Alcoa 2009 Annual Report Download - page 58

other exit costs of $47 ($31 after-tax and noncontrolling interests), primarily for accelerated depreciation associated
with the shutdown of certain facilities in 2007 related to the 2006 Restructuring Program, and reversals of previously
recorded layoff and other exit costs of $28 ($19 after-tax and noncontrolling 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 and the Automotive Castings 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. As a result of this decision, the assets and related liabilities of the
Packaging and Consumer and Automotive Castings businesses were classified as held for sale. Alcoa recorded
impairment charges of $215 ($140 after-tax) related to the Packaging and Consumer businesses and $68 ($51 after-tax)
for the Automotive Castings business to reflect the write-down of the carrying value of the assets of these businesses to
their respective estimated fair values. In addition, Alcoa recorded a $464 discrete income tax charge related to goodwill
associated with the planned sale of the Packaging and Consumer businesses that would have been non-deductible for
tax purposes under the transaction structure contemplated at the time. In November 2007, Alcoa completed the sale of
the Automotive Castings business and recognized a loss of $4 ($2 after-tax). In December 2007, Alcoa agreed to sell
the Packaging and Consumer businesses for $2,700 in cash, and reduced the impairment charge by $26 ($17 after-tax)
and the discrete income tax charge by $322 as a result of the structure of the agreed upon sale (this sale was completed
in 2008).
As of December 31, 2008, the terminations associated with the 2007 restructuring program were essentially complete.
Cash payments of $1 and $20 were made against the 2007 Restructuring Program layoff reserves in 2009 and 2008,
respectively.
Alcoa does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of
allocating Restructuring and other charges to such results would have been as follows (prior period amounts presented
were revised to reflect a change in segments – see Segment Information):
2009 2008 2007
Alumina $5 $89 $ -
Primary Metals 30 94 (2)
Flat-Rolled Products 65 273 56
Engineered Products and Solutions 64 104 67
Packaging and Consumer - 45 189
Segment total 164 605 310
Corporate 73 334 (42)
Total restructuring and other charges $237 $939 $268
Interest Expense—Interest expense was $470 in 2009 compared with $407 in 2008, resulting in an increase of $63, or
15%. The increase was primarily due to a 10% higher average debt level, mostly the result of $575 in convertible notes
issued in March 2009 and increased borrowings on loans in Brazil (began in April 2008) related to the Juruti, São Luís,
and Estreito growth projects; and a significant increase in the amortization of debt costs, mainly due to a $66 beneficial
conversion option related to the convertible notes and $43 in fees paid for the $1,900 364-day senior unsecured
revolving credit facility (entered into in October 2008 and expired in October 2009); both of which were slightly offset
by a decrease in the weighted average interest rate of Alcoa’s debt portfolio.
Interest expense was $407 in 2008 compared with $401 in 2007, resulting in an increase of $6, or 1%. The increase was
principally caused by a 22% higher average debt level, mostly due to the issuance of $1,500 in new senior notes in July
2008 and significantly higher commercial paper levels; and a decrease in capitalized interest ($32), primarily due to
placing growth projects into service, such as the Iceland smelter and the Norway anode facility in 2007. These items
were almost completely offset by the absence of credit facility commitment fees related to the 2007 offer for Alcan Inc.
($67) and a lower weighted-average effective interest rate, driven mainly by the decrease in LIBOR rates.
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