Alcoa 2003 Annual Report Download - page 60

The provision for taxes on income from continuing operations
consisted of:
2003 2002 2001
Current:
U.S. federal* $ (51) $95 $(20)
Foreig n 310 358 521
State and local 17 17 45
276 470 546
Deferred:
U.S. federal* 132 (205) (33)
Foreig n (4) 11 3
State and local —15 5
128 (179) (25)
To t a l $404 $ 291 $521
*Includes U.S. taxes related to foreign income
Theexerciseofemployeestock optionsgenerated a tax benefit
of $23 in 2003, $34 in2002,and$90in2001.Thisamountwas
credited to additional capitaland reduced current taxes payable.
Reconciliation of the U.S. federal statutory rate to Alcoa’s effective
tax rate for continuing operations follows.
2003 2002 2001
U.S. federal statutory rate 35.0% 35.0% 35.0%
Ta x e s o n f o r eign income (7.4) (5.9) (8.4)
State taxes net of federal benefit 0.9 2.4 1.1
Minority interests 1.1 1.4 1.8
Permanent differences on asset
disposals (0.1) 2.6 (1.4)
Goodwill impairment and
amortization —1.1 2.4
Adjustments to prior years’ accruals (4.1) (3.8) 1.5
Other (1.2) (0.5) (0.1)
Effective tax rate 24.2% 32.3% 31.9%
In 2003, taxes on foreign income included a 1.3% reduction for
recently enacted tax legislation.
Thecomponents of net deferred tax assets and liabilities follow.
December 31
2003
Deferred
tax
assets
Deferred
tax
liabilities
2002
Deferred
tax
assets
Deferred
tax
liabilities
Depreciation $— $1,599 $— $1,490
Employee benefits 1,452 — 1,484 —
Loss provisions 380 — 373 —
Deferred income/expense 249 155 364 157
Ta x l o s s c a r ryforwards 449 — 308 —
Ta x c r e d i t c a r ryforwards 258 — 176 —
Unrealized gains on
available-for-sale
securities — 169 ——
Other 163 181 293 279
2,951 2,104 2,998 1,926
Va l u a t i o n a llowance (159) — (179) —
$2,792 $2,104 $2,819 $1,926
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Of the total deferred tax assets associated with the tax loss carry-
forwards, $165 expires over the nexttenyears,$69overthe next
20 years, and $215 is unlimited. Of the tax credit carryforwards,
$150 is unlimited with the balance expiring over the next ten years.
Asubstantialportion of the valuation allowance relates to the loss
carryforwards because the ability to generate sufficient foreign
taxable income in future years is uncertain. In 2003, the net reduc-
tion in the valuation allowance included a change in circumstances
that resulted in the recognition of a $49 benefit from foreign net
operating losses. Approximately $40 of the valuation allowance
relates to acquired companies for which subsequently recognized
benefits will reduce goodwill.
The cumulative amount of Alcoa’s share of undistributed
earnings for which no deferred taxes have been provided was $6,154
at December 31, 2003. Management has no plans to distribute such
earnings in the foreseeable future. It is not practical to determine
thedeferred tax liability on these earnings.
T. Lease Expense
Certainequipment,warehousing and office space, and oceangoing
vessels are under operating lease agreements. Totalexpensefrom
continuing operations for all leases was $241 in 2003, $214 in 2002,
and $198in2001.Under long-term operating leases, minimum
annual rentals are $180 in 2004, $155 in 2005, $124 in 2006, $101
in 2007, $85 in 2008, and a total of $392 for 2009 and thereafter.
U. Interest Cost Components
2003 2002 2001
Amount charged to expense $314 $350 $371
Amount capitalized 21 22 22
$335 $372 $393
V. Pension Plans and
Other Postretirement Benefits
Alcoa maintains pension plans covering most U.S. employees
andcertain other employees. Pension benefits generally depend
on length of service, job grade, and remuneration. Substantially
allbenefits are paid through pension trusts that are sufficiently
funded to ensure that allplans canpay benefits to retirees as they
become due.
Alcoa maintainshealth care and life insurance benefit plans
covering most eligible U.S. retired employees and certain other
retirees. Generally, the medical plans pay a percentage of medical
expenses, reduced by deductibles and other coverages. These plans
aregenerally unfunded,exceptfor certainbenefits funded through
atrust.Lifebenefits are generally provided by insurance contracts.
Alcoa retains the right, subject to existing agreements, to change
or eliminatethese benefits. All U.S. salaried and certain hourly
employees hired after January 1, 2002 will not have postretirement
health care benefits.
Alcoa uses a December 31measurement date for the majority
of its plans.