Alcoa 2011 Annual Report Download - page 114

Limited would each have had a 20% economic interest in the joint venture. Aluminum Financing Limited’s investment
was in the form of subordinated, participating convertible notes issued by the SPV (the “Notes”), which had common
equity rights in the SPV, and were to be converted into permanent equity at a future date based on certain conditions as
defined in the underlying SPV agreement.
Following the signing of the joint venture shareholders’ agreement, Alcoa paid Ma’aden $80 representing the initial
investment of the 40% interest in the project. This investment was included in Additions to investments on the
accompanying Statement of Consolidated Cash Flows. Aluminum Financing Limited’s 50% share of the $80 was
reflected as Convertible securities of subsidiary on the Consolidated Balance Sheet and in Contributions from
noncontrolling interests on the accompanying Statement of Consolidated Cash Flows.
In March 2010, Alcoa and Ma’aden executed a supplement to the joint venture shareholders’ agreement and modified
the ownership structure such that the joint venture is now owned 74.9% by Ma’aden and 25.1% by Alcoa (Aluminum
Financing Limited is no longer a participant). Concurrent with modifying the joint venture shareholders’ agreement
with Ma’aden, Alcoa entered into an agreement with Aluminum Financing Limited under which Alcoa redeemed the
$40 in Notes, and Aluminum Financing Limited terminated all of its current and future interests in the SPV, for a
payment of $60. This $60 was included in Acquisitions of noncontrolling interests on the accompanying Statement of
Consolidated Cash Flows. The difference between the redemption amount and the carrying value of the Notes was
reflected as a reduction in Additional capital on the accompanying Consolidated Balance Sheet.
Going forward, Ma’aden and Alcoa will have put and call options, respectively, whereby Ma’aden can require Alcoa to
purchase from Ma’aden, or Alcoa can require Ma’aden to sell to Alcoa, a 14.9% interest in the joint venture at the then
fair market value. These options may only be exercised in a six-month window that opens five years after the
Commercial Production Date (as defined in the joint venture shareholders’ agreement) and, if exercised, must be
exercised for the full 14.9% interest. In addition, Alcoa paid $22 and $34 to Ma’aden in 2011 and 2010, respectively,
representing Alcoa’s pro rata share of certain agreed upon pre-incorporation costs incurred by Ma’aden before
formation of the joint venture.
The Alcoa affiliate that holds Alcoa’s interests in the smelting company and the rolling mill company is wholly owned
by Alcoa, and the Alcoa affiliate that holds Alcoa’s interests in the mining and refining company is wholly owned by
Alcoa World Alumina and Chemicals (AWAC), which is owned 60% by Alcoa and 40% by Alumina Limited. Except
in limited circumstances, Alcoa may not sell, transfer or otherwise dispose of or encumber or enter into any agreement
in respect of the votes or other rights attached to its interests in the joint venture without Ma’aden’s prior written
consent.
A number of Alcoa employees perform various types of services for the smelting, rolling mill, and refining and mining
companies as part of the construction of the fully-integrated aluminum complex. At December 31, 2011, Alcoa has an
outstanding receivable of $25 from the smelting, rolling mill, and refining and mining companies for labor and other
employee-related expenses.
Capital investment in the project is expected to total approximately $10,800 (SAR 40.5 billion). As a result of the
changes in the ownership structure described above, Alcoa’s equity investment in the joint venture will be
approximately $1,100 over a four-year period, and Alcoa will be responsible for its pro rata share of the joint venture’s
project financing. During 2011 and 2010, Alcoa contributed $249 and $160, respectively, towards the $1,100
commitment. As of December 31, 2011 and 2010, the carrying value of Alcoa’s investment in this project, including
the initial investment and respective pre-incorporation costs, was $565 and $285, respectively.
In late 2010, the smelting and rolling mill companies entered into project financing totaling $4,035, of which $1,013
represents Alcoa’s share (the equivalent of Alcoa’s 25.1% interest in the smelting and rolling mill companies). In
conjunction with the financing, Alcoa issued guarantees on behalf of the smelting and rolling mill companies to the
lenders in the event that such companies default on their debt service requirements through June 2017 and December
2018, respectively, (Ma’aden issued similar guarantees for its 74.9% interest). Alcoa’s guarantees for the smelting and
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