Alcoa 2010 Annual Report Download - page 34

non-compliance with the timeline and other requirements under the gas supply arrangements for the joint venture.
Also, while financing is in place for the smelter and rolling mill, which are viable as standalone operations without the
bauxite mine and alumina refinery, there can be no guaranteed assurance that the latter two portions of the project will
be fully funded or that the project as a whole will be completed within budget or by the targeted completion date, or
that it or Alcoa’s other joint ventures or strategic alliances will be beneficial to Alcoa, whether due to the above-
described risks, unfavorable global economic conditions, lack of financing, increases in construction costs, currency
fluctuations, political risks, or other factors.
Alcoa faces significant competition.
As discussed in Part I, Item 1. (Business – Competitive Conditions) of this report, the markets for most aluminum
products are highly competitive. Alcoa’s competitors include a variety of both U.S. and non-U.S. companies in all
major markets. In addition, aluminum competes with other materials, such as steel, plastics, composites, and glass,
among others, for various applications in Alcoa’s key markets. The willingness of customers to accept substitutions for
the products sold by Alcoa, the ability of large customers to exert leverage in the marketplace to affect the pricing for
fabricated aluminum products, or other developments by or affecting Alcoa’s competitors or customers could affect
Alcoa’s results of operations. In addition, Alcoa’s competitive position depends, in part, on the company’s access to an
economical power supply to sustain its operations in various countries.
Further metals industry consolidation could impact Alcoa’s business.
The metals industry has experienced consolidation over the past several years, and there may be further industry
consolidation in the future. Although current industry consolidation has not negatively impacted Alcoa’s business,
further consolidation in the aluminum industry could possibly have negative impacts that we cannot reliably predict.
Failure to maintain investment grade credit ratings could limit Alcoa’s ability to obtain future financing,
increase its borrowing costs, adversely affect the market price of its existing securities, or otherwise impair its
business, financial condition and results of operations.
Currently, Alcoa’s long-term debt is rated BBB- with negative outlook by Standard and Poor’s Ratings Services; Baa3
with negative outlook by Moody’s Investors Services; and BBB- with negative outlook by Fitch Ratings. There can be
no assurance that any rating assigned will remain in effect for any given period of time or that a rating will not be
lowered, suspended or withdrawn entirely by a rating agency, if, in that rating agency’s judgment, circumstances so
warrant. Maintaining an investment-grade credit rating is an important element of Alcoa’s financial strategy. A
downgrade of Alcoa’s credit ratings could adversely affect the market price of its securities, adversely affect existing
financing, limit access to the capital or credit markets or otherwise adversely affect the availability of other new
financing on favorable terms, if at all, result in more restrictive covenants in agreements governing the terms of any
future indebtedness that the company incurs, increase the cost of borrowing, or impair its business, financial condition
and results of operations. In addition, under the project financing for the joint venture project in Saudi Arabia, a
downgrade of Alcoa’s credit ratings below investment grade by at least two rating agencies would require Alcoa to
provide a letter of credit or fund an escrow account for a portion or all of Alcoa’s remaining equity commitment to the
joint venture. For additional information regarding the project financing, see Note I to the Consolidated Financial
Statements in Part II, Item 8 (Financial Statements and Supplementary Data) of this report.
Alcoa could be adversely affected by the failure of financial institutions to fulfill their commitments under
committed credit facilities.
As discussed in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources) of this report, Alcoa has a committed revolving credit facility with
financial institutions available for its use, for which the company pays commitment fees. The facility is provided by a
syndicate of several financial institutions, with each institution agreeing severally (and not jointly) to make revolving
credit loans to Alcoa in accordance with the terms of the credit agreement. If one or more of the financial institutions
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