximately $40 and $19 were contributed to U.S. and non-U.S. plans, respectively.
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
17
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
•
|
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
•
|
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
•
|
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
|
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 primarily to mitigate uncertainty and volatility, and to cover underlying exposures. Alcoa Corporation is not involved in trading activities for energy, weather derivatives, or other nonexchange commodity trading activities.
Several of Alcoa Corporation’s aluminum, energy, and foreign exchange contracts are classified as Level 1 or Level 2 under the fair value hierarchy. All of these 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.
The following tables present the detail for Level 1, 2 and 3 derivatives (see additional Level 3 information in further tables below):
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Level 1 and 2 derivative instruments
|
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
21
|
|
|
$
|
7
|
|
|
Level 3 derivative instruments
|
|
|
5
|
|
|
|
1,415
|
|
|
|
—
|
|
|
|
838
|
|
|
Total
|
|
$
|
28
|
|
|
$
|
1,439
|
|
|
$
|
21
|
|
|
$
|
845
|
|
|
Less: Current
|
|
|
25
|
|
|
|
236
|
|
|
|
21
|
|
|
|
103
|
|
|
Noncurrent
|
|
$
|
3
|
|
|
$
|
1,203
|
|
|
$
|
—
|
|
|
$
|
742
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Second quarter ended June 30,
|
|
Unrealized (loss) gain recognized in Other comprehensive (loss) income
|
|
|
Realized (loss) gain reclassed from Other comprehensive (loss) income to earnings
|
|
|
Unrealized (loss) gain recognized in Other comprehensive (loss) income
|
|
|
Realized (loss) gain reclassed from Other comprehensive (loss) income to earnings
|
|
|
Level 1 and 2 derivative instruments
|
|
$
|
6
|
|
|
$
|
(3
|
)
|
|
$
|
22
|
|
|
$
|
(1
|
)
|
|
Level 3 derivative instruments
|
|
|
(394
|
)
|
|
|
(60
|
)
|
|
|
(536
|
)
|
|
|
(14
|
)
|
|
Noncontrolling and equity interest
|
|
|
(9
|
)
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
2
|
|
|
Total
|
|
$
|
(397
|
)
|
|
$
|
(67
|
)
|
|
$
|
(513
|
)
|
|
$
|
(13
|
)
|
For the quarter ended June 30, 2021, the realized loss of $3 on Level 1 and Level 2 cash flow hedges was comprised of a $2 loss recognized in Sales and a $1 loss recognized in Cost of goods sold. For the quarter ended June 30, 2020, the realized loss of $1 on Level 1 and 2 cash flow hedges was recognized in Cost of goods sold.
|
|
|
2021
|
|
|
2020
|
|
|
Six months ended June 30,
|
|
Unrealized (loss) gain recognized in Other comprehensive (loss) income
|
|
|
Realized (loss) gain reclassed from Other comprehensive (loss) income to earnings
|
|
|
Unrealized gain (loss) recognized in Other comprehensive (loss) income
|
|
|
Realized (loss) gain reclassed from Other comprehensive (loss) income to earnings
|
|
|
Level 1 and 2 derivative instruments
|
|
$
|
(8
|
)
|
|
$
|
(3
|
)
|
|
$
|
(7
|
)
|
|
$
|
(15
|
)
|
|
Level 3 derivative instruments
|
|
|
(694
|
)
|
|
|
(115
|
)
|
|
|
331
|
|
|
|
(22
|
)
|
|
Noncontrolling and equity interest
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
(1
|
)
|
|
Total
|
|
$
|
(700
|
)
|
|
$
|
(119
|
)
|
|
$
|
339
|
|
|
$
|
(38
|
)
|
18
For the six months ended June 30, 2021, the realized loss of $3 on Level 1 and 2 cash flow hedges was comprised of a $2 loss recognized in Sales and a $1 loss recognized in Cost of goods sold. For the six months ended June 30, 2020, the realized loss of $15 on Level 1 and 2 cash flow hedges was comprised of a $7 loss recognized in Sales and a $8 loss recognized in Cost of goods sold.
Alcoa Corporation has a financial contract that hedges the anticipated power requirements at one of its smelters that expires in July 2021 (Financial contract, below). In March 2021, Alcoa entered into four new financial contracts (Financial contracts (undesignated), below) with three counterparties to hedge the anticipated power requirements at this smelter for the period from August 2021 through July 2026. Two of these financial contracts include LME-linked pricing components and do not qualify for hedge accounting treatment. Management elected not to apply hedge accounting treatment for the other two financial contracts as the value of these contracts is not significant. Significant increases or decreases in the power market or the LME may result in a higher or lower fair value measurement of the financial contracts. Lower prices in the power market or higher LME prices would cause a decrease in the derivative asset or an increase in the derivative liability. Unrealized and realized gains and losses on these financial contracts will be included in Other (income) expenses, net on the accompanying Statement of Consolidated Operations.
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):
|
|
|
June 30, 2021
|
|
|
Unobservable Input
|
|
Unobservable Input Range
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Financial contract
|
|
$
|
2
|
|
|
Interrelationship of
|
|
Electricity (per MWh)
|
|
2021: $51.94
|
|
|
|
|
|
|
|
forward energy price and the Consumer Price Index
|
|
|
|
|
|
Financial contract
|
|
|
3
|
|
|
MWh of energy needed
|
|
Electricity (per MWh)
|
|
2021: $47.27
|
|
(undesignated)
|
|
|
|
|
|
to produce the forecasted
|
|
|
|
2021: $35.06
|
|
|
|
|
|
|
|
mt of aluminum
|
|
LME (per mt)
|
|
2021: $2,523
|
|
|
|
|
|
|
|
|
|
|
|
2021: $2,513
|
|
Total Asset Derivatives
|
|
$
|
5
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Power contract
|
|
$
|
290
|
|
|
MWh of energy needed
|
|
LME (per mt)
|
|
2021: $2,520
|
|
|
|
|
|
|
|
to produce the forecasted
|
|
|
|
2027: $2,379
|
|
|
|
|
|
|
|
mt of aluminum
|
|
Electricity
|
|
Rate of 4 million MWh per year
|
|
Power contracts
|
|
|
1,105
|
|
|
MWh of energy needed
to produce the forecasted
mt of aluminum
|
|
LME (per mt)
|
|
2021: $2,520
2029: $2,456
2036: $2,752
|
|
|
|
|
|
|
|
|
|
Midwest premium
(per pound)
|
|
2021: $0.2850
2029: $0.2750
2036: $0.2750
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
Rate of 17 million MWh per year
|
|
Power contract
|
|
|
2
|
|
|
MWh of energy needed to produce the forecasted mt of aluminum
|
|
LME (per mt)
|
|
2021: $2,520
2021: $2,525
|
|
|
|
|
|
|
|
|
|
Midwest premium
(per pound)
|
|
2021: $0.2850
2021: $0.2950
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
Rate of 2 million MWh per year
|
|
Power contract (undesignated)
|
|
18
|
|
|
Estimated spread between
the 30-year debt yield of
Alcoa and the counterparty
|
|
Credit spread
|
|
2.45%: 30-year debt yield spread
5.32%: Alcoa (estimated)
2.87%: counterparty
|
|
Total Liability Derivatives
|
|
$
|
1,415
|
|
|
|
|
|
|
|
19
The fair values of Level 3 derivative instruments recorded in the accompanying Consolidated Balance Sheet were as follows:
|
Asset Derivatives
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Current—financial contract
|
|
$
|
2
|
|
|
$
|
—
|
|
|
Total derivatives designated as hedging instruments
|
|
$
|
2
|
|
|
$
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Current—financial contract
|
|
$
|
3
|
|
|
$
|
—
|
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
3
|
|
|
$
|
—
|
|
|
Total Asset Derivatives
|
|
$
|
5
|
|
|
$
|
—
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Current—power contracts
|
|
$
|
213
|
|
|
$
|
94
|
|
|
Current—financial contract
|
|
|
—
|
|
|
|
1
|
|
|
Noncurrent—power contracts
|
|
|
1,184
|
|
|
|
720
|
|
|
Total derivatives designated as hedging instruments
|
|
$
|
1,397
|
|
|
$
|
815
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Current—embedded credit derivative
|
|
$
|
3
|
|
|
$
|
4
|
|
|
Noncurrent—embedded credit derivative
|
|
|
15
|
|
|
|
19
|
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
18
|
|
|
$
|
23
|
|
|
Total Liability Derivatives
|
|
$
|
1,415
|
|
|
$
|
838
|
|
Assuming market rates remain constant with the rates at June 30, 2021, a realized loss of $213 related to power contracts and a realized gain of $2 related to the financial contract are expected to be recognized in Sales and Cost of goods sold, respectively, over the next 12 months.
At June 30, 2021 and December 31, 2020, the power contracts with embedded derivatives designated as cash flow hedges hedge forecasted aluminum sales of 2,018 kmt and 2,130 kmt, respectively. At June 30, 2021 and December 31, 2020, the financial contract hedges forecasted electricity purchases of 208,692 and 1,427,184 megawatt hours, respectively.
The following tables present the reconciliation of activity for Level 3 derivative instruments:
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Second quarter ended June 30, 2021
|
|
Financial
contract
|
|
|
Power contracts
|
|
|
Financial
contract
|
|
|
Embedded
credit
derivative
|
|
|
April 1, 2021
|
|
$
|
—
|
|
|
$
|
1,047
|
|
|
$
|
15
|
|
|
$
|
18
|
|
|
Total gains or losses included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (realized)
|
|
|
—
|
|
|
|
(67
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Cost of goods sold (realized)
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
Other income, net (unrealized/realized)
|
|
|
3
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
Other comprehensive (loss) income (unrealized)
|
|
|
2
|
|
|
|
417
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
June 30, 2021
|
|
$
|
5
|
|
|
$
|
1,397
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
Change in unrealized gains or losses included in earnings
for derivative instruments held at June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
20
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Six months ended June 30, 2021
|
|
Financial
contract
|
|
|
Power contracts
|
|
|
Financial
contract
|
|
|
Embedded
credit
derivative
|
|
|
January 1, 2021
|
|
$
|
—
|
|
|
$
|
814
|
|
|
$
|
1
|
|
|
$
|
23
|
|
|
Total gains or losses included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (realized)
|
|
|
—
|
|
|
|
(107
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Cost of goods sold (realized)
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
Other expenses (income), net (unrealized/realized)
|
|
|
3
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
Other comprehensive (loss) income (unrealized)
|
|
|
2
|
|
|
|
690
|
|
|
|
6
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
June 30, 2021
|
|
$
|
5
|
|
|
$
|
1,397
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
Change in unrealized gains or losses included in earnings
for derivative instruments held at June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income), net
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
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:
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
|
Cash and cash equivalents
|
|
$
|
1,652
|
|
|
$
|
1,652
|
|
|
$
|
1,607
|
|
|
$
|
1,607
|
|
|
Restricted cash
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
Short-term borrowings
|
|
|
77
|
|
|
|
77
|
|
|
|
77
|
|
|
|
77
|
|
|
Long-term debt due within one year
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
Long-term debt, less amount due within one year
|
|
|
2,216
|
|
|
|
2,408
|
|
|
|
2,463
|
|
|
|
2,692
|
|
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 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 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 2021 as of June 30, 2021 differs from the U.S. federal statutory rate of 21% primarily due to losses in countries with full valuation allowances resulting in no tax benefit, as well as foreign income taxed in higher rate jurisdictions.
|
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
|
2020
|
|
|
|
Income before income taxes
|
|
$
|
773
|
|
|
|
$
|
114
|
|
|
|
Estimated annualized effective tax rate
|
|
|
28.0
|
|
%
|
|
|
(183.0
|
)
|
%
|
|
Income tax expense (benefit)
|
|
$
|
217
|
|
|
|
$
|
(209
|
)
|
|
|
(Unfavorable) favorable tax impact related to losses in jurisdictions with no tax benefit
|
|
|
(12
|
)
|
|
|
|
333
|
|
|
|
Discrete tax (benefit) expense
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
Provision for income taxes
|
|
$
|
204
|
|
|
|
$
|
125
|
|
|
Alúmina Española, S.A. (Española) has incurred recent operating losses that may result in a three-year cumulative loss position later in 2021. At this point in time, management concluded that the Española’s net deferred tax assets will more likely than not be realized and a valuation allowance has not been recorded against deferred tax assets, but Española’s operating results will continue to be monitored. Upon changes in facts and circumstances, management may conclude that Española’s deferred tax assets may not be realized, resulting in a future charge to establish a valuation allowance. Española’s net deferred tax assets were $103 at June 30, 2021. The majority of Española’s net deferred tax assets relate to prior net operating losses.
21
O. Leasing
Management records a right-of-use asset and lease liability for several types of operating leases, including land and buildings, alumina refinery process control technology, plant equipment, vehicles, and computer equipment. The leases have remaining terms of less than one to 37 years. The discount rate applied to these leases is the Company’s incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments, unless there is a rate implicit in the lease agreement. The Company does not have material financing leases.
Lease expense and operating cash flows include:
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Costs from operating leases
|
|
$
|
17
|
|
|
$
|
20
|
|
|
$
|
38
|
|
|
$
|
38
|
|
|
Variable lease payments
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
Short-term rental expense
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
The weighted average lease term and weighted average discount rate as of June 30, 2021 and December 31, 2020 were as follows:
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
Weighted average lease term for operating leases (years)
|
|
|
4.8
|
|
|
|
4.4
|
|
|
Weighted average discount rate for operating leases
|
|
5.2%
|
|
|
5.2%
|
|
The following represents the aggregate right-of use assets and related lease obligations recognized in the Consolidated Balance Sheet at:
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
Properties, plants and equipment, net
|
|
$
|
122
|
|
|
$
|
137
|
|
|
Other current liabilities
|
|
$
|
49
|
|
|
$
|
60
|
|
|
Other noncurrent liabilities and deferred credits
|
|
|
76
|
|
|
|
82
|
|
|
Total operating lease liabilities
|
|
$
|
125
|
|
|
$
|
142
|
|
Right-of-use assets and lease liabilities related to the Warrick Rolling Mill were excluded from the December 31, 2020 balances in the above table due to the sale of the rolling mill and were classified as Assets held for sale (see Note C).
New leases of $4 and $12 were added during the second quarter and six-month period of 2021, respectively.
The future cash flows related to the operating lease obligations as of June 30, 2021 were as follows:
|
2021 (excluding the six months ended June 30)
|
|
$
|
34
|
|
|
2022
|
|
|
37
|
|
|
2023
|
|
|
24
|
|
|
2024
|
|
|
15
|
|
|
2025
|
|
|
9
|
|
|
Thereafter
|
|
|
23
|
|
|
Total lease payments (undiscounted)
|
|
|
142
|
|
|
Less: discount to net present value
|
|
|
(17
|
)
|
|
Total
|
|
$
|
125
|
|
P. 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.
A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as, among others, the nature and extent of contamination, changes in remedial requirements, and technology advancements.
22
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:
|
Balance at December 31, 2019
|
|
$
|
335
|
|
|
Liabilities incurred
|
|
|
7
|
|
|
Cash payments
|
|
|
(19
|
)
|
|
Foreign currency translation and other
|
|
|
(1
|
)
|
|
Balance at December 31, 2020
|
|
|
322
|
|
|
Liabilities incurred
|
|
|
4
|
|
|
Cash payments
|
|
|
(11
|
)
|
|
Reversals of previously recorded liabilities
|
|
|
(17
|
)
|
|
Balance at June 30, 2021
|
|
$
|
298
|
|
At June 30, 2021 and December 31, 2020, the current portion of Alcoa Corporation’s environmental remediation reserve balance was $36 and $29, respectively.
The Company incurred liabilities of $4 during the six-month period of 2021 primarily related to wetlands mitigation at the Longview site in Washington and increases for ongoing monitoring and maintenance at various sites. These charges are primarily recorded in Restructuring and other charges, net and Cost of goods sold on the accompanying Statement of Consolidated Operations. Payments related to remediation expenses applied against the reserve were $6 and $11 in the second quarter and six-month period of 2021, respectively. These amounts include mandated expenditures as well as those not required by any regulatory authority or third party. Further, the Company recorded reversals of reserves of $10 and $17 during the second quarter and six-month period of 2021, respectively, related to:
|
|
•
|
$5 (both periods) due to lower costs for waste treatment at a previously closed Suriname site;
|
|
|
•
|
$5 (both periods) due to lower costs for site remediation related to a previously closed site in Brazil; and,
|
|
|
•
|
$7 (six-month period only) due to the determination that remaining site remediation is no longer required related to the previously closed Tennessee site.
|
The Company incurred liabilities of $2 for the six-month period of 2020 due to charges related to increases for ongoing monitoring and maintenance and environmental consulting work for a remediation project at the Fusina site in Italy. These charges are primarily recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. Payments related to remediation expenses applied against the reserve were $6 and $9 in the second quarter and six-month period of 2020, respectively. These amounts include mandated expenditures as well as those not required by any regulatory authority or third party. The reserve also reflects a decrease of $6 in the six-month period of 2020, due to the effects of foreign currency translation.
The estimated timing of cash outflows on the environmental remediation reserve at June 30, 2021 is as follows:
|
2021 (excluding the six months ended June 30, 2021)
|
$
|
19
|
|
|
2022 - 2026
|
|
166
|
|
|
Thereafter
|
|
113
|
|
|
Total
|
$
|
298
|
|
Reserve balances at June 30, 2021 and December 31, 2020, associated with significant sites with active remediation underway or for future remediation were $241 and $259, 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:
Poços de Caldas, Brazil—The reserve associated with the 2015 closure of the Alcoa Alumínio S.A. smelter in Poços de Caldas, Brazil, is for remediation of historic spent potlining storage and disposal areas. The final remediation plan is currently under review; such review could require the reserve balance to be adjusted.
23
Fusina and Portovesme, Italy—Alcoa Corporation’s subsidiary Alcoa Trasformazioni S.r.l. has remediation projects underway for its closed smelter sites at Fusina and Portovesme which have been approved by the Italian Ministry for Ecologic Transition (MET), formerly the Italian Ministry of Environment and Protection of Land and Sea (MOE). Work is ongoing for soil remediation at the Fusina site with expected completion in 2022 and at the Portovesme site with expected completion in the second half of 2021. Additionally, annual payments are made to MET over a 10-year period through 2022 for groundwater emergency containment and natural resource damages at the Fusina site. The final remedial design for the groundwater remediation project at Portovesme was completed in 2020 and is awaiting approval from the MET.
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 2025.
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 is expected to commence 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 under review, 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 will take eight to ten years to complete, depending on the nature of its potential re-use. 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 is a partner in the remediation of the site, filed for bankruptcy. As of June 30, 2021, the reserve related to the site is deemed to be sufficient.
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 approximately 35 remediation projects at these other sites that are planned or underway. These activities will be completed at various times in the future with the latest expected to be in 2026, after which ongoing monitoring and other activities may be required. At June 30, 2021 and December 31, 2020, the reserve balance associated with these activities was $57 and $63, respectively.
Tax
Spain— In July 2013, following a corporate income tax audit covering the 2006 through 2009 tax years, an assessment was received from Spain’s tax authorities disallowing certain interest deductions claimed by ParentCo’s Spanish consolidated tax group. Through various stages of subsequent appeal, denial, and re-assessment through the third quarter of 2018, Alcoa Corporation management came to believe that it was no longer more likely than not (greater than 50%) to prevail in this matter. Accordingly, in the third quarter of 2018, Alcoa Corporation recorded a charge of $30 (€26) in Provision for income taxes to establish a liability for its portion of the estimated loss in this matter, representing management’s best estimate at the time.
On November 8, 2018, Alcoa filed a petition for appeal to the Supreme Court of Spain. During the fourth quarter of 2020, the Supreme Court of Spain met and ruled in favor of Alcoa on the 2006 through 2009 tax year assessment. The ruling is final and cannot be further appealed. As a result of the final ruling, in the fourth quarter of 2020 Alcoa reversed the $32 (€26) reserve that was established in 2018 and the matter is now considered closed. Additionally, a lien secured with the San Ciprián smelter to Spain’s tax authorities that was provided in relation to this matter has been released.
24
Brazil (AWAB)— In March 2013, AWAB was notified by the Brazilian Federal Revenue Office (RFB) that approximately $110 (R$220) of value added tax credits previously claimed are being disallowed and a penalty of 50% assessed. Of this amount, AWAB received $41 (R$82) in cash in May 2012. The value-added tax credits were claimed by AWAB for both fixed assets and export sales related to the Juruti bauxite mine and São Luís refinery expansion. 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. 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 $44 (R$220). 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 $160 (A$214). The Notices also included claims for compounded interest on the tax amount totaling approximately $530 (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 $96 (A$128). AofA disagrees with the ATO’s proposed position on penalties and submitted a response to the position paper in the fourth quarter of 2020. After the ATO completes its review of AofA’s response, the ATO could issue a penalty assessment.
The Company does not agree with the ATO’s positions, and AofA will continue to defend this matter and pursue all available dispute resolution methods, up to and including the filing of proceedings in the Australian Courts, a process which could last several years and could involve significant expenses. 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 tax assessment deposit; the related June 30, 2021 balance is $80 (A$107).
Further interest on the unpaid tax and interest amounts 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 which reduced cash tax payments by approximately $165 (A$219) in 2020 and $3 (A$5) and $7 (A$10), respectively, in the second quarter and six-month period of 2021. This amount has been reflected within Other noncurrent liabilities and deferred credits as a noncurrent accrued tax liability; the related June 30, 2021 balance is $172 (A$229).
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 effect as of June 30, 2021.
AofA is part of the Company’s joint venture with Alumina Limited, an Australian public company listed on the Australian Securities Exchange. The Company and Alumina Limited own 60% and 40%, respectively, of the joint venture entities, including AofA.
25
Other
Spain— During 2019, the Company completed the divestiture of the Avilés and La Coruña (Spain) aluminum facilities to PARTER Capital Group AG (PARTER) in a sale process endorsed by the Spanish government and supported by the workers’ representatives following a collective dismissal process. In connection with the divestiture, Alcoa committed to make financial contributions to the buyer of up to $95; $78 has been paid to date. In 2020, PARTER sold its majority stake in the facilities to an unrelated party. Alcoa had no knowledge of the subsequent transaction prior to its announcement and on August 28, 2020, Alcoa filed a lawsuit with the Court of First Instance in Madrid, Spain asserting that the sale was in breach of the sale agreement between Alcoa and PARTER.
Related to this divestiture, certain claims and investigations have been initiated by or at the request of the employees of the facilities against their current employers, the owners of the current employers, and Alcoa, alleging that the agreements of the collective dismissal process remain in force and that Alcoa remains liable for related social benefits to the employees. One of the claims is a collective case before the Spanish National Court, filed on November 10, 2020, where the workers’ representatives and employees are seeking for the terms of the Collective Dismissal Agreement signed with the workers in January 2019 to be fulfilled or, alternatively, payment of severance corresponding to an unfair dismissal.
On June 15, 2021, the Spanish National Court ruled that the collective dismissal agreement for the divested Avilés and La Coruña aluminum facilities is still in effect and that Alcoa is liable for related employee severance. Alcoa has not recorded a reserve related to the matter, has started the process to file an appeal with the Spanish Supreme Court and will continue to defend this matter and pursue all available legal resolution methods. At this time, Alcoa Corporation is unable to reasonably predict the ultimate outcome or range of loss associated with the outcome of this matter, which may materially affect its results of operations.
Alcoa continues to believe it acted in good faith, in full compliance with the law and with all of the terms that it committed to in the contract for the sale of the Avilés and Coruña facilities to PARTER and in the agreements that it entered into with the representatives of the workers of both facilities.
General
In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against Alcoa Corporation, including those pertaining to environmental, safety and health, commercial, tax, product liability, intellectual property infringement, employment, and employee and retiree benefit matters, and other actions and claims arising out of the normal course of business. While the amounts claimed in these other matters may be substantial, the ultimate liability is not readily determinable because of the considerable uncertainties that exist. Accordingly, it is possible that the Company’s liquidity or results of operations in a particular period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of the Company.
Q. Other (Income) Expenses, Net
|
|
|
Second quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Equity (gain) loss
|
|
$
|
(26
|
)
|
|
$
|
22
|
|
|
$
|
(31
|
)
|
|
$
|
29
|
|
|
Foreign currency losses, net
|
|
|
10
|
|
|
|
2
|
|
|
|
6
|
|
|
|
13
|
|
|
Net (gain) loss from asset sales
|
|
|
(98
|
)
|
|
|
1
|
|
|
|
(124
|
)
|
|
|
(176
|
)
|
|
Net (gain) loss on mark-to-market derivative instruments (M)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
9
|
|
|
Non-service costs – Pension & OPEB (L)
|
|
|
11
|
|
|
|
27
|
|
|
|
24
|
|
|
|
52
|
|
|
Other
|
|
|
—
|
|
|
|
1
|
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
|
$
|
(105
|
)
|
|
$
|
51
|
|
|
$
|
(129
|
)
|
|
$
|
(81
|
)
|
Net (gain) loss from asset sales for the second quarter and six months ended June 30, 2021 included a net gain of $93 and $120, respectively, related to the sales of the former Eastalco site and the Warrick Rolling Mill (see Note C). Net (gain) loss from asset sales for the second quarter and six months ended June 30, 2020 included a net gain of $1 and $181, respectively, related to the sale of EES (see Note C).
26
R. Subsequent Events
On July 28, 2021, Alcoa made the decision to permanently close the previously curtailed anode facility in Lake Charles, Louisiana, United States. The anode facility within the Lake Charles site has been fully curtailed since 2015. The Company expects to record restructuring and other charges of approximately $25 to $30 (pre- and after-tax) in the third quarter of 2021, comprised of asset impairments of approximately $20 and cash-based charges for closure and asset retirement obligations of approximately $5 to $10. The closure is expected to take approximately one year. The decision to permanently close the facility was made as part of the Company’s on-going portfolio review. The Company’s petroleum coke calciner located at the same site in Lake Charles will remain in operation, unaffected by the closure of the anode facility.
27