Income Tax Accounting and Reporting
Equipment Leasing Association Lease Accountants
Conference
September 21, 2004
Alan L. Moose
William J. Bosco
Division Controller, U.S.
Consultant
John Deere Credit
1
.
Topics Covered
• Overview of Accounting for Income Taxes
• Terms and Definitions
• Tax Provision Calculation
• Income Tax Provision Calculation Examples
• Presentation and Disclosure
• Sample Tax Footnotes
• Recent Developments in Accounting for Income
Taxes
2
Overview - History
The Standards for Accounting for Income Taxes are as
follows:
– APB 11- Issued in December 1967 – an income statement
oriented approach
– FAS 96 – Issued in December 1987 – a balance sheet
oriented approach - effective date was for the years
beginning after 12/15/1988
• FASB 100 delayed the effective date one year until 12/15/1989
• FASB 103 delayed the effective date two more years until
12/15/91
• FASB 108 delayed the effective date one more year until
12/15/92
– FAS 109 – Issued in February 1992 – a simplified balance
sheet oriented approach
• Implementation Guide issued in March 1992 – revised in
December 1998 and September 2001
3
Overview – FASB 109 - Scope
Statement defines the financial accounting and
reporting for income taxes that are currently payable
and for the tax consequences of the following:
– Revenues, expenses, gains, or losses that are included in
taxable income of an earlier or later year than the year in
which they are recognized in financial income
– Other events that create differences between the tax bases
of assets and liabilities and their amounts for financial
reporting
– Operating loss or tax credit carrybacks for refunds of taxes
paid in prior years and carryforwards to reduce taxes
payable in future years. (FAS 109 ¶ 3)
4
Overview – FASB 109 - Scope
Statement is applicable to the following:
– Domestic federal (national) income taxes (U.S. federal
income taxes for U.S. enterprises) and foreign, state, and
local (including franchise) taxes based on income
– An enterprise's domestic and foreign operations that are
consolidated, combined, or accounted for by the equity
method
– Foreign enterprises in preparing financial statements in
accordance with U.S. generally accepted accounting
principles. (FAS 109 ¶ 4)
5
Overview – FASB 109 - Scope
Items that are outside of the Statement’s scope are as
follows:
– The basic methods of accounting for the U.S. federal
investment tax credit (ITC) and for foreign, state, and local
investment tax credits or grants
– Discounting
– Accounting for income taxes in interim periods (other than
the criteria for recognition of tax benefits and the effect of
enacted changes in tax laws or rates and changes in
valuation allowances). (FAS 109 ¶ 5)
6
Overview – FASB 109 - Objectives
The two major objectives of the Statement are to
recognize the following items:
– the amount of income taxes payable or refundable in the
current period (the current provision)
– deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an
enterprise’s financial statements or tax returns. (the deferred
provision) (FAS 109 ¶ 7)
7
Overview – FASB 109 - Principles
Following are the basic principles applied at each
financial statement date:
– A current tax liability or asset is recognized for the estimated
taxes payable or refundable on tax returns for the current
year.
– A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary
differences and carryforwards.
– The measurement of current and deferred tax liabilities and
assets is based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not
anticipated.
– The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. (FAS
109 ¶ 8)
8
FASB 109 - Terms
Temporary Differences
– A difference between the tax basis of an asset or liability and
its reported amount in the financial statements that will result
in taxable or deductible amounts in future years when the
reported amount of the asset or liability is recovered or
settled, respectively.
• Revenues or gains that are taxable after they are recognized in
financial income – i.e. – tax gains deferred through like-kind
exchange
• Expenses or losses that are deductible after they are
recognized in financial income – i.e. – increases in the
allowance for credit losses charged to the provision
• Revenues or gains that are taxable before they are recognized
in financial income – i.e. – advance rents
• Expenses or losses that are deductible before they are
recognized in the financial statements – i.e. – accelerated tax
depreciation
9
FASB 109 - Terms
Current Tax Expense or Benefit
– The amount of income taxes paid or payable (or refundable)
for a year as determined by applying the provisions of the
enacted tax law to the taxable income or excess of
deductions over revenues for that year. (FAS 109 ¶ 289)
Deferred Tax Asset
– A difference between the tax basis of an asset or liability and
its reported amount in the financial statements that will result
in taxable or deductible amounts in future years when the
reported amount of the asset or liability is recovered or
settled, respectively. (FAS 109 ¶ 289)
10
FASB 109 - Terms
Deferred Tax Liability
– The deferred tax consequences attributable to taxable
temporary differences. A deferred tax liability is measured
using the applicable enacted tax rate and provisions of the
enacted tax law. (FAS 109 ¶ 289)
Carrybacks and Carryforwards
– Deductions or credits that cannot be utilized on the tax
return during a year that may be carried back to reduce
taxable income or taxes payable in a prior year.
– Deductions or credits that cannot be utilized on the tax
return during a year that may be carried forward to reduce
taxable income or taxes payable in a future year. (FAS109 ¶
289)
11
FASB 109 - Terms
Valuation Allowance
– The portion of a deferred tax asset for which it is more likely than
not that a tax benefit will not be realized.
Scheduling
– Preparing a proforma income tax return for future years to
determine the reversal of temporary differences and the ability to
utilize carryforwards. Used to determine if a valuation allowance is
necessary.
Applicable Tax Rate
– the enacted tax rate(s) expected to apply to taxable income in the
periods in which the deferred tax liability or asset is expected to be
settled or realized (FAS 109 ¶18)
– In the U.S. federal tax jurisdiction, the applicable tax rate is the
regular tax rate, and a deferred tax asset is recognized for
alternative minimum tax credit carryforwards (FAS 109 ¶ 19)
– A combined federal and state rate can be used if there is little
variation between the tax laws. (Implementation Guide)
12
FASB 109 - Terms
Net Operating Loss
• A tax position where a company has negative taxable
income. Under US rules an NOL can be carried back
to offset previous years’ taxable income to generate a
refund. If an NOL still exists it is carried forward to
offset future years’ taxable income.
• Customers often lease when they have an NOL to
lower their after-tax cost of financing equipment. If a
customer has a large NOL carry forward it means it
can’t take advantage of tax benefits such as the
accelerated depreciation write offs (MACRS
deductions) in the current year.
13
FASB 109 - Terms
Alternative minimum tax
• US tax provisions to cause companies with
significant tax benefits preferences or credits to pay
a minimum tax. The AMT is calculated by adding
adjustments for preference items to regular taxable
income and applying a 20% AMT rate to the AMT
income.
• Paying the AMT generates a credit (excess of AMT
over regular tax). AMT credits can be carried
forward and applied to reduce regular tax in the
future when it exceeds AMT. Accelerated
depreciation is a preference item, thus leasing
equipment rather than buying equipment helps
reduce AMT.
14
FASB 109 – Tax Provision Calculation
Total income tax expense or benefit for the year is the
sum of i) deferred tax expense or benefit and ii) income
taxes currently payable or refundable.
Income taxes currently payable or refundable is the
amount of income taxes paid or payable (or refundable)
for a year as determined by applying the provisions of
the enacted tax law to the taxable income or excess of
deductions over revenues for that year.
15
Deferred Tax Provision Calculation
Steps to calculate the deferred tax provision
• Identify (1) the types and amounts of existing
temporary differences and (2) the nature and amount
of each type of operating loss and tax credit
carryforward and the remaining length of the
carryforward period
• Measure the total deferred tax liability for taxable
temporary differences using the applicable tax rate
• Measure the total deferred tax asset for deductible
temporary differences and operating loss
carryforwards using the applicable tax rate
16
Deferred Tax Provision Calculation Continued
•
Measure deferred tax assets for each type of tax
credit carryforward
•
Reduce deferred tax assets by a valuation
allowance if, based on the weight of available
evidence, it is more likely than not (a likelihood of
more than 50 percent) that some portion or all of the
deferred tax assets will not be realized. The
valuation allowance should be sufficient to reduce
the deferred tax asset to the amount that is more
likely than not to be realized. (FAS 109 ¶17)
17
Tax Provision
- Operating Lease Example
An example comparing book income to taxable income for an operating lease:
1. Assume an operating lease for GAAP purposes and a true lease for income purposes.
Lessor enters into a 6060-month FMV lease of material handling equipment, having a cost of $1
million, monthly rent of $18,500, a residual of $200,000, and an implicit interest rate of 10%.
The first basic rent date is April 1, 1996.
There is no automatic transfer of ownership.
There is no bargain purchase option.
The equipment has an economic life of 10 years, therefore the lease
lease term of 5 years is less than 75% of
the
economic life. The PV of the rents at the implicit rate of 10% is $878,000, which is less than 90% of the
cost
the equipment. Therefore, the lease is an operating lease for financial
financial reporting purposes.
2. Material handling equipment (generally) is fivefive-year class property. MACRS depreciation rates (from
the
IRS table) are (excludes 50% bonus depreciation):
%
Year
1996
20.00
1997
32.00
1998
19.20
1999
11.52
2000
11.52
2001
5.76
18
Tax Provision - Operating Lease Example
From the standpoint of the lessor, the lease will have the following earnings pattern:
Tax Books
Rental Income
Year ended December 31
1996
1997
1998
1999
$166,500 $222,000 $222,000 $222,000
2000
$222,000
Sale Proceeds
2001
$55,500
Total
$1,110,000
200,000
200,000
Depreciation Expense
200,000
320,000
192,000
115,200
115,200
57,600
1,000,000
Tax Income (Loss)
(33,500)
(98,000)
30,000
106,800
106,800
197,900
310,000
40%
40%
40%
40%
40%
40%
40%
($13,400)
($39,200)
$12,000
$42,720
$42,720
$79,160
$124,000
$166,500
$222,000
$222,000
$222,000
$222,000
$55,500
$1,110,000
200,000
200,000
Tax Rate 40% (Combined
Federal & State Rate)
Tax Liability (Savings)
GAAP Books
Rental Income
Sale Proceeds
Depreciation Expense
120,000
160,000
160,000
160,000
160,000
240,000
1,000,000
Income before Tax
46,500
62,000
62,000
62,000
62,000
15,500
310,000
Tax Expense @ 40%
18,600
24,800
24,800
24,800
24,800
6,200
124,000
$27,900
$37,200
$37,200
$37,200
$37,200
$9,300
$186,000
13,400
39,200
(12,000)
(42,720)
(42,720)
(79,160)
(124,000)
(32,000)
(96,000)
(108,000)
(90,880)
(72,960)
Net Income
Current Tax Liability
Deferred Tax Balance
19
0
0
Tax Provision
– Operating Lease Example
The deferred tax provision is calculated by identifying the temporary differences and carryforwards.
Operating Lease Tax Provision Calculation
1996
1997
1998
1999
2000
2001
Equipment Tax Basis
800,000
480,000
288,000
172,800
57,600
-
Equipment Book Basis
880,000
720,000
560,000
400,000
240,000
-
Taxable Temporary Difference
(80,000) (240,000) (272,000) (227,200) (182,400)
Applicable tax rate
Deferred tax liability
Current tax receivable/(payable)
Change in the Deferred Tax Liability
40%
(32,000)
40%
-
40%
40%
40%
40%
(96,000) (108,800)
(90,880)
(72,960)
-
13,400
39,200
(12,000)
(42,720)
(42,720)
(79,160)
(32,000)
(64,000)
(12,800)
17,921
17,920
72,960
(18,600)
(24,800)
(24,800)
(24,800)
(24,800)
(6,200)
(Deferred Tax Expense)
Total Income Tax Provision
20
Tax Provision - Operating Lease Example
A simple GAAP balance sheet presentation of the lease:
GAAP Books
Cash
Equipment under lease
Accumulated depreciation
Equipment under lease, net
Total Assets
Deferred Taxes
Stockholder’s Equity
Total Liabilities & Equity
1996
Year ended December 31
1997
1998
1999
$179,900
$441,100
$651,100
$830,380
1,000,000
1,000,000
1,000,000
1,000,000
2000
2001
$1,009,660 $1,186,000
1,000,000
0
(120,000)
(280,000)
(440,000)
(600,000)
(760,000)
0
880,000
720,000
560,000
400,000
240,000
0
$1,059,900 $1,161,100 $1,211,100 $1,230,380
$1,249,660 $1,186,000
32,000
96,000
108,800
90,880
72,960
0
1,027,900
1,065,100
1,102,300
1,139,500
1,176,700
1,186,000
$1,059,900 $1,161,100 $1,211,100 $1,230,380
21
$1,249,660 $1,186,000
Tax Provision – Direct Finance Lease Example
An example comparing book income to taxable income for direct finance lease:
1. Assume an direct finance lease for GAAP purposes and a true lease for income purposes.
–
Lessor enters into a 60 month FMV lease of material handling equipment,
equipment, having a cost of $1
million, monthly rent of $20,087, a residual of $100,000, and an implicit interest rate of 10.25%.
The first basic rent date is April 1, 1996.
–
There is no automatic transfer of ownership.
–
There is no bargain purchase option.
–
The equipment has an economic life of 10 years, therefore the lease
lease term of 5 years is less
than 75% of the economic life. The PV of the rents at the implicit
implicit rate of 10% is $939,970,
which is more than 90% of the cost of the equipment. Therefore, the lease is a direct finance
lease for financial reporting purposes.
2. Material handling equipment (generally) is fivefive-year class property. MACRS depreciation rates
(from the
IRS table) are (excluding 50% bonus depreciation):
50% Bonus
Year
1996
20.00%
1997
32.00%
1998
19.20%
1999
11.52%
2000
11.52%
2001
5.76%
22
Tax Provision - Direct Finance Lease Example
From the standpoint of the lessor, the direct finance lease will have the following earnings pattern:
Tax Books
Rental Income
Year ended December 31
1996
1997
1998
1999
$180,786
$241,049
$241,049
$241,049
2000
$241,049
Sale Proceeds
2001
$60,263
Total
$1,205,245
100,000
100,000
Depreciation Expense
200,000
320,000
192,000
115,200
115,200
57,600
1,000,000
Tax Income (Loss)
(19,214)
(78,951)
49,049
125,849
125,849
102,663
305,245
40%
40%
40%
40%
40%
40%
40%
($7,686)
($31,580)
$19,620
$50,340
$50,340
$41,065
$122,098
$73,253
$84,247
$67,398
$48,738
$28,074
$3,534
$305,244
0
0
0
0
0
0
0
Income before Tax
73,253
84,247
67,398
48,738
28,074
3,534
305,244
Tax Expense @ 40%
29,301
33,699
26,959
19,495
11,230
1,414
122,098
$43,952
$50,548
$40,439
$29,243
$16,844
$2,120
$183,146
Current Tax Receivable (Liabili
7,686
31,580
(19,620)
(50,340)
(50,340)
(41,065)
(122,098)
Deferred Tax (liability) balance
(36,987)
(102,266)
23
(109,065)
(78,760)
(39,650)
Tax Rate 40% (Combined
Federal & State Rate)
Tax Liability (Savings)
GAAP Books
Rental Income
Sale Proceeds
Depreciation Expense
Net Income
0
0
Tax Provision – Direct Finance Lease Example
The deferred tax provision is calculated by identifying the temporary differences and carryforwards.
Direct Finance Lease Tax Provision Calculation
1996
1997
1998
1999
2000
2001
Equipment Tax Basis
800,000
480,000
288,000
172,800
57,600
-
Lease Book Basis
892,467
735,665
562,014
369,703
156,728
-
Taxable Temporary Difference
(92,467) (255,665) (274,014) (196,903)
(99,128)
-
Applicable tax rate
Deferred tax liability
Current tax receivable/(payable)
Change in the Deferred Tax Liability
40%
40%
40%
40%
40%
40%
(36,987) (102,266) (109,605)
(78,760)
(39,650)
-
7,686
31,580
(19,620)
(50,340)
(50,340)
(41,065)
(36,987)
(65,279)
(7,339)
30,845
39,110
39,650
(29,301)
(33,699)
(26,959)
(19,495)
(11,230)
(1,414)
(Deferred Tax Expense)
Total Income Tax Provision
24
Tax Provision
- Direct Finance Lease Example
A simple GAAP balance sheet presentation of the lease:
Cash
$188,472
$461,101
$682,530
1,024,457
783,409
542,360
301,311
60,262
0
(231,990)
(147,744)
(80,346)
(31,608)
(3,534)
0
Residual
100,000
100,000
100,000
100,000
100,000
0
Net Investment, Leases
892,467
735,665
562,014
369,703
156,728
0
Gross Receivable
Unearned Income
Total Assets
Deferred Taxes
Stockholder’s Equity
Total Liabilities & Equity
$873,239 $1,063,948 $1,183,146
$1,080,939 $1,196,766 $1,244,544 $1,242,942 $1,220,676 $1,183,146
36,987
102,266
109,605
78,760
39,650
0
1,043,952
1,094,500
1,134,939
1,164,182
1,181,026
1,183,146
$1,080,939 $1,196,766 $1,244,544 $1,242,942 $1,220,676 $1,183,146
25
FASB 109 – Presentation
Balance Sheet Presentation
• In a classified balance sheet, the deferred tax liabilities and
assets are separated into a current amount and a noncurrent
amount. Deferred tax liabilities and assets will be classified as
current or noncurrent based on the classification of the related
asset or liability for financial reporting. (FAS 109 ¶ 41)
• For a particular tax-paying component of an enterprise and
within a particular tax jurisdiction, (a) all current deferred tax
liabilities and assets shall be offset and presented as a single
amount and (b) all noncurrent deferred tax liabilities and assets
shall be offset and presented as a single amount. However, an
enterprise shall not offset deferred tax liabilities and assets
attributable to different tax-paying components of the enterprise
or to different tax jurisdictions.(FAS 109 ¶ 42)
26
FASB 109 – Disclosure
The components of the net deferred tax liability or asset
recognized is disclosed as follows:
– The total of all deferred tax liabilities
– The total of all deferred tax assets
– The total valuation allowance recognized for deferred tax
assets
The net change during the year in the total valuation
allowance also shall be disclosed.
The approximate tax effect of each type of temporary
difference and carryforward that gives rise to a
significant portion of deferred tax liabilities and deferred
tax assets. (FAS 109 ¶43)
27
FASB 109 – Disclosure - Continued
The significant components of income tax expense from continuing
operations, such as:
– Current tax expense or benefit
– Deferred tax expense or benefit (exclusive of the effects of other
components listed below)
– Investment tax credits
– The benefits of operating loss carryforwards
– Tax expense that results from allocating certain tax benefits either
directly to contributed capital or to reduce goodwill or other
noncurrent intangible assets of an acquired entity
– Adjustments of a deferred tax liability or asset for enacted changes
in tax laws or rates or a change in the tax status of the enterprise
– Adjustments of the beginning-of-the-year balance of a valuation
allowance because of a change in circumstances that causes a
change in judgment about the realizability of the related deferred
tax asset in future years.
28
FASB 109 – Disclosure - Continued
• A reconciliation using percentages or dollar amounts
(a) the reported amount of income tax expense
attributable to continuing operations for the year to
(b) the amount of income tax expense that would
result from applying domestic federal statutory tax
rates to pretax income from continuing operations.
(FASB 109 ¶47)
• The amounts and expiration dates of operating loss
and tax credit carryforwards.
• The portion of the valuation allowance allocated to
goodwill or intangible assets. (FASB 109 ¶ 48)
29
ABC Corporation
Note I — Income Taxes
The provision (benefit) for income taxes is comprised of the following:
Current:
Federal(a)
State
Foreign
Deferred(b):
Federal
State
2003
2002
2001
($5,710)
743
993
(3,974)
($169,073)
-1,575
1,145
(169,503)
($154,680)
-1,122
-42
(155,844)
234,580
4,755
239,335
$235,361
426,398
7,884
434,282
$264,779
405,287
2,376
407,663
$251,819
(a) Including U.S. tax on foreign income
(b) Deferred taxes were also provided (charged) to other comprehensive income of $(77,572) (2003), $47,380 (2002) and
$(32,661) (2001), respectively, and for cumulative effect of accounting change of $4,653 (2003) and $8,180 (2001).
The deferred tax liability consists of the following deferred tax liabilities (assets):
2003
2002
Accelerated depreciation on flight equipment
$2,671,813 $2,301,339
Excess of state income taxes not currently deductible for
Federal income tax purposes
(11,216)
(9,227)
Tax versus book lease differences
125,450
—
Provision for overhauls
(24,464)
(41,984)
Capitalized overhauls
(33,779)
(29,340)
Rentals received in advance
(56,775)
(50,995)
Straight line rents
23,306
26,412
Derivatives
3,781
3,793
Other comprehensive income
2,930
(74,642)
Other
(13,028)
(492)
$2,562,568 $2,250,314
30
ABC Corporation
Note I — Income Taxes (Continued)
A reconciliation of the computed expected total provision for income taxes to the amount recorded is as follows:
Computed expected provision based upon a federal rate
of 35%
State income taxes, net of Federal income taxes
Foreign sales corporation and extraterritorial income benef
Foreign taxes(a)
Other
2003
2002
2001
$262,594
3,574
(29,598)
-1,242
33
$235,361
$277,656
4,101
(18,517)
2,564
-1,025
$264,779
$263,802
816
(6,590)
-6,080
-129
$251,819
(a) Includes realized foreign tax credits in 2003 and realized Canadian tax credits in 2001 for taxes paid in prior years.
During 2002, the Company settled an open audit issue with the Internal Revenue Service which required the Company to
capitalize for tax purposes certain overhaul reimbursements made between 1991 and 2001. The adjustment had no impact
on the total provision but required the Company to establish a current tax liability and a corresponding deferred tax asset of
$25,663 in 2002. Such amount is reflected in the Company’s 2002 current and deferred provision.
Federal tax benefits provided by the Extraterritorial Income Exclusion (“ETI”) and the Foreign Sales Corporation (“FSC”)
may not be available in 2004. The World Trade Organization has ruled that these are unfair export subsidies, and the
European Union has begun to impose trade sanctions as a result of these subsidies not being repealed by the United States.
The United States has proposed legislation to repeal the ETI and FSC export benefits and possibly provide other tax benefits
to domestic corporations. The effect this proposed legislation will have on the Company will not be determinable until the
legislation is finalized.
31
XYZ Corporation
Note 15 — Income Taxes
The effective tax rate varied from the statutory federal corporate income tax rate as follows:
Percentage of Pretax Income
Year Ended
December 31,
2003
Federal income tax rate
Increase (decrease) due to:
State and local income taxes, net of federal income tax
benefit.
Foreign income taxes
Goodwill impairment
Interest expense — TCH
Goodwill amortization
Other
Effective tax rate
(successor)
35.0%
Three Months
Year Ended
June 2 through
Ended December September 30, September 30,
31, 2002
2002
2001
(successor)
(successor)
35.0%
35.0%
3.7
1.0
—
—
—
(0.7)
39.0%
2.6
1.6
—
—
—
(0.2)
39.0%
(0.3)
(0.4)
(36.1)
(4.2)
—
0.1
-5.9%
January 1
through June,
2001
(successor) (predecessor)
35.0%
35.0%
2.2
2.2
—
—
6.2
0.2
45.8%
2.2
2.2
—
—
7.8
2.6
49.8%
The provision for income taxes is comprised of the following ($ in millions):
Current Federal income tax provision
Deferred Federal income tax provision
Total Federal income taxes
State and local income taxes
Interest expense — TCH
Foreign income taxes
Total provision for income taxes
Year Ended
Three Months
Year Ended June 2 through January 1
December 31, Ended December September September 30, through June,
2003
31, 2002
30, 2002
2001
2001
(successor)
(successor)
(successor) (successor) (predecessor)
$$$$$71.9
276.9
113.6
63.7
265.1
265.1
71.9
276.9
113.6
63.7
53.5
9.4
30.4
11.7
5.7
—
—
(4.2)
—
—
46.4
10.7
66.7
32.1
15.4
$365.0
$92.0
$374.0
$157.4
$84.8
32
XYZ Corporation
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are
presented below ($ in millions).
Percentage of Pretax Income
December 31, 2003
(successor)
Assets:
Net operating loss carryforwards
Provision for credit losses
Alternative minimum tax credits
Purchase price adjustments
Goodwill
Other comprehensive income items
Accrued liabilities and reserves
Other
Total deferred tax assets
Liabilities:
Leasing transactions
Securitization transactions
Market discount income
Total deferred tax liabilities
Net deferred tax (liability)
December 31, 2002
(successor)
September 30, 2002
(successor)
$834.1
202.4
142
67.9
65.6
47.6
43.8
14.1
1,417.5
$849.9
254.8
142
176.9
91.5
84.3
46.5
—
1,645.9
$834.4
282.1
142.0
207.7
98.4
86.0
59.9
—
1,710.5
(1,311.7)
(633.0)
—
(1,944.7)
($527.2)
(1,189.6)
(614.4)
(1.4)
(185.4)
($159.5)
(1,215.6)
(590.0)
(1.5)
(1,807.1)
($96.6)
The presentation of deferred tax assets and liabilities in prior years has been modified to reflect amounts
included on completed and amended income tax returns. At December 31, 2003, the Company was continuing to develop an analysis of
deferred tax assets and liabilities. Future income tax return filings and the completion of the aforementioned analysis of deferred tax assets
and liabilities could result in reclassifications to the deferred tax assets and liabilities shown in the preceding table.
At December 31, 2003, the Company had U.S. federal net operating losses of approximately $1,937.7 million, which
expire in various years beginning in 2011. In addition, the Company has various state net operating losses that will expire in various years
beginning in 2004. Federal and state operating losses may be subject to annual use limitations under section 382 of the Internal Revenue
Code of 1986, as amended, and other limitations under certain state laws. Management believes that the Company will have sufficient taxable
income in future years and can avail itself of tax planning strategies in order to fully utilize these losses. Accordingly, the Company does not
believe a valuation allowance is required with respect to these net operating losses.
33
Recent Developments
During July 2004, as part of the FASB project to harmonize US
GAAP with International accounting standards, the following
exceptions to recording deferred taxes are being reviewed and may
be eliminated:
– Foreign subsidiaries or joint ventures that are permanent in nature
– Intercomany asset transfers
– Certain foreign currency adjustments
If any changes are proposed, an exposure draft is not expected
until late 2004 or early 2005.
34
Questions?
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