Xerox 2007 Annual Report Download - page 118

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate for the
three years ended December 31, 2007 was as follows:
2007 2006 2005
U.S. federal statutory income tax rate ....................................................... 35.0% 35.0% 35.0%
Nondeductible expenses ................................................................... 0.9 1.4 3.4
Effect of tax law changes .................................................................. 1.1 (1.8) 0.3
Change in valuation allowance for deferred tax assets ........................................ 1.0 1.4 (4.6)
State taxes, net of federal benefit ........................................................... 1.3 1.8 1.6
Audit and other tax return adjustments ..................................................... (4.2) (62.5) (25.5)
Tax-exempt income ....................................................................... (0.6) (0.9) (0.7)
Other foreign, including earnings taxed at different rates ..................................... (7.4) (10.5) (10.3)
Other .................................................................................... 0.7 0.5 0.2
Effective income tax rate ........................................................ 27.8% (35.6)% (0.6)%
On a consolidated basis, we paid a total of $104, $76,
and $186 in income taxes to federal, foreign and state
jurisdictions in 2007, 2006 and 2005, respectively.
Total income tax expense (benefit) for the three
years ended December 31, 2007 was allocated as follows
(in millions):
2007 2006 2005
Pre-tax income ................ $400 $(288) $ (5)
Common shareholders’ equity:
Defined benefit plans/
minimum pension
liability(1) ............... 222 (432) (18)
Stock option and incentive
plans, net .............. (22) (25) (12)
Translation adjustments
and other .............. 24 (9) (12)
Total ......................... $624 $(754) $(47)
(1) 2006 includes the effects of the adoption of FAS 158 –
see Note 1 for further information.
Unrecognized Tax Benefits and Audit Resolutions
Due to the extensive geographical scope of our
operations, we are subject to ongoing tax examinations in
numerous jurisdictions. Accordingly, we may record
incremental tax expense based upon the more-likely-
than-not outcomes of any uncertain tax positions. In
addition, when applicable, we adjust the previously
recorded tax expense to reflect examination results when
the position is effectively settled. Our ongoing
assessments of the more-likely-than-not outcomes of the
examinations and related tax positions require judgment
and can increase or decrease our effective tax rate, as well
as impact our operating results. The specific timing of
when the resolution of each tax position will be reached is
uncertain. As of December 31, 2007, we do not believe
that there are any positions for which it is reasonably
possible that the total amount of unrecognized tax
benefits will significantly increase or decrease within the
next 12 months.
Unrecognized Tax Benefits: A reconciliation of the
beginning and ending amount of unrecognized tax
benefits is as follows (in millions):
Balance at January 1, 2007 ..................... $287
Additions from acquisitions ..................... 4
Additions related to current year ................ 33
Additions related to prior years positions ......... 78
Reductions related to prior years positions ........ (33)
Settlements with taxing authorities(1) ............ (66)
Reductions related to lapse of statute of
limitations .................................. (14)
Currency ...................................... 14
Balance at December 31, 2007 .................. $303
(1) Majority of settlements resulted in utilization of
deferred tax assets.
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