Alcoa 2010 Annual Report Download - page 106

In early 2010, the purchase price allocation was finalized based on the completion of a valuation study resulting in
goodwill of $48 (half of which is deductible for U.S. income tax purposes) and a corresponding reduction in properties,
plants, and equipment. There was no change to the gain recognized on the transaction in 2009. Under business
combination accounting, prior periods, beginning with the period of acquisition, are required to be revised to reflect
changes to the original purchase price allocation; however, this $48 (and the related depreciation expense that would
have been recognized in 2009) was deemed immaterial for this purpose.
In June 2009, Alcoa completed an acquisition of a fasteners business located in Morocco for $3. This transaction did
not have a material impact on Alcoa’s Consolidated Financial Statements.
In July 2009, Alcoa World Alumina LLC (AWA LLC), a majority-owned subsidiary of Alcoa and part of Alcoa World
Alumina and Chemicals, acquired a BHP Billiton (BHP) subsidiary that holds interests in four bauxite mines and one
refining facility in the Republic of Suriname. These interests were part of joint ventures between AWA LLC’s wholly-
owned subsidiary in Suriname (Suriname Aluminum Company LLC (Suralco)) and BHP’s subsidiary in which Suralco
held a 55% stake and BHP’s subsidiary held a 45% stake. This acquisition strengthens Alcoa’s presence in Suriname
and supports its overall growth strategy. In this transaction, in exchange for relinquishing BHP of any further
obligations, liabilities, and responsibilities related to the joint ventures (certain of which could result in the recognition
of charges in future periods), AWA LLC received direct ownership of the BHP subsidiary. This transaction was
accounted for as an asset acquisition as it did not meet the requirements to be accounted for as a business combination.
Prior to the completion of this transaction, Suralco accounted for its 55% interest in the Suriname operations on the
proportional consolidation method. The assets and liabilities of the former BHP subsidiary were included in the
Alumina segment beginning July 31, 2009 and 100% of the results of the Suriname operations were reflected in this
segment starting on August 1, 2009. This acquisition resulted in the addition of 993 kmt of alumina refining capacity
(2,207 kmt is total refinery capacity – approximately 870 kmt is curtailed) to Alcoa’s global refining system. Alcoa
recorded a gain of $92 ($36 after-tax and noncontrolling interest), which was reflected in Other income, net on the
accompanying Statement of Consolidated Operations and was reflected in the Alumina segment’s results ($60 after-
tax). At the time this transaction was completed, the BHP subsidiary had $97 in cash, which was reflected in the
accompanying Statement of Consolidated Cash Flows as a cash inflow on the acquisitions line.
2009 Divestitures. In June 2009, Alcoa completed the divestiture of the wire harness and electrical portion of the EES
business to Platinum Equity, effective June 1, 2009. Alcoa paid $200 to divest this portion of the EES business and
recognized a loss of $129 ($168 pretax) in discontinued operations (see Note B) on the accompanying Statement of
Consolidated Operations. The total cash payment was comprised of the agreed upon transaction price of $175 and
working capital and other adjustments of $25 based on the provisions of the purchase agreement. This transaction
remains subject to certain post-closing adjustments as defined in the purchase agreement. Proceeds from the sale of
assets and businesses on the accompanying Statement of Consolidated Cash Flows include the $200 as a cash outflow.
The wire harness and electrical portion of the EES business generated sales of $1,114 in 2008 and, at the time of
divestiture, had operations in 13 countries employing approximately 16,200 employees.
In early 2010, Alcoa recognized an additional loss of $6 ($9 pretax) in discontinued operations as a result of a contract
settlement with a former customer of this business (see Note B). Separately, the legal entity that operated the
previously sold wire harness and electrical business in Germany filed for insolvency. No lawsuits have been filed
against Alcoa related to this bankruptcy. While the Company may be subject to claims in the insolvency proceedings, it
has an indemnity from Platinum Equity.
In December 2009, Alcoa completed the divestiture of the electronics portion of the EES business to Flextronics Inc.
Alcoa paid $4 upon consummation of the transaction and recognized a loss of $9 ($13 pretax) in discontinued
operations (see Note B) on the accompanying Statement of Consolidated Operations. This transaction remains subject
to certain post-closing adjustments as defined in the purchase agreement. Proceeds from the sale of assets and
businesses on the accompanying Statement of Consolidated Cash Flows include this payment as a cash outflow. The
electronics portion of the EES business generated sales of $104 in 2008 and, at the time of divestiture, had operations
in four countries employing approximately 450 employees.
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