Alcoa 2001 Annual Report Download - page 53

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Asset write-downs of $372 were primarily recorded as a direct result
of the company’s decision to close certain facilities. The asset write-
downs consisted primarily of structures and machinery and equip-
ment, as well as related selling or disposal costs, and were comprised
of$145relatedtoassetsthatwillbephasedoutand$227ofassets
thatcouldbedisposedofimmediately.Assetstobephasedout
consisted of $46 of assets in the Flat-Rolled Products segment, $78
of assets in the Engineered Products segment and $21 at corporate.
Assets to be disposed of consisted of $110 of assets in the Alumina
and Chemicals segment, $84 of assets in the Primary Metals segment,
$23 of assets in the Engineered Products segment, $4 in the Other
group and $6 at corporate.
Assets to be phased out will be removed from service by mid-2002.
Fair values of assets were determined based on expected future cash
flows or appraised values. Expected operating cash flows during
the phaseout period were not significant and did not have a material
impact on the determination of the amount of the write-down.
Assets that could be disposed of immediately will be sold or
vacated by the end of 2002. The remaining carrying amount of these
assets was approximately $80 at December 31, 2001. The results of
operations related to these assets were not material.
Employee termination and severance costs of $178 were recorded
as management implemented workforce reductions of 10,400 hourly
and salaried employees at various manufacturing facilities – primarily
located outside of the U.S. – due to weak market conditions and
the shutdowns of several manufacturing facilities. These workforce
reductions primarily consisted of a combination of early retirement
incentives and involuntary severance programs. As of December 31,
2001, approximately 4,000 employees had been terminated.
The $16 of exit costs were recorded for activities associated with
the shutdowns above, which will be substantially complete by the
end of 2002.
C. Acquisitions and Divestitures
In May of 2000, Alcoa completed a merger with Reynolds Metals
Company (Reynolds) by issuing approximately 135 million shares
of Alcoa common stock at a value of $33.30 per share to Reynolds
stockholders. The transaction was valued at approximately $5,900,
including debt assumed of $1,297. The purchase price included
the conversion of outstanding Reynolds options to Alcoa options
as well as other direct costs of the acquisition. The goodwill of
approximately $2,100 resulting from the purchase price allocation
was being amortized over a 40-year period.
As part of the merger with Reynolds, Alcoa agreed to divest
Reynolds’ interests in the alumina refineries in Worsley, Australia;
Stade, Germany; and Sherwin, Texas as well as 25% of Reynolds’
interest in the aluminum smelter located in Longview, Washington.
The consolidated financial statements have been prepared
in accordance with Emerging Issues Task Force
(EITF) 87-11, ‘‘Alloca-
tion of Purchase Price to Assets to be Sold.’’ Under EITF 87-11, at
December 31, 2000, the fair value of net assets to be divested were
reported as assets held for sale in the balance sheet, and the results
of operations from these assets of $19 (after tax) were not included
in the Statement of Consolidated Income. In 2001, the results
of operations from these assets were not material, and there were
no significant adjustments to the purchase price allocation as a
result of these divestitures.
The sale of Sherwin was completed in December 2000; the sales
of Worsley and 100% of Longview were completed in the first
quarter of 2001; and the sale of Stade was completed in the second
quarter of 2001. There were no gains or losses on the sales of
these assets.
In November of 2001, Alcoa contributed net assets of approxi-
mately $200 of Reynolds Aluminum Supply Company
(RASCO) ,the
metals distribution business acquired in the Reynolds acquisition,
to a joint venture in which Alcoa retains a 50% equity interest.
In May and June of 2000, Alcoa completed the acquisitions of
Cordant Technologies Inc. (Cordant) and Howmet International Inc.
(Howmet), a majority-owned company of Cordant. Under the agree-
ment and tender offer, Alcoa paid $57 for each outstanding share
of Cordant common stock and $21 for each outstanding share of
Howmet common stock. The total value of the transactions was
approximately $3,300, including the assumption of debt of $826.
The purchase price includes the conversion of outstanding Cordant
and Howmet options to Alcoa options as well as other direct
costs of the acquisition. In April of 2001, Alcoa completed the sale
of Thiokol, a business acquired in the Cordant transaction, to
Alliant Techsystems Inc. for net proceeds of $698 in cash, which
included a working capital adjustment, and recognized a $55 pretax
gain that is included in other income. The goodwill of approxi-
mately $2,200 resulting from the purchase price allocation, after
considering the impact of the Thiokol sale, was being amortized over
a 40-year period.
The following unaudited pro forma information for the years
ended December 31, 2000 and 1999 assumes that the acquisitions of
Reynolds and Cordant had occurred at the beginning of 2000 and
1999. Adjustments that have been made to arrive at the pro forma
totals include those related to acquisition financing; the amortization
of goodwill; the elimination of transactions among Alcoa, Reynolds
and Cordant; and additional depreciation related to the increase in
basis that resulted from the transactions. Tax effects from the pro
forma adjustments previously noted have been included at the 35%
U.S. statutory rate.
(Unaudited) 2000 1999
Sales $25,636 $23,369
Net income 1,514 1,148
Earnings per share:
Basic $ 1.86* $ 1.32
Diluted 1.84* 1.30
*Includes the cumulative effect adjustment of the accounting change for
revenue recognition
The pro forma results are not necessarily indicative of what actually
would have occurred if the transactions had been in effect for the
periods presented, are not intended to be a projection of future results
and do not reflect any cost savings that might be achieved from the
combined operations.
In October of 2000, Alcoa completed the acquisition of Luxfer
Holdings plc’s aluminum plate, sheet and soft-alloy extrusion manu-
facturing operations and distribution businesses of British Aluminium