Alcoa 2010 Annual Report Download - page 96

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 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 benefit pension or
other postretirement plan to provide users of financial statements with an understanding of the following: how investment
allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the
fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan
assets; and significant concentrations of risk within plan assets. Other than the required disclosures (see Note W), the
adoption of these changes had no impact on the Consolidated Financial Statements.
Effective December 31, 2008, Alcoa adopted a change issued by the FASB in September 2006, among other changes
that were previously adopted effective December 31, 2006, to accounting for defined benefit pension and other
postretirement plans. This change requires an employer to measure the funded status of each of its plans as of the date
of its year-end statement of financial position. The adoption of this change resulted in a charge of $9, which was
recorded as an adjustment to December 31, 2008 retained earnings (see Note W).
On January 1, 2008, Alcoa adopted changes issued by the FASB to accounting for collateral assignment split-dollar life
insurance arrangements. These changes require an employer to recognize a liability for the postretirement benefit related
to a collateral assignment split-dollar life insurance arrangement in accordance with existing guidance for accounting for
postretirement benefits other than pensions or accounting for deferred compensation contracts if the employer has agreed
to maintain a life insurance policy during the employee’s retirement or provide the employee with a death benefit based
on the substantive arrangement with the employee. This guidance also requires an employer to recognize and measure the
asset in a collateral assignment split-dollar life insurance arrangement based on the nature and substance of the
arrangement. The adoption of these changes had no impact on the Consolidated Financial Statements.
Other—On January 1, 2010, Alcoa adopted changes issued by the FASB 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; limit
the circumstances in which a transferor derecognizes a portion or component of a financial asset; define a participating
interest; require 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 require enhanced disclosure. The adoption of these changes had no
impact on the Consolidated Financial Statements. In March 2010, management terminated the Company’s accounts
receivable securitization program (see Note U); had this program not been terminated, the adoption of these changes
would have resulted in a $250 increase to both Receivables from customers and Short-term borrowings on the
accompanying Consolidated Balance Sheet.
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