Alcoa 2009 Annual Report Download - page 79

related compensation expense in future earnings upon the adoption of a new accounting standard. The accelerated
vesting of the 2004 and 2005 stock options reduced Alcoa’s after-tax stock option compensation expense in 2007 by
$7.
Plan participants can choose whether to receive their award in the form of stock options, stock awards, or a
combination of both. This choice is made before the grant is issued and is irrevocable.
Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received
or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future
tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result
from differences between the financial and tax bases of Alcoa’s assets and liabilities and are adjusted for changes in tax
rates and tax laws when enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized. Deferred tax assets for which no valuation allowance is recorded may
not be realized upon changes in facts and circumstances. Tax benefits related to uncertain tax positions taken or
expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise,
these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of
limitation has expired or the appropriate taxing authority has completed their examination even though the statute of
limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision
for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under
relevant tax law until such time that the related tax benefits are recognized.
Related Party Transactions
Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains
a 50% or less equity interest, at negotiated arms-length prices between the two parties. These transactions were not
material to the financial position or results of operations of Alcoa for all periods presented.
Recently Adopted Accounting Guidance
See the Recently Adopted Accounting Guidance section of Note A to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Recently Issued Accounting Guidance
See the Recently Issued Accounting Guidance section of Note A to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Item 7A. Market Risks and Derivative Activities
See the Derivatives section of Note X to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Item 8. Financial Statements and Supplementary Data.
Management’s Reports to Alcoa Shareholders
Management’s Report on Financial Statements and Practices
The accompanying Consolidated Financial Statements of Alcoa Inc. and its subsidiaries (the “Company”) were
prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in
accordance with generally accepted accounting principles and include amounts that are based on management’s best
judgments and estimates. The other financial information included in the annual report is consistent with that in the
financial statements.
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