Alcoa 2012 Annual Report Download - page 147

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:
2012 2011
December 31,
Deferred
tax
assets
Deferred
tax
liabilities
Deferred
tax
assets
Deferred
tax
liabilities
Depreciation $ 104 $1,015 $ 74 $ 933
Employee benefits 2,742 46 2,668 51
Loss provisions 368 17 325 9
Deferred income/expense 53 203 45 181
Tax loss carryforwards 2,186 - 2,035 -
Tax credit carryforwards 508 - 477 -
Derivatives and hedging activities 117 16 109 43
Other 324 297 315 288
6,402 1,594 6,048 1,505
Valuation allowance (1,400) - (1,398) -
$ 5,002 $1,594 $ 4,650 $1,505
The following table details the expiration periods of the deferred tax assets presented above:
December 31, 2012
Expires
within
10 years
Expires
within
11-20 years
No
expiration* Other* Total
Tax loss carryforwards $ 332 $ 886 $ 968 $ - $ 2,186
Tax credit carryforwards 370 73 65 - 508
Other - - 762 2,946 3,708
Valuation allowance (212) (659) (244) (285) (1,400)
$ 490 $ 300 $1,551 $2,661 $ 5,002
* 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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