Alcoa 2012 Annual Report Download - page 158

X. Derivatives and Other Financial Instruments
Derivatives. Alcoa is exposed to certain risks relating to its ongoing business operations, including financial, market,
political, and economic risks. The following discussion provides information regarding Alcoa’s exposure to the risks of
changing commodity prices, interest rates, and foreign currency exchange rates.
Alcoa’s commodity and derivative activities are subject to the management, direction, and control of the Strategic Risk
Management Committee (SRMC), which is composed of the chief executive officer, the chief financial officer, and
other officers and employees that the chief executive officer selects. The SRMC meets on a periodic basis to review
derivative positions and strategy and reports to Alcoa’s Board of Directors on the scope of its activities.
The aluminum, energy, interest rate, and foreign exchange contracts are held for purposes other than trading. They are
used primarily to mitigate uncertainty and volatility, and to cover underlying exposures. Alcoa is not involved in
trading activities for energy, weather derivatives, or other nonexchange commodity trading activities.
The fair values and corresponding classifications under the appropriate level of the fair value hierarchy of outstanding
derivative contracts recorded as assets in the accompanying Consolidated Balance Sheet were as follows:
Asset Derivatives Level
December 31,
2012
December 31,
2011
Derivatives designated as hedging instruments:
Prepaid expenses and other current assets:
Aluminum contracts 1 $ 23 $ 51
Aluminum contracts 3 7 5
Interest rate contracts 2 8 8
Other noncurrent assets:
Aluminum contracts 1 3 6
Energy contracts 3 3 2
Interest rate contracts 2 37 37
Total derivatives designated as hedging instruments $ 81 $109
Derivatives not designated as hedging instruments*:
Prepaid expenses and other current assets:
Aluminum contracts 2 $ - $ 1
Aluminum contracts 3 211 -
Other noncurrent assets:
Aluminum contracts 3 329 5
Foreign exchange contracts 1 1 1
Total derivatives not designated as hedging instruments $541 $ 7
Less margin held**:
Prepaid expenses and other current assets:
Aluminum contracts 1 $ 9 $ 7
Interest rate contracts 2 8 8
Other noncurrent assets:
Interest rate contracts 2 9 7
Sub-total $ 26 $ 22
Total Asset Derivatives $596 $ 94
* See the “Other” section within Note X for additional information on Alcoa’s purpose for entering into derivatives
not designated as hedging instruments and its overall risk management strategies.
**All margin held is in the form of cash and is valued under a Level 1 technique. The levels that correspond to the
margin held in the table above reference the level of the corresponding asset for which it is held. Alcoa elected to net
the margin held against the fair value amounts recognized for derivative instruments executed with the same
counterparties under master netting arrangements.
147