Alcoa 2009 Annual Report Download - page 44

of the tariff in 2005, Alcoa had been operating in Italy for more than 10 years under a power supply structure approved
by the EC in 1996. That measure provided a competitive power supply to the primary aluminum industry and was not
considered state aid from the Italian Government. The EC’s announcement expressed concerns about whether Italy’s
extension of the tariff beyond 2005 was compatible with EU legislation and potentially distorted competition in the
European market of primary aluminum, where energy is an important part of the production costs.
On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy
constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit
Alcoa received since January 2006 (including interest). The amount of this recovery will be based on a calculation that
is being prepared by the Italian Government. Pending notification from the Italian Government, Alcoa estimates that a
payment in the range of $300 million to $500 million will be required during 2010. Alcoa is preparing to appeal this
decision to the General Court of the EU and will pursue all substantive and procedural legal steps available to it to
annul the EC’s decision, including seeking injunctive relief to suspend the effectiveness of the decision. 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, including
$20 million to write-off a receivable from the Italian Government for amounts due under the now expired tariff
structure.
Separately, as previously reported, on November 29, 2006, Alcoa filed an appeal before 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 European Court of First Instance denied Alcoa’s appeal. On
June 4, 2009, Alcoa appealed the March 25, 2009 ruling; however, no decision on that appeal is expected until 2011 or
later.
As previously reported, 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 allege these changes to their retiree health care plans violate their rights to vested health
care benefits. Plaintiffs additionally allege that Alcoa has breached its fiduciary duty to plaintiffs under ERISA by
misrepresenting to them that their health benefits would never change. Plaintiffs seek injunctive and declaratory relief,
back payment of benefits, and attorneys’ fees. Alcoa has 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 preliminary injunction with trial, certified a plaintiff class, bifurcated and stayed the plaintiffs’ breach of
fiduciary duty claims, struck the plaintiffs’ jury demand, but indicated it would use an advisory jury, and set a trial date
of September 17, 2008. In August 2008, the court set a new trial date of March 24, 2009 and, subsequently, the trial
date was moved to September 22, 2009. In June 2009, the court indicated that it would not use an advisory jury at trial.
Trial in the matter was held over eight days commencing September 22, 2009 and ending on October 1, 2009 in federal
court in Knoxville, TN before the Honorable Thomas Phillips, U.S. District Court Judge. At the conclusion of
evidence, the court set a post-hearing briefing schedule for submission of proposed findings of fact and conclusions of
law by the parties and for replies to the same. Post trial briefing was submitted on December 4, 2009. No schedule was
set for handing down a decision. Alcoa believes that it presented substantial evidence in support of its defenses at trial.
However, at this stage of the proceeding, the company is unable to reasonably predict the outcome. Alcoa estimates
that, in the event of an unfavorable outcome, the maximum exposure would be an additional postretirement benefit
liability of approximately $300 million and approximately $40 million of expense (includes an interest cost
component) annually, on average, for the next 11 years.
As previously reported, on January 25, 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. Alcoa has 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
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