Alcoa 2010 Annual Report Download - page 137

On March 23, 2010, the Patient Protection and Affordable Care Act (the “PPACA”) was signed into law, and, on
March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the “HCERA” and, together with PPACA,
the “Acts”), which makes various amendments to certain aspects of the PPACA, was signed into law. The Acts
effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide
prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare
Part D.
Alcoa pays a portion of the prescription drug cost for eligible retirees under certain postretirement benefit plans. These
benefits were determined to be actuarially equivalent to the Medicare Part D prescription drug benefit of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the “MPDIMA”). Alcoa has been receiving the
federal subsidy since the 2006 tax year related to the aforementioned postretirement benefit plans. Under the
MPDIMA, the federal subsidy did not reduce an employer’s income tax deduction for the costs of providing such
prescription drug plans nor was it subject to income tax individually.
Under the Acts, beginning in 2013, an employer’s income tax deduction for the costs of providing Medicare Part D-
equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under GAAP,
any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective
date. As a result, Alcoa recognized a noncash charge of $79 in 2010 for the elimination of a related deferred tax asset
to reflect the change in the tax treatment of the federal subsidy.
The components of net deferred tax assets and liabilities were as follows:
2010 2009
December 31,
Deferred
tax
assets
Deferred
tax
liabilities
Deferred
tax
assets
Deferred
tax
liabilities
Depreciation $ - $1,077 $ - $1,154
Employee benefits 2,021 - 2,376 -
Loss provisions 335 - 174 -
Deferred income/expense 88 140 17 133
Tax loss carryforwards 1,734 - 1,677 -
Tax credit carryforwards 483 - 465 -
Derivatives and hedging activities 149 - 214 -
Other 424 224 242 181
5,234 1,441 5,165 1,468
Valuation allowance (861) - (908) -
$4,373 $1,441 $4,257 $1,468
The following table details the expiration periods of the deferred tax assets presented above:
December 31, 2010
Expires
within
10 years
Expires
within
11-20 years
No
expiration* Other* Total
Tax loss carryforwards $ 419 $ 557 $ 758 $ - $1,734
Tax credit carryforwards 385 35 63 - 483
Other - - 392 2,625 3,017
Valuation allowance (294) (389) (36) (142) (861)
$ 510 $ 203 $1,177 $2,483 $4,373
* Deferred tax assets with no expiration may still have annual limitations on utilization. Other represents deferred tax
assets whose expiration is dependent upon the reversal of the underlying temporary difference. A substantial amount
of Other relates to employee benefits that will become deductible for tax purposes over an extended period of time as
contributions are made to employee benefit plans and payments are made to retirees.
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