Alcoa 2007 Annual Report Download - page 35

Engineered Solutions
2007 2006 2005
Third-party aluminum
shipments (kmt) 112 139 145
Third-party sales $5,725 $5,456 $5,032
ATOI $ 316 $ 331 $ 203
This segment includes titanium, aluminum, and super alloy invest-
ment castings; forgings and fasteners; electrical distribution
systems; aluminum wheels; and integrated aluminum structural
systems used in the aerospace, automotive, commercial trans-
portation, and power generation markets. These products are sold
directly to customers and through distributors.
Third-party sales for the Engineered Solutions segment
increased 5% in 2007 compared with 2006. The increase was
principally due to aerospace and power generation increases more
than offsetting the decline in commercial transportation and North
American automotive. Third-party sales for this segment increased
8% in 2006 compared with 2005. The increase was primarily due
to continued strong demand in the commercial transportation and
aerospace markets, market share gains in fasteners, wheels and
heavy truck, as well as capturing raw material increases in prices.
These positive contributions were somewhat offset by volume
declines in the automotive market.
ATOI for the Engineered Solutions segment declined 5% in
2007 compared with 2006, largely due to declines in the automo-
tive segment associated with volume reductions, expenses
associated with significant consolidation and repositioning of
automotive operations, and demand decline in the North America
heavy truck market. These negative impacts were substantially
offset by continued strong demand and operational performance in
the aerospace and industrial gas turbine markets and productivity
improvements. ATOI for this segment increased 63% in 2006
compared with 2005, primarily due to increased volumes, favor-
able pricing and mix in the businesses serving the aerospace and
commercial vehicle markets and strong productivity improvements
across all of the businesses.
In 2008, continued strength in the aerospace and industrial gas
turbine markets and benefits from the 2007 restructuring in the
automotive operations are anticipated. Market conditions in the
North American commercial transportation market, the titanium
ingot market and North American automotive demand will con-
tinue to be soft. Productivity improvements are expected to
continue across all businesses.
Packaging and Consumer
2007 2006 2005
Third-party aluminum
shipments (kmt) 157 169 151
Third-party sales $3,288 $3,235 $3,139
ATOI $ 148 $ 95 $ 105
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®,Diamond
®,
Baco®, and Cut-Rite®. 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 clo-
sures 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. In December 2007, Alcoa announced it has
agreed to sell the businesses within this segment to Rank Group
Limited for $2,700 in cash.
Third-party sales for the Packaging and Consumer segment
increased 2% in 2007 compared with 2006, primarily due to
higher volume and favorable pricing and mix across all businesses.
Third-party sales for this segment increased 3% in 2006 compared
with 2005, principally due to higher volumes in the consumer
products and closures businesses, somewhat offset by a decrease
in volume in the foodservice packaging business.
ATOI for the Packaging and Consumer segment climbed 56%
in 2007 compared with 2006, primarily due to productivity
improvements across all businesses and the cessation of deprecia-
tion beginning in October 2007, as the assets of this segment were
classified as held for sale due to management’s announced intent
to actively pursue the sale of these businesses. 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.
In 2008, the sale of the businesses within this segment is
expected to be complete by the end of the first quarter. This
segment will continue to be classified as held for sale while the
results of operations will be included in continuing operations
until the sale closes.
Reconciliation of ATOI to Consolidated Net Income—
The following table reconciles total segment ATOI to consolidated
net income:
2007 2006 2005
Total segment ATOI $3,174 $3,551 $2,139
Unallocated amounts
(net of tax):
Impact of LIFO (24) (170) (99)
Interest income 40 58 42
Interest expense (261) (250) (220)
Minority interests (365) (436) (259)
Corporate expense (388) (317) (312)
Restructuring and other
charges (307) (379) (197)
Discontinued operations (7) 87 (22)
Accounting change —— (2)
Other 702 104 163
Consolidated net income $2,564 $2,248 $1,233
Items required to reconcile segment ATOI to consolidated net
income include:
ŠThe impact of LIFO inventory accounting;
ŠThe after-tax impact of interest income and expense;
ŠMinority interests;
ŠCorporate expense comprised of general administrative and
selling expenses of operating the corporate headquarters and
other global administrative facilities, along with depreciation
and amortization on corporate-owned assets;
ŠRestructuring and other charges (excluding minority interests);
ŠDiscontinued operations;
ŠAccounting changes for conditional asset retirement obligations
in 2005; and
ŠOther, which includes intersegment profit and other metal adjust-
ments, differences between estimated tax rates used in the
segments and the corporate effective tax rate, and other non-
operating items such as foreign currency translation gains/losses.
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