Alcoa 2012 Annual Report Download - page 159
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The fair values and corresponding classifications under the appropriate level of the fair value hierarchy of outstanding
derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet were as follows:
Liability Derivatives Level
December 31,
2012
December 31,
2011
Derivatives designated as hedging instruments:
Other current liabilities:
Aluminum contracts 1 $ 13 $ 47
Aluminum contracts 3 35 32
Other noncurrent liabilities and deferred credits:
Aluminum contracts 1 1 4
Aluminum contracts 3 573 570
Total derivatives designated as hedging instruments $622 $653
Derivatives not designated as hedging instruments*:
Other current liabilities:
Aluminum contracts 1 $ 1 $ 12
Aluminum contracts 2 21 23
Embedded credit derivative 3 3 -
Other noncurrent liabilities and deferred credits:
Aluminum contracts 1 - 1
Aluminum contracts 2 5 21
Embedded credit derivative 3 27 28
Total derivatives not designated as hedging instruments $ 57 $ 85
Less margin posted**:
Other current liabilities:
Aluminum contracts 1 $ - $ 1
Total Liability Derivatives $679 $737
* 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 posted is in the form of cash and is valued under a Level 1 technique. The levels that correspond to the
margin posted in the table above reference the level of the corresponding liability for which it is posted. Alcoa
elected to net the margin posted against the fair value amounts recognized for derivative instruments executed with
the same counterparties under master netting arrangements.
The following table shows the net fair values of outstanding derivative contracts at December 31, 2012 and the effect
on these amounts of a hypothetical change (increase or decrease of 10%) in the market prices or rates that existed at
December 31, 2012:
Fair value
asset/(liability)
Index change
of + / - 10%
Aluminum contracts $(85) $111
Embedded credit derivative (30) 3
Energy contracts 3 249
Foreign exchange contracts 1 8
Interest rate contracts 28 1
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
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