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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3610
ALCOA INC.
(Exact name of registrant as specified in its charter)
| Pennsylvania | 25-0317820 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
| 390 Park Avenue, New York, New York 10022-4608 |
| (Address of principal executive offices) (Zip code) |
Registrant’s telephone numbers:
Investor Relations------------(212) 836-2674
Office of the Secretary-----------(212) 836-2732
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Name of each exchange on which registered | |
| Common Stock, par value $1.00 | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No ü.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ü No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ü]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
| Large | accelerated filer [ü] Accelerated filer [ ] Non-accelerated filer [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ü.
The aggregate market value of the outstanding common stock, other than shares held by persons who may be deemed affiliates of the registrant, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $28 billion. As of February 12, 2007, there were 869,536,783 shares of common stock, par value $1.00 per share, of the registrant outstanding.
Documents incorporated by reference.
Parts I, II and IV of this Form 10-K incorporate by reference certain information from the registrant’s 2006 Annual Report to Shareholders (Annual Report). Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2007 Annual Meeting of Shareholders filed or to be filed pursuant to Regulation 14A (Proxy Statement).
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Note on Incorporation by Reference
In this Form 10-K, selected items of information and data are incorporated by reference to portions of the Annual Report and Proxy Statement. Unless otherwise provided herein, any reference in this report to disclosures in the Annual Report or Proxy Statement shall constitute incorporation by reference of that specific disclosure into this Form 10-K.
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ALCOA INC.
Formed in 1888, Alcoa Inc. is a Pennsylvania corporation with its principal office in New York, New York. In this report, unless the context otherwise requires, “Alcoa” or the “company” means Alcoa Inc. and all subsidiaries consolidated for the purposes of its financial statements.
The company’s Internet address is http://www.alcoa.com. Alcoa makes available free of charge on or through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains these reports at http://www.sec.gov.
PART I
Description of the Business
Information describing Alcoa’s businesses can be found in the Annual Report at the indicated pages:
| Item |
Page(s) | ||
| Discussion of Recent Business Developments: |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview—Results of Operations (Earnings Summary) |
25 | ||
| Notes to Consolidated Financial Statements |
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| Note B. Discontinued Operations and Assets Held for Sale |
51 | ||
| Note D. Restructuring and Other Charges |
52 | ||
| Note F. Acquisitions and Divestitures |
54 | ||
| Segment Information: |
|||
| Business Descriptions, Principal Products, Principal Markets, Methods of Distribution, Seasonality and Dependence Upon Customers: |
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| 30 | * | ||
| 31 | * | ||
| 31 | * | ||
| 32 | * | ||
| 32 | * | ||
| 32 | * | ||
| Financial Information about Segments and Financial Information about Geographic Areas: |
|||
| Note Q. Segment and Geographic Area Information |
58 |
| * | Excluding captions, charts, diagrams and related notes. |
Overview
Alcoa is the world’s leading producer of primary aluminum, fabricated aluminum, and alumina, and is active in all major aspects of the industry: technology, mining, refining, smelting, fabricating, and recycling. Aluminum is a commodity that is traded on the London Metal Exchange (LME) and priced daily based on market supply and demand. Aluminum and alumina represent approximately three-fourths of Alcoa’s revenues, and the price of aluminum influences the operating results of Alcoa. Nonaluminum products include precision castings, industrial fasteners, consumer products, food service and flexible packaging products, plastic closures, and electrical distribution systems
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for cars and trucks. Alcoa’s products are used worldwide in aircraft, automobiles, commercial transportation, packaging, consumer products, building and construction, and industrial applications.
Alcoa is a global company operating in 44 countries. North America is the largest market with 59% of Alcoa’s revenues. Europe is also a significant market with 24% of the company’s revenues. In addition, Alcoa has investments and activities in Australia, Brazil, China, Iceland, Jamaica and Russia which present opportunities for substantial growth. Governmental policies and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in these countries.
Alcoa’s operations consist of six worldwide segments: Alumina, Primary Metals, Flat-Rolled Products, Extruded and End Products, Engineered Solutions, and Packaging and Consumer.
The Alumina segment primarily consists of a series of affiliated operating entities referred to as Alcoa World Alumina and Chemicals (AWAC). Generally, Alcoa owns 60% and Alumina Limited owns 40% of these individual entities. For more information on AWAC, see Exhibit Nos.10 (a) through 10(f) to this report.
Bauxite Interests
Aluminum is one of the most plentiful elements in the earth’s crust. Aluminum is produced primarily from bauxite, an ore containing aluminum in the form of aluminum oxide, commonly referred to as alumina. Aluminum is made by extracting alumina from bauxite and then removing oxygen from the alumina. Alcoa processes most of the bauxite that it mines into alumina. The company obtains bauxite from reserves held by AWAC, from the company’s interests in the countries listed in the chart below, and under both long-term and short-term contracts and mining leases. In 2006, Alcoa consumed 33.9 million metric tons (mt) of bauxite from its own reserves, 6.6 million mt from related third parties and 3.1 million mt from unrelated third parties. Alcoa’s present sources of bauxite are sufficient to meet the forecasted requirements of its alumina refining operations for the foreseeable future. The following table provides information regarding the company’s bauxite interests:
Alcoa Active Bauxite Interests1
| Country | Project | Mining Rights (% Entitlement ) | Expiration Date of Mining Rights |
||||
| Australia |
Darling Range Mines | Alcoa of Australia Limited (AofA)2 (100%) | 2045 | ||||
| Brazil |
Poços de Caldas | Alcoa Aluminio S.A. (Aluminio) 3 (100%) | 2020 | 4 | |||
| Trombetas | Mineração Rio do Norte S.A. (MRN)5 (100%) | 2046 | 4 | ||||
| Guinea |
Boké | Compagnie des Bauxites de Guinée (CBG)6 (100%) | 2038 | 7 | |||
| Jamaica |
Clarendon/Manchester Plateau | Alcoa Minerals of Jamaica, L.L.C.8 (50%) Clarendon Alumina Production Ltd.9 (50%) |
2042 | ||||
| Suriname |
Lelydorp | BHP Billiton (45%) Suriname Aluminum Company, L.L.C. (Suralco)8 (55%) |
2033 | 10 | |||
| Coermotibo | BHP Billiton (45%) Suralco (55%) |
2033 | 10 | ||||
| Kaimangrasi | BHP Billiton (45%) Suralco (55%) |
2033 | 10 |
| 1 |
Alcoa also has interests at the following locations that are bauxite reserves or do not currently produce bauxite: Cape Bougainville and Mitchell Plateau in Australia, Juruti in Brazil (scheduled for completion in 2008 and expected to initially produce 2.6 million mt per year (mtpy)) and Klaverblad (expected to produce bauxite beginning in 2007), Brownsberg, Coermotibo DS, Lely Mountains, and Nassau all in eastern Suriname. |
| 2 |
AofA is part of the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited. |
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| 3 |
In August 2003, Alcoa acquired the 40.9% shareholding in Aluminio held by affiliates of Camargo Correa S.A. (collectively the “Camargo Group”). Prior to the acquisition, Alcoa had owned approximately 59% of Aluminio and the Camargo Group had been the principal minority shareholder since 1984. |
| 4 |
Brazilian mineral legislation does not establish the duration of mining concessions. The concession remains in force until the complete exhaustion of the deposit. The company estimates that (i) the concessions at Poços de Caldas will last at least until 2020 and (ii) the concessions at Trombetas will last until 2046. Depending, however, on actual and future needs, the rate at which the deposits are explored and government approval, the concessions may be extended to (or expire at) a later (or an earlier) date. |
| 5 |
Aluminio holds an 8.6% interest, Abalco S.A. (Abalco) holds a 4.6% interest and Alcoa World Alumina LLC (AWA LLC) holds a 5% interest in MRN. Abalco and AWA LLC are both part of the AWAC group of companies and are owned 60% by Alcoa and 40% by Alumina Limited. MRN is jointly owned with affiliates of Alcan Inc. (Alcan), Companhia Brasileira de Aluminio, Companhia Vale do Rio Doce, BHP Billiton Plc (BHP Billiton) and Norsk Hydro. Aluminio, Abalco, and AWA LLC purchase bauxite from MRN under long-term supply contracts. |
| 6 |
AWA LLC owns a 45% interest in Halco (Mining), Inc. Halco owns 51% and the Guinean Government owns 49% of CBG, which has the exclusive right through 2038 to develop and mine bauxite in certain areas within a 10,000 square-mile perimeter in northwestern Guinea. |
| 7 |
AWA LLC has a bauxite purchase contract with CBG that will provide Alcoa with bauxite through 2011. |
| 8 |
This entity is part of the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited. |
| 9 |
Clarendon Alumina Production Ltd. is a wholly-owned subsidiary of the Government of Jamaica. |
| 10 |
While mining rights extend until 2033, bauxite reserves may be exhausted before that date. Alternative bauxite resources are being evaluated in the western part of Suriname. |
Alumina Refining Facilities and Capacity
Alcoa is the world’s leading producer of alumina. Alcoa’s alumina refining facilities and its worldwide alumina capacity are shown in the following table:
Alcoa Worldwide Alumina Refining Capacity
| Country | Facility | Owners (% of Ownership) |
Nameplate Capacity1 (000 MTPY) |
Alcoa Consolidated (000 MTPY) | |||||
| Australia |
Kwinana | AofA3 (100%) | 2,150 | 2,150 | |||||
| Pinjarra | AofA (100%) | 4,234 | 4 | 4,234 | |||||
| Wagerup | AofA (100%) | 2,480 | 2,480 | ||||||
| Brazil |
Poços de Caldas | Aluminio (100%) | 390 | 390 | |||||
| São Luís (Alumar) | Abalco3 (18.9%) Alcan5 (10%) Aluminio (35.1%) BHP Billiton5 (36%) |
1,400 | 756 | ||||||
| Jamaica |
Jamalco | Alcoa Minerals of Jamaica, L.L.C.3 (50%) Clarendon Alumina Production Ltd. (50%) |
1,275 | 638 | |||||
| Spain |
San Ciprián | Alúmina Española, S.A.3 (100%) | 1,450 | 1,450 | |||||
| Suriname |
Suralco | BHP Billiton5 (45%) Suralco3 (55%) |
2,207 | 1,214 | |||||
| U.S. |
Point Comfort, Tex. | AWA LLC3 (100%) | 2,305 | 2,305 | |||||
| TOTAL |
17,891 | 15,617 |
| 1 |
Nameplate capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production. |
| 2 |
The figures in this column reflect Alcoa’s share of production from these facilities. For facilities owned by AWAC entities, Alcoa takes 100% of the production. |
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| 3 |
This entity is part of the AWAC group of companies and is owned 60% by Alcoa and 40% by Alumina Limited. |
| 4 |
In 2004, Alcoa received the Western Australian Government’s environmental approval for its previously announced Pinjarra alumina refinery efficiency upgrade, which would increase production at the facility by 657,000 mtpy. Ramp up to full production at the Pinjarra refinery was achieved in the fourth quarter of 2006. Nameplate capacity was reduced, however, during the month of December due to a power failure experienced at the refinery. Full power has since been restored. |
| 5 |
The named company or an affiliate holds this interest. |
In January 2005, Alcoa and the Government of the Republic of Ghana announced the signing of a Memorandum of Understanding (MOU), under which the parties would evaluate the possible development of an integrated aluminum industry in Ghana, including bauxite mining, alumina refining, aluminum production, and rail transportation infrastructure upgrades. Alcoa has worked with the Government to conduct feasibility studies related to the bauxite resources. The parties expect to continue discussions during 2007 on the feasibility of the project.
In September 2005, Alcoa announced that its Board of Directors approved plans to make further investments in the company’s Brazilian “upstream” operations, including a 2.1 million mtpy expansion of the Alumar consortium alumina refinery in São Luís, state of Maranhao (expected to increase the refinery’s capacity from 1.4 million mtpy to approximately 3.5 million mtpy beginning in late 2008, with Alcoa’s share of the total facility output more than doubling to 1.89 million mtpy based on its 54% ownership stake through AWAC) and the modernization of the Poços de Caldas aluminum smelter, in the state of Minas Gerais.
In November 2005, AWA LLC and Alcan announced the signing of a Basic Agreement with the Government of Guinea that sets forth the framework for development of a 1.5 million mtpy alumina refinery in Guinea. The Basic Agreement was approved by the Guinean National Assembly in May of 2006 and was promulgated into law by decree of the President of Guinea in July of 2006.
In April 2006, AWAC signed an MOU with Vietnam National Coal-Minerals Industries Group (Vinacomin) under which the parties will explore the feasibility of creating a joint venture to develop a bauxite mine and alumina refinery in the Dak Nong province of Vietnam. If established, the joint venture would be 51% owned by Vinacomin and 49% owned by AWAC.
In September 2006, Alcoa received environmental approval from the Government of Western Australia for expansion of the Wagerup alumina refinery to a maximum capacity of 4.7 million mtpy, a potential increase of over 2 million mtpy. This approval includes a variety of environmental conditions that must be satisfied before Alcoa can seek construction approval for the project. The environmental approval paves the way for Alcoa to proceed to the next stage of project design (feasibility study) following completion of pre-feasibility work scheduled for the first half of 2007.
The 1.5 million mtpy planned expansion of the Jamalco alumina refinery in Clarendon, Jamaica is subject to supply of natural gas by the Government of Jamaica and acceptable market conditions. The Government of Jamaica continues to negotiate with third party suppliers to procure natural gas to be supplied to Jamalco, but no final agreement has been reached. Alcoa is proceeding with the Early Works Program, which will add 146,000 mtpy of production to Jamalco, bringing the total capacity to 1.420 million mtpy. The Early Works Program is expected to be substantially complete by the end of the first quarter of 2007. As a result of the Early Works Program, Alcoa’s ownership in Jamalco will increase to approximately 55%, with the Government of Jamaica owning approximately 45%.
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Primary Aluminum Facilities and Capacity
The company’s primary aluminum smelters and their respective capacities are shown in the following table:
Alcoa Worldwide Smelting Capacity
| Country | Facility | Owners (% Of Ownership) |
Nameplate (000 MTPY) |
Alcoa Consolidated Capacity2 (000 MTPY) |
||||||
| Australia |
Point Henry | AofA (100%) | 185 | 185 | 3 | |||||
| Portland | AofA (55%) CITIC (22.5%) Marubeni (22.5%) |
353 | 194 | 3 | ||||||
| Brazil |
Poços de Caldas | Aluminio (100%) | 96 | 96 | ||||||
| São Luís (Alumar) | Aluminio (60%) BHP Billiton (40%) |
438 | 263 | |||||||
| Canada |
Baie Comeau, Que. | Alcoa (100%) | 438 | 438 | ||||||
| Bécancour, Que. | Alcoa (74.95%) Alcan4 (25.05%) |
409 | 307 | |||||||
| Deschambault, Que. | Alcoa (100%) | 254 | 254 | |||||||
| Italy |
Fusina | Alcoa (100%) | 44 | 44 | ||||||
| Portovesme | Alcoa (100%) | 150 | 150 | |||||||
| Spain |
Avilés | Alcoa (100%) | 90 | 90 | ||||||
| La Coruña | Alcoa (100%) | 84 | 84 | |||||||
| San Ciprián | Alcoa (100%) | 225 | 225 | |||||||
| U.S. |
Evansville, Ind. (Warrick) | Alcoa (100%) | 309 | 5 | 309 | 5 | ||||
| Frederick, Md. (Eastalco) | Alcoa (100%) | 195 | 6 | 195 | 6 | |||||
| Badin, N.C. | Alcoa (100%) | 60 | 7 | 60 | 7 | |||||
| Massena West, N.Y. | Alcoa (100%) | 130 | 130 | |||||||
| Massena East, N.Y. | Alcoa (100%) | 125 | 125 | |||||||
| Mount Holly, S.C. | Alcoa (50.33%) Century Aluminum Company (49.67%) |
229 | 115 | |||||||
| Alcoa, Tenn. | Alcoa (100%) | 215 | 215 | |||||||
| Rockdale, Tex. | Alcoa (100%) | 267 | 267 | |||||||
| Ferndale, Wash. (Intalco) | Alcoa (100%) | 279 | 8 | 279 | 8 | |||||
| Wenatchee, Wash. | Alcoa (100%) | 184 | 9 | 184 | 9 | |||||
| TOTAL |
4,759 | 4,209 |
| 1 |
Nameplate capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production. |
| 2 |
The figures in this column reflect Alcoa’s share of production from these facilities. |
| 3 |
Figures include the minority interest of Alumina Limited in facilities owned by AofA. From these facilities, Alcoa takes 100% of the production allocated to AofA. Due to an equipment fault in November 2005, the Portland smelter lost power resulting in the loss of a number of pots on one potline. The pots were progressively returned to service during 2006, with potlines operating at full capacity by the end of the third quarter of 2006. |
| 4 |
Owned through Alcan subsidiary Pechiney Reynolds Quebec, Inc. |
| 5 |
The Warrick facility currently has one idled potline. |
| 6 |
At the end of 2005, all production was temporarily curtailed at the Eastalco smelter located in Frederick, Maryland. In July 2006, Alcoa acquired the minority interest in the Eastalco smelter from Mitsui & Co. Ltd. resulting in Alcoa owning 100% of the facility. |
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| 7 |
The Badin, North Carolina facility has been idled since August 2002. In addition, one of the two idled potlines is undergoing decommissioning and will not be returned to service. The decommissioning has resulted in reduction of Nameplate and Alcoa Capacities by 60 mtpy. |
| 8 |
In July 2006, Alcoa acquired the minority interest in the Intalco smelter from Mitsui & Co. Ltd. resulting in Alcoa owning 100% of the facility. Intalco is operating at approximately one-third of its capacity but expects to re-start a second potline during the first half of 2007, anticipated to add 95,000 tons of production for the year. |
| 9 |
Wenatchee is operating at approximately one-half of its capacity. |
Alcoa currently has 545,000 mtpy of idle capacity against a base capacity of 4,209,000 mtpy.
In February 2006, Alcoa signed an Agreement in Principle with the Government of the Republic of Trinidad and Tobago to build a 341,000 mtpy aluminum smelter in the Cap-de-Ville area in southwestern Trinidad. This agreement followed the signing of an MOU in May 2004 for participation by Alcoa in the development of an aluminum industry in Trinidad and Tobago. In December 2006, the Government advised Alcoa of its intention to relocate the smelter. The parties are working on the selection of a new site and will resume negotiations later in 2007.
In March 2006, Aluminio completed a 30% expansion of the capacity of its share of the São Luís (Alumar) aluminum smelter, increasing Aluminio’s share of smelting capacity there by 62,000 mtpy to a total of 263,000 mtpy and Aluminio’s share of smelter output from 53.66% to 60%.
Alcoa and the Government of Iceland have begun detailed feasibility studies for the development of a 250,000 mtpy aluminum smelter at Bakki near Húsavík in north Iceland. Additionally, separate MOU agreements between Alcoa and Landvirkjun and Alcoa and Landsnet covering development of power generation and transmission for this smelter project were signed in May 2006. If the feasibility studies prove the viability of the proposed smelter, it is expected that ground would not be broken before 2010.
During 2006, Alcoa continued construction on its new 344,000 mtpy Fjarðaál aluminum smelter in east Iceland. Alcoa broke ground on the new smelter in July 2004. The smelter is scheduled to begin production during the second quarter of 2007.
In 2006, Alcoa continued construction of a new anode plant in Mosjøen, Norway. The facility, being built together with Elkem AS, will produce anodes for Alcoa’s Fjarðaál, Iceland and Elkem Aluminium ANS’ Mosjøen, Norway smelters. Construction of the anode plant remains on schedule with completion expected in 2007.
Alcoa owns interests in the following primary aluminum facilities that are accounted for on the equity or cost basis method. The capacity associated with these facilities is not included in Alcoa’s consolidated capacity.
| Country | Facility | Owners (% Of Ownership) |
Nameplate (000 MTPY) |
||||
| Ghana |
Tema | Alcoa (10%) Government of the Republic of Ghana (90%) |
200 | 2 | |||
| Norway |
Lista | Alcoa (50%) Elkem AS (50%) |
94 | ||||
| Mosjøen | Alcoa (50%) Elkem AS (50%) |
188 | |||||
| Venezuela |
Alcasa | Alcoa (<1%) Corporación Venezolana de Guayana (CVG) and Japanese Interests (>99%) |
210 |
| 1 |
Nameplate capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production. |
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| 2 |
In 2003, the smelter at the Tema facility was idled due to shortage of available power. In August 2005, pursuant to the MOU discussed immediately below, Alcoa and the Government of Ghana announced plans to re-start up to three potlines representing 120,000 mtpy. As of year-end 2005, two potlines had been restarted. Throughout 2006, however, the smelter operated at approximately 38% capacity due to power restrictions related to water levels at Lake Volta, and is currently operating just under two full potlines. Ghana is subject to power restrictions and future production of the smelter will be subject to energy availability. |
As noted in the Alumina Refining Facilities and Capacity section above, in January 2005, Alcoa and the Government of the Republic of Ghana signed an MOU, under which the parties would evaluate the development of an integrated aluminum industry in Ghana, including aluminum production. The parties expect to continue discussions during 2007 regarding the feasibility of the project.
At the end of 2005, the shareholders of Hamburger Aluminium-Werk closed the 132,000 mtpy Hamburg, Germany smelter due to escalating power costs. Effective December 1, 2006, Alcoa, Austria Metall AG and Norsk Hydro each sold their 33.33% ownership interest to Trimet Aluminium AG.
Energy
Alcoa produces aluminum from alumina by an electrolytic process requiring large amounts of electric power. Electric power accounts for approximately 30% of the company’s primary aluminum costs. Alcoa generates approximately 24% of the power used at its smelters worldwide and generally purchases the remainder under long-term arrangements. The paragraphs below summarize the sources of power and the long-term power arrangements for Alcoa’s smelters.
North America – Electricity
The company’s wholly-owned subsidiary, Alcoa Power Generating Inc. (APGI) generates approximately 25% of the power requirements for Alcoa’s North American smelters. The company generally purchases the remainder under long-term contracts. APGI owns and operates two hydroelectric projects, Tapoco and Yadkin, consisting of eight dams under Federal Energy Regulatory Commission (FERC) licenses. APGI hydroelectric facilities provide electric power for the aluminum smelters at Alcoa, Tennessee and Badin, North Carolina. APGI received a renewed 40-year FERC license for the Tapoco project in 2005. The relicensing process is well underway for the Yadkin hydroelectric project license that is up for renewal in 2008. With the Badin smelter idled, power generated from APGI’s Yadkin system is largely being sold to an affiliate, Alcoa Power Marketing, Inc. and then sold into the market. The Tennessee smelter also purchases power from the Tennessee Valley Authority under a contract that extends to 2010.
In the Pacific Northwest, Alcoa has a contract with Chelan County Public Utility District located in the State of Washington that is sufficient to supply about half of the capacity of the Wenatchee smelter through October 2011. In addition, Alcoa has a contract through September 2011 with the Bonneville Power Administration (BPA) under which Alcoa is receiving financial benefits to reduce the cost of power purchased from the market to partially operate the Intalco smelter.
The company, through APGI, generates substantially all of the power used at its Warrick smelter using nearby coal reserves. In May 2005, Alcoa acquired mining rights to the nearby Friendsville, Illinois coal reserves. The mine became fully operational in late 2006. The mine is capable of producing approximately one million tons of coal per year, 45% of the Warrick power plant’s requirements. The balance of the coal used is purchased principally from local Illinois basin coal producers pursuant to term contracts of varying duration. In April 2001, under the terms of an operating agreement, the company assumed operation of the power plant that supplies the Warrick smelter from Vectren (formerly Southern Indiana Gas & Electric Company) until at least 2008. In July 2005, Alcoa announced its plans to invest approximately $330 million at the Warrick power plant to improve environmental performance, operational efficiency and lower costs. This project is well underway.
Power for the Rockdale smelter has historically been generated by company-owned generating units and TXU Generation Company LP (TXU)-owned generating units, both of which used lignite supplied by the company’s
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Sandow Mine. The company has opened a new lignite mine, the Three Oaks Mine, on adjacent land it owns or controls. Mining in the Sandow Mine ceased in 2005 and the fuel supply for the company-owned and TXU-owned units has transitioned from the Sandow Mine to the Three Oaks Mine. The three company-owned generating units supplied about one-half of the total electricity requirements of the smelter, but were retired from operation in December 2006. TXU currently supplies the smelter with required electricity through a long-term power contract that does not expire until at least the end of 2038, with the parties having the right to terminate the contract after 2013 if there has been an unfavorable change in law or after 2025 if the cost of the electricity exceeds the market price. In late 2006, TXU and Alcoa signed definitive agreements, subject to a number of conditions precedent, under which TXU would construct, own and operate a new circulating fluidized bed power plant adjacent to the existing Sandow Unit Four Power Plant. Alcoa would supply lignite for the new unit from the Three Oaks Mine, and would purchase a portion of the plant’s electricity output. Alcoa and TXU have agreed to interim power arrangements to meet the Rockdale smelter’s requirements while the new generation unit is being developed.
In the northeast, the purchased power contracts for both the Massena East and Massena West smelters in New York expire not earlier than June 30, 2013, following their extension in 2003 for 10 years upon New York Power Authority (NYPA) having re-licensed its St. Lawrence-FDR Hydro Project. The company is currently in discussions with NYPA to extend the power supply arrangements in order to facilitate potential technical improvements in the plants, but may terminate either of these contracts with one year’s notice.
The Deschambault and Bécancour smelters located in Quebec purchase electricity under long-term contracts with Hydro-Quebec that expire in 2014, subject to extension provisions. The smelter located in Baie Comeau, Quebec purchases approximately 65% of its power needs under the Hydro-Quebec contract and receives the remainder of its power needs from a 40%-owned hydroelectric generating company, Manicouagan Power Company.
The Mt. Holly smelter in South Carolina purchases electricity from Santee Cooper under a contract that expires December 31, 2015, subject to certain extension provisions.
At the end of 2005, all production was temporarily curtailed at the Eastalco smelter located in Frederick, Maryland. The curtailment coincided with the expiration of the smelter’s power contract on December 31, 2005, as a competitively-priced replacement power supply could not be obtained. Alcoa continues efforts to find an alternative power source for Eastalco.
Australia – Electricity
Power is generated from extensive brown coal deposits covered by a long-term mineral lease held by AofA, and that power currently provides approximately 40% of the electricity for the company’s smelter in Point Henry, Victoria. The State Electricity Commission of Victoria provides the remaining power for this smelter and all power for the Portland smelter, under contracts with AofA that extend to 2014 and 2016, respectively.
Brazil – Electricity
The Alumar smelter is supplied by Eletronorte (Centrais Elétricas do Norte do Brasil S.A.) through a long term power purchase agreement signed in June 2004 and expiring in June 2024. Eletronorte has supplied the Alumar smelter from the beginning of its operations in 1984.
Aluminio participates in a consortium that owns the Machadinho hydroelectric power plant in southern Brazil, which began to generate power at full capacity in 2002. Aluminio’s investment participation in this project is 27.23%. Aluminio receives its share of the plant’s output, which is sufficient to cover 51% of its operating needs at the Poços de Caldas smelter.
Aluminio also has a 42.18% interest in Energética Barra Grande S.A. – BAESA, which built the Barra Grande hydroelectric power plant in southern Brazil. Barra Grande began operating in November 2005, and reached full
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generating capacity in 2006. Aluminio’s share of the project covers a substantial portion of its currently-purchased needs at the Poços de Caldas smelter.
With Machadinho and Barra Grande, Aluminio’s current power self-sufficiency is approximately 38%, to meet a total energy demand of approximately 690 megawatts from Brazilian primary plants.
Aluminio is also participating in a number of Brazilian hydropower projects. Two of these projects have received the Environmental Installation License from the Federal Government:
| • | Estreito, northern Brazil – Aluminio’s share is 25.49% |
| • | Serra do Facão, in the southeast of Brazil – a consortium of which Aluminio expects to own approximately 34% |
In January 2007, a shareholder agreement was concluded by investors in the Serra do Facão hydroelectric plant which formalized the creation of a company, Romania, to construct the power plant. Generation of power is expected to begin in 2010.
A third project, Pai Querê in southern Brazil (Aluminio share is 35.00%), is still in the process of obtaining necessary environmental licenses.
If these projects are completed, the power will be used in Aluminio’s smelters or sold into the Brazilian grid.
Aluminio also owns 42% of ETAU, a Brazilian company that holds and operates an electric transmission line in southern Brazil, optimizing the transportation of the energy generated in the Barra Grande hydroelectric power plant.
Europe – Electricity
The company purchases electricity for its Italian smelters in the recently deregulated market, under contracts expiring in December 2009 for both the Portovesme and Fusina smelters. A new law went into effect on May 14, 2005, extending through December 2010 the special tariff conditions applicable to the Italian smelters. This provision has been communicated by the Italian Government to the European Union (EU) as a non-state-aid measure; however, the EU has opened an ongoing investigation into whether this provision should be considered unlawful state aid. It is expected that the outcome of the investigation by the EU Commission be known by the end of the second quarter of 2007. If the investigation concludes that the extension of special conditions applicable to the smelters is unlawful, Alcoa will follow through with the appeal it filed before the Court of First Instance in Luxembourg in November of 2006 in response to the investigation.
The company’s smelters at San Ciprián, La Coruña and Avilés, Spain purchase electricity from the power grid at the lowest applicable industrial tariff rate under regulations expiring in January 2010.
Iceland – Electricity
As noted above, Alcoa broke ground in 2004 on construction of its new Fjarðaál smelter in eastern Iceland. Central to those arrangements is a 40-year power contract under which Landsvirkjun, the Icelandic national power company, will build the Kárahnjukár dam and power project, and supply competitively priced electricity to the smelter.
Minority Interests – Electricity
The smelters in Ghana, Norway and Venezuela, in which Alcoa has only an equity stake and is not the operational manager, have made a variety of electricity purchase arrangements, through their respective managing or majority partners. The power contract for the smelter in Germany, in which the company previously held minority interest, ran through December 2005; at the end of 2005, the shareholders closed the smelter due to escalating power costs. Power for the smelter in Ghana is provided under an interim power rate agreement with the Volta River Authority. The other contracts are up for renewal at various times, the majority of them in the period from 2011 to 2020.
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Canada & U.S. – Natural Gas
In order to supply its refineries and smelters in the U.S. and Canada, the company generally procures natural gas on a competitive bid basis from a variety of sources including producers in the gas production areas and independent gas marketers. For Alcoa’s larger consuming locations in Canada and the U.S., the gas commodity as well as interstate pipeline transportation is procured to provide increased flexibility and reliability. Contract pricing for gas is typically based on a published industry index or New York Mercantile Exchange (NYMEX) price. The company may choose to reduce its exposure to NYMEX pricing by hedging a portion of required natural gas consumption.
Australia – Natural Gas
AofA holds a 20% equity interest in a consortium that bought the Dampier-to-Bunbury natural gas pipeline in October 2004. This pipeline transports gas from the northwest gas fields to Alcoa’s alumina refineries and other users in the Southwest of Western Australia. AofA uses gas to co-generate steam and electricity for its alumina refining processes at the Kwinana, Pinjarra and Wagerup refineries.
Sources and Availability of Raw Materials
The major purchased raw materials in 2006 for each of the company’s segments are listed below.
| Alumina |
Primary Metals | |
| bauxite |
alumina | |
| caustic soda | aluminum fluoride | |
| electricity |
calcined petroleum coke | |
| fuel oil |
cathode blocks | |
| natural gas |
electricity | |
| liquid pitch | ||
| natural gas | ||
| silicon carbide | ||
| Flat-Rolled Products |
Extruded and End Products | |
| alloying materials |
cobalt | |
| aluminum scrap |
electricity | |
| coatings |
fabricated aluminum | |
| electricity |
natural gas | |
| natural gas |
nitrogen | |
| primary aluminum (rolling ingot, high purity, P1020) |
polypropylene resin | |
| polyvinyl chloride resin compound | ||
| primary aluminum (billet) | ||
| Engineered Solutions |
Packaging and Consumer | |
| cobalt |
aluminum | |
| copper |
electricity | |
| electricity |
natural gas | |
| natural gas |
paper | |
| nickel |
polyethylene resin compound | |
| nitrogen |
polyethylene terephthalate (PET) resin compound | |
| polyvinyl chloride resin compound |
polypropylene resin | |
| primary aluminum (billet) |
polystyrene resin compound | |
| steel |
||
| titanium |
||
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Other materials generally are purchased from third party suppliers under competitively priced supply contracts or bidding arrangements. The company believes that the raw materials necessary to its business are and will continue to be available.
Joint Ventures and Investments
The company’s principal alliances and joint ventures are included in its “upstream” operating segments (alumina and primary metals) as shown in the tables above relating to those segments.
Alcoa’s other significant joint ventures and investments are as follows:
Alcoa Bohai Aluminum Industries Company Limited. In October 2005, Alcoa inaugurated a restructured joint venture with China International Trust & Investment (CITIC), its equity partner, to produce aluminum rolled products in Qinghuangdao, China. Alcoa is the managing partner in the new venture, holding a 73% stake, with CITIC holding a 27% stake. The joint venture operates existing aluminum cold rolling and foil facilities and is undertaking a major expansion, which includes a hot rolling mill and related equipment.
Alcoa Kunshan Aluminum Products Company Ltd. In September 2006, Alcoa completed the acquisition of its 70% interest in the aluminum brazing sheet venture in Kunshan City, China. Alcoa is the managing partner in the venture, with the remaining 30% shares held by Shanxi Yuncheng Engraving Group. Kunshan Aluminum is designed to produce 50,000 mtpy of aluminum brazing sheet primarily for the Asian automotive market. It is the third flat-rolled products facility managed by Alcoa in China including those owned and operated by Alcoa Bohai Aluminum Industries Company Limited and Alcoa (Shanghai) Aluminum Products Limited.
Aluminum Corporation of China Limited (Chalco). In November 2001, Alcoa entered into a strategic alliance with Chalco and its parent company, Aluminum Corporation of China (Chinalco). Under this alliance, in 2001 Alcoa became a strategic investor in Chalco’s global offering and listing on the New York Stock Exchange and The Stock Exchange of Hong Kong. Chinalco is the largest shareholder in Chalco and Alcoa is the largest holder of the shares of Chalco listed on stock exchanges outside China.
Elkem Aluminium ANS. This Norwegian partnership is owned 50% by Alcoa and 50% by Elkem AS, one of Norway’s largest industrial companies and a leading supplier of metals and materials, with Elkem as managing partner. The partnership is the second largest aluminum producer in Norway and operates two smelters: Mosjøen and Lista. These facilities supply extrusion billets, rolling ingots and foundry ingots to leading rolling mills, extrusion plants and foundries in Europe.
Orkla ASA (Orkla) and SAPA AB (Sapa). In 2006, Alcoa and Orkla signed a letter of intent to create a joint venture with Orkla’s subsidiary Sapa to combine Alcoa’s soft alloy extrusion business with Sapa’s extruded aluminum business. Alcoa’s soft alloy extrusion business currently operates twenty-two facilities in eight countries (three of which, located in the United States, will be divested and not included in the joint venture); Sapa’s profiles business has eighteen facilities in twelve countries. The new venture will be majority owned and operated by Sapa. The parties intend to eventually offer an IPO of the combined entity. It is anticipated that the joint venture will be formed by the end of the first quarter of 2007, subject to customary government approvals. Alcoa will continue to own and operate its hard alloy extrusion business which serves the aerospace, automotive, and selected other markets. This report does not constitute an offer of any securities for sale.
In 2006, Alcoa restructured the following joint ventures and investments:
Alcoa Kobe Transportation Products, Inc. (AKTP) and Kobe Alcoa Transportation Products Ltd. (KATP). Effective December 31, 2006, AKTP was dissolved and Alcoa sold its shares in KATP to Kobe Steel, Ltd. (Kobe). Both AKTP and KATP were joint ventures formed as part of the Alcoa and Kobe arrangement in the 1990’s to pursue opportunities in the transportation sheet products market. Both joint ventures were owned 50% by Alcoa and 50% by Kobe. AKTP, was engaged in the research and development of aluminum sheet products for the transportation
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industry. Alcoa will distribute 50% of the proceeds of the dissolved joint venture to Kobe. KATP was engaged in the manufacturing and marketing of aluminum sheet products for worldwide transportation markets. Separately, Alcoa and Kobe are in discussion about a potential joint research and development arrangement on various items including, but not limited to, brazing sheet.
Patents, Trade Secrets and Trademarks
The company believes that its domestic and international patent, trade secret and trademark assets provide it with a significant competitive advantage. The company’s rights under its patents, as well as the products made and sold under them, are important to the company as a whole and, to varying degrees, important to each business segment. The patents owned by Alcoa generally concern particular products or manufacturing equipment or techniques. Alcoa’s business as a whole is not, however, materially dependent on any single patent, trade secret or trademark.
The company has a number of trade secrets, mostly regarding manufacturing processes and material compositions that give many of its businesses important advantages in their markets. The company continues to strive to improve those processes and generate new material compositions that provide additional benefits.
The company also has a number of domestic and international registered trademarks that have significant recognition at the consumer level, and others that have significant recognition within the markets that are served. Examples include Alcoa and the Alcoa Symbol for aluminum products, Howmet metal castings, Huck® fasteners, Kawneer building panels, Dura-Bright® surface treatments, Presto® storage bags, Cut-Rite® wax paper, Baco® household wraps, Reynolds® plastic wrap and Reynolds Wrap® aluminum foil. The company’s rights under its trademarks are important to the company as a whole and, to varying degrees, important to each business segment.
Competitive Conditions
Alcoa is the world’s leading producer of alumina, primary aluminum and fabricated aluminum. Alcoa is subject to highly competitive conditions in all aspects of its aluminum and nonaluminum businesses. Competitors include a variety of both U.S. and non-U.S. companies in all major markets. Price, quality and service are the principal competitive factors in Alcoa’s markets. Where aluminum products compete with other materials – such as steel and plastics for automotive and building applications; magnesium, titanium, composites and plastics for aerospace and defense applications; steel, plastics and glass for packaging applications – aluminum’s diverse characteristics, particularly its light weight, recyclability and flexibility, are also significant factors. For Alcoa’s segments that market products under Alcoa’s brand names, brand recognition and brand loyalty also play a role.
Research and Development
Alcoa, a technology leader in the aluminum industry, engages in research and development programs that include process and product development, and basic and applied research. Alcoa conducts these activities within its businesses and at the Alcoa Technical Center near Pittsburgh, Pennsylvania. Expenditures for R&D activities were $213 million in 2006, $192 million in 2005 and $178 million in 2004. Expenditure amounts reported for 2005 and 2004 have been adjusted from those stated in Alcoa’s prior reports because of reclassifications due to discontinued operations.
Most of the major process and product areas within the company have a Technology Management Review Board (TMRB) consisting of members from various worldwide locations. Each TMRB is responsible for formulating and communicating a technology strategy for the corresponding product and process area, developing and managing the technology portfolio and ensuring the global transfer of technology. Certain business units alternatively conduct these activities and research and development programs within the worldwide business unit, supported by the Alcoa Technical Center. Technical personnel from the TMRBs, the Technical Center and such business units also participate in the corresponding Market Sector Lead Teams. In this manner, research and development activities are aligned with corporate and business unit goals.
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During 2006, the company continued work on new developments for a number of strategic projects in all business segments. In Primary Metals, progress was made on inert anode technology. Progress has been successful in many respects as a result of anode assembly testing, although there remain technical and cost targets to overcome. Technical targets include improvement of anode life, optimization of pot operating conditions and maintenance of metal purity. If the technology proves to be commercially feasible, the company believes that it would be able to convert its existing potlines to this new technology, resulting in significant operating cost savings. The new technology would also generate environmental benefits by reducing and eliminating certain emissions. No timetable has been established for commercial use. Progress was also made on carbothermic projects, which if commercially feasible may reduce capital and operating costs, as well as provide environmental benefits related to waste reduction.
In the semi-fabrication businesses, the “simultaneous multi-alloy casting” process was developed with plans to commercialize it in 2007. The company has also moved from R&D to “pilot scale” on its continuous cast-rolled products process. A number of products were commercialized in 2006 such as those included in the “Extra Bright Dura Bright” brand and “Reynobond-Kevlar Hurricane” brand products.
The company currently has at least forty new products in various development stages. As a result of product development and technological advancement, the company continues to pursue patent protection in jurisdictions throughout the world.
Environmental Matters
Information relating to environmental matters is included in three areas of the Annual Report: under Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Environmental Matters” on pages 35 and 36, in Note A to the financial statements under the caption “Environmental Expenditures” on pages 48 and 49, and in Note Y to the financial statements beginning on page 70.
Employees
Total worldwide employment at year-end 2006 was 123,000 people.
On May 31, 2006, the master labor agreement between Alcoa and the United Steelworkers covering 15 locations in the United States and approximately 9,000 employees was scheduled to expire. Work stoppage did not occur at any of the covered locations and on June 22, 2006, a new four-year labor agreement was ratified. The new master agreement includes structural changes in employee and retiree health care programs, resulting in additional employee cost sharing through plan design changes and premium contributions. The contract also contains provisions for a signing bonus upon ratification, wage increases and pension factor increases for longer service employees.
During the fourth quarter of 2006, Alcoa and the United Autoworkers Local 1050 (UAW) ratified a new four-year labor agreement that covers approximately 830 employees at Alcoa’s Cleveland Works facility. UAW employees returned to work on January 2, 2007, following an eight-week strike during which salaried workers operated the plant.
Cautionary Statements under the Private Securities Litigation Reform Act of 1995
Forward-Looking Statements
This report and the portions of the Annual Report incorporated by reference herein contain (and oral communications made by Alcoa may contain) statements that constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “believes,” “estimates,” “expects,” “hopes,” “targets,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects” or other words of similar meaning. All statements that address Alcoa’s expectations or projections about the future, including statements about Alcoa’s strategy for growth, cost reduction goals, expenditures and financial results, are forward-looking statements. Forward-looking statements are based on Alcoa’s estimates, assumptions and expectations of future events and are subject to a number of risks,
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uncertainties and other factors that may cause actual results, performance or achievements of Alcoa to be different from those expressed or implied in the forward-looking statements. Therefore, Alcoa cannot guarantee that these estimates, assumptions and expectations are accurate or will be realized. Alcoa disclaims any intention or obligation (other than as required by law) to update or revise any forward-looking statements.
In addition to the factors discussed elsewhere in this report and in Management’s Discussion and Analysis in the Annual Report, the following are some of the important factors that could cause Alcoa’s actual results to differ materially from those projected in any forward-looking statements:
Alcoa is subject to cyclical fluctuations in LME prices, economic conditions generally, and aluminum end-use markets.
Alcoa is the world’s leading producer of primary aluminum, fabricated aluminum, and alumina. The aluminum industry is highly cyclical, with prices subject to worldwide market forces of supply and demand and other influences. Prices can be volatile. Although Alcoa uses contractual arrangements with customers, as well as forward, futures and options contracts, to manage its exposure to the volatility of LME-based prices, and is product and segment diversified, Alcoa’s results of operations could be affected by material adverse changes in economic or aluminum industry conditions generally or in the markets served by Alcoa, including the transportation, building and construction, distribution, packaging, industrial gas turbine and other markets.
Alcoa’s operations consume substantial amounts of energy; profitability may decline if energy costs rise or if energy supplies are interrupted.
Alcoa consumes substantial amounts of energy in its operations. Although Alcoa generally expects to meet the energy requirements for its alumina refineries and primary aluminum smelters from internal sources or from long-term contracts, the following could affect Alcoa’s results of operations:
| • | significant increases in electricity costs rendering smelter operations uneconomic; |
| • | significant increases in natural gas prices; |
| • | unavailability of electrical power due to droughts or hurricanes; |
| • | interruptions in energy supply due to equipment failure or other causes; or |
| • | curtailment of one or more refineries or smelters due to inability to extend energy contracts upon expiration or negotiate new arrangements on cost-effective terms. |
Alcoa’s profitability could be adversely affected by increases in the cost of raw materials.
Alcoa’s results of operations will be affected by increases in the cost of raw materials, including caustic soda, calcined petroleum coke and resins, in addition to energy. Alcoa may not be able to offset fully the effects of higher raw material costs or energy costs through price increases, productivity improvements or cost reduction programs.
Union disputes and other employee relations issues could adversely affect Alcoa’s financial results.
Some of Alcoa’s employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying durations and expiration dates. Alcoa may not be able to satisfactorily renegotiate collective bargaining agreements in the United States and other countries when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at Alcoa’s facilities in the future. Any such work stoppages (or potential work stoppages) could have a material adverse effect on our financial results.
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Alcoa may not be able to successfully implement its growth strategy.
Alcoa has an organic growth strategy focused on its “upstream” businesses. Significant expansion projects are in various stages of development or negotiation in Australia, Brazil, Ghana, Guinea, Iceland, Jamaica and Trinidad. These projects may not be completed or may be completed at higher cost than expected due to shortages of labor or materials, inability to obtain energy sources at competitive rates, inability to negotiate favorable contracts, inability to finance the construction of projects at favorable rates of interest, currency fluctuations, political unrest, regulatory developments and commercial risks, including but not limited to adverse developments in the global supply and demand for alumina and aluminum.
As part of its strategy for growth, Alcoa has made and may continue to make acquisitions and divestitures and form strategic alliances. There can be no assurance that these will be completed or beneficial to Alcoa or that targeted completion dates will be met.
Alcoa’s operations are exposed to business and operational risks, changes in conditions and events beyond its control in the countries in which it operates.
Alcoa has investments, activities and expansion projects in numerous countries outside the U.S. and in emerging markets, including Australia, Brazil, China, Ghana, Guinea, Iceland, India, Jamaica, Korea, Mexico, Norway, Russia, Suriname, Trinidad and Vietnam. Changes in the laws or governmental policies in the countries in which Alcoa operates could affect its business in such countries and Alcoa’s results of operations.
Alcoa is exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation and other economic factors in the countries in which it operates.
Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, and competitive factors in the countries in which Alcoa operates, could affect its revenues, expenses and results of operations. In particular, lower valuation of the U.S. dollar against other currencies, particularly the Canadian dollar, Euro, and Australian dollar, may affect profitability as some important raw materials are purchased in other currencies, while products generally are sold in U.S. dollars.
Alcoa faces significant price competition from other aluminum producers and end-use markets for certain Alcoa products that are highly competitive, such that customers may be willing to accept substitutes for products sold by Alcoa.
The markets for most aluminum products are highly competitive. In addition, aluminum competes with other materials, such as steel, plastics, composites, and glass, among others, for various applications in Alcoa’s key markets. See also “Competitive Conditions” above. The willingness of customers to accept substitutions for the products sold by Alcoa, the ability of large customers to exert leverage in the marketplace to affect the pricing for fabricated aluminum products, or other developments by or affecting Alcoa’s competitors or customers could affect Alcoa’s results of operations.
Alcoa could be adversely affected by changes in the business or financial condition of a significant customer or customers.
A significant downturn in the business or financial condition of a key customer or customers supplied by Alcoa could affect Alcoa’s results of operations in a particular period. If Alcoa is not successful in replacing business lost from such customers, profitability may be adversely affected.
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Alcoa may not be able to successfully implement its productivity and cost-reduction initiatives.
Alcoa has undertaken and may continue to undertake productivity and cost-reduction initiatives to improve performance, including deployment of company-wide business process models, such as the Alcoa Business System and the Alcoa Enterprise Business Solution, an initiative designed to build a common global infrastructure across Alcoa for data, processes and supporting software. There can be no assurance that these initiatives will be completed or beneficial to Alcoa or that any estimated cost savings from such activities will be realized.
Alcoa may not be able to successfully develop and implement new technology initiatives.
Alcoa is working on new developments in advanced smelting process technologies, including inert anode technology. There can be no assurance that such technologies will be commercially feasible or beneficial to Alcoa.
Alcoa is subject to a broad range of environmental laws and regulations in the jurisdictions in which it operates and may be exposed to substantial costs and liabilities associated with such laws.
Alcoa’s operations worldwide are subject to numerous complex and increasingly stringent environmental laws and regulations. The costs of complying with such environmental laws and regulations, including participation in assessments and cleanups of sites, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. Alcoa’s results of operations or liquidity in a particular period could be affected by certain environmental matters, including remediation costs and damages related to several sites. Climate change agreements in several parts of the world may result in emission restrictions on carbon dioxide and other greenhouse gases.
Alcoa may be exposed to significant legal proceedings, investigations or changes in law.
Alcoa’s results of operations or liquidity in a particular period could be affected by new or increasingly stringent laws, regulatory requirements or interpretations or significant legal proceedings or investigations adverse to Alcoa, including product liability, safety and health and other claims.
Alcoa could be required to make additional contributions to its defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.
Alcoa’s estimates of liabilities and expenses for pensions and other postretirement benefits incorporate significant assumptions including the rate used to discount the future estimated liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age and mortality). Alcoa’s results of operations, liquidity or shareholders’ equity in a particular period could be affected by a decline in the rate of return on plan assets, the rate used to discount the future estimated liability or changes in employee workforce assumptions.
Unexpected events may increase Alcoa’s cost of doing business or disrupt Alcoa’s operations.
Unexpected events, including fires or explosions at facilities, natural disasters, war or terrorist activities, unplanned outages, supply disruptions, or failure of equipment or processes to meet specifications, may increase the cost of doing business or otherwise impact Alcoa’s financial performance.
The above list of important factors is not all-inclusive or necessarily in order of importance.
Item 1B. Unresolved Staff Comments.
None.
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Alcoa has active plants and holdings under the following segments1 and in the following geographic areas:
Bauxite: See the table and related text in the Bauxite Interests section on pages 4-5.
Alumina: See the table and related text in the Alumina Refining Facilities and Capacity section on pages 5-6.
See the table and related text in the Primary Aluminum Facilities and Capacity section on pages 7-9.
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| Closures: | Africa: |
1 location. | ||
| Asia: |
5 locations in 4 countries. | |||
| Canada: |
1 location. | |||
| Central America: |
1 location. | |||
| Europe: |
3 locations in 3 countries. | |||
| Indonesia: | 1 location. | |||
| Mexico: | 2 locations. | |||
| Middle East: |
1 location. | |||
| South America: |
6 locations in 5 countries. | |||
| United States: |
4 locations in 4 states. | |||
| Foodservice Packaging: |
Canada: |
3 locations in 2 provinces. | ||
| Europe: |
2 locations in 2 countries. | |||
| United States: |
7 locations in 7 states. | |||
| Polymerization and Extrusion: |
Europe: |
1 location. | ||
| United States: |
4 locations in 4 states. | |||
| 1 |
Facilities that serve multiple product categories may be listed in more than one segment. |
Alcoa’s corporate center is located at 201 Isabella Street, Pittsburgh, Pennsylvania 15212-5858. Alcoa’s principal office is located at 390 Park Avenue, New York, New York 10022-4608.
Alcoa leases some of its facilities; however, it is the opinion of management that the leases do not materially affect the continued use of the properties or their values.
Alcoa believes that its facilities are suitable and adequate for its operations. Although no title examination of properties owned by Alcoa has been made for the purpose of this report, the company knows of no material defects in title to any such properties. See Notes H and U to the financial statements for information on properties, plants and equipment and lease expense.
In the ordinary course of its business, Alcoa is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. It is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. Management believes, however, that the disposition of matters that are pending or asserted will not have a material adverse effect on the financial position of the company.
Environmental Matters
Alcoa is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act, also known as Superfund (CERCLA) or analogous state provisions regarding the usage, disposal, storage or treatment of hazardous substances at a number of sites in the U.S. The company has committed to participate, or is engaged in negotiations with federal or state authorities relative to its alleged liability for participation, in clean-up efforts at several such sites.
As previously reported, since 1989 Alcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoa’s Massena, New York plant site, under order from the U.S. Environmental Protection Agency (EPA) issued under Section 106 of CERCLA. Sediments and fish in the river contain varying levels of polychlorinated biphenyl
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(PCB). In early 2002, Alcoa submitted a revised Analysis of Alternatives Report to EPA. This Report identified potential remedial actions related to PCB contamination of the river, including additional remedial alternatives that may be required by EPA. It also reflected certain recent studies and investigations on the river, including pilot tests of sediment capping techniques and other remediation technologies. The range of costs associated with the remedial alternatives evaluated in the 2002 Report was between $2 million and $525 million. Alcoa believes that rational, scientific analysis supports a remedy involving the containment of sediments in place via natural or man-made processes. Because the selection of the $2 million alternative (natural recovery) was considered remote, the company adjusted the reserve for the Grasse River in 2002 to $30 million representing the low end of the range of possible alternatives, as no single alternative could be identified as more probable than the others. In June 2003, based on then recent river observations, EPA requested that Alcoa gather additional field data to assess the potential for sediment erosion from winter river ice formation and breakup so that it could be factored into the range of remedial alternatives being considered. The results of these additional studies, submitted in a report to EPA in April of 2004, suggest that this phenomenon has the potential to occur approximately every 10 years and may impact sediments in certain portions of the river under all remedial scenarios. Those evaluations were submitted to EPA along with a proposal to perform additional pilot remedial studies in the river. In May 2004, EPA approved Alcoa’s proposed Remedial Options Pilot Study (ROPS) that includes sediment removal and capping, the installation of an ice control structure, and significant monitoring. At the same time, Alcoa adjusted the reserve for the river to include the $35 million estimated cost of the ROPS, in addition to the $30 million previously reserved. Most of the construction work for the ROPS was completed in 2005 with monitoring proposed for 2006 continuing through 2008. The reserves for the Grasse River were routinely reevaluated in 2006 and an adjustment of $4.1 million was made to cover commitments made to EPA for additional investigation work, for the on-going monitoring program including that associated with the ROPS program, and for an interim measure that involves annually the mechanical ice breaking of the river to prevent the formation of ice jams until a permanent remedy is selected. The findings from the ROPS program and from these additional investigations will be incorporated into a revised Analysis of Alternatives Report that is expected to be submitted in 2008. EPA will use this information to develop a remedy for the river. With the exception of the natural recovery remedy, none of the existing alternatives in the 2002 Analysis of Alternatives Report is more probable than the others and the results of the ROPS are necessary to revise the scope and estimated cost of many of the current alternatives. EPA’s ultimate selection of a remedy could result in additional liability. Alcoa may be required to record a subsequent reserve adjustment at the time EPA’s Record of Decision is issued, which is expected in 2008 or later.
Representatives of various U.S. federal and state agencies and a Native American tribe, acting in their capacities as trustees for natural resources, have asserted that Alcoa and Reynolds Metals Company (“Reynolds”) may be liable for loss or damage to such resources under federal and state law based on Alcoa’s and Reynolds’ operations at their Massena, New York and St. Lawrence, New York facilities. While formal proceedings have not been instituted, the company continues to actively investigate these claims.
As previously reported, in September 1998, Hurricane Georges struck the U.S. Virgin Islands, including the St. Croix Alumina LLC facility on the island of St. Croix. The wind and rain associated with the hurricane caused material at the location to be blown into neighboring residential areas. Various clean-up and remediation efforts were undertaken by or on behalf of St. Croix Alumina LLC. A Notice of Violation was issued by the Division of Environmental Protection of the Department of Planning and Natural Resources of the Virgin Islands Government, and has been contested by the company. A civil suit was commenced in the Territorial Court of the Virgin Islands by certain residents of St. Croix in February 1999 seeking compensatory and punitive damages and injunctive relief for alleged personal injuries and property damages associated with “bauxite or red dust” from the St. Croix Alumina LLC facility. The suit, which has been removed to the District Court of the Virgin Islands, names St. Croix Alumina LLC, Alcoa Inc. and Glencore Ltd. as defendants, and in August 2000 was accorded class action treatment. The class is defined to include persons in various defined neighborhoods who “suffered damages and/or injuries as a result of exposure during and after Hurricane Georges to red dust and red mud blown during Hurricane Georges.” All of the defendants have denied liability, and discovery and other pretrial proceedings have been underway since 1999. In October 2003, the defendants received plaintiffs’ expert reports. These reports also claim that the material blown during Hurricane Georges consisted of bauxite and red mud, and contained crystalline silica, chromium and other substances. The reports go on to claim, among other things, that the population of the six subject neighborhoods as of the 2000 census (a total of 3,730 people) has been exposed to toxic substances through the fault of the defendants, and hence will be able to show entitlement to
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lifetime medical monitoring as well as other compensatory and punitive relief. These opinions have been contested by the defendants’ expert reports, that state, among other things, that plaintiffs were not exposed to the substances alleged and that in any event the level of alleged exposure does not justify lifetime medical monitoring. In August 2005, Alcoa and St. Croix Alumina LLC moved to decertify the plaintiff class, and in March 2006, the assigned magistrate judge issued a recommendation that class certification be maintained for liability issues only, and that the class be decertified after liability issues have been resolved. This recommendation has been adopted by the assigned district judge. Alcoa and St. Croix Alumina LLC have turned over this matter to their insurance carriers who are providing a defense. Glencore Ltd. is jointly defending the case with Alcoa and St. Croix Alumina LLC and has a pending motion to dismiss.
As previously reported, in 2001 and 2002, two companion lawsuits were filed in the Court of Lafayette County, Arkansas on behalf of nearly 400 current or former residents of the City of Stamps, Arkansas, the City of Stamps and former employees of Red River Aluminum, Inc. (RRA), a dross processor. The 2001 action was transferred to Miller County, Arkansas. The suits named 12 defendants (including Alcoa, Alumax Inc. (Alumax) and Reynolds) that sent dross to RRA for processing. Plaintiffs filed claims for personal injuries and property damage and alleged that the defendants violated Arkansas environmental statutes relating to the alleged contamination associated with RRA’s operations in Stamps. The 2001 action was settled in May 2004. The cost of the settlement was previously reserved and was not material to Alcoa. The 2002 action was dismissed, without prejudice, at the request of plaintiffs in June 2004. In June 2004, the City of Stamps withdrew its claims, without prejudice. In June 2005, the City of Stamps filed a lawsuit in the U.S. District Court for the Western District of Arkansas (El Dorado Division). The suit was almost identical to its 2002 suit in state court that was withdrawn. The new suit named 16 defendants (including Alcoa, Alumax and Reynolds). The defendants in this case were aluminum manufacturers and processors who sent aluminum dross and scrap aluminum to RRA in order to recover aluminum contained within these materials. This secondary smelting process generates salt cake, which was left in 30-foot high mounds covering 8 to 10 acres of the RRA site. RRA was saving the salt cake with the belief that it could extract additional, usable aluminum from the material and sell it on the open market. In addition, the City of Stamps named the Arkansas Department of Environmental Quality, and the Arkansas Commissioner of State Lands, Arkansas State Land Office, as “Necessary Parties.” The City of Stamps alleged that these entities were necessary parties because they held title and control access to the RRA site, respectively. The City of Stamps alleged violation of the Arkansas Solid Waste Management Act and other causes of action (negligence, nuisance and trespass). In addition, the City of Stamps sought injunctive relief for remediation of the site as well as compensatory and punitive damages. Alcoa responded to the City of Stamps complaint in August 2005. In October 2005, the City of Stamps filed an amended complaint that included a count under the Resource Conservation and Recovery Act. Alcoa responded to the amended complaint in November 2005. In August 2006, all remaining claims in this litigation were resolved and the Company’s payment was not material to its financial condition.
As previously reported, on September 26, 2003, EPA Region VI filed an Administrative Complaint, Compliance Order and Notice of Opportunity for Hearing against the Wichita Falls, Texas facility of Howmet Corporation (Howmet) for violations of hazardous waste regulations relating to shipments of used potassium hydroxide to a fertilizer manufacturer from 1997 until 2000. The Complaint proposes a penalty of $265,128. In addition, EPA ordered Howmet to cease sending used potassium hydroxide to fertilizer manufacturers or employing used potassium hydroxide in any use constituting disposal and to certify compliance with hazardous waste regulations within 30 days. On October 22, 2003, EPA Region II issued an almost identical Complaint, Compliance Order and Notice of Opportunity for Hearing against Howmet’s Dover, New Jersey facility, seeking $180,021 in penalties. Howmet filed its Answers to EPA Region VI’s and EPA Region II’s Complaints. Howmet’s Answers denied the substance of EPA’s Complaints, requested that no penalties be imposed and requested Hearings on both the hazardous waste allegations and the Compliance Orders. On April 25, 2005, the administrative Court granted EPA’s motions for partial accelerated decision with respect to both cases, finding that Howmet violated the cited regulatory provisions alleged in the Complaint and moved the case to the penalty phase. The Court rejected Howmet’s interlocutory appeal of this decision on May 16, 2005. On September 2, 2005, EPA and Howmet stipulated to a penalty amount of $309,091 for the consolidated matters should the finding of liability be upheld and Howmet appealed the administrative Court’s decision to the Environmental Appeals Board on September 28, 2005. Howmet is awaiting a decision from the Environmental Appeals Board.
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As previously reported, the issuance of an Environmental Operating Permit (“EOP”) for the 344,000 mtpy Fjarðaál Project in Iceland was based upon a comparison study of the former Norsk Hydro 420,000 mtpy Reyðarál environmental impact assessment (“Comparison Study”). In early 2004, a third party challenged the procedures of the Icelandic Planning Agency (PA) in that regard, maintaining that the Ministry of the Environment should have required a full environmental impact assessment (EIA) be undertaken for the Fjarðaál Project, rather than making a decision based upon the Comparison Study prior to issuance of the EOP. In January 2005, an Icelandic District Court found, in part, in favor of the plaintiff’s position. The Icelandic government, the plaintiff and Fjarðaál all filed appeals from the ruling to the Icelandic Supreme Court. On June 9, 2005, the Icelandic Supreme Court upheld the decision of the Icelandic District Court, and found that a new EIA, rather than the Comparison Study, should have been conducted. At the same time, the Icelandic Supreme Court dismissed plaintiff’s claims that the EOP should be invalidated.
Construction has continued on the Project under previously-issued building permits, and on April 7, 2006, Alcoa submitted its new EIA to the PA. The EIA was accepted by the PA on August 31, 2006, and Alcoa then applied to the Icelandic Environment and Food Agency for a new EOP. The new EOP was issued on January 25, 2007.
As previously reported, in May 2005, Alcoa World Alumina LLC and St. Croix Alumina LLC. were among the defendants listed in a lawsuit brought by the Commissioner of the Department of Planning and Natural Resources, Dean Plaskett, in his capacity as Trustee for Natural Resources of the Territory of the United States Virgin Islands in the District Court of the Virgin Islands, Division of St. Croix. The complaint seeks damages for alleged injuries to natural resources caused by alleged releases from an alumina refinery facility in St. Croix that was owned by St. Croix Alumina LLC from 1995 to 2002. Also listed in the lawsuit are previous and subsequent owners of the alumina refinery and the owners of an adjacent oil refinery. Claims are brought under CERCLA, U.S. Virgin Islands law, and common law. The plaintiff has not specified in the complaint the amount it seeks in damages. The defendants have filed motions to dismiss and, in September 2006, filed a motion for an order staying discovery pending resolution of those motions. All of these motions are pending and discovery has not begun.
As previously reported, in August 2005, Dany Lavoie, a resident of Baie Comeau in the Canadian Province of Quebec, filed a Motion for Authorization to Institute a Class Action and for Designation of a Class Representative against Alcoa Canada Inc., Alcoa Limitee, Societe Canadienne de Metaux Reynolds Limitee and Canadian British Aluminum in the Superior Court of Quebec in the District of Baie Comeau. Plaintiff seeks to institute the class action on behalf of a putative class consisting of all past, present and future owners, tenants and residents of Baie Comeau’s St. Georges neighborhood. He alleges that defendants, as the present and past owners and operators of an aluminum smelter in Baie Comeau, have negligently allowed the emission of certain contaminants from the smelter, specifically Polycyclic Aromatic Hydrocarbons or “PAHs”, that have been deposited on the lands and houses of the St. Georges neighborhood and its environs causing damage to the property of the putative class and causing health concerns for those who inhabit that neighborhood. If allowed to proceed as a class action, plaintiff seeks to compel additional remediation to be conducted by the defendants beyond that already undertaken by them voluntarily, seeks an injunction against further emissions in excess of a limit to be determined by the court in consultation with an independent expert, and seeks money damages on behalf of all class members. A hearing on plaintiff’s motion for class certification has not been set. Alcoa’s motion for permission to adduce evidence on class certification is not expected to be heard before the first quarter of 2007. The company intends to defend this action vigorously.
As previously reported, on December 5, 2005, Alcoa received service of a lawsuit filed in the United States District Court for the Northern District of New York and styled as Margaret George, et al., v. General Motors Corporation and Alcoa Inc., Docket No. 05-CV-1482. The complaint alleges personal injury and damages arising from exposure to PCB released from the defendants’ industrial facilities in Massena, New York and seeks certification of a class of plaintiffs comprised of individual Mohawk Indians residing on the Akwesane Territory, a Mohawk Indian Reservation, situated along the St. Lawrence River in the United States and Canada. The suit alleges that approximately 12,000 individuals reside on the reservation. The company is investigating the allegations and has filed an answer denying liability. Preliminary motions have been filed and discovery is underway.
As previously reported, in January 2006, Alcoa Inc. and Alcoa Fuels, Inc. were sued in the Warrick Circuit Court in Indiana by Billy Musgrave, Jr. and Kim Musgrave, on behalf of themselves and all persons similarly situated. The
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lawsuit concerns alleged harm from alleged exposure to waste that was disposed in designated pits at the Squaw Creek Mine in the 1970s. The Petition seeks certification of a class of plaintiffs and recovery for damages and punitive damages, but does not specify a claimed amount. Alcoa removed the case to the United States District Court for the Southern District of Indiana. On February 1, 2007, plaintiffs’ motion for leave to file an amended complaint, proposing to drop the class allegations against Alcoa and Alcoa Fuels, and their renewed motion for remand to state court were both granted.
In October 2006, forty-one plaintiffs sued Alcoa Inc. and Alcoa Fuels, Inc. in Warrick Circuit Court in Indiana. This lawsuit asserts similar claims against Alcoa and Alcoa Fuels as the plaintiffs in the Musgrave case mentioned above and involves some of the prior class members, as well as new plaintiffs who are non-employees. The alleged harm occurred from alleged exposure to waste that was disposed of in designated pits at the Squaw Creek Mine in the 1970s. Alcoa removed the case to the United States District Court for the Southern District of Indiana and has filed a motion to consolidate with the Musgrave case.
As previously reported, on April 5, 2006, Alcoa was notified by the Court of Venice (Tribunal di Venezia) that Alcoa Trasformazioni S.r.l., Fusina site (Venice), was sued by the Italian Minister of Environment and Minister of Public Works for an alleged liability for environmental damages. The plaintiffs asserted that Alcoa, as present owner of the site contaminated by previous activities, had the duty to act promptly to prevent the site from contaminating the Venice Lagoon and its surrounding natural resources. Alcoa Trasformazioni denies responsibility for the pre-existing condition and for failing to eliminate or circumscribe the pollution which was already the object of initiatives by the public authorities and a clear duty of the previous owner and plant seller. Alcoa has sued Alumix and Efim (the sellers of the Fusina site) before the Court of Rome for indemnification against any liability related to the pollution of former Alumix sites, purchased by Alcoa in 1996. Plaintiffs seek compensation for damages to the environment plus costs of installing a physical barrier along the plant’s border with the Lagoon.
As previously reported, the U.S. Environmental Protection Agency, the U.S. Department of Justice (DOJ), three citizens groups and Alcoa entered into a consent decree in 2003 in order to settle alleged violations of the Clean Air Act at Alcoa’s Rockdale, Texas power plant. The consent decree was executed by Alcoa on March 27, 2003 and lodged with the U.S. District Court for the Western District of Texas on April 19, 2003. The court ordered entry of the consent decree on July 28, 2003. On July 18, 2006, pursuant to the terms of the consent decree, DOJ submitted a demand for stipulated penalties for alleged violations of opacity and sulphur dioxide limits at the power plant. The total demand for stipulated penalties was $9,175,000. This matter was settled with all parties on January 31, 2007 with Alcoa agreeing to a payment of $1,851,718.
In August 2006, Reynolds finalized a consent order with the New York State Department of Environmental Conservation (“NYSDEC”) requiring it to pay an initial penalty of $143,000 to resolve violations in March, April and June 2006 of its permitted monthly fluoride air emission limit at its Massena East Plant. The consent order required Reynolds to implement corrective action by December 31, 2006, and set a stipulated penalty schedule that takes effect for any fluoride emissions exceeding a monthly average of 2.7 lbs of fluoride per ton of aluminum produced. Reynolds paid an additional $73,000 in stipulated penalties because average fluoride emissions exceeded this monthly consent order threshold in July and August 2006. The facility continues to implement improvements to meet its fluoride air emissions limit. NYSDEC has agreed to extend the consent order until June 30, 2007 to give the facility additional time to implement corrective action.
On December 1, 2006, St. Croix Alumina, LLC was sued by the Commissioner of the Department of Planning and Natural Resources (DPNR), U.S. Virgin Islands, in the Superior Court of the Virgin Islands, Division of St. Croix. The complaint seeks the completion of certain actions regarding the facility, a civil fine and exemplary damages for alleged violations of the Coastal Zone Management Act and a construction permit issued pursuant to that Act.
On January 2, 2007, St. Croix Alumina, LLC, along with unaffiliated prior and subsequent owners, were sued by the Commissioner of the(DPNR), U.S. Virgin Islands, in the Superior Court of the Virgin Islands, Division of St. Croix. This second suit alleges violations by the defendants of certain permits and environmental statutes said to apply to the facility. The complaint seeks the completion of certain actions regarding the facility, a civil fine and exemplary damages for alleged violations of the Coastal Zone Management Act and a construction permit issued pursuant to that Act.
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On January 22, 2007, the City of Point Comfort, Texas filed suit against Alcoa World Aluminum, LLC (AWA) in the United States District Court for the Southern District of Texas, Victoria Division. Served on January 31, 2007, the suit alleges that air emissions from AWA’s Point Comfort facility have caused personal injury and property damage to the city and its residents. The complaint seeks injunctions prohibiting operation and unspecified damages.
Other Matters
As previously reported, along with various asbestos manufacturers and distributors, Alcoa and its subsidiaries as premises owners are defendants in several hundred active lawsuits filed on behalf of persons alleging injury predominantly as a result of occupational exposure to asbestos at various company facilities. In addition, an Alcoa subsidiary company has been named, along with a large common group of industrial companies, in a pattern complaint where the company’s involvement is not evident. Since 1999 several thousand such complaints have been filed. To date, the subsidiary has been dismissed from almost every case that was actually placed in line for trial. Alcoa, its subsidiaries and acquired companies, all have had numerous insurance policies over the years that provide coverage for asbestos based claims. Many of these policies provide layers of coverage for varying periods of time and for varying locations. Alcoa believes that between its reserves and insurance it is adequately covered for its known asbestos exposure related liabilities. The costs of defense and settlement have not been and are not expected to be material to the financial condition of the company.
As previously reported, during the first quarter of 2005, in the context of an informal investigation being conducted by the staff of the Securities and Exchange Commission (SEC) relating to certain trade payables financing, the company received a request for the voluntary provision of documents and related information concerning the classification and disclosure of certain trade accounts payable transactions for periods beginning after December 31, 2002 that involve, directly or indirectly, an intermediary. The SEC staff has advised the company that the inquiry should not be construed as an indication by the SEC or its staff that any violations of law have occurred, or as an adverse reflection upon any person or security. During the second quarter of 2005, Alcoa completed its production of documents and information in response to the SEC’s request. The company has had no further contact from the SEC since that time.
As previously reported, in May 2005 Alcoa was served with a Federal Grand Jury subpoena by the Antitrust Division of the DOJ. The DOJ is investigating possible criminal violations of the antitrust laws and related matters concerning the aluminum fluoride industry. Aluminum fluoride is used in the process of smelting aluminum in all of the company’s smelters worldwide. The company produces aluminum fluoride for internal use and third party sales. The company also purchases aluminum fluoride from others and is a net purchaser. Antitrust authorities in Canada and Australia have also made inquiries to the company. The company has cooperated with all three authorities in their respective investigations and has completed production of requested documents and has filed narrative answers to all questions posed.
As previously reported, in the 2006 second quarter, Alcoa Aluminio S.A. (Alcoa Aluminio) received a Notice of Violation and Fine from Brazil’s Federal Revenue Department seeking payment of an isolated fine for alleged non-anticipation of payment of annual Corporate Income (CI) and Social Contribution Taxes (SCT), calculated under the presumed monthly taxable income mechanism. The claim is based on Alcoa Aluminio not qualifying for the alternative method of anticipation of payment of CI and SCT used by the company, consisting of calculating such anticipations based on the actual taxable income mechanism, in accordance with applicable legislation. The claim seeks payment of Brazilian Real $669 million (equivalent to approximately US$304 million) and encompasses fiscal years from 2000 to 2005. Alcoa Aluminio believes that the claim is without merit and will present its defenses at all appropriate levels – administrative or judicial – of the Brazilian legal system. On September 4, 2006, a favorable first administrative level decision was rendered finding the claim against Alcoa Aluminio to be without merit. The next administrative level is presently reviewing the case.
As previously reported, on July 20, 2006, the European Commission (EC) announced that it has opened an investigation to establish whether an extension of the regulated preferential electricity tariff granted by Italy to some energy intensive industries complies with European Union state aid rules. The new Italian power tariff modifies the preferential tariff that was in force until December 31, 2005 and extends it through 2010. Alcoa has been operating in Italy for more than 10 years under a power supply structure approved by the EC in 1996. That measure, like the new
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one, was based on Italian state legislation that provides a competitive power supply to the primary aluminum industry and is not considered state aid by the Italian Government. The EC’s announcement states that it has doubts about the measure’s compatibility with European Union legislation and concerns about distortion of competition in the European market of primary aluminum, where energy is an important part of the production costs. The opening of an in-depth investigation gives interested parties the opportunity to comment on the proposed measures. It does not prejudge the outcome of the procedure. It is Alcoa’s understanding that the Italian Government’s continuation of the electricity tariff was done in conformity with all applicable laws and regulations. Alcoa believes that the total potential impact from a loss of the tariff would be approximately $17 million (pre-tax) per month in higher power costs at its Italian smelters. While Alcoa believes that any additional cost would only be assessed prospectively from the date of the EC’s decision on this matter, it is possible that the EC could rule that the assessment must be retroactively applied to January 2006. If the EC’s investigation concludes that extension of the regulated preferential electricity tariff is unlawful, Alcoa will follow through with the appeal it filed before the Court of First Instance in Luxembourg in November of 2006 in response to the investigation.
On November 17, 2006, a suit was filed by Charles Curtis and others against Alcoa individually and as fiduciary of the Employee’s Group Benefits Plan of Alcoa, Plan II in the United States District Court for the Eastern District of Tennessee. The suit was filed on behalf of more than 2,000 post-May 31, 1993 retirees, alleging that the company’s implementation of a financial liability cap for retiree medical benefits is in violation of their right to life-time vested retiree medical benefits at no cost. The company is vigorously defending against the action. Prior to June 1, 1993, United Steelworker retirees received medical benefits at no cost. In 1993, Alcoa, Reynolds and the United Steelworkers Union agreed that the company would limit its financial liability for providing retiree medical benefits for employees who retired after May 31, 1993. This limitation was based on the company’s per capita cost of providing the benefit during the final year of the collective bargaining agreement. As a result of the capped liability, post May 31, 1993 retirees were expected to begin to pay a portion of their retiree medical benefits after the expiration of the bargaining agreement. The company’s limitation was increased during 1996 negotiations as well as 2001 negotiations so that post May 31, 1993 retirees continued to receive benefits at no cost. Bargaining Unit employees and retirees were aware of the limitation through bargaining agreement side letters and/or summary plan description communications. During the May 2006 negotiations, the parties agreed to implement the company’s financial limitation beginning January 1, 2007, and retirees would begin to pay monthly premiums, deductibles and co-payments for their Alcoa provided medical coverage.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the company’s security holders during the fourth quarter of 2006.
Item 4A. Executive Officers of the Registrant.
The names, ages, positions and areas of responsibility of the executive officers of the company as of February 15, 2007 are listed below.
Alain J. P. Belda, 63, Director, Chairman of the Board and Chief Executive Officer. Mr. Belda was elected to Alcoa’s Board of Directors in September 1998 and became Chairman in January 2001. He has been Chief Executive Officer since May 1999. He was President and Chief Executive Officer from May 1999 to January 2001, and President and Chief Operating Officer from January 1997 to May 1999. He served as Vice Chairman from 1995 to 1997. Mr. Alain Belda’s brother, Ricardo E. Belda, retired as an executive officer of the company on September 1, 2006.
William F. Christopher, 52, Executive Vice President – Alcoa and Group President, Engineered Products and Solutions. In January 2003, Mr. Christopher assumed responsibility for Alcoa’s global automotive market and since September 2002, has been Group President for Alcoa’s Aerospace and Commercial Transportation Group. He also led the customer and marketing initiatives for growth for the company until January 2006. In 2001, he assumed responsibility for the global deployment of the Alcoa Business System and the company’s customer and quality initiatives. Mr. Christopher was elected a Vice President of Alcoa in 1999 and Executive Vice President in 2001. He was President of Alcoa Forged Products from 1996 to 2001.
Joseph R. Lucot, 43, Vice President and Corporate Controller. Mr. Lucot was elected a Vice President of Alcoa in November 2006 and was elected to his current position effective January 1, 2007. He served as chief financial officer
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for Alcoa’s Global Rolled Products, Hard Alloy Extrusions and Asia group in 2006. He became chief financial officer for Global Extruded and End Products and Alcoa Europe in 2002. He was Vice President, Finance for Alcoa’s Primary Products business unit in 2001. He joined Alcoa in 1997 as Assistant Controller.
Charles D. McLane, Jr., 53, Vice President and Chief Financial Officer. Mr. McLane was elected to his current position effective January 1, 2007. He was elected Vice President and Corporate Controller in October 2002. He joined Alcoa in May 2000 as director of investor relations, following Alcoa’s merger with Reynolds Metals Company. He became Assistant Treasurer of Reynolds in 1999 and Assistant Controller of that company in 1995.
Lawrence R. Purtell, 59, Executive Vice President and General Counsel; Chief Compliance Officer. Mr. Purtell joined Alcoa as Executive Vice President and General Counsel in November 1997. He became Chief Compliance Officer in April 2002.
Bernt Reitan, 58, Executive Vice President – Alcoa and Group President, Global Primary Products. Mr. Reitan was named Group President, Global Primary Products in October 2004 and was elected an Alcoa Executive Vice President in November 2004. He was named Group President, Alcoa Primary Products in January 2004. He was elected Vice President of Primary Metals in 2003. He was named President of Alcoa World Alumina and Chemicals and was elected a Vice President of Alcoa in July 2001. He joined Alcoa in 2000 as general manager of Alcoa World Alumina in Europe. Before joining Alcoa, Mr. Reitan held a series of positions with Elkem in Norway over a 20-year period, serving as Senior Vice President of Materials and Technology and managing director of Elkem Aluminium ANS from 1988 to June 2000.
Paul D. Thomas, 50, Executive Vice President – Alcoa and Group President, Alcoa Packaging and Consumer Products. Mr. Thomas was named to his current position in April 2006. He was named Executive Vice President – Alcoa, with responsibility for People, ABS and Culture in October 2004, and was elected an Alcoa Executive Vice President in November 2004. He was named Group President, North American Fabricated Products in January 2003. He was named President of Alcoa Mill Products in 2001 and President of Alcoa’s Engineered Products business in January 1998. He was elected a Vice President of Alcoa in September 1998.
Helmut Wieser, 53, Executive Vice President – Alcoa and Group President, Global Rolled Products, Hard Alloy Extrusions & Asia. Mr. Wieser was elected an Alcoa Executive Vice President in November 2005 and was named Group President, Global Rolled Products, Hard Alloy Extrusions and Asia at that time. Mr. Wieser was named Group President, Mill Products Europe/North America in October 2004 and was elected a Vice President of Alcoa in November 2004. He joined Alcoa in October 2000 as Vice President of Operations in Europe and in 2004 he became President of Alcoa’s flat rolled products business in Europe. Before joining Alcoa, Mr. Wieser worked for Austria Metall Group, where he was an executive member of the board and chief operating officer from 1997 to 2000.
The company’s executive officers are elected or appointed to serve until the next annual meeting of the Board of Directors (held in conjunction with the annual meeting of shareholders) except in the case of earlier death, retirement, resignation or removal.
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PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
a) The information required by Item 201(e) of Regulation S-K is set forth under the caption “Stock Performance Graphs” of the Annual Report. Such information is not incorporated by reference and shall not be deemed to be “filed”. Dividend per share data, high and low prices per share, the principal exchanges on which the company’s common stock is traded, and the estimated number of holders of common stock are set forth on page 80 of the Annual Report and are incorporated by reference.
c) Issuer Purchases of Equity Securities:
| Period | Total Number of Shares Purchased (a) |
Average Price Paid Per |
Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs (b) |
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (b)(c) | |||||
| January 1 – January 31, 2006 |
48,982 | $ | 30.24 | - | 26,200,282 | ||||
| February 1 – February 28, 2006 |
1,479,800 | 30.03 | 1,479,800 | 24,720,482 | |||||
| March 1 – March 31, 2006 |
528,412 | 29.90 | 520,200 | 24,200,282 | |||||
| Total for quarter ended March 31, 2006 |
2,057,194 | 30.00 | 2,000,000 | 24,200,282 | |||||
| April 1 – April 30, 2006 |
2,066,050 | 33.92 | 2,000,000 | 22,200,282 | |||||
| May 1 – May 31, 2006 |
2,636,111 | 31.54 | 2,600,000 | 19,600,282 | |||||
| June 1 – June 30, 2006 |
- | - | - | 19,600,282 | |||||
| Total for quarter ended June 30, 2006 |
4,702,161 | 32.59 | 4,600,000 | 19,600,282 | |||||
| July 1 – July 31, 2006 |
2,501,872 | 31.93 | 2,500,000 | 17,100,282 | |||||
| August 1 – August 31, 2006 |
- | - | - | 17,100,282 | |||||
| September 1 – September 30, 2006 |
5,689 | 27.76 | - | 17,100,282 | |||||
| Total for quarter ended September 30, 2006 |
2,507,561 | 31.92 | 2,500,000 | 17,100,282 | |||||
| October 1 – October 31, 2006 |
- | - | - | 17,100,282 | |||||
| November 1 – November 30, 2006 |
7,566 | 28.99 | - | 17,100,282 | |||||
| December 1 – December 31, 2006 |
2,626 | 30.92 | - | 17,100,282 | |||||
| Total for quarter ended December 31, 2006 |
10,192 | 29.49 | - | 17,100,282 | |||||
| (a) | This column includes (i) purchases under Alcoa’s publicly announced share repurchase program described in (b) below and (ii) the deemed surrender to the company by plan participants of shares of common stock to satisfy the exercise price related to the exercise of employee stock options, in each case to the extent applicable during the period indicated. The shares used to satisfy the exercise price related to stock options are not considered part of the publicly announced share repurchase program approved by Alcoa’s Board of Directors as described in (b) below. |
| (b) | Alcoa’s share repurchase program was approved by Alcoa’s Board of Directors and publicly announced on July 13, 2001. The program authorized the repurchase of up to 50 million shares of Alcoa common stock from time to time, directly or through brokers or agents. |
| (c) | On January 19, 2007, Alcoa’s Board of Directors approved and Alcoa publicly announced a new share repurchase program. The new program authorizes purchase of up to 87 million shares of Alcoa common stock from time to time, directly or through brokers or agents and has no expiration date. This new program supersedes the program authorized in 2001. |
Item 6. Selected Financial Data.
The comparative table showing selected financial data for the company is on page 24 of the Annual Report and is incorporated by reference.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s review and comments on the consolidated financial statements are on pages 25 through 41 of the Annual Report and are incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information regarding quantitative and qualitative disclosures about market risk is on page 34 of the Annual Report and is incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
The company’s consolidated financial statements, the notes thereto, selected quarterly financial data and the report of the independent auditors are on pages 43 through 73 of the Annual Report and are incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Alcoa’s Chief Executive Officer and Chief Financial Officer have evaluated the company’s disclosure controls and procedures as of the end of the period covered by this report and they have concluded that these controls and procedures are effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting is on page 42 of the Annual Report and is incorporated by reference.
(c) Attestation Report of the Registered Public Accounting Firm
Management’s assessment of the effectiveness of Alcoa’s internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is on page 43 of the Annual Report and is incorporated by reference.
(d) Changes in Internal Control over Financial Reporting
Except as otherwise discussed herein, there have been no significant changes in internal control over financial reporting that occurred during the fourth quarter of 2006, that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 401 of Regulation S-K regarding directors is contained under the captions “Item 1 – Election of Directors” and “Transactions with Related Persons” of the Proxy Statement and is incorporated by reference. The information required by Item 401 of Regulation S-K regarding executive officers is set forth in Part I, Item 4A of this report under “Executive Officers of the Registrant” and is incorporated by reference.
The information required by Item 405 of Regulation S-K is contained under the caption “Alcoa Stock Ownership – Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement and is incorporated by reference.
The company’s Code of Ethics for the CEO, CFO and Other Financial Professionals is publicly available on the company’s Internet website at http://www.alcoa.com under the section “About Alcoa – Corporate Governance.” The remaining information required by Item 406 of Regulation S-K is contained under the captions “Corporate Governance” and “Corporate Governance – Business Conduct Policies and Code of Ethics” of the Proxy Statement and is incorporated by reference.
The information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is included under “Nominating Candidates for Election to the Board” and “Corporate Governance – Committees of the Board – Audit Committee” of the Proxy Statement and is incorporated by reference.
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K is contained under the captions “Executive Compensation” (excluding the information under the caption “– Compensation Committee Report”), “Director Compensation”, “Potential Payments upon Termination or Change in Control” and “Corporate Governance – Recovery of Incentive Compensation” of the Proxy Statement. Such information is incorporated by reference.
The information required by Items 407(e)(4) and (e)(5) of Regulation S-K is contained under the captions “Alcoa Stock Ownership – Compensation Committee Interlocks and Insider Participation” and “Executive Compensation – Compensation Committee Report” of the Proxy Statement. Such information (other than the Compensation Committee Report, which shall not be deemed to be “filed”) is incorporated by reference.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table gives information about Alcoa’s common stock that could be issued under the company’s equity compensation plans as of December 31, 2006.
| Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
|
Weighted- average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| |||
| (a) | (b) | (c) | |||||||
| Equity compensation plans approved by security holders1 |
84,694,807 | 1 | $ | 33.97 | 41,539,486 | 2 | |||
| Equity compensation plans not approved by security holders3, 4 |
0 | 0 | 0 | ||||||
| Total |
84,694,807 | 1 | $ | 33.97 | 41,539,486 | 2 |
| 1 |
Includes the 2004 Alcoa Stock Incentive Plan (approved by shareholders in April 2004) (2004 ASIP), Alcoa Stock Incentive Plan (approved by shareholders in 1999) and the former Alcoa Long Term Stock Incentive Plan (last approved by shareholders in 1992 and amendments thereto approved by shareholders in 1995). Table amounts are comprised of the following: |
| • | 79,409,124 stock options |
| • | 565,264 performance options at target |
| • | 4,076,935 stock awards |
| • | 643,484 performance share awards (316,300 granted at target) |
| 2 |
The 2004 ASIP authorizes, in addition to stock options, other types of stock-based awards in the form of stock appreciation rights, contingent stock, performance shares and performance units and stock or other awards. The shares that remain available for issuance under the 2004 ASIP may be issued in connection with any one of these awards. Included in the 2004 ASIP approved plan were additional share reserves of 30 million stock options and stock appreciation rights and 10 million for other awards. In addition, the 2004 ASIP provides the following are available to grant under the 2004 ASIP: (i) shares subject to awards under the 2004 ASIP or prior plan that are forfeited, settled for cash, expire or otherwise terminate without issuance of shares and (ii) shares tendered in payment of the purchase price of an option award under the 2004 ASIP or prior plan or tendered or withheld to pay required withholding taxes. Table amounts are comprised of the following: |
| • | 34,295,405 stock options and stock appreciation rights |
| • | 7,244,081 other awards |
| 3 |
In connection with its acquisitions of Alumax, Cordant Technologies Inc., Howmet and Reynolds, Alcoa assumed stock options outstanding under these companies’ stock option plans. An aggregate of 4,618,675 shares of Alcoa common stock are to be issued upon exercise of the outstanding options. The options have a weighted average exercise price of $29.58. No grants of stock options under these plans have been made since the year of Alcoa’s acquisition of the particular company, nor will any such grants be made in the future. |
| 4 |
The Alcoa Fee Continuation Plan for Non-Employee Directors, adopted in 1990, provided fee continuation payments for persons who met a minimum service requirement as a non-employee director. Each of the eligible participants (ten at December 31, 2005) was entitled to receive such cash and stock payments for life upon retirement from the Board based upon the cash retainer fee for directors and an annual stock grant under the company’s former Stock Plan for Non-Employee Directors. In 1995, the Board froze future annual payments to eligible directors at a maximum of $30,000 and 2,000 shares (or a lesser proportion based on service). In 2006, the Plan was amended to provide that all payments would be made in cash rather than stock and cash, at the equivalent value of the payments the eligible participants would have received in stock and cash. Prior to the 2006 Amendment, Alcoa’s practice had been to use treasury shares for the share payments. All current fees and other compensation for directors are outlined under the caption “Director Compensation” of the Proxy Statement. |
The information required by Item 403 of Regulation S-K is contained under the captions “Alcoa Stock Ownership – Stock Ownership of Certain Beneficial Owners” and “ – Stock Ownership of Directors and Executive Officers” of the Proxy Statement and is incorporated by reference.
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 of Regulation S-K is contained under the captions “Executive Compensation” (excluding the information under the caption “Compensation Committee Report”), “Potential Payments upon Termination or Change in Control”, “Corporate Governance – Transactions with Directors’ Companies” and “Transactions with Related Persons” of the Proxy Statement and in Attachment C (Related Person Transaction Approval Policy) thereto and is incorporated by reference.
The information required by Item 407(a) of Regulation S-K regarding director independence is contained under the captions “Item 1 – Election of Directors”, “Corporate Governance”, “Corporate Governance – Where to Find Corporate Governance Information”, “Corporate Governance – Director Independence”, “Corporate Governance – Committees of the Board” and “Corporate Governance – Transactions with Directors’ Companies” of the Proxy Statement and is incorporated by reference.
Item 14. Principal Accountant Fees and Services.
The information required by Item 9(e) of Schedule 14A is contained under the captions “Item 2 – Proposal to Ratify the Independent Auditor – Audit and Non-Audit Fees” and “ – Policy on Pre-Approval of Audit Services” of the Proxy Statement and in Attachment A (Pre-Approval Policies and Procedures adopted by the Audit Committee for Audit and Non-Audit Services) thereto and is incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The consolidated financial statements, financial statement schedule and exhibits listed below are filed as part of this report.
(1) The company’s consolidated financial statements, the notes thereto and the report of the Independent Registered Public Accounting Firm are on pages 43 through 73 of the Annual Report and are incorporated by reference.
(2) The following report and schedule should be read with the company’s consolidated financial statements in the Annual Report:
Report of PricewaterhouseCoopers LLP dated February 15, 2007 on the company’s financial statement schedule filed as a part hereof for the fiscal years ended December 31, 2006, 2005 and 2004.
Schedule II – Valuation and Qualifying Accounts For the Years Ended December 31, 2006, 2005 and 2004.
(3) Exhibits
| Exhibit Number |
Description* | ||
| 3 | (a). | Articles of the Registrant as amended, incorporated by reference to exhibit 3(a) to the company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended June 30, 2000. | |
| 3 | (b). | By-Laws of the Registrant as amended, incorporated by reference to exhibit 3(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 4 | (a). | Articles. See Exhibit 3(a) above. | |
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| 4 | (b). | By-Laws. See Exhibit 3(b) above. | |
| 4 | (c). | Form of Indenture, dated as of September 30, 1993, between Alcoa and The Bank of New York Trust Company, N.A., as successor to J. P. Morgan Trust Company, National Association (formerly Chase Manhattan Trust Company, National Association), as successor Trustee to PNC Bank, National Association, as Trustee (undated form of Indenture incorporated by reference to exhibit 4(a) to Registration Statement No. 33-49997 on Form S-3). | |
| 4 | (c)(1). | First Supplemental Indenture dated January 25, 2007 between Alcoa Inc. and The Bank of New York Trust Company, N.A., as successor to J.P. Morgan Trust Company, National Association (formerly Chase Manhattan Trust Company, National Association), as successor Trustee to PNC Bank, National Association, as Trustee, incorporated by reference to exhibit 99.4 to the company’s Current Report on Form 8-K dated January 25, 2007. | |
| 10 | (a). | Alcoa’s Summary of the Key Terms of the AWAC Agreements, incorporated by reference to exhibit 99.2 to the company’s Current Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001. | |
| 10 | (b). | Charter of the Strategic Council executed December 21, 1994, incorporated by reference to exhibit 99.3 to the company’s Current Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001. | |
| 10 | (c). | Amended and Restated Limited Liability Company Agreement of Alcoa Alumina & Chemicals, L.L.C. dated as of December 31, 1994, incorporated by reference to exhibit 99.4 to the company’s Current Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001. | |
| 10 | (d). | Shareholders Agreement dated May 10, 1996 between Alcoa International Holdings Company and WMC Limited, incorporated by reference to exhibit 99.5 to the company’s Current Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001. | |
| 10 | (e). | Side Letter of May 16, 1995 clarifying transfer restrictions, incorporated by reference to exhibit 99.6 to the company’s Current Report on Form 8-K (Commission file number 1-3610) dated November 28, 2001. | |
| 10 | (f). | Enterprise Funding Agreement, dated September 18, 2006, between Alcoa Inc., certain of its affiliates and Alumina Limited. | |
| 10 | (g). | Five-Year Revolving Credit Agreement, dated as of April 22, 2005, incorporated by reference to exhibit 10(a) to the company’s Current Report on Form 8-K dated April 25, 2005. | |
| 10 | (h). | Five-Year Revolving Credit Agreement, dated as of April 23, 2004, incorporated by reference to exhibit 10(b) to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. | |
| 10 | (h)(1). | Amendment Agreement dated as of April 22, 2005 in respect of the Five-Year Revolving Credit Agreement dated as of April 23, 2004, incorporated by reference to exhibit 10(b) to the company’s Current Report on Form 8-K dated April 25, 2005. | |
| 10 | (i). | Revolving Credit Agreement (Five-Year), dated as of April 25, 2003, incorporated by reference to exhibit 10(b) to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. | |
| 10 | (i)(1). | Amendment Agreement dated as of April 22, 2005 in respect of the Revolving Credit Agreement (Five-Year) dated as of April 25, 2003, incorporated by reference to exhibit 10(c) to the company’s Current Report on Form 8-K dated April 25, 2005. | |
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| 10 | (j). | Alcoa Stock Acquisition Plan, effective January 1, 1999, incorporated by reference to exhibit 10(a) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1999. | |
| 10 | (j)(1). | Amendments to Alcoa Stock Acquisition Plan, effective September 1, 2000, incorporated by reference to exhibit 10(a)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2000. | |
| 10 | (j)(2). | Amendments to Alcoa Stock Acquisition Plan, effective January 1, 2005, incorporated by reference to exhibit 10(i)(2) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (k). | Employees’ Excess Benefit Plan, Plan A, incorporated by reference to exhibit 10(b) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1980. | |
| 10 | (k)(1). | Amendments to Employees’ Excess Benefit Plan, Plan A, effective January 1, 2000, incorporated by reference to exhibit 10(b)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2000. | |
| 10 | (k)(2). | Amendments to Employees’ Excess Benefit Plan, Plan A, effective January 1, 2002, incorporated by reference to exhibit 10(j)(2) to the company’s Annual Report on Form 10-K for the year ended December 31, 2002. | |
| 10 | (l). | Incentive Compensation Plan, as amended effective January 1, 1993, incorporated by reference to exhibit 10(c) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1992. | |
| 10 | (l)(1). | 2004 Summary Description of the Alcoa Incentive Compensation Plan, incorporated by reference to exhibit 10(g) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (l)(2). | Incentive Compensation Plan of Alcoa Inc., as revised September 15, 2006, incorporated by reference to exhibit 10.1 to the company’s Current Report on Form 8-K dated September 20, 2006. | |
| 10 | (m). | Employees’ Excess Benefit Plan, Plan C, as amended and restated in 1994, effective January 1, 1989, incorporated by reference to exhibit 10(d) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1994. | |
| 10 | (m)(1). | Amendments to Employees’ Excess Benefit Plan, Plan C, effective January 1, 2000, incorporated by reference to exhibit 10(d)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2000. | |
| 10 | (m)(2). | Amendments to Employees’ Excess Benefit Plan, Plan C, effective January 1, 2002, incorporated by reference to exhibit 10(l)(2) to the company’s Annual Report on Form 10-K for the year ended December 31, 2002. | |
| 10 | (n). | Deferred Fee Plan for Directors, as amended effective July 9, 1999, incorporated by reference to exhibit 10(g)(1) to the company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended June 30, 1999. | |
| 10 | (o). | Restricted Stock Plan for Non-Employee Directors, as amended effective March 10, 1995, incorporated by reference to exhibit 10(h) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1994. | |
| 10 | (o)(1). | Amendment to Restricted Stock Plan for Non-Employee Directors, effective November 10, 1995, incorporated by reference to exhibit 10(h)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. | |
| 10 | (p). | Fee Continuation Plan for Non-Employee Directors, incorporated by reference to exhibit 10(k) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1989. | |
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| 10 | (p)(1). | Amendment to Fee Continuation Plan for Non-Employee Directors, effective November 10, 1995, incorporated by reference to exhibit 10(i)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. | |
| 10 | (p)(2). | Second Amendment to the Fee Continuation Plan for Non-Employee Directors, effective September 15, 2006, incorporated by reference to exhibit 10.2 to the company’s Current Report on Form 8-K dated September 20, 2006. | |
| 10 | (q). | Deferred Compensation Plan, as amended effective October 30, 1992, incorporated by reference to exhibit 10(k) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1992. | |
| 10 | (q)(1). | Amendments to Deferred Compensation Plan, effective January 1, 1993, February 1, 1994 and January 1, 1995, incorporated by reference to exhibit 10(j)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1994. | |
| 10 | (q)(2). | Amendment to Deferred Compensation Plan, effective June 1, 1995, incorporated by reference to exhibit 10(j)(2) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1995. | |
| 10 | (q)(3). | Amendment to Deferred Compensation Plan, effective November 1, 1998, incorporated by reference to exhibit 10(j)(3) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1999. | |
| 10 | (q)(4). | Amendments to Deferred Compensation Plan, effective January 1, 1999, incorporated by reference to exhibit 10(j)(4) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1999. | |
| 10 | (q)(5). | Amendments to Deferred Compensation Plan, effective January 1, 2000, incorporated by reference to exhibit 10(j)(5) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2000. | |
| 10 | (q)(6). | Amendments to Deferred Compensation Plan, effective January 1, 2005, incorporated by reference to exhibit 10(q)(6) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (r). | Summary of the Executive Split Dollar Life Insurance Plan, dated November 1990, incorporated by reference to exhibit 10(m) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1990. | |
| 10 | (s). | Amended and Restated Dividend Equivalent Compensation Plan, effective January 1, 1997, incorporated by reference to exhibit 10(h) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (t). | Form of Indemnity Agreement between the company and individual directors or officers, incorporated by reference to exhibit 10(j) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1987. | |
| 10 | (u). | 2004 Alcoa Stock Incentive Plan, as amended through November 11, 2005, incorporated by reference to exhibit 10.1 to the company’s Current Report on Form 8-K dated November 16, 2005. | |
| 10 | (v). | Alcoa Supplemental Pension Plan for Senior Executives, effective January 1, 1999, incorporated by reference to exhibit 10(q) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1998. | |
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| 10 | (v)(1). | Amendments to Alcoa Supplemental Pension Plan for Senior Executives, effective January 1, 2000, incorporated by reference to exhibit 10(q)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2000. | |
| 10 | (w). | Deferred Fee Estate Enhancement Plan for Directors, effective July 10, 1998, incorporated by reference to exhibit 10(r) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1998. | |
| 10 | (x). | Alcoa Deferred Compensation Estate Enhancement Plan, effective July 10, 1998, incorporated by reference to exhibit 10(s) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1998. | |
| 10 | (x)(1). | Amendments to Alcoa Deferred Compensation Estate Enhancement Plan, effective January 1, 2000, incorporated by reference to exhibit 10(s)(1) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 1999. | |
| 10 | (x)(2). | Amendments to Alcoa Deferred Compensation Estate Enhancement Plan, effective January 1, 2000, incorporated by reference to exhibit 10(s)(2) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2000. | |
| 10 | (x)(3). | Amendments to Alcoa Deferred Compensation Estate Enhancement Plan, effective January 1, 2005, incorporated by reference to exhibit 10(x)(3) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (y). | Alcoa Inc. Change in Control Severance Plan, incorporated by reference to exhibit 10(z) to the company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2001. | |
| 10 | (z). | Form of Agreement for Stock Option Awards, effective January 1, 2004, incorporated by reference to exhibit 10(a) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (aa). | Form of Agreement for Stock Awards, effective January 1, 2004, incorporated by reference to exhibit 10(b) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (bb). | Form of Agreement for Performance Share Awards, effective January 1, 2004, incorporated by reference to exhibit 10(c) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (cc). | Stock Option Award Rules Revised January 1, 2004, incorporated by reference to exhibit 10(d) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (dd). | Stock Awards Rules Effective January 1, 2004, incorporated by reference to exhibit 10(e) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (ee). | Performance Share Awards Rules Effective January 1, 2004, incorporated by reference to exhibit 10(f) to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
| 10 | (ff). | 2005 Deferred Fee Plan for Directors, incorporated by reference to exhibit 10.1 to the company’s Current Report on Form 8-K dated January 10, 2005. | |
| 10 | (gg). | Global Pension Plan Effective January 1, 1998, incorporated by reference to exhibit 10(jj) to the company’s Annual Report on Form 10-K for the year ended December 31, 2004. | |
| 10 | (gg)(1). | Amendments to Global Pension Plan, incorporated by reference to exhibit 10(jj)(1) to the company’s Annual Report on Form 10-K for the year ended December 31, 2004. | |
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| 10 | (gg)(2). | Amendments to Global Pension Plan, effective January 1, 2005, incorporated by reference to exhibit 10(gg)(2) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (gg)(3). | Amendments to Global Pension Plan, effective December 1, 2005, incorporated by reference to exhibit 10(gg)(3) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (hh). | Form of Executive Severance Agreement between Alcoa Inc. and Eligible Key Executives, incorporated by reference to exhibit 10(a) to the company’s Current Report on Form 8-K dated December 23, 2004. | |
| 10 | (ii). | Summary of Non-Employee Director Compensation effective January 1, 2005, incorporated by reference to exhibit 10(nn) to the company’s Annual Report on Form 10-K for the year ended December 31, 2004. | |
| 10 | (jj). | Executive Financial Planning Program, incorporated by reference to exhibit 10(oo) to the company’s Annual Report on Form 10-K for the year ended December 31, 2004. | |
| 10 | (kk). | Income Tax Preparation Program, incorporated by reference to exhibit 10(pp) to the company’s Annual Report on Form 10-K for the year ended December 31, 2004. | |
| 10 | (ll). | Summary of named executive officer salary increases, effective July 1, 2005, incorporated by reference to exhibit 10(d) to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. | |
| 10 | (mm). | Form of Award Agreement for Stock Options, effective January 1, 2006, incorporated by reference to exhibit 10.2 to the company’s Current Report on Form 8-K dated November 16, 2005. | |
| 10 | (nn). | Form of Award Agreement for Stock Awards, effective January 1, 2006, incorporated by reference to exhibit 10.3 to the company’s Current Report on Form 8-K dated November 16, 2005. | |
| 10 | (oo). | Form of Award Agreement for Performance Share Awards, effective January 1, 2006, incorporated by reference to exhibit 10.4 to the company’s Current Report on Form 8-K dated November 16, 2005. | |
| 10 | (pp). | Form of Award Agreement for Performance Stock Options, effective January 1, 2006, incorporated by reference to exhibit 10.5 to the company’s Current Report on Form 8-K dated November 16, 2005. | |
| 10 | (qq). | Summary Description of Equity Choice Program for Performance Equity Award Participants, dated November 2005, incorporated by reference to exhibit 10.6 to the company’s Current Report on Form 8-K dated November 16, 2005. | |
| 10 | (rr). | Reynolds Metals Company Benefit Restoration Plan for New Retirement Program, as amended through December 31, 2005, incorporated by reference to exhibit 10(rr) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (ss). | Summary of Expatriate Benefit Arrangements, incorporated by reference to exhibit 10(ss) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (tt). | Global Expatriate Employee Policy (pre-January 1, 2003), incorporated by reference to exhibit 10(tt) to the company’s Annual Report on Form 10-K for the year ended December 31, 2005. | |
| 10 | (uu). | Form of Special Retention Stock Award Agreement, effective July 14, 2006, incorporated by reference to exhibit 10.3 to the company’s Current Report on Form 8-K dated September 20, 2006. | |
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| 10 | (vv). | Summary of Terms of Relocation for Helmut Wieser, effective January 1, 2007. | |
| 10 | (ww). | Summary of Relocation Benefits for Paul D. Thomas. | |
| 12. | Computation of Ratio of Earnings to Fixed Charges. | ||
| 13. | Portions of Alcoa’s 2006 Annual Report to Shareholders. | ||
| 21. | Subsidiaries and Equity Entities of the Registrant. | ||
| 23. | Consent of Independent Registered Public Accounting Firm. | ||
| 24. | Power of Attorney for certain directors. | ||
| 31. | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32. | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| * | Exhibit Nos. 10(j) through 10(ww) are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K. |
Amendments and modifications to other Exhibits previously filed have been omitted when in the opinion of the Registrant such Exhibits as amended or modified are no longer material or, in certain instances, are no longer required to be filed as Exhibits.
No other instruments defining the rights of holders of long-term debt of the Registrant or its subsidiaries have been filed as Exhibits because no such instruments met the threshold materiality requirements under Regulation S-K. The Registrant agrees, however, to furnish a copy of any such instruments to the Commission upon request.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Alcoa Inc.:
Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 15, 2007 appearing in the 2006 Annual Report to Shareholders of Alcoa Inc. and its subsidiaries (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 15, 2007
40
Table of Contents
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31,
(in millions)
| Col. A |
Col. B | Col.C |
Col. D | Col. E | ||||||||||||
| Additions | ||||||||||||||||
| Description |
Balance at beginning of period |
Charged to costs and expenses |
Charged to other accounts(A) |
Deductions(B) | Balance at end of period | |||||||||||
| Allowance for doubtful accounts: |
||||||||||||||||
| 2006 |
$ | 62 | $ | 8 | $ | 11 | $ | 6 | $ | 75 | ||||||
| 2005 |
$ | 67 | $ | 9 | $ | (1 | ) | $ | 13 | $ | 62 | |||||
| 2004 |
$ | 82 | $ | 10 | $ | 1 | $ | 26 | $ | 67 | ||||||
| Income tax valuation allowance: |
||||||||||||||||
| 2006 |
$ | 467 | $ | 120 | $ | (14 | ) | $ | 37 | $ | 536 | |||||
| 2005(C) |
$ | 461 | $ | 20 | $ | 7 | $ | 21 | $ | 467 | ||||||
| 2004(C) |
$ | 487 | $ | 10 | $ | — | $ | 36 | $ | 461 | ||||||
| Notes: |
(A | ) | Amounts related to the allowance for doubtful accounts represent collections on accounts previously written off, acquisition/divestiture of subsidiaries and foreign currency translation adjustments. Amounts related to the income tax valuation allowance relate to goodwill adjustments. | ||
| (B | ) | Amounts related to the allowance for doubtful accounts are due to the write-off of uncollectible accounts. Amounts related to the income tax valuation allowance are primarily due to the utilization of tax loss carryforwards. | |||
| (C | ) | These amounts have been revised from the prior year presentation to include amounts previously excluded to reflect them on a “gross” basis. Such amounts were not included in the valuation allowance balances nor in the related gross deferred tax asset balances in the prior year Form 10-K report, but were instead reflected as a reduction of the deferred tax assets, effectively presenting them on a “net” basis. The change to “gross” rather than “net” presentation of these amounts had no impact on reported income tax expense for any period. |
The financial information of all prior periods presented has been reclassified to reflect discontinued operations and assets held for sale.
41
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALCOA INC.
| February 15, 2007 |
By | /s/ Joseph R. Lucot | ||||
| Joseph R. Lucot | ||||||
| Vice President and Corporate Controller (Also signing as Principal Accounting Officer) | ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature |
Title |
Date | ||
| /s/ Alain J. P. Belda Alain J. P. Belda |
Chairman of the Board and Chief Executive Officer (Principal Executive Officer and Director) |
February 15, 2007 | ||
| /s/ Charles D. McLane, Jr. Charles D. McLane, Jr. |
Vice President and Chief Financial Officer (Principal Financial Officer) |
February 15, 2007 | ||
Kathryn S. Fuller, Carlos Ghosn, Joseph T. Gorman, Judith M. Gueron, Klaus Kleinfeld, James W. Owens, Henry B. Schacht, Franklin A. Thomas and Ernesto Zedillo, each as a Director, on February 15, 2007, by Donna C. Dabney, their Attorney-in-Fact.*
| *By |
/s/ Donna C. Dabney | |
| Donna C. Dabney Attorney-in-Fact | ||
42
Exhibit 10(f)
Enterprise Funding Agreement
Alcoa Inc
Alumina Limited
Alcoa Australian Holdings Pty Ltd
Alcoa of Australia Limited
Enterprise Funding Partnership
CONTENTS
| 1. | INTERPRETATION |
2 | ||||
| 1.1 |
Definitions |
2 | ||||
| 1.2 |
Rules for interpreting this document |
9 | ||||
| 2. | TERM OF AGREEMENT |
9 | ||||
| 3. | AOFA DIVIDENDS |
10 | ||||
| 3.1 |
Distribution of Dividends |
10 | ||||
| 3.2 |
Limitations on Dividends |
10 | ||||
| 3.3 |
Calculation and payment of Dividends |
12 | ||||
| 3.4 |
Quarterly Dividends |
12 | ||||
| 3.6 |
Restriction on capitalisation |
13 | ||||
| 3.7 |
Provision of information |
13 | ||||
| 3.8 |
Initial Dividends |
13 | ||||
| 4. | FUNDING OF ENTERPRISE COMPANIES |
14 | ||||
| 4.1 |
Calls by an Enterprise Company |
14 | ||||
| 4.2 |
Requirements for Valid Calls |
15 | ||||
| 4.3 |
Time for payment of Valid Calls |
15 | ||||
| 4.4 |
Funding Valid Calls |
15 | ||||
| 4.5 |
Enterprise Loans |
17 | ||||
| 4.6 |
Tax Rulings |
17 | ||||
| 4.7 |
Tax Events and Dissolution of Enterprise Funding Partnership |
18 | ||||
| 4.8 |
Limits on Enterprise Loans to AofA Group |
18 | ||||
| 4.9 |
Failure to pay |
19 | ||||
| 4.10 |
Non-Enterprise Loan funding mechanisms |
19 | ||||
| 4.11 |
Initial Calls |
20 | ||||
| 4.12 |
Exclusivity and Prioritization; Related Party Borrowings and Use of Cash Balances and Cash Equivalents |
21 | ||||
| 4.13 |
Treatment of loans and Enterprise Loan proceeds |
22 | ||||
| 5. | OCCURRENCE OF A TAX EVENT |
23 | ||||
| 5.1 |
Notice of a Tax Event |
23 | ||||
| 5.2 |
Mitigating the effect of the Tax Event |
24 | ||||
| 5.3 |
Consequences of a Tax Event |
24 | ||||
| 5.4 |
Parties to act diligently |
25 | ||||
| 5.5 |
Negotiation |
26 | ||||
| 6. | RESOLUTION OF DISPUTES |
26 | ||||
| 7. | TERMINATION |
26 | ||||
Page i
| 7.1 |
Termination events | 26 | ||||
| 7.2 |
Consequences of termination |
27 | ||||
| 7.3 |
Review after 12 months |
27 | ||||
| 7.4 |
Extension |
27 | ||||
| 8. | REPRESENTATIONS AND WARRANTIES |
27 | ||||
| 8.1 |
Representations and warranties by each party |
27 | ||||
| 8.2 |
Reliance on representations and warranties |
28 | ||||
| 9. | GST |
28 | ||||
| 9.1 |
GST to be added to amount payable |
28 | ||||
| 9.2 |
Liability net of GST |
28 | ||||
| 9.3 |
GST obligations to survive termination |
28 | ||||
| 9.4 |
Definitions |
28 | ||||
| 10. | NOTICES |
29 | ||||
| 11. | ASSIGNMENT AND ADDITION |
30 | ||||
| 11.1 |
No assignment |
30 | ||||
| 11.2 |
Addition of new Shareholder |
30 | ||||
| 11.3 |
Addition of new Partner |
30 | ||||
| 11.4 |
Control of Partners and Shareholders |
30 | ||||
| 12. | GENERAL |
31 | ||||
| 12.1 |
Governing law |
31 | ||||
| 12.2 |
Amendment |
31 | ||||
| 12.3 |
Liability for expenses |
31 | ||||
| 12.4 |
Giving effect to this document |
31 | ||||
| 12.5 |
Waiver of rights |
31 | ||||
| 12.6 |
Operation of this document |
32 | ||||
| 12.7 |
Costs and stamp duty |
33 | ||||
| 12.8 |
Counterparts |
33 | ||||
| 12.9 |
Attorneys |
33 | ||||
| SCHEDULE 1 | 34 | |||||
| TERMS OF ENTERPRISE LOANS |
34 | |||||
Page ii
ENTERPRISE FUNDING AGREEMENT
DATE 18 September 2006
PARTIES
Alcoa Inc of Alcoa Corporate Center, 201 Isabella Street, Pittsburgh, Pennsylvania, United States of America (Alcoa)
Alumina Limited ABN 85 004 820 419 of Level 12, IBM Centre, 60 City Road, Southbank, Victoria, Australia (Alumina)
Alcoa Australian Holdings Pty Ltd ABN 33 096 987 370 of corner Davy and Marmion Streets, Booragoon, Western Australia, Australia (AAH)
Alcoa of Australia Limited ABN 93 004 879 298 of corner Davy and Marmion Streets, Booragoon, Western Australia, Australia (AofA)
Enterprise Funding Partnership between AAH and Alumina constituted by the Partnership Agreement dated on or about the date of this document (Enterprise Funding Partnership)
RECITALS
| A. | Alumina and Alcoa are participants in the unincorporated global venture known as Alcoa World Alumina and Chemicals (AWAC). The operations of AWAC are conducted by the Enterprise Companies (including AofA) which are owned (directly or indirectly) as to 60% by Alcoa and 40% by Alumina. |
| B. | The AWAC Documents regulate the operations of AWAC and provide, amongst other things, for the distribution of the profits of AWAC to Alcoa and Alumina (directly or indirectly via their respective Affiliates) and for the funding by Alcoa and Alumina (directly or indirectly via their respective Affiliates) of the activities of AWAC undertaken by the Enterprise Companies. |
| C. | AAH and Alumina are the shareholders of AofA and are partners in the Enterprise Funding Partnership, which has been formed to provide funding to AofA and other Enterprise Companies for certain activities of AWAC. |
| D. | Under the Shareholders’ Agreement, the shareholders of AofA agreed to cause AofA to distribute by way of dividends at least 30% of the net income of AofA for each financial year subject to the terms of that agreement. |
| E. | The parties wish to record their agreement with respect to the payment of dividends by AofA and the funding of certain activities of AWAC, as set out in this document. |
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OPERATIVE PROVISIONS
| 1. | INTERPRETATION |
| 1.1 | Definitions |
The following definitions apply in this document.
1997 Act means the Income Tax Assessment Act 1997 (Cth).
Affiliate means, in relation to an entity (the first entity):
| (a) | a Subsidiary of the first entity; |
| (b) | an entity of which the first entity is a Subsidiary; or |
| (c) | a Subsidiary of another entity of which the first entity is also a Subsidiary, |
except that Alcoa’s Affiliates do not include the Enterprise Companies.
AofA Board means the board of directors of AofA from time to time.
AofA Group means AofA and its Subsidiaries from time to time.
Auditor means the auditor of AofA from time to time, which at the Commencement Date and the date of this document is PricewaterhouseCoopers.
Available Cash means, in relation to any Dividend, the projected Cash Balances and Cash Equivalents of the AofA Group at the Dividend Payment Date as reasonably and in good faith estimated by Alcoa, after taking into account (by deduction):
| (a) | its cash requirements to cover any projected negative Free Cash Flow of the AofA Group during the remainder of the then current Quarter and the next three Quarters, as reasonably and in good faith estimated by Alcoa, as industrial leader of AWAC, under United States generally accepted accounting principles; and |
| (b) | AofA’s cash requirements for the payment of the next scheduled Dividend relating to a Minimum Dividend Amount, after taking into account any projected positive Free Cash Flow of the AofA Group from the Dividend Payment Date for the relevant Dividend until the Dividend Payment Date for that next scheduled Dividend relating to a Minimum Dividend Amount as reasonably and in good faith estimated by Alcoa; and |
| (c) | any scheduled repayment or payment on or before the Dividend Payment Date by AofA of an amount of principal outstanding, and any interest thereon, under an Enterprise Loan made to AofA, in accordance with the terms of that Enterprise Loan. |
Page 2
While the Tax Rulings are in effect and:
| (i) | neither clause 4.7 nor clause 4.8 would prevent the making of a relevant Enterprise Loan to AofA; and |
| (ii) | the approval requirements for equity requests referred to in clause 4.4(b)(i) would not prevent a relevant equity contribution to AofA (either because the relevant requirements are not applicable to the equity contribution, or because the relevant approval for the equity contribution is or will be provided), |
Available Cash will be determined (including in respect of the calculation of Free Cash Flow in paragraphs (a) and (b) above) without having regard to any current or prospective growth and sustaining capital expenditure payments and incremental working capital requirements of the AofA Group.
AWAC Documents means:
| (a) | the agreements which established AWAC on 1 January 1995 and which govern its operation, including the Formation Agreement, the Charter and the LLC Agreement; |
| (b) | the Shareholders’ Agreement and the letter agreement dated 16 May 1995 between Alumina and Alcoa; and |
| (c) | the constituent and governing documents of the Enterprise Companies, including the constitution of AofA. |
Business Day means any day (other than Saturday or Sunday) on which registered banks are open for general business in Melbourne and New York.
Call means a notice provided under clause 4.1 or 4.11.
Cash Balances and Cash Equivalents means cash on hand, demand deposits and financial investments that are convertible to cash, less at call borrowings.
Cash Flow from Operating Activities means cash flow from operating activities, as determined in accordance with United States generally accepted accounting principles.
Charter means the Charter of the Strategic Council dated 21 December 1994 between Alcoa and Alumina.
Commencement Date means 1 January 2006.
Contribution Amount means, in relation to a Valid Call (or part of a Valid Call), an amount equal to:
| (a) | the amount of the Valid Call (or part of the Valid Call); less |
| (b) | the amount of cash held by the Enterprise Funding Partnership which is available to fund the Valid Call (or part of the Valid Call). |
Page 3
Corporations Act means the Corporations Act 2001 (Cth).
Current Financial Year means, in relation to a Dividend, the Financial Year in which the Dividend is to be paid.
Dividend means a dividend (whether final or interim) declared by AofA from time to time and that is payable to each Shareholder in respect of each of their shares in AofA (and in an equal amount per share for all of the Shareholders).
Dividend Payment Date means, in respect of a Dividend, the date on which the Dividend is paid (or, if earlier, the latest date on which the Dividend is required to be paid).
Enterprise Company means each of those entities owned (directly or indirectly) by Alumina and Alcoa as part of AWAC.
Enterprise Funding Requirements means, in relation to an Enterprise Company for a given period, an amount equal to the aggregate of:
| (a) | the growth and sustaining capital expenditure payments and incremental working capital requirements of the Enterprise Company during the relevant period; |
| (b) | the amount equal to any projected negative Cash Flow from Operating Activities of the Enterprise Company during the relevant period; and |
| (c) | where the Enterprise Company is Abalco S.A. or Omnia Minerios Ltda, the total amount of any outstanding loans provided to the Enterprise Company by any other Enterprise Company on or after 1 August 2005 but before 31 December 2006 that is due to be repaid by the Enterprise Company during the relevant period, |
less, in the case of an Enterprise Company that is not a member of the AofA Group, the Enterprise Company’s projected positive Cash Flow from Operating Activities (if any, and after deducting any scheduled repayment or payment by such company during the relevant period of an amount of principal outstanding, and any interest thereon, under an Enterprise Loan made to it, in accordance with the terms of that Enterprise Loan) for the relevant period.
Unless otherwise agreed by Alcoa and Alumina, capital requirements of an Enterprise Company for the acquisition of an existing bauxite or alumina business or other existing business shall not be considered an Enterprise Funding Requirement and shall be outside the scope of this document.
Enterprise Loan means a loan from the Enterprise Funding Partnership to an Enterprise Company under an agreement between those entities that is substantially on the terms set out in Schedule 1 (except to the extent otherwise agreed between Alumina and Alcoa) and otherwise as agreed between the Enterprise Funding Partnership and the relevant Enterprise Company.
Excess Dividends means all Dividends paid or to be paid by AofA after 1 January 2006 (other than Dividends paid or to be paid in respect of a Minimum Dividend Amount), including Quarterly Dividends and the Dividend of $118 million (equivalent to
Page 4
approximately US$85 million) paid in the first Quarter of 2006 (of a Total Dividend Amount of $364 million) and the Dividend of $270 million (equivalent to approximately US$200 million) paid in the second Quarter of 2006.
Financial Year means the period from 1 January 2006 to 31 December 2006 and then each succeeding period from 1 January to the next 31 December (or, if earlier, the date of termination of this document in accordance with its terms).
Free Cash Flow means Cash Flow from Operating Activities, less capital expenditures.
Formation Agreement means the Formation Agreement dated as of 21 December 1994 between Alcoa, Alcoa International Holdings Company, ASC Alumina Inc, Alumina, Alumina International Holdings Pty Ltd and Alumina (USA) Inc.
Funding Period means each period of three months beginning on 1 February, 1 May, 1 August and 1 November in each Financial Year (or such lesser period ending on the date of termination of this document in accordance with its terms).
Initial AofA Funding Period means the period from the Commencement Date to 31 January 2007.
Initial Non-AofA Funding Period means the period from the Commencement Date to 31 October 2006.
Insolvency Event means:
| (a) | in relation to any Australian party, the occurrence of any of the following: |
| (i) | it has proceedings commenced (other than proceedings that are frivolous, vexatious or lacking in good faith or that are dismissed within 90 days), a resolution passed or an order of a court made under any bankruptcy, reorganisation or similar laws of Australia or any of its constituent states or territories by or against that party, or for the winding up, liquidation or dissolution of that party or its business, other than for the purpose of a solvent reconstruction or amalgamation; |
| (ii) | it has proceedings commenced (other than proceedings that are frivolous, vexatious or lacking in good faith or that are dismissed within 90 days), a resolution passed or an order of a court made for it to enter an arrangement, compromise or composition with or assignment for the benefit of its creditors, a class of them or any of them, other than for the purpose of a solvent reconstruction or amalgamation; |
| (iii) | it has a receiver appointed for all or any of its assets; |
| (iv) | it stops or suspends or threatens to stop or suspend payment of all or a class of its debts, or otherwise admits in writing its inability to pay its debts as they become due; or |
| (v) | it becomes insolvent or suffers any event similar or analogous to those set out in paragraphs (a)(i) to (iv) above; |
Page 5
| (b) | in relation to Alcoa, the occurrence of any of the following: |
| (i) | it has proceedings commenced (other than proceedings that are frivolous, vexatious or lacking in good faith or that are dismissed within 90 days), a resolution passed or an order of a court made under any bankruptcy, reorganisation or similar laws of the United States of America or any of its constituent states by or against Alcoa, or for the winding up, liquidation or dissolution of Alcoa or its business, other than for the purpose of a solvent reconstruction or amalgamation; |
| (ii) | it has proceedings commenced (other than proceedings that are frivolous, vexatious or lacking in good faith or that are dismissed within 90 days), a resolution passed or an order of a court made for it to enter an arrangement, compromise or composition with or assignment for the benefit of its creditors, a class of them or any of them, other than for the purpose of a solvent reconstruction or amalgamation; |
| (iii) | it has a receiver appointed for all or any of its assets; |
| (iv) | it stops or suspends or threatens to stop or suspend payment of all or a class of its debts, or otherwise admits in writing its inability to pay its debts as they become due; or |
| (v) | it becomes insolvent or suffers any event similar or analogous to those set out in paragraphs (b)(i) to (iv) above; and |
| (c) | in relation to any other party from time to time, the party becomes insolvent or suffers any event similar or analogous to those set out in paragraphs (a)(i) to (iv). |
Interim Net Income means, in relation to a period, the amount of the after tax net income of AofA (before minorities) for the period under United States generally accepted accounting principles, as reasonably and in good faith determined by AofA.
LLC Agreement means the Amended and Restated Limited Liability Company Agreement of Alcoa World Alumina LLC dated as of 31 December 1994 between Alcoa, ASC Alumina Inc, Alumina International Holdings Pty Ltd and Alumina (USA) Inc.
Minimum Dividend Amount means, in relation to a Dividend required to be paid in a given Financial Year in accordance with clauses 3.1(a) and 3.3, an amount equal to 30% of the net income of AofA for the preceding Financial Year, as determined under United States generally accepted accounting principles and certified by the Auditor.
Partners means the partners in the Enterprise Funding Partnership from time to time, which, as at the date of this document, are AAH and Alumina.
Partnership Agreement means the Partnership Agreement dated on or about the date of this document between AAH and Alumina in relation to and constituting the Enterprise Funding Partnership as amended from time to time.
Page 6
Quarter means each period of three months ending on 31 March, 30 June, 30 September and 31 December in each Financial Year (or such lesser period ending on the date of termination of this document in accordance with its terms).
Quarterly Dividend means a Dividend paid or required to be paid by AofA in accordance with clauses 3.1(b), 3.3 and 3.4, or that is deemed to be a Quarterly Dividend under clause 3.8(a) for the purposes of clause 3.4.
Share means the proportionate interest (directly and indirectly) of Alcoa and Alumina in AWAC, which, as at the Commencement Date and the date of this document, is 40% in the case of Alumina and 60% in the case of Alcoa, as adjusted from time to time in accordance with the AWAC Documents.
Shareholders means the holders of ordinary shares in AofA, which, as at the Commencement Date and the date of this document, are AAH and Alumina.
Shareholders’ Agreement means the agreement dated 10 May 1996 between AAH (as assignee of the rights and obligations of Alcoa International Holdings Company in accordance with the Deed of Accession dated 1 November 2005) and Alumina (as amended), and includes that agreement as its interpretation and operation are modified by the letter agreement dated 16 May 1995 between Alumina and Alcoa.
Strategic Council means the AWAC Strategic Council formed pursuant to the Charter.
Subsidiary has the meaning given in the Corporations Act, but an entity will also be taken to be a Subsidiary of an entity if it is controlled by that entity (as defined in section 50AA of the Corporations Act) and:
| (a) | a trust may be a Subsidiary, for the purpose of which a unit or other beneficial interest will be regarded as a share; and |
| (b) | an entity may be a Subsidiary of a trust if it would have been a Subsidiary if that trust were a corporation. |
Tax includes any tax, levy, impost, deduction, charge, rate, duty (including stamp duty), compulsory loan or withholding that is levied or imposed by a government or a governmental, semi-governmental or judicial entity or authority, and any related interest, penalty, charge, fee or other amount.
Tax Event means:
| (a) | the expiry, termination, withdrawal or other cessation of effect of a Tax Ruling where a substitute or replacement Tax Ruling, having an effect which is not materially less favourable to the relevant recipient than the substituted or replaced Tax Ruling, has not been granted and is not reasonably anticipated to be granted within three months of the expiry, termination, withdrawal or other cessation of effect of the Tax Ruling; or |
| (b) | (i) the introduction, commencement or repeal or amendment; or |
Page 7
| (ii) | the change in the interpretation, application or administration by any relevant Tax authority or regulatory body; or |
| (iii) | the change in the application, as result of the discovery and correction after the date of this document of a previously incorrect application, by Alcoa or any of its Affiliates that is an entity resident in the United States for income tax purposes, |
of any Tax law or regulation in any jurisdiction (in the case of paragraphs (i) and (ii)) or in the United States (in the case of paragraph (iii)) after the date of this document (Tax Law Change Event) where:
| (iv) | the Tax Law Change Event is applicable to Alcoa or any of its Affiliates (including AAH), Alumina or any of its Affiliates, the Enterprise Funding Partnership or an Enterprise Company (or any other relevant person to the extent agreed by Alcoa and Alumina) with respect to any mechanism by which Valid Calls are funded (including Enterprise Loans) or the receipt or payment of Excess Dividends; and |
| (v) | in the case of a Tax Law Change Event that is applicable to a person who is a Partner, Shareholder or Enterprise Company, the Tax Law Change Event occurred after that person became a Partner, Shareholder or first becomes the recipient of an Enterprise Loan or other relevant funding mechanism (as the case may be). |
Tax Ruling Applications means the applications for binding private rulings submitted on behalf of AofA, AAH, Alumina and the Enterprise Funding Partnership by Deloitte Touche Tohmatsu Ltd to the Australian Deputy Commissioner of Taxation on 16 August 2006.
Tax Rulings means the rulings issued after the date of this document by the Australian Commissioner of Taxation in respect of, and having an effect which is not materially less favourable to any of the relevant recipients than the rulings requested in, the Tax Ruling Applications, or any substitute or replacement ruling or rulings having an effect which is not materially less favourable to any of the relevant recipients than the substituted or replaced ruling or rulings.
Total Dividend Amount means, in respect of a Dividend, the amount of the Dividend (on a per share basis) multiplied by the total number of shares in AofA in respect of which the Dividend is paid or required to be paid.
Valid Call means a Call that is valid under clause 4.2, 4.10(c) or 4.11.
Page 8
| 1.2 | Rules for interpreting this document |
Headings are for convenience only, and do not affect interpretation. The following rules also apply in interpreting this document, except where the context makes it clear that a rule is not intended to apply.
| (a) | A reference to: |
| (i) | legislation (including subordinate legislation) is to that legislation as amended, re-enacted or replaced, and includes any subordinate legislation issued under it; |
| (ii) | a document or agreement, or a provision of a document or agreement, is to that document, agreement or provision as amended, supplemented, replaced or novated; |
| (iii) | a party to this document or to any other document or agreement includes a permitted substitute or a permitted assign of that party; |
| (iv) | a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator or successor in law of the person; and |
| (v) | anything (including a right, obligation or concept) includes each part of it. |
| (b) | A singular word includes the plural, and vice versa. |
| (c) | A word which suggests one gender includes the other genders. |
| (d) | If a word is defined, another part of speech has a corresponding meaning. |
| (e) | If an example is given of anything (including a right, obligation or concept), such as by saying it includes something else, the example does not limit the scope of that thing. |
| (f) | The word agreement includes an undertaking or other binding arrangement or understanding, whether or not in writing. |
| (g) | A reference to dollars or $ is to an amount in Australian currency. |
| (h) | A reference to US$ is to an amount in United States currency. |
| 2. | TERM OF AGREEMENT |
The term of this document will commence on the Commencement Date and continue until this document is terminated by operation of law or in accordance with its terms.
Page 9
| 3. | AOFA DIVIDENDS |
| 3.1 | Distribution of Dividends |
Subject to clause 3.2, the Shareholders will, in relation to each Financial Year, procure that AofA distributes by way of Dividends the aggregate of:
| (a) | the Minimum Dividend Amount payable during the Financial Year in accordance with clause 3.3; and |
| (b) | the amount of each Quarterly Dividend payable during the Financial Year in accordance with clauses 3.3 and 3.4. |
| 3.2 | Limitations on Dividends |
| (a) | Despite anything in this clause 3, the Shareholders do not intend to procure that AofA declares and pays (and must procure that AofA does not declare or pay) any Dividend to the extent (and only to the extent) that: |
| (i) | the Dividend would be required to be paid other than out of the profits of AofA, within the meaning of section 254T of the Corporations Act; or |
| (ii) | the declaration or payment of the Dividend would cause AofA to be unable to pay all its debts as and when they become due and payable, taking into account the requirements of this document and the Partnership Agreement in relation to the funding of AofA; or |
| (iii) | if the Dividend is an Excess Dividend: |
| (a) | the Dividend would not be able to be fully franked without AofA incurring franking deficit tax or over franking tax (as each of those terms is defined in the 1997 Act), taking into account franking credits that would reasonably be expected to be generated or received by AofA by the end of the franking year (as defined in the 1997 Act) in which the Dividend would be paid; |
| (b) | payment of the Dividend would result in AofA having insufficient franking credits available to fully frank the next scheduled Dividend relating to a Minimum Dividend Amount, taking into account franking credits that would reasonably be expected to be generated or received by AofA by the end of the franking year (as defined in the 1997 Act) in which that next scheduled Dividend would be paid; |
| (c) | payment of the Dividend would result in the aggregate amount of: |
| (A) | all Dividends (including Excess Dividends and Minimum Dividend Amounts) paid by AofA after 1 January 2006 (including the Dividend of $246 million (equivalent to approximately US$177 million) paid in March 2006 with respect to the 2005 calendar year, out of a Total Dividend Amount of $364 million paid at that time); and |
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| (B) | if the Dividend is to be paid before the Minimum Dividend Amount payable during the Current Financial Year has been paid, the estimated amount of the Minimum Dividend Amount to be paid during the Current Financial Year based on the Interim Net Income of AofA for the Financial Year immediately preceding the Current Financial Year, |
| exceeding | 85% of the sum of: |
| (C) | the cumulative Interim Net Income of AofA for the period from 1 January 2006 to the end of the Financial Year immediately preceding the Current Financial Year; and |
| (D) | the projected Interim Net Income of AofA for the Current Financial Year as reasonably and in good faith estimated by AofA; or |
| (d) | payment of the Dividend would reasonably be expected to result in debts of AofA exceeding the level of its “maximum allowable debt” amount for the purposes of section 820-90 or section 820-190 of the 1997 Act (whichever is applicable to AofA for the tax year in which the Dividend would be paid). |
| (b) | If, but for this clause 3.2(b), clause 3.2(a)(iii) would apply to preclude the payment of any Excess Dividend (whether wholly or in part), the parties will promptly negotiate in good faith and use reasonable endeavours to procure that clause 3.2(a)(iii) does not so apply, or applies only to the minimum extent possible, including in the case of clause 3.2(a)(iii)(d) by: |
| (i) | using reasonable endeavours to investigate and undertake mitigating strategies to avoid debts of AofA exceeding the level of its “maximum allowable debt” amount; and |
| (ii) | undertaking promptly at the request of Alumina (and at its sole cost) a valuation of the assets of the AofA Group in accordance with section 820-680 of the 1997 Act for the purposes of determining the level of AofA’s “maximum allowable debt” amount for the purposes of section 820-90 or section 820-190 (as applicable) of the 1997 Act, in which case, AofA, AAH and Alcoa may not unreasonably refuse or delay their assistance in such effort and will provide such information in their possession or control as may be reasonably requested for the valuation, |
provided that, except as provided in subparagraph (ii) above, no party will be under any obligation to incur any cost or make any expenditure of funds in connection with the activities contemplated by this clause 3.2(b).
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| 3.3 | Calculation and payment of Dividends |
The Shareholders will procure that AofA declares and pays the Dividends required by clause 3.1 in relation to a given Financial Year as follows:
| Timing of Declaration and Payment |
Total Dividend Amount of Dividends | |
| Within 180 days after the end of the preceding Financial Year | Amount equal to the Minimum Dividend Amount for the given Financial Year | |
| Declaration: By the 20th day of the first month of each Quarter of the Financial Year | Amount of the Quarterly Dividend in relation to the relevant Quarter | |
| Payment: On or before the last Business Day of the first month of each Quarter of the Financial Year | ||
| 3.4 | Quarterly Dividends |
| (a) |
No later than the 20th day of the first month of each Quarter, Alcoa and Alumina will inform each other and AofA of the receipt and details of all Valid Calls received by them which relate to the Funding Period commencing during that Quarter. |
| (b) | Subject to clause 3.2, the Dividend that is the Quarterly Dividend for a Quarter will be equal to the lowest of the following amounts: |
| (i) | (a) 55% of the sum of Interim Net Income for the most recently completed Quarter plus Interim Net Income of all prior Quarters (if any) beginning January 1, 2006, less | |||||||
| (b) the Total Dividend Amount of the Excess Dividends paid during the period beginning January 1, 2006 to the end of the most recently completed Quarter; and | ||||||||
| (ii) | the aggregate amount of all Valid Calls made which relate to the Funding Period commencing during that Quarter plus the aggregate amount of all previous Valid Calls made since the Commencement Date, less the Total Dividend Amount of the Excess Dividends paid with respect to all prior Quarters during the term of this document; and | |||||||
| (iii) | the amount of Available Cash on the date of declaration by AofA of the Quarterly Dividend. | |||||||
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| 3.5 | Franking of Dividends |
The Shareholders must procure that AofA ensures that, for Australian income tax purposes:
| (a) | all Excess Dividends are fully franked; and |
| (b) | all Dividends that relate to a Minimum Dividend Amount are franked to the maximum extent possible without incurring “franking deficits tax” (as defined in the 1997 Act), taking into account franking credits that would reasonably be expected to be generated or received by AofA by the end of the franking year (as defined in the 1997 Act) in which the Dividends would be paid. |
| 3.6 | Restriction on capitalisation |
The Shareholders will procure that, except as required by generally accepted accounting principles, neither AofA nor the AofA Board capitalises, or resolves to capitalise, any of the profits of AofA (whether those profits relate to then current Financial Year or to any preceding Financial Year) without the prior written consent of all of the Shareholders.
| 3.7 | Provision of information |
AofA must provide (and the Shareholders will procure that AofA provides) to each Shareholder:
| (a) | within 60 days after the end of each Financial Year: |
| (i) | a schedule detailing AofA’s franking credit account as at the end of the Financial Year and all changes to it during that Financial Year; and |
| (ii) | a calculation of AofA’s “maximum allowable debt” amount for the purposes of section 820-90 or section 820-190 of the 1997 Act, whichever is applicable to AofA for the relevant tax year; and |
| (b) | on the 20th day of the first month of each Quarter, details of the calculation of the amount of the relevant Dividend (if any), including (as relevant) details of the calculation of the aggregate amount of Valid Calls, Available Cash and Interim Net Income. |
| 3.8 | Initial Dividends |
| (a) | Despite clauses 3.1(b), 3.3 and 3.4, the parties agree that: |
| (i) | Quarterly Dividends will not be required to be declared or paid for the first three Quarters of 2006; |
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| (ii) | subject to clause 3.2, the Shareholders will procure that AofA declares and pays, on or before the last Business Day of the first month commencing after the date of this document, a Dividend for which the Total Dividend Amount is equal to the lowest of the following amounts: |
| (a) | 55% of the sum of the Interim Net Income for each of the first two Quarters of the 2006 Financial Year, less the Total Dividend Amount of the Excess Dividends paid prior to the declaration by AofA of the Dividend; and |
| (b) | the aggregate amount of all Valid Calls made under clause 4.11(a), less the Total Dividend Amount of the Excess Dividends paid prior to the declaration of the Dividend; and |
| (c) | the amount of Available Cash on the date of declaration by AofA of the Dividend; and |
| (iii) | subject to clause 3.2, the Shareholders will procure that AofA declares and pays, on 1 December 2006, a Dividend for which the Total Dividend Amount is equal to the lowest of the following amounts: |
| (a) | 55% of the sum of the Interim Net Income for each of the first three Quarters of the 2006 Financial Year, less the Total Dividend Amount of the Excess Dividends paid (including any Dividend paid in accordance with clause 3.8(a)(ii)) prior to the declaration by AofA of the Dividend; and |
| (b) | the aggregate amount of all Valid Calls made under clause 4.11(b); and |
| (c) | the amount of Available Cash on the date of declaration by AofA of the Dividend; and |
| (iv) | Dividends paid or required to be paid under this clause 3.8 will be deemed to be Quarterly Dividends for the purposes of the calculation of subsequent Quarterly Dividends under clause 3.4. |
| (b) | AofA must provide (and the Shareholders will procure that AofA provides) to each Shareholder, on the Dividend Payment Date for each Dividend paid or required to be paid in accordance with clause 3.8(a), details of the calculation of the amount of the Dividend (including details of the calculation of the aggregate amount of Valid Calls, Available Cash and Interim Net Income). |
| 4. | FUNDING OF ENTERPRISE COMPANIES |
| 4.1 | Calls by an Enterprise Company |
Subject to clauses 4.2, 4.6, 4.10(b) and 4.11, Alcoa will from time to time procure that an Enterprise Company, by notice in writing given by it or on its behalf to Alcoa and Alumina, requests each of Alcoa and Alumina to contribute its Share of the total amount specified in the Call for the purpose of funding the Enterprise Funding Requirements of that Enterprise Company.
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| 4.2 | Requirements for Valid Calls |
To be valid, a Call made under clause 4.1 must:
| (a) | be delivered to Alcoa and Alumina not later than the first Business Day of the month before the commencement of the Funding Period to which it relates; |
| (b) | specify the Funding Period and the details of the expenditure to which the Call relates; |
| (c) | represent the Enterprise Funding Requirements of the relevant Enterprise Company for the Funding Period to which the Call relates; and |
| (d) | be for at least US$1 million. |
| 4.3 | Time for payment of Valid Calls |
Subject to clause 4.12, unless Alcoa and Alumina otherwise agree either generally or in relation to a particular Valid Call, the amount specified in a Valid Call will be due and payable in accordance with this clause 4 to the relevant Enterprise Company by:
| (a) | in the case of a Valid Call made under clause 4.11(a), the tenth day of the second month commencing after the date of this document; |
| (b) | in the case of a Valid Call made under clause 4.11(b), 11 December 2006; and |
| (c) | otherwise, the tenth day after the beginning of the Funding Period to which the Valid Call relates. |
| 4.4 | Funding Valid Calls |
Upon receipt of a Valid Call:
| (a) | except as provided in clause 4.12, in the case of a Valid Call by any member of the AofA Group while the Tax Rulings are in effect and neither clause 4.7 nor clause 4.8 would prevent the making of an Enterprise Loan to AofA: |
| (i) | the Valid Call will be funded by an Enterprise Loan to AofA in accordance with clause 4.5; and |
| (ii) | in circumstances where the Valid Call was made by a member of the AofA Group other than AofA, AofA will provide the applicable amount by way of loan, equity contribution or other funding mechanism agreed between Alcoa and Alumina to the relevant Enterprise Company or, failing agreement prior to the making of the relevant Enterprise Loan to AofA under subparagraph (i) above, as determined by Alcoa; and |
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| (b) | otherwise, Alcoa and Alumina shall use reasonable endeavours to agree the extent to which the Valid Call will be funded by an Enterprise Loan in accordance with clause 4.5 or by another funding mechanism in accordance with clause 4.10(a). Failing agreement between Alcoa and Alumina by: |
| (1) | in the case of a Valid Call made under clause 4.11(a), the first day of the second month commencing after the date of this document; |
| (2) | in the case of a Valid Call made under clause 4.11(b), 1 December 2006; and |
| (3) | otherwise, the first Business Day of the relevant Funding Period for the Valid Call, |
the Valid Call (or part of the Valid Call for which agreement has not been reached) will be funded in the manner determined by Alcoa, including by way of an equity contribution to the relevant Enterprise Company, and each of Alcoa and Alumina will fund (or procure that its relevant respective Affiliates fund) its respective Share of the Valid Call (or part of the Valid Call for which agreement has not been reached) in accordance with clause 4.5 or clause 4.10(a) (as the case may be), subject to:
| (i) | in the case of equity contributions, the requirements of the provisions of the AWAC Documents referred to in clause 12.6(b)(ii) (including, in particular, the approval requirements for equity requests on behalf of AWAC or the relevant Enterprise Company totalling in any one year more than US$1 billion (as such amount may be modified as provided in clause 12.6(b)(iii)), which approval is not given under this document); and |
| (ii) | in the case of loans between Enterprise Companies (other than loans permitted under clause 4.12), the requirements of the provisions of section 4(v) of the Charter and corresponding provisions of the other AWAC Documents (it being acknowledged that approval for the purposes of those provisions is not given under this document). |
To the extent that the Valid Call is funded by loans between Enterprise Companies in accordance with this clause 4.4(b), payment of that Valid Call will be deemed for the purposes of this document to have been made by Alcoa and Alumina.
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| 4.5 | Enterprise Loans |
| (a) | Subject to clauses 4.6, 4.7 and 4.8, if it is agreed or determined in accordance with clause 4.4 that a Valid Call (or part of a Valid Call) will be funded by an Enterprise Loan, then each of the Partners must (in accordance with the Partnership Agreement): |
| (i) | make (and each of Alcoa and Alumina must procure that each of its Affiliates that is a Partner makes) a contribution of capital to the Enterprise Funding Partnership in an amount equal to: |
| (a) | in the case of Partners that are Affiliates of Alcoa, collectively Alcoa’s Share of the Contribution Amount; and |
| (b) | in the case of Partners that are Affiliates of Alumina, collectively Alumina’s Share of the Contribution Amount; and |
| (ii) | procure (and each of Alcoa and Alumina must procure that each of its Affiliates that is a Partner procures) that the Enterprise Funding Partnership provides an Enterprise Loan to the Enterprise Company for an amount equal to the Valid Call (or part of the Valid Call) not later than the time specified in clause 4.3. |
| (b) | Each of Alumina and Alcoa will promptly take (and will procure that each of its Affiliates who are Partners, and each relevant Enterprise Company, promptly takes) all steps within its power that are necessary to ensure that the terms of the Enterprise Loans are observed by the Enterprise Funding Partnership and each relevant Enterprise Company, strictly in accordance with those terms (including the terms relating to prepayment of the whole or any part of Enterprise Loans), and that the rights of the Enterprise Funding Partnership, and the obligations of the relevant Enterprise Companies under the Enterprise Loans, are enforced on a timely basis. |
| 4.6 | Tax Rulings |
The parties agree:
| (a) | that, unless the Tax Rulings requested in the Tax Ruling Applications have been issued, no member of the AofA Group will make a Call under this document, but will (until the Tax Rulings requested in the Tax Ruling Applications have been issued or as otherwise provided in clause 4.11(d)) utilise the Cash Balances and Cash Equivalents (including Cash Flow from Operating Activities) of the AofA Group to fund its Enterprise Funding Requirements; and |
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| (b) | to use reasonable endeavours to procure that: |
| (i) | the Tax Rulings requested in the Tax Ruling Applications are issued by the Commissioner of Taxation as soon as practicable after the date of this document; and |
| (ii) | on or as soon as practicable after the expiration, termination or other cessation of effect of a Tax Ruling, a substitute or replacement Tax Ruling, having an effect which is not materially less favourable to the relevant recipient than the substituted or replaced Tax Ruling, is granted. |
| 4.7 | Tax Events and Dissolution of Enterprise Funding Partnership |
If:
| (a) | clause 5.3 applies in respect of a Tax Event which affects the making of new Enterprise Loans to some or all Enterprise Companies or affects some or all outstanding Enterprise Loans; or |
| (b) | the Enterprise Funding Partnership is dissolved in accordance with clause 15 of the Partnership Agreement, |
then the Partners will procure (and Alumina and Alcoa will procure that their respective Affiliates who are Partners procure) that the Enterprise Funding Partnership will cease to provide any further funding to such Enterprise Companies by way of Enterprise Loan or will take appropriate action relating to any affected Enterprise Loan, but (except to the extent agreed in writing by Alumina and Alcoa) this document will otherwise continue to apply.
| 4.8 | Limits on Enterprise Loans to AofA Group |
| (a) | The parties agree that, except as otherwise agreed between Alcoa and Alumina: |
| (i) | the aggregate of the amounts of principal outstanding under all Enterprise Loans made by the Enterprise Funding Partnership to members of the AofA Group must not at any time exceed US$1 billion; and |
| (ii) | they will procure that Valid Calls made by members of the AofA Group are not funded by Enterprise Loans to the extent that the limit specified in clause 4.8(a)(i) would be exceeded as a result. |
| (b) | The parties agree that, except as otherwise agreed between Alcoa and Alumina, they will procure that Valid Calls made by members of the AofA Group are not funded by Enterprise Loans to the extent that such funding would result in debts of AofA exceeding the level of its “maximum allowable debt” amount for the purposes of section 820-90 or section 820-190 of the 1997 Act (whichever is applicable to AofA for the tax year in which indebtedness is being determined). However, if, but for this sentence, this clause 4.8(b) would apply to preclude the making of Enterprise Loans (or the making of Enterprise Loans to a certain extent), the parties will promptly negotiate in good faith and use reasonable endeavours to procure that this clause 4.8(b) does not so apply, or applies only to restrict the making of Enterprise Loans to the minimum extent possible, including: |
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| (i) | by using reasonable endeavours to investigate and undertake mitigating strategies to avoid debts of AofA exceeding the level of its “maximum allowable debt” amount; and |
| (ii) | by undertaking promptly at the request of Alumina (and at its sole cost) a valuation of the assets of the AofA Group in accordance with section 820-680 of the 1997 Act for the purposes of determining the level of AofA’s “maximum allowable debt” amount for the purposes of section 820-90 or section 820-190 (as applicable) of the 1997 Act, in which case, AofA, AAH and Alcoa may not unreasonably refuse or delay their assistance in such effort and will provide such information in their possession or control as may be reasonably requested for the valuation, |
provided that, except as provided in subparagraph (ii) above, no party will be under any obligation to incur any cost or make any expenditure of funds in connection with the activities contemplated by this clause 4.8(b).
| 4.9 | Failure to pay |
If either Alcoa or Alumina fails to pay (or procure payment by its Affiliates of) its Share of the funds requested in a Valid Call when due as required by this clause 4 (including by failing to make payment of a Contribution Amount to the Enterprise Funding Partnership), the parties agree that the consequences of such failure will be the same as those that apply to a failure to make an equity contribution required by the Charter, as set out in section 8 of the Charter (as such section 8 may be modified as provided in clause 12.6(b)(iii)).
| 4.10 | Non-Enterprise Loan funding mechanisms |
| (a) | If it is agreed or determined in accordance with clause 4.4(b) that a Valid Call (or part of a Valid Call) will be funded by a mechanism other than an Enterprise Loan, then (unless otherwise agreed between Alcoa and Alumina) each of Alcoa and Alumina must provide (or procure that one or more of its respective Affiliates provide) an amount equal to its Share of the Valid Call (or part of the Valid Call), not later than the time specified in clause 4.3, by way of the mechanism agreed or determined in accordance with clause 4.4(b). |
| (b) | Alumina and Alcoa agree that an Enterprise Company may obtain funding in a manner consistent with the AWAC Documents, and not by way of Valid Calls made under this document: |
| (i) | by external debt financing; or |
| (ii) | in the case of an Enterprise Company other than a member of the AofA Group, from its Cash Balances and Cash Equivalents (including Cash Flow from Operating Activities); or |
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| (iii) | subject to paragraph (c), in the case of a member of the AofA Group, from the Cash Balances and Cash Equivalents (including Cash Flow from Operating Activities) of the AofA Group to the extent that the actual Enterprise Funding Requirements of the AofA Group member for any Funding Period exceed the amount provided to the AofA Group member by way of funding of Valid Calls relating to the Enterprise Funding Requirements of the AofA Group member for the relevant Funding Period. |
| (c) | If a member of the AofA Group funds or reasonably anticipates that it will fund any of its Enterprise Funding Requirements for a Funding Period in accordance with subparagraph (b)(iii), the parties agree that the relevant AofA Group member will make a Call in accordance with clause 4.1 for an amount equal to the amount of such funding not later than the first Business Day of the month before the commencement of the next Funding Period. The Call must specify the details of the expenditure to which the Call relates. The parties agree that a Call made in accordance with this clause 4.10(c) will be a Valid Call for the purposes of this document and will be deemed to relate to the next Funding Period commencing after the Call is made. |
| 4.11 | Initial Calls |
| (a) | At least 7 days prior to the end of the first month commencing after the date of this document, Alcoa, as industrial leader of AWAC, will procure that: |
| (i) | Alcoa World Alumina LLC, an Enterprise Company located in the United States, by notice in writing given by it or on its behalf to Alcoa and Alumina, requests each of Alcoa and Alumina to contribute its Share of the total amount of all outstanding loans theretofore provided to it by Alcoa, as specified in the Call, to fund the prompt repayment of those loans; and |
| (ii) | each relevant Enterprise Company (not being a member of the AofA Group), by notice in writing given by it or on its behalf to Alcoa and Alumina, requests each of Alcoa and Alumina to contribute its Share of the total amount specified in the Call for the purpose of funding the Enterprise Funding Requirements of that Enterprise Company for the Initial Non-AofA Funding Period, other than any Enterprise Funding Requirements in respect of which any loan referred to in clause 4.11(a)(i), or in paragraph (c) of the definition of Enterprise Funding Requirements, was provided. |
| (b) | If the Tax Rulings requested in the Tax Ruling Applications have been issued by the Australian Commissioner of Taxation by 30 November 2006, Alcoa will procure that each relevant member of the AofA Group, by notice in writing given by it or on its behalf to Alcoa and Alumina on 30 November 2006, requests each of Alcoa and Alumina to contribute its Share of the total amount specified in the Call for the purpose of funding the Enterprise Funding Requirements of that Enterprise Company for the Initial AofA Funding Period. To be valid, the Call must specify the details of the expenditure to which the Call relates and, for expenditure not already incurred, include a payment schedule. |
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| (c) | A Call made in accordance with this clause 4.11 will be deemed to be a Valid Call for the purposes of this document. It will (to the extent it relates to a particular Enterprise Company) satisfy the requirement for that Enterprise Company to make a Call in accordance with clause 4.1 in respect of the relevant Enterprise Funding Requirements. The parties agree that Calls in respect of Enterprise Funding Requirements of each member of the AofA Group for the Initial AofA Funding Period will be made only in accordance with clause 4.11(b) and not in accordance with clause 4.1. |
| (d) | If the Tax Rulings requested in the Tax Ruling Applications have not been issued by the Australian Commissioner of Taxation by 30 November 2006, Alcoa and Alumina must use all reasonable endeavours to agree as soon as practicable after that date the means by which the Enterprise Funding Requirements of members of the AofA Group will be funded for the Initial AofA Funding Period and subsequent Funding Periods. Failing such agreement by 31 January 2007, those Enterprise Funding Requirements of members of the AofA Group will be funded in accordance with the AWAC Documents. However, if at any time after 30 November 2006 the Tax Rulings requested in the Tax Ruling Applications are issued by the Australian Commissioner of Taxation, then the Enterprise Funding Requirements of members of the AofA Group for all subsequent Funding Periods will be funded in accordance with the other provisions of this clause 4. |
| 4.12 | Exclusivity and Prioritization; Related Party Borrowings and Use of Cash Balances and Cash Equivalents |
| (a) | Except as otherwise provided in clauses 4.6 and 4.10(b) with respect to funding by external borrowings and Cash Balances and Cash Equivalents (including Cash Flow from Operating Activities), Alcoa will procure that all requests for funding in respect of Enterprise Funding Requirements are made by or on behalf of an Enterprise Company, and those Enterprise Funding Requirements are funded by the relevant Enterprise Company, in accordance with this clause 4. |
| (b) | To the extent that the aggregate amount of all Valid Calls made in relation to a Funding Period exceeds the Total Dividend Amount of the Quarterly Dividend paid for the Quarter during which that Funding Period commences, (i) the relevant Valid Calls (if any) of the Enterprise Company in Jamaica followed by (ii) the relevant Valid Calls (if any) of the Enterprise Companies in Brazil then (iii) the relevant Valid Calls (if any) of all other non-AofA Group Enterprise Companies will be funded to the extent of the Total Dividend Amount of the relevant Quarterly Dividend before the relevant Valid Calls (if any) of members of the AofA Group are funded. Without limiting any other mechanism by which such Valid Calls may be funded in accordance with clause 4.4(b), the parties expressly agree that the remainder (if any) of any such Valid Calls: |
| (i) | of an Enterprise Company other than a member of the AofA Group may be funded by loan from another Enterprise Company (other than a member of the AofA Group) for a term of not more than 3 years, or by demand loan from AofA, from its Cash Balances and Cash Equivalents (including Cash Flow from Operating Activities); and |
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| (ii) | of a member of the AofA Group may be funded from the Cash Balances and Cash Equivalents (including Cash Flow from Operating Activities) of the AofA Group, |
in each case as determined by Alcoa in good faith after consultation with Alumina. To the extent that any such Valid Calls are funded in accordance with paragraph (i) or (ii) above, payment of those Valid Calls will be deemed for the purpose of this document to have been made by Alcoa and Alumina.
| (c) | To the extent that: |
| (i) | the Total Dividend Amount of the Quarterly Dividend paid for a Quarter exceeds the aggregate amount of all Valid Calls made in relation to the Funding Period commencing during that Quarter; and |
| (ii) | all (or part) of a previous Valid Call of an Enterprise Company has been funded in accordance with clause 4.12(b)(i) or (ii) and not been refinanced in accordance with this clause 4.12(c), |
Alumina and Alcoa will procure that to the extent of the excess referred to in paragraph (i) above:
| (iii) | an equivalent amount will be provided to the relevant Enterprise Company or Enterprise Companies by way of an Enterprise Loan or other funding mechanism agreed or determined in accordance with clause 4.4 (on the basis that a reference in clause 4.4 to a “Valid Call” is to that equivalent amount), in the following order of priority (as relevant): first, according to age of the relevant loans; and second, to the Enterprise Company in Jamaica followed by the Enterprise Companies in Brazil followed by all other non-AofA Group Enterprise Companies followed by AofA; and |
| (iv) | in so far as an amount is provided to an Enterprise Company under paragraph (iii) above, the relevant loans made to that Enterprise Company under clause 4.12(b)(i) are promptly repaid (in order of priority of age). |
| 4.13 | Treatment of loans and Enterprise Loan proceeds |
The parties agree that:
| (a) | any repayment of principal or payment of interest in respect of an Enterprise Loan, or in respect of any loan by one Enterprise Company to another Enterprise Company, will not constitute or be treated as a dividend or equivalent distribution for any purpose under this document or the AWAC Documents; and |
| (b) | no Enterprise Loan will be used to repay the principal or interest on any other Enterprise Loan. |
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| 5. | OCCURRENCE OF A TAX EVENT |
| 5.1 | Notice of a Tax Event |
| (a) | If, as a result of a Tax Event, there is any increase, or reasonably anticipated increase, in the Tax cost (including any reduction in a Tax deduction, or reduction in availability of a franking credit in the franking accounts of the relevant Shareholder on Excess Dividends, as relevant) to Alcoa or any of its Affiliates (including AAH), Alumina or any of its Affiliates, the Enterprise Funding Partnership, an Enterprise Company or any other relevant person (as the case may be), then: |
| (i) | Alumina (in the case of a Tax Event affecting it or an Affiliate, the Enterprise Funding Partnership, or an Enterprise Company (or any other relevant person to the extent agreed by Alumina and Alcoa for the purposes of this clause 5.1(a)(i))); or |
| (ii) | Alcoa (in the case of a Tax Event affecting it or an Affiliate (including AAH), the Enterprise Funding Partnership or an Enterprise Company (or any other relevant person to the extent agreed by Alumina and Alcoa for the purposes of this clause 5.1(a)(ii))), |
may give notice (initial notice) to the other as soon as possible but in any event within 20 Business Days of the party becoming aware of the Tax Event. Notwithstanding the foregoing, an initial notice may only be given by Alcoa in the case of a Tax Event relating to a Tax Law Change Event referred to in paragraph (b)(iii) of the definition of Tax Event where the increase, or reasonably anticipated increase, in Tax cost relates to a period after the occurrence of the Tax Event.
| (b) | An initial notice must contain sufficient information to enable the receiving party to assess the nature and impact of the Tax Event on the entity affected by the Tax Event and, without limitation, must contain reasonable details of the Tax Event, the estimated quantum of the associated Tax cost, reasonable details of any proposal that the party providing the initial notice may have to avoid or minimise the impact of the Tax Event on the entity affected by the Tax Event and whether the notifying party, due to the occurrence of the Tax Event, elects to suspend the operation of any existing Enterprise Loan or other affected funding arrangement made under this document and/or the making of any new Enterprise Loan and/or the payment of any Excess Dividend in accordance with clause 5.3(a). |
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| 5.2 | Mitigating the effect of the Tax Event |
| (a) | Within 15 Business Days of the date of the initial notice, the party receiving the initial notice: |
| (i) | must advise (in writing) the party giving the notice whether the receiving party agrees to any proposal provided in the initial notice and the terms and conditions of its agreement; and |
| (ii) | may present (in writing) to the party giving the initial notice any alternative proposal that the receiving party may have to avoid or minimise the impact of the Tax Event on the entity affected by the Tax Event, which may include a proposal to compensate the entity affected by the Tax Event on a “make whole” basis (as assessed post tax). |
| (b) | Within 10 Business Days of receipt of an alternative proposal under clause 5.2(a)(ii), the other party must advise (in writing) the party presenting the alternative proposal whether the other party agrees to the alternative proposal and the terms and conditions of its agreement. In circumstances where the alternative proposal is compensation of the entity affected by the Tax Event on a “make whole” basis (as assessed post tax), the other party may not unreasonably withhold its agreement to the alternative proposal. |
| 5.3 | Consequences of a Tax Event |
| (a) | A notifying party may indicate in its initial notice that the Tax Event has an effect described in clause 5.3(b)(i), (ii) or (iii) below and, on providing written confirmation from its external taxation adviser that a Tax Event has occurred having the effect described in clause 5.3(b)(i), (ii) or (iii), may elect to suspend for a period of up to 20 Business Days actions required to be undertaken during such period in respect of one or more affected outstanding Enterprise Loans or other affected funding arrangements, the payment of Excess Dividends and/or the making of any new Enterprise Loan, as relevant to the nature and effect of the Tax Event. Immediately upon the receipt of such an initial notice, despite any other provision in this document, Alumina or Alcoa (as the case may be) will procure that their respective Affiliates who are Partners will procure that the Enterprise Funding Partnership will take appropriate action in relation to such affected outstanding Enterprise Loans and/or cease to provide any further funding to the relevant Enterprise Companies by way of Enterprise Loan and/or Alumina and Alcoa will take other appropriate action with respect to such other affected funding arrangements or Excess Dividends, as agreed by Alcoa and Alumina for the duration of the period of suspension. |
| (b) | If within 25 Business Days of the date of the initial notice, Alumina and Alcoa have been unable to reach an agreement as contemplated by clause 5.2 or if no written response to the initial notice was given by the receiving party under clause 5.2, then: |
| (i) | if the relevant Tax Event affects the making of new Enterprise Loans to some or all Enterprise Companies, the Partners will procure (and Alumina |
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| and Alcoa will procure that their respective Affiliates who are Partners will procure) that the Enterprise Funding Partnership will cease to provide any further funding to the relevant Enterprise Companies by way of Enterprise Loan but except as otherwise agreed in writing by Alumina and Alcoa, this document will otherwise continue to apply; |
| (ii) | if the relevant Tax Event affects some or all outstanding Enterprise Loans, Alumina and Alcoa will co-operate with each other to procure the unwinding of, or other appropriate action in relation to, such affected outstanding Enterprise Loans made to the relevant Enterprise Company (as well as any loans to any other Enterprise Company out of the proceeds of Enterprise Loans, but (except to the extent agreed in writing by Alumina and Alcoa) this document will otherwise continue to apply; and |
| (iii) | if the relevant Tax Event affects or relates to any other arrangements entered into for the purpose of funding a Valid Call in accordance with clause 4, or any other matter, Alumina and Alcoa will promptly negotiate in good faith and use reasonable endeavours to promptly investigate and undertake mitigating strategies to avoid or minimise the impact of the Tax Event on the entity affected by the Tax Event (including the unwinding of the arrangements affected), or to agree any amendments to this document that may be necessary or desirable as a consequence of the occurrence of the Tax Event. |
| 5.4 | Parties to act diligently |
Each of Alumina and Alcoa:
| (a) | agrees that it will exercise reasonable diligence in relation to its own affairs, and will procure that its Affiliates who are Partners, Shareholders or other relevant persons, and the Enterprise Companies, exercise reasonable diligence in relation to their respective affairs, to identify the likely occurrence of an event or circumstance referred to in the definition of Tax Event at the earliest point in time; and |
| (b) | acknowledges that it is not its intention to seek to terminate the Enterprise Loan or other funding arrangements or unwind any Enterprise Loans or other funding arrangements under this clause 5 on the basis of immaterial increases in Tax cost to it, any of its Affiliates, the Enterprise Funding Partnership or any Enterprise Company. |
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| 5.5 | Negotiation |
If there is a disagreement whether a Tax Event has occurred, within 5 Business Days of Alumina or Alcoa notifying the other in writing of the disagreement, a senior representative of each of Alumina and Alcoa must meet and use all reasonable endeavours acting in good faith to resolve the disagreement within 5 additional Business Days.
| 6. | RESOLUTION OF DISPUTES |
All disputes and differences between Alcoa or any of its Affiliates, on the one hand, and Alumina or any of its Affiliates, on the other hand, arising out of or in connection with this document will be resolved in accordance with the dispute resolution procedures set out in section 11 of the Charter and the corresponding provisions of the other AWAC Documents. Notwithstanding any other provision of this document, the courts sitting in the State of Delaware will have exclusive jurisdiction over the parties with respect to the resolution of any disputes involving judicial proceedings arising out of or in connection with this document.
| 7. | TERMINATION |
| 7.1 | Termination events |
Unless otherwise agreed in writing by Alcoa and Alumina, this document will terminate:
| (a) | on 31 December 2010; or |
| (b) | if Alcoa, Alumina, AAH, the Enterprise Funding Partnership or AofA (a Defaulting Party) commits a material breach of this document and, if the breach is capable of remedy, fails to remedy the breach within 7 Business Days after being required in writing by any other of those parties to do so, upon: |
| (i) | where the Defaulting Party is Alumina – Alcoa or AAH; and |
| (ii) | where the Defaulting Party is Alcoa, AAH, AofA or the Enterprise Funding Partnership – Alumina, |
giving 5 Business Days’ notice to all of the other parties of termination of this document; or
| (c) | if an Insolvency Event occurs in relation to Alcoa or Alumina, AAH or AofA (Insolvent Party) and, if the Insolvency Event is capable of cure, it is not cured within 7 Business Days after that is required in writing by any other of those parties by notice to the Insolvent Party, upon: |
| (i) | where the Insolvent Party is Alumina – Alcoa or AAH; and |
| (ii) | where the Insolvent Party is Alcoa, AAH or AofA – Alumina, |
giving 5 Business Days’ notice to all of the other parties of termination of this document.
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| 7.2 | Consequences of termination |
| (a) | Termination of this document does not affect any accrued rights or remedies of any party. |
| (b) | On termination of this document any outstanding Enterprise Loans will not be terminated but will continue in accordance with their terms until repaid or otherwise terminated. |
| (c) | Clauses 5 and 6 will survive termination of this document to the extent that the provisions of those clauses relate to any outstanding Enterprise Loans or other funding arrangements continuing beyond termination of this document. |
| 7.3 | Review after 12 months |
Promptly after the expiry of 12 months after the date of this document, Alcoa and Alumina must meet to review the operation of this document and discuss whether any amendments should be made to this document to ensure that its provisions (including those relating to the payment of Dividends by AofA and the funding of Enterprise Companies) operate in a manner that reflects the intentions of the parties immediately prior to the date of this document. One of the subjects that the parties may choose to discuss during this review is whether to increase the limit on Enterprise Loans set forth in clause 4.8(a)(i).
| 7.4 | Extension |
It is the intent of the parties (in particular Alcoa and Alumina) that their agreement, as reflected in this document, to cause the payment by AofA of Excess Dividends will, to the extent possible, continue to operate for successive five year periods after 31 December 2010. However, this clause 7.4 is without prejudice to the parties’ rights of termination under clause 7.1, and nothing in this document will prevent any party from withholding its consent to such operation or from indicating a contrary intent in the future.
| 8. | REPRESENTATIONS AND WARRANTIES |
| 8.1 | Representations and warranties by each party |
Each party represents and warrants to the others that at the date of this document:
| (a) | (formation) it is duly incorporated under the laws of the place of its incorporation or, in the case of the Enterprise Funding Partnership, it is duly constituted under the Partnership Agreement; |
| (b) | (power and authority) it has the power and authority to sign this document and perform and observe all its terms; |
| (c) | (document enforceable) this document has been duly executed and is a legal, valid and binding agreement enforceable against it in accordance with its terms; |
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| (d) | (transactions permitted) the execution and performance by it of this document and transaction contemplated under it did not and will not violate in any respect a provision of: |
| (i) | a law or treaty or a judgment, ruling, order or decree of a government or a governmental, semi-governmental or judicial entity or authority that is binding on it; |
| (ii) | its constitution or other constituent documents or, in the case of the Enterprise Funding Partnership, the Partnership Agreement; or |
| (iii) | any other document or agreement which is binding on it or its assets; and |
| (e) | (insolvency) none of the circumstances described in the definition of Insolvency Event applies to it or is threatened in relation to it. |
| 8.2 | Reliance on representations and warranties |
Each party acknowledges that the other parties have entered into this document in reliance on the representations and warranties in this clause 8.
| 9. | GST |
| 9.1 | GST to be added to amount payable |
If GST is payable on a Taxable Supply made under, by reference to or in connection with this document, the party providing the Consideration for that Taxable Supply must also pay the GST Amount as additional Consideration. This clause 9 does not apply to the extent that the Consideration for the Taxable Supply is expressly agreed to be GST inclusive. No payment of the GST Amount is required until the supplier has provided a Tax Invoice or Adjustment Note (as the case may be) to the recipient.
| 9.2 | Liability net of GST |
Any reference in the calculation of Consideration or of any indemnity, reimbursement or similar amount to a cost, expense or other liability incurred by a party, must exclude the amount of any Input Tax Credit entitlement of that party in relation to the relevant cost, expense or other liability.
| 9.3 | GST obligations to survive termination |
This clause 9 will continue to apply after expiration or termination of this document.
| 9.4 | Definitions |
In this clause 9:
Adjustment Note, Consideration, GST, Input Tax Credit, Tax Invoice and Taxable Supply have the meanings given by the GST Law.
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GST Amount means, in relation to a Taxable Supply, the amount of GST payable in respect of that Taxable Supply.
GST Law has the meaning given by the A New Tax System (Goods and Services Tax) Act 1999 (Cth) or, if that Act does not exist, any Act imposing or relating to the imposition or administration of a goods and services tax in Australia and any regulation made under that Act.
| 10. | NOTICES |
| (a) | A notice, consent or other communication under this document is only effective if it is in writing, signed and either left at the addressee’s address or sent to the addressee by mail or fax. If it is sent by mail, it is taken to have been received 3 Business Days after it is posted (if posted to an address in the same country) or 7 Business Days after the date of posting by air mail (if posted to an address in another country). If it is sent by fax, it is taken to have been received on receipt by the sender of a transmission control report from the despatching machine showing the relevant number of pages and the correct destination fax machine number and indicating that the transmission has been made without error. However, if the result of the foregoing is that a notice, consent or other communication would be taken to be given or made on a day which is not a business day in the place to which it is sent or is later than 4.00 pm (local time) it will be taken to have been duly given or made at the commencement of business on the next business day in that place. |
| (b) | A person’s address and fax number are those set out below, or as the person notifies the sender in writing: |
| Alcoa | ||
| Address: | 390 Park Avenue New York, New York 10022 United States of America | |
| Fax number: | + 1 212 836 2802 | |
| Attention: | Group CFO Global Primary Products | |
| Alumina | ||
| Address: | Level 12, IBM Centre, 60 City Road Southbank, Victoria, 3006 Australia | |
| Fax number: | + 61 3 8699 2699 | |
| Attention: | General Counsel/Company Secretary | |
| AAH, AofA and Enterprise Funding Partnership | ||
| Address: | Corner Davy and Marmion Streets Booragoon, Western Australia, 6953 Australia | |
| Fax number: | + 61 8 9316 5343 | |
| Attention: | Company Secretary | |
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| 11. | ASSIGNMENT AND ADDITION |
| 11.1 | No assignment |
Subject to clauses 11.2 and 11.3, a party may only assign, dispose of, encumber, declare a trust over or otherwise create an interest in or deal with any of its rights or obligations under this document, or attempt or purport to do so, with the prior consent of each other party.
| 11.2 | Addition of new Shareholder |
If a Shareholder (in accordance with the Shareholders’ Agreement) seeks to sell, assign or transfer some or all of its shares in AofA (or any interest in such shares) it must (without needing the consent of any other party) also, contemporaneously with that sale, assignment or transfer, procure that the transferee enters into a document in a form reasonably satisfactory to the other Shareholders under which the Shareholder assigns absolutely to the transferee its rights as a Shareholder under this document, and the transferee assumes absolutely the obligations of the Shareholder as a Shareholder under this document, to the same relative extent as the sale, assignment or transfer of the Shareholder’s shares in AofA (or any interest in such shares), such that the transferee is deemed to be a party to this document in lieu of the Shareholder to that extent.
| 11.3 | Addition of new Partner |
If a Partner (in accordance with the Partnership Agreement) seeks to sell, assign or transfer some or all of its interest in the Partnership it must (without needing the consent of any other party) also, contemporaneously with that sale, assignment or transfer, procure that the transferee enters into a document in a form reasonably satisfactory to the other Partners under which the Partner assigns absolutely to the transferee its rights as a Partner under this document, and the transferee assumes absolutely the obligations of the Partner as a Partner under this document, to the same relative extent as the sale, assignment or transfer of the Partner’s interest in the Partnership, such that the transferee is deemed to be a party to this document in lieu of the Partner to that extent.
| 11.4 | Control of Partners and Shareholders |
| (a) | Alcoa must procure that, at all times during the term of this document, AAH and its permitted successors and assigns as Shareholder or Partner: |
| (i) | have the same ultimate holding company (within the meaning of section 9 of the Corporations Act); or |
| (ii) | where either the relevant Shareholder or the relevant Partner (but not both) does not have an ultimate holding company, the ultimate holding company of the other is that person; or |
| (iii) | where both the relevant Shareholder and the relevant Partner do not have an ultimate holding company, the Shareholder and the Partner are the same person. |
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| (b) | Alumina must procure that, at all times during the term of this document, its permitted successors and assigns as Shareholder or Partner: |
| (i) | have the same ultimate holding company (within the meaning of section 9 of the Corporations Act); or |
| (ii) | where either the relevant Shareholder or the relevant Partner (but not both) does not have an ultimate holding company, the ultimate holding company of the other is that person; or |
| (iii) | where both the relevant Shareholder and the relevant Partner do not have an ultimate holding company, the Shareholder and the Partner are the same person. |
| 12. | GENERAL |
| 12.1 | Governing law |
Except to the extent that the law in force in the State of Delaware (USA) will govern the interpretation and operation of the dispute resolution procedures referred to in clause 6 (but not the substantive issues the subject of the relevant dispute or difference), this document is governed by the law in force in Victoria, Australia.
| 12.2 | Amendment |
This document can only be amended, supplemented, replaced or novated by another document signed by the parties.
| 12.3 | Liability for expenses |
Each party must pay its own expenses incurred in negotiating, executing, stamping and registering this document.
| 12.4 | Giving effect to this document |
Each party must do anything (including execute any document), and must ensure that its employees and agents do anything (including execute any document), that the other party may reasonably require to give full effect to this document.
| 12.5 | Waiver of rights |
A right may only be waived in writing, signed by the party giving the waiver, and:
| (a) | no other conduct of a party (including a failure to exercise, or delay in exercising, the right) operates as a waiver of the right or otherwise prevents the exercise of the right; |
| (b) | a waiver of a right on one or more occasions does not operate as a waiver of that right if it arises again; and |
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| (c) | the exercise of a right does not prevent any further exercise of that right or of any other right. |
| 12.6 | Operation of this document |
| (a) | This document, the AWAC Documents, the Partnership Agreement and the AWAC cash management proposal agreed between Alumina and Alcoa on or about September 2002 contain the entire agreement between the parties about the subject matter of this document. Any previous understanding, agreement, representation or warranty relating to that subject matter (other than the AWAC Documents, the Partnership Agreement and the AWAC cash management proposal) is replaced by this document and has no further effect. |
| (b) | Alcoa, Alumina and AAH acknowledge and agree (and will procure to the extent necessary that their respective Affiliates acknowledge and agree) that, except to the extent expressly provided in this document, this document is without prejudice to, and does not exclude or limit or constitute a waiver or modification of, any right, power, obligation or remedy provided by any AWAC Document. Without limitation, Alcoa, Alumina and AAH acknowledge and agree the following: |
| (i) | This document is without prejudice to, and does not exclude or limit or constitute a waiver or modification of, section 10 of the Charter, or any of the corresponding provisions of the other AWAC Documents, including in particular the obligation to endeavour to distribute dividends above 30% of the net income of AWAC or the relevant Enterprise Company (as applicable). |
| (ii) | Subject to sub-paragraph (iii), this document is without prejudice to, and does not exclude or limit or constitute a waiver or modification of, section 4 or 8 of the Charter, or any of the corresponding provisions of the other AWAC Documents, including in particular the approval requirements for equity requests on behalf of AWAC or the relevant Enterprise Company totalling in any one year more than US$1 billion, and the funding obligations of Alcoa in respect of certain equity requests made to Alumina or any of its Affiliates, as set forth in section 8(a)(ii) of the Charter. |
| (iii) | Section 8 of the Charter and any of the corresponding provisions of the other AWAC Documents are modified during the term of this document as follows: |
| (a) | the requirement to give 60 days’ notice of equity calls under section 8(a) of the Charter will not apply in relation to the funding of Valid Calls; and |
| (b) | the US dollar amounts “$500 million” referred to in section 8(a)(i) and (ii) of the Charter and “$1 billion” in section 8(a)(ii) and (iii) of the Charter will each be increased by the amount of Quarterly Dividends paid in the relevant Financial Year with respect to Valid Calls that are funded by equity contributions (or if funded only in part by equity contributions, to the extent of such equity funding) in accordance with clause 4.4(b). |
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| (iv) | The provision of Enterprise Loans by the Enterprise Funding Partnership to Enterprise Companies and loans between Enterprise Companies as contemplated in clause 4.12(b) have been expressly agreed to by Alcoa and Alumina for the purposes of section 4(v) of the Charter, and any of the corresponding provisions of the other AWAC Documents. |
| (v) | Enterprise Loans, and loans by one Enterprise Company to another Enterprise Company, will not be taken into account for the purpose of determining compliance with the 30% leverage requirements of section 9 of the Charter, and any of the corresponding provisions of the other AWAC Documents. |
| (c) | Subject to clause 12.6(b), if there is any inconsistency between the provisions of this document and a provision of any of the AWAC Documents, the provisions of this document during its term will prevail to the extent of the inconsistency and the provisions of the relevant AWAC Document will be construed accordingly. |
| (d) | Any right that a person may have under this document is in addition to, and does not replace or limit, any other right that the person may have. |
| (e) | Any provision of this document which is unenforceable or partly unenforceable is, where possible, to be severed to the extent necessary to make this document enforceable, unless this would materially change the intended effect of this document. |
| 12.7 | Costs and stamp duty |
Each party must bear its own costs arising out of the negotiation, preparation and execution of this document. All stamp duty (including fines, penalties and interest) payable on or in connection with this document and any instrument executed under or any transaction evidenced by this document must be borne by Alumina and Alcoa in proportion to their respective Shares.
| 12.8 | Counterparts |
This document may be executed in counterparts.
| 12.9 | Attorneys |
Each person who executes this document on behalf of a party under a power of attorney declares that he or she is not aware of any fact or circumstance that might affect his or her authority to do so under that power of attorney.
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| Borrower: | Relevant Enterprise Company. | |
| Lender: | Enterprise Funding Partnership. | |
| Type of Loan: | Unsecured revolving multicurrency facility. Drawings are available in dollars or US dollars. | |
| Enterprise Loan Limit: | One billion US dollars (US$1,000,000,000) (or its equivalent in dollars). | |
| Financial Close: | The date on which all the conditions precedent to first drawdown under the Enterprise Loan Agreement are satisfied. | |
| Availability Period: | The Loan will be available for drawdown during the period commencing on Financial Close and ending on: | |
| (a) 30 June 2011 (or, if that day is not a Business Day, on the Business Day immediately preceding that day); or | ||
| (b) such later date as the parties may agree. | ||
| Repayment Term: | The period commencing on Financial Close and ending 15 June 2016 (or, if that day is not a Business Day, on the Business Day immediately preceding that day). | |
| Purpose of Enterprise Loan: |
To fund the Enterprise Funding Requirements of the Borrower or another Enterprise Company in accordance with this document (being the Enterprise Funding Agreement). | |
| Interest Rate: | BBSY ($ drawings) or LIBOR (US$ drawings), plus the Margin calculated on the daily drawn amount on the basis of a 360 day year and actual number of days elapsed. | |
| Interest will be calculated daily and will be payable semi-annually on 30 June and 31 December of each year, to the extent of available cash of the Borrower on the date of payment, and otherwise will be capitalised. | ||
| Margin: | 0.4% per annum (where the Borrower is AofA) and otherwise an arm’s length rate per annum determined reasonably by the Lender by reference to the credit risk of the Borrower (including country risk having regard to sovereign debt margins). The Lender may increase the Margin if a Credit Review Event occurs. | |
| Default Rate: | 2.00% per annum plus the applicable Interest Rate. | |
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| Drawdown Amounts: | The Loan may be drawn in amounts of not less than US$1 million or its equivalent in dollars (as applicable) and in integral multiples of US$1 million or its equivalent in dollars (as applicable). | |
| Establishment Fee: | US$50,000. This fee is payable on first drawdown of the Loan by the Borrower. | |
| Repayment: | (a) Each drawing will be repayable over the remaining Repayment Term. Subject to paragraph (b), a pro rata payment in respect of each such drawing (each a Scheduled Payment) will be due on 31 January of each year and on the Final Repayment Date (each a Repayment Date). | |
| (b) If on any Repayment Date (other than the Final Repayment Date) the total amount of Scheduled Payments for that Repayment Date exceeds 100% of the Borrower’s available cash on that Repayment Date, the Borrower will only be required to pay the Scheduled Payments to the extent of its available cash on that Repayment Date. | ||
| (c) Scheduled Payments will be adjusted from time to time to reflect capitalised interest and the unpaid amount of any previous Scheduled Payment. | ||
| (d) Any amount outstanding on the Final Repayment Date must be repaid on that date. | ||
| Voluntary Prepayment: | On any Repayment Date, with not less than 10 days’ prior written notice to the Lender, the Borrower may prepay: | |
| (a) an amount equal to the principal of the Scheduled Payment due on the last Repayment Date for the Enterprise Loan; plus | ||
| (b) 25% of the outstanding balance of the Enterprise Loan as at the end of the Financial Year immediately preceding the Repayment Date, provided that, where the Borrower is AofA only, it has distributed (or will have distributed by the Repayment Date) as Dividends in accordance with this document (being the Enterprise Funding Agreement) the Minimum Dividend Amount payable during each Financial Year ending before the Repayment Date, plus Excess Dividends in aggregate equal to the lesser of: | ||
| (i) 55% of the cumulative Interim Net Income of AofA for the period from the Commencement Date to the end of the Financial Year immediately preceding the Repayment Date; and | ||
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| (ii) the aggregate amount of all Valid Calls made in accordance with this document (being the Enterprise Funding Agreement) since the Commencement Date. | ||
| The Enterprise Loan may not otherwise be prepaid in whole or in part at any time, except with the prior written consent of the Lender. | ||
| Currency Fluctuation: | If, at any time, the US$ equivalent (as determined in good faith by the Lender by reference to prevailing exchange rates) of all outstanding drawings exceeds the Enterprise Loan Limit by more than 5%, the Borrower shall reduce the drawings immediately so that the US$ equivalent does not exceed the Enterprise Loan Limit. | |
| Redraw: | Amounts repaid or prepaid can be redrawn. | |
| Cancellations: | If the Borrower wishes to cancel any undrawn commitment it shall be for a minimum of US$1 million and whole multiples of US$1 million. Any cancelled amounts may not be redrawn. | |
| Credit Review Event: | If a Credit Review Event occurs, the Lender may increase the Margin. | |
| Conditions Precedent to First Drawdown: | Standard conditions precedent, including the following. | |
| (a) Counterparts of the Enterprise Loan Agreement, duly executed by the parties. | ||
| (b) A certified copy of: | ||
| (i) the board resolutions of the Borrower authorising execution and performance of the Enterprise Loan Agreement and the appointment of authorised officers; | ||
| (ii) an executed power of attorney, duly stamped and registered (if required); and | ||
| (iii) specimen signatures of all authorised officers. | ||
| (c) The representations and warranties are true. | ||
| Conditions Precedent to All Drawdowns: | Receipt by the Lender of a valid drawdown notice. | |
| Representations and Warranties: | Standard representations and warranties, including the following. | |
| (a) (Status) The Borrower is validly existing under the laws of its place of formation. | ||
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| (b) (Corporate power and authorisation) The Borrower has the power to enter into and perform the Enterprise Loan Agreement and has taken all necessary corporate and other action with respect to the Enterprise Loan Agreement. | ||
| (c) (Document binding) The Enterprise Loan Agreement is the Borrower’s valid, binding and enforceable obligation. | ||
| (d) (Authorisations) All governmental authorisations have been obtained and are in full force and effect. | ||
| Undertakings: | Standard general undertakings, including the following. | |
| (a) (Negative pledge) Borrower not to create or allow to exist a security interest over its assets except: | ||
| (i) a lien arising by operation of law in the ordinary course of day to day trading and not securing financial indebtedness where the Borrower duly pays the indebtedness secured by that lien other than indebtedness contested in good faith; and | ||
| (ii) as agreed with the Lender. | ||
| (b) (Corporate existence) Borrower to maintain its corporate existence in good standing. | ||
| Events of Default: | Enterprise Loan Agreement to contain usual events of default, including the following. | |
| (a) (Obligations under Enterprise Loan Agreement) The Borrower fails: | ||
| (i) to pay an amount payable by it under the Enterprise Loan Agreement when due (subject to a five Business Day grace period); or | ||
| (ii) to comply with any of its other obligations under the Enterprise Loan Agreement and if, in the reasonable opinion of the Lender, that failure is capable of remedy within 28 days of receipt of a notice from the Lender, the Borrower does not remedy the failure within that period. | ||
| (b) (Misrepresentation) Any representation or warranty in the Enterprise Loan Agreement is incorrect or misleading in any material respect. | ||
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| (c) (Winding up, arrangements, insolvency etc) The Borrower is wound up, has an administrator appointed to it, or some other form of insolvency proceeding occurs or is applied for with respect to it. | ||
| (d) (Vitiation of Enterprise Loan Agreement) | ||
| (i) All or any material part of the Enterprise Loan Agreement is terminated or is or becomes void, illegal, invalid, unenforceable or of limited force and effect; or | ||
| (ii) a party becomes entitled to terminate, rescind or avoid all or part of the Enterprise Loan Agreement. | ||
| Tax Event: | If, as a consequence of a Tax Event, clause 5.3 of this document (being the Enterprise Funding Agreement) applies to the Enterprise Loan: | |
| (a) Scheduled Payments may be adjusted unilaterally by the Lender; and/or | ||
| (b) the Lender may terminate, or take other unilateral action in relation to, the Enterprise Loan Agreement. | ||
| Taxes: | If a law requires the Borrower to withhold or deduct any taxes from payment so the Lender would not actually receive the full amount provided for under the Enterprise Loan Agreement, the Borrower and the Lender will negotiate in good faith as to whether the amount payable by the Borrower to the Lender should be increased on account of those deductions. | |
| Goods and Services Tax: | The Borrower will reimburse the Lender for any goods and services tax payable by the Lender in relation to taxable supplies made by the Lender to the Borrower. | |
| Legal and Other Costs and Expenses: | The Borrower will pay and/or reimburse the Lender on demand for all charges and expenses which the Lender may incur or become liable to pay in connection with the preparation, execution, implementation or enforcement of the Enterprise Loan Agreement, including any stamp duty, debits tax, any other tax, duty or legal fees (on a full indemnity basis) and out-of-pocket expenses. | |
| Assignment: | Neither party may assign or transfer any of its rights or obligations under the Enterprise Loan Agreement. | |
| Governing Law: | Victoria, with submission to the non-exclusive jurisdiction of the Courts of Victoria. | |
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Definitions
In this Schedule 1, unless the context otherwise requires:
| (a) | terms which are defined in clause 1.1 of this document (being the Enterprise Funding Agreement) apply; and |
| (b) | the following definitions apply: |
BBSY, for a period, means the arithmetic mean of the bid rates shown on the Reuters screen BBSY paid for $ bank accepted bills of exchange for a term equivalent to six months.
Credit Review Event means a material adverse change to the ability of the Borrower to service its debts.
Final Repayment Date means the last day of the Repayment Term.
Financial Year means the period from the date of first drawdown to 31 December 2006 and then each succeeding period from 1 January to the next 31 December.
LIBOR, for a period, means the arithmetic mean of the rates shown on the Reuters screen LIBO paid for US dollars for a term equivalent to six months.
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EXECUTED in counterpart as of the date first above written.
| EXECUTED by Alcoa Inc: | ||||
| /s/ Bernt Reitan |
/s/ Colette Martin | |||
| Signature of authorized representative | Witness | |||
| Bernt Reitan |
Colette Martin | |||
| Name | Name | |||
| EXECUTED by Alumina Limited: | ||||
| /s/ John Marlay |
/s/ Stephen Foster | |||
| Signature of director | Signature of secretary | |||
| John Marlay |
Stephen Foster | |||
| Name | Name | |||
| EXECUTED by Alcoa Australian Holdings Pty Ltd: | ||||
| /s/ Wayne Geoffrey Osborn |
/s/ Anthony T. Adams | |||
| Signature of director | Signature of director | |||
| Wayne Geoffrey Osborn |
Anthony T. Adams | |||
| Name | Name | |||
EXECUTED by Alcoa of Australia
Limited:
| /s/ Wayne Geoffrey Osborn |
/s/ Anthony T. Adams | |||
| Signature of director | Signature of director | |||
| Wayne Geoffrey Osborn |
Anthony T. Adams | |||
| Name | Name | |||
| EXECUTED by the Enterprise Funding Partnership by its partners: |
||||
| Alcoa Australian Holdings Pty Ltd: | ||||
| /s/ Wayne Geoffrey Osborn |
/s/ Anthony T. Adams | |||
| Signature of director | Signature of director | |||
| Wayne Geoffrey Osborn |
Anthony T. Adams | |||
| Name | Name | |||
| Alumina Limited: | ||||
| /s/ John Marlay |
/s/ Stephen Foster | |||
| Signature of director | Signature of secretary | |||
| John Marlay |
Stephen Foster | |||
| Name | Name | |||
Exhibit 10(vv)
Terms of Localization for Helmut Wieser
Purpose for Change:
| • | An agreement has been reached with Mr. Wieser to localize him to the U.S. effective January 1, 2007. When he transferred to the U.S. in January 2005, it was anticipated that his assignment would be two or three years. During this period, it was agreed that the Expatriate Plan would cover him, but the company reserved the right at any point to have him become a permanent transfer to the U.S. Given his current assignment and level in the company, it is unlikely that he will be Europe based in the future and therefore U.S. localization now is appropriate. |
Terms of the Agreement:
| • | Elimination of all expatriate benefits effective January 1, 2007. |
| • | Participation in the Alcoa Retirement Plan I Rule I-M with all Alcoa service recognized back to date of hire (October 1, 2000) with an offset for the value of APK Pensionkasse (“Retirement Plan”) for calculation purposes. This arrangement replaces his previous contractual pension agreement. |
| • | Participation in the regular company U.S. health care scheme. In the event he retires outside the U.S., per current practice, he will be eligible for the Cigna Global Retiree Medical Plan for any post-retiree medical benefits. |
| • | Eligibility to participate in the U.S. savings plan, deferred compensation plan, life insurance plan, and disability plan. |
| • | By March 1, 2007 a lump sum payment of USD $500,000 less any applicable taxes will be made to facilitate transition from expatriate status to localized status. |
Additional Benefits Eligibility:
| • | To assist in transition to the New York Office, he will receive a special supplemental payment equal to six times his monthly base pay, which is not grossed up for taxes, and is customary under the New York office relocation plan. This payment will be made in a lump sum on March 1, 2007 and will be calculated based upon his March 2007 salary. |
| • | Under the U.S. Domestic Relocation Policy he will be eligible for home purchase assistance and a mortgage subsidy less any applicable taxes should he purchase a home in the New York area before January 1, 2008. |
Exhibit 10.(ww)
Summary of Relocation Benefits for Paul D. Thomas
| • | An agreement has been reached with Mr. Thomas to relocate him from the Chicago office to the New York office. |
Terms of Agreement:
| • | For a transition period beginning January 1, 2005 and ending December 31, 2006, Mr. Thomas will be provided use of a furnished apartment in New York with cleaning service, at a cost to Alcoa Inc. not to exceed $105,000 per year. |
| • | Mr. Thomas will be reimbursed for income taxes resulting from this benefit. |
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31,
(in millions, except ratios)
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| Earnings: |
||||||||||||||||||||
| Income from continuing operations before taxes on income |
$ | 3,432 | $ | 1,970 | $ | 2,153 | $ | 1,645 | $ | 948 | ||||||||||
| Minority interests’ share of earnings of majority-owned subsidiaries without fixed charges |
— | — | — | — | — | |||||||||||||||
| Less equity earnings |
(72 | ) | (26 | ) | (145 | ) | (138 | ) | (72 | ) | ||||||||||
| Fixed charges added to earnings |
440 | 387 | 313 | 346 | 380 | |||||||||||||||
| Distributed income of less than 50% owned persons |
37 | 40 | 59 | 35 | 21 | |||||||||||||||
| Amortization of capitalized interest: |
||||||||||||||||||||
| Consolidated |
21 | 25 | 25 | 21 | 14 | |||||||||||||||
| Proportionate share of 50% owned persons |
— | — | — | — | — | |||||||||||||||
| Total earnings |
$ | 3,858 | $ | 2,396 | $ | 2,405 | $ | 1,909 | $ | 1,291 | ||||||||||
| Fixed Charges: |
||||||||||||||||||||
| Interest expense: |
||||||||||||||||||||
| Consolidated |
$ | 384 | $ | 339 | $ | 271 | $ | 314 | $ | 350 | ||||||||||
| Proportionate share of 50% owned persons |
5 | 3 | 3 | 4 | 4 | |||||||||||||||
| 389 | 342 | 274 | 318 | 354 | ||||||||||||||||
| Amount representative of the interest factor in rents: |
||||||||||||||||||||
| Consolidated |
49 | 43 | 37 | 27 | 25 | |||||||||||||||
| Proportionate share of 50% owned persons |
2 | 2 | 2 | 1 | 1 | |||||||||||||||
| 51 | 45 | 39 | 28 | 26 | ||||||||||||||||
| Fixed charges added to earnings |
440 | 387 | 313 | 346 | 380 | |||||||||||||||
| Interest capitalized: |
||||||||||||||||||||
| Consolidated |
128 | 58 | 27 | 21 | 22 | |||||||||||||||
| Proportionate share of 50% owned persons |
2 | — | — | — | — | |||||||||||||||
| 130 | 58 | 27 | 21 | 22 | ||||||||||||||||
| Total fixed charges |
$ | 570 | $ | 445 | $ | 340 | $ | 367 | $ | 402 | ||||||||||
| Ratio of earnings to fixed charges |
6.8 | 5.4 | 7.1 | 5.2 | 3.2 | |||||||||||||||
The financial information of all prior periods has been reclassified to reflect discontinued operations.
43
Exhibit 13
| Selected Financial Data (in millions, except per-share amounts and ingot prices) |
| For the year ended December 31, | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||
| Sales |
$ | 30,379 | $ | 25,568 | $ | 22,609 | $ | 20,282 | $ | 19,164 | |||||||||
| Income from continuing operations |
2,161 | 1,257 | 1,369 | 1,012 | 478 | ||||||||||||||
| Income (loss) from discontinued operations |
87 | (22 | ) | (59 | ) | (27 | ) | (92 | ) | ||||||||||
| Cumulative effect of accounting changes |
— | (2 | ) | — | (47 | ) | 34 | ||||||||||||
| Net income |
2,248 | 1,233 | 1,310 | 938 | 420 | ||||||||||||||
| Earnings (loss) per share: |
|||||||||||||||||||
| Basic: |
|||||||||||||||||||
| Income from continuing operations |
2.49 | 1.44 | 1.57 | 1.18 | .56 | ||||||||||||||
| Income (loss) from discontinued operations |
.10 | (.03 | ) | (.07 | ) | (.03 | ) | (.11 | ) | ||||||||||
| Cumulative effect of accounting changes |
— | — | — | (.06 | ) | .04 | |||||||||||||
| Net income |
2.59 | 1.41 | 1.50 | 1.09 | .49 | ||||||||||||||
| Diluted: |
|||||||||||||||||||
| Income from continuing operations |
2.47 | 1.43 | 1.56 | 1.18 | .56 | ||||||||||||||
| Income (loss) from discontinued operations |
.10 | (.03 | ) | (.07 | ) | (.04 | ) | (.11 | ) | ||||||||||
| Cumulative effect of accounting changes |
— | — | — | (.06 | ) | .04 | |||||||||||||
| Net income |
2.57 | 1.40 | 1.49 | 1.08 | .49 | ||||||||||||||
| Alcoa’s average realized price per metric ton of aluminum ingot |
2,665 | 2,044 | 1,867 | 1,543 | 1,455 | ||||||||||||||
| LME average 3-month price per metric ton of aluminum ingot |
2,594 | 1,900 | 1,721 | 1,428 | 1,365 | ||||||||||||||
| Cash dividends paid per common share |
.60 | .60 | .60 | .60 | .60 | ||||||||||||||
| Total assets |
37,183 | 33,696 | 32,609 | 31,711 | 29,810 | ||||||||||||||
| Short-term borrowings |
475 | 296 | 261 | 66 | 48 | ||||||||||||||
| Commercial paper |
1,472 | 912 | 630 | — | 663 | ||||||||||||||
| Long-term debt, including amounts due within one year |
5,288 | 5,334 | 5,399 | 7,213 | 7,762 | ||||||||||||||
The financial information for all prior periods presented has been reclassified to reflect assets held for sale and discontinued operations. See Note B to the Consolidated Financial Statements for further information.
In addition to the operational results presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations, other significant items that impacted results included, but were not limited to, the following:
| 2006: | Disposition of a non-core business, restructuring and other charges, including impairment charges associated with the formation of a joint venture and other assets to be disposed of, and lower income tax expense associated with discrete items |
| 2005: | Acquisitions and dispositions of businesses, restructuring and other charges, the sale of investments, and a tax benefit resulting from the finalization of certain tax reviews and audits |
| 2004: | Disposition of businesses, restructuring and other charges, changes in the provision for income taxes, the restructuring of debt and associated settlement of interest rate swaps, the effects of the Bécancour strike, the sale of a portion of Alcoa’s interest in the Juruti bauxite project, environmental charges, the termination of an alumina tolling arrangement, and discontinued operations |
| 2003: | Acquisitions and dispositions of businesses, restructuring and other charges, insurance settlements related to environmental matters, changes in the provision for income taxes, discontinued operations, and the adoption of a new accounting standard |
| 2002: | Restructuring and other charges, the adoption of new accounting standards, goodwill impairment, and discontinued operations |
The data presented in the Selected Financial Data table should be read in conjunction with the information provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements.
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
Contractual Obligations and Off-Balance Sheet Arrangements
The company is obligated to make future payments under various contracts such as long-term purchase obligations, debt agreements, and lease agreements, and has certain commitments such as guarantees. The company has grouped these contractual obligations and off-balance sheet arrangements into operating activities, financing activities, and investing activities in the same manner as they are classified in the Statement of Consolidated Cash Flows in order to provide a better understanding of the nature of the obligations and arrangements and to provide a basis for comparison to historical information. The table below provides a summary of contractual obligations and off-balance sheet arrangements as of December 31, 2006:
| Total | 2007 | 2008-2009 | 2010-2011 | Thereafter | |||||||||||||
| Operating activities: |
|||||||||||||||||
| Energy-related purchase obligations |
$ | 13,535 | $ | 1,277 | $ | 2,253 | $ | 1,732 | $ | 8,273 | |||||||
| Raw material and other purchase obligations |
6,186 | 3,421 | 1,910 | 630 | 225 | ||||||||||||
| Operating leases (1) |
1,347 | 245 | 369 | 337 | 396 | ||||||||||||
| Estimated minimum required pension funding |
(2 | ) | 219 | 680 | 450 | (2 | ) | ||||||||||
| Postretirement benefit payments |
(2 | ) | 354 | 700 | 685 | (2 | ) | ||||||||||
| Layoff and other restructuring payments (3) |
208 | 163 | 45 | — | — | ||||||||||||
| Deferred revenue arrangements |
350 | 81 | 129 | 16 | 124 | ||||||||||||
| Financing activities: |
|||||||||||||||||
| Total debt (4) |
7,235 | 1,325 | 299 | 2,003 | 3,608 | ||||||||||||
| Dividends to shareholders (5) |
|||||||||||||||||
| Investing activities: |
|||||||||||||||||
| Capital projects (6) |
3,535 | 2,342 | 1,145 | 48 | — | ||||||||||||
| Payments related to acquisitions (7) |
13 | 13 | — | — | — | ||||||||||||
| Other: |
|||||||||||||||||
| Standby letters of credit (8) |
444 | — | — | — | — | ||||||||||||
| Guarantees (9) |
498 | — | — | — | — | ||||||||||||
| Totals |
9,440 | 7,530 | 5,901 | ||||||||||||||
| (1) |
See Note U to the Consolidated Financial Statements for further details on operating leases. |
| (2) |
Annual payments and funding are expected to continue into the foreseeable future at the amounts or ranges noted in the Obligations for Operating Activities section that follows. |
| (3) |
See Note D to the Consolidated Financial Statements for further details on layoff and other restructuring payments. |
| (4) |
See Note K to the Consolidated Financial Statements for further details on debt and associated interest. The amounts in the table above do not include the related interest. |
| (5) |
See the Obligations for Financing Activities section that follows. |
| (6) |
See the Obligations for Investing Activities section that follows. |
| (7) |
See Note F to the Consolidated Financial Statements for further details on required payments related to acquisitions. Additional contingent payments not included in the above table may be required if certain financial and operational thresholds are met. |
| (8) |
This amount represents the total amount committed under standby letters of credit, which expire at various dates in 2007 through 2014. As the amounts under these standby letters of credit are contingent on nonpayment to third parties, it is not practical to present annual payment information. |
| (9) |
This amount represents the total maximum potential future payments for guarantees issued on behalf of third parties. These guarantees expire at various dates in 2007 through 2018 and relate primarily to project financing for hydroelectric power projects in Brazil. As the amounts under these guarantees are contingent on nonperformance of third parties, it is not practical to present annual payment information. |
40
41
42
43
| Statement of Consolidated Income (in millions, except per-share amounts) |
Alcoa and subsidiaries |
| For the year ended December 31, | 2006 | 2005 | 2004 | |||||||||
| Sales (Q) |
$ | 30,379 | $ | 25,568 | $ | 22,609 | ||||||
| Cost of goods sold (exclusive of expenses below) |
23,318 | 20,704 | 17,928 | |||||||||
| Selling, general administrative, and other expenses |
1,402 | 1,295 | 1,194 | |||||||||
| Research and development expenses |
213 | 192 | 178 | |||||||||
| Provision for depreciation, depletion, and amortization |
1,280 | 1,256 | 1,177 | |||||||||
| Restructuring and other charges (D) |
543 | 292 | (22 | ) | ||||||||
| Interest expense (V) |
384 | 339 | 271 | |||||||||
| Other income, net (O) |
(193 | ) | (480 | ) | (270 | ) | ||||||
| Total costs and expenses |
26,947 | 23,598 | 20,456 | |||||||||
| Income from continuing operations before taxes on income |
3,432 | 1,970 | 2,153 | |||||||||
| Provision for taxes on income (T) |
835 | 454 | 539 | |||||||||
| Income from continuing operations before minority interests’ share |
2,597 | 1,516 | 1,614 | |||||||||
| Less: Minority interests’ share |
436 | 259 | 245 | |||||||||
| Income from continuing operations |
2,161 | 1,257 | 1,369 | |||||||||
| Income (loss) from discontinued operations (B) |
87 | (22 | ) | (59 | ) | |||||||
| Cumulative effect of accounting change (C) |
— | (2 | ) | — | ||||||||
| Net Income |
$ | 2,248 | $ | 1,233 | $ | 1,310 | ||||||
| Earnings (loss) per Common Share (S) |
||||||||||||
| Basic: |
||||||||||||
| Income from continuing operations |
$ | 2.49 | $ | 1.44 | $ | 1.57 | ||||||
| Income (loss) from discontinued operations |
.10 | (.03 | ) | (.07 | ) | |||||||
| Cumulative effect of accounting change |
— | — | — | |||||||||
| Net income |
$ | 2.59 | $ | 1.41 | $ | 1.50 | ||||||
| Diluted: |
||||||||||||
| Income from continuing operations |
$ | 2.47 | $ | 1.43 | $ | 1.56 | ||||||
| Income (loss) from discontinued operations |
.10 | (.03 | ) | (.07 | ) | |||||||
| Cumulative effect of accounting change |
— | — | — | |||||||||
| Net income |
$ | 2.57 | $ | 1.40 | $ | 1.49 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
44
| Consolidated Balance Sheet (in millions) |
Alcoa and subsidiaries |
| December 31, | 2006 | 2005 | ||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents (X) |
$ | 506 | $ | 762 | ||||
| Receivables from customers, less allowances: 2006—$75; 2005—$62 |
3,127 | 2,616 | ||||||
| Other receivables |
308 | 420 | ||||||
| Inventories (G) |
3,805 | 3,191 | ||||||
| Fair value of derivative contracts |
295 | 520 | ||||||
| Prepaid expenses and other current assets |
1,116 | 704 | ||||||
| Total current assets |
9,157 | 8,213 | ||||||
| Properties, plants, and equipment, net (H) |
14,813 | 12,571 | ||||||
| Goodwill (E and F) |
6,166 | 6,108 | ||||||
| Investments (I) |
1,722 | 1,370 | ||||||
| Other assets (J) |
4,346 | 4,057 | ||||||
| Assets held for sale (B) |
979 | 1,377 | ||||||
| Total Assets |
$ | 37,183 | $ | 33,696 | ||||
| Liabilities |
||||||||
| Current liabilities: |
||||||||
| Short-term borrowings (K and X) |
$ | 475 | $ | 296 | ||||
| Commercial paper (K and X) |
340 | 912 | ||||||
| Accounts payable, trade |
2,680 | 2,420 | ||||||
| Accrued compensation and retirement costs |
995 | 1,069 | ||||||
| Taxes, including taxes on income |
875 | 874 | ||||||
| Other current liabilities |
1,406 | 1,433 | ||||||
| Long-term debt due within one year (K and X) |
510 | 58 | ||||||
| Total current liabilities |
7,281 | 7,062 | ||||||
| Commercial paper (K and X) |
1,132 | — | ||||||
| Long-term debt, less amount due within one year (K and X) |
4,778 | 5,276 | ||||||
| Accrued pension benefits (W) |
1,567 | 1,500 | ||||||
| Accrued postretirement benefits (W) |
2,956 | 2,103 | ||||||
| Other noncurrent liabilities and deferred credits (L) |
2,023 | 1,820 | ||||||
| Deferred income taxes (T) |
762 | 865 | ||||||
| Liabilities of operations held for sale (B) |
253 | 332 | ||||||
| Total liabilities |
20,752 | 18,958 | ||||||
| Minority interests (M) |
1,800 | 1,365 | ||||||
| Commitments and contingencies (N) |
||||||||
| Shareholders’ Equity |
||||||||
| Preferred stock (R) |
55 | 55 | ||||||
| Common stock (R) |
925 | 925 | ||||||
| Additional capital |
5,817 | 5,720 | ||||||
| Retained earnings |
11,066 | 9,345 | ||||||
| Treasury stock, at cost |
(1,999 | ) | (1,899 | ) | ||||
| Accumulated other comprehensive loss |
(1,233 | ) | (773 | ) | ||||
| Total shareholders’ equity |
14,631 | 13,373 | ||||||
| Total Liabilities and Equity |
$ | 37,183 | $ | 33,696 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
45
| Statement of Consolidated Cash Flows (in millions) |
Alcoa and subsidiaries |
| For the year ended December 31, | 2006 | 2005 | 2004 | |||||||||
| Cash from Operations |
||||||||||||
| Net income |
$ | 2,248 | $ | 1,233 | $ | 1,310 | ||||||
| Adjustments to reconcile net income to cash from operations: |
||||||||||||
| Depreciation, depletion, and amortization |
1,280 | 1,258 | 1,185 | |||||||||
| Deferred income taxes |
(69 | ) | (16 | ) | (95 | ) | ||||||
| Equity (income) loss, net of dividends |
(89 | ) | 35 | (54 | ) | |||||||
| Restructuring and other charges (D) |
543 | 292 | (22 | ) | ||||||||
| Net gain on early retirement of debt and interest rate swap settlements (K and O) |
— | — | (58 | ) | ||||||||
| Gains from investing activities—sale of assets and businesses (O) |
(25 | ) | (406 | ) | (44 | ) | ||||||
| Provision for doubtful accounts |
22 | 19 | 24 | |||||||||
| (Income) loss from discontinued operations (B) |
(87 | ) | 22 | 59 | ||||||||
| Minority interests |
436 | 259 | 245 | |||||||||
| Cumulative effect of accounting change (C) |
— | 2 | — | |||||||||
| Stock-based compensation |
72 | 25 | 14 | |||||||||
| Excess tax benefits from stock-based payment arrangements |
(17 | ) | — | — | ||||||||
| Other |
(169 | ) | 5 | 80 | ||||||||
| Changes in assets and liabilities, excluding effects of acquisitions and divestitures: |
||||||||||||
| Increase in receivables |
(97 | ) | (475 | ) | (99 | ) | ||||||
| Increase in inventories |
(496 | ) | (461 | ) | (387 | ) | ||||||
| Increase in prepaid expenses and other current assets |
(167 | ) | (16 | ) | (87 | ) | ||||||
| (Decrease) increase in accounts payable and accrued expenses |
(294 | ) | 659 | 78 | ||||||||
| (Decrease) increase in taxes, including taxes on income |
(35 | ) | (96 | ) | 119 | |||||||
| Cash paid on early retirement of debt and interest rate swap settlements (K) |
— | — | (52 | ) | ||||||||
| Cash paid on long-term aluminum supply contract |
— | (93 | ) | — | ||||||||
| Pension contributions |
(397 | ) | (383 | ) | (101 | ) | ||||||
| Net change in other noncurrent assets and liabilities |
(23 | ) | (201 | ) | (128 | ) | ||||||
| (Increase) decrease in net assets held for sale |
(73 | ) | (18 | ) | 145 | |||||||
| Cash provided from continuing operations |
2,563 | 1,644 | 2,132 | |||||||||
| Cash provided from discontinued operations |
4 | 32 | 67 | |||||||||
| Cash provided from operations |
2,567 | 1,676 | 2,199 | |||||||||
| Financing Activities |
||||||||||||
| Net changes to short-term borrowings |
126 | 5 | 213 | |||||||||
| Common stock issued for stock compensation plans |
156 | 72 | 83 | |||||||||
| Repurchase of common stock |
(290 | ) | (108 | ) | (67 | ) | ||||||
| Dividends paid to shareholders |
(524 | ) | (524 | ) | (524 | ) | ||||||
| Dividends paid to minority interests |
(400 | ) | (75 | ) | (119 | ) | ||||||
| Contributions from minority interests |
342 | — | — | |||||||||
| Net change in commercial paper |
560 | 282 | 630 | |||||||||
| Additions to long-term debt |
29 | 278 | 180 | |||||||||
| Payments on long-term debt |
(36 | ) | (254 | ) | (1,921 | ) | ||||||
| Excess tax benefits from stock-based payment arrangements |
17 | — | — | |||||||||
| Cash used for financing activities |
(20 | ) | (324 | ) | (1,525 | ) | ||||||
| Investing Activities |
||||||||||||
| Capital expenditures |
(3,201 | ) | (2,116 | ) | (1,137 | ) | ||||||
| Capital expenditures of discontinued operations |
(4 | ) | (22 | ) | (6 | ) | ||||||
| Acquisitions of minority interests (F and P) |
(1 | ) | (199 | ) | — | |||||||
| Acquisitions, net of cash acquired (F and P) |
8 | (262 | ) | (2 | ) | |||||||
| Proceeds from the sale of assets and businesses |
372 | 505 | 392 | |||||||||
| Additions to investments |
(58 | ) | (30 | ) | (69 | ) | ||||||
| Sale of investments (F) |
35 | 1,081 | — | |||||||||
| Net change in short-term investments and restricted cash |
(4 | ) | (8 | ) | 30 | |||||||
| Other |
12 | 16 | (10 | ) | ||||||||
| Cash used for investing activities |
(2,841 | ) | (1,035 | ) | (802 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
38 | (12 | ) | 9 | ||||||||
| Net change in cash and cash equivalents |
(256 | ) | 305 | (119 | ) | |||||||
| Cash and cash equivalents at beginning of year |
762 | 457 | 576 | |||||||||
| Cash and cash equivalents at end of year |
$ | 506 | $ | 762 | $ | 457 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
46
| Statement of Shareholders’ Equity (in millions, except per-share amounts) |
Alcoa and subsidiaries |
| December 31, | Comprehensive income |
Preferred stock |
Common stock |
Additional capital |
Retained earnings |
Treasury stock |
Accumulated other compre- hensive loss |
Total shareholders’ equity |
||||||||||||||||||||||
| Balance at end of 2003 |
$ | 55 | $ | 925 | $ | 5,831 | $ | 7,850 | $ | (2,017 | ) | $ | (569 | ) | $ | 12,075 | ||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||
| Net income |
$ | 1,310 | 1,310 | 1,310 | ||||||||||||||||||||||||||
| Other comprehensive (loss) income: |
||||||||||||||||||||||||||||||
| Change in minimum pension liability, net of tax and minority interests of $11 |
(21 | ) | ||||||||||||||||||||||||||||
| Currency translation adjustments |
535 | |||||||||||||||||||||||||||||
| Unrealized losses on available-for-sale securities, net of $51 tax benefit (X) |
(94 | ) | ||||||||||||||||||||||||||||
| Unrecognized gains/(losses) on derivatives, net of tax and minority interests of $34 (X): |
||||||||||||||||||||||||||||||
| Net change from periodic revaluations |
120 | |||||||||||||||||||||||||||||
| Net amount reclassified to income |
(136 | ) | ||||||||||||||||||||||||||||
| Net unrecognized losses on derivatives |
(16 | ) | ||||||||||||||||||||||||||||
| Comprehensive income |
$ | 1,714 | 404 | 404 | ||||||||||||||||||||||||||
| Cash dividends: Preferred @ $3.75 per share |
(2 | ) | (2 | ) | ||||||||||||||||||||||||||
| Common @ $.60 per share |
(522 | ) | (522 | ) | ||||||||||||||||||||||||||
| Common stock issued: compensation plans |
(56 | ) | 158 | 102 | ||||||||||||||||||||||||||
| Repurchase of common stock |
(67 | ) | (67 | ) | ||||||||||||||||||||||||||
| Balance at end of 2004 |
55 | 925 | 5,775 | 8,636 | (1,926 | ) | (165 | ) | 13,300 | |||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||
| Net income |
$ | 1,233 | 1,233 | 1,233 | ||||||||||||||||||||||||||
| Other comprehensive (loss) income: |
||||||||||||||||||||||||||||||
| Change in minimum pension liability, net of tax and minority interests of $80 |
(148 | ) | ||||||||||||||||||||||||||||
| Currency translation adjustments |
(542 | ) | ||||||||||||||||||||||||||||
| Unrealized gains on available-for-sale securities, net of $52 tax expense (X) |
96 | |||||||||||||||||||||||||||||
| Unrecognized gains/(losses) on derivatives, net of tax and minority interests of $87 (X): |
||||||||||||||||||||||||||||||
| Net change from periodic revaluations |
123 | |||||||||||||||||||||||||||||
| Net amount reclassified to income |
(137 | ) | ||||||||||||||||||||||||||||
| Net unrecognized losses on derivatives |
(14 | ) | ||||||||||||||||||||||||||||
| Comprehensive income |
$ | 625 | (608 | ) | (608 | ) | ||||||||||||||||||||||||
| Cash dividends: Preferred @ $3.75 per share |
(2 | ) | (2 | ) | ||||||||||||||||||||||||||
| Common @ $.60 per share |
(522 | ) | (522 | ) | ||||||||||||||||||||||||||
| Common stock issued: compensation plans |
(55 | ) | 135 | 80 | ||||||||||||||||||||||||||
| Repurchase of common stock |
(108 | ) | (108 | ) | ||||||||||||||||||||||||||
| Balance at end of 2005 |
55 | 925 | 5,720 | 9,345 | (1,899 | ) | (773 | ) | 13,373 | |||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||
| Net income |
$ | 2,248 | 2,248 | 2,248 | ||||||||||||||||||||||||||
| Other comprehensive (loss) income: |
||||||||||||||||||||||||||||||
| Change in minimum pension liability, net of tax and minority interests of $104 |
184 | |||||||||||||||||||||||||||||
| Currency translation adjustments |
659 | |||||||||||||||||||||||||||||
| Unrealized gains on available-for-sale securities, net of $53 tax expense |
98 | |||||||||||||||||||||||||||||
| Unrecognized losses on derivatives, net of tax and minority interests of $152: |
||||||||||||||||||||||||||||||
| Net change from periodic revaluations |
(473 | ) | ||||||||||||||||||||||||||||
| Net amount reclassified to income |
(51 | ) | ||||||||||||||||||||||||||||
| Net unrecognized losses on derivatives |
(524 | ) | ||||||||||||||||||||||||||||
| Comprehensive income |
$ | 2,665 | 417 | 417 | ||||||||||||||||||||||||||
| Cash dividends: Preferred @ $3.75 per share |
(2 | ) | (2 | ) | ||||||||||||||||||||||||||
| Common @ $.60 per share |
(522 | ) | (522 | ) | ||||||||||||||||||||||||||
| Stock-based compensation |
72 | 72 | ||||||||||||||||||||||||||||
| Common stock issued: compensation plans |
(13 | ) | 190 | 177 | ||||||||||||||||||||||||||
| Repurchase of common stock |
(290 | ) | (290 | ) | ||||||||||||||||||||||||||
| Cumulative effect adjustment due to the adoption of SFAS 158, net of tax and minority interests |
(877 | ) | (877 | ) | ||||||||||||||||||||||||||
| Cumulative effect adjustment due to the adoption of EITF 04-6 |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||
| Other |
38 | 38 | ||||||||||||||||||||||||||||
| Balance at end of 2006 |
$ | 55 | $ | 925 | $ | 5,817 | $ | 11,066 | $ | (1,999 | ) | $ | (1,233 | )* | $ | 14,631 | ||||||||||||||
| * | Comprised of unrealized translation adjustments of $652, unrecognized losses and prior service cost, net, related to pension and other postretirement benefits of $(1,813), unrealized gains on available-for-sale securities of $415, and unrecognized net losses on derivatives of $(487), net of tax. |
The accompanying notes are an integral part of the consolidated financial statements.
47
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55
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59
Alcoa’s reportable segments, as reclassified for discontinued operations and assets held for sale, are as follows:
| Segment information | Alumina | Primary Metals |
Flat- Products |
Extruded and End Products |
Engineered Solutions |
Packaging and Consumer |
Total | |||||||||||||||||||
| 2006 |
||||||||||||||||||||||||||
| Sales: |
||||||||||||||||||||||||||
| Third-party sales |
$ | 2,785 | $ | 6,171 | $ | 8,297 | $ | 4,419 | $ | 5,456 | $ | 3,235 | $ | 30,363 | ||||||||||||
| Intersegment sales |
2,144 | 6,208 | 246 | 99 | — | — | 8,697 | |||||||||||||||||||
| Total sales |
$ | 4,929 | $ | 12,379 | $ | 8,543 | $ | 4,518 | $ | 5,456 | $ | 3,235 | $ | 39,060 | ||||||||||||
| Profit and loss: |
||||||||||||||||||||||||||
| Equity (loss) income |
$ | (2 | ) | $ | 82 | $ | (2 | ) | $ | — | $ | (4 | ) | $ | 1 | $ | 75 | |||||||||
| Depreciation, depletion, and amortization |
192 | 395 | 219 | 118 | 169 | 124 | 1,217 | |||||||||||||||||||
| Income taxes |
428 | 726 | 68 | 18 | 101 | 33 | 1,374 | |||||||||||||||||||
| ATOI |
1,050 | 1,760 | 255 | 60 | 331 | 95 | 3,551 | |||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||
| Capital expenditures |
$ | 837 | $ | 1,440 | $ | 399 | $ | 135 | $ | 139 | $ | 90 | $ | 3,040 | ||||||||||||
| Equity investments |
238 | 568 | — | — | 8 | 3 | 817 | |||||||||||||||||||
| Goodwill |
16 | 930 | 178 | 88 | 2,553 | 818 | 4,583 | |||||||||||||||||||
| Total assets |
5,250 | 10,530 | 5,192 | 1,178 | 5,972 | 2,757 | 30,879 | |||||||||||||||||||
| 2005 |
||||||||||||||||||||||||||
| Sales: |
||||||||||||||||||||||||||
| Third-party sales |
$ | 2,130 | $ | 4,698 | $ | 6,836 | $ | 3,729 | $ | 5,032 | $ | 3,139 | $ | 25,564 | ||||||||||||
| Intersegment sales |
1,707 | 4,808 | 128 | 64 | — | — | 6,707 | |||||||||||||||||||
| Total sales |
$ | 3,837 | $ | 9,506 | $ | 6,964 | $ | 3,793 | $ | 5,032 | $ | 3,139 | $ | 32,271 | ||||||||||||
| Profit and loss: |
||||||||||||||||||||||||||
| Equity (loss) income |
$ | — | $ | (12 | ) | $ | — | $ | — | $ | 1 | $ | 1 | $ | (10 | ) | ||||||||||
| Depreciation, depletion, and amortization |
172 | 368 | 217 | 119 | 176 | 126 | 1,178 | |||||||||||||||||||
| Income taxes |
246 | 307 | 111 | 20 | 89 | 50 | 823 | |||||||||||||||||||
| ATOI |
682 | 822 | 288 | 39 | 203 | 105 | 2,139 | |||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||
| Capital expenditures |
$ | 608 | $ | 869 | $ | 185 | $ | 114 | $ | 131 | $ | 100 | $ | 2,007 | ||||||||||||
| Equity investments |
215 | 384 | 4 | — | 8 | 3 | 614 | |||||||||||||||||||
| Goodwill |
15 | 923 | 158 | 98 | 2,503 | 814 | 4,511 | |||||||||||||||||||
| Total assets |
4,268 | 8,566 | 3,963 | 884 | 5,733 | 2,787 | 26,201 | |||||||||||||||||||
| 2004 |
||||||||||||||||||||||||||
| Sales: |
||||||||||||||||||||||||||
| Third-party sales |
$ | 1,975 | $ | 3,806 | $ | 5,962 | $ | 3,387 | $ | 4,563 | $ | 2,923 | $ | 22,616 | ||||||||||||
| Intersegment sales |
1,418 | 4,335 | 89 | 54 | — | — | 5,896 | |||||||||||||||||||
| Total sales |
$ | 3,393 | $ | 8,141 | $ | 6,051 | $ | 3,441 | $ | 4,563 | $ | 2,923 | $ | 28,512 | ||||||||||||
| Profit and loss: |
||||||||||||||||||||||||||
| Equity income (loss) |
$ | 1 | $ | 58 | $ | (1 | ) | $ | — | $ | — | $ | 1 | $ | 59 | |||||||||||
| Depreciation, depletion, and amortization |
153 | 326 | 198 | 113 | 188 | 126 | 1,104 | |||||||||||||||||||
| Income taxes |
240 | 314 | 75 | 22 | 96 | 72 | 819 | |||||||||||||||||||
| ATOI |
632 | 808 | 246 | 62 | 216 | 141 | 2,105 | |||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||
| Capital expenditures |
$ | 339 | $ | 281 | $ | 153 | $ | 99 | $ | 103 | $ | 73 | $ | 1,048 | ||||||||||||
| Equity investments |
187 | 563 | 6 | — | 6 | 2 | 764 | |||||||||||||||||||
| Goodwill |
15 | 931 | 168 | 102 | 2,603 | 834 | 4,653 | |||||||||||||||||||
| Total assets |
3,605 | 8,121 | 3,672 | 752 | 5,701 | 2,805 | 24,656 | |||||||||||||||||||
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65
Obligations and Funded Status
| Pension benefits | Postretirement benefits | |||||||||||||||||
| December 31, | 2006 | 2005 | 2006 | 2005 | ||||||||||||||
| Change in projected benefit obligation |
||||||||||||||||||
| Benefit obligation at beginning of year |
$ | 11,332 | $ | 10,751 | $ | 3,654 | $ | 3,827 | ||||||||||
| Service cost |
209 | 209 | 32 | 33 | ||||||||||||||
| Interest cost |
628 | 619 | 208 | 216 | ||||||||||||||
| Amendments |
32 | — | (89 | ) | (26 | ) | ||||||||||||
| Actuarial (gains) losses |
(3 | ) | 487 | 56 | (47 | ) | ||||||||||||
| Acquisitions |
— | 20 | — | — | ||||||||||||||
| Divestitures |
— | (5 | ) | 1 | (1 | ) | ||||||||||||
| Benefits paid, net of participants’ contributions |
(717 | ) | (685 | ) | (354 | ) | (349 | ) | ||||||||||
| Other transfers, net |
— | — | — | — | ||||||||||||||
| Exchange rate |
133 | (64 | ) | 1 | 1 | |||||||||||||
| Projected benefit obligation at end of year |
$ | 11,614 | $ | 11,332 | $ | 3,509 | $ | 3,654 | ||||||||||
| Change in plan assets |
||||||||||||||||||
| Fair value of plan assets at beginning of year |
$ | 9,323 | $ | 8,800 | $ | 170 | $ | 157 | ||||||||||
| Actual return on plan assets |
1,001 | 866 | 19 | 13 | ||||||||||||||
| Acquisitions |
— | 16 | — | — | ||||||||||||||
| Employer contributions |
369 | 383 | — | — | ||||||||||||||
| Participants’ contributions |
30 | 26 | — | — | ||||||||||||||
| Benefits paid |
(719 | ) | (690 | ) | — | — | ||||||||||||
| Administrative expenses |
(20 | ) | (24 | ) | — | — | ||||||||||||
| Other transfers, net |
— | — | — | — | ||||||||||||||
| Exchange rate |
113 | (54 | ) | — | — | |||||||||||||
| Fair value of plan assets at end of year |
$ | 10,097 | $ | 9,323 | $ | 189 | $ | 170 | ||||||||||
| Funded status |
$ | (1,517 | ) | $ | (2,009 | ) | $ | (3,320 | ) | $ | (3,484 | ) | ||||||
| Amounts attributed to joint venture partners |
12 | 12 | 10 | 36 | ||||||||||||||
| Net funded status |
(1,505 | ) | (1,997 | ) | (3,310 | ) | (3,448 | ) | ||||||||||
| Unrecognized net actuarial loss |
1,856 | 2,187 | 999 | 1,028 | ||||||||||||||
| Unrecognized net prior service cost (benefit) |
66 | 51 | (123 | ) | (37 | ) | ||||||||||||
| Less: Amounts attributed to joint venture partners |
11 | 2 | 4 | (2 | ) | |||||||||||||
| Net amount recognized |
$ | 406 | $ | 239 | $ | (2,438 | ) | $ | (2,455 | ) | ||||||||
| Amounts recognized in the Consolidated Balance Sheet consist of: |
||||||||||||||||||
| Before the adoption of SFAS 158 |
||||||||||||||||||
| Prepaid benefit |
$ | 157 | $ | 144 | $ | — | $ | — | ||||||||||
| Accrued benefit liability |
(1,233 | ) | (1,654 | ) | (2,438 | ) | (2,455 | ) | ||||||||||
| Intangible asset |
52 | 31 | — | — | ||||||||||||||
| Accumulated other comprehensive loss |
1,430 | 1,718 | — | — | ||||||||||||||
| Net amount recognized |
$ | 406 | $ | 239 | $ | (2,438 | ) | $ | (2,455 | ) | ||||||||
| After the adoption of SFAS 158 |
||||||||||||||||||
| Noncurrent assets |
$ | 90 | $ | — | $ | — | $ | — | ||||||||||
| Current liabilities |
(28 | ) | — | (354 | ) | — | ||||||||||||
| Noncurrent liabilities |
(1,567 | ) | — | (2,956 | ) | — | ||||||||||||
| Net amount recognized |
$ | (1,505 | ) | $ | — | $ | (3,310 | ) | $ | — | ||||||||
| Amounts recognized in Accumulated Other Comprehensive Income consist of: |
||||||||||||||||||
| Net actuarial loss |
$ | 1,856 | $ | — | $ | 999 | $ | — | ||||||||||
| Prior service cost (benefit) |
66 | — | (123 | ) | — | |||||||||||||
| Total, before tax effect |
1,922 | — | 876 | — | ||||||||||||||
| Less: Amounts attributed to joint venture partners |
11 | — | 4 | — | ||||||||||||||
| Net amount recognized, before tax effect |
$ | 1,911 | $ | — | $ | 872 | $ | — | ||||||||||
The December 31, 2006 and 2005 postretirement benefit obligations and the net amount recognized have each decreased by $2 due to the reclassification of assets held for sale.
66
| Balance Prior to AML & SFAS 158 Adjustments |
AML Adjustments |
Balance Prior to SFAS 158 Adjustments |
SFAS 158 Adjustments |
Balance After AML & SFAS 158 Adjustments |
||||||||||||||||
| Change due to the AML and adoption of SFAS 158 at December 31, 2006 |
||||||||||||||||||||
| Pension benefits | ||||||||||||||||||||
| Prepaid pension costs* |
$ | 157 | $ | — | $ | 157 | $ | (67 | ) | $ | 90 | |||||||||
| Intangible assets* |
54 | (2 | ) | 52 | (52 | ) | — | |||||||||||||
| Accrued compensation and retirement costs |
(219 | ) | — | (219 | ) | 191 | (28 | ) | ||||||||||||
| Accrued pension benefits |
(1,168 | ) | 154 | (1,014 | ) | (553 | ) | (1,567 | ) | |||||||||||
| Accumulated other comprehensive loss (before tax and minority interests) |
$ | 1,582 | $ | (152 | ) | $ | 1,430 | $ | 481 | $ | 1,911 | |||||||||
| Deferred tax assets* |
549 | (55 | ) | 494 | 159 | 653 | ||||||||||||||
| Minority interests |
— | — | — | 12 | 12 | |||||||||||||||
| Accumulated other comprehensive loss (after-tax and minority interests) |
$ | 1,033 | $ | (97 | ) | $ | 936 | $ | 310 | $ | 1,246 | |||||||||
| Postretirement benefits | ||||||||||||||||||||
| Other current liabilities |
$ | (354 | ) | $ | — | $ | (354 | ) | $ | — | $ | (354 | ) | |||||||
| Accrued postretirement benefits |
(2,084 | ) | — | (2,084 | ) | (872 | ) | (2,956 | ) | |||||||||||
| Accumulated other comprehensive loss (before tax and minority interests) |
$ | — | $ | — | $ | — | $ | 872 | $ | 872 | ||||||||||
| Deferred tax assets* |
— | — | — | 305 | 305 | |||||||||||||||
| Accumulated other comprehensive loss (after-tax and minority interests) |
$ | — | $ | — | $ | — | $ | 567 | $ | 567 | ||||||||||
* Included in Other assets on the Consolidated Balance Sheet
Components of Net Periodic Benefit Costs
| Pension benefits | Postretirement benefits | |||||||||||||||||||||||
| 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||
| Service cost |
$ | 209 | $ | 209 | $ | 204 | $ | 32 | $ | 33 | $ | 31 | ||||||||||||
| Interest cost |
628 | 619 | 617 | 208 | 216 | 221 | ||||||||||||||||||
| Expected return on plan assets |
(740 | ) | (719 | ) | (719 | ) | (15 | ) | (14 | ) | (13 | ) | ||||||||||||
| Amortization of prior service cost (benefit) |
14 | 22 | 39 | 10 | 4 | (6 | ) | |||||||||||||||||
| Recognized actuarial loss |
118 | 95 | 61 | 63 | 59 | 46 | ||||||||||||||||||
| Net periodic benefit costs |
$ | 229 | $ | 226 | $ | 202 | $ | 298 | $ | 298 | $ | 279 | ||||||||||||
Amounts Expected to be Recognized in Net Periodic Benefit Costs
| Pension benefits |
Postretirement benefits |
||||||
| 2007 | 2007 | ||||||
| Prior service cost (benefit) recognition |
$ | 11 | $ | (6 | ) | ||
| Actuarial loss recognition |
121 | 49 | |||||
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Supplemental Financial Information (unaudited)
The supplemental financial information for all periods presented has been reclassified to reflect assets held for sale and discontinued operations. See Note B to the Consolidated Financial Statements for further information.
Quarterly Data
(dollars in millions, except per-share amounts)
| First | Second | Third | Fourth | Year | ||||||||||||||
| 2006 |
||||||||||||||||||
| Sales |
$ | 7,111 | $ | 7,797 | $ | 7,631 | $ | 7,840 | $ | 30,379 | ||||||||
| Income from continuing operations |
614 | 749 | 540 | 258 | 2,161 | |||||||||||||
| (Loss) income from discontinued operations (B) |
(6 | ) | (5 | ) | (3 | ) | 101 | 87 | ||||||||||
| Net income |
608 | 744 | 537 | 359 | 2,248 | |||||||||||||
| Earnings (loss) per share: |
||||||||||||||||||
| Basic: |
||||||||||||||||||
| Income from continuing operations |
.71 | .86 | .62 | .30 | 2.49 | |||||||||||||
| (Loss) income from discontinued operations |
(.01 | ) | (.01 | ) | — | .11 | .10 | |||||||||||
| Net income |
.70 | .85 | .62 | .41 | 2.59 | |||||||||||||
| Diluted: |
||||||||||||||||||
| Income from continuing operations |
.70 | .85 | .62 | .29 | 2.47 | |||||||||||||
| (Loss) income from discontinued operations |
(.01 | ) | — | (.01 | ) | .12 | .10 | |||||||||||
| Net income |
.69 | .85 | .61 | .41 | 2.57 | |||||||||||||
| First | Second | Third | Fourth | Year | |||||||||||||||
| 2005 |
|||||||||||||||||||
| Sales |
$ | 6,099 | $ | 6,532 | $ | 6,401 | $ | 6,536 | $ | 25,568 | |||||||||
| Income from continuing operations |
269 | 490 | 285 | 213 | 1,257 | ||||||||||||||
| (Loss) income from discontinued operations (B) |
(9 | ) | (30 | ) | 4 | 13 | (22 | ) | |||||||||||
| Cumulative effect of accounting change (C) |
— | — | — | (2 | ) | (2 | ) | ||||||||||||
| Net income |
260 | 460 | 289 | 224 | 1,233 | ||||||||||||||
| Earnings (loss) per share: |
|||||||||||||||||||
| Basic: |
|||||||||||||||||||
| Income from continuing operations |
.31 | .56 | .33 | .24 | 1.44 | ||||||||||||||
| (Loss) income from discontinued operations |
(.01 | ) | (.03 | ) | — | .02 | (.03 | ) | |||||||||||
| Cumulative effect of accounting change |
— | — | — | — | — | ||||||||||||||
| Net income |
.30 | .53 | .33 | .26 | 1.41 | ||||||||||||||
| Diluted: |
|||||||||||||||||||
| Income from continuing operations |
.31 | .56 | .32 | .24 | 1.43 | ||||||||||||||
| (Loss) income from discontinued operations |
(.01 | ) | (.04 | ) | .01 | .02 | (.03 | ) | |||||||||||
| Cumulative effect of accounting change |
— | — | — | — | — | ||||||||||||||
| Net income |
.30 | .52 | .33 | .26 | 1.40 | ||||||||||||||
Number of Employees
| 2006 | 2005 | 2004 | ||||
| U.S. |
43,400 | 45,300 | 47,800 | |||
| Other Americas |
33,400 | 35,800 | 35,200 | |||
| Europe |
37,100 | 39,300 | 28,500 | |||
| Pacific |
9,100 | 8,600 | 7,500 | |||
| 123,000 | 129,000 | 119,000 |
73
Stock Performance Graphs (unaudited)
The following graphs compare the most recent five-year and 10-year performance of Alcoa Inc. common stock with (1) the Standard & Poor’s 500® Index and (2) the Standard & Poor’s 500® Materials Index. Alcoa Inc. is a component of the Standard & Poor’s 500® Materials Index, a group of 33 companies which closely mirror the companies we use for return on capital comparisons to establish performance awards for senior management.
Five-Year Cumulative Total Return
Based upon an initial investment of $100 on December 31, 2001 with dividends reinvested.
| As of December 31, | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||
| Alcoa Inc. |
$ | 100 | $ | 65 | $ | 112 | $ | 94 | $ | 91 | $ | 94 | ||||||
| S&P 500® |
100 | 78 | 100 | 111 | 117 | 135 | ||||||||||||
| S&P 500® Materials Index |
100 | 95 | 131 | 148 | 154 | 183 | ||||||||||||
10-Year Cumulative Total Return
Based upon an initial investment of $100 on December 31, 1996 with dividends reinvested.
| As of December 31, | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||||||||
| Alcoa Inc. |
$ | 100 | $ | 112 | $ | 121 | $ | 273 | $ | 224 | $ | 242 | $ | 158 | $ | 270 | $ | 228 | $ | 219 | $ | 226 | |||||||||||
| S&P 500® |
100 | 133 | 171 | 208 | 189 | 166 | 129 | 167 | 185 | 194 | 224 | ||||||||||||||||||||||
| S&P 500® Materials Index |
100 | 108 | 102 | 127 | 107 | 111 | 105 | 145 | 164 | 172 | 204 | ||||||||||||||||||||||
Copyright © 2007, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Source: Georgeson Shareholder Communications, Inc.
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Shareowner Information
Annual Meeting
The annual meeting of shareowners will be at 9:30 a.m. Friday, April 20, 2007, at the Westin Convention Center Hotel Pittsburgh.
Company News
Visit www.alcoa.com for Securities and Exchange Commission (SEC) filings, quarterly earnings reports, and other company news.
Copies of the annual report and Forms 10-K and 10-Q may be requested at no cost at www.alcoa.com or by writing to Corporate Communications at the corporate center address.
Investor Information
Securities analysts and investors may write to Director –Investor Relations, Alcoa, 390 Park Avenue, New York, NY 10022-4608, call 1 212 836 2674, or e-mail investor.relations@alcoa.com.
Other Publications
For more information on Alcoa Foundation and Alcoa community investments, visit www.alcoa.com under “community.”
For Alcoa’s 2006 Sustainability Highlights Report, visit www.alcoa.com or write Director – Sustainability, Alcoa, 390 Park Avenue, New York, NY 10022-4608 or e-mail sustainability@alcoa.com.
Dividends
Alcoa’s objective is to pay common stock dividends at rates competitive with other investments of equal risk and consistent with the need to reinvest earnings for long-term growth. In January 2007, Alcoa’s Board of Directors approved a 13% increase in the quarterly common stock dividend from 15 cents per share to 17 cents per share. Quarterly dividends are paid to shareowners of record at each quarterly distribution date.
Dividend Reinvestment
The company offers a Dividend Reinvestment and Stock Purchase Plan for shareowners of Alcoa common and preferred stock. The plan allows shareowners to reinvest all or part of their quarterly dividends in shares of Alcoa common stock. Shareowners also may purchase additional shares under the plan with cash contributions. The company pays brokerage commissions and fees on these stock purchases.
Direct Deposit of Dividends
Shareowners may have their quarterly dividends deposited directly to their checking, savings, or money market accounts at any financial institution that participates in the Automated Clearing House (ACH) system.
Shareowner Services
Shareowners with questions on account balances, dividend checks, reinvestment, or direct deposit; address changes; lost or misplaced stock certificates; or other shareowner account matters may contact Alcoa’s stock transfer agent, registrar, and dividend disbursing agent:
Computershare Trust Company, N.A. at 1 800 317 4445 (in the U.S. and Canada) or 1 781 575 2724 (all other calls) or through the Computershare Web site at www.computershare.com
Telecommunications Device for the Deaf (TDD):
1 800 952 9245
For shareowner questions on other matters related to Alcoa, write to Corporate Secretary, Alcoa, 390 Park Avenue, New York, NY 10022-4608, call 1 212 836 2732, or email corporate.secretary@alcoa.com.
Stock Listing
Common: New York Stock Exchange Preferred: American Stock Exchange Ticker symbol: AA
Quarterly Common Stock Information
| 2006 | 2005 | |||||||||||||||||
| Quarter | High | Low | Dividend | High | Low | Dividend | ||||||||||||
| First |
$ | 32.20 | $ | 28.39 | $ | .15 | $ | 32.29 | $ | 28.01 | $ | .15 | ||||||
| Second |
36.96 | 28.55 | .15 | 31.80 | 25.91 | .15 | ||||||||||||
| Third |
34.00 | 26.60 | .15 | 29.98 | 23.81 | .15 | ||||||||||||
| Fourth |
31.33 | 26.39 | .15 | 29.84 | 22.28 | .15 | ||||||||||||
| Year |
$ | 36.96 | $ | 26.39 | $ | .60 | $ | 32.29 | $ | 22.28 | $ | .60 | ||||||
Common Share Data
| Estimated number of shareowners* |
Average shares outstanding (000) | |||
| 2006 |
248,000 | 868,820 | ||
| 2005 |
271,000 | 871,721 | ||
| 2004 |
295,000 | 869,907 | ||
| 2003 |
278,400 | 853,352 | ||
| 2002 |
273,000 | 845,439 |
| * | These estimates include shareowners who own stock registered in their own names and those who own stock through banks and brokers. |
Corporate Center
Alcoa
201 Isabella St.
Pittsburgh, PA 15212-5858
Telephone: 1 412 553 4545
Fax: 1 412 553 4498
Internet: www.alcoa.com
Alcoa Inc. is incorporated in the Commonwealth of Pennsylvania.
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Exhibit 21
SUBSIDIARIES AND EQUITY ENTITIES OF THE REGISTRANT
(As of December 31, 2006) (under review)
(Reported Under Item 601 of Regulation S-K)
| Name |
State or Country of Organization | |
| Alcoa Domestic LLC |
Delaware | |
| Alcoa Securities Corporation |
Delaware | |
| Alcoa Materials Management, Inc. |
Delaware | |
| Alcoa Fujikura Ltd. |
Delaware | |
| Alcoa Fujikura Holding, L.L.C. |
Delaware | |
| Alcoa Fujikura De Mexico, S. DE R. L. DE C. V. |
Mexico | |
| Howmet International Inc. |
Delaware | |
| Howmet Holdings Corporation |
Delaware | |
| Howmet Corporation |
Delaware | |
| Howmet Castings & Services, Inc. |
Delaware | |
| Alcoa International Holdings Company |
Delaware | |
| Alcoa Luxembourg S.à.r.l. |
Luxembourg | |
| Alcoa Europe Holding B.V. |
Netherlands | |
| Alcoa Europe S.A. |
Switzerland | |
| Norsk Alcoa Holdings A/S |
Norway | |
| Alcoa Global Treasury Services S.à.r.l. |
Luxembourg | |
| Alcoa Inversiones Espana S.L. |
Spain | |
| Alcoa Inespal, S.A. |
Spain | |
| Alúmina Española, S.A. |
Spain | |
| Aluminio Español, S.A. |
Spain | |
| Alcoa Inversiones Internacionales S.L. |
Spain | |
| Alcoa-Köfém Kft |
Hungary | |
| Alcoa Aluminio S.A. |
Brazil | |
| Alcoa A Islandi ehf |
Iceland | |
| Alcoa Inter-America, Inc. |
Delaware | |
| Alcoa International (Asia) Limited |
Hong Kong | |
| Alcoa Australian Holdings Pty. Ltd. |
Australia | |
| Alcoa of Australia Limited |
Australia | |
| Alcoa UK Holdings Limited |
United Kingdom | |
| Alcoa Manufacturing (G.B.) Limited |
United Kingdom | |
| Alcoa Extruded Products (UK) Limited |
United Kingdom | |
| Alcoa World Alumina LLC1 |
Delaware | |
| AAC Holdings Company |
Delaware | |
| Alcoa Minerals of Jamaica, L.L.C. |
Delaware | |
| Suriname Aluminum Company, L.L.C. |
Delaware | |
| Alumax Inc. |
Delaware | |
| Alcoa Extrusions, Inc. |
Pennsylvania | |
| Alumax Mill Products, Inc. |
Delaware | |
| Aluminerie Lauralco, Inc. |
Delaware | |
| Alcoa-Lauralco Management Company |
Nova Scotia | |
| Alcoa-Aluminerie de Deschambault G.P. |
Quebec | |
| Alcoa-Lauralco Holdings Company |
Nova Scotia | |
44
| Name |
State or Country of Organization | |
| Cordant Technologies Holding Company |
Delaware | |
| Alcoa Global Fasteners, Inc. |
Delaware | |
| Huck International, Inc. |
Delaware | |
| Reynolds Metals Company |
Delaware | |
| Reynolds International, Inc. |
Delaware | |
| RMCC Company |
Delaware | |
| Alcoa Canada Ltd. |
Quebec | |
| Alcoa Ltd. |
Quebec | |
| Reynolds Bécancour, Inc. |
Delaware | |
| RB Sales Company, Limited |
Delaware | |
| Reynolds Consumer Products, Inc. |
Delaware | |
| Grupiara Participacaoes S.A. |
Brazil | |
| Reynolds Food Packaging LLC |
Delaware | |
| RMC Delaware, Inc. |
Delaware | |
| IPC, Inc. |
Delaware | |
| Alcoa Kama, Inc. |
Delaware | |
The names of particular subsidiaries and equity entities have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute, as of the end of the year covered by this report, a “significant subsidiary” as that term is defined in Regulation S-X under the Securities Exchange Act of 1934.
| 1 |
Registered to do business in Alabama, Arkansas, California, Florida, Georgia, Louisiana, North Carolina, Pennsylvania and Texas under the name of Alcoa World Chemicals. |
45
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-74874) and Form S-8 (Nos. 33-22346, 33-24846, 33-49109, 33-60305, 333-27903, 333-62663, 333-79575, 333-32516, 333-36208, 333-37740, 333-39708, 333-106411, 333-115717 and 333-128445) of Alcoa Inc. and its subsidiaries of our report dated February 15, 2007 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 15, 2007 relating to the financial statement schedule, which appears in this Form 10-K.
| /s/ PricewaterhouseCoopers LLP |
| Pittsburgh, Pennsylvania |
| February 15, 2007 |
46
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each of the undersigned Directors of Alcoa Inc. (the “Company”) hereby constitutes and appoints CHARLES D. MCLANE, JR., JOSEPH R. LUCOT, CYNTHIA E. HOLLOWAY and DONNA C. DABNEY, or any of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, to do any and all acts and things and to execute any and all instruments which said attorneys-in-fact and agents, or any of them, may deem necessary or advisable or may be required:
(1) To enable the Company to comply with the Securities Exchange Act of 1934, as amended (the “1934 Act”), and any rules, regulations or requirements of the Securities and Exchange Commission (the “Commission”) in respect thereof, in connection with the filing under the 1934 Act of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “2006 Annual Report”), including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of each of the undersigned in the capacity of Director of the Company to the 2006 Annual Report to be filed with the Commission and to any instruments or documents filed as part of or in connection with the 2006 Annual Report, including any amendments or supplements thereto;
(2) To enable the Company to comply with the Securities Act of 1933, as amended (the “1933 Act”), and any rules, regulations or requirements of the Commission in respect thereof, in connection with the registration under the 1933 Act during 2007 of the offer and sale or delivery of shares of common stock of the Company to be issued under the 2004 Alcoa Stock Incentive Plan (the “2004 Plan”) or the Alcoa Stock Incentive Plan (the “Stock Incentive Plan”), including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of each of the undersigned in the capacity of Director of the Company to any registration statement on Form S-8, or on such other form as may be appropriate, to be filed with the Commission in respect of said shares and the 2004 Plan or the Stock Incentive Plan, or either of them, to any and all pre-effective amendments, post-effective amendments and supplements to any such registration statement, and to any instruments or documents filed as part of or in connection with any such registration statement or any such amendments or supplements thereto; and
(3) To enable the Company to comply with the 1933 Act, and any rules, regulations or requirements of the Commission in respect thereof, in connection with the registration under the 1933 Act during 2007 of the offer and sale or delivery of up to 15 million shares of common stock of the Company to be issued under the Company’s employee savings plans (together with interests in such plans), including, without limitation, the Alcoa Savings Plan for Bargaining Employees, the Alcoa Savings Plan for Non-Bargaining Employees, the Alcoa Savings Plan for Subsidiary and Affiliate Employees, and employee savings plans sponsored by entities acquired by the Company from time to time (the “Plans”), including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of each of the undersigned in the capacity of Director of the Company to any registration statement on Form S-8, or on such other form as may be appropriate, to be filed with the Commission in respect of said shares and the Plans, or any of them, to any and all pre-effective amendments, post-effective amendments and supplements to any such registration statement, and to any instruments or documents filed as part of or in connection with any such registration statement or any such amendments or supplements thereto; and
granting unto each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, and each of the undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 19th day of January, 2007.
/s/ Kathryn S. Fuller
Kathryn S. Fuller
/s/ Carlos Ghosn
Carlos Ghosn
/s/ Joseph T. Gorman
Joseph T. Gorman
/s/ Judith M. Gueron
Judith M. Gueron
/s/ Klaus Kleinfeld
Klaus Kleinfeld
/s/ James W. Owens
James W. Owens
/s/ Henry B. Schacht
Henry B. Schacht
/s/ Franklin A. Thomas
Franklin A. Thomas
/s/ Ernesto Zedillo
Ernesto Zedillo
Exhibit 31
Certifications
I, Alain J.P. Belda, Chairman of the Board and Chief Executive Officer of Alcoa Inc., certify that:
| 1. | I have reviewed this annual report on Form 10-K of Alcoa Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 15, 2007
| /s/ Alain J.P. Belda | ||
| Title: | Chairman of the Board and Chief Executive Officer | |
47
Exhibit 31
Certifications
I, Charles D. McLane, Jr., Vice President and Chief Financial Officer of Alcoa Inc., certify that:
| 1. | I have reviewed this annual report on Form 10-K of Alcoa Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 15, 2007
| /s/ Charles D. McLane, Jr. | ||
| Title: | Vice President and Chief Financial Officer | |
48
Exhibit 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Alcoa Inc., a Pennsylvania corporation (the “Company”), does hereby certify that:
The Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: February 15, 2007 |
/s/ Alain J.P. Belda | |||
| Name: |
Alain J.P. Belda | |||
| Title: |
Chairman of the Board and Chief Executive Officer | |||
| Dated: February 15, 2007 |
/s/ Charles D. McLane, Jr. | |||
| Name: |
Charles D. McLane, Jr. | |||
| Title: |
Vice President and Chief Financial Officer | |||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and shall not be considered filed as part of the Form 10-K.
49