Restructuring And Other Charges

9 Months Ended

Sep. 30, 2011

Restructuring And Other Charges

Restructuring And Other Charges

D. Restructuring and Other Charges – In the third quarter and nine-month period of 2011, Alcoa recorded Restructuring and other charges of $9 ($5 after-tax and noncontrolling interests) and $49 ($26 after-tax and noncontrolling interests), respectively.

Restructuring and other charges in the 2011 third quarter included $18 ($11 after-tax and noncontrolling interests) for the layoff of approximately 150 employees (70 in the Flat-Rolled Products segment, 40 in the Primary Metals segment, 30 in the Alumina segment, and 10 in Corporate); a net charge of $1 (less than $1 after-tax) for other small items; and $10 ($6 after-tax) for the reversal of previously recorded layoff reserves, primarily related to a change in plans for Alcoa's aluminum powder facility in Rockdale, TX.

In the 2011 nine-month period, Restructuring and other charges included $31 ($19 after-tax and noncontrolling interests) for the layoff of approximately 630 employees (420 in the Flat-Rolled Products segment, 110 in the Primary Metals segment, 60 in the Alumina segment, 30 in the Engineered Products and Solutions segment, and 10 in Corporate); $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); 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 $4 ($3 after-tax) for other small items; and $14 ($9 after-tax) for the reversal of previously recorded layoff reserves, primarily related to a change in plans for Alcoa's aluminum powder facility in Rockdale, TX.

In the third quarter and nine-month period of 2010, Alcoa recorded Restructuring and other charges of $2 (a credit of $1 after-tax and noncontrolling interests) and $219 ($138 after-tax and noncontrolling interests), respectively.

Restructuring and other charges in the 2010 third quarter included $3 ($2 after-tax and noncontrolling interests) for the layoff of approximately 30 employees (20 in the Primary Metals segment and 10 in Corporate); $8 ($5 after-tax) in net charges related to divested and to be divested businesses (Global Foil, Packaging and Consumer, and Transportation Products Europe) for, among other items, working capital adjustments and a tax indemnification; $1 ($1 after-tax and noncontrolling interests) in net charges for various other exit costs; and $10 ($9 after-tax) for the reversal of previously recorded layoff reserves, including a portion of those related to the Portovesme smelter in Italy due to the execution of a new power agreement (see the European Commission Matters section of Note H).

In the 2010 nine-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); $39 ($26 after-tax and noncontrolling interests) for the layoff of approximately 830 employees (625 in the Engineered Products and Solutions segment; 80 in the Primary Metals segment; 25 in the Flat-Rolled Products segment; 10 in the Alumina segment; and 90 in Corporate); $22 ($14 after-tax) in net charges related to divested and to be divested businesses (Automotive Castings, Global Foil, Transportation Products Europe, and Packaging and Consumer) for, among other items, the settlement of a contract with a former customer, foreign currency movements, working capital adjustments, and a tax indemnification; $9 ($7 after-tax) in net charges for various other exit costs; and $25 ($19 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:

	Third quarter  ended September 30,						Nine months  ended September 30,
	2011			2010			2011			2010
Alumina	$	6		$	—		$	32		$	13
Primary Metals		(6	)		(7	)		(4	)		145
Flat-Rolled Products		5			—			7			(7	)
Engineered Products and Solutions		(2	)		—			1			22
Segment total		3			(7	)		36			173
Corporate		6			9			13			46
Total restructuring and other charges	$	9		$	2		$	49		$	219

As of September 30, 2011, approximately 170 of the 630 employees associated with 2011 restructuring programs, approximately 760 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 a portion of the 2011 restructuring programs and all of the 2010 and 2009 restructuring programs are expected to be completed by the end of 2011. In the 2011 third quarter and nine-month period, cash payments of $11 and $14, respectively, were made against the layoff reserves related to the 2011 restructuring programs; $2 and $6, respectively, were made against the layoff reserves related to the 2010 restructuring programs; and $2 and $11, 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		(32	)		(6	)		(38	)
Restructuring charges		31			1			32
Other*		(13	)		—			(13	)
Reserve balances at September 30, 2011	$	39		$	58		$	97

* 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 $60 to $65, which is expected to be paid over the next several years for ongoing site remediation work, special termination benefit payments, and lease termination costs.