Alcoa 2009 Annual Report Download

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2009 Annual Report and Form 10-K
TURNING
CRISIS
INTO
OPPORTUNITY

Table of contents

  • Page 1
    TURNING CRISIS INTO OPPORTUNITY 2009 Annual Report and Form 10-K

  • Page 2
    ..., including ï¬,at-rolled products, hard alloy extrusions, and forgings, Alcoa also markets Alcoa® wheels, fastening systems, precision and investment castings, and building systems. • The Company has been named one of the top most sustainable corporations in the world at the World Economic Forum...

  • Page 3
    ... of the world's most respected corporate citizens. This was a year that tested us all, and Alcoans met the test. Klaus Kleinfeld and his leadership team formulated a successful crisis strategy, and every Alcoan pitched in with hard work and creativity in its ï¬,awless execution. Our Alcoa Directors...

  • Page 4
    ...SUSTAINABILITY PROGRAM Operational Achievements Klaus Kleinfeld President and Chief Executive Officer • Procurement Efficiencies • Overhead Rationalizations • CapEx Reductions Annual CapEx post 2009 • Working Capital Initiatives $1,998M TURNING CRISIS INTO OPPORTUNITY In reviewing Alcoa...

  • Page 5
    ... and electrical distribution business. • We signed a joint venture agreement with Ma'aden, the Saudi Arabian Mining Company, to develop a fully integrated, world-class aluminum complex in the Kingdom of Saudi Arabia. It will consist of a mine, refinery, smelter and rolling mill all connected...

  • Page 6
    ... division and production facility to produce aluminum-intensive and other specialty buses that feature Alcoa's aluminum spaceframe technology as well as wheels, fasteners and sheet - proof of China's growing emphasis on lightweight, environmentally friendly transportation solutions. OUR VALUES...

  • Page 7
    The Alcoa Juruti bauxite mine, in the heart of the Amazon, is a benchmark in sustainability through its positive social, economic, and environmental initiatives. Novelis to create a new company, Evermore Recycling LLC, for the procurement of used aluminum beverage containers (UBCs), helping to ...

  • Page 8
    ...personal commitment to environmental stewardship, Alain set Alcoa on the course to be a world-class sustainable company. One of the founders of the U.S. Climate Action Partnership (USCAP) and the inspiration behind ground-breaking reforestation programs in Australia and Brazil, Alain is a recognized...

  • Page 9
    ...its charter) Pennsylvania (State of incorporation) 25-0317820 (I.R.S. Employer Identification No.) ALCOA INC. 390 Park Avenue, New York, New York 10022-4608 (Address of principal executive offices) (Zip code) Registrant's telephone numbers: Investor Relations 212) 836-2674 Office of the Secretary...

  • Page 10
    ... 12. Item 13. Item 14. Part IV Item 15. Exhibits, Financial Statement Schedules ...147 158 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and...

  • Page 11
    ...'s products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and industrial applications. Alcoa is a global company operating in 31 countries. Based upon the country where the point of sale occurred, the United States...

  • Page 12
    ... exchange rates and interest rates, affect the results of operations in these countries. Alcoa's operations consist of four worldwide reportable segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions. Description of the Business Information describing Alcoa...

  • Page 13
    .... Alcoa processes most of the bauxite that it mines into alumina. The company obtains bauxite from its own resources and from those belonging to the AWAC enterprise, located in the countries listed in the chart below, as well as pursuant to both long-term and short-term contracts and mining leases...

  • Page 14
    ... of a new bauxite mine was completed in Juruti, state of Para in northern Brazil. The mine is fully operational and expected to produce 2.6 million mt per year (mtpy) of bauxite. This entity is part of the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited. AWA LLC owns...

  • Page 15
    ... (36%) Jamaica Jamalco Alcoa Minerals of Jamaica, L.L.C.3 (55%) Clarendon Alumina Production Ltd.7 (45%) Spain San Ciprián Alúmina Española, S.A.3 (100%) Suriname Suralco Suralco3 (55%) (AMS)9 (45%) United States Point Comfort, TX Alcoa World Alumina LLC3 (100%) TOTAL Country Australia Facility...

  • Page 16
    ... the long-term viability of the industry in Suriname. The curtailment was aimed at deferring further bauxite extraction until additional in-country bauxite resources are developed and market conditions for alumina improve. Reductions in production at Point Comfort resulted mostly from the effects of...

  • Page 17
    ... and Capacity The company's primary aluminum smelters and their respective capacities are shown in the following table: Alcoa Worldwide Smelting Capacity Nameplate Capacity1 (000 MTPY) 190 Alcoa Consolidated Capacity2 (000 MTPY) 1903 Country Australia Facility Point Henry Portland Brazil Poços...

  • Page 18
    ... for utilizing the power from the geothermal areas under a new MOU structure. They have said that Alcoa is the preferred partner even if the company was not invited to this new MOU. Separate MOU agreements between Alcoa and Landsvirkjun and Alcoa and Landsnet covering development of power generation...

  • Page 19
    ...extrusion joint venture) (SAPA) to focus on specific areas of expertise and best practices. EA, now 100% owned by Alcoa, operates smelters in Mosjøen and Lista, Norway and supplies extrusion billets, rolling ingots and foundry ingots to rolling mills, extrusion plants and foundries in Europe. Alcoa...

  • Page 20
    ... company's Flat-Rolled Products segment is the production and sale of aluminum plate, sheet and foil. This segment includes rigid container sheet, which is sold directly to customers in the packaging and consumer market. This segment also includes sheet and plate used in the transportation, building...

  • Page 21
    ... for under Flat-Rolled Products), forgings and fasteners, aluminum wheels, integrated aluminum structural systems and architectural extrusions. These products serve the aerospace, automotive, building and construction, commercial transportation and power generation markets. In June 2009, Alcoa sold...

  • Page 22
    ...either leased or owned by the company. Automotive and Aerospace Components are intended to include a variety of products, a combination of which may be produced at a given facility. Such products may include castings, forgings, extrusions, tube, profiles, wire/rod/bar and aluminum structural systems...

  • Page 23
    ...Sources and Availability of Raw Materials The major purchased raw materials in 2009 for each of the company's reportable segments are listed below. Alumina Bauxite Caustic soda Electricity Fuel oil Natural gas Flat-Rolled Products Alloying materials1 Aluminum scrap1 Coatings Electricity Natural gas...

  • Page 24
    ... Alcoa produces aluminum from alumina by an electrolytic process requiring large amounts of electric power. Electric power accounts for approximately 24% of the company's primary aluminum costs. Alcoa generates approximately 22% of the power used at its smelters worldwide and generally purchases...

  • Page 25
    ...Eastalco. Australia - Electricity Power is generated from extensive brown coal deposits covered by a long-term mineral lease held by Alcoa of Australia Limited (AofA), and that power currently provides approximately 40% of the electricity for the company's smelter in Point Henry, Victoria. The State...

  • Page 26
    ... Brazil (Alumínio's share is 20%) are still in the process of obtaining necessary environmental licenses. If these projects are completed, the power will be used in Alumínio's smelters or sold into the Brazilian grid. Europe - Electricity Until December 31, 2005, the company purchased electricity...

  • Page 27
    ... 2015. North America - Natural Gas In order to supply its refineries and smelters in the U.S. and Canada, the company generally procures natural gas on a competitive bid basis from a variety of sources including producers in the gas production areas and independent gas marketers. For Alcoa's larger...

  • Page 28
    ... companies in all major markets. Price, quality and service are the principal competitive factors in Alcoa's markets. Where aluminum products compete with other materials - such as steel and plastics for automotive and building applications; magnesium, titanium, composites and plastics for aerospace...

  • Page 29
    ... plants. Integrated thermal management products for consumer electronics have been developed and are being validated by our customers. A number of products were commercialized in 2009 including Dura Bright® wheels for commercial transport applications; new alloy products and advanced fasteners...

  • Page 30
    ...the timing and rate at which industry variables may recover. The company implemented a number of operational and financial actions in 2009 to improve its cost structure and liquidity, including curtailing production, halting non-critical capital expenditures, accelerating new sourcing strategies for...

  • Page 31
    ...if energy costs rise or if energy supplies are interrupted. Alcoa consumes substantial amounts of energy in its operations. Although Alcoa generally expects to meet the energy requirements for its alumina refineries and primary aluminum smelters from internal sources or from long-term contracts, the...

  • Page 32
    ..., Alcoa announced that it formed a joint venture with Ma'aden, the Saudi Arabian Mining Company, to develop a fully integrated aluminum industry (including a bauxite mine, alumina refinery, aluminum smelter and rolling mill) in the Kingdom of Saudi Arabia. Although the company has, in relation to...

  • Page 33
    ... available to the company. Alcoa may not be able to successfully realize expected short-term benefits from changes in its pricing strategy for the aluminum can sheet market. Recently, Alcoa adopted changes to its pricing strategy for the aluminum can sheet market in North America in order to ensure...

  • Page 34
    ... provision of health or welfare benefits to employees due to changes in laws, regulations or policies. The company is also subject to a variety of legal compliance risks. These risks include, among other things, potential claims relating to product liability, health and safety, environmental matters...

  • Page 35
    ... interest rate used to discount the future estimated liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age and mortality). Alcoa's results of operations, liquidity or shareholders' equity in...

  • Page 36
    ... integration and non-traditional sourcing from numerous geographies, and deployment of company-wide business process models, such as the Alcoa Business System and the Alcoa Enterprise Business Solution (an initiative designed to build a common global infrastructure across Alcoa for data, processes...

  • Page 37
    ... at 390 Park Avenue, New York, New York 10022-4608. Alcoa's corporate center is located at 201 Isabella Street, Pittsburgh, Pennsylvania 15212-5858. The Alcoa Technical Center for research and development is located at 100 Technical Drive, Alcoa Center, Pennsylvania 15069. Alcoa leases some of...

  • Page 38
    ... in negotiations with federal or state authorities relative to its alleged liability for participation, in clean-up efforts at several such sites. As previously reported, since 1989, Alcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoa's Massena, New York plant...

  • Page 39
    ... case with Alcoa and SCA and has a pending motion to dismiss. On June 3, 2008, the Court granted defendants' joint motion to decertify the class of plaintiffs, and simultaneously granted in part and denied in part plaintiffs' motion for certification of a new class. Under the new certification order...

  • Page 40
    ... Howmet's appeal and ordered Howmet to pay the EPA a penalty of $309,091. Howmet appealed the United States District Court's decision to the United States Court of Appeals for the District of Columbia on November 23, 2009. As previously reported, in May 2005, Alcoa World Alumina LLC (AWA) and SCA...

  • Page 41
    ... Creek Mine in the 1970s. During February 2007, class allegations were dropped and the matter now proceeds as an individual claim. On December 2, 2009, the court set trial for October 4, 2010. Also as previously reported, in October 2006, in Barnett, et al. v. Alcoa and Alcoa Fuels, Inc., Warrick...

  • Page 42
    ...located in Feltre and Bolzano. At the time of the acquisition, Alumix indemnified Alcoa for pre-existing environmental contamination at the sites. In 2004, the Italian Ministry of Environment (MOE) issued orders to Alcoa Trasformazioni S.r.l. and Alumix for the development of a clean-up plan related...

  • Page 43
    ... placed in line for trial. Alcoa, its subsidiaries and acquired companies, all have had numerous insurance policies over the years that provide coverage for asbestos based claims. Many of these policies provide layers of coverage for varying periods of time and for varying locations. Alcoa believes...

  • Page 44
    ...13,000 retired former employees of Alcoa or Reynolds Metals Company and spouses and dependents of such retirees alleging violation of the Employee Retirement Income Security Act (ERISA) and the Labor-Management Relations Act by requiring plaintiffs, beginning January 1, 2007, to pay health insurance...

  • Page 45
    ..., Pennsylvania against certain officers and directors of Alcoa claiming breach of fiduciary duty, gross mismanagement, and other violations. This derivative action stems from the previously disclosed civil litigation brought by Aluminium Bahrain B.S.C. (Alba) against Alcoa, Alcoa World Alumina LLC...

  • Page 46
    ... effective August 3, 2009 upon joining Alcoa. He was Chief Legal Officer of Nortel Networks Corporation based in Canada from 2000 until his retirement in September 2005. Before joining Nortel in 1997, he was employed by International Business Machines Corporation (IBM) from 1972 to 1997, holding...

  • Page 47
    ...'s flat rolled products business in Europe. Before joining Alcoa, Mr. Wieser worked for Austria Metall Group, where he was an executive member of the board and chief operating officer from 1997 to 2000. The company's executive officers are elected or appointed to serve until the next annual meeting...

  • Page 48
    ... for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The company's common stock is listed on the New York Stock Exchange, Inc. (symbol AA). The company's quarterly high and low trading stock prices and dividends per common share for 2009 and 2008...

  • Page 49
    ... the most recent five-year performance of Alcoa common stock with (1) the Standard & Poor's 500® Index and (2) the Standard & Poor's 500® Materials Index, a group of 27 companies categorized by Standard & Poor's as active in the "materials" market sector. Such information shall not be deemed...

  • Page 50
    ...exercise of employee stock options, in each case to the extent applicable during the period indicated. The shares used to satisfy the exercise price related to stock options are not considered part of the publicly announced share repurchase program approved by Alcoa's Board of Directors as described...

  • Page 51
    ... operations Cumulative effect of accounting changes Net (loss) income Shipments of alumina (kmt) Shipments of aluminum products (kmt) Alcoa's average realized price per metric ton of aluminum Cash dividends declared per common share Total assets Short-term borrowings Commercial paper Long-term...

  • Page 52
    ... industrial fasteners. Alcoa's products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and industrial applications. Alcoa is a global company operating in 31 countries. Based upon the country where the point of sale...

  • Page 53
    ...gain related to the sale of Alcoa's investment in Aluminum Corporation of China Limited (Chalco); charges for the 2008 Restructuring Program; continued increases in raw materials, energy, and other inputs; net unfavorable foreign currency movements; the absence of the businesses within the Packaging...

  • Page 54
    ...downstream businesses, especially related to the automotive and commercial transportation markets in North America and Europe. These negative impacts were principally offset by significantly higher primary aluminum volumes, mostly as a result of sales related to the production of the Iceland smelter...

  • Page 55
    ... in Brazil, the new Bohai (China) flatrolled product facility, and a high-quality coated sheet line at the Samara (Russia) facility. These increases were slightly offset as a result of the cessation of DD&A, which began in January 2009, related to the Global Foil and Transportation Products Europe...

  • Page 56
    ... of approximately 6,600 employees (2,980 in the Engineered Products and Solutions segment; 2,190 in the Flat-Rolled Products segment; 1,080 in the Primary Metals segment; 180 in the Alumina segment; and 170 in Corporate) to address the impact of the global economic downturn on Alcoa's businesses and...

  • Page 57
    ... at Corporate, resulting in severance charges of $14 and other exits costs of $3. In addition to the above actions, Alcoa intends to sell its Global Foil (the Sabiñánigo, Spain and Shanghai, China plants were sold in late 2009) and Transportation Products Europe businesses in order to streamline...

  • Page 58
    ... period amounts presented were revised to reflect a change in segments - see Segment Information): Alumina Primary Metals Flat-Rolled Products Engineered Products and Solutions Packaging and Consumer Segment total Corporate Total restructuring and other charges 2009 $ 5 30 65 64 164 73 $237 2008...

  • Page 59
    ... a $10 benefit related to a change in the sale structure of two locations included in the Global Foil business than originally anticipated; and a $7 benefit related to the Elkem/Sapa AB exchange transaction. Partially offsetting these benefits were items related to smelter operations in Italy, which...

  • Page 60
    ... alloy extrusions business with the power and propulsion and forgings businesses. Prior period amounts were reclassified to reflect this change. Alcoa's operations consist of four worldwide reportable segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions (the...

  • Page 61
    ... sales ATOI This segment consists of Alcoa's worldwide alumina system, including the mining of bauxite, which is then refined into alumina. Alumina is mainly sold directly to internal and external smelter customers worldwide or is sold to customers that process it into industrial chemical products...

  • Page 62
    ... powder, scrap, and excess power are also included in this segment, as well as the results of aluminum derivative contracts. Primary aluminum produced by Alcoa and used internally is transferred to other segments at prevailing market prices. The sale of primary aluminum represents more than 90% of...

  • Page 63
    ... sales Intersegment sales Total sales ATOI This segment's principal business is the production and sale of aluminum plate, sheet, and foil. This segment includes rigid container sheet (RCS), which is sold directly to customers in the packaging and consumer market and is used to produce aluminum...

  • Page 64
    ... investment castings; forgings and fasteners; aluminum wheels; integrated aluminum structural systems; and architectural extrusions used in the aerospace, automotive, building and construction, commercial transportation, and power generation markets. These products are sold directly to customers...

  • Page 65
    ... benefits from cost savings initiatives are anticipated; however, weak end markets and destocking in the aerospace fastener and industrial gas turbine markets are expected to continue. Also, management continues to explore divestiture alternatives for the Transportation Products Europe business...

  • Page 66
    ... 6,600 employees to address the impact of the global economic downturn on Alcoa's businesses and a related curtailment charge due to the remeasurement of pension plans as a result of the workforce reductions, asset impairments, accelerated depreciation and lease termination costs for shutdown...

  • Page 67
    ... transaction costs related to the 2007 offer for Alcan Inc. ($30); a $492 change in Restructuring and other charges, reflecting, in 2008, $372 in asset impairments to reflect the estimated fair values of Alcoa's investment in Sapa AB and the Global Foil and Transportation Products Europe businesses...

  • Page 68
    ... if the benefits outweigh the costs. The planned sale or shutdown of various businesses contributed positively to Alcoa's liquidity position in 2009. In March 2009, Alcoa announced an additional series of operational and financial actions to significantly improve the Company's cost structure and...

  • Page 69
    ...refinery expansion, Juruti bauxite mine development, and Estreito hydroelectric power project in Brazil; net proceeds of $876 from the issuance of 172.5 million shares of common stock; and net cash received from noncontrolling interests of $340, principally related to Alumina Limited's share of AWAC...

  • Page 70
    ... borrowed $1,000 under RCF-1 and used the proceeds to reduce outstanding commercial paper and for general corporate purposes. Subsequent to the $1,000 borrowing, Alcoa completed the sale of its Packaging and Consumer businesses in February 2008. As a result, Alcoa also repaid the $1,000 under RCF...

  • Page 71
    ... S&P ratings. The report further stated that the ratings reflect Alcoa's strong business position as one of the largest integrated aluminum producers in the world, with broad product, business, and geographic diversity and efficient alumina operations. On February 13, 2009, Moody's Investors Service...

  • Page 72
    ..., Juruti bauxite mine development, Estreito hydroelectric power project, and flat-rolled products projects in Bohai and Russia; and $131 in additions to investments, mostly due to various hydroelectric power projects in Brazil, a natural gas pipeline in Australia, and available-for-sale securities...

  • Page 73
    ... for discount rates, long-term rate of return on plan assets, rate of compensation increases, and health care cost trend rates. The minimum required cash outlays for pension funding are estimated to be $100 for 2010 and $610 for 2011 (see Note Y to the Consolidated Financial Statements in Part II...

  • Page 74
    ... in 2010. In December 2009, Alcoa signed an agreement to enter into a joint venture to develop a new industrial complex in the Kingdom of Saudi Arabia, comprised of a bauxite mine, alumina refinery, aluminum smelter, and rolling mill, which will require the Company to spend approximately $900 over...

  • Page 75
    ... from those used to prepare the Company's Consolidated Financial Statements at any given time. Despite these inherent limitations, management believes that Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying...

  • Page 76
    ...the Primary Metals segment, the Flat-Rolled Products segment, and the soft alloy extrusions business in Brazil, which is included in Corporate. Almost 90% of Alcoa's total goodwill is allocated to three reporting units as follows: Alcoa Fastening Systems (AFS) ($1,018) and Alcoa Power and Propulsion...

  • Page 77
    ... in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate, and working capital changes. Most of these assumptions vary significantly among the reporting units. Cash...

  • Page 78
    ... significantly between grant dates because of changes in the actual results of these inputs that occur over time. As part of Alcoa's stock-based compensation plan design, individuals who are retirement-eligible have a six-month requisite service period in the year of grant. Equity grants are issued...

  • Page 79
    ... relevant tax law until such time that the related tax benefits are recognized. Related Party Transactions Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains a 50% or less equity interest, at negotiated arms-length prices between...

  • Page 80
    .... The effectiveness of the Company's internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein. Klaus Kleinfeld President and Chief Executive...

  • Page 81
    ... on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 82
    Alcoa and subsidiaries Statement of Consolidated Operations (in millions, except per-share amounts) For the year ended December 31, Sales (Q) Cost of goods sold (exclusive of expenses below) Selling, general administrative, and other expenses Research and development expenses Provision for ...

  • Page 83
    ... (H) Goodwill (E) Investments (I) Deferred income taxes (T) Other noncurrent assets (J) Assets held for sale (B) Total Assets Liabilities Current liabilities: Short-term borrowings (K and X) Commercial paper (K and X) Accounts payable, trade Accrued compensation and retirement costs Taxes, including...

  • Page 84
    ... in accounts payable, trade (Decrease) in accrued expenses (Decrease) increase in taxes, including income taxes Cash received on long-term aluminum supply contract (F) Pension contributions (W) (Increase) in noncurrent assets Increase in noncurrent liabilities Decrease in net assets held for sale...

  • Page 85
    ...) Alcoa Inc. Shareholders Preferred stock Balance at December 31, 2006 Net income Other comprehensive income Cash dividends declared: Preferred @ $3.75 per share Common @ $0.68 per share Noncontrolling interest Stock-based compensation (R) Common stock issued: compensation plans (R) Repurchase of...

  • Page 86
    ...service cost related to pension and postretirement benefit plans Foreign currency translation adjustments Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) Net amount reclassified to earnings... an integral part of the consolidated financial statements. 78

  • Page 87
    ... mines, the units of production method is used to record depreciation. The following table details the weightedaverage useful lives of structures and machinery and equipment by reporting segment (numbers in years): Segment Alumina Primary Metals Flat-Rolled Products Engineered Products and Solutions...

  • Page 88
    ...the Primary Metals segment, the Flat-Rolled Products segment, and the soft alloy extrusions business in Brazil, which is included in Corporate. Almost 90% of Alcoa's total goodwill is allocated to three reporting units as follows: Alcoa Fastening Systems (AFS) ($1,018) and Alcoa Power and Propulsion...

  • Page 89
    ... assets by reporting segment (numbers in years): Segment Alumina Primary Metals Flat-Rolled Products Engineered Products and Solutions Software 9 10 10 10 Other intangible assets 40 9 16 Equity investments. Alcoa invests in a number of privately-held companies, primarily through joint ventures and...

  • Page 90
    ... useful life. Certain conditional asset retirement obligations (CAROs) related to alumina refineries, aluminum smelters, and fabrication facilities have not been recorded in the Consolidated Financial Statements due to uncertainties surrounding the ultimate settlement date. A CARO is a legal...

  • Page 91
    ... the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. Stock-Based Compensation. Alcoa recognizes compensation expense for employee equity grants using the non-substantive vesting period approach, in which...

  • Page 92
    ..., earnings multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple other factors. Management...

  • Page 93
    ...with these businesses following their divestiture, primarily in the form of equity participation, or ongoing aluminum or other significant supply contracts. Recently Adopted Accounting Guidance. On September 30, 2009, Alcoa adopted changes issued by the Financial Accounting Standards Board (FASB) to...

  • Page 94
    ... in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of these changes had no impact on the Consolidated Financial Statements. On October 1, 2009, Alcoa adopted changes issued by the FASB to fair value accounting for liabilities...

  • Page 95
    ...the accompanying Statement of Consolidated Operations for the write off of previously capitalized third-party costs related to potential business acquisitions. Also, this guidance was applied to an acquisition completed on March 31, 2009 (see Note F). Effective January 1, 2009, Alcoa adopted changes...

  • Page 96
    ... that were previously adopted effective December 31, 2006, to accounting for defined benefit pension and other postretirement plans. This change requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. The adoption of...

  • Page 97
    ... from customers and Short-term borrowings on the Consolidated Balance Sheet. This amount relates to Alcoa's existing accounts receivable securitization program, which is considered an off-balance sheet arrangement as of December 31, 2009 under existing accounting for transfers of financial assets...

  • Page 98
    ... accompanying Consolidated Balance Sheet, the assets and liabilities of operations classified as held for sale included the Global Foil business, the Transportation Products Europe business, and the Hawesville, KY automotive casting facility. Additionally, the assets and related liabilities of the...

  • Page 99
    ... sale Liabilities: Accounts payable, trade Accrued expenses Other liabilities Liabilities of operations held for sale C. Asset Retirement Obligations Alcoa has recorded AROs related to legal obligations associated with the normal operations of bauxite mining, alumina refining, and aluminum smelting...

  • Page 100
    ... of approximately 6,600 employees (2,980 in the Engineered Products and Solutions segment; 2,190 in the Flat-Rolled Products segment; 1,080 in the Primary Metals segment; 180 in the Alumina segment; and 170 in Corporate) to address the impact of the global economic downturn on Alcoa's businesses and...

  • Page 101
    ... at Corporate, resulting in severance charges of $14 and other exits costs of $3. In addition to the above actions, Alcoa intends to sell its Global Foil (the Sabiñánigo, Spain and Shanghai, China plants were sold in late 2009 - see Note F) and Transportation Products Europe businesses in order to...

  • Page 102
    ... (prior period amounts presented were revised to reflect a change in segments - see Note Q): Alumina Primary Metals Flat-Rolled Products Engineered Products and Solutions Packaging and Consumer Segment total Corporate Total restructuring and other charges 2009 2008 2007 $ 5 $ 89 $ 30 94 (2) 65 273...

  • Page 103
    ... below include activity for the EES business because the related reserve balances were not included in liabilities of operations held for sale - see Note B): Layoff costs $ 153 (101) 88 (25...years for ongoing site remediation work, special termination benefit payments, and lease termination costs. 95

  • Page 104
    ...Corporate is allocated to each of Alcoa's four reportable segments ($165 to Alumina, $855 to Primary Metals, $62 to Flat-Rolled Products, and $274 to Engineered Products and Solutions) included in the table above for purposes of impairment testing... assets Indefinite-lived trade names and trademarks...

  • Page 105
    ...of Alcoa World Alumina and Chemicals, acquired a BHP Billiton (BHP) subsidiary that holds interests in four bauxite mines and one refining facility in the Republic of Suriname. These interests were part of joint ventures between AWA LLC's whollyowned subsidiary in Suriname (Suriname Aluminum Company...

  • Page 106
    ... business generated sales of $104 in 2008 and, at the time of divestiture, had operations in four countries employing approximately 450 employees. In late 2009, Alcoa completed the sale of two of its foil plants (Sabiñánigo, Spain and Shanghai, China), which were part of the Global Foil business...

  • Page 107
    ..., and industrial markets; Closure Systems International, a leading global manufacturer of plastic and aluminum packaging closures and capping equipment for beverage, food, and personal care customers; Consumer Products, a leading manufacturer of branded and private label foil, wraps and bags, and...

  • Page 108
    ... Riserless Casting (VRC/PRC) process. The Automotive Castings business employed approximately 530 employees and consisted of two operating locations, one in Fruitport, MI (the Michigan Casting Center) and one in Farsund, Norway (the Scandinavian Casting Center). This business generated approximately...

  • Page 109
    ... forth the terms for the development, construction, ownership, and operation of an integrated bauxite mine, alumina refinery, aluminum smelter, and rolling mill, in the Kingdom of Saudi Arabia. Specifically, the project to be developed by the joint venture will consist of: (i) a bauxite mine for the...

  • Page 110
    ... 1, 2008, Alcoa joined with the Aluminum Corporation of China (Chinalco) to acquire 12% of the U.K. common stock of Rio Tinto plc (RTP) for approximately $14,000. The investment was made through a special purpose vehicle called SPPL, which is a private limited liability company, created solely...

  • Page 111
    .... J. Other Noncurrent Assets December 31, Intangibles, net (E) Prepaid pension benefit (W) Prepaid gas transmission contract Cash surrender value of life insurance Other 2009 2008 $ 590 $ 610 94 122 288 217 453 394 994 1,043 $2,419 $2,386 K. Debt Long-Term Debt. December 31, 7.375% Notes, due 2010...

  • Page 112
    ... the option to convert their notes into shares of Alcoa's common stock at any time prior to the close of business on the second scheduled trading day (March 13, 2014) immediately preceding the stated maturity date (March 15, 2014). The initial conversion rate for the convertible notes is 155.4908...

  • Page 113
    ..., the Second Loans include a financial covenant that states that Alcoa must maintain a debt-to-equity ratio of 1.5 or lower. 2008 Activity-In March 2008, Alumínio entered into two separate loan agreements (the "First Loans") with BNDES related to the Juruti bauxite mine development and the São Lu...

  • Page 114
    ... proceeds of which are to be used to provide working capital or for other general corporate purposes of Alcoa, including support of Alcoa's commercial paper program. Subject to the terms and conditions of the Credit Agreement, Alcoa may from time to time request increases in lender commitments under...

  • Page 115
    ... with the commercial terms negotiated with its vendors. Alcoa records imputed interest related to these arrangements as interest expense in the Statement of Consolidated Operations. The remaining amount of short-term borrowings represent working capital loans at various locations globally. During...

  • Page 116
    ... respectively, in contributions from the noncontrolling shareholder of Alcoa of Australia and Alcoa World Alumina LLC. During 2007, Alcoa received $474 in contributions from noncontrolling shareholders related to interests in Australia, Norway, Russia, and China (an additional $3 was received in the...

  • Page 117
    ...13,000 retired former employees of Alcoa or Reynolds Metals Company and spouses and dependents of such retirees alleging violation of the Employee Retirement Income Security Act (ERISA) and the Labor-Management Relations Act by requiring plaintiffs, beginning January 1, 2007, to pay health insurance...

  • Page 118
    ... with EU state aid rules. Alcoa has been operating in Spain for more than nine years under a power supply structure approved by the Spanish Government in 1986, an equivalent tariff having been granted in 1983. The investigation is limited to the year 2005 and is focused both on the energy-intensive...

  • Page 119
    ... adverse effect on the financial position, liquidity, or the results of operations of the Company. Massena, NY-Alcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoa's Massena plant site, under a 1989 order from the U.S. Environmental Protection Agency (EPA...

  • Page 120
    ... at the time the EPA's Record of Decision is issued, which is expected in 2010 or later. Vancouver, WA-In 1987, Alcoa sold its Vancouver smelter to a company that is now known as Evergreen Aluminum (Evergreen). The purchase and sale agreement contained a provision that Alcoa retain liability...

  • Page 121
    ... at Portovesme in 2009, Alcoa increased the reserve by $3. Investments. Alumínio is a participant in several hydroelectric power construction projects in Brazil for purposes of increasing its energy self-sufficiency and providing a long-term, low-cost source of power for its facilities. Two...

  • Page 122
    ... loss on the sale of the SPPL investment (see Note I), and a $92 gain related to the acquisition of a BHP subsidiary (see Note F). In 2007, Net gain from asset sales included a $1,754 gain on the sale of Alcoa's investment in the Aluminum Corporation of China Limited (Chalco). The dividend income in...

  • Page 123
    ... in Corporate. Alcoa's products are used worldwide in packaging, transportation (including aerospace, automotive, truck, trailer, rail, and shipping), building and construction, oil and gas, defense, and industrial applications. Total export sales from the U.S. included in continuing operations were...

  • Page 124
    ... investment castings; forgings and fasteners; aluminum wheels; integrated aluminum structural systems; and architectural extrusions used in the aerospace, automotive, building and construction, commercial transportation, and power generation markets. These products are sold directly to customers...

  • Page 125
    ...of Alcoa's reportable segments, reclassified to exclude discontinued operations (see Note B), are as follows: Engineered FlatProducts Packaging Primary Rolled and and Alumina Metals Products Solutions Consumer Total 2009 Sales: Third-party sales Intersegment sales Total sales Profit and loss: Equity...

  • Page 126
    ... facilities located in Brazil that were not contributed to the Sapa AB joint venture. In 2007, the Corporate amount also includes the third-party sales of the soft alloy extrusion business that was contributed to the Sapa AB joint venture (see Note I). 2009 Net (loss) income attributable to Alcoa...

  • Page 127
    ... sales in Norway was due to the acquisition of two smelters in March 2009 (see Note F). Geographic information for long-lived assets is as follows (based upon the physical location of the assets): December 31, Long-lived assets: U.S. Brazil Australia Iceland Canada Norway* Russia Spain Jamaica China...

  • Page 128
    ... end of 2009 Stock-based Compensation Stock options under Alcoa's stock-based compensation plans have been granted at not less than market prices on the dates of grant. Performance stock options are also granted to certain individuals. For performance stock options granted in 2009, the final number...

  • Page 129
    ... based on a yield curve of interest rates at the time of the grant based on the contractual life of the option. For 2009, the dividend yield was based on a three-month average as a result of the significant decline in Alcoa's stock price in 2008 due to the global economic downturn and the previously...

  • Page 130
    ... exercise price Granted: Number of options Weighted average exercise price Exercised: Number of options Weighted average exercise price Expired or forfeited: Number of options Weighted average exercise price Outstanding, end of year: Number of options Weighted average exercise price Exercisable, end...

  • Page 131
    ...in the computation of earnings per share pursuant to the two-class method for all periods presented. Under Alcoa's stockbased compensation programs, certain employees are granted stock and performance awards, which entitle those employees to receive nonforfeitable dividends during the vesting period...

  • Page 132
    ...to Alcoa common shareholders was as follows (shares in millions): (Loss) income from continuing operations attributable to Alcoa common shareholders Less: preferred stock dividends declared (Loss) income from continuing operations available to common equity Less: dividends and undistributed earnings...

  • Page 133
    ... related to smelter operations Italy* (9.3) Other 2.3 0.8 (0.8) Effective tax rate 38.3% 43.2% 33.8% * Includes items not tax benefited as follows: a $250 charge related to a recent decision by the European Commission on electricity pricing (see Note N), a $15 charge for environmental remediation...

  • Page 134
    ... of the balance at end of year pertains to state tax liabilities, which are presented before any offset for federal tax benefits. The effect of unrecognized tax benefits, if recorded, that would impact the 2009 annual effective tax rate would be approximately 1% of pretax book income. Alcoa does not...

  • Page 135
    ... of its benefit plans as of the date of its year-end statement of financial position. This provision resulted in a charge of $9, which was recorded as an adjustment to December 31, 2008 retained earnings. Prior to the effective date of this change, the funded status of most of Alcoa's pension and...

  • Page 136
    ... on plan assets Employer contributions Participants' contributions Benefits paid Administrative expenses Acquisitions Divestitures Settlements Other transfers, net Exchange rate Fair value of plan assets at end of year Funded status Amounts attributed to joint venture partners Net funded status...

  • Page 137
    ... expected aggregate years of future service of the employees of the EES business and the employees subject to the global workforce reduction plan, respectively. Alcoa recorded curtailment gains of $5 and $1 related to the pension and postretirement benefit plans, respectively, that include the EES...

  • Page 138
    ... the retiree life insurance benefit for certain U.S. employees who retire on or after April 1, 2008 and a charge of $4 related to Alcoa's soft alloy extrusion business. Also in 2007, Alcoa recorded a settlement credit of $2 as a component of net periodic benefit cost related to its pension benefits...

  • Page 139
    ... it is assumed to remain 2009 6.5% 5.0% 2014 2008 6.5% 5.0% 2013 2007 7.0% 5.0% 2012 The health care cost trend rate in the calculation of the 2008 benefit obligation was 6.5% from 2008 to 2009 and from 2009 to 2010. Alcoa's actual annual health care cost trend experience over the past three years...

  • Page 140
    ... reported for the health care plan. A one-percentage point change in these assumed rates would have the following effects: 1% increase $ 6 86 1% decrease $ (5) (77) Effect on total of service and interest cost components Effect on postretirement benefit obligations Plan Assets Alcoa's pension...

  • Page 141
    ... Unrealized losses Purchases, sales, issuances, and settlements Exchange rate Transfers in and (or) out of Level 3 Balance at end of year Cash Flows It is Alcoa's policy to fund amounts for pension plans sufficient to meet the minimum requirements set forth in applicable benefits laws and local...

  • Page 142
    ... chief financial officer, and other officers and employees that the chief executive officer selects. The SRMC reports to the Board of Directors on the scope of its activities. The aluminum, energy, interest rate, and foreign exchange contracts are held for purposes other than trading. They are used...

  • Page 143
    ... contracts Foreign exchange contracts Energy contracts Aluminum contracts Interest rate contracts Foreign exchange contracts Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments*: Aluminum contracts Energy contracts Aluminum contracts Energy contracts...

  • Page 144
    ...: Aluminum contracts Energy contracts Foreign exchange contracts Interest rate contracts Aluminum contracts Energy contracts Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments*: Aluminum contracts Energy contracts Aluminum contracts Energy contracts...

  • Page 145
    ... 14 43 4 Aluminum contracts Interest rate contracts Energy contracts Foreign exchange contracts 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...

  • Page 146
    ... linked to the LME and a foreign exchange rate, related to the Elkem transaction (see Note F). **In 2009, an existing power contract no longer qualified for the normal purchase normal sale exception under derivative accounting. As a result, this contract is now accounted for as a derivative and was...

  • Page 147
    ...is a leading global producer of primary aluminum and fabricated aluminum products. As a condition of sale, customers often require Alcoa to enter into long-term, fixed-price commitments. These commitments expose Alcoa to the risk of fluctuating aluminum prices between the time the order is committed...

  • Page 148
    .... An investment accounted for on the equity method by Alcoa has entered into interest rate contracts, which are designated as cash flow hedges. Foreign Exchange. Alcoa is subject to exposure from fluctuations in foreign currency exchange rates. These contracts may be used from time to time to hedge...

  • Page 149
    ... gas (million British thermal units) Fuel oil (metric tons) Foreign exchange contracts Other Alcoa has also entered into certain derivatives to minimize its price risk related to other customer sales and pricing arrangements. Alcoa has not qualified these contracts for hedge accounting treatment...

  • Page 150
    ... contributed 44,313,146 newly issued shares of its common stock to a master trust that holds the assets of certain U.S. defined benefit pension plans in a private placement transaction. These shares were valued at $13.54 per share (the closing price of Alcoa's common stock on January 26, 2010), or...

  • Page 151
    ... Financial Information (unaudited) Quarterly Data (dollars in millions, except per-share amounts) First 2009 Sales Amounts attributable to Alcoa common shareholders: (Loss) income from continuing operations (Loss) income from discontinued operations (B) Net (loss) income Earnings per share...

  • Page 152
    ... Management's Annual Report on Internal Control over Financial Reporting Management's Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Form 10-K beginning on page 71. (c) Attestation Report of the Registered Public Accounting Firm The effectiveness of Alcoa...

  • Page 153
    ... and Related Stockholder Matters. The following table gives information about Alcoa's common stock that could be issued under the company's equity compensation plans as of December 31, 2009. Weightedaverage exercise price of outstanding options, warrants and rights (b) $24.44 0 $24.44 Number of...

  • Page 154
    ... for life upon retirement from the Board based upon the cash retainer fee for directors and an annual stock grant under the company's former Stock Plan for Non-Employee Directors. In 1995, the Board froze future annual payments to eligible directors at a maximum of $30,000 and 2,000 shares (or...

  • Page 155
    ... Public Accounting Firm are on pages 73 through 143 of this report. (2) The following report and schedule should be read with the company's consolidated financial statements: Report of PricewaterhouseCoopers LLP dated February 18, 2010 on the company's financial statement schedule filed as a part...

  • Page 156
    ... number 1-3610) dated November 28, 2001. Shareholders Agreement dated May 10, 1996 between Alcoa International Holdings Company and WMC Limited, incorporated by reference to exhibit 99.5 to the company's Current Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001. Side Letter...

  • Page 157
    .... and Rank Group Limited, incorporated by reference to exhibit 10(h) to the company's Annual Report on Form 10-K for the year ended December 31, 2007. Aluminum Project Framework Shareholders' Agreement, dated December 20, 2009, between Alcoa Inc. and Saudi Arabian Mining Company (Ma'aden). Closing...

  • Page 158
    ...2007. 10(n)(2). Amendment to Incentive Compensation Plan of Alcoa Inc., effective December 18, 2009. 10(o). Employees' Excess Benefit Plan, Plan C, as amended and restated effective December 31, 2007, incorporated by reference to exhibit 10(l) to the company's Annual Report on Form 10-K for the year...

  • Page 159
    .... 10(s)(10). Amendment to Deferred Compensation Plan, effective December 18, 2009. 10(t). Summary of the Executive Split Dollar Life Insurance Plan, dated November 1990, incorporated by reference to exhibit 10(m) to the company's Annual Report on Form 10-K (Commission file number 13610) for the year...

  • Page 160
    ... 10(r) to the company's Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1998. Alcoa Deferred Compensation Estate Enhancement Plan, effective July 10, 1998, incorporated by reference to exhibit 10(s) to the company's Annual Report on Form 10-K (Commission...

  • Page 161
    .... 10(jj)(6). Amendments to Global Pension Plan, effective December 18, 2009. 10(kk). Executive Severance Agreement, as amended and restated effective December 8, 2008, between Alcoa Inc. and Klaus Kleinfeld, incorporated by reference to exhibit 10(gg) to the company's Annual Report on Form 10-K for...

  • Page 162
    ...tt)(1). Amendments to the Reynolds Metals Company Benefit Restoration Plan for New Retirement Program, effective December 18, 2009. 10(uu). 10(vv). Global Expatriate Employee Policy (pre-January 1, 2003), incorporated by reference to exhibit 10(uu) to the company's Annual Report on Form 10-K for the...

  • Page 163
    ...Relocation for Helmut Wieser, effective January 1, 2007, incorporated by reference to exhibit 10(vv) to the company's Annual Report on Form 10-K for the year ended December 31, 2006. Letter Agreement, dated August 14, 2007, between Alcoa Inc. and Klaus Kleinfeld, incorporated by reference to exhibit...

  • Page 164
    ... INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Alcoa Inc. Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 18, 2010 appearing...

  • Page 165
    SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, (in millions) Col. A Col. B Col. C Additions Charged to costs and expenses Charged to other accounts (A) Col. D Col. E Description Allowance for doubtful accounts-customer receivables: 2009 2008 2007 Allowance for ...

  • Page 166
    ... Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date President and Chief Executive Officer (Principal Executive Officer and Director) Klaus Kleinfeld Executive...

  • Page 167
    ... charges added to earnings Interest capitalized: Consolidated Proportionate share of 50 percent-owned persons Preferred stock dividend requirements of majority-owned subsidiaries Total fixed charges Ratio of earnings to fixed charges $ 508 165 - 165 - 673 (A) (A) For the year ended December 31...

  • Page 168
    ... Corporation Howmet Castings & Services, Inc. Alcoa International Holdings Company Alcoa Australian Holdings Pty. Ltd. Alcoa of Australia Limited1 Alcoa of Australia Rolled Products Pty. Ltd. Alcoa (China) Investment Company Ltd. Alcoa Inter-America, Inc. Alcoa International (Asia) Limited Alcoa...

  • Page 169
    Name Norsk Alcoa Investments AS Mosjøen Anode ANS Alcoa UK Holdings Limited Alcoa Manufacturing (G.B.) Limited Alcoa Power Generating Inc.2 Alcoa World Alumina LLC1,3 AAC Holdings Company1 Alcoa Minerals of Jamaica, L.L.C.1 Suriname Aluminum Company, L.L.C.1 Alumax Inc. Alumax Mill Products, Inc. ...

  • Page 170
    ... 333-159123) of Alcoa Inc. and its subsidiaries of our reports dated February 18, 2010 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financing reporting, which appear in this Form 10-K. Pittsburgh, Pennsylvania February 18, 2010...

  • Page 171
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 18, 2010 3. 4. Name: Klaus Kleinfeld Title: President and Chief Executive Officer 163

  • Page 172
    ... Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 18, 2010 3. 4. Name: Charles D. McLane, Jr. Title: Executive Vice President and Chief Financial Officer 164

  • Page 173
    ... the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 18, 2010 Name: Klaus Kleinfeld Title: President and Chief Executive Officer Dated: February 18...

  • Page 174
    ... Cash Flows Cash provided from operations Capital expenditures (4) Common Share Data Estimated number of shareholders (5) Common stock outstanding - end of year (thousands) Basic earnings per share (6) Diluted earnings per share (6) Dividends declared Book value (7) Price range: High Low $ 2009 2008...

  • Page 175
    ...beneficial owners holding stock through banks, brokers, or other nominees. (6) Represents earnings per share on net (loss) income attributable to Alcoa common shareholders. In 2009, Alcoa adopted changes issued by the Financial Accounting Standards Board to the calculation of earnings per share (see...

  • Page 176
    ... Executive Vice President Group President, Engineered Products and Solutions Alan J. Cransberg Vice President President, Global Primary Products - Australia Donna Dabney Vice President, Secretary and Corporate Governance Counsel Nicholas J. DeRoma Executive Vice President Chief Legal and Compliance...

  • Page 177
    ...requested at no cost at www.alcoa.com or by writing to Corporate Communications at the corporate center address located on the back cover of this report. Investor Information Securities analysts and investors may write to Director - Investor Relations, Alcoa, 390 Park Avenue, New York, NY 10022-4608...

  • Page 178
    ... value. Accountability We are accountable - individually and in teams - for our behaviors, actions and results. We live our Values and measure our success by the success of our customers, shareholders, communities and people. Alcoa Corporate Center 201 Isabella Street • Pittsburgh, PA 15212...