Alcoa Corp (AA) FY 2021 MD&A

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts;

dry metric tons in millions (mdmt); metric tons in thousands (kmt))

Forward-Looking Statements

This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “endeavors,” “strive”, “working,” “potential,” “ambition,” “develop,” “reach,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results, or operating or sustainability performance; statements about strategies, outlook, and business and financial prospects; and statements about capital allocation and return of capital. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) current and potential future impacts of the COVID-19 pandemic and related regulatory developments on the global economy and our business, financial condition, results of operations, or cash flows and judgments and assumptions used in our estimates; (b) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (c) deterioration in global economic and financial market conditions generally and which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms or at all; (d) unfavorable changes in the markets served by Alcoa Corporation; (e) the impact of changes in foreign currency exchange and tax rates on costs and results; (f) increases in energy or raw material costs or uncertainty of energy supply or raw materials; (g) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, sustainability targets, or strengthening of competitiveness and operations anticipated from portfolio actions, operational and productivity improvements, technology advancements, and other initiatives; (h) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, restructuring activities, facility closures, curtailments, restarts, expansions, or joint ventures; (i) political, economic, trade, legal, public health and safety, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (j) labor disputes and/or work stoppages and strikes; (k) the outcome of contingencies, including legal and tax proceedings, government or regulatory investigations, and environmental remediation; (l) the impact of cyberattacks and potential information technology or data security breaches; (m) risks associated with long-term debt obligations; (n) the timing and amount of future cash dividends and share repurchases; (o) declines in the discount rates used to measure pension and other postretirement benefit liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; and, (p) the other risk factors discussed in Part I Item 1A of this Form 10-K and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission, including those described in this report.

Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

Overview

Our Business

Alcoa Corporation (Alcoa or the Company) is a vertically integrated aluminum company comprised of bauxite mining, alumina refining, aluminum production (smelting and casting), and energy generation. Aluminum is a commodity that is traded on the London Metal Exchange (LME) and priced daily. Additionally, alumina is subject to market pricing through the Alumina Price Index (API), which is calculated by the Company based on the weighted average of a prior month’s daily spot prices published by the following three indices: CRU Metallurgical Grade Alumina Price, Platts Metals Daily Alumina PAX Price, and FastMarkets Metal Bulletin Non-Ferrous Metals Alumina Index. As a result, the price of both aluminum and alumina is subject to significant volatility and, therefore, influences the operating results of Alcoa Corporation.

Through direct and indirect ownership, Alcoa Corporation has 28 operating locations in nine countries around the world, situated primarily in Australia, Brazil, Canada, Iceland, Norway, Spain, and the United States. Governmental policies, laws and regulations, and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in these countries.

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Business Update

COVID-19 Pandemic

In response to the ongoing COVID-19 pandemic, Alcoa implemented comprehensive measures to protect the health of the Company’s workforce, prevent infection in our locations, mitigate impacts, and safeguard business continuity. As a result of these measures and the aluminum industry being classified as an essential business, all of Alcoa’s bauxite mines, alumina refineries, and aluminum manufacturing facilities continue to remain in operation. The Company continues, through its operations leadership team and global crisis response team, to ensure that each location’s preparedness and response plans are up to date.

To date, the Company has experienced isolated interruptions from its supply sources but has identified alternate solutions to avoid any significant production impacts. In relation to the Company’s workforce, operating locations have experienced elevated levels of absenteeism but ultimately have had minimal contractor- and employee-related disruptions to operations. The magnitude and duration of the COVID-19 pandemic continues to be unknown. The pandemic could have adverse future impacts on the Company’s business, financial condition, operating results, and cash flows. Further adverse conditions or prolonged deterioration of conditions could negatively impact our financial condition and result in asset impairment charges, including long-lived assets or goodwill, or affect the realizability of deferred tax assets.

As a result of the pandemic’s impact on the macroeconomic environment, management evaluated the future recoverability of the Company’s assets, including goodwill and long-lived assets, and the realizability of deferred tax assets while considering the Company’s current market capitalization. Management concluded that no COVID-19 related asset impairments or additional valuation allowances were required during the year ended December 31, 2021.

Strategy Update and Actions

The Company has a goal to innovate and create low-carbon solutions. The Company has a comprehensive portfolio of products manufactured through low-carbon emitting processes in its SustanaTM family of products and future-oriented research and development projects focused on reducing carbon output. The Company intends to progress low-carbon solutions on a cost-competitive basis, supported by its operational and technical experience.

The Company announced the initiation of a quarterly cash dividend program and paid the first quarterly cash dividend of $0.10 per share of the Company’s common stock in November 2021, totaling $19. Also in the fourth quarter, the Company repurchased 3.2 million shares under a previously authorized $200 common stock repurchase program, concluding the program. The Company authorized a new $500 common stock repurchase program in the fourth quarter of 2021.

In the first quarter of 2021, the Company reached its target, announced in October 2019, to generate between $500 and $1,000 from non-core asset sales by completing the divestiture of the Warrick Rolling Mill in a transaction valued at $670. Additionally in 2021, the Company completed two other significant non-core asset sales of the Eastalco and Rockdale smelter sites for $100 and $240, respectively.

In 2021, Alcoa made significant progress on its smelting portfolio review reaching approximately 75 percent of its target to improve, curtail, close, or divest 1.5 million metric tons of smelting capacity within the five-year program ending in 2024. As detailed below, notable portfolio actions in 2021 include the two-year curtailment and future repowering of the smelter in San Ciprián, Spain, the permanent closure of the smelter in Wenatchee, Washington, the full smelter restart now underway at Alumar in Brazil, and the repowering of Portland Aluminium in Australia, including restart of a portion of the smelter’s curtailed capacity.

The Company continues to review the 4 million metric tons of alumina refining capacity which is also part of the five-year program although no actions were announced in 2021. Progress to date on the alumina refining capacity includes the December 2019 announced permanent closure of 2.3 million metric tons of capacity at the Point Comfort alumina refinery in Texas, which had been fully curtailed since 2016.

Strengthening the Company’s balance sheet has been a focus since Alcoa Corporation’s separation in 2016. As discussed below, the Company made significant progress with long-term debt and pension actions, reducing its long-term debt, including current portion and short-term borrowings, to $1,802 at December 31, 2021 from $2,542 at the prior year end, and reducing the net pension and other postretirement benefits liability to $973 from $2,395, in the respective periods. With these reductions, the Company achieved its proportional adjusted net debt target.

San Ciprián Smelter and Refinery

Since 2020, the Company has been evaluating potential solutions for the San Ciprián (Spain) aluminum smelter which has incurred persistent and recurring financial losses. The San Ciprián smelter incurred a net loss $72 (pre- and after-tax) in 2021, excluding Restructuring and other charges, net.

On September 27, 2021, the labor force at the San Ciprián refinery and aluminum facilities resumed the strike that had previously been suspended since January 2021. Under the strike conditions, the refinery reduced production and related shipments, and the

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aluminum facilities stopped all metal shipments. Further, the San Ciprián refining and aluminum operations faced significantly higher energy and raw materials costs, as well as the loss of value-add premiums during the strike. Strike-related delays in shipments and higher costs also had unfavorable impacts on the Company’s working capital and operating cash flow.

On December 29, 2021, with the support of the workers’ representatives, the Company announced the two-year curtailment of 228 kmt of smelting capacity at the San Ciprián aluminum smelter. The temporary curtailment, which began in January 2022, is the result of an agreement reached with the workers at the site to suspend production due to exorbitant energy prices in Spain. Under the terms of the agreement, the Company is responsible for certain employee and contractual obligations during the curtailment period. As a result, the Company recorded charges of $62 in the fourth quarter of 2021 in Restructuring and other charges, net on the Statement of Consolidated Operations. Cash outlays related to these obligations are expected to be split between 2022 and 2023. The Company plans to begin the restart of the smelter in January 2024. The San Ciprián smelter will continue to incur some operating costs for the casthouse as well as resources to maintain and improve the smelter for restart.

Additionally, in connection with the agreement, the Company made commitments of $103 and restricted cash to be made available in the future to cover $68 in capital improvements at the site and $35 in smelter restart costs, with the majority of cash spend expected in 2023. Restricted cash is included in Other noncurrent assets on the Consolidated Balance Sheet.

The casthouse and alumina refinery will continue to operate during the curtailment period.

Alumar Smelter

On September 20, 2021, the Company announced its plan to restart its 268 kmt per year share of capacity at the Alumar smelter in São Luís, Brazil, which had been fully curtailed since 2015. The process to restart the idle capacity began in September. The first molten metal is expected in the second quarter of 2022, and the smelter is expected to be operational at full capacity in the fourth quarter of 2022. The cost of the restart is anticipated to be approximately $75, including approximately $10 in capital expenses, with the majority to be spent in 2022.

The restart leverages the site’s integration with an alumina refinery, new long-term contracts for renewable energy and an available skilled workforce, as well as tax efficiencies and a strong U.S. dollar. With this planned restart, Alcoa will have approximately 80 percent of its 2.99 million metric tons of global aluminum smelting capacity operating.

Other Portfolio Actions

Wenatchee—On December 9, 2021, as part of the Company’s ongoing strategic review, the Company announced the permanent closure of the Wenatchee aluminum smelter in Washington. The smelter has been fully curtailed since 2015. Charges related to the closure totaled $90 in the fourth quarter of 2021 and included a charge of $10 for the write down of remaining inventories to net realizable value recorded in Cost of goods sold on the Statement of Consolidated Operations and a charge of $80 recorded in Restructuring and other charges, net on the Statement of Consolidated Operations. The restructuring charges were comprised of: $30 to write-off the remaining net book value of various assets; $23 of asset impairments; $21 to establish reserves related to environmental and demolition obligations, $5 related to take-or-pay contractual obligations; and, $1 of severance and employee termination costs from the separation of approximately 10 employees. Cash outlays related to the permanent closure of the site are expected to be approximately $60 over the next five years, with approximately $10 estimated to be spent in 2022.

Portland—On November 7, 2021, the Company announced the Portland Aluminium joint venture’s plan to restart 35 kmt of curtailed annual capacity at the Portland aluminum smelter in Australia (19 kmt Alcoa share). Alcoa’s share of the restart costs are approximately $15, with the majority to be spent in 2022 through the expected completion in the third quarter. Once the restart is complete, the plant will operate at approximately 95 percent of its total capacity and Alcoa will have approximately 186 kmt of consolidated annual capacity at Portland. Energy to operate the restored capacity will be supplied under a new agreement which will supplement the March 2021 agreements, see below.

On March 18, 2021, the Company signed agreements to repower the Portland aluminum smelter in the State of Victoria, Australia. The agreements with three separate providers commenced on August 1, 2021 and are effective through June 30, 2026. Further, the Australian Federal Government has committed to the joint venture, subject to approval, to provide up to $15 (A$20) per year for four years to underwrite the smelter’s participation in the Reliability and Emergency Reserve Trader (RERT) scheme. The arrangement will recognize the smelter’s ability to rapidly shed load when required to help protect the power grid from unexpected interruptions when it is under duress.

Fixed Price Commitments—As part of the planned restart of the Alumar smelter in São Luís, Brazil, the Company began entering into fixed price commitments on aluminum sales and certain input costs in the third quarter 2021, to protect project economics through 2023. Once the smelter is operational in 2022, the fixed price commitments will settle monthly through 2023. Further, starting in October 2021, Alcoa began entering into fixed price commitments to reduce price risk associated with aluminum produced during the San Ciprián strike. The commitments related to San Ciprián metal will settle in 2022 as the metal is consumed by the facilities’ casthouse which continues to operate to meet customer commitments.

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Lake Charles—On July 28, 2021, as part of the Company’s ongoing strategic review, Alcoa made the decision to permanently close the previously curtailed anode facility in Lake Charles, Louisiana, United States. The anode facility within the Lake Charles site has been fully curtailed since 2015. The Company recorded restructuring and other charges of $27 in the third quarter of 2021, comprised of asset impairments of $22 and cash-based charges for closure and asset retirement obligations of $5. Majority of cash outlays related to demolition and environmental related activities are expected in 2022. The Company’s petroleum coke calciner located at the same site in Lake Charles remains in operation, unaffected by the closure of the anode facility.

Non-core assets

Rockdale—On October 29, 2021, the Company completed the sale of the previously closed Rockdale smelter site in the state of Texas in a transaction valued at $240. Upon the closing of the transaction, the Company received $230 in cash and recorded a net gain of $202 in Other (income) expenses, net (pre- and after-tax) on the Statement of Consolidated Operations.

Eastalco—In June 2021, the Company completed the sale of the previously closed Eastalco smelter site in the state of Maryland in a transaction valued at $100. Upon the closing of the transaction, the Company received $94 in cash and recorded a gain of $90 in Other (income) expenses, net ($90 pre- and $89 after-tax) on the Statement of Consolidated Operations.

Warrick Rolling Mill—On November 30, 2020, the Company entered into an agreement to sell its rolling mill located at Warrick Operations (Warrick Rolling Mill), an integrated aluminum manufacturing site near Evansville, Indiana (Warrick Operations), to Kaiser Aluminum Corporation (Kaiser). On March 31, 2021, the Company completed the sale for total consideration of approximately $670, which included the assumption of $69 in other postretirement benefits. The Company recorded a net gain of $30 in Other (income) expenses, net (pre- and after-tax) on the Statement of Consolidated Operations.

Upon closure, the Company recorded estimated liabilities for future site separation commitments and remaining transaction costs associated with the sales agreement. At December 31, 2021, the remaining reserve was approximately $70; over half of the expected cash outlay is to be spent within the next 12 months, with the remainder to be spent through 2023.

Alcoa retains ownership of the site’s 269 kmt aluminum smelter and its electricity generating units at Warrick Operations and supplies metal to Kaiser under a market-based supply agreement.

Strengthening the Balance Sheet

In the fourth quarter of 2021, the Company purchased group annuity contracts to transfer the obligation to pay remaining retirement benefits for approximately 14,000 retirees and beneficiaries from its U.S. defined benefit pension plans and transferred approximately $1,540 in both plan obligations and plan assets. The transfers were completed on November 23, 2021 and December 16, 2021. As a result, the Company recorded a non-cash settlement loss of $848 (pre- and after-tax) in Restructuring and other charges, net on the Statement of Consolidated Operations in the fourth quarter of 2021. See Part II Item 8 of this Form 10-K in Note O to the Consolidated Financial Statements for additional information.

In September 2021, the Company used cash on hand to redeem outstanding $500 of 7.00% Senior Notes due 2026 (see Liquidity and Capital below).

In March 2021, the Company issued $500 of 4.125% Senior Notes due 2029. The Company used the net proceeds, together with cash on hand, to make discretionary contributions of $500 to its U.S. defined benefit pension plans applicable to salaried and hourly employees on April 1, 2021, and $750 to redeem its outstanding 6.75% Senior Notes due 2024 (see Liquidity and Capital below).

Other Spain Matters

San Ciprián Carbon Dioxide Compensation Credits—In June 2021, the Spanish Ministry of Industry, Trade and Tourism (the Ministry) initiated the process to request repayment of $40 (€34) in carbon dioxide compensation credits $13 (€11) for 2018 and $27 (€23) for 2019, which were subject to a three-year clawback provision based on continued operations and employment. The request for repayment is related to Alcoa’s communication of the decision to implement the collective dismissal process and its potential impact on operations and employment at San Ciprián. Alcoa disagrees with the Ministry’s position as the collective dismissal process was not concluded and qualifying operations and employment at San Ciprián have been maintained. Accordingly, the Company has filed an appeal.

Spain has a compensatory mechanism for the indirect cost of carbon dioxide and provides associated credits. Such carbon dioxide compensation credits are typically recorded as a reduction to Costs of goods sold. Upon receipt of the credits in each of the applicable years, the Company recorded the cash received as deferred income (liability) due to the clawback provisions. Further, Alcoa did not receive carbon dioxide compensation credits earned in 2020 and 2021 based on the same circumstances.

Avilés and La Coruña—In July 2019, the Company completed the divestiture of the Avilés and La Coruña (Spain) aluminum facilities to PARTER Capital Group AG (PARTER) in a sale process endorsed by the Spanish government and supported by the workers’ representatives following a collective dismissal process. In connection with the divestiture, Alcoa committed to make financial contributions to the divested entities of up to $95; a total of $78 was paid through December 31, 2021. In the fourth quarter of 2021,

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the Company reversed the remaining reserve of $17 in accordance with the terms of the agreement, as the period for which the divested entities could incur qualifying capital expenditures had lapsed.

In early 2020, PARTER sold a majority stake in the facilities to an unrelated party. Alcoa had no knowledge of the subsequent transaction prior to its announcement and on August 28, 2020, Alcoa filed a lawsuit with the Court of First Instance in Madrid, Spain asserting that the sale was in breach of the sale agreement between Alcoa and PARTER.

Related to this subsequent sale transaction, certain proceedings and investigations have been initiated by or at the request of the employees of the facilities against their current employers, the new owners of the current employers, and Alcoa, alleging that certain agreements from the 2019 collective dismissal process remain in force and that, under such agreements, Alcoa remains liable for certain related employment benefits. One such proceeding is a collective case before the Spanish National Court, filed on November 10, 2020, wherein the workers’ representatives and employees are seeking to have the terms of a Collective Dismissal Agreement signed between Alcoa and the workers in January 2019 be fulfilled. Other proceedings include: a second collective claim filed in National Court on behalf employees that were not affected by the 2019 collective dismissal process, numerous individual labor claims filed in the labor courts of Avilés and La Coruña and the initiation of a separate criminal investigation by the National Court.

On June 15, 2021, the Spanish National Court ruled that the collective dismissal agreement for the divested Avilés and La Coruña aluminum facilities should be applied to the situation of the claimant workers, and that Alcoa should be liable for the severance of those employees to the extent they were affected by the 2019 collective dismissal process. Alcoa has appealed this ruling to the Supreme Court of Spain.

In July 2021, the Spanish National Court appointed a judicial director to oversee the facilities and later declared the facilities insolvent.  In early 2022, the insolvency administrators appointed by the courts (one for each facility) announced their intention to collectively dismiss all employees at the two facilities.

In February 2022, Alcoa and relevant stakeholders initiated discussions to explore a potential global resolution of all pending matters involving Alcoa arising from the prior sale of the two facilities, including a waiver of all claims and investigations previously initiated by or at the request of the employees of the facilities. As of the date of this filing, these initial discussions are ongoing.

If a global resolution is not reached, Alcoa will continue with its appeal to the National Court ruling to the Spanish Supreme Court and will strongly defend all other pending and future legal proceedings arising from the sale of the Avilés and La Coruña facilities. Alcoa believes it has acted in good faith, in full compliance with the law and with all of the terms that it committed to in the contract for the sale of the Avilés and La Coruña facilities to PARTER and in the agreements that it entered into with the representatives of the workers of both facilities.

The estimated range of reasonably possible loss is $0 to $70. Due to the uncertainty regarding both the outcome of the discussions and the likelihood of securing waivers for all claims, Alcoa is unable to reasonably predict the ultimate outcome of this matter.

Basis of Presentation. The Consolidated Financial Statements of Alcoa Corporation are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In accordance with GAAP, certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters.

Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2021 and 2020. For a comparison of changes for the fiscal years ended December 31, 2020 and 2019, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II Item 7 of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 (filed February 25, 2021).

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Earnings Summary

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Segment Information

Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company’s operations consist of three worldwide reportable segments: Bauxite, Alumina, and Aluminum. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) of each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses. Alcoa Corporation believes that the presentation of Adjusted EBITDA is useful to investors because such measure provides both additional information about the operating performance of Alcoa Corporation and insight on the ability of Alcoa Corporation to meet its financial obligations. The presentation of Adjusted EBITDA is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP. Alcoa Corporation’s Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Segment Adjusted EBITDA totaled $3,053 in 2021, $1,317 in 2020, and $1,626 in 2019. The following information provides production, shipments, sales, and Segment Adjusted EBITDA data for each reportable segment, as well as certain realized price and average cost data, for each of the three years in the period ended December 31, 2021. See Part II Item 8 of this Form 10-K in Note E to the Consolidated Financial Statements for additional information.

Bauxite

Production in the above table can vary from Total shipments due primarily to differences between the equity allocation of production and off-take agreements with the respective equity investment. Operating costs in the table above includes all production-related costs: conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

Overview. This segment represents the Company’s global bauxite mining operations. A portion of this segment’s production represents the offtake from equity method investments in Brazil and Guinea, as well as AWAC’s share of production related to the equity investment in Saudi Arabia. The bauxite mined by this segment is sold primarily to internal customers within the Alumina segment; a portion of the bauxite is sold to external customers. Bauxite mined by this segment and used internally is transferred to the

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Alumina segment at negotiated terms that are intended to approximate market prices; sales to third-parties are conducted on a contract basis. Generally, this segment’s sales are transacted in U.S. dollars while costs and expenses are transacted in the local currency of the respective operations, which are the Australian dollar and the Brazilian real. Most of the operations that comprise the Bauxite segment are part of AWAC (see Noncontrolling Interest in Earnings Summary above).

Business Update. The Bauxite segment had a solid year of production, following a year of production records in 2020, despite lower demand from the Alumina segment related to the Alumar refinery ship unloader outage, see Alumina below.

In December 2021, third-party bauxite sales out of Western Australia ceased due to the expiration of the Company’s export license; export sales out of Western Australia represented approximately $27 and $45 of total third-party sales for 2021 and 2020, respectively, and represented only 3% of total bauxite shipments from the Western Australian mines. Going forward, all Western Australia bauxite production will be consumed internally by the Company’s refineries.

Mining operations are relocated periodically in support of optimizing the value extracted from bauxite reserves. During 2021, the Company completed the process of moving the Willowdale mining operations to the next planned location in the Darling range and started the process of moving the Juruti mining operations, which is expected to complete by the end of 2022. During 2021, the Company incurred $38 and $8 in capital expenditures related to the Willowdale and Juruti mining operation relocations, respectively.

Forward-Look. In 2022, the Company projects total bauxite shipments to range between 48.0 and 49.0 million metric tons, consistent with 2021 as improved demand from the Alumina segment, see Alumina below, offsets lower third-party shipments with the expiration of the Company’s license to export bauxite from Australia. Further, the segment expects continued levels of high capital expenditures as the Juruti mining relocation will offset the decline in spend related to the completion of the Willowdale relocation in 2021.

Alumina

In the above table, Total shipments include metric tons that were not produced by the Alumina segment. Such alumina was purchased to satisfy certain customer commitments or requirements. The Alumina segment bears the risk of loss of the purchased alumina until control of the product has been transferred to this segment’s customer. Additionally, operating costs in the table above includes all production-related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

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Overview. This segment represents the Company’s worldwide refining system, which processes bauxite into alumina. The alumina produced by this segment is sold primarily to internal and external aluminum smelter customers; a portion of the alumina is sold to external customers who process it into industrial chemical products. Approximately two-thirds of Alumina’s production is sold under supply contracts to third parties worldwide, while the remainder is used internally by the Aluminum segment. Alumina produced by this segment and used internally is transferred to the Aluminum segment at prevailing market prices. A portion of this segment’s third-party sales are completed through the use of alumina traders. Generally, this segment’s sales are transacted in U.S. dollars while costs and expenses are transacted in the local currency of the respective operations, which are the Australian dollar, the Brazilian real, and the euro. Most of the operations that comprise the Alumina segment are part of AWAC (see Noncontrolling Interest in Earnings Summary above). This segment also includes AWAC’s 25.1% ownership interest in the mining and refining joint venture company in Saudi Arabia.

Business Update. The Alumina segment had a strong year of production following 2020, a record year for the segment, despite certain production issues, as noted below.

During 2021, the average API (on 30-day lag) remained stable throughout the first half of the year before trending favorably in the second half of the year, reaching a high point in November 2021. As discussed above, the majority of third-party alumina sales are linked to the API and the favorable price trend has resulted in strong results for the segment.

On September 27, 2021, the labor force at the San Ciprián refinery and smelting facilities resumed the strike that had previously been suspended since January 2021. Under the strike conditions, the refinery reduced production and related shipments. On December 29, 2021, the Company reached an agreement with the workers’ representatives and the refinery immediately resumed normal operations. See Part II Item 7 of this Form 10-K in Business Update for additional information.

In July 2021, one of two ship unloaders at the Alumar refinery in São Luís, Brazil, which Alcoa operates, sustained structural damage, reducing the amount of bauxite that can be unloaded. Until late September, the refinery supplemented the bauxite supply from the one functioning loader with existing, on-hand inventory and reduced production by one-third, to about 7 kmt per day. In early October, alumina production was restored to approximately 95 percent capacity and full capacity was achieved by the end of the fourth quarter. As a result, the Alumar refinery also incurred additional maintenance and rental costs. See Part II Item 7 of this Form 10-K in Business Update for additional information.

Capacity. The Alumina segment had a base capacity of 13,843 kmt with 214 kmt of curtailed refining capacity. In early 2022, the Company updated nameplate capacity of certain facilities to reflect capital expenditures, upgrades, or other investments which expanded production capacity, and productivity initiatives and process and supply changes that improved capacity in a sustained manner. There was no change in curtailed capacity.

Forward-Look. The Company projects total alumina shipments to range between 14.2 and 14.4 million metric tons in 2022, up from 2021 with the resolution of the strike at the San Ciprián refinery and recovery from the Alumar unloader outage. Additionally, in 2022, the Alumina segment expects to continue to be challenged by high energy prices and expects higher raw material prices.

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Aluminum

In the above table, total aluminum third-party shipments and total primary aluminum shipments include metric tons that were not produced by the Aluminum segment. Such aluminum was purchased by this segment to satisfy certain customer commitments or requirements. The Aluminum segment bears the risk of loss of the purchased aluminum until control of the product has been transferred to this segment’s customer. Until the sale of the Warrick Rolling Mill on March 31, 2021, total aluminum information included flat-rolled aluminum while Primary aluminum information did not. Operating costs includes all production-related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

The average realized third-party price per metric ton of primary aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.) or alloy.

Overview. This segment consists of the Company’s (i) worldwide smelting and casthouse system, which processes alumina into primary aluminum, and the (ii) portfolio of energy assets in Brazil, Canada, and the United States.

Aluminum’s combined smelting and casting operations produce primary aluminum products, virtually all of which are sold to external customers and traders. The smelting operations produce molten primary aluminum, which is then formed by the casting operations into either common alloy ingot (e.g., t-bar, sow, standard ingot) or into value-add ingot products (e.g., foundry, billet, rod, and slab). A variety of external customers purchase the primary aluminum products for use in fabrication operations, which produce products primarily for the transportation, building and construction, packaging, wire, and other industrial markets. Results from the sale of aluminum powder and scrap are also included in this segment, as well as the impacts of embedded aluminum derivatives related to energy supply contracts.

The energy assets supply power to external customers in Brazil and the United States, as well as internal customers in the Aluminum (Canadian smelters and Warrick (Indiana) smelter) and, to a lesser extent, the Alumina segments (Brazilian refineries).

Generally, this segment’s aluminum sales are transacted in U.S. dollars while costs and expenses of this segment are transacted in the local currency of the respective operations, which are the U.S. dollar, the euro, the Norwegian krone, the Icelandic króna, the Canadian dollar, the Brazilian real, and the Australian dollar.

This segment also includes Alcoa Corporation’s 25.1% ownership interest in the smelting joint venture company in Saudi Arabia (Alcoa’s interest in the rolling mill joint venture was divested in June 2019).

Business Update. The Aluminum segment maintained solid production compared with 2020, capitalizing on improved market pricing during the year. During 2021, the average LME (on 15-day lag) trended favorably throughout the year, reaching a high point in October 2021.

On September 27, 2021, the labor force at the San Ciprián refinery and smelting facilities resumed the strike that had previously been suspended since January 2021. Under the strike conditions, the smelter stopped all metal shipments and the production of value-add products. Further, the San Ciprián smelting operations experienced significantly higher energy and raw materials costs. On December 29, 2021, the Company reached an agreement with the workers’ representatives and announced a two-year curtailment of smelting capacity at the facility. See Part II Item 7 of this Form 10-K in Business Update for additional information on the announcement and

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related charges taken as a result of the agreement reached with the workers. The San Ciprián smelter incurred a net loss $72 (pre- and after-tax) in 2021, excluding Restructuring and other charges, net.

In December 2021, the company announced the permanent closure of the 146 kmt of aluminum smelting capacity at the Wenatchee aluminum smelter (Washington). The smelter had been fully curtailed since 2015. See Part II Item 8 of this Form 10-K in Note D to the Consolidated Financial Statements for additional information.

In November 2021, Alcoa announced the Portland Aluminium joint ventures plan to restart 19 kmt of curtailed annual capacity at the Portland aluminum smelter (Australia). The restart is expected to complete in the third quarter of 2022. Once the restart is complete, the plant will operate at approximately 95 percent of its total capacity and Alcoa will have approximately 186 kmt of consolidated annual capacity at Portland. See Part II Item 7 of this Form 10-K in Business Update for additional information.

In September 2021, Alcoa announced the restart of 268 kmt of curtailed annual capacity at the Alumar aluminum smelter (Brazil). The smelter had been fully curtailed since 2015. The restart is expected to complete in the fourth quarter of 2022 with the first molten metal expected in the second quarter of 2022. See Part II Item 7 of this Form 10-K in Business Update for additional information.

In March 2021, the Company completed the sale of the Warrick Rolling Mill to Kaiser Aluminum Corporation. Results from the divested rolling mill are included in the Aluminum segment’s results through the first quarter of 2021. Alcoa retains ownership of the 269 kmt of annual smelting capacity at the Warrick smelter. As part of the sale, Alcoa entered into a market-based metal supply agreement, a long-term ground lease, and a transition services agreement with Kaiser. See Part II Item 8 of this Form 10-K in Note C to the Consolidated Financial Statements for additional information.

Capacity. The Aluminum segment had a base capacity of 2,962 kmt with 685 kmt of curtailed smelting capacity. In early 2022, the Company updated nameplate capacity of certain facilities to reflect capital expenditures, upgrades, or other investments which expanded production capacity, and productivity initiatives and process and supply changes that improved capacity in a sustained manner. Base and curtailed capacity were reduced by 146 kmt for the permanent closure of the Wenatchee smelter in December 2021.

Forward-Look. The Company projects total aluminum shipments to range between 2.5 and 2.6 million metric tons in 2022, a decrease from 2021 primarily due to the two-year curtailment of the San Ciprián smelter, the absence of first quarter sales from the divested Warrick Rolling Mill, partially offset by the announced restarts of smelter capacity in Alumar and Portland. Additionally, the Company engages in trading activity when favorable market conditions allow, such as in 2021. Availability of trading opportunities in 2022 may impact the Company’s shipment projection.

Further, in 2022 the Aluminum segment expects to benefit from the avoidance of the high energy costs related to the curtailment of the San Ciprián smelter. The Aluminum segment expects to continue to be challenged by high raw material costs across the smelting portfolio and by high energy prices in Norway.

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Reconciliations of Certain Segment Information

Reconciliation of Total Segment Third-Party Sales to Consolidated Sales

Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods Sold

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Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Income (Loss) Attributable to Alcoa Corporation

Environmental Matters

See Part II Item 8 of this Form 10-K in Note S to the Consolidated Financial Statements under caption Contingencies—Environmental Matters.

Liquidity and Capital Resources

Alcoa Corporation’s primary future cash flows are centered on operating activities, particularly working capital, as well as capital expenditures and capital returns. Alcoa’s ability to fund its cash needs depends on the Company’s ongoing ability to generate and raise cash in the future.

In 2021, the Company capitalized on strong market conditions through stable operational performance to reach record annual net income. The strong financial results allowed the Company to significantly improve its balance sheet, capital structure, and liquidity profile through the successful completion of the following actions:

Further, management has taken the following actions in 2021 in regard to Alcoa’s liquidity levers:

Management believes that the Company’s cash on hand, future operating cash flows, and liquidity options, combined with its strategic actions, are adequate to fund its short term and long term operating and investing needs. Further, the above actions have provided the

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Company with significant flexibility related to its use of cash; the Company has no significant debt maturities until 2027 and no significant cash contribution requirements related to its U.S. pension plan obligations for the foreseeable future (refer to Material Cash Commitments, below, for more information).

Although management believes that Alcoa’s future cash from operations and other liquidity options will provide adequate resources to fund operating and investing needs, the Company’s access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) Alcoa Corporation’s credit rating; (ii) the liquidity of the overall capital markets; and (iii) the current state of the economy and commodity markets. There can be no assurances that the Company will continue to have access to capital markets on terms acceptable to Alcoa Corporation.

Changes in market conditions caused by the COVID-19 pandemic could have adverse effects on Alcoa’s ability to obtain additional financing and cost of borrowing. Inability to generate sufficient earnings could impact the Company’s ability to meet the financial covenants in our outstanding debt and revolving credit facility agreements and limit our ability to access these sources of liquidity or refinance or renegotiate our outstanding debt or credit agreements on terms acceptable to the Company. Additionally, the impact on market conditions from the COVID-19 pandemic could adversely affect the liquidity of Alcoa’s customers, suppliers, and joint venture partners and equity method investments, which could negatively impact the collectability of outstanding receivables and our cash flows.

At December 31, 2021, the Company’s cash and cash equivalents were $1,814, of which $1,732 was held outside the United States. Alcoa Corporation has a number of commitments and obligations related to the Company’s operations in various foreign jurisdictions, resulting in the need for cash outside the United States. Alcoa Corporation continuously evaluates its local and global cash needs for future business operations, which may influence future repatriation decisions. See Part II Item 8 of this Form 10-K in Note Q to the Consolidated Financial Statements for additional information related to undistributed net earnings.

Cash from Operations

Cash provided from operations was $920 in 2021 compared with $394 in 2020. Notable changes to the sources and (uses) of cash include:

In the third quarter of 2020, AofA paid approximately $74 (A$107) to the ATO related to the tax dispute described in Note S to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K. Upon payment, AofA recorded a noncurrent prepaid tax asset, as the Company continues to believe it is more likely than not that AofA’s tax position will be sustained and therefore is not recognizing any tax expense in relation to this matter. In accordance with Australian tax laws, the initial interest assessment and additional interest are deductible against AofA’s taxable income resulting in approximately $169 (A$219) and $14 (A$19) lower cash tax payments in 2020 and 2021, respectively. If AofA is ultimately successful, the interest deduction would become taxable as income in the year the dispute is resolved. In addition, should the ATO decide in the interim to reduce any interest already assessed, the reduction would be taxable as income at that point in time. During 2021, AofA continued to record its tax provision and tax liability without effect of the ATO assessment, since it expects to prevail. The tax payable will remain on AofA’s balance sheet as a noncurrent liability, increased by the tax effect of subsequent periods’ interest deductions, until dispute resolution, which is expected to take several years. At December 31, 2021, the noncurrent liability resulting from the cumulative interest deductions was approximately $174 (A$238).

Financing Activities

Cash used for financing activities was $1,158 in 2021 compared with cash provided from financing activities of $514 in 2020.

The use of cash in 2021 was primarily $775 for the full, early repayment of $750 aggregate principal amount of 2024 Notes (including $25 redemption premium) in April 2021, $518 for the full, early repayment of $500 aggregate principal amount of 2026 Notes (including $18 redemption premium) in September 2021, $194 in net cash paid to Alumina Limited (see Noncontrolling interest in Results of Operations above), $150 for the repurchase of common stock, $19 for dividends paid on common stock, and $17 in

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financial contributions primarily related to the divested Spanish facilities. The uses of cash were partially offset by the issuance of $500 aggregate principal amount 2029 Notes by ANHBV in March 2021 with net proceeds of approximately $493.

The source of cash in 2020 was primarily due to the issuance of $750 aggregate principal amount of 2027 Notes by ANHBV in July 2020 resulting in net proceeds of $736. The net proceeds were partially offset by $183 in net cash paid to Alumina Limited and $38 in financial contributions related to the divested Spanish facilities.

Credit Facilities. The Company has a senior secured $1,500 revolving credit and letter of credit facility in place for working capital and/or other general corporate purposes (the Facility). The Facility was established on September 16, 2016, was amended in each of 2017, 2018, 2019, 2020, and 2021 and is scheduled to mature on November 21, 2023. Subject to the terms and conditions under the Facility, the Company may borrow funds or issue letters of credit through its Alcoa Corporation or ANHBV legal entities. Borrowings can be executed in U.S. dollars, and letter of credit issuances are limited to $750. Effective January 1, 2022, the Company agreed to suspend borrowings denominated in euros due to reference rate reform and the phase-out of LIBOR. This suspension of borrowing denominated in euros will not materially impact the Company or its ability to access capital, if necessary.

The Facility is secured by, subject to certain exceptions, a first priority security interest in substantially all assets of Alcoa Corporation, ANHBV, the material domestic wholly-owned subsidiaries of Alcoa Corporation, and the material foreign wholly-owned subsidiaries of Alcoa Corporation located in Australia, Brazil, Canada, Luxembourg, the Netherlands, Norway, and Switzerland. This includes equity interests of certain subsidiaries that directly hold equity interests in AWAC entities. However, no AWAC entity is a guarantor of any obligation under the Facility and no asset of any AWAC entity, or equity interests in any AWAC entity, will be pledged to secure the obligations under the Facility. As provided in the Facility, each of the mentioned companies shall be released from all obligations under the first priority security interest upon (i) Alcoa Corporation attaining at least a Baa3 rating from either Moody’s Investor Service or BBB- rating from Standard and Poor’s Global Ratings, in each case with a stable outlook or better, (ii) ANHBV delivering the required written notice, and (iii) no default or event of default, as defined in the Facility, has occurred or is continuing.

The Facility includes several customary affirmative and negative covenants (applicable to Alcoa Corporation and certain subsidiaries described as restricted), that, subject to certain exceptions, include limitations on (among other things): indebtedness, liens, investments, sales of assets, restricted payments, entering into restrictive agreements, a covenant prohibiting reductions in the ownership of AWAC entities, and certain other specified restricted subsidiaries of Alcoa Corporation, below an agreed level. The Facility also contains customary events of default, including a failure to make payments under the Facility, cross-default and cross-judgment default, and certain bankruptcy and insolvency events. In addition, the Facility contains two financial covenants, a leverage ratio and an interest expense coverage ratio, that impact availability of the $1,500 commitment and pricing.

As of December 31, 2021, the Company was in compliance with all covenants. The maximum additional borrowing capacity available to the Company to remain in compliance with the maximum leverage ratio covenant in the Facility was approximately $6,610. Therefore, the Company may access the entire amount of commitments under the Facility. There were no borrowings outstanding at December 31, 2021 and 2020, and no amounts were borrowed during 2021 and 2020 under the Facility.

On March 4, 2021, Alcoa Corporation and ANHBV, entered into an amendment (Amendment No. 4) to the Facility that provided additional flexibility to the Company by (i) increasing the maximum leverage ratio from 2.50 to 1.00 to 2.75 to 1.00, (ii) decreasing the minimum interest expense coverage ratio from 5.00 to 1.00 to 4.00 to 1.00, (iii) amending the definition of Total Indebtedness (as defined in the Facility) to permit the Company to exclude the principal amount of new senior notes issued during 2021 from indebtedness for purposes of the calculation of the leverage ratio in fiscal year 2021 (subject to adjustments based on pension obligations funded), and (iv) ending temporary restrictions on the Company’s ability to make certain restricted payments or incur incremental loans under the Facility. Amendment No. 4 also (i) provided additional debt capacity to permit the Company to issue up to $750 in aggregate principal amount of new senior notes prior to the end of fiscal year 2021 and (ii) provided a corresponding increase in the maximum leverage ratio commensurate with the increase in leverage resulting from the issuance of such notes up to the amount of pension obligations funded after the issuance of such notes but prior to December 31, 2021, which increase shall in any event not be in excess of the principal amount of such notes. Such additional increase in the maximum leverage ratio will be available beginning March 31, 2022.

Alcoa’s maximum additional borrowing capacity, discussed above, can be used through any combination of the Revolving Credit Facility or through additional indebtedness. The Company may draw on the facility periodically to ensure working capital needs are met. See Part II Item 8 of this Form 10-K in Note M to the Consolidated Financial Statements for additional information related to the Revolving Credit Facility.

Off-Balance Sheet Arrangements. Alcoa Corporation is party to certain contingent off-balance sheet arrangements including guarantees, letters of credit, and surety bonds. See Part II Item 8 of this Form 10-K in Note S to the Consolidated Financial Statements for additional information.

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Debt. As of December 31, 2021, Alcoa Corporation had three outstanding Notes maturing at varying times. A summary of the Notes and other long-term debt is shown below. See Part II Item 8 of this Form 10-K in Note M to the Consolidated Financial Statements for additional information related to the Company’s debt.

Ratings. Alcoa Corporation’s cost of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short- and long-term debt ratings assigned to Alcoa Corporation’s debt by the major credit rating agencies.

On December 9, 2021, Fitch Ratings (Fitch) upgraded its rating for Alcoa Corporation’s long-term debt to BBB- from BB+. Additionally, Fitch affirmed the current outlook as stable.

On December 17, 2021, Standard and Poor’s Global Ratings (S&P) affirmed the BB+ rating of Alcoa’s long-term debt and revised the outlook to positive.

Dividend. On October 14, 2021, the Company announced the initiation of a quarterly cash dividend on its common stock. The Board of Directors declared the first quarterly cash dividend of $0.10 per share of the Company’s common stock, paid on November 19, 2021 to stockholders of record as of the close of business on October 29, 2021. The details of any future cash dividend declaration, including the amount of such dividend and the timing and establishment of the record and payment dates, will be determined by the Board of Directors. The decision of whether to pay future cash dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, business conditions, the requirements of applicable law, and any other factors the Board of Directors may deem relevant.

Common Stock Repurchase Program. On October 17, 2018, Alcoa Corporation’s Board of Directors approved a common stock repurchase program under which the Company may purchase shares of its outstanding common stock up to an aggregate transactional value of $200, depending on cash availability, market conditions, and other factors. On October 14, 2021, Alcoa Corporation’s Board of Directors approved a new common stock repurchase program under which the Company may purchase shares of its outstanding common stock up to an aggregate transactional value of $500, depending on cash availability, market conditions, and other factors.

Repurchases under these programs may be made using a variety of methods, which may include open market purchases, privately negotiated transactions, or pursuant to a Rule 10b5-1 plan. These programs do not have predetermined expiration dates. Alcoa Corporation intends to retire repurchased shares of common stock.

In the fourth quarter of 2021, the Company repurchased 3,184,300 shares of its common stock for $150; the shares were immediately retired. These purchases exhausted the remaining dollar value of shares that were available for repurchase under the Board of Directors’ October 17, 2018 authorization. The Company has remaining authorization to repurchase up to a total of $500, in the aggregate, of its outstanding shares of common stock, under the new share repurchase program approved in 2021.

Investing Activities

Cash provided from investing activities was $565 in 2021 compared with cash used for investing activities of $167 in 2020.

In 2021, the source of cash was primarily attributable to proceeds from the sale of assets of $966, primarily the Warrick Rolling Mill, Rockdale, and Eastalco site sales, partially offset by $390 in capital expenditures, composed of $356 in sustaining projects and $34 in return-seeking projects. In 2020, the use of cash was primarily attributable to capital expenditures of $353, composed of $318 in sustaining projects and $35 in return-seeking projects, partially offset by proceeds from the sale of assets of $198, primarily from the Gum Springs waste treatment facility.

In 2022, Alcoa expects capital expenditures to be approximately $450 related to sustaining capital projects and approximately $75 related to growth projects. The timing and amount of capital expenditures may fluctuate as a result of the Company’s normal operations.

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Material Cash Commitments

As discussed above, the Company relies primarily on operating cash flows to fund its cash commitments and management believes its operating cash flows, cash on hand, and liquidity options will be adequate to fund its cash needs. As of December 31, 2021, a summary of Alcoa Corporation’s outstanding material cash commitments is as follows:

Purchase obligations—Energy-related purchase obligations consist primarily of electricity and natural gas contracts with expiration dates ranging from 1 year to 26 years. Raw material obligations consist mostly of bauxite (relates to AWAC’s bauxite mine interests in Guinea and Brazil), caustic soda, alumina, aluminum fluoride, calcined petroleum coke, and cathode blocks with expiration dates ranging from less than 1 year to 14 years. Other purchase obligations consist principally of freight for bauxite and alumina with expiration dates ranging from 1 to 11 years. Many of these purchase obligations contain variable pricing components, and, as a result, actual cash payments may differ from the estimates provided in the preceding table. In accordance with the terms of several of these supply contracts, obligations may be reduced as a result of an interruption to operations, such as a plant curtailment or a force majeure event.

Interest related to total debt—Interest is based on interest rates in effect as of December 31, 2021 and is calculated on debt with maturities that extend to 2029.

Pension and Other postretirement benefits—Estimated minimum required pension funding and other postretirement benefit payments are based on actuarial estimates using current assumptions for, among others, discount rates, long-term rate of return on plan assets, rate of compensation increases, and/or health care cost trend rates. Actual payments may differ based on changes in assumptions. Alcoa Corporation has determined that it is not practicable to present pension funding and other postretirement benefit payments beyond 2026 and 2031, respectively.

On April 1, 2021, the Company used the net proceeds from the issuance of the notes being offered, together with cash on hand, to contribute $500 to its U.S. defined benefit pension plans applicable to salaried and hourly employees.

The Company also adopted the relief provisions allowable under the law related to single-employer pensions enacted under the American Rescue Plan, which was signed into law on March 11, 2021. As a result of the American Rescue Plan and the $500 unscheduled contribution, Alcoa’s minimum required contribution to defined benefit pension plans were significantly reduced.

The $500 U.S. pension contribution in April was added to the Company’s pre-funding balance, the current balance of which is more than sufficient to cover the U.S. portion of the minimum obligations presented above. Under ERISA regulations, a plan sponsor that establishes a pre-funding balance by making discretionary contributions to a U.S. defined benefit pension plan may elect to apply all or a portion of this balance toward its minimum required contribution obligations to the related plan in future years. Management made such election related to the Company’s U.S. plans for 2021 and intends to make similar elections for 2022 and future years. The contractual obligations above include the estimated minimum required pension funding for which those elections are expected to be made: 2022 $65; 2023-2024 $100; and, 2025-2026 $105.

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Layoff and other restructuring—Layoff and other restructuring payments expected to be paid within one year primarily relate to employee and take-or-pay contractual obligations related to the curtailed San Ciprián smelter, take-or-pay contractual obligations, and severance related to closed and curtailed aluminum facilities in Washington. Layoff and other restructuring payments expected to be paid beyond one year primarily relate to employee and take-or-pay contractual obligations related to the curtailed San Ciprián smelter.

Deferred revenue arrangements—Deferred revenue arrangements require Alcoa Corporation to deliver alumina to a certain customer over the specified contract period (through 2027). While this obligation is not expected to result in cash payments, it is included in the preceding table as the Company would have such an obligation if the specified product deliveries could not be made.

Uncertain tax positions—Uncertain tax positions taken or expected to be taken on an income tax return may result in additional payments to tax authorities. The amount in the preceding table includes interest and penalties accrued related to such positions as of December 31, 2021. The total amount of uncertain tax positions is included in the Thereafter column as the Company is not able to reasonably estimate the timing of potential future payments. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.

Long-term debt and Short-term borrowings—Total debt amounts in the preceding table represent the principal amounts of all outstanding long-term debt, which have maturities that extend to 2029.

Returns to stockholders—Alcoa Corporation’s Board of Directors authorized common stock repurchase programs under which the Company may purchase shares of its outstanding common stock up to an aggregate transactional value of $700, depending on various factors. As of December 31, 2021, there is remaining authorization to repurchase up to a total of $500, in the aggregate, of its outstanding shares of common stock. The program does not have a predetermined expiration date. Accordingly, amounts have not been included in the preceding table. See Liquidity and Capital section for more information.

Equity-method investments—Equity contributions are related to the joint venture, ELYSISTM Limited Partnership (ELYSISTM). The Company contributed $23 (C$30) toward its investment commitment in ELYSISTM through December 31, 2021 and expects to contribute $53 (C$67) in 2022. See Part II Item 8 of this Form 10-K in Note H to the Consolidated Financial Statements for additional information.

Critical Accounting Policies and Estimates

The preparation of the Company’s Consolidated Financial Statements in accordance with GAAP requires management to make certain estimates based on judgments and assumptions regarding uncertainties that affect the amounts reported in the Consolidated Financial Statements and disclosed in the Notes to the Consolidated Financial Statements. Areas that require such estimates include the review of properties, plants, and equipment and goodwill for impairment, and accounting for each of the following: asset retirement and environmental obligations; litigation matters; pension plans and other postretirement benefits obligations; derivatives and hedging activities; and income taxes.

Management uses historical experience and all available information to make these estimates; actual results may differ from those used to prepare the Company’s Consolidated Financial Statements at any given time. Despite these inherent limitations, management believes that the amounts recorded in the financial statements related to these items are based on its best estimates and judgments using all relevant information available at the time.

A summary of the Company’s significant accounting policies is included in Part II Item 8 of this Form 10-K in Note B to the Consolidated Financial Statements.

Properties, Plants, and Equipment. Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (asset group) may not be recoverable, including in the period when assets have met the criteria to be classified as held for sale. The model used to determine recoverability of an asset or asset group would leverage the model that management uses for planning and strategic review of the entire business, including related inputs and assumptions. Management’s impairment assessment process is described in Part II Item 8 of this Form 10-K in Note B to the Consolidated Financial Statements. Refer to Part II Item 8 of this Form 10-K in Note K to the Consolidated Financial Statements for more information regarding properties, plants, and equipment.

Goodwill. Goodwill is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others, deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods. The fair value that could be realized in an actual transaction may differ from that used to evaluate goodwill for impairment.

Under the qualitative impairment test, management considers a number of factors in its assessment, such as: general economic conditions, equity and credit markets, industry and market conditions, and earnings and cash flow trends.

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Under the quantitative impairment test, management uses a discounted cash flow (DCF) model to estimate the current fair value of its reporting units. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, production costs, production capability, tax rates, capital spending, discount rate, and working capital changes. The model used for the goodwill impairment test leverages the model, including related inputs and assumptions, that management uses for planning and strategic review of the entire business.

Management will test goodwill on a qualitative or quantitative basis. Refer to Part II Item 8 of this Form 10-K in Note B to the Consolidated Financial Statements for more information regarding management’s impairment assessment process.

Management performed a quantitative assessment for the Bauxite reporting unit in 2021. As a result of the assessment, the estimated fair value of the Bauxite reporting unit was substantially in excess of its carrying value, resulting in no impairment. The impact on the estimated fair value of an increase in the discount rate of 1% would not result in a change in the conclusions reached, the estimated fair value would remain substantially in excess of carrying value.

Additionally, management performed a qualitative assessment for the Alumina reporting unit in 2021 and determined that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Management last performed a quantitative impairment test for the Alumina reporting unit in 2019. At the time of the quantitative assessment, the estimated fair value of the Alumina reporting unit was substantially in excess of its carrying value, resulting in no impairment.

Further, in all years presented, there have been no triggering events that necessitated an impairment test for either the Bauxite or Alumina reporting units. Refer to Part II Item 8 of this Form 10-K in Note L to the Consolidated Financial Statements for more information regarding goodwill.

Asset Retirement and Environmental Obligations. Estimates are used to record environmental remediation and asset retirement obligation (ARO) reserves based on the best available information at the time of recognition. Several assumptions are used to estimate the costs required to demolish, environmentally remediate, or reclaim the site, including:

As the site is demolished, remediated, or reclaimed, the assumptions and estimates used to record the reserve may change to account for:

Changes to the estimates may result in material changes to the reserve that may require an increase to or a reversal of a previously recorded reserve. Historically, the Company has not had material changes in established reserves. Refer to Part II Item 8 of this Form 10-K in Note R and Note S to the Consolidated Financial Statements for more information regarding current reserves.

Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable outcome based on many factors such as, among others, the nature of the matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the outcome of similar historical matters. Once an unfavorable outcome is deemed probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is disclosed, and no liability is recorded. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss. Refer to Part II Item 8 of this Form 10-K in Note B to the Consolidated Financial Statements for more information regarding management’s litigation matters policy.

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Pension and Other Postretirement Benefits. Liabilities and expenses for pension and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary increases, health care cost trend rates, retirement age, and mortality).

The yield curve model used to develop the discount rate parallels the plans’ projected cash flows and has a weighted average duration of 12 years. The underlying cash flows of the high-quality corporate bonds included in the model exceed the cash flows needed to satisfy the Company’s plan obligations multiple times. If a deep market of high-quality corporate bonds does not exist in a country, then the yield on government bonds plus a corporate bond yield spread is used. The impact on the combined pension and other postretirement liabilities of a change in the weighted average discount rate of ¼ of 1% would be approximately $147 and either a charge or credit of approximately $1 to pretax earnings in the following year.

The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan assets (a four-year average or the fair value at the plan measurement date is used for certain non-U.S. plans). The process used by management to develop this assumption is one that relies on forward-looking investment returns by asset class. Management incorporates expected future investment returns on current and planned asset allocations using information from various external investment managers and consultants, as well as management’s own judgment. A change in the assumption for the weighted average expected long-term rate of return on plan assets of ¼ of 1% would impact pretax earnings by approximately $9 for 2022.

Mortality rate assumptions are based on mortality tables and future improvement scales published by third parties, such as the Society of Actuaries, and consider other available information including historical data as well as studies and publications from reputable sources.

Refer to Part II Item 8 of this Form 10-K in Note O to the Consolidated Financial Statements for more information regarding pension and other postretirement benefits including accounting impacts of current year actions.

Derivatives and Hedging. To calculate the fair value of certain derivatives, management uses discounted cash flow (DCF) and other simulation models that consider the following inputs and assumptions: quoted market prices (e.g., aluminum prices on the 10-year London Metal Exchange (LME) forward curve and energy prices), information concerning time premiums and volatilities for certain option type embedded derivatives and regional premiums for aluminum contracts, aluminum and energy prices beyond those quoted in the market, and the estimated credit spread between Alcoa and the counterparty. The quoted market prices used in the valuation models are dependent on market fundamentals, the relationship between supply and demand at any point in time, seasonal conditions, inventories, and interest rates. For periods beyond the term of quoted market prices, management estimates the price of aluminum by extrapolating the 10-year LME forward curve and estimates the Midwest premium based on recent transactions.

Changes in estimates can have a material impact on the derivative valuations. Refer to Part II Item 8 of this Form 10-K in Note P to the Consolidated Financial Statements for more information regarding derivatives and hedging and related activity during the period.

Income Taxes. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management applies judgment in assessing all available positive and negative evidence and considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and Alcoa Corporation’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. In certain jurisdictions, deferred tax assets related to cumulative losses exist without a valuation allowance where in management’s judgment the weight of the positive evidence more than offsets the negative evidence of the cumulative losses. Upon changes in facts and circumstances, management may conclude that deferred tax assets for which no valuation allowance is currently recorded may not be realized, resulting in a future charge to establish a valuation allowance. Financial information utilized in this analysis leverages the same financial information, including related inputs and assumptions, that management uses for planning and strategic review of the entire business.

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitations has expired, or the appropriate taxing authority has completed their examination even though the statute of limitations remains open.

Changes in estimates can have a material impact on the deferred taxes and uncertain tax positions. Refer to Part II Item 8 of this Form 10-K in Note Q to the Consolidated Financial Statements for more information regarding income taxes and deferred tax assets and related activity during the period.

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Related Party Transactions

Alcoa Corporation buys products from and sells products to various related companies, consisting of entities in which Alcoa Corporation retains a 50% or less equity interest, at negotiated prices between the two parties. These transactions were not material to the financial position or results of operations of Alcoa Corporation for all periods presented.

Recently Adopted Accounting Guidance

See Part II Item 8 of this Form 10-K in Note B to the Consolidated Financial Statements under caption Recently Adopted Accounting Guidance.

Recently Issued Accounting Guidance

See Part II Item 8 of this Form 10-K in Note B to the Consolidated Financial Statements under caption Recently Issued Accounting Guidance.