Xerox 2005 Annual Report Download - page 85

Xerox Corporation
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Note 15 – Income and Other Taxes
Income (loss) before income taxes for the three years ended
December 31, 2005 were as follows (in millions):
2005 2004 2003
Domestic income (loss) $386 $426 $(299)
Foreign income 444 539 735
Income before income taxes $830 $965 $ 436
Provisions (benefits) for income taxes for the three years ended
December 31, 2005 were as follows (in millions):
2005 2004 2003
Federal income taxes
Current $(94) $ 26 $ 77
Deferred (59) 114 (132)
Foreign income taxes
Current 95 178 144
Deferred 37 21 72
State income taxes
Current 9 (19) (17)
Deferred 7 20 (10)
Total $ (5) $ 340 $ 134
Areconciliation of the U.S. federal statutory income tax rate to
the consolidated effective income tax rate for the three years
ended December 31, 2005 was as follows:
2005 2004 2003
U.S. federal statutory
income tax rate 35.0% 35.0% 35.0%
Nondeductible expenses 3.4 3.4 5.0
Effect of tax law changes 0.3 (1.5) 1.0
Change in valuation allowance
for deferred tax assets (4.6) 1.3 (3.8)
State taxes, net of
federal benefit 1.6 1.3 (2.7)
Audit and other tax return
adjustments (25.5) 0.7 7.6
Tax-exempt income (0.7) (0.7) (1.0)
Dividends on Series B
convertible preferred stock – (0.6) (3.1)
Other foreign, including earnings
taxed at different rates (10.3) (2.4) (7.0)
Other 0.2 (1.3) (0.3)
Effective income tax rate (0.6)% 35.2% 30.7%
On a consolidated basis, we paid a total of $186, $253 and
$207 in income taxes to federal, foreign and state jurisdictions
in 2005, 2004 and 2003, respectively.
Total income tax expense (benefit) for the three years ended
December 31, 2005 was allocated as follows (in millions):
2005 2004 2003
Income taxes on income $ (5) $340 $134
Common shareholders’
equity(1) (43) (20) 123
Total $ (48) $320 $257
(1) For tax effects of items in accumulated other comprehensive loss and tax benefits
related to stock option and incentive plans.
IRS Audit Resolution: In June 2005, the 1996-1998 IRS audit
was finalized. As a result, we recorded an aggregate second-
quarter 2005 net income benefit of $343. $260 of this benefit,
which includes an after-tax benefit of $33 for interest ($54 pre-tax
benefit), is the result of a change in tax law that allowed us to
recognize a benefit for $1.2 billion of capital losses associated
with the disposition of our insurance group operations in those
years. The claim of additional losses and related tax benefits
required review by the U.S. Joint Committee on Taxation, which
was completed in June 2005. The benefit did not result in a
significant cash refund, but increased tax credit carryforwards
and reduced taxes otherwise due. While these benefits originated
from our discontinued operations, tax accounting rules require
the classification of benefits resulting from a change in tax law
to be classified within the continuing operations tax provision.
The $343 benefit also includes after-tax benefits of $83 related
to the favorable resolution of certain other tax matters. Of this
amount, $53 is related to our discontinued operations and is
reported within Income from discontinued operations in the
Consolidated Statements of Income.
The following is a summary of the aggregate (benefit) recorded
and whereclassified in the Consolidated Statements of Income
for the year ended December 31, 2005 (in millions):
Resolution
Tax Law of Tax Aggregate
Change Matters Benefits
Other expenses, net $ (54) $ (3) $ (57)
Income tax (benefits) expenses (206) (27) (233)
Income from discontinued
operations, net of tax – (53) (53)
Net income $(260) $(83) $(343)
Xerox Annual Report 2005