Alcoa 1999 Annual Report Download - page 56

The following table summarizes by major currency the contractual
amounts of Alcoa’s forward exchange and option contracts translated
to U.S. dollars at December 31 rates. The ‘‘buy’’ amounts represent
the U.S. dollar equivalent of commitments to purchase foreign curren-
cies, and the ‘‘sell’’ amounts represent the U.S. dollar equivalent of
commitments to sell foreign currencies.
1999
Buy Sell
1998
Buy Sell
Australian dollar $1,447 $ 4 $1,751 $211
Canadian dollar 98 8 230 129
Dutch guilder ——135 22
Japanese yen 6—109 14
Deutsche mark 22122 69
Pound sterling ——30 70
Other ——35 36
$1,553 $33 $2,312 $551
Interest Rate Swaps. Alcoa manages its debt portfolio by using
interest rate swaps and options to achieve an overall desired position
of fixed and floating rates. As of December 31, 1999, the company
had the following interest rate swap contracts outstanding:
⬎Four interest rate swap contracts relating to Alcoa’s 5.75% notes
that mature in 2001. The swaps convert $175 notional amount from
fixed rates to floating rates and mature in 2001.
⬎Five interest rate swap contracts relating to Alcoa Fujikura’s
variable rate loan. These agreements convert the variable rate to a
fixed rate on a notional amount of $198 and mature in 2002.
In addition to the above, Aluminio has a number of cross-
currency interest rate swap contracts, relating to deposit accounts,
that primarily convert local currency floating rates to dollar fixed
rates, on a notional amount of $257.
Alcoa utilizes cross-currency rate swaps to take advantage of
international debt markets. At year-end 1999, Alcoa had in place $60
of cross-currency interest rate swaps that effectively convert U.S.
dollar-denominated debt into liabilities in yen based on Japanese
interest rates.
Based on current interest rates for similar transactions, the fair
value of all interest rate swap agreements is not material.
Credit and market risk exposures are limited to the net interest
differentials. The net payments or receipts from interest rate swaps
are recorded as part of interest expense and are not material. The
effect of interest rate swaps on Alcoa’s composite interest rate on
long-term debt was not material at the end of 1999 or 1998.
Alcoa is exposed to credit loss in the event of nonperformance by
counterparties on the above instruments, but does not anticipate
nonperformance by any of the counterparties.
For further information on Alcoa’s hedging and derivatives
activities, see Note A.
U. Environmental Matters
Alcoa continues to participate in environmental assessments
and cleanups at a number of locations. These include approxi-
mately 10 owned or operating facilities and adjoining properties,
approximately 10 previously owned or operated facilities and
adjoining properties and approximately 65 Superfund and other
waste sites. A liability is recorded for environmental remediation
costs or damages when a cleanup program becomes probable and
the costs or damages can be reasonably estimated. See Note A for
additional information.
Asassessmentsandcleanupsproceed,theliabilityisadjusted
basedonprogressindeterminingtheextentofremedialactionsand
related costs and damages. The liability can change substantially due
to factors such as the nature and extent of contamination, changes
in remedial requirements and technological changes. Therefore, it is
not possible to determine the outcomes or to estimate with any
degree of accuracy the potential costs for certain of these matters.
For example, there are issues related to the Massena, New York,
and Pt. Comfort, Texas sites that allege natural resource damage or
off-site contaminated sediments, where investigations are ongoing.
The following discussion provides additional details regarding the
current status of these two sites.
Massena/Grasse River. Sediments and fish in the Grasse River
adjacent to Alcoa’s Massena, New York plant site contain varying
levels of polychlorinated biphenyl
(PCB) . Alcoa has been identified by
the U.S. Environmental Protection Agency (EPA) as potentially respon-
sible for this contamination and, since 1989, has been conducting
investigations and studies of the river under order from the
EPA issued
under the Comprehensive Environmental Response, Compensation
and Liability Act, also known as Superfund.
During 1999, Alcoa continued to perform studies and investigations
on the Grasse River. A planned pilot test of certain sediment capping
techniques, intended for 1999, could not be completed because a final
scopeofworkcouldnotbedevelopedwith
EPA in time to complete
the project before the construction season concluded. In addition, in
the 1999 fourth quarter, Alcoa submitted an Analysis of Alternatives
to EPA . This report identified potential courses of remedial action
related to the PCB contamination of the river. Alcoa has proposed to
EPA that the planned pilot scale tests be conducted to assess the
feasibility of performing certain sediment-covering techniques before
selection and approval of a remedial alternative by
EPA .Thecosts
of these pilot scale tests have been fully reserved. The results of
these tests and discussions with
EPA regarding all of the alternatives
identified should provide additional information for the selection
and approval of the appropriate remedial alternative. Alcoa intends
to seek
EPA approvalforthepilottestsinthefirsthalfof2000.
The Analysis of Alternatives report and the results of the pilot
tests must be reviewed and approved by
EPA .Currently,noone
of the alternatives is more likely to be selected than any other. The
range of additional costs associated with the potential courses
of remedial action is between zero and $53. Alcoa is also aware
of a natural resource damage claim that may be asserted by certain
federal, state and tribal natural resource trustees at this location.