Alcoa 2013 Annual Report Download - page 74

equity loss ($40) related to Alcoa’s share of the joint venture in Saudi Arabia due to start-up costs and a shutdown of
one of the two smelter potlines due to a period of instability was partially offset by net favorable foreign currency
movements ($28).
Other income, net was $341 in 2012 compared with $87 in 2011. The increase of $254 was mostly due to a gain on the
sale of U.S. hydroelectric power assets ($320: see Primary Metals in Segment Information below) and net favorable
foreign currency movements ($21). These two items were somewhat offset by lower equity income ($43), largely
attributable to Alcoa’s share of expenses of the joint venture in Saudi Arabia and the absence of a discrete income tax
benefit recognized by the consortium related to an investment in a natural gas pipeline in Australia (Alcoa World
Alumina and Chemicals’ share of the benefit was $24); the absence of a gain on the sale of land in Australia ($43); and
a net unfavorable change in mark-to-market derivative contracts ($39), principally driven by the absence of a favorable
change in an energy contract that expired in September 2011.
Income Taxes—Alcoa’s effective tax rate was 23.6% in 2013 (provision on a loss) compared with the U.S. federal
statutory rate of 35%. The effective tax rate differs (by (58.6)% points) from the U.S. federal statutory rate primarily
due to a $1,731 impairment of goodwill (see Impairment of Goodwill above) and a $209 charge for a legal matter (see
Restructuring and Other Charges above) that are nondeductible for income tax purposes, a $372 discrete income tax
charge for valuation allowances on certain deferred tax assets in Spain and the U.S. (see Income Taxes in Critical
Accounting Policies and Estimates below), restructuring charges related to operations in Canada (benefit at a lower tax
rate) and Italy (no tax benefit) (see Restructuring and Other Charges above), and a $9 discrete income tax charge
related to prior year taxes in Spain and Australia. These items were slightly offset by an $18 discrete income tax
benefit related to new U.S. tax legislation.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law and reinstated various expired or
expiring temporary business tax provisions through 2013. Two specific temporary business tax provisions that expired
in 2011 and impacted Alcoa are the look-through rule for payments between related controlled foreign corporations
and the research and experimentation credit. The expiration of these two provisions resulted in Alcoa recognizing a
higher income tax provision of $18 in 2012. As tax law changes are accounted for in the period of enactment, Alcoa
recognized the previously mentioned discrete income tax benefit in 2013 related to the 2012 tax year to reflect the
extension of these provisions. For tax years beginning after December 31, 2013, these two provisions once again
expire. Absent a retroactive extension enacted in 2014, Alcoa would recognize a higher income tax provision of $5 in
2014.
Alcoa’s effective tax rate was 50.0% (provision on income) in 2012 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 the tax impact from the gain
recognized on the sale of U.S. hydroelectric power assets (see Primary Metals in Segment Information below) and an
$8 discrete income tax charge related to prior year U.S. taxes on certain depletable assets, slightly offset by a
$13 discrete income tax benefit related to a change in the legal structure of an investment.
Alcoa’s effective tax rate was 24.0% (provision on income) in 2011 compared with the U.S. federal statutory rate of
35%. The effective tax rate differs from the U.S. federal statutory rate mainly due to foreign income taxed in lower rate
jurisdictions.
Management anticipates that the effective tax rate in 2014 will be approximately 45%. However, changes in the current
economic environment, tax legislation or rate changes, currency fluctuations, ability to realize deferred tax assets, and
the results of operations in certain taxing jurisdictions may cause this estimated rate to fluctuate.
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
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