Hydro Annual Report 2011b

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F58 FINANCIAL STATEMENTS Note 40 - Financial instruments Amounts in NOK million USD Aluminium Gain (loss) from 10 percent increase in Gain (loss) from 10 percent decrease in Other commodity Interest rates USD Aluminium Other commodity Interest rates Commodity derivatives (510) (83) (287) (13) 510 119 287 20 Available for sale financial assets 421 231 (42) 183 (231) 45 Note 41 - Derivative instruments and hedge accounting Derivative instruments, whether physically or financially settled, are accounted for under IAS 39. All derivative instruments are accounted for on the balance sheet at fair value with changes in the fair value of derivative instruments recognized in the income statement, unless specific hedge criteria are met. Some of Hydro's commodity contracts are deemed to be derivatives under IFRS. For further explanation on which physical commodity contracts that are accounted for as derivatives, and which are considered own use, see note 1 Significant accounting policies and reporting entity. Commodity derivatives The following types of commodity derivatives were recorded at fair value on the balance sheet as of December 31, 2011 and December 31, 2010. Contracts that are designated as hedging instruments in cash flow hedges are not included. The presentation of fair values for electricity and aluminium contracts shown in the table below include the fair value of traditional derivative instruments such as futures, forwards and swaps, in conjunction with the physical contracts accounted for at fair value. Amounts in NOK million 2011 2010 Assets Electricity contracts 127 265 Aluminium futures, forwards and options 940 901 Total 1 067 1 166 Liabilities Electricity contracts (77) (314) Coal forwards (1 803) (1 698) Aluminium futures, forwards and options (474) (961) Other 129 (77) Total (2 224) (3 051) The underlying commodities for bifurcated embedded derivatives are included. Changes in the fair value of commodity derivatives are included in operating revenues or cost of goods sold. Currency derivatives The following types of financial derivatives were recorded at fair value on the balance sheet as of December 31, 2011 and December 31, 2010. Amounts in NOK million 2011 2010 Assets Embedded currency derivatives 49 66 Equity warrants 7 Total 49 73 Liabilities Currency forwards and swaps (45) Embedded currency derivatives (22) (16) Total (22) (61)
FINANCIAL STATEMENTS Note 41 - Derivative instruments and hedge accounting F59 Unless used in connection with hedge accounting, changes in the fair value of currency derivatives are included in Financial expense, net, in the income statement. Embedded derivatives Some contracts contain pricing links that affect cash flows in a manner different than the underlying commodity or financial instrument in the contract. For accounting purposes, these embedded derivatives are in some circumstances separated from the host contract and recognized at fair value. Hydro has separated and recognized at fair value embedded derivatives related to aluminium, inflation and coal links, in addition to currency forwards, from the underlying contracts. Cash flow hedges Hydro has periodically entered into hedge programs to secure the price of aluminium and alumina to be sold. Aluminium futures, options and swaps on the London Metal Exchange and with external banks have been used for this purpose. Certain of these hedge programs have been accounted for as cash flow hedges, where gains and losses on the hedge derivatives are recognized in Other Comprehensive Income, and accumulated in the hedging reserve in equity and will be reclassified into operating revenues when the corresponding forecasted sale of aluminium or alumina is recognized. In anticipation of the Vale transaction, Hydro entered into forward and option instruments in 2010 relating to sales of alumina and aluminium to be produced in the Vale Aluminium entities Alunorte and Albras acquired February 28, 2011, see note 5 Acquisitions. Hedge accounting was applied for these instruments from July 1, 2011. At the end of 2011, this cash flow hedge program had expired. No new cash flow hedges were entered into during 2011. Ineffectiveness amounting to NOK 21 million was recognized in the income statement in 2010. No ineffectiveness was recognized in 2011 in connection with cash flow hedges. The table below gives aggregated numbers related to the aluminium cash flow hedges for the period 2010 to 2011. 2012 2011 2010 Aluminium sold forward with hedge accounting (kmt) 1) 1 593 of which open at yearend (kmt) 2) 1 593 Average prices achieved in hedges in USD (per mt) 3) 2 445 Expected to be reclassified to the income statement during the year (NOK million) 5 (54) 4 Reclassified to the income statement from Other components of equity (NOK million) 4) 77 8 1) Remaining volume sold forward at inception of hedge programs. There are no remaining volumes at the end of 2011. 2) Including closed out positions / repurchases of hedge derivatives. 3) Weighted average of remaining volume sold forward at inception of hedge program. 4) Deviates from expected reclassifications due to changes in market prices throughout the year. Negative amounts indicate a loss. Hydro hedged the foreign currency exposure between US and Canadian dollar in connection with an expansion at the Alouette plant in Canada over the period March 2003 to March 2006. An annual gain NOK 5 million, corresponding to NOK 3 million after tax, has been reclassified each year, including 2011 and 2010, and is expected to be reclassified in future years until 2014. As of December 31, 2010 an asset of NOK 21 million and a liability of NOK 75 million were recognized on the balance sheet as fair value of hedging instruments. No such hedging instruments were recognized as of December 31, 2011. Hydro performs trading operations to reduce currency exposures on commodity positions. The effect of such operations is recognized as a part of Financial expense in the income statement. For the after tax movement in Hydro equity relating to cash-flow hedges for 2011 and 2010, please see note 34 Shareholders' equity.
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Annual Report - 2011
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Annual Report - 2011 HyDRO’S REPO
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Aluminium market price weakens LME
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cost renewable energy production, w
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Corporate Management Board AnnuAl r
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• Secure stable production and fi
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Key financial information NOK milli
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for foundry alloys continued to be
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• Using viable energy sources •
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Share of non-Norwegian leaders Perc
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Capital employed - - upstream focus
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petitive supply of standard alumini
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Further improved bauxite and alumin
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Alumina production Million mt 7 6 5
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and Hydro - but both have also rest
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Operations Hydro’s primary alumin
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Plant Country Employees (per Dec. 3
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Active risk management We have deve
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Contribution margin to profit EUR p
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Flat rolled products consumption We
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Build on the high performance of ou
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European extrusion consumption (tot
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Operations Hydro is a global energy
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expected remediation costs relating
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Direct greenhouse gas emissions fro
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The Qatalum aluminium plant, in whi
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postponed in 2011 due to the market
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Water management Enough clean water
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The annual business planning proces
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Total payments (taxes, fees, etc.)
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Qatalum, where Hydro holds a 50 per
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Effective organization Hydro had 22
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Cooperating for safety at Slovalco
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from a 10-year perspective, we redu
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In 2011, we established an electron
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sold or demerged during the year ha
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vIABIlItY perForMAnCe Auditor’s R
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Current income tax tax vIABIlItY pe
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Environment Greenhouse gases gases
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Total waste vIABIlItY perForMAnCe F
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81 FInAnCIAl AnD operAtInG perForMA
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FINANCIAL AND OPERATING PERFORMANCE
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Market developments and outlook Mar
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Items excluded from underlying EBIT
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Items excluded from underlying EBIT
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Financial income (expense), net Yea
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Primary Metal Operational and finan
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Liquidity and capital resources The
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3) Including provisions for pension
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108 RISK REVIEW Risk factors Risk f
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110 RISK REVIEW Risk factors or var
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112 RISK REVIEW Risk factors leadin
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Share price development in 2011 Sha
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Major shareholders and voting right
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Key figures for the Hydro share Key
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Tittel Hydro present Based in Norwa
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Corporate directives and code of co
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Pre-approval of audit services The
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Billy Fredagsvik, employee represen
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Hans-Joachim Kock Key experience: H
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Description Developments and events
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Topic Comments References Transacti
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Topic Comments References 8 Corpora
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Topic Comments References 13 Inform
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F2 FINANCIAL STATEMENTS Consolidate
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Page 146 and 147: F8 FINANCIAL STATEMENTS Note 1 - Si
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Page 194 and 195: F56 Financial assets, classified as
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Page 218 and 219: PENDIX A2 Appendix A1 APPENDIX Term
Page 220: Hydro is a global supplier of alumi
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Hydro Annual Report 2011b

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