Restructuring And Other Charges

6 Months Ended

Jun. 30, 2011

Restructuring And Other Charges

Restructuring And Other Charges

D. Restructuring and Other Charges – In the second quarter and six-month period of 2011, Alcoa recorded Restructuring and other charges of $34 ($16 after-tax and noncontrolling interests) and $40 ($21 after-tax and noncontrolling interests), respectively.

Restructuring and other charges in the 2011 second quarter included $20 ($8 after-tax and noncontrolling interests) for a litigation matter related to the former St. Croix location (see the Litigation section of Note H); $8 ($4 after-tax and noncontrolling interests) for the layoff of approximately 120 employees (70 in the Primary Metals segment, 30 in the Engineered Products and Solutions segment, and 20 in the Alumina segment); a $6 ($4 after-tax) charge for an adjustment to the fair value of the one remaining foil location classified as held for sale due to foreign currency movements; a net charge of $2 ($2 after-tax) for other various items; and $2 ($2 after-tax) for the reversal of a number of small, previously recorded layoff reserves.

In the 2011 six-month period, Restructuring and other charges included the previously mentioned $20 ($8 after-tax and noncontrolling interests); $13 ($8 after-tax and noncontrolling interests) for the layoff of approximately 480 employees (350 in the Flat-Rolled Products segment, 70 in the Primary Metals segment, 30 in the Alumina segment, and 30 in the Engineered Products and Solutions segment); an $8 ($5 after-tax) charge for an adjustment to the fair value of the one remaining foil location classified as held for sale due to foreign currency movements; a net charge of $3 ($3 after-tax) for other various items; and $4 ($3 after-tax) for the reversal of a number of small, previously recorded layoff reserves.

In the second quarter and six-month period of 2010, Alcoa recorded Restructuring and other charges of $30 ($20 after-tax and noncontrolling interests) and $217 ($139 after-tax and noncontrolling interests), respectively.

Restructuring and other charges in the 2010 second quarter included $28 ($19 after-tax and noncontrolling interests) for the layoff of approximately 600 employees (460 in the Engineered Products and Solutions segment; 60 in the Primary Metals segment; 10 in the Alumina segment; and 70 in Corporate); $8 ($5 after-tax) in net charges related to divested businesses (Automotive Castings, Transportation Products Europe, and Global Foil) for, among other items, the settlement of a contract with a former customer, foreign currency movements, and working capital adjustments; $1 ($1 after-tax and noncontrolling interests) in net charges for various other exit costs (includes a $1 reversal related to the asset impairment charges recognized in the 2010 first quarter for five U.S. locations – see below); and $7 ($5 after-tax) for the reversal of previously recorded layoff reserves.

In the 2010 six-month period, Restructuring and other charges included $128 ($81 after-tax and noncontrolling interests) in asset impairments and $46 ($29 after-tax and noncontrolling interests) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at five U.S. locations (see below); $36 ($24 after-tax and noncontrolling interests) for the layoff of approximately 800 employees (625 in the Engineered Products and Solutions segment; 60 in the Primary Metals segment; 25 in the Flat-Rolled Products segment; 10 in the Alumina segment; and 80 in Corporate); $15 ($10 after-tax) in net charges related to divested and to be divested businesses (Automotive Castings, Transportation Products Europe, and Global Foil) for, among other items, the settlement of a contract with a former customer, foreign currency movements, and working capital adjustments; $7 ($5 after-tax) in net charges for various other exit costs; and $15 ($10 after-tax) for the reversal of previously recorded layoff reserves.

In the 2010 first quarter, 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 then-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 $128 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 and $14 ($9 after-tax) in environmental remediation, both triggered by the decision to permanently shutdown and demolish these structures, and $2 ($1 after-tax and noncontrolling interests) in other related costs.

Alcoa does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of allocating such charges to segment results would have been as follows:

	Second quarter ended June  30,					Six months ended June  30,
	2011		2010			2011		2010
Alumina	$	25	$	1		$	26	$	13
Primary Metals		—		2			2		152
Flat-Rolled Products		—		(2	)		2		(7	)
Engineered Products and Solutions		3		18			3		22
Segment total		28		19			33		180
Corporate		6		11			7		37
Total restructuring and other charges	$	34	$	30		$	40	$	217

As of June 30, 2011, approximately 50 of the 480 employees associated with 2011 restructuring programs, approximately 740 of the 880 employees associated with 2010 restructuring programs, and approximately 5,600 of the 6,000 employees associated with 2009 restructuring programs were terminated. The remaining terminations for all of these restructuring programs are expected to be completed by the end of 2011. In the 2011 second quarter and six-month period, cash payments of $2 and $3, respectively, were made against the layoff reserves related to the 2011 restructuring programs; $1 and $4, respectively, were made against the layoff reserves related to the 2010 restructuring programs; and $4 and $9, respectively, were made against the layoff reserves related to the 2009 restructuring programs.

Activity and reserve balances for restructuring charges were as follows:

	Layoff costs			Other exit costs			Total
Reserve balances at December 31, 2009	$	160		$	66		$	226
2010:
Cash payments		(93	)		(15	)		(108	)
Restructuring charges		43			53			96
Other*		(57	)		(41	)		(98	)
Reserve balances at December 31, 2010		53			63			116
2011:
Cash payments		(16	)		(4	)		(20	)
Restructuring charges		13			1			14
Other*		(3	)		—			(3	)
Reserve balances at June 30, 2011	$	47		$	60		$	107

* Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation. In 2010, Other for other exit costs also included a reclassification of the following restructuring charges: $30 in asset retirement and $14 in environmental obligations, as these liabilities are included in Alcoa's separate reserves for asset retirement obligations and environmental remediation, respectively.

The remaining reserves are expected to be paid in cash during 2011, with the exception of approximately $55 to $60, which is expected to be paid over the next several years for ongoing site remediation work, special termination benefit payments, and lease termination costs.