Alcoa 2015 Annual Report Download - page 121

Gains or losses from the sale of assets are generally recorded in other income or expenses (see policy below for assets
classified as held for sale and discontinued operations). Repairs and maintenance are charged to expense as incurred.
Interest related to the construction of qualifying assets is capitalized as part of the construction costs.
Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets (asset group) may not be recoverable. Recoverability of assets is determined by
comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their
carrying amount. An impairment loss would be recognized when the carrying amount of the assets (asset group)
exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as
the excess of the carrying value of the assets (asset group) over their fair value, with fair value determined using the
best information available, which generally is a discounted cash flow (DCF) model. The determination of what
constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful lives of
assets also require significant judgments.
Mineral Rights. Alcoa recognizes mineral rights upon specific acquisitions of land that include such underlying rights,
primarily in Jamaica (in December 2014, Alcoa divested its ownership stake in the joint venture in Jamaica—see Note
F). This land is purchased for the sole purpose of mining bauxite. The underlying bauxite reserves are known at the
time of acquisition based on associated drilling and analysis and are considered to be proven reserves. The acquisition
cost of the land and mineral rights are amortized as the bauxite is produced based on the level of minable tons
determined at the time of purchase. Mineral rights are included in Properties, plants, and equipment on the
accompanying Consolidated Balance Sheet.
Deferred Mining Costs. Alcoa recognizes deferred mining costs during the development stage of a mine life cycle.
Such costs include the construction of access and haul roads, detailed drilling and geological analysis to further define
the grade and quality of the known bauxite, and overburden removal costs. These costs relate to sections of the related
mines where Alcoa is either currently extracting bauxite or is preparing for production in the near term. These sections
are outlined and planned incrementally and generally are mined over periods ranging from one to five years, depending
on mine specifics. The amount of geological drilling and testing necessary to determine the economic viability of the
bauxite deposit being mined is such that the reserves are considered to be proven, and the mining costs are amortized
based on this level of reserves. Deferred mining costs are included in Other noncurrent assets on the accompanying
Consolidated Balance Sheet.
Goodwill and Other Intangible Assets. 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 Note F), 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,
97