F. Acquisitions and Divestitures

Pro forma results of the Company, assuming all acquisitions described below were made at the beginning of the earliest prior period presented, would not have been materially different from the results reported.

2015 Acquisitions. In March 2015, Alcoa completed the acquisition of an aerospace structural castings company, TITAL, for $204 (€188) in cash (an additional $1 (€1) was paid in September 2015 to settle working capital in accordance with the purchase agreement). This transaction is no longer subject to post-closing adjustments. TITAL, a privately held company with approximately 650 employees based in Germany, produces aluminum and titanium investment casting products for the aerospace and defense end markets. The purpose of this acquisition is to capture increasing demand for advanced jet engine components made of titanium, establish titanium-casting capabilities in Europe, and expand existing aluminum casting capacity. The assets, including the associated goodwill, and liabilities of this business were included within Alcoa’s Engineered Products and Solutions segment since the date of acquisition. Based on the preliminary allocation of the purchase price, goodwill of $118 was recorded for this transaction, none of which is estimated to be deductible for income tax purposes. The final allocation of the purchase price will be based on management’s best estimates, including a third-party valuation of certain assets acquired, which may result in the identification of other intangible assets. This valuation is expected to be completed in March 2016.

Also in March 2015, Alcoa signed a definitive agreement to acquire RTI International Metals, Inc. (RTI), a U.S. company that was publicly traded on the New York Stock Exchange under the ticker symbol “RTI.” On July 23, 2015, after satisfying all customary closing conditions and receiving the required regulatory and RTI shareholder approvals, Alcoa completed the acquisition of RTI. Alcoa purchased all outstanding shares of RTI common stock in a stock-for-stock transaction valued at $870 (based on the $9.96 per share July 23, 2015 closing price of Alcoa’s common stock). Each issued and outstanding share of RTI common stock prior to the completion of the transaction was converted into the right to receive 2.8315 shares of Alcoa common stock. In total, Alcoa issued 87,397,414 shares of its common stock to consummate this transaction, which was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash financing activity. The exchange ratio was the quotient of a $41 per RTI common share acquisition price and the $14.48 per share March 6, 2015 closing price of Alcoa’s common stock. In addition to the transaction price, Alcoa also paid $25 ($19 after-tax) in professional fees and costs related to this acquisition. This amount was recorded in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations.

RTI is a global supplier of titanium and specialty metal products and services for the commercial aerospace, defense, energy, and medical device end markets. The purpose of this acquisition is to expand Alcoa’s range of titanium offerings and add advanced technologies and materials, primarily related to the aerospace end market. In 2014, RTI generated net sales of $794 and had approximately 2,600 employees. The operating results and assets and liabilities of RTI were included within Alcoa’s 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 RTI from the acquisition date through December 31, 2015 were $309 and less than $(1), respectively.

The following table represents the preliminary allocation of the purchase price by major asset acquired and liability assumed, as well as the amount of goodwill recognized:


Assets:
Cash and cash equivalents	$	302
Receivables from customers		103
Inventories		531
Prepaid expenses and other current assets		47
Properties, plants, and equipment		436
Goodwill		240
Other noncurrent assets		93
Total assets	$	1,752
Liabilities:
Accounts payable	$	90
Other current liabilities		94
Long-term debt due within one year		115
Long-term debt, less amount due within one year		385
Other noncurrent liabilities		138
Total liabilities	$	822
Equity:
Additional capital	$	60
Total equity	$	60

The amounts in the table above are subject to change based, in part, on management’s review of a third-party valuation of the assets acquired and liabilities assumed, which is expected to be completed in mid-2016.

As reflected in the table above, Alcoa recognized goodwill of $240, which represents the earnings growth potential of RTI, Alcoa’s ability to expand its titanium capabilities in the aerospace market, and expected synergies from combining the operations of the two companies. This goodwill was allocated to a new Alcoa reporting unit associated with the Engineered Products and Solutions segment, Alcoa Titanium and Engineered Products, which consists solely of the acquired RTI business. None of this goodwill is deductible for income tax purposes.

The other noncurrent assets in the table above include an estimate for intangible assets of $73, most of which were included in Alcoa’s other intangibles class (see Note E). The specific identification and weighted-average amortization period for these intangible assets is dependent on the final valuation.

As part of this acquisition, Alcoa assumed the obligation to repay two tranches of convertible debt; one tranche was due and settled in cash on December 1, 2015 (principal amount of $115) and the other tranche is due on October 15, 2019 (principal amount of $403). Upon conversion of the 2019 convertible notes in accordance with their terms, holders will receive, at Alcoa’s election, cash, shares of common stock (up to 27,990,966 shares), or a combination of cash and shares. This cash conversion feature requires the convertible notes to be bifurcated into a liability component and an equity component. The fair value of the liability component was determined by calculating the net present value of the cash flows of the convertible notes using the interest rate of a similar instrument without a conversion feature. The fair value of the equity component is the difference between the fair value of the entire instrument on the date of acquisition and the fair value of the liability and is included as Additional capital on the accompanying Consolidated Balance Sheet.

2015 Divestitures. In 2015, Alcoa completed the divestiture of an operation in Russia (see below) and had post-closing adjustments, as provided for in the respective purchase agreements, related to three divestitures completed in December 2014 (see 2014 Divestitures below). The divestiture and post-closing adjustments combined resulted in net cash received of $30 and a net loss of $161 ($151 after-tax and noncontrolling interest), which was recorded in Restructuring and other charges (see Note D) on the accompanying Statement of Consolidated Operations. These four divestitures are no longer subject to post-closing adjustments.

In March 2015, Alcoa completed the sale of a rolling mill located in Belaya Kalitva, Russia to a wholly-owned subsidiary of Stupino Titanium Company. While owned by Alcoa, the operating results and assets and liabilities of the rolling mill were included in the Global Rolled Products segment. The rolling mill generated sales of approximately $130 in 2014 and, at the time of divestiture, had approximately 1,870 employees.

2014 Acquisitions. In June 2014, Alcoa signed a purchase agreement to acquire an aerospace jet engine components company, Firth Rixson, from Oak Hill Capital Partners for $2,850. The purchase price was composed of $2,350 in cash and $500 of Alcoa common stock. The common stock component was equivalent to 36,523,010 shares at a per share price of $13.69, as determined in the agreement. In conjunction with the purchase agreement, Alcoa also entered into an earn-out agreement, which states that Alcoa will make earn-out payments up to an aggregate maximum amount of $150 through December 31, 2020 upon certain conditions (see below for additional information). On November 19, 2014, after satisfying all customary closing conditions and receiving the required regulatory approvals, Alcoa completed the acquisition of Firth Rixson for $2,995. The purchase price was composed of $2,385 in cash (net of cash acquired) and $610 of Alcoa common stock. The cash portion of the transaction price increased by $35 due to working capital and other adjustments based on the provisions of the purchase agreement. The common stock portion of the transaction price was based on the closing market price ($16.69 per share) of Alcoa’s common stock on the acquisition date. This transaction is subject to certain post-closing adjustments as defined in the purchase agreement.

In addition to the transaction price, Alcoa also paid $42 ($34 after-tax) in professional fees and costs related to this acquisition. This amount was recorded in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations. Additionally, Alcoa recorded $13 ($8 after-tax) in Interest expense on the accompanying Statement of Consolidated Operations for costs associated with the execution (in June 2014) and termination (in September 2014) of a $2,500 364-day senior unsecured bridge term loan facility. This facility was entered into for the purpose of financing all or a portion of the cash consideration for this acquisition and to pay fees and expenses incurred in connection therewith. However, in September 2014, the facility was no longer necessary as Alcoa completed the issuance of $2,500 in debt (see Note K) and equity (see Note R) instruments to finance the acquisition.

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.

2014 Divestitures. In 2014, Alcoa completed the divestiture of four operations as described below. Combined, these transactions yielded net cash proceeds of $247 and resulted in a net loss of $332 ($163 after-tax and noncontrolling interest), which was recorded in Restructuring and other charges (see Note D) on the accompanying Statement of Consolidated Operations. All four transactions were subject to certain post-closing adjustments as defined in the respective purchase agreements as of December 31, 2014 (see 2015 Divestitures above).

In November 2014, Alcoa completed the sale of an aluminum rod plant located in Bécancour, Québec, Canada to Sural Laminated Products. This facility takes molten aluminum and shapes it into the form of a rod, which is used by customers primarily for the transportation of electricity. While owned by Alcoa, the operating results and assets and liabilities of this plant were included in the Primary Metals segment. In conjunction with this transaction, Alcoa entered into a multi-year agreement with Sural Laminated Products to supply molten aluminum for the rod plant. The aluminum rod plant generated sales of approximately $200 in 2013 and, at the time of divestiture, had approximately 60 employees.

In December 2014, Alcoa’s majority-owned subsidiary (60%), Alcoa World Alumina and Chemicals (AWAC), completed the sale of its ownership stake in a bauxite mine and alumina refinery joint venture in Jamaica to Noble Group Ltd. The joint venture was 55% owned by a subsidiary of AWAC, which is 40% owned by Alumina Limited. While owned by AWAC, 55% of both the operating results and assets and liabilities of this joint venture were included in the Alumina segment. As it relates to AWAC’s previous 55% ownership stake, the refinery (AWAC’s share of the capacity was 778,800 metric-tons-per-year) generated sales (third-party and intersegment) of approximately $200 in 2013, and the refinery and mine combined, at the time of divestiture, had approximately 500 employees.

Also in December 2014, Alcoa completed the sale of its 50.33% ownership stake in the Mt. Holly smelter located in Goose Creek, South Carolina to Century Aluminum Company. While owned by Alcoa, 50.33% of both the operating results and assets and liabilities related to the smelter were included in the Primary Metals segment. As it relates to Alcoa’s previous 50.33% ownership stake, the smelter (Alcoa’s share of the capacity was 115,000 metric-tons-per-year) generated sales of approximately $280 in 2013 and, at the time of divestiture, had approximately 250 employees.

Additionally in December 2014, Alcoa completed the sale of three rolling mills located in Spain (Alicante and Amorebieta) and France (Castelsarrasin) to a subsidiary of Atlas Holdings LLC. While owned by Alcoa, the operating results and assets and liabilities of the rolling mills were included in the Global Rolled Products segment. In conjunction with this transaction, Alcoa entered into a multi-year agreement with the buyer to supply aluminum for the rolling mills. The rolling mills combined generated sales of approximately $500 in 2013 and, at the time of divestiture, had approximately 750 employees.