Alcoa 2010 Annual Report Download - page 74

connection with the 2005 acquisition of two fabricating facilities in Russia, Alcoa could be required to make contingent
payments of approximately $50 through 2015, but are not included in the preceding table as they have not met such
standard.
Off-Balance Sheet Arrangements. As of December 31, 2010, Alcoa has maximum potential future payments for
guarantees issued on behalf of certain third parties of $553. These guarantees expire in 2015 through 2027 and relate to
project financing for hydroelectric power projects in Brazil and the aluminum complex in Saudi Arabia. Alcoa also has
outstanding bank guarantees related to legal, customs duties, and leasing obligations, among others, which expire at
various dates, that total $425 at December 31, 2010.
Alcoa has outstanding letters of credit in the amount of $350 as of December 31, 2010. These letters of credit relate
primarily to workers’ compensation, derivative contracts, and leasing obligations, and expire at various dates, mostly in
2011. Alcoa also has outstanding surety bonds primarily related to customs duties, self-insurance, and legal
obligations. The total amount committed under these bonds, which automatically renew or expire at various dates,
mostly in 2011, was $154 at December 31, 2010.
Alcoa had a program to sell a senior undivided interest in certain customer receivables, without recourse, on a
continuous basis to a third-party for cash (up to $250). This program was renewed on October 29, 2009 and was due to
expire on October 28, 2010. On March 26, 2010, Alcoa terminated this program and repaid the $250 originally
received in 2009. In light of the adoption of accounting changes related to the transfer of financial assets, had the
securitization program not been terminated, it would have resulted in a $250 increase in both Receivables from
customers and Short-term borrowings on Alcoa’s Consolidated Balance Sheet. As of December 31, 2009, Alcoa
derecognized $250 in Receivables from customers on its Consolidated Balance Sheet under this program. Alcoa
serviced the customer receivables for the third-party at market rates; therefore, no servicing asset or liability was
recorded.
Also on March 26, 2010, Alcoa entered into two arrangements with third parties to sell certain customer receivables
outright without recourse. In December 2010, Alcoa sold $192 in customer receivables under these arrangements. As
of December 31, 2010, $150 of the sold receivables remain uncollected. Alcoa is servicing the customer receivables for
the third parties at market rates; therefore, no servicing asset or liability was recorded.
Critical Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in
the United States of America requires management to make certain judgments, estimates, and assumptions regarding
uncertainties that affect the amounts reported in the Consolidated Financial Statements and disclosed in the accompanying
Notes. Areas that require significant judgments, estimates, and assumptions include accounting for derivatives and
hedging activities; environmental and litigation matters; asset retirement obligations; the testing of goodwill, equity
investments, and properties, plants, and equipment for impairment; estimating fair value of businesses to be divested;
pension plans and other postretirement benefits obligations; stock-based compensation; and income taxes.
Management uses historical experience and all available information to make these judgments, estimates, and
assumptions, and actual results may differ from those used to prepare the Company’s Consolidated Financial
Statements at any given time. Despite these inherent limitations, management believes that Management’s Discussion
and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and
accompanying Notes provide a meaningful and fair perspective of the Company.
A summary of the Company’s significant accounting policies is included in Note A to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K. Management believes that the application of these policies on a
consistent basis enables the Company to provide the users of the Consolidated Financial Statements with useful and
reliable information about the Company’s operating results and financial condition.
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