Alcoa 2007 Annual Report Download - page 60

E. Goodwill and Other Intangible Assets
The following table details the changes in the carrying amount of
goodwill:
December 31, 2007 2006
Balance at beginning of year $4,885 $4,832
Acquisition of businesses 816
Impairment charge (133) —
Translation and other adjustments 46 37
Balance at end of year $4,806 $4,885
In 2007, Alcoa recorded an impairment charge of $133 ($93
after-tax) based on a business review of EES performed by
management that determined that the forecasted future earnings
and cash flows of the EES business no longer supported the
carrying value of goodwill because of continued deterioration in
the automotive market (see Note D for additional information).
Other intangible assets, which are recorded in Other assets on
the accompanying Consolidated Balance Sheet, are as follows:
December 31, 2007
Gross
carrying
amount
Accumulated
amortization
Computer software $ 833 $(362)
Patents and licenses 139 (73)
Other intangibles 84 (38)
Total amortizable intangible assets 1,056 (473)
Indefinite-lived trade names and
trademarks 26 —
Total other intangible assets $1,082 $(473)
December 31, 2006
Gross
carrying
amount
Accumulated
amortization
Computer software $ 750 $(290)
Patents and licenses 134 (61)
Other intangibles 92 (29)
Total amortizable intangible assets 976 (380)
Indefinite-lived trade names and
trademarks 18 —
Total other intangible assets $ 994 $(380)
Computer software consists primarily of software costs asso-
ciated with an enterprise business solution (EBS) within Alcoa to
drive common systems among all businesses.
Amortization expense related to the intangible assets in the
tables above for the years ended December 31, 2007, 2006, and
2005 was $75, $70, and $59, respectively. Amortization expense
is expected to be in the range of approximately $80 to $90 annu-
ally from 2008 to 2012.
F. Acquisitions and Divestitures
2007 Acquisitions. In May 2007, Alcoa announced an offer to
purchase all of the outstanding common shares of Alcan Inc.
(Alcan), for a combination of cash and stock. In July 2007, Alcan’s
board of directors agreed to recommend acceptance of a takeover
offer by Rio Tinto plc, and Alcoa effectively withdrew its offer for
Alcan due to said agreement. In 2007, Alcoa recorded $46 ($30
after-tax) in transaction costs (investment banking, legal, audit-
related, and other third-party expenses) related to the offer for
Alcan in Selling, general administrative, and other expenses on
the accompanying Statement of Consolidated Income. In addition,
in July 2007, Alcoa fully amortized $30 ($19 after-tax) in
commitment fees that were paid and capitalized in June 2007 and
expensed $37 ($24 after-tax) in commitment fees that were paid in
July 2007. These commitment fees were paid to secure an
18-month $30,000 senior unsecured credit facility associated with
the offer for Alcan. The $67 in commitment fees was recorded in
Interest expense on the accompanying Statement of Consolidated
Income.
During 2007, Alcoa completed two acquisitions, including one
for an outstanding minority interest in Russia, and made a final
contingent payment related to its 2002 acquisition of Fairchild
Fasteners (Fairchild), all for a total cash cost of $18. None of these
transactions had a material impact on Alcoa’s Consolidated
Financial Statements.
2007 Divestitures. In December 2007, Alcoa agreed to sell
the businesses included in the Packaging and Consumer segment
to New Zealand’s Rank Group Limited (Rank) for $2,700 in cash,
subject to certain post-closing adjustments. The transaction will
consist of a combination of assets and shares of stock in certain
subsidiaries of the Packaging and Consumer businesses, and is
expected to be completed by the end of the first quarter of 2008.
In conjunction with the sale agreement, Alcoa entered into a metal
supply agreement with Rank. The results of operations of the
Packaging and Consumer businesses will continue to be reflected
in the Packaging and Consumer segment until their eventual
disposition, unless facts and circumstances change. See Notes B
and D for additional information. The Packaging and Consumer
segment generated sales of $3,288 in 2007 and has approximately
9,300 employees in 22 countries. The following is a description of
the four businesses within Packaging and Consumer:
ŠFlexible Packaging, manufacturers of laminated, printed, and
extruded non-rigid packaging materials such as pouch, blister
packaging, unitizing films, high quality shrink labels and foil
lidding for the pharmaceutical, food and beverage, tobacco and
industrial markets;
ŠClosure Systems International, a leading global manufacturer of
plastic and aluminum packaging closures and capping equip-
ment for beverage, food and personal care customers;
ŠConsumer Products, a leading manufacturer of branded and
private label foil, wraps and bags, and includes the Reynolds®
and Baco®branded products;
Š
Food Packaging, makers of stock and customer products for the
foodservice, supermarket, food processor and agricultural mar-
kets, including foil, film, and both plastic and foil food containers.
In November 2007, Alcoa completed the sale of its Automotive
Castings business to Compass Automotive Group, LLC (Compass),
a portfolio company of Monomoy Capital Partners, L.P. for $33 in
cash, which is included in Proceeds from the sale of assets and
businesses on the accompanying Statement of Consolidated Cash
Flows. A loss of $72 ($53 after-tax) was recognized in
Restructuring and other charges on the accompanying Statement of
Consolidated Income, of which $68 ($51 after-tax) was recorded in
the third quarter of 2007 as an impairment charge to reflect the
write-down of the carrying value of the assets of the business to its
estimated fair value (see Note D for additional information). This
business produced cast aluminum components, including steering
knuckles, swing arms and control arms through a Vacuum Riser-
less Casting/Pressure Riserless Casting (VRC/PRC) process. The
Automotive Castings business employed approximately 530
employees and consisted of two operating locations, one in Fruit-
port, MI (the Michigan Casting Center) and one in Farsund,
Norway (the Scandinavian Casting Center). This business gen-
erated approximately $150 in sales in 2006. Separately from the
sale transaction, Alcoa entered into an agreement with Compass to
supply metal to the Michigan Casting Center.
In September 2007, Alcoa sold its investment in the Aluminum
Corporation of China Limited (Chalco) for $1,942 in cash proceeds
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