UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File Number 1-37816

ALCOA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	81-1789115 (I.R.S. Employer Identification No.)
201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania (Address of principal executive offices)	15212-5858 (Zip Code)

412-315-2900

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AA	New York Stock Exchange

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   Yes  ☐   No  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐   No  ☒

As of April 24, 2020, 185,918,829 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II – OTHER INFORMATION		34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 4.	Mine Safety Disclosures	35
Item 6.	Exhibits	36
SIGNATURES		37

Forward-Looking Statements

This report contains statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results or operating performance; statements about strategies, outlook, and business and financial prospects; and statements about return of capital.  These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances.  Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) current and potential future impacts of the coronavirus (COVID-19) pandemic on the global economy and our business, financial condition, results of operations, or cash flows and judgments and assumptions used in our estimates; (b) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (c) deterioration in global economic and financial market conditions generally and which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms or at all; (d) unfavorable changes in the markets served by Alcoa Corporation; (e) the impact of changes in foreign currency exchange and tax rates on costs and results; (f) increases in energy costs or uncertainty of energy supply; (g) declines in the discount rates used to measure pension liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; (h) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, or strengthening of competitiveness and operations anticipated from asset portfolio actions, operational and productivity improvements, cash sustainability, technology advancements, and other initiatives; (i) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, restructuring activities, facility closures, curtailments, restarts, expansions, or joint ventures; (j) political, economic, trade, legal, public health and safety, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (k) labor disputes and/or and work stoppages; (l) the outcome of contingencies, including legal and tax proceedings, government or regulatory investigations, and environmental remediation; (m) the impact of cyberattacks and potential information technology or data security breaches; and (n) the other risk factors discussed in Item 1A of Alcoa Corporation’s Form 10-K for the fiscal year ended December 31, 2019 and in this Quarterly Report on Form 10-Q, and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission (SEC). Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Alcoa Corporation and Subsidiaries

Statement of Consolidated Operations (unaudited)

(in millions, except per-share amounts)

	First quarter ended March 31,
	2020			2019
Sales (E)	$	2,381		$	2,719
Cost of goods sold (exclusive of expenses below)		2,025			2,180
Selling, general administrative, and other expenses		60			84
Research and development expenses		7			7
Provision for depreciation, depletion, and amortization		170			172
Restructuring and other charges, net (D)		2			113
Interest expense		30			30
Other (income) expenses, net (O)		(132	)		41
Total costs and expenses		2,162			2,627
Income before income taxes		219			92
Provision for income taxes		80			150
Net income (loss)		139			(58	)
Less: Net income attributable to noncontrolling interest		59			141
NET INCOME (LOSS) ATTRIBUTABLE TO ALCOA    CORPORATION	$	80		$	(199	)
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA    CORPORATION COMMON SHAREHOLDERS (F):
Basic	$	0.43		$	(1.07	)
Diluted	$	0.43		$	(1.07	)

The accompanying notes are an integral part of the consolidated financial statements.

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Alcoa Corporation and Subsidiaries

Statement of Consolidated Comprehensive Income (unaudited)

(in millions)

	Alcoa Corporation						Noncontrolling interest					Total
	First quarter ended March 31,						First quarter ended March 31,					First quarter ended March 31,
	2020			2019			2020			2019		2020			2019
Net income (loss)	$	80		$	(199	)	$	59		$	141	$	139		$	(58	)
Other comprehensive income (loss), net of tax (G):
Change in unrecognized net actuarial loss and    prior service cost/benefit related to pension    and other postretirement benefits		38			41			—			1		38			42
Foreign currency translation adjustments		(663	)		(22	)		(245	)		2		(908	)		(20	)
Net change in unrecognized gains/losses on cash    flow hedges		701			(288	)		(20	)		6		681			(282	)
Total Other comprehensive income (loss), net of tax		76			(269	)		(265	)		9		(189	)		(260	)
Comprehensive income (loss)	$	156		$	(468	)	$	(206	)	$	150	$	(50	)	$	(318	)

The accompanying notes are an integral part of the consolidated financial statements.

2

Alcoa Corporation and Subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)

	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents (K)	$	829		$	879
Receivables from customers		570			546
Other receivables		95			114
Inventories (I)		1,509			1,644
Fair value of derivative instruments (K)		53			59
Prepaid expenses and other current assets		277			288
Total current assets		3,333			3,530
Properties, plants, and equipment		20,181			21,715
Less: accumulated depreciation, depletion, and amortization		13,021			13,799
Properties, plants, and equipment, net		7,160			7,916
Investments (H)		1,059			1,113
Deferred income taxes (L)		425			642
Fair value of derivative instruments (K)		446			18
Other noncurrent assets		1,228			1,412
Total assets	$	13,651		$	14,631
LIABILITIES
Current liabilities:
Accounts payable, trade	$	1,276		$	1,484
Accrued compensation and retirement costs		353			413
Taxes, including income taxes		78			104
Fair value of derivative instruments (K)		80			67
Other current liabilities		435			494
Long-term debt due within one year (K)		1			1
Total current liabilities		2,223			2,563
Long-term debt, less amount due within one year (K)		1,801			1,799
Accrued pension benefits (J)		1,455			1,505
Accrued other postretirement benefits (J)		729			749
Asset retirement obligations		548			606
Environmental remediation (N)		289			296
Fair value of derivative instruments (K)		164			581
Noncurrent income taxes (L)		299			276
Other noncurrent liabilities and deferred credits		332			370
Total liabilities		7,840			8,745
CONTINGENCIES AND COMMITMENTS (N)
EQUITY
Alcoa Corporation shareholders’ equity:
Common stock		2			2
Additional capital		9,647			9,639
Accumulated deficit		(476	)		(555	)
Accumulated other comprehensive loss (G)		(4,898	)		(4,974	)
Total Alcoa Corporation shareholders’ equity		4,275			4,112
Noncontrolling interest		1,536			1,774
Total equity		5,811			5,886
Total liabilities and equity	$	13,651		$	14,631

The accompanying notes are an integral part of the consolidated financial statements.

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Alcoa Corporation and Subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in millions)

	Three months ended March 31,
	2020			2019
CASH FROM OPERATIONS
Net income (loss)	$	139		$	(58	)
Adjustments to reconcile net income (loss) to cash from operations:
Depreciation, depletion, and amortization		170			172
Deferred income taxes		23			33
Equity earnings, net of dividends		—			(3	)
Restructuring and other charges, net (D)		2			113
Net gain from investing activities – asset sales (O)		(177	)		(8	)
Net periodic pension benefit cost (J)		33			30
Stock-based compensation		8			10
Provision for bad debt expense		2			20
Other		4			23
Changes in assets and liabilities, excluding effects of divestitures and    foreign currency translation adjustments:
(Increase) Decrease in receivables		(70	)		42
Decrease in inventories		41			17
Decrease in prepaid expenses and other current assets		11			13
(Decrease) in accounts payable, trade		(121	)		(159	)
(Decrease) in accrued expenses		(85	)		(18	)
(Decrease) in taxes, including income taxes		(11	)		(43	)
Pension contributions (J)		(48	)		(7	)
Decrease (Increase) in noncurrent assets		32			(10	)
(Decrease) Increase in noncurrent liabilities		(43	)		1
CASH (USED FOR) PROVIDED FROM OPERATIONS		(90	)		168
FINANCING ACTIVITIES
Proceeds from the exercise of employee stock options		—			1
Financial contributions for the divestiture of businesses		(12	)		—
Contributions from noncontrolling interest		—			20
Distributions to noncontrolling interest		(31	)		(214	)
Other		(1	)		(6	)
CASH USED FOR FINANCING ACTIVITIES		(44	)		(199	)
INVESTING ACTIVITIES
Capital expenditures		(91	)		(69	)
Proceeds from the sale of assets		199			11
Additions to investments		(1	)		(1	)
CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES		107			(59	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH    EQUIVALENTS AND RESTRICTED CASH		(24	)		(6	)
Net change in cash and cash equivalents and restricted cash		(51	)		(96	)
Cash and cash equivalents and restricted cash at beginning of year		883			1,116
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT    END OF PERIOD	$	832		$	1,020

The accompanying notes are an integral part of the consolidated financial statements.

4

Alcoa Corporation and Subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

(in millions)

	Alcoa Corporation shareholders
First quarter ended March 31, 2019	Common stock		Additional capital			Retained earnings (deficit)			Accumulated other comprehensive loss			Non- controlling interest			Total equity
Balance at December 31, 2018	$	2	$	9,611		$	570		$	(4,565	)	$	1,970		$	7,588
Net (loss) income		—		—			(199	)		—			141			(58	)
Other comprehensive (loss) income (G)		—		—			—			(269	)		9			(260	)
Stock-based compensation		—		10			—			—			—			10
Common stock issued: compensation    plans		—		1			—			—			—			1
Contributions		—		—			—			—			20			20
Distributions		—		—			—			—			(214	)		(214	)
Other		—		(4	)		—			—			—			(4	)
Balance at March 31, 2019	$	2	$	9,618		$	371		$	(4,834	)	$	1,926		$	7,083
First quarter ended March 31, 2020
Balance at December 31, 2019	$	2	$	9,639		$	(555	)	$	(4,974	)	$	1,774		$	5,886
Net income		—		—			80			—			59			139
Other comprehensive income (loss) (G)		—		—			—			76			(265	)		(189	)
Stock-based compensation		—		8			—			—			—			8
Distributions		—		—			—			—			(31	)		(31	)
Other		—		—			(1	)		—			(1	)		(2	)
Balance at March 31, 2020	$	2	$	9,647		$	(476	)	$	(4,898	)	$	1,536		$	5,811

The accompanying notes are an integral part of the consolidated financial statements.

5

Alcoa Corporation and Subsidiaries

Notes to the Consolidated Financial Statements (unaudited)

(dollars in millions, except per-share amounts; metric tons in thousands (kmt))

A. Basis of Presentation – The interim Consolidated Financial Statements of Alcoa Corporation and its subsidiaries (Alcoa Corporation, Alcoa, or the Company) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 2019 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which includes all disclosures required by GAAP.

In accordance with GAAP, certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Management uses historical experience and all available information to make these estimates, including considerations for the impact of the coronavirus (COVID-19) pandemic on the macroeconomic environment. The extent and duration of the pandemic is unknown, causing uncertainty of the future impact on the Company’s business, financial condition, operating results, cash flows, and market capitalization and could adversely impact future results, including estimates, such as the recoverability of goodwill and long-lived assets and the realizability of deferred tax assets, made at March 31, 2020. Despite these inherent limitations, management believes that the amounts recorded in the financial statements related to these items are based on its best estimates and judgments using all relevant information available at the time. Management regularly evaluates the judgments and assumptions used in its estimates, and results could differ from those estimates upon future events and their effects or new information.

References in these Notes to ParentCo refer to Alcoa Inc., a Pennsylvania corporation, and its consolidated subsidiaries through October 31, 2016, at which time it was renamed Arconic Inc. (and since has been subsequently renamed Howmet Aerospace Inc.). On November 1, 2016 (the Separation Date), ParentCo separated into two standalone, publicly-traded companies, Alcoa Corporation and Arconic Inc. (the Separation Transaction). In connection with the Separation Transaction, as of October 31, 2016, the Company and Arconic Inc. entered into several agreements to effect the Separation Transaction, including a Separation and Distribution Agreement and a Tax Matters Agreement. See Note A to the Consolidated Financial Statements in Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

Principles of Consolidation. The Consolidated Financial Statements of Alcoa Corporation include the accounts of Alcoa Corporation and companies in which Alcoa Corporation has a controlling interest, including those that comprise the Alcoa World Alumina & Chemicals (AWAC) joint venture (see below). Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which Alcoa Corporation has significant influence but does not have effective control. Investments in affiliates in which Alcoa Corporation cannot exercise significant influence are accounted for on the cost method.

AWAC is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited and consists of several affiliated operating entities, which own, or have an interest in, or operate the bauxite mines and alumina refineries within Alcoa Corporation’s Bauxite and Alumina segments (except for the Poços de Caldas mine and refinery and portions of the São Luís refinery and investment in Mineração Rio do Norte S.A., all in Brazil) and the Portland smelter in Australia within Alcoa Corporation’s Aluminum segment. Alcoa Corporation owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated by the Company for financial reporting purposes and include Alcoa of Australia Limited (AofA), Alcoa World Alumina LLC (AWA), and Alcoa World Alumina Brasil Ltda. (AWAB). Alumina Limited’s interest in the equity of such entities is reflected as Noncontrolling interest on the accompanying Consolidated Balance Sheet.

B. Recently Adopted and Recently Issued Accounting Guidance

Adopted

On January 1, 2020, the Company adopted the following Accounting Standard Updates (ASU) issued by the Financial Accounting Standard Board (FASB), none of which had a material impact on the Company’s Consolidated Financial Statements:

• ASU No. 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606);

• ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software;

• ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20);

• ASU No. 2018-13, Fair Value Measurement (Topic 820); and,

6

• ASU No. 2016-13, Financial Instruments – Credit Losses.

Issued

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which is intended to simplify the accounting for income taxes by eliminating certain exceptions and simplifying certain requirements under Topic 740. Updates are related to intraperiod tax allocation, deferred tax liabilities for equity method investments, interim period tax calculations, tax laws or rate changes in interim periods, and income taxes related to employee stock ownership plans. The guidance for ASU No. 2019-12 becomes effective for Alcoa on January 1, 2021. Management is currently evaluating the impact of these changes on the Consolidated Financial Statements.

In March 2020, the FASB issued ASU No. 2020-04 to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Management is currently evaluating the impact from the replacement of the London Interbank Offered Rate (LIBOR) and whether the Company will elect the adoption of the optional guidance.

C. Divestitures – During the first quarter of 2020, the Company sold Elemental Environmental Solutions LLC (EES), a wholly-owned Alcoa subsidiary that operated the waste processing facility in Gum Springs, Arkansas, to a global environmental firm in a transaction valued at $250. At the close of the transaction the Company recorded a gain of $180 (pre- and after-tax; see Note O) and received $200 with another $50 held in escrow to be paid to Alcoa if certain post-closing conditions are satisfied.

D. Restructuring and Other Charges, Net – In the first quarter of 2020, Alcoa Corporation recorded Restructuring and other charges, net, of $2 which was comprised of several insignificant items including $3 related to pension curtailments (see Note J). 

In the first quarter of 2019, Alcoa Corporation recorded Restructuring and other charges, net of $113, which were comprised of the following components: $103 for exit costs related to the collective dismissal process and curtailment of the Avilés and La Coruña smelters in Spain (see below); $7 for closure costs related to a coal mine; and a $3 net charge for various items.

Restructuring charges recorded in the first quarter of 2019 related to the collective dismissal process and smelter curtailments in Spain included asset impairments of $80, employee-related costs of $15 and contract termination costs of $8. Additional charges recorded in the first quarter included a $15 write down of remaining inventories to their net realizable value, which was recorded in Cost of goods sold, and $2 in miscellaneous charges recorded in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations.

Alcoa Corporation does not include Restructuring and other charges, net in the results of its reportable segments. The impact of allocating such charges to segment results would have been as follows:

	First quarter ended March 31,
	2020			2019
Bauxite	$	—		$	1
Alumina		2			1
Aluminum		2			107
Segment total		4			109
Corporate		(2	)		4
Total Restructuring and other charges, net	$	2		$	113

During 2019, Alcoa Corporation announced and implemented a new operating model that resulted in a leaner, more integrated, operator-centric organization. As a result of the restructuring, a Severance and other employee termination cost reserve of $27 remained at December 31, 2019. During the first quarter of 2020, changes to the reserve included additional net charges of $1, a reduction of $2 caused by foreign currency impacts, and a reduction from cash payments of $13. As of March 31, 2020, approximately 210 of the 260 employees were separated. In addition to the employees separated under the program, the Company eliminated 60 positions as open roles or retirements were not replaced.

In December 2019, Alcoa Corporation announced the closure of its Point Comfort (Texas) alumina refinery. As a result of the restructuring, a Severance and other employee termination cost reserve of $4 remained at December 31, 2019. During the first quarter of 2020, payments of $1 were made against the reserve. At March 31, 2020, approximately 20 of the 40 employees were separated.

Also during 2019, Alcoa Corporation curtailed and subsequently divested the aluminum facilities at Avilés and La Coruña (Spain). As a result of the divestiture, a restructuring reserve of $68 remained at December 31, 2019 relating to financial contributions

7

to the investment firm that acquired the facilities. In the first quarter of 2020, cash payments of $12 were made against the reserve. The remaining reserve of $56 will be paid through the second quarter of 2021.  

Activity and reserve balances for restructuring charges were as follows:

	Severance and employee termination costs			Other costs			Total
Balance at December 31, 2018	$	5		$	42		$	47
Restructuring and other charges, net		51			161			212
Cash payments		(19	)		(99	)		(118	)
Reversals and other		(2	)		(2	)		(4	)
Balance at December 31, 2019		35			102