Alcoa 2009 Annual Report Download - page 110

Power for the refinery, smelter, and rolling mill will be supplied under a gas allocation letter from Saudi Aramco, based
on authorization of the Ministry of Petroleum and Mineral Resources of Saudi Arabia (the “Ministry of Petroleum”). The
gas allocation letter provides for gas to be tolled and power to be supplied to the refinery, smelter, and rolling mill from an
adjacent power and water desalination plant being constructed by the government of Saudi Arabia, with the major tolling
elements fixed at cost. The gas allocation is contingent on the finalization of implementing contractual arrangements and
on the achievement of certain milestones, as defined in the joint venture shareholders’ agreement, and includes possible
penalties if the milestones are not met, including the following: (i) potential forfeiture of a $350 letter of credit required to
be provided to the Ministry of Petroleum by Ma’aden (with Alcoa and Aluminum Financing Limited responsible for their
pro rata share) to ensure completion of the refinery, (ii) potential forfeiture of the gas allocation if the smelter is not
completed, and (iii) a potential requirement for the smelter to allocate 275 kmt of aluminum to other entities determined
by the Ministry of Petroleum if the rolling mill is not constructed.
The parties subject to the joint venture shareholders’ agreement and the SPV agreement may not sell, transfer, or
otherwise dispose of, pledge, or encumber any interests in the joint venture or SPV until certain milestones have been
met as defined in both agreements. Under the joint venture shareholders’ agreement, upon the occurrence of an
unremedied event of default by Alcoa, Ma’aden may purchase, or, upon the occurrence of an unremedied event of
default by Ma’aden, Alcoa may sell, its interest for consideration that varies depending on the time of the default.
Under the SPV agreement, upon the occurrence of an unremedied event of default by Aluminum Financing Limited,
Alcoa may purchase its interest for consideration that varies depending on the time of the default, and, upon the
occurrence of an unremedied event of default by Alcoa, Alcoa’s right to receive distributions will be suspended.
On February 1, 2008, Alcoa joined with the Aluminum Corporation of China (Chinalco) to acquire 12% of the U.K.
common stock of Rio Tinto plc (RTP) for approximately $14,000. The investment was made through a special purpose
vehicle called SPPL, which is a private limited liability company, created solely for the purpose of acquiring the RTP
shares. The RTP shares were purchased by SPPL in the open market through an investment broker. On February 6,
2008, Alcoa contributed $1,200 of the $14,000 through the purchase of a Convertible Senior Secured Note (the “Note”)
executed on January 30, 2008 by SPPL which was convertible into approximately 8.5% of the equity shares of SPPL.
Alcoa’s investment in SPPL through the Note was in-substance an investment in common stock of SPPL. Additionally,
investments of three to five percent or greater in limited liability companies that are essentially equivalent to
partnerships are considered to be more than minor, and, therefore, are accounted for under the equity method. As a
result, Alcoa accounted for its $1,200 investment in SPPL as an equity method investment. In 2008, Alcoa recorded
$14 in equity income, which represents Alcoa’s share of the semiannual dividends that SPPL received as a shareholder
of RTP. Also, Alcoa recorded an unrealized loss in other comprehensive income of $427 ($658 pretax) in 2008,
representing its share of SPPL’s total unrealized loss related to the decrease in fair value of the RTP shares, which are
accounted for as available-for-sale securities by SPPL.
On February 12, 2009, Alcoa and Chinalco entered into an agreement in which Chinalco redeemed the Note. Under
this agreement, Alcoa received $1,021 in cash in three installments over a six-month period ending July 31, 2009. This
amount was reflected in Sales of investments on the accompanying Statement of Consolidated Cash Flows. As a result
of this transaction, Alcoa realized a loss of $182 ($118 after-tax), which was reflected in Other income, net on the
accompanying Statement of Consolidated Operations, and reversed the unrealized loss that had been recognized in
Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheet since the initial investment
was made.
Effective June 1, 2007, Alcoa completed the formation of a joint venture with Orkla’s SAPA Group (Sapa) combining
Alcoa’s soft alloy extrusion business (excluding three facilities each in the U.S. (separately sold or shutdown in 2007)
and Brazil) with Sapa’s Profiles extruded aluminum business. The new joint venture was named Sapa AB, and, as of
December 31, 2008, Alcoa’s ownership percentage in the joint venture was 45.45% and the carrying value of the
investment was $475. The equity income from Alcoa’s ownership share was reflected in Corporate. Prior to June 1,
2007, the assets and liabilities of Alcoa’s soft alloy extrusion business were classified as held for sale.
In December 2008, Alcoa entered into an agreement with Orkla to exchange their stakes in the Sapa AB and Elkem
joint ventures. As a result of this agreement, in 2008, Alcoa recorded a charge of $333 ($223 after-tax) in Restructuring
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