Radio Shack 2004 Annual Report Download - page 49

The components of the provision for income taxes and a
reconciliation of the U.S. statutory tax rate to our effective
income tax rate are given in the two accompanying tables.
Income Tax Expense (Benefit)
Year Ended December 31,
(In millions) 2004 2003 2002
Current:
Federal $140.6 $117.5 $127.3
State 21.1 21.9 13.3
Foreign 4.6 3.3 3.3
166.3 142.7 143.9
Deferred:
Federal 36.1 33.5 17.5
State 2.5 (1.9) 0.1
38.6 31.6 17.6
Provision for income taxes $204.9 $174.3 $161.5
Statutory vs. Effective Tax Rate
Year Ended December 31,
(In millions) 2004 2003 2002
Components of income from
continuing operations:
United States $520.3 $456.5 $408.8
Foreign 21.8 16.3 16.1
Income before income taxes 542.1 472.8 424.9
Statutory tax rate x 35.0% x 35.0% x 35.0%
Federal income tax expense
at statutory rate 189.7 165.5 148.7
State income taxes,
net of federal benefit 15.4 13.0 8.7
Non-deductible goodwill –– 2.8
Other, net (0.2) (4.2) 1.3
Total income tax expense $204.9 $174.3 $161.5
Effective tax rate 37.8% 36.9% 38.0%
We anticipate that we will generate sufficient pre-tax income
in the future to realize the full benefit of U.S. deferred tax
assets related to future deductible amounts. Accordingly, a
valuation allowance was not required at December 31, 2004
or 2003. Our tax returns are subject to examination by taxing
authorities in various jurisdictions. The Internal Revenue
Service is currently in the process of concluding its examina-
tion of our federal income tax returns for the taxable years
from 1993 through 2001. Several states are also currently in
the process of examining our state income tax returns. We
record tax reserves based on our best estimate of current
tax exposures in the relevant jurisdictions. While we believe
that the reserves recorded in the consolidated financial state-
ments accurately reflect our tax exposures, our actual tax lia-
bilities may ultimately differ from those estimates if we prevail
in matters for which accruals have been established, or if taxing
authorities successfully challenge the tax treatment upon which
our management has based its estimates. Accordingly, our
effective tax rate for a particular period may materially change.
The American Jobs Creation Act of 2004 (“AJC Act”) was
signed into law on October 22, 2004, and provides a one-time
elective incentive to repatriate foreign earnings by providing an
85% dividends received deduction, reducing the effective fed-
eral income tax rate on such earnings from 35% to 5.25%. The
earnings must be reinvested in the U.S. under a qualified plan
that has been approved by our CEO and Board of Directors. We
are currently assessing the impact that the AJC Act might have
with respect to our foreign earnings, primarily in Asia. We are
unable to quantify any tax benefit that might be received from
the repatriation of our foreign earnings in the future, or the
effect this repatriation might have on our effective tax rate.
However, we do not expect that any repatriation would
materially affect our results of operations or financial position.
NOTE 14 Litigation
On July 28, 2003, we received payment of $15.7 million
resulting from the favorable settlement of a lawsuit we had
previously filed. We recorded this settlement in the accompa-
nying Consolidated Statement of Income in the third quarter
of 2003 as other income of $10.7 million, net of legal expens-
es of $5.0 million paid as a result of the lawsuit.
In October 2002, a court approved the final settlement of
$29.9 million in a class action lawsuit, which was originally
filed in March 2000 in Orange County, California. Actual pay-
ments under this lawsuit totaled $29.0 million. The lawsuit
related to the alleged miscalculation of overtime wages for
certain of our former and current employees in that state.
Notes to Consolidated Financial Statements continued
RadioShack Corporation and Subsidiaries
47
AR2004