Alcoa 2009 Annual Report Download - page 133

Included in discontinued operations is a tax benefit of $55 in 2009, $121 in 2008 and $83 in 2007.
The exercise of employee stock options generated a tax benefit of $20 in 2008 and $95 in 2007. This amount was
credited to additional capital and reduced current taxes payable. There were no exercises of employee stock options in
2009.
Alcoa also has unamortized tax-deductible goodwill of $358 resulting from intercompany stock sales and
reorganizations (generally at a 30% to 34% rate). Alcoa recognizes the tax benefits associated with this tax-deductible
goodwill as it is being amortized for local income tax purposes rather than in the period in which the transaction is
consummated.
A reconciliation of the U.S. federal statutory rate to Alcoa’s effective tax rate for continuing operations is as follows:
2009 2008 2007
U.S. federal statutory rate 35.0% 35.0% 35.0%
Taxes on foreign income 0.1 (10.1) (4.3)
Permanent differences on restructuring charges and asset disposals 2.0 11.8 3.4
Audit and other adjustments to prior years’ accruals (0.7) (2.8) (0.1)
Noncontrolling interests - 5.0 0.4
Statutory tax rate and law changes 4.2 3.5 0.2
Reorganization of equity investment 4.7 - -
Items related to smelter operations Italy* (9.3) - -
Other 2.3 0.8 (0.8)
Effective tax rate 38.3% 43.2% 33.8%
* Includes items not tax benefited as follows: a $250 charge related to a recent decision by the European Commission
on electricity pricing (see Note N), a $15 charge for environmental remediation (see Note N), and a $15 restructuring
charge for layoffs. Also includes a $41 valuation allowance placed on existing deferred tax assets.
The components of net deferred tax assets and liabilities are as follows:
2009 2008
December 31,
Deferred
tax
assets
Deferred
tax
liabilities
Deferred
tax
assets
Deferred
tax
liabilities
Depreciation $ - $1,154 $ - $1,188
Employee benefits 2,376 - 2,313 -
Loss provisions 174 - 475 17
Deferred income/expense 17 133 18 113
Tax loss carryforwards 1,677 - 1,017 -
Tax credit carryforwards 465 - 320 -
Derivatives and hedging activities 214 - 394 -
Other 242 181 234 224
5,165 1,468 4,771 1,542
Valuation allowance (908) - (713) -
$4,257 $1,468 $4,058 $1,542
Of the total deferred tax assets associated with the tax loss carryforwards, $480 expires over the next 10 years (of
which $346 has been reserved for through the valuation allowance), $702 over the next 20 years, and $495 is
unlimited. Generally, the valuation allowance relates to tax loss carryforwards because the ability to generate sufficient
future income in some jurisdictions is uncertain. Of the tax credit carryforwards, $361 expires over the next 10 years
(most of this amount relates to foreign tax credits that do not begin to expire until 2015), $34 expires over the next 15
to 20 years, and $70 is unlimited.
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