Alcoa 2010 Annual Report Download - page 101

In early 2010, management approved the permanent shutdown and demolition of the following structures, each of
which was previously temporarily idled for different reasons: the Eastalco smelter located in Frederick, MD (capacity
of 195 kmt-per-year); the smelter located in Badin, NC (capacity of 60 kmt-per-year); an aluminum fluoride plant in
Point Comfort, TX; a paste plant and cast house in Massena, NY; and one potline at the smelter in Warrick, IN
(capacity of 40 kmt-per-year). This decision was made after a comprehensive strategic analysis was performed to
determine the best course of action for each facility. Factors leading to this decision included current market
fundamentals, cost competitiveness, other existing idle capacity, required future capital investment, and restart costs, as
well as the elimination of ongoing holding costs. The asset impairments of $127 represent the write off of the
remaining book value of properties, plants, and equipment related to these facilities. Additionally, remaining
inventories, mostly operating supplies, were written down to their net realizable value resulting in a charge of $8 ($5
after-tax and noncontrolling interests), which was recorded in Cost of goods sold on the accompanying Statement of
Consolidated Operations. The other exit costs of $46 represent $30 ($19 after-tax and noncontrolling interests) in asset
retirement obligations (see Note C) and $14 ($9 after-tax) in environmental remediation (see Note N), both triggered
by the decision to permanently shutdown and demolish these structures, and $2 ($1 after-tax and noncontrolling
interests) in other related costs.
As of December 31, 2010, approximately 630 of the 830 employees were terminated. The remaining terminations are
expected to be completed by the end of 2011. In 2010, cash payments of $21 were made against layoff reserves related
to 2010 restructuring programs.
2009 Actions. In 2009, Alcoa recorded Restructuring and other charges of $237 ($151 after-tax and noncontrolling
interests), which were comprised of the following components: $177 ($121 after-tax and noncontrolling interests) for
the layoff of approximately 6,600 employees (2,980 in the Engineered Products and Solutions segment; 2,190 in the
Flat-Rolled Products segment; 1,080 in the Primary Metals segment; 180 in the Alumina segment; and 170 in
Corporate) to address the impact of the global economic downturn on Alcoa’s businesses and a $9 ($6 after-tax)
curtailment charge due to the remeasurement of pension plans as a result of the workforce reductions (see Note W);
$41 ($20 after-tax) in adjustments to the Global Foil and Transportation Products Europe businesses held for sale due
to unfavorable foreign currency movements for both businesses and a change in the estimated fair value for the Global
Foil business and $13 ($11 after-tax) in other asset impairments; $18 ($12 after-tax) for the write-off of previously
capitalized third-party costs related to potential business acquisitions due to the adoption of changes to accounting for
business combinations (see Note A) and net charges of $19 ($10 after-tax and noncontrolling interests) for various
other items, such as accelerated depreciation and lease termination costs for shutdown facilities; and $40 ($29 after-tax
and noncontrolling interests) for reversals of previously recorded layoff and other exit costs due to normal attrition and
changes in facts and circumstances.
As of December 31, 2010, approximately 5,500 of the 6,000 employees were terminated. The total number of
employees associated with 2009 restructuring programs was updated to reflect changes in plans (e.g., the previously
mentioned new power agreement at the Portovesme smelter in Italy – see 2010 Activity above), natural attrition, and
other factors. The remaining terminations are expected to be completed by the end of 2011. In 2010 and 2009, cash
payments of $60 and $62, respectively, were made against layoff reserves related to 2009 restructuring programs.
2008 Actions. In late 2008, Alcoa took specific actions to reduce costs and strengthen its portfolio, partly due to the
economic downturn. Such actions included targeted reductions, curtailments, and plant closures and consolidations,
which will reduce headcount by approximately 5,300, resulting in layoff charges of $138 ($98 after-tax and
noncontrolling interests), asset impairments of $156 ($88 after-tax and noncontrolling interests), and other exit costs of
$58 ($57 after-tax). The significant components of these actions were as follows:
– As a result of market conditions, the Primary Metals segment reduced production by 483 thousand metric tons (kmt)
and the Alumina segment reduced production by a total of 1,500 kmt (fully implemented in early 2009; further
reductions occurred later in 2009). These production curtailments as well as targeted reductions will result in the
elimination of approximately 1,110 positions totaling $23 in layoff costs. Asset impairments of $116 related to these
two segments were also recognized, including the write off of $84 in engineering costs related to a 1,500 kmt planned
expansion of Jamalco’s Clarendon, Jamaica refinery.
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