Alcoa 2010 Annual Report Download - page 37

postretirement benefits accounting policies, see Part II, Item 7. (Management’s Discussion and Analysis of Financial
Condition and Results of Operations) under the caption “Critical Accounting Policies and Estimates—Pension and
Other Postretirement Benefits,” and Part II, Item 8. (Financial Statements and Supplementary Data) under Note W to
the Consolidated Financial Statements—Pension and Other Postretirement Benefits. Although GAAP expense and
pension funding contributions are not directly related, the key economic factors that affect GAAP expense would also
likely affect the amount of cash or securities Alcoa would contribute to the pension plans. Potential pension
contributions include both mandatory amounts required under federal law and discretionary contributions to improve
the plans’ funded status.
Union disputes and other employee relations issues could adversely affect Alcoa’s financial results.
A significant portion 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. While Alcoa was successful in
renegotiating the master collective bargaining agreement with the United Steelworkers in June 2010, Alcoa may not be
able to satisfactorily renegotiate other collective bargaining agreements in the U.S. and other countries when they
expire. 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.
Alcoa’s human resource talent pool may not be adequate to support the company’s growth.
Alcoa’s existing operations and development projects require highly skilled executives, and staff with relevant industry
and technical experience. The inability of the company and industry to attract and retain such people may adversely
impact Alcoa’s ability to adequately meet project demands and fill roles in existing operations. Skills shortages in
engineering, technical service, construction and maintenance contractors may also impact activities. These shortages
may adversely impact the cost and schedule of development projects and the cost and efficiency of existing operations.
Alcoa may not realize expected long-term benefits from its productivity and cost-reduction initiatives.
Alcoa has undertaken, and may continue to undertake, productivity and cost-reduction initiatives to improve performance
and conserve cash, including new procurement strategies for raw materials, such as backward 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 and supporting software). There is no assurance that these initiatives will all
be completed or beneficial to Alcoa or that estimated cost savings from such activities will be realized.
Alcoa may not be able to successfully develop and implement technology initiatives.
Alcoa is working on developments in advanced smelting process technologies, including inert anode and carbothermic
technology, in addition to multi-alloy casting processes. There can be no assurance that such technologies will be
commercially feasible or beneficial to Alcoa.
Alcoa’s business and growth prospects may be negatively impacted by reductions in its capital expenditures.
In response to the global economic downturn and related disruptions in the financial markets, Alcoa changed its capital
expenditures strategy in 2009 as follows: capital expenditure approval levels were lowered dramatically; growth
projects were halted where it was deemed economically feasible; and all non-critical capital expenditures were stopped.
Capital expenditures are deemed critical if they maintain Alcoa’s compliance with the law, keep a facility operating, or
satisfy customer requirements if the benefits outweigh the costs. Alcoa expects to increase its sustaining capital
expenditures in 2011 (compared with 2009 and 2010 levels) to meet non-recurring needs, including remediation and
rebuilding of certain properties and assets. Despite this increase in 2011, capital review processes and limiting overall
capital spend will continue in 2011 and beyond.
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