Alcoa 2007 Annual Report Download - page 57

In the fourth quarter of 2006, Alcoa reclassified its soft alloy
extrusion business to assets held for sale upon the determination
that it would be disposed of, including the signing of a letter of
intent with Orkla ASA’s SAPA Group (Sapa) to create a joint
venture that would combine the soft alloy extrusion business with
Sapa’s Profiles extruded aluminum business. See Notes D and F
for additional information.
The major classes of assets and liabilities of operations held for
sale are as follows:
December 31, 2007 2006
Assets:
Receivables, less allowances $ 308 $ 672
Inventories 377 651
Properties, plants, and equipment, net 738 1,188
Goodwill 1,094 1,285
Intangibles 375 404
Other assets 56 81
Assets held for sale $2,948 $4,281
Liabilities:
Accounts payable $ 304 $ 487
Accrued expenses 114 164
Other liabilities 33 53
Liabilities of operations held for sale $ 451 $ 704
C. Asset Retirement Obligations
Alcoa has recorded AROs related to legal obligations associated
with the normal operations of bauxite mining, alumina refining,
and aluminum smelting facilities. These AROs consist primarily of
costs associated with spent pot lining disposal, closure of bauxite
residue areas, mine reclamation, and landfill closure.
Effective December 31, 2005, Alcoa adopted FIN No. 47,
“Accounting for Conditional Asset Retirement Obligations,” (FIN
47). FIN 47 clarifies the accounting for conditional asset retirement
obligations (CAROs), as referenced in SFAS No. 143, “Accounting
for Asset Retirement Obligations.” A CARO is a legal obligation to
perform an asset retirement activity in which the obligation is
unconditional, but uncertainty exists about the timing and (or)
method of settlement, which may or may not be under the control of
Alcoa, and which prevents the reasonable estimation of the fair
value of the CARO. Upon adoption, Alcoa recognized a cumulative
effect adjustment of $2, consisting primarily of costs for regulated
waste materials related to the demolition of certain power facilities.
Pro forma amounts related to prior periods are not presented, as
there is no impact on prior period financial statements.
In addition to the above CAROs, certain CAROs related to
alumina refineries, aluminum smelters, and fabrication facilities
have not been recorded in the Consolidated Financial Statements
due to uncertainties surrounding the ultimate settlement date.
Such uncertainties exist as a result of the perpetual nature of the
structures, maintenance and upgrade programs, and other factors.
At the date that a reasonable estimate of the ultimate settlement
date can be made, Alcoa would record a retirement obligation for
the removal, treatment, transportation, storage and (or) disposal of
various regulated assets and hazardous materials such as asbestos,
underground and aboveground storage tanks, PCBs, various
process residuals, solid wastes, electronic equipment waste and
various other materials. If Alcoa was required to demolish all such
structures immediately, the estimated CARO as of December 31,
2007 ranges from less than $1 to $52 per structure in today’s
dollars.
The following table details the changes in the carrying amount
of recorded AROs and CAROs:
December 31, 2007 2006
Balance at beginning of year $291 $258
Accretion expense 13 13
Payments (42) (42)
Liabilities incurred 34 51
Translation and other 15 11
Balance at end of year $311 $291
D. Restructuring and Other Charges
Restructuring and other charges for each of the three years in the
period ended December 31, 2007 were comprised of the following:
2007 2006 2005
Asset impairments $286 $442 $ 86
Layoff costs 90 107 238
Other exit costs 55 37 16
Reversals of previously recorded
layoff and other exit costs* (32) (43) (48)
Restructuring and other charges $399 $543 $292
* Reversals of previously recorded layoff and other exit costs resulted
from changes in facts and circumstances that led to changes in
estimated costs.
Employee termination and severance costs were recorded based
on approved detailed action plans submitted by the operating
locations that specified positions to be eliminated, benefits to be
paid under existing severance plans, union contracts or statutory
requirements, and the expected timetable for completion of the
plans.
2007 Restructuring Program. In 2007, Alcoa recorded
restructuring and other charges of $399 ($307 after-tax and
minority interests), which were comprised of the following compo-
nents: $331 ($234 after-tax) in asset impairments and $53 ($36
after-tax) in severance charges associated with a strategic review of
certain businesses; a $62 ($23 after-tax) reduction to the original
impairment charge recorded in 2006 related to the estimated fair
value of the soft alloy extrusion business, which was contributed to
a joint venture effective June 1, 2007 (see the 2006 Restructuring
Program for additional information); and $77 ($60 after-tax and
minority interests) in net charges comprised of severance charges
of $37 ($34 after-tax and minority interests) related to the elimi-
nation of approximately 400 positions and asset impairments of
$17 ($11 after-tax) of various other businesses and facilities, other
exit costs of $55 ($37 after-tax and minority interests), primarily
for accelerated depreciation associated with the shutdown of cer-
tain facilities in 2007 related to the 2006 Restructuring Program,
and reversals of previously recorded layoff and other exit costs of
$32 ($22 after-tax and minority interests) due to normal attrition
and changes in facts and circumstances.
In April 2007, Alcoa announced it was exploring strategic
alternatives for the potential disposition of the businesses within
the Packaging and Consumer segment, the Automotive Castings
business, and the Electrical and Electronic Solutions business
(EES) (formerly the Alcoa Fujikura Limited (AFL) wire harness
business). In September 2007, management completed its review
of strategic alternatives and determined that the best course of
action was to sell the Packaging and Consumer and Automotive
Castings businesses, and to significantly restructure the EES
business in order to improve its returns and profitability.
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