Alcoa 2011 Annual Report Download - page 155
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The fair values of outstanding derivative contracts recorded as liabilities in the accompanying Consolidated Balance
Sheet were as follows:
Liability Derivatives
December 31,
2011
December 31,
2010
Derivatives designated as hedging instruments:
Other current liabilities:
Aluminum contracts $ 79 $ 89
Other noncurrent liabilities and deferred credits:
Aluminum contracts 574 647
Total derivatives designated as hedging instruments $653 $736
Derivatives not designated as hedging instruments*:
Other current liabilities:
Aluminum contracts $ 35 $ 52
Energy contracts - 62
Other noncurrent liabilities and deferred credits:
Aluminum contracts 22 33
Embedded credit derivative 28 23
Total derivatives not designated as hedging instruments $ 85 $170
Less margin posted:
Other current liabilities:
Aluminum contracts $ 1 $ 4
Energy contracts - 37
Sub-total $ 1 $ 41
Total Liability Derivatives $737 $865
* 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.
The following table shows the net fair values of outstanding derivative contracts at December 31, 2011 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, 2011:
Fair value
asset/(liability)
Index change
of + / - 10%
Aluminum contracts $(648) $137
Embedded credit derivative (28) 9
Energy contracts 2 375
Foreign exchange contracts 1 -
Interest rate contracts 30 2
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
information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad
levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are
described below:
• Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
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