Alcoa 2010 Annual Report Download - page 79

Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received
or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future
tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result
from differences between the financial and tax bases of Alcoa’s assets and liabilities and are adjusted for changes in tax
rates and tax laws when enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers
all potential sources of taxable income, including income available in carryback periods, future reversals of taxable
temporary differences, projections of taxable income, and income from tax planning strategies, as well as all positive
and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of
future profitability within the carryforward period, including from tax planning strategies, and the Company’s
experience with similar operations. Existing favorable contracts and the ability to sell products into established markets
are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future
losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on
existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized
upon changes in facts and circumstances. Tax benefits related to uncertain tax positions taken or expected to be taken
on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are
recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the
appropriate taxing authority has completed their examination even though the statute of limitations remains open.
Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are
accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such
time that the related tax benefits are recognized.
Related Party Transactions
Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains
a 50% or less equity interest, at negotiated arms-length prices between the two parties. These transactions were not
material to the financial position or results of operations of Alcoa for all periods presented.
Recently Adopted Accounting Guidance
See the Recently Adopted Accounting Guidance section of Note A to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Recently Issued Accounting Guidance
See the Recently Issued Accounting Guidance section of Note A to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See the Derivatives section of Note X to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Item 8. Financial Statements and Supplementary Data.
Management’s Reports to Alcoa Shareholders
Management’s Report on Financial Statements and Practices
The accompanying Consolidated Financial Statements of Alcoa Inc. and its subsidiaries (the “Company”) were
prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in
accordance with generally accepted accounting principles and include amounts that are based on management’s best
judgments and estimates. The other financial information included in the annual report is consistent with that in the
financial statements.
71