Alcoa 2011 Annual Report Download - page 142

A reconciliation of the U.S. federal statutory rate to Alcoa’s effective tax rate for continuing operations was as follows
(the effective tax rate for both 2011 and 2010 was a provision on income and for 2009 was a benefit on a loss):
2011 2010 2009
U.S. federal statutory rate 35.0% 35.0% 35.0%
Taxes on foreign operations (8.4) (3.5) (4.8)
Permanent differences on restructuring charges and asset disposals - 0.7 1.1
Audit and other adjustments to prior years’ accruals (1.1) 1.2 (0.7)
Noncontrolling interests 0.8 2.6 -
Statutory tax rate and law changes 0.8 (5.1) 4.2
Reorganization of equity investment - - 4.7
Items related to smelter operations in Italy* - - (9.3)
Tax law change related to Medicare Part D - 14.4 -
Release of valuation allowances (0.3) (10.6) 2.3
Amortization of goodwill (2.8) (5.2) 3.5
Other - (2.6) 2.3
Effective tax rate 24.0% 26.9% 38.3%
* Includes items not tax benefitted as follows: a $250 charge related to a 2009 decision by the European Commission
on electricity pricing (see Note N), a $15 charge for environmental remediation, and a $15 restructuring charge for
layoffs. Also includes a $41 valuation allowance placed on existing deferred tax assets.
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.
132