Alcoa 2010 Annual Report Download - page 59

Interest expense was $470 in 2009 compared with $407 in 2008, resulting in an increase of $63, or 15%. The increase
was primarily due to a 10% higher average debt level, mostly the result of $575 in convertible notes issued in March
2009 and increased borrowings on loans in Brazil (began in April 2008) related to the Juruti, São Luís, and Estreito
growth projects; and a significant increase in the amortization of debt costs, mainly due to a $66 beneficial conversion
option related to the convertible notes and $43 in fees paid for the $1,900 364-day senior unsecured revolving credit
facility (entered into in October 2008 and expired in October 2009); both of which were slightly offset by a decrease in
the weighted average interest rate of Alcoa’s debt portfolio.
Other Expenses (Income), net—Other expenses, net was $5 in 2010 compared with Other income, net of $161 in
2009. The change of $166 was mostly due to the absence of a $188 gain on the Elkem/Sapa AB exchange transaction, a
$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; net foreign currency losses; and a smaller improvement in the cash surrender value of
company-owned life insurance; partially offset by the absence of both a $182 realized loss on the sale of the Shining
Prospect investment and an equity loss related to Alcoa’s former 50% equity stake in Elkem; and a net favorable
change of $25 in mark-to-market derivative contracts.
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; net foreign currency gains due to a stronger U.S. dollar; net gains
related to the improvement in the cash surrender value of company-owned life insurance; a $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).
Income Taxes—Alcoa’s effective tax rate was 26.9% (provision on income) in 2010 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 foreign income
taxed in lower rate jurisdictions, a $57 discrete income tax benefit for the reversal of a valuation allowance as a result
of previously restricted net operating losses of a foreign subsidiary now available, a $24 discrete income tax benefit
related to a Canadian provincial tax law change permitting a tax return to be filed in U.S. dollars, and a $13 net discrete
income tax benefit for various other items, partially offset by a $79 discrete income tax charge as a result of a change
in the tax treatment of federal subsidies received related to prescription drug benefits provided under certain retiree
health care benefit plans that were determined to be actuarially equivalent to Medicare Part D and a $19 discrete
income tax charge based on settlement discussions of several matters with international taxing authorities (this amount
represents a decrease to Alcoa’s unrecognized tax benefits) .
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 principally 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 primarily 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
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