Alcoa 2009 Annual Report Download - page 45

observations and comments to the EC. With respect to the energy-intensive consumers, the EC opened the
investigation on the assumption that prices paid under the tariff in 2005 were lower than the pool price mechanism,
therefore being, in principle, artificially below market conditions. Alcoa submitted comments in which the 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. Alcoa believes that the total potential impact from an unfavorable decision would be approximately
$12 million (€8 million) pre-tax. 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 2010. 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.
As previously reported, on February 27, 2008, Alcoa Inc. received notice that Aluminium Bahrain B.S.C. (Alba) had
filed suit against Alcoa Inc. and Alcoa World Alumina LLC (collectively, “Alcoa”), and others, in the U.S. District
Court for the Western District of Pennsylvania (the “Court”), Civil Action number 08-299, styled Aluminium Bahrain
B.S.C. v. Alcoa Inc., Alcoa World Alumina LLC, William Rice, and Victor Phillip Dahdaleh. The complaint alleges
that certain Alcoa entities and their agents, including Victor Phillip Dahdaleh, have engaged in a conspiracy over a
period of 15 years to defraud Alba. The complaint further alleges that Alcoa and its employees or agents (1) illegally
bribed officials of the government of Bahrain and (or) officers of Alba in order to force Alba to purchase alumina at
excessively high prices, (2) illegally bribed officials of the government of Bahrain and (or) officers of Alba and issued
threats in order to pressure Alba to enter into an agreement by which Alcoa would purchase an equity interest in Alba,
and (3) assigned portions of existing supply contracts between Alcoa and Alba for the sole purpose of facilitating
alleged bribes and unlawful commissions. The complaint alleges that Alcoa and the other defendants violated the
Racketeer Influenced and Corrupt Organizations Act (RICO) and committed fraud. Alba’s complaint seeks
compensatory, consequential, exemplary, and punitive damages, rescission of the 2005 alumina supply contract, and
attorneys’ fees and costs. Alba seeks treble damages with respect to its RICO claims.
On February 26, 2008, Alcoa Inc. had advised the U.S. Department of Justice (the DOJ) and the Securities and
Exchange Commission (the SEC) that it had recently became aware of these claims, had already begun an internal
investigation, and intended to cooperate fully in any investigation that the DOJ or the SEC may commence. On
March 17, 2008, the DOJ notified Alcoa that it had opened a formal investigation and Alcoa has been cooperating with
the government.
In response to a motion filed by the DOJ on March 27, 2008, the Court ordered the suit filed by Alba to be
administratively closed and that all discovery be stayed to allow the DOJ to fully conduct an investigation without the
interference and distraction of ongoing civil litigation. The Court further ordered that the case will be reopened at the
close of the DOJ’s investigation. The company is unable to reasonably predict an outcome or to estimate a range of
reasonably possible loss.
As previously reported, on July 21, 2008, the Teamsters Local #500 Severance Fund and the Southeastern
Pennsylvania Transportation Authority filed a shareholder derivative suit in the civil division of the Court of Common
Pleas of Allegheny County, Pennsylvania against certain officers and directors of Alcoa claiming breach of fiduciary
duty, gross mismanagement, and other violations. This derivative action stems from the previously disclosed civil
litigation brought by Aluminium Bahrain B.S.C. (Alba) against Alcoa, Alcoa World Alumina LLC, Victor Phillip
Dahdaleh, and others, and the subsequent investigation of Alcoa by the DOJ and the SEC with respect to Alba’s claims.
This derivative action claims that the defendants caused or failed to prevent the matters alleged in the Alba lawsuit.
The Alba suit and the corresponding investigation are more fully described above. The director defendants filed a
motion to dismiss on November 21, 2008. On September 3, 2009, a hearing was held on Alcoa’s motion and, on
October 12, 2009, the court issued its order denying Alcoa’s motion to dismiss but finding that a derivative action
during the conduct of the DOJ investigation and pendency of the underlying complaint by Alba would be contrary to
the interest of shareholders and, therefore, stayed the case until further order of the court. This derivative action is in its
preliminary stages and the company is unable to reasonably predict an outcome or to estimate a range of reasonably
possible loss.
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