Alcoa 2009 Annual Report Download - page 97

On January 1, 2009, Alcoa adopted changes issued by the FASB to accounting for intangible assets. These changes
amend the factors that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized
intangible asset outside of a business combination and the period of expected cash flows used to measure the fair value
of an intangible asset in a business combination. The adoption of these changes had no impact on the Consolidated
Financial Statements.
On January 1, 2009, Alcoa adopted changes issued by the FASB to the calculation of earnings per share. These changes
state that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share
pursuant to the two-class method for all periods presented (see Note S). The adoption of these changes resulted in a
reduction of $0.01 for both basic and diluted earnings per share on income from continuing operations attributable to
Alcoa common shareholders and net loss attributable to Alcoa common shareholders for the year ended December 31,
2008. These changes also resulted in a reduction of $0.03 for basic earnings per share on income from continuing
operations attributable to Alcoa common shareholders and net income attributable to Alcoa common shareholders and
a reduction of $0.01 for diluted earnings per share on income from continuing operations attributable to Alcoa common
shareholders and net income attributable to Alcoa common shareholders for the year ended December 31, 2007.
Recently Issued Accounting Guidance. In June 2009, the FASB issued changes to accounting for variable interest
entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable
interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments
of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach
previously required for determining the primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and
circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s
economic performance; and to require enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest entity. These changes become effective
for Alcoa on January 1, 2010. Management has determined that the adoption of these changes will not have an impact
on the Consolidated Financial Statements.
In June 2009, the FASB issued changes to accounting for transfers of financial assets. These changes remove the
concept of a qualifying special-purpose entity and remove the exception from the application of variable interest
accounting to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a
transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor
to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer
accounted for as a sale; and requires enhanced disclosure; among others. These changes become effective for Alcoa on
January 1, 2010. Management has determined that the adoption of these changes will result in a $250 increase to both
Receivables from customers and Short-term borrowings on the Consolidated Balance Sheet. This amount relates to
Alcoa’s existing accounts receivable securitization program, which is considered an off-balance sheet arrangement as
of December 31, 2009 under existing accounting for transfers of financial assets. In consideration of this impact,
management began negotiations in late 2009 to potentially amend the terms of its existing program in light of the new
derecognition criteria.
In October 2009, the FASB issued changes to revenue recognition for multiple-deliverable arrangements. These
changes require separation of consideration received in such arrangements by establishing a selling price hierarchy (not
the same as fair value) for determining the selling price of a deliverable, which will be based on available information
in the following order: vendor-specific objective evidence, third-party evidence, or estimated selling price; eliminate
the residual method of allocation and require that the consideration be allocated at the inception of the arrangement to
all deliverables using the relative selling price method, which allocates any discount in the arrangement to each
deliverable on the basis of each deliverable’s selling price; require that a vendor determine its best estimate of selling
price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis;
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