Alcoa 2012 Annual Report Download - page 83

Equity contributions represent Alcoa’s committed investment related to a joint venture in Saudi Arabia. In December
2009, Alcoa signed an agreement to enter into a joint venture to develop a new aluminum complex in Saudi Arabia,
comprised of a bauxite mine, alumina refinery, aluminum smelter, and rolling mill, which will require the Company to
contribute approximately $1,100 over a five-year period (2010 through 2014). As of December 31, 2012, Alcoa has
made equity contributions of $661. The timing of the amounts included in the preceding table may vary based on
changes in anticipated construction schedules of the project.
Payments related to acquisitions are based on provisions in certain acquisition agreements that state additional funds
are due to the seller from Alcoa if the businesses acquired achieve stated financial and operational thresholds. Amounts
are only presented in the preceding table if it is has been determined that payment is more likely than not to occur. In
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. At December 31, 2012, Alcoa has maximum potential future payments for
guarantees issued on behalf of certain third parties of $621. These guarantees expire in 2015 through 2019 and relate to
project financing for a hydroelectric power project in Brazil and the aluminum complex in Saudi Arabia. Alcoa also
has outstanding bank guarantees related to tax matters, outstanding debt, workers compensation, environmental
obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees,
which expire at various dates between 2013 and 2017 was $494 at December 31, 2012.
Alcoa has outstanding letters of credit primarily related to workers’ compensation, energy contracts, and leasing
obligations. The total amount committed under these letters of credit, which automatically renew or expire at various
dates, mostly in 2013, was $299 at December 31, 2012. Alcoa also has outstanding surety bonds primarily related to
tax matters, contract performance, workers compensation, environmental-related matters, and customs duties. The total
amount committed under these bonds, which automatically renew or expire at various dates, mostly in 2013 and 2014
was $193 at December 31, 2012.
Alcoa has three arrangements, each with a different financial institution, to sell certain customer receivables outright without
recourse on a continuous basis. As of December 31, 2012, sold receivables, which were derecognized from the Consolidated
Balance Sheet, in the amount of $37 under the three arrangements combined were uncollected. Alcoa services the customer
receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.
On March 30, 2012, Alcoa finalized a one-year arrangement with a financial institution to sell certain customer
receivables without recourse on a revolving basis. The sale of such receivables is completed through the use of a
bankruptcy remote special purpose entity, which is a consolidated subsidiary of Alcoa. This arrangement provides for
minimum funding of $50 up to a maximum of $250 for receivables sold. Alcoa initially sold $304 of customer
receivables in exchange for $50 in cash and $254 of deferred purchase price under this arrangement. Alcoa received
additional cash funding of $155 throughout 2012. As of December 31, 2012, the deferred purchase price receivable was
$18, which was included in Other receivables on the Consolidated Balance Sheet. The deferred purchase price
receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the
sale of new receivables will result in an increase in the deferred purchase price receivable. The net change in the
deferred purchase price receivable was reflected in the Decrease in receivables line item on the Statement of
Consolidated Cash Flows. This activity is reflected as an operating cash flow because the related customer receivables
are the result of an operating activity with an insignificant, short-term interest rate risk. In 2012, the gross cash
outflows and inflows associated with the deferred purchase price receivable were $3,339 and $3,321, respectively. The
gross amount of receivables sold and total cash collections under this program since its inception was $3,339 and
$3,116, respectively. Alcoa services the customer receivables for the financial institution 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
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