Alcoa 2009 Annual Report Download - page 59

Other Income, net—Other income, net was $161 in 2009 compared with $59 in 2008. The increase of $102 was
mainly the result of a $188 gain on the Elkem/Sapa AB exchange transaction; favorable foreign currency movements
due to a stronger U.S. dollar; net gains related to the improvement in the cash surrender value of company-owned life
insurance; an $92 gain related to the acquisition of a BHP Billiton subsidiary in the Republic of Suriname; and a $22
gain on the sale of property in Vancouver, WA. These positive impacts were partially offset by a $182 realized loss on
the sale of the Shining Prospect investment; a decline in the value of mark-to-market derivative contracts; a decrease in
equity income related to Alcoa’s share of the results of Elkem, Sapa AB, and Shining Prospect prior to the exchange
and sale of these investments; the absence of a 2008 negotiated partial refund of an indemnification payment ($39); and
an estimated loss on excess power at the Ferndale, WA smelter ($30).
Other income, net was $59 in 2008 compared with $1,920 in 2007. The decrease of $1,861 was mostly due to the
absence of the $1,754 gain related to the sale of Alcoa’s investment in Chalco. Other items impacting this decline were
losses related to the cash surrender value of life insurance as a result of the deterioration of the investment markets;
unfavorable foreign currency movements due to a weaker U.S. dollar; the absence of dividend income from Alcoa’s
former stake in Chalco; and the absence of a non-recurring foreign currency gain in Russia; all of which was partially
offset by mark-to-market gains on derivative contracts and income related to a negotiated partial refund of an
indemnification payment previously made to the buyer of a prior Alcoa divestiture ($39).
Income Taxes—Alcoa’s effective tax rate was 38.3% (benefit on a loss) in 2009 compared with the U.S. federal
statutory rate of 35%. The effective tax rate differs from the U.S. federal statutory rate primarily due to a $12 income
tax benefit related to the noncontrolling interests’ share of the gain associated with the acquisition of a BHP Billiton
subsidiary in the Republic of Suriname and the following discrete tax items: a $71 benefit for the reorganization of an
equity investment; a $34 benefit for the reversal of a valuation allowance on foreign deferred tax assets; a $31 benefit
for a tax rate change (from 15% to 18%) in Iceland; a $31 benefit related to a Canadian tax law change allowing a tax
return to be filed in U.S. dollars; a $10 benefit related to a change in the sale structure of two locations included in the
Global Foil business than originally anticipated; and a $7 benefit related to the Elkem/Sapa AB exchange transaction.
Partially offsetting these benefits were items related to smelter operations in Italy, which included a $41 valuation
allowance placed on existing deferred tax assets and charges not tax benefitted as follows: $250 related to a recent
decision by the European Commission on electricity pricing, $15 for environmental remediation, and $15 for layoffs.
Alcoa’s effective tax rate was 43.2% (provision on income) in 2008 compared with the U.S. federal statutory rate of
35%. The effective tax rate differs from the U.S. federal statutory rate principally due to the following income tax
charges: $73 for the asset impairments included in the 2008 restructuring program; $28 due to a decrease in deferred
tax assets of the Iceland operations as a result of an applicable tax rate change (from 18% to 15%); a net $19 associated
with the sale of the Packaging and Consumer businesses, mainly due to the allocation of sale proceeds to higher tax
rate jurisdictions as opposed to the allocation previously contemplated, somewhat offset by changes in tax assumptions
surrounding transaction costs and the finalization of the divestiture of certain foreign locations. These charges were
partially offset by foreign income taxed in lower rate jurisdictions and a $20 discrete income tax benefit related to the
filing of the 2007 U.S. income tax return.
Alcoa’s effective tax rate was 33.8% (provision on income) in 2007 compared with the U.S. federal statutory rate of
35%. The effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to lower taxes on foreign
income, mostly offset by a discrete income tax charge of $142 related to goodwill that is non-deductible for tax
purposes associated with the sale of the Packaging and Consumer businesses.
Management anticipates that the effective tax rate in 2010 will be approximately 35%. However, changes in the current
economic environment, tax legislation, currency fluctuations, and the results of operations in certain taxing
jurisdictions may cause this estimated rate to fluctuate significantly.
Noncontrolling Interests—Net income attributable to noncontrolling interests was $61 in 2009 compared with $221
in 2008. The decline of $160 was principally due to lower earnings at AWAC, which is owned 60% by Alcoa and 40%
by Alumina Limited. The lower earnings at AWAC were mainly driven by a significant drop in realized prices,
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