Alcoa 2009 Annual Report Download - page 95

transferred. These changes require an acquirer in a business combination, including business combinations achieved in
stages (step acquisition), to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This guidance
also requires the recognition of assets acquired and liabilities assumed arising from certain contractual contingencies as
of the acquisition date, measured at their acquisition-date fair values. Additionally, these changes require acquisition-
related costs to be expensed in the period in which the costs are incurred and the services are received instead of
including such costs as part of the acquisition price. The adoption of these changes resulted in a charge of $18 ($12
after-tax) in Restructuring and other charges on the accompanying Statement of Consolidated Operations for the write
off of previously capitalized third-party costs related to potential business acquisitions. Also, this guidance was applied
to an acquisition completed on March 31, 2009 (see Note F).
Effective January 1, 2009, Alcoa adopted changes issued by the FASB on April 1, 2009 to accounting for business
combinations. These changes apply to all assets acquired and liabilities assumed in a business combination that arise
from certain contingencies and requires (i) an acquirer to recognize at fair value, at the acquisition date, an asset
acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value
of that asset or liability can be determined during the measurement period otherwise the asset or liability should be
recognized at the acquisition date if certain defined criteria are met; (ii) contingent consideration arrangements of an
acquiree assumed by the acquirer in a business combination be recognized initially at fair value; (iii) subsequent
measurements of assets and liabilities arising from contingencies be based on a systematic and rational method
depending on their nature and contingent consideration arrangements be measured subsequently; and (iv) disclosures of
the amounts and measurement basis of such assets and liabilities and the nature of the contingencies. These changes
were applied to an acquisition completed on March 31, 2009 (see Note F).
Derivative Instruments and Hedging Activities—On January 1, 2009, Alcoa adopted changes issued by the
FASB to disclosures about derivative instruments and hedging activities. These changes require enhanced disclosures
about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, financial performance, and cash flows. Other than the
required disclosures (see the Derivatives section of Note X), the adoption of these changes had no impact on the
Consolidated Financial Statements.
On January 1, 2008, Alcoa adopted changes issued by the FASB to the offsetting of amounts related to certain
contracts. These changes permit entities that enter into master netting arrangements as part of their derivative
transactions to offset in their financial statements net derivative positions against the fair value of amounts (or amounts
that approximate fair value) recognized for the right to reclaim cash collateral or the obligation to return cash collateral
under those arrangements. As a result, management elected to net cash collateral against fair value amounts recognized
for derivative instruments executed with the same counterparty when a master netting arrangement exists. This
guidance was applied retroactively for all financial statement periods presented. See the Derivatives section of Note X
for the amounts of cash collateral netted against the fair value of derivative instruments.
On January 1, 2008, Alcoa adopted changes issued by the FASB involving the application of the shortcut method to
certain hedging activities. These changes provide guidance on certain practice issues related to the application of the
shortcut method by amending existing guidance with respect to the conditions that must be met in order to apply the
shortcut method for assessing hedge effectiveness of interest rate swaps. In addition to applying these changes to
hedging arrangements designated on or after January 1, 2008, an assessment was required to be made on January 1,
2008 to determine whether preexisting hedging arrangements met this guidance as of their original inception.
Management performed such an assessment and determined that the adoption of these changes had no impact on
preexisting hedging arrangements. Alcoa will apply these changes to future hedging arrangements so designated.
Pension Plans and Other Postretirement Benefits—On December 31, 2009, Alcoa adopted changes issued by
the FASB to employers’ disclosures about postretirement benefit plan assets. These changes provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. This guidance is
intended to ensure that an employer meets the objectives of the disclosures about plan assets in an employer’s defined
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