Alcoa 2011 Annual Report Download - page 39

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.
Adverse changes in discount rates, lower-than-expected investment return on pension assets and other factors
could affect Alcoa’s results of operations or level of pension funding contributions in future periods.
Alcoa’s results of operations may be negatively affected by the amount of expense Alcoa records for its pension and
other postretirement benefit plans. U.S. generally accepted accounting principles (GAAP) require that Alcoa calculate
income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial
market and other economic conditions, which may change based on changes in key economic indicators. The most
significant year-end assumptions used by Alcoa to estimate pension or other postretirement benefit income or expense
for the following year are the discount rate and the expected long-term rate of return on plan assets. The large decline
in our funded status in 2008 due to the financial crisis generated significant unrecognized actuarial losses. We
anticipate that expense in future years will continue to be affected as the unrecognized losses are recognized in
earnings. In addition, Alcoa is required to make an annual measurement of plan assets and liabilities, which may result
in a significant charge to shareholders’ equity. For a discussion regarding how Alcoa’s financial statements can be
affected by pension and other 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. Higher than expected potential contributions due to a
further decline in our funded status either by an additional decline in discount rates or a lower than expected
investment return on plan assets could adversely affect our cash flows.
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 and other labor market inadequacies 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
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