Alcoa 2014 Annual Report Download - page 55

ability to fund as planned its sustaining and return-seeking capital projects. Over the long term, Alcoa’s ability to take
advantage of improved aluminum or other market conditions or growth opportunities in its midstream and downstream
businesses may be constrained by earlier capital expenditure restrictions, which could adversely affect the long-term
value of its business and the Company’s position in relation to its competitors.
Alcoa may also need to address commercial and political issues in relation to its reductions in capital expenditures in
certain of the jurisdictions in which it operates. If Alcoa’s interest in its joint ventures is diluted or it loses key
concessions, its growth could be constrained. Any of the foregoing could have a material adverse effect on the
Company’s business, results of operations, financial condition and prospects.
Alcoa’s global operations expose the Company to risks that could adversely affect Alcoa’s business, financial
condition, operating results or cash flows.
Alcoa has operations or activities in numerous countries and regions outside the United States, including Brazil, China,
Europe, Guinea, Russia, and the Kingdom of Saudi Arabia. The Company’s global operations are subject to a number
of risks, including:
• economic and commercial instability risks, including those caused by sovereign and private debt default,
corruption, and changes in local government laws, regulations and policies, such as those related to tariffs
and trade barriers, taxation, exchange controls, employment regulations and repatriation of earnings;
• geopolitical risks such as political instability, civil unrest, expropriation, nationalization of properties by a
government, imposition of sanctions, renegotiation or nullification of existing agreements, mining leases and
permits;
• war or terrorist activities;
• major public health issues such as an outbreak of a pandemic or epidemic (such as Sudden Acute Respiratory
Syndrome, Avian Influenza, H7N9 virus, or the Ebola virus), which could cause disruptions in Alcoa’s
operations or workforce;
• difficulties enforcing intellectual property and contractual rights in certain jurisdictions; and
• unexpected events, including fires or explosions at facilities, and natural disasters.
While the impact of any of the foregoing factors is difficult to predict, any one or more of them could adversely affect
Alcoa’s business, financial condition, operating results or cash flows. Existing insurance arrangements may not provide
protection for the costs that may arise from such events.
An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and
other factors could affect Alcoa’s results of operations or amount 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, reductions in the fair value of plan assets and other factors. 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 applied to plan liabilities
and the expected long-term rate of return on plan assets. 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 “Critical Accounting Policies and Estimates—Pension and Other Postretirement Benefits” in Part II,
Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note W to the
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