Alcoa 2013 Annual Report Download - page 91

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, 2013, Alcoa has maximum potential future payments for a
guarantee issued on behalf of a third party of $542. This guarantee expires in 2019 and relates to project financing for
the aluminum complex in Saudi Arabia. In February 2013, a guarantee related to project financing for a hydroelectric
power project in Brazil was terminated as the outstanding debt of the consortium was repaid in full. 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 2014 and 2022 was $370 at December 31, 2013.
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 2014, was $333 at December 31, 2013. 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 2014, was
$170 at December 31, 2013.
In March 2012, Alcoa entered into an 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 originally provided for
minimum funding of $50 up to a maximum of $250 for receivables sold. In May 2013, the arrangement was amended
to increase the maximum funding to $500 and include two additional financial institutions. On March 30, 2012, 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 net cash funding of $5 ($388 in draws and $383 in repayments) and $155
($160 in draws and $5 in repayments) in 2013 and 2012, respectively. As of December 31, 2013 and 2012, the deferred
purchase price receivable was $248 and $18, respectively, 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
(Increase) 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 2013 and 2012, the gross cash outflows and inflows associated with the
deferred purchase price receivable were $6,985 and $6,755, respectively, and $3,339 and $3,321, respectively. The
gross amount of receivables sold and total cash collected under this program since its inception was $10,324 and
$9,866, respectively. Alcoa services the customer receivables for the financial institutions at market rates; therefore, no
servicing asset or liability was recorded.
Alcoa had three other arrangements, each with a different financial institution, to sell certain customer receivables
outright without recourse on a continuous basis. On March 22, 2013, Alcoa terminated these arrangements. All
receivables sold under these arrangements were collected as of March 31, 2013. Alcoa serviced the customer
receivables for the financial institutions 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
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