Alcoa Corp: Form 10-Q for the period ended Mar 31, 2024

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts; metric tons in thousands (kmt); dry metric tons in millions (mdmt))

Business Update

During the first quarter of 2024, Alcoa entered into a binding agreement to acquire Alumina Limited, which holds a 40 percent ownership interest in the AWAC joint venture. The acquisition is intended to enhance Alcoa’s position as a leading pure play, upstream aluminum company globally, while simplifying the Company’s corporate structure and governance, resulting in greater operational flexibility and strategic optionality. In addition to announcing the Alumina Limited acquisition, the Company continued to make progress on key near term actions to further optimize its portfolio and to reduce controllable costs during the first quarter of 2024.

Alumina Limited Acquisition

On March 11, 2024, the Company and Alumina Limited entered into a Scheme Implementation Deed (the Agreement) for Alcoa’s acquisition of all Alumina Limited ordinary shares (the Transaction), following an agreement reached on February 26, 2024, between Alcoa and Alumina Limited, on terms and process for the acquisition of Alumina Limited (the Process Deed). Under the Agreement, Alumina Limited shareholders would receive consideration of 0.02854 Alcoa common shares for each Alumina Limited share (the Agreed Ratio). Upon completion of the transaction, Alumina Limited shareholders would own 31.25 percent, and Alcoa shareholders would own 68.75 percent of the combined company, on a fully diluted basis. Based on Alcoa’s closing share price as of February 23, 2024, the last trading day prior to the announcement of the Process Deed, the Agreed Ratio implies a value of A$1.15 per Alumina Limited share and an equity value of approximately $2,200 for Alumina Limited.

Under the terms of the Agreement, Alcoa also agreed to provide a shareholder loan to AWAC in place of required capital contributions by Alumina Limited if Alumina Limited’s net debt position exceeds $420. Based on AWAC’s current 2024 cash flow forecast, Alcoa does not expect any support to be required in 2024. Subject to certain accelerated repayment triggers, Alumina Limited would be required to pay its equity calls (plus accrued interest) no later than September 1, 2025 in the event the transaction is not completed. Alcoa’s fees and expenses related to the transaction include financial advisor fees, filing fees, legal and accounting fees, and regulatory fees, some of which will be paid regardless of whether the transaction is completed. Alcoa and Alumina Limited are also subject to termination fees in the event the transaction is not completed.

Alcoa expects the transaction to close in the third quarter of 2024 following a shareholder vote and the receipt of regulatory approvals. Both Alcoa and Alumina Limited shareholders will benefit from cost synergies, simplification of the organizational structure, and increased flexibility in funding and capital allocation decisions upon completion of the transaction.

For Alcoa shareholders, the transaction will enhance Alcoa’s vertical integration along the value chain across bauxite mining, alumina refining, and aluminum smelting, increases Alcoa’s economic interest in its bauxite and alumina assets, simplifies governance, and reaffirms Alcoa’s commitment to Western Australia.

In addition to the implied premium over recent share prices, Alumina Limited shareholders’ ownership will be diversified to a large-scale, global upstream aluminum portfolio and interests in Alcoa common shares will be traded in Australia through a secondary listing on the Australian Securities Exchange via CHESS Depositary Interests.

Portfolio Actions

San Ciprián Operations

During the first quarter of 2024, Alcoa completed the restart of approximately 6 percent of pots at the San Ciprián smelter in compliance with the February 2023 updated viability agreement. Although both purchase prices for energy and sales prices improved during the first quarter of 2024, the San Ciprián complex remains unviable for the long-term based on current and forward market assumptions for delivered energy in Spain and sales prices, and near-term government support remains unlikely. While continuing to optimize the smelter and refinery operations and preserve cash, and as part of Alcoa’s efforts to find a long-term solution for the complex, Alcoa initiated a process for the potential sale of the complex during the first quarter of 2024 and anticipates completing the bid process by June 2024. Any long-term solution requires the support of the government and workers’ representatives.

The refinery and smelter incurred significant losses in the first quarter of 2024 and in prior years, which have been funded with internal credit lines that are now nearing their limits (with less than $100 available to be drawn), and which the operations have no ability to repay. While the Company had restricted cash of $86 remaining at March 31, 2024 (see Aluminum below) to be made available for capital improvements at the site and smelter restart costs, the workers’ representatives have rejected the use of this cash to fund operating losses at the smelter. Based on current economic conditions, and barring reaching an acceptable outcome on either achieving economic viability or completing a sale of the complex, the San Ciprián operations are expected to incur substantial losses in the remainder of 2024 and Alcoa anticipates that available funding will be exhausted in the second half of 2024. At that point, Alcoa will not provide additional funding and difficult decisions will have to be considered regarding the future of the San Ciprián complex.

Warrick Operations

During the first quarter 2024, the Company completed the restart of one potline (54,000 mtpy) at its Warrick Operations site in Indiana that began in October 2023, and incurred restart expenses of $3.

Kwinana Refinery

In January 2024, Alcoa announced the full curtailment of the Kwinana refinery which will be completed in the second quarter of 2024. The refinery has an annual nameplate capacity of 2.2 million metric tons and has been operating at approximately 80 percent of its nameplate capacity since January 2023, when the Company reduced production in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers. The Company’s decision to fully curtail the refinery was made based on a variety of factors, including the refinery’s age, scale, operating costs, and current bauxite grades, in addition to market conditions. The refinery currently has approximately 780 employees and this number will be reduced to approximately 250 in the third quarter of 2024, after alumina production has ceased. Certain processes will continue until about the third quarter of 2025, when the employee number will be further reduced to approximately 50. In addition to the employees separating as a result of the curtailment, approximately 150 employees will either terminate through the productivity program announced in the third quarter of 2023 or redeploy to other Alcoa operations.

Other Matters

On March 21, 2024, the Company completed an offering of $750 aggregate principal amount of 7.125 percent senior notes due in 2031. This was the Company’s first notes issuance under its new Green Finance Framework, which prioritizes climate change mitigation expenditures related to circular or low carbon products, pollution prevention technologies, renewable energy, and water management. Net proceeds from the issuance, which can be allocated to qualifying expenditures on a two-year look back and three-year look forward, are expected to cover expenses associated with both new and existing decarbonization and water management projects, research and development, renewable energy, and the production of low carbon alumina and aluminum products. The net proceeds will also support the Company’s cash position and ongoing cash needs, including with respect to its previously announced portfolio actions. The Company does not expect to allocate part of the net proceeds to significant capital investments in breakthrough technologies as those are not expected to occur within the applicable time period.

During the first quarter of 2024, the Company initiated and fully deployed a productivity and competitiveness program across its global operations and functions. The program is part of the Company’s objective to improve overall competitiveness and profitability and includes a target to save approximately 5 percent of operating costs, exclusive of raw materials, energy and transportation costs, which are already under active management and cost control programs. Total savings are expected to approximate $100 on a run rate basis and to be achieved by the first quarter of 2025.

The Company paid a quarterly cash dividend of $0.10 per share of the Company’s common stock in March 2024, totaling $19.

See the below sections for additional details on the above-described actions.

Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the quarterly and year-to-date periods outlined in the table below.

Selected Financial Data:

(1) API (Alumina Price Index) is a pricing mechanism that is calculated by the Company based on the weighted average of a prior month’s daily spot prices published by the following three indices: CRU Metallurgical Grade Alumina Price; Platts Metals Daily Alumina PAX Price; and FastMarkets Metal Bulletin Non-Ferrous Metals Alumina Index.

(2) LME (London Metal Exchange) is a globally recognized exchange for commodity trading, including aluminum. The LME pricing component represents the underlying base metal component, based on quoted prices for aluminum on the exchange.

Overview

Sequential period comparison

Net loss attributable to Alcoa Corporation was $252 in the first quarter of 2024 compared with $150 in the fourth quarter of 2023. The unfavorable change of $102 is primarily a result of:

• Higher restructuring charges
• Unfavorable currency revaluation impacts
• Higher production costs
• Lower average realized prices of aluminum

Partially offset by:

• Absence of a charge to tax expense to record a valuation allowance against the deferred tax assets of AWAB
• Lower energy costs across both segments
• Favorable raw material costs

Year-to-date comparison

Net loss attributable to Alcoa Corporation was $252 in the first quarter of 2024 compared with $231 in the first quarter of 2023. The unfavorable change of $21 is primarily a result of:

• Lower average realized price of aluminum
• Higher restructuring charges
• Unfavorable currency revaluation impacts
• Higher production costs

Partially offset by:

• Favorable raw material and energy costs
• Lower taxes on lower earnings
• Higher equity earnings

Sales

Sequential period comparison

Sales increased $4 primarily as a result of:

• Higher shipments of alumina
• Higher average realized price of alumina
• Favorable currency impacts

Partially offset by:

• Lower volumes and price from bauxite offtake and supply agreements
• Lower average realized price of aluminum
• Lower shipments of aluminum

Year-to-date comparison

Sales decreased $71 primarily as a result of:

• Lower average realized price of aluminum
• Lower volumes and price from bauxite offtake and supply agreements
• Decrease in value add product sales

Partially offset by:

• Higher shipments of alumina and aluminum

Cost of goods sold

Sequential period comparison

Cost of goods sold as a percentage of sales decreased 1% primarily as a result of:

• Lower energy costs across both segments
• Higher average realized price of alumina
• Favorable raw material costs

Partially offset by:

• Higher production costs, primarily in the Aluminum segment
• Lower average realized price of aluminum

Year-to-date comparison

Cost of goods sold as a percentage of sales increased 2% primarily as a result of:

• Lower average realized price of aluminum
• Higher production costs, primarily in the Alumina segment

Partially offset by:

• Favorable raw material costs
• Lower energy costs across both segments

Selling, general administrative, and other expenses

Sequential period comparison

Selling, general administrative, and other expenses decreased $4 primarily as a result of:

• Lower information technology services and external legal fees

Partially offset by:

• Higher labor costs

Year-to-date comparison

Selling, general administrative, and other expenses increased $6 primarily as a result of:

• Higher labor costs

Provision for depreciation, depletion, and amortization

Sequential period comparison

Depreciation decreased $2 primarily as a result of:

• Absence of asset write offs recognized in the fourth quarter of 2023 for projects no longer being pursued

Partially offset by:

• Higher depreciation in Brazil and Australia for mine reclamation and bauxite residue storage asset retirement obligations

Year-to-date comparison

Depreciation increased $8 primarily as a result of:

• Higher depreciation in Brazil and Australia for mine reclamation and bauxite residue storage asset retirement obligations

Interest expense

Interest expense decreased $1 in comparison to the fourth quarter of 2023 and increased $1 in comparison to the first quarter of 2023.

Other expenses (income), net

Sequential period comparison

Other expenses (income), net was $59 in the first quarter of 2024 compared with $(11) in the fourth quarter of 2023. The unfavorable change of $70 was primarily a result of:

• Unfavorable currency revaluation impacts primarily due to the absence of gains recognized in the fourth quarter of 2023 due to the U.S. dollar weakening against the Brazilian real and losses recognized in the current quarter primarily due to the U.S. dollar strengthening against the Brazilian real
• Additional costs related to site separation commitments associated with the Warrick Rolling Mill sale

Partially offset by:

• Decrease in equity losses from the Ma’aden aluminum joint venture primarily due to higher sales volume, partially offset by higher production costs

Year-to-date comparison

Other expenses (income), net was $59 in the first quarter of 2024 compared with $54 in the first quarter of 2023. The unfavorable change of $5 was primarily a result of:

• Unfavorable currency revaluation impacts primarily due to losses recognized in the current quarter primarily due to the U.S. dollar strengthening against the Brazilian real, partially offset by the absence of gains recognized in the first quarter of 2023 due to the U.S. dollar weakening against the Brazilian real
• Mark-to-market results on derivative instruments primarily due to the absence of gains in the first quarter of 2023 driven by elevated power prices

Partially offset by:

• Decrease in equity losses from the Ma’aden aluminum joint venture primarily due to the absence of a charge for a utility settlement and higher shipments, partially offset by lower aluminum prices
• Decrease in equity losses from the Ma’aden bauxite and alumina joint venture primarily due to higher shipments, partially offset by increased raw material and production costs
• Decrease in costs related to site separation commitments associated with the Warrick Rolling Mill sale

Restructuring and other charges, net

Sequential period comparison

In the first quarter of 2024, Restructuring and other charges, net of $202 primarily related to:

• $197 for the curtailment of the Kwinana alumina refinery

In the fourth quarter of 2023, Restructuring and other charges, net of $(11) primarily related to:

• $(19) for the sale of unused carbon credits at a previously closed location

Partially offset by:

• $6 related to the February 2023 updated viability agreement for the San Ciprián aluminum smelter

Year-to-date comparison

In the three-month period of 2024, Restructuring and other charges, net of $202 primarily related to:

• $197 for the curtailment of the Kwinana alumina refinery

In the three-month period of 2023, Restructuring and other charges, net of $149 primarily related to:

• $101 for the permanent closure of the previously curtailed Intalco aluminum smelter
• $47 for the updated restart agreement for the San Ciprián aluminum smelter

(Benefit from) provision for income taxes

Sequential period comparison

The Benefit from income taxes in the first quarter of 2024 was $(18) on a loss before taxes of $(325) or 5.5%. In comparison, the fourth quarter of 2023 Provision for income taxes was $150 on a loss before taxes of $(77) or (194.8)%.

The decrease in tax expense of $168 is primarily attributable to the full valuation allowance of $152 recorded against the deferred tax assets of AWAB in the fourth quarter of 2023 and lower income in the jurisdictions where taxes are paid.

Year-to-date comparison

The Benefit for income taxes in the three-month period of 2024 was $(18) on a loss before taxes of $(325) or 5.5%. In comparison, the three-month period of 2023 Provision for income taxes was $52 on a loss before taxes of $(180) or (28.9)%.

The decrease in tax expense of $70 is primarily attributable to lower income in the jurisdictions where taxes are paid.

Noncontrolling interest

Sequential period comparison

Net loss attributable to noncontrolling interest was $(55) in the first quarter of 2024 compared with $(77) in the fourth quarter of 2023. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities.

The change is primarily a result of lower taxes and higher average realized price of alumina, partially offset by higher restructuring costs.

Year-to-date comparison

Net loss attributable to noncontrolling interest was $(55) in the three-month period of 2024 compared with $(1) in the three-month period of 2023. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities.

The change is primarily a result of higher restructuring costs and higher production costs, partially offset by lower raw material and energy costs, and lower taxes.

Segment Information

Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company has two operating and reportable segments: (i) Alumina and (ii) Aluminum. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) for each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses. Alcoa Corporation’s Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The CODM function regularly reviews the financial information, including Adjusted EBITDA, of these two operating segments to assess performance and allocate resources.

Alumina

Business Update. The average API of $356 per metric ton trended favorably compared to the prior quarter reflecting a 6% sequential increase. During the first quarter, the Alumina segment also experienced lower energy and raw materials costs compared to the fourth quarter of 2023.

On January 8, 2024, Alcoa announced the full curtailment of the Kwinana refinery which will be completed in the second quarter of 2024. The refinery currently has approximately 780 employees and this number will be reduced to approximately 250 in the third quarter of 2024, after alumina production has ceased. Certain processes will continue until about the third quarter of 2025, when the employee number will be further reduced to approximately 50. In addition to the employees separating as a result of the curtailment, approximately 150 employees will either terminate through the productivity program announced in the third quarter of 2023 or redeploy to other Alcoa operations.

In the first quarter, Alcoa recorded a restructuring charge of $197 related to the curtailment of the refinery. The charge includes $123 for water management costs, $41 for severance and employee termination costs, $15 for asset retirement obligations, $13 for take-or-pay contracts, and $5 for asset impairments. Related cash outlays of approximately $215 (which includes existing employee related liabilities and asset retirement obligations) are expected through 2025, with approximately $140 to be spent in 2024. During the first quarter of 2024, cash outlays were $2.

Capacity. The Alumina segment had a base capacity of 13,843 kmt with 1,452 kmt of curtailed refining capacity. There was no change in curtailed capacity during the quarter.

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

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Production

Sequential period comparison

Alumina production decreased 4% primarily as a result of:

• Reduced production at the Australia refineries due to lower bauxite grade

Year-to-date comparison

Alumina production decreased 3% primarily as a result of:

• Reduced production at the Australia refineries due to lower bauxite grade

Partially offset by:

• Increased production at the San Ciprián refinery as the refinery was operating at 50 percent capacity in the first quarter of 2024, and 35 to 50 percent capacity in the first quarter of 2023

Third-party sales

Sequential period comparison

Third-party sales increased $56 primarily as a result of:

• Higher average realized price of $28/ton principally driven by a higher average API
• Higher shipments of alumina primarily due to increased trading activity
• Favorable currency impacts

Partially offset by:

• Lower volumes and price from bauxite offtake and supply agreements

Year-to-date comparison

Third-party sales increased $104 primarily as a result of:

• Higher shipments of alumina primarily due to increased trading activity and sales of externally sourced alumina to satisfy certain customer commitments

Partially offset by:

• Lower volumes and price from bauxite offtake and supply agreements

Intersegment sales

Sequential period comparison

Intersegment sales decreased $54 primarily as a result of:

• Lower alumina shipments due to lower alumina production

Partially offset by:

• Higher average API on sales to the Aluminum segment

Year-to-date comparison

Intersegment sales decreased $26 primarily as a result of:

• Lower alumina shipments primarily due to lower alumina production

Partially offset by:

• Higher average API on sales to the Aluminum segment

Segment Adjusted EBITDA

Sequential period comparison

Segment Adjusted EBITDA increased $55 primarily as a result of:

• Higher average realized price of $28/ton principally driven by a higher average API
• Lower energy costs across the refineries primarily due to favorable natural gas prices
• Favorable raw material costs primarily on lower prices for caustic soda

Partially offset by:

• Lower shipments

Year-to-date comparison

Segment Adjusted EBITDA increased $36 primarily as a result of:

• Favorable raw material costs primarily on lower prices for caustic soda
• Lower energy costs across the refineries primarily due to favorable natural gas prices
• Higher average realized price of $1/ton principally driven on a higher average API
• Favorable currency impacts

Partially offset by:

• Higher production costs primarily related to operating certain of the Australia refineries with lower grade bauxite and higher labor costs

Forward Look. For the second quarter of 2024 in comparison to the first quarter of 2024, the Alumina segment anticipates increased costs due to seasonal maintenance and other mining costs.

The Company expects total 2024 alumina production and shipments to remain unchanged from the prior projection, ranging between 9.8 and 10.0 million metric tons and between 12.7 and 12.9 million metric tons, respectively. The difference between production and shipments reflects trading volumes and externally sourced alumina to fulfill customer contracts due to the curtailment of the Kwinana refinery.

Aluminum

Business Update. Aluminum prices increased sequentially with LME prices on a 15-day lag averaging $2,201 per metric ton in the first quarter of 2024. During the first quarter, the Aluminum segment also experienced lower energy and raw materials costs compared to the fourth quarter of 2023.

In April 2024, the U.S. Treasury, in coordination with the United Kingdom, announced sanctions on Russian aluminum. The sanctions ban imports into the U.S. and the United Kingdom of Russian Federation origin aluminum produced on or after April 13, 2024, and restrict activity at the London Metal Exchange and the Chicago Mercantile Exchange.

In March 2024, Alcoa completed the restart of approximately 54,000 mtpy of capacity at its Warrick Operations site in Indiana that began in October 2023. Alcoa incurred restart expenses of $3 during the first quarter of 2024.

During the first quarter of 2024, the Alumar smelter experienced operational instability primarily due to equipment reliability and is taking actions to improve overall performance in order to resume the controlled pace for the restart.

San Ciprián Smelter

In March 2024, Alcoa completed the restart of approximately 6 percent of total pots at the San Ciprián smelter as required by the February 2023 updated viability agreement. The Company incurred restart expenses of $2 in the first quarter of 2024. In connection with the December 2021 agreement and the February 2023 updated viability agreement, the Company has restricted cash of $86 remaining at March 31, 2024 to be made available for capital improvements at the site and smelter restart costs. The workers’ representatives have rejected the use of this cash to fund operating losses at the smelter.

Total aluminum third-party shipments include metric tons that were not produced by the Aluminum segment. Such aluminum was purchased by this segment to satisfy certain customer commitments. The Aluminum segment bears the risk of loss of the purchased aluminum until control of the product has been transferred to this segment’s customer. Additionally, Total shipments includes offtake from a joint venture supply agreement.

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

Operating costs includes all production related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

(1) Other includes third-party sales of energy, as well as realized gains and losses related to embedded derivative instruments designated as cash flow hedges of forward sales of aluminum.

Production

Sequential period comparison

Production was consistent with the fourth quarter’s strong output.

Year-to-date comparison

Production increased 5% primarily as a result of:

• Warrick smelter and Alumar smelter restarts

Third-party sales

Sequential period comparison

Third-party sales decreased $45 primarily as a result of:

• Lower trading activities
• Lower average realized price of $58/ton driven by the absence of gains from the Alumar smelter restart hedge program, which ended in December 2023, and timing of shipments

Partially offset by:

• Increased offtake from a joint venture supply agreement
• Higher shipments, primarily in Europe

Year-to-date comparison

Third-party sales decreased $172 primarily as a result of:

• Lower average realized price of $459/ton driven by a lower average LME (on a 15-day lag) and lower regional premiums
• Lower trading activities
• Decrease in value add product sales due to overall lower market demand and product premiums in Europe and North America

Partially offset by:

• Higher shipments, primarily due to the Warrick smelter restart
• Increased offtake from a joint venture supply agreement

Segment Adjusted EBITDA

Sequential period comparison

Segment Adjusted EBITDA decreased $38 primarily as a result of:

• Higher production costs primarily associated with the absence of full year Inflation Reduction Act of 2022 benefits recorded in the fourth quarter of 2023 and labor costs
• Lower average realized price

Partially offset by:

• Lower energy costs, primarily in Europe and the absence of an adjustment related to carbon dioxide compensation
• Lower raw material costs primarily on lower market prices for carbon materials

Year-to-date comparison

Segment Adjusted EBITDA decreased $134 primarily as a result of:

• Lower average realized price based on LME (on a 15-day lag) and lower regional premiums
• Decrease in value add product sales

Partially offset by:

• Favorable raw material costs primarily on lower market prices for carbon materials

The following table provides consolidated capacity and curtailed capacity (each in kmt) for each smelter owned by Alcoa Corporation:

(1) These figures represent Alcoa Corporation’s share of the facility Nameplate Capacity based on its ownership interest in the respective smelter.

(2) In the fourth quarter of 2023, the Company began the restart of 16,000 mtpy of previously curtailed capacity at the Portland smelter in Australia. The smelter had previously been operating at approximately 75 percent of the site’s annual capacity of 197,000 mtpy (Alcoa share) since March 2023. The site was operating at approximately 79 percent of its capacity as of March 31, 2024.

(3) In 2021, the Company announced the restart of its 268,000 metric tons per year (mtpy) share of capacity at the Alumar smelter in São Luís, Brazil. Production began in the second quarter of 2022. Curtailed capacity decreased from March 31, 2023 as a result of the restart process.

(4) In December 2021, the Company announced a two-year curtailment of the San Ciprián smelter’s 228,000 mtpy of annual smelting capacity. In February 2023, the Company and the workers’ representatives reached an updated viability agreement for the phased restart of the smelter beginning in January 2024. In the first quarter of 2024, the Company completed the restart of approximately 6% of pots, in accordance with the updated viability agreement.

(5) In the first quarter of 2024, the Company completed the restart of one potline (54,000 mtpy) at its Warrick Operations site that began in October 2023. The line was curtailed in July 2022. In the fourth quarter of 2023, the Company also approved the permanent closure of 54,000 mtpy of previously curtailed capacity (which had not operated since 2016).

Forward Look. For the second quarter of 2024 in comparison to the first quarter of 2024, the Aluminum segment expects lower raw material costs and lower production costs to be offset by higher energy costs.

The Company expects total 2024 Aluminum segment production and shipments to remain unchanged from the prior projection, ranging between 2.2 and 2.3 million metrics tons and between 2.5 and 2.6 million metric tons, respectively.

Reconciliations of Certain Segment Information

Reconciliation of Total Segment Third-Party Sales to Consolidated Sales

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

(1) Other largely relates to the Aluminum segment’s energy product division and the Alumina segment’s purchases of bauxite from offtake or other supply agreements that is sold to third-parties.

(2) Represents the elimination of Cost of goods sold related to intersegment sales between Alumina and Aluminum.

(3) Provision for depreciation, depletion, and amortization is included in the operating costs used to calculate average cost for each of the alumina and aluminum product divisions (see Alumina and Aluminum above). However, for financial reporting purposes, Provision for depreciation, depletion, and amortization is presented as a separate line item on Alcoa Corporation’s Statement of Consolidated Operations.

(4) Other includes costs related to Transformation, and certain other items that are not included in the operating costs of segments (see footnotes 1 and 3 in the Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Loss Attributable to Alcoa Corporation below).

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

(1) Transformation includes, among other items, the Adjusted EBITDA of previously closed operations.

(2) Corporate expenses are composed of general administrative and other expenses of operating the corporate headquarters and other global administrative facilities, as well as research and development expenses of the corporate technical center.

(3) Other includes certain items that are not included in the Adjusted EBITDA of the reportable segments.

Environmental Matters

See the Environmental Matters section of Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Liquidity and Capital Resources

Management believes that the Company’s cash on hand, projected cash flows, and liquidity options, combined with its strategic actions, will be adequate to fund its short-term (at least 12 months) and long-term operating and investing needs. The Company plans to opportunistically access liquidity sources to support its cash position and ongoing cash needs. Further, the Company has flexibility related to its use of cash; the Company has no significant debt maturities until 2027 and no significant cash contribution requirements related to its pension plan obligations.

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

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

Cash from Operations

Cash used for operations was $223 in the three-month period of 2024 compared with $163 in the same period of 2023. Notable changes to sources and (uses) of cash included:

• ($22) unfavorable change in net loss, excluding the impacts from restructuring charges, primarily due to lower aluminum pricing, partially offset by lower raw material costs; and,
• ($23) in certain working capital accounts, primarily an increase in receivables in the three-month period of 2024 on less favorable payment terms due to a change in product mix and timing of shipments, partially offset by a decrease in accounts payable in the 2023 three-month period due to lower raw material purchases, decreased maintenance and capital expenditures.

During 2024, AofA will continue to record its tax provision and tax liability without effect of the ATO assessment, since it expects to prevail. The tax payable will remain on AofA’s balance sheet as a noncurrent liability, increased by the tax effect of subsequent periods’ interest deductions, until dispute resolution, which is expected to take several years. At March 31, 2024, the noncurrent liability resulting from the cumulative interest deductions was $197 (A$302). See description of the tax dispute in Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

The Company utilizes a Receivables Purchase Agreement facility to sell up to $130 of certain receivables through an SPE to a financial institution on a revolving basis. Alcoa Corporation guarantees the performance obligations of the Company subsidiaries, and unsold customer receivables are pledged as collateral to the financial institution to secure the sold receivables. At March 31, 2024, the SPE held unsold customer receivables of $181 pledged as collateral against the sold receivables.

The Company continues to service the customer receivables that were transferred to the financial institution. As Alcoa collects customer payments, the SPE transfers additional receivables to the financial institution rather than remitting cash. In the three-month period of 2024, the Company sold gross customer receivables of $307, and reinvested collections of $291 from previously sold receivables, resulting in net cash proceeds from the financial institution of $16. In the three-month period of 2023, the Company sold gross customer receivables of $76, and reinvested collections of $23 from previously sold receivables, resulting in net cash proceeds from the financial institution of $53. Cash collections from previously sold receivables yet to be reinvested of $86 were included in Accounts payable, trade on the accompanying Consolidated Balance Sheet as of March 31, 2024. Cash received from sold receivables under the agreement are presented within operating activities in the Statement of Consolidated Cash Flows. See Note I to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Financing Activities

Cash provided from financing activities was $754 in the three-month period of 2024 compared with $40 in the same period of 2023.

The source of cash in the three-month period of 2024 was primarily $737 net proceeds from the bond issuance (see below) and $55 of net contributions from Alumina Limited (see Noncontrolling interest above), partially offset by $19 of dividends paid.

Short-term Borrowings

The Company has entered into inventory repurchase agreements whereby the Company sold aluminum to a third party and agreed to subsequently repurchase substantially similar inventory. The Company did not record sales upon each shipment of inventory and the net cash received of $52 related to these agreements was recorded in Short-term borrowings within Other current liabilities on the Consolidated Balance Sheet as of March 31, 2024.

During the three-month period of 2024 the Company recorded borrowings of $21 and repurchased $25 of inventory related to these agreements. During the three-month period of 2023, the Company recorded borrowings of $25 and related to these agreements.

The cash received and subsequently paid under the inventory repurchase agreements is included in Cash provided from financing activities on the Statement of Consolidated Cash Flows.

144A Debt

In March 2024, ANHBV, a wholly-owned subsidiary of Alcoa Corporation, completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt issuance for $750 aggregate principal amount of 7.125% Senior Notes due 2031 (the 2031 Notes), which carry a green bond designation. The net proceeds of this issuance were $737 reflecting a discount to the initial purchasers of the 2031 Notes, as well as issuance costs. See Note K to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Credit Facilities

Revolving Credit Facility

The Company has a $1,250 revolving credit and letter of credit facility in place for working capital and/or other general corporate purposes (the Revolving Credit Facility). The Revolving Credit Facility, established in September 2016, and amended and restated in June 2022 and in January 2024, is scheduled to mature in June 2027. Subject to the terms and conditions under the Revolving Credit Facility, the Company or ANHBV, a wholly-owned subsidiary of Alcoa Corporation, may borrow funds or issue letters of credit. Under the terms of the January 2024 amendment, the Company has agreed to provide collateral for its obligations under the Revolving Credit Facility. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information on the Revolving Credit Facility.

As of March 31, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Revolving Credit Facility. There were no borrowings outstanding at March 31, 2024, and no amounts were borrowed during the three-month periods of 2024 and 2023 under the Revolving Credit Facility.

Japanese Yen Revolving Credit Facility

The Company entered into a $250 revolving credit facility available to be drawn in Japanese yen (the Japanese Yen Revolving Credit Facility) in April 2023. The Japanese Revolving Credit Facility was amended and restated in January 2024 and in April 2024 (see below) and is scheduled to mature in April 2025. Subject to the terms and conditions under the facility, the Company or ANHBV may borrow funds. The facility includes covenants that are substantially the same as those included in the Revolving Credit Facility. Under the current terms of the January 2024 amendment, the Company has agreed to provide collateral for its obligations under the Japanese Yen Revolving Credit Facility. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information on the Japanese Yen Revolving Credit Facility.

As of March 31, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Japanese Revolving Credit Facility. There were no borrowings outstanding at March 31, 2024. During the three-month period of 2024, $201 (29,686 JPY) was borrowed and $196 (29,686 JPY) was repaid.

On April 26, 2024, the Company entered into an amendment extending the maturity of the Japanese Revolving Credit Facility to April 2025.

Dividend

On February 22, 2024, the Board of Directors declared a quarterly cash dividend of $0.10 per share of the Company’s common stock to stockholders of record as of the close of business on March 5, 2024. In March 2024, the Company paid cash dividends of $19.

Ratings

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

On March 6, 2024, Moody’s Investor Service downgraded the rating of ANHBV’s long-term debt from Baa3 to Ba1 and revised the outlook from negative to stable.

On March 4, 2024, Fitch Ratings downgraded the rating for Alcoa Corporation and ANHBV’s long-term debt from BBB- to BB+ and revised the outlook from negative to stable.

On March 4, 2024, Standard and Poor’s Global Ratings downgraded the rating of Alcoa Corporation’s long-term debt from BB+ to BB and revised the outlook from positive to stable.

Ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

Investing Activities

Cash used for investing activities was $117 in the three-month period of 2024 compared with $102 for the same period of 2023.

In the three-month period of 2024, the use of cash was primarily attributable to $101 related to capital expenditures and $17 of cash contributions to the ELYSIS partnership.

In the three-month period of 2023, the use of cash was primarily attributable to $83 related to capital expenditures and $20 of cash contributions to the ELYSIS partnership.

Recently Adopted and Recently Issued Accounting Guidance

See Note B to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Dissemination of Company Information

Alcoa Corporation intends to make future announcements regarding company developments and financial performance through its website, http://www.alcoa.com, as well as through press releases, filings with the Securities and Exchange Commission, conference calls, and webcasts.

See Part II Item 7A Quantitative and Qualitative Disclosures About Market Risk of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023. Our exposure to market risk has not changed materially since December 31, 2023. Refer to Part I Item 1 of this Form 10-Q in Note M to the Consolidated Financial Statements under caption Derivatives for additional information.

(a) Evaluation of Disclosure Controls and Procedures

Alcoa Corporation’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures were effective as of March 31, 2024.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the first quarter of 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

We face a number of risks that could materially and adversely affect our business, results of operations, cash flow, liquidity, or financial condition. A full discussion of our risk factors can be found in Part I Item 1A. Risk Factors of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The information below includes additional risks relating to the Transaction.

Alcoa will incur significant transaction costs in connection with the Transaction.

Alcoa expects to incur significant costs associated with the Transaction. Alcoa’s fees and expenses related to the Transaction include financial advisor fees, filing fees, legal and accounting fees, and regulatory fees, some of which will be paid regardless of whether the Transaction is completed.

The Transaction is subject to conditions to closing that could result in the Transaction being delayed or not completed and the Agreement can be terminated in certain circumstances, each of which could negatively impact the price of Alcoa common stock and Alcoa’s business and operations.

Completion of the Transaction is subject to conditions, including, among others:

• the approval of the Transaction by the Alumina Limited shareholders;
• the approval of the scheme by the Federal Court of Australia (sitting in Melbourne) (the Court);
• the issuance of a report by an independent expert (who is appointed by Alumina Limited pursuant to the Agreement) for the scheme concluding that the scheme is in the best interests of Alumina Limited shareholders and who does not change its conclusion prior to the second Court date;
• the absence of any law, order or injunction by an Australian or United States court or regulatory authority that would prohibit or make illegal the Transaction;
• the receipt of certain regulatory approvals;
• the approval for listing on the NYSE of the shares of Alcoa common stock to be issued or issuable in the Transaction and the establishment of a secondary listing on the ASX to allow shareholders of Alumina Limited to trade Alcoa CDIs on the ASX; and,
• no specified events having occurred in respect of Alumina Limited or Alcoa.

The regulatory approval processes may take a lengthy period of time to complete. There can be no assurances that any or all of such approvals will be obtained or will be obtained in a timely manner. Even if such approvals or conditional approvals are obtained, no assurances can be given as to the terms, conditions and timing of the approvals or whether they will be acceptable to Alcoa (in terms of any impact on the Transaction or the combined company’s operations). In addition, Alcoa and Alumina Limited may waive certain of these conditions.

In addition, Alcoa and Alumina Limited each has the right, in certain circumstances, to terminate the Agreement. If the Agreement is terminated or any of the conditions to closing are not satisfied or, where waivable, not waived, the Transaction will not be completed.

Failure to complete the Transaction, any delay in the completion of the Transaction or any uncertainty about the completion of the Transaction may adversely affect the price of Alcoa common stock or have an adverse impact on Alcoa’s business and operations.

If the Transaction is not completed for any reason, Alcoa’s ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Transaction, Alcoa may be subject to a number of risks, including the following:

• negative reactions from the financial markets;
• incurring and paying significant expenses in connection with the Transaction, such as financial advisor fees, filing fees, legal and accounting fees, soliciting fees, regulatory fees and other related expenses, many of which will become due and payable regardless of whether the Transaction is completed;
• nonpayment or delay in payment of any amounts due under any shareholder loan to AWAC made pursuant to the Agreement in accordance with the terms of such loan; and,
• paying a termination fee of $20 if Alumina Limited validly terminates the Agreement on the basis that Alcoa has failed to obtain the approval of its stockholders for issuance of the Alcoa shares in connection with the Transaction, or $50 if the Agreement is terminated in certain other circumstances.

In addition, Alcoa could be subject to litigation related to any failure to complete the Transaction or litigation seeking to require Alcoa to perform its obligations under the Agreement.

Obtaining required governmental and court approvals necessary to satisfy closing conditions may delay or prevent completion of the Transaction.

Completion of the Transaction is conditioned upon the receipt of certain governmental authorizations, consents, orders or other approvals, including approvals, clearances or filings required in relation to the Transaction under the antitrust and foreign investment laws of Australia and the antitrust laws of Brazil. The Transaction must also be approved by the Court. No assurance can be given that the approvals will be obtained. Even if such approvals or conditional approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the Agreement.