Alcoa 2012 Annual Report Download - page 54

is being prepared by the Italian Government (see below). In late 2009, after discussions with legal counsel and
reviewing the bases on which the EC decided, including the different considerations cited in the EC decision regarding
Alcoa’s two smelters in Italy, Alcoa recorded a charge of $250 million (€173 million), which included $20 million
(€14 million) to write off a receivable from the Italian Government for amounts due under the now expired tariff
structure and $230 million (€159 million) to establish a reserve. On April 19, 2010, Alcoa filed an appeal of this
decision with the General Court of the EU. Alcoa will pursue all substantive and procedural legal steps available to
annul the EC’s decision. On May 22, 2010, Alcoa also filed with the General Court a request for injunctive relief to
suspend the effectiveness of the decision, but, on July 12, 2010, the General Court denied such request. On
September 10, 2010, Alcoa appealed the July 12, 2010 decision to the European Court of Justice (ECJ); this appeal was
dismissed on December 16, 2011.
In June 2012, Alcoa received formal notification from the Italian Government with a calculated recovery amount of
$375 million (€303 million); this amount was reduced by $65 million (€53 million) of amounts owed by the Italian
Government to Alcoa, resulting in a net payment request of $310 million (€250 million). In a notice published in the
Official Journal of the European Union on September 22, 2012, the EC announced that it had filed an action against the
Italian Government on July 18, 2012 to compel it to collect the recovery amount. On September 27, 2012, Alcoa
received a request for payment in full of the $310 million (€250 million) by October 31, 2012. Since then, Alcoa has
been in discussions with the Italian Government regarding the timing of such payment. Alcoa commenced payment of
the requested amount in five quarterly installments of $66 million (€50 million), paying the first installment on
October 31, 2012. It is possible that Alcoa may be required to accelerate payment or pay in a lump sum.
Notwithstanding the payment request or the timing of such payments, Alcoa’s estimate of the most probable loss of the
ultimate outcome of this matter and the low end of the range of reasonably possible loss, which is $209 million (€159
million) to $375 million (€303 million), remains the $209 million (€159 million) (the U.S. dollar amount reflects the
effects of foreign currency movements since 2009) recorded in November 2009. At December 31, 2012, Alcoa’s
reserve for this matter stands at $143 million (€109 million), reflecting the payment made in October 2012. The full
extent of the loss will not be known until the final judicial determination, which could be a period of several years.
Separately, on November 29, 2006, Alcoa filed an appeal before the General Court (formerly the European Court of
First Instance) seeking the annulment of the EC’s decision to open an investigation alleging that such decision did not
follow the applicable procedural rules. On March 25, 2009, the General Court denied Alcoa’s appeal. On May 29,
2009, Alcoa appealed the March 25, 2009 ruling before the ECJ. The hearing of the May 29, 2009 appeal was held on
June 24, 2010. On July 21, 2011, the ECJ denied Alcoa’s appeal.
As previously reported, in January 2007, the EC announced that it had opened an investigation to establish whether the
regulated electricity tariffs granted by Spain comply with EU state aid rules. At the time the EC opened its
investigation, Alcoa had been operating in Spain for more than nine years under a power supply structure approved by
the Spanish Government in 1986, an equivalent tariff having been granted in 1983. The investigation is limited to the
year 2005 and is focused both on the energy-intensive consumers and the distribution companies. The investigation
provided 30 days to any interested party to submit 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 a 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. 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
approximately $90 million (€70 million) 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. 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.
43