Alcoa 2013 Annual Report Download - page 157

determined that it was no longer more likely than not that Alcoa will realize the full tax benefit of these foreign tax
credits. This was primarily due to lower foreign sourced taxable income after consideration of tax planning strategies
and after the inclusion of earnings from foreign subsidiaries projected to be distributable as taxable foreign dividends.
Similar to the outlook related to Spain above, lower levels of both distributable future foreign earnings and projected
foreign sourced taxable income are principally attributable to a decline in the outlook of the Primary Metals business.
The need for this valuation allowance will be assessed on a continuous basis in future periods and, as a result, an
increase or decrease to this allowance may result based on changes in facts and circumstances.
In December 2011, one of the Company’s subsidiaries in Brazil applied for a tax holiday related to its expanded mining
and refining operations. During 2013, the application was amended and re-filed and, separately, a similar application
was filed for another one of the Company’s subsidiaries in Brazil. If approved, the tax rate for these subsidiaries will
decrease significantly, resulting in future cash tax savings over the 10-year holiday period (would be retroactively
effective as of January 1, 2013). Additionally, the net deferred tax asset of one of the subsidiaries would be remeasured
at the lower rate in the period the holiday is approved (the net deferred tax asset of the other subsidiary would not be
remeasured since it could still be utilized against future earnings of the subsidiary not subject to the tax holiday). This
remeasurement would result in a decrease to that subsidiary’s net deferred tax asset and a noncash charge to earnings of
approximately $50. As of December 31, 2013, Alcoa’s subsidiaries’ applications are still pending.
The following table details the changes in the valuation allowance:
December 31, 2013 2012 2011
Balance at beginning of year $1,400 $1,398 $1,268
Increase to allowance 471 45 157
Release of allowance (41) (31) (31)
U.S. state tax apportionment and tax rate changes (32) (17) 6
Foreign currency translation 6 5 (2)
Balance at end of year $1,804 $1,400 $1,398
The cumulative amount of Alcoa’s foreign undistributed net earnings for which no deferred taxes have been provided
was approximately $5,200 at December 31, 2013. Alcoa has a number of commitments and obligations related to the
Company’s growth strategy in foreign jurisdictions. As such, management has no plans to distribute such earnings in
the foreseeable future, and, therefore, has determined it is not practicable to determine the related deferred tax liability.
Alcoa and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign
jurisdictions. With a few minor exceptions, Alcoa is no longer subject to income tax examinations by tax authorities for
years prior to 2004. All U.S. tax years prior to 2013 have been audited by the Internal Revenue Service. Various state
and foreign jurisdiction tax authorities are in the process of examining Alcoa’s income tax returns for various tax years
through 2012.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties)
was as follows:
December 31, 2013 2012 2011
Balance at beginning of year $66 $ 51 $46
Additions for tax positions of the current year 2 - -
Additions for tax positions of prior years 11 39 13
Reductions for tax positions of prior years (2) (7) (3)
Settlements with tax authorities (8) (18) (4)
Expiration of the statute of limitations (2) - -
Foreign currency translation (4) 1 (1)
Balance at end of year $63 $ 66 $51
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