| Contingencies and Commitments | M. Contingencies and Commitments
Contingencies
Unless specifically described to the contrary, all matters within
Note M are the full responsibility of Alcoa Corporation pursuant to
the Separation and Distribution Agreement. Additionally, the
Separation and Distribution Agreement provides for
cross-indemnities between the Company and Arconic for claims
subject to indemnification.
Litigation
On June 5, 2015, AWA and St. Croix Alumina, L.L.C.
(“SCA”) filed a complaint in Delaware Chancery Court
for a declaratory judgment and injunctive relief to resolve a
dispute between ParentCo and Glencore Ltd. (“Glencore”)
with respect to claimed obligations under a 1995 asset purchase
agreement between ParentCo and Glencore. The dispute arose
from Glencore’s demand that ParentCo indemnify it for
liabilities it may have to pay to Lockheed Martin
(“Lockheed”) related to the St. Croix alumina
refinery. Lockheed had earlier filed suit against Glencore in
federal court in New York seeking indemnity for liabilities it had
incurred and would incur to the U.S. Virgin Islands to remediate
certain properties at the refinery property and claimed that
Glencore was required by an earlier, 1989 purchase agreement to
indemnify it. Glencore had demanded that ParentCo indemnify
and defend it in the Lockheed case and threatened to claim against
ParentCo in the New York action despite exclusive jurisdiction for
resolution of disputes under the 1995 purchase agreement being in
Delaware. After Glencore conceded that it was not seeking to
add ParentCo to the New York action, AWA and SCA dismissed their
complaint in the Chancery Court case and on August 6, 2015
filed a complaint for declaratory judgment in Delaware Superior
Court. AWA and SCA filed a motion for judgment on the
pleadings on September 16, 2015. Glencore answered AWA’s
and SCA’s complaint and asserted counterclaims on
August 27, 2015, and on October 2, 2015 filed its own
motion for judgment on the pleadings. Argument on the
parties’ motions was held by the court on December 7,
2015, and by order dated February 8, 2016, the court granted
ParentCo’s motion and denied Glencore’s motion,
resulting in ParentCo not being liable to indemnify Glencore for
the Lockheed action. The decision also leaves for pretrial
discovery and possible summary judgment or trial Glencore’s
claims for costs and fees it incurred in defending and settling an
earlier Superfund action brought against Glencore by the Government
of the Virgin Islands. On February 17, 2016, Glencore filed
notice of its application for interlocutory appeal of the
February 8, 2016 ruling. AWA and SCA filed an opposition to
that application on February 29, 2016. On March 10, 2016,
the court denied Glencore’s motion for interlocutory appeal
and on the same day entered judgment on claims other than
Glencore’s claims for costs and fees it incurred in defending
and settling the earlier Superfund action brought against Glencore
by the Government of the Virgin Islands. On March 29, 2016,
Glencore filed a withdrawal of its notice of interlocutory appeal,
and on April 6, 2016, Glencore filed an appeal of the
court’s March 10, 2016 judgment to the Delaware Supreme
Court, which set the appeal for argument for November 2, 2016.
On November 4, 2016, the Delaware Supreme Court affirmed the
judgment of the Delaware Superior Court granting ParentCo’s
motion. Remaining in the case were Glencore’s claims for
costs and fees it incurred related to the previously described
Superfund action. On March 7, 2017, Alcoa Corporation and
Glencore agreed in principle to settle these claims and on
March 17, 2017 requested and were granted an adjournment of
the court’s scheduled March 21, 2017 conference. On
April 5, 2017, Alcoa and Glencore entered into a settlement
agreement to resolve these remaining claims. Accordingly, on
April 24, 2017, the court dismissed the case at the request of
the parties. The amount of the proposed settlement was not
material. This matter is now closed.
Before 2002, ParentCo purchased power in Italy in the regulated
energy market and received a drawback of a portion of the price of
power under a special tariff in an amount calculated in accordance
with a published resolution of the Italian Energy Authority, Energy
Authority Resolution n. 204/1999 (“204/1999”). In 2001,
the Energy Authority published another resolution, which clarified
that the drawback would be calculated in the same manner, and in
the same amount, in either the regulated or unregulated market. At
the beginning of 2002, ParentCo left the regulated energy market to
purchase energy in the unregulated market. Subsequently, in 2004,
the Energy Authority introduced regulation no. 148/2004, which set
forth a different method for calculating the special tariff that
would result in a different drawback for the regulated and
unregulated markets. ParentCo challenged the new regulation in the
Administrative Court of Milan and received a favorable judgment in
2006. Following this ruling, ParentCo continued to receive the
power price drawback in accordance with the original calculation
method, through 2009, when the European Commission declared all
such special tariffs to be impermissible “state aid.”
In 2010, the Energy Authority appealed the 2006 ruling to the
Consiglio di Stato (final court of appeal). On December 2,
2011, the Consiglio di Stato ruled in favor of the Energy Authority
and against ParentCo, thus presenting the opportunity for the
energy regulators to seek reimbursement from ParentCo of an amount
equal to the difference between the actual drawback amounts
received over the relevant time period, and the drawback as it
would have been calculated in accordance with regulation 148/2004.
On February 23, 2012, ParentCo filed its appeal of the
decision of the Consiglio di Stato (this appeal was subsequently
withdrawn in March 2013). On March 26, 2012, ParentCo
received a letter from the agency (Cassa Conguaglio per il Settore
Eletrico (CCSE)) responsible for making and collecting payments on
behalf of the Energy Authority demanding payment in the amount of
approximately $110 (€85), including interest. By letter
dated April 5, 2012, ParentCo informed CCSE that it disputes
the payment demand of CCSE since (i) CCSE was not authorized
by the Consiglio di Stato decisions to seek payment of any amount,
(ii) the decision of the Consiglio di Stato has been appealed
(see above), and (iii) in any event, no interest should be
payable. On April 29, 2012, Law No. 44 of 2012
(“44/2012”) came into effect, changing the method to
calculate the drawback. On February 21, 2013, ParentCo
received a revised request letter from CCSE demanding
ParentCo’s subsidiary, Alcoa Trasformazioni S.r.l., make a
payment in the amount of $97 (€76), including interest, which
reflects a revised calculation methodology by CCSE and represents
the high end of the range of reasonably possible loss associated
with this matter of $0 to $97 (€76). ParentCo rejected that
demand and formally challenged it through an appeal before the
Administrative Court on April 5, 2013. The Administrative
Court scheduled a hearing for December 19, 2013, which was
subsequently postponed until April 17, 2014, and further
postponed until June 19, 2014. On that date, the
Administrative Court listened to ParentCo’s oral argument,
and on September 2, 2014, rendered its decision. The
Administrative Court declared the payment request of CCSE and the
Energy Authority to ParentCo to be unsubstantiated based on the
148/2004 resolution with respect to the January 19, 2007
through November 19, 2009 timeframe. On December 18,
2014, the CCSE and the Energy Authority appealed the Administrative
Court’s September 2, 2014 decision; a date for the
hearing has been scheduled for May 2018. As a result of the
conclusion of the European Commission Matter on January 26,
2016 (see Note R in Alcoa Corporation’s Annual Report on Form
10-K for the year ended December 31, 2016), ParentCo’s
management modified its outlook with respect to a portion of the
pending legal proceedings related to this matter. As such, a charge
of $37 (€34) was recorded in Restructuring and other
charges for the year ended December 31, 2015 to establish a
partial reserve for this matter. At this time, Alcoa Corporation is
unable to reasonably predict the ultimate outcome for this
matter.
Environmental Matters
Alcoa Corporation participates in environmental assessments and
cleanups at several locations. These include owned or operating
facilities and adjoining properties, previously owned or operating
facilities and adjoining properties, and waste sites, including
Superfund (Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA)) sites.
A liability is recorded for environmental remediation when a
cleanup program becomes probable and the costs can be reasonably
estimated. As assessments and cleanups proceed, the liability is
adjusted based on progress made in determining the extent of
remedial actions and related costs. The liability can change
substantially due to factors such as, among others, the nature and
extent of contamination, changes in remedial requirements, and
technological changes.
Alcoa Corporation’s remediation reserve balance was $317 and
$324 at June 30, 2017 and December 31, 2016 (of which $51
and $60 was classified as a current liability), respectively, and
reflects the most probable costs to remediate identified
environmental conditions for which costs can be reasonably
estimated.
In the 2017 second quarter and six-month period, the remediation
reserve was increased by $3. The change in both periods was due to
a net charge associated with several sites and was recorded in Cost
of goods sold on the accompanying Statement of Consolidated
Operations.
Payments related to remediation expenses applied against the
reserve were $11 and $20 in the 2017 second quarter and six-month
period, respectively. These amounts include expenditures currently
mandated, as well as those not required by any regulatory authority
or third party. The respective change in the reserve also reflects
an increase of $2 due to the effects of foreign currency
translation in the 2017 second quarter, and an increase of both $5
due to the effects of foreign currency translation and $5 for the
reclassification of an amount previously included in Alcoa
Corporation’s liability for asset retirement obligations on
the Company’s Consolidated Balance Sheet as of
December 31, 2016 in the 2017 six-month period.
Included in annual operating expenses are the recurring costs of
managing hazardous substances and environmental programs. These
costs are estimated to be approximately 2% of cost of goods
sold.
The Separation and Distribution Agreement includes provisions for
the assignment or allocation of environmental liabilities between
Alcoa Corporation and Arconic, including certain remediation
obligations associated with environmental matters. In general, the
respective parties are responsible for the environmental matters
associated with their operations, and with the properties and other
assets assigned to each. Additionally, the Separation and
Distribution Agreement lists environmental matters with a shared
responsibility between the two companies with an allocation of
responsibility and the lead party responsible for management of
each matter. For matters assigned to Alcoa Corporation under the
Separation and Distribution Agreement, Alcoa Corporation has agreed
to indemnify Arconic in whole or in part for environmental
liabilities arising from operations prior to the Separation Date.
The following description provides details regarding the current
status of certain significant reserves related to current or former
Alcoa Corporation sites. With the exception of the Fusina, Italy
matter, Alcoa Corporation assumed full responsibility of the
matters described below.
Sherwin, TX—
Baie Comeau, Quebec, Canada—
Fusina and Portovesme, Italy—
In December 2009, Trasformazioni and Ligestra reached an initial
agreement for settlement of the liabilities related to the Fusina
operations while negotiations continued related to Portovesme (see
below). The agreement outlined an allocation of payments to the MOE
for emergency action and natural resource damages and the scope and
costs for a proposed soil remediation project, which was formally
presented to the MOE in mid-2010. The agreement was contingent upon
final acceptance of the remediation project by the MOE. As a result
of entering into this agreement, ParentCo increased the reserve by
$12 in 2009 for Fusina. Based on comments received from the MOE and
local and regional environmental authorities, Trasformazioni
submitted a revised remediation plan in the first half of 2012;
however, such revisions did not require any change to the existing
reserve. In October 2013, the MOE approved the project submitted by
ParentCo, resulting in no adjustment to the reserve.
In January 2014, in anticipation of ParentCo reaching a final
administrative agreement with the MOE, ParentCo and Ligestra
entered into a final agreement related to Fusina for allocation of
payments to the MOE for emergency action and natural resource
damages and the costs for the approved soil remediation project.
The agreement resulted in Ligestra assuming 50% to 80% of all
payments and remediation costs. On February 27, 2014, ParentCo
and the MOE reached a final administrative agreement for conduct of
work. The agreement includes both a soil and groundwater
remediation project estimated to cost $33 (€24) and
requires payments of $25 (€18) to the MOE for emergency
action and natural resource damages. Based on the final agreement
with Ligestra, ParentCo’s share of all costs and payments was
$17 (€12), of which $9 (€6) related to the damages
will be paid annually over a 10-year period, which began in April
2014, and was previously fully reserved. On March 30, 2017,
the MOE provided authorization to Trasformazioni to dispose of
excavated waste into a third-party landfill. As such, the soil
remediation excavation work is expected to begin in October 2017.
The responsibility for the execution of groundwater remediation
project/emergency containment has been transferred to the MOE in
accordance with the February 2014 settlement agreement and
remediation is slated to begin in late 2017 or in 2018.
Effective with the Separation Transaction, Arconic retained the
portion of this obligation related to the Fusina rolling
operations. Specifically, under the Separation and Distribution
Agreement, Trasformazioni, and with it the Fusina properties, were
assigned to Alcoa Corporation. Fusina Rolling S.r.l., entered into
a lease agreement for the portion of property that included the
rolling operation. Pursuant to the Separation and Distribution
Agreement, the liabilities at Fusina described above were allocated
between Alcoa Corporation (Trasformazioni) and Arconic (Fusina
Rolling S.r.l.). Arconic will pay $7 (€7) for the
portion of remediation expenses associated with the section of
property that includes the rolling operation as the project is
completed.
Separately, in 2009, due to additional information derived from the
site investigations conducted at Portovesme, ParentCo increased the
reserve by $3. In November 2011, Trasformazioni and Ligestra
reached an agreement for settlement of the liabilities related to
Portovesme, similar to the one for Fusina. A proposed soil
remediation project for Portovesme was formally presented to the
MOE in June 2012. Neither the agreement with Ligestra nor the
proposal to the MOE resulted in a change to the reserve for
Portovesme. In November 2013, the MOE rejected the proposed soil
remediation project and requested a revised project be submitted.
In May 2014, Trasformazioni and Ligestra submitted a revised soil
remediation project that addressed certain stakeholders’
concerns. ParentCo increased the reserve by $3 in 2014 to reflect
the estimated higher costs associated with the revised soil
remediation project, as well as current operating and maintenance
costs of the Portovesme site.
In October 2014, the MOE required a further revised project be
submitted to reflect the removal of a larger volume of contaminated
soil than what had been proposed, as well as design changes for the
cap related to the remaining contaminated soil left in place and
the expansion of an emergency containment groundwater pump and
treatment system that was previously installed. Trasformazioni and
Ligestra submitted the further revised soil remediation project in
February 2015. As a result, ParentCo increased the reserve by $7 in
March 2015 to reflect the increase in the estimated costs of the
project. In October 2015, ParentCo received a final ministerial
decree approving the February 2015 revised soil remediation
project. Work on the soil remediation project commenced in mid-2016
and is expected to be completed in 2019. After further discussions
with the MOE regarding the groundwater remediation project, Alcoa
Corporation and Ligestra are working to find a common remediation
solution. The ultimate outcome of this matter may result in a
change to the existing reserve for Portovesme.
Mosjøen, Norway—
In April 2015, the NEA notified ParentCo that the revised project
was approved and required submission of the final project design
before issuing a final order. ParentCo completed and submitted the
final project design, which identified a need to stabilize the
related wharf structure to allow for the sediment dredging in the
harbor. As a result, ParentCo increased the reserve for
Mosjøen by $11 in June 2015 to reflect the estimated cost of
the wharf stabilization. Also in June 2015, the NEA issued a final
order approving the project as well as the final project design. In
September 2015, ParentCo increased the reserve by $1 to reflect the
potential need (based on prior experience with similar projects) to
perform additional dredging if the results of sampling, which is
required by the order, don’t achieve the required cleanup
levels. Project construction commenced in early 2016 and is
expected to be completed by the end of 2017. At June 30, 2017
and December 31, 2016, the reserve balance associated with
this matter was $6 and $8, respectively.
East St. Louis, IL—
Tax
In September 2010, following a corporate income tax audit covering
the 2003 through 2005 tax years, an assessment was received as a
result of Spain’s tax authorities disallowing certain
interest deductions claimed by a Spanish consolidated tax group
owned by ParentCo. An appeal of this assessment in Spain’s
Central Tax Administrative Court by ParentCo was denied in October
2013. In December 2013, ParentCo filed an appeal of the assessment
in Spain’s National Court.
Additionally, following a corporate income tax audit of the same
Spanish tax group for the 2006 through 2009 tax years,
Spain’s tax authorities issued an assessment in July 2013
similarly disallowing certain interest deductions. In August 2013,
ParentCo filed an appeal of this second assessment in Spain’s
Central Tax Administrative Court, which was denied in January 2015.
ParentCo filed an appeal of this second assessment in Spain’s
National Court in March 2015.
On January 16, 2017, Spain’s National Court issued a
decision in favor of the Company related to the assessment received
in September 2010. On March 6, 2017, the Company was notified
that Spain’s tax authorities did not file an appeal, for
which the deadline has passed. As a result, the assessment related
to the 2003 through 2005 tax years is null and void. Spain’s
National Court has not yet rendered a decision related to the
assessment received in July 2013 for the 2006 through 2009 tax
years. The amount of this assessment on a standalone basis,
including interest, was $150 (€131) as of June 30,
2017.
The Company believes it has meritorious arguments to support its
tax position and intends to vigorously litigate the remaining
assessment through Spain’s court system. However, in the
event the Company is unsuccessful, a portion of the remaining
assessment may be offset with existing tax loss carryforwards
available to the Spanish consolidated tax group, which would be
shared between the Company and Arconic as provided for in the Tax
Matters Agreement related to the Separation Transaction.
Additionally, it is possible that the Company may receive similar
assessments for tax years subsequent to 2009 (see below). Despite
the favorable decision received on the first assessment, at this
time, the Company is unable to reasonably predict the ultimate
outcome for this matter.
This Spanish consolidated tax group has been under audit (began in
September 2015) for the 2010 through 2013 tax years. Spain’s
tax authorities are nearing the end of the audit and have informed
both Alcoa Corporation and Arconic of their intent to issue an
assessment similarly disallowing certain interest deductions as the
two assessments described above. On August 3, 2017, in lieu of
receiving a formal assessment, all parties agreed to a settlement
related to the 2010 through 2013 tax years. For Alcoa Corporation,
this settlement is not material to the Company’s Consolidated
Financial Statements. Given the stage of the appeal of the
assessment for the 2006 through 2009 tax years in Spain’s
National Court, the settlement of the 2010 through 2013 tax years
will not impact the ultimate outcome of that proceeding.
In March 2013, AWAB was notified by the Brazilian Federal Revenue
Office (RFB) that approximately $110 (R$220) of value added tax
credits previously claimed are being disallowed and a penalty of
50% assessed. Of this amount, AWAB received $41 (R$82) in cash
in May 2012. The value added tax credits were claimed by AWAB for
both fixed assets and export sales related to the Juruti bauxite
mine and São Luís refinery expansion. The RFB has
disallowed credits they allege belong to the consortium in which
AWAB owns an interest and should not have been claimed by
AWAB. Credits have also been disallowed as a result of
challenges to apportionment methods used, questions about the use
of the credits, and an alleged lack of documented proof. AWAB
presented defense of its claim to the RFB on April 8, 2013. If
AWAB is successful in this administrative process, the RFB would
have no further recourse. If unsuccessful in this process, AWAB has
the option to litigate at a judicial level. Separately from
AWAB’s administrative appeal, in June 2015, new tax law was
enacted repealing the provisions in the tax code that were the
basis for the RFB assessing a 50% penalty in this matter. As such,
the estimated range of reasonably possible loss is $0 to $31
(R$103), whereby the maximum end of the range represents the
portion of the disallowed credits applicable to the export sales
and excludes the 50% penalty. Additionally, the estimated range of
disallowed credits related to AWAB’s fixed assets is $0 to
$36 (R$117), which would increase the net carrying value of
AWAB’s fixed assets if ultimately disallowed. It is
management’s opinion that the allegations have no basis;
however, at this time, the Company is unable to reasonably predict
an outcome for this matter.
Between 2000 and 2002, Alcoa Alumínio (Alumínio), an
indirect wholly-owned subsidiary of Alcoa Corporation, sold
approximately 2,000 metric tons of metal per month from its
Poços de Caldas facility, located in the State of Minas Gerais
(the “State”), Brazil, to Alfio, a customer also
located in the State. Sales in the State were exempted from
value-added tax (VAT) requirements. Alfio subsequently sold metal
to customers outside of the State, but did not pay the required VAT
on those transactions. In July 2002, Alumínio received an
assessment from State auditors on the theory that Alumínio
should be jointly and severally liable with Alfio for the unpaid
VAT. In June 2003, the administrative tribunal found Alumínio
liable, and Alumínio filed a judicial case in the State in
February 2004 contesting the finding. In May 2005, the Court
of First Instance found Alumínio solely liable, and a panel of
a State appeals court confirmed this finding in April
2006. Alumínio filed a special appeal to the Superior
Tribunal of Justice (STJ) in Brasilia (the federal capital of
Brazil) later in 2006. In 2011, the STJ (through one of its
judges) reversed the judgment of the lower courts, finding that
Alumínio should neither be solely nor jointly and severally
liable with Alfio for the VAT, which ruling was then appealed by
the State. In August 2012, the STJ agreed to have the case
reheard before a five-judge panel. On February 21, 2017,
the lead judge of the STJ issued a ruling confirming that
Alumínio should be held liable in this matter. On
March 16, 2017, Alumínio filed an appeal to have its case
reheard before the five-judge panel as originally agreed to by the
STJ in August 2012. At June 30, 2017, the assessment,
including penalties and interest, totaled $44 (R$145). While Alcoa
Corporation believes it has meritorious defenses, the Company is
unable to reasonably predict the ultimate outcome for this
matter.
Other
In connection with ParentCo’s sale in 2001 of Reynolds Metals
Company’s (“Reynolds,” a subsidiary of Alcoa
Corporation), alumina refinery in Gregory, Texas, Reynolds assigned
an Energy Services Agreement (“ESA”) with Gregory Power
Partners (“Gregory Power”) for purchase of steam and
electricity by the refinery. On January 11, 2016, Sherwin
Alumina Company, LLC (“Sherwin”), the current owner of
the refinery, and one of its affiliate entities, filed bankruptcy
petitions in Corpus Christi, Texas for reorganization under Chapter
11 of the Bankruptcy Code. On January 26, 2016, Gregory
Power delivered notice to Reynolds that Sherwin’s bankruptcy
filing constitutes a breach of the ESA; on January 29, 2016,
Reynolds responded that the filing does not constitute a
breach. Sherwin informed the bankruptcy court that it intends
to cease operations because it is not able to continue its bauxite
supply agreement, and, thereafter, Gregory Power filed a complaint
in the bankruptcy case against Reynolds alleging breach of the ESA.
In response to this complaint, Reynolds filed both a motion to
dismiss, including a jury demand, and a motion to withdraw the
reference to the bankruptcy court based on the jury demand. On
July 18, 2017, the district court ordered that any trial would
be held to a jury in district court, but that the bankruptcy court
would retain jurisdiction on all pre-trial matters. This matter is
neither estimable nor probable; therefore, at this time, Alcoa
Corporation is unable to reasonably predict the ultimate
outcome.
On October 4, 2016, the state of Texas filed suit against
Sherwin in the bankruptcy proceeding seeking to hold Sherwin
responsible for remediation of alleged environmental conditions at
the facility. On October 11, 2016, Sherwin filed a
similar suit against Reynolds in the case. On November 10,
2016, Reynolds filed motions to dismiss the Gregory Power complaint
and to withdraw the case from bankruptcy court. On
November 23, 2016, the bankruptcy court approved
Sherwin’s plans for cessation of its operations. On
February 16, 2017, Sherwin filed a bankruptcy Chapter 11 Plan
and on February 17, 2017 the court approved that Plan. As
provided in the Plan, Sherwin, including certain affiliated
companies, and Reynolds are negotiating a settlement to allocate
among them ownership of and responsibility for certain areas of the
refinery. On July 12, 2017, the bankruptcy court entered a
stipulation by the parties further extending the time to negotiate
and file a settlement through August 28, 2017 (previous date
was June 27, 2017).
General
In addition to the matters discussed above, various other lawsuits,
claims, and proceedings have been or may be instituted or asserted
against Alcoa Corporation, including those pertaining to
environmental, product liability, safety and health, contract
dispute, and tax matters, and other actions and claims arising out
of the normal course of business. While the amounts claimed in
these other matters may be substantial, the ultimate liability
cannot now be determined because of the considerable uncertainties
that exist. Therefore, it is possible that the Company’s
liquidity or results of operations in a particular period could be
materially affected by one or more of these other matters. However,
based on facts currently available, management believes that the
disposition of these other matters that are pending or asserted
will not have a material adverse effect, individually or in the
aggregate, on the financial position of the Company.
Commitments
Investments
Alcoa Corporation has an investment in a joint venture related to
the ownership and operation of an integrated aluminum complex
(bauxite mine, alumina refinery, aluminum smelter, and rolling
mill) in Saudi Arabia. The joint venture is owned 74.9% by the
Saudi Arabian Mining Company (known as “Ma’aden”)
and 25.1% by Alcoa Corporation and consists of three separate
companies as follows: one each for the mine and refinery, the
smelter, and the rolling mill. Alcoa Corporation accounts for its
investment in the joint venture under the equity method. As of
June 30, 2017 and December 31, 2016, the carrying value
of Alcoa Corporation’s investment in this joint venture was
$877 and $853, respectively.
Capital investment in the project is expected to total
approximately $10,800 (SAR 40.5 billion) and has been funded
through a combination of equity contributions by the joint venture
partners and project financing obtained by the joint venture
companies, which has been partially guaranteed by both partners
(see below). Both the equity contributions and the guarantees of
the project financing are based on the joint venture’s
partners’ ownership interests. Originally, it was estimated
that Alcoa Corporation’s total equity contribution in the
joint venture related to the capital investment in the project
would be approximately $1,100, of which Alcoa Corporation has
contributed $982. Based on changes to both the project’s
capital investment and equity and debt structure from the initial
plans, the estimated $1,100 equity contribution may be reduced.
Separate from the capital investment in the project, Alcoa
Corporation contributed $11 and $36 (Ma’aden contributed $33
and $108) to the joint venture in the 2017 second quarter and
six-month period, respectively, for short-term funding purposes in
accordance with the terms of the joint venture companies’
financing arrangements. Both partners may be required to make such
additional contributions in future periods.
The smelting and rolling mill companies have project financing
totaling $4,038 (reflects principal repayments made through
June 30, 2017), of which $1,014 represents Alcoa
Corporation’s share (the equivalent of Alcoa
Corporation’s 25.1% interest in the smelting and rolling mill
companies). Alcoa Corporation has issued guarantees (see below) to
the lenders in the event that the smelting and rolling mill
companies default on their debt service requirements through 2017
and 2020 for the smelting company and 2018 and 2021 for the rolling
mill company (Ma’aden issued similar guarantees for its 74.9%
interest). Alcoa Corporation’s guarantees for the smelting
and rolling mill companies cover total debt service requirements of
$94 in principal and up to a maximum of approximately $20 in
interest per year (based on projected interest rates). At both
June 30, 2017 and December 31, 2016, the combined fair
value of the guarantees was $3, which was included in Other
noncurrent liabilities and deferred credits on the accompanying
Consolidated Balance Sheet.
The mining and refining company has project financing totaling
$2,192, of which $550 represents AWAC’s 25.1% interest in the
mining and refining company. Alcoa Corporation, on behalf of AWAC,
has issued guarantees (see below) to the lenders in the event that
the mining and refining company defaults on its debt service
requirements through 2019 and 2024 (Ma’aden issued similar
guarantees for its 74.9% interest). Alcoa Corporation’s
guarantees for the mining and refining company cover total debt
service requirements of $120 in principal and up to a maximum of
approximately $20 in interest per year (based on projected interest
rates). At both June 30, 2017 and December 31, 2016, the
combined fair value of the guarantees was $3, which was included in
Other noncurrent liabilities and deferred credits on the
accompanying Consolidated Balance Sheet. In the event Alcoa
Corporation would be required to make payments under the
guarantees, 40% of such amount would be contributed to |
