Alcoa 2011 Annual Report Download - page 37

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
credit loans to Alcoa in accordance with the terms of the credit agreement. If one or more of the financial institutions
providing the committed credit facility were to default on its obligation to fund its commitment, the portion of the
committed facility provided by such defaulting financial institution would not be available to the company.
Alcoa may not be able to realize expected benefits from the change to index pricing of alumina.
Alcoa has implemented a move to a pricing mechanism for alumina based on an index of alumina prices rather than a
percentage of the LME-based aluminum price. Alcoa believes that this change, expected to affect approximately 20%
of annual contracts coming up for renewal each year, will more fairly reflect the fundamentals of alumina including
raw materials and other input costs involved. There can be no assurance that such index pricing ultimately will be
accepted or that such index pricing will result in consistently greater profitability from sales of alumina.
Alcoa’s global operations are exposed to political and economic risks, commercial instability and events beyond
its control in the countries in which it operates.
Alcoa has operations or activities in numerous countries and regions outside the U.S. having varying degrees of
political and economic risk, including China, Europe, Guinea, Russia, and the Kingdom of Saudi Arabia, among others.
Risks include those associated with sovereign and private debt default, political instability, civil unrest, expropriation,
nationalization, renegotiation or nullification of existing agreements, mining leases and permits, commercial instability
caused by corruption, and changes in local government laws, regulations and policies, including those related to tariffs
and trade barriers, taxation, exchange controls, employment regulations and repatriation of earnings. While the impact
of these factors is difficult to predict, any one or more of them could adversely affect Alcoa’s business, financial
condition or operating results.
Alcoa could be adversely affected by changes in the business or financial condition of a significant customer or
customers.
A significant downturn or further deterioration in the business or financial condition of a key customer or customers
supplied by Alcoa could affect Alcoa’s results of operations in a particular period. Alcoa’s customers may experience
delays in the launch of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their
products, or other difficulties in their businesses. If Alcoa is not successful in replacing business lost from such
customers, profitability may be adversely affected.
Alcoa may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state or foreign
law, regulation or policy.
Alcoa’s results of operations or liquidity in a particular period could be affected by new or increasingly stringent laws,
regulatory requirements or interpretations, or outcomes of significant legal proceedings or investigations adverse to
Alcoa. The company may experience a change in effective tax rates or become subject to unexpected or rising costs
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