| Contingencies and Commitments | N. Contingencies and
Commitments Contingencies Litigation Alba
Matter Civil Suit. On October 9, 2012,
the Alcoa Parties, without admitting any liability, entered into a
settlement agreement with Alba. The agreement called for AWA to pay
Alba $85 in two equal installments, one-half at time of settlement
and one-half one year later, and for the case against the Alcoa
Parties to be dismissed with prejudice. Additionally, AWA and Alba
entered into a long-term alumina supply agreement. On
October 9, 2012, pursuant to the settlement agreement, AWA
paid Alba $42.5, and all claims against the Alcoa Parties were
dismissed with prejudice. On October 9, 2013 pursuant to the
settlement agreement, AWA paid the remaining $42.5. Based on the
settlement agreement, in the 2012 third quarter, Alcoa recorded a
$40 charge in addition to the $45 charge it recorded in the 2012
second quarter in respect of the suit (see Agreement with Alumina
Limited below). Government
Investigations. In the past year, Alcoa had
been seeking settlements of both investigations. In the second
quarter of 2013, Alcoa proposed to settle the DOJ matter by
offering the DOJ a cash payment of $103. Based on this offer, Alcoa
recorded a charge of $103 in the 2013 second quarter. Also in the
second quarter of 2013, Alcoa exchanged settlement offers with the
SEC. However, the SEC staff rejected Alcoa’s offer of $60 and
no charge was recorded. During the remainder of 2013, settlement
discussions with both the DOJ and the SEC continued. On January 9, 2014,
Alcoa resolved the investigations by the DOJ and the SEC. The
settlement with the DOJ was reached with AWA. Under the terms of a
plea agreement entered into with the DOJ, effective January 9,
2014, AWA pled guilty to one count of violating the anti-bribery
provisions of the Foreign Corrupt Practices Act of 1977, as amended
(the “FCPA”). As part of the DOJ resolution, AWA agreed
to pay a total of $223, including a fine of $209 payable in five
equal installments over four years. The first installment of $41.8,
plus a one-time administrative forfeiture of $14, was paid in the
first quarter of 2014, the second installment of $41.8 was paid in
the first quarter of 2015, and the remaining installments of $41.8
each will be paid in the first quarters of 2016 through 2018 (the
third installment was paid on January 8, 2016). The DOJ is
bringing no case against Alcoa Inc. Effective January 9,
2014, the Company also settled civil charges filed by the SEC in an
administrative proceeding relating to the anti-bribery, internal
controls, and books and records provisions of the FCPA. Under the
terms of the settlement with the SEC, the Company agreed to a
settlement amount of $175, but will be given credit for the $14
one-time There was no allegation in
the filings by the DOJ and there was no finding by the SEC that
anyone at Alcoa Inc. knowingly engaged in the conduct at
issue. Based on the resolutions
with both the DOJ and SEC, in the 2013 fourth quarter, Alcoa
recorded a $288 charge, which includes legal costs of $7, in
addition to the $103 charge it recorded in the 2013 second quarter
in respect of the investigations (see Agreement with Alumina
Limited below).
Agreement with Alumina
Limited. In October 2012, Alcoa and
Alumina Limited entered into an agreement to allocate the costs of
the Alba civil settlement and all legal fees associated with this
matter (including the government investigations discussed above)
between Alcoa and Alumina Limited on an 85% and 15% basis,
respectively, but this would occur only if a settlement is reached
with the DOJ and the SEC regarding their investigations. As such,
the $85 civil settlement in 2012 and all legal costs associated
with the civil suit and government investigations incurred prior to
2013 were allocated on a 60% and 40% basis in the respective
periods on Alcoa’s Statement of Consolidated Operations. As a
result of the resolutions of the government investigations, the
$384 charge and legal costs incurred in 2013 were allocated on an
85% and 15% basis per the allocation agreement with Alumina
Limited. Additionally, the $85 civil settlement from 2012 and all
legal costs associated with the civil suit and government
investigations incurred prior to 2013 were reallocated on the 85%
and 15% basis. The following table details the activity related to
the Alba matter:
2013 2012
Alcoa
Alumina
Total
Alcoa
Alumina
Total
Government
investigations (1) $ 326 $ 58 $ 384 $ - $ - $ -
Civil
suit (1) - - - 51 34 85
Reallocation of civil
suit 21 (21 ) - - - -
Reallocation of legal
costs
20
(20 )
-
-
-
-
Loss before income
taxes 367 17 384 51 34 85
Benefit for income
taxes
66
-
66
18
-
18
Net loss (2)
$ 301
$ 17
$ 318
$ 33
$ 34
$ 67
(1)
The amount in the Total column was recorded in Restructuring
and other charges (see Note D).
(2)
In 2013 and 2012, the amount for Alcoa was included in Net
(loss) income attributable to Alcoa, and the amount for Alumina
Limited was included in Net income (loss) attributable to
noncontrolling interests. Other
Matters 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 Alcoa and Glencore
Ltd. (“Glencore”) with respect to claimed obligations
under a 1995 asset purchase agreement between Alcoa and Glencore.
The dispute arose from Glencore’s demand that Alcoa 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 Alcoa indemnify and defend it in the
Lockheed case and threatened to claim over against Alcoa 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 Alcoa 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, Alcoa’s motion was granted and Glencore’s motion
was denied resulting in Alcoa not being liable to indemnify
Glencore for the Lockheed action. On February 17, 2016,
Glencore filed notice of its application for interlocutory appeal
of the February 8 ruling. AWA and SCA have 10 days to respond. At
this time, the Company is unable to reasonably predict the ultimate
outcome for this matter. Before 2002, Alcoa
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, Alcoa 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. Alcoa challenged the new regulation in the
Administrative Court of Milan and received a favorable judgment in
2006. Following this ruling, Alcoa 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 Alcoa, thus presenting the opportunity for the energy
regulators to seek reimbursement from Alcoa 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, Alcoa filed its appeal of the decision of
the Consiglio di Stato (this appeal was subsequently withdrawn in
March 2013). On March 26, 2012, Alcoa 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, Alcoa 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, Alcoa received a
revised request letter from CSSE demanding Alcoa’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). Alcoa has rejected that demand and
has 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 this date, the
Administrative Court listened to Alcoa’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 Alcoa 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; however, a date for
the hearing has not been scheduled. As a result of the conclusion
of the European Commission Matter on January 26, 2016
described below, management has 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 on the accompanying Statement of
Consolidated Operations to establish a partial reserve for this
matter. At this time, the Company is unable to reasonably predict
the ultimate outcome for this matter. European Commission
Matter. energy-intensive
On November 19, 2009,
the EC announced a decision in this matter stating that the
extension of the tariff by Italy constituted unlawful state aid, in
part, and, therefore, the Italian Government is to recover a
portion of the benefit Alcoa received since January 2006 (including
interest). The amount of this recovery was to be based on a
calculation prepared by the Italian Government (see below). In late
2009, after discussions with legal counsel and reviewing the bases
on which the EC decided, including the different considerations
cited in the EC decision regarding Alcoa’s two smelters in
Italy, Alcoa recorded a charge of $250 (€173), which included
$20 (€14) to write off a receivable from the Italian
Government for amounts due under the now expired tariff structure
and $230 (€159) to establish a reserve. On
April 19, 2010, Alcoa filed an appeal of this decision with
the General Court of the EU (see below). Prior to 2012, Alcoa was
involved in other legal proceedings related to this matter that
separately sought the annulment of the EC’s July 2006
decision to open an investigation alleging that such decision did
not follow the applicable procedural rules and requested injunctive
relief to suspend the effectiveness of the EC’s
November 19, 2009 decision. However, the decisions by the
General Court, and subsequent appeals to the European Court of
Justice, resulted in the denial of these remedies. In June 2012, Alcoa
received formal notification from the Italian Government with a
calculated recovery amount of $375 (€303); this amount was
reduced by $65 (€53) for amounts owed by the Italian
Government to Alcoa, resulting in a net payment request of $310
(€250). In a notice published in the Official Journal of the
European Union on September 22, 2012, the EC announced that it
had filed an action against the Italian Government on July 18,
2012 to compel it to collect the recovery amount (on
October 17, 2013, the European Court of Justice ordered Italy
to so collect). On September 27, 2012, Alcoa received a
request for payment in full of the $310 (€250) by
October 31, 2012. Following discussions with the Italian
Government regarding the timing of such payment, Alcoa paid the
requested amount in five quarterly installments of $69
(€50) beginning in October 2012 through December
2013. On October 16, 2014,
Alcoa received notice from the General Court of the EU that its
April 19, 2010 appeal of the EC’s November 19, 2009
decision was denied. On December 27, 2014, Alcoa filed an
appeal of the General Court’s October 16, 2014 ruling to
the European Court of Justice (ECJ). Following submission of the
EC’s response to the appeal, on June 10, 2015, Alcoa
filed a request for an oral hearing before the ECJ; no decision on
that request was received. On January 26, 2016, Alcoa was
informed that the ECJ had dismissed Alcoa’s December 27,
2014 appeal of the General Court’s October 16, 2014
ruling. The dismissal of Alcoa’s appeal represents the
conclusion of the legal proceedings in this matter. Prior to this
dismissal, Alcoa had a noncurrent asset of $100
(€91) reflecting the excess of the total of the five
payments made to the Italian Government over the reserve recorded
in 2009. As a result, this noncurrent asset, along with the $58
(€53) for amounts owed by the Italian Government to
Alcoa mentioned above plus $6 (€6) for interest
previously paid, was written-off. A charge of $164
(€150) was recorded in Restructuring and other charges
for the year ended December 31, 2015 on the accompanying
Statement of Consolidated Operations (see Note D). As a result of the
EC’s November 19, 2009 decision, management had
contemplated ceasing operations at its Italian smelters due to
uneconomical power costs. In February 2010, management agreed to
continue to operate its smelters in Italy for up to six months
while a long-term solution to address increased power costs could
be negotiated. Over a portion of this time, a long-term solution
was not able to be reached related to the Fusina smelter,
therefore, in May 2010, Alcoa and the Italian Government agreed to
a temporary idling of the Fusina smelter. As of September 30,
2010, the Fusina smelter was fully curtailed (44,000
metric-tons-per-year). For the Portovesme smelter, Alcoa executed a
new power agreement effective September 1, 2010 through
December 31, 2012, replacing the short-term, market-based
power contract that was in effect since early 2010. This new
agreement along with interruptibility rights (i.e. compensation for
power interruptions when grids are overloaded) granted to Alcoa for
the Portovesme smelter provided additional time to negotiate a
long-term solution (the EC had previously determined that the
interruptibility rights were not considered state aid). At the end of 2011, as part
of a restructuring of Alcoa’s global smelting system,
management decided to curtail operations at the Portovesme smelter
during 2012 due to the uncertain prospects for viable, long-term
power, along with rising raw materials costs and falling global
aluminum prices (mid-2011 to late 2011). As of December 31,
2012, the Portovesme smelter was fully curtailed (150,000
metric-tons-per-year).
In June 2013 and August
2014, Alcoa decided to permanently shut down and demolish the
Fusina and Portovesme smelters, respectively, due to persistent
uneconomical conditions (see Note D). Environmental
Matters. 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 the
nature and extent of contamination, changes in remedial
requirements, and technological changes, among others. Alcoa’s remediation
reserve balance was $604 and $543 at December 31, 2015 and
2014 (of which $50 and $70 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 2015, the remediation
reserve was increased by $115 due to a charge of $52 related to the
planned demolition of the remaining structures at the Massena East
smelter location (see Note D), a charge of $29 related to the
planned demolition of the Poços de Caldas smelter and the
Anglesea power station (see Note D), a charge of $12 related to the
Mosjøen location (see below), a charge of $7 related to the
Portovesme location (see below), and a net charge of $15 associated
with a number of other sites. In 2014, the remediation reserve was
increased by $61 due to a charge of $42 related to the planned
demolition of certain structures at the Massena East, NY, Point
Henry and Yennora, Australia, and Portovesme, Italy locations (see
Note D), a charge of $3 related to the Portovesme location (see
below), and a net charge of $16 associated with a number of other
sites. Of the changes to the remediation reserve in 2015 and 2014,
$86 and $47, respectively, was recorded in Restructuring and other
charges, while the remainder was recorded in Cost of goods sold on
the accompanying Statement of Consolidated Operations. Payments related to
remediation expenses applied against the reserve were $43 and $46
in 2015 and 2014, respectively. These amounts include expenditures
currently mandated, as well as those not required by any regulatory
authority or third party. In 2015, the change in the reserve also
reflects a decrease of $16 due to the effects of foreign currency
translation and an increase of $5 related to the acquisition of
Firth Rixson (see Note F). In 2014, the change in the reserve also
reflects an increase of $19 due to the effects of foreign currency
translation and a reclassification of amounts included in other
reserves within Other noncurrent liabilities and deferred credits
on Alcoa’s Consolidated Balance Sheet as of December 31,
2013. 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 following discussion
provides details regarding the current status of certain
significant reserves related to current or former Alcoa
sites. Massena West,
NY—
Sherwin, TX— East St. Louis,
IL— — Fusina and Portovesme,
Italy— In December 2009,
Trasformazioni and Ligestra reached an initial agreement for
settlement of the liabilities related to Fusina 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, Alcoa 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 Alcoa,
resulting in no adjustment to the reserve. In January 2014, in
anticipation of Alcoa reaching a final administrative agreement
with the MOE, Alcoa 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, Alcoa 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. The remediation projects are slated to begin as
soon as Alcoa receives final approval from the Ministry of
Infrastructure. Based on the final agreement with Ligestra,
Alcoa’s share of all costs and payments is $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.
Separately, in 2009, due to
additional information derived from the site investigations
conducted at Portovesme, Alcoa 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. Alcoa 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, Alcoa increased the reserve by $7 in March 2015 to reflect
the increase in the estimated costs of the project. In October
2015, Alcoa received a final ministerial decree approving the
February 2015 revised soil remediation project. Work on the soil
remediation project will commence in 2016 and is expected to be
completed in 2019. Alcoa and Ligestra are now working on a final
groundwater remediation project, which will be submitted to the MOE
for review during 2016. The ultimate outcome of this matter may
result in a change to the existing reserve for
Portovesme. Baie Comeau, Quebec,
Canada— Mosjøen,
Norway— In April 2015, the NEA
notified Alcoa that the revised project was approved and required
submission of the final project design before issuing a final
order. Alcoa 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, Alcoa
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, Alcoa 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 will commence in 2016 and is expected to be completed
by the end of 2017.
Tax. 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, the Company filed an appeal of this
second assessment in Spain’s Central Tax Administrative
Court, which was denied in January 2015. The Company filed an
appeal of this second assessment in Spain’s National Court in
March 2015. The combined assessments
(remeasured for a tax rate change enacted in November
2014—see Note T) total $263 (€241). The Company
believes it has meritorious arguments to support its tax position
and intends to vigorously litigate the assessments through
Spain’s court system. However, in the event the Company is
unsuccessful, a portion of the assessments may be offset with
existing net operating losses available to the Spanish consolidated
tax group. Additionally, it is possible that the Company may
receive similar assessments for tax years subsequent to 2009. At
this time, the Company is unable to reasonably predict an outcome
for this matter. In March 2013,
Alcoa’s subsidiary, Alcoa World Alumina Brasil (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 the 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 $27 (R$103), whereby the maximum end of this 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 $30 (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, management is unable to reasonably predict
an outcome for this matter. Between 2000 and 2002,
Alcoa Alumínio (Alumínio) 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”), 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. A decision from this panel is pending,
but additional appeals are likely. At December 31, 2015, the
assessment totaled $35 (R$135), including penalties and interest.
While the Company believes it has meritorious defenses, the Company
is unable to reasonably predict an outcome.
Other. Commitments Investments. Alumínio committed to
taking a share of the output of the Machadinho and Barra Grande
projects each for 30 years and the Serra do Facão and Estreito
projects each for 26 years at cost (including cost of financing the
project). In the event that other participants in any of these
projects fail to fulfill their financial responsibilities,
Alumínio may be required to fund a portion of the deficiency.
In accordance with the respective agreements, if Alumínio
funds any such deficiency, its participation and share of the
output from the respective project will increase
proportionately. The Machadinho project
reached full capacity in 2002. Alumínio’s investment in
this project is 30.99%, which entitles Alumínio to
approximately 120 megawatts of assured power. The Machadinho
consortium is an unincorporated joint venture, and, therefore,
Alumínio’s share of the assets and liabilities of the
consortium are reflected in the respective lines on the
accompanying Consolidated Balance Sheet. The Barra Grande project
reached full capacity in 2006. Alumínio’s investment in
this project is 42.18% and is accounted for under the equity
method. This entitles Alumínio to approximately 160 megawatts
of assured power. Alumínio’s total investment in this
project was $94 (R$374) and $132 (R$355) at December 31, 2015
and 2014, respectively. The Serra do Facão
project reached full capacity in 2010. Alumínio’s
investment in this project is 34.97% and is accounted for under the
equity method. This entitles Alumínio to approximately 65
megawatts of assured power. Alumínio’s total investment
in this project was $52 (R$208) and $66 (R$178) at
December 31, 2015 and 2014, respectively. The Estreito project
reached full capacity in March 2013. Alumínio’s
investment in this project is 25.49%, which entitles Alumínio
to approximately 150 megawatts of assured power. The Estreito
consortium is an unincorporated joint venture, and, therefore,
Alumínio’s share of the assets and liabilities of the
consortium are reflected in the respective lines on the
accompanying Consolidated Balance Sheet. As of December 31,
2015, construction of the Estreito project is essentially
complete. Prior to October 2013,
Alumínio’s power self-sufficiency satisfied
approximately 70% of a total energy demand of approximately 690
megawatts from two smelters (São Luís (Alumar) and
Poços de Caldas) and one refinery (Poços de Caldas) in
Brazil. Since that time, the total energy demand has declined by
approximately 675 megawatts due to capacity curtailments of both
smelters in both 2013 and 2014, as well as the eventual permanent
closure of the Poços de Caldas smelter in 2015.
In 2004, Alcoa acquired a
20% interest in a consortium, which subsequently purchased the
Dampier to Bunbury Natural Gas Pipeline (DBNGP) in Western
Australia, in exchange for an initial cash investment of $17
(A$24). The investment in the DBNGP, which is classified as an
equity investment, was made in order to secure a competitively
priced long-term supply of natural gas to Alcoa’s refineries
in Western Australia. Alcoa made additional contributions of $141
(A$176) for its share of the pipeline capacity expansion and other
operational |
