Alcoa 2012 Annual Report Download - page 44

• take action contrary to Alcoa’s policies or objectives with respect to its investments; or
• as a result of financial or other difficulties, be unable or unwilling to fulfill their obligations under the joint
venture, strategic alliance or other agreements, such as contributing capital to expansion or maintenance
projects.
In addition, the joint venture with Ma’aden is subject to risks associated with large infrastructure construction projects,
including the consequences of non-compliance with the timeline and other requirements under the gas supply
arrangements for the joint venture. There can be no assurance that the project as a whole will be completed within
budget or that the project phases will be completed by their targeted completion dates, 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, increases in construction costs, currency fluctuations, political risks, or other factors.
Alcoa faces significant competition, which may have an adverse effect on profitability.
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, including some that are subsidized. 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.
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.
Alcoa’s long-term debt is currently rated BBB- with stable outlook by Standard and Poor’s Ratings Services and BBB-
with stable outlook by Fitch Ratings. Moody’s Investors Services rates Alcoa’s long-term debt at Baa3 but announced
in December 2012 that it has placed Alcoa’s credit ratings on review for possible downgrade. There can be no
assurance that any rating assigned by a rating agency 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 financings for the joint venture project in the Kingdom of 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 financings, 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
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