Alcoa 2006 Annual Report Download - page 35

This segment includes consumer, foodservice, and flexible
packaging products; food and beverage closures; and plastic
sheet and film for the packaging industry. The principal
products in this segment include aluminum foil; plastic
wraps and bags; plastic beverage and food closures; flexible
packaging products; thermoformed plastic containers; and
extruded plastic sheet and film. Consumer products are
marketed under brands including Reynolds Wrap®, Dia-
mond®, Baco®, and Cut-Rite®wax paper. Seasonal
increases generally occur in the second and fourth quarters
of the year for such products as consumer foil and plastic
wraps and bags, while seasonal slowdowns for closures
generally occur in the fourth quarter of the year. Products
are generally sold directly to customers, consisting of
supermarkets, beverage companies, food processors, retail
chains, and commercial foodservice distributors.
Third-party sales for the Packaging and Consumer
segment increased 3% in 2006 compared with 2005, princi-
pally due to higher volumes in the consumer products and
closures businesses, somewhat offset by a decrease in
volume in the foodservice packaging business. Third-party
sales increased 7% in 2005 compared with 2004, principally
due to higher prices, as Alcoa was able to pass through a
significant amount of the increased resin cost. Increased
volumes in the closures and consumer products businesses
also positively impacted 2005 and were somewhat offset by
a decrease in volumes in the plastic sheet and film business.
ATOI for this segment decreased 10% in 2006 compared
with 2005 as increases in volumes and productivity gains
were more than offset by higher raw materials costs,
unfavorable mix and reduced pricing in the foodservice
packaging business. ATOI for this segment decreased 26%
in 2005 compared with 2004, as the increases in prices and
volumes were more than offset by higher raw materials costs
and unfavorable mix in the consumer products and flexible
packaging businesses.
Reconciliation of ATOI to Consolidated Net
Income—The following table reconciles segment ATOI to
consolidated net income:
2006 2005 2004
ATOI $3,551 $2,139 $2,105
Unallocated amounts
(net of tax):
Impact of LIFO (170) (99) (73)
Interest income 58 42 26
Interest expense (250) (220) (176)
Minority interests (436) (259) (245)
Corporate expense (317) (312) (283)
Restructuring and other
charges (379) (197) 23
Discontinued
operations 87 (22) (59)
Accounting change —(2) —
Other 104 163 (8)
Consolidated net income $2,248 $1,233 $1,310
Items required to reconcile segment ATOI to con-
solidated net income include:
ŠThe impact of LIFO inventory accounting;
ŠThe after-tax impact of interest income and expense;
ŠMinority interests;
Š
Corporate expense comprised of general administrative and
selling expenses of operating the corporate headquarters
and other global administrative facilities, along with depre-
ciation and amortization on corporate-owned assets;
ŠRestructuring and other charges (excluding minority
interests);
ŠDiscontinued operations;
ŠAccounting changes for conditional asset retirement obliga-
tions in 2005; and
ŠOther, which includes intersegment profit and other metal
adjustments, differences between estimated tax rates used
in the segments and the corporate effective tax rate, and
other nonoperating items such as foreign currency trans-
lation gains/losses.
The significant changes in the reconciling items between
ATOI and consolidated net income for 2006 compared with
2005 consisted of:
ŠA $71 increase related to the impacts of LIFO, primarily
due to cost inflation factors that increased the LIFO
inventory reserves;
ŠA $177 increase in minority interests primarily due to
higher earnings at AWAC, attributed to higher realized
prices and increased volumes;
ŠAn increase in restructuring and other charges due to the
company’s 2006 global restructuring program, including
an after-tax impairment charge of $211 associated with
the expected contribution of assets to the previously
mentioned soft alloy joint venture and other assets to be
disposed of;
ŠA change of $109 in discontinued operations, primarily
due to the $110 gain recognized on the sale of the home
exteriors business; and
ŠA decrease in Other of $59, primarily due to the absence
of a $180 gain on the 2005 sale of Alcoa’s stake in Elkem,
partially offset by the absence of a $58 charge related to
the 2005 closure of the Hamburger Aluminium-Werk
facility in Germany; a $26 favorable legal settlement
related to a former Reynolds distribution business; a $17
increase in dividend income related to Alcoa’s stake in
Chalco; and $11 of interest earned related to a Brazilian
court settlement.
The significant changes in the reconciling items between
ATOI and consolidated net income for 2005 compared with
2004 consisted of:
ŠAn increase in interest expense, primarily due to higher
average effective interest rates and increased borrowings,
somewhat offset by an increase in interest capitalized;
ŠA $220 increase in restructuring and other charges due to
the company’s 2005 global restructuring plan;
ŠA change in discontinued operations due to significant
impairment losses recognized in 2004 on the protective
packaging and telecommunications businesses; and
ŠAn increase in Other, primarily due to the $180 net gain
on the sale of Alcoa’s stake in Elkem and a $120 tax
benefit related to the finalization of certain tax reviews
and audits during the second quarter of 2005, slightly
offset by the $58 charge related to the closure of the
Hamburger Aluminium-Werk facility in Germany.
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