Alcoa 2012 Annual Report Download - page 168

Material Limitations
The disclosures with respect to commodity prices, interest rates, and foreign currency exchange risk do not take into
account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis,
the gains or losses on the futures contracts may be offset. Actual results will be determined by a number of factors that
are not under Alcoa’s control and could vary significantly from those factors disclosed.
Alcoa is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, as well as
credit or performance risk with respect to its hedged customers’ commitments. Although nonperformance is possible,
Alcoa does not anticipate nonperformance by any of these parties. Contracts are with creditworthy counterparties and
are further supported by cash, treasury bills, or irrevocable letters of credit issued by carefully chosen banks. In
addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and
losses on these contracts.
Other Financial Instruments. The carrying values and fair values of Alcoa’s other financial instruments were as
follows:
December 31,
2012 2011
Carrying
value
Fair
value
Carrying
value
Fair
value
Cash and cash equivalents $1,861 $1,861 $1,939 $1,939
Restricted cash 189 189 25 25
Noncurrent receivables 20 20 30 30
Available-for-sale securities 67 67 92 92
Short-term borrowings 53 53 62 62
Commercial paper - - 224 224
Long-term debt due within one year 465 465 445 445
Long-term debt, less amount due within one year 8,311 9,028 8,640 9,274
The following methods were used to estimate the fair values of other financial instruments:
Cash and cash equivalents, Restricted cash, Short-term borrowings, Commercial paper, and Long-term debt
due within one year. The carrying amounts approximate fair value because of the short maturity of the instruments.
The fair value amounts for Cash and cash equivalents, Restricted cash, and Commercial paper were classified in Level
1; Short-term borrowings were classified in Level 2; and Long-term debt due within one year was classified in Level 1
of the fair value hierarchy for public debt ($422) and Level 2 of the fair value hierarchy for non-public debt ($43).
Noncurrent receivables. The fair value of noncurrent receivables was based on anticipated cash flows, which
approximates carrying value, and was classified in Level 2 of the fair value hierarchy.
Available-for-sale securities. The fair value of such securities was based on quoted market prices. These financial
instruments consist of exchange-traded fixed income and equity securities, which are carried at fair value and were
classified in Level 1 of the fair value hierarchy.
Long-term debt, less amount due within one year. The fair value was based on quoted market prices for public debt
and on interest rates that are currently available to Alcoa for issuance of debt with similar terms and maturities for non-
public debt. At December 31, 2012 and 2011, $8,456 and $8,576, respectively, was classified in Level 1 of the fair
value hierarchy for public debt and $572 and $698, respectively, was classified in Level 2 of the fair value hierarchy
for non-public debt.
Y. Subsequent Events
Management evaluated all activity of Alcoa and concluded that no subsequent events have occurred that would require
recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial
Statements.
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