Alcoa 2009 Annual Report Download - page 31

Alcoa’s operations consume substantial amounts of energy; profitability may decline 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 following could affect Alcoa’s results of operations:
• significant increases in electricity costs rendering smelter operations uneconomic;
• significant increases in fuel oil or natural gas prices;
• unavailability of electrical power or other energy sources due to droughts, hurricanes or other natural causes;
• unavailability of energy due to energy shortages resulting in insufficient supplies to serve consumers;
• interruptions in energy supply due to equipment failure or other causes; or
• curtailment of one or more refineries or smelters due to inability to extend energy contracts upon expiration
or negotiate new arrangements on cost-effective terms or unavailability of energy at competitive rates.
Alcoa’s profitability could be adversely affected by increases in the cost of raw materials or by significant lag
effects for decreases in commodity- or LME-linked costs.
Alcoa’s results of operations will be affected by increases in the cost of raw materials, including energy, carbon
products, caustic soda and other key inputs, as well as freight costs associated with transporting raw materials to
refining and smelting locations. Alcoa may not be able to offset fully the effects of higher raw material costs or energy
costs through price increases, productivity improvements or cost reduction programs. Similarly, Alcoa’s operating
results will be affected by significant lag effects for declines in key costs of production that are commodity- or
LME-linked. For example, declines in LME-linked costs of alumina and power in a particular period may not be
adequate to offset sharp declines in metal price in that period.
Alcoa is exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation, and
other economic factors in the countries in which it operates.
Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates,
competitive factors in the countries in which Alcoa operates, and continued volatility or deterioration in the global
economic and financial environment, could affect Alcoa’s revenues, expenses and results of operations. Changes in the
valuation of the U.S. dollar against other currencies, particularly the Brazilian real, Canadian dollar, Euro and
Australian dollar, may affect profitability as some important raw materials are purchased in other currencies, while
products generally are sold in U.S. dollars.
Alcoa may not be able to successfully implement or realize expected benefits from its growth projects or its
portfolio streamlining strategy.
As a result of the global economic downturn and as part of the company’s initiative to conserve cash and preserve
liquidity, Alcoa halted all non-critical capital investment in 2009, except for the completion of the São Luís refinery
expansion, the greenfield Juruti bauxite mine, the Estreito hydroelectric power project in Brazil and the China and
Russia growth projects. However, there can be no assurance that these projects will be beneficial to Alcoa, whether due
to unfavorable global economic conditions, increases in project start-up costs for the Juruti and São Luís projects,
currency fluctuations, or other factors, or that the remaining construction on the Estreito project will be completed
within budget or by the targeted completion date.
Alcoa has also made and may continue to make acquisitions and divestitures and take other actions to streamline its
portfolio. For example, in January 2009, Alcoa announced its intention to sell its Global Foil and Transportation
Products Europe businesses. There can be no assurance that these will be completed in their entirety as planned or
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