Waste Management 2006 Annual Report Download - page 120

diluted share, related to audit settlements as well as $46 million in interest income, or $28 million net of tax, as a
result of those settlements.
The reduction in income taxes recognized is primarily attributable to the associated reduction in our accrued
tax and related accrued interest liabilities. For information regarding the status of current audit activity, refer to
Note 10.
Repatriation of earnings in foreign subsidiaries — On October 22, 2004, the American Jobs Creation Act of
2004 (the “Act”) became law. A provision of the Act allowed U.S. companies to repatriate earnings from their
foreign subsidiaries at a reduced tax rate during 2005. We repatriated net accumulated earnings and capital from
certain of our Canadian subsidiaries in accordance with this provision, which were previously accounted for as
permanently reinvested in accordance with APB Opinion No. 23, Accounting for Income Taxes — Special Areas.
During 2005, our Chief Executive Officer and Board of Directors approved a domestic reinvestment plan under
which we repatriated $496 million of our accumulated foreign earnings and capital through cash on hand as well as
debt borrowings. Refer to Note 7 for discussion on the related debt issuance. During 2005, we accrued $34 million
in tax expense for these repatriations. The repatriation of earnings from our Canadian subsidiaries increased our
2005 effective tax rate by approximately 3.1%, which has been reflected as a component of the “Tax rate differential
on foreign income” line item of the effective tax rate reconciliation provided above. During 2006, we repatriated an
additional $12 million of our accumulated foreign earnings resulting in an increase in tax expense of $3 million.
At December 31, 2006, remaining unremitted earnings in foreign operations was approximately $300 million,
which is considered permanently invested and, therefore, no provision for U.S. income taxes has been accrued for
these unremitted earnings.
Effective state tax rate change — Our estimated effective state tax rate declined during 2006 and 2005,
resulting in a net benefit of $9 million and $16 million, respectively, related to the revaluation of net accumulated
deferred tax liabilities.
Canada statutory tax rate change — During 2006, both the Canadian federal government and several
provinces enacted tax rate reductions. SFAS No. 109, Accounting for Income Taxes, requires that deferred tax
balances be revalued to reflect such tax rate changes. The revaluation resulted in a $20 million tax benefit for the
year ended December 31, 2006. During 2005, a provincial tax rate change in Quebec resulted in additional income
tax expense of $4 million related to the revaluation of net accumulated deferred tax balances.
Deferred tax assets (liabilities)
The components of the net deferred tax assets (liabilities) at December 31 are as follows (in millions):
2006 2005
December 31,
Deferred tax assets:
Net operating loss, capital loss and tax credit carryforwards ............... $ 326 $ 400
Landfill and environmental remediation liabilities ....................... 61 26
Miscellaneous and other reserves ................................... 243 246
Subtotal ................................................ 630 672
Valuation allowance ............................................. (288) (335)
Deferred tax liabilities:
Property and equipment ........................................ (1,011) (1,063)
Goodwill and other intangibles ................................. (614) (544)
Net deferred tax liabilities ..................................... $(1,283) $(1,270)
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)