Alcoa 2015 Annual Report Download - page 107

uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs, and other
factors. At the date a reasonable estimate of the ultimate settlement date can be made, Alcoa would record an ARO for
the removal, treatment, transportation, storage and/or disposal of various regulated assets and hazardous materials such
as asbestos, underground and aboveground storage tanks, polychlorinated biphenyls, various process residuals, solid
wastes, electronic equipment waste, and various other materials. Such amounts may be material to the Consolidated
Financial Statements in the period in which they are recorded. If Alcoa was required to demolish all such structures
immediately, the estimated CARO as of December 31, 2015 ranges from less than $1 to $46 per structure (156
structures) in today’s dollars.
Goodwill. Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more
frequently if indicators of impairment exist or if a decision is made to sell or exit a business. A significant amount of
judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include
deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in
the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows,
or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized
in an actual transaction may differ from that used to evaluate the impairment of goodwill.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. Alcoa has ten reporting units, of which four are included in the
Engineered Products and Solutions segment and three are included in the Transportation and Construction Solutions
segment. The remaining three reporting units are the Alumina segment, the Primary Metals segment (all goodwill was
impaired in 2013—see below), and the Global Rolled Products segment. More than 70% of Alcoa’s total goodwill is
allocated to two reporting units as follows: Alcoa Fastening Systems and Rings (AFSR) ($2,232) and Alcoa Power and
Propulsion (APP) ($1,695) businesses, both of which are included in the Engineered Products and Solutions segment.
These amounts include an allocation of Corporate’s goodwill.
In November 2014, Alcoa acquired Firth Rixson (see Engineered Products and Solutions in Segment Information under
Results of Operations above), and, as a result recognized $1,801 in goodwill. This amount was allocated between the
AFSR and Alcoa Forgings and Extrusion reporting units, which is part of the Engineered Products and Solutions
segment. In March and July 2015, Alcoa acquired TITAL and RTI, respectively, (see Engineered Products and
Solutions in Segment Information under Results of Operations above) and recognized $118 and $240, respectively, in
goodwill. The goodwill amount related to TITAL was allocated to the APP reporting unit and the amount related to
RTI was allocated to Alcoa Titanium and Engineered Products, a new Alcoa reporting unit that consists solely of the
acquired RTI business and is part of the Engineered Products and Solutions segment.
In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether
the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that
the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative
assessment and determines that an impairment is more likely than not, the entity is then required to perform the
existing two-step quantitative impairment test (described below), otherwise no further analysis is required. An entity
also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative
impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same
whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative
impairment test.
Alcoa’s policy for its annual review of goodwill is to perform the qualitative assessment for all reporting units not
subjected directly to the two-step quantitative impairment test. Generally, management will proceed directly to the
two-step quantitative impairment test for two to three reporting units (based on facts and circumstances) during each
annual review of goodwill. This policy will result in each of the nine reporting units with goodwill being subjected to
the two-step quantitative impairment test at least once during every three-year period.
Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair
value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the
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