Alcoa 2010 Annual Report Download - page 151
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The following table presents Alcoa’s derivative contract assets and liabilities that are measured and recognized at fair
value on a recurring basis classified under the appropriate level of the fair value hierarchy (there were no transfers in or
out of Levels 1 and 2 during the periods presented):
December 31, 2010 2009
Assets:
Level 1 $ 76 $110
Level 2 81 107
Level 3 9-
Margin held* (19) (60)
Total $147 $157
Liabilities:
Level 1 $35 $61
Level 2 83 75
Level 3 788 831
Margin posted* (41) (37)
Total $865 $930
* Margin held represents cash collateral received related to aluminum contracts included in Level 1 and interest rate
contracts included in Level 2 and margin posted represents cash collateral paid related to aluminum contracts
included in Level 1 and energy contracts included in Level 3. At December 31, 2009, margin held also represents
cash collateral received related to energy contracts included in Level 1. Alcoa elected to net the margin held and
posted against the fair value amounts recognized for derivative instruments executed with the same counterparties
under master netting arrangements.
Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which
management has used at least one significant unobservable input in the valuation model. The following table presents a
reconciliation of activity for such derivative contracts on a net basis:
2010 2009
Balance at beginning of year $831 $341
Total gains or losses (realized and unrealized) included in:
Sales—(decrease) (38) (16)
Cost of goods sold—(increase) (20) (37)
Other income, net—decrease (increase) 25 (1)
Other comprehensive income—(increase) decrease (19) 507
Purchases, sales, issuances, and settlements* - 6
Transfers in and (or) out of Level 3** - 31
Balance at end of year $779 $831
Total gains or losses included in earnings attributable to the change in unrealized gains or losses relating
to derivative contracts still held at December 31, 2010 and 2009:
Sales $-$-
Cost of goods sold --
Other income, net—decrease (increase) 22 -
* In 2009, there was an indirect purchase of a Level 3 embedded derivative in a power contract, which is linked to the
LME and a foreign exchange rate, related to the Elkem transaction (see Note F).
**In 2009, an existing power contract no longer qualified for the normal purchase normal sale exception under
derivative accounting. As a result, this contract is now accounted for as a derivative and was recorded at fair value.
143