Derivatives and Other Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Fair Values and Corresponding Level of Fair Value Hierarchy of Outstanding Derivative Contracts Recorded as Assets

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	September 30, 2014		December 31, 2013
Derivatives designated as hedging instruments:
Prepaid expenses and other current assets:
Aluminum contracts	1	$	8	$	4
Aluminum contracts	3		5		9
Foreign exchange contracts	1		—		2
Interest rate contracts	2		6		9
Other noncurrent assets:
Aluminum contracts	3		8		16
Energy contracts	3		—		6
Interest rate contracts	2		21		23
Total derivatives designated as hedging instruments		$	48	$	69
Derivatives not designated as hedging instruments*:
Prepaid expenses and other current assets:
Aluminum contracts	3	$	104	$	149
Other noncurrent assets:
Aluminum contracts	3		100		175
Total derivatives not designated as hedging instruments		$	204	$	324
Less margin held**:
Prepaid expenses and other current assets:
Aluminum contracts	1	$	3	$	—
Interest rate contracts	2		—		3
Sub-total		$	3	$	3
Total Asset Derivatives		$	249	$	390

* See the “Other” section within Note P 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.

Schedule of Fair Values and Corresponding Level of Fair Value Hierarchy of Outstanding Derivative Contracts Recorded as Liabilities

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	September 30, 2014		December 31, 2013
Derivatives designated as hedging instruments:
Other current liabilities:
Aluminum contracts	1	$	9	$	45
Aluminum contracts	3		29		23
Energy contracts	1		1		—
Other noncurrent liabilities and deferred credits:
Aluminum contracts	1		4		14
Aluminum contracts	3		378		387
Energy contracts	3		6		—
Total derivatives designated as hedging instruments		$	427	$	469
Derivatives not designated as hedging instruments*:
Other current liabilities:
Aluminum contracts	1	$	1	$	4
Embedded credit derivative	3		3		2
Foreign exchange contracts	1		—		3
Other noncurrent liabilities and deferred credits:
Embedded credit derivative	3		21		19
Total derivatives not designated as hedging instruments		$	25	$	28
Less margin posted**:
Other current liabilities:
Aluminum contracts	1	$	5	$	18
Other noncurrent liabilities and deferred credits:
Aluminum contracts	1		1		—
Sub-total		$	6	$	18
Total Liability Derivatives		$	446	$	479

* See the “Other” section within Note P 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.

Gross Amounts of Recognized Derivative Assets and Liabilities and Gross Amounts Offset in Accompanying Consolidated Balance Sheet

The gross amounts of recognized derivative assets and liabilities and gross amounts offset in the accompanying Consolidated Balance Sheet were as follows:

	Assets						Liabilities
	September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013
Gross amounts recognized:
Aluminum contracts	$	47		$	40		$	49		$	81
Interest rate contracts		27			32			—			3
	$	74		$	72		$	49		$	84
Gross amounts offset:
Aluminum contracts*	$	(42	)	$	(36	)	$	(42	)	$	(36	)
Interest rate contracts**		—			(3	)		—			(3	)
	$	(42	)	$	(39	)	$	(42	)	$	(39	)
Net amounts presented in the Consolidated Balance Sheet:
Aluminum contracts	$	5		$	4		$	7		$	45
Interest rate contracts		27			29			—			—
	$	32		$	33		$	7		$	45

* The amounts under Assets and Liabilities as of September 30, 2014 and December 31, 2013 include $6 and $18, respectively, of margin posted with counterparties.

** The amounts under Assets and Liabilities as of December 31, 2013 represent margin held from the counterparty.

Schedule of Derivative Contract Assets and Liabilities Measured and Recognized at Fair Value on Recurring Basis

The following table presents Alcoa’s derivative contract assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy (there were no transfers in or out of Levels 1 and 2 during the periods presented):

	September 30, 2014			December 31, 2013
Assets:
Level 1	$	8		$	6
Level 2		27			32
Level 3		217			355
Margin held		(3	)		(3	)
Total	$	249		$	390
Liabilities:
Level 1	$	15		$	66
Level 2		—			—
Level 3		437			431
Margin posted		(6	)		(18	)
Total	$	446		$	479

Schedule of Reconciliation of Activity for Derivative Contracts

Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which management has used at least one significant unobservable input in the valuation model. The following tables present a reconciliation of activity for such derivative contracts:

	Assets						Liabilities
Third quarter ended September 30, 2014	Aluminum contracts			Energy contracts			Aluminum contracts			Embedded credit derivative		Energy contracts
Opening balance – June 30, 2014	$	281		$	24		$	422		$	14	$	—
Total gains or losses (realized and unrealized) included in:
Sales		—			—			(8	)		—		—
Cost of goods sold		(36	)		—			—			—		—
Other expenses, net		(12	)		(5	)		—			10		—
Other comprehensive loss		(11	)		(18	)		(7	)		—		6
Purchases, sales, issuances, and settlements*		—			—			—			—		—
Transfers into and/or out of Level 3*		—			—			—			—		—
Foreign currency translation		(5	)		(1	)		—			—		—
Closing balance – September 30, 2014	$	217		$	—		$	407		$	24	$	6
Change in unrealized gains or losses included in earnings for derivative contracts held at September 30, 2014:
Sales	$	—		$	—		$	—		$	—	$	—
Cost of goods sold		—			—			—			—		—
Other expenses, net		(12	)		(5	)		—			10		—

* There were no purchases, sales, issuances or settlements of Level 3 financial instruments. Additionally, there were no transfers of financial instruments into or out of Level 3.

	Assets						Liabilities
Nine months ended September 30, 2014	Aluminum contracts			Energy contracts			Aluminum contracts			Embedded credit derivative		Energy contracts
Opening balance – January 1, 2014	$	349		$	6		$	410		$	21	$	—
Total gains or losses (realized and unrealized) included in:
Sales		—			—			(19	)		—		—
Cost of goods sold		(147	)		—			—			—		—
Other expenses, net		(13	)		—			—			3		—
Other comprehensive loss		(11	)		(6	)		16			—		6
Purchases, sales, issuances, and settlements*		—			—			—			—		—
Transfers into and/or out of Level 3*		—			—			—			—		—
Foreign currency translation		39			—			—			—		—
Closing balance – September 30, 2014	$	217		$	—		$	407		$	24	$	6
Change in unrealized gains or losses included in earnings for derivative contracts held at September 30, 2014:
Sales	$	—		$	—		$	—		$	—	$	—
Cost of goods sold		—			—			—			—		—
Other expenses, net		(13	)		—			—			3		—

* There were no purchases, sales, issuances or settlements of Level 3 financial instruments. Additionally, there were no transfers of financial instruments into or out of Level 3.

Schedule of Quantitative Information for Level 3 Derivative Contracts

The following table presents quantitative information for Level 3 derivative contracts:

	Fair value at September 30, 2014		Valuation technique	Unobservable input	Range ($ in full amounts)
Assets:
Aluminum contract	$	—	Discounted cash flow	Interrelationship of future aluminum and oil prices	Aluminum: $1,921 per metric ton in 2014 to $2,137 per metric ton in 2018 Oil: $97 per barrel in 2014 to $96 per barrel in 2018
Aluminum contract		204	Discounted cash flow	Interrelationship of future aluminum prices, foreign currency exchange rates, and the U.S. consumer price index (CPI)	Aluminum: $1,936 per metric ton in 2014 to $2,051 per metric ton in 2016 Foreign currency: A$1 = $0.87 in 2014 to $0.89 in 2016 CPI: 1982 base year of 100 and 236 in 2014 to 246 in 2016
Aluminum contract		13	Discounted cash flow	Interrelationship of LME price to overall energy price	Aluminum: $1,914 per metric ton in 2014 to $2,177 per metric ton in 2019
Liabilities:
Aluminum contracts		407	Discounted cash flow	Price of aluminum beyond forward curve	$2,460 per metric ton in 2025 to $2,588 per metric ton in 2027
Embedded credit derivative		24	Discounted cash flow	Credit spread between Alcoa and counterparty	1.79% to 2.49%     (2.14% median)
Energy contracts		6	Discounted cash flow	Price of electricity beyond forward curve	$51 per megawatt hour in 2014 to $100 per megawatt hour in 2036

Schedule of Gain or Loss on Hedged Items and Derivative Contracts

The gain or loss on the hedged items are included in the same line items as the loss or gain on the related derivative contracts as follows (there were no contracts that ceased to qualify as a fair value hedge in any of the periods presented):

Derivatives in Fair Value Hedging Relationships	Location of Gain or (Loss) Recognized in Earnings on Derivatives	Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Third quarter ended September 30,						Nine months ended September 30,
		2014			2013			2014			2013
Aluminum contracts*	Sales	$	20		$	20		$	19		$	(110	)
Interest rate contracts	Interest expense		3			3			8			8
Total		$	23		$	23		$	27		$	(102	)
*  In the third quarter and nine months ended September 30, 2014, the loss recognized in earnings includes a gain of $1 and a loss of $12, respectively, related to the ineffective portion of the hedging relationships. In the third quarter and nine months ended September 30, 2013, the gain and loss, respectively, recognized in earnings includes a gain of $18 and $22, respectively, related to the ineffective portion of the hedging relationships.
Hedged Items in Fair Value Hedging Relationships	Location of Gain or (Loss) Recognized in Earnings on Hedged Items	Amount of Gain or (Loss) Recognized in Earnings on Hedged Items
		Third quarter ended September 30,						Nine months ended September 30,
		2014			2013			2014			2013
Aluminum contracts	Sales	$	(19	)	$	(2	)	$	(31	)	$	132
Interest rate contracts	Interest expense		(3	)		(3	)		(8	)		(8	)
Total		$	(22	)	$	(5	)	$	(39	)	$	124

Schedule of Gains and Losses on Derivative Excluded from Assessment of Effectiveness Recognized in Current Earnings

 Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

																									Location of Gain or
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)											Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective  Portion)*												(Loss) Recognized in Earnings on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Earnings on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)**
	Third quarter ended September 30,						Nine months ended September 30,						Third quarter ended September 30,						Nine months ended September 30,							Third quarter ended September 30,					Nine months ended September 30,
	2014			2013			2014			2013			2014			2013			2014			2013				2014			2013		2014			2013
Aluminum contracts	$	(2	)	$	(61	)	$	(21	)	$	117	Sales	$	(6	)	$	(4	)	$	(15	)	$	(11	)	Other expenses (income), net	$	—		$	—	$	(1	)	$	(2	)
Energy contracts		(21	)		1			(6	)		—	Cost of goods sold		—			—			—			—		Other expenses (income), net		(5	)		—		—			—
Foreign exchange contracts		(1	)		3			1			1	Sales		—			(2	)		1			(2	)	Other expenses (income), net		—			—		—			—
Interest rate contracts		—			—			—			—	Interest expense		1			—			—			(1	)	Other expenses (income), net		—			—		—			—
Interest rate contracts		—			1			2			2	Other expenses (income), net		—			—			—			—		Other expenses (income), net		—			—		—			—
Total	$	(24	)	$	(56	)	$	(24	)	$	120		$	(5	)	$	(6	)	$	(14	)	$	(14	)		$	(5	)	$	—	$	(1	)	$	(2	)

* Assuming market rates remain constant with the rates at September 30, 2014, a loss of $22 is expected to be recognized in earnings over the next 12 months.

** For the third quarter ended September 30, 2014, the amount of gain or (loss) recognized in earnings represents $(5) related to the ineffective portion of the hedging relationships. There was no ineffectiveness related to the derivatives in cash flow hedging relationships for the nine months ended September 30, 2014. There was also less than $1 and $(1) recognized in earnings related to the amount excluded from the assessment of hedge effectiveness for the third quarter and nine months ended September 30, 2014, respectively. For both the third quarter and nine months ended September 30, 2013, there was no ineffectiveness related to the derivatives in cash flow hedging relationships. There was less than $1 and $(2) recognized in earnings related to the amount excluded from the assessment of hedge effectiveness for the third quarter and nine months ended September 30, 2013, respectively.

Schedule of Outstanding Forward Contracts that were Entered into Hedge Forecasted Transactions

Alcoa had the following outstanding forward contracts that were entered into to hedge forecasted transactions:

	September 30, 2014		December 31, 2013
Aluminum contracts (000 metric tons)		707		841
Energy contracts:
Electricity (megawatt hours)		59,409,328		59,409,328
Natural gas (million British thermal units)		20,570,000		19,980,000
Foreign exchange contracts	$	632	$	335

Schedule of Fair Value Gains and Losses on Derivatives Contracts Recorded in Earnings

Alcoa has certain derivative contracts that do not qualify for hedge accounting treatment and, therefore, the fair value gains and losses on these contracts are recorded in earnings as follows:

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Earnings on Derivatives	Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Third quarter ended September 30,					Nine months ended September 30,
		2014			2013		2014			2013
Aluminum contracts	Sales	$	—		$	1	$	(4	)	$	(6	)
Aluminum contracts	Other expenses (income), net		(11	)		4		(12	)		19
Embedded credit derivative	Other expenses (income), net		(10	)		11		(3	)		2
Foreign exchange contracts	Other expenses (income), net		1			2		(2	)		(3	)
Total		$	(20	)	$	18	$	(21	)	$	12

Schedule of Carrying Values and Fair Values of Other Financial Instruments

The carrying values and fair values of Alcoa’s other financial instruments were as follows:

	September 30, 2014				December 31, 2013
	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	3,272	$	3,272	$	1,437	$	1,437
Restricted cash		18		18		18		18
Noncurrent receivables		18		18		19		19
Available-for-sale securities		144		144		119		119
Short-term borrowings		57		57		57		57
Commercial paper		99		99		—		—
Long-term debt due within one year		35		35		655		1,040
Long-term debt, less amount due within one year		8,797		9,335		7,607		7,863