Alcoa 2010 Annual Report Download - page 92

Effective January 1, 2010, the functional currency of a subsidiary located in Brazil (that is part of Alcoa World
Alumina and Chemicals, which is 60% owned by Alcoa and 40% owned by Alumina Limited) was changed from the
U.S. dollar to the Brazilian real (BRL). This change was made as a result of changes in the operations of the business
following the completion of the São Luís refinery expansion and Juruti bauxite mine development. In connection with
this change, on January 1, 2010, an adjustment of $309 was recorded as an increase to the net nonmonetary assets of
this subsidiary (primarily properties, plants, and equipment) with a corresponding adjustment to the foreign currency
translation component of Accumulated other comprehensive loss. The functional currency of all of Alcoa’s Brazilian
operations is now BRL.
Acquisitions. Alcoa’s acquisitions are accounted for using the purchase method. The purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the fair
value of the net assets acquired is recorded as goodwill. For all acquisitions, operating results are included in the
Statement of Consolidated Operations since the dates of the acquisitions.
Discontinued Operations and Assets Held For Sale. For those businesses where management has committed to a
plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the
carrying amount of the business exceeds its estimated fair value, an impairment loss is recognized. The fair values are
estimated using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings
multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the
application of these techniques, including the forecasting of markets and market share, sales volumes and prices, costs
and expenses, and multiple other factors. Management considers historical experience and all available information at
the time the estimates are made; however, the fair values that are ultimately realized upon the sale of the businesses to
be divested may differ from the estimated fair values reflected in the Consolidated Financial Statements. Depreciation,
depletion, and amortization expense is not recorded on assets of businesses to be divested once they are classified as
held for sale.
Businesses to be divested are classified in the Consolidated Financial Statements as either discontinued operations or
held for sale. For businesses classified as discontinued operations, the balance sheet amounts and results of operations
are reclassified from their historical presentation to assets and liabilities of operations held for sale on the Consolidated
Balance Sheet and to discontinued operations on the Statement of Consolidated Operations, respectively, for all periods
presented. The gains or losses associated with these divested businesses are recorded in discontinued operations on the
Statement of Consolidated Operations. The Statement of Consolidated Cash Flows is also reclassified for assets and
liabilities of operations held for sale and discontinued operations for all periods presented. Additionally, segment
information does not include the assets or operating results of businesses classified as discontinued operations for all
periods presented. Management does not expect any continuing involvement with these businesses following their
divestiture, and these businesses are expected to be disposed of within one year.
For businesses classified as held for sale that do not qualify for discontinued operations treatment, the balance sheet
and cash flow amounts are reclassified from their historical presentation to assets and liabilities of operations held for
sale for all periods presented. The results of operations continue to be reported in continuing operations. The gains or
losses associated with these divested businesses are recorded in restructuring and other charges on the Statement of
Consolidated Operations. The segment information includes the assets and operating results of businesses classified as
held for sale for all periods presented. Management expects that Alcoa will have continuing involvement with these
businesses following their divestiture, primarily in the form of equity participation, or ongoing aluminum or other
significant supply contracts.
Recently Adopted Accounting Guidance. On September 30, 2009, Alcoa adopted changes issued by the Financial
Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB
Accounting Standards CodificationTM (Codification) as the source of authoritative accounting principles recognized by
the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with
GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new
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