UPS 2004 Annual Report Download - page 69

Notes to consolidated financial statements 67
non-U.S. loss carryforwards of approximately $874 million as of
December 31, 2004, the majority of which may be carried for-
ward indefinitely. As indicated in the table above, we have
established a valuation allowance for certain non-U.S. and state
loss carryforwards, due to the uncertainty resulting from a lack
of previous taxable income within the applicable tax jurisdictions.
Undistributed earnings of our non-U.S. subsidiaries amounted
to approximately $728 million at December 31, 2004. Those
earnings are considered to be indefinitely reinvested and, accord-
ingly, no U.S. federal or state deferred income taxes have been
provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, we would be subject to U.S.
income taxes and withholding taxes payable in various non-U.S.
jurisdictions, which could potentially be offset by foreign tax
credits. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the com-
plexities associated with its hypothetical calculation.
We have not changed our position with respect to the indefi-
nite reinvestment of foreign earnings to take into account the
possible election of the repatriation provisions contained in the
American Jobs Creation Act of 2004. The American Jobs
Creation Act of 2004 (the “Jobs Act”), as enacted on October
22, 2004, provides for a temporary 85% dividends received
deduction on certain foreign earnings repatriated during a one-
year period. The deduction would result in an approximate
5.25% U.S. federal tax rate on any repatriated earnings. To
qualify for the deduction, the earnings must be reinvested in the
United States pursuant to a domestic reinvestment plan estab-
lished by the Company’s Chief Executive Officer and approved
by the Company’s Board of Directors. Certain other criteria in
the Jobs Act must be satisfied as well. The maximum amount of
our foreign earnings that qualify for the temporary deduction
under the Jobs Act is $500 million.
We are in the process of evaluating whether we will repatri-
ate foreign earnings under the repatriation provisions of the
Jobs Act, and if so, the amount that will be repatriated. We are
considering repatriating any amount up to $500 million under
the Jobs Act. We are awaiting the issuance of further regulatory
guidance and passage of statutory technical corrections with
respect to certain provisions in the Jobs Act prior to determin-
ing the amounts we could repatriate. We expect to determine
the amounts and sources of foreign earnings to be repatriated,
if any, during the fourth quarter of 2005. We cannot reasonably
estimate the impact of a qualifying repatriation, should we
choose to make one, on our income tax expense for 2005 at
this time.
NOTE 15. EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share (in millions except per share
amounts):
2004 2003 2002
Numerator:
Net income before the
cumulative effect of change
in accounting principle $ 3,333 $ 2,898 $ 3,254
Denominator:
Weighted average shares 1,125 1,125 1,117
Management incentive awards 111
Deferred compensation
obligations 322
Denominator for basic
earnings per share 1,129 1,128 1,120
Effect of dilutive securities:
Management incentive awards 444
Stock option plans 4610
Denominator for diluted
earnings per share1,137 1,138 1,134
Basic earnings per share before
cumulative effect of change
in accounting principle $ 2.95 $ 2.57 $ 2.91
Diluted earnings per share
before cumulative effect
of change in accounting
principle $ 2.93 $ 2.55 $ 2.87
Diluted earnings per share for the years ended December 31,
2004, 2003, and 2002 exclude the effect of 2.7, 2.9, and 0.1 mil-
lion shares, respectively, of common stock that may be issued
upon the exercise of employee stock options because such effect
would be antidilutive.