Management uses its best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent on various matters, including the resolution of the tax audits in the various affected tax jurisdictions, and may differ from the amounts recorded. An adjustment to the estimated liability would be recorded through income in the period in which it becomes probable that the amount of the actual liability differs from the amount recorded. Alcoa has unamortized tax deductible goodwill of $573 resulting from intercompany stock sales and reorganizations (generally at a 34% rate). Alcoa recognizes the tax benefits associated with this tax deductible goodwill as it is being amortized for local income tax purposes from 2004 through 2009, rather than in the period in which the transaction was consummated. Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains a 50% or less equity interest, at negotiated arms-length prices between the two parties. These transactions were not material to the financial position or results of operations of Alcoa at December 31, 2004. The company is obligated to make future payments under various c ontracts such as long-term purchase obligations, debt agree- ments, lease agreements, and unconditional purchase obligations and has certain contingent commitments such as debt guarantees. The company has grouped these contractual 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 understanding 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, 2004: SFAS No. 123 (revised 2004) ‘‘Share-Based Payment’’ was issued in December 2004. This standard requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. The effective date is the first interim reporting period beginning after June 15, 2005. Alcoa is currently evaluating pricing models and the transition provisions of this standard and will begin expensing stock options in the third quarter of 2005. In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, ‘‘Inventory Costs – an Amendment of ARB No. 43, Chapter 4.’’ This standard provides clarification that abnormal amounts of idle facility expense, freight, handling costs, and spoilage should be recognized as current-period charges. Additionally, this standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this standard are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. This standard does not have a material impact to Alcoa’s financial statements. Contractual Obligations and Off-Balance Shee t Arrangements Related Party Transactions Recently Issued Accounting Standards Contractual obligations Total 2005 2006–2007 2008–2009 Thereafter Operating activities: Energy-related purchase obligations $8,849 $1,151 $1,325 $ 959 $5,414 Raw material and other purchase obligations 2,311 1,483 603 90 135 Operating leases (1) 1,147 225 350 216 356 Estimated pension funding (2) 57 600 400 (2) Postretirement benefit payments (2) 358 700 700 (2) Layoff and impairment payments (3) 64 64 — — — Deferred revenue arrangements 563 132 163 129 139 Financing activities: Total debt (4) 6,300 954 932 237 4,177 Dividends to shareholders (5) Investing activities: Capital projects (6) 2,746 1,396 1,302 48 — Acquisitions 257 257 — — — Other: Standby letters of credit (7) 293 249 2 3 39 Guarantees (7) 128 — 10 13 105 Total contractual obligations $6,326 $5,987 $2,795 37 (2) Annual payments and funding are expected to continue into the foreseeable future at the amounts or ranges noted in the discussion below. (1) See Note U to the Consolidated Financial Statements for further details on operating leases. (3) See Note D to the Consolidated Financial Statements for further details on layoff and impairment payments. (4) See Note K to the Consolidated Financial Statements for further details on debt and associated interest. (5) See discussion below under Obligations for Financing Activities. (6) See discussion below under Obligations for Investing Activities. (7) See Note N to the Consolidated Financial Statements for further details on standby letters of credit and guarantees.