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F. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
Current Deferred Total
2007
U.S. Federal....... $132,235 $32,673 $164,908
Foreign .......... 10,261 1,010 11,271
State and local ..... 16,963 (642) 16,321
$159,459 $33,041 $192,500
2006
U.S. Federal ...... $193,261 $(19,681) $173,580
Foreign . . . ....... 6,949 (1,088) 5,861
State and local . . . . . 27,624 (17,465) 10,159
$227,834 $(38,234) $189,600
2005
U.S. Federal ...... $132,650 $ 22,591 $155,241
Foreign . . . ....... 4,849 29 4,878
State and local . . . . . 18,504 6,677 25,181
$156,003 $ 29,297 $185,300
In addition to the income tax provision presented above, in
2006, the Company recorded a federal and state income tax
benefit of $3.1 million on the charge recorded as a cumulative
effect of a change in accounting principle for Kaplan equity
awards in connection with the adoption of SFAS 123R.
The provision for income taxes exceeds the amount of income
tax determined by applying the U.S. Federal statutory rate of
35% to income before taxes as a result of the following (in
thousands):
2007 2006 2005
U.S. Federal statutory
taxes . . . ........ $168,387 $181,697 $174,875
State and local taxes,
net of U.S. Federal
income tax benefit . . . 10,609 6,603 16,368
Tax provided on foreign
affiliate earnings at
more (less) than the
expected U.S. Federal
statutory tax rate . . . . 13,254 (755) 175
Tax provided on foreign
subsidiary earnings
and distributions at
more (less) than the
expected U.S. Federal
statutory tax rate . . . . (1,777) 190 (6,704)
Other, net . . ........ 2,027 1,865 586
Provision for income
taxes . . . ........ $192,500 $189,600 $185,300
Results for 2007 include an additional $12.9 million in income
tax expense related to Bowater Mersey Paper Company Limited,
the Company’s 49% owned affiliate based in Canada. The
Company previously recorded deferred income taxes on the
equity in earnings (losses) of Bowater Mersey based on the 5%
dividend withholding rate provided in the tax treaty between the
U.S. and Canada. In the second quarter of 2007, the Company
obtained additional information related to Bowater Mersey’s
Canadian tax position and determined that deferred income
taxes on the equity in earnings (losses) of this affiliate investment
should be recorded at a 35% tax rate. The Company concluded
that this charge is not material to the Company’s financial
positions or results of operations for 2007 and prior years,
based on its consideration of quantitative and qualitative
factors. Results for 2007 also include a $6.3 million income
tax benefit related to changes in certain state income tax laws
enacted during the second quarter of 2007. Both of these are
non-cash items in 2007, impacting the Company’s long-term net
deferred income tax liabilities.
Deferred income taxes at December 30, 2007 and
December 31 2006, consist of the following (in thousands):
2007 2006
Accrued postretirement benefits . . . . $33,551 $ 33,640
Other benefit obligations . . . ..... 137,626 129,909
Accounts receivable . .......... 20,479 24,839
State income tax loss
carryforwards.............. 10,198 12,002
U.S. Federal income tax loss
carryforwards.............. 12,301 —
Other . . .................. 27,035 27,140
Deferred tax asset . . .......... $241,190 $227,530
Property, plant and equipment ..... 119,002 132,095
Prepaid pension cost . .......... 410,590 392,253
Unrealized gain on available-for-sale
securities. . . .............. 102,369 56,419
Affiliate operations . . .......... 22,973 2,188
Goodwill and other intangibles . . . . 249,551 195,126
Deferred tax liability . .......... $904,485 $778,081
Deferred income taxes .......... $663,295 $550,551
Deferred U.S. and state income taxes have been recorded for
undistributed earnings of investments in foreign subsidiaries to
the extent taxable dividend income would be recognized if
such earnings were distributed. Deferred income taxes
recorded for undistributed earnings of investments in foreign
subsidiaries are net of foreign tax credits estimated to be
available.
Deferred U.S. and state income taxes have not been
recorded for the full book value and tax basis differences
related to investments in foreign subsidiaries because such
investments are expected to be indefinitely held. The
book value exceeded the tax basis of investments in
foreign subsidiaries by approximately $45.5 million and
$30.3 million at December 30, 2007 and December 31,
2006, respectively. If the investments in foreign subsidiaries
were held for sale, instead of expected to be held indefinitely,
then additional U.S. and state deferred income tax liabilities,
net of foreign tax credits estimated to be available on
2007 FORM 10-K 65