Alcoa 2009 Annual Report Download - page 35

Climate change, climate change legislation or regulations and greenhouse effects may adversely impact Alcoa’s
operations and markets.
Energy is a significant input in a number of Alcoa’s operations. There is growing recognition that energy consumption
is a contributor to global warming, greenhouse effects and potential climate change.
A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory
change in response to the potential impacts of climate change including pending U.S. legislation that if enacted, would
limit and reduce greenhouse gas emissions through a “cap and trade” system of allowances and credits, among other
provisions. In addition, the Environmental Protection Agency has for the first time required large emitters of
greenhouse gases to collect and report data with respect to their greenhouse gas emissions. There is also current and
emerging regulation, such as the mandatory renewable energy target in Australia. Alcoa will likely see changes in the
margins of greenhouse gas-intensive assets and energy-intensive assets as a result of regulatory impacts in the countries
in which the company operates. These regulatory mechanisms may be either voluntary or legislated and may impact
Alcoa’s operations directly or indirectly through customers or Alcoa’s supply chain. Inconsistency of regulations may
also change the attractiveness of the locations of some of the company’s assets. Assessments of the potential impact of
future climate change legislation, regulation and international treaties and accords are uncertain, given the wide scope
of potential regulatory change in countries in which Alcoa operates. The company may realize increased capital
expenditures resulting from required compliance with revised or new legislation or regulations, costs to purchase or
profits from sales of, allowances or credits under a “cap and trade” system, increased insurance premiums and
deductibles as new actuarial tables are developed to reshape coverage, a change in competitive position relative to
industry peers and changes to profit or loss arising from increased or decreased demand for goods produced by the
company and indirectly, from changes in costs of goods sold.
The potential physical impacts of climate change on the company’s operations are highly uncertain, and will be
particular to the geographic circumstances. These may include changes in rainfall patterns, shortages of water or other
natural resources, changing sea levels, changing storm patterns and intensities, and changing temperature levels. These
effects may adversely impact the cost, production and financial performance of Alcoa’s operations.
Alcoa could be required to make additional contributions to its defined benefit pension plans as a result of
adverse changes in interest rates and the capital markets.
Alcoa’s estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate significant
assumptions including the 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 a particular period could be affected
by a decline in the rate of return on plan assets, the interest rate used to discount the future estimated liability, or
changes in employee workforce assumptions.
Union disputes and other employee relations issues could adversely affect Alcoa’s financial results.
Some of Alcoa’s employees are represented by labor unions in a number of countries under various collective
bargaining agreements with varying durations and expiration dates. Alcoa may not be able to satisfactorily renegotiate
collective bargaining agreements in the U.S. and other countries when they expire including the master collective
bargaining agreement with the United Steelworkers that is scheduled to expire on May 31, 2010. In addition, existing
collective bargaining agreements may not prevent a strike or work stoppage at Alcoa’s facilities in the future. Alcoa
may also be subject to general country strikes or work stoppages unrelated to its business or collective bargaining
agreements. Any such work stoppages (or potential work stoppages) could have a material adverse effect on Alcoa’s
financial results.
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