Note 5 - Income Taxes
| Years Ended December 31, | ||||
| (In millions) | 2006 | 2005 | 2004 | |
| Income from continuing operations before income taxes and minority interest | ||||
| U.S. | $ | 113.6 | 45.1 | 56.5 |
| Foreign | 90.7 | 61.0 | 68.0 | |
| Total | $ | 204.3 | 106.1 | 124.5 |
| Income tax expense (benefit) | ||||
| Current | ||||
| U.S. federal | $ | (125.3) | (0.3) | 0.1 |
| State | 15.0 | 1.9 | 5.4 | |
| Foreign | 41.7 | 36.1 | 26.5 | |
| (68.6) | 37.7 | 32.0 | ||
| Deferred | ||||
| U.S. federal | 156.1 | 10.0 | 13.2 | |
| State | (3.7) | (2.1) | - | |
| Foreign | (1.1) | 3.9 | (4.6) | |
| 151.3 | 11.8 | 8.6 | ||
| $ | 82.7 | 49.5 | 40.6 | |
The U.S. federal current income tax benefit on continuing operations in 2006 was offset by U.S. federal current tax expense included in income from discontinued operations.
| Years Ended December 31, | ||||
| (In millions) | 2006 | 2005 | 2004 | |
| Comprehensive provision (benefit) for income taxes allocable to | ||||
| Continuing operations | $ | 82.7 | 49.5 | 40.6 |
| Discontinued operations | 267.4 | (3.7) | 32.9 | |
| Change in accounting principle | (108.8) | (0.9) | - | |
| Other comprehensive income (loss) | 32.1 | (13.6) | (3.9) | |
| Shareholders' equity | (6.1) | (15.1) | (4.7) | |
| $ | 267.3 | 16.2 | 64.9 | |
The components of the net deferred tax asset are as follows:
| December 31, | ||||
| (In millions) | 2006 | 2005 | ||
| Deferred tax assets | ||||
| Deferred revenue | $ | 75.1 | 69.1 | |
| Postretirement benefits other than pensions | 74.3 | 115.6 | ||
| Pension liabilities | 51.1 | 78.1 | ||
| Workers' compensation and other claims | 41.9 | 42.4 | ||
| Multi-employer pension plan withdrawal liabilities | - | 10.9 | ||
| Investment in BAX Global | - | 9.2 | ||
| Other assets and liabilities | 88.9 | 70.0 | ||
| Net operating loss carryforwards | 50.3 | 44.1 | ||
| Alternative minimum and other tax credits | 3.0 | 79.4 | ||
| Subtotal | 384.6 | 518.8 | ||
| Valuation allowances | (54.3) | (42.1) | ||
| Total deferred tax assets | 330.3 | 476.7 | ||
| Deferred tax liabilities | ||||
| Property and equipment, net | 92.8 | 84.3 | ||
| Prepaid assets | 26.1 | 25.3 | ||
| Other assets and miscellaneous | 19.1 | 18.5 | ||
| Total deferred tax liabilities | 138.0 | 128.1 | ||
| Net deferred tax asset | $ | 192.3 | 348.6 | |
| Included in: | ||||
| Current assets | $ | 71.8 | 174.0 | |
| Noncurrent assets | 142.2 | 196.9 | ||
| Current liabilities, included in accrued liabilities | (0.9) | (3.5) | ||
| Noncurrent liabilities | (20.8) | (18.8) | ||
| Net deferred tax asset | $ | 192.3 | 348.6 | |
The valuation allowances relate to deferred tax assets in various state and non-U.S. jurisdictions. Based on the Company's historical and expected future taxable earnings, and a consideration of available tax-planning strategies, management believes it is more likely than not that the Company will realize the benefit of the existing deferred tax assets, net of valuation allowances, at December 31, 2006.
The following table reconciles the difference between the actual tax provision from continuing operations and the amounts obtained by applying the statutory U.S. federal income tax rate of 35% in each year to the income from continuing operations before income taxes.
| Years Ended December 31, | ||||
| (In millions) | 2006 | 2005 | 2004 | |
| Income tax expense computed at 35% statutory rate | $ | 71.5 | 37.1 | 43.6 |
| Increases (reductions) in taxes due to: | ||||
| Adjustments to valuation allowances | 8.4 | 18.6 | 2.1 | |
| State income taxes, net | 6.7 | (0.9) | 3.9 | |
| Medicare subsidy of postretirement costs | (2.1) | (2.1) | (2.0) | |
| Repatriation of foreign earnings under the AJCA | - | 2.9 | - | |
| Foreign income taxes | (2.6) | (0.3) | (4.7) | |
| Foreign tax credit carryover | - | (3.9) | - | |
| Taxes on undistributed earnings of foreign affiliates | 0.5 | 0.7 | (1.7) | |
| Other | 0.3 | (2.6) | (0.6) | |
| Actual income tax expense on continuing operations | $ | 82.7 | 49.5 | 40.6 |
Adjustments to the beginning-of-year valuation allowance of $1.7 million in 2006, $10.0 million in 2005 and $1.4 million in 2004 related primarily to several international operations with a recent history of losses. The valuation allowance also increased by $6.7 million in 2006, $8.6 million in 2005 and $0.7 million in 2004 to offset the net increase in deferred tax assets in jurisdictions where the Company had previously concluded that valuation allowances were necessary. The valuation allowances were required due to the Company's assessment that these assets did not meet the more-likely-than-not recognition criteria of SFAS 109.
The Company recognized tax benefits related to uncertain tax positions upon favorable settlements of issues relating primarily to the Company's state tax returns in 2005.
As of December 31, 2006, the Company has not recorded U.S. federal deferred income taxes on approximately $195 million of undistributed earnings of foreign subsidiaries and equity affiliates. It is expected that these earnings will be permanently reinvested in operations outside the U.S. It is not practical to compute the estimated deferred tax liability on these earnings.
The Company repatriated cash of $71.2 million in 2005, including $22.4 million related to BAX Gobal's non-U.S. subsidiaries, under the repatriation provision of the American Jobs Creation Act of 2004. The Company recognized $3.6 million of additional income tax expense in 2005, including $0.7 million included as a component of discontinued operations, related to the repatriation.
The Company's U.S. entities file a consolidated U.S. federal income tax return.
The gross amount of the net operating loss carryforwards as of December 31, 2006, was $162.7 million. The tax benefit of net operating loss carryforwards, before valuation allowances, as of December 31, 2006 was $50.3 million, and expire as follows:
| (In millions) | Federal | State | Foreign | Total | |
| Year of expiration: | |||||
| 2007-2011 | $ | - | - | 5.8 | 5.8 |
| 2012-2016 | - | - | 0.7 | 0.7 | |
| 2017 and thereafter | - | 1.0 | - | 1.0 | |
| Unlimited | - | - | 42.8 | 42.8 | |
| $ | - | 1.0 | 49.3 | 50.3 |
The Company and its subsidiaries are subject to tax examinations in various U.S. and foreign jurisdictions and the Company has accrued approximately $27 million for related contingencies at December 31, 2006. While it is difficult to predict the final outcome of the various issues that may arise during an examination, the Company believes that it has adequately provided for potential contingent income tax liabilities and interest.
