Alcoa 2006 Annual Report Download - page 58

Additionally, in the first quarter of 2004, Alcoa sold two
businesses that were included in discontinued operations:
the packaging equipment business was sold for $44 in cash
and resulted in the recognition of a gain of $15 ($10 after-
tax), and the automotive fasteners business was sold for $17
in cash and notes receivable and resulted in an additional
loss of $7 ($5 after-tax).
In connection with acquisitions made prior to 2004,
Alcoa could be required to make additional contingent
payments of approximately $248 from 2007 through 2008
based upon the achievement of various financial and
operating targets. During 2006 and 2005, Alcoa made
contingent payments in each year of $13 related to the
Fairchild acquisition. These payments were recorded as
adjustments to goodwill.
Pro forma results of the company, assuming all acquis-
itions had been made at the beginning of each period
presented, would not have been materially different from
the results reported.
G. Inventories
December 31, 2006 2005
Finished goods $1,137 $ 918
Work in process 1,157 907
Bauxite and alumina 535 486
Purchased raw materials 729 667
Operating supplies 247 213
$3,805 $3,191
Approximately 44% and 43% of total inventories at
December 31, 2006 and 2005, respectively, were valued on
a LIFO basis. If valued on an average-cost basis, total
inventories would have been $1,077 and $836 higher at the
end of 2006 and 2005, respectively.
H. Properties, Plants, and Equipment, at Cost
December 31, 2006 2005
Land and land rights, including
mines $ 472 $ 425
Structures 6,481 6,080
Machinery and equipment 18,762 17,208
25,715 23,713
Less: accumulated depreciation and
depletion 14,535 13,168
11,180 10,545
Construction work in progress 3,633 2,026
$14,813 $12,571
I. Investments
December 31, 2006 2005
Equity investments $ 826 $ 631
Other investments 896 739
$1,722 $1,370
Equity investments are primarily comprised of a 50% invest-
ment in Elkem Aluminium ANS, a joint venture between
Alcoa and Elkem that owns and operates two aluminum
smelters in Norway, and investments in several hydroelectric
power construction projects in Brazil (See Note N for addi-
tional information). In 2005, Alcoa sold its 46.5% invest-
ment in Elkem and its 50% interest in Integris Metals Inc.
(See Note F for additional information). During 2005, Alcoa
recorded an impairment charge of $90 related to the closure
of the Hamburger Aluminium-Werk facility, which was
recorded in equity income.
Other investments are primarily comprised of Alcoa’s
8% interest in the Aluminum Corporation of China Limited
(Chalco). The investment in Chalco is classified as an
available-for-sale security and is carried at fair value, with
unrealized gains/losses recorded in other comprehensive
income. Cumulative unrealized gains, net of taxes, were
$414 in 2006 and $318 in 2005.
J. Other Assets
December 31, 2006 2005
Intangibles, net (E) $1,007 $ 987
Deferred income taxes 1,859 1,592
Prepaid pension benefit (W) 90 144
Deferred charges and other 1,390 1,334
$4,346 $4,057
K. Debt
Long-Term Debt.
December 31, 2006 2005
4.25% Notes, due 2007 $ 792 $ 792
6.625% Notes, due 2008 150 150
7.375% Notes, due 2010 1,000 1,000
6.5% Notes, due 2011 1,000 1,000
6% Notes, due 2012 1,000 1,000
5.375% Notes, due 2013 600 600
6.5% Bonds, due 2018 250 250
6.75% Bonds, due 2028 300 300
Medium-term notes, due 2007–2013
(7.2% and 8.1% average rates) 73 110
Alcoa Aluminio
7.5% Export notes, due 2007–
2008 40 58
Fair value adjustments (57) (37)
Other 140 111
5,288 5,334
Less: amount due within one year 510 58
$4,778 $5,276
The amount of long-term debt maturing in each of the next
five years, including the effects of fair value adjustments, is
$510 in 2007, $277 in 2008, $22 in 2009, $1,002 in 2010,
and $1,001 in 2011. Of the outstanding $792 of 4.25%
Notes due 2007, $333 was reflected as long-term on the
December 31, 2006 Consolidated Balance Sheet due to the
fact that this amount was refinanced with the new long-term
debt instruments in January 2007. See Note Z for additional
information and other events that occurred subsequent to
December 31, 2006.
Alcoa Aluminio’s export notes are collateralized by receiv-
ables due under an export contract. Certain financial ratios
must be maintained, including the maintenance of a
minimum debt service ratio, as well as a certain level of
tangible net worth of Aluminio and its subsidiaries. The
tangible net worth calculation excludes the effects of foreign
currency changes.
The fair value adjustments result from changes in the
carrying amounts of certain fixed-rate borrowings that have
been designated as being hedged. Of the $(57) in 2006,
$(111) related to outstanding hedges and $54 related to
hedges that were settled early. Of the $(37) in 2005, $(100)
related to outstanding hedges and $63 related to hedges that
were settled early. The adjustments for hedges that were
settled early are being recognized as reductions of interest
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