Alcoa 2015 Annual Report Download - page 141

Firth Rixson manufactures rings, forgings, and metal products for the aerospace end market, as well as other markets
requiring highly engineered material applications. This business has 13 operating facilities in the United States, United
Kingdom, Europe, and Asia employing approximately 2,400 people combined. The purpose of this acquisition is to
strengthen Alcoa’s aerospace business and position the Company to capture additional aerospace growth with a broader
range of high-growth, value-add jet engine components. The operating results and assets and liabilities of Firth Rixson
were included within the Engineered Products and Solutions segment since the date of acquisition. Third-party sales
and after-tax operating income (Alcoa’s primary segment performance measure—see Note Q) of Firth Rixson from the
acquisition date through December 31, 2014 were $81 and $(12), respectively.
The following table represents the final allocation of the purchase price by major asset acquired and liability assumed,
as well as the amount of goodwill recognized and the net present value of the potential earn-out:
Assets:
Receivables from customers $ 193
Inventories 227
Prepaid expenses and other current assets 22
Properties, plants, and equipment 493
Goodwill 1,801
Other noncurrent assets 758
Total assets $3,494
Liabilities:
Accounts payable $ 162
Other current liabilities 100
Contingent consideration 130
Other noncurrent liabilities 107
Total liabilities $ 499
As reflected in the table above, Alcoa recognized goodwill of $1,801, which represents the earnings growth potential of
Firth Rixson and expected synergies from combining the operations of the two companies. The goodwill was allocated
to two of Alcoa’s reporting units associated with the Engineered Products and Solutions segment, Alcoa Fastening
Systems and Rings ($1,117) and Alcoa Forging and Extrusions ($684), on a relative fair value basis. None of the
goodwill is deductible for income tax purposes.
The other noncurrent assets in the table above represent intangible assets, which were included in the other intangibles
class (see Note E). These intangible assets consist primarily of customer relationships and contracts, backlog,
qualifications, and technology, and have a weighted-average amortization period of 35 years.
The contingent consideration liability presented in the table above represents the net present value of the potential
earn-out of $150 (Level 3 in the fair value hierarchy—see Note X). This earn-out is contingent on the Firth Rixson
forging business in Savannah, Georgia achieving certain identified financial targets through December 31, 2020.
Management has determined that payment of the maximum amount is probable based on the forecasted financial
performance of this location. It is estimated that the earn-out will be paid in 2019 through 2020. The fair value of this
liability will be updated in future periods with any change resulting in a corresponding charge or credit to earnings.
In August 2014, Alcoa completed the acquisition of the 30% outstanding noncontrolling interest in the aluminum
brazing sheet venture in Kunshan City, China from Shanxi Yuncheng Engraving Group for $28. The $3 difference
between the purchase price and the carrying value of the noncontrolling interest on Alcoa’s Consolidated Balance
Sheet was included in Additional capital.
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