Alcoa 2015 Annual Report Download - page 171

The following table details the expiration periods of the deferred tax assets presented above:
December 31, 2015
Expires
within
10 years
Expires
within
11-20 years
No
expiration* Other* Total
Tax loss carryforwards $ 361 $ 694 $ 862 $ - $ 1,917
Tax credit carryforwards 492 103 98 - 693
Other - - 473 3,441 3,914
Valuation allowance (596) (704) (423) (314) (2,037)
$ 257 $ 93 $1,010 $3,127 $ 4,487
* 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.
The total deferred tax asset (net of valuation allowance) is supported by projections of future taxable income exclusive
of reversing temporary differences (58%) and taxable temporary differences that reverse within the carryforward
period (42%).
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) 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 available 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 Alcoa’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. In certain jurisdictions, deferred tax assets related to cumulative losses exist without a valuation
allowance where in management’s judgment the weight of the positive evidence more than offsets the negative
evidence of the cumulative losses. Upon changes in facts and circumstances, management may conclude that deferred
tax assets for which no valuation allowance is currently recorded may not be realized, resulting in a future charge to
establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive
and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the
appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-
measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.
In 2013, Alcoa recognized a $372 discrete income tax charge for valuation allowances on certain deferred tax assets in
Spain and the United States. Of this amount, a $237 valuation allowance was established on the full value of the
deferred tax assets related to a Spanish consolidated tax group. These deferred tax assets have an expiration period
ranging from 2016 (for certain credits) to an unlimited life (for operating losses). After weighing all available positive
and negative evidence, as described above, management determined that it was no longer more likely than not that
Alcoa will realize the tax benefit of these deferred tax assets. This was mainly driven by a decline in the outlook of the
Primary Metals business (2013 realized prices were the lowest since 2009) combined with prior year cumulative losses
of the Spanish consolidated tax group. During 2014, the underlying value of the deferred tax assets decreased due to a
remeasurement as a result of the enactment of new tax rates in Spain beginning in 2015, the sale of a member of the
Spanish consolidated tax group, and a change in foreign currency exchange rates. As a result the valuation allowance
decreased by the same amount. At December 31, 2015, the amount of the valuation allowance was $149. This valuation
allowance was reevaluated as of December 31, 2015, and no change to the allowance was deemed necessary based on
all available evidence. The need for this valuation allowance will be assessed on a continuous basis in future periods
and, as a result, a portion or all of the allowance may be reversed based on changes in facts and circumstances.
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