Alcoa 2010 Annual Report Download - page 120

company provided evidence that prices paid by energy-intensive consumers were in line with the market, in addition to
various legal arguments defending the legality of the Spanish tariff system. It is Alcoa’s understanding that the Spanish
tariff system for electricity is in conformity with all applicable laws and regulations, and therefore no state aid is
present in the tariff system. While Alcoa does not believe that an unfavorable decision is probable, management has
estimated that the total potential impact from an unfavorable decision could be in the range of $50 to $100 (€40 to €70)
pretax. Also, while Alcoa believes that any additional cost would only be assessed for the year 2005, it is possible that
the EC could extend its investigation to later years. A decision by the EC is expected in 2011. If the EC’s investigation
concludes that the regulated electricity tariffs for industries are unlawful, Alcoa will have an opportunity to challenge
the decision in the EU courts.
Environmental Matters. Alcoa continues to participate in environmental assessments and cleanups at a number of
locations. These include 30 owned or operating facilities and adjoining properties, 31 previously owned or operating
facilities and adjoining properties, and 69 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 or damages 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 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, among others.
Alcoa’s remediation reserve balance was $333 and $307 at December 31, 2010 and 2009 (of which $31 and $27 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 2010, the remediation reserve was increased by $46 due to
charges of $19 related to the Massena West, NY site discussed below, $14 related to the decision to permanently
shutdown and demolish two U.S. smelters (see Note D), and $11 related to a settlement offer made in late 2010 for
outstanding claims resulting from historical discharges into nearby rivers from both smelters in Massena, NY (separate
from matter below); a reversal of $9 for previous charges related to a facility located in Russia due to new information;
and a net increase of $11 associated with a number of other sites. In 2009, the remediation reserve was increased by
$25 due to a charge of $15 related to two sites in Italy discussed below and a net increase of $10 associated with a
number of other sites. In both periods, the changes to the remediation reserve, except for the aforementioned $14, were
recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. Payments related to
remediation expenses applied against the reserve were $17 and $34 in 2010 and 2009, respectively. These amounts
include expenditures currently mandated, as well as those not required by any regulatory authority or third party. The
change in the 2010 reserve also reflects a decrease of $3 due to the effects of foreign currency translation.
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. It is possible that Alcoa’s financial position, liquidity, or results of operations, in a particular
period, could be materially affected by matters relating to these sites. However, based on facts currently available,
management believes that adequate reserves have been provided and that the disposition of these matters will not have
a materially adverse effect on the financial position, liquidity, or the results of operations of the Company.
Massena West, NY—Alcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoa’s
Massena plant site, under a 1989 order from the U.S. Environmental Protection Agency (EPA) issued under CERCLA.
Sediments and fish in the river contain varying levels of polychlorinated biphenyls (PCBs).
Alcoa submitted various Analysis of Alternatives Reports to the EPA starting in 1998 through 2002 that reported the
results of river and sediment studies, potential alternatives for remedial actions related to the PCB contamination, and
additional information requested by the EPA.
112