# Alcoa Corp (AA) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from Alcoa Corp's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1675149/000095017024018069/aa-20231231.htm Accession: 0000950170-24-018069 Filing date: 2024-02-21 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/AA/ All MD&A years: /company/AA/mda/ Previous year: /company/AA/mda/fy2022/ (FY 2022) Next year: /company/AA/mda/fy2024/ (FY 2024) 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 “aims,” “ambition,” “anticipates,” “believes,” “could,” “develop,” “endeavors,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “potential,” “plans,” “projects,” “reach,” “seeks,” “sees,” “should,” “strive,” “targets,” “will,” “working,” “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 performance (including our ability to execute on strategies related to environmental, social and governance matters); 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) the impact of global economic conditions on the aluminum industry and aluminum end-use markets; (b) volatility and declines in aluminum and alumina demand and pricing, including global, regional, and product-specific prices, or significant changes in production costs which are linked to LME or other commodities; (c) the disruption of market-driven balancing of global aluminum supply and demand by non-market forces; (d) competitive and complex conditions in global markets; (e) our ability to obtain, maintain, or renew permits or approvals necessary for our mining operations; (f) rising energy costs and interruptions or uncertainty in energy supplies; (g) unfavorable changes in the cost, quality, or availability of raw materials or other key inputs, or by disruptions in the supply chain; (h) our ability to execute on our strategy to be a lower cost, competitive, and integrated aluminum production business and to realize the anticipated benefits from announced plans, programs, initiatives relating to our portfolio, capital investments, and developing technologies; (i) our ability to integrate and achieve intended results from joint ventures, other strategic alliances, and strategic business transactions; (j) economic, political, and social conditions, including the impact of trade policies and adverse industry publicity; (k) fluctuations in foreign currency exchange rates and interest rates, inflation and other economic factors in the countries in which we operate; (l) changes in tax laws or exposure to additional tax liabilities; (m) global competition within and beyond the aluminum industry; (n) our ability to obtain or maintain adequate insurance coverage; (o) disruptions in the global economy caused by ongoing regional conflicts; (p) legal proceedings, investigations, or changes in foreign and/or U.S. federal, state, or local laws, regulations, or policies; (q) climate change, climate change legislation or regulations, and efforts to reduce emissions and build operational resilience to extreme weather conditions; (r) our ability to achieve our strategies or expectations relating to environmental, social, and governance considerations; (s) claims, costs, and liabilities related to health, safety and environmental laws, regulations, and other requirements in the jurisdictions in which we operate; (t) liabilities resulting from impoundment structures, which could impact the environment or cause exposure to hazardous substances or other damage; (u) our ability to fund capital expenditures; (v) deterioration in our credit profile or increases in interest rates; (w) restrictions on our current and future operations due to our indebtedness; (x) our ability to continue to return capital to our stockholders through the payment of cash dividends and/or the repurchase of our common stock; (y) cyber attacks, security breaches, system failures, software or application vulnerabilities, or other cyber incidents; (z) labor market conditions, union disputes and other employee relations issues; (aa) a decline in the liability discount rate or lower-than-expected investment returns on pension assets; and (bb) the other risk factors discussed in Part 1 Item 1A of this Form 10-K and other reports filed by Alcoa Corporation with the SEC, including those described in this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. 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. 48 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 27 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. Business Update During 2023, average alumina and aluminum prices decreased by 6% and 17% respectively, and the cost for energy and raw materials, including carbon products, caustic soda, and other key inputs decreased. The lower costs for energy and raw materials reflect a decline from the elevated costs in 2022, which were driven by regional conflicts, inflation pressures and multiple supply chain disruptions. Despite the alumina and aluminum pricing challenges, Alcoa made progress on its key objectives during 2023. In December 2023, the Company received mine plan approvals from the Western Australian government for its Huntly and Willowdale bauxite mines, delivering on a near-term objective for the Company. The approvals allow the Company to continue bauxite mining and downstream alumina refining in Western Australia, while enhancing the way it operates to meet evolving requirements and expectations. Due to its production of commercial grade aluminum, in December 2023, the Company qualified for Section 45X of the Advanced Manufacturing Tax Credit, enacted as part of the Inflation Reduction Act, which improves the profitability of its smelters in the U.S. The Company has also requested revisions to the December 2023 regulations to allow for the inclusion of materials costs in the credit calculation. During 2023, the Company continued the controlled pace for the restart of the Alumar smelter in São Luís, Brazil and improved the operating stability of restarted pots. The Company also improved operational stability across the portfolio, while achieving annual and fourth quarter production records at four smelters in Canada and Norway. During 2023, the Company targeted improvement of financial results for certain operations. The first announced action was initiated at the Kwinana refinery in the third quarter of 2023, to mitigate the financial impacts of lower bauxite grade and to optimize current operating levels. Further analysis in 2023 also led to the decision in early 2024 to fully curtail the Kwinana refinery by mid-2024. Also, in December 2023, Alcoa began engagement with government stakeholders and workers’ representatives of the San Ciprián refinery and smelter regarding the sustained and ongoing financial losses in order to find a long-term solution for the combined operations. In addition to the actions the Company has taken to date, it has identified additional opportunities to improve profitability in both the near term and medium term, as well as market opportunities with improved alumina and aluminum pricing. Near term opportunities include savings in 2024 for key raw materials - caustic soda and lime for refining and anode carbon products for smelting – realizable due to favorable contractual negotiations and market pricing, as well as inventory lags. Additionally, in January 2024, the Company announced a productivity and competitiveness program aimed at reducing controllable operating costs across the organization (excluding raw materials, energy, and transportation). Near term opportunities also include expected savings from the Warrick smelter optimization, the Alumar smelter restart completion, and the Kwinana refinery curtailment. Medium term opportunities are beyond 2024 and 2025 and include the benefit of better bauxite grades in Western Australia and a fully optimized Alumar refinery. In 2019, the Company announced a five-year strategic portfolio review of its smelting and refining capacity to improve cost positioning or curtail, close, or divest 1.5 million and 4 million metric tons of smelting and refining capacity, respectively. Through January 2024, Alcoa continued to make progress on the portfolio review completing its review of refining capacity and reaching approximately 93 percent of its target for smelting capacity. 49 Despite a challenging market during 2023, the Company began to see evidence of stabilizing demand in the fourth quarter of 2023. Alcoa saw a significant increase in year-over-year demand for its EcoLum aluminum in 2023, which is part of our Sustana brand, through both increased margins and deliveries while still a relatively small portion of the Company’s overall sales volume. The year-over-year volume increase for EcoLum, which is aluminum produced with no more than 4.0 metric tons of carbon dioxide equivalents per metric ton of aluminum produced, was driven mostly by the European market. While the industry is seeing challenges in the short-term, the Company continues to project strong long-term demand for aluminum, as global decarbonization goals and renewable energy scarcity are expected to positively influence the aluminum industry’s demand and supply fundamentals. Due to renewable energy sources and low carbon dioxide intensity in our operations, Alcoa believes that it is well positioned as a supplier of choice, especially in a world that is working to further reduce greenhouse gas emissions. Australia Mine Plan Approvals The Company seeks annual approvals from the Western Australian State Government for its rolling five-year mine plans to maintain continued operations at the Huntly and Willowdale bauxite mines. In December 2023, the Western Australian government approved Alcoa’s latest five-year mine plan – known as the 2023-2027 Mining and Management Program (MMP) – for its Huntly and Willowdale bauxite mines that will allow the Company to continue bauxite mining and downstream alumina refining in Western Australia. Alcoa is subject to a range of stringent conditions addressing key environmental factors that includes enhanced protections for drinking water, including increased distances from reservoirs, and biodiversity along with accelerated forest rehabilitation. The accelerated forest rehabilitation will require an acceleration of cash spend of approximately $40 over the next three and half years from asset retirement obligations already recorded. In addition, the Western Australian government granted an exemption that allows Alcoa to continue its mining operations while the Western Australian Environmental Protection Authority (WA EPA) assesses the environmental impact of parts of the MMP, following a third party’s referral of the Company’s future and existing mine plans in existing mine regions to the WA EPA in the first quarter of 2023. At the request of the Western Australian government, the Company has committed to provide a bank guarantee for approximately $68 (A$100) demonstrating Alcoa’s confidence that its operations will not impair drinking water supplies. In the second quarter of 2023, Alcoa began mining lower grade bauxite in areas at the Huntly mine as it continued to work through the annual mine approvals process. The reduction in grade increased the use of caustic, energy, and bauxite, and decreased alumina output. Separately, Alcoa has committed to continuing to work with the Western Australian government to modernize the approvals framework for its two bauxite mines and three alumina refineries in the state. This includes transitioning all proposed new major mining regions to the more contemporary EPA assessment and approvals process. Alcoa started this process in 2020, when it referred its next two proposed mine regions (Myara North and Holyoake) for WA EPA assessment. The Company expects the bauxite quality at Myara North and Holyoake to be more consistent with the historic higher quality at the existing Myara Central. Alcoa continues to work to secure approvals for these new regions and anticipates mining in the new regions no earlier than 2027. Until then, the Company expects bauxite quality similar to recent grades. San Ciprián Operations The San Ciprián smelter was curtailed in January 2022, as a result of an agreement with the workers’ representatives in December 2021. In February 2023, under the terms of an amended viability agreement, Alcoa agreed to a phased restart of the smelter beginning in January 2024, to operate an initial complement of approximately 6 percent of total pots, to restart all pots by October 1, 2025 and to maintain 75 percent of the annual capacity of 228 kmt from October 1, 2025 until the end of 2026. Long-term economic viability of any ramp up beyond the initial 6 percent of total pots will depend upon the availability of affordable power, which currently does not exist in adequate supply. While the Company has met its commitments to enter into power purchase agreements for the necessary capacity, that capacity has not been fully permitted by the government or built by the power provider, putting an on-time restart at significant risk and causing the smelter to incur substantial operating losses for longer, all of which is rendering the smelter economically unviable. At the refinery, operating losses continue despite the mitigating action taken by the Company in the third quarter of 2022 to curtail capacity to 50 percent. 50 Since the smelter curtailed in January 2022, the Company has honored its commitments under the viability agreements signed in December 2021 and February 2023, including paying all employees, making capital investments, and restarting pots in 2024. However, current market conditions, including the cost for available energy, do not support an economically viable restart. Further, permitting and development of renewable energy projects, which were a critical component of the restart, have been delayed. The refinery and smelter incurred significant losses in 2023 and prior years which have been funded with internal credit lines that are now nearing their limits, and which the operations have no ability to repay. Based on current economic conditions, the San Ciprián operations are expected to incur substantial losses in 2024 and Alcoa anticipates that available funding will be exhausted in the second half of 2024. As a result of the extended duration of the adverse economic environment, in December 2023, Alcoa began engagement with government stakeholders and workers’ representatives of the San Ciprián refinery and smelter regarding the sustained and ongoing financial losses in order to find a long-term solution for the combined operations. Alcoa is seeking flexibility and support from Spanish stakeholders to identify all potential forms of relief and to work collaboratively on a long-term solution. If stakeholder discussions do not secure the long-term economic viability of the operations, it is expected that available funding will be exhausted in the second half of 2024 and difficult decisions will have to be considered regarding the future of the San Ciprián complex. Productivity and Competitiveness Program In January 2024, the Company initiated a productivity and competitiveness program across its global operations and functions. The program is a first step in the Company’s objective and includes a target to save approximately 5 percent of operating costs, exclusive of raw materials, energy, and transportation costs which are already under active management and cost control programs. Total savings are expected to approximate $100 on a run rate basis and to be achieved by the first quarter of 2025. Other Portfolio Actions Kwinana refinery—On January 8, 2024, Alcoa announced the full curtailment of the Kwinana refinery beginning in the second quarter of 2024. The refinery has an annual nameplate capacity of 2.2 million metric tons and has been operating at approximately 80 percent of its nameplate capacity since January 2023, when the Company reduced production in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers. The Company’s decision to fully curtail the refinery was made based on a variety of factors, including the refinery’s age, scale, operating costs, and current bauxite grades, in addition to current market conditions. The refinery currently has approximately 800 employees and this number will be reduced to approximately 250 in the third quarter of 2024, when alumina production will cease. Certain processes will continue until about the third quarter of 2025, when the employee number will be further reduced to approximately 50. Warrick smelter—During the fourth quarter 2023, the Company took actions to improve the competitiveness of its Warrick Operations site in Indiana. Alcoa began the restart of one line (54,000 mtpy) that was curtailed in July 2022, and also began the closure of a line (54,000 mtpy) that had not operated since 2016 to allow for future capital investments to improve casting capabilities. Intalco smelter—The Company announced the closure of the previously curtailed Intalco aluminum smelter in March 2023 after evaluating various options for the asset. The facility has been fully curtailed since 2020. Capital Returns In each quarter of 2023, the Board of Directors declared a quarterly cash dividend of $0.10 per share of the Company’s common stock, totaling $72 for the year. Balance Sheet Actions On January 17, 2024, the Company amended its Revolving Credit Facility to provide additional flexibility to implement portfolio actions during 2024, by providing for a temporary reduction of the minimum interest coverage ratio required thereunder from 4.00 to 1.00 to 3.00 to 1.00, and increasing the maximum addback for cash restructuring charges to Consolidated EBITDA (as defined in the Revolving Credit Facility), in each case for the 2024 fiscal year. In connection with the amendment, Alcoa also agreed to provide collateral for its obligations under the Revolving Credit Facility, with a ratings-based release mechanism that would apply starting in 2025. In April 2023, the Company purchased group annuity contracts to transfer approximately $235 of pension obligations and assets associated with defined benefit pension plans for approximately 530 Canadian retirees and beneficiaries. As a result, Alcoa recognized a non-cash settlement loss of $21 ($16 after-tax) in Restructuring and other charges, net on the Statement of Consolidated Operations in the second quarter of 2023. See Part II Item 8 of this Form 10-K in Note O to the Consolidated Financial Statements for additional information. 51 Other Matters In July 2023, the Supreme Court of Spain ratified the Global Settlement Agreement (GSA) with the workers of the divested Avilés and La Coruña facilities to settle various legal disputes related to the 2019 divestiture of those facilities. Upon completion of the remaining administrative and judicial approvals, the Company made cash payments of $76 to the former employees of the facilities in 2023 in accordance with the GSA. The remaining payments will be made in early 2024. In the first quarter of 2023, the Company recorded an adjustment related to the Company’s Ma’aden Aluminum joint venture for the settlement of a dispute with an industrial utility for periods in 2021 and 2022. Alcoa’s share of this adjustment was $41 which is included in Other expenses (income), net on the Statement of Consolidated Operations for year ended December 31, 2023. Alcoa’s total share of this dispute of $62 includes $21 that was recorded in the fourth quarter of 2022. In April 2023, the Company entered into a one-year unsecured revolving credit facility for $250 (available to be drawn in Japanese yen). See the below sections for additional details on the above-described actions. Basis of Presentation The Consolidated Financial Statements of Alcoa Corporation are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In accordance with GAAP, certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Management uses historical experience and all available information to make these estimates. Management regularly evaluates the judgments and assumptions used in its estimates, and results could differ from those estimates upon future events and their effects or new information. Results of Operations The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2023 and 2022. For a comparison of changes for the fiscal years ended December 31, 2022 and 2021, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II Item 7 of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022 (filed February 23, 2023). [[GREPCENT_TABLE]] [["","","For the year ended December 31,"],["Statement of Operations","","2023","","","2022"],["Sales","","$","10,551","","","$","12,451"],["Cost of goods sold (exclusive of expenses below)","","","9,813","","","","10,212"],["Selling, general administrative, and other expenses","","","226","","","","204"],["Research and development expenses","","","39","","","","32"],["Provision for depreciation, depletion, and amortization","","","632","","","","617"],["Restructuring and other charges, net","","","184","","","","696"],["Interest expense","","","107","","","","106"],["Other expenses (income), net","","","134","","","","(118",")"],["Total costs and expenses","","","11,135","","","","11,749"],["(Loss) income before income taxes","","","(584",")","","","702"],["Provision for income taxes","","","189","","","","664"],["Net (loss) income","","","(773",")","","","38"],["Less: Net (loss) income attributable to noncontrolling interest","","","(122",")","","","161"],["Net loss attributable to Alcoa Corporation","","$","(651",")","","$","(123",")"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Selected Financial Metrics","","2023","","","2022"],["Diluted loss per share attributable to Alcoa Corporation common shareholders","","$","(3.65",")","","$","(0.68",")"],["Third-party shipments of alumina (kmt)","","","8,698","","","","9,169"],["Third-party shipments of aluminum (kmt)","","","2,491","","","","2,570"],["Average realized price per metric ton of alumina","","$","358","","","$","384"],["Average realized price per metric ton of aluminum","","$","2,828","","","$","3,457"],["Average Alumina Price Index (API)(1)","","$","343","","","$","365"],["Average London Metal Exchange (LME) 15-day lag(2)","","$","2,249","","","$","2,726"]] [[/GREPCENT_TABLE]] 52 (1) API (Alumina Price Index) is a pricing mechanism that 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. (2) LME (London Metal Exchange) is a globally recognized exchange for commodity trading, including aluminum. The LME pricing component represents the underlying base metal component, based on quoted prices for aluminum on the exchange. Annual Comparison Overview Net loss attributable to Alcoa Corporation increased $528 primarily as a result of: • Lower average realized prices of aluminum and alumina • Higher production costs across both segments • Lower equity investment earnings • Absence of favorable mark-to-market results on derivative instruments Partially offset by: • Lower restructuring charges • Lower taxes on lower earnings and a lower net charge for valuation allowances on certain deferred tax assets in 2023 • Lower energy costs, primarily in Europe • Favorable currency impacts Sales Sales decreased $1,900 primarily as a result of: • Lower average realized prices of aluminum and alumina • Lower shipments across both segments • Lower trading activities • Decrease in value add product sales Partially offset by: • Higher volumes and price from bauxite offtake and supply agreements Cost of goods sold Cost of goods sold as a percentage of sales increased 11% primarily as a result of: • Lower average realized prices of aluminum and alumina • Higher production costs primarily related to operating certain of the Australian refineries with lower grade bauxite, the partial curtailment of the San Ciprián refinery, and increased maintenance • Decrease in value add product sales Partially offset by: • Lower energy costs • Favorable currency impacts Selling, general administrative, and other expenses Selling, general administrative, and other expenses increased $22 primarily as a result of: • Higher labor costs and external legal fees Provision for depreciation, depletion, and amortization The Provision for depreciation, depletion, and amortization increased $15 primarily as a result of: • Higher depreciation in Brazil and Australia for mine reclamation and bauxite residue storage asset retirement obligations • Write offs of assets for projects no longer being pursued Partially offset by: • Lower depreciation resulting from the permanent closure of the Intalco aluminum smelter • Favorable currency impacts 53 Interest expense Interest expense increased $1 in comparison to 2022. Other expenses (income), net Other expenses (income), net was $134 in 2023, compared with $(118) in 2022. The unfavorable change of $252 was primarily a result of: • Mark-to-market results on derivative instruments primarily due to the absence of prior year gains driven by elevated power prices in 2022 • Decrease in equity earnings from the Ma’aden aluminum joint venture primarily due to a charge for a utility settlement, lower shipments, and lower aluminum prices • Higher equity losses from the Ma’aden bauxite and alumina joint venture primarily due to lower alumina prices and higher raw material costs partially offset by higher shipments • Higher ELYSIS capital contributions, which triggered loss recognition Partially offset by: • Lower pension expense primarily due to a decrease in recognized net actuarial losses subsequent to pension annuity transactions • Favorable currency revaluation impacts driven by the absence of losses recognized in the prior year due to the U.S. dollar strengthening against most currencies, and gains recognized in the current year primarily due to the U.S. dollar weakening against the Brazilian real Restructuring and other charges, net In 2023, Restructuring and other charges, net of $184 primarily related to: • $101 for the permanent closure of the previously curtailed Intalco aluminum smelter • $53 related to the updated viability agreement for the San Ciprián aluminum smelter • $21 for the settlement of certain pension benefits • $15 to record net additional environmental and asset retirement obligation reserves at previously closed locations • $11 for employee termination and severance costs, primarily related to Kwinana refinery productivity program Partially offset by: • $19 for the sale of unused carbon credits at a previously closed location In 2022, Restructuring and other charges, net of $696 primarily related to: • $632 for U.S. pension group annuity contracts and lump sum settlements • $79 for the accrual related to the GSA for the workers of the divested Avilés and La Coruña facilities • $58 for an asset impairment related to the sale of the Company’s interest in the MRN mine • $29 for the permanent closure of the previously curtailed magnesium smelter in Addy (Washington) Partially offset by: • $83 for the reversal of state VAT valuation allowance associated with the restart of the Alumar smelter • $10 for changes in estimated take-or-pay contract costs at the curtailed Intalco smelter and closed Wenatchee (Washington) smelter • $9 net reversal of environmental and ARO obligations and previously closed locations Provision for income taxes The Provision for income taxes in 2023 was $189 on a loss before taxes of $(584) or (32.4)%. In comparison, the 2022 Provision for income taxes was $664 on income before taxes of $702 or 94.6%. The decrease in tax expense of $475 was primarily attributable to lower income in the jurisdictions where taxes were paid. Additionally, tax expense in 2023 included a charge of $152 to record a full valuation allowance against the deferred tax assets of Alcoa World Alumina Brasil Ltda. (AWAB), partially offset by the full reversal of the valuation allowance of $58 recorded against the deferred tax assets of the Company’s subsidiaries in Iceland. Tax expense in 2022 included charges of $217 to record a full valuation allowance against the deferred tax assets of Alcoa Alumínio (Alumínio) and $30 primarily to write off the deferred tax assets of Alcoa Norway ANS due to a legal entity restructuring, partially offset by a tax benefit of $33 due to changes in the utilization of the tax holiday rate in AWAB. 54 In December 2023, Alcoa recorded a valuation allowance of $154 against the net deferred tax assets of AWAB, of which $106 related to the balance as of December 31, 2022. The 2023 full valuation allowance was a result of AWAB’s three-year cumulative loss position for the period ended December 31, 2023. The majority of AWAB’s net deferred tax assets relate to prior net operating losses; the loss carryforwards are not subject to an expiration period. AWAB’s profitability in future periods could prompt the Company to evaluate the realizability of the deferred tax asset and assess the possibility of a reversal of the valuation allowance, which could have a significant impact on net income in the quarter the valuation allowance is reversed. The Company’s subsidiaries in Iceland had a full valuation allowance recorded against deferred tax assets, which was established in 2015 and 2017, as the Company believed it was more likely than not that these tax benefits would not be realized. During 2023, after considering all positive and negative evidence, including the expectation that the jurisdiction will remain in a three-year cumulative income position, the Company determined that it is more likely than not that the net deferred tax assets will be realized. Based on this conclusion, the Company reversed the valuation allowance totaling $58 during 2023, generating a non-cash benefit from income taxes. In 2022, a valuation allowance of $217 was recorded against the net deferred tax assets of Alumínio. Management concluded that it was more likely than not that Alumínio’s net deferred tax assets, which consisted primarily of tax loss carryforwards, would not be realized as a result of Alumínio’s three-year cumulative loss position for the period ended December 31, 2022. Noncontrolling interest Net (loss) income attributable to noncontrolling interest was $(122) in 2023 compared with $161 in 2022. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities. The change is primarily a result of higher production costs, lower average realized price of alumina, unfavorable mark-to-market results on derivative instruments, higher elimination of intercompany profit in inventory, partially offset by lower energy costs and lower taxes. Segment Information Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. In January 2023, the financial information provided to the Chief Operating Decision Maker (CODM) for the activities of the bauxite mines and the alumina refineries was combined into the Alumina segment, and accordingly the Company changed its operating segments. Beginning in the first quarter of 2023, the Company’s operations consisted of two worldwide reportable segments: Alumina and Aluminum. Segment information for all prior periods presented was updated to reflect the new segment structure. 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) for 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’s Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The CODM function regularly reviews the financial information, including Adjusted EBITDA, of these two operating segments to assess performance and allocate resources. Segment Adjusted EBITDA totaled $734 in 2023 and $2,280 in 2022. The following information provides production, shipments, sales, and Segment Adjusted EBITDA data for each reportable segment, as well as certain realized price and average cost data, for each of the two years in the period ended December 31, 2023. 55 Alumina [[GREPCENT_TABLE]] [["","","2023","","","2022"],["Bauxite production (mdmt)","","","41.0","","","","42.1"],["Third-party bauxite shipments (mdmt)","","","7.6","","","","3.5"],["Alumina production (kmt)","","","10,908","","","","12,544"],["Third-party alumina shipments (kmt)","","","8,698","","","","9,169"],["Intersegment alumina shipments (kmt)","","","4,125","","","","3,958"],["Total alumina shipments (kmt)","","","12,823","","","","13,127"],["Third-party bauxite sales","","$","484","","","$","204"],["Third-party alumina sales","","","3,129","","","","3,520"],["Total segment third-party sales","","$","3,613","","","$","3,724"],["Intersegment alumina sales","","","1,648","","","","1,708"],["Total sales","","$","5,261","","","$","5,432"],["Segment Adjusted EBITDA","","$","273","","","$","788"],["Average realized third-party price per metric ton of alumina","","$","358","","","$","384"],["Operating costs","","$","4,524","","","$","4,406"],["Average cost per metric ton of alumina shipped","","$","353","","","$","336"]] [[/GREPCENT_TABLE]] In the above table, total alumina shipments include metric tons that were not produced by the Alumina segment. Such alumina was purchased to satisfy certain customer commitments. The Alumina segment bears the risk of loss of the purchased alumina until control of the product has been transferred to this segment’s customers. 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. Overview. This segment represents the Company’s global bauxite mining operations and 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 the production of alumina 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 above). A portion of this segment’s bauxite production represents the offtake from equity method investments in Brazil (prior to the MRN sale in April 2022) and Guinea, as well as AWAC’s share of bauxite production related to an equity investment in Saudi Arabia. Bauxite mined is primarily used internally within the Alumina segment; a portion of the bauxite is sold to external customers. Bauxite sales to third-parties are conducted on a contract basis. This segment also includes AWAC’s 25.1% ownership interest in the mining and refining joint venture company in Saudi Arabia. Business Update. The average API of $343 per metric ton trended unfavorably compared to 2022 reflecting a 6% sequential decrease. During 2023, the Alumina segment experienced higher production costs primarily due to operating certain of the Australian refineries with lower grade bauxite and the partial curtailment of the San Ciprián refinery in 2022, partially offset by lower energy costs compared to 2022. Alumina production decreased 13% in 2023 compared to 2022 primarily due to the partial curtailment of capacity at the San Ciprián refinery in 2022, partial curtailment of the Kwinana refinery in the first quarter of 2023, and reduced production at the Australia refineries due to lower grade bauxite. Production at the Alumar refinery in 2023 was less than 2022 primarily due to unplanned equipment maintenance. 56 Australia Mine Plan Approvals In December 2023, the Western Australian (WA) Government approved Alcoa’s latest five-year mine plan – known as the 2023-2027 Mining and Management Program (MMP) – for its Huntly and Willowdale bauxite mines. Alcoa is subject to a range of stringent conditions addressing key environmental factors that includes enhanced protections for drinking water, including increased distances from reservoirs, and biodiversity along with accelerated forest rehabilitation. The accelerated forest rehabilitation will require an acceleration of cash spend of approximately $40 over the next three and half years from asset retirement obligations already recorded. In addition, the WA Government granted an exemption that allows Alcoa to continue its mining operations while the WA EPA assesses the environmental impact of parts of the MMP, following a third party’s referral of the Company’s future and existing mine plans in existing mine regions to the WA EPA in the first quarter of 2023. In the second quarter of 2023, Alcoa began mining lower grade bauxite in areas at the Huntly mine (that supplies the Pinjarra and Kwinana refineries) as it continued to work through the annual mine approvals process. The reduction in grade increases the use of caustic, energy, and bauxite, and decreases alumina output. Separately, Alcoa has committed to continuing to work with the Western Australian government to modernize the approvals framework for its two bauxite mines and three alumina refineries in the state. This includes transitioning all proposed new major mining regions to the more contemporary EPA assessment and approvals process. Alcoa started this process in 2020, when it referred its next two proposed mine regions (Myara North and Holyoake) for WA EPA assessment. The Company expects the bauxite quality at Myara North and Holyoake to be more consistent with the historic higher quality at the existing Myara Central. Alcoa continues to work to secure approvals for these new regions and anticipates mining in the new regions no earlier than 2027. Until then, the Company expects bauxite quality similar to recent grades. Kwinana Refinery On January 8, 2024, the Company announced the full curtailment of the Kwinana refinery beginning in the second quarter of 2024. The refinery has an annual nameplate capacity of 2.2 million metric tons and has been operating at approximately 80 percent of its nameplate capacity since January 2023, when the Company reduced production by decreasing process flows and taking offline one of five digesters in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers. While the supply of natural gas improved in April 2023, the Company kept the one digester offline due to the prolonged annual mine plan approvals process. The full curtailment will include a phased reduction of the workforce from around 800 employees at the start of 2024 to approximately 250 in the third quarter of 2024, when all alumina production will cease. Certain processes will continue until about the third quarter of 2025, when employee numbers will be further reduced to approximately 50. In the first quarter of 2024, Alcoa will record restructuring charges between $180 and $200 related to the curtailment of the refinery. The charges include approximately $81 for water management costs, $55 for employee related costs, $26 for asset retirement obligations, and $18 of other costs. Alcoa’s share of related cash outlays of approximately $115 (which includes existing employee related liabilities and asset retirement obligations) is expected to be spent in 2024 ($80) and 2025 ($35). The Kwinana refinery recorded a net loss (pretax and noncontrolling interest) of approximately $130 in 2023. The Company expects annual improvements of approximately $70 (pretax and noncontrolling interest) beginning in the third quarter of 2024 as a result of the curtailment. During the third quarter of 2023, the Company initiated productivity programs across its operations in Australia to mitigate the financial impacts of lower bauxite grade and to optimize current operating levels. The first announced action under the productivity programs was initiated at the Kwinana refinery. In connection with this program, the Company recorded a charge of $6 in Restructuring and other charges, net on the Statement of Consolidated Operations in the third quarter of 2023 for employee termination and severance costs for approximately 90 employees at the Kwinana refinery, which is expected to be paid through the second quarter of 2024. Alumar Refinery During 2023, the Alumar refinery experienced several challenges impacting production levels, maintenance, and production costs. During the fourth quarter of 2023, the Alumar refinery experienced periodic instability in power supply since the nationwide power outage that occurred on August 15, 2023, which caused lower production and other incremental costs to stabilize operations. In early July 2023, the repair of the ship-to-shore conveyance system that failed on March 25, 2023 and other unplanned equipment maintenance was completed at the Alumar refinery. As a result of the conveyance system event, bauxite discharge at the Alumar port was temporarily halted and the refinery operated on existing inventory until initial repairs were completed on April 8, 2023. Bauxite flows to the refinery were fully restored by the end of April 2023. The pier was not damaged and could still berth vessels. 57 Capacity. The Alumina segment had a base refining capacity of 13,843 kmt with 1,452 kmt of curtailed capacity. In the first quarter of 2023, curtailed capacity increased 438 kmt due to the reduction in production at the Kwinana refinery (see above). Annual Comparison Production Alumina production decreased 13% primarily as a result of: • The curtailment of capacity at the San Ciprián refinery in the third quarter of 2022 • The partial curtailment at the Kwinana refinery in the first quarter of 2023 • Reduced production at the Australia refineries due to lower grade bauxite • Unplanned equipment maintenance and periodic instability in power supply at the Alumar refinery in 2023 Third-party sales Third-party sales decreased $111 primarily as a result of: • Lower shipments of alumina primarily due to lower production at the Australian refineries, partially offset by increased trading opportunities • Lower average realized price of $26/ton principally driven by a lower average API • Unfavorable currency impacts Partially offset by: • Higher volumes and price from bauxite offtake and supply agreements primarily caused by the shift to third-party sales due to reduced production at the San Ciprián refinery Intersegment sales Intersegment sales decreased $60 primarily as a result of: • Lower average API on sales to the Aluminum segment Partially offset by: • Higher alumina shipments primarily due to the Alumar smelter restart Segment Adjusted EBITDA Segment Adjusted EBITDA decreased $515 primarily as a result of: • Higher production costs primarily related to operating certain of the Australian refineries with lower grade bauxite, the partial curtailment of the San Ciprián refinery, and increased maintenance • Lower average realized price of $26/ton principally driven by a lower average API Partially offset by: • Lower energy costs, primarily in Europe • Favorable currency impacts Forward Look. For 2024, the Company is providing projections for both production and shipments. Alcoa expects alumina production to range between 9.8 and 10.0 million metric tons and alumina shipments to range between 12.7 and 12.9 million metric tons in 2024. The difference between production and shipments reflects trading volumes and externally sourced alumina to fulfill customer contracts due to the curtailment of the Kwinana refinery. Further, in 2024, the Alumina segment expects to benefit from lower raw material costs. 58 Aluminum [[GREPCENT_TABLE]] [["","","2023","","","2022"],["Production (kmt)","","","2,114","","","","2,010"],["Total shipments (kmt)","","","2,491","","","","2,570"],["Third-party aluminum sales","","$","7,045","","","$","8,887"],["Other(1)","","","(120",")","","","(152",")"],["Total segment third-party sales","","$","6,925","","","$","8,735"],["Intersegment sales","","","15","","","","27"],["Total sales","","$","6,940","","","$","8,762"],["Segment Adjusted EBITDA","","$","461","","","$","1,492"],["Average realized third-party price per metric ton","","$","2,828","","","$","3,457"],["Operating costs","","$","6,419","","","$","7,278"],["Average cost per metric ton of aluminum shipped","","$","2,577","","","$","2,831"]] [[/GREPCENT_TABLE]] (1) Other includes third-party sales of energy, as well as realized gains and losses related to embedded derivative instruments designated as cash flow hedges of forward sales of aluminum. In the above table, total aluminum third-party shipments include metric tons that were not produced by the Aluminum segment. Such aluminum was purchased by this segment to satisfy certain customer commitments. 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. Additionally, Total shipments includes offtake from a joint venture supply agreement. The average realized third-party price per metric ton of 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. 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. 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, to a lesser extent, in the United States, as well as internal customers in the Aluminum (Canadian smelters and Warrick smelter) and 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. Business Update. Aluminum prices decreased sequentially with LME prices on a 15-day lag averaging $2,249 per metric ton in 2023. Due to its production of commercial grade aluminum, in December 2023, the Company qualified for Section 45X of the Advanced Manufacturing Tax Credit, enacted as part of the Inflation Reduction Act, which improves the profitability of its smelters in the U.S. In the fourth quarter of 2023, the Company recorded a full year benefit in Cost of goods sold totaling $36 related to its Massena West (New York) smelter and its Warrick smelter. The Company has also requested revisions to the December 2023 regulations to allow for the inclusion of materials costs in the credit calculation. 59 In December 2023, the Norwegian government approved a budget proposal that limits carbon dioxide compensation to be paid in 2024 based on 2023 power purchased and used in production. The Company recorded an adjustment of $18 in the fourth quarter of 2023 to Cost of goods sold to reverse amounts accrued for 2023 credits earned through September 30, 2023, under the prior carbon dioxide compensation program. During the fourth quarter of 2023, the Company took actions to improve the competitiveness of its Warrick smelter. Alcoa began the restart of one line (54,000 mtpy) that was curtailed in July 2022, and also began the closure of one line (54,000 mtpy) that had not operated since 2016 to allow for future capital investments to improve casting capabilities. Restructuring charges related to the closure totaled $1 in the fourth quarter of 2023 to establish reserves related to demolition obligations. Additionally, Alcoa recorded $1 in Cost of goods sold to write-off the remaining net book value of related inventory. In the fourth quarter of 2023, Alcoa began the restart of 16,000 mtpy of previously curtailed capacity at the Portland smelter. The smelter had previously been operating at approximately 75 percent of the site’s total annual capacity of 197 kmt (Alcoa share) since March 2023 due to instability and challenges related to the production of rodded anodes. The smelter was operating at approximately 79 percent of its capacity at December 31, 2023. During 2023, the Company continued the controlled pace for the restart of the Alumar smelter in São Luís, Brazil, which was announced in September 2021. The site was operating at approximately 69 percent of the site’s total annual capacity of 268 kmt (Alcoa share) as of December 31, 2023. Alcoa incurred restart expenses of $33 during 2023. In March 2023, Alcoa announced the closure of the Intalco aluminum smelter (279 kmt of previously curtailed capacity). Charges related to the closure totaled $117 in the first quarter of 2023 and included a charge of $16 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 $101 recorded in Restructuring and other charges, net on the Statement of Consolidated Operations. The restructuring charges were comprised of $50 of asset impairments, $50 to establish reserves related to environmental and demolition obligations, and $1 of severance and employee termination costs. Cash outlays related to the permanent closure of the site are expected to be approximately $85 in 2024 and 2025. The Company spent $2 against the reserves in 2023. San Ciprián Smelter The San Ciprián smelter was curtailed in January 2022, as a result of an agreement with the workers’ representatives in December 2021. In February 2023, under the terms of an amended viability agreement, Alcoa agreed to a phased restart of the smelter beginning in January 2024, to operate an initial complement of approximately 6 percent of total pots, to restart all pots by October 1, 2025 and to maintain 75 percent of the annual capacity of 228 kmt from October 1, 2025 until the end of 2026. Long-term economic viability of any ramp up beyond the initial 6 percent of total pots will depend upon the availability of affordable power, which currently does not exist in adequate supply. While the Company has met its commitments to enter into power purchase agreements for the necessary capacity, that capacity has not been fully permitted by the government or built by the power provider, putting an on-time restart at significant risk and causing the smelter to incur substantial operating losses for longer, all of which is rendering the smelter economically unviable. Under the terms of both agreements, the Company is responsible for certain employee obligations from 2022 through 2025. As a result, the Company recorded charges of $53 and $62 in 2023 and 2021, respectively, in Restructuring and other charges, net on the Statement of Consolidated Operations to establish the related reserves. Cash payments were $38 and $26 in 2023 and 2022, respectively. The remaining reserves of $48 at December 31, 2023 relate to employee commitments in 2024 and 2025. Additionally, in connection with the agreements, the Company committed to capital improvements of $146 and smelter restart costs of $35, and incurred capital improvement expenditures of $28 during 2023. At December 31, 2023, the Company has restricted cash of $91 to be made available for the remaining capital improvements of $118 and smelter restart costs of $35. Capacity. At December 31, 2023, the Aluminum segment had 465 kmt of idle smelting capacity on a base capacity of 2,645 kmt, a decrease from 2022 of 403 kmt in idle capacity primarily due to the permanent closure of the previously curtailed Intalco smelter, closure of one line at the Warrick smelter, and the Alumar and Warrick smelter restarts, partially offset by the partial curtailment of the Portland smelter (see above). 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. 60 Annual Comparison Production Production increased 5% primarily as a result of: • Alumar smelter restart Partially offset by: • Partial curtailment of the Lista (Norway) smelter in August 2022 Third-party sales Third-party sales decreased $1,810 primarily as a result of: • Lower average realized price of $629/ton driven by a lower average LME (on a 15-day lag) and lower regional premiums • Lower trading activities • Lower shipments primarily due to the absence of sales of accumulated inventory in 2022 from the San Ciprián smelter due to the strike in 2021 and partial curtailment of the Lista smelter • Decrease in value add product sales due to overall lower market demand and product premiums in both Europe and North America • Lower Warrick power plant energy sales Partially offset by: • Higher shipments due to the Alumar smelter restart and improved availability of railcars or vessels for outbound product from North American smelters Segment Adjusted EBITDA Segment Adjusted EBITDA decreased $1,031 primarily as a result of: • Lower average realized price based on LME (on a 15-day lag) and lower regional premiums • Lower Warrick power plant energy sales • Decrease in value add product sales • Higher production costs primarily associated with higher labor costs and increased maintenance costs Partially offset by: • Favorable raw material costs primarily on lower average alumina input costs • Lower energy costs, primarily in Europe • Favorable currency impacts Forward Look. For 2024, the Company is providing projections for both production and shipments. The Aluminum segment is expected to produce between 2.2 to 2.3 million metric tons of aluminum, an increase from 2023 due to smelter restarts. In 2024, aluminum shipments are expected to be between 2.5 and 2.6 million metric tons, consistent with 2023, as increased shipments from smelter restarts are offset by lower trading volumes. Additionally, the Company engages in aluminum commodity trading activity when favorable market conditions allow. Availability of trading opportunities in 2024 may impact the Company’s shipment projection. Further, in 2024, the Aluminum segment expects benefits from lower raw material and energy costs, primarily in Brazil and Norway, to be partially offset by lower value add aluminum product sales. 61 Reconciliations of Certain Segment Information Reconciliation of Total Segment Third-Party Sales to Consolidated Sales [[GREPCENT_TABLE]] [["","","2023","","","2022"],["Alumina","","$","3,613","","","$","3,724"],["Aluminum","","","6,925","","","","8,735"],["Total segment third-party sales","","$","10,538","","","$","12,459"],["Other","","","13","","","","(8",")"],["Consolidated sales","","$","10,551","","","$","12,451"]] [[/GREPCENT_TABLE]] Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods Sold [[GREPCENT_TABLE]] [["","","2023","","","2022"],["Alumina","","$","4,524","","","$","4,406"],["Aluminum","","","6,419","","","","7,278"],["Other(1)","","","1,006","","","","721"],["Total segment operating costs","","","11,949","","","","12,405"],["Eliminations(2)","","","(1,670",")","","","(1,874",")"],["Provision for depreciation, depletion, and amortization(3)","","","(610",")","","","(595",")"],["Other(4)","","","144","","","","276"],["Consolidated cost of goods sold","","$","9,813","","","$","10,212"]] [[/GREPCENT_TABLE]] (1) Other largely relates to the Aluminum segment's energy product division and the Alumina segment's purchases of bauxite from offtake or other supply agreements that is sold to third-parties. (2) Represents the elimination of Cost of goods sold related to intersegment sales between Alumina and Aluminum. (3) Provision for depreciation, depletion, and amortization is included in the operating costs used to calculate average cost for each of the alumina and aluminum product divisions (see Alumina and Aluminum above). However, for financial reporting purposes, Provision for depreciation, depletion, and amortization is presented as a separate line item on Alcoa Corporation’s Statement of Consolidated Operations. (4) Other includes costs related to Transformation, and certain other items that are not included in the operating costs of segments (see footnotes 1 and 3 in the Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net (Loss) Income Attributable to Alcoa Corporation below). Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Loss Attributable to Alcoa Corporation [[GREPCENT_TABLE]] [["","","2023","","","2022"],["Total Segment Adjusted EBITDA","","$","734","","","$","2,280"],["Unallocated amounts:"],["Transformation(1)","","","(80",")","","","(66",")"],["Intersegment eliminations","","","7","","","","138"],["Corporate expenses(2)","","","(133",")","","","(128",")"],["Provision for depreciation, depletion, and amortization","","","(632",")","","","(617",")"],["Restructuring and other charges, net","","","(184",")","","","(696",")"],["Interest expense","","","(107",")","","","(106",")"],["Other (expenses) income, net","","","(134",")","","","118"],["Other(3)","","","(55",")","","","(221",")"],["Consolidated (loss) income before income taxes","","","(584",")","","","702"],["Provision for income taxes","","","(189",")","","","(664",")"],["Net loss (income) attributable to noncontrolling interest","","","122","","","","(161",")"],["Consolidated net loss attributable to Alcoa Corporation","","$","(651",")","","$","(123",")"]] [[/GREPCENT_TABLE]] (1) Transformation includes, among other items, the Adjusted EBITDA of previously closed operations. (2) Corporate expenses are composed of general administrative and other expenses of operating the corporate headquarters and other global administrative facilities, as well as research and development expenses of the corporate technical center. (3) Other includes certain items that are not included in the Adjusted EBITDA of the reportable segments. 62 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 2023, the Company generated lower profitability due to lower prices for aluminum and alumina and higher production costs, partially offset by lower restructuring charges. Despite the challenging year, the Company maintained a strong cash position and successfully completed the following actions: • Entered into a Receivables Purchase Agreement facility and sold gross customer receivables of $591, and reinvested collections of $477 from previously sold receivables, resulting in net cash proceeds from the financial institution of $114; • Funded $531 in capital expenditures to sustain and grow our operations; • Entered into a revolving credit facility for $250 (available to be drawn in Japanese yen) (Japanese Yen Revolving Credit Facility); • Purchased group annuity contracts to transfer the obligation to pay remaining retirement benefits for approximately 530 retirees and beneficiaries from certain Canadian defined benefit pension plans. Transferred approximately $235 in both plan obligations and plan assets; • Returned capital to stockholders of $72. In each quarter of 2023, the Board of Directors declared and paid a quarterly cash dividend of $0.10 per share of the Company’s common stock; and, • Entered into multiple agreements with a financial institution for the sale and subsequent repurchase of aluminum inventory resulting in net short-term borrowings of $56 in 2023. In January 2024, the Company initiated the following actions: • Amended its Revolving Credit Facility to provide additional flexibility to implement portfolio actions during 2024, by providing for a temporary reduction of the minimum interest coverage ratio required thereunder from 4.00 to 1.00 to 3.00 to 1.00, and increasing the maximum addback for cash restructuring charges to Consolidated EBITDA (as defined in the Revolving Credit Facility), in each case for the 2024 fiscal year. In connection with the amendment, Alcoa also agreed to provide collateral for its obligations under the Revolving Credit Facility, with a ratings-based release mechanism that would apply starting in 2025. • Initiated a productivity and competitiveness program across its global operations and functions. The program is a first step in the Company’s objective to improve competitiveness and includes a target to save approximately 5 percent of operating costs, exclusive of raw materials, energy and transportation costs which are already under active management and cost control programs. Total savings are expected to approximate $100 on a run rate basis and to be achieved by the first quarter of 2025. • Initiated several operational changes to improve profitability, including engaging with government stakeholders and workers’ representatives to discuss ongoing financial difficulties at the San Ciprián operations, optimizing the Warrick smelter operations, completing the Alumar restart, and announcing the curtailment of the Kwinana refinery. Management believes that the Company’s cash on hand, projected cash flows, and liquidity options, combined with its strategic actions, will be adequate to fund its short-term (at least 12 months) and long-term operating and investing needs. On January 24, 2024, ANHBV drew $201 against the Japanese Yen Revolving Credit Facility to fund working capital requirements and reductions to date in the Company’s Cash and cash equivalents. The Company plans to opportunistically access liquidity sources to support its cash position and ongoing cash needs. Further, the Company has 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 pension plan obligations (refer to Material Cash Requirements, below, for more information). Although management believes that Alcoa’s projected cash flows 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; (iii) the current state of the economy and commodity markets, and (iv) short- and long-term debt ratings. There can be no assurances that the Company will continue to have access to capital markets on terms acceptable to Alcoa Corporation. 63 Changes in market conditions caused by global or macroeconomic events, such as ongoing regional conflicts, high inflation, and changing global monetary policies 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 such events 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, 2023, the Company’s cash and cash equivalents were $944, of which $801 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 $91 in 2023 compared with $822 in 2022. Notable changes to the sources and (uses) of cash include: • ($1,323) lower net income, excluding the impacts from restructuring charges, primarily due to lower aluminum pricing, higher production costs, partially offset by lower energy costs; • $690 in certain working capital accounts, primarily an increase in inventories in 2022 on higher raw material prices and a decrease in inventories in 2023 primarily on lower raw material prices; and, • $216 less income taxes paid on prior year earnings, as well as on lower current year earnings in the jurisdictions where taxes are paid. 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. AofA applied this deduction beginning in the third quarter of 2020, reducing cash tax payments. 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 2023, 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, 2023 and December 31, 2022, the noncurrent liability resulting from the cumulative interest deductions was approximately $199 (A$293) and $174 (A$260), respectively. The Company utilizes a Receivables Purchase Agreement facility to sell up to $130 of certain receivables through a special purpose entity (SPE) to a financial institution on a revolving basis. Alcoa Corporation guarantees the performance obligations of the Company subsidiaries, and unsold customer receivables are pledged as collateral to the financial institution to secure the sold receivables. At December 31, 2023, the SPE held unsold customer receivables of $104 pledged as collateral against the sold receivables. The Company continues to service the customer receivables that were transferred to the financial institution. As Alcoa collects customer payments, the SPE transfers additional receivables to the financial institution rather than remitting cash. In 2023, the Company sold gross customer receivables of $591, and reinvested collections of $477 from previously sold receivables, resulting in net cash proceeds from the financial institution of $114. Cash collections from previously sold receivables yet to be reinvested of $99 were included in Accounts payable, trade on the accompanying Consolidated Balance Sheet as of December 31, 2023. Cash received from sold receivables under the agreement are presented within operating activities in the Statement of Consolidated Cash Flows. See Part II Item 8 of this Form 10-K in Note I to the Consolidated Financial Statements for additional information related to this facility. 64 Financing Activities Cash provided from financing activities was $57 in 2023 compared with cash used for financing activities of $768 in 2022. The source of cash in 2023 was primarily $158 of net contributions from Alumina Limited (see Noncontrolling interest above) and $55 primarily related to the net issuance of short-term borrowings (see below), partially offset by $72 of dividends paid, $52 in financial contributions primarily related to the sale of the Warrick Rolling Mill, and $34 for payments related to tax withholding on stock-based compensation awards. The use of cash in 2022 was primarily $165 of net cash paid to Alumina Limited, $500 for the repurchase of common stock, and $72 of dividends paid. Credit Facilities. Revolving Credit Facility On June 27, 2022, Alcoa Corporation and Alcoa Nederland Holding B.V. (ANHBV), a wholly owned subsidiary of Alcoa Corporation and the borrower, entered into an amendment and restatement agreement (the Third Amendment and Restatement) (as amended and restated, the Revolving Credit Facility) that provided additional flexibility to the Company and ANHBV by (i) extending the maturity date of the Revolving Credit Facility from November 2023 to June 2027, (ii) reducing the aggregate commitments under the facility from $1,500 to $1,250, (iii) releasing the collateral package that had previously secured the Revolving Credit Facility, which would have continued so long as certain credit ratings were maintained, (iv) increasing the maximum leverage ratio from 2.75 to 1.00 to 3.25 to 1.00, which increased following material acquisitions for four consecutive fiscal quarters following an acquisition, (v) providing a debt to capitalization ratio not to exceed .60 to 1.00 to replace the maximum leverage ratio upon a ratings upgrade to investment grade by Moody’s Investor Service (Moody’s) or Standard and Poor’s Global Ratings (S&P), and (vi) providing flexibility for dividends and other restricted payments, to make investments, and to incur additional indebtedness. The Revolving Credit Facility implemented a sustainability adjustment to the applicable margin and commitment fee that may result in a positive or negative adjustment based on two of the Company’s existing sustainability metrics. On July 26, 2022, Moody’s upgraded the rating of ANHBV’s senior unsecured notes to Baa3 (investment grade). In addition to the financial covenants, the Revolving Credit 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 Revolving Credit Facility also contains customary events of default, including failure to make payments under the Revolving Credit Facility, cross-default and cross-judgment default, and certain bankruptcy and insolvency events. As of December 31, 2023, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Revolving Credit Facility. There were no borrowings outstanding at December 31, 2023 and 2022, and no amounts were borrowed during 2023 and 2022 under the Revolving Credit Facility. On January 17, 2024, Alcoa Corporation, ANHBV, and certain subsidiaries of the Company entered into Amendment No. 1 (Amendment No. 1) to the Revolving Credit Facility (Amended Revolving Credit Facility). The Amended Revolving Credit Facility provides additional flexibility to the Company and the Borrower by temporarily (i) reducing the minimum interest coverage ratio required thereunder from 4.00 to 1.00 to 3.00 to 1.00 and (ii) providing for a maximum addback for cash restructuring charges in Consolidated EBITDA (as defined in the Revolving Credit Facility) of $450, in each case for the 2024 fiscal year. As of January 1, 2025, the minimum interest coverage ratio requirement will revert to 4.00 to 1.00 and the maximum addback for cash restructuring charges in Consolidated EBITDA will revert to 15% of Consolidated EBITDA. The requirement that the Company maintain a debt to capitalization ratio not to exceed .60 to 1.00 was not changed by Amendment No. 1. In connection with Amendment No. 1, the Company also agreed to provide collateral for its obligations under the Amended Revolving Credit Facility, which will require it to execute all security documents to re-secure collateral under the Amended Revolving Credit Facility by, subject to certain exceptions, a first priority security interest in substantially all assets of the Company, the Borrower, the material domestic wholly-owned subsidiaries of the Company, and the material foreign wholly-owned subsidiaries of the Company located in Australia, Brazil, Canada, Luxembourg, the Netherlands, Norway, and Switzerland including equity interests of certain subsidiaries that directly hold equity interests in AWAC entities. The collateral would be released if, on or after January 1, 2025, the Company or the Borrower (as applicable) (i) has at least two of the following three designated ratings: (x) Baa3 from Moody’s, (y) BBB- from S&P and (z) BBB- from Fitch Ratings and (ii) does not have any designated rating lower than: (x) Ba1 from Moody’s, (y) BB+ from S&P and (z) BB+ from Fitch Ratings. 65 The Amended Revolving Credit Facility contains customary affirmative covenants, negative covenants, and events of default substantially comparable to the Revolving Credit Facility (other than those that are described above and other minor changes). The representations, warranties and covenants contained in the Amended Revolving Credit Facility were made only for purposes of Amendment No. 1 and as of specific dates and were solely for the benefit of the parties to the Amended Revolving Credit Facility. Japanese Yen Revolving Credit Facility In April 2023, the Company entered into a one-year unsecured revolving credit facility for $250 (available to be drawn in Japanese yen) (the Japanese Yen Revolving Credit Facility). Subject to the terms and conditions under the facility, the Company or ANHBV may borrow funds. The facility included covenants that are substantially the same as those included in the Revolving Credit Facility. As of December 31, 2023, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the facility. There were no borrowings outstanding at December 31, 2023 and $10 was borrowed and subsequently repaid in 2023. On January 17, 2024, Alcoa Corporation and ANHBV, entered into Amendment No. 1 to the Japanese Yen Revolving Credit Facility (Amended Japanese Yen Revolving Credit Facility) which contains changes that are substantially the same as those included in the Amended Revolving Credit Facility (as described above). Also in connection with this amendment, the Company agreed to provide collateral for its obligations with the same conditions as the Amended Revolving Credit Facility. On January 24, 2024, ANHBV drew $201 against this facility. The Company may draw on these facilities 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 these facilities. Guarantees of Third Parties. As of December 31, 2023 and 2022, the Company had no outstanding potential future payments for guarantees issued on behalf of a third-party. Bank Guarantees and Letters of Credit. Alcoa Corporation and its subsidiaries have outstanding bank guarantees and letters of credit related to, among others, energy contracts, environmental obligations, legal and tax matters, leasing obligations, workers compensation, and customs duties. The total amount committed under these instruments, which automatically renew or expire at various dates between 2024 and 2025, was $294 (includes $86 issued under a standby letter of credit agreement —see below) at December 31, 2023. Additionally, ParentCo has outstanding bank guarantees and letters of credit related to the Company of $13 at December 31, 2023. In the event ParentCo would be required to perform under any of these instruments, ParentCo would be indemnified by Alcoa Corporation in accordance with the Separation and Distribution Agreement. Likewise, the Company has outstanding bank guarantees and letters of credit related to ParentCo of $8 at December 31, 2023. In the event Alcoa Corporation would be required to perform under any of these instruments, the Company would be indemnified by ParentCo in accordance with the Separation and Distribution Agreement. In December 2023, AofA committed to provide a bank guarantee for approximately $68 (A$100) which demonstrates Alcoa’s confidence that its operations will not impair drinking water supplies. In August 2017, Alcoa Corporation entered into a standby letter of credit agreement, which expires on June 27, 2024 (amended in August 2018, May 2019, May 2021, June 2022, and January 2024), with three financial institutions. The agreement provides for a $200 facility used by the Company for matters in the ordinary course of business. Alcoa Corporation’s obligations under this facility are secured in the same manner as obligations under the Company’s revolving credit facility. Additionally, this facility contains similar representations and warranties and affirmative, negative, and financial covenants as the Company’s Revolving Credit Facility. 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. As of December 31, 2023, letters of credit aggregating $86 were issued under this facility. Surety Bonds. Alcoa Corporation has outstanding surety bonds primarily related to tax matters, contract performance, workers compensation, environmental-related matters, and customs duties. The total amount committed under these bonds, which automatically renew or expire at various dates between 2024 and 2028, was $190 at December 31, 2023. Additionally, ParentCo has outstanding surety bonds related to the Company of $8 at December 31, 2023. In the event ParentCo would be required to perform under any of these instruments, ParentCo would be indemnified by Alcoa Corporation in accordance with the Separation and Distribution Agreement. Likewise, the Company has outstanding surety bonds related to ParentCo of $5 at December 31, 2023. In the event Alcoa Corporation would be required to perform under any of these instruments, the Company would be indemnified by ParentCo in accordance with the Separation and Distribution Agreement. 66 Debt. As of December 31, 2023, Alcoa Corporation had three outstanding series of Notes maturing at varying times. A summary of the Notes and other long-term debt is shown below. See Part II Item 8 of this Form 10-K in Note M to the Consolidated Financial Statements for additional information related to the Company’s debt. [[GREPCENT_TABLE]] [["December 31,","","2023","","","2022"],["5.500% Notes, due 2027","","$","750","","","$","750"],["6.125% Notes, due 2028","","","500","","","","500"],["4.125% Notes, due 2029","","","500","","","","500"],["Other","","","82","","","","84"],["Unamortized discounts and deferred financing costs","","","(21",")","","","(27",")"],["Total","","","1,811","","","","1,807"],["Less: amount due within one year","","","79","","","","1"],["Long-term debt, less amount due within one year","","$","1,732","","","$","1,806"]] [[/GREPCENT_TABLE]] During 2023, the Company entered into multiple agreements with a financial institution for the sale and subsequent repurchase of aluminum inventory. The Company did not record sales upon each shipment of inventory, and the net cash received of $56 was recorded in Short-term borrowings within Other current liabilities on the Consolidated Balance Sheet. During 2023, the Company recorded borrowings of $117 and repurchased $61 of inventory related to these agreements. The cash received and subsequently paid under the inventory repurchase agreements is included in Cash provided from financing activities on the Statement of Consolidated Cash Flows in 2023. 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 January 12, 2024, Moody’s affirmed a Baa3 (investment grade) rating of ANHBV’s long-term debt and revised the outlook from stable to negative. On December 20, 2023, Fitch Ratings affirmed a BBB- rating for Alcoa Corporation’s long-term debt and revised the outlook from stable to negative. On September 13, 2023, S&P affirmed the BB+ rating of Alcoa’s long-term debt and affirmed the current outlook as positive. Ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization. Dividend. In each quarter of 2023, the Board of Directors declared and paid a quarterly cash dividend of $0.10 per share of the Company’s common stock, totaling $72 for the year. 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. In October 2021, 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 $500, depending on cash availability, market conditions, and other factors. On July 20, 2022, Alcoa Corporation announced that its Board of Directors approved an additional 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 the Company’s continuing analysis of market, financial, and other factors (the July 2022 authorization). Prior to this authorization, $150 remained available for common stock repurchases at the end of the second quarter of 2022 from the prior authorization in October 2021 of $500 which was fully exhausted in 2022 with the Company’s repurchase activity (see below). No shares were repurchased in 2023. In 2022, the Company repurchased 8,565,200 shares of its common stock for $500; the shares were immediately retired. 67 In 2021, the Company repurchased 3,184,300 shares of its common stock for $150; the shares were immediately retired. As of the date of this report, the Company is currently authorized to repurchase up to a total of $500, in the aggregate, of its outstanding shares of common stock under the July 2022 authorization. Repurchases under this program 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. This program may be suspended or discontinued at any time and does not have a predetermined expiration date. Alcoa Corporation intends to retire repurchased shares of common stock. Investing Activities Cash used for investing activities was $585 in 2023 compared to cash used for investing activities of $495 in 2022. In 2023, the use of cash was primarily attributable to $531 related to capital expenditures and $70 of cash contributions to the ELYSISTM partnership. In 2022, the use of cash was primarily attributable to $480 related to capital expenditures and $32 of cash contributions to the ELYSIS partnership, partially offset by the sale of the Company’s interest in the MRN mine of $10. In 2024, Alcoa expects capital expenditures of approximately $550 related to sustaining capital projects and return-seeking capital projects. The timing and amount of capital expenditures may fluctuate as a result of the Company’s normal operations. Material Cash Requirements As discussed above, the Company relies primarily on operating cash flows to fund its cash commitments and management believes its cash on hand, projected cash flows, and liquidity options combined with its strategic actions, will be adequate to fund its short-term (at least 12 months) and long-term operating and investing needs. On January 24, 2024, ANHBV drew $201 against the Japanese Yen Revolving Credit Facility to fund working capital requirements and reductions to date in the Company’s Cash and cash equivalents. The Company plans to opportunistically access liquidity sources to support its cash position and ongoing cash needs. The Company has committed cash outflows related to pension and postretirement benefit obligations, asset retirement obligations, environmental remediation, and operating lease agreements. See Part II Item 8 of this Form 10-K in Notes O, R, S, and T, respectively, to the Consolidated Financial Statements for additional information. As of December 31, 2023, a summary of Alcoa Corporation’s outstanding material cash requirements are as follows: [[GREPCENT_TABLE]] [["","","Total","","","2024","","","2025-2026","","","2027-2028","","","Thereafter"],["Operating activities:"],["Energy-related purchase obligations","","$","13,997","","","$","1,420","","","$","2,542","","","$","2,298","","","$","7,737"],["Raw material purchase obligations","","","4,720","","","","1,874","","","","884","","","","500","","","","1,462"],["Other purchase obligations","","","1,429","","","","658","","","","258","","","","185","","","","328"],["Interest related to debt","","","422","","","","98","","","","185","","","","129","","","","10"],["Financing activities:"],["Long-term debt and Short-term borrowings","","","1,888","","","","135","","","","2","","","","1,250","","","","501"],["Totals","","$","22,456","","","$","4,185","","","$","3,871","","","$","4,362","","","$","10,038"]] [[/GREPCENT_TABLE]] Purchase obligations—Energy-related purchase obligations consist primarily of electricity and natural gas contracts with expiration dates ranging from 1 year to 24 years. Raw material obligations consist mostly of bauxite (relates to AWAC’s bauxite mine interests in Guinea and Brazil), caustic soda, lime, alumina, aluminum fluoride, calcined petroleum coke, anodes, and cathode blocks with expiration dates ranging from less than 1 year to 11 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, 2023 and is calculated on debt with maturities that extend to 2029. Long-term debt and Short-term borrowings—Total debt amounts in the preceding table represent the principal amounts of all outstanding long-term debt and Short-term borrowings, which have maturities that extend to 2029. 68 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. 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. As a result of the January 2023 segment change, the Company reviewed the recoverability of the carrying value of goodwill of its Alumina reporting unit in the first quarter of 2023. The estimated fair value of the Alumina reporting unit substantially exceeded the reporting unit’s carrying value, resulting in no impairment. Management performed a quantitative assessment for the Alumina reporting unit in the fourth quarter of 2023. As a result of the assessment, the estimated fair value of the Alumina reporting unit was substantially in excess of its carrying value, resulting in no impairment. The impact on the estimated fair values of an increase in the discount rate of 1% would not result in a change in the conclusions reached for the impairment assessments performed in 2023, the estimated fair values would remain in excess of carrying values. Further, in all years presented, there have been no triggering events that necessitated an impairment test for the Alumina reporting unit, except for the segment change in the first quarter of 2023 described above. Refer to Part II Item 8 of this Form 10-K in Note L to the Consolidated Financial Statements for more information regarding goodwill. 69 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, reclaim, or restore the site, including: • Engineering designs for construction or closure; • Materials and services costs; • Volume of regulated materials to be removed (asbestos, PCB fluids, spent potlining); • Disposition of demolition materials; • Extent of contamination based on available data; • Scope of remediation to mitigate human health or environmental risks and/or to meet regulatory requirements; • Timing to complete construction or closure; and, • Commercial availability and pricing for off-site treatment or disposal applications. As the site is demolished, remediated, reclaimed, or restored, the assumptions and estimates used to record the reserve may change to account for: • Actual site conditions that require more or less remediation or reclamation; • Legislation that becomes more or less stringent; • Regulative authorities requiring updates to final design prior to completion; • Alternative disposal methods for demolition waste; • Technological changes which allow remediation to be more efficient; • Market factors; and, • Variances in work that is atypical from prior work experience. 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. 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. 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 10 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 of a change in the weighted average discount rate of ¼ of 1% would be approximately $70 on combined pension and other postretirement liabilities and immaterial 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 $6 for 2024. 70 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 may 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. 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.