Alcoa 2012 Annual Report Download - page 126

administrative stay and ordered Alba to file an Amended Complaint by November 28, 2011, and a RICO Case
Statement 30 days thereafter for the limited purpose of allowing Alcoa to move to dismiss Alba’s lawsuit. Alcoa filed a
motion to dismiss, which was denied on June 11, 2012.
During the second quarter of 2012, Alcoa proposed to settle the suit by offering Alba a cash payment of $45. Alcoa
also offered Alba a long-term alumina supply contract. Based on the cash offer, Alcoa recorded a $45 ($18 after-tax
and noncontrolling interest) charge in the 2012 second quarter representing Alcoa’s estimate of the minimum end of
the range probable to settle the case, and estimated an additional reasonably possible charge of up to $75 to settle the
suit.
On October 9, 2012, the Alcoa Parties, without admitting any liability, entered into a settlement agreement with Alba.
The agreement called for AWA to pay Alba $85 in two equal installments, one-half at time of settlement and one-half
one year later, and for the case against the Alcoa Parties to be dismissed with prejudice. Additionally, AWA and Alba
entered into a long-term alumina supply agreement. On October 9, 2012, pursuant to the settlement agreement, AWA
paid Alba $42.5, and all claims against the Alcoa Parties were dismissed with prejudice. Under the agreement, AWA is
obligated to pay an additional $42.5, without interest or contingency, on October 9, 2013. Based on the settlement
agreement, in the 2012 third quarter, Alcoa recorded a $40 ($15 after-tax and noncontrolling interest) charge in
addition to the $45 ($18 after-tax and noncontrolling interest) charge it recorded in the 2012 second quarter in respect
of the suit. In addition, based on an agreement between Alcoa and Alumina Limited (which holds a 40% equity interest
in AWA), Alcoa estimates an additional reasonably possible after-tax charge of between $25 to $30 to reallocate a
portion of the costs (including legal fees) of the Alba civil settlement from AWA to Alcoa, but this would occur only if
a settlement is reached with the DOJ and the Securities and Exchange Commission (the “SEC”) regarding their
investigations (see “Government Investigations” below).
Government Investigations
On February 26, 2008, Alcoa Inc. advised the DOJ and the SEC that it had recently become aware of the claims by
Alba as alleged in the Alba civil suit, 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 since that time.
Alcoa is actively negotiating with the DOJ and the SEC to reach a resolution of their investigations of the Alba matter;
however, Alcoa has not reached any agreement with either agency. Given the uncertainty regarding whether a
settlement can be reached and, if reached, on what terms, Alcoa is not able to estimate a range of reasonably possible
loss with regard to any such settlement. If a settlement of the government investigations is reached, Alcoa believes that
the settlement amount would be material to Alcoa’s results of operations for the relevant fiscal period. If a settlement
cannot be reached, Alcoa will proceed to trial with the DOJ and the SEC and under those circumstances is unable to
predict an outcome or to estimate its reasonably possible loss. There can be no assurance that the final outcome of the
government’s investigations will not have a material adverse effect on Alcoa.
Other Matters
In November 2006, in Curtis v. Alcoa Inc., Civil Action No. 3:06cv448 (E.D. Tenn.), a class action was filed by
plaintiffs representing approximately 13,000 retired former employees of Alcoa or Reynolds Metals Company and
spouses and dependents of such retirees alleging violation of the Employee Retirement Income Security Act (ERISA)
and the Labor-Management Relations Act by requiring plaintiffs, beginning January 1, 2007, to pay health insurance
premiums and increased co-payments and co-insurance for certain medical procedures and prescription drugs.
Plaintiffs alleged these changes to their retiree health care plans violated their rights to vested health care benefits.
Plaintiffs additionally alleged that Alcoa had breached its fiduciary duty to plaintiffs under ERISA by misrepresenting
to them that their health benefits would never change. Plaintiffs sought injunctive and declaratory relief, back payment
of benefits, and attorneys’ fees. Alcoa had consented to treatment of plaintiffs’ claims as a class action. During the
fourth quarter of 2007, following briefing and argument, the court ordered consolidation of the plaintiffs’ motion for
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