Alcoa 2010 Annual Report Download - page 95

On January 1, 2009, Alcoa adopted changes issued by the FASB to consolidation accounting and reporting. These
changes establish accounting and reporting for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. This guidance defines a noncontrolling interest, previously called a minority interest, as the portion of
equity in a subsidiary not attributable, directly or indirectly, to a parent. These changes require, among other items, that
a noncontrolling interest be included in the consolidated statement of financial position within equity separate from the
parent’s equity; consolidated net income to be reported at amounts inclusive of both the parent’s and noncontrolling
interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling
interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in
net income based on such fair value. Other than the change in presentation of noncontrolling interests, the adoption of
these changes had no impact on the Consolidated Financial Statements. The presentation and disclosure requirements
of these changes were applied retrospectively.
On January 1, 2009, Alcoa adopted changes issued by the FASB to accounting for business combinations. While
retaining the fundamental requirements of accounting for business combinations, including that the purchase method
be used for all business combinations and for an acquirer to be identified for each business combination, these changes
define the acquirer as the entity that obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer achieves control instead of the date that the consideration is
transferred. These changes require an acquirer in a business combination, including business combinations achieved in
stages (step acquisition), to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This guidance
also requires the recognition of assets acquired and liabilities assumed arising from certain contractual contingencies as
of the acquisition date, measured at their acquisition-date fair values. Additionally, these changes require acquisition-
related costs to be expensed in the period in which the costs are incurred and the services are received instead of
including such costs as part of the acquisition price. The adoption of these changes resulted in a charge of $18 ($12
after-tax) in Restructuring and other charges on the accompanying Statement of Consolidated Operations for the write
off of previously capitalized third-party costs related to potential business acquisitions (see Note D). Also, this
guidance was applied to an acquisition completed on March 31, 2009 (see Note F).
Effective January 1, 2009, Alcoa adopted changes issued by the FASB on April 1, 2009 to accounting for business
combinations. These changes apply to all assets acquired and liabilities assumed in a business combination that arise
from certain contingencies and requires (i) an acquirer to recognize at fair value, at the acquisition date, an asset
acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value
of that asset or liability can be determined during the measurement period otherwise the asset or liability should be
recognized at the acquisition date if certain defined criteria are met; (ii) contingent consideration arrangements of an
acquiree assumed by the acquirer in a business combination be recognized initially at fair value; (iii) subsequent
measurements of assets and liabilities arising from contingencies be based on a systematic and rational method
depending on their nature and contingent consideration arrangements be measured subsequently; and (iv) disclosures of
the amounts and measurement basis of such assets and liabilities and the nature of the contingencies. These changes
were applied to an acquisition completed on March 31, 2009 (see Note F).
Derivative Instruments and Hedging Activities—On July 1, 2010, Alcoa adopted changes to existing
accounting requirements for embedded credit derivatives. Specifically, the changes clarify the scope exception
regarding when embedded credit derivative features are not considered embedded derivatives subject to potential
bifurcation and separate accounting. The adoption of these changes had no impact on the Consolidated Financial
Statements.
On January 1, 2009, Alcoa adopted changes issued by the FASB to disclosures about derivative instruments and
hedging activities. These changes require enhanced disclosures about an entity’s derivative and hedging activities,
including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. Other than the required disclosures (see the Derivatives section of
Note X), the adoption of these changes had no impact on the Consolidated Financial Statements.
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