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12. INCOME TAXES
Provision for Income Taxes
The Provision for income taxes consisted of the following:
2008 2007 2006
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.2 $ 35.4 $ 96.0
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.8 34.8 37.2
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 6.5 9.6
47.6 76.7 142.8
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.8) (7.9) (31.5)
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 (20.0) 12.3
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.2) (0.1) (2.7)
(11.9) (28.0) (21.9)
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35.7 $ 48.7 $120.9
Earnings before income taxes were as follows:
2008 2007 2006
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69.7 $135.7 $219.4
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206.2 213.8 239.9
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $275.9 $349.5 $459.3
The Company realized an income tax benefit from the exercise of certain stock options in 2008, 2007 and
2006 of $3.4 million, $3.4 million and $11.8 million, respectively. This benefit resulted in a decrease in
current income taxes payable and an increase in capital in excess of par.
A reconciliation of the provision for income taxes using the U.S. statutory rate and the Company’s effective
tax rate was as follows:
Amount % Amount % Amount %
2008 2007 2006
Provision for income taxes at
statutory rate . . . . . . . . . . . . . . . $ 96.6 35.0% $122.3 35.0% $160.8 35.0%
State and local income taxes, net
of federal tax benefit . . . . . . . . . . 4.8 1.7 6.8 2.0 7.5 1.6
Foreign tax differential . . . . . . . . . . (44.6) (16.2) (42.2) (12.1) (23.9) (5.2)
Research and development credit. . (5.4) (1.9) (5.6) (1.6) (6.8) (1.5)
Tax-exempt interest, net of related
expenses . . . . . . . . . . . . . . . . . . (0.8) (0.3) (1.4) (0.4) (3.6) (0.8)
Valuation allowance . . . . . . . . . . . . (0.6) (0.2) 0.2 0.1 7.9 1.7
Reversals of previously accrued
taxes. . . . . . . . . . . . . . . . . . . . . . (11.6) (4.2) (18.4) (5.3) (14.3) (3.1)
Adjustments to previously recorded
taxes. . . . . . . . . . . . . . . . . . . . . . — — (11.2) (3.2) ——
Other . . . . . . . . . . . . . . . . . . . . . . . (2.7) (1.0) (1.8) (0.6) (6.7) (1.4)
Provision for income taxes . . . . . . . $ 35.7 12.9% $ 48.7 13.9% $120.9 26.3%
The effective income tax rate was 12.9% for the year ended December 31, 2008. The 1.0 percentage point
reduction of the effective tax rate from 2007 to 2008 was due to a reduction of 5.3 percentage points,
primarily related to the geographic shift in earnings along with a variety of other factors, partially offset by a
smaller amount of reversals and adjustments to previously accrued taxes in 2008 (increase of
88