Alcoa 2006 Annual Report Download - page 42

costs incurred during the production phase of a mine are to
be accounted for as variable production costs that should
be included in the costs of the inventory produced (that is,
extracted) during the period that the stripping costs are
incurred. Upon adoption, Alcoa recognized a cumulative
effect adjustment in the opening balance of retained earn-
ings of $3, representing the reduction in the net book value
of post-production stripping costs of $8, offset by a related
deferred tax liability of $3 and minority interests of $2.
Recently Issued Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements,” (SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements. The provisions
of this standard apply to other accounting pronouncements
that require or permit fair value measurements. SFAS 157
becomes effective for Alcoa on January 1, 2008. Upon
adoption, the provisions of SFAS 157 are to be applied
prospectively with limited exceptions. The adoption of
SFAS 157 is not expected to have a material impact on
Alcoa’s consolidated financial statements.
In July 2006, the FASB issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109,” (FIN 48). FIN
48 prescribes a comprehensive model for how a company
should recognize, measure, present, and disclose in its
financial statements uncertain tax positions that it has
taken or expects to take on a tax return. On January 17,
2007, the FASB affirmed its previous decision to make FIN
48 effective for fiscal years beginning after December 15,
2006. Accordingly, FIN 48 is effective for Alcoa on January
1, 2007. Management has determined that the adoption of
FIN 48 will not have a material impact on Alcoa’s con-
solidated financial statements.
Contractual Obligations and Off-Balance Sheet Arrangements
The company is obligated to make future payments under various contracts such as long-term purchase obligations, debt
agreements, and lease agreements, and has certain commitments such as guarantees. The company has grouped these con-
tractual obligations and off-balance sheet arrangements into operating activities, financing activities, and investing activities
in the same manner as they are classified in the Statement of Consolidated Cash Flows in order to provide a better under-
standing of the nature of the obligations and arrangements and to provide a basis for comparison to historical information.
The table below provides a summary of contractual obligations and off-balance sheet arrangements as of December 31,
2006:
Total 2007 2008-2009 2010-2011 Thereafter
Operating activities:
Energy-related purchase obligations $13,535 $1,277 $2,253 $1,732 $8,273
Raw material and other purchase obligations 6,186 3,421 1,910 630 225
Operating leases (1) 1,347 245 369 337 396
Estimated minimum required pension funding (2) 219 680 450 (2)
Postretirement benefit payments (2) 354 700 685 (2)
Layoff and other restructuring payments (3) 208 163 45 — —
Deferred revenue arrangements 350 81 129 16 124
Financing activities:
Total debt (4) 7,235 1,325 299 2,003 3,608
Dividends to shareholders (5)
Investing activities:
Capital projects (6) 3,535 2,342 1,145 48 —
Payments related to acquisitions (7) 13 13 — — —
Other:
Standby letters of credit (8) 444 — — — —
Guarantees (9) 498 — — — —
Totals 9,440 7,530 5,901
(1) See Note U to the Consolidated Financial Statements for further details on operating leases.
(2) Annual payments and funding are expected to continue into the foreseeable future at the amounts or ranges noted in the Obligations
for Operating Activities section that follows.
(3) See Note D to the Consolidated Financial Statements for further details on layoff and other restructuring payments.
(4) See Note K to the Consolidated Financial Statements for further details on debt and associated interest. The amounts in the table above
do not include the related interest.
(5) See the Obligations for Financing Activities section that follows.
(6) See the Obligations for Investing Activities section that follows.
(7) See Note F to the Consolidated Financial Statements for further details on required payments related to acquisitions. Additional
contingent payments not included in the above table may be required if certain financial and operational thresholds are met.
(8) This amount represents the total amount committed under standby letters of credit, which expire at various dates in 2007 through
2014. As the amounts under these standby letters of credit are contingent on nonpayment to third parties, it is not practical to present
annual payment information.
(9) This amount represents the total maximum potential future payments for guarantees issued on behalf of third parties. These guarantees
expire at various dates in 2007 through 2018 and relate primarily to project financing for hydroelectric power projects in Brazil. As the
amounts under these guarantees are contingent on nonperformance of third parties, it is not practical to present annual payment
information.
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