World Fuel Services 2005 Annual Report Download - page 69

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The income tax provision (benefit) related to operating income consist of the following components (in
thousands):
2003 2004 2005
Current:
U.S. federal statutory tax rate ............................ $(1,752) $ 465 $ 2,937
State ................................................ 356 668 1,311
Foreign ............................................. 3,965 5,175 10,522
2,569 6,308 14,770
Deferred:
U.S. federal statutory tax rate ............................ 1,916 83 890
State ................................................ (365) (388) (94)
Foreign ............................................. 1,689 966 (91)
3,240 661 705
Total ........................................... $5,809 $6,969 $15,475
A reconciliation of the U.S. federal statutory tax rate to our effective income tax rate is as follows:
2003 2004 2005
U.S. federal statutory tax rate ...................................... 34.0% 34.0% 35.0%
Foreign earnings, net of foreign taxes ............................... (12.8) (14.8) (14.4)
Foreign dividend repatriation ...................................... — — 5.1
State income taxes, net of U.S. federal income tax benefit ............... 0.6 0.2 1.0
Net operating loss ............................................... (0.4) — —
Income tax credits .............................................. (0.9) — 0.9
Other permanent differences ...................................... 0.2 — 0.1
Effective income tax rate ..................................... 20.7% 19.4% 27.7%
The American Jobs Creation Act of 2004 (the “Act”) created a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by providing an 85% dividends-received deduction for certain
dividends from controlled foreign corporations. During 2005, our Chief Executive Officer (“CEO”) approved a
domestic reinvestment plan, under which we repatriated $40.0 million in earnings outside the U.S. pursuant to
the Act. This plan was ratified by our Board of Directors in March 2006. We recorded additional tax expense in
2005 of approximately $2.8 million, or $0.12 per basic share and $0.11 per diluted share, related to this decision
to repatriate foreign earnings. This repatriation increased our effective tax rate for 2005 by approximately 5.1%.
The majority of this increase, 3.7%, represents the effective tax rate increase for our repatriation of prior years’
permanently reinvested earnings.
As of December 31, 2004 and 2005, we had approximately $116.9 million and $127.4 million, respectively,
of earnings attributable to foreign subsidiaries for which no provisions have been recorded for U.S. income tax
that could occur upon repatriation. Except to the extent such earnings can be repatriated to the U.S. tax
efficiently, they are permanently invested abroad. It is not practicable to determine the amount of U.S. income
taxes payable in the event all such foreign earnings are repatriated.
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